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

To: William Charmley/AA/USEPA/US@EPA, <james.tamm@dot.gov>, <Steve.Wood@dot.gov>, Robin Moran/AA/ USEPA/US@EPA, <rebecca.yoon@dot.gov>, <Neil.Eisner@dot.gov>, Maureen Delaney/DC/USEPA/US@EPA, <Joanne.Petrie@dot.gov>

Date: 03/19/2010 04:18 PM Subjec

t: Summary of Interagency working comments for draft rule under EO 12866 review



## Please find attached two documents summar izing interagency comments received on the draft final rule under EO 12866 review. They are subject to furthe r policy review. Please provide responses to these initial interagency comments by COB Monday,

March 22 nd



## .

Please note that these are initial comments, and we will be following-up with additional comments as we receive them from interagency reviewers.

Thanks.

Have a great weekend!

Chandana
[attachment "Summary of Interagency comments on draft rule under EO 12866 review 3.19.2010.pdf" deleted by Tad Wysor/AA/USEPA/US] [attachment "CONT Summary of

Interagency comments on draft rule under EO 12866 review 3.19.2010.pdf" deleted by Tad Wysor/AA/USEPA/US]Summary of Interagency Working Comments on Draft Rule under EO 12866

- 1 - Below is a summary of interagency comments received during EO 12866 review of the draft rule “Joint Rulemaking to Establish Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards”. Th ey are subject to further policy review.

General Comments

• We suggest that EPA and DOT revise the Pr eamble and RIAs to clearly differentiate between benefits to society in reduced externalities and the value of private savings in fuel or time. Some suggestions are provided for Sections I and II below and they need to be followed-through for Sections III, IV and also the RIAs.

• We previously commented on the possibility that the NHTSA/EPA analysis may omit significant economic costs associated with the proposed rule, and/or the baseline against which the rule’s impacts are measured is incorrectly characterized. The revised version of the preamble appears to address some of this concern. However, one remaining potential concern is that the NHTSA/EPA do not appear to consider the proposed standards may adversely affect the level of, or potential for, future improvements in any other vehicle attributes (apart from price and fuel economy) that consumers value. Both agencies indicate their modeling holds these other attributes constant while achieving fuel economy standards, however, this is different from allowing the other attributes to improve over time, which could have occurred in the counterfactual case of not tightening fuel economy standards. If that is the case, then the lack of improvement in other attributes would be an economic cost. While we do not know with certainty those attributes would have improved, it seems the possibility should be acknowledged as a potential cost. A related baseline issue is the assumption that absent the proposed rulemaking, manufacturers would continue building vehicles that only meet the 2011 fuel economy standards despite the substantial savings NHTSA/EPA believe could be offered to consumers by further improving fuel economy. This too would be a counterfactual case, and therefore unknowable, but it seems to warrant discussion. In particular, how

sensitive are the net benefits estimates to this assumption? If more detailed discussion is not included, we suggest adding language along the lines of the following to the final paragraph p. 332. “To the extent that some degree of fuel economy improvements may have occurred due to market forces alone (absent the rule), the analysis overestimates private and social net benefits.” Similarly, the analysis omits economic valuation of potential safety impacts of the proposed rule. We hope the forthcoming section on safety impacts (sec. IV G 7) adequately addresses th is concern, or explains why it is omitted and describes the potential estimation bias it creates. The last full paragraph on p. 570 lists several areas of climate change impacts that are said to not be quantified in cost of carbon

estimates. Please double-check the list. It a ppears to include some impact areas that are considered by one or more of the models used to estimate the federal social cost of carbon by the USG.

Agencies should use both 3% and 7% as the main discount rate (not one or the other as a sensitivity analysis). We recommend changes throughout the documents to make this clear including the economic assumptions table.Summary of Interagency Working Comments on Draft Rule under EO 12866

- 2 - • We recommend you add a discussion of the reference fleet in the Preamble and RIAs. The agencies calibrate the number of cars and trucks to match AEO 2010, but AEO 2010 models CAFÉ and explicitly says that it causes a shift toward driving fewer trucks. So the agencies are building some of the reaction to CAFÉ into their reference. We
recommend both agencies explicitly highlight and clarify this point.

• We recommend both agencies discuss the potential for emissions leakage due to the rule. Reducing oil consumption will affect the world price. The agencies have some estimates of how it will change based on the energy security analysis. This means that there will be a demand response on the part of the world market as a result of US actions. With increased oil use comes addition GHG emissions. The agencies should discuss how big

this effect will be.

• The vehicle sales section uses a five year payback period, but given that there is evidence that consumers will not buy a vehicle unless it pays back in less than three years (Kubik survey from 2006), we recommend EPA also present an alternate analysis showing how the result change when this value is used instead. It will likely be close to zero. We recommend you also note that the sales analysis hinges on how the agencies treat consumer welfare loss and the assumed consumer discount rate (it isn’t driven by a social rate but a private one.) evidence points to po tentially much higher private discount rates.

• The revised energy security benefits incl ude two categories associated with supply disruption – one is a transfer and should probably be excluded. While EPA and NHTSA discuss this issue, the agencies continue to include it and say they will examine the issue for future rulemaking. NYU School of Law argued the agencies should exclude wealth transfers from the supply disruption component. We recommend that the agencies evaluate this point and show what the benefits would look like if this piece is excluded.

• We found no uncertainty analysis or sensitivit y analysis in the documents. Please conduct uncertainty analysis or sensitivity analysis in the RIAs. Did the agencies already do them, but did not include the documents?

• Please also conduct distributional analysis (e.g., variability in effects as a function of gas price and miles driven by particular individuals).

• The standard for vehicles smaller than 41 sq. ft. is flat. Thus there would appear to be some incentive to downsize passenger cars and trucks in this size category. In light of NAS 2002 study “Effectiveness and Impact of CAFÉ Standards,” the preamble needs to
explain clearly and in detail why the agencies do not expect any downsizing of vehicles in this footprint category, either by vehicle re-design or by increased sales of vehicles with footprints under 41 sq. ft (such as the smart car, Yaris with 39.1, Fit 39.9, Aveo 38.4, Fiesta 39.3 etc). If there is downsizing, please include an estimate of safety effects of downsizing in this category (for both passenger cars and trucks).

• The TSD discusses uncertainties regarding the refueling benefit, but the preamble makes no mention of it. We recommend both agencies to clearly indicate all of the uncertaintySummary of Interagency Working Comments on Draft Rule under EO 12866

- 3 - regarding the refueling benefit estimate. Otherwise, the preamble presents the estimate as a best estimate when in reality the agencies acknowledge that it is not a best estimate. We also recommend that the economic assumptions table not just include the time value. The $24.64 is only one part of the refueling benefit estimate. We recommend adding the average number of fewer refueling stops. And since the agencies acknowledge that there are uncertainties in how they’re calculated, we recommend that the economic assumptions table include a footnote clarifying that the refueling estimate (or any other economic assumption that the agencies want to include) is biased and is not a best estimate. You can clarify that the agencies used what limited information was available and that further studies are underway, but we strongly recommend that the caveat be included in the table itself and discussed in the preamble.

• Consumer Welfare: The preamble contains much discussion of the potential failings of consumers in the market for fuel economy. Yet there is no indication that the agencies’ forecasts are anything less than certain. We recommend that both EPA and DOT indicate clearly in this section that the agency predictions of future costs or fuel prices could possibly be less than accurate predictions of the market outcomes.

• Is the OMEGA model publically available for downloading as well similar to the VOLPE

model?

Preamble Section I

• Page 35 Line 18: In the discussion of electri c vehicle potential, it is written, “In the future, if there were a program to control upstream emissions of GH Gs, then the tailpipe level of zero gram/mile from these vehicles has the potential to produce very large reductions in GHG emissions, and to transform the transportation sector’s contribution to the country’s GHG emissions.” Would it be helpful to revise this to read “In the future,

vehicle fleet electrifi cation combined with advances in low-carbon technology in the electricity sector have the potential to transf orm the transportation s ector’s contribution tothe country’s GHG emissions”? This revision might be helpful because under economywide cap-and-trade, GHG emissions across th e electricity and transportation sectors would both be covered, so it’s not clear that a transition of the vehicle fleet to electrification would lead to high er total GHG reductions.

• Page 39 Summary of the costs and benefits of NHTSA’s CAFÉ standard: The first
paragraph of this section includes an economic benefits estimate calculated using a 3% discount rate. Would it be beneficial to estimate using the 7% discount rate, consistent with OMB guidance? Additionally, would it be helpful to frame the discussion of private versus social benefits and costs separately , and also present the quantitative estimates separately? In Table I.C.1-3, I.C.1-4, I.C.1-5a, and I.C.1-5b, having separate, not summed up, private and social benefits esti mates in separate tables might make the

benefits and costs easier to understand.

• Page 43 Summary of the costs and benefits of EPA’s GHG standards: Similarly, would it be beneficial to discuss the private and social benefits and costs separately, and separateSummary of Interagency Working Comments on Draft Rule under EO 12866

- 4 - the quantitative estimates as well? It may make sense to drop Table I.C.2-2 or include the benefits disaggregated by categor y (or at least private vs. social).

Preamble Section II

• Page 101 Joint economic assumptions: In th e summary of the economic assumptions, a short discussion of the potential for a small global offsetting increase in GHG emissions resulting from the CAFÉ/GHG standards resu lting from the anticipated decrease in petroleum prices might be beneficial. This impact could be discussed in the section on petroleum consumption and import externalities or in its own section.

Preamble Section III

• Page 329 top: Should the summary of the final program costs include mention of the welfare costs to the consumer? The discussion in the paper suggests that welfare costs exist but are likely small, not that they do not exist. In that same paragraph it seems odd to list as part of the program benefits noi se, congestion and accidents, since later on the preamble notes that café is likely to increase vehicle miles traveled. So is it more accurate to list noise, congestion and accidents as a cost?

• Page 329 ¶ 2: Should the total monetized benefits assume both a three and a 7% discount rate, consistent with OMB guidelines?

• Is there an inconsistency between claiming consumer welfare gains because consumers currently don't optimize, and also claiming that vehicle sales will increase because consumers will perceive a decrease in lifetime operating costs?

• Page 332 line 14: Does the use of the term loss aversion to mean giving more attention to upfront costs than future fuel savings, on page 332, conflate concerns about loss aversion and high personal discount rates)? Some consumers may be more averse than others to high upfront costs for the latter reason. Is it worth specifically mentioning heterogeneity of discount rates in the discussion of the energy paradox?

• Page 334 line 12: Does the sentence that “Increasing fuel economy would have to lead to other changes in vehicles that consumers find undesirable for there to be additional losses not included in the technology costs" ignore other factors aside from vehicle characteristics that may lead to welfare loss , such as high discount rates, uncertainty about future oil prices, heterogeneity in vehicle miles traveled, or deferred purchase of a

new vehicle?

• Page 347: Should the discussion of the benefits of reducing greenhouse gas emissions, starting on page 347, included discussion about the offsetting increase in emissions globally from a reduction in world oil prices that will result from a si gnificant decline in US oil consumption?Summary of Interagency Working Comments on Draft Rule under EO 12866

- 5 - • Should the discussion of energy security impacts focus on oil consumption rather than oil imports, given that oil is priced on a global market so supply and demand shocks anywhere would have adverse economic impacts in the United States?

Both RIAs General Comments

• Please include an executive summary that outlin es the key findings of the regulatory
analysis, including key assumptions and uncertainties. It should have a table of costs and

benefits at the front.

• The RIAs must have a statement of the need for regulatory action and an explanation of
how the regulatory action will meet that need. This may be elsewhere in the document,

but it should be in the RIA

• RIA identifies two alternative stringencies—4%/year and 6%/year and provides some
data on costs and GHG reductions, but does not present the net benefits of these
alternatives for comparison with the al ternative chosen. It looks unfinished.

• What does the analysis assume about the future mix of cars in the absence new CAFÉ

rules? If gas prices rise as the analysis pred icts, there will undoubtedly be a shift to more

fuel efficient vehicles.

NHTSA RIA

• The Executive Summary is pretty good, but inst ead of the multiple tables should include
a bottom line summary of costs and benefits of the standard chosen and the alternatives,
perhaps along with Table 9.

• There’s no discussion in the Summary of the lost consumer surplus due to higher prices
and/or consumer’s preferred vehicle not being available. Please include consumer
welfare loss discussion prominently in the Summary.

• Manufacturers will eventually redesign their cars to try to loosen the constraint of the
standards. This is happened with the advent of SUVs in response to the original CAFÉ

standards. Is it possible to discuss the likely effects of the new standards on model
design—e.g. manufacturers will have an incentive (to the extent possible) to expand the
footprint of the vehicle relative to its size (move the wheels closer to the corners) in a
way that may result in a non-optimally designed vehicle.

• The discussion of the effect that the reducti on in gas use will have on militaryspending
(pg. 414) seem speculative. What is this based on?

• DOT talks about the rule’s impact on oil imports. Has DOT considered discussing that
the increase in standards may lead to an increase in auto imports?

• DOT should acknowledge that the refueling time savings is not a best estimate similar to
the TSD chapter 4.Summary of Interagency Working Comments on Draft Rule under EO 12866

- 6 - • We recommend that net benefits tables (e.g. Table 9) include a line for Consumer Surplus
Loss due to Higher Vehicle Prices with entries that say “not estimated.”

TSD Chapter 1

• We are concerned that the calibration to the reference vehicle fleet is based on AEO 2010

without first subtracting out the influence of the CAFE

‐ tailpipe standards on these estimates. It

therefore incorrectly includes the effect of the regulation in its baseline. In particular, the early

release of AEO 2010 notes that: a

AEO2010 assumes the adoption of CAFE standards jointly proposed by the EPA and NHTSA for LDVs in model years 2012 through 2016. The proposed fuel economy standards for model year 2016 then modestly increase through the 2020 model year to meet the requirements of EISA2007. CAFE standards beyond 2020 are similar to those used in the updated AEO2009 reference case. To attain the mandated fuel economy levels, the AEO2010 reference case includes a rapid increase in sales of unconventional vehicle technologies, such as flex-fuel, hybrid, and diesel vehicles, as well as slower growth in sales of new light

trucks.

The slower growth of new light trucks would produce the observed shift toward cars that is captured in the NHTSA-EPA baseline. The portion of this shift that is due to the proposed standard/EISA should be subtracted out to attain a more accurate depiction of the fleet absent regulation.

TSD Chapter 2

• The description of how attribute-standards affect safety should be modified to acknowledge that to the extent a standard results in an increased spread of the distribution of vehicles by size on the road it would harm safety. To the extent it leaves this unchanged or reduces the spread it would not be expected to have a detrimental effect. The description on p. 2 only focuses on the way the standard affects downsizing, but upsizing of vehicles would also be detrimental to safety.

• The explanation for why a backstop for light-duty trucks and imported cars has not been adopted is a little odd. It not es that there is no need fo r a backstop because NHTSA and EPA feel there projections of future fleet mix are reliable (p. 3-4). However, we know that many factors that are inherently uncertain affect these projections, including fuel prices. It seems more accurate to say that there are many factors unrelated to the standard being finalized that significantl y affect consumer preferences and are difficult to predict. At this time, NHTSA and EPA have decided against a backstop based on available information. If circumstances change in future years in unanticipated ways, they may

want to revisit this decision.

• The explanation for why the attribute curve for cars has not been adjusted very unsettling. NHTSA and EPA acknowledge that there are mistakes in the underlying data that were

a This is also true in AEO 2009, though the proposed rule was not modeled precisely– instead it modeled EISA. EIA

has said that the difference in the forecast from modeling and the proposed standards instead of just EISA is small.Summary of Interagency Working Comments on Draft Rule under EO 12866

- 7 - used to generate the proposed curves. Howe ver, because they do not like the resulting steepness of the curve once those mistakes are corrected, they have decided not to adjust the curve. P. 19 claims that the data sup port the original slop as much as the refitted curve, but this claim is not clearly demonstrated and makes the curve appear somewhat arbitrary.

TSD Chapter 3

• Table 3-1A shows changes to the relative costs of five technologies. Most look like relatively small changes, except for the last two technologies which experience an 85 and 109 percent reduction in costs, respectively. And the last technology has actually become cheaper than the comparison technology when it was previously more expensive. I trust these cost updates are accurate, but given some of the large changes, further explanation for the changes in costs seems warranted.

• Please further explain how NHTSA and EPA applied the 20 percent learning curve in different ways. While the TSD says this only results in small differences, it would be helpful to have a table that shows the im plication for costs using the EPA and the NHTSA approach for the six technologies to which volume-based learning curves were applied. This will make any differences between the way in which it has been applied

more transparent.

TSD Chapter 4

• Consumer valuation of fuel economy and payback period: Is this chapter missing a discussion of how consumers value fuel savings? Could this section be the place for a

discussion of consumer welfare issues relevant to fuel savings, including issues such as myopic decision making, imperfect information, heterogeneity in driving behavior and other consumer attributes, and heterogeneity in discount rates? In particular, a discussion of the five year payback period assumption for calculating fuel savings benefits might

make sense here.

• Baseline fuel price and consumption assumption: The chapter mentions that AEO 2009 (and now 2010 early release) was used in the analysis. The AEO projections from these years already incorporate the impact of the proposed fuel economy increase on prices and consumption. How does this impact the analysis? What type of bias may be expected?

Could a sentence or footnote acknowledging potential difficulties from relying on AEO data that already incorporate the new standard be a helpful explanation?

• Valuation of non-CO2 GHG reduction benefits : Section 4.9.2.1 notes that CH4 and N20 reductions are translated into CO2 equivalents using GWP to calculate total GHG reductions. Were these non-C O2 GHG reductions also monetized using the new interagency social cost of carbon estimates? As the new SCC guidance notes, the interagency group determined that it is not appropriate to apply the SCC estimate to reductions in non-CO2 gases using GWP because these gases have different radiativeSummary of Interagency Working Comments on Draft Rule under EO 12866

- 8 - forcings and atmospheric lifetimes. Thus, c ould it be appropriate to present quantified CO2e estimates that incorporate these gases but not include the non-CO2 gases in the monetized CO2 benefit estimates? Based on the description in Ch. 4, it is not clear whether this was the approach taken by NHTSA and EPA.

• Global petroleum consumption impacts: Section 4.2.7 covers petroleum and energy security impacts, including a discussion of the monopsony impact on global petroleum prices from the reduction in U.S. imports attrib utable to the rule. Ho wever, the chapter is missing a discussion of the increase in global fuel consumption resulting from the drop in global fuel prices. The CAFÉ rule would be expected to have a non-trivial impact on
global fuel prices, and if global fuel consumption experiences a corresponding increase, some of the benefits of reduced fuel consumpti on in the U.S. will be partially offset. A qualitative discussion of this issue, and if possible, a quantitative estimate of the CO2 increase due to increased global petroleum consumption in both the TSD and the RIA (if not already included in the RIA) may be helpful. Language that NHTSA included in the EIS on this issue might be appropriate here:

o “The reductions in U.S. gasoline consumption and demand for crude petroleum projected to result from alternative increases in CAFE standards could lead to reductions in global petroleum prices , and thus to lower gasoline prices throughout the world. One result would be increases in gasoline consumption outside the U.S., which would lead to increased emissions of greenhouse gases, criteria air pollutants, and airborne toxics from global fuel production and use. These increases have the potential to offs et a modest share of the reductions in emissions projected to occur as a consequence of lower fuel production and consumption within the United States. A numerical example using Leiby’s (2008) mean estimate of the sensitivity of global petroleum prices to changes in U.S. import demand suggests that increases in fuel consumption outside the U.S. could offset about 8 percent of the emissions reductions projected to result from the alternative increases in CAFE standards analyzed in this FEIS. b Given the various uncertainties in our analyses, we consider 8 percent to be at the noise

level.”

• Discount rate for fuel savings: Section 4.2.11 states that EPA and NHTSA use 3% as the primary discount rate for estimating fuel sa vings benefits, with 7% as a sensitivity. Should EPA and NHTSA use the 7% discount rate as a co-equal assumption, consistent with OMB guidance? To the extent that costs are largely passed onto consumers, making the consumption rate of interest the appropriate discount rate, EPA and NHTSA note in the preamble that many consumers finance new vehicle purchases using credit. Data

b Using Leiby’s reported range of uncertainty surrounding his mean estimate of the sensitivity of global petroleum

prices to U.S. import demand, increases in fuel consumption outside the U.S. could offset from 3 percent (under

Alternative 2) to 15 percent (under Alternative 9) of the emissions reductions projected to result from alternative

increases in CAFE standards. See Leiby, Paul N., Estimating the Energy Security Benefits of Reduced U.S. Oil

Imports

, Report ORNL/TM

‐ 2007/028, Oak Ridge National Laboratory, March 14, 2008, pp. 19

‐ 20.Summary of Interagency Working Comments on Draft Rule under EO 12866

- 9 - from the Bureau of Labor Statistics’ Consumer Expenditure Survey (cited in Attanasio, Goldberg, and Kyriazidou 2008, International Economic Review ) suggest that over 40% of consumers take out a loan to help finance their vehicle purchases, with new vehicle loan interest rates averaging 7.6%. Thus, an interest rate closer to 7% than 3% may be justified even if all costs are passed onto co nsumers due to the prev ailing interest rates facing buyers of new vehicles.



## CHAPTER 4: Economic Assumptions Used in the Agencies’ Analysis

4.1 How the agencies use th e economic assumptions in their analyses

The reduction in fuel use that results from requiring higher fuel economy results in a number of social benefits. Specifically, it reduces gree nhouse gas (GHG) and other emissions while also lowering the cost of economic externalities associated with U.S. petroleum consumption and imports. Reducing fuel consumption and GHGs lowers the economic costs of environmental externalities resulting from fuel production and use, including reducing the impacts on human health from emissions of criteria air pollutants, and reducing future economic damages from potential changes in the global climate caused by greenhouse gas emissions. It also , lows the potential costs from disruption in the flow of oil imports, and possibly reducing federal outlays to secure imported oil supplies and cushion the U.S. economy against their potential interruption.

Improving new vehicles’ fuel efficiency also provid es direct benefits to their buyers and users by reducing fuel consumption and fuel costs th roughout those vehicles’ lifetimes, stimulating increased vehicle use through the fuel economy re bound effect, and increasing vehicles’ driving range so that they require less frequent refueling. These benefits are partly offset by an increase in the upfront cost of the vehicle as well as the increase in fuel use that results from added vehicle use due to the fuel economy rebound effect, as well as by added costs from the increased congestion, crashes, and noise caused by increased vehicle use. They might also be offset by any loss in the utility that new vehicles provide to their buyers (and subsequent owners) if manufacturer s include reductions in vehicles’ performance, carrying capacity, or comfort as part of their strategies to comply with higher fuel economy requirements and GHG standards. Neverthele ss, the total economic benefits from requiring higher fuel economy and reducing GHGs are likely to be substantial, and the EPA and NHTSA have attempted to develop detailed estimates of the economic benefits from adopting more stringent standards.

This section discusses the common economic values used by both NHTSA and EPA. These economic inputs incorporate a range of forecast information, economic estimates, and input parameters. This section describes the sources that EPA and NHTSA have relied upon for this information, the rationale underlying each assumption, and the agencies’ estimates of specific parameter values. These common economic values are then used as inputs into each Agencies’ respective modeling and other analyses of the economic benefits and costs of the EPA and NHTSA programs. While the underlying economic input values are common to both Agencies, Comment [A1]: The ordering of this description is odd. It emphasizes the private benefits of the rule before discussing the social benefits, which are ostensibly the reason why EISA authorized an

increase in standards. We recommend reordering/rewriting and have made suggestions to the

text.

Comment [A2]: This is a transfer, not a benefit.Summary of Interagency Working Comments on Draft Rule under EO 12866

- 10 - it is the differences in the way each Agency assess es its program that result in differing benefits

estimates. This issue is discus sed further in Section I.C of the preamble to the joint rulemaking.



### 4.2 What economic assumptions do the agencies use?

4.2.1 The on-road fuel economy “gap”

Actual fuel economy levels achieved by vehicles in on-road driving fall significantly short of their levels measured under the laboratory-like test conditions used under the CAFE program to establish its published fuel economy ratings for different models. The fuel economy achieved on the road is affected by a variety of conditions not replicable in the la boratory setting including consumer driving behavior. In analyzing the fuel savings from passenger car and light truck fuel efficiency and GHG standards, the agency adjusts the actual fuel economy performance of each passenger car and light truck model downward from its rated value to reflect the expected size of this on-road fuel economy “gap.” EPA and NHTSA acknowledge that this approach cannot account for the potentially large heterogeneity in consumer dirving behavior that may lead some drivers to achieve greater or less fuel economy than what is reflected in the average. That said, in December 2006, EPA adopted changes to its regulations on fuel economy labeling, which were intended to bring vehicles’ rated fuel economy levels closer to their actual on-road fuel economy

levels. 1
Comparisons of on-road and CAFE fuel economy levels developed by EPA as part of its Final Rule implementing new fuel economy labeling requi rements for new vehicles indicate that actual on-road fuel economy for light-duty vehicles averages 20 percent lower than published fuel economy levels. 2 For example, if the overall EPA fuel economy rating of a light truck is 20 mpg, the on-road fuel economy actually achieved by a typical driver of that vehicle is expected to be 16 mpg (20*.80). In its analysis supporting the Final Rule establishing CAFE standards for MY 2011, NHTSA employed EPA’s revised estimate of this on-road fuel economy gap in its analysis of the fuel savings resulting from alternative fuel efficiency standards. An analysis conducted by NHTSA confirmed that EPA’s estimate of a 20 percent gap between test and on-road fuel economy is well-founded. The agency used data on the number of passenger cars and light trucks of each model year that were in service (registered for use) during each calendar year from 2000 through 2006, average fuel economy for passenger cars and light trucks produced during each model year, and estimates of average miles driven per year by cars and light trucks of different ages during each cale ndar year over that period. These data were combined to develop estimates of the usage-weighted average fuel economy that the U.S. passenger car and light truck fleets would have achieved during each year from 2000 through

2006 under test conditions. Table 4-1 compares NHTSA’s estimates of fleet-wide average fuel economy under test conditions for 2000 through 2006 to the Federal Highway Administration’s (FHWA) published estimates of actual on-road fuel economy achieve d by passenger cars and light trucks during each of those years. As it shows, FHWA’s estimates of actual fuel economy for passenger cars ranged from 21 percent to 23 percent lower than NHTSA’s estimates of its fleet-wide average value under test conditions over this period. Similarly, FHWA’s estimates of actual fuel economy for light trucks ranged from 16 percent to 18 percent lower than NHTSA’s estimates of average light truck fuel economy under test cond itions. Thus, these results appear to confirm that the 20 percent on-road fuel economy discount or gap represents a reasonable estimate for Comment [A3]: We find it odd that this section is focused entirely on the gap on average without also discusses that there is great heterogeneity among consumers with regard to their driving behavior. We would suggest adding a sentence acknowledging

this.Summary of Interagency Working Comments on Draft Rule under EO 12866

- 11 - use in evaluating the fuel savings likely to result from alternative fuel efficiency standards for

MY 2012-2016 vehicles. We are aware of two potential issues involved in these estimates. One, the estimates of total annual car and truck VMT are developed by the st ates and submitted to FHWA. Each state uses

its own definition of a car and a truck. For exam ple, some states classify minivans as cars and some as trucks. Thus, there are known inconsistencies with these estimates when evaluated separately for cars and trucks. Also, total gasoline consumption can be reasonably estimated from excise tax receipts, but separate estimates fo r cars and trucks are not available. We are not aware of the precise methodology used to develo p the distinct on-road fuel economy estimates for cars and trucks developed by FHWA. We do not believe that they are based on direct measurements from substantial numbers of vehicles, as no such test programs were found by EPA during its fuel economy labeling rule in 2006. Also, the year-to-year consistency for both car and truck fuel economy implies some methodology other than direct measurement. For this reason, NHTSA and EPA are not using distinct on-road fuel economy gaps for cars and trucks, but one common value of 20 percent for both vehicle classes for purposes of estimating the fuel savings of the standards.

Table 4-1 Estimated Fleet-Wide Fuel Economy of Passenger Cars and Light Trucks Compared to Reported Fuel Economy

YEAR PASSENGER CARS LIGHT-DUTY TRUCKS

NHTSA

Estimated

Test MPG FHWA Reported

Actual MPG Percent

Difference NHTSA

Estimated

Test MPG FHWA Reported

Actual MPG Percent

Difference

2000 28.2 21.9 -22.2% 20.8 17.4 -16.3%

2001 28.2 22.1 -21.7% 20.8 17.6 -15.5%

2002 28.3 22.0 -22.3% 20.9 17.5 -16.2%

2003 28.4 22.2 -21.9% 21.0 17.2 -18.0%

2004 28.5 22.5 -21.1% 21.0 17.2 -18.3%

2005 28.6 22.1 -22.8% 21.1 17.7 -16.3%

2006 28.8 22.5 -21.8% 21.2 17.8 -16.2%
Avg.,

2000-

2006 28.4 22.2 -22.0% 21.0 17.5 -16.7%



### 4.2.2 Fuel prices and the value of saving fuel

Projected future fuel prices are a critical input into the preliminary economic analysis of alternative fuel efficiency and GHG standards, because they determine the value of fuel savings both to new vehicle buyers and to society. As in the proposal, EPA and NHTSA relied on the most recent fuel price projections from the U. S. Energy Information Administration’s (EIA) Annual Energy Outlook (AEO) for this analysis. In the pr oposal, we used the AEO 2009 (April 2009 release). For the final rulemaking presented here, we updated to the more recent AEO 2010 Early Release. 3 The Reference Case forecasts inflation-adjusted (constant-dollar) retail gasoline and diesel fuel prices and represents the EIA’s most up-to-date estimate of the most likely course of future prices for petroleum products. 4 Comment [A4]: We know that AEO included EISA and now, in 2010, the proposed rule in its

reference case. We recommend EPA and NHTSA follow up with EIA on what effect this has on projected world fuel prices (probably a small decline). A paragraph could be inserted acknowledging the extent of this affect and any bias

introduced as a result.Summary of Interagency Working Comments on Draft Rule under EO 12866

- 12 - As compared to the gasoline prices used in th e proposal, AEO 2010 Early Release fuel prices are generally lower (in absolute 2007 dollars). A comparison table is presented below, Table 4-2. In broad strokes, future projections of fuel price are generally lower in AEO 2010 than in AEO

2009.

Table 4-2 Gasoline Prices for Selected Years in AEO 2009 and 2010

(Presented in constant 2007$ and including all taxes)

2015 2020 2030

AEO 2010 $3.00 $3.27 $3.60

AEO 2009 $3.16 $3.62 $3.82
Federal government agencies generally use EIA’s projections in their assessments of future energy-related policies. The retail fuel price forecasts presented in AEO 2010 span the period from 2007 through 2035. Measured in constant 2007 dollars, the AEO 2010 Reference Case forecast of retail gasoline prices during calendar year 2020 is $3.27 per gallon, rising gradually to $3.83 by the year 2035 (these values include federal, state and local taxes). However, valuing fuel savings over the maximum lifetimes of passenger cars and light trucks used in this analysis requires fuel price forecasts that extend through 2050, approximately the last year during which a significant number of MY 2016 vehicles will remain in service. c To obtain fuel price forecasts for the years 2036 throug h 2050, the agency assumes that reta il fuel prices will continue to increase after 2035 at the average annual rates projected for 2020-2035 in the AEO 2010

Reference Case. d This assumption results in a projected retail price of gasoline that reaches $4.49 in 2050. The value of fuel savings resulting from improved fuel economy and GHG emissions to buyers of light-duty vehicles is determined by the reta il price of fuel, which includes federal, state, and any local taxes imposed on fuel sales. Total taxe s on gasoline, including fe deral, state, and local levies averaged $0.42 per gallon during 2008, while those levied on diesel averaged $0.50. Because fuel taxes represent transfers of resour ces from fuel buyers to government agencies, however, rather than real resources that are consumed in the process of supplying or using fuel, their value must be deducted from retail fuel prices to determine the value of fuel savings resulting from more stringent fuel efficiency and GHG standards to the U.S. economy as a

whole. In estimating the economy-wide value of fuel savings from improved fuel efficiency standards and GHG emission standards, EPA and NHTSA follow the assumptions used by EIA in AEO 2010 that state and local gasoline taxes will keep pace with inflation in nominal terms, and thus remain constant when expressed in constant 2007 dollars. e In contrast, EIA assumes that federal

c The agency defines the maximum lifetime of vehicles as the highest age at which more than 2 percent of those

originally produced during a model year remain in service. In the case of light

‐ duty trucks, for example, this age

has typically been 36 years for recent model years.

d This projection uses the rate of increase in fuel prices for 2020

‐ 2030 rather than that over the complete forecast

period (2009

‐ 2030) because there is extreme volatility in the forecasts for the years 2009 through approximately

2020. Using the average rate of change over the complete 2009

‐ 2030 forecast period would result in projections

of declining fuel prices after 2030.

e To calculate economy

‐ wide impacts, the agencies value fuel savings at pre

‐ tax prices, since this measures the

value of the resources that are saved when less fuel is produced and consumed. The economy

‐ wide value ofSummary of Interagency Working Comments on Draft Rule under EO 12866

- 13 - gasoline taxes will remain unchanged in nominal terms, and thus decline throughout the forecast period when expressed in constant 2007 dollars. These differing assumptions about the likely

future behavior of federal and state/local fuel taxes are consistent with recent historical experience, which reflects the fact that federal as well as most state motor fuel taxes are specified on a cents-per-gallon basis, and typically require legislation to change. The projected value of total taxes is deducted from each future year’s forecast of retail gasoline and diesel prices reported in AEO 2010 to determine the economic value of each gallon of fuel saved during that year as a result of improved fuel economy. Subtracting fuel taxes results in a projected value for saving gasoline of $2.89 per gallon during 2020, rising to $3.48 per gallon by the year 2035. EIA is widely-recognized as an impartial and authoritative source of analysis and forecasts of U.S. energy production, consumption, and prices. The agency has published annual forecasts of energy prices and consumption levels for the U.S. economy since 1982 in its AEOs. These forecasts have been widely relied upon by federal agencies for use in regulatory analysis and for other purposes. Since 1994, EIA’s annual forecasts have been based upon the agency’s National Energy Modeling System (NEMS), which includes detailed representation of supply pathways, sources of demand, and their interaction to dete rmine prices for different forms of energy. From 1982 through 1993, EIA’s forecasts of world oil prices – the primary determinant of prices for gasoline, diesel, and other transportation fuels derived from petroleum – consistently overestimated actual prices during future years, of ten very significantly. Of the total of 119 forecasts of future world oil prices for the years 1985 through 2005 that EIA reported in its 1982- 1993 editions of AEO, 109 overestimated the subsequent actual values for those years, on average exceeding their corresponding actual values by 75 percent. Since that time, however, EIA’s forecasts of futu re world oil prices show a more mixed record for accuracy. The 1994-2 005 editions of AEO reported 91 separate forecasts of world oil prices for the years 1995-2005, of which 33 have subsequently proven too high while the remaining 58 have underestimated actual prices. The average absolute error ( i.e. , regardless of its direction) of these forecasts has been 21 percent, but over- and underestimates have tended to offset one another, so that on average EIA’s more recent forecasts have underestimated actual world oil prices by 7 percent. Although both its overestim ates and underestimates of future world oil prices for recent years have often been large, the most recent editions of AEO have significantly underestimated petroleum prices during those year s for which actual prices are now available. However, EPA and NHTSA does not regard EIA’s recent tendency to underestimate future prices for petroleum and refined products or the high level of current fuel prices as adequate justification to employ forecasts that differ from the Reference Case forecast presented in the AEO 2010 Reference Case. This is particularly the case because both the AEO 2009 and AEO 2010 Reference Cases forecast significantly higher future prices than those projected in the initial release of AEO 2008, which in turn repr esented a major upward revision from EIA’s fuel price forecast reported previously in AEO 2007. Comparing recent forecasts of world oil prices also shows that EIA’s Reference Case forecast reported in AEO 2009 is among the highest of all six publicly-available forecasts of world oil prices over the 2010-30 time horizon. 5 Because world petroleum prices are the primary determinant of retail prices for refined petroleum products such as transportation fuels, this suggests that the Reference Case forecast of U.S. fuel

saving fuel includes this plus the reductions in economic and environmental externalities that result from

consuming less fuel, importing less petroleum, and so on.Summary of Interagency Working Comments on Draft Rule under EO 12866

- 14 - prices reported in AEO 2010 is likely to be the highest of those projected by major forecasting

services.



### 4.2.3 Vehicle survival and use assumptions

The agencies’ analyses of fuel savings and related benefits from adopting higher fuel efficiency standards and establishing GHG emission standa rds for MY 2012-2016 passenger cars and light trucks begin by estimating the resulting changes in fuel use over the entire lifetimes of these vehicles. The change in total fuel consumption by vehicles produced during each of these model years is calculated as the difference in their lifetime fuel use under the baseline assumption that the CAFE standard previously established for model year 2011 remains in effect, and under the alternative assumption that CAFE and GHG emissions standards improve for each model year

from 2012-2016. The first step in estimating lifetime fuel consum ption by vehicles produced during a model year

is to calculate the number of those vehicles th at is expected to remain in service during each future calendar year after they are produced and sold. f This number is calculated by multiplying the number of vehicles originally produced during a model year by the proportion expected to remain in service at the age they will have reached during each subsequent calendar year, often

referred to as a “survival rate.” NHTSA previously updated its estimates of car and light truck survival rates using 2008 registration data (the most recent available) for passenger cars and light trucks produced during recent model years, in order to ensure that its forecasts of age-specific survival rates reflect recent increases in the durability and expected life spans of cars and light trucks. 6 Both agencies used these updated survival estimates in their an alyses of fuel savings and other benefits from adopting improved fuel efficiency and GHG sta ndards for MY 2012-2106 cars and light trucks. The proportions of passenger cars and light trucks expected to remain in service at each age up to their maximum lifetimes (26 and 36 years, respectively) are shown in Table 4-3 and Table 4-4. g The next step in estimating lifetime fuel use by the cars or light trucks produced during a future model year is to calculate the total number of miles that they will be driven during each year of their expected lifetimes. To estimate total mi les driven, the number of cars and light trucks projected to remain in use during each future calendar year calculated in the previous step is

f Vehicles are defined to be of age 1 during the calendar year corresponding to the model year in which they are produced; thus for example, model year 2000 vehicles are considered to be of age 1 during calendar year 2000,

age 1 during calendar year 2001, and to reach their maximum age of 26 years during calendar year 2025. NHTSA

considers the maximum lifetime of vehicles to be the age after which less than 2 percent of the vehicles originally

produced during a model year remain in service. Applying these conventions to vehicle registration data indicates

that passenger cars have a maximum age of 26 years, while light trucks have a maximum lifetime of 36 years. See

Lu, S., NHTSA, Regulatory Analysis and Evaluation Division, “Vehicle Survivability and Travel Mileage Schedules,”

DOT HS 809 952, 8

‐ 11 (January 2006). Available at http://www

‐ nrd.nhtsa.dot.gov/Pubs/809952.pdf (last accessed

Feb. 15, 2010)

.

g The maximum age of cars and light trucks was defined as the age when the number remaining in service has

declined to approximately two percent of those originally produced. Based on an examination of recent

registration data for previous model years, typical maximum ages appear to be 26 years for passenger cars and 36

years for light trucks.Summary of Interagency Working Comments on Draft Rule under EO 12866

- 15 - multiplied by the average number of miles a surviving car or light truck is expected to be driven at the age it will have reached in that year. Updated estimates of average annual miles driven by cars and light trucks at each age were developed by NHTSA from the Federal Highway Administration’s 2001 National Household Transportation Survey. These updated estimates, differ from those employed in past NHTSA analyses, were used previously by NHTSA to an alyze the effects of the previously-established CAFE standards for MY 2011 cars and light trucks. h
Table 4-3 and Table 4-4 report NHTSA’s updated estimates of average car and light truck use which were used in the analyses for the MY 2011 final rule. As these tables show, the resulting survival-weighted mileages calculated for that rule over the 26-year maximum lifetime of passenger cars is 161,847 miles, while that over the 36-year maximum lifetime of light trucks is 190,066 miles. It should be noted, however, that survival-weighted mileage is extremely low (less than 1,000 miles per year) after age 20 for cars and after age 25 for light trucks, and thus has little impact on lifetime fuel savings or other benefits from higher fuel economy, particularly after discounting those benefits to their present values. The survival and annual mileage estimates reported in the tables reflect the convention that vehicles are defined to be of age 1 during the calendar year that coincides with their model year Thus for example, model year 2012 vehicles will be considered to be of age 1 during calendar year 2012. This convention is used in order to account for the fact that vehicles produced during a model year typical are first offered for sale in June through September of the preceding calendar year (for example, sales of a model year typically begin in June through September of the previous calendar year, depending on manufact urer). Thus virtually all of the vehicles produced during a model year will be in use for some or all of the calendar year coinciding with their model year, and they are considered to be of age 1 during that year. i

h See also NHTSA, “Vehicle Survival and Travel Mil eage Schedules,” Office of Regulatory Analysis and Evaluation, January 2006, pp. 15-17. The original source of information on annual use of passenger cars and light trucks by age used in this analysis is the 2001 National Household Travel Survey (NHTS), jointly sponsored by the Federal Highway Administration, Bureau of Transporta tion Statistics, and National Highway Traffic Safety

Administration.

i As an illustration, virtually the entire production of model year 2012 cars and light trucks will have been sold by

the end of calendar year 2012, so those vehicles are defined to be of age 1 during calendar year 2012. Model year

2012 vehicles are subsequently defined to be of age 2 during calendar year 2013, age 3 during calendar year 2014,

and so on. One complication arises because registration data are typically collected for July 1 of each calendar

year, so not all vehicles produced during a model year will appear in registration data until the calendar year when

they have reached age 2 (and sometimes age 3) under this convention.Summary of Interagency Working Comments on Draft Rule under EO 12866

- 16 - Table 4-3 Survival Rates and Unadjusted Annual Miles Traveled (VMT) by Age for Passenger Cars (calculated from 2001 NHTS) Used in MY 2011 Final Rule

Vehicle

Age Estimated Survival

Fraction Estimated Annual

VMT Survival-Weighted

Annual VMT

1 0.9950 14,231 14,160
2 0.9900 13,961 13,821
3 0.9831 13,669 13,438
4 0.9731 13,357 12,998
5 0.9593 13,028 12,497
6 0.9413 12,683 11,938
7 0.9188 12,325 11,324
8 0.8918 11,956 10,662
9 0.8604 11,578 9,961
10 0.8252 11,193 9,237
11 0.7866 10,804 8,499
12 0.7170 10,413 7,466
13 0.6125 10,022 6,138
14 0.5094 9,633 4,907
15 0.4142 9,249 3,831
16 0.3308 8,871 2,934
17 0.2604 8,502 2,214
18 0.2028 8,144 1,652
19 0.1565 7,799 1,220
20 0.1200 7,469 896
21 0.0916 7,157 656
22 0.0696 6,866 478
23 0.0527 6,596 348
24 0.0399 6,350 253
25 0.0301 6,131 185
26 0.0227 5,940 135

Estimated Passenger Car Lifetime VMT 161,847Summary of Interagency Working Comments on Draft Rule under EO 12866

- 17 - Table 4-4 Survival Rates and Unadjusted Annu al Vehicle-Miles Traveled (VMT) by Age for Light Trucks (calculated from 2001 NHTS) Used in MY 2011 Final Rule

VEHICLE AGE ESTIMATED

SURVIVAL

FRACTION ESTIMATED

ANNUAL VMT SURVIVALWEIGHTED

ANNUAL VMT
1 0.9950 16,085 16,004
2 0.9741 15,782 15,374
3 0.9603 15,442 14,829
4 0.9420 15,069 14,195
5 0.9190 14,667 13,479
6 0.8913 14,239 12,691
7 0.8590 13,790 11,845
8 0.8226 13,323 10,960
9 0.7827 12,844 10,053
10 0.7401 12,356 9,145
11 0.6956 11,863 8,252
12 0.6501 11,369 7,391
13 0.6042 10,879 6,573
14 0.5517 10,396 5,735
15 0.5009 9,924 4,971
16 0.4522 9,468 4,281
17 0.4062 9,032 3,669
18 0.3633 8,619 3,131
19 0.3236 8,234 2,665
20 0.2873 7,881 2,264
21 0.2542 7,565 1,923
22 0.2244 7,288 1,635
23 0.1975 7,055 1,393
24 0.1735 6,871 1,192
25 0.1522 6,739 1,026
26 0.1332 6,663 887
27 0.1165 6,648 774
28 0.1017 6,648 676
29 0.0887 6,648 590
30 0.0773 6,648 514
31 0.0673 6,648 447
32 0.0586 6,648 390
33 0.0509 6,648 338
34 0.0443 6,648 294
35 0.0385 6,648 256
36 0.0334 6,648 222 Estimated Lifetime Light Truck VMT 190,066Summary of Interagency Working Comments on Draft Rule under EO 12866

- 18 - 4.2.3.1 Adjusting vehicle use for future fuel prices

The estimates of average annual miles driven by passenger cars and light trucks reported in

Table 4-3 and Table 4-4 reflect the historically low gasoline prices that prevailed at the time the 2001 NHTS was conducted. To account for the effect on vehicle use of subsequent increases in fuel prices in the proposal, the estimates of an nual vehicle use derived from the NHTS were adjusted to reflect the forecasts of future ga soline prices reported in the Energy Information Administration’s Annual Energy Outlook 2009 Updated Reference Case. For this final rulemaking, the agencies updated the analysis with the forecasts of future gasoline prices reported in the Energy Information Admini stration’s Annual Energy Outlook 2010 Early Release. This adjustment accounts for the difference between the average retail price per gallon of fuel forecast during each calendar year over the expected lifetimes of model year 2012-2016 passenger cars and light trucks, and the average price that prevailed when the NHTS was conducted in 2001. The elasticity of annual vehicle use with respect to fuel cost per mile corresponding to the 10 percent fuel economy rebound effect used in this analysis ( i.e. , an elasticity of -0.10) was used in conjunction with the difference between each future year’s fuel prices and those prevailing in 2001 to adjust th e estimates of vehicle use derived from the NHTS to reflect the effect of higher future fuel pr ices. This procedure was applied to the mileage figures reported previously in Table 4-3 and Tabl e 4-4 to adjust annual mileage by age during each calendar year of the expected lifetimes of MY 2012-2016 cars and light trucks.

4.2.3.2 Ensuring consistency with growth in total vehicle use

The estimates of annual miles driven by passenger cars and light trucks at each age were also adjusted to reflect projected future growth in average vehicle use. Increases in the average number of miles cars and trucks are driven each year have been an important source of historical growth in total car and light truck use, and are expected to represent an important source of future growth in total light-duty vehicle travel as well. As an illustration of the importance of growth in average vehicle use, the total number of miles driven by passenger cars increased 35 percent from 1985 through 2005, equivalent to a compound annual growth rate of 1.5 percent. 7
During that time, however, the total number of passenger cars registered for in the U.S. grew by only about 0.3 percent annually. j Thus growth in the average number of miles automobiles are driven each year accounted for the remaining 1.2 percent (= 1.5 percent - 0.3 percent) annual growth in total automobile use. k Further, the AEO 2010 Reference Case forecasts of total car and light truck use and of the number of cars and light trucks in use suggest that their average

annual use will continue to increase gradually from 2010 through 2035. In order to develop reasonable estimates of future growth in average car and light truck use, the agencies calculated the rate of growth in the mileage schedules shown previously in

j A slight increase in the fraction of new passenger cars remaining in service beyond age 10 has accounted for a

small share of growth in the U.S. automobile fleet. The fraction of new automobiles remaining in service to various

ages was computed from R.L. Polk vehicle registration data for 1977 through 2005 by the agency’s Center for

Statistical Analysis.

k See supra note k above.Summary of Interagency Working Comments on Draft Rule under EO 12866

- 19 - Table 4-6 and Table 4-7 that would be necessary for to tal car and light truck travel to increase at

the rate forecast in the AEO 2010 Reference Case. This calculated rate is also consistent with future changes in the overall size and age distribu tions of the U.S. passenger car and light truck fleets that are implied by the agency’s forecasts of total car and light truck sales and the survival rates reported in Table 4-3 and Table 4-4. The growth rate in average annual car and light truck use produced by this calculation is approximately 1.15 percent per year. l This rate was applied to the mileage figures reported previously in Ta ble 4-3 and Table 4-4 to estimate annual mileage by age during each calendar year of the expected lifetimes of MY 2012-2016 cars and light

trucks. m

l It was not possible to estimate separate growth rates in average annual use for cars and light trucks, because of

the significant reclassification of light truck models as passenger cars discussed previously.

m The agency has also identified an unintentional discrepancy between the estimates of expected lifetime VMT

used by EPA and NHTSA in their respective analyses of proposed GHG and CAFE standards reported in the NPRM.

EPA’s estimates of expected lifetime VMT for model year 2012

‐ 26 vehicles reflect the shared assumption that the

average number of miles driven annually by cars and light trucks of all ages would grow at a rate of 1.15 percent

per year beginning in 2001. Although NHTSA’s description of the procedures used to calculate its estimates of

expected lifetime VMT for passenger cars and light trucks indicated that it had also adjusted the base

‐ year

estimates of vehicle use to account for annual growth (see Preliminary Regulatory Impact Assessment, Chapter

VIII, p. 367), this adjustment was not in fact applied in NHTSA’s analysis of the effects of proposed increases in

CAFE standards for model years 2012

‐ 16. This omission caused the estimates of expected lifetime VMT for

passenger cars and light trucks that NHTSA actually used in its NPRM analysis of CAFE standards for model years

2012

‐ 16 to be lower than those used by EPA. This error has been corrected by NHTSA, and this correction is

reflected in its analysis of the impacts of CAFE standards for model year 2012

‐ 16 passenger cars and light trucks

reported in the Final Rule. This error did not occur in the analysis of environmental impacts of alternative

increases in CAFE standards reported in the agency’s recent Draft Environmental Impact Statement.Summary of Interagency Working Comments on Draft Rule under EO 12866

- 20 - Table 4-6 and Table 4-7 report the results of applying the adjustments for both future fuel prices and annual growth in car and light truck use to the mileage schedules reported previously in Table 4-2 and Table 4-3. Separate adjustments fo r projected fuel prices and growth in car and light truck use were made for each calendar year from 2012 through 2030. Because the effects of both fuel prices and cumulative growth in average vehicle use vary by year, these adjustments result in differing VMT schedules for each future year. The adjusted annual VMT estimates reported in Table 4-4 and Table 4-5 an d their lifetime totals represent the averages of the adjusted values of annual car and light truck use by age for calendar years 2012-2030. However, the estimates of fuel savings and other impacts of improved fuel efficiency for individual calendar years over the lifetimes of model year 2012-16 cars and light trucks employ the adjusted values of car and light truck use by age during those specific calendar years. While the adjustment for future fuel prices re duces average mileage at each age from the values shown previously, the adjustment for expected future growth in average vehicle use increases it. Comparing the mileage estimates inSummary of Interagency Working Comments on Draft Rule under EO 12866

- 21 - Table 4-6 and Table 4-7 to those shown previously in Table 4-2 and Table 4-3 shows that the net effect of these two adjustments is to increase expected lifetime mileage significantly. As an illustration, expected lifetime mileage for passenger cars, this figure rises to 195,264 miles from the 161,847 miles reported previously in Table 4-3 (or by 21 percent), while expected lifetime mileage for light trucks increases from the 190,066 miles reported previously in Table 4-4 to 225,865 miles (19 percent). As previously note d, the estimates of survival-weighted mileage decline to less than 1,000 miles per year after age 20 for cars and after age 27 for light trucks. Thus they have relatively little impact on lifetime fuel savings or other benefits from higher fuel economy, particularly after discounting the benefits that occur in those di stant future years to their present values. The VMT schedules used in the proposal and in this final rulemaking are presented below. To summarize the earlier discussion, the slight (~2.5 percent) increase in lifetime VMT schedule is attributable to the lower fuel prices projected in AEO 2010 Early Release as compared to the updated AEO 2009.

Table 4-5 Summary of Expected Lifetime VMT Schedules

(Presented in constant 2007$ and including all taxes)

MY 2012-2016 Proposal MY 2012-2016

Final Rulemaking

Car 190,271 195,264

Trucks 221,199 225,865Summary of Interagency Working Comments on Draft Rule under EO 12866

- 22 - Table 4-6 Survival Rates and Adjusted Annua l Vehicle-Miles Traveled (VMT) by Age for Passenger Cars (average values for 2012-2030)

Vehicle Age Estimated Survival

Fraction Adjusted Annual

VMT Survival-Weighted

Annual VMT
1 0.9950 17,270 17,183
2 0.9900 16,943 16,774
3 0.9831 16,599 16,319
4 0.9731 16,163 15,728
5 0.9593 15,761 15,119
6 0.9413 15,337 14,437
7 0.9188 14,881 13,672
8 0.8918 14,429 12,868
9 0.8604 13,940 11,994
10 0.8252 13,495 11,136
11 0.7866 12,964 10,198
12 0.7170 12,510 8,970
13 0.6125 11,990 7,344
14 0.5094 11,470 5,843
15 0.4142 10,997 4,555
16 0.3308 10,543 3,488
17 0.2604 10,125 2,637
18 0.2028 9,714 1,970
19 0.1565 9,307 1,456
20 0.1200 8,891 1,067
21 0.0916 8,546 783
22 0.0696 8,285 577
23 0.0527 8,136 429
24 0.0399 7,896 315
25 0.0301 7,699 232
26 0.0227 7,530 171 Adjusted Lifetime Passenger Car VMT 195,264Summary of Interagency Working Comments on Draft Rule under EO 12866

- 23 - Table 4-7 Survival Rates and Adjusted Annua l Vehicle-Miles Traveled (VMT) by Age for Light Trucks (average values for 2012-2030)

Vehicle Age Estimated

Survival Fraction Adjusted Annual

VMT Survival-Weighted

Annual VMT
1 0.9950 19,219 19,123
2 0.9741 18,782 18,296
3 0.9603 18,419 17,688
4 0.9420 17,946 16,905
5 0.9190 17,502 16,085
6 0.8913 16,952 15,109
7 0.8590 16,439 14,121
8 0.8226 15,829 13,021
9 0.7827 15,218 11,911
10 0.7401 14,648 10,841
11 0.6956 13,992 9,733
12 0.6501 13,450 8,744
13 0.6042 12,832 7,753
14 0.5517 12,212 6,737
15 0.5009 11,600 5,811
16 0.4522 11,069 5,005
17 0.4062 10,617 4,313
18 0.3633 10,125 3,679
19 0.3236 9,650 3,123
20 0.2873 9,238 2,654
21 0.2542 8,882 2,258
22 0.2244 8,667 1,945
23 0.1975 8,400 1,659
24 0.1735 8,395 1,456
25 0.1522 8,197 1,248
26 0.1332 8,188 1,091
27 0.1165 8,218 957
28 0.1017 8,216 836
29 0.0887 8,213 728
30 0.0773 8,211 635
31 0.0673 8,210 553
32 0.0586 8,208 481
33 0.0509 8,203 418
34 0.0443 8,196 363
35 0.0385 8,182 315
36 0.0334 8,167 273 Adjusted Lifetime Light Truck VMT 225,865Summary of Interagency Working Comments on Draft Rule under EO 12866

- 24 - 

### 4.2.4 Accounting for the fuel economy rebound effect

The rebound effect refers to the fraction of fuel savings expected to result from an increase in vehicle fuel economy that is offset by additional vehicle use. The increase in vehicle use that stems from improved fuel economy occurs because vehicle owners respond to the resulting reduction in vehicle fuel consumption and operating costs by driving slightly more. The magnitude of the rebound effect is one of the determinants of the actual fuel savings that are likely to result from adopting stricter fuel economy or emissions standards, and thus an important parameter affecting EPA’s and NHTSA’s evaluati on of alternative standa rds for future model years. It can be measured directly by estimating the elasticity of vehicle use with respect to fuel economy itself, or indirectly by the elasticity of vehicle use with respect to fuel cost per mile

driven. n When expressed as a positive percentage, either of these parameters gives the fraction of fuel savings that would otherwise result from a dopting stricter standards, but is offset by the increase in fuel consumption that results when ve hicles with increased fuel economy are driven

more. The fuel economy rebound effect for light-duty vehicles has been the subject of a large number of studies since the early 1980s. Although they have reported a wide range of estimates of its exact magnitude, these studies generally conclude that a significant rebound effect occurs when vehicle fuel efficiency improves. o The most common approach to estimating its magnitude has been to analyze household survey data on vehicle use, fuel consumption, fuel prices (often obtained from external sources), and other determinants of household travel demand to isolate the response of vehicle use to higher fuel econo my. Other studies have relied on econometric analysis of annual U.S. data on vehicle use, fu el economy, fuel prices, and other variables to identify the response of total or average vehicle use to changes in fleet-wide average fuel economy and its effect of fuel cost per mile driven. Two recent studies analyzed yearly variation in vehicle ownership and use, fuel prices, and fuel economy among individual states over an extended time period in order to measure the response of vehicle use to changing fuel economy. p This section surveys these previous studies, summarizes recent work on the rebound effect, and explains the basis for the 10 percent rebound effect EPA and NHTSA are using in this rulemaking. 8

4.2.4.1 Summary of historical literature on rebound effect

It is important to note that a majority of the studies previously conducted on the rebound effect rely on data from the 1950-1990s. While these older studies provide valuable information on the potential magnitude of the rebound effect, studies that include more recent information (e.g., data

n Fuel cost per mile is equal to the price of fuel in dollars per gallon divided by fuel economy in miles per gallon, so

this figure declines when a vehicle’s fuel economy increases.

o Some studies estimate that the long

‐ run rebound effect is significantly larger than the immediate response to

increased fuel efficiency. Although their estimates of the adjustment period required for the rebound effect to

reach its long

‐ run magnitude vary, this long

‐ run effect is most appropriate for evaluating the fuel savings and

emissions reductions resulting from stricter standards that would apply to future model years.

p In effect, these studies treat U.S. states as a data “p anel” by applying appropriate estimation procedures to data consisting of each year’s aver age values of these variables for the separate states.Summary of Interagency Working Comments on Draft Rule under EO 12866

- 25 - within the last decade) may provide more reliable estimates of how this rule will affect future driving behavior. Therefore, the more recent studies have been described in more detail below. Estimates based on aggregate U.S. vehicle travel data published by the U.S. Department of Transportation, Federal Highway Administration, covering the period from roughly 1950 to 1990, have found long-run rebound effects on the order of 10-30 percent. Some of these studies are summarized in the following table. Table 4-8 Estimates of the Rebound Effect Using U.S. Aggregate Time-Series Data on

Vehicle Travel 1

AUTHOR

(YEAR) SHORTRUN LONG-RUN TIME PERIOD

Mayo & Mathis (1988) 22% 26% 1958-84

Gately (1992) 9% 9% 1966-88
Greene (1992) Linear 5-

19% Log-linear

13% Linear 5-19% Log-linear

13% 1957-89

Jones (1992) 13% 30% 1957-89 Schimek (1996) 5-7% 21-29% 1950-94

1 Source: Sorrell and Dimitropolous (2007) table 4.6.

Table 4-9 Estimates of the Rebound Effect Using U.S. State Level Data 1

AUTHOR

(YEAR) SHORT-RUN LONG-RUN TIME PERIOD

Haughton & Sarkar (1996) 9-16% 22% 1973-1992

Small and Van Dender (2007) 4.5% 22% 1961-2001

1 Source: Sorrell and Dimitropolous (2007) table 4.7.While national (Table 4-6) and state level (Table 4-9) data have found relatively consistent longrun estimates of the rebound effect, household surveys display more variability (Table 4-10). There are several possible explanations for this larg er variability. One explanation is that some of these studies do not include vehicle age as an explanatory variable, thus leading to omitted

variable bias. 9 Another explanation is that it is difficu lt to differentiate between the impacts of residential density and fuel prices, since households with higher fuel prices are more likely to be

in urban areas. 10

Table 4-10 Estimates of the Rebound Effect Using U.S. Survey Data

AUTHOR

(YEAR) SHORTRUN LONG-RUN TIME PERIOD

Goldberg (1966) 0% CES 1984-90

Greene (1999) 23% EIA RTECS

1979-1994

Pickrell & Schimek (1999) 4-34% NPTS 1995 Single yearSummary of Interagency Working Comments on Draft Rule under EO 12866

- 26 - Puller & Greening (1999) 49% CES 1980-90 Single year, cross-sectional
West (2004) 87% CES 1997 Single year
An important distinction among studies of the re bound effect is whether they assume that the effect is constant, or varies over time in response to the absolute levels of fuel costs, personal income, or household vehicle ownership. Most studies using aggregate annual data for the U.S. assume a constant rebound effect, although some of these studies test whether the effect can vary as changes in retail fuel prices or average fuel economy alter fuel cost per mile driven. Many studies using household survey data estimate significantly different rebound effects for households owning varying numbers of vehicles, although they arrive at differing conclusions about whether the rebound effect is larger among households that own more vehicles. Finally, one recent study using state-level data concludes that the rebound effect varies directly in response to changes in personal income and the degree of urbaniza tion of U.S. cities, as well as

fuel costs. In order to provide a more comprehensive overview of previous estimates of the rebound effect,

EPA and NHTSA reviewed 22 studies of the rebo und effect conducted from 1983 through 2005. The agencies then performed a detailed analysis of the 66 separate estimates of the long-run rebound effect reported in these studies, which is summarized in

Table 4-11 below. q As the table indicates, these 66 estimates of the long-run rebound effect range from as low as 7 percent to as high as 75 percent, with a mean value of 23 percent. Limiting the sample to 50 estimates reported in the 17 published studies of the rebound effect yields the same range, but a slightly higher mean estimate (24 percent). The type of data used and authors’ assumption a bout whether the rebound effect varies over time have important effects on its estimated magnitude. The 34 estimates derived from analysis of U.S. annual time-series data produce a mean estimate of 18 percent for the long-run rebound effect, while the mean of 23 estimates based on household survey data is considerably larger (31 percent), and the mean of 9 estimates based on state data (25 percent) is close to that for the entire sample. The 37 estimates assuming a constant rebound effect produce a mean of 23 percent, identical to the mean of the 29 estimates reported in studies that allowed the rebound effect to vary in response to fuel prices, vehicle ownership, or household income.

Table 4-11 Summary Statistics for Estimates of the Rebound Effect

q In some cases, NHTSA derived estimates of the overall rebound effect from more detailed results reported in the

studies. For example, where studies estimated different rebound effects for households owning different

numbers of vehicles but did not report an overall value, the agency computed a weighted average of the reported

values using the distribution of households among vehicle ownership categories.Summary of Interagency Working Comments on Draft Rule under EO 12866

- 27 - Range Distribution Category of Estimates Number of

Studies Number of

Estimates Low High Median Mean Std. Dev.

All Estimates 22 66 7% 75% 22% 23% 14%

Published Estimates 17 50 7% 75% 22% 24% 14%

U.S. Time-Series Data 7 34 7% 45% 14% 18% 9%

Household Survey Data 13 23 9% 75% 31% 31% 16%

Pooled U.S. State Data 2 9 8% 58% 22% 25% 14%

Constant Rebound Effect (1) 15 37 7% 75% 20% 23% 16%

Variable Rebound Effect: (1) 10 29 10% 45% 23% 23% 10%

4.2.4.2 Summary of recent studies and analyses of the rebound effect

More recent studies since 2007 indicate that the impacts of fuel prices and fuel economy have been decreasing over time as incomes increase and real gasoline prices fall. The theoretical argument for why the rebound effect should vary is that the responsiveness to the fuel cost of driving will be larger when it is a larger proportion of the total cost of driving. As incomes rise (or fuel prices fall), the responsiveness to the fu el cost per mile of driving will decrease if people view the time cost of driving – which is likely to be related to their income levels – as a larger component of the total cost.

Small and Van Dender combined time series data for each of the 50 States and the District of Columbia to estimate the rebound effect, allowing the magnitude of the rebound to vary over

time. 11 For the time period from 1966-2001, their study found a long-run rebound effect of about 22 percent, which is consistent with previously published studies. But for the most recent five year period (1997-2001), the long-run rebound eff ect decreased to 11 percent. Furthermore, when the authors updated their estimates with da ta through 2004, the long-run rebound effect for the most recent five year period (2000-2004) dropped to 6 percent. 12
New research conducted by David Greene in 2008-2009 at EPA's request further appears to support the theory that the magnitude of the rebound effect is declining over time. 13 Over the entire time period analyzed (1966-2007), Greene found that fuel prices had a statistically significant impact on VMT, while fuel economy did not. In spite of this result, Greene also tested Small and Van Dender’s formulation which allows the elasticity of fuel cost per mile to decrease with increasing per capita income. The re sults of estimation using national time series

data confirmed the results obtain ed by Small and Van Dender using a time series of state level

data.

While Small and Van Dender did not find a statisti cally significant coefficient for fuel efficiency, they did find a statistically significant coefficient for the price of fuel. They then tested the hypothesis that the elasticity of vehicle travel with respect to the price of fuel was equal to its elasticity with respect to the rate of fuel consumption (gallons per mile), and found that the data could not reject that hypothesis. As a consequence, they estimated the rebound effect as the elasticity of vehicle travel with respect to fuel co st per mile, which constrains these elasticities to be equal in magnitude. Greene also attempted to re-estimate the Small and Van Dender results using his national data set. When using Greene’s preferred functional form, the projected rebound effect is approximately 12 percent in 2007, and drops to 10 percent in 2010, 9 percent in 2016 and 8 percent in 2030.Summary of Interagency Working Comments on Draft Rule under EO 12866

- 28 - 4.2.4.3 NHTSA analysis of the rebound effect

To provide additional insight into the rebound effect for the purposes of this rulemaking, NHTSA developed several new estimates of its magnitude. These estimates were developed byestimating and testing several econometric models of the relationship between vehicle milestraveled and factors that influence it, includin g household income, fuel prices, vehicle fuel efficiency, road supply, the number of vehicles in use, vehicle prices, and other factors. As the study by Small and Van Dender pointed out, it is important to account for the effect of fuel prices when attempting to estimate the rebound effect. Failing to control for changes in fuel prices is likely to bias estimates of the rebound effect. Therefore, changes in fuel prices are taken into account in Volpe’s analysis of the rebound effect. Several different approaches were used to estimate the fuel economy rebound effect for light duty vehicles, including single equation OLS regressions, multiple equation system s estimated using two- and three-stage least squares regression, vector autoregression, and v ector error-correction models. With the except of single-equation regressions estimated using OL S, all of these procedures attempt to account for the endogenous relationship of fuel efficiency to fuel prices.

The results from each of these approaches are presented in Table 4-12 below. The table reports the value of the rebound effect calculated over the entire period from 1950 through 2006, as well as for the final year of that period. In addition, the table presents forecasts of the average rebound effect between 2010 and 2030, which utilize forecasts of personal income, fuel prices, and fuel efficiency from EIA’s AEO 2009 Reference Case.

The results of NHTSA’s analysis are broadly consistent with the findings from previous research summarized above. The historical average long -run rebound effect is estimated to range from 16-30 percent, and comparing these estimates to its calculated values for 2006 (which range from 8-14 percent) gives some an indication that it is declining in magnitude. The forecast values of the rebound effect shown in the table also suggest that this decline is likely to continue through 2030, as they range from 4-16 percent. Comment [A5]: It would be useful to have not just the final year in that period but also the last ten years to get a better idea of the long-term trend (versus in anyone particular year). Please add this to

table 4-12.Summary of Interagency Working Comments on Draft Rule under EO1286629Table4-12Summary of NHTSA Estimates of the Rebound EffectRebound Effects:ModelVMTMeasureVariables Included in VMT EquationEstimationTechnique1950-200620062010-2030*Small-Van Dendersingle VMTequationannual VMTper adultfuel cost per mile, per Capita income, vehicle stock, roadmiles per adult, fraction of population that is adult,fraction of population living in urban areas, fraction ofpopulation living in urban areas with heavy rail, dummyvariables for fuel rationing, time trendOLS 33.0% 15.8% 8.0%Small-Van Denderthree-equationsystemannual VMTper adultfuel cost per mile, per Capita income, vehicle stock, roadmiles per adult, fraction of population that is adult,fraction of population living in urban areas, fraction ofpopulation living in urban areas with heavy rail, dummyvariables for fuel rationing, time trend3SLS 21.6% 5.8% 3.4%Single-equationVMT modelannual VMTper adultpersonal income, road miles per Capita, time trend OLS18.4% 11.7% 9.2%Single-equationVMT modelannual VMTper vehiclefuel cost per mile, personal income, road miles perCapita, time trendOLS 17.6% 15.2% 15.7%Single-equationVMT modelannual VMTper adultfuel cost per mile, personal income, road miles perCapita, dummy variables for fuel rationing, time trendOLS 34.0% 20.8% 13.6%Single-equationVMT modelannual VMTper vehiclefuel cost per mile, personal income, vehicles per roadmile, % of fleet manufactured under CAFE standards,new vehicle pricesIV (for fuelcost per mile)16.3% 9.2% 7.0%Three-equationsystem for VMT,fuel efficiency, andvehicle stockannual VMTper vehiclefuel cost per mile, personal income, vehicles per capita,vehicles per road mile, fraction of adult populationlicensed to drive, new vehicle prices, % of fleetmanufactured under CAFE standards2SLS 29.5% 13.4% 15.9%Three-equationsystem for VMT,fuel efficiency, andvehicle stockannual VMTper vehiclefuel cost per mile, personal income, vehicles per capita,vehicles per road mile, fraction of adult populationlicensed to drive, new vehicle prices, % of fleetmanufactured under CAFE standards3SLS 29.8% 13.7% 16.2%Three-equationsystem for VMT,annual VMTper vehiclefuel cost per mile, personal income, vehicles per capita,vehicles per road mile, fraction of adult populationVector autoregression19.9% 10.8% --Summary of Interagency Working Comments on Draft Rule under EO1286630Summary of Interagency Working Comments on Draft Rule under EO 12866

31 4.2.4.4 Basis for rebound effect used by EPA and NHTSA in this rule

Based on a combination of historical estimates of the rebound effect and more recent analyses conducted by EPA and NHTSA, the agencies used an estimate of 10 percent for the rebound effect in their analyses of proposed CAFE an d GHG emission standards. Although this value represents the lower bound of the historical range of values for the rebound effect, more recent analysis suggests that the rebound effect is declining over time. The agencies sought comment on other alternatives for estimating the rebound ef fect. As one illustration, under the assumption that drivers respond similarly to changes in the cost of driving whether they are caused by variation in fuel prices or fuel economy, the short-run price elasticity of demand for gasoline – which measures the sensitivity of gasoline consum ption to changes in its price per gallon – may provide some indication about the magnitude of the rebound effect itself. Thus, the agencies sought comment on whether it would be appropriat e to use the price elasticity of demand for gasoline, or other alternative approaches, to guide their choice of a value for the rebound effect. During the public comment period, EPA and NHTSA did not receive new data or analysis on the level of the rebound effect, but did receive some supportive comments on the 10 percent level. Hence, EPA and NHTSA have elected to continue to use the 10 percent estimate of the rebound effect in the analyses su pporting this final rule.



### 4.2.5 Benefits from increased vehicle use

The increase in vehicle use from the rebound effect provides additional benefits to their owners, who may make more frequent trips or travel farther to reach more desirable destinations. This additional travel provides benefits to drivers and their passengers by improving their access to social and economic opportunities away from home. As evidenced by their decisions to make more frequent or longer trips when improved fuel economy reduces their costs for driving, the benefits from this additional travel exceed the costs drivers and passengers incur in making more frequent or longer trips. The analysis estimates the economic benefits from increased rebound-effect driving as the sum of fuel costs drivers incur plus the consum er surplus they receive from the additional accessibility it provides. r Because the increased in travel depend on the extent of improvement in fuel economy, the value of benefits it provides differs among model years and alternative

CAFE standards. Under even those alternativ es that would impose the highest standards, however, the magnitude of these benefits repr esents a small fraction of total benefits.



### 4.2.6 Added costs from increased vehicle use

Although it provides some benefits to drivers, increased vehicle use associated with the rebound

effect also contributes to increased traffic congestion, motor vehicle accidents, and highway noise. Depending on how the additional travel is distributed over the day and on where it takes place, additional vehicle use can contribute to traf fic congestion and delays by increasing traffic volumes on facilities that are already heavily traveled during peak periods. These added delays

r The consumer surplus provided by added travel is estimated as one

‐ half of the product of the decline in fuel cost

per mile and the resulting increase in the annual number of miles driven.Summary of Interagency Working Comments on Draft Rule under EO 12866

32 impose higher costs on drivers and other vehicle occupants in the form of increased travel time and operating expenses. Because drivers do not take these added costs into account in deciding when and where to travel, they must be accounted for separately as a cost of the added driving

associated with the rebound effect.

Increased vehicle use due to the rebound effect ma y also increase the costs associated with traffic accidents. Drivers may take account of the potential costs they (and their passengers) face from the possibility of being involved in an accident wh en they decide to ma ke additional trips. However, they probably do not consider all of the potential costs they impose on occupants of other vehicles and on pedestrians when accident s occur, so any increase in these “external”

accident costs must be considered as another co st of additional rebound-effect driving. Like increased delay costs, any increase in these external accident costs caused by added driving is likely to depend on the traffic conditions under which it takes place, since accidents are more frequent in heavier traffic (although their severity may be reduced by the slower speeds at which heavier traffic typically moves). Finally, added vehicle use from the rebound eff ect may also increase traffic noise. Noise generated by vehicles causes inconvenience, irritation, and potentially even discomfort to occupants of other vehicles, to pedestrians and other bystanders, and to residents or occupants of surrounding property. Because these effects are unlikely to be taken into account by the drivers whose vehicles contribute to traffic noise, they re present additional externalities associated with motor vehicle use. Although there is considerable uncertainty in measuring their value, any

increase in the economic costs of traffic noise resu lting from added vehicle use must be included together with other increased external costs from the rebound effect. EPA and NHTSA rely on estimates of congestion, accident, and noise costs caused by automobiles and light trucks developed by the Federal Highway Administration to estimate the increased external costs caused by added driving due to the rebound effect. 14 NHTSA employed these estimates previously in its analysis accompanying the MY 2011 final rule, and continues to find them appropriate for this NPRM after reviewing the procedures used by FHWA to develop them and considering other available estimates of these values. They are intended to measure the increases in costs from added congestion, property damages and injuries in traffic accidents, and noise levels caused by automobiles and light trucks that are borne by persons other than their drivers (or “marginal” external costs). Updated to 2007 dollars, FHWA’s “Middle” esti mates for marginal congestion, accident, andnoise costs caused by automobile use amount to 5.2 cents, 2.3 cents, and 0.1 cents per vehiclemile (for a total of 7.6 cents per mile), while those for pickup trucks and vans are 4.7 cents, 2.5 cents, and 0.1 cents per vehicle-mile (for a total of 7.3 cents per mile). 15, s These costs are multiplied by the annual increases in automobile and light truck use from the rebound effect to yield the estimated increases in congestion, accident, and noise externality costs during each future year.

s The Federal Highway Administration’s estimates of these costs agree closely with some other recent estimates. For example, recent published research conducted by Resources for the Future (RFF) estimates marginal congestion and external accident costs for increased light-duty vehicle use in the U.S. to be 3.5 and 3.0 cents per vehicle-mile in year-2002 dollars. See Ian W.H. Parry and Kenneth A. Small, “Does Britain or the U.S. Have the Right Gasoline Tax?” Discussion Paper 02-12, Resources for the Future, 19 and Table 1 (March 2002). Available at http://www.rff.org/rff/Documents/RFF-DP- 02-12.pdf (last accessed Feb. 15, 2010).Summary of Interagency Working Comments on Draft Rule under EO 12866

33 

### 4.2.7 Petroleum and energy security impacts

4.2.7.1 Impact on U.S. petroleum imports

In 2008, U.S. petroleum import expenditures represented 21 percent of total U.S. imports of all goods and services. 16 In 2008, the United States imported 66 percent of the petroleum it consumed, and the transportation sector accounts for 70 percent of total U.S. petroleum consumption. This compares roughly to 37 per cent of petroleum from imports and 55 percent consumption of petroleum in the transportation sector in 1975. 17 It is clear that petroleum imports have a significant impact on the U. S. economy. Requiring lower-GHG vehicle technology and improved fuel economy in the U.S. is expected to lower U.S. petroleum imports.

4.2.7.2 Background on U.S. energy security

U.S. energy security is broadly defined as protecting the U.S. economy against circumstances that threaten significant short- and long-term increas es in energy costs. Most discussion of U.S. energy security revolves around the topic of the economic costs of U.S. dependence on oil imports. The problem is that the U.S. relies on sources of imported oil from potentially unstable sources. In addition, oil exporters have the abil ity to raise the price of oil by exerting monopoly power through the formation of a cartel, the Or ganization of Petroleum Exporting Countries (OPEC). Finally, these factors contribute to the vulnerability of the U.S. economy to episodic oil supply shocks and price spikes. In 2008, U.S. imports of crude oil were $326 billion (in 2007$, see Figure 4-1).Summary of Interagency Working Comments on Draft Rule under EO 12866

34 U.S. Expenditures on Crude Oil

0 100 200 300 400 500 600 700

1970 1975 1980 1985 1990 1995 2000 2005

Year(2007$ Billions) Domestic

Imported

Figure 4-1 U.S. Expenditures on Crude Oil from 1970 through 2008 t

One effect of the EPA/NHTSA joint rule is that it promotes more efficient use of transportation

fuels in the U.S. The result is that it reduces U.S. oil imports, which reduces both financial and strategic risks associated with a potential disruption in supply or a spike in the cost of a particular energy source. This reduction in risks is a measure of improved U.S. energy security. For this rule, an “oil premium” approach is utilized to identify those energy-security related impacts which are not reflected in the market price of oil, and which are expected to change in response to an incremental change in the level of U.S. oil imports.

4.2.7.2.1 Methodology Used to Estimate U.S. Energy Security Benefits

In order to understand the energy security implications of reducing U.S. oil imports, EPA has worked with Oak Ridge National Laboratory (ORNL), which has developed approaches for evaluating the social costs and energy security im plications of oil use. The energy security estimates provide below are based upon a methodology developed in a peer-reviewed study entitled, “ The Energy Security Benefits of Reduced Oil Use, 2006-2015 ,” completed in March 2008. This recent study is included as part of the docket for this rulemaking. 18 This ORNL study is an update version of the approach to es timating the energy security benefits of U.S. oil import reductions developed in an ORNL 1997 Report by Leiby, Paul N., Donald W. Jones, T. Randall Curlee, and Russell Lee, entitled “ Oil Imports: An Assessment of Benefits and Costs. ” When conducting this recent analysis, ORNL cons idered the full cost of importing petroleum

into the U.S. The full economic cost is define d to include two components in addition to the

t For historical data through 2006: EIA Annual Energy Review, various editions. For data 2006-2008: EIA Annual Energy Outlook (A EO) 2009 (Update Reference (Stimulus) Base Case). See file "aeostimtab_11.xls" available at http:// www.eia.doe.gov/oiaf/servicerpt/stimulus/aeostim.htmlSummary of Interagency Working Comments on Draft Rule under EO 12866

35 purchase price of petroleum itself. These are: (1) the higher costs for oil imports resulting from the effect of U.S. import demand on the world oil price and on OPEC market power ( i.e. , the “demand” or “monopsony” costs); and (2) the risk of reductions in U.S. economic output and disruption of the U.S. economy caused by sudden disruptions in the supply of imported oil to the U.S. ( i.e. , macroeconomic disruptio n/adjustment costs). Maintainin g a U.S. military presence to help secure stable oil supply from potentially vulnerable regions of the world was not included in this analysis because its attribution to particul ar missions or activities is difficult (as discussed further below). Section III.H of the preamble contains a de tailed discussion of how the monopsony and macroeconomic disruption/adjustment components were treated for this analysis. As that discussion indicates, the monopsony cost represen ts a transfer of resources from consumers of petroleum products to oil producers, and does not involve the consumption of real economic resources. Reducing the magnitude of the monopsony cost does not produce a savings in economic resources, although it does reduce the value of resources transferred from U.S. consumers of petroleum products to foreign su ppliers of petroleum. In contrast, the macroeconomic disruption and adjustment costs that arise from U.S. petroleum imports do represent real economic costs, and reductions in their magnitude do represent real economic benefits from reducing U.S. consumption and imports of petroleum. Therefore, the remainder of this discussion focuses on estimating the magnitude of the macroeconomic disruption and adjustment costs. As part of the process for using the ORNL energy security estimates, EPA sponsored an independent-expert peer review of this ORNL study. A report compiling the peer reviewers’ comments is provided in the docket. 19 In addition, EPA has worked with ORNL to address comments raised in the peer review and to develop estimates of the energy security benefits associated with a reduction in U.S. oil imports for this rule. In response to peer reviewer comments, ORNL modified its model by changing several key parameters involving OPEC supply behavior, the responsiveness of oil demand and supply to a change in the world oil price, and the responsiveness of U.S. economic output to a change in the world oil price. For this rule, ORNL further updated the energy security premium by incorporating the most recent oil price forecast and energy market trends in AEO 2009 into its model. In order for the energy security premium estimated to be us ed in EPA’s VECTOR model, ORNL developed energy security estimates for a number of different years; i.e. , 2015, 2020, 2030, and 2040. NHTSA used just the 2015 estimates to estimate the energy security benefits associated with this

rule. For 2015, ORNL has estimated that the total energy security premium associated with a reduction of imported oil is $18. 49/barrel. On a dollar per gallon basis, energy security benefits for 2015 are $0.44/gallon. Based upon alternativ e sensitivities regarding OPEC supply behavior, and the responsiveness of oil demand and supply to a change in the world oil price, the energy security premium ranges from $9.80 to $28.08/barrel. In terms of dollars per gallon, the energy security premium ranges from $0.23/gallon to $0.67/gallon. Please refer to Table 4-13 for similar information for years 2015, 2020, 2030 and 2040, u as well as a breakdown of the components of the energy security premium for each year. The components of the energy security premium and their values are discussed below.

u AEO 2009 forecasts energy market trends and values only to 2030. The energy security premia post

‐ 2030 were

assumed to be the 2030 estimate. Comment [A6]: You note that updating to 2010 is expected to have minimal effect. Could you also add what you expect the difference would be of subtracting out the influence of CAFÉ from the AEO

Reference cases? It should be subtracted out, but at

a minimum noted.Summary of Interagency Working Comments on Draft Rule under EO 12866

36 Table 4-13 Energy Security Premium in 2015, 2020, 2030 and 2040 v

(2007$/Barrel)

Year Monopsony (Range) Macroeconomic Disruption/Adjustment Costs (Range) Total Mid-Point (Range)

2015 $11.79 ($4.26 - $21.37) $6.70
$3.11 – $10.67 $18.49
$9.80 - $28.08
2020 $12.31 ($4.46 - $22.53) $7.62 ($3.77

– $12.46) $19.94 ($10.58 - $30.47)
2030 $10.57 ($3.84 – 18.94) $8.12 ($3.90 – $13.04) $18.69 ($10.52 - $27.89)
2040 $10.57 ($3.84 – $18.94) $8.12 ($3.90 – $13.04) $18.69 ($10.52 - $27.89)

4.2.7.2.1.1 Effect of oil use on long-run oil price, U.S. import costs, and economic

output

The first component of the full economic costs of importing petroleum into the U.S. follows from the effect of U.S. import demand on the world oil price over the long-run. Because the U.S. is a sufficiently large purchaser of foreign oil supplies, its purchases can affect the world oil price. This monopsony power means that increases in U.S. petroleum demand can cause the world price of crude oil to rise, and conversely, that reduced U.S. petroleum demand can reduce the world price of crude oil. Thus, one benefit of decreasing U.S. oil purchases, due to the increased availability and use of other transportati on fuels, is the potential decrease in the crude oil price paid for all crude oil purchased. The demand or monopsony effect can be readily illustrated with an example. If the U.S. imports 10 million barrels per day at a world oil price of $ 50 per barrel, its total daily bill for oil imports is $500 million. If a decrease in U.S. imports to 9 million barrels per day causes the world oil price to drop to $49 per barrel, the daily U.S. oil import bill drops to $441 million (9 million barrels times $49 per barrel). While the world oil price only declines $1, the resulting decrease in oil purchase payments of $59 million per day ($500 million minus $441 million) is equivalentto an incremental benefit of $59 per barrel of oil imports reduced, or $10 more than the newlydecreased world price of $49 per barrel. This additional $10 per barrel “import cost premium” represents the incremental external benefits to the U.S. for avoided import costs beyond the price paid oil purchases. This additional benefit arises only to the extent th at reduction in U.S. oil imports affects the world oil price. ORNL estim ates this component of the energy security benefit in 2015 to be $11.79/barrel, with a range of $4.26 – $21.37/barrel of imported oil

reduced.

v AEO 2009 world oil prices were used, as in the proposed rule. The analysis was not updated using the recently

‐
released AEO 2010 forecast of world oil prices, because EPA and NHTSA believe that the changes in the fuel prices

would be too small to cause a change in the Energy Security Premium estimates. Comment [A7]: Please note, however, that this decline in petroleum prices leads to increased use of petroleum elsewhere in the world and that this result in emission leakage due to the GHG emissions associated with this increase in oil consumption. This is a real effect, not just a transfer and could be potentially substantial even for a small decline in the world oil price.

This effect also should be quantified in the RIA.Summary of Interagency Working Comments on Draft Rule under EO 12866

37 4.2.7.2.1.2 Short-run disruption premium from ex pected costs of sudden supply disruptions

The second component of the oil import premium, the “macroeconomic disruption/adjustment costs premium,” arises from the effect of oil imports on the expected cost of disruptions. A sudden increase in oil prices triggered by a disruption in world oil supplies has two main effects: (1) it increases the costs of imports in the short run, further expanding the transfer of U.S. wealth to foreign producers, and (2) it can lead to macroeconomic contraction, dislocation and Gross Domestic Product (GDP) losses. ORNL estimate s the composite estimate of these two factors that comprise the macroeconomic disruption/adjustment costs premium to be $6.70/barrel in 2015, with a range of $3.11 – $10.67/barrel of imported oil reduced.

4.2.7.2.1.2.1 Higher costs of oil imports and wealth transfer during shocks

During oil price shocks, the higher price of im ported oil causes increased payments for imports and a transfer of wealth from the U.S to oil exporters. This increased claim on U.S. economic output is a loss to the U.S. that is separate from and additional to any reduction in economic output due to the shock. The increased wealth transfer during shocks is counted as a loss to the degree that the expected price increase is not anticipated and internalized by oil consumers.

4.2.7.2.1.2.2 Macroeconomic costs: potential output loss and dislocation/adjustment costs

Macroeconomic losses during price shocks reflect both aggregate output losses and “allocative” losses. The former are a reduction in the level of output that the U.S. economy can produce fully using its available resources; and the latter stem from temporary dislo cation and underutilization of available resources due to the shock, such as labor unemployment and idle plant capacity. The aggregate output effect, a reduction in “pot ential” economic output, will last so long as the price is elevated. It depends on the extent an d duration of any disruption in the world supply of oil, since these factors determine the magnitude of the resulting increase in prices for petroleum products, as well as whether and how rapidly these prices return to their pre-disruption levels. In addition to the aggregate contraction, there are “allocative” or “adjustment” costs associated with dislocated energy markets. Because supply disruptions and resulting price increases occur suddenly, empirical evidence shows they also impose additional costs on businesses and households which must adjust their use of petr oleum and other productive factors more rapidly than if the same price increase had occurred gradually. Dislocational effects include the unemployment of workers and other resources during the time needed for their intersectoral or interregional reallocation, and pauses in capital investment due to uncertainty. These adjustments temporarily reduce the level of economic output that can be achieved even below the “potential” output level that would ultimately be reached once the economy’s adaptation to higher petroleum prices was complete. The additional costs imposed on businesses and households for making these adjustments reflect th eir limited ability to adjust prices, output levels, and their use of energy, labor and other inputs quickly and smoothly in response to rapid changes in prices for petroleum products. Since future disruptions in foreign oil supplies ar e an uncertain prospect, each of the disruption cost components must be weighted by the probabili ty that the supply of petroleum to the U.S. will actually be disrupted. Thus, the “expected value” of these costs – the product of the probability that a supply disruption will occur and the sum of costs from reduced economic Comment [A8]: Then this is also a transfer to

other countries and should not be included in the quantification of energy security benefits for this

rule.Summary of Interagency Working Comments on Draft Rule under EO 12866

38 output and the economy’s abrupt adjustment to sharply higher petroleum prices – is the relevant measure of their magnitude. Further, when assessing the energy security value of a policy to reduce oil use, it is only the change in the expected costs of disruption that results from the policy that is relevant. The expected costs of disruption may change from lowering the normal ( i.e. , pre-disruption) level of domestic petroleum use and imports, from any induced alteration in the likelihood or size of disruption, or from alte ring the short-run flexibility (e.g., elasticity) of petroleum use. In summary, the steps needed to calculate the di sruption or security premium are: 1) determine the likelihood of an oil supply disruption in the future; 2) assess the likely impacts of a potential oil supply disruption on the world oil price; 3) assess the impact of the oil price shock on the U.S. economy (in terms of import costs and macr oeconomic losses); and 4) determine how these costs change with oil imports. The value of price spike costs avoided by reducing oil imports becomes the oil security portion of the premium.

4.2.7.2.2 Cost of existing U.S. energy security policies

The last often-identified component of the full eco nomic costs of U.S. oil imports is the costs to the U.S. taxpayers of existing U.S. energy security policies. The two primary examples are maintaining a military presence to help secure a stable oil supply from potentially vulnerable regions of the world and maintaining the Strate gic Petroleum Reserve (SPR). The SPR is the largest stockpile of government-owned emergency crude oil in the world. Established in the aftermath of the 1973-74 oil embargo, the SPR provides the U.S. a response option should a disruption in commercial oil supplies threaten the U.S. economy. It also allows the U.S. to meet part of its International Energy Agency oblig ation to maintain emergency oil stocks, and it provides a national defense fuel reserve. U.S. military costs are excluded from the analysis performed by ORNL because their attribution to particular missions or activities is difficult. Most military forces serve a broad range of security and foreign policy objectives. Attempts to attribute so me share of U.S. military costs to oil imports are further challenged by the need to estimate how those costs might vary with incremental variations in U.S. oil imports. Similarly, while the costs for building and maintaining the SPR are more clearly related to U. S. oil use and imports, historically these costs have not varied in response to changes in U.S. oil import levels. Thus, while SPR is factored into the ORNL analysis, the cost of maintaining the SPR is excluded.

4.2.7.2.3 Modifications to analysis based upon peer reviewer comments

The EPA commissioned ORNL to conduct a number of sensitivity analyses to address the comments of the peer reviewers. Based upon the peer reviewer comments, key parameters that influence the “oil import” premium were assess ed. Since not all the comments were in agreement with each other, several ranges of different parameters were developed for the analyses. These sensitivities used the most r ecent price forecasts and energy market trends available at the time the peer review was being conducted and completed, the AEO 2007 Reference Case. Thus, the results presented below are suggestive of how the energy security premium is influenced by altern ative assumptions of key parame ters that influence world oil markets. A summary of the results of the analyses are shown in Table 4-14. Three key parameters were varied in order to as sess their impacts on the oil import premium: (1) the response of OPEC supply, (2) the combined response of non-U.S., non-OPEC demand andSummary of Interagency Working Comments on Draft Rule under EO 12866

39 supply and (3) the GDP response to a change in the world oil as a result of reduced U.S. oil imports. The cases used updated supply/demand elasticities for non-U.S./non-OPEC region after considering more recent estimates than those used in 1997 study. As a result, the total market responsiveness is greater than previous ORNL estimates. Only small changes to the world oil price are anticipated from a substantial reduction in U.S. demand, on average, about $0.70/barrel for every million-barrels-per-day reduction in demand. In the ORNL framework, OPEC-behavior is treate d parametrically, with a wide range of possible responses represented by a range of supply elasticitie s. Case One in Table 4-14 below refers to the AEO 2007 estimates of energy market trends and uses the elasticity parameters from the original 1997 ORNL study. In Case Two, the OPEC supply elasticities range for 0.25 to 6 with a mean elasticity of 1.7. Case Three alters the di stribution of the OPEC supply elasticities so that the mean elasticity is 2.2 instead of 1.7. With the more elastic OPEC oil supply in Case Three, the oil premium is lower. Alternatively, a candidate rule for OPEC strategic response behavior, adapted from a lead article on what behavior maximizes OPEC’s long run net revenue in a robust

way, 20 would have OPEC responding to preserve its worldwide oil market share. This is presented as Case Seven. Application of this rule instead of the range of OPEC supply responses used leads to an estimate of the oil import prem ium that is between Case Two and Case Three. The second key parameter that was varied based upon peer reviewer comments was non-OPEC, non-U.S. demand and supply responsiveness to a change in the U.S. oil import demand and, hence, the world oil price. In Case Four, the mean non-U.S./non-OPEC demand and supply

elasticities are taken to each be 0.3 in absolute value terms. When co mbined together, the net elasticity of import demand from this region — the non-U.S./non-OPEC region is — roughly 1.6. Case Five takes the Case Four assumptions of a more elastic OPEC supply behavior andcombines those assumptions with the 1.6 net elasticity of import demand for the non-U.S./nonOPEC region. Case Six looks at the consequences of a yet higher net elasticity of import demand — 2.28 — for the non-U.S./non-OPEC region. The impact on the oil import premium is relatively modest. Cases Eight and Nine consider a reduced GDP elasticity, the parameter which summarizes the sensitivity of GDP to oil price shocks. Several reviewers suggested a lower estimate for this parameter. In response to their comments, a couple of cases were examined where the GDP elasticity was lowered to 0.032 in comparison to the original ORNL estimate of 0.0495. As anticipated, this change lowered the oil import premium modestly. For example, compared with Case Four where OPEC supply is more elastic, lowering the GDP elasticity with respect to the world oil price reduced the oil import premium by roughly $0.40/barrel. This is because the GDP-dislocation component is only about one-quarter of the total premium, and there are offsetting changes in other components. The last case examined, Case Nine, looks at the consequences for the oil import premium with a re duced elasticity of GDP if OPEC attempts to

maintain its share of the world oil market. Clearly there is an unavoidable degree of uncertainty about the magnitude of marginal economic costs from the U.S. importation of petroleum, an d the size of the oil import premium. ORNL sought to reflect this with probabilistic risk analysis over key input factors, guided by the available literature and the best judgment of oil market experts. Cases shown in Table 4-14 explore some reasonable variations in the ranges of input assumptions and the mean oil premium estimates vary in a fairly moderate range between roughly $11 and $15/barrel of imported oil. On balance, Case Eight suggested a reasonable and cautious assessment of the premium value to ORNL, and is ORNL’s recommended case. This is based on a review of important drivingSummary of Interagency Working Comments on Draft Rule under EO 12866

40 factors, the numerical evaluations and simula tions over major uncertainties, and taking into consideration the many comments and suggestion from the reviewers, the EPA and other Agencies. This recommended case, and the premium range resulting from 90 percent of the simulated outcomes, encompasses a wide array of perspectives and potential market outcomes in response to a reduction of U.S. imports. As mentioned previously, this recommended case relied on the most recent available projections of the U.S. and world oil market for the next ten years based upon the AEO 2007 Reference Case. OPEC-behavior was treated parametrically , with a wide range of possible responses represented by a wide range of supply elasticities, from small to quite large. This recommended case recognized that the OPEC response is the most uncertain single element of this analysis. It could vary between inelastic defense of output levels, or market share, or could be highly elastic in defense of price, probably at the expense of longer run cartel power and discounted net profits. The balance between possible elastic and inelastic OPEC response was essentially even over a fairly wide range of elasticities. ORNL conclude d that this is the best way to estimate OPEC behavior until greater progress can be made in synthesizing what insights are available from the evolving strategic game-theoretic and empirical research on OPEC behavior, and advancing that research. An alternative would have been to use OPEC strategic response behavior to maximize long-run net revenue, which may well correspond to market-share preservation behavior ( e.g. , Case Seven), and a somewhat higher premium value. Finally, ORNL’s recommended case used a GDP elasticity range, the parameter which summarizes the sensitivity of GDP to oil price shocks, which is reduced compared to earlier estimates, and compared to the full range of historically-based estimates. This helped address the concerns of those who either question the conc lusions of past empirical estimates or expect that the impacts of oil shoc ks may well be declining.Economic Assumptions Used in the Agencies’ Analyses41Table 4-14 Summary Results – Oil ImportPremium Under Various Cases ($2007/BBL)Component Statistic1) AEO2007Base Outlook,1997 StudyElasticities2) AEO2007Base Outlook,Wider Range ofOPEC SupplyElasticities3) Case 2 withRevised WiderRange of OPECSupplyElasticities4) Case 2 withUpdated NonOPECSupply/DemandElasticities5) Case 4 plusRevised WiderRange of OPECSupplyElasticities6) Case 4Variant withWider, HigherRange of NonU.S./Non-OPECSupply/DemandElasticities7) Case 6 withApplied StrategicOPEC BehavioralRule: MaintainMarket Share8) Case 4 withReduced GDPElasticity9) Case 7 withReduced GDPElasticityMean $5.57 $10.26 $8.16 $7.77 $6.52 $6.44 $9.36 $7.86 $9.42Range ($3.60 - $8.19) ($3.10 - $21.22) ($3.12 - $19.30) ($2.94 - $13.75) ($2.90 - $13.06) ($2.69 - $11.33) ($6.69 - $12.42) ($2.94 - $13.89) ($6.72 - $12.54)Mean $2.36 $2.33 $2.34 $1.92 $1.94 $1.93 $1.89 $2.20 $2.16Range ($0.51 - $4.66) ($0.58 - $4.57) ($0.66 - $4.61) ($0.39 - $3.75) ($0.38 - $3.84) ($0.42 - $3.70) ($0.44 - $3.66) ($0.63 - $4.07) ($0.62 - $3.96)Mean $3.83 $3.70 $3.76 $3.42 $3.45 $3.47 $3.41 $2.67 $2.64Range ($1.06 - $6.69) ($1.04 - $6.57) ($1.06 - $6.74) ($0.92 - $6.23) ($0.94 - $6.10) ($0.92 - $6.13) ($0.87 - $6.26) ($0.90 - $4.84) ($0.87 - $4.87)Mean $6.19 $6.03 $6.10 $5.34 $5.39 $5.40 $5.30 $4.87 $4.81Range ($2.94 - $10.01) ($2.94 - $9.75) ($2.91 - $9.85) ($2.53 - $8.69) ($2.60 - $8.62) ($2.58 - $8.92) ($2.54 - $8.74) ($2.23 - $7.85) ($2.25 - $7.77)Mean $11.75 $16.29 $14.27 $13.11 $11.90 $11.86 $14.65 $12.71 $14.23Range ($8.04 - $15.96) ($8.10 - $27.42) ($7.90 - $25.49) ($7.26 - $19.59) ($6.96 - $18.62) ($6.79 - $17.23) ($11.03 - $18.61) ($7.07 -$19.02) ($10.76 - $18.25)Total Premium, in $/Gallon Mean $0.28 $0.39 $0.34 $0.31 $0.28 $0.28 $0.35 $0.30 $0.34Price Reduction ($/MMBD) Mean $0.52 $1.04 $0.81 $0.75 $0.61 $0.60 $0.90 $0.75 $0.90Cases7) Applied Strategic OPEC Behavioral Rule to Case 6: Maintain Market Share (Gately 2004 paper best strategy). This rule implies that OPEC Supply elasticity matches that of all non-OPEC supply. As aresult non-U.S. elasticity of import demand ranges from8) Variant on version Case 4, considered reduced GDP elasticity for future disruptions (range -0.01 to -0.054; midcase value -0.032; mean value is -0.032, reduced from mean value of -0.0495). OPECbehavior treated parametrically.9) Revise Case 7 (which applied Strategic OPEC Behavioral Rule to Case 6: Maintain Market Share (Gately 2004 paper best strategy)) with reduced GDP elasticity for future disruptions (range -0.01 to -0.054; midcase value -0.032; mean value is -0.032, reduc3) Revise Case 2, with OPEC behavior distributed over elasticities 0 to 6, so that 25% of response is inelastic (< 1.0), mode elasticity is 2.0 (mean elasticity is 2.2 rather than 1.76)4) Updated Case 2 supply/demand elasticities for non-OPEC region with more recent estimates. Elasticity of non-U.S. demand -0.2 to -0.4, with mean and mode -0.3, non-U.S. Supply = 0.2 to 0.4, withmean and mode 0.3, implying (mode) net elasticity of impo5) Revise Case 4, with OPEC behavior distributed over elasticities 0 to 6, so that 25% of response is inelastic (< 1.0), mode elasticity is 2.0 (mean elasticity is 2.2 rather than 1.76). Net elasticity of importdemand is -1.6 for the non-U.S./non-OPEC r6) Alternative to Case 4 with expanded (and higher) range of non-U.S. supply/demand elasticities. Elasticity of non-U.S. demand = -0.3 to -0.7, triangular distribution with mode -0.4 mean -0.467, elasticity ofnon-U.S. supply = 0.2 to 0.6, mode 0.3 and mEconomic Disruption/AdjustmentCostsTotal Mid-Point1) Based on AEO2007. Updated oil market outlook from AEO1994 Base Case to AEO2007 Base Case. Among other things, this means average crude price rises from $20.33 to $48.34. All elasticitiesmatch 1997 values. Non-U.S. elasticity of import demand = -0.2) AEO2007 Base Outlook, with wider range of OPEC supply elasticities, 0.25 to 6.0 and a mean elasticity of 1.76.Monopsony ComponentDisruption Import CostsDisruption Dislocation Costs

### Summary of Interagency Working C omments on Draft Rule under EO 12866

42 4.2.7.2.4 Energy security premium values for this rule

After the peer review process was completed, EPA worked with ORNL to further update the analysis for this vehicle program. Usi ng the same methodology as the peer reviewed model, but updating the analysis using AEO 2009 world oil price values, ORNL calculated energy security premium estimates for the years 2015, 2020, and 2030. Since the AEO 2009 ends its forecast in the year 2030, EPA and NHTSA assumed that the post-2030 energy security premium estimates were the same as the 2030 estimate. The results of this analysis are shown above in Table 4-13in Chapter 4.2.8. The monopsony cost represents a transfer of resources from consumers of petroleum products to oil producers, and does not enta il the use of real economic resources. Reducing the magnitude of the monopsony co st does not produce a savings in economic resources, although it does reduce the value of resources transferred from U.S. consumers of petroleum products to foreign suppliers of petroleum. In contra st, the macroeconomic disruption and adjustment costs that arise from U.S. petroleum imports do represent real economic costs, and reductions in their ma gnitude do represent real economic benefits from reducing U.S. consumption and import s of petroleum. Hence the agencies’

estimates of economic benefits from redu cing fuel consumption via CAFE and GHG emission standards include ORNL’s estimates of the economic value of resulting reductions in macroeconomic and disrupti on costs, but exclude reductions in the monopsony cost component of the oil import premium.

4.2.7.2.5 The impact of fuel savings on U.S. petroleum imports

Based on a detailed analysis of differences in fuel consumption, petroleum imports, and imports of refined petrol eum products among the Reference Case, High Economic Growth, and Low Economic Growth Scenarios presented in AEO 2009, NHTSA and EPA estimate that approximately 50 percent of the reduction in fuel consumption resulting from adopting improved fuel efficien cy standards and GHG standards is likely to be reflected in reduced U.S. imports of refined fuel, while the remaining 50 percent would be expected to be reflected in reduced domestic fuel refining. 23 

### Of this latter figure, 90 percent is anticipa ted to reduce U.S. imports of crude petroleum for use as a refinery feedstock, while the remaining 10 percent is expected to reduce U.S. domestic production of crude petroleum. 24 

### Thus on balance, each gallon of fuel saved as a consequence of improved fuel efficiency sta ndards and GHG standards is anticipated to

23 Differences between forecast annual U.S. imports of crude petroleum and refined products among

these three scenarios range from 24

‐ 89 percent of differences in projected annual gasoline and diesel fuel

consumption in the U.S. These differences average 49 percent over the forecast period spanned by AEO

2009. This analysis has not been updated using forecasts from AEO 2010, because to date only the

Reference Case from AEO 2010 has been released by EIA.

24 Differences between forecast annual U.S. imports of crude petroleum among these three scenarios

range from 67

‐ 97 percent of differences in total U.S. refining of crude petroleum, and average 85 percent

over the forecast period spanned by AEO 2009.

### Summary of Interagency Working C omments on Draft Rule under EO 12866

43 reduce total U.S. imports of crude petrol eum or refined fuel by 0.95 gallons. 25 

### Section 5.3 of the RIA contains a discussion regarding caveats for the fuel savings estimated due to implementation of this rule.



### 4.2.8 Air pollutant emissions

Car and light truck use, fuel refining, and fu el distribution and reta iling also generate emissions of certain criteria air pollutants, including carbon monoxi de (CO), hydrocarbon compounds (usually referred to as “volatile organic co mpounds,” or VOC), nitrogen oxides (NO

x 

### ), fine particulate matter (PM 2.5 

### ), and sulfur dioxide (SO 2 

### ). Emissions of most of these pollutants are associated with the number of vehicle miles driven, rather than with the quantity of fuel consumed . While reductions in fuel refining and

distribution that result from lower fuel c onsumption will reduce emissions of criteria pollutants, additional vehicle use associated with the re bound effect from higher fuel economy will increase emissions of most of these pollutants. Sulfur dioxide is an exception, as described below. Thus the net effect of stricter fuel efficiency and GHG standards on total emissions of each criteria pollutant depends on the relative magnitudes of reduced emissions in fuel refining and distribution, and increases in emissions from vehicle use. Because the relationship between emission ra tes (emissions per gallon refine d of fuel or mile driven) in fuel refining and vehicle use is different for each criteria pollutant, the net effect of fuel savings from increased fuel efficiency and GHG standards on total emissions of each pollutant is likely to differ.

4.2.8.1 Reductions in emissions of criteria air pollutants

For the analysis of criteria emissions over th e lifetime of the model years covered by this rule, EPA and NHTSA estimate the increases in emissions of each criteria air pollutant from additional vehicle use by multiplying the increase in total miles driven by cars and light trucks of each model year and age by their estimated emission rates per vehicle-mile of each pollutant. These emission rates differ between cars and light trucks as well as between gasoline and diesel vehicles, and both their values for new vehicles and the rates at which they increase with age and accumulated mileage can vary among model years. With the exception of SO 2 

### , the agencies calculated the increase in emissions of these criteria pollutants from adde d car and light truck use by multiplying the estimated increases in their vehicles’ use during each year over their expected lifetimes by per-mile emission rates appropriate to each vehicle type, fuel used, model year, and age as of that future year. These emission rates were estimated by U.S. EPA using its newly updated Motor Vehicle Emission Simulator (MOVES2010). For the proposal, emission rates were estimated using Draft MOVES2009. The MOVES model assumes that the per-mile rates at which these pollutants are emitted are determined by EPA regulations and the effectiveness of catalytic after-treatment of engine exhaust emissions, and are thus unaffe cted by changes in car and light truck fuel

25 This figure is calculated as 0.50 + 0.50*0.9 = 0.50 + 0.45 = 0.95.

### Summary of Interagency Working C omments on Draft Rule under EO 12866

44 economy. As a consequence, the effects of required increases in fuel economy on emissions of these pollutants from car and light truck use are determined entirely by the increases in driving that result from the fuel economy rebound effect. As discussed in the EPA RIA, anticipated changes in the fuel s upply composition will also affect criteria pollutant emissions.

Emission factors in the MOVES database are ex pressed in the form of grams per vehiclehour of operation. To convert these emission factors to grams per mile for use in EPA and NHTSA’s calculations, MOVES was run for the year 2050, and was programmed to report aggregate emissions from vehicle star ting and running exhaust operation. EPA analysts selected the year 2050 in order to generate emission factors that were representative of lifetime average emission rates for vehicles meeting the agency’s Tier 2

emission standard. 26 

### Separate estimates were develo ped for each vehicle type and model year, as well as for each state and month, in order to reflect the effects of regional and temporal variation in temperature and other relevant variables on emissions. The MOVES emissions estimates were then summed to the model year level and divided by average distance traveled in order to produce per-mile emis sion factors for each pollutant. The resulting emission rates repres ent average values across the nation, and incorporate typical temperature variations over an entire calendar year. These national average rates also reflect county-specific differences in fuel composition, as well as in the presence and type of vehicle insp ection and maintenance programs. 27


### Emission rates for the criteria pollutant SO 2 

### were calculated by EPA and NHTSA using average fuel sulfur content estimates supplied by EPA, together with the assumption that

the entire sulfur content of fuel is emitted in the form of SO 2 

### . These calculations assumed that national average gasoline and diesel sulfur levels would remain at current levels. 28


### There, unlike many other criteria pollutants, sulfur dioxide emissions from vehicle use decrease proportionally to the d ecrease in fuel consumption. Emissions of criteria air pollutants also occu r during each phase of fuel production and distribution, including crude oil extraction an d transportation, fuel refining, and fuel storage and transportation. The reduction in emissions during each of these phases depends on the extent to which fuel savings re sult in lower imports of refined fuel, or in reduced domestic fuel refining. To a le sser extent, they also depend on whether reductions in domestic gasoline refining are re flected in reduced imports of crude oil or in reduced domestic extraction of petroleum.

26 Because all light-duty emission rates in MO VES2010 are assumed to be invariant after MY 2010, a calendar-year 2050 run produced a full se t of emission rates that reflect anticipated deterioration in the effectiveness of vehicles’ emission control systems with increasing age and accumulated mileage for post-MY 2010 vehicles.

27 The national mix of fuel types includes county

‐ level market shares of conventional and reformulated

gasoline, as well as county

‐ level variation in sulfur content, ethanol fractions, and other fuel properties.
Inspection/maintenance programs at the county level account for detailed program design elements such

as test type, inspection frequency, and program coverage by vehicle type and age.

28 These are 30 and 15 parts per million (ppm, measured on a mass basis) for gasoline and diesel

respectively, which produces emission rates of 0.17 grams of SO 2 per gallon of gasoline and 0.10 grams

per gallon of diesel.

### Summary of Interagency Working C omments on Draft Rule under EO 12866

45 Both EPA’s and NHTSA’s analyses assume that reductions in imports of refined fuel would reduce criteria pollutant emissions du ring fuel storage and distribution only.

Reductions in domestic fuel refining using imported crude o il as a feedstock are assumed to reduce emissions during fuel refining, stor age, and distribution, because each of these activities would be reduced. Finally, reduced domestic fuel refining using domesticallyproduced crude oil is assumed to reduce emissions during all four phases of fuel production and distribution. 29



### EPA estimated the reductions in criteria pollutant emissions from producing and distributing fuel that would occur with alte rnative fuel efficiency and GHG standards using emission rates obtained from Argonne National Laboratories’ Greenhouse Gases and Regulated Emissions in Transportation (GREET) model. xxi 

### The GREET model provides separate estimates of air pollutant em issions that occur in four phases of fuel production and distribution: crud e oil extraction, crude oil transportation and storage, fuel refining, and fuel di stribution and storage. 30 

### EPA modified the GREET model to change certain assumptions about emissions dur ing crude petroleum extraction and transportation, as well as to update its emi ssion rates to reflect adopted and pending EPA emission standards. EPA also incorporated emission factors for the air toxics estimated in this analysis: benzene, 1,3-butadiene, acetaldehyde, acrolein, and formaldehyde. The resulting emission factors ar e shown in Table 4-15.

29 In effect, this assumes that the distances crude oil travels to U.S. refineries are approximately the same regardless of whether it travels from domestic oilfields or import terminals, and that the distances that

gasoline travels from refineries to retail stations are approximately the same as those from import

terminals to gasoline stations.

30 Emissions that occur during vehicle refueling at retail gasoline stations (primarily evaporative emissions

of volatile organic compounds, or VOCs) are already accounted for in the “tailpipe” emission factors used

to estimate the emissions generated by increased light truck use. GREET estimates emissions in each

phase of gasoline production and distribution in mass per unit of gasoline energy content; these factors

are then converted to mass per gallon of gasoline using the average energy content of gasoline.

### Summary of Interagency Working C omments on Draft Rule under EO 12866

46 Table 4-15 Emissions by Stage of Fuel Production and Distribution (grams/million Btu)

Pollutant Fuel Type Petroleum

Extraction & Transportation 1 Refinery Energy

Use Upstream

Emissions Petroleum Refining
On-Site Petroleum Refining 2 Fuel Transport, Storage,

Distribution 3

CO Conventional Gasoline 4.908 0.928 5.596 6.525 0.748

Reformulated Gasoline 4.908 0.908 5.662 6.571 0.768

Low Sulfur Diesel 4.908 0.800 5.103 5.903 0.780

VOC Conventional Gasoline 3.035 0.602 2.560 3.162 42.91

Reformulated Gasoline 3.035 0.627 2.584 3.211 42.92

Low Sulfur Diesel 3.035 0.552 2.511 3.063 1.261

NOx Conventional Gasoline 14.91 3.328 14.442 17.771 3.691

Reformulated Gasoline 14.91 3.288 14.575 17.863 3.786

Low Sulfur Diesel 14.91 2.895 12.972 15.866 3.570

SOx Conventional Gasoline 3.926 4.398 9.678 14.076 0.886

Reformulated Gasoline 3.926 4.422 9.922 14.344 0.909

Low Sulfur Diesel 3.926 3.893 9.187 13.080 0.840

PM2.5 Conventional Gasoline 0.645 1.442 1.789 3.231 0.155

Reformulated Gasoline 0.645 1.487 1.838 3.325 0.159

Low Sulfur Diesel 0.645 1.309 1.635 2.943 0.133

Air Toxics

1,3-Butadiene Conventional Gasoline 0.0017 0.0003 0.0014 0.0017 0.0001

Reformulated Gasoline 0.0017 0.0003 0.0014 0.0018 0.0001

Low Sulfur Diesel 0.0017 0.0003 0.0014 0.0017 0.0001

Acetaldehyde Conventional Gasoline 0.0002 0.0000 0.0002 0.0002 0.0046

Reformulated Gasoline 0.0002 0.0000 0.0002 0.0002 0.0047

Low Sulfur Diesel 0.0002 0.0000 0.0002 0.0002 0.0044

Acrolein Conventional Gasoline 0.0001 0.0000 0.0001 0.0001 0.0006

Reformulated Gasoline 0.0001 0.0000 0.0001 0.0001 0.0006

Low Sulfur Diesel 0.0001 0.0000 0.0001 0.0001 0.0006

Benzene Conventional Gasoline 0.0313 0.0062 0.0264 0.0326 0.0787

Reformulated Gasoline 0.0313 0.0064 0.0264 0.0328 0.0788

Low Sulfur Diesel 0.0313 0.0058 0.0264 0.0322 0.0015

Formaldehyde Conventional Gasoline 0.0050 0.0010 0.0042 0.0052 0.0326

Reformulated Gasoline 0.0050 0.0010 0.0042 0.0052 0.0335

Low Sulfur Diesel 0.0050 0.0009 0.0042 0.0051 0.0316

1 The petroleum extraction and transport emission factors are only applied to domestic crude oil.

2 Refinery emissions factors are applied to domestic refineries, whether refining domestic or imported

crude.

3 Fuel transport, storage, and distribution emission factors represent domestic emissions and are applied to all finished fuel, whether refined domestically or internationally. 

### The agency converted these emission rates from the mass per fuel energy content basis on which GREET reports them to mass per gallon of fuel supplied using the estimates of fuel energy content reported by GREET. Th e resulting emission rates were applied to

both EPA’s and NHTSA’s estimates of fuel cons umption under alternative fuel efficiency standards to develop estimates of total emi ssions of each criteria pollutant during fuel production and distribution. The assumptions about the effects of changes in fuel

### Summary of Interagency Working C omments on Draft Rule under EO 12866

47 consumption on domestic and imported sources of fuel supply discussed above were then employed to calculate the effects of reductions in fuel use from alternative fuel efficiency and GHG standards on changes in domestic emissions of each criteria pollutant. Finally, EPA and NHTSA calculated the net changes in domestic emissions of each criteria pollutant by summing the increases in its emissions proj ected to result from increased vehicle use, and the reductions in emissions anticipated to result from lower domestic fuel refining and distribution. 31 

### As indicated previously, the effect of adopting improved fuel efficiency and GHG standards on total emissions of each criteria pollutant depends on the relative magnitudes of the re sulting reduction in emissions from fuel refining and distribution, and the increase in emissions from additional vehicle use. Although these net changes vary significantl y among individual cr iteria pollutants, we project that on balance, adopting improved fuel efficiency and GHG standards would reduce emissions of all criteria air pollutant s except carbon monoxide (CO). The analysis of criteria emissions during specific calendar years is de scribed independently in NHTSA’s Environmental Impact Statement and EPA’s RIA.

4.2.8.2 Estimated values of reducing PM related emissions in the model year analysis

In this analysis, EPA and NHTSA estimate the economic value of the human health

benefits associated with reducing exposure to PM 2.5 

### using benefit-per-ton estimates for the analysis of PM-related benefits over the lifetime of specific model years. Due to analytical limitations, the estimated benefit- per-ton values do not include comparable

benefits related to reductions in othe r criteria pollutants (such as ozone, NO 2 

### or SO 2 

### ) or toxic air pollutants, nor do they monetize all of the potential health and welfare effects

associated with PM 2.5 

### or the other criteria pollutants. As a result these values

underestimate the benefits associated with redu ctions of these pollutants. Note that EPA conducted full-scale photochemical air quality modeling for the calendar year analysis. Please refer to Chapter 7.2 of the RIA for a description of EPA’s air quality modeling results and to Chapter 7.3 for a descriptio n of the quantified and monetized PM- and ozone-related health impacts of the FRM. The analysis of PM-related benefits over the lifetime of specific model years uses a “benefit-per-ton” method to estimate selected PM 2.5 

### -related health benefits. These PM 2.5 

### - related benefit-per-ton estimates provide the total monetized human health benefits (the sum of premature mortality and premature mo rbidity) of reducing one ton of directly

emitted PM 2.5 

### , or one ton of a pollutant that co ntributes to secondarily-formed PM 2.5 

### (such as NOx, SOx, and VOCs) from a specified source. Ideally, the human health

benefits would be estimated ba sed on changes in ambient PM 2.5 

### concentrations and population exposure, as determined by full- scale air quality and exposure modeling. The dollar-per-ton estimates for reductions in PM 2.5 

### emissions used in this analysis are provided in Table 4-16.

31 All emissions from increased vehicle use are assumed to occur within the U.S., since fuel efficiency

standards would apply only to vehicles produced for sale in the U.S.

### Summary of Interagency Working C omments on Draft Rule under EO 12866

48 Table 4-16 Benefits-per-ton Values (2007$) Derived Using the ACS Cohort Study

for PM-related Premature Mo rtality (Pope et al., 2002) a 

### and a 3% Discount Rate b

All Sources d Stationary (Non-EGU)

Sources e Mobile Sources Year c

SOx VOC NOx Direct PM2.5 NOx Direct PM2.5

2015 $28,000 $1,200 $4,700 $220,000 $4,900 $270,000

2020 $31,000 $1,300 $5,100 $240,000 $5,300 $290,000

2030 $36,000 $1,500 $6,100 $280,000 $6,400 $350,000

2040 $43,000 $1,800 $7,200 $330,000 $7,600 $420,000

a The benefit-per-ton estimate s presented in this table are based on an estimate of premature mortality derived from the ACS study (Pope et al., 2002). If the benefit-per-ton estimates were based on the Six Cities study (Laden et al., 2006), the values would be approximately 145% (nearly two-and-a-half times) larger.

b The benefit-per-ton estimates presented in this table assume a 3% discount rate in the valuation of premature mortality to acco unt for a twenty-year segmen ted cessation lag. If a 7% discount rate had been used, the values would be approximately 9% lower.

c Benefit-per-ton values were esti mated for the years 2015, 2020, and 2030. For 2040, EPA and NHTSA extrapolated exponentially based on the growth between 2020 and 2030.

d Note that the benefit-per-ton value for SOx is based on the value for Stationary (Non-EGU) sources; no SOx value was estimated for mobile sources. The benefit-per-ton value for VOCs was estimated across all

sources.

e Non-EGU denotes stationary sources of emissions other than electric generating units. 

### As Table 4-16 indicates, EPA projects that the per-ton valu es for reducing emissions of criteria pollutants from both vehi cle use and stationary sources such as fuel refineries and storage facilities will increase over time. These projected increases reflect rising income levels, which are assumed to increase affected individuals’ willingness to pay for reduced exposure to health threats from air pollution, as well as population growth into the future, expanding the population exposed to air pol lution in both urban and rural areas. xxii



### For certain PM 2.5 

### -related pollutants (such as direct PM 2.5 

### and NOx), EPA estimates different per-ton values for reducing mobile source emissions than for reductions in emissions of the same polluta nt from stationary sources su ch as fuel refineries and storage facilities. These reflect differences in the typical geographic distributions of emissions of each pollutant, their c ontributions to ambient levels of PM 2.5 

### , and resulting changes in population exposure. EPA and NHTSA apply these separate values to its estimates of changes in emissions from vehicle use and from fuel production and distribution to determine the net change in total economic damages from emissions of those pollutants. The benefit per-ton technique has been used in previous analyses, including EPA’s recent Ozone National Ambient Air Quality Sta ndards (NAAQS) RIA (U.S. EPA, 2008a), xxiii



### Portland Cement National Emissions Standa rds for Hazardous Air Pollutants (NESHAP) RIA (U.S. EPA, 2009a), xxiv 

### and NO 2 

### NAAQS (U.S. EPA, 2009b). xxv 

### Table 4-17 shows the quantified and unquantified PM 2.5 

### -related co-benefits captured in these benefit-perton estimates.

Table 4-17 Human Health and Welfare Effects of PM 2.5



### Pollutant /

Effect Quantified and Monetized in Primary Estimates Unquantified Effects Changes in:

PM 2.5 

### Adult premature mortality Subchronic bronchitis cases

### Summary of Interagency Working C omments on Draft Rule under EO 12866

49 Pollutant /

Effect Quantified and Monetized in Primary Estimates Unquantified Effects Changes in:

Bronchitis: chronic and acute Hospital admissions: respiratory and

cardiovascular Emergency room visits for asthma Nonfatal heart attacks (myocardial infarction) Lower and upper respiratory illness Minor restricted-activity days Work loss days Asthma exacerbations (asthmatic population) Infant mortality Low birth weight Pulmonary function Chronic respirator y diseases other

than chronic bronchitis Non-asthma respiratory emergency

room visits Visibility Household soiling

Consistent with the NO 2 

### NAAQS, 32 

### the benefits estimates ut ilize concentration-response functions as reported in the epidemiology litera ture. Readers interested in reviewing the complete methodology for creating the benefit-pe r-ton estimates used in this analysis can

consult the Technical Support Document (TSD) xxvi 

### accompanying the recent final ozone NAAQS RIA (U.S. EPA, 2008a). Readers can also refer to Fann et al. (2009) xxvii 

### for a detailed description of the benefit-per-ton methodology. 33



### As described above, nationa l per-ton estimates were developed for selected pollutant/source category combinations. Th e per-ton values calcula ted therefore apply only to tons reduced from those specif ic pollutant/source combinations ( e.g. , NO 2 

### emitted from mobile sources; direct PM emitted from stationary sources). Our estimate of total

PM 2.5 

### benefits is therefore based on the total direct PM 2.5 

### and PM 2.5 

### –related precursor emissions (NOx, SOx, and VOCs) controlled from each source and multiplied by the respective per-ton values of reduci ng emissions from that source. The benefit-per-ton coefficients in this analys is were derived using modified versions of the health impact function s used in the PM NAAQS Regulatory Impact Analysis. Specifically, this analysis uses the benefit-pe r-ton estimates first applied in the Portland Cement NESHAP RIA (U.S. EPA, 2009a), wh ich incorporated concentration-response functions directly from the epidemiology stud ies, without any adjustment for an assumed threshold. Removing the threshold assump tion is a key difference between the method used in this analysis to estimate PM co-benef its and the methods used in analyses prior to

32 Although we summarize the main issues in this chapter, we encourage interested readers to see

benefits chapter of the NO2 NAAQS for a more detailed description of recent changes to the PM benefits

presentation and preference for the no

‐ threshold model.

33 The values included in this report are different from those presented in the article cited above. Benefits

methods change to reflect new information and evaluation of the science. Since publication of the June

2009 article, EPA has made two significant changes to its benefits methods: (1) We no longer assume that

a threshold exists in PM

‐ related models of health impacts, which is consistent with the findings reported

in published research; and (2) We have revised the Value of a Statistical Life to equal $6.3 million (year
2000$), up from an estimate of $5.5 million (year 2000$) used in the June 2009 report. Please refer to the

following website for updates to the dollar

‐ per

‐ ton estimates: http://www.epa.gov/air/benmap/bpt.html

### Summary of Interagency Working C omments on Draft Rule under EO 12866

50 EPA’s Portland Cement NESHAP . As a consequence, the benefit-per-ton estimates used in this analysis include incremen tal benefits of reductions in PM 2.5 

### concentrations down

to their lowest modeled levels.

Reductions in PM-related mo rtality provide the majority of the monetized value in each benefit-per-ton estimate. Typically, the premature mortality-related effect coefficients that underlie the benefits-per -ton estimates are drawn from epidemiology studies that examine two large population cohorts: the American Cancer Society cohort (Pope et al., 2002) xxviii 

### and the Harvard Six Cities cohort (Laden et al., 2006). xxix 

### The concentration-response (C-R) function de veloped from the extended analysis of American Cancer Society (ACS) cohort, as repor ted in Pope et al. ( 2002), has previously been used by EPA to generate its primary benefits estimate. The extended analysis of the Harvard Six Cities cohort, as reported by Laden et al (2006), was published after the completion of the Staff Paper for the 2006 PM 2.5 

### NAAQS and has been used as an

alternative estimate in the PM 2.5 

### NAAQS RIA and PM 2.5 

### co-benefits estimates in analyses completed since the PM 2.5 

### NAAQS.

These studies provide logical choices for anchor points when presenting PMrelated benefits because, while both studies are well designed and peer-reviewed, there are strengths and weaknesses inherent in each. Although this argues for using both studies to generate benefits estimates, due to the analytical limitations associated with this analysis, EPA and NHTSA have chosen to use the benefit-per-ton value derived from the ACS study. The agencies note that bene fits would be approximately 145 percent (or nearly two-and-a-half times) larger if the per-ton benefit values based on the Harvard Six

Cities were used instead. As is the nature of benefits analyses, assu mptions and methods evol ve over time to reflect the most current interpretation of the scientific and economic literature. For a period of time (2004-2008), EPA’s Office of Air and Radiation (OAR ) valued mortality risk reductions using a value of statistical life (VSL) estimate derived from a limited analysis

of some of the available studies. OAR arri ved at a VSL using a range of $1 million to $10 million (2000$) consistent with two meta -analyses of the wage-risk literature. The $1 million value represented the lower end of the interquartile range from the Mrozek and Taylor (2002) xxx 

### meta-analysis of 33 studies. The $10 million value represented the upper end of the interqua rtile range from the Viscusi and Aldy (2003) xxxi


### meta-analysis of 43 studies. The mean estimate of $5.5 million (2000$) was also
consistent with the mean VSL of $5.4 mi llion estimated in the Kochi et al. (2006) xxxii


### meta-analysis. However, the Agency neither changed its official guidance on the use of VSL in rule-makings nor subjected the inte rim estimate to a scientific peer-review process through the Science Advisory Boar d (SAB) or other peer-review group. Until updated guidance is available, EPA de termined that a single, peer-reviewed estimate applied consistently best reflects the SAB-EEAC advice it has received. Therefore, EPA has decided to apply the VS L that was vetted and endorsed by the SAB in the Guidelines for Preparing Economic Analyses (U.S. EPA, 2000) xxxiii 

### while they

### Summary of Interagency Working C omments on Draft Rule under EO 12866

51 continue efforts to update their guidance on this issue. 34 

### This approach calculates a mean

value across VSL estimates derived from 26 labor market and contingent valuation studies published between 1974 and 1991. The mean VSL across these studies is $6.3 million (2000$). The dollar-per-ton estimate s used in this analysis are based on this

revised VSL. The benefit-per-ton estimates are subj ect to a number of assumptions and

uncertainties.

a. They do not reflect local variability in population density, mete orology, exposure, baseline health incidence rates, or other local factors that might lead to an

overestimate or underestimate of the actual benefits of controlling fine particulates in specific locations. EPA conducted full -scale air quality modeling for the calendar year analysis in an effort to capture this variability. Please refer to Chapter 7.2 of the RIA for a descrip tion of EPA’s air quality modeling results and to Chapter 7.3 for the description of the agency’s quantification and

monetization of PM- and ozone-relat ed health impacts for the FRM.

b. This analysis assumes that all fine pa rticles, regardless of their chemical composition, are equally potent in causi ng premature mortality. This is an important assumption, because PM 2.5 

### produced via transported precursors emitted from stationary sources may differ significantly from direct PM 2.5 

### released from diesel engines and other indu strial sources. At the present time, however, no clear scientific grounds exist for supporting diff erential effects esti mates by particle

type.

c. This analysis assumes that the health impa ct function for fine particles is linear within the range of ambient concentra tions under consideration. Thus, the

estimates include health benefits from reduc ing fine particles in areas with varied

initial concentrations of PM 2.5, 

### including both regions that are in attainment with fine particle standard and those that do not meet the standard, down to the lowest

modeled concentrations.

d. There are several health benefits categories that EPA and NHTSA were unable to quantify due to limitations associated w ith using benefits-per-ton estimates,

several of which could be s ubstantial. Because the NO X 

### and VOC emission

reductions associated with this rule are also precursors to ozone, reductions in

NO X 

### and VOC would also reduce ozone fo rmation and the health effects associated with ozone exposure. Unfort unately, benefits-per -ton estimates for ozone do not exist due to issues associated with the complexity of the atmospheric air chemistry and nonlinearities associated with ozone formation. The PM-related benefits-per-ton estimates also do not include any human welfare or ecological benefits. Please refer to Chapter 7.3 of the RIA for a description of the quantification and monetiza tion of both PM- and ozone-re lated health impacts for

34 In the (draft) update of the Economic Guidelines (U.S. EPA, 2008c), EPA retained the VSL endorsed by

the SAB with the understanding that further updates to the mortality risk valuation guidance would be

forthcoming in the near future. Therefore, this report does not represent final agency policy. The draft

update of the Economic Guidelines is available on the Internet at
<http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE

‐ 0516

‐ 01.pdf/$File/EE

‐ 0516

‐ 01.pdf>.

### Summary of Interagency Working C omments on Draft Rule under EO 12866

52 the FRM and a description of the unquantif ied co-pollutant benefits associated with this rulemaking. As mentioned above, emissions changes and benefits-per-ton estimates alone are not a good indication of local or regional air qua lity and health impacts, as the localized impacts associated with the rulemaking ma y vary significantly. Additionally, the atmospheric chemistry related to ambient concentrations of PM 2.5 

### , ozone and air toxics is very complex. Full-scale photochemical modeling is therefore necessary to provide the needed spatial and temporal detail to more completely and accurately estimate the changes in ambient levels of these pollutants and their associated health and welfare impacts. For the final rule, EPA conducted a national-scale air quality modeling analysis in 2030 to analyze the impacts of the standards on PM 2.5 

### , ozone, and selected air

toxics.



### 4.2.9 Reductions in emissions of greenhouse gases

Emissions of carbon dioxide and other gr eenhouse gases (GHGs) occur throughout the process of producing and di stributing transportation fu els, as well as from fuel combustion itself. By reducing the volume of fuel consumed by passenger cars and light trucks, higher fuel efficiency standards will thus reduce GHG emissions generated by fuel use, as well as throughout the fuel suppl y cycle. Lowering these emissions is likely to slow the projected pace and reduce the ultimate extent of future changes in the global climate, thus reducing future economic damage s that changes in the global climate are otherwise expected to cause. Further, by reducing the probability that climate changes with potentially catastrophic economic or e nvironmental impacts will occur, lowering GHG emissions may also result in economic be nefits that exceed the resulting reduction in the expected future economic costs caused by gradual changes in the earth’s climatic systems. Quantifying and monetizing benefits from reducing GHG emissions is thus an important step in estimating the total economic benefits likely to result from establishing improved fuel efficiency and GHG standards.

4.2.9.1 Estimating reductions in GHG emissions

The agencies estimated emi ssions of carbon dioxide (CO 2 

### ) from passenger car and light truck use by multiplying the number of gallons of each type of fuel (gasoline and diesel) they are projected to consume with each alternative CAFE standard in effect by the quantity or mass of CO 2 

### emissions released per gallon of fuel consumed. This

calculation assumes that the entire carbon cont ent of each fuel is ultimately converted to

CO 2 

### emissions during the combustion process. The weighted average CO 2 

### content of gasoline is estimated to be approximately 8,900 grams per gallon, while that of diesel fuel is estimated to be approximately 10,200 gram s per gallon. For details, please see EPA’s

RIA and NHTSA’s RIA. Although carbon dioxide emissions account for nearly 95 percent of total GHG emissions that result from fuel combustion during ve hicle use, emissions of other GHGs are potentially significant as well because of their higher “pot ency” as GHGs than that of

CO 2 

### itself. EPA and NHTSA estimated the increases in emissions of methane (CH 4 

### ) and nitrous oxide (N 2 

### O) from additional vehicle use by multiplying the increase in total miles driven by cars and light trucks of each mode l year and age by emission rates per vehicle-

### Summary of Interagency Working C omments on Draft Rule under EO 12866

53 mile for these GHGs. These emission rates, which differ between cars and light trucks as well as between gasoline and di esel vehicles, were estimated by EPA using its recentlydeveloped Motor Vehicle Emission Simulato r (Draft MOVES 2009), as subsequently updated for use in this analysis. The MOVES model assumes that the per-mile rates at which cars and light trucks emit these GHGs are determined by the efficiency of fuel combustion during engine operation and chemical reactions that occur during cataly tic after-treatment of engine exhaust, and are thus independent of vehicles’ fuel consum ption rates. Thus MOVES emission factors for these GHGs, which are expressed per mile of vehicle travel, are assumed to be unaffected by changes in fuel economy.

Increases in emissions of non-CO 2 

### GHGs are converted to equivalent increases in

CO 2 

### emissions using estimates of the Global Warming Potential (GWP) of methane and
nitrous oxide. These GWPs account for the higher radiative forcing capacity of methane
and nitrous oxide when they are released into the earth’s atmosphere, measured relative

to that of CO 2 

### itself. However, because these gases differ in both radiative forcing and
atmospheric lifetimes, their relative damages are not constant over time. Impacts other
than temperature change also vary across gases in ways that are not captured by GWP.

For instance, CO 2 

### emissions, unlike methane and other greenhouse gases, contribute to
ocean acidification. Likewise, damages from methane emissions are not offset by the
positive effect of CO 2 

### fertilization. Noting these caveats, the CO 2 

### equivalents of
increases in emissions of these gases are added to the increases in emissions of CO 2 

### itself

to determine the effect of the total increase in CO 2 

### -equivalent GHG emissions from

vehicle use.

4.2.9.2 Economic benefits from reducing GHG emissions

For today’s final rule, EPA and NHTSA rely on a new set of values for the social cost of carbon (SCC) that were recently developed by an interagency process. A summary of the basis for these new values is provided belo w, and a more detailed description of the methodologies used is provided in X. Under Executive Order 12866, agencies are require d, to the extent permitted by law, “to

assess both the costs and the benefits of th e intended regulation a nd, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon

a reasoned determination that the benefits of the intended regulation justify its costs.” The purpose of the “social cost of carbon” (S CC) estimates presented here is to allow agencies to incorporate the social benefits of reducing carbon dioxide (CO 2 

### ) emissions into cost-benefit analyses of regulatory actions that have small, or “marginal,” impacts on cumulative global emissions. The estimate s are presented with an acknowledgement of the many uncertainties involved and with a clear understanding that they should be updated over time to reflect increasing k nowledge of the science and economics of climate impacts. The SCC is an estimate of the monetized damages associated with an incremental increase in carbon emissions in a given year. It is intended to include (but is not limited Comment [A9]: Please note the caveats with using GWP.

### Summary of Interagency Working C omments on Draft Rule under EO 12866

54 to) changes in net agricultural productiv ity, human health, property damages from increased flood risk, and the value of ecosystem services due to climate change. This document presents a summary of the in teragency process that developed these SCC estimates. Technical experts from numerous agencies met on a regular basis to consider public comments, explore the technical literatu re in relevant fields, and discuss key model inputs and assumptions. The main object ive of this process was to develop a range of SCC values using a defensible set of input assumptions grounded in the existing

scientific and economic literatures. In this way, key uncertainties and model differences transparently and consistently inform the range of SCC estimates used in the rulemaking

process. The interagency group selected four SCC values for use in regulatory analyses. Three values are based on the average SCC from three integrated assessment models, at discount rates of 2.5, 3, and 5 percent. The fourth value, which represents the 95 th


### percentile SCC estimate across all three models at a 3 percent discount rate, is included to represent higher-than-expected impacts from temperature change further out in the tails

of the SCC distribution.

Social Cost of CO 2 , 2010 – 2050 (in 2007 dollars)

Discount Rate 5% 3% 2.5% 3%

Year Avg Avg Avg 95th

2010 4.7 21.4 35.1 64.9

2015 5.7 23.8 38.4 72.8

2020 6.8 26.3 41.7 80.7

2025 8.2 29.6 45.9 90.4

2030 9.7 32.8 50.0 100.0

2035 11.2 36.0 54.2 109.7

2040 12.7 39.2 58.4 119.3

2045 14.2 42.1 61.7 127.8

2050 15.7 44.9 65.0 136.2

### Summary of Interagency Working C omments on Draft Rule under EO 12866

55 I. Monetizing Carbon Dioxide Emissions



### The “social cost of carbon” (SCC) is an estimate of the monetized damages associated

with an incremental increase in carbon emissi ons in a given year. It is intended to include (but is not limited to) changes in net agricultural produc tivity, human health, property damages from increased flood risk, an d the value of ecosystem services. We report estimates of the social cost of carb on in dollars per metric ton of carbon dioxide throughout this document. 35


### When attempting to assess the incrementa l economic impacts of carbon dioxide emissions, the analyst faces a number of serious challenges. A recent report from the

National Academies of Science (NRC 2009) points out that any assessment will suffer from uncertainty, speculation, and lack of in formation about (1) future emissions of greenhouse gases, (2) the effects of past and future emissions on the climate system, (3) the impact of changes in climate on the physical and biological environment, and (4) the translation of these environmental impacts in to economic damages. As a result, any effort to quantify and monetize the harms associated with climate change will raise serious questions of science, economics, and ethi cs and should be viewed as provisional. Despite the serious limits of both quantifi cation and monetization, SCC estimates can be useful in estimating the social benefits of reducing carbon dioxide emissions. Under Executive Order 12866, agencies are required, to the extent permitted by law, “to assess

both the costs and the benefits of the intended regulation and, recognizing that some costs

and benefits are difficult to quantify, propose or adopt a re gulation only upon a reasoned

determination that the benefits of the intende d regulation justify its costs.” The purpose of the SCC estimates presented here is to make it possible for agencies to incorporate the social benefits from reducing carbon dioxid e emissions into cost-benefit analyses of regulatory actions that have small, or “marginal,” impacts on cumulative global emissions. Most federal regulatory actions can be expected to have marginal impacts on global emissions. For such policies, the benefits from reduced (or costs from increased) emissions in any future year can be estimated by multiplying th e change in emissions in that year by the SCC value appropriate for that year. The net present value of the benefits can then be calculated by multiplying each of these future be nefits by an appropriate discount factor and summing across all affected years. This approach assumes that the marginal damages from increased emissions are constant for small departures from the baseline emissions path, an approximation that is reasonable for policies that have effects on

emissions that are small relative to cumula tive global ca rbon dioxide emissions. For policies that have a large (non-marginal) impa ct on global cumulative emissions, there is a separate question of whether the SCC is an appropriate tool for calculating the benefits of reduced emissions; we do not attempt to answer that question here.

35 In this document, we present all values of the SCC as the cost per metric ton of CO 2 emissions.

Alternatively, one could report the SCC as the cost per metric ton of carbon emissions. The multiplier for

translating between mass of CO 2 and the mass of carbon is 3.67 (the molecular weight of CO 2 divided by

the molecular weight of carbon = 44/12 = 3.67).

### Summary of Interagency Working C omments on Draft Rule under EO 12866

56 An interagency group convened on a regular basis to consider public comments, explore the technical literature in relevant fields, a nd discuss key inputs and assumptions in order to generate SCC estimates. Agencies that ac tively participated in the interagency process include the Environmental Protection Agency , and the Departments of Agriculture, Commerce, Energy, Transportation, and Treasury. This process was convened by the Council of Economic Advisers and the Office of Management and Budget, with active participation and regular i nput from the Council on Environmental Quality, National Economic Council, Office of Energy and Climate Change, and Office of Science and Technology Policy. The main objective of th is process was to develop a range of SCC values using a defensible set of input assu mptions that are grounded in the existing literature. In this way, key uncertainties and model differences can more transparently and consistently inform the range of SCC estimates used in the rulemaking process. The interagency group selected four SCC estimates for use in regulatory analyses. For
2010, these estimates are $5, $21, $35, and $65 (in 2007 dollars). The first three estimates
are based on the average SCC across models and socio-economic and emissions scenarios
at the 5, 3, and 2.5 percent discount rates, respectively. The fourth value is included to
represent the higher-than-expected impacts from temperature change further out in the
tails of the SCC distribution. For this purpose, we use the SCC value for the 95 th

percentile at a 3 percent discount rate. The central value is the average SCC across
models at the 3 percent discount rate. Fo r purposes of capturing the uncertainties
involved in regulatory impact analysis, we emphasize the importance and value of
considering the full range. These SCC estimates also grow over time. For instance, the central value increases to $24 per ton of CO 2 in 2015 and $26 per ton of CO 2 in 2020.
See Appendix A for the full range of annual SCC estimates from 2010 to 2050.



### It is important to emphasize that the intera gency process is committed to updating these estimates as the science and economic understanding of climate change and its impacts on society improves over time. Specifically, we have set a preliminary goal of revisiting the SCC values within two years or at such time as substantially u pdated models become available, and to continue to support research in this ar ea. In the meantime, we will continue to explore the issues raised in this document and consider public comments as part of the ongoing interagency process.

II. Social Cost of Carbon Values Used in Past Regulatory Analyses



### To date, economic analyses for Federal regulatio ns have used a wide range of values to

estimate the benefits associated with redu cing carbon dioxide emissions. In the final model year 2011 CAFE rule, the Department of Transportation (DOT) used both a “domestic” SCC value of $2 per ton of CO 2 

### and a “global” SCC value of $33 per ton of

CO 2 

### for 2007 emission reductions (in 2007 dollars ), increasing both values at 2.4 percent per year. It also included a sens itivity analysis at $80 per ton of CO 2 

### . A domestic SCC value is meant to reflect the value of damage s in the United States resulting from a unit change in carbon dioxide emissions, while a global SCC value is meant to reflect the value of damages worldwide. A 2008 regulation proposed by DOT assumed a domestic SCC value of $7 per ton CO 2 

### (in 2006 dollars) for 2011 emi ssion reductions (with a ra nge of $0-$14 for sensitivity analysis), also increasing at 2.4 percent per year. A regulation finalized by DOE in

### Summary of Interagency Working C omments on Draft Rule under EO 12866

57 October of 2008 used a domestic SCC range of $0 to $20 per ton CO 2 

### for 2007 emission reductions (in 2007 dollars). In additi on, EPA’s 2008 Advance Notice of Proposed Rulemaking for Greenhouse Gases identified wh at it described as “very preliminary” SCC estimates subject to revision. EPA’s global mean values were $68 and $40 per ton

CO 2 

### for discount rates of approximately 2 pe rcent and 3 percent, respectively (in 2006 dollars for 2007 emissions). In 2009, an interagency process was initiate d to offer a preliminary assessment of how best to quantify the benefits from reduci ng carbon dioxide emissi ons. To ensure consistency in how benefits are evaluated across agencies, the Administration sought to develop a transparent and de fensible method, specifically designed for the rulemaking process, to quantify avoided clim ate change damages from reduced CO 2 

### emissions. The interagency group did not under take any original analysis. Instead, it combined SCC estimates from the existing literature to us e as interim values until a more comprehensive analysis could be conducted. The outcome of the preliminary assessment by the interagency group was a set of five interim values: global SCC estimates for 2007 (in 2006 dollars) of $55, $33, $19, $10, and $5 per ton of CO 2. 

### The $33 and $5 values represented model-weighted means of the published estimates produced from the most recently available versions of three integrated assessment models—DICE, PAGE, and FUND—at approximately 3 and 5 percent discount rates. The $55 and $10 valu es were derived by adjusting the published estimates for uncertainty in the discount ra te (using factors developed by Newell and Pizer (2003)) at 3 and 5 percent discount rates, respectively. The $19 value was chosen as a central value between the $5 and $33 per to n estimates. All of these values were assumed to increase at 3 percent annually to represent growth in incremental damages over time as the magnitude of climate change increases. These interim values represent the first sust ained interagency effort within the U.S. government to develop an SCC for use in regulatory analysis. The results of this preliminary effort were presented in several proposed and final rules and were offered for public comment in connection with proposed rules, including the joint EPA-DOT fuel economy and CO 2 

### tailpipe emission proposed rules.

III. Approach and Key Assumptions



### Since the release of the interim values, in teragency group has r econvened on a regular basis to generate improved SCC estimates. Sp ecifically, the group has considered public comments and further explored the technical literature in relevant fields. This section details the several choices and assumptions th at underlie the resulting estimates of the

SCC. It is important to recognize that a number of key uncertainties remain, and that current SCC estimates should be treated as provisional and revisable since they will evolve with improved scientific and economic understanding. The interagency group also recognizes that the existing models are imperfect and incomplete. The National Academy of Science (2009) points out that there is tension betw een the goal of producing quantified estimates of the economic damages from an incremental ton of carbon and the limits of existing efforts to model these effects. Throughout this document, we highlight a number of concerns and problems that sh ould be addressed by the research community, including

### Summary of Interagency Working C omments on Draft Rule under EO 12866

58 research programs housed in many of the agencies participating in the interagency process to estimate the SCC. The U.S. Government will periodically review and reconsider estimates of the SCC used for cost-benefit analyses to reflect increasi ng knowledge of the science and economics of climate impacts, as well as improvements in modeling. In this context, statements recognizing the limitations of the analysis and calling for further research take on exceptional significance. The interagency gr oup offers the new SCC values with all due humility about the uncertainties embedded in them and with a sincere promise to continue work to improve them.



### 4.2.10 The value of increased driving range

Improving the fuel economy of passenger cars and light-duty trucks may also increase their driving range before they require refuel ing. By reducing the frequency with which drivers typically refuel their vehicles and ex tending the upper limit of the range they can travel before requiring refueling, improving fuel economy thus provides some additional

benefits to their owners. A lternatively, if manufacturers respond to improved fuel economy by reducing the size of fuel tanks to maintain a constant driving range, the resulting cost saving will pr esumably be reflected in lower vehicle sales prices. If manufacturers respond by doing so, this presumably reflect s their judgment that the value to economic benefits to vehicle buyers fro m lower purchase prices exceeds that from extended refueling range. No direct estimates of the value of extended vehicle range are readily available, so the agencies’ analyses calculate the reduction in the annual number of required refueling cycles that results from improved fuel economy, and applies DOT-recommended values of travel time savings to convert the resulting time savings to their economic value. xxxiv 

### As a coarse illustration of how the value of extended refueling range is estimated, a typical small light truck model has an average fuel tank size of approximately 20 gallons. 36 

### Based on a California Ai r Resources Board Study, the average fuel purchase is approximately 55% of tank volume. xxxv 

### Therefore, increasing th is model’s actual on-road fuel economy from 24 to 25 mpg would extend its driving range from 216 miles (= 9 gallons x 24 mpg) to 225 miles (= 9 gallons x 25 mpg). Assuming that this vehicle is driven 12,000 miles/year, this reduces the number of times it needs to be refueled each year from 55.5 (= 12,000 miles per year / 216 mi les per refueling) to 53.3 (= 12,000 miles per year / 225 miles per refueling), or by 2.2 refuelings per year. Weighted by the nationwide mix of urban (abo ut 2/3) and rural (about 1/3) driving and average vehicle occupancy for all driving trips (1.6 persons), the DOT-recommended value of travel time per vehicl e-hour is $24.00 (in 2006 dollars). 37 

### Assuming that locating

36 Based on the Volpe Model Market Data file for Model Year 2011, average tank volumes for cars and

trucks are 16.6 gallons and 23.0 gallons, respectively. This produces a production weighted average of

19.3 gallons.

37 The hourly wage rate during 2006 is estimated to be $24.00. Personal travel (94.4 percent of urban

travel) is valued at 50 percent of the hourly wage rate. Business travel (5.6 percent of urban travel) is

valued at 100 percent of the hourly wage rate. For intercity travel, personal travel (87 percent) is valued

at 70 percent of the wage rate, while business travel (13 percent) is valued at 100 percent of the wage Comment [A10]: What is the basis for this

claim?

Comment [A11]: Manufacturers could be reducing size of tank to comply with the rule not simply because they think consumers would value small tank size in lower purchase price. What is the basis for this claim? Did any manufacturer provide

evidence?

### Summary of Interagency Working C omments on Draft Rule under EO 12866

59 a station and filling up requires five minutes, the annual value of time saved as a result of less frequent refueling amounts to $4.40 (cal culated as 5/60 x 2.2 x $24.00). This calculation is repeated for each future calendar year that light trucks of each model year affected by the alternative fuel economy stan dards considered in this rule would remain in service. Like fuel savings and other be nefits, however, the value of this benefit declines over a model year’s lifetime, because a smaller number of vehicles originally produced during that model year remain in service each year, and those remaining in

service are driven fewer miles. The detaile d values used in this calculation by each agency are available in EPA’s RIA and NHTSA’s FRIA respectively. The agencies’ estimate of benefits from less frequent refueling is subject to several sources of uncertainty. First, this analysis assumes that manufacturers will not adjust fuel tank capacities downward (from the current average of 19.3 gallons) when they improve the fuel economy of their vehicle models, so that th e entire increase in fuel economy will be reflected in increased driving range. Should manufacturers choose to downsize fuel tanks,

and all other factors have been estimated with no error, the current estimates of refueling

benefits would be overstated and could even out to zero benefits. . On the other hand, vehicle space, utility and value could increase and vehicle weight will decrease, improving fuel economy and CO 2 

### emissions (all other things being equal). In the context of the rule, this will decrease the cost of compliance with the standards

. Second, the agencies’ analysis assumes that fuel purchases average 55 percent of fuel tank capacity. However, as shown in the Ca lifornia Air Resource Board (CARB) report, refueling patterns vary. Moreover, the 55 percent estimate implies that drivers, on

average , are either refueling when nearly a half tank of gas remains in their vehicles, or that they are habitually not filling their tanks. Since many drivers only refuel when their tanks are very low, and since many drivers habitually refuel, this in turn implies that many drivers in the CARB study are refueling when their tanks are still well above 50 percent full. While based on field data, this estimate may thus overestimate the impact of refueling benefits. For the primary analysis in both the proposal and this final rulemaking, the agencies assume that 100 percent of all refueling is demand-based; i.e. , that every gallon

of fuel which is saved would reduce the need to return to the refueling station. Based on anecdotal evidence, this value is potentially an overestimate. As an example, some people may refuel every Sunday morning at the same time as they buy their newspaper and chewing gum. Barring unusually long trip s, these people would not benefit from an increased driving range.

In order to understand how sensitive the overall estimate of the refuelin g benefit is to this specific input, we provide the following exampl e. If 25 percent of gallons are refueled on a habitual rather than demand-based schedule, and the rest of the assumptions remain constant, the value of increased driving range decreases by 25 percent. There would be no value of increased driving range derived fr om these gallons. Returning to the example light truck discussed above, which generate d a value of increased driving range worth $4.40 in the first year, if this owner refilled 1⁄4 of his annual fuel on a habitual rather than

rate. The resulting values of travel time are $12.67 for urban travel and $17.66 for intercity travel, and

must be multiplied by vehicle occupancy (1.6) to obtain the estimate value of time per vehicle hour. Comment [A12]: This is kind of circular. It could be that manufacturers are reducing size of tank to comply with the standards to begin with so it does

not make sense to double count and claim additional reductions in fuel economy. Do the agencies know if manufactuers are reducing tank size to comply with standards and if they choose to downsize to improve other qualities such as space and utility? If
not, then this sentence should be removed.

Comment [A13]: Some manufacturers are planning to comply with increased hybrid sales, some of which have smaller (and none have larger) tanks than their non-hybrid counterparts. Thus any claim that there would be an offsetting savings in fuel tank size/space in all cases necessarily implies the agencies did not accurately estimate the cost of hybrids.

We recommend this discussion on tank size reduction clearly acknowledge that some will occur and is already accounted for in other calculations.

### Summary of Interagency Working C omments on Draft Rule under EO 12866

60 demand based schedule, the value of increased driving range would decrease to $3.30. While the agencies acknowledge that the a ssumption of 100 percent is arbitrary, the agencies do not have an empirical basis to alter this assumption at this time. However, as noted below, DOT is undertaking a new survey which may provide a data-based basis for revising our 100 percent assumption for future analysis. Third, the agencies’ estimate of refueling be nefits assumes that refueling stops involve the same number of vehicle occupants as the overall average for all vehicle trips (1.6 persons). To the extent that drivers refuel while doing other errands or in advance of picking up passengers, this figure may overe stimate the typical vehicle occupancy during refueling, and thus the total savings in refuelin g time. Similarly, the hourly value used to estimate the economic value of savings in refueling time reflects the typical mix of personal and business travel pu rposes, and drivers are likely to assign different values to their time when traveling for these different purpo ses. To the extent that drivers seek to refuel when traveling for purposes that typica lly use less valuable time, the hourly value used in the agencies’ analysis may overstate the benefits from saving refueling time. Finally, the agencies assume that both finding and using a refueling station takes, on average, five minutes. There are few, if any, data sources on average refueling time, and this estimate is subject to significant uncertainty. For these reasons, the agencies’ estimate of savings in refueling time is uncertain. To reduce the uncertainty, a new project is be ing planned by DOT which will include a detailed study of refueling events, using a ra ndom sample of refueling stations across the U.S. It is projected to include ~7,000 obser vations (time to refuel, # gallons refueled, etc.) and ~5,000 surveys of refueling participan ts. The agencies anticipate that this will provide a robust data set on which to revise many of the key inputs to the refueling benefit calculation. Some of the specific data categories which will be surveyed are

listed below:

• 

### Miles driven and time out of way to get to gas station

• 

### Fuel gage level before and after refueling

• 

### # gallons purchased

• 

### # people in vehicle, abov e and below 16 years old

• 

### Reasons for travel

• 

### Reason for stopping at gas station ( e.g. , fuel level too low, or other)

While the study results are not available in tim e for this final rulemaking, it is anticipated that the data will improve future estimations of the value of increased driving range.



### 4.2.11 Discounting future benefits and costs

Discounting future fuel savings and other benefits is intended to account for the reduction in their value to society when they are de ferred until some future date, rather than received immediately. The discount rate expresses the percent decline in the value of these benefits – as viewed from current perspe ctive – for each year they are deferred into the future. In evaluating the benefits fro m alternative increases in fuel economy and GHG standards for MY 2012-2016 passenger cars and light trucks, EPA and NHTSAhave employed a discount rates of both 3 percent and 7 percent per year, applied to nonclimate benefits and private fuel savings. Comment [A14]: Comment from the Main summary of comments: The TSD discusses uncertainties regarding the refueling benefit, but the preamble makes no mention of it. We recommend both agencies to clearly indicate all of the uncertainty regarding the refueling benefit estimate. Otherwise, the preamble presents the estimate as a best estimate when in reality the agencies acknowledge that it is not a best estimate. We also recommend that the economic assumptions table not just include the time value. The $24.64 is only one part of the refueling benefit estimate. We recommend adding the average number of fewer refueling stops. And since the agencies acknowledge that there are uncertainties in how they’re calculated, we recommend that the economic assumptions table include a footnote clarifying that the refueling estimate (or any other economic assumption that the agencies want to include) is likely biased and is not a best estimate. You can clarify that the agencies used

what limited information was available and that further studies are underway, but we strongly

recommend that the caveat be included in the table itself and discussed in the preamble.

Comment [A15]: The way in which this section is written is inappropriate. Both 3 and 7 percent should be treated as equals. 7 percent should not be treated as a sensitivity. Two reasons why a higher discount rate is appropriate in this setting are the large proportion of private benefits associated with this rule in the form of fuel savings, and consumer heterogeneity in driving behavior and therefore in how these fuel savings are valued over time.

### Summary of Interagency Working C omments on Draft Rule under EO 12866

61 Three percent may be the appropriate rate for discounting future benefits from increased fuel economy a nd GHG standards is that most or all of vehicle manufacturers’ costs for complying with improved fuel economy and GHG standards are likely to be reflected in higher sales prices for their new vehicle models. By increasing sales prices for new cars and light trucks, CAFE regulation will thus primarily affect vehicle pu rchases and other private consumption

decisions. Both economic theory and OMB guidance on discounting indicate that the future benefits and costs of regulations that mainly affect private consumption should be discounted at the consumption rate of time preference. xxxvi 

### OMB guidance indicates that savers appear to discount future consumption at an average real (that is, adjusted to remove the effect of inflation) rate of about 3 percent when they face little risk about its likely level, which makes it a reasonable estimate of the consumption rate of time preference. xxxvii 

### Thus EPA and NHTSA have employed the 3 percent rate to discount projected future benefits and costs resulting from improved fuel economy and GHG standards for MY 2012-2 016 passenger cars and light trucks. Because there is some uncertainty about the extent to which vehicle manufacturers

will be able to recover their costs for co mplying with improved fuel economy and GHG standards by increasing vehicle sales prices, however, a higher per cent discount rate may also be appropriate. OMB guidance indicates that the real economy-wide opportunity cost of capital is the approp riate discount rate to apply to future benefits and costs when the primary effect of a regulation is “...to displace or alter the use of capital in the private sector,” and estimates that this rate currently averages about 7 percent. xxxviii 

### Thus the agencies also use of a 7 percent real discount

rate. One important exception to these values are the rates used to discount benefits from reducing CO 2 

### emissions from the years in which reduced emissions occur, which span the lifetimes of model year 2012-16 cars and light tr ucks, to their present values. In order to ensure consistency in the derivation and use of the interagency group’s estimates of the unit values of reducing CO 2 

### emissions, the total benefits from reducing those emissions during each future year are disc ounted using the same rates that were used to derive the alternative values of reducing each ton of CO 2 

### emissions. As described previously in Section 4.2.10.2, these rates are 2.5, 3.0, and 5.0 percent. A section discussing the assumptions with regard to the effect of CAFE on consumer welfare is notably missing. Below is sugg ested text for inclusion based on the peer

reviewed literature. The economics literature provides a wide ranging discussion of how consumers trade-off upfront costs and energy savings absent government intervention, a large segment of which focuses on trying to explain why consumers appear to undervalue energy efficiency improvements (often referred to as the Energy Efficiency Paradox). Some studies demonstrate how this seeming undervaluation can be explained by inaccurate assessments of energy savings, or by uncertainty and irreversibility of energy

investments. 38 

### Authors also point out that heterogeneity across consumers means that cost

38 Greene, D., J. German, and M. Delucchi (2009). “Fuel Economy: The Case for Market Failure” in Reducing Climate Impacts in the Transportation Sector

, Sperling, D., and J. Cannon, eds. Springer Science; Dasgupta, S., S. Siddarth, and J. Silva-Risso (2007). “To Lease or to Buy? A Structural Model of a

### Summary of Interagency Working C omments on Draft Rule under EO 12866

62 calculations based on the average hide who may gain or lose as a result of the policy. 39


### These results do not imply failure on the part of consumers in making adequate decisions, but rather that the rate of return on the investment necessary for energy efficiency investments is much higher for many consumers than what is implied by a net present

value calculation that does not account for unce rtainty or heterogeneit y. Still other studies suggest that consumers “undervalue” future energy savings due to a divergence in incentives (e.g. renter versus owner) or routine mistakes in how they evaluate these tradeoffs. 40 

### The mix of evidence in the empirical literature suggests that regulations mandating energy efficiency improvements should carefully discuss the potential for welfare loss to offset part or all of the net private savings typically attributed to these types of regulations and to move towards a fuller economic framework where such changes can be quantified. 41 

### We discuss what each of the three cases mentioned above implies for how we compare private costs and private energy savings, the difficulty in quantifying welfare losses, and possible analytic improvements that could be made for future rulemakings. For its main analysis, NHTSA and EPA assume that consumers do not experience any loss in welfare due to the increased stringency of standards. However, recognizing that this is a strong assumption, fuel savings and other private benefits are presented separately from social benefits to make more transparent the implications of this assumption.

Assuming perfectly competitive markets an d perfect consumer foresight, standard economic theory suggests that in the absenc e of regulation, cons umers understand their current and future financial positions and opt imally balance the trade-off between upfront costs and future operating costs. So, any regulation that alters this trade-off must harm their well being (though this harm could be more than offset by the social benefits of the

Consumer’s Vehicle and Contract Choice Decisions.” Journal of Marketing Research 44: 490 – 502; Metcalf, G., and D. Rose nthal (1995). "The ‘New’ View of Inve stment Decisions and Public Policy Analysis: An Application to Green Lights and Cold Refrigerators,’’ Journal of Policy Analysis and Management 14: 517–531. Metcalf and Hassett (1995). "Energy Tax Credits and Residential Conservation

Investment: Evidence from Panel Data" Journal of Public Economics 57: 201-217. Metcalf, G., and K. Hassett (1999). "Measuring the Energy Savings from Home Improvement Investments: Evidence from Monthly Billing Data." The Review of Economics and Statistics 81(3): 516-528; van Soest D., Bulte E. (2000). “Does the Energy-Efficiency Paradox Ex ist? Technological Progr ess and Uncertainty.”

Environmental and Re source Economics 18: 101–12.

39 Hausman J., Joskow P. (1982). “Evaluating the Costs and Benefits of Appliance Efficiency Standards.”

American Economic Review 72: 220–25.

40 Sanstad, A., and R. Howarth (1994). “’Normal’ Markets, Market Imperfections, and Energy Efficiency.” Energy Policy 22(10): 811-818; Larrick, R. P., and J.B. Soll (2008). “The MPG illusion

. ” Science 320: 1593-1594; Yates S, Aronson E. (1983). “A Social Ps ychological Perspective on Energy Conservation in Residential Buildings.” American Psychologist 38: 435–44; Levinson A, Niemann S. (2004). “Energy Use by Apartment Tenants When Landlords Pay for Utilities.” Resource and Energy Economics 26: 51–75; Friedman L. (2002). “Bounded Rationality versus Standard Util ity-Maximization: A Test of Energy Price Responsiveness.” In Judgments, Decisions, and Public Policy , ed. R Gowda, J Fox, pp. 138–73. New York: Cambridge University Press. Hartman R, Doane M, Woo C-K. (199)1. “Consumer Rationality and the Status Quo.” Quarterly Journal of Economics 106: 141–62; Kempton W, Montgomery L. 1982. Folk Quantification of Energy. Energy 7: 817–27

41 A good review of the li terature related to this issue can be found in Gillin gham, K., R. Newell, K. Palmer. (2009). “Energy Effici ency Economics and Policy,” Annual Review of Resource Economics , 1: 597-619; and Tietenberg, T. (2009). “Energy Efficien cy Policy: Pipe Dream or Pipeline to the Future?” Review of Environmental Economics and Policy . Vol. 3, No. 2: 304-320.

### Summary of Interagency Working C omments on Draft Rule under EO 12866

63 policy such as pollution reduction). This is best understood by the recognition that companies currently sell a range of vehicles that already over-comply with current fuel economy standards yet many customers choose not to purchase them. There also is evidence that the pace of energy efficient innovation is tied to fuel prices, showing that the market responds as economists expect. 42 

### In this case, no private net benefits would accrue to the rule (i.e. fuel savings are offset by the private upfront cost and welfare loss). When consumers have less than perfect fo resight, consumers may implicitly discount future savings in operating costs due to uncertain ty caused by inherent fluctuations in fuel prices or the unknown reliability of energy sa ving technol ogies. Government mandates to consume more energy efficiency (here, fuel economy) will not reduce these uncertainties, so consumers will still experience a loss in welfare. Thus, as in the case of perfect foresight, no private net benefits would accrue to the rule. It is worth noting that in this case a high hurdle rate for investme nt is observationally equivalent to a high private discount rate even though th ey are conceptually different. In both of these cases, because consumer had previously optimized their purchase decisions, fuel economy standards that change the upfront costs and energy savings will also change demand. Some consumers who w ould have bought a new vehicle before the introduction of the new standard will no longer do so due to the increase in price. Other consumers will still purchase a new vehicle, but will pay more than they would have without the regulation if manufacturers pass through the costs of complying with the efficiency standard. 43 

### Some consumers will still purchase a vehicle but will switch the type they buy to re-optimize their decision. If there are ample substitutes that allow for greater fuel economy with no loss in other valu ed attributes, then there is no additional loss in welfare due to switching. However, if consumers now imperfectly substitute into another vehicle, they are giving up some level of another attribute they value. That loss should be counted as well. As a result, a tr ue measure of the private costs should include the change in welfare from any foregone purch ases, higher expenses due to compliance costs, and, in some cases, from changing which product the consumer buys. This should then be compared to the stream of future energy savings. Currently only the higher cost of the vehicle for those who continue to purchase it is compared to energy savings (assuming no change in how many vehicles or the types of vehicle that are purchased). On the other hand, some evidence suggests th at consumers only take into account a portion of future cost savings when making inve stment decisions due to errors in decision making, limited information, or principle-agent problems that cause a divergence

between owners’ and renters’ incentives. As a result, it is possible that consumers under invest in fuel economy. In this case a ma ndate may improve consum er welfare. If this view is correct, then it is possible that some private net savings accrue to the rule. In this case, the consumer also appears to use a hi gher private discount rate, but this implicit

discount rate does not reflect true preferences. We expect this last case to be less applicab le to industrial or commercial customers that own vehicle fleets and where energy consum ption constitutes a substantial portion of

42 Popp D, Newell R, Jaffe A. (2009). Energy, the Environment, and Technological Change. In Handbook of Economics of Technical Change , ed. B Hall, N Rosenberg. Oxford: North-Holland.

43 If manufacturers do not fully pass through compliance costs, then they bear a portion of the welfare

loss due to higher efficiency standards.

### Summary of Interagency Working C omments on Draft Rule under EO 12866

64 their operating cost. It also is worth noting th at miscalculations are less likely to result in large errors in the long run. We generally expect customers to adjust any rule of thumb calculations so that they “get it right,” on average. Short run errors seem more likely, given potentially large fluctuations in the pric e of fuel over time and the difficulty in predicting changes very far into the future. A key challenge in quantifying the possible welfare effects of proposed fuel economy standards is estimating the rate at which customers make trade-offs (i.e., the private discount rate). The rate of substitution will likely differ from the government’s social discount rate and may vary by consumer. The evidence suggests that consumers use much higher private discount rates than the government when evaluating energy efficiency gains. 44 

### Attanasio et al (2008) use data from the Consumer Expenditure Survey from 1984 to 1995 and find that 46 percent of consumers who purchased a vehicle took out an auto loan, revealing a mean real interest rate of 8.9 percent with a standard deviation of 4.4 percent and a range from -5.3 to 22.9 percent. Dreyfus and Viscusi (1995) estimate rates of time preferences that range from 11 to 17 percent for vehicle purchases. In a representative surv ey, Kubik found that, on average, consumers will only invest in greater fuel savings if the addi tional cost is paid back in only 2.9 years. EPA and NHTSA also incorporate a relatively short “payback period” into their models to evaluate and order technolog ies that can be used to increase fuel economy, assuming that buyers value the resulting fuel savings ov er the first five years of a new vehicle’s lifetime. This assumption is based on the current average term of consumer loans to finance the purchase of new vehicles. A consumer financing a vehicle purchased at a higher interest rate may very rationally forego a more efficient model if the fuel savings do not outweigh the cost of the higher car payment. 45


### Another key challenge is that, though consumers face the same upfront cost for a given fuel economy improvement, the stream of ener gy savings is likely to vary by consumer due to heterogeneity. Regulatory impact an alyses typically calculate welfare effects using data that reflect average consumer behavior. Even if all consumers are rational, they make purchasing decisions using different private discount rates, utilize equipment at different intensities, have di fferent risk preferences, and face different fuel prices. This means that some consumers may gain while othe rs lose as a result of mandating greater fuel economy. Higher standa rds may benefit consumers who use their vehicles more

44 Attanasio et al. 2008, “Credit Constraints in the Market for Consumer Durables: Evidence from Micro

Data on Car Loans,” International Economic Review, Vol. 49, Issue 2, pp. 401

‐ 436; Dreyfus and Viscusi

(1995). “Rates of Time Preference and Consumer Valuations of Automobile Safety and Fuel Efficiency.”

Journal of Law and Economics, v. 38, n. 79; Kubik, M. (2006). Consumer Views on Transportation and

Energy. Second Edition. Technical Report: National Renewable Energy Laboratory.

45 More general evidence also points to high implicit discount rates: Collier and Williams (1999) find

private discount rates of 15

– 17.5 percent when subjects are informed of prevailing market interest rates

and 20

– 25 percent when they are not. Warner and Pleeter (2001) find that preference for a lump sum

payment over an annuity by members of the military implied a group discount rate of at least 18 percent.

See Collier and Williams (1999). “Eliciting Individual Discount Rates.” Experimental Economics

, v. 2, n. 2;

Warner and Pleeter (2001). “The Personal Discount Rate: Evidence from Military Downsizing Programs.”

American Economic Review, v. 91, n. 1.

### Summary of Interagency Working C omments on Draft Rule under EO 12866

65 intensively (though these same consumers might already purchase efficient products without regulation); meanwhile, consumers w ho use these products less intensively may not reap sufficient energy savings to justify the higher upfront costs. 46 

### Failure to account for such heterogeneous impacts could foster a misleading impression that a regulation yields private net benefits for all consumers. In the future, more advanced modeling could be explored to calculate the net private energy savings explicitly accounting for futu re fuel price uncertainty, whether through the use of a higher private discount rate or a more formal modeling approach, including estimating the full welfare loss associated with the impact of standards via empirical consumer choice models; and developing fo rmal models of consumer perception that account for mistakes or misaligned incentives and estimate them jointly with hedonic or consumer choice models that identify co nsumer willingness-to-pay. NHTSA will continue to explore these more advanced m odeling methods and evalua te to what extent they can be used in future rulemakings.

46 The EIA’s 2001 Transportation Energy Consumption Survey found that vehicles traveled an average of

12,000 miles per year. However, miles traveled for rural vehicles was 9% higher than for urban vehicles,

and vehicles driven by households with children traveled 24% more miles than those driven by

households without children.

### Summary of Interagency Working C omments on Draft Rule under EO 12866

66 1 EPA, Fuel Economy Labeling of Motor Vehicles: Revisions To Improve Calculation of Fuel Economy Estimates; Final Rule, 40 CFR Parts 86 and 600, Federal Register, December 27, 2006, pp. 77872-77969, http://www.epa.gov/fedrgstr/EPA- AIR/2006/December/Day-27/a9749.pdf

.

2 EPA, Final Technical Support Document: Fuel Economy Labe ling of Motor Vehicle Revisions to Improve Calculation of Fuel Economy Estimates , Office of Transportation an d Air Quality EPA420-R-06-017 December 2006, Chapter II, http://www.epa.gov/fueleconomy/420r06017.pdf

.

3 Energy Information Administration, Annual Energy Outlook 2010, Early Release Reference Case (December 2009), Table 12. Available at http://www.eia.doe.gov/oiaf/servicerpt/stimulus/excel/aeostimtab_12.xls

4 Energy Information Administration, Annual Energy Outlook 2009, Revised Updated Reference Case (April 2009), Table 12. Available at http://www.eia.doe.gov/oiaf/servicerpt/stimulus/excel/aeostimtab_12.xls (last accessed July 26, 2009). EIA’s Updated Reference Case reflects the effects of the American Reinvestment and Recovery Act of 2009, as well as the most recent revisions to the U.S. and global economic outlook.

5 http://www.eia.doe.gov/oiaf/aeo /forecast.html (last accessed Ju ly 26, 2009), and Table 16, http://www.eia.doe.gov/oia f/aeo/pdf/table16.pdf (last accessed July 26, 2009).

6 Lu, S., NHTSA, Regulatory Analysis and Evaluation Division, “Vehicle Survivability and Travel Mileage Schedules,” DOT HS 809 952, 8-11 (January 2006). Available at http://www-nrd.nhtsa .dot.gov/pdf/nrd30/NCSA/Rpts/2006/809952.pdf (last accessed Feb. 15, 2010). These updated survival rates suggest that

the expected lifetimes of recent-model passenger cars and light trucks are 13.8 and 14.5 years.

7 FHWA, Highway Statistics, Summary to 1995, Table vm201at http://www.fhwa.dot.gov/ohim/summary95/vm201a.xlw , and annual editions 1996-2005, Table VM-1 at http://www.fhwa.dot.gov/po licy/ohpi/hss/hsspubs.htm (last accessed Feb. 15, 2010).

8 Sorrell, S. and J. Dimitropoulos, 2007. “UKERC Re view of Evidence for the Rebound Effect, Technical Report 2: Econometric Studies” , UKERC/WP/TPA/2007/010, UK Ener gy Research Centre, London, October and Greening, L.A., D.L. Greene and C. Di figlio, 2000. “Energy Efficiency and Consumption – The Rebound Effect – A Survey”, Energy Policy, vol. 28, pp. 389-401.

9 Greening et al. 2000.

10 Pickrell, D. and P. Schimek, 1999. “Growth in Motor Vehicle Ownership an d Use: Evidence from the Nationwide Personal Transportation Survey”, Journal of Transportation and Statistics, vol. 2, no. 1, pp. 1-

17.

11 Small, K. and K. Van Dender, 2007a. “Fuel Effi ciency and Motor Vehicle Travel: The Declining Rebound Effect”, The Energy Journal, vol. 28, no. 1, pp. 25-51.

12 Small, K. and K. Van Dender, 2007b. "Long Run Trends in Transport Demand, Fuel Price Elasticities and Implications of the Oil Outlook for Transport Policy," OECD/ITF Joint Transport Research Centre Discussion Papers 2007/16, OECD, International Transport Forum.

13 Greene paper accepted by Energy Journal. [EPA will update with publication citation]

14 FHWA. 1997 Federal Highway Cost Allocation Study ; http://www.fhwa.dot.gov/policy/hcas/final/i ndex.htm (last accessed July 29, 2009).

15 Federal Highway Administration, 1997 Federal Highway Cost Allocation Study

, http://www.fhwa.dot.gov/policy/hcas/final/index.htm, Ta bles V-22, V-23, and V-24 (last accessed Feb. 15, 2010).

16 U.S. Bureau of Economic Analysis, U.S. Internationa l Transactions Accounts Da ta, as shown on June 24,

2009.

### Summary of Interagency Working C omments on Draft Rule under EO 12866

67 17 U.S. Department of Energy, Annual Energy Revi ew 2008, Report No. DOE/EIA-0384(2008), Tables 5.1 and 5.13c, June 26, 2009.

18 Leiby, Paul N. "Estimating the Energy Security Benefits of Reduced U.S. Oil Imports," Oak Ridge National Laboratory, ORNL/TM-2007/028, Final Report, 2008.

19 Peer Review Report Summary: Estimating the Energy Security Benefits of Reduced U.S. Oil Imports

, ICF, Inc., September 2007.

20 Gately, Dermot 2004. "OPEC's Incentives for Faster Output Growth," The Energy Journal, 25(2):75-96, "What Oil Export Levels Should We Expect From OPEC?" The Energy Journal, 28(2):151-173, 2007

xxi Argonne Nationa l Laboratories, The Greenhouse Gas and Regulated Emissions from Transportation (GREET) Model , Version 1.8, June 2007, available at http://www.transportation.anl.gov/software/GREET/index.html (last accessed April 20, 2008).

xxii The issue is discussed in more detail in the PM NAAQS RIA from 2006. See U.S. Environmental Protection Agency. 2006. Final Regulatory Impact Analysis (RIA) for the Proposed National Ambient Air Quality Standards for Particulate Matter. Prepared by: Office of Air and Radiation. October 2006. Available at http://www.epa.gov/ttn/ecas/ria.html.

xxiii U.S. Environmental Protection Agency (U.S. EPA). 2008a. Regulatory Impact Analysis, 2008 National Ambient Air Quality Standards for Gr ound-level Ozone, Chapter 6. Office of Air Quality Planning and Standards, Research Triangle Park, NC. March. Available at <http://www.epa.gov/ttn/ ecas/regdata/RIAs/6-oz oneriachapter6.pdf>.

xxiv U.S. Environmental Protection Agency (U.S. EPA). 2009a. Regulatory Impact Analysis: National

Emission Standards for Hazardous Air Pollutants from the Portland Cement Manufacturing Industry. Office of Air Quality Planning and Standards, Research Triangle Park, NC. April. Available on the Internet at <http://www.epa.gov/ttn/ecas/r egdata/RIAs/portlandcementria_4-20-09.pdf>.

xxv U.S. Environmental Protection Agency (U.S. EP A). 2009b. Proposed NO2 NAAQS Regulatory Impact Analysis (RIA). Office of Air Quality Planning and Standards, Research Triangle Park, NC. April. Available on the Internet at http://www.epa. gov/ttn/ecas/regdata/RIAs/proposedno2ria.pdf.

xxvi U.S. Environmental Protection Agency (U.S. EPA) . 2008b. Technical Support Document: Calculating Benefit Per-Ton estimates, Ozon e NAAQS Docket #EPA-HQ-OAR-200 7-0225-0284. Office of Air Quality Planning and Standards, Research Triangle Park, NC. March. Available on the Internet at <http://www.regulations.gov>.

xxvii Fann, N. et al. (2009). The influence of location, source, and emission type in estimates of the human health benefits of reducing a ton of air pollution. Air Qual Atmos Health. Published online: 09 June, 2009.

xxviii Pope, C.A., III, R.T. Burnett, M.J. Thun, E.E. Calle, D. Krewski, K. Ito, and G.D. Thurston. 2002. “Lung Cancer, Cardiopulmonary Mortality, and Long-term Exposure to Fine Part iculate Air Pollution.”

Journal of the American Medical Association 287:1132-1141.

xxix Laden, F., J. Schwartz, F.E. Speizer, and D.W. Dockery. 2006. “Reduction in Fine Particulate Air Pollution and Mortality.” American Journal of Resp iratory and Critical Care Medicine 173:667-672. Estimating the Public Health Benefits of Proposed Air Pollution Regulations. Washington, DC: The

National Academies Press.

xxx Mrozek, J.R., and L.O. Taylor. 2002. “What Det ermines the Value of Life? A Meta-Analysis.” Journal of Policy Analysis and Management 21(2):253-270.

xxxi Viscusi, V.K., and J.E. Aldy. 2003. “The Value of a Statistical Life: A Critical Review of Market Estimates throughout the World.” Journal of Risk and Uncertainty 27(1):5-76.

xxxii Kochi, I., B. Hubbell, and R. Kramer. 2006. An Empirical Bayes Approach to Combining Estimates

of the Value of Statistical Life for Environmenta l Policy Analysis. Environmental and Resource

Economics. 34: 385-406.

### Summary of Interagency Working C omments on Draft Rule under EO 12866

68 xxxiii U.S. Environmental Protection Ag ency (U.S. EPA). 2000. Guidelines for Preparing Economic Analyses. EPA 240-R-00-003. National Center fo r Environmental Economics, Office of Policy Economics and Innovation. Washington, DC. September. Available on the Internet at <http://yosemite.epa.gov/ee/epa/eed.nsf/webpages/Guidelines.html/$file/cover.pdf>.

xxxiv See http://ostpxweb.dot.gov/po licy/Data/VOT97guid.pdf and http://ostpxweb.dot.gov/policy/Data/VOTrevision1_2-11-03.pdf

xxxv California Environmental Protection Agency, Air Re sources Board. Draft Assessment of the RealWorld Impacts of Commingling California Phas e 3 Reformulated Gasoline. August 2003

xxxvi Id.

xxxvii Office of Management and Budget, Circular A-4, “Regulatory Analysis,” September 17, 2003, 33.

Available at http://www.whitehouse.gov /omb/circulars/a004/a-4.pdf (last accessed July 24, 2009).

xxxviii Id.

### Summary of Interagency Working C omments on Draft Rule under EO 12866

69Summary of Interagency Working Com ments on Draft Rule under EO 12866

1 Below are interagency comments received during EO 12866 review of the draft rule “Joint Rulemaking to Establish Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standard s”. They are subject to further policy

review.

Suggestions for Preamble Sections:

ENVIRONMENTAL PROTECTION AGENCY 40 CFR Parts 9, 86, and 600

DEPARTMENT OF TRANSPORTATION National Highway Traffic Safety Administration 49 CFR Parts 531, 533, 537 and 538

[EPA–HQ–OAR–2009–0472; FRL_8959-4; NHTSA-2009-0059] RIN 2060-AP58; RIN 2127-AK50

Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards; Final Rule

AGENCIES: Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration (NHTSA).

ACTION: Final Rule.

_______________________________________________________________________ SUMMARY: EPA and NHTSA are issuing this joint Final Rule to establish a National Program consisting of new standards for ligh t-duty vehicles that will reduce greenhouse gas emissions and improve fuel economy. This joint Final Rule is consistent with the National Fuel Efficiency Policy announced by President Obama on May 19, 2009, responding to the country’s critical need to address global climate change and to reduce oil consumption. EPA is finalizing greenhouse gas emissions standards under the Clean Air Act, and NHTSA is finalizing Corporate Average Fuel Economy standards under the Energy Policy and Conservation Act, as amended. These standards apply to passenger cars, light-duty trucks, and medium-duty pa ssenger vehicles, covering model years 2012 through 2016, and represent a harmonized and consistent National Program. Under the National Program, automobile manufacturers wi ll be able to build a single light-duty national fleet that satisfies all requirements under both programs while ensuring that consumers still have a full range of vehicle c hoices. NHTSA’s final rule also constitutes the agency’s Record of Decision for purposes of its NEPA analysis.

DATES: This final rule is effective on [Insert date 60 days after publication in the Federal Register], sixty days after date of publication in the Federal Register . The incorporation by reference of certain publicatio ns listed in this regulation is approved by the Director of the Federal Register as of [Insert date 60 days after publication in the Federal Register]

.Summary of Interagency Working Com ments on Draft Rule under EO 12866

2 ADDRESSES: EPA and NHTSA have established dockets for this action under Docket ID No. EPA-HQ-OAR-2009-0472 and NHTSA-2009-0059, respectively. All documents in the docket are listed on the www.regulations.gov web site. Although listed in the index, some information is not publicly available, e.g., CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the Internet and will be publicly available only in hard copy form. Publicly

available docket materials are avai lable either electronically through www.regulations.gov or in hard copy at the following locations: EPA: EPA Docket Center, EPA/DC, EPA West, Room 3334, 1301 Constitution Ave., NW., Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566–1744 . NHTSA: Docket Management Facility, M-30, U.S. Department of Transportation, West Building, Ground Floor, Rm. W12-140, 1200 New Jersey Avenue, SE, Washington, DC 20590. The Docket Ma nagement Facility is open between 9 a.m. and 5 p.m. Eastern Time, Monday through Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT: EPA: Tad Wysor, Office of Transportation and Air Quality, Assessment and Standards Division, Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor MI 48105; telephone number: 734-214-4332; fax number: 734-214-4816; email address: wysor.tad@epa.gov

, or Assessment and Standards Division Hotline; telephone number (734) 214-4636; e-mail address asdinfo@epa.gov . NHTSA: Rebecca Yoon, Office of Chief Counsel, National Highway Traffic Safety Administration, 1200 New Jersey Avenue, SE, Washington, DC 20590. Telephone: (202) 366-2992.

SUPPLEMENTARY INFORMATION:

Does this Action Apply to Me?

This action affects companies that manu facture or sell new light-duty vehicles, light-duty trucks, and medium-duty passenger vehicles, as defined under EPA’s CAA regulations, 1 and passenger automobiles (passenger cars) and non-passenger automobiles (light trucks) as defined under NHTSA’s CAFE regulations. 2 Regulated categories and

entities include:

1 “Light-duty vehicle,” “light-duty truck,” and “m edium-duty passenger vehicle” are defined in 40 CFR 86.1803-01. Generally, the term “light-duty vehicl e” means a passenger car, the term “light-duty truck” means a pick-up truck, sport-utility vehicle, or miniva n of up to 8,500 lbs gross vehicle weight rating, and “medium-duty passenger vehicle” means a sport-utility ve hicle or passenger van from 8,500 to 10,000 lbs gross vehicle weight rating. Medium-duty passe nger vehicles do not include pick-up trucks.

2 “Passenger car” and “light truck” are defined in 49 CFR Part 523.Summary of Interagency Working Com ments on Draft Rule under EO 12866

3 Category NAICS

Codes A Examples of Potentially Regulated Entities

Industry 336111

336112 Motor vehicle manufacturers.

Industry 811112

811198

541514 Commercial Importers of Vehicles and Vehicle Components.

A North American Industry Classification System (NAICS)

This list is not intended to be exhaustive, but rather provides a guide regarding entities likely to be regulated by this action. To determin e whether particular activities may be regulated by this action, you should carefully examine the regulations. You may direct questions regarding the applicability of this action to the person listed in FOR

FURTHER INFORMATION CONTACT

.

I. Overview of Joint EPA/NHTSA National Program

A. Introduction 1. Building Blocks of the National Program 2. Public Participation B. Summary of the Joint Final Rule and Differences from the Proposal 1. Joint Analytical Approach

2. Level of the Standards

3. Form of the Standards 4. Program Flexibilities 5. Coordinated Compliance C. Summary of Costs and Benefits of the National Program 1. Summary of Costs and Benefits of NHTSA's CAFE

Standards 2. Summary of Costs and Benefits of EPA's GHG Standards D. Background and Comparison of NHTSA and EPA Statutory Authority

II. Joint Technical Work Completed for This Final Rule

A. Introduction B. Developing the Future Fleet for A ssessing Costs, Benefits, and Effects 1. Why Did the Agencies Establish a Baseline and Reference Vehicle Fleet? 2. How Did the Agencies Develop the Baseline Vehicle Fleet? 3. How Did the Agencies Develop the Projected MY 2011-2016 Vehicle

Fleet? 4. How Was the Development of the Baseline and Reference Fleets for this

Final Rule Different from NHT SA’s Historical Approach?

5. How Does Manufacturer Product Plan Data Factor into the Baseline Used

in this Final Rule? C. Development of Attribute-Based Curve Shapes D. Relative Car-Truck Stringency E. Joint Vehicle Technology Assumptions 1. What Technologies Did the Agencies Consider?Summary of Interagency Working Com ments on Draft Rule under EO 12866

4 2. How Did the Agencies Determine the Costs and Effectiveness of Each of These Technologies? F. Joint Economic Assumptions

III. EPA Greenhouse Gas Vehicle Standards

A. Executive Overview of EPA Rule

1. Introduction 2. Why is EPA Establishing this Rule? 3. What is EPA Adopting? 4. Basis for the GHG Standards under Section 202(a) B. GHG Standards for Light-duty Vehicles, Light-duty Trucks, and Medium-duty Passenger Vehicles 1. What Fleet-wide Emissions Levels Correspond to the CO 2 Standards?

2. What are the CO 2 Attribute-based Standards?

3. Overview of How EPA’s CO 2 Standards Will Be Implemented for

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

5. CO 2 Temporary Lead-Time Allowance Alternative Standards

6. Deferment of CO 2 Standards for Small Volume Manufacturers with Annual Sales Less than 5,000 Vehicles

7. Nitrous Oxide and Methane Standards 8. Small Entity Deferment C. Additional Credit Opportunities for CO 2 Fleet Average Program 1. Air Conditioning Related Credits

2. Flexible Fuel and Alternative Fuel Vehicle Credits 3. Advanced Technology Vehicle Incen tives for Electric Vehicles, Plug-in Hybrids, and Fuel Cell Vehicles 4. Off-cycle Technology Credits 5. Early Credit Options D. Feasibility of the Final CO 2 Standards 1. How Did EPA Develop a Reference Vehicle Fleet for Evaluating Further

CO 2 Reductions?

2. What Are the Effectiveness and Costs of CO 2 -reducing Technologies? 3. How Can Technologies be Combined into “Packages” and What is the Cost and Effectiveness of Packages? 4. Manufacturer’s Application of Technology 5. How Is EPA Projecting that a Manufacturer Decides Between Options to Improve CO 2 Performance to Meet a Fleet Average Standard? 6. Why Are the Final CO 2 Standards Feasible?

7. What Other Fleet-Wide CO 2 Levels Were Considered? E. Certification, Compliance, and Enforcement 1. Compliance Program Overview 2. Compliance with Fleet-Average CO 2 Standards

3. Vehicle Certification 4. Useful Life Compliance 5. Credit Program ImplementationSummary of Interagency Working Com ments on Draft Rule under EO 12866

5 6. Enforcement

7. Prohibited Acts in the CAA

8. Other Certification Issues 9. Miscellaneous Revisions to Existing Regulations 10. Warranty, Defect Reporting, and Other Emission-related Components

Provisions 11. Light Duty Vehicles and Fuel Economy Labeling

F. How Will This Final Rule Reduce GHG Emissions and Their Associated Effects? 1. Impact on GHG Emissions 2. Overview of Climate Change Impacts from GHG Emissions 3. Changes in Global Mean Temperature and Sea Level Rise Associated with

the Rule’s GHG Emissions Reductions 4. Weight Reduction and Potential Safety Impacts G. How Will the Standards Impact No n-GHG Emissions and Their Associated

Effects? 1. Upstream Impacts of Program 2. Downstream Impacts of Program

3. Health Effects of Non-GHG Pollutants

4. Environmental Effects of Non-GHG Pollutants 5. Air Quality Impacts of Non-GHG Pollutants H. What Are the Estimated Cost, Economic, and Other Impacts of the Program? 1. Conceptual Framework fo r Evaluating Consumer Impacts 2. Costs Associated with the Vehicle Program 3. Cost per Ton of Emissions Reduced 4. Reduction in Fuel Consumption and its Impacts 5. Impacts on U.S. Vehicle Sales and Payback Period 6. Benefits of Reducing GHG Emissions 7. Non-Greenhouse Gas Health and Environmental Impacts 8. Energy Security Impacts 9. Other Impacts 10. Summary of Costs and Benefits I. Statutory and Executive Order Reviews 1. Executive Order 12866: Regulatory Planning and Review 2. Paperwork Reduction Act 3. Regulatory Flexibility Act

4. Unfunded Mandates Reform Act 5. Executive Order 13132 (Federalism) 6. Executive Order 13175 (Consultation and Coordination with Indian Tribal Governments)

7. Executive Order 13045: “Protection of Children from Environmental Health Risks and Safety Risks” 8. Executive Order 13211 (Energy Effects) 9. National Technology Transfer Advancement Act

10. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations J. Statutory Provisions and Legal AuthoritySummary of Interagency Working Com ments on Draft Rule under EO 12866

6 IV. NHTSA Final Rule and Record of Decision for Passenger Car and Light

Truck CAFE Standards for MYs 2012-2016

A. Executive Overview of NHTSA Final Rule

1. Introduction 2. Role of Fuel Economy Improvements in Promoting Energy Independence, Energy Security, and a Low Carbon Economy 3. The National Program 4. Review of CAFE Standard Setting Methodology per the President’s January 26, 2009 Memorandum on CAFE Standards for MYs 2011 and Beyond 5. Summary of the Final MY 2012-2016 CAFE Standards B. Background 1. Chronology of Events since the National Academy of Sciences Called for Reforming and Increasing CAFE Standards 2. Energy Policy and Conservation Act, as Amended by the Energy Independence and Security Act C. Development and Feasibility of the Proposed Standards 1. How Was the Baseline and Reference Vehicle Fleet Developed? 2. How Were the Technology Inputs Developed? 3. How Did NHTSA Develop the Economic Assumptions? 4. How Does NHTSA Use the Assumptions in its Modeling Analysis? 5. How Did NHTSA Develop the Shape of the Target Curves for the Final

Standards? D. Statutory Requirements 1. EPCA, as Amended by EISA

2. Administrative Procedure Act 3. National Environmental Policy Act

E. What Are the Final CAFE Standards?

1. Form of the Standards 2. Passenger Car Standards for MYs 2012-2016 3. Minimum Domestic Passenger Car Standards 4. Light Truck Standards F. How Do the Proposed Standards Fu lfill NHTSA’s Statutory Obligations? G. Impacts of the Final CAFE Standards 1. How Will these Standards Improve Fuel Economy and Reduce GHG

Emissions for MY 2012-2016 Vehicles? 2. How Will these Standards Improve Fleet-Wide Fuel Economy and Reduce GHG Emissions Beyond MY 2016? 3. How Will these Standards Impact Non-GHG Emissions and their

Associated Effects?

4. What are the Estimated Costs and Benefits of these Final Standards? 5. How Would these Standards Impact Vehicle Sales? 6. What Are the Consumer Welfare Impacts of these Standards? 7. What Are the Estimated Safety Impacts of these Standards?Summary of Interagency Working Com ments on Draft Rule under EO 12866

7 8. What Other Impacts (Quantita tive and Unquantifiable) Will these

Standards Have?

H. Vehicle Classification I. Compliance and Enforcement

1. Overview 2. How Does NHTSA Determine Compliance? 3. What Compliance Flexibilities Are Available under th e CAFE Program

and How Do Manufacturers Use Them? 4. Other CAFE Enforcement Issues—Variations in Footprint

5. Other CAFE Enforcement Issues – Miscellaneous J. Other Near-Term Rulemakings Mandated by EISA 1. Commercial Medium- and Heavy-Duty On-Highway Vehicles and Work

Trucks

2. Consumer Information on Fu el Efficiency and Emissions

K. NHTSA’s Record of Decision L. Regulatory Notices and Analyses 1. Executive Order 12866 and DOT Regulatory Policies and

Procedures 2. National Environmental Policy Act 3. Regulatory Flexibility Act 4. Executive Order 13132 (Federalism) 5. Executive Order 12988 (Civil Justice Reform)

6. Unfunded Mandates Reform Act 7. Paperwork Reduction Act 8. Regulation Identifier Number

9. Executive Order 13045 10. National Technology Transfer and Advancement Act

11. Executive Order 13211 12. Department of Energy Review 13. Plain Language 14. Privacy Act

I. Overview of Joint EPA/NHTSA National Program

A. Introduction

The National Highway Traffic Safety Administration (NHTSA) and the Environmental Protection Agency (EPA) are each announcing final rules whose benefits will address the urgent and closely intertwi ned challenges of energy independence and security and global warming. These rules will implement a strong and coordinated federal greenhouse gas and fuel economy program for passenger cars, light-duty-trucks, and medium-duty passenger vehicles (hereafter light-duty vehicles), referred to as the National Program. The rules will achieve substantial reductions of greenhouse gas (GHG) emissions and improvements in fuel economy from the light-duty vehicle part of the transportation sector, based on technology that is already being commercially appliedSummary of Interagency Working Com ments on Draft Rule under EO 12866

8 in most cases and that can be incorporated at a reasonable cost. NHTSA’s final rule also constitutes the agency’s Record of Decisi on for purposes of its NEPA analysis.

This joint rulemaking is consistent with the President’s announcement on May 19, 2009 of a National Fuel Efficiency Policy of establishing consistent, harmonized, and streamlined requirements that would reduce greenhouse gas emissions and improve fuel economy for all new cars and light-duty trucks sold in the United States. 3 The National Program will deliver additional envi ronmental and energy benefits, cost savings, and administrative efficiencies on a nationwide basis that would likely not be available under a less coordinated approach. The National Program also represents regulatory convergence by making it possible for the standards of two different federal agencies and the standards of California and other states to act in a unified fashion in providing these benefits. The National Program will allow automakers to produce and sell a single fleet nationally, mitigating the additional costs that manufacturers would otherwise face in having to comply with multiple sets of fede ral and state standards. This joint notice is also consistent with the Notice of Upcomi ng Joint Rulemaking issued by DOT and EPA on May 19, 2009 4 and responds to the President’s January 26, 2009 memorandum on CAFE standards for model years 2011 and beyond, 5 the details of which can be found in Section IV of this joint notice.

Climate change is widely viewed as the most a significant long-term threat to the global environment. According to the Intergovernmental Panel on Climate Change, anthropogenic emissions of greenhouse gases are very likely (90 to 99 percent probability) the cause of most of the observed global warming over the last 50 years. The primary GHGs of concern are carbon dioxide (CO 2 ), methane, nitrous oxide, hydrofluorocarbons, perfluoro carbons, and sulfur hexafluoride. 6 Mobile sources emitted 31 percent of all U.S. GHG in 2007 (transportation sources, which do not include certain off-highway sources, account for 28 percent) and have been the fastest-growing source of

U.S. GHG since 1990. 7 Mobile sources addressed in the recent endangerment and contribution findings under CAA section 202(a) --light-duty vehicles, heavy-duty trucks, buses, and motorcycles--accounted for 23 percent of all U.S. GHG in 2007. 8 Light-duty

3 President Obama Announces National Fuel Efficiency Policy, The White House, May 19, 2009. Available at: http://www.whitehouse.gov/the_press _office/President-Obama-Announces-National-FuelEfficiency-Policy/. Remarks by the President on Nati onal Fuel Efficiency Standards, The White House, May 19, 2009. Available at: http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-onnational-fuel-efficiency-standards/.

4 74 FR 24007 (May 22, 2009).

5 Available at: http://www.whitehouse.gov/the_pres s_office/Presidential_Memorandum_Fuel_Economy/.

6 Intergovernmental Panel on Climate Change Workin g Group I. 2007. Climate Change 2007-The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change.

7 U.S. Environmental Protection Agency. 2009. Inventory of U.S. Greenhouse Gas Emissions and Sinks:

1990-2007. EPA 430-R-09-004. Available at http://epa.gov/climatechange/emissions/downloads09/GHG2007entire_report-508.pdf

8 U.S. EPA. 2009 Technical Support Document for Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act. Washington, DC. pp. 180-194. Available at http://epa.gov/climatechange/endangerme nt/downloads/Endangerment%20TSD.pdf Comment [A1]: This section motivates government action by appropriately referencing the social benefits that results from addressing energy and environmental externalities and potential

administrative efficiencies from harmonization. Reference to private fuel savings should be struck

from this discussionSummary of Interagency Working Com ments on Draft Rule under EO 12866

9 vehicles emit four GHGs--CO 2 , methane, nitrous oxide, and hydrofluorocarbons--and are responsible for nearly 60 percent of all mobile source GHGs and over 70 percent of Section 202(a) mobile source GHGs. For light-duty vehicles in 2007, CO 2 emissions represent about 94 percent of all greenhouse emissions (including HFCs), and the CO 2 emissions measured over the EPA tests used for fuel economy compliance represent about 90 percent of total light-duty vehicle greenhouse gas emissions. 9,10

Improving energy security by reducing our dependence on foreign oil has been a national objective since the first oil price shoc ks in the 1970s. Net petroleum imports now account for approximately 60 percent of U.S. petroleum consumption. World crude oil production is highly concentrated, exacerbating the risks of supply disruptions and price shocks. Tight global oil markets led to prices over $100 per barrel in 2008, with gasoline reaching as high as $4 per gallon in many parts of the U.S., causing financial hardship for many families. The export of U.S. assets for oil imports continues to be an important component of the historically unprecedented U.S. trade deficits. Transportation accounts for about two-thirds of U.S. petroleum consumption. Light-duty vehicles account for about 60 percent of transportation oil use, which means that they alone account for about 40 percent of all U.S. oil consumption.

1. Building Blocks of the National Program

The National Program is both needed and possible because the relationship between improving fuel economy and reducing CO 2 tailpipe emissions is a very direct

and close one. The amount of those CO 2 emissions is essentially constant per gallon combusted of a given type of fuel. Thus, the more fuel efficient a vehicle is, the less fuel it burns to travel a given distance. The less fuel it burns, the less CO 2 it emits in traveling

that distance. 11 While there are emission control te chnologies that reduce the pollutants (e.g

. , carbon monoxide) produced by imperfect combustion of fuel by capturing or converting them to other compounds, there is no such technology for CO 2 . Further, while some of those pollutants can also be reduced by achieving a more complete combustion of fuel, doing so only increases the tailpipe emissions of CO 2 . Thus, there is a single pool of technologies for addressing these twin problems, i.e., those that reduce fuel consumption and thereby reduce CO 2 emissions as well.

a. DOT’s CAFE Program

In 1975, Congress enacted the Energy Policy and Conservation Act (EPCA), mandating that NHTSA establish and implement a regulatory program for motor vehicle fuel economy to meet the various facets of the need to conserve energy, including ones having energy independence and security, environmental and foreign policy implications.

9 U.S. Environmental Protection Agency. 2009. Inventory of

U.S. Greenhouse Gas Emissions and Sinks: 1990-2007. EPA 430-R-09-004. Available at http://epa.gov/climatechange/emiss ions/downloads09/GHG2007entire_report-508.pdf

10 U.S. Environmental Protection Agency. RIA, Chapter 2

11 Panel on Policy Implications of Greenhouse Wa rming, National Academy of Sciences, National Academy of Engineering, Institute of Medicine, “Pol icy Implications of Gree nhouse Warming: Mitigation, Adaptation, and the Science Base,” National Academies Press, 1992. p. 287.Summary of Interagency Working Com ments on Draft Rule under EO 12866

10 Fuel economy gains since 1975, due both to the standards and market factors, have resulted in saving billions of barrels of oil and avoiding billions of metric tons of CO 2 emissions. In December 2007, Congress enacted the Energy Independence and Securities Act (EISA), amending EPCA to require substantial, continuing increases in fuel economy

standards.

The CAFE standards address most, but not all, of the real world CO 2 emissions because a provision in EPCA as originally enacted in 1975 requires the use of the 1975 passenger car test procedures under which vehicle air conditioners are not turned on during fuel economy testing. 12 Fuel economy is determined by measuring the amount of

CO 2 and other carbon compounds emitted from the tailpipe, not by attempting to measure directly the amount of fuel consumed during a vehicle test, a difficult task to accomplish with precision. The carbon content of the test fuel 13 is then used to calculate the amount of fuel that had to be consumed per mile in order to produce that amount of CO 2 . Finally, that fuel consumption figure is converted into a miles-per-gallon figure. CAFE standards also do not address the 5-8 percent of GHG emissions that are not CO 2 , i.e., nitrous oxide (N 2 O), and methane (CH 4 ) as well as emissions of CO 2 and hydrofluorocarbons (HFCs) related to operation of the air conditioning system.

b. EPA’s Greenhouse Gas Standards for Light-duty Vehicles

Under the Clean Air Act EPA is responsi ble for addressing air pollutants from motor vehicles. On April 2, 2007, the U.S. Supreme Court issued its opinion in

Massachusetts v. EPA

, 14 a case involving a 2003 order of the EPA denying a petition for rulemaking to regulate greenhouse gas emissions from motor vehicles under section 202(a) of the Clean Air Act (CAA). 15 The Court held that greenhouse gases were air pollutants for purposes of the Clean Air Act an d further held that the Administrator must

determine whether or not emissions from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or

whether the science is too uncertain to make a reasoned decision. The Court further ruled that, in making these decisions, the EPA Admi nistrator is required to follow the language of section 202(a) of the CAA. The Court re jected the argument that EPA cannot regulate

CO 2 from motor vehicles because to do so would de facto tighten fuel economy standards, authority over which has been assigned by Congress to DOT. The Court stated that “[b]ut that DOT sets mileage standards in no way licenses EPA to shirk its environmental responsibilities. EPA has been charged with protecting the public‘s ‘health’ and ‘welfare’, a statutory obligation wholly independent of DOT’s mandate to promote energy efficiency.” The Court concluded that “[t]he two obligations may overlap, but there is no reason to think the two agencies cannot both administer their

12 Although EPCA does not require the use of 1975 test procedures for light trucks, those procedures are used for light truck CAFE standard testing purposes.

13 This is the method that EPA uses to dete rmine compliance with NHTSA’s CAFE standards.

14 549 U.S. 497 (2007).

15 68 FR 52922 (Sept. 8, 2003).Summary of Interagency Working Com ments on Draft Rule under EO 12866

11 obligations and yet avoid inconsistency.” 16 The Court remanded the case back to the Agency for reconsideration in light of its findings. 17

On December 15, 2009, EPA published two findings (74 FR 66496): that

emissions of GHGs from new motor vehicles and motor vehicle engines contribute to air pollution, and that the air pol lution may reasonably be an ticipated to endanger public

health and welfare.

c. California Air Resources Board Greenhouse Gas Program

In 2004, the California Air Resources Board approved standards for new lightduty vehicles, which regulate the emission of not only CO 2 , but also other GHGs. Since then, thirteen states and the District of Colu mbia, comprising approximately 40 percent of the light-duty vehicle market, have adopted California’s standards. These standards apply to model years 2009 through 2016 and require CO 2 emissions for passenger cars and the smallest light trucks of 323 g/mi in 2009 and 205 g/mi in 2016, and for the remaining light trucks of 439 g/mi in 2009 and 332 g/mi in 2016. On June 30, 2009, EPA granted California’s request for a waiver of preemption under the CAA. 18 The granting of the waiver permits California and the other states to proceed with implementing the California emission standards.

In addition, to promote the National Program, California announced its commitment to take several actions in support of the National program, including revising its program for MYs 2012-2016 such that compliance with the federal GHG standards will be deemed to be compliance w ith California's GHG standards. This will allow the single national fleet produced by automakers to me et the two Federal requirements and to meet California requirements as well. California is proceeding with a rulemaking intended to revise its 2004 regulations to meet its commitments.

2. Public Participation

The agencies proposed their respective rules on September 28, 2009 (74 FR 49454), and received a large number of comments representing many perspectives on the proposed rule. The agencies received oral te stimony at three public hearings in different parts of the country, and received written comments from more than 130 organizations, including auto manufacturers and supplie rs, states, environmental and other nongovernmental organizations (NGOs), and over 129,000 comments from private citizens.

The vast majority of commenters supported the central tenets of the proposed CAFE and GHG programs. That is, there was broad support from most organizations for

16 549 U.S. at 531-32.

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

18 74 FR 32744 (July 8, 2009).Summary of Interagency Working Com ments on Draft Rule under EO 12866

12 a National Program that achieves a level of 250 gram/mile fleet average CO 2 , which would be 35.5 miles per gallon if the automakers were to meet this CO 2 level solely through fuel economy improvements. The stan dards will be phased in over model years 2012 through 2016 which will allow manufacturers to build a common fleet of vehicles for the domestic market. In general, commenters from the automobile industry supported the proposed standards as well as the credit opportunities and other compliance provisions providing flexibility, while also making some recommendations for changes. Environmental and public interest non-governmental organizations (NGOs), as well as most states that commented, were also generally supportive of the National Program standards. Many of these organizations also expressed concern about the possible impact on program benefits, depending on how th e credit provisions and flexibilities are designed. The agencies also received specific comments on many aspects of the proposal.

Throughout this notice, the agencies discuss many of the key issues arising from the public comments and the agencies' responses. In a ddition, the agencies have addressed all of the public comments in the Joint Response to Comments document

associated with this final rule.

B. Summary of the Joint Final Rule and Differences from the Proposal

In this joint rulemaking, EPA is establ ishing GHG emissions standards under the Clean Air Act (CAA), and NHTSA is esta blishing Corporate Average Fuel Economy (CAFE) standards under the Energy Policy and Conservation Action of 1975 (EPCA), as amended by the Energy Independence and Security Act of 2007 (EISA). The intention of this joint rulemaking is to set forth a caref ully coordinated and harmonized approach to implementing these two statutes, in accordance with all substantive and procedural requirements imposed by law.

NHTSA and EPA have coordinated closely and worked jointly in developing their respective final rules. This is reflected in ma ny aspects of this joint rule. For example, the agencies have developed a comprehensive Joint Technical Support Document (TSD) that provides a solid technical underpinning for each agency’s modeling and analysis used to support their standards. Also, to the extent allowed by law, the agencies have harmonized many elements of program design, such as the form of the standard (the footprint-based attribute curves), and the definitions used for cars and trucks. They have developed the same or similar compliance flexibilities, to the extent allowed and appropriate under their respective statutes, su ch as averaging, banking, and trading of credits, and have harmonized the compliance testing and test protocols used for purposes of the fleet average standards each agency is finalizing. Finally, under their respective statutes, each agency is called upon to exercise its judgment and determine standards that are an appropriate balance of various rele vant statutory factors. Given the common technical issues before each agency, the similarity of the factors each agency is to consider and balance, and the authority of each agency to take into consideration the standards of the other agency, both EPA an d NHTSA are establishing standards that result in a harmonized National Program.Summary of Interagency Working Com ments on Draft Rule under EO 12866

13 This joint final rule covers passenger cars, light-duty-trucks, and medium-duty passenger vehicles built in model years 2012 through 2016. These vehicle categories are responsible for almost 60 percent of all U.S. transportation-related GHG emissions. EPA and NHTSA expect that automobile manufact urers will meet these standards by utilizing technologies that will reduce vehicle GHG emissions and improve fuel economy. Although many of these technologies are available today, the emissions reductions and fuel economy improvements finalized in this notice will involve more widespread use of these technologies across the light-duty ve hicle fleet. These include improvements to engines, transmissions, and tires, increased use of start-stop technology, improvements in air conditioning systems, increased use of hybrid and other advanced technologies, and

the initial commercialization of electric ve hicles and plug-in hybrids. NHTSA’s and EPA’s assessments of likely vehicle technologie s that manufacturers will employ to meet

the standards are discussed in deta il below and in the Joint TSD.

The National Program will result estimated to achieve in approximately 960 million metric tons of total carbon dioxide equivalent emissions reductions and approximately 1.8 billion barrels of oil savings ov er the lifetime of vehicles sold in model years (MYs) 2012 through 2016. In total, the combined EPA and NHTSA 2012-2016

standards will reduce GHG emissions from the U.S. light-duty fleet by approximately 21 percent by 2030 over the level that would occur in the absence of the National Program. These actions also will provide important energy security benefits, as light-duty vehicles are about 95 percent dependent on oil-based fuels. The agencies project that the benefits of the National Program will total more than $2 40 billion at a 3% discount rate, or more
than $190 billion at a 7% discount rate. In the discussion that follows in Sections III and IV, each agency explains the related benefits for their individual standards.

Together, EPA and NHTSA estimate that the average cost increase for a model year 2016 vehicle due to the National Program will be less than $1,000. The average

U.S. consumer s who purchase s their a vehicle outright will is estimated to save enough in lower fuel costs over the first three years to offset these higher vehicle costs. However, most U.S. consumers purchase a new vehicle using credit rather than paying cash and the typical car loan today is a five year, 60 m onth loan. These consum ers will see immediate savings due to their vehicle’s lower fuel consumption in the form of a net reduction in annual costs of $130-$180 throughout the duration of the loan (that is, the fuel savings will outweigh the increase in loan paymen ts by $130-$180 per year). Whether a consumer takes out a loan or purchases a new vehicle outright, over the lifetime of a model year 2016 vehicle, the consumer's net savings c sh ould be more than $3,000. The average 2016 MY vehicle will emit 16 fewer metric tons of CO 2 -equivalent emissions (that is, CO 2 emissions plus HFC air conditioning l eakage emissions) emissions during its

lifetime. Assumptions that underlie these conclusion s are discussed in greater detail in the regulatory impact analyses and in section X.

This joint rule also results in important regulatory convergence and certainty to automobile companies. Absent this rule, th ere would be three separate federal and state regimes independently regulating light-duty vehicles to reduce fuel consumption and Comment [A2]: Because these benefits occur in the future and agencies don’t know for certain, please revise to characterize them as estimate instead of impacts that are certain to occur precisely as

described.

Comment [A3]: How much is just from the vehicles themselves? (versus upstream)

Comment [A4]: Resist asserting too strongly since consumers vary and you are only describing a “typical” consumer, not all consumers, using your modeling assumptions and estimates.Summary of Interagency Working Com ments on Draft Rule under EO 12866

14 GHG emissions: NHTSA’s CAFE standards, EPA’s GHG standards, and the GHG standards applicable in California and other states adopting the California standards. This joint rule will allow automakers to meet both the NHTSA and EPA requirements with a single national fleet, greatly simplifying the industry's technology, investment and compliance strategies. In addition, to promote the National Program, California announced its commitment to take several actions, including revising its program for MYs 2012-2016 such that compliance with the federal GHG standards will be deemed to be compliance with California's GHG standards. This will allow the single national fleet used by automakers to meet the two Fede ral requirements and to meet California requirements as well. California is proceeding with a rulemaking intended to revise its 2004 regulations to meet its commitments. EPA and NHTSA are confident that these GHG and CAFE standards will successfully harmonize both the federal and state programs for MYs 2012-2016 and will allow our country to achieve the increased benefits of a single, nationwide program to reduce light-duty vehicle GHG emissions and reduce the country’s dependence on fossil fuels by improving these vehicles’ fuel

economy.

A successful and sustainable automotive industry depends upon, among other things, continuous technology innovation in general, and low greenhouse gas emissions and high fuel economy vehicles in particular. In this respect, this action will help spark the investment in technology innovation necessary for automakers to successfully compete in both domestic and export markets, and thereby continue to support a strong

economy.

While this action covers MYs 2012-2016, many stakeholders encouraged EPA and NHTSA to also begin working toward standards for MY 2017 and beyond that would maintain a single nationwide program. The agencies recognize the importance of and are committed to a strong, coordinated national program for light-duty vehicles for model years beyond 2016.

Key elements of the National Program fina lized today are the level and form of the GHG and CAFE standards, the available compliance mechanisms, and general implementation elements. These elements are summarized in the following section, with

more detailed discussions about EPA’s GHG program following in Section III, and about NHTSA’s CAFE program in Section IV. This joint final rule responds to the wide array of comments that the agencies received on the proposed rule. This section summarizes many of the major comments on the primary elements of the proposal and describes whether and how the final rule has changed, based on the comments and additional analyses. Major comments and the agencies’ responses to them are also discussed in more detail in later sections of this pream ble. For a full summary of public comments and EPA’s and NHTSA’s responses to them, please see the Joint Response to Comments

document associated with this final rule.

1. Joint Analytical ApproachSummary of Interagency Working Com ments on Draft Rule under EO 12866

15 NHTSA and EPA have worked closely together on nearly every aspect of this joint final rule. The extent and results of th is collaboration are reflected in the elements of the respective NHTSA and EPA rules, as well as the analytical work contained in the Joint Technical Support Document (Joint TSD). The Joint TSD, in particular, describes important details of the analytical work that are shared, as well as any differences in approach. These include the build up of the baseline and reference fleets, the derivation of the shape of the curves that define the standards, a detailed description of the costs and effectiveness of the technology choices that are available to vehicle manufacturers, a summary of the computer models used to es timate how technologies might be added to vehicles, and finally the economic inputs used to calculate the impacts and benefits of the rules, where practicable.

EPA and NHTSA have jointly developed at tribute curve shapes that each agency is using for its final standards. Further details of these functions can be found in Sections III and IV of this preamble as well as Chapter 2 of the Joint TSD. A critical technical underpinning of each agency’s analysis is the cost and effectiveness of the various control technologies. These are used to anal yze the feasibility and cost of potential GHG and CAFE standards. A detailed descriptio n of all of the technology information considered can be found in Chapter 3 of the Joint TSD (and for A/C, Chapter 2 of the EPA RIA). This detailed technology data forms the inputs to computer models that each agency uses to project how vehicle manufactur ers may add those technologies in order to comply with the new standards. These are the OMEGA and Volpe models for EPA and NHTSA, respectively. The models and their inputs can also be found in the docket. Further description of the model and outputs can be found in Sections III and IV of this preamble, and Chapter 3 of the Joint TSD. Th is comprehensive joint analytical approach has provided a sound and consistent technical basis for each agency in developing its final standards, which are summarized in the sections below.

The vast majority of public comments expressed strong support for the joint analytical work performed for the proposal. Commenters generally agreed with the analytical work and its results, and supported the transparency of the analysis and its underlying data. Where commenters raised specific points, the agencies have considered them and made changes where appropriate. The agencies' further evaluation of various technical issues also led to a limited number of changes. A detailed discussion of these issues can be found in Section II of this preamble, and the Joint TSD.

2. Level of the Standards

In this notice, EPA and NHTSA are establis hing two separate sets of standards, each under its respective statutory authorities. EPA is setting national CO 2 emissions standards for light-duty vehicles under sec tion 202 (a) of the Clean Air Act. These standards will require these ve hicles to meet an estimated combined average emissions level of 250 grams/mile of CO 2 in model year 2016. NHTSA is setting CAFE standards for passenger cars and light trucks under 49 U.S.C. 32902. These standards will require manufacturers of those vehicles to meet an estimated combined average fuel economy level of 34.1 mpg in model year 2016. The standards for both agencies begin with theSummary of Interagency Working Com ments on Draft Rule under EO 12866

16 2012 model year, with standards increasing in stringency through model year 2016. They represent a harmonized approach that w ill allow industry to bui ld a single national fleet that will satisfy both the GHG requir ements under the CAA and CAFE requirements

under EPCA/EISA.

Given differences in their respective statutory authorities, however, the agencies’ standards include some important differences. Under the CO 2 fleet average standards adopted under CAA section 202(a), EPA expect s manufacturers to take advantage of the option to generate CO 2 -equivalent credits by reducing emissions of hydrofluorocarbons (HFCs) and CO 2 through improvements in their air conditioner systems. EPA accounted for these reductions in developing its final CO 2 standards. NHTSA did not do so because EPCA does not allow vehicle manufacturers to use air conditioning credits in complying with CAFE standards for passenger cars. 19 CO 2 emissions due to air conditioning operation are not measured by the test procedure mandated by statute for use in establishing and enforcing CAFE standards for passenger cars. As a result, improvement in the efficiency of passenger car air conditio ners is not considered as a possible control technology for purposes of CAFE.

These differences regarding the treatment of air conditioning improvements (related to CO 2 and HFC reductions ) affect the relative stringency of the EPA standard and NHTSA standard for MY 2016. The 250 grams per mile of CO 2 equivalent emissions limit is equivalent to 35.5 mpg 20 if the automotive industry were to meet this

CO 2 level all through fuel economy improvements. As a consequence of the prohibition against NHTSA’s allowing credits for air conditioning improvements for purposes of passenger car CAFE compliance, NHTSA is setting fuel economy standards that are estimated to require a combined (passenger car and light truck) average fuel economy level of 34.1 mpg by MY 2016.

The vast majority of public comments expressed strong support for the National Program standards, including the stringency of the agencies’ respective standards and the phase-in from model year 2012 through 2016. There were a number of comments supporting standards more stringent than proposed, and a few others supporting less stringent standards, in particular for the 2012-2015 model years. The agencies' consideration of comments and their updated technical analyses led to only very limited changes in the footprint curves and did not change the agencies’ projections that the nationwide fleet will achieve a level of 250 grams/mile by 2016 (equivalent to 35.5 mpg). The responses to these comments are discus sed in more detail in Sections III and IV, respectively, and in the Joint Response to Comments document.

As proposed, NHTSA and EPA’s final standards, like the standards NHTSA promulgated in March 2009 for MY 2011, are expressed as mathematical functions

19 There is no such statutory limitation with respect to light trucks.

20 The agencies are using a common conversion factor between fuel economy in units of miles per gallon

and CO 2 emissions in units of grams per mile. This conversion factor is 8,887 grams CO 2 per gallon gasoline fuel. Diesel fuel has a conversion factor of 10,180 grams CO 2 per gallon diesel fuel though for the purposes of this calculation, we are assuming 100% gasoline fuel.Summary of Interagency Working Com ments on Draft Rule under EO 12866

17 depending on vehicle footprint. Footprin t is one measure of vehicle size, and is determined by multiplying the vehicle’s wheelbase by the vehicle’s average track

width. 21 The standards that must be met by each manufacturer's fleet will be determined by computing the sales-weighted average (h armonic average for CAFE) of the targets applicable to each of the manufacturer’s passenger cars and light trucks. Under these footprint-based standards, the levels require d of individual manufacturers will depend, as noted above, on the mix of vehicles sold. NHTSA's and EPA’s respective standards are shown in the tables below. It is important to note that the standards are the attributebased curves established by each agency. The values in the tables below reflect the agencies’ projection of the corresponding fleet levels that will result from these attributebased curves.

As a result of public comments and updated economic and future fleet projections, EPA and NHTSA have updated the attribute based curves for this final rule, as discussed in detail in Section II.B of this preamble and Chapter 2 of the Joint TSD. This update in turn affects costs, benefits, and other impacts of the final standards. Thus, the agencies have updated their overall projections of the impacts of the final rule standards, and these results are only slightly different from those presented in the proposed rule.

As shown in Table I.B.2-1, NHTSA’s fleet-wide CAFE-required levels for passenger cars under the final standards are projected to increase from 33.3 to 37.8 mpg between MY 2012 and MY 2016. Similarly, fleet-wide CAFE levels for light trucks are projected to increase from 25.4 to 28.8 mpg. NHTSA has also estimated the average fleet-wide required levels for the combined car and truck fleets. As shown, the overall fleet average CAFE level is expected to be 34.1 mpg in MY 2016. These numbers do not include the effects of other flexibilities and credits in the program. These standards represent a 4.3 percent average annual rate of increase relative to the MY 2011

standards. 22

Table I.B.2-1 Average Required Fuel Economy (mpg)

under Final CAFE Standards

2011-base 2012 2013 2014 2015 2016 Passenger Cars 30.4 33.3 34.2 34.9 36.2 37.8 Light Trucks 24.4 25.4 26.0 26.6 27.5 28.8

Combined Cars & Trucks 27.6 29.7 30.5 31.3 32.6 34.1

Accounting for the expectation that some manufacturers could continue to pay civil penalties rather than achieving require d CAFE levels, and the ability to use FFV

21 See 49 CFR 523.2 for the exact definition of “footprint.”

22 Because required CAFE levels depend on the mix of vehicles sold by manufacturers in a model year, NHTSA’s estimate of future required CAFE levels depe nds on its estimate of the mix of vehicles that will be sold in that model year. NHTSA currently esti mates that the MY 2011 standards will require average fuel economy levels of 30.4 mpg for passenger car s, 24.4 mpg for light trucks, and 27.6 mpg for the

combined fleet.Summary of Interagency Working Com ments on Draft Rule under EO 12866

18 credits, 23 NHTSA estimates that the CAFE standa rds will lead to the following average achieved fuel economy levels, based on the pr ojections of what each manufacturer’s fleet will comprise in each year of the program: 24

Table I.B.2-2 Projected Fleet-Wide Achieved CAFE Levels under the Final Footprint-Based CAFE Standards (mpg)

2012 2013 2014 2015 2016 Passenger Cars 32.3 33.5 34.2 35.0 36.2 Light Trucks 24.5 25.1 25.9 26.7 27.5

Combined Cars & Trucks 28.7 29.7 30.6 31.5 32.7

NHTSA is also required by EISA to set a minimum fuel economy standard for domestically manufactured passenger cars in a ddition to the attribute-based passenger car standard. The minimum standard “shall be the greater of (A) 27.5 miles per gallon; or (B) 92 percent of the average fuel economy projected by the Secretary for the combined domestic and non-domestic passenger automobile fleets manufactured for sale in the United States by all manufacturers in the model year....” 25

Based on NHTSA’s current market forecast, the agency’s estimates of these minimum standards under the MY 2012-2016 CAFE standards (and, for comparison, the final MY 2011 standard) are summarized below in Table I.B.2-3. 26 For eventual compliance calculations, the final calculate d minimum standards will be updated to reflect the average fuel economy level required under the final standards.

Table I.B.2-3 Estimated Minimum Standard for Domestically Manufactured Passenger Cars under MY 2011 and MY 2012-2016 CAFE Standards for Passenger Cars (mpg)

2011 2012 2013 2014 2015 2016

28.0 30.7 31.4 32.1 33.3 34.7

EPA is establishing GHG emissions standards, and Table I.B.2-4 provides EPA’s estimates of their projected overall fleet-wide CO 2 equivalent emission levels. 27 The

23 The penalties are similar in function to essentially unlimited, fixed-price allowances.

24 NHTSA’s estimates account for availability of CAFE cr edits for the sale of flexible-fuel vehicles (FFVs), and for the potential that some manufacturers will pay civil penalties rather than comply with the CAFE standards. This yields NHTSA’s estimates of the r eal-world fuel economy that will likely be achieved

under the final CAFE standards. NHTSA has not include d any potential impact of car-truck credit transfer

in its estimate of the achieved CAFE levels.

25 49 U.S.C. 32902(b)(4).

26 In the March 2009 final rule establishing MY 2011 standards for passenger cars and light trucks, NHTSA estimated that the minimum required CAFE standard for domestically manufactured passenger cars would be 27.8 mpg under the MY 2011 passenger car standard. Based on the agency’s current forecast of the MY 2011 passenger car market, NHTSA now estimates that the minimum required CAFE standard will be 28.0 mpg in MY 2011.

27 These levels do not include the effect of flexible fuel credits, transfer of credits between cars and trucks, temporary lead time allowance, or any other credits with the exception of air conditioning.Summary of Interagency Working Com ments on Draft Rule under EO 12866

19 g/mi values are CO 2 equivalent values because they include the projected use of air conditioning (A/C) credits by manufacturers, which include both HFC and CO 2 reductions.

Table I.B.2-4 Projected Fleet-Wide Emissions Compliance Levels under the FootprintBased CO 2 Standards (g/mi)

2012 2013 2014 2015 2016 Passenger Cars 263 256 247 236 225 Light Trucks 346 337 326 312 298

Combined Cars & Trucks 295 286 276 263 250

As shown in Table I.B.2-4, fleet-wide CO 2 emission level requirements for cars are projected to increase in stringency from 263 to 225 g/mi between MY 2012 and MY 2016. Similarly, fleet-wide CO 2 equivalent emission level requirements for trucks are projected to increase in stringency from 346 to 298 g/mi. As shown, the overall fleet average CO 2 level requirements are projected to increase in stringency from 295 g/mi in MY 2012 to 250 g/mi in MY 2016.

EPA anticipates that manufacturers will ta ke advantage of program flexibilities such as flexible fueled vehicle credits and car/truck credit trading. Due to the credit trading between cars and trucks, the estimated improvements in CO 2 emissions are distributed differently than shown in Table I.B.2-4, where full manufacturer compliance without credit trading is assumed. Table I. B.2-5 shows EPA’s projection of the achieved emission levels of the fleet for MY 2012 through 2016, which does consider the impact of car/truck credit transfer and the increase in emissions due to certain program flexibilities including flex fueled vehicle cr edits and the temporary lead time allowance alternative standards. The use of optional air conditioning credits is considered both in this analysis of achieved levels and of the compliance levels described above. As can be seen in Table I.B.2-5, the projected achieved levels are slightly higher for model years 2012-2015 due to EPA's assumptions about manufacturers' use of the regulatory flexibilities, but by model year 2016 the achieve d level is projected to be 250 g/mi for the

fleet.

Table I.B.2-5 Projected Fleet-Wide Achieved Emission Levels under the Footprint-Based CO 2 Standards (g/mi)

2012 2013 2014 2015 2016 Passenger Cars 267 256 245 234 223 Light Trucks 365 353 340 324 303

Combined Cars & Trucks 305 293 280 266 250

Several auto manufacturers stated that the increasingly stringent requirements for fuel economy and GHG emissions in the early years of the program should follow a more linear phase-in. The agencies’ consideration of comments and of their updated technicalSummary of Interagency Working Com ments on Draft Rule under EO 12866

20 analyses did not lead to changes to the phase-in of the standards discussed above. This issue is discussed in more detail in Sections II.D, and in Sections III and IV.

NHTSA’s and EPA’s technology assessment indicates there is a wide range of technologies available for manufacturers to co nsider in upgrading vehicles to reduce GHG emissions and improve fuel economy. Commenters were in general agreement

with this assessment. 28 As noted, these include improvements to the engines such as use of gasoline direct injection and downsized engines that use turbochargers to provide performance similar to that of larger engines, the use of advanced transmissions, increased use of start-stop technology, improvements in tire performance rolling

resistance , reductions in vehicle weight, increased use of hybrid and other advanced technologies, and the initial commercialization of electric vehicles and plug-in hybrids. EPA is also projecting improvements in vehicle air conditioners including more efficient as well as low leak systems. All of these technologies are already available today, and

EPA’s and NHTSA’s assessments are that ma nufacturers will be able to meet the standards through more widespread use of these technologies across the fleet.

With respect to the practicability of th e standards in terms of lead time, during MYs 2012-2016 manufacturers are expected to go through the normal automotive business cycle of redesigning and upgrading their light-duty vehicle products, and in some cases introducing entirely new vehicles not on the market today. This rule allows manufacturers the time needed to incorporat e technology to achi eve GHG reductions and improve fuel economy during the vehicle redesign process. This is an important aspect of the rule, as it avoids the much higher costs that would occur if manufacturers needed to add or change technology at times other than their scheduled redesigns. This timeperiod also provides manufacturers the opportunity to plan for compliance using a multiyear time frame, again consistent with normal business practice. Over these five model years, there will be an opportunity for manufact urers to evaluate almost every one of their vehicle model platforms and add technology in a cost effective way to control GHG emissions and improve fuel economy. This includes redesign of the air conditioner systems in ways that will further reduce GHG emissions. Various commenters stated that the proposed phase-in of the standards should be introduced more aggressively, less aggressively, or in a more linear manner. However, our consideration of these comments about the phase-in, as well as our revised analyses, lead us to conclude that the general rate of introduction of the standards as proposed remains appropriate. This conclusion is also not affected by the slight difference from the proposal in the final footprint-based

curves. These issues are addressed further in Sections III and IV.

Both agencies considered other standards as part of the rulemaking analyses, both more and less stringent than those pro posed. EPA’s and NHTSA’s analyses of alternative standards are contained in Sections III and IV of this preamble, respectively, as well as the agencies' respective RIAs.

28 The close relationship between emissions of CO 2 – the most prevalent greenhouse gas emitted by motor vehicles--and fuel consumption, means that the technologies to control CO 2 emissions and to improve fuel economy overlap to a great degree. Comment [A5]: Please make this change in all of the Preamble, RIAs and TSD if mentioned anywhere else. These are only improvements to the rolling resistance, not all of the tire performance. Other aspects of tire performance which go the opposite direction are safety through traction and durability.Summary of Interagency Working Com ments on Draft Rule under EO 12866

21 The CAFE and GHG standards described above are based on determining emissions and fuel economy using the city and highway test procedures that are currently used in the CAFE program. Some environmental and other organizations commented that the test procedures should be improved to reflect more real-world driving conditions; auto manufacturers in general do not support such changes to the test procedures at this time. Both agencies recognize that these test procedures are not fully representative of real world driving conditions. For example, EPA has adopted more representative test procedures that are used in determining compliance with emissions standards for pollutants other than GHGs. These test proced ures are also used in EPA’s fuel economy labeling program. However, as discussed in Section III, the current information on effectiveness of the individual emissions control technologies is based on performance over the CAFE test procedures. For that reason, EPA is using the current CAFE test procedures for the CO 2 standards and is not changing those test procures in this rulemaking. NHTSA, as discussed above, is limited by statute in what test procedures can be used for purposes of passenger car testing, although there is no such statutory limitation with respect to test procedures fo r trucks. However, the same reasons for not changing the truck test procedures apply for CAFE as well.

Both EPA and NHTSA are interested in developing programs that employ test procedures that are more representative of real world driving conditions, to the extent authorized under their respective statutes. This is an important issue, and the agencies

intend to continue to evaluate it in the cont ext of a future rulemaking to address standards for model year 2017 and thereafter. This could include consideration of a range of test procedure changes to better represent real-world driving conditions in terms of speed, acceleration, deceleration, ambient temperatures, use of air conditioners, and the like. With respect to air conditioner operation, EPA discusses the public comments on these issues and the final procedures for determining emissions credits for controls on air

conditioners in Section III.

Finally, based on the information EPA developed in its recent rulemaking that updated its fuel economy labeling program to better reflect average real-world fuel economy, the calculation of fuel savings and CO 2 emissions reductions that will be achieved by the CAFE and GHG standards includes adjustments to account for the difference between the fuel economy level measured in the CAFE test procedure and the fuel economy actually achieved on average under real world driving conditions. These adjustments are industry averages for the vehi cles’ performance as a whole, however, and

are not a substitute for the information on eff ectiveness of individual control technologies that will be explored for purposes of a future GHG and CAFE rulemaking.

3. Form of the Standards

NHTSA and EPA proposed attribute-base d standards for passenger cars and light trucks. NHTSA adopted an attribute approach based on vehicle footprint in its Reformed CAFE program for light trucks for model years 2008-2011, 29 and recently extended this

29 71 FR 17566 (Apr. 6, 2006).Summary of Interagency Working Com ments on Draft Rule under EO 12866

22 approach to passenger cars in the CAFE rule for MY 2011 as required by EISA. 30 The agencies also proposed using vehicle footpr int as the attribute for the GHG and CAFE standards. Footprint is defined as a vehicle’ s wheelbase multiplied by its track width -- in other words, the area enclosed by the points at which the wheels meet the ground. Most commenters that expressed a view on this topic supported basing the standards on an attribute, and almost all of these supported the proposed choice of vehicle footprint as an appropriate attribute. The agencies conti nue to believe that the standards are best expressed in terms of an attribute, and that the footprint attribute is the most appropriate

attribute on which to base the standards. These issues are further discussed later in this notice and in Chapter 2 of the Joint TSD.

Under the footprint-based standards, each manufacturer will have a GHG and CAFE target unique to its fleet, depending on the footprints of the vehicle models produced by that manufacture r. A manufacturer will have separate footprint-based standards for cars and for trucks. Generally, la rger vehicles (i.e., vehicles with larger footprints) will be subject to less stringent standards (i.e., higher CO 2 grams/mile standards and lower CAFE standards) than smaller vehicles. This is because, generally speaking, smaller vehicles are more capable of achieving lower levels of CO 2 and higher levels of fuel economy than larger vehicles. While a manufacturer’s fleet average standard could be estimated throughout the model year based on projected production volume of its vehicle fleet, the standard to which the manufacturer must comply will be based on its final model year production figure s. A manufacturer’s calculation of fleetaverage emissions at the end of the model year will thus be based on the productionweighted average emissions of each model in its fleet.

The final footprint-based standards are very similar in shape to those proposed. NHTSA and EPA include more discussion of the development of the final curves in Section II below, with a full di scussion in the Joint TSD. In addition, a full discussion of the equations and coefficients that define the curves is included in Section III for the CO 2 curves and Section IV for the mpg curves. The following figures illustrate the standards. First, Figure I.B.3-1 shows the fuel economy (mpg) car standard curve.

Under an attribute-based standard, every vehicle model has a performance target (fuel economy for the CAFE standards, and CO 2 g/mile for the GHG emissions standards), the level of which depends on the ve hicle’s attribute (for this rule, footprint).The manufacturers’ fleet average performance is determined by the productionweighted 31 average (for CAFE, harmonic average) of those targets. NHTSA and EPA are setting CAFE and CO 2 emissions standards defined by constrained linear functions and, equivalently, piecewise linear functions. 32 As a possible option for future rulemakings, the constrained linear form was introduced by NHTSA in the 2007 NPRM proposing

CAFE standards for MY 2011-2015.

30 74 FR 14196 (Mar. 30, 2009).

31 Based on vehicles produced for sale in the United States.

32 The equations are equivalent but are specified differ ently due to differences in the agencies’ respective

models.Summary of Interagency Working Com ments on Draft Rule under EO 12866

23 NHTSA is establishing the attribute curves below for assigning a fuel economy level to an individual vehicle’s footprint value, for model years 2012 through 2016. These mpg values will be production weighted to determine each manufacturer’s fleet average standard for cars and trucks. Although the general model of the equation is the same for each vehicle category and each year, the parameters of the equation differ for cars and trucks. Each parameter also changes on an annual basis, resulting in the yearly increases in stringency. Figure I.B.3-1 belo w illustrates the passenger car CAFE standard curves for model years 2012 through 2016 while Figure I.B.3-2 below illustrates the light truck standard curves for model years 2012-2016. The MY 2011 final standards for cars and trucks, which are specified by a constrained logistic function rather than a constrained linear function, are shown for comparison.Summary of Interagency Working Com ments on Draft Rule under EO 12866

2420253035404535 40 45 50 55 60 65 70Target(mpg)Footprint (sf)201120162015201420132012Figure I.B.3-1 MY 2011 and MY 2012-2016 Passenger Car Fuel Economy TargetsSummary of Interagency Working Com ments on Draft Rule under EO 12866

2520253035404535 40 45 50 55 60 65 70Target(mpg)Footprint (sf)201120162015201420132012Figure I.B.3-2. MY 2011 and MY 2012-2016 Light Truck Fuel Economy TargetsSummary of Interagency Working Com ments on Draft Rule under EO 12866

26 EPA is establishing the attribut e curves below for assigning a CO 2 level to an individual vehicle’s footprint value, for model years 2012 through 2016. These CO 2 values will be production weighted to determine each manufacturer’s fleet average standard for cars and trucks. As with the CAFE curves above, the general form of the equation is the same for each vehicle category and each year, but the parameters of the equation differ for cars and trucks. Again, each parameter also changes on an annual basis, resulting in the yearly increases in stri ngency. Figure I.B.3-3 below illustrates the

CO 2 car standard curves for model years 2012 through 2016 while Figure I.B.3-4 shows

the CO 2 truck standard curves for model years 2012-2016.Summary of Interagency Working Com ments on Draft Rule under EO 12866

27Figure I.B.3-3 CO2(g/mi) Car Standard CurvesSummary of Interagency Working Com ments on Draft Rule under EO 12866

28Figure I.B.3-4 CO2(g/mi) Truck Standard CurvesSummary of Interagency Working Com ments on Draft Rule under EO 12866

29 NHTSA and EPA received a number of comments about the shape of the car and

truck curves. We address these comments further in Section II.C below as well as in

Sections III and IV.

As proposed, NHTSA and EPA will use the same vehicle category definitions for determining which vehicles are subject to the car curve standards versus the truck curve standards. In other words, a vehicle classi fied as a car under the NHTSA CAFE program

will also be classified as a car under the EPA GHG program, and likewise for trucks. Auto industry commenters generally agreed with this approach and believe it is an important aspect of harmonization across the two agencies’ programs. Some other commenters expressed concern about potential consequences, especially in how cars and trucks are distinguished. However, EPA and NHTSA are employing the same car and

truck definitions for the MY 2012-2016 CAFE and GHG standards as those used in the CAFE program for the 2011 model year standards. 33 This issue is further discussed for the EPA standards in Section III, and for the NHTSA standards in Section IV. This approach of using CAFE de finitions allows EPA’s CO 2 standards and the CAFE standards to be harmonized across all vehicles for this program. However, EPA is not changing the car/truck definition for the purposes of any other previous rules.

Generally speaking, a smaller footprint vehicle will have higher fuel economy and

lower CO 2 emissions relative to a larger footprint vehicle. A footprint-based CO 2 or CAFE standard can be relatively neutral with respect to vehicle size and consumer choice. All vehicles, whether smaller or larger, must make improvements to reduce CO 2 emissions or improve fuel eco nomy, and therefore all vehicles will be relatively more expensive. With the footprint-based standard approach, EPA and NHTSA believe there should be no significant effect on the relative distribution of different vehicle sizes in the fleet, which means that consumers will still be able to purchase the size of vehicle that

meets their needs. Table I.B.3-1 illustrates th e fact that different vehicle sizes will have varying CO 2 emissions and fuel economy targets under the final standards.

Table I.B.3-1 Model Year 2016 CO 2 and Fuel Economy Targets for Various MY 2008 Vehicle Types

Vehicle

Type Example

Show Desktop.scf Models Example Model Footprint (sq. ft.) CO 2 Emissions Target (g/mi) Fuel Economy Target (mpg) Example Passenger Cars

Compact

car Honda Fit 40 206 41.1

Midsize

car Ford Fusion 46 230 37.1

Fullsize

car Chrysler 300 53 263 32.6

33 49 CFR Part 523. Comment [A6]: This sentence is confusing – maybe replace the sentence with, “While the standards apply to a manufacturer’s overall fleet and not a specific car or truck, a fleet that it dominated by small footprint vehicles will have higher fuel economy requirements than a fleet dominated by larger footprint vehicles.”

Comment [A7]: Make sure the reader

understands that these are illustrative in that the assume a fleet entirely made up of a particular type

of vehicle.Summary of Interagency Working Com ments on Draft Rule under EO 12866

30 Example Light-duty Trucks

Small SUV 4WD Ford Escape 44 259 32.9

Midsize

crossover Nissan Murano 49 279 28.2 Minivan Toyota Sienna 55 303 24.7

Large pickup truck Chevy Silverado 67 348 30.6

4. Program Flexibilities

EPA’s and NHTSA’s programs as estab lished in this rule provide compliance flexibility to manufacturers, especially in the early years of the National Program. This flexibility is expected to provide sufficient lead time for manufacturers to make necessary technological improvements and reduce the overall cost of the program, without compromising overall environmental and fuel economy objectives. The broad goal of harmonizing the two agencies’ standards include s preserving manufacturers’ flexibilities in meeting the standards, to the extent appropriate and required by law. The following section provides an overview of this final rule’s flexibility provisions. Many auto manufacturers commented in support of these provisions as critical to meeting the standards in the lead time provided. Envi ronmental groups, some states, and others raised concerns about the possibility for windfall credits and loss of program benefits. The provisions in the final rule are in most cases the same as those proposed. However consideration of the issues raised by commenters has led to modifications in certain provisions. These comments and the agencies ’ response are discussed in Sections III and IV below and in the Joint Resp onse to Comments document.

a. CO 2 /CAFE Credits Generated Based on Fleet Average Performance

Under this NHTSA and EPA final rule, the fleet average standards that apply to a manufacturer’s car and truck fleets are based on the applicable footprint-based curves. At the end of each model year, when production of the model year is complete, a production-weighted fleet average will be calculated for each averaging set (cars and trucks). Under this approach, a manufacturer’s car and/or truck fleet that achieves a fleet average CO 2 /CAFE level better than the standard can generate credits. Conversely, if the fleet average CO 2 /CAFE level does not meet the standard, the fleet would incur debits (also referred to as a shortfall).

Under the final program, a manufacturer whose fleet generates credits in a givenmodel year would have several options for using those credits, including credit carryback, credit carry-forward, credit transfers, an d credit trading. These provisions exist in the MY 2011 CAFE program under EPCA and EISA, and similar provisions are part of EPA’s Tier 2 program for light-duty vehicle cr iteria pollutant emissions, as well as many other mobile source standards issued by EPA under the CAA. The manufacturer will beSummary of Interagency Working Com ments on Draft Rule under EO 12866

31 able to carry back credits to offset a defi cit that had accrued in a prior model year and was subsequently carried over to the current model year. EPCA also provides for this. EPCA restricts the carry-back of CAFE credits to three years, and as proposed EPA is establishing the same limitation, in keeping with the goal of harmonizing both sets of

standards.

After satisfying any need to offset pre-ex isting deficits, remaining credits can be saved (banked) for use in future years. Under the CAFE program, EISA allows manufacturers to apply credits earned in a model year to compliance in any of the five subsequent model years. 34 As proposed, under the GHG program, EPA is also allowing manufacturers to use these banked credits in the five years after the year in which they were generated (i.e., five years carry-forward).

EISA required NHTSA to establish by regulation a CAFE credits transferring program, which NHTSA established in a March 2009 final rule codified at 49 CFR Part 536, to allow a manufacturer to transfer cr edits between its vehicle fleets to achieve compliance with the standards. For example, credits earned by over-compliance with a manufacturer’s car fleet average standard could be used to offset debits incurred due to that manufacturer’s not meeting the truck fleet average standard in a given year. EPA’s Tier 2 program also provides for this type of credit transfer. As proposed for purposes of this rule, EPA allows unlimited credit transfers across a manufacturer’s car-truck fleet to meet the GHG standard. This is based on the expe ctation that this flexibility will facilitate manufacturers' ability to comply with the GH G standards in the lead time provided, and will allow the required GHG emissions reduc tions to be achieved in the most cost effective way. Under the CAA, unlike under EISA, there is no statutory limitation on car-truck credit transfers. Therefore, EPA is not constraining car-truck credit transfers, as doing so would reduce the flexibility for lead time, and would increase costs with no corresponding environmental benefit. For the CAFE program, however, EISA limits the amount of credits that may be transferred, wh ich has the effects of limiting the extent to which a manufacturer can rely upon credits in lieu of making fuel economy improvements to a particular portion of its vehi cle fleet, but also of potentially increasing the costs of improving the manufacturer’s ove rall fleet. EISA also prohibits the use of transferred credits to meet the statutory minimum level for the domestic car fleet

standard. 35 These and other statutory limits will co ntinue to apply to the determination of compliance with the CAFE standards.

EISA also allowed NHTSA to establish by regulation a CAFE credit trading program, which NHTSA established in the March 2009 final rule at 40 CFR Part 536, to allow credits to be traded (sold) to other vehicle manufacturers. As proposed, EPA allows credit trading in the GHG program. These sorts of exchanges are typically allowed under EPA’s current mobile source emission credit programs, although manufacturers have seldom made such exchanges. Under the NHTSA CAFE program, EPCA also allows these types of credit trad es, although, as with transferred credits, traded credits may not be used to meet the minimum domestic car standards specified by

34 49 U.S.C. 32903(a)(2).

35 49 U.S.C. 32903(g)(4).Summary of Interagency Working Com ments on Draft Rule under EO 12866

32 statute. 36 Comments discussing these provisions supported the proposed approach. These final provisions are the same as proposed.

As further discussed in section IV of this preamble, NHTSA sought to find a way to provide credits for improving the efficiency of light truc k air conditioners (A/Cs) and solicited public comments to that end. The agency did so because the power necessary to operate an A/C compressor places a significant additional load on the engine, thus reducing fuel economy and increasing CO 2 tailpipe emissions. See section III.C.1 below. The agency would have made a similar effort regarding cars, but a 1975 statutory provision made it unfruitful even to explor e the possibility of administratively proving such credits for cars. The agency did not identify a workable way of providing such credits for light trucks in th e context of this rulemaking.

b. Air Conditioning Credits Under the EPA Final Rule

Air conditioning (A/C) systems contri bute to GHG emissions in two ways. Hydrofluorocarbon (HFC) refrigerants, which are powerful GHG pollutants, can leak from the A/C system (direct A/C emissions). As just noted, operation of the A/C system also places an additional load on the engine, which results in additional CO 2 tailpipe emissions (indirect A/C related emissions). EPA is allowing manufacturers to generate credits by reducing either or both types of GHG emissions related to A/C systems. Specifically, EPA is establishing a method to calculate CO 2 equivalent reductions for the vehicle's full useful life on a grams/mile basi s that can be used as credits in meeting the fleet average CO 2 standards. EPA’s analysis indicates that this approach provides manufacturers with a highly cost-effective way to achieve a portion of GHG emissions reductions under the EPA program. EPA is estimating that manufacturers will on average generate 11 g/mi GHG credit toward meeting the 250 g/mi by 2016 (though some companies may generate more). EPA will also allow manufacturers to earn early A/C credits starting in MY 2009 through 2011, as discussed further in a later section. There were many comments on the proposed A/C provisions. Nearly every one of these was supportive of EPA including A/C control as part of this rule, though there was some disagreement on some of the details of th e program. The HFC crediting scheme was widely supported. The comments mainly we re concentrated on indirect A/C related credits. The auto manufacturers and suppliers had some technical comments on A/C technologies, and there were many concerns with the proposed idle test. EPA has made some minor adjustments in both of these areas that we believe are responsive to these concerns. EPA addresses A/C issues in great er detail in Section III of this preamble and in Chapter 2 of EPA’s RIA.

c. Flexible-fuel and Alternative Fuel Vehicle Credits

EPCA authorizes a compliance flexibility incentive under the CAFE program for production of dual-fueled or flexible-fuel vehicles (FFV) and dedicated alternative fuel

vehicles. FFVs are vehicles that can run both on an alternative fuel and conventional fuel. Most FFVs are E85 capable vehicles, which can run on either gasoline or a mixture

36 49 U.S.C. 32903(f)(2).Summary of Interagency Working Com ments on Draft Rule under EO 12866

33 of up to 85 percent ethanol and 15 percent gasoline (E85). Dedicated alternative fuel vehicles are vehicles that run exclusively on an alternative fuel. EPCA was amended by EISA to extend the period of availability of the FFV incentive, but to begin phasing it out by annually reducing the amount of FFV incentive that can be used toward compliance

with the CAFE standards. 37 Although NHTSA expressed concern about the non-use of alternative fuel by FFVs in a 2002 report to Congress (Effects of the Alternative Motor Fuels Act CAFE Incentives Policy), EISA does not premise the availability of the FFV credits on actual use of alternative fuel by an FFV vehicle. Under NHTSA’s CAFE program, pursuant to EISA, no FFV credits wi ll be available for CAFE compliance after

MY 2019. 38 For dedicated alternative fuel vehicles, there are no limits or phase-out of the credits. As required by the statute, NH TSA will continue to allow the use of FFV credits for purposes of compliance with the CAFE standards until the end of the EISA phase-out period.

For the GHG program, as pr oposed, EPA will allow FFV credits in line with EISA limits, but only during the period from MYs 2012 to 2015. After MY 2015, EPA will only allow FFV credits based on a manufact urer’s demonstration that the alternative fuel is actually being used in the vehicles and based on the vehicle’s actual performance.

EPA discusses this in more de tail in Section III.C of the preamble, including a summary of key comments. These provisions are being finalized as proposed, with further

discussion in Section III.C of how manufacturers can demonstrate that the alternative fuel is being used.

d. Temporary Lead-time Allowance Alternative Standards Under the EPA

Final Rule

Manufacturers with limited product line s may be especially challenged in the early years of the National Program, and need additional lead time. Manufacturers with narrow product offerings may not be able to take full advantage of averaging or other program flexibilities due to the limited scope of the types of vehicles they sell. For example, some smaller volume manufacturer flee ts consist entirely of vehicles with very high baseline CO 2 emissions. Their vehicles are above the CO 2 emissions target for that vehicle footprint, but do not have other type s of vehicles in their production mix with which to average. Often, these manufacturers pay fines under the CAFE program rather than meet the applicable CAFE standard. EPA believes that these technological circumstances call for more lead time in the form of a more gradual phase-in of

standards.

EPA is finalizing a temporary lead-time allowance for manufacturers that sell vehicles in the U.S. in MY 2009 and for which vehicle sales in that model year are below 400,000 vehicles. This allowance will be available only during the MY 2012-2015 phase-in years of the program. A manufacturer that satisfies the threshold criteria will be

37 EPCA provides a statutory incentive for production of FFVs by specifying that their fuel economy is determined using a special calculation procedure that results in those vehicles being assigned a higher fuel economy level than would otherwise occur. This is typically referred to as an FFV credit.

38 Id. Comment [A8]: It concluded that it was still a worth while program and extended availability of credits. We recommend that DOT mention this point in this preamble language.Summary of Interagency Working Com ments on Draft Rule under EO 12866

34 able to treat a limited number of vehicles as a separate averaging fleet, which will be subject to a less stringent GHG standard. 39 Specifically, a standard of 25 percent above the vehicle’s otherwise applicable foot-print target level will apply to up to 100,000 vehicles total, spread over the four year period of MY 2012 through 2015. Thus, the number of vehicles to which the flexibility could apply is limited. EPA also is setting appropriate restrictions on credit use for thes e vehicles, as discussed further in Section III. By MY 2016, these allowance vehicles must be averaged into the manufacturer’s full fleet (i.e., they will no longer be eligible for a different standard). EPA discusses this in more detail in Section III.B of the preamble.

EPA received comments from several smaller manufacturers that the TLAAS program was insufficient to allow manufacturers with very limited product lines to comply. These manufacturers commented that th ey need additional lead time to meet the standards, because their CO 2 baselines are significantly higher and their vehicle product lines are even more limited, reducing their ab ility to average across their fleets compared even to other TLAAS manufacturers. EPA fully summarizes the public comments on the TLAAS program, including comments not supporting the program, in Section III.B. In summary, in response to the lead time issues raised by manufacturers, EPA is modifying the TLAAS program that applies to manufacturers with between 5,000 and 50,000 vehicle sales in MY 2009. EPA believes these provisions are necessary given that, compared with other TLAAS manufacturers, these manufacturers have even more limited product offerings across which to average and higher baseline CO2 emissions,

and thus need additional leadtime to meet th e standards. These manufactures would have an increased allotment of vehicles, a total of 250,000, compared to 100,000 vehicles (for other TLAAS-eligible manufacturers). In addition, the TLAA S program for these manufacturers would be extended by one year, through MY2016 for these vehicles. The other provisions of the TLAAS program would continue to apply, such as the restrictions on credit trading and the level of the standard. Additional restrictions would also apply to these vehicles, as discussed in Section III. In addition, for the smallest volume manufacturers, those with below 5,000 vehicle sales, EPA is not setting standards at this time but is instead deferring standards unti l a future rulemaking. This is the same approach we are using for small businesses. The unique issues involved with these manufacturers will be addressed in that future rulemaking. Further discussion of the public comment on these issues and details on these changes from the proposed program

are included in Section III.

e. Additional Credit Opportunities under the Clean Air Act (CAA)

EPA is establishing additional opportunities for early credits in MYs 2009-2011 through over-compliance with a baseline standa rd. The baseline standard is set to be equivalent, on a national level, to the California standards. Credits can be generated by over-compliance with this baseline in one of two ways – over-compliance by the fleet of

vehicles sold in California and the CAA secti on 177 states (i.e., those states adopting the

39 EPCA does not permit such an allowance. Cons equently, manufacturers who may be able to take advantage of a lead-time allowance under the GHG standards would be required to comply with the applicable CAFE standard or be subject to penalties for non-compliance. Comment [A9]: US or world wide? Same

comment for NHTSA.Summary of Interagency Working Com ments on Draft Rule under EO 12866

35 California program), or over-compliance with the fleet of vehicles sold in the 50 states. EPA is also providing for early credits based on over-compliance with CAFE, but only

for vehicles sold in states outside of Calif ornia and the CAA section 177 states. Under the early credit provisions, no early FFV credits would be allowed, except those achieved by over-compliance with the California program based on California’s provisions that manufacturers demonstrate actual use of the alternative fuel. EPA’s early credits provisions are designed to ensure that there would be no double counting of early credits. NHTSA notes, however, that credits for overcompliance with CAFE standards during

MYs 2009-2011 will still be available for ma nufacturers to use toward compliance in future model years, just as before.

EPA received comments from some environmental organizations and states expressing concern that these early credits were inappropriate windfall credits because they provided credits for actions that were not surplus, that is above what would otherwise be required for compliance with either state or federal motor vehicle standards. This focused on the credits for over-complia nce with the California standards generated during model years 2009 and perhaps 2010, where according to commenters the CAFE requirements were in effect more stringent than the California standards. EPA believes that early credits provide a valuable incenti ve for manufacturers that have implemented fuel efficient technologies in excess of their CAFE compliance obligations prior to MY2012. With appropriate restrictions, these credits, reflecting over-compliance over a three model year time frame (MY2009-2011) and not just over one or two model years, will be surplus reductions and not otherwise required by law. Therefore, EPA is finalizing these provisions largely as proposed, but in response to comments, with an additional restriction on the trading of MY 2009 credits. The overall structure of this early credit program addresses concerns about the potential for windfall credits in the first one or two model years. This issue is fully discussed in Section III.C.

EPA is providing an additional temporary incentive to encourage the

commercialization of advanced GHG/fuel economy control technol ogies--including electric vehicles (EVs), plug-in hybrid electri c vehicles (PHEVs), and fuel cell vehicles (FCVs)--for model years 2012-2016. EPA’s proposal included an emissions compliance value of zero grams/mile for EVs and FCVs, and the electric portion of PHEVs, and a multiplier in the range of 1.2 to 2.0, so that each advanced technology vehicle would count as greater than one vehicle in a manu facturer’s fleetwide compliance calculation. EPA received many comments on the proposed incentives. Many state and environmental organization commenters believed that the combination of these incentives could undermine the GHG benefits of the rule, and believed the emissions compliance

values should take into account the ne t upstream GHG emissions associated with electrified vehicles compared to vehicles powered by petroleum based fuel. Auto manufacturers generally supported the incentives, some believing the incentives to be a critical part of the National Program. Most auto makers supported both the zero grams/mile emissions compliance value and the higher multipliers.

Upon considering the public comments on this issue, EPA is finalizing an advanced technology vehicle incentive program that includes a zero gram/mile emissionsSummary of Interagency Working Com ments on Draft Rule under EO 12866

36 compliance value for EVs and FCVs, and the electric portion of PHEVs, for up to the first 200,000 EV/PHEV/FCV vehicles produced by a given manufacturer during MY2012-2016. For any production greater than this amount, the compliance value for the vehicle will be greater than zero gram/mile, set at a level that reflects the vehicle’s net increase in upstream GHG emissions in comparison to the gasoline vehicle it replaces. In addition, EPA is not finalizing a multiplier. EPA will also allow this early advanced technology incentive program beginning in MYs 2009-2011. The purpose of these provisions is to provide a temporary incenti ve to promote technologies which have the potential to produce very large GHG reduc tions in the future. The tailpipe GHG emissions from EVs, FCVs, and PHEVs operated on grid electricity are zero, and traditionally the emissions of the vehicle it self are all that EPA takes into account for purposes of compliance with standards set under section 202(a). This has not raised any issues for criteria pollutants, as upstream emissions associated with production and distribution of the fuel are addressed by comprehensive regulatory programs focused on the upstream sources of those emissions. At this time, however, there is no such comprehensive program addressing upstream emissions of GHGs, and the upstream GHG emissions associated with production and dist ribution of electricity are higher than the corresponding upstream GHG emissions of gasoli ne or other petroleum based fuels. In the future, if there were a program to cont rol upstream emissions of GHGs, then the tailpipe level of zero gram/mile from these ve hicles has the potential to produce very large reductions in GHG emissions, and to transform the transportation sector’s contribution to the country’s GHG emissions. Recognizing the potential of these vehicle technologies for very large future reductions, EPA will continue to use the tailpipe value of zero gram/mile as the compliance value as an incentive for the initial production of

these vehicles. EPA will reassess the issue of how to address EVs, PHEVs, and FCVs in rulemakings for model years 2017 and beyond, based on the status of advanced vehicle technology commercialization, the status of upstream GHG control programs, and other relevant factors. Further discussion of the temporary advanced technology vehicle incentives, including more detail on the public comments and EPA’s response, is found

in Section III.C.

EPA is also providing an option for manufacturers to generate credits for employing new and innovative technologies that achieve GHG reductions that are not reflected on current test procedures, as proposed. Examples of such “off-cycle” technologies might include solar panels on hybrids, adaptive cruise control, and active aerodynamics, among other technologies. These three credit provisions are discussed in

more detail in Section III.

5. Coordinated Compliance

Previous NHTSA and EPA regulations and statutory provisions establish ample examples on which to develop an effective compliance program that achieves the energy

and environmental benefits from CAFE and motor vehicle GHG standards. NHTSA and EPA have developed a program that recognizes, and replicates as closely as possible, the compliance protocols associated with th e existing CAA Tier 2 vehicle emission standards, and with CAFE standards. The certification, testing, reporting, and associatedSummary of Interagency Working Com ments on Draft Rule under EO 12866

37 compliance activities closely track current practices and are thus familiar to manufacturers. EPA already oversees testing, collects and processes test data, and performs calculations to determine compliance with both CAFE and CAA standards. Under this coordinated approach, the compliance mechanisms for both programs are consistent and non-duplicative. EPA will also apply the CAA authorities applicable to its separate in-use requirements in this program.

The compliance approach allows manufacturers to satisfy the new program requirements in the same general way they comply with existing applicable CAA and CAFE requirements. Manufacturers would de monstrate compliance on a fleet-average basis at the end of each model year, allowing model-level testing to continue throughout the year as is the current practice for CAFE determinations. The compliance program design establishes a single set of manufactur er reporting requirements and relies on a single set of underlying data. This approach still allows each agency to assess compliance with its respective program under its respective statutory authority.

NHTSA and EPA do not anticipate any significant noncompliance under the National Program. However, failure to meet the fleet average standards (after credit opportunities are exhausted) would ultimately result in the potential for penalties under

both EPCA and the CAA. The CAA allows EPA considerable discretion in assessment of penalties. Penalties under the CAA are typically determined on a vehicle-specific basis by determining the number of a manuf acturer’s highest emitting vehicles that caused the fleet average standard violation. This is the same mechanism used for EPA’s National Low Emission Vehicle and Tier 2 corporate average standards, and to date there have been no instances of noncompliance. CAFE penalties are specified by EPCA and would be assessed for the entire noncomplying fleet at a rate of $5.50 times the number of vehicles in the fleet, times the number of tenths of mpg by which the fleet average falls below the standard. In the event of a compliance action arising out of the same facts and circumstances, EPA could consider CAFE penalties when determining appropriate

remedies for the EPA case.

Several stakeholders commented on the proposed coordinated compliance approach. The comments indicated broad support for the overall approach EPA proposed. In particular, both regulated industry and the public interest community appreciated the attempt to streamline compliance by adopting current practice where possible and by coordinating EPA and NHTSA compliance requirements. Thus the final compliance program design is largely unchanged from the proposal. Some commenters requested additional detail or clarification in certain areas and others suggested some relatively narrow technical changes, and EPA has responded to these suggestions. EPA and NHTSA summarize these comments and the agencies’ responses in Sections III and IV, respectively, below. The Joint Response to Comments document associated with this document includes all of the comments and responses of the two agencies.Summary of Interagency Working Com ments on Draft Rule under EO 12866

38 C. Summary of Costs and Benefits of the National Program

This section summarizes the projected costs and benefits of the CAFE and GHG emissions standards. These projections helped inform the agencies’ choices among the alternatives considered and provide further confirmation that the final standards are an appropriate choice within the spectrum of choices allowable under their respective statutory criteria. The costs and benefits projected by NHTSA to result from these CAFE standards are presented first, followed by those from EPA’s analysis of the GHG

emissions standards.

For several reasons, the estimates for costs and benefits presented by NHTSA and EPA, while consistent, are not directly comparab le, and thus should not be expected to be identical. Most important, NHTSA and EPA’s standards would require slightly different fuel efficiency improvements. EPA’s GHG standard is more stringent in part due to its assumptions about manufacturers’ use of air conditioning credits, which result from reductions in air conditioning-related emissions of HFCs and CO 2 . NHTSA was unable to make assumptions about manufacturers’ im proving the efficiency of air conditioners due to statutory limitations. In addition, the CAFE and GHG standards offer different program flexibilities, and the agencies’ analyses differ in their accounting for these flexibilities (for example, FFVs), primarily because NHTSA is statutorily prohibited from considering some flexibilities when establis hing CAFE standards, while EPA is not.

These differences contribute to differences in the agencies’ respective estimates of costs and benefits resulting from the new standards.

NHTSA performed two analyses: a primar y analysis that shows the estimates of

costs, social benefits from reduced oil consumption, and private fuel savings , and re lated

benefits that the agency considered for purposes of establishing new CAFE standards,and a supplemental analysis that reflects the agency’s best estimate of the potential realworld effects of the CAFE standards, incl uding manufacturers’ potential use of FFV credits in accordance with the provisions of EISA concerning their availability. Because EPCA prohibits NHTSA from considering the ability of manufacturers to use of FFV credits to increase their fleet average fuel economy when establishing CAFE standards, the agency’s primary analysis does not include them. However, EPCA does not prohibit NHTSA from considering the fact that manufacturers may pay civil penalties rather than complying with CAFE standards, and NHTSA’s primary analysis accounts for some manufacturers’ tendency to do so. In add ition, NHTSA’s supplemental analysis of the

effect of FFV credits on benefits and costs from its CAFE standards, demonstrates the real-world impacts of FFVs, and the summary estimates presented in Section IV include these effects. Including the use of FFV cred its reduces estimated per-vehicle compliance costs of the program. However, as shown below, including FFV credits does not significantly change the projected fuel savings and CO 2 reductions, because FFV credits reduce the fuel economy levels that manufacturers achieve not only under the standards,

but also under the baseline MY 2011 CAFE standards. Comment [A10]: Try to be explicit that these are different categories. Also, put social benefits first in the listing.Summary of Interagency Working Com ments on Draft Rule under EO 12866

39 Also, EPCA, as amended by EISA, allows manufacturers to transfer credits between their passenger car and light truck fleets. However, EPCA also prohibits NHTSA from considering manufacturers’ abilit y to increase their average fuel economy through the use of CAFE credits when determining the stringency of the CAFE standards. Because of this prohibition, NHTSA’s primary analysis does not account for the extent to which credit transfers might actually occur. For purposes of its supplemental analysis, NHTSA considered accounting for the possibili ty that some manufacturers might utilize the opportunity under EPCA to transfer some CAFE credits between the passenger car and light truck fleets, but determined that in NHTSA’s year-by-year analysis, manufacturers’ credit transfers cannot be reasonably estimated at this time. 40

EPA made explicit assumptions about manufacturers’ use of FFV credits under both the baseline and control alternatives, and its estimates of costs and benefits from the GHG standards reflect these assumptions. However, under the GHG standards, FFV credits would be available through MY 2015; starting in MY 2016, EPA will only allow FFV credits based on a manufacturer’s demonstration that the alternative fuel is actually being used in the vehicles and the actual GHG performance for the vehicle run on that

alternative fuel.

EPA’s analysis also assumes that manu facturers would transfer credits between their car and truck fleets in the MY 2011 baseline subject to the maximum value allowed by EPCA, and that unlimited car-truck credit transfers would occur under the GHG standards. Including these assumptions in EPA’s analysis increases the resulting estimates of fuel savings and reductions in GHG emissions, while reducing EPA’s estimates of program compliance costs.

Finally, under the EPA GHG program, th ere is no ability for a manufacturer to intentionally pay fines in lieu of meeting the standard. Under EPCA, however, vehicle manufacturers are allowed to pay fines as an alternative to compliance with applicable CAFE standards. NHTSA’s analysis explicitly estimates the level of voluntary fine payment by individual manufacturers, which reduces NHTSA’s estimates of both the

costs and benefits of its CAFE standards. In contrast, the CAA does not allow for fine payment (civil penalties) in lieu of complia nce with emission standards, and EPA’s analysis of benefits from its standard thus assumes full compliance. This assumption results in higher estimates of fuel savings, of reductions in GHG emissions, and of manufacturers’ compliance costs to sell fl eets that comply with both NHTSA’s CAFE program and EPA’s GHG program.

In summary, the projected costs and benefits presented by NHTSA and EPA are not directly comparable, because the GHG emission levels established by EPA include air conditioning-related improvements in equi valent fuel efficiency and HFC reductions,

40 NHTSA’s analysis estimates multi-year planning eff ects within a context in which each model year is represented explicitly, and technologi es applied in one model year carry forward to future model years. NHTSA does not currently have a reasonable basis to estimate how a manufacturer might, for example, weigh the transfer of credits from the passenger car to the light truck fleet in MY 2013 against the potential to carry light truck technologies forward from MY 2013 through MY 2016.Summary of Interagency Working Com ments on Draft Rule under EO 12866

40 because of the assumptions incorporated in EPA’s analysis regarding car-truck credit transfers, and because of EPA's projection of complete compliance with the GHG standards. It should also be expected that overall, EPA’s estimates of GHG reductions and fuel savings achieved by the GHG standa rds will be slightly higher than those projected by NHTSA only for the CAFE standards because of the reasons described above. For the same reasons, EPA’s estimates of manufacturers’ costs for complying with the passenger car and light trucks GHG standards are slightly higher than NHTSA’s estimates for complying with the CAFE standards.

A number of stakeholders commented on NHTSA’s and EPA’s analytical assumptions in estimating costs and benefits of the program. These comments and any changes from the proposed values are summarized in Section II.F, and further in Sections III (for EPA) and IV (for NHTSA); the Response to Comments document presents the detailed responses to each of the comments.

1. Summary of Costs and Benefits of NHTSA's CAFE

Standards

Without accounting for the compliance flexibilities that NHTSA is prohibited from considering when determining the level of new CAFE standards, since

manufacturers’ decisions to use those flexib ilities are voluntary, NHTSA estimates that these fuel economy increases would lead to fuel savings totaling 61 billion gallons throughout the useful lives of vehicles sold in MYs 2012-2016. At a 3% discount rate,

we estimate that the present value of the economic benefits resulting from those fuel savings is $143 billion. At a 7% discount rate, we estimate that the present value of the social benefits resulting from those fuel savi ngs is $Z billion while private fuel savings
are worth $W.

The agency further estimates that th ese new CAFE standards will lead to corresponding reductions in CO 2 emissions totaling 655 million metric tons (mmt) during the useful lives of vehicles sold in MYs 2012-2016. The present value of the economic

social benefits from avoiding thos e emissions is $14.5 billion, based on a global social cost of carbon value of approximately $21 per metric ton (in 2010, and growing thereafter). NHTSA also estimated the benefits associated with three more estimates of a one ton GHG reduction in 2010 ($5, $35, and $65), which will likewise grow thereafter. Using these values, the range of social benefits is $X - $Y. See Section II for a more detailed discussion of the social cost of carbon. It is important to note that NHTSA’s

CAFE standards and EPA’s GHG standards will both be in effect, and each will lead to increases in average fuel economy and CO 2 emissions reductions. The two agencies’ standards together comprise the National Program, and this discussion of costs and benefits of NHTSA’s CAFE standards does not change the fact that both the CAFE and GHG standards, jointly, are the source of the benefits and costs of the National Program.

Table I.C.1-1 NHTSA Fuel Saved (billion gallons) and CO 2 Emissions Avoided (mmt) under CAFE Standards (without FFV Credits)

2012 2013 2014 2015 2016 Total Comment [A11]: Please separate out social benefits from private ones.

Comment [A12]: Add 7 percent here.

Comment [A13]: Please include the full range using all four SCCs.Summary of Interagency Working Com ments on Draft Rule under EO 12866

41 Fuel (b. gal.) 4.2 8.9 12.5 16.0 19.5 61.0

CO 2 (mmt) 44 94 134 172 210 655

Considering manufacturers’ ability to earn credit toward compliance by selling FFVs, NHTSA estimates very little change in incremental fuel savings and avoided CO 2 emissions, assuming FFV credits would be used toward both the baseline and final

standards:

Table I.C.1-2 NHTSA Fuel Saved (billion gallons) and CO 2 Emissions Avoided (million metric tons, mmt) under CAFE Standards (with FFV Credits)

2012 2013 2014 2015 2016 Total Fuel (b. gal.) 4.9 8.2 11.3 15.0 19.1 58.6

CO 2 (mmt) 53 89 123 163 208 636

NHTSA estimates that these fuel economy increases would produce other benefits both to drivers (e.g., reduced time spent refue ling) and to the U.S. (e.g., reductions in the costs of petroleum imports beyond the direct savings from reduced oil purchases, as well as some disbenefits (e.g., increase traffic congestion) caused by drivers’ tendency to travel more when the cost of driving declines (as it does when fuel economy increases). NHTSA has estimated the total monetary va lue to society of these benefits and disbenefits, and estimates that the standards will produce significant net benefits to society. Using a 3% discount rate, NHTSA estimates that the present value of these
benefits would total more than $180 billion over the useful lives of vehicles sold during MYs 2012-2016. More discussion regarding monetized benefits can be found in Section IV of this notice and in NHTSA’s Regulatory Impact Analysis. Note that the benefit calculation in Tables I.C.1-3 through 1-6 includes the benefits of reducing CO 2 emissions, 41 but not the benefits of reducing other GHG emissions.

Table I.C.1-3 NHTSA Discounted Benefits ($billion) under the CAFE Standards (before FFV Credits, using 3 percent Discount Rate)

2012 2013 2014 2015 2016 Total Passenger Cars 6.8 15.2 21.6 28.7 35.2 107.5 Light Trucks 5.1 10.7 15.5 19.4 24.3 75.0

Combined 11.9 25.8 37.1 48 59.5 182.5

Using a 7% discount rate, NHTSA estimates that the present value of these benefits would total more than $145 billion over the same time period.

41 CO 2 benefits for purposes of these tables are calcula ted using the $21/ton SCC values. Note that net present value of reduced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, and 2.5 percent) is used to calculate net present value of SCC for internal consistency. Comment [A14]: This is confusing – can you please separate out the private benefits that accrue to the car buyer from social benefits? Also, please adjust the tables below to include a bit more information on social versus private benefits.Summary of Interagency Working Com ments on Draft Rule under EO 12866

42 Table I.C.1-4 NHTSA Discounted Benefits ($billion) Under the CAFE Standards (before FFV Credits, using 7 percent Discount Rate)

2012 2013 2014 2015 2016 Total Passenger Cars 5.5 12.3 17.5 23.2 28.6 87.0 Light Trucks 4.0 8.4 12.2 15.3 19.2 59.2

Combined 9.5 20.7 29.7 38.5 47.8 146.2

NHTSA estimates that FFV credits could reduce achieved benefits by about 3.8%:

Table I.C.1-5a NHTSA Discounted Benefits ($billion) under the CAFE Standards (with FFV Credits, using a 3 percent Discount Rate)

2012 2013 2014 2015 2016 Total Passenger Cars 7.6 13.7 19.1 25.6 34.0 100.0 Light Trucks 6.4 10.4 14.6 19.8 24.4 75.6

Combined 14.0 24.1 33.7 45.4 58.4 175.6

Table I.C.1-5b NHTSA Discoun ted Benefits ($billion) under the CAFE Standards (with FFV Credits, using a 7 percent Discount Rate)

2012 2013 2014 2015 2016 Total Passenger Cars 6.1 11.1 15.5 20.7 27.6 80.9 Light Trucks 5.0 8.2 11.5 15.6 19.3 59.7

Combined 11.2 19.3 27.0 36.4 46.9 140.7

NHTSA attributes most of these bene fits—about $143 billion (at a 3% discount rate and excluding consideration of FFV credits), as noted above—to reductions in fuel consumption, valuing fuel (for societal purposes) at the future pre-tax prices projected in the Energy Information Administration’s (AEO’s) reference case forecast from the Annual Energy Outlook (AEO) 2010 Early Release. NHTSA’s Final Regulatory Impact Analysis (FRIA) accompanying this rule presents a detailed analysis of specific benefits

of the rule.

Table I.C.1-6 Summary of Benefits Fuel Savings and CO 2 Emissions Reduction Due to the Rule (before FFV Credits)

Amount Monetized Value (Discounted)

3% Discount Rate 7% Discount Rate Fuel savings 61.0 billion gallons $143.0 billion $112.0 billion

CO 2 emissions

reductions 655 mmt $14.5 billion $14.5 billion

NHTSA estimates that the increases in technology application necessary to achieve the projected improvements in fuel economy will entail considerable monetary outlays. The agency estimates that incremental costs for achieving its standards – that is, Comment [A15]: This is a misleading table because it presents private fuel savings alongside social benefits. Can you produce a separate social benefits table and another that is just private savings?Summary of Interagency Working Com ments on Draft Rule under EO 12866

43 outlays by vehicle manufacturers over and above those required to comply with the MY
2011 CAFE standards – will total about $52 bi llion (i.e., during MYs 2012-2016).

Table I.C.1-7 NHTSA Incremental Technology Outlays ($billion) under the CAFE Standards (before FFV Credits)

2012 2013 2014 2015 2016 Total Passenger Cars 4.1 5.4 6.9 8.2 9.5 34.2 Light Trucks 1.8 2.5 3.7 4.3 5.4 17.6

Combined 5.9 7.9 10.5 12.5 14.9 51.7

NHTSA estimates that use of FFV cr edits could significantly reduce these outlays:

Table I.C.1-8 NHTSA Incremental Technology Outlays ($billion) under CAFE Standards (with FFV Credits)

2012 2013 2014 2015 2016 Total Passenger Cars 2.6 3.6 4.8 6.1 7.5 24.6 Light Trucks 1.1 1.5 2.5 3.4 4.4 12.9

Combined 3.7 5.1 7.3 9.5 11.9 37.5

The agency projects that manufacturers will recover most or all of these additional costs through higher selling prices for new cars and light trucks. To allow manufacturers

to recover these increased outla ys (and, to a much lesser ex tent, the civil penalties that some companies are expected to pay for noncompliance), the agency estimates that the

standards would lead to increases in aver age new vehicle prices ranging from $457 per vehicle in MY 2012 to $985 per vehicle in MY 2016:

Table I.C.1-9 NHTSA Incremental Increases in Average New Vehicle Costs ($) under CAFE Standards (before FFV Credits)

2012 2013 2014 2015 2016 Passenger Cars 505 573 690 799 907 Light Trucks 322 416 621 752 961

Combined 434 513 665 782 926

NHTSA estimates that use of FFV credits could significantly reduce these costs, especially in earlier model years:

Table I.C.1-10 NHTSA Incremental Increases in Average New Vehicle Costs ($) under CAFE Standards (with FFV Credits)

2012 2013 2014 2015 2016 Passenger Cars 303 378 481 593 713 Light Trucks 194 260 419 581 784

Combined 261 333 458 589 737Summary of Interagency Working Com ments on Draft Rule under EO 12866

44 NHTSA estimates, therefore, that the total benefits of these CAFE standards will be more than three times the magnitude of the corresponding costs. As a consequence, its standards would produce net benefits of $130. 7 billion at a 3 percent discount rate (with FFV credits, $135.0 billion) or $94.5 billion at a 7 percent discount ra te over the useful lives of vehicles sold during MYs 2012-2016. Of this, x percent is attributable to private fuel savings.

2. Summary of Costs and Benefits of EPA's GHG Standards

EPA has analyzed in detail the costs and benefits of the final GHG standards. Table I.C.2-1 shows EPA’s estimated lifetime fuel savings and CO 2 equivalent emission reductions for all vehicles sold in the model years 2012-2016. The values in Table I.C.2- 1 are projected lifetime totals for each model year and are not discounted. As documented in EPA’s Final RIA, the potential credit transfer between cars and trucks may change the distribution of the fuel savings and GHG emission impacts between cars and trucks. As discussed above with respect to NHTSA’s CAFE standards, it is important to note that NHTSA’s CAFE standa rds and EPA’s GHG standards will both be in effect, and each will lead to increases in average fuel economy and reductions in CO 2 emissions. The two agencies’ standards together comprise the National Program, and this discussion of costs and benefits of EPA’s GHG standards does not change the fact that both the CAFE and GHG standards, jointly, are the source of the benefits and costs of the National Program.

Table I.C.2-1 EPA’s Estimated 2012-2016 Model Year Lifetime Fuel Saved and GHG

Emissions Avoided

2012 2013 2014 2015 2016 Total Cars Fuel (billion gallons) 4.0 5.5 7.3 10.5 14.3 41.6 Fuel (billion barrels) 0.10 0.13 0.17 0.25 0.34 0.99

CO 2 EQ (mmt) 49.3 68.5 92.7 134 177 521

Light Trucks Fuel (billion gallons) 3.3 5.0 6.6 9.0 12.2 36.1 Fuel (billion barrels) 0.08 0.12 0.16 0.21 0.29 0.86

CO 2 EQ (mmt) 39.6 61.7 81.6 111 147 441

Combined Fuel (billion gallons) 7.3 10.5 13.9 19.5 26.5 77.7 Fuel (billion barrels) 0.17 0.25 0.33 0.46 0.63 1.85

CO 2 EQ (mmt) 88.8 130 174 244 325 962

Table I.C.2-2 shows EPA’s estimated lifetime discounted benefits for all vehicles sold in model years 2012-2016. Although EPA estimated the benefits associated with four different values of a one ton GHG reduction ($5, $21, $35, $65), for the purposes of this overview presentation of estimated benef its EPA is showing the benefits associated with one of these marginal values, $21 per ton of CO 2 , in 2007 dollars and 2010 Comment [A16]: Clarify if this is undiscounted

or now. Please make sure all tables in this rule and

RIAs are clear on whether tables information is discounted or not. It is not always clear.Summary of Interagency Working Com ments on Draft Rule under EO 12866

45 emissions. Table I.C.2-2 presents benefits based on the $21 value. Section III.H presents the four marginal values used to estimate monetized benefits of GHG reductions and Section III.H presents the program benefits using each of the four marginal values , which represent only a partial accounting of total benefits due to omitted climate change impacts and other factors that are not readily monetized . The values in the table are discounted values for each model year of vehi cles throughout their projected lifetimes.

The benefits include all social benefits considered by EPA such as fuel savings, GHG reductions, PM benefits, energy security and other externalities such as reduced refueling and accidents, congestion and noise. It also includes private fuel savings and refueling benefits that accrue to car buyers. The lifetime discounted benefits are shown for one of four different social cost of carbon (SCC) values considered by EPA. The values in Table I.C.2-2 do not include costs associated with new technology required to meet the

GHG standard.

Table I.C.2-2 EPA’s Estimated 2012-2016 Model Year Lifetime Discounted Benefits Assuming the $21/ton SCC Value a,b,c (billions of 2007 dollars)

Discount Rate Model Year

2012 2013 2014 2015 2016 Total

3% $21.8 $32.0 $42.8 $60.8 $83.3 $240

7% $17.4 $25.7 $34.2 $48.6 $66.4 $192

a The benefits include all benefits considered by EPA such as the

economic value of reduced fuel c onsumption and accompanying savings in refueling time, climate-relate d economic benefits from reducing

emissions of CO 2 (but not other GHGs), econom ic benefits from reducing emissions of PM and other air pollutant s that contribute to its formation, and reductions in energy security externalities caused by U.S. petroleum consumption and imports. The analysis also includes disbenefits stemming from additional vehicle use, such as the economic damages caused by accidents, congestion and noise.

b Note that net present value of reduced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, and 2.5 percent) is used to calculate net present valu e of SCC for internal consistency.

Refer to Section III.F for more detail.

c The benefits presented above exclude the value of reductions in non-CO 2 GHG emissions (CH 4 and N 2 O) expected under this final rule. Although

EPA has not monetized the benefits of reductions in CH 4 and N 2 O, the value of these reductions should not be interpreted as zero. Rather, the

reductions in CH 4 and N 2 O will contribute to this rule’s climate benefits, as explained in Section III.F. The SCC Technical Support Document (TSD) notes the difference between the social cost of non-CO 2 emissions and SCC and a goal to develop methods to value non-CO 2 emissions in future analyses. Also, as noted in Section III.H, SCC increases over time. The $21/ton value applies to 2010 em issions and grows larger over time.

Table I.C.2-3 shows EPA’s estimated lifetime fuel savings, lifetime CO 2 emission reductions, and the monetized net present values of those fuel savings and CO 2 emission reductions. The gallons of fuel and CO 2 emission reductions are projected lifetime values for all vehicles sold in the model years 2012-2016. The estimated fuel savings in billions

of barrels and the GHG reductions in million metric tons of CO 2 shown in Table I.C.2-3 Comment [A17]: This should not be included in a list with social benefits, but separated out for transparency. Please do this throughout this section.

Comment [A18]: Please tee up and present separately the social benefits from the private savings before just presenting an aggregate.Summary of Interagency Working Com ments on Draft Rule under EO 12866

46 are totals for the five model years throughout their projected lifetime and are not

discounted. The monetized values shown in Table I.C.2-3 are the summed values of the discounted monetized-fuel savings and monetized-CO 2 reductions for the five model years 2012-2016 throughout their lifetimes. The monetized values in Table I.C.2-3 reflect both a 3 percent and a 7 percent discount rate as noted.

Table I.C.2-3 EPA’s Estimated 2012-2016 Model Year Lifetime Fuel savings, CO 2 Emission Reductions, and Discounted Moneti zed Benefits at a 3% Discount Rate (monetized values in 2007 dollars)

Amount $ value (billions) Fuel savings 1.8 billion barrels $182, 3% discount rate $142, 7% discount rate

CO 2 e emission reductions (CO 2 portion valued assuming $21/ton

CO 2 in 2010) 962 MMT CO 2 e $17 a,b

a $17 billion for 858 MMT of reduced CO 2 emissions. As noted in Section III.H, the $21/ton value applies to 2010 emissions and grows larger over time. Also, th is estimate excludes the value of reductions in nonCO 2 GHG emissions (CH 4 and N 2 O) expected under this final rule . Although EPA has not monetized the

benefits of reductions in CH 4 and N 2 O, the value of these reductions should not be interpreted as zero. Rather, the reductions in CH 4 and N 2 O will contribute to this rule’s climate benefits, as explained in Section XXX. The [SCC TSD] notes the difference between the social cost of non-CO 2 emissions and SCC and a goal to develop methods to value non-CO 2 emissions in future analyses.

b Note that net present value of reduced CO 2 emissions is calculated differently than other benefits. The

same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, and 2.5 percent) is used to calculate net present value of SCC for internal consistency. Refer to Section III.F for

more detail.

Table I.C.2-4 shows EPA’s estimated increm ental and total technology outlays for cars and trucks for each of the model years 2012-2016. The technology outlays shown in Table I.C.2-4 are for the industry as a whole and do not account for fuel savings associated with the program.

Table I.C.2-4 EPA’s Estimated Incremental Technology Outlays (billions of 2007 dollars)

2012 2013 2014 2015 2016 Total
Cars $3.1 $5.0 $6.5 $8.0 $9.4 $31.9
Trucks $1.8 $3.0 $3.9 $4.8 $6.2 $19.7
Combined $4.9 $8.0 $10.3 $12.7 $15.6 $51.6

Table I.C.2-5 shows EPA’s estimated incremental cost increase of the average new vehicle for each model year 2012-2016. The values shown are incremental to a baseline vehicle and are not cumulative. In other words, the estimated increase for 2012 model year cars is $342 relative to a 2012 model year car absent the National Program. The estimated increase for a 2013 model year car is $507 relative to a 2013 model year car absent the National Program (not $342 plus $507).Summary of Interagency Working Com ments on Draft Rule under EO 12866

47 Table I.C.2-5 EPA’s Estimated Incremental Increase in Average New Vehicle Cost (2007 dollars per unit)

2012 2013 2014 2015 2016
Cars $342 $507 $631 $749 $869 Trucks $314 $496 $652 $820 $1,098
Combined $331 $503 $639 $774 $948

D. Background and Comparison of NHTSA and EPA Statutory Authority

Section I.C of the proposal contained a detailed overview discussion of the NHTSA and EPA statutory authorities. In a ddition to the discussion in the proposal, each agency discusses comments pertaining to its statutory authority and the agency’s responses in Sections III and IV of this notice, respectively.

II. Joint Technical Work Completed for This Final Rule

A. Introduction

In this section NHTSA and EPA discuss several aspects of the joint technical analyses on which the two agencies collaborated. These analyses are common to the development of each agency’s final standards. Specifically we discuss: the development of the vehicle market forecast used by each agency for assessing costs, benefits, and effects, the development of the attribute-based standard curve shapes, the determination of the relative stringency between the car and truck fleet standards, the technologies the agencies evaluated and their costs and effectiveness, and the economic assumptions the agencies included in their analyses. The Joint Technical Support Document (TSD) discusses the agencies’ joint t echnical work in more detail.

B. Developing the Future Fleet for Assessing Costs, Benefits, and Effects

1. Why Did the Agencies Establish a Baseline and Reference Vehicle Fleet?

In order to calculate the impacts of the EPA and NHTSA regulations, it is necessary to estimate the composition of the fu ture vehicle fleet absent these regulations, to provide a reference point relative to which costs, benefits, and effects of the regulations are assessed. As in the proposal, EPA and NHTSA have developed this comparison fleet in two parts. The first step was to develop a baseline fleet based on model year 2008 data. The second step was to project that fleet into model years 2011- 2016. This is called the reference fleet. The third step was to modify that MY 2011- 2016 reference fleet such that it had sufficient technology to meet the MY 2011 CAFE

standards. This final version of the reference fleet is the light-duty fleet estimated to exist in MY 2012-2016 in the absence of today’s standards, based on the assumption thatSummary of Interagency Working Com ments on Draft Rule under EO 12866

48 manufacturers would continue to meet the MY 2011 CAFE standards (or pay civil penalties allowed under EPCA 42 ) in the absence of further increases in the stringency of CAFE standards. Each agency used this approach to develop a final reference fleet to use in its modeling. All of the agencies’ estimates of emission reductions, fuel economy improvements, costs, and societal impacts are developed in relation to the respective

reference fleets.

EPA and NHTSA proposed a transparent approach to developing the baseline and reference fleets, largely working from publicly available data. This proposed approach differed from previous CAFE rules, which relied on confidential manufacturers’ product plan information to develop the baseline. Most of the public comments to the NPRM addressing this issue supported this methodology for developing the inputs to the rule's analysis. Because the input sheets can be made public, stakeholders can verify and check EPA’s and NHTSA’s modeling, and perform their own analyses with these datasets. In this final rulemaking, EPA and NHTSA are using an approach very similar to that proposed, continuing to rely on publicly available data as the basis for the baseline and

reference fleets.

2. How did the Agencies Develop the Baseline Vehicle Fleet?

At proposal, EPA and NHTSA developed a baseline fleet comprised of model year 2008 data gathered from EPA’s emission certification and fuel economy database.

MY 2008 was used as the basis for the baseline vehicle fleet because it was the most recent model year for which a complete set of data is publicly available. This remains the case. Manufacturers are not required to submit final sales and mpg figures for MY 2009 until April 2010, 43 after the CAFE standard’s mandated promulgation date. Consequently, in this final rule, EPA and NH TSA made no changes to the method or the results of the MY 2008 baseline fleet used at proposal, except for some specific corrections to engineering inputs for some vehicle models reflected in the market forecast input to NHTSA’s CAFE model. More details about how the agencies constructed this baseline fleet can be found in Chapter 1.2 of the Joint TSD. Corrections to engineering inputs for some vehicle models in the market forecast input to NHTSA’s CAFE model are discussed in Chapter 2 of the Joint TSD.

3. How Did the Agencies Develop the Projected MY 2011-2016 Vehicle

Fleet?

EPA and NHTSA have based the projection of total car and total light truck sales for MYs 2011-2016 on projections made by the Department of Energy’s Energy Information Administration (EIA). EIA publishes a mid-term projection of national energy use called the Annual Energy Outlook (AEO). This projection utilizes a number

42 That is, the manufacturers who have traditionally pa id fines under EPCA instead of complying with the CAFE standards were “allowed,” for purposes of the re ference fleet, to reach only the CAFE level at which paying fines became more cost-effective than adding technology, even if that fell short of the MY 2011

standards.

43 40 CFR 600.512-08, Model Year ReportSummary of Interagency Working Com ments on Draft Rule under EO 12866

49 of technical and econometric models which are designed to reflect both economic and regulatory conditions expected to exist in the future. In support of its projection of fuel use by light-duty vehicles, EIA projects sales of new cars and light trucks. In the proposal, the agencies used the three reports published by EIA as part of the AEO 2009. We also stated that updated versions of these reports could be used in the final rules should AEO timely issue a new version. EIA published an early version of its AEO 2010 in December 2009, and the agencies are making use of it in this final rulemaking. The differences in projected sales in the 2009 report (used in the NPRM) and the early 2010 report are very small, so NHTSA and EPA have decided to simply scale the NPRM volumes for cars and trucks (in the aggregate) to match those in the 2010 report. 44 We thus employ the sales projections from the scaled updated 2009 Annual Energy Outlook, which is equivalent to AEO 2010 Early Release, for the final rule. The scaling factors for each model year are presented in Chapter 1 of the Joint TSD for this final rule.

In the AEO 2010 Early Release, EIA projects that total light-duty vehicle sales will gradually recover from their currently depr essed levels by around 2013. In 2016, car sales are projected to be 9.4 million (57 percent) and truck sales are projected to be 7.1 million (43 percent). Although the total level of sales of 16.5 million units is similar to pre-2008 levels, the fraction of car sales is projected to be higher than that existing in the 2000-2007 timeframe. This projection reflects th e impact of higher fuel prices, as well as EISA’s requirement that the new vehicle fleet average at least 35 mpg by MY 2020. The agencies note that AEO does not represent the fleet at a level of detail sufficient to explicitly account for the reclassification—promulgated as part of NHTSA’s final rule for

MY 2011 CAFE standards—of a number of 2-wh eel drive sport utility vehicles from the truck fleet to the car fleet for MYs 2011 and after. Sales projections of cars and trucks for future model years can be found in the Joint TSD for these final rules.

In addition to a shift towards more car sale s, sales of segments within both the car and truck markets have been changing and are expected to continue to change. Manufacturers are introducing more crossover models which offer much of the utility of SUVs but use more car-like designs. The AEO 2010 report does not, however, distinguish such changes within the car and truck classes. In order to reflect these changes in fleet makeup, EPA and NHTSA considered several other available forecasts. EPA purchased and shared with NHTSA forecasts from two well-known industry analysts, CSM Worldwide (CSM), and J.D. Powers. NHTSA and EPA decided to use the forecast from CSM, modified as described below, for several reasons presented in the NPRM preamble 45 and draft Joint TSD. The changes between company market share and industry market segments were most significant from 2011-2014, while for 2014-2015 the changes were relatively small. Noting this, and lacking a credible forecast of company and segment shares after 2015, the agencies assumed 2016 market share and market segments to be the same as for 2015.

44 EPA and NHTSA have evaluated the differences be tween the AEO 2010 (early draft) and AEO 2009 and found little difference in the fleet projections (or fuel prices). This analysis can be found in the memo to the docket: (Docket EPA-HQ-OAR-2009-0472). The agencies therefore conclude that EIA has made no significant changes to its projections.

45 See, e.g., 74 FR 49484. Comment [A19]: See comments on the TSD. AEO 2010 includes the proposed CAFÉ standards
while AEO 2009 included EISA. EIA points out that this shifted sales, so this should have been subtracted out first before creating scaling factors.Summary of Interagency Working Com ments on Draft Rule under EO 12866

50 CSM Worldwide provides quarterly sales forecasts for the automotive industry. In the NPRM, the agencies identified a concern with the 2 nd quarter CSM forecast that was used as a basis for the projection. CSM projections at that time were based on an industry that was going through a significant financial transition, and as a result the market share forecasts for some companies were impacted in surprising ways. As the industry’s situation has settled somewhat over the past year, the 4 th quarter projection appears to address this issue – for example, it shows nearly a two-fold increase in sales for Chrysler compared to significant loss of market share shown for Chrysler in the 2 nd
quarter projection. Additionally, some commenters, such as GM, recognized that the fleet appeared to include an unusually high number of large pickup trucks. 46 In fact, the agencies discovered (independently of the comments) that CSM’s standard forecast included all vehicles below 14,000 GVWR, including class 2b and 3 heavy duty vehicles, which are not regulated by this final rule. 47 The commenters were thus correct that light duty reference fleet projections at proposal had more full size trucks and vans due to the mistaken inclusion of the heavy duty versions of those vehicles. The agencies requested a separate data forecast from CSM that filtered their 4 th quarter projection to exclude these heavy duty vehicles. The agencies then used this filtered 4 th quarter forecast for the final rule. A detailed comparison of the mark et by manufacturer can be found in the final TSD. For the public’s reference, copies of the 2 nd , 3 rd , and 4 th quarter CSM forecasts have been placed in the docket for this rulemaking. 48

We then projected the CSM forecasts for relative sales of cars and trucks by manufacturer and by market segment onto the total sales estimates of AEO 2010. Tables II.B.3-1 and II.B.3-2 show the resulting projections for the reference 2016 model year and compare these to actual sales that occurred in baseline 2008 model year. Both tables show sales using the traditional definition of cars and light trucks.

Table II.B.3-1 Annual Sales of Light-Duty Vehicles by Manufacturer in 2008 and

Estimated for 2016
Cars Light Trucks Total

2008 MY 2016 MY 2008 MY 2016 MY 2008 MY 2016 MY

BMW 291,796 424,923 61,324 171,560 353,120 596,482

Chrysler 537,808 340,908 1,119,397 525,128 1,657,205 866,037

46 GM argued that the unusually large volume of large pickups led to higher overall requirements for those vehicles. As discussed below, the agencies’ analysis fo r the final rule corrects the number of large pickups. With this correction and other updates to the agencies ’ market forecast and other analytical inputs, the target functions defining the final standards (and achieving the average required performance levels defining the national program) are very similar to t hose from the NPRM, especially for light trucks, as illustrated below in Figures II.C-7 and II.C-8.

47 These include the Ford F-250 & F-350, Econoline E-250, & E-350; Chevy Express, Silverado 2500, & 3500; GMC Savana, Dodge 2500, & 3500; among others.

48 The CSM Sales Forecast Excel file (“CSM North America Sales Forecasts 2Q09 3Q09 4Q09 for the Docket”) is available in the docket (Docket EPA-HQ-OAR-2009-0472).Summary of Interagency Working Com ments on Draft Rule under EO 12866

51 Daimler 208,052 272,252 79,135 126,880 287,187 399,133

Ford 709,583 1,118,727 1,158,805 1,363,256 1,868,388 2,481,983

General Motors 1,370,280 230,705 1,749,227 95,054 3,119,507 325,760

Honda 899,498 1,283,937 612,281 1,585,828 1,511,779 2,869,766

Hyundai 270,293 811,214 120,734 671,437 391,027 1,482,651

Kia 145,863 401,372 135,589 211,996 281,452 613,368

Mazda 191,326 455,643 111,220 210,717 302,546 666,360

Mitsubishi 76,701 350,055 24,028 144,992 100,729 495,047

Porsche 18,909 49,914 18,797 88,754 37,706 138,668

Nissan 653,121 33,471 370,294 16,749 1,023,415 50,220

Subaru 149,370 876,677 49,211 457,114 198,581 1,333,790

Suzuki 68,720 97,466 45,938 26,108 114,658 123,574

Tata 9,596 65,806 55,584 42,695 65,180 108,501

Toyota 1,143,696 2,069,283 1,067,804 1,249,719 2,211,500 3,319,002

Volkswagen 290,385 586,011 26,999 124,703 317,384 710,011

Total 7,034,997 9,468,365 6,806,367 7,112,689 13,841,364 16,580,353

Table II.B.3-2 Annual Sales of Light-Duty Vehicles by Market Segment in 2008 and

Estimated for 2016

Cars Light Trucks

2008 MY 2016 MY 2008 MY 2016 MY

Full-Size Car 829,896 530,945 Full-Size Pickup 1,331,989 1,379,036

Luxury Car 1,048,341 1,548,242 Mid-Size Pickup 452,013 332,082

Mid-Size Car 2,166,849 2,550,561 Full-Size Van 33,384 65,650

Mini Car 617,902 1,565,373 Mid-Size Van 719,529 839,194Summary of Interagency Working Com ments on Draft Rule under EO 12866

52 Small Car 1,912,736 2,503,566 Mid-Size MAV* 110,353 116,077

Specialty Car 459,273 769,679 Small MAV 231,265 62,514

Full-Size SUV* 559,160 232,619

Mid-Size SUV 436,080 162,502

Small SUV 196,424 108,858

Full-Size CUV* 264,717 260,662

Mid-Size CUV 923,165 1,372,200

Small CUV 1,548,288 2,181,296

Total Sales** 7,034,997 9,468,365 6,806,367 7,079,323

* MAV – Multi-Activity Vehicle, SUV – Sport Util ity Vehicle, CUV – Crossover Utility Vehicle

**Total Sales are based on the classic Car/Truck definition.

Determining which traditionally-defined trucks will be defined as cars for purposes of this final rule using the revi sed definition established by NHTSA for MYs 2011 and beyond requires more detailed information about each vehicle model. This is described in greater detail in Chapter 1 of the final TSD.

The forecasts obtained from CSM provided estimates of car and truck sales by segment and by manufacturer, but not by manufacturer for each market segment. Therefore, NHTSA and EPA needed other information on which to base these more detailed projected market splits. For this task, the agencies used as a starting point each manufacturer’s sales by market segment from model year 2008, which is the baseline fleet. Because of the larger number of segments in the truck market, the agencies used slightly different methodologies for cars and trucks.

The first step for both cars and trucks was to break down each manufacturer’s 2008 sales according to the ma rket segment definitions used by CSM. For example, the agencies found that Ford’s 49 cars sales in 2008 were broken down as shown in Table

II.B.3-3:

Table II.B.3-3: Breakdown of Ford’s 2008 Car Sales Full-size cars 160,857 units Mid-size Cars 170,399 units Small/Compact Cars 180,249 units Subcompact/Mini Cars None Luxury cars 87,272 units Specialty cars 110,805 units

49 Note: In the NPRM, Ford’s 2008 sales per segment, and the total number of cars was different than shown here. The change in values is due to a correction of vehicle segments for some of Ford’s vehicles.Summary of Interagency Working Com ments on Draft Rule under EO 12866

53 EPA and NHTSA then adjusted each manufacturer’s sales of each of its car segments (and truck segments, separately) so that the manufacturer’s total sales of cars (and trucks) matched the total estimated for each future model year based on AEO and CSM forecasts. For example, as indicated in Table II.B.3-1, Ford’s total car sales in 2008 were 709,583 units, while the ag encies project that they will increase to 1,113,333 units by 2016. This represents an increase of 56.9 percent. Thus, the agencies increased the 2008 sales of each Ford car segment by 56.9 percent. This produced estimates of future sales which matched total car and truck sales per AEO and the manufacturer breakdowns per CSM. However, the sales splits by market segment would not necessarily match those of CSM (shown for 2016 in Table II.B.3-2).

In order to adjust the market segment mi x for cars, the agencies first adjusted sales of luxury, specialty and other cars. Since the total sales of cars for each manufacturer were already set, any changes in the sales of one car segment had to be compensated by the opposite change in another segment. For the luxury, specialty and other car segments, it is not clear how changes in sales would be compensated. For example, if luxury car sales decreased, would sales of full-size cars increase, mid-size cars, and so on? The agencies have assumed that any changes in the sales of cars within these three segments were compensated for by proportional changes in the sales of the other four car segments. For example, for 2016, the figures in Table II.B.3-2 indicate that luxury car sales in 2016 are 1,548,242 units. Luxury car sales are 1,048,341 units in 2008. However, after adjusting 2008 car sales by the change in total car sales for 2016 projected by EIA and a change in manufacturer market share per CSM, luxury car sales decreased to 1,523,171 units. Thus, overall for 2016, luxury car sales had to increase by 25,071 units or 6 percent. The agencies accordingly increased the luxury car sales by each manufacturer by this percentage. The absolute decrease in luxury car sales was spread across sales of full-size, mid-size, compact and subcompact cars in proportion to each manufacturer’s sales in these segments in 2008. The same adjustment process was used for specialty cars and the “other cars” segment defined by CSM.

The agencies used a slightly different approach to adjust for changing sales of the remaining four car segments. Starting with full-size cars, the agencies again determined the overall percentage change that needed to occur in future year full-size car sales after 1) adjusting for total sales per AEO 2010, 2) adjusting for manufacturer sales mix per CSM and 3) adjusting the luxury, specialty and other car segments, in order to meet the segment sales mix per CSM. Sales of each manufacturer’s large cars were adjusted by this percentage. However, instead of spreading this change over the remaining three segments, the agencies assigned the entire change to mid-size vehicles. The agencies did so because the CSM data followed the trend of increasing volumes of smaller cars while reducing volumes of larger cars. If a consum er had previously purchased a full-size car, we thought it unlikely that their next pu rchase would decrease by two size categories, down to a subcompact. It seemed more reasonable to project that they would drop one vehicle size category smaller. Thus, the change in each manufacturer’s sales of full-size cars was matched by an opposite change (in absolute units sold) in mid-size cars.Summary of Interagency Working Com ments on Draft Rule under EO 12866

54 The same process was then applied to mid-size cars, with the change in mid-size car sales being matched by an opposite change in compact car sales. This process was repeated one more time for compact car sales, with changes in sales in this segment being matched by the opposite change in the sales of subcompacts. The overall result was a projection of car sales for model years 2012-2016--the reference fleet--which matched the total sales projections of the AEO forecast and the manufacturer and segment splits of the CSM forecast. These sales splits can be f ound in Chapter 1 of the Joint TSD for this

final rule.

As mentioned above, the agencies applied a slightly different process to truck sales, because the agencies could not confidently project how the change in sales from one segment preferentially went to or came from another particular segment. Some trend from larger vehicles to smaller vehicles would have been possible. However, the CSM forecasts indicated large changes in total spor t utility vehicle, multi-activity vehicle and cross-over sales which could not be connected. Thus, the agencies applied an iterative, but straightforward process for adjusting 2008 truck sales to match the AEO and CSM

forecasts.

The first three steps were exactly the same as for cars. EPA and NHTSA broke down each manufacturer’s truck sales into the truck segments as defined by CSM. The agencies then adjusted all manufacturers’ truck segment sales by the same factor so that total truck sales in each model year matched AEO projections for truck sales by model year. The agencies then adjusted each manufacturer’s truck sales by segment proportionally so that each manufacturer’s percentage of total truck sales matched that forecast by CSM. This again left the need to adjust truck sales by segment to match the CSM forecast for each model year.

In the fourth step, the agencies adjusted the sales of each truck segment by a

common factor so that total sales for that segment matched the combination of the AEO and CSM forecasts. For example, projected sales of large pickups across all manufacturers were 1,286,184 units in 2016 after adjusting total sales to match AEO’s forecast and adjusting each manufacturer’s truck sales to match CSM’s forecast for the breakdown of sales by manufacturer. Applying CSM’s forecast of the large pickup segment of truck sales to AEO’s total sales forecast indicated total large pickup sales of 1,379,036 units. Thus, we increased each manufacturer’s sales of large pickups by 7

percent. 50 The agencies applied the same type of adjustment to all the other truck segments at the same time. The result was a set of sales projections which matched AEO’s total truck sales projection and CSM’s market segment forecast. However, after this step, sales by manufacturer no longer me t CSM’s forecast. Thus, we repeated step three and adjusted each manufacturer’s truck sales so that they met CSM’s forecast. The sales of each truck segment (by manufacturer) were adjusted by the same factor. The resulting sales projection matched AEO’s total truck sales projection and CSM’s manufacturer forecast, but sales by market segment no longer met CSM’s forecast.

50 Note: In the NPRM this example showed 29 percen t instead of 7 percent. The significant decrease was due to using the filtered 4th quarter CSM forecast. Commenters, such as GM, ha d commented that we had too many full-size trucks and vans, and this change addresses their comment.Summary of Interagency Working Com ments on Draft Rule under EO 12866

55 However, the difference between the sales projections after this fifth step was closer to CSM’s market segment forecast than it was after step three. In other words, the sales projection was converging to the desired result . The agencies repeated these adjustments, matching manufacturer sales mix in one step and then market segment in the next a total of 19 times. At this point, we were able to match the market segment splits exactly and the manufacturer splits were within 0.1 per cent of our goal, which is well within the needs of this analysis.

The next step in developing the reference fleets was to characterize the vehicles within each manufacturer-segment combination. In large part, this was based on the characterization of the specific vehicle models sold in 2008 -- i.e., the vehicles comprising the baseline fleet. EPA and NHTSA chose to base our estimates of detailed vehicle characteristics on 2008 sales for several reasons. One, these vehicle characteristics are not confidential and can thus be published here for careful review by interested parties. Two, because it is constructed beginning with actual sales data, this

vehicle fleet is limited to vehicle models know n to satisfy consumer demands in light of price, utility, performance, safety, and other vehicle attributes.

As noted above, the agencies gathered most of the information about the 2008

baseline vehicle fleet from EPA’s emission certification and fuel economy database. The data obtained from this source included vehicle production volume, fuel economy, engine size, number of engine cylinders, transmission type, fuel type, etc. EPA’s certificationdatabase does not include a detailed description of the types of fuel economyimproving/CO 2 -reducing technologies considered in this final rule. Thus, the agencies augmented this description with publicly available data which includes more complete technology descriptions from Ward’s Automotive Group. 51 In a few instances when required vehicle information (such as vehicle footprint) was not available from these two sources, the agencies obtained this information from publicly accessible internet sites

such as Motortrend.com and Edmunds.com. 52

The projections of future car and truck sales described above apply to each manufacturer’s sales by market segment. The EPA emissions certification sales data are available at a much finer level of detail, esse ntially vehicle configuration. As mentioned above, the agencies placed each vehicle in the EPA certification database into one of the CSM market segments. The agencies then totaled the sales by each manufacturer for each market segment. If the combination of AEO and CSM forecasts indicated an increase in a given manufacturer’s sales of a particular market segment, then the sales of all the individual vehicle configurations were adjusted by the same factor. For example, if the Prius represented 30 percent of Toyota’s sales of compact cars in 2008 and Toyota’s sales of compact cars in 2016 was projected to double by 2016, then the sales of the Prius were doubled, and the Prius sales in 2016 remained 30 percent of Toyota’s compact car sales.

51 Note that WardsAuto.com is a fee-based service, but all information is public to subscribers.

52 Motortrend.com and Edmunds.com ar e free, no-fee internet sites.Summary of Interagency Working Com ments on Draft Rule under EO 12866

56 The projection of average footprint for both cars and trucks remained virtually constant over the years covered by the final rulemaking. This occurrence is strictly a result of the CSM projections. There are a number of trends that occur in the CSM projections that caused the average footprint to remain constant. First, as the number of subcompacts increases, so do the number of 2-wheel drive crossover vehicles (that are regulated as cars). Second, truck volumes have many segment changes during the rulemaking time frame. There is no specific footprint related trend in any segment that can be linked to the unchanging footprint, but there is a trend that non-pickups’ volumes will move from truck segments that are ladder frame to those that are unibody-type vehicles. A table of the footprint projections is available in the TSD as well as further discussion on this topic.

4. How Was the Development of the Ba seline and Reference Fleets for this

Final Rule Different from NHT SA’s Historical Approach?

NHTSA has historically based its anal ysis of potential new CAFE standards on detailed product plans the agency has requested from manufacturers planning to produce light vehicles for sale in the United States. Although the agency has not attempted to compel manufacturers to submit such information, most major manufacturers and some smaller manufacturers have voluntarily provided it when requested.

The proposal discusses many of the advantages and disadvantages of the market forecast approach used by the agencies, including the agencies’ interest in examining product plans as a check on the reference fleet developed by the agencies for this rulemaking. One of the primary reasons for the request for data in 2009 was to obtain permission from the manufacturers to make public their product plan information for model years 2010 and 2011. There are a number of reasons that this could be advantageous in the development of a reference fleet. First, some known changes to the fleet may not be captured by the approach of solely using publicly available information. For example, the agencies’ current market forecast includes some vehicles for which manufacturers have announced plans for elimination or drastic production cuts such as the Chevrolet Trailblazer, the Chrysler PT Cruiser, the Chrysler Pacifica, the Dodge Magnum, the Ford Crown Victoria, the Mercury Sable, the Pontiac Grand Prix, the Pontiac G5 and the Saturn Vue. These vehicle models appear explicitly in market inputs to NHTSA’s analysis, and are among those vehicle models included in the aggregated vehicle types appearing in market inputs to EPA’s analysis. However, although the agencies recognize that these specific vehicles will be discontinued, we continue to include them in the market forecast because they are useful as a surrogate for successor vehicles that may appear in the rulemaking time frame to replace the discontinued vehicles in that market segment. 53

Second, the agencies’ market forecast does not include some forthcoming vehicle models, such as the Chevrolet Volt, the Ford Fiesta and several publicly announced

53 An example of this is in the GM Pontiac line, which is in the process of being phased out during the course of this rulemaking. GM has similar vehicles within their other brands (like Chevy) that will presumable pick up the loss in Pontiac share. We model this simply by leaving the Pontiac brand in.Summary of Interagency Working Com ments on Draft Rule under EO 12866

57 electric vehicles, including the announcements from Nissan regarding the Leaf. Nor does it include several MY 2009 or 2010 vehicles, such as the Honda Insight, the Hyundai Genesis and the Toyota Venza, as our startin g point for defining specific vehicle models in the reference fleet was Model Year 2008. Additionally, the market forecast does not account for publicly announced technology introductions, such as Ford’s EcoBoost system, whose product plans specify which vehicles and how many are planned to havethis technology. Chrysler Group LLC has announced plans to offer small- and mediumsized cars using Fiat powertrains. Were the agencies to rely on manufacturers’ product plans (that were submitted), the market forecas t would account for not only these specific examples, but also for similar examples that have not yet been announced publicly.

Some commenters, such as CBD and NESCAUM, suggested that the agencies’ omission of known future vehicles and technologies in the reference fleet causes inaccuracies, which CBD further suggested could lead the agencies to set lower standards. On the other hand, CARB commented that “the likely impact of this omission is minor.” Because the agencies’ analysis examines the costs and benefits of progressively adding technology to manufacturers’ fleets, the omission of future vehicles and technologies primarily affects how much additional technology (and, therefore, how much incremental cost and benefit) is av ailable relative to the point at which the agencies’ examination of potential new standards begins. Thus, in fact, the omission only reflects the reference fleet, rather than the agencies’ conclusions regarding how stringent the standards should be. This is discussed further below. The agencies believe the above-mentioned comments by CBD, NESCAUM, and others are based on a misunderstanding of the agencies’ approach to analyzing potential increases in regulatory stringency. The agencies also note that manufacturers do not always use technology solely to increase fuel economy, and that use of technology to increase vehicles’ acceleration performance or utility would pr obably make that technology unavailable toward more stringent standards. Considering the incremental nature of the agencies’ analysis, and the counterbala ncing aspects of potentiall y omitted technol ogy in the reference fleet, the agencies believe their determination of the stringency of new standards has not been impacted by any such omissions.

Moreover, EPA and NHTSA believe that not including such vehicles after MY 2008 does not significantly impact our estimates of the technology required to comply with the standards. If included, these vehicles could increase the extent to which manufacturers are, in the reference case, expected to over-comply with the MY 2011 CAFE standards, and could thereby make the new standards appear to cost less and yield less benefit relative to the reference case. However, in the agencies’ judgment, production of the most advanced technology vehicles, such as the Chevy Volt or the Nissan Leaf (for example), will most likel y be too limited during MY 2011 through MY 2016 to significantly impact manufacturers’ compliance positions. While we are projecting the characteristics of the future fleet by extrapolating from the MY 2008 fleet, the primary difference between the future fleet and the 2008 fleet in the same vehicle segment is the use of additional CO 2 -reducing and fuel-saving technologies. Both the NHTSA and EPA models add such technologies to evaluate means of complying with the standards, and the costs of doing so. Thus, our future projections of the vehicle fleetSummary of Interagency Working Com ments on Draft Rule under EO 12866

58 generally shift vehicle designs towards those more likely to be typical of newer vehicles. Compared to using product plans that show continued fuel economy increases planned based on expectations that CAFE standards will continue to in crease, this approach helps to clarify the costs and benefits of the new stan dards, as the costs and benefits of all fuel economy improvements beyond those required by the MY 2011 CAFE standards are being assigned to the final rules. In some cases, the “actual” (vs. projected or “modeled”) new vehicles being introduced into the market by manufacturers are done so in anticipation of this rulemaking. On the other hand, manufacturers may plan to continue using technologies to improve vehicle performanc e and/or utility, not just fuel economy. Our approach prevents some of these actual technological improvements and their associated cost and fuel economy improvements from being assumed in the reference fleet. Thus, the added technology will not be considered to be free (or having no benefits) for the purposes of this rule.

In this regard, the agencies further note that manufacturer announcements regarding forward models (or future vehicle models) need not be accepted automatically. Manufacturers tend to limit accurate production intent information in these releases for reasons such as: (a) competitors will closely examine their information for data in their product planning decisions; (b) the press coverage of forward model announcements is not uniform, meaning highly anticipated models have more coverage and materials than models that may be less exciting to the pub lic and consistency and uniformity cannot be ensured with the usage of press information; and (c) these market projections are subject to change (sometimes significant), and ma nufacturers may not want to give the appearance of being indecisive, or under/over-confident to their shareholders and the public with premature release of information.

NHTSA has evaluated the use of public manufacturer forward model press information to update the vehicle fleet inpu ts to the baseline and reference fleet. The challenges in this approach are evidenced by the continuous stream of manufacturer press releases throughout a defined rulemaking peri od. Manufacturers’ press releases suffer from the same types of inaccuracies that many commenters believe can affect product plans. Manufacturers can often be overly op timistic in their press releases, both on projected date of release of new models and on sales volumes.

More generally and more critically, as discussed in the proposal and as endorsed by many of the public comments, there are several advantages to the approach used by the agencies in this final rule. Most importa ntly, today’s market forecast is much more transparent. The information sources used to develop today’s market forecast are all either in the public domain or available comm ercially. Another significant advantage of today’s market forecast is the agencies’ abilit y to assess more fully the incremental costs and benefits of the proposed standards. In addition, by developing baseline and reference fleets from common sources, the agencies have been able to avoid some errors—perhaps related to interpretation of requests—that have been observed in past responses to NHTSA’s requests. An additiona l advantage of the approach us ed for this proposal is a consistent projection of the change in fuel economy and CO 2 emissions across the various vehicles from the application of new technology. With the approach used for this finalSummary of Interagency Working Com ments on Draft Rule under EO 12866

59 rule, the baseline market data comes from actual vehicles (on the road today) which have actual fuel economy test data (in contrast to manufacturer estimates of future product fuel economy) – so there is no question what is the basis for the fuel economy or CO 2 performance of the baseline market data as it is.

5. How Does Manufacturer Product Plan Data Factor into the Baseline used

in this Final Rule?

In the spring and fall of 2009, many manufacturers submitted product plans in response to NHTSA’s recent requests that they do so. NHTSA and EPA both have access to these plans, and both agencies have reviewed them in detail. A small amount of product plan data was used in the development of the baseline. The specific pieces of

data are:

• Wheelbase

• Track Width Front

• Track Width Rear

• EPS (Electric Power Steering)

• ROLL (Reduced Rolling Resistance)

• LUB (Advance Lubrication i.e. low weight oil)

• IACC (Improved Electrical Accessories)

• Curb Weight

• GVWR (Gross Vehicle Weight Rating)

The track widths, wheelbase, curb weight, and GVWR for vehicles could have been looked up on the internet (159 were), but were taken from the product plans when available for convenience. To ensure accuracy, a sample from each product plan was used as a check against the numbers available from Motortrend.com. These numbers will be published in the baseline file since they can be easily looked up on the internet. On the other hand, EPS, ROLL, LUB, and IACC are difficult to determine without using manufacturer’s product plans. These items w ill not be published in the baseline file, but the data has been aggregated into the agencies’ baseline in the technology effectiveness and cost effectiveness for each vehicle in a way that allows the baseline for the model to be published without revealing the manufacturer’s data.

Also, some technical information that manufacturers have provided in product plans regarding specific vehicle models is, at least insofar as NHTSA and EPA have been able to determine, not available from public or commercial sources. While such gaps do not bear significantly on the agencies’ analysis, the diversity of pickup configurations necessitated utilizing a sales-weighted average footprint value 54 for many manufacturers’

54 A full-size pickup might be offered with various comb inations of cab style (e.g., regular, extended, crew) and box length (e.g., 51⁄2’, 61⁄2’, 8’) and, therefore, mu ltiple footprint sizes. CAFE compliance data for MY 2008 data does not contain footprint information, a nd does not contain information that can be used to reliably identify which pickup entries correspond to footprint values estimable from public or commercial sources. Therefore, the agencies have used the know n production levels of average values to represent all variants of a given pickup line (e.g., all variants of th e F-150 and the Sierra/Silverado) in order to calculate the sales-weighted average footprint value for each pic kup family. Again, this has no impact on the resultsSummary of Interagency Working Com ments on Draft Rule under EO 12866

60 pickups. Since our modeling only utilizes footprint in order to estimate each

manufacturer’s CO 2 or fuel economy standard and all the other vehicle characteristics are available for each pickup configuration, this approximation has no practical impact on the projected technology or cost associated wi th compliance with the various standards evaluated. The only impact which could arise would be if the relative sales of the various pickup configurations changed, or if the agencies were to explore standards with a different shape. This would necessitate recalculating the average footprint value in order to maintain accuracy.

Additionally, as discussed in the NPRM, in an effort to update the 2008 baseline to account for the expected changes in the fleet in the near-term model years 2009-2011 described above, NHTSA requested permission from the manufacturers to make this limited product plan information public. Unfortunately, virtually no manufacturers agreed to allow the use of their data after 2009 model year. A few manufacturers, such as GM and Ford, stated we could use their 2009 product plan data after the end of production (December 31), but this would not have afforded us sufficient time to do the analysis for the final rule. Since the agencies were unable to obtain consistent updates, the baseline and reference fleets were not updated beyond 2008 model year for the final rule. The 2008 baseline fleet and projections were instead updated using the latest AEO

and CSM data as discussed earlier.

NHTSA and EPA recognize that the approach applied for the current rule gives transparency and openness of the vehicle market forecast high priority, and accommodates minor inaccuracies that may be introduced by not accounting for future product mix changes anticipated in manufacturers’ confidential product plans. For any future fleet analysis that the agencies ar e required to perform, NHTSA and EPA plan to request that manufacturers submit product plans and allow some public release of information. In performing this analysis, the agencies plan to reexamine potential tradeoffs between transparency and technical reasonableness, and to explain resultant

choices.

C. Development of Attribute-Based Curve Shapes

In the NPRM, NHTSA and EPA proposed to set attribute-based CAFE and CO 2 standards that are defined by a mathematical function for MYs 2012-2016 passenger cars and light trucks. EPCA, as amended by EISA, expressly requires that CAFE standards for passenger cars and light trucks be based on one or more vehicle attributes related to fuel economy, and be expressed in the form of a mathematical function. 55 The CAA hasno such requirement, though in past rules, EPA has relied on both universal and attributebased standards (e.g., for nonroad engines, EPA uses the attribute of horsepower).

of our modeling effort, although it would require re-est imation if we were to examine light truck standards of a different shape. In the extreme, one single footprint value could be used for every vehicle sold by a single manufacturer as long as the fuel economy standard associated with this footprint value represented the sales-weighted, harmonic average of the fuel economy standards associated with each vehicle’s footprint values.

55 49 U.S.C. 32902(a)(3)(A).Summary of Interagency Working Com ments on Draft Rule under EO 12866

61 However, given the advantages of using attr ibute-based standards and given the goal of coordinating and harmonizing CO 2 standards promulgated under the CAA and CAFE standards promulgated under EPCA, EPA also proposed to issue standards that are attribute-based and defined by mathematical functions. There was consensus in the public comments that EPA should develop attribute-based CO 2 standards.

Comments received in response to the agencies’ decision to base standards on vehicle footprint were largely supportive. Several commenters (BMW, NADA, NESCAUM) expressed support for attribute-based (as opposed to flat or universal) standards generally, and agreed with EPA’s decision to harmonize with NHTSA in this respect. Many commenters (Aluminum Association, BMW, ICCT, NESCAUM, NY DEC, Schade, Toyota) also supported the agen cies’ decision to continue setting CAFE standards, and begin setting GHG standards, on the basis of vehicle footprint, although one commenter (NJ DEP) opposed the use of footprint due to concern that it encourages manufacturers to upsize vehicles and undercut the gains of the standard. Of the commenters supporting the use of footprint, several focused on the benefits of harmonization—both between EPA and NHTSA, and between the U.S. and the rest of the world. BMW commented, for example, that many other countries use weight-based standards rather than footprint-based. While BMW did not object to NHTSA’s andEPA’s use of footprint-based standards, it emphasized the impact of this nonharmonization on manufacturers who sell vehi cles globally, and asked the agencies to consider these effects. NADA supported the use of footprint, but cautioned that the agencies must be careful in setting the footprint curve for light trucks to ensure that manufacturers can continue to provide functionality like 4WD and towing/hauling capacity.

Some commenters requested that the agencies consider other or more attributes in addition to footprint, largely reiterating comments submitted to the MYs 2011-2015 CAFE NPRM. Cummins supported the agenci es using a secondary attribute to account for towing and hauling capacity in large trucks, for example, while Ferrari asked the agencies to consider a multi-attribute approach incorporating curb weight, maximum engine power or torque, and/or engine displacement, as it had requested in the previous round of CAFE rulemaking. An individual, Mr. Kenneth Johnson, commented that weight-based standards would be preferable to footprint-based ones, because weight correlates better with fuel economy than footprint, because the use of footprint does not necessarily guarantee safety the way the agencies say it does, and because weight-based

standards would be fairer to manufacturers.

In response, EPA and NHTSA continue to believe that the benefits of footprintattribute-based standards outweigh any poten tial drawbacks raised by commenters, and that harmonization between the two agencies should be the overriding goal on this issue. As discussed by NHTSA in the MY 2011 CAFE final rule, 56 the agencies believe that the possibility of gaming is lowest with footpr int-based standards, as opposed to weightbased or multi-attribute-based standards. Specifically, standards that incorporate weight, torque, power, towing capability, and/or off-ro ad capability in addition to footprint would

56 See 74 FR 14359 (Mar. 30, 2009).Summary of Interagency Working Com ments on Draft Rule under EO 12866

62 not only be significantly more complex, but by providing degrees of freedom with respect to more easily-adjusted attributes, they woul d make it less certain that the future fleet would actually achieve the average fuel economy and CO 2 levels projected by the agencies. The agencies are therefore finalizing MYs 2012-2016 CAFE and GHG standards based on footprint.

The agencies also recognize that there could be benefits for a number of manufacturers if there was greater international harmonization of fuel economy and GHG standards, but this is largely a question of how stringent standards are and how they are enforced. It is entirely possible that footprint-based and weight-based systems can coexist internationally and not present an undue burden for manufacturers if they are carefully crafted. Different countries or regi ons may find different attributes appropriate for basing standards, depending on the particular challenges they face – from fuel prices, to family size and land use, to safety concerns, to fleet composition and consumer preference, to other environmental challenges besides climate change. The agencies anticipate working more closely with other countries and regions in the future to consider how to mitigate these issues in a way that least burdens manufacturers while respecting each country’s need to meet its own particular challenges.

Under an attribute-based standard, every vehicle model has a performance target (fuel economy and CO 2 emissions for CAFE and CO 2 emissions standards, respectively), the level of which depends on the vehicle’s at tribute (for the proposal, footprint). The manufacturers’ fleet average performance is determined by the production-weighted 57
average (for CAFE, harmonic average) of those targets. NHTSA and EPA are promulgating CAFE and CO 2 emissions standards defined by constrained linear functions and, equivalently, piecewise linear functions. 58 As a possible option for future rulemakings, the constrained linear form was introduced by NHTSA in the 2007 NPRM proposing CAFE standards for MY 2011-2015. Described mathematically, the proposed constrained linear function was defined according to the following formula: 59

1

1 1

, , TARGET

MIN MAX c FOOTPRINT d a b = ⎡ ⎤ ⎛ ⎞

× + ⎜ ⎟ ⎢ ⎥ ⎝ ⎠ ⎣ ⎦

where

TARGET = the fuel economy target (in mpg) applicable to vehicles of a given footprint ( FOOTPRINT , in square feet),

a = the function’s upper limit (in mpg),

b = the function’s lower limit (in mpg),

c = the slope (in gpm per square foot) of the sloped portion of the function,

57 Production for sale in the United States.

58 The equations are equivalent but are specified differ ently due to differences in the agencies’ respective

models.

59 This function is linear in fuel consumption but not in fuel economy.Summary of Interagency Working Com ments on Draft Rule under EO 12866

63 d

= the intercept (in gpm) of the sloped por tion of the function (that is, the value the sloped portion would take if extended to a footprint of 0 square feet, and

the MIN and MAX functions take the minimum and maximum, respectively, of the included values; for example, MIN (1,2) = 1, MAX (1,2) = 2, and

MIN [ MAX (1,2),3)]=2.

Because the format is linear on a gallons-per-mile basis, not on a miles-per-gallon basis, it is plotted as fuel consumption below. Graphically, the constrained linear form appears as shown in Figure II.C-1.Summary of Interagency Working Com ments on Draft Rule under EO 12866

640.0000.0050.0100.0150.0200.0250.0300.0350.0400.0450.05035 40 45 50 55 60 65 70Footprint (sf)

Fuel Consumption (gpm)1/LIMITUPPER1/LIMITLOWERINTERCEPTSLOPEFigure II.C-1 The Shape of the Constrained Linear FormSummary of Interagency Working Com ments on Draft Rule under EO 12866

65 The specific form and stringency for each fleet (passenger car and light trucks) and model year are defined through specific values for the four coefficients shown above.

EPA proposed the equivalent equation below for assigning CO 2 targets to an individual vehicle’s footprint value. Although the general model of the equation is the same for each vehicle category and each year, the parameters of the equation differ for cars and trucks and for each model year. Described mathematically, EPA’s proposed piecewise linear function was as follows:

Target = a, if x ≤ l Target = cx + d, if l < x ≤ h Target = b, if x > h

In the constrained linear form similar in form to the fuel economy equation above, this equation takes the simplified form:

Target = MIN [ MAX ( c * x + d , a) , b]

where

Target = the CO 2 target value for a given footprint (in g/mi) a = the minimum target value (in g/mi CO 2 ) 60
b = the maximum target value (in g/mi CO 2 ) c = the slope of the linear function (in g/mi per sq ft CO 2 ) d = is the intercept or zero-offset for the line (in g/mi CO 2 ) x = footprint of the vehicle model (in square feet, rounded to the nearest tenth) l & h are the lower and higher footprint limits or constraints or (“kinks”) or the boundary between the flat regions and th e intermediate sloped line (in sq ft)

Graphically, piecewise linear form, like the constrained linear form, appears as shown in Figure II.C-2.

60 These a, b, d coefficients differ from the a, b, d coefficients in the constr ained linear fuel economy equation primarily by a factor of 8887 (plus an additive factor for air conditioning).Summary of Interagency Working Com ments on Draft Rule under EO 12866

6630 35 40 45 50 55 60 65 70Footprint (sq feet)

CO2 (gram/mile) or Fuel Consumption (gallons/mile)lower limit = lIntercept = dupperlimit = hslope = cmin = amax = bFigure II.C-2 The Shape of the Piecewise Linear FormSummary of Interagency Working Com ments on Draft Rule under EO 12866

67 As for the constrained linear form, the specific form and stringency of the piecewise linear function for each fleet (passenger car and light trucks) and model year are defined through specific values for the four coefficients shown above.

For purposes of the proposed rules, NHTSA and EPA developed the basic curve shapes using methods similar to those applied by NHTSA in fitting the curves defining the MY 2011 standards. The first step involved defining the relevant vehicle characteristics in the form used by NHTSA’s CAFE model (e.g., fuel economy, footprint, vehicle class, technology) described in Section II.B of this preamble and in Chapter 1 of the Joint TSD. However, because the baseline fleet utilizes a wide range of available fuel saving technologies, NHTSA used the CAFE model to develop a fleet to which all of the technologies discussed in Chapter 3 of the Joint TSD 61 were applied, except dieselization and strong hybridization. This was accomplished by taking the following steps: (1) treating all manufacturers as unwilling to pay civil penalties rather than applying technology, (2) applying any technology at any time, irrespective of scheduled vehicle redesigns or freshening, and (3) ignoring “phase-in caps” that constrain the overall amount of technology that can be applied by the model to a given manufacturer’s fleet. These steps helped to increase technologi cal parity among vehicle models, thereby providing a better basis (than the baseline or reference fleets) for estimating the statistical relationship between vehicle size and fuel economy.

In fitting the curves, NHTSA and EPA also continued to fit the sloped portion of the function to vehicle models between the footprint values at which the agencies continued to apply constraints to limit the function’s value for both the smallest and largest vehicles. Without a limit at the smal lest footprints, the function—whether logistic or linear—can reach values that would be unfairly burdensome for a manufacturer that elects to focus on the market for small vehicles; depending on the underlying data, an unconstrained form, could result in stringency levels that are technologically infeasible and/or economically impracticable for those manufacturers that may elect to focus on the

smallest vehicles. On the other side of the function, without a limit at the largest footprints, the function may provide no floor on required fuel economy. Also, the safety considerations that support the provision of a disincentive for downsizing as a compliance strategy apply weakly, if at all, to the very largest vehicles. Limiting the function’s value for the largest vehicles leads to a function with an inherent absolute minimum level of performance, while remainin g consistent with safety considerations.

Before fitting the sloped portion of the constrained linear form, NHTSA and EPA selected footprints above and below which to apply constraints (i.e., minimum and maximum values) on the function. The agencies believe that the linear form performs well in describing the observed relationship between footprint and fuel consumption or

CO 2 emissions for vehicle models within the footprint ranges covering most vehicle

61 The agencies excluded diesel engines and strong hybr id vehicle technologies from this exercise (and only this exercise) because the agencies expect that ma nufacturers would not need to rely heavily on these technologies in order to comply with the proposed standards. NHTSA and EPA did include diesel engines and strong hybrid vehicle technologies in all other portions of their analyses.Summary of Interagency Working Com ments on Draft Rule under EO 12866

68 models, but that the single (as opposed to piecew ise) linear form does not perform well in describing this relationship for the smallest and largest vehicle models. For passenger cars, the agency noted that several manufacturers offer small, sporty coupes below 41 square feet, such as the BMW Z4 and Mini, Honda S2000, Mazda MX-5 Miata, Porsche Carrera and 911, and Volkswagen New Beetle. Because such vehicles represent a small portion (less than 10 percent) of the passenger car market, yet often have performance, utility, and/or structural characteristics that could make it technologically infeasible and/or economically impracticable for manufacturers focusing on such vehicles to achieve the very challenging average requirements that could apply in the absence of a constraint, EPA and NHTSA proposed to “cut off” the linear portion of the passenger car function at 41 square feet. For consistency, the agency proposed to do the same for the light truck function, although no light trucks are currently offered below 41 square feet. The agencies further noted that above 56 square feet, the only passenger car model present in the MY 2008 fleet were four luxury vehicles with extremely low sales volumes—the Bentley Arnage and three versi ons of the Rolls Royce Phantom. NHTSA and EPA therefore also proposed to “cut off” the linear portion of the passenger car function at 56 square feet. Finally, the agencies noted that although public information is limited regarding the sales volumes of the many different configurations (cab designs and bed sizes) of pickup trucks, most of the largest pickups (e.g., the Ford F-150, GM Sierra/Silverado, Nissan Titan, and Toyota Tundra) appear to fall just above 66 square feet in footprint. EPA and NHTSA therefore proposed to “cut off” the linear portion of the light truck function at 66 square feet.

Having developed a set of vehicle emissions and footprint data which represent the benefit of all non-diesel, non-hybrid technologies, we determined the initial values for

parameters c and d were determined for cars and trucks separately. c and d were initially set at the values for which the average (equiva lently, sum) of the absolute values of the

differences was minimized between the “max imum technology” fleet fuel consumption (within the footprints between the upper and lower limits) and the straight line of the function defined above at the same corresponding vehicle footprints. That is, c and d were determined by minimizing the average absolute residual, commonly known as the MAD (Mean Absolute Deviation) approach, of the corresponding straight line.

Finally, NHTSA calculated the values of the upper and lower parameters ( a and

b ) based on the corresponding footprints discussed above (41 and 56 square feet for passenger cars, and 41 and 66 square feet for light trucks).

The result of this methodology is shown below in Figures II.C-3 and II.C-4 for passenger cars and light trucks, respectively. The fitted curves are shown with the underlying “maximum technology” passenger car and light truck fleets. For passenger cars, the mean absolute deviation of the sloped portion of the function was 14 percent. For trucks, the corresponding MAD was 10 percent.Summary of Interagency Working Com ments on Draft Rule under EO 12866

690.0000.0050.0100.0150.0200.0250.0300.0350.0400.0450.0500.0550.06035 40 45 50 55 60 65 70 75 80Footprint (sf)

Fuel Consumption (gpm)Figure II.C-3 “Maximum Technology” PassengerFleet with Fitted Constrained Linear FunctionSummary of Interagency Working Com ments on Draft Rule under EO 12866

700.0000.0050.0100.0150.0200.0250.0300.0350.0400.0450.0500.0550.06035 40 45 50 55 60 65 70 75 80Footprint (sf)

Fuel Consumption (gpm)Figure II.C--4 “Maximum Technology” Light Truck with Fitted Constrained Linear FunctionSummary of Interagency Working Com ments on Draft Rule under EO 12866

71 The agencies used these functional forms as a starting point to develop mathematical functions defining the actual proposed standards as discussed above. The agencies then transposed these functi ons vertically (i.e., on a gpm or CO 2 basis, uniformly downward) to produce the same fleetwide fuel economy (and CO 2 emission levels) for cars and light trucks described in the NPRM.

A number of public comments generally supported the agencies’ choice of attribute-based mathematical functions, as well as the methods applied to fit the function. Ferrari indicated support for the use of a constrained linear form rather than a constrained logistic form, support for the application of limits on the functions’ values, support for a generally less steep passenger car curve compared to MY 2011, and support for the inclusion of all manufacturers in the analysis used to fit the curves. ICCT also supported the use of a constrained linear form. Toyota expressed general support for the methods and outcome, including a less-steep passenger car curve, and the application of limits on fuel economy targets applicable to the smallest vehicles. The UAW commented that the shapes and levels of the curves are reasonable.

Other commenters suggested that changes to the agencies’ methods and results would yield better outcomes. GM suggested that steeper curves would provide a greater

incentive for limited-line manufact urers to apply technology to smaller vehicles. GMargued that steeper and, in their view, fairer curves could be obtained by using salesweighted least-squares regression rather than minimization of the unweighted mean absolute deviation. Conversely, students from UC Santa Barbara commented that the passenger car and light truck curves should be flatter and should converge over time in order to encourage the market to turn, as the agencies’ analysis assumes it will, away from light trucks and toward passenger cars.

NADA commented that there should be no “cut-off” points (i.e., lower limits or floors), because these de facto “backstops” might limit consumer choice, especially for light trucks—a possibility also suggested by the Alliance. The Alliance and several

individual manufacturers also commented that th e cut-off point for light trucks should be shifted to 72 square feet (from the propos ed 66 square feet), arguing that the preponderance of high-volume light truck mode ls with footprints greater than 66 square feet is such that a 72 square foot cut-off point makes it unduly challenging for manufacturers serving the large pickup market and thereby constitutes a de facto backstop. Also, with respect to the smalle st light truck models, Honda commented that the cut-off point should be set at the point de fining the smallest 10 percent of the fleet, both for consistency with the passenger car cut-off point, and to provide a greater incentive for manufacturers to downsize the smallest light truck models (which provide greater functionality than passenger cars).

Other commenters focused on whether the agencies should have separate curves for different fleets or whether they should have a single curve that applied to both passenger cars and light trucks. This issue is related, to some exte nt, to commenters who discussed whether car and truck definitions should change. CARB, Ford, and ToyotaSummary of Interagency Working Com ments on Draft Rule under EO 12866

72 supported separate curves for cars and trucks, generally stating that different fleets have different functional characteristics and these characteristics are appropriately addressed by separate curves. Likewise, AIAM, Chry sler, and NADA supported leaving the current

definitions of car and truck the same. CB D, ICCT, and NESCAUM supported a single curve, based on concerns about manufacturers gaming the system and reclassifying passenger cars as light trucks in order to obtain the often-less stringent light truck standard, which could lead to lower benefits than anticipated by the agencies.

In addition, the students from UC Santa Barbara reported being unable to reproduce the agencies’ analysis to fit curves to the passenger car and light truck fleets, even when using the model, inputs, and external analysis files posted to NHTSA’s web

site when the NPRM was issued.

Having considered public comments, NHTSA and EPA have re-examined the development of curves underlying the standards proposed in the NPRM, and are promulgating standards based on the same underlying curves. The agencies have made this decision considering that, while EISA ma ndates that CAFE standards be defined by a

mathematical function in terms of one or more attributes related to fuel economy, neither EISA nor the CAA require that the mathematic al function be limited to the observed or theoretical dependence of fuel economy on the selected attribute or attributes. As a means by which CAFE and GHG standards are specified, the mathematical function can and does properly play a normative role. Therefore, NHTSA and EPA have concluded that, as supported by comments, the mathematical function can reasonably be based on a blend of analytical and policy considerations, as discussed below and in the Joint Technical Support Document.

With respect to GM’s recommendation that NHTSA and EPA use weighted leastsquares analysis, the agencies find that the market forecast used for analysis supporting

both the NPRM and the final rule exhibits th e two key characteristics that previously led NHTSA to use minimization of the unweighted Mean Absolute Deviation (MAD) rather than weighted least-squares analysis. First, projected model-specific sales volumes in the agencies’ market forecast cover an extremely wide range, such that, as discussed in NHTSA’s rulemaking for MY 2011, while unweighted regression gives low-selling vehicle models and high-selling vehicle models equal emphasis, sales-weighted regression would give some vehicle models considerably more emphasis than other

vehicle models. 62 The agencies’ intention is to fit a curve that describes a technical relationship between fuel economy and footprint, given comparable levels of technology, and this supports weighting discrete vehicle models equally. On the other hand, sales

62 For example, the agencies’ market forecast shows MY 2016 sales of 187,000 units for Toyota’s 2WD Sienna, and shows 27 model configurations with MY 201 6 sales of fewer than 100 units. Similarly, the agencies’ market forecast shows MY 2016 sales of 268,000 for the Toyota Prius, and shows 29 model configurations with MY 2016 sales of fewer than 100 units. Sales-weighted analysis would give the Toyota Sienna and Prius more than a thousand times the consideration of many vehicle model configurations. Sales-weighted analysis would, therefore, cause a large number of vehicle model configurations to be virtually ignored. See discussion in NHTSA’s final rule for MY 2011 passenger car and light truck CAFE standards, 74 FR 14368 (Mar. 30, 2009), and in NHTSA’s NPRM for that rulemaking, 73 FR 24423-24429 (May 2, 2008).Summary of Interagency Working Com ments on Draft Rule under EO 12866

73 weighted regression would allow the difference between other vehicle attributes to be reflected in the analysis, and also would reflect consumer demand.

Second, even after NHTSA’s “maximum technology” analysis to increase technological parity of vehicle models before fitting curves, the agencies’ market forecast contains many significant outliers. As discussed in NHTSA’s rulemaking for MY 2011, MAD is a statistical procedure that has b een demonstrated to produce more efficient parameter estimates than least-squares analysis in the presence of significant outliers. 63
In addition, the agencies remain concerne d that the steeper curves resulting from weighted least-squares analysis would in crease the risk that energy savings and environmental benefits would be lower than projected, because the steeper curves would provide a greater incentive to increase sales of larger vehicles with lower fuel economy levels. Based on these technical considerations and these concerns regarding potential outcomes, the agencies have decided not to re-fit curves using weighted least-squares analysis, but note that they may reconsider using least-squares regression in future analysis.

NHTSA and EPA have considered GM’s comment that steeper curves would provide a greater incentive for limited-line manufacturers to apply technology to smaller vehicles. While the agencies agree that a steeper curve would, absent any changes in fleet mix, tend to shift average compliance burdens away from GM and toward companies that make smaller vehicles, the agencies are concerned, as stated above, that steeper curves would increase the risk that induced increases in vehicle size could erode projected energy and environmental benefits.

NHTSA and EPA have also considered the comments by the students from UC Santa Barbara indicating that the passenger car and light truck curves should be flatter and should converge over time. The agencies conclude that flatter curves would reduce the incentives intended in shifting from “flat” CAFE standards to attribute-based CAFE and GHG standards—those being the incentive to respond to attribute-based standards in ways that minimize compromises in vehicle safety, and the incentive for more manufacturers (than primarily those selling a wi der range of vehicles) across the range of the attribute to have to increase the applicati on of fuel-saving technologies. With regard to whether the agencies should set separate curv es or a single one, NHTSA also notes that EPCA requires NHTSA to establish standards separately for passenger cars and light

63 Id. In the case of a dataset not drawn from a sample with a Gaussian, or normal, distribution, there is often a need to employ robust estimation methods rather than rely on least-squares approach to curve fitting. The least-squares approach has as an underl ying assumption that the data are drawn from a normal distribution, and hence fits a curve using a sum-of-squares method to minimize errors. This approach will, in a sample drawn from a non-normal distribution, give excessive weight to outliers by making their presence felt in proportion to the square of their distance from the fitted curve, and, hence, distort the resulting fit. With outliers in the sample, the typical solution is to use a robust method such as a minimum absolute deviation, rather than a squared term, to estimate the fit ( see , e.g., ‘‘AI Access: Your Access to Data Modeling,’’ at http://www.aiaccess.net/Englis h/Glossaries/GlosMod/e_gm_O_Pa.htm#Outlier). The effect on the estimation is to let the presence of each observation be felt more uniformly, resulting in a curve more representative of the data ( see , e.g., Peter Kennedy, A Guide to Econometrics , 3 rd edition, 1992, MIT Press, Cambridge, MA).Summary of Interagency Working Com ments on Draft Rule under EO 12866

74 trucks, and thus concludes that the standards for each fleet should be based on the

characteristics of vehicles in each fleet. In other words, the passenger car curve should be based on the characteristics of passenger cars, and the light truck curve should be based on the characteristics of light trucks—thus to the extent that those characteristics are different, an artificially-forced convergence would not accurately reflect those differences. However, such convergence could be appropriate depending on future trends in the light vehicle market, specifically further reduction in the differences between passenger car and light truck characteristics. While that trend was more apparent when car-like 2WD SUVs were classified as light trucks, it seems likely to diminish for themodel year vehicles subject to these rules as the truck fleet will be more purely “trucklike” than has been the case in recent years.

NHTSA and EPA have also considered comments on the maxima and minima that the agencies have applied to “cut off” the linear function underlying the proposed curves for passenger cars and light trucks. Contrary to NADA’s suggestion that there should be no such cut-off points, the agencies conclude that curves lacking maximum fuel economy targets (i.e., minimum CO 2 targets) would result in average fuel economy and GHG requirements that would not be technologically feasible or economically practicable for manufacturers concentrating on those market segments. In addition, minimum fuel economy targets (i.e., maximum CO 2 targets) are important to mitigate the risk to energy and environmental benefits of potential market shifts toward large vehicles. The agencies also disagree with comments by the Alliance and several individual manufacturers that the cut-off point for light trucks should be shifted to 72 square feet (from the proposed 66 square feet) to ease compliance burdens facing manufacturers serving the large pickup market. Such a shift would increase the risk that energy and environmental benefits of the standards would be compromised by induced increases in the sales of large pickups, in situations where the increased compliance burden is feasible and appropriate. Also, the agencies’ market fo recast suggests that most of the light trucks models with footprints larger than 66 square feet have curb weights near or above 5,000 pounds. This suggests, in turn , that in terms of highway safety, there is little or no need to discourage downsizing of light trucks with footprints larger than 66 square feet. Based on these energy, environmental, technological feasibility, economic practicability, and safety considerations, the agencies conclude that the light truck curve should be cut off at 66 square feet, as proposed, rather than at 72 square feet. The agencies also disagree with Honda’s suggestion that the cut-of f point for the smallest trucks be shifted to a larger footprint value, because doing so could potentially increase the incentive to reclassify vehicles in that size range as light trucks, and could thereby increase the possibility that energy and environmental benefits of the rule would be less than projected.

Finally, considering comments by the UC Santa Barbara students regarding difficulties reproducing NHTSA’s analys is, NHTSA reexamined its analysis, and discovered some erroneous entries in model inputs underlying the analysis used to develop the curves proposed in the NPRM. These errors are discussed in NHTSA’s final Regulatory Impact Analysis (FRIA) and have since been corrected. They include the following: incorrect valvetrain phasing and lift inputs for many BMW engines, incorrectSummary of Interagency Working Com ments on Draft Rule under EO 12866

75 indexing for some Daimler models, incorrectly enabled valvetrain technologies for rotary engines and Atkinson cycle engines, omitted baseline applications of cylinder deactivation in some Honda and GM engines, incorrect valve phasing codes for some 4- cylinder Chrysler engines, omitted baseline ap plications of advan ced transmissions in some VW models, incorrectly enabled advanc ed electrification technologies for several hybrid vehicle models, and incorrect DCT effectiveness estimates for subcompact passenger cars. These errors, while not significant enough to impact the overall analysis of stringency, did affect the fitted slope for the passenger car curve and would have prevented precise replication of NHTSA’s NPRM analysis by outside parties.

After correcting these errors and repeating the curve development analysis presented in the NPRM, NHTSA obtained the curves shown below in Figures II.C-5 and II.C-6 for passenger cars and light trucks, resp ectively. The fitted curves are shown with the underlying “maximum technology” passenger car and light truck fleets. For passenger cars, the mean absolute deviation of the sloped portion of the function was 14 percent. For trucks, the corresponding MAD was 10 percent.Summary of Interagency Working Com ments on Draft Rule under EO 12866

760.0000.0050.0100.0150.0200.0250.0300.0350.0400.0450.0500.0550.06035 40 45 50 55 60 65 70 75 80Footprint (sf)

Fuel Consumption (gpm)Figure II.C-5 Revised “Maximum Technology” Passenger Fleet with Fitted Constrained Linear FunctionSummary of Interagency Working Com ments on Draft Rule under EO 12866

770.0000.0050.0100.0150.0200.0250.0300.0350.0400.0450.0500.0550.06035 40 45 50 55 60 65 70 75 80FuelConsumption(gpm)Footprint (sf)Figure II.C-6 Revised “Maximum Technology” Light Truck with Fitted Constrained Linear FunctionSummary of Interagency Working Com ments on Draft Rule under EO 12866

78 This refitted passenger car curve is similar to that presented in the NPRM, and the refitted light truck curve is nearly identical the corresponding curve in the NPRM. However, the slope of the refitted passenger car curve is about 27 percent steeper (on a gpm per sf basis) than the curve presented in the NPRM. For passenger cars and light trucks, respectively, Figures II.C-7 and II.C-8 show the results of adjustment—discussed in the next section—of the above curves to yield the average required fuel economy levels corresponding to the final standards.Summary of Interagency Working Com ments on Draft Rule under EO 12866

7920253035404535 40 45 50 55 60 65 70 75 80Target(mpg)Footprint (sf)NPRMFinalRe-FittedFigure II.C-7 MY 2016 Passenger Car Targets: NPRM, Final Rule, and if Using Re-Fitted CurveSummary of Interagency Working Com ments on Draft Rule under EO 12866

8020253035404535 40 45 50 55 60 65 70 75 80Target(mpg)Footprint (sf)NPRMFinalRe-FittedFigure II.C-8 MY 2016 Light Truck Targets: NPRM, Final Rule, and if Using Re-Fitted CurveSummary of Interagency Working Com ments on Draft Rule under EO 12866

81 While the resultant light truck curves are visually indistinguishable from one another, the refitted curve for passenger cars would increase stringency for the smallest cars, decrease stringency for the largest cars, and provide a greater incentive to increase vehicle size throughout the range of footprints within which NHTSA and EPA project most passenger car models will be sold through MY 2016. The agencies are concerned that these changes would make it unduly difficult for manufacturers to introduce new small passenger cars in the United States, and unduly risk losses in energy and environmental benefits by increasing incentives for the passenger car market to shift toward larger vehicles.

Also, the agencies note that the refitted passenger car curve produces only a slightly closer fit to the corrected fleet than would the curve estimated in the NPRM; with respect to the corrected fleet (between the “cut off” footprint values, and after the “maximum technology” analysis discussed above), the mean absolute deviation for the refitted curve is 13.887 percent, and that of a refitted curve held to the original slope is 13.933 percent. In other words, the data support the original slope very nearly as well as they support the refitted slope.

Considering NHTSA’s and EPA’s concerns regarding the change in incentives

that would result from a refitted curve for passenger cars, and considering that the data support the original curves about as well as they would support refitted curves, the agencies are finalizing CAFE and GHG standards based on the curves presented in the

NPRM.

Finally, regarding some commenters’ inability to reproduce the agencies’ NPRM analysis, NHTSA believes that its correction of the errors discussed above and its release (on NHTSA’s web site) of the updated Volpe model and all accompanying inputs and external analysis files should enable outs ide parties to independently reproduce the agencies’ analysis. If outside parties continue to experience difficulty in doing so, we encourage them to contact NHTSA, and the agency will do its best to provide assistance.

Thus, in summary, the agencies’ approach to developing the attribute-based

mathematical functions for MY 2012-2016 CAFE and CO 2 standards represents the agencies’ best technical judgment and consid eration of potential outcomes at this time, and we are confident that the conclusions have resulted in appropriate and reasonable standards. The agencies recognize, however, that aspects of these decisions may merit updating or revision in future analysis to support CAFE and CO 2 standards or for other purposes. Consistent with best rulemaking practices, the agencies will take a fresh look at all assumptions and approaches to cu rve fitting, appropriate attributes, and

mathematical functions in the cont ext of future rulemakings.

The agencies also recognized in the NPRM the possibility that lower fuel prices could lead to lower fleetwide fuel economy (and higher CO 2 emissions) than projected in this rule. One way of addressing that concern is through the use of a universal standard—that is, an average standard set at a (single) absolute level. This is oftenSummary of Interagency Working Com ments on Draft Rule under EO 12866

82 described as a “backstop standard.” The agencies explained that under the CAFE program, EISA requires such a minimum average fuel economy standard for domestic passenger cars, but is silent with regard to similar backstops for imported passenger cars and light trucks, while under the CAA, a b ackstop could be adopted under section 202(a) assuming it could be justified under the releva nt statutory criteria. NHTSA and EPA also noted that the flattened portions of the curv es at the largest footprints directionally address the issue of a backstop (i.e., the mpg “floor” or gpm “ceiling” applied to the curves provides a universal and absolute value for that range of footprints). The agencies sought comment on whether backstop standards, or any other method within the agencies’ statutory authority, should and can be implemented in order to guarantee a level

of CO 2 emissions reductions and fuel savings under the attribute-based standards.

The agencies received a number of comments regarding the need for a backstop beyond NHTSA’s alternative minimum standard. Comments were divided fairly evenly between support for and opposition to additional backstop standards. The following organizations supported the need for EPA and NHTSA to have explicit backstop

standards: American Council for an Ener gy Efficient Economy (ACEEE), American Lung Association, California Air Resources Board (CARB), Environment America, Environment Defense Fund, Massachusetts Department of Environmental Protection, Natural Resources Defense Council (NRDC), Northeast States for Coordinated Air Use Management (NESCAUM), Public Citizen and Safe Climate Campaign, Sierra Club, State of Washington Department of Ecology, Union of Concerned Scientists, and a number of private citizens. Commenters in favor of additional backstop standards for all

fleets for both NHTSA and EPA 64 generally stated that the emissions reductions and fuel savings expected to be achieved by MY 2016 depended on assumptions about fleet mix that might not come to pass, and that various kinds of backstop standards or “ratchet

mechanisms” 65 were necessary to ensure that those reductions were achieved in fact. In addition, some commenters 66 stated that manufacturers might build larger vehicles or more trucks during MYs 2012-2016 than the agencies project, for example, because 1) any amount of slope in target curves encourages manufacturers to upsize, and 2) lower targets for light trucks than for passenger cars encourage manufacturers to find ways to reclassify vehicles as light trucks, such as by dropping 2WD versions of SUVs and offering only 4WD versions, perhaps spurred by NHTSA’s reclassification of 2WD SUVs as passenger cars. Both of these m echanisms will be addressed further below. Some commenters also discussed EPA authority under the CAA to set backstops, 67
agreeing with EPA’s analysis that section 202 (a) allows such standards since EPA has

wide discretion under that section to craft standards.

The following organizations opposed a backstop: Alliance of Automobile Manufacturers (AAM), Association of Intern ational Automobile Manufacturers (AIAM),

64 ACEEE, American Lung Association, CARB, Christopher Lish, Environment America, EDF, MA DEP, NRDC, NESCAUM, Public Citizen, Sierra Club et al. , SCAQMD, UCS, WA DE

65 Commenters generally defined a “ratchet mechanism” as an automatic re-calculation of stringency to ensure cumulative goals are reached by 2016, even if emissions reductions and fuel savings fall short in the earlier years covered by the rulemaking.

66 CBD, MA DEP, NJ DEP, Public Citizen, Sierra Club et al. , UCS

67 CARB, Public Citizen, Sierra Club et al.Summary of Interagency Working Com ments on Draft Rule under EO 12866

83 Ford Motor Company, National Automobile Dealers Association (NADA), Toyota Motor Company, and the United Auto Workers Union. Commenter s stating that additional backstops would not be necessary disagreed that upsizing was likely, 68 and emphasized the anti-backsliding characteristics of the target curves. Others argued that universal absolute standards as backstops could restrict consumer choice of vehicles. Commenters making legal arguments under EPCA/EISA 69 stated that Congress’ silence regarding backstops for imported passenger cars and light trucks should be construed as a lack of authority for NHTSA to create further backstops. Commenters making legal arguments

under the CAA 70 focused on the lack of clear author ity under the CAA to create multiple GHG emissions standards for the same fleets of vehicles based on the same statutory criteria, and opposed EPA taking steps that would reduce harmonization with NHTSA in standard setting. Furthermore, AIAM i ndicated that EISA’s requirement that the combined (car and truck) fuel economy level reach at least 35 mpg by 2020 itself constitutes a backstop. 71 One individual 72 commented that while additional backstop standards might be necessary given optimism of fleet mix assumptions, both agencies’ authorities would probably need to be revised by Congress to clarify that backstop standards (whether for individual fleets or for the national fleet as a whole) were permissible.

In response, EPA and NHTSA remain confident that their projections of the future fleet mix are reliable, and that future changes in the fleet mix of footprints and sales are not likely to lead to more than modest changes in projected emissions reductions or fuel savings. 73 Both agencies thus remain confident in these fleet projections and the

68 For example, the Alliance and Toyota said that ups izing would not be likely because (1) it would not necessarily make compliance with applicable standards easier, since larger vehicles tend to be heavier and heavier vehicles tend to achieve worse fuel economy/emissions levels; (2) it may require expensive platform changes; (3) target curves become increasingly more stringent from year to year, which reduces the benefits of upsizing; and (4) the mpg floor and gpm ceiling for the largest vehicles (the point at which the curve is “cut off”) discourages manufacturers from continuing to upsize beyond a point because doing so makes it increasingly difficult to meet the flat standard at that part of the curve.

69 AIAM, Alliance, Ford, NADA, Toyota

70 Alliance, Ford, NADA, UAW

71 NHTSA and EPA agree with AIAM that the EISA 35 mpg requirement in MY 2020 has a backstop-like function, in that it requires a certain level of achieved fleetwide fuel economy by a certain date, although it is not literally a backstop standard. Considering that NHTSA’s MY 2011 CAFE standards increased projected average fuel economy requirements (relative to the MY 2010 standards) at a significantly faster rate than would be required to achieve the 35-in-2020 requirement, and considering that the standards being finalized today would increase projected average combined fuel economy requirements to 34.1 mpg in MY 2016, four years before MY 2020, the agencies believe that the U.S. vehi cle market would have to shift in highly unexpected ways in order to put the 35-in-2020 requirement at risk, even despite the fact that due to the attribute-based standards, average fuel economy requirements will vary depending on the mix of vehicles produced for sale in the U.S. in each m odel year. The agencies further emphasize that both NHTSA and EPA plan to conduct and document retros pective analyses to eval uate how the market’s evolution during the rulemaking timeframe compares with the agencies’ forecasts employed for this rulemaking. Additionally, we emphasize that both agenci es have the authority, given sufficient lead time, to revise their standards upwards if necessary to avoid missing the 35-in-2020 requirement.

72 Schade

73 For reference, NHTSA’s March 2009 final rule es tablishing MY 2011 CAFE standards was based on a forecast that passenger cars would represent 57.6 percent of the MY 2011 fleet, and that MY 2011 passenger cars and light trucks would average 45.6 squa re feet (sf) and 55.1 sf, respectively, such thatSummary of Interagency Working Com ments on Draft Rule under EO 12866

84 resulting emissions reductions and fuel savings from the standards. As explained in Section II.B above, the agencies’ projections of the future fleet are based on the most transparent information currently available to the agencies. In addition, there are only a relatively few model years at issue. Moreove r, market trends today are consistent with the agencies’ estimates, showing shifts from light trucks to passenger cars and increased emphasis on fuel economy from all vehicles.

Finally, the shapes of the curves, including the “flattening” at the largest footprint values, tend to avoid or minimize regulatory incentives for manufacturers to upsize their fleet to change their compliance burden. Given the way the curves are fit to the data points (which represent vehicle models’ fuel economy mapped against their footprint), the agencies believe that there is little re al benefit to be gained by a manufacturer upsizing their vehicles. As discussed above , the agencies’ analysis indicates that, for passenger car models with footprints falli ng between the two flattened portions of the corresponding curve, the actual slope of fuel econo my with respect to footprint, if fit to that data by itself, is about 27 percent steeper than the curve the agencies are promulgating today. This difference suggest s that manufacturers would, if anything, have more to gain by reducing vehicle footprin t than by increasing vehicle footprint. For light trucks, the agencies’ analysis indicates that, for models with footprints falling between the two flatted portions of the corresponding curve, the slope of fuel economy with respect to footprint is nearly identical to the curve the agencies are promulgating today. This suggests that, within this ra nge, manufacturers would typically have little incentive to either incrementally increase or reduce vehicle footprint.

At the same time, adding another backstop standard would have virtually no effect if the standard was weak, but a mo re stringent backstop could compromise the objectives served by attribute-based standards – that they distribute compliance burdens more equally among manufacturers, and at the same time encourage manufacturers to apply fuel-saving technologies rather than si mply downsizing their vehicles, as they did in past decades under flat standards. Th is is why Congress mandated attribute-based CAFE standards in EISA. This compromise in objectives could occur for any manufacturer whose fleet average was above the backstop, irrespective of why they were above the backstop and irrespective of whether the industry as a whole was achieving the emissions and fuel economy benefits projected for the final standards, the problem the backstop is supposed to address. For example, the projected industry wide level of 250 gm/mile for MY 2016 is based on a mix of manufacturer levels, ranging from approximately 205 to 315 gram/mile 74 but resulting in an industry wide basis in a fleet average of 250 gm/mile. Unless the backstop was at a very weak level, above the high end of this range, then some percentage of manufacturers would be above the backstop even if the performance of the entire industry remains fully consistent with the emissions

average required CAFE levels would be 30.2 mpg, 24. 1 mpg, and 27.3 mpg, respectively, for passenger cars, light trucks, and the overall light-duty fleet. Base d on the agencies’ current market forecast, even as soon as MY 2011, passenger cars will comprise a larger share (59.2 percent) of the light vehicle market; passenger cars and light trucks will, on average, be smaller by 0.5 sf and 1.3 sf, respectively; and average required CAFE levels will be higher by 0.2 mpg, 0.3 mpg, and 0.3 mpg, respectively, for passenger cars, light trucks, and the overall light-duty fleet.

74 Based on estimated standards presented in tables III.B.1-1 and III.B.1-2.Summary of Interagency Working Com ments on Draft Rule under EO 12866

85 and fuel economy levels projected for the final standards. For these manufacturers and any other manufacturers who were above the backstop, the objectives of an attribute based standard would be compromised and unnecessary costs would be imposed. This could directionally impose increased costs fo r some manufacturers. It would be difficult if not impossible to establish the level of a backstop standard such that costs are likely to be imposed on manufacturers only when there is a failure to achieve the projected reductions across the industry as a whole. An example of this kind of industry wide situation could be when there is a significant sh ift to larger vehicles across the industry as a whole, or if there is a general market shift from cars to trucks. The problem the agencies are concerned about in those circumstances is not with respect to any single manufacturer, but rather is based on concerns over shifts across the fleet as a whole, as compared to shifts in one manufacturer's fleet that may be more than offset by shifts the other way in another manufacturer's fleet. However, in this respect, a traditional backstop acts as a manufacturer specific standard.

The concept of a ratchet mechanism recognizes this problem, and would impose the new more stringent standard only when the problem arises across the industry as a whole. While the new more stringent stan dards would enter into force automatically, any such standards would still need to provide adequate lead time for the manufacturers.Given the limited number of model years covered by this rulemaking and the short leadtime already before the 2012 model year, a ra tchet mechanism in this rulemaking that would automatically tighten the standards at some point after model year 2012 is finished and apply the new more stringent standards for model years 2016 or earlier, would fail to provide adequate lead time for any new, more stringent standards

Additionally, we do not believe that th e risk of vehicle upsizing or changing vehicle offerings to “game” the passenger car an d light truck definitions is as great as commenters imply for the model years in question. 75 The changes that commenters suggest manufacturers might make are neither so simple nor so likely to be accepted by consumers. For example, 4WD versions of vehicles tend to be more expensive and, other things being equal, have inherently lower fuel economy than their 2WD equivalent models. Therefore, although there is a market for 4WD vehicles, and some consumers might shift from 2WD vehicles to 4WD vehicles if 4WD becomes available at little or no extra cost, many consumers still may not desire to purchase 4WD vehicles because of concerns about cost premium and additional maintenance requirements; conversely, many manufacturers often require the 2WD option to satisfy demand for base vehicle models. Additionally, increasing the footprin t of vehicles requires platform changes, which usually requires a product redesign phase (the agencies estimate that this occurs on average once every 5 years for most models). Alternatively, turning many 2WD SUVs into 2WD light trucks would require manufacturers to squeeze a third row of seats in or significantly increase their GVWR, which al so requires a significant change in the

75 We note that NHTSA’s recent clarification of the light truck definitions has significantly reduced the potential for gaming, and resulted in the reclassificati on of over a million vehicles from the light truck to the passenger car fleet.Summary of Interagency Working Com ments on Draft Rule under EO 12866

86 vehicle. 76 The agencies are confident that the anticipated increases in average fuel economy and reductions in average CO 2 emission rates can be achieved without backstops under EISA or the CAA. As noted above, the agencies plan to conduct retrospective analysis to monitor progress. Both agencies have the authority to revise standards if warranted, as long as sufficient lead time is provided.

The agencies acknowledge that the MY 2016 fleet emissions and fuel economy goals of 250 g/mi and 34.1 mpg for EPA and NHTSA respectively are estimates and not standards (the MY 2012-2016 curves are the standards). Changes in fuel prices, consumer preferences, and/or vehicle survival and mileage accumulation rates could result in either smaller or larger oil and GHG savings. As explained above and elsewhere in the rule, the agencies believe that the po ssibility of not meeting (or, alternatively, exceeding) fuel economy and emissions goals exists, but is not likely Given this, and given the potential complexities in designi ng an appropriate backstop, the agencies believe the balance here points to not adopting additional backstops at this time for the

MYs 2012-2016 standards other than NHTSA’ s finalizing of the ones required by EPCA/EISA for domestic passenger cars. If , during the timeframe of this rule, the agencies observe a signifi cant shift in the manufacturer’s product mix resulting in a relaxation of their estimated targets, NHTSA and EPA will reconsider options, both for

MYs 2012-2016 and future rulema kings. This issue will be discussed further in Sections

III and IV.

D. Relative Car-Truck Stringency

The agencies proposed fleetwide standards with the projected levels of stringency of 34.1 mpg or 250 g/mi in MY 2016 (as well as the corresponding intermediate year fleetwide standards) for NHTSA and EPA re spectively. To dete rmine the relative stringency of passenger car and light truck standards for those model years, the agencies were concerned that increasing the difference between the car and truck standards (either by raising the car standards or lowering the truck standards) could encourage manufacturers to build fewer cars and more trucks, likely to the detriment of fuel economy and CO 2 reductions. 77 In order to maintain consis tent car/truck standards, the agencies applied a constant ratio between the estimated average required performance under the passenger car and light truck standards, in order to maintain a stable set of incentives regarding vehicle classification.

To calculate relative car-truck stringency for the proposal, the agencies explored a number of possible alternatives, and for the reasons described in the proposal used the Volpe model in order to estimate stringencies at which net benefits would be maximized

.

76 Increasing the GVWR of a light truck (assuming this was the only goal) can be accomplished in a number of ways, and must include consideration of: (1) redesign of wheel axles; (2) improving the vehicle suspension; (3) changes in tire specification (which w ill likely affect ride quality); (4) vehicle dynamics development (especially with vehicles equipped with electronic stability control); and (5) brake redesign. Depending on the vehicle, some of these changes may be easier or more difficult than others.

77 For example, since many 2WD SUVs are classified as passenger cars, manufacturers have already warned that high car standards relative to truck sta ndards could create an incentive for them to drop the 2WD version and sell only the 4WD version.Summary of Interagency Working Com ments on Draft Rule under EO 12866

87 The agencies have followed the same approach in calculating the relative car-truck stringency for the final standards promulgated today. Further details of the development of this approach can be found in Section IV of this preamble as well as in NHTSA’s RIA and EIS. NHTSA examined passenger car and light truck standards that would produce the proposed combined average fuel economy levels from Table I.B.2-2 above. NHTSA did so by shifting downward the curves that maximize net benefits, holding the relative stringency of passenger car and light truck standards constant at the level determined by maximizing net benefits, such that the average fuel economy required of passenger cars remained 31 percent higher than the average fuel economy required of light trucks. This methodology resulted in the average fuel economy levels for passenger cars and light trucks during MYs 2012-2016 as shown in Table I.B.1-1. The following chart illustrates this methodology of shifting the standards from the levels maximizing net benefits to the levels consistent with the combined fuel economy standards in this final rule.Summary of Interagency Working Com ments on Draft Rule under EO 12866

882025303540452011 2012 2013 2014 2015 2016Ave.RequiredFE(mpg)Model YearCombined (National Policy)Cars (Maximizing Net Benefits)Trucks (Maximizing Net Benefits)Combined (Maximizing Net Benefits)Cars (Pending)Trucks (Pending)Combined (Pending)Light TrucksPassenger CarsCombined Ave.Figure II.D-1 Shifting the Standards fromthe Maximizing Net Benefit Levels to the Levels Consistent with the CombinedFuel Economy Standards in this RuleSummary of Interagency Working Com ments on Draft Rule under EO 12866

89 The final car and truck standards for EPA (Table I.B.1-4 above) were subsequently determined by first converting the average required fuel economy levels to average required CO 2 emission rates, and then applying the expected air conditioning credits for 2012-2016. These A/C credits are shown in the following table. Further details of the derivation of these factors can be found in Section III of this preamble or in

the EPA RIA.

Table II.D-1 Expected Fleet A/C Credits (in CO 2 equivalent g/mi) from 2012-2016

Average Technology

Penetration Average

credit

for cars Average

credit for

trucks Average

credit for

combined

fleet

2012 28% 78 3.4 3.8 3.5

2013 40% 4.8 5.4 5.0

2014 60% 7.2 8.1 7.5

2015 80% 9.6 10.8 10.0

2016 85% 10.2 11.5 10.6

The agencies sought comment on the use of this methodology for apportioning the fleet stringencies to relative car and truck standards for 2012-2016. General Motors commented that, compared to the passenger car standard, the light truck standard is too stringent because “the most fuel efficient cars and small trucks already meet the 2016 MY requirements” but “the most fuel efficient large trucks must increase fuel economy by 20 percent to meet the 2016 MY requirements.” GM recommended that the agencies relax stringency specifically for large pickups, such as the Silverado.

The agencies disagree with the premise of the comment that the standard is too stringent under the applicable statutory provisi ons because some existing large trucks are not already meeting a later model year standard. Our analysis shows that the standards are not too stringent for manufacturers selling these vehicles. The agencies’ analyses demonstrate a means by which manufacturers could apply cost-effective technologies in order to achieve the standards, and we have provided adequate lead time for the technology to be applied. More important, the agencies’ analysis demonstrate that the fleetwide emission standards for MY 2016 are technically feasible, for example by implementing technologies such as engine downsizing, turbocharging, direct injection, improving accessories and tire rolling resistance, etc.

GM did not comment on the use of the methodology applied by the agencies to develop the gap between the passenger car and light truck standards—only on the outcome of the methodology. For the reasons discussed below, the agencies maintain that the methodology applied above provides an appropriate basis to determine the gap

78 We assume slightly higher A/C penetration in 2012 than was assumed in the proposal only to correct for rounding that occurred in the curve setting process.Summary of Interagency Working Com ments on Draft Rule under EO 12866

90 between the passenger car and light truck standards, and disagree with GM’s arguments

that the outcome is unfair.

First, GM’s argument incorrectly suggests that every individual vehicle model must achieve its fuel economy and emissions targets. CAFE standards and new GHG emissions standards apply to fleetwide average performance, not model-specific performance, even though average required levels are based on average model-specific targets, and the agencies’ analysis demonstrates that GM and other manufacturers of large trucks can cost-effectively comply with the new standards.

Second, GM implies that every manufacturer must be challenged equally with respect to fuel economy and emissions. Although NHTSA and EPA maintain that attribute-based CAFE and GHG emissions standards can more evenly balance compliance challenges, attribute-based standards are not intended to and cannot make these challenges equal, and while the agencies are mindful of the potential impacts of the standards on the relative competitiveness of different vehicle manufacturers, there is nothing in EPCA or the CAA 79 requiring that these challenges be equal.

We have also already addressed and rej ected GM’s suggestion of shifting the “cut off” point for light trucks from 66 square feet to 72 square feet, thereby “dropping the floor” of the target function for light trucks. As discussed in the preceding section, this is so as not to forego the rules’ energy and environmental benefits, and because there is little or no safety basis to discourage downsizing of the largest light trucks.

Finally, NHTSA and EPA disagree with GM’s claim that the outcome of the agencies’ approach is unfairly burdensome for light trucks as compared to passenger cars. Based on the agencies’ market forecast, NHTSA’s analysis indicates that incremental technology outlays could, on average, be comparable for passenger cars and light trucks under the final CAFE standards, and further indicates that the ratio of total benefits to total costs could be greater under the final light truck standards than under the final passenger car standards.

79 As NHTSA explained in the NPRM, the Conference Re port for EPCA, as enacted in 1975, makes clear, and the case law affirms, “a determination of maximu m feasible average fuel economy should not be keyed to the single manufacturer which might have the most difficulty achieving a given level of average fuel economy.” CEI-I , 793 F.2d 1322, 1352 (D.C. Cir. 1986). Instead, NHTSA is compelled “to weigh the benefits to the nation of a higher fuel economy standa rd against the difficulties of individual automobile

manufacturers.” Id . The law permits CAFE standards exceeding the projected capability of any particular manufacturer as long as the standard is economically practicable for the industry as a whole. Similarly, EPA is afforded great discretion under section 202 (a) of the CAA to balance issues of technical feasibility, cost, adequacy of lead time, and safety, and certainly is not required to do so in a manner that imposes regulatory obligations uniformly on each manufacturer. See NRDC v. EPA , 655 F. 2d 318, 322, 328 (D.C. Cir. 1981) (wide discretion afforded by the statutory factors, and EPA predictions of technical feasibility afforded considerable discretion subject to constrai nts of reasonableness EPA predictions of technical feasibility afforded considerable discretion subject to constraints of reasonableness); and cf. International

Harvester Co. v. Ruckelshaus , 479 F. 2d 615, 640 (D.C. Cir. 1973) ( “as long as feasible technology permits the demand for new passenger automobiles to be generally met, the basic requirements of the Act would be satisfied, even though th is might occasion fewer models and a more limited choice of engine types”).Summary of Interagency Working Com ments on Draft Rule under EO 12866

91 E. Joint Vehicle Technology Assumptions

Vehicle technology assumptions, i.e., assumptions about technologies' cost, effectiveness, and the rate at which they can be incorporated into new vehicles, are often controversial as they have a significant imp act on the levels of the standards. The agencies must, therefore, take great care in developing and justifying these estimates. In developing technology inputs for the analysis of the MY 2012-2016 standards, the agencies reviewed the technology assumption s that NHTSA used in setting the MY 2011 standards, the comments that NHTSA received in response to its May 2008 Notice of Proposed Rulemaking (NPRM), and the comments received in response to the NPRM for

this rule. This review is consistent with the request by President Obama in his January 26 memorandum to DOT. In addition, the agenci es reviewed the technology input estimates identified in EPA’s July 2008 Advance Notice of Proposed Rulemaking. The review of these documents was supplemented with updated information from more current literature, new product plans from manufacturers, and from EPA certification testing.

As a general matter, EPA and NHTSA believe that the best way to derive technology cost estimates is to conduct real -world tear down studies. Most of the commenters on this issue agreed. The advantages not only lie in the rigor of the approach, but also in its transparency. These studies break down each technology into its respective components, evaluate the costs of each component, and build up the costs of the entire technology based on the contribution of each component and the processes required to integrate them. As such, tear do wn studies require a significant amount of time and are very costly. EPA has been conducting tear down studies to assess the costs of vehicle technologies under a contract with FEV. Further details for this methodology

is described below and in the TSD.

Due to the complexity and time incurred in a tear down study, only a few technologies evaluated in this rulemaking have been costed in this manner thus far. The agencies prioritized the technologies to be costed first based on how prevalent the agencies believed they might be likely to be during the rulemaking time frame, and based on their anticipated cost-effectiveness. Th e agencies believe that the focus on these important technologies (listed below) is sufficie nt for the analysis in this rule, but EPA is continuing to analyze more technologies beyond this rule as part of studies both already underway and in the future. For most of the other technologies, because tear down studies were not yet available, the agencies decided to pursue, to the extent possible, the Bill of Materials (BOM) approach as outlined in NHTSA’s MY 2011 final rule. A similar approach was used by EPA in the EPA 2008 Staff Technical Report. This approach was recommended to NHTSA by Ricardo, an international engineering consulting firm retained by NHTSA to aid in the analysis of public comments on its proposed standards for MYs 2011-2015 because of its expertise in the area of fuel economy technologies. A BOM approach is one element of the process used in tear

down studies. The difference is that unde r a BOM approach, the build up of cost

estimates is conducted based on a review of cost and effectiveness estimates for each component from available literature, while unde r a tear down study, the cost estimatesSummary of Interagency Working Com ments on Draft Rule under EO 12866

92 which go into the BOM come from the tear down study itself. To the extent that the agencies departed from the MY 2011 CAFE final rule estimates, the agencies explained the reasons and provided supporting analyses in the Technical Support Document.

Similarly, the agencies followed a BOM approach for developing the technology effectiveness estimates, insofar as the BOM developed for the cost estimates helped to inform the appropriate effect iveness values derived from the literature review. The agencies supplemented the information with results from available simulation work and real world EPA certification testing.

The agencies would also like to note that per the Energy Independence and Security Act (EISA), the National Academies of Sciences has been conducting a study for NHTSA to update Chapter 3 of their 2002 NAS Report, which presents technology effectiveness estimates for light-duty vehicles. The update takes a fresh look at that list of technologies and their associated cost and effectiveness values. The updated NAS report was expected to be available on September 30, 2009, but has not been completed and released to the public. The results from this study thus are unavailable for this rulemaking. The agencies look forward to considering the results from this study as part of the next round of rulemaking for CAFE/GHG standards.

1. What Technologies Did the Agencies Consider?

The agencies considered over 35 vehicl e technologies that manufacturers could use to improve the fuel economy and reduce CO 2 emissions of their vehicles during MYs 2012-2016. The majority of the technologies described in this section are readily available, well known, and could be incorporated into vehicles once production decisions are made. Other technologies considered may not currently be in production, but are beyond the research phase and under development, and are expected to be in production in the next few years. These are technologies which can, for the most part, be applied both to cars and trucks, and which are capable of achieving significant improvements in fuel economy and reductions in CO 2 emissions, at reasonable co sts. The agencies did not consider technologies in the research stage becau se the lead time available for this rule is not sufficient to move most of these technologies from research to production.

The technologies considered in the agencies’ analysis are briefly described below. They fall into five broad categories: engine technologies, transmission technologies, vehicle technologies, electrification/accessory technologies, and hybrid technologies. For a more detailed description of each technology and their costs and effectiveness, we refer the reader to Chapter 3 of the Joint TSD, Chapter III of NHTSA’s FRIA, and Chapter 1 of EPA’s final RIA. Technologies to reduce CO 2 and HFC emissions from air conditioning systems are discussed in Section III of this preamble and in EPA’s final

RIA.

Types of engine technologies that improve fuel economy and reduce CO 2 emissions include the following:Summary of Interagency Working Com ments on Draft Rule under EO 12866

93 • Low-friction lubricants – low viscosity and advanced low friction lubricants oils are now available with improved performance and better lubrication. If manufacturers choose to make use of these lubricants, they would need to makeengine changes and possibly conduct durability testing to accommodate the lowfriction lubricants.

• Reduction of engine friction losses – can be achieved through low-tension piston rings, roller cam followers, improved material coatings, more optimal thermal management, piston surface treatments, and other improvements in the design of engine components and subsystems that improve engine operation.

• Conversion to dual overhead cam with dual cam phasing – as applied to overhead valves designed to increase the air flow with more than two valves per cylinder and reduce pumping losses.

• Cylinder deactivation – deactivates the intake and exhaust valves and prevents fuel injection into some cylinders during light-load operation. The engine runs temporarily as though it were a smaller engine which substantially reduces pumping losses.

• Variable valve timing – alters the timing of the intake valve, exhaust valve, or both, primarily to reduce pumping losses, increase specific power, and control residual gases.

• Discrete variable valve lift – increases efficiency by optimizing air flow over a broader range of engine operation which reduces pumping losses. Accomplished by controlled switching between two or more cam profile lobe heights.

• Continuous variable valve lift – is an electromechanically controlled system in which valve timing is changed as lift height is controlled. This yields a wide range of performance optimization and volumetric efficiency, including enabling the engine to be valve throttled.

• Stoichiometric gasoline direct-injection technology – injects fuel at high pressure directly into the combustion chamber to improve cooling of the air/fuel charge within the cylinder, which allows for higher compression ratios and increased thermodynamic efficiency.

• Combustion restart – can be used in conjunction with gasoline direct-injection systems to enable idle-off or start-stop functionality. Similar to other start-stop technologies, additional enablers, such as electric power steering, accessory drive components, and auxiliary oil pump, might be required.

• Turbocharging and downsizing – increases the available airflow and specific power level, allowing a reduced engine size while maintaining performance. This reduces pumping losses at lighter loads in comparison to a larger engine.Summary of Interagency Working Com ments on Draft Rule under EO 12866

94 • Exhaust-gas recirculation boost – increases the exhaust-gas recirculation used in the combustion process to increase thermal efficiency and reduce pumping losses.

• Diesel engines – have several characteristics that give superior fuel efficiency, including reduced pumping losses due to lack of (or greatly reduced) throttling, and a combustion cycle that operates at a higher compression ratio, with a very lean air/fuel mixture, relative to an e quivalent-performance gasoline engine. This technology requires additional enablers, such as NO

x trap catalyst after-treatment or selective catalytic reduction NO

x after-treatment. The cost and effectiveness estimates for the diesel engine and aftertr eatment system utilized in this final rule have been revised from the NHTSA MY 2011 CAFE final rule. Additionally, the diesel technology option has been made available to small cars in the Volpe and OMEGA models. Though this is not expect ed to make a significant difference in the modeling results, the agencies agreed with the commenters that supported

such a revision.

Types of transmission technologies considered include:

• Improved automatic transmission controls – optimizes shift schedule to maximize fuel efficiency under wide ranging conditions, and minimizes losses associated with torque converter slip through lock-up or modulation.

• Six-, seven-, and eight-speed automatic transmissions – the gear ratio spacing and transmission ratio are optimized to enable th e engine to operate in a more efficient operating range over a broader range of vehicle operating conditions.

• Dual clutch or automated shift manual transmissions – are similar to manualtransmissions, but the vehicle controls shifting and launch functions. A dualclutch automated shift manual transmission uses separate clutches for evennumbered and odd-numbered gears, so the next expected gear is pre-selected, which allows for faster and smoother shifting.

• Continuously variable transmission – commonly uses V-shaped pulleys connected by a metal belt rather than gears to provide ratios for operation. Unlike

manual and automatic transmissions with fixed transmission ratios, continuously variable transmissions can provide fully variable and an infinite number of transmission ratios that enable the engine to operate in a more efficient operating range over a broader range of vehicle operating conditions.

• Manual 6-speed transmission –offers an additional gear ratio, often with a higher overdrive gear ratio, than a 5-speed manual transmission.

Types of vehicle technologies considered include:

• Low-rolling-resistance tires – have characteristics that reduce frictional losses associated with the energy dissipated in the deformation of the tires under load, thereby improving fuel economy and reducing CO 2 emissions.Summary of Interagency Working Com ments on Draft Rule under EO 12866

95 • Low-drag brakes – reduce the sliding friction of disc brake pads on rotors when the brakes are not engaged because the brake pads are pulled away from the

rotors.

• Front or secondary axle disconnect for four-wheel drive systems – provides a torque distribution disconnect between front and rear axles when torque is not required for the non-driving axle. This results in the reduction of associated parasitic energy losses.

• Aerodynamic drag reduction – is achieved by changing vehicle shape or reducing frontal area, including skirts, air dams, underbody covers, and more aerodynamic

side view mirrors.

• Mass reduction and material substitution – Mass reduction encompasses a variety of techniques ranging from improved design and better component integration to application of lighter and higher-strength materials. Mass reduction is further compounded by reductions in engine powe r and ancillary systems (transmission, steering, brakes, suspension, etc.). Th e agencies recognize there is a range of diversity and complexity for mass reduction and material substitution technologies and there are many techniques that automotive suppliers and manufacturers are using to achieve the levels of this technology that the agencies have modeled in our analysis for the final standards.

Types of electrification/accessory and hybrid technologies considered include:

• Electric power steering (EPS) – is an electrically-assisted steering system that has advantages over traditional hydraulic power steering because it replaces a continuously operated hydraulic pump, thereby reducing parasitic losses from the accessory drive.

•

• Improved accessories (IACC) – may include high efficiency alternators, electrically driven (i.e., on-demand) water pumps and cooling fans. This excludes

other electrical accessories such as electri c oil pumps and electrically driven air conditioner compressors. The latter is c overed explicitly within the A/C credit

program.

• Air Conditioner Systems – These technologies include improved hoses, connectors and seals for leakage control. They also include improved compressors, expansion valves, heat exchangers and the control of these components for the purposes of improving tailpipe CO 2 emissions as a result of A/C use. These technologies are discussed later in this preamble and covered separately in the EPA RIA.

• 12-volt micro-hybrid (MHEV) – also known as idle-stop or start-stop and commonly implemented as a 12-volt belt-driven integrated starter-generator, this is the most basic hybrid system that f acilitates idle-stop capability. Along withSummary of Interagency Working Com ments on Draft Rule under EO 12866

96 other enablers, this system replaces a common alternator with a belt-driven enhanced power starter-alternator, and a revised accessory drive system.

• Higher Voltage Stop-Start/Belt Inte grated Starter Generator (BISG) – provides idle-stop capability and uses a higher vo ltage battery with increased energy capacity over typical automotive batteries. The higher system voltage allows the use of a smaller, more powerful electric motor. This system replaces a standardalternator with an enhanced power, higher voltage, higher efficiency starteralternator, that is belt driven and that can recover braking energy while the vehicle slows down (regenerative braking).

• Integrated Motor Assist (IMA)/Crank integrated starter generator (CISG)

– provides idle-stop capability and uses a high voltage battery with increased energy capacity over typical automotive batteries. The higher system voltage allows the use of a smaller, more powerful electric motor and reduces the weight of the wiring harness. This system replaces a standard alternator with an enhanced power, higher voltage, higher efficiency starter-alternator that is crankshaft mounted and can recover braking energy while the vehicle slows down (regenerative braking).

• 2-mode hybrid (2MHEV) – is a hybrid electric drive system that uses an adaptation of a conventional stepped-ratio automatic transmission by replacing

some of the transmission clutches with two electric motors that control the ratio of engine speed to vehicle speed, while clutches allow the motors to be bypassed. This improves both the transmission torque capacity for heavy-duty applications and reduces fuel consumption and CO 2 emissions at highway speeds relative to other types of hybrid electric drive systems.

• Power-split hybrid (PSHEV) – a hybrid electric drive system that replaces the traditional transmission with a single planetary gearset and a motor/generator. This motor/generator uses the engine to either charge the battery or supply additional power to the drive motor. A second, more powerful motor/generator is permanently connected to the vehicle’s final drive and always turns with the wheels. The planetary gear splits engine power between the first motor/generator and the drive motor to either charge the battery or supply power to the wheels.

• Plug-in hybrid electric vehicles (PHEV) – are hybrid electric vehicles with the means to charge their battery packs from an outside source of electricity (usually the electric grid). These vehicles have larger battery packs with more energy storage and a greater capability to be discharged than other hybrids. They also use a control system that allows the battery pack to be substantially depleted under electric-only or blended me chanical/electric operation.

• Electric vehicles (EV) – are vehicles with all-electric drive and with vehicle systems powered by energy-optimized batteries charged primarily from grid electricity.Summary of Interagency Working Com ments on Draft Rule under EO 12866

97 The cost estimates for the various hybrid systems have been revised from the estimates used in the MY 2011 CAFE final rule, in particular with respect to estimated battery costs.

2. How did the Agencies Determine the Costs and Effectiveness of Each of These Technologies?

As mentioned above, EPA and NHTSA believe that the best way to derive technology cost estimates is to conduct real-w orld tear down studies. To date, the costs of the following five technologies have been evaluated with respect to their baseline (or replaced) technologies. For these technologies noted below, the agencies relied on the tear down data available and scaling methodologies used in EPA’s ongoing study with FEV. Only the cost estimate for the first t echnology on the list below was used in the NPRM. The others were completed subsequent to the publication of the NPRM.

1. Stoichiometric gasoline direct injection and turbo charging with engine downsizing (T-DS) for a large DOHC 4 cylinder engine to a small DOHC (dual overhead cam) 4 cylinder engine. 2. Stoichiometric gasoline direct injection and turbo charging with engine downsizing for a SOHC single overhead cam) 3 valve/cylinder V8 engine to a SOHC V6 engine. 3. Stoichiometric gasoline direct injection and turbo charging with engine downsizing for a DOHC V6 engine to a DOHC 4 cylinder engine. 4. 6-speed automatic transmission replacing a 5-speed automatic

transmission. 5. 6-speed wet dual clutch transmission (DCT) replacing a 6-speed automatic

transmission.

This costing methodology has been published and gone through a peer review. 80
Using this tear down costing methodology, FEV has developed costs for each of the above technologies. In addition, FEV and EP A extrapolated the engine downsizing costs for the following scenarios that were outside of the noted study cases: 81

1. Downsizing a SOHC 2 valve/cylinder V8 engine to a DOHC V6. 2. Downsizing a DOHC V8 to a DOHC V6. 3. Downsizing a SOHC V6 engine to a DOHC 4 cylinder engine. 4. Downsizing a DOHC 4 cylinder engine to a DOHC 3 cylinder engine.

The agencies relied on the findings of FEV in part for estimating the cost of these technologies in this rulemaking. However, for some of the technologies, NHTSA and EPA modified FEV’s estimated costs. FEV made the assumption that these technologies would be mature when produced in large volumes (450,000 units or more). The agencies believe that there is some uncertainty regarding each manufacturer’s near-term ability to employ the technology at the volumes assumed in the FEV analysis. There is also the

80 EPA-420-R-09-020; EPA docket number EPA-HQ-OAR-2009-0472-11282 and 11285

81 XX the methodology for which can be found in a memo to the docket titled " "Summary of Interagency Working Com ments on Draft Rule under EO 12866

98 potential for near term (earlier than 2016) supp lier-level Engineering, Design and Testing (ED&T) costs to be in excess of those considered in the FEV analysis as existing equipment and facilities are converted to production of ne w technologies. The agencies have therefore decided to average the FEV results with the NPRM values in an effort to account for these near-term factors. This methodology was done for the following technologies:

1. Converting a port-fuel injected (PFI) DOHC I4 to a turbocharged-downsizedstoichiometric GDI DOHC I3. 2. Converting a PFI DOHC V6 engine to a T-DS-stoichiometric GDI DOHC I4. 3. Converting a PFI SOHC V6 engine to a T-DS-stoichiometric GDI DOHC I4. 4. Converting a PFI DOHC V8 engine to a T-DS-stoichiometric GDI DOHC V6. 5. Converting a PFI SOHC 3V V8 engine to a T-DS-stoichiometric GDI DOHC

V6. 6. Converting a PFI SOHC 2V V8 engine to a T-DS-stoichiometric GDI DOHC

V6. 7. Replacing a 4-speed automatic transmission with a 6-speed automatic

transmission. 8. Replacing a 5-speed automatic transmission with a 6-speed automatic

transmission. 9. Replacing a 6-speed automatic transmission with a 6-speed wet dual clutch

transmission.

For the I4 to Turbo GDI I4 study applied in the NPRM, the agencies requested from FEV an adjusted cost estimate whic h accounted for these uncertainties as an adjustment to the base technology burden rate. 82 These new costs are used in the final

rules. These details are also further described in the memo to the docket. 83 The confidential information provided by manufacturers as part of their product plan submissions to the agencies or discussed in meetings between the agencies and the manufacturers and suppliers served largely as a check on publicly-available data.

For the other technologies, considering all sources of information (including public comments) and using the BOM approach, the agencies worked together intensively to determine component costs for each of the technologies and build up the costs accordingly. Where estimates differ between sources, we have used our engineering judgment to arrive at what we be lieve to be the best available cost estimate, and explained the basis for that exercise of judgment in the TSD. Building on NHTSA’s estimates developed for the MY 2011 CAFE final rule and EPA’s Advance Notice of

82 Burden costs include the following fixed and variable costs: rented and leased equipment; manufacturing equipment depreciation; plant office equipment depreciat ion; utilities expense; insurance (fire and general); municipal taxes; plant floor space (equipment and plan t offices); maintenance of manufacturing equipment - non-labor; maintenance of manufacturing building - ge neral, internal and external, parts, and labor; operating supplies; perishable and supplier-owned toolin g; all other plant wages (excluding direct, indirect and MRO labor); returnable dunnage maintenance; and intra-company shipping costs (see EPA-HQ-OAR2009-0472-0149).

83 XX Reference memo to docket.Summary of Interagency Working Com ments on Draft Rule under EO 12866

99 Proposed Rulemaking, which relied on the EPA 2008 Staff Technical Report, 84 the agencies took a fresh look at technology cost and effectiveness values for purposes of the joint rulemaking under the National Program. For costs, the agencies reconsidered both the direct or “piece” costs and indirect cost s of individual components of technologies. For the direct costs, the agencies followed a bill of materials (BOM) approach employed in NHTSA’s MY 2011 final rule based on recommendation from Ricardo, Inc., as described above. EPA used a similar approach in the EPA 2008 Staff Technical Report. A bill of materials, in a general sense, is a list of components or sub-systems that make up a system—in this case, an item of fuel economy-improving technology. In order to determine what a system costs, one of the first steps is to determine its components and what they cost.

NHTSA and EPA estimated these components and their costs based on a number of sources for cost-related information. The objective was to use those sources of

information considered to be most credible for projecting the costs of individual vehicle technologies. For example, while NHTSA and Ricardo engineers had relied considerably in the MY 2011 final rule on the 2008 Martec Report for costing contents of some technologies, upon further joint review and for purposes of the MY 2012-2016 standards, the agencies decided that some of the costing information in that report was no longer accurate due to downward trends in commodity prices since the publication of that report. The agencies reviewed, then revalidated or updated cost estimates for individual components based on new information. Thus, while NHTSA and EPA found that much of the cost information used in NHTSA’s MY 2011 final rule and EPA’s staff report was consistent to a great extent, the agencies, in reconsidering information from many

sources, 85,86,87,88,89,90,91 revised several component costs of several major technologies: turbocharging with engine downsizing (as described above), mild and strong hybrids, diesels, stoichiometric gasoline direct in jection fuel systems, and valve train lift technologies. These are discussed at length in the Joint TSD and in NHTSA’s final RIA.

84 EPA Staff Technical Report: Cost and Effectiveness Estimates of Technologies Used to Reduce LightDuty Vehicle Carbon Dioxide Emissions. EPA420-R-08-008, March 2008.

85 National Research Council, “Effectiveness and Im pact of Corporate Average Fuel Economy (CAFE) Standards,” National Academy Press, Washington, DC (2002) (the “2002 NAS Report”), available at http://www.nap.edu/openbook.p hp?isbn=0309076013 (last accessed August 7, 2009-update)

86 Northeast States Center for a Clean Air Future (NESCCAF), “Reducing Greenhouse Gas Emissions from Light-Duty Motor Vehicles,” 2004 (the “2004 NESCCAF Report”), available at http://www.nesccaf.org/documents/rpt040923ghglightdu ty.pdf (last accessed August 7, 2009-update)

87 “Staff Report: Initial Statement of Reasons for Proposed Rulemaking, Public Hearing to Consider Adoption of Regulations to Control Greenhouse Ga s Emissions from Motor Vehicles,” California Environmental Protection Agency, Air Resources Board, August 6, 2004.

88 Energy and Environmental Analysis, Inc., “Technology to Improve the Fuel Economy of Light Duty Trucks to 2015,” 2006 (the “2006 EEA Report”), Docket EPA-HQ-OAR-2009-0472

89 Martec, “Variable Costs of Fuel Economy Technologies,” June 1, 2008, (the “2008 Martec Report”)

available at Docket No. NHTSA-2008-0089-0169.1

90 Vehicle fuel economy certification data

91 Confidential data submitted by manufacturers in response to the March 2009 and other requests for product plans.Summary of Interagency Working Com ments on Draft Rule under EO 12866

100 Once costs were determined, they were adjusted to ensure that they were all expressed in 2007 dollars using a ratio of GDP values for the associated calendar years, 92
and indirect costs were accounted for using the ICM (indirect cost multiplier) approach explained in Chapter 3 of the Joint TSD, ra ther than using the traditional Retail Price Equivalent (RPE) multiplier approach. A re port explaining how EP A developed the ICM approach can be found in the docket for this rule. The comments addressing the ICM approach were generally positive and encouraging. However, one commenter suggested that we had mischaracterized the complexity of a few of our technologies, which would result in higher or lower markups than presented in the NPRM. That commenter also suggested that we had used the ICMs as a means of placing a higher level of manufacturer learning on the cost estimates. The latter comment is not true and the methodology behind the ICM approach is explained in detail in the reports that are

available in the docket for this rule. 93 The former is open to debate given the subjective nature of the engineering analysis behind it, but upon further thought both agencies believe that the complexities used in the NPRM were appropriate and have, therefore,

carried those forward into the final rule. We discuss this in greater detail in the Response

to Comments document.

Regarding estimates for technology effectiveness, NHTSA and EPA also

reexamined the estimates from NHTSA’s MY 2011 final rule and EPA’s ANPRM and 2008 Staff Technical Report, which were largely consistent with NHTSA’s 2008 NPRM estimates. The agencies also reconsidered other sources such as the 2002 NAS Report, the 2004 NESCCAF report, recent CAFE co mpliance data (by comparing similar vehicles with different technologies against e ach other in fuel economy testing, such as a Honda Civic Hybrid versus a directly comparable Honda Civic conventional drive), and confidential manufacturer estimates of technology effectiveness. NHTSA and EPA engineers reviewed effectiveness information from the multiple sources for each technology and ensured that such effectiveness estimates were based on technology hardware consistent with the BOM components used to estimate costs. The agencies also carefully examined the pertinent public comments. Together, they compared the multiple estimates and assessed their validity, taking care to ensure that common BOM definitions and other vehicle attributes such as perform ance, refinement, and dr ivability were taken into account. However, because the agencies’ respective models employ different numbers of vehicle subclasses and use different modeling techniques to arrive at the standards, direct comparison of BOMs was so mewhat more complicated. To address this and to confirm that the outputs from the different modeling techniques produced the same result, NHTSA and EPA developed mapping techniques, devising technology packages and mapping them to corresponding incremental technology estimates. This approach helped compare the outputs from the incremental modeling technique to those produced

92 NHTSA examined the use of the CP I multiplier instead of GDP for ad justing these dollar values, but found the difference to be exceedingly small – only $0.14 over $100.

93 Rogozhin, Alex, Michael Gallaher, and Walter McMa nus, “Automobile Industry Retail Price Equivalent and Indirect Cost Multipliers,” EPA 420-R-09-003, Docket EPA Docket EPA-HQ-OAR-2009-0472-0142, February 2009, http://epa.gov/otaq/ld-hwy/420r09003.pdf; A. Rogozhin et al., International Journal of Production Economics 124 (2010) 360–368, Volume 124, Issue 2, April 2010.Summary of Interagency Working Com ments on Draft Rule under EO 12866

101 by the technology packaging approach to ensure results that are consistent and could be translated into the respective models of the agencies.

In general, most effectiveness estimates used in both the MY 2011 final rule and the 2008 EPA staff report were determined to be accurate and were carried forward without significant change first into the NP RM, and now into these final rules. When NHTSA and EPA’s estimates for effectiveness diverged slightly due to differences in how the agencies apply technologies to vehicles in their respective models, we report the ranges for the effectiveness values used in each model. There were only a few comments on the technology effectiveness estimates used in the NPRM. Most of the technologies that were mentioned in the comments were the more advanced technologies that are not assumed to have large penetrations in the market within the time frame of this rule, notably hybrid technologies. Even if the e ffectiveness figures for hybrid vehicles were adjusted, it would have made little differen ce in the NHTSA and EPA analysis of the impacts and costs of the rule. The response to comments document has more specific responses to these comments.

The agencies note that the effectiveness values estimated for the technologies considered in the modeling analyses may represent average values, and do not reflect the enormous spectrum of possible values that could result from adding the technology to different vehicles. For example, while the agencies have estimated an effectiveness of 0.5 percent for low friction lubricants, each vehicle could have a unique effectiveness estimate depending on the baseline vehicle’s oil viscosity rating. Similarly, the reduction in rolling resistance (and thus the improveme nt in fuel economy and the reduction in CO 2 emissions) due to the application of low ro lling resistance tires depends not only on the unique characteristics of the tires originally on the vehicle, but on the unique characteristics of the tires being applied, characteristics which must be balanced between fuel efficiency, safety, and performance. Aerodynamic drag reduction is much the same—it can improve fuel economy and reduce CO 2 emissions, but it is also highly dependent on vehicle-specific functional objectiv es. For purposes of the final standards, NHTSA and EPA believe that employing average values for technology effectiveness estimates, as adjusted depending on vehi cle subclass, is an appropriate way of recognizing the potential variation in the sp ecific benefits that individual manufacturers (and individual vehicles) might obtain fr om adding a fuel-saving technology.

Chapter 3 of the Joint Technical Support Document contains a detailed description of our assessment of vehicle technology cost and effectiveness estimates. The agencies note that the technology costs included in this final rule take into account only those associated with the initial build of the vehicle. Although comments were received to the NPRM that suggested there co uld be additional maintenance required with some new technologies (e.g., turbocharging, hybrids, etc.), and that additional maintenance costs could occur as a result, the agencies do not believe that the amount of additional cost will be significant in the ti meframe of this rulemaking, based on the relatively low application rates for these technologies. The agencies will undertake a more detailed review of these potential costs in preparation for the next round of

CAFE/GHG standards.Summary of Interagency Working Com ments on Draft Rule under EO 12866

102 F. Joint Economic Assumptions

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

In reviewing these variables and the agency’s estimates of their values for purposes of this final rule, NHTSA and EP A reconsidered previous comments that NHTSA had received, reviewed newly available literature, and reviewed comments received in response to the proposed rule. For this final rule, we made three major changes to the economic assumptio ns. First, we revised the technology costs to reflect more recently available data. Second, we updated fuel price and transportation demand assumptions to reflect the Annual Energy Outlook (AEO) 2010 Early Release. Third, we have updated our estimates of the social cost of carbon (SCC) based on a recent interagency process . The key economic assumptions are summarized below, and are discussed in greater detail in Section III (EPA ) and Section IV (NHTSA), as well as in Chapter 4 of the Joint TSD, Chapter VIII of NHTSA’s RIA and Chapter 8 of EPA’s RIA.

• Costs of fuel economy-improving technologies – These estimates are presented in summary form above and in more detail in the agencies’ respective sections of this preamble, in Chapter 3 of the Joint TSD, and in the agencies’ respective RIAs. The technology cost estimates used in this analysis are intended to represent manufacturers’ direct costs for hi gh-volume production of vehicles with these technologies and sufficient experience with their application so that all cost reductions due to “learning curve” effects have been fully realized. Costs are then modified by applying near-term indirect cost multipliers ranging from 1.11 to 1.64 to the estimates of vehicle manufacturers’ direct costs for producing or acquiring each technology to improve fuel economy, depending on the complexity of the technology and the time frame over which costs are estimated. This accounts for both the direct and indirect costs associated with implementing new technologies in response to this final rule. The technology cost estimates for a select group of technologies have changed since the NPRM. These changes, as summarized in Section II.E and in Chapte r 3 of the Joint TSD, were made in response to updated cost estimates available to the agencies shortly after publication of the NPRM, not in response to comments. In general, commenters were supportive of the cost estimates used in the NPRM and the transparency of the methodology used to generate them.

• Potential opportunity costs of improved fuel economy – This estimate addresses the possibility that achieving the fuel economy improvements required by alternative CAFE or GHG standards would require manufacturers to compromise the performance, carrying capacity, safety, or comfort of their vehicle models. If it did so, the resulting sacrifice in the valu e of these attributes to consumers wouldSummary of Interagency Working Com ments on Draft Rule under EO 12866

103 represent an additional cost of achieving the required improvements, and thus of manufacturers’ compliance with stricter standards. Currently the agencies assume that these vehicle attributes do not change, and include the cost of maintaining these attributes as part of the cost estimates for technologies. However, it is possible that the technology cost estimates do not include adequate allowance for the necessary efforts by manufacturers to maintain vehicle performance, carrying capacity, and utility while improving fuel economy and reducing GHG emissions. While, in principle, consumer vehicle demand models can measure these effects, these models do not appear to be robust across specifications, since authors derive a wide range of willingness-to-pay valu es for fuel economy from these models, and there is not clear guidance from the literature on whether one specification is clearly preferred over another. This issue is discussed in EPA’s RIA, Section 8.1.2 and NHTSA’s RIA Section XXX. The agencies requested comment on how to estimate explicitly the changes in ve hicle buyers’ welfare from the combination of higher prices for new vehicle models, increases in their fuel economy, and any accompanying changes in vehicle attributes such as performance, passenger- and cargo-carrying capacity, or other dimensions of utility. Commenters did not provide recommendations for how to evaluate the quality of different models or identify a model appropriate for the agencies’ purposes. Some commenters expressed various concerns about the use of existing consumer vehicle choice models. While EPA and NHTSA are not using a consumer vehicle choice model to analyze the effects of this rule, we continue to investigate these models.

• The on-road fuel economy “gap” – Actual fuel economy levels achieved by lightduty vehicles in on-road driving fall some what short of their levels measured under the laboratory-like test conditions used by NHTSA and EPA to establish compliance with the final CAFE and GHG standards. The agencies use an onroad fuel economy gap for light-duty vehicles of 20 percent lower than published fuel economy levels. For example, if the measured CAFE fuel economy value of a light truck is 20 mpg, the on-road fuel economy actually achieved by a typical driver of that vehicle is expected to be 16 mpg (20*.80). 94 NHTSA previously used this estimate in its MY 2011 final rule, and the agencies confirmed it based on independent analysis for use in this FRM. No substantive comments were received on this input.

• Fuel prices and the value of saving fuel – Projected future fuel prices are a critical input into the preliminary economic analysis of alternative standards, because they determine the value of fuel savings both to new vehicle buyers and to society. For the proposed rule, the agencies had relied on the then most recent fuel price projections from the U.S. En ergy Information Administration’s (EIA) Annual Energy Outlook (AEO) 2009 (Revised Updated). However, for this final rule, the agencies have updated the analyses based on AEO 2010 (December 2009 Early Release) Reference Case forecasts of inflation-adjusted (constant-dollar)

94 U.S. Environmental Protection Agency, Final Tec hnical Support Document, Fuel Economy Labeling of Motor Vehicle Revisions to Improve Calculati on of Fuel Economy Estimates, EPA420-R-06-017,

December 2006.Summary of Interagency Working Com ments on Draft Rule under EO 12866

104 retail gasoline and diesel fuel prices, which represent the EIA’s most up-to-date estimate of the most likely course of future prices for petroleum products. 95 AEO 2010 includes slightly lower petroleum prices compared to AEO 2009.

The forecasts of fuel prices reported in EIA’s AEO 2010 Early Release Reference Case extends through 2035, compared to the AEO 2009 which only went through 2030. As in the proposal, fuel prices beyond the time frame of AEO’s forecast were estimated using an average growth rate.

While EIA revised AEO 2010, the vehicle MPG standards are similar to those that were published in AEO 2009. No substantive comments were received on the use of AEO as a source of fuel prices. 96

• Consumer valuation of fuel economy and payback period – In estimating the value of fuel economy improvements that would result from alternative CAFE and GHG standards to potential vehicle buyers, the agencies assume that buyers value the resulting fuel savings over only part of the expected lifetime of the vehicles they purchase. Specifically, we assume that buyers value fuel savings over the first five years of a new vehicle’ s lifetime, and that buyers discount the value of these future fuel savings using rates of 3% and 7%. There is a large

literature that looks at discount rates us ed by individual consumers that point to the possibility of higher discount rates. Likewise, our characterization of private fuel savings assumes that consumers do not face a loss in welfare due to mandated purchase of more fuel economy than they would choose absent regulation. This assumption is also discussed in greater detail in the accompanying TSDs and in

the RIAs. The five-year figure represents the current average term of consumer loans to finance the purchase of new vehicles. One commenter argued that higher-fuel-economy vehicles should have hi gher resale prices than vehicles with lower fuel economy, but did not provide su pporting data. This revision, if made, would increase the net benefits of the rule. Another commenter supported the use of a five-year payback period for this analysis. In the absence of data to support changes, EPA and NHTSA have kept the same assumptions.

• Vehicle sales assumptions – The first step in estimating lifetime fuel consumption by vehicles produced during a model year is to calculate the number of vehicles expected to be produced and sold. 97 The agencies relied on the AEO 2010 Early

95 Energy Information Administration, Annual Energy Outlook 2010, Early Release Reference Case (December 2009), Table 12. Available at http://www.eia.doe.gov/oiaf/aeo/aeoref_tab.html (last accessed February 02, 2010).

96 XX Cite memo to docket concerning this issue.

97 Vehicles are defined to be of age 1 during the calendar year corresponding to the model year in which they are produced; thus for example, model year 2000 vehicles are considered to be of age 1 during calendar year 2000, age 2 during calendar year 2001, and to reach their maximum age of 26 years during calendar year 2025. NHTSA considers the maximum lifetime of vehicles to be the age after which less than 2 percent of the vehicles originally produced du ring a model year remain in service. Applying these conventions to vehicle registration data indicates th at passenger cars have a maximum age of 26 years, while light trucks have a maximum lifetime of 36 years

. See Lu, S., NHTSA, Regulatory Analysis and Comment [A20]: AEO 2010 has CAFÉ in its

reference case, and states that this affected sales.

This should be subtracted out.Summary of Interagency Working Com ments on Draft Rule under EO 12866

105 Release for forecasts of total vehicle sa les, while the baseline market forecast developed by the agencies (see Section II.B) divided total projected sales into sales of cars and light trucks.

• Vehicle survival assumptions -- We then applied updated values of age-specific survival rates for cars and light trucks to these adjusted forecasts of passenger car and light truck sales to determine the number of these vehicles remaining in use during each year of their expected lifetimes. No substantive comments were received on vehicle survival assumptions.

• Total vehicle use – We then calculated the total number of miles that cars and light trucks produced in each model year will be driven during each year of their lifetimes using estimates of annual vehicle use by age tabulated from the Federal Highway Administration’s 2001 National Household Transportation Survey (NHTS), 98 adjusted to account for the effect on vehicle use of subsequent increases in fuel prices. Due to the lower fuel prices projected in AEO 2010, the average vehicle is estimated to be used slightly more (~3 percent) over its lifetime than assumed in the proposal. In orde r to insure that the resulting mileage schedules imply reasonable estim ates of future growth in total car and light truck use, we calculated the rate of growth in annual car and light truck mileage at each age that is necessary for total car and light truck travel to increase at the rates forecast in the AEO 2010 Early Release Reference Case. The growth rate in average annual car and light truck use produced by this calculation is approximately 1.1 percent per year. 99 This rate was applied to the mileage figures derived from the 2001 NHTS to estimate annual mileage during each year of the expected lifetimes of MY 2012-2016 cars and light trucks. 100 While commenters requested further detail on the assumptions regarding total vehicle use, no specific

issues were raised.

• Accounting for the rebound effect of higher fuel economy – The rebound effect refers to the fraction of fuel savings expected to result from an increase in vehicle fuel economy – particularly an increase required by the adoption of more stringent

CAFE and GHG standards – that is offset by additional vehicle use. The increase in vehicle use occurs because higher fuel economy reduces the fuel cost of driving, typically the largest single component of the monetary cost of operating a vehicle, and vehicle owners respond to this reduction in operating costs by driving slightly more. We received comments supporting our proposed value of 10 percent, although we also received comments recommending higher and lower

Evaluation Division, “Vehicle Survivability and Travel Mileage Schedules,” DOT HS 809 952, 8-11 (January 2006). Available at http://www-nrd.nhtsa .dot.gov/Pubs/809952.pdf (l ast accessed Feb. 15, 2010)

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

99 It was not possible to estimate separate growth ra tes in average annual use for cars and light trucks, because of the significant reclassification of light tr uck models as passenger ca rs discussed previously.

100 While the adjustment for future fuel prices reduces average mileage at each age from the values derived from the 2001 NHTS, the adjustment fo r expected future growth in aver age vehicle use increases it. The net effect of these two adjustments is to increase expected lifetime mileage by about 18 percent for passenger cars and about 16 percent for light trucks.Summary of Interagency Working Com ments on Draft Rule under EO 12866

106 values. However, we did not receive any new data or comments that justify revising the 10 percent value for the rebound effect at this time.

• Benefits from increased vehicle use – The increase in vehicle use from the rebound effect provides add itional benefits to their owners, who may make more frequent trips or travel farther to reach more desirable destinations. This additional travel provides benefits to drivers and their passengers by improving their access to social and economic opportunities away from home. These benefits are measured by the net “consumer surplus” resulting from increased vehicle use, over and above the fuel ex penses associated with this additional travel. We estimate the economic value of the consumer surplus provided by added driving using the conventional approximation, which is one half of the product of the decline in vehicle operating costs per vehicle-mile and the resulting increase in the annual number of miles driven. Because it depends on the extent of improvement in fuel economy, the value of benefits from increased vehicle use changes by model year and varies among alternative standards.

• The value of increased driving range – By reducing the frequency with which drivers typically refuel their vehicles, and by extending the upper limit of the range they can travel before requiring refueling, improving fuel economy and reducing GHG emissions thus provides some additional benefits to their owners. No direct estimates of the value of extended vehicle range are readily available, so the agencies’ analysis calculates the reduction in the annual number of requiredrefueling cycles that results from improved fuel economy, and applies DOTrecommended values of travel time savings to convert the resulting time savings

to their economic value. 101 Please see the Chapter 4 of the Joint TSD for details.

• Added costs from congestion, crashes and noise – Although it provides some benefits to drivers, increased vehicle use associated with the rebound effect also contributes to increased traffic congestio n, motor vehicle accidents, and highway noise. Depending on how the additional travel is distributed over the day and on where it takes place, additional vehicle use can contribute to traffic congestion and delays by increasing traffic volume s on facilities that are already heavily traveled during peak periods. These added delays impose higher costs on drivers and other vehicle occupants in the form of increased travel time and operating expenses, increased costs associated with traffic accidents, and increased traffic noise. The agencies rely on estimates of congestion, accident, and noise costs caused by automobiles and light trucks developed by the Federal Highway Administration to estimate the increased external costs caused by added driving

due to the rebound effect. 102

101 Department of Transportation, Guidance Memora ndum, “The Value of Saving Travel Time: Departmental Guidance for Conducting Economic Evaluations,” Apr. 9, 1997. http://ostpxweb.dot.gov/policy/Data/VOT97guid.pd f (last accessed Feb. 15, 2010); update available at http://ostpxweb.dot.gov/policy/Data/VOTrevision1_2-11-03.pdf (last accessed Feb. 15, 2010).

102 These estimates were developed by FHWA for use in its 1997 Federal Highway Cost Allocation Study ; http://www.fhwa.dot.gov/policy/hcas/final/i ndex.htm (last accessed Feb. 15, 2010).Summary of Interagency Working Com ments on Draft Rule under EO 12866

107 • Petroleum consumption and import externalities – U.S. consumption and imports of petroleum products also impose costs on the domestic economy that are not reflected in the market price for crude petroleum, or in the prices paid by consumers of petroleum products such as gasoline. In economics literature on this subject, these costs include (1) higher prices for petroleum products resulting from the effect of U.S. oil import de mand on the world oil price (“monopsony costs”); (2) the expected costs from the risk of disruptions to the U.S. economy caused by sudden reductions in the supply of imported oil to the U.S.; and (3) expenses for maintaining a U.S. military presence to secure imported oil supplies from unstable regions, and for maintaining the strategic petroleum reserve (SPR) to cushion against resulting price increases. 103 Reducing U.S. imports of crude petroleum or refined fuels can reduce the magnitude of these external costs. Any

reduction in their total value that re sults from lower fuel consumption and petroleum imports represents an economic benefit of setting more stringent standards over and above the dollar value of fuel savings itself. Since the agencies are taking a global perspective with respect to the estimate of the social cost of carbon for this rulemaking, the agencies do not include the value of any reduction in monopsony payments as a benefit from lower fuel consumption, because those payments from a global perspective represent a transfer of income from consumers of petroleum products to oil suppliers rather than a savings in real economic resources. Similarly, the agencies do not include any savings in budgetary outlays to support U.S. military activities among the benefits of higher fuel economy and the resulting fuel savings . Based on a recently-updated ORNL study, we estimate that each gallon of fuel saved that results in a reduction in U.S. petroleum imports (either crude petroleum or refined fuel) will reduce the expected costs of oil supply disruptions to the U.S. economy by $0.169 (2007$). Each gallon of fuel saved as a consequence of higher standards is anticipated to reduce total U.S. imports of crude petroleum or refined fuel by 0.95 gallons. 104

EPA and NHTSA received comments about the treatment of the monopsony effect, macroeconomic disruption effect, and the military costs associated with the energy security benefits of this rule. The agencies did not receive any comments that justify changing the energy security analysis. As a result, the agencies continue to only use the macroeconomic disruption component of the energy security analysis under a global context when estimating the total energy security

103 See, e.g., Bohi, Douglas R. and W. David Montgomery (1982). Oil Prices, Energy Security, and Import Policy Washington, DC: Resources for the Future, Johns Hopkins University Press; Bohi, D. R., and M. A. Toman (1993). "Energy and Security: Externalities and Policies," Energy Policy 21:1093-1109; and Toman, M. A. (1993). "The Economics of Energy S ecurity: Theory, Evidence, Po licy," in A. V. Kneese and J. L. Sweeney, eds. (1993). Handbook of Natural Resource and Energy Economics, Vol. III. Amsterdam: North-Holland, pp. 1167-1218.

104 Each gallon of fuel saved is assumed to reduce impor ts of refined fuel by 0.5 gallons, and the volume of fuel refined domestically by 0.5 gallons. Domestic fu el refining is assumed to utilize 90 percent imported crude petroleum and 10 percent domestically-produced crude petroleum as feedstocks. Together, these assumptions imply that each gallon of fuel saved will reduce imports of refined fuel and crude petroleum by 0.50 gallons + 0.50 gallons*90 percent = 0.50 gallons + 0.45 gallons = 0.95 gallons.Summary of Interagency Working Com ments on Draft Rule under EO 12866

108 benefits associated with this rule. Fu rther, the Agencies did not receive any information that they coul d use to quantity that component of military costs directly related to energy security, and thus did not modify that part of its analysis. A more complete discussion of the energy security analysis can be found in Chapter 4 of the Joint TSD, and Sections III and IV of this preamble.

• Air pollutant emissions

o Impacts on criteria air pollutant emissions – While reductions in domestic fuel refining and distribution that result from lower fuel consumption will reduce U.S. emissions of criteria pol lutants, additional vehicle use

associated with the rebound effect will increase emissions of these pollutants. Thus the net effect of stricter standards on emissions of each criteria pollutant depends on the relative magnitudes of reduced emissions from fuel refining and distribution, and increases in emissions resulting from added vehicle use. Criteria air pollutants emitted by vehicles and during fuel production include carbon monoxide (CO), hydrocarbon compounds (usually referred to as “volatile organic compounds,” or VOC), nitrogen oxides (NO X ), fine particulate matter (PM 2.5 ), and sulfur oxides (SO X ). It is assumed that the emission rates (per mile) stay constant for future year vehicles.

o Economic value of reductions in criteria air pollutants – For the purpose of the joint technical analysis, EPA and NHTSA estimate the economic value of the human health benefits associated with reducing exposure to

PM 2.5 using a “benefit-per-ton” method. These PM 2.5 -related benefit-perton estimates provide the total moneti zed benefits to human health (the sum of reductions in premature mortality and premature morbidity) that result from eliminating one ton of directly emitted PM 2.5 , or one ton of a pollutant that contributes to secondarily-formed PM 2.5 (such as NO X , SO X , and VOCs), from a specified source. Chapter 4.2.9 of the Technical Support Document that accompanies this rule includes a description of these values. Separately, EPA also conducted air quality modeling to estimate the change in ambient concentrations of criteria pollutants and used this as a basis for estimating the human health benefits and their economic value. Section III.H.7 presents these benefits estimates.

o Reductions in GHG emissions – Emissions of carbon dioxide and other greenhouse gases (GHGs) occur through out the process of producing and distributing transportation fuels, as well as from fuel combustion itself. By reducing the volume of fuel consumed by passenger cars and light trucks, higher standards will thus redu ce GHG emissions generated by fuel use, as well as throughout the fuel supply cycle. The agencies estimated

the increases of GHGs other than CO 2 , including methane and nitrous oxide, from additional vehicle use by multiplying the increase in total miles driven by cars and light trucks of each model year and age bySummary of Interagency Working Com ments on Draft Rule under EO 12866

109 emission rates per vehicle-mile for these GHGs. These emission rates, which differ between cars and light trucks as well as between gasoline and diesel vehicles, were estimated by EPA using its recently-developed

Motor Vehicle Emission Simu lator (Draft MOVES 2010). 105 Increases in

emissions of non-CO 2 GHGs are converted to equivalent increases in CO 2 emissions using estimates of the Global Warming Potential (GWP) of

methane and nitrous oxide.

o Economic value of reductions in CO 2 emissions - EPA and NHTSA assigned a dollar value to reductions in CO 2 emissions using the marginal dollar value (i.e., cost) of climate-related damages resulting from carbon emissions, also referred to as “social cost of carbon” (SCC). The SCC is intended to measure the monetary value society places on impacts resulting from increased GHGs, such as property damage from sea level rise, forced migration due to dry land loss, and mortality changes

associated with vector-borne diseases. Published estimates of the SCC vary widely as a result of uncertainties about future economic growth, climate sensitivity to GHG emissions, procedures used to model the economic impacts of climate change, and the choice of discount rates.

EPA and NHTSA received extensive comments about how to improve the characterization of the SCC and have since developed new estimates through an interagency modeling exercise. The comments addressed various issues, such as discount rate selection, treatment of uncertainty, and emissions and socioeconomic traject ories, and justified the revision of SCC for the final rule. The modeling exercise involved running three integrated assessment models using inputs agreed upon by the interagency group for climate sensitivity, socioeconomic and emissions trajectories, and discount rates. A more complete discussion of SCC can be found in Section XX; revised SCC estimates corresponding to assumed values of

the discount rate are shown in Table II.F-1.

Table II.F-1 Social Cost of CO2, 2010 (in 2007 dollars)

Discount Rate 5% 3% 2.5% 3%

Source of

Estimate Mean of Estimates Values 95 t h
percentile

estimate
2010 Estimate $5 $21 $35 $65

105 The MOVES model assumes that the per-mile rates at which cars and light trucks emit these GHGs are determined by the efficiency of fuel combustion durin g engine operation and chemical reactions that occur during catalytic after-treatment of engine exhaust, a nd are thus independent of vehicles’ fuel consumption rates. Thus MOVES’ emission factors for these GHGs, which are expressed per mile of vehicle travel, are assumed to be unaffected by changes in fuel economy.Summary of Interagency Working Com ments on Draft Rule under EO 12866

110 • Discounting future benefits and costs —Discounting future fuel savings and other benefits is intended to account for the reduction in their value to society when they are deferred until some future date, rather than received immediately. The discount rate expresses the percent decline in the value of these benefits—as viewed from today’s perspective—for each year they are deferred into the future. In evaluating the non-climate related benefits of the final standards, the agencies have employed discount rates of both 3 percent and 7 percent. We received some comments on the discount rates used in the proposal, most of which were directed at the discount rates used to value future fuel savings and the rates used to value of the social cost of carbon. In general, commenters were supporting one of the discount rates over the other, although some suggested that our rates were too high or too low. We have revised the discounting used when calculating the net present value of social cost of carbon as explained in Sections III.H. and VI but have not revised our discounting procedures for other costs or benefits.

For the reader’s reference, Table II.F-2 below summarizes the values used to calculate the impacts of each final standard. The values presented in this table are summaries of the inputs used for the models; specific va lues used in the agencies’ respective analyses may be aggregated, expanded, or have other relevant adjustments. See the respective RIAs for details.

In addition, the agencies have conducted a range of sensitivities and present them in their respective RIAs. For example, NHTSA has conducted a sensitivity analysis on several assumptions including (1) forecasts of future fuel prices, (2) the discount rate applied to future benefits and costs, (3) the magnitude of the rebound effect, (4) the value to the U.S. economy of reducing carbon dioxide emissions, (5) inclusion of the monopsony effect, and (6) the reduction in external economic costs resulting from lower U.S. oil imports. This information is provided in NHTSA’s RIA.Summary of Interagency Working Com ments on Draft Rule under EO 12866

111 Table II.F-2 Economic Values for Benefits Computations (2007$)
Fuel Economy Rebound Effect 10% "Gap" between test and on-road MPG 20% Value of refueling time per ($ per vehicle-hour) $ 24.64 Annual growth in average vehicle use 1.15% Fuel Prices (2012-50 average, $/gallon)

Retail gasoline price $3.66 Pre-tax gasoline price $3.29 Economic Benefits from Reducing Oil Imports ($/gallon)

"Monopsony" Component $ 0.00 Price Shock Component $ 0.17 Military Security Component $ 0.00 Total Economic Costs ($/gallon) $ 0.17 Emission Damage Costs (2020, $/ton or $/metric ton)

Carbon monoxide $ 0 Volatile organic compounds (VOC) $ 1,300
Nitrogen oxides (NO X ) – vehicle use $ 5,100
Nitrogen oxides (NO X ) – fuel production and distribution $ 5,300
Particulate matter (PM 2.5 ) – vehicle use $ 240,000 Particulate matter (PM 2.5 ) – fuel production and distribution $ 290,000, Sulfur dioxide (SO 2 ) $ 31,000

Carbon dioxide (CO 2 ) emissions in 2010 $ 5
$ 21
$ 35
$ 65

Annual Increase in CO 2 Damage Cost variable, depending

on estimate

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

Congestion $ 0.054

Accidents $ 0.023

Noise $ 0.001

Total External Costs $ 0.078 External Costs from Additional Light Truck Use ($/vehicle-mile)

Congestion $0.048

Accidents $0.026

Noise $0.001

Total External Costs $0.075 Discount Rates Applied to Future Benefits 3%, 7%112 III. EPA Greenhouse Gas Vehicle Standards

A. Executive Overview of EPA Rule

1. Introduction

The Environmental Protection Agency (EPA) is establishing greenhouse gas emissions standards for the largest sources of transporta tion greenhouse gases--light-duty vehicles, lightduty trucks, and medium-duty passenger vehicles (hereafter light vehicles). These vehicle categories, which include cars, sport utility ve hicles, minivans, and pickup trucks used for personal transportation, are responsible for almost 60% of all U.S. transportation related greenhouse gas emissions. This action represents the first-ever EPA rule to regulate vehicle greenhouse gas emissions under the Clean Air Act (CAA) and will establish standards for model years 2012-2016 and later light vehicles sold in the United States.

EPA is adopting three separate standards. The first and most important is a set of fleetwide average carbon dioxide (CO 2 ) emission standards for cars and trucks. These standards are

CO 2 emissions-footprint curves, where each vehicle has a different CO 2 emissions compliance target depending on its footprint value. Vehicle CO 2 emissions will be measured over the EPA city and highway tests. The rule allows for credits based on demonstrated improvements in vehicle air conditioner systems, including both efficiency and refrigerant leakage improvement, which are not captured by the EPA tests. The EPA projects that the average light vehicle tailpipe

CO 2 level in model year 2011 will be 325 grams per mile while the average vehicle fleetwide average CO 2 emissions compliance level for the model year 2016 standard will be 250 grams per mile, an average reduction of 23 percent from today’s CO 2 levels.

EPA is also finalizing standards that will cap tailpipe nitrous oxide (N 2 O) and methane (CH 4 ) emissions at 0.010 and 0.030 grams per mile, respectively. Even after adjusting for the higher relative global warming potencies of these two compounds, nitrous oxide and methane emissions represent less than one percent of overall vehicle greenhouse gas emissions from new vehicles. Accordingly, the goal of these two st andards is to limit any potential increases of tailpipe emissions of these pollutants in the future but not to force reductions relative to today’s

low levels.

This final rule responds to the Supreme Court’s 2007 decision in Massachusetts v.

EPA 106 which found that greenhouse gases were air pollutants for purposes of the Clean Air Act.

The Court held that the Administrator must de termine whether or not emissions from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or whether the science is too uncertain to make a reasoned decision. The Court further ruled that, in making these de cisions, the EPA Administrator is required to

106 549 U.S. 497 (2007). For further information on Massachusetts v. EPA see the July 30, 2008 Advance Notice of Proposed Rulemaking, “Regulating Greenhouse Gas Emissions under the Clean Air Act”, 73 FR 44354 at 44397. There is a comprehensive discussion of the litigation’s history, the Supreme Court’s findings, and subsequent actions undertaken by the Bush Administration and th e EPA from 2007-2008 in response to the Supreme Court

remand.113 follow the language of section 202(a) of the CAA. The Court remanded the case back to the Agency for reconsideration in light of its finding.

The Administrator has responded to the Court’s remand by issuing two findings under section 202(a) of the Clean Air Act. 107 First, the Administrator found that the science supports a positive endangerment finding that the mix of six greenhouse gases (carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2 O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF 6 )) in the atmosphere endangers the public health and welfare of current and future generations. This is referred to as the endangerment finding. Second, the

Administrator found that the emissions of the sa me six gases contribute to the atmospheric concentrations of these key greenhouse gases and hence to the threat of climate change. This is referred to as the cause and contribute finding. Motor vehicles and new motor vehicle engines contribute to four of these gases including--carbon dioxide, methane, nitrous oxide, and hydrofluorocarbons. EPA provides more details be low on the legal and scientific bases for this

final rule.

As discussed in Section I, this GHG rule is part of a joint National Program such that a large majority of the projected benefits are ach ieved jointly with NHTSA’s CAFE rule which is described in detail in Section IV of this preamble. EPA projects total carbon dioxide emissions savings of approximately 960 million metric tons as a result of the rule, and oil savings of 1.8

billion barrels over the lifetimes of the MY 2012-2 016 vehicles subject to the rule. EPA projects

the rule will result in net societal benefits of $192 billion at a 3 percent discount rate, or $143 billion at a 7 percent discount rate (both values assume a $21/ton SCC value). Accordingly, these light vehicle greenhouse gas emissions stan dards represent an important contribution under the Clean Air Act toward meeting long-term greenhouse gas emissions and import oil reduction goals, while providing important economic benefits as well.

2. Why is EPA Establishing this Rule?

This rule addresses only light vehicles. EPA is addressing light vehicles as a first step in control of greenhouse gas emissions under the Cl ean Air Act for four reasons. First, light vehicles are responsible for almost 60% of al l mobile source greenhouse gas emissions, a share three times larger than any other mobile source subsector, and represent about one-sixth of allU.S. greenhouse gas emissions. Second, technology exists that can be readily and costeffectively applied to these vehicles to reduce their greenhouse gas emissions in the near term. Third, EPA already has an existing testing and compliance program for these vehicles, refined since the mid-1970s for emissions compliance and fuel economy determinations, which would require only minor modifications to accommodate greenhouse gas emissions regulations. Finally, this rule is an important first step in responding to the Supreme Court’s ruling in Massachusetts

vs. EPA , which applies to other emissions sources in addition to light-duty vehicles. In fact, EPA is currently evaluating controls for motor vehicles other than those covered by this rule, and is also reviewing seven petitions submitted by va rious states and organizations requesting that EPA use its Clean Air Act authorities to take action to reduce greenhouse gas emissions from

107 See 74 FR 66496 (Dec. 15, 2009) for Endangerment a nd Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act”114 aircraft (under § 231(a)(2)), ocean-going vessels (under § 213(a)(4)), and other nonroad engines and vehicle sources (also under § 213(a)(4)).

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

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

These gases, once emitted, remain in the atmosphere for decades to centuries. Thus, they become well mixed globally in the atmosphere and their concentrations accumulate when emissions exceed the rate at which natural processes remove greenhouse gases from the atmosphere. The heating effect caused by the human-induced buildup of greenhouse gases in the atmosphere is very likely 108 the cause of most of the observed global warming over the last 50 years. The key effects of climate change observed to date and projected to occur in the future include, but are not limited to, more frequent and intense heat waves, more severe wildfires, degraded air quality, heavier and more frequent downpours and flooding, increased drought, greater sea level rise, more intense storms, harm to water resources, continued ocean acidification, harm to agriculture, and harm to wildlife and ecosystems. A detailed explanation of observed and projected changes in greenhouse gases and climate change and its impact on health, society, and the environment is included in EPA’s technical support document for the recently promulgated Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act. 109

Mobile sources represent a large and growing share of United States greenhouse gases and include light-duty vehicles, light-duty trucks, medium-duty passenger vehicles, heavy duty trucks, airplanes, railroads, marine vessels and a variety of other sources. In 2007, all mobile sources emitted 31% of all U.S. greenhouse gases, and were the fastest-growing source of U.S. greenhouse gases in the U.S. since 1990. Transportation sources, which do not include certain off-highway sources such as farm and construction equipment, account for 28% of U.S.greenhouse gas emissions, and Section 202(a) sources, which include light-duty vehicles, lightduty trucks, medium-duty passenger vehicles, heavy-duty trucks, buses, and motorcycles account for 23% of total U.S. greenhouse gases. 110

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

108 According to Intergovernmental Panel on Climate Change (IPCC) terminology, “very likely” conveys a 90 to 99 percent probability of occurrence. “Virtu ally certain” conveys a greater than 99 percent probability, “likely” conveys a 66 to 90 percent probability, and “about as likely as not” conveys a 33 to 66 percent probability.

109 74 FR 66496 (Dec. 15, 2009). Both the Federal Register Notice and the Technical Support Document for Endangerment and Cause or Contribute Findings are found in the public docket No. EPA-OAR-2009-0171 as well as the public docket established for this rulemaking.

110 Inventory of U.S. Greenhouse Gases and Sinks: 1990-2007.115 other carbon compounds. 111 Methane (CH 4 ) emissions are a function of the methane content of the motor fuel, the amount of hydrocarbons passing uncombusted through the engine, and any post-combustion control of hydrocarbon emissions (such as catalytic converters). 112 Nitrous oxide (N 2 O) (and nitrogen oxide (NO X )) emissions from vehicles and their engines are closely related to air-fuel ratios, combus tion temperatures, and the use of pollution control equipment. For example, some types of catalytic converters installed to reduce motor vehicle NO X , carbon monoxide (CO) and hydrocarbon emissions can promote the formation of N 2 O. 113
Hydrofluorocarbons (HFC) emissions are progressively replacing chlorofluorocarbons ( CFC) and hydrochlorofluorocarbons (HCFC) in these vehicles’ cooling and refrigeration systems as CFCs and HCFCs are being phased out under the M ontreal Protocol and Title VI of the CAA. There are multiple emissions pathways for HFCs with emissions occurring during charging of cooling and refrigeration systems, during operations, and during decommissioning and disposal. 114

b. Basis for Action under the Clean Air Act

Section 202(a)(1) of the Clean Air Act (CAA) states that “the Administrator shall by regulation prescribe (and from time to time revise)...standards applicable to the emission of any air pollutant from any class or classes of new motor vehicles ..., which in his judgment cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare.” As noted above, the Administrator has found that the air pollution of elevated levels of greenhouse gas concentrations may reasonably be anticipated to endanger public health and

welfare. 115 The Administrator defined the “air pollu tion” referred to in CAA section 202(a) to

be the elevated concentrations of the mix of six long-lived and directly emitted GHGs: carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2 O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF 6 ). The Administrator has further found under CAA section 202(a) that emissions of those si x gases contribute to the air pollution. New motor vehicles and engines emit four of the six GHGs: CO 2, methane, N 2 O and HFC emissions. This preamble describes the provisi ons that control emissions of CO 2 , HFCs, nitrous oxide, and methane. As a result of these findings, section 202(a) requires EPA to issue standards applicable to emissions of those pollutants. For further discussion of EPA’s authority under section 202(a), see Section I.C.2 of the preamble to the proposed rule (74 FR at 49464-66).

There are a variety of other CAA Title II provisions that are relevant to standards established under section 202(a). The standards are applicable to motor vehicles for their useful life. EPA has the discretion in determining what standard applies over the vehicles’ useful life and has

exercised that discretion in this ru le. See Section III.E.4 below.

The standards established under CAA secti on 202(a) are implemented and enforced through various mechanisms. Manufacturers ar e required to obtain an EPA certificate of

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

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

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

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

115 74 FR 66496 (Dec. 15, 2009).116 conformity before they may sell or introduce their new motor vehicle into commerce, according to CAA section 206(a). The introduction into commerce of vehicles without a certificate of conformity is a prohibited act under CAA section 203 that may subject a manufacturer to civil penalties and injunctive actions (see CAA sections 204 and 205). Under CAA section 206(b), EPA may conduct testing of new production vehicles to determine compliance with the standards. For in-use vehicles, if EPA determines that a substantial number of vehicles do not conform to the applicable regulations then the manufacturer must submit and implement a remedial plan to address the problem (see CAA se ction 207(c)). There are also emissions-based warranties that the manufacturer must implemen t under CAA section 207( a). Section III.E describes the rule’s certification, compliance, and enforcement mechanisms.

c. EPA’s Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act

On December 7, 2009 EPA’s Administrator pr omulgated an action with two distinct findings regarding greenhouse gases under section 202(a) of the Clean Air Act. On December15, 2009, the final findings were published in the Federal Register under Docket ID No. EPAHQ-OAR-2009-0171. This action is called the E ndangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act (Endangerment Finding). 116
Below are the two distinct findings:

• Endangerment Finding: The Administrator finds that the current and projected concentrations of the six key well-mixed greenhouse gases--carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2 O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF 6 )--in the atmosphere threaten the public health and welfare of current and future generations.

• Cause or Contribute Finding: The Administrato r finds that the combined emissions of these well-mixed greenhouse gases from new motor vehicles and new motor vehicle engines contribute to the greenhouse gas pollution which threatens public health and

welfare.

Specifically, the Administrator found, after a thorough examination of the scientific evidence on the causes and impact of current and future climate change, and careful review of public comments, that the science compellingly supports a positive finding that atmospheric concentrations of these greenhouse gases result in air pollution which may reasonably be anticipated to endanger both public health and welfare. In her finding, the Administrator relied heavily upon the major findings and conclusions fr om the recent assessments of the U.S. Climate Change Science Program and the U.N. Intergovernmental Panel on Climate Change. 117 The Administrator made a positive endangerment finding after co nsidering both observed and projected future effects of climate change, key uncertainties, and the full range of risks and impacts to public health and welf are occurring within the United St ates. In addition, the finding

116 74 FR 66496 (Dec. 15, 2009)

117 The U.S. Climate Change Science Program (CCSP) is now called the U.S. Global Change Research Program (GCRP).117 focused on impacts within the U.S. but noted that the evidence concerning risks and impacts occurring outside the U.S. provided further support for the finding.

The key scientific findings supporting the endangerment finding are that:



### – Concentrations of greenhouse gases are at unprecedented levels compared to recent and distant past. These high concentrations are the unambiguous result of anthropogenic emissions and are very likely the cause of the observed increase in average temperatures and other climatic changes.



### – The effects of climate change observed to date and projected to occur in the future include more frequent and intense heat waves, more severe wildfires, degraded air quality, heavier downpours and flooding, increasing drought, greater sea level rise, more intense storms, harm to water res ources, harm to agriculture, and harm to wildlife and ecosystems. These impacts are effects on public health and welfare within the meaning of the Clean Air Act.

The Administrator found that the combined emissions of the six well-mixed gases contribute to the atmospheric concentrations of these key greenhouse gases and hence to the threat of climate change and that transportation sources including motor vehicles and new motor vehicle engines contribute to four of these gase s including --carbon dioxide, methane, nitrousoxide, and hydrofluorocarbons. Key facts supporting this cause and contribute finding for onhighway vehicles regulated under section 202(a) of the Clean Air Act are that these sources are responsible for 24% of total U.S. greenhouse gas emissions, and more than 4% of total global greenhouse gas emissions. 118 The Administrator also consid ered whether emissions of each greenhouse gas individually, as a separate air pollu tant, would contribute to this air pollution.

As noted above, these findings require EPA to issue standards under section 202 (a) “applicable to emission” of the air pollutant or pollutants that EPA finds causes or contributes to the air pollution that endangers public health and welfare. The final emissions standards satisfy his requirement for greenhouse gases from light-duty vehicles.

3. What is EPA Adopting?

a. Light-Duty Vehicle, Light-Duty Tr uck, and Medium-Duty Passenger Vehicle Greenhouse Gas Emission Standards and Projected Compliance Levels

The following section provides an overview of EPA’s final rule. The key public comments are not discussed here, but are discussed in the sections that follow which provide the details of the program. Comments are also discussed in the joint Response to Comments

document.

118 This figure includes the greenhouse gas contributions oflight vehicles, heavy duty vehicles, and remaining onhighway mobile sources. Light-duty vehi cles are responsible for over 70 percent of Section 202(a) mobile source GHGs, or about 17% of total U.S. greenhouse gas emissions.118 The CO 2 emissions standards are by far the most important of the three standards and are the primary focus of this summary. As proposed, EPA is adopting an attribute-based approach

for the CO 2 fleet-wide standard (one for cars and one for trucks), using vehicle footprint as the

attribute. These curves establish different CO 2 emissions targets for each unique car and truck footprint. Generally, the larger the vehicle footprint, the higher the corresponding vehicle CO 2 emissions target. Table III.A.3-1 shows the green house gas standards for light vehicles that EPA is finalizing for model years (MY) 2012 and later:

Table III.A.3-1 Industry-Wide Greenhouse Gas Emissions Standards

Standard/

Covered

Pollutants Form of

Standard Level of

Standard Credits Test Cycles

CO 2 Standard 119 : Tailpipe CO 2 Fleetwide average footprint

CO 2 -curves for

cars and trucks Projected

Fleetwide CO 2 level of 250 g/mi (See footprint

curves in Sec. III.B.2) CO 2 -e credits 120 EPA 2-cycle (FTP and HFET test cycles) 121

N 2 O Standard: Tailpipe N 2 O Cap per vehicle 0.010 g/mi None* EPA FTP test

CH 4 Standard: Tailpipe CH 4 Cap per vehicle 0.030 g/mi None* EPA FTP test

* For N 2 O and CH 4 , manufacturers may optionally demonstrate compliance with a CO 2 -equivalent standard equal to its footprint-based CO 2 target level, using the FTP and HFET tests.

One important flexibility associated with the CO 2 standard is the option for

manufacturers to obtain credits associated with improvements in their air conditioning systems. EPA is adopting the air conditioning provisions w ith minor modifications. As will be discussed in greater detail in later sections, EPA is establis hing test procedures and design criteria by which manufacturers can demonstrate improvements in both air conditioner efficiency (which reduces vehicle tailpipe CO 2 by reducing the load on the engine) and air conditioner refrigerants (using lower global warming potency refrigerants and/or improving system design to reduce GHG emissions associated with leaks). Neither of th ese strategies to reduce GHG emissions from air

conditioners will be reflected in the EPA FTP or HFET tests. These improvements will be translated to a g/mi CO 2 -equivalent credit that can be subtracted from the manufacturer’s tailpipe

119 While over 99 percent of the carbon in automotive fuels is converted to CO 2 in a properly functioning engine, compliance with the CO 2 standard will also account for the very small levels of carbon associated with vehicle tailpipe hydrocarbon (HC) and carbon monoxide (CO) emissions, converted to CO 2 on a mass basis, as discussed

further in Section III.B

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

121 FTP is the Federal Test Procedure which uses what is commonly referred to as the “city” driving schedule, and HFET is the Highway Fuel Economy Test which uses the “highway” driving schedule. Compliance with the CO 2 standard will be based on the same 2-cycle values that are currently used for CAFE standards compliance; EPA projects that fleet-wide in-use or real world CO 2 emissions are approximately 25 percent higher, on average, than 2- cycle CO 2 values. Separate mechanisms apply for A/C credits.119 CO 2 compliance value. EPA expects a high percentage of manufacturers to use this flexibility to earn air conditioning-related credits for MY2012-2016 vehicles such that the average credit earned is about 11 grams per mile CO 2 –equivalent in 2016.

A second flexibility, being finalized essentially as proposed, is CO 2 credits for flexible and dual fuel vehicles, similar to the CAFE cred its for such vehicles which allow manufacturers to gain up to 1.2 mpg in their overall CAFE ratings. The Energy Independence and Security Act of 2007 (EISA) mandated a phase-out of these flexible fuel vehicle CAFE credits beginning in 2015, and ending after 2019. EPA is allowing comparable CO 2 credits for flexible fuel vehicles through MY 2015, but for MY 2016 and beyond, the GHG rule treats flexible and dual fuel

vehicles on a CO 2 -performance basis, calculating the overall CO 2 emissions for flexible and dual fuel vehicles based on a fuel use-weighted average of the CO 2 levels on gasoline and on the alternative fuel, and on a manufacturer’s demonstra tion of actual usage of the alternative fuel in

its vehicle fleet.

Table III.A.3-2 summarizes EPA projections of industry-wide 2-cycle CO 2 emissions and fuel economy levels that will be achieved by manufacturer compliance with the GHG standards

for MY2012-2016.

For MY2011, Table III.A.3-2 uses the NHTSA projections of the average fuel economy level that will be achieved by the MY 2011 fleet of 30.8 mpg for cars and 23.3 mpg for trucks, converted to an equivalent combined car and truck CO 2 level of 326 grams per mile. 122 EPA believes this is a reasonable estimate with which to compare the MY2012-2016 CO 2 emission standards. Identifying the proper MY2011 estimate is complicated for many reasons, among them being the turmoil in the current automotive market for consumers and manufacturers, uncertain and volatile oil and gasoline prices, the ability of manufacturers to use flexible fuel vehicle credits to meet MY2011 CAFE standards, and the fact that most manufacturers have been surpassing CAFE standards (particularly the car standard) in recent years. Taking all of these considerations into account, EPA believes that the MY2011 projected CAFE achieved values, converted to CO 2 emissions levels, represent a reasonable estimate.

Table III.A.3-2 shows projected industry-wide average CO 2 emissions values. The Projected CO 2 Emissions for the Footprint-Based Standard column shows the CO 2 g/mi level corresponding with the footprint standard that mu st be met. It is based on the promulgated CO 2 - footprint curves and projected footprint values, and will decrease each year to 250 grams per mile (g/mi) in MY2016. For MY2012-2016, the em issions impact of the projected utilization of flexible fuel vehicle (FFV) credits and the temporary lead-time allowance alternative standard (TLAAS, discussed below) are shown in the next two columns. The Projected CO 2 Emissions column gives the CO 2 emissions levels projected to be achieved given use of the flexible fuel credits and temporary lead-time allowance program. This column shows that, relative to the MY 2011 estimate, EPA projects that MY2016 CO 2 emissions will be reduced by 23 percent over five years. The Projected A/C Credit column represents the industry wide average air

conditioner credit manufacturers are ex pected to earn on an equivalent CO 2 gram per mile basis in a given model year. In MY2016, the projected A/C credit of 10.6 g/mi represents 14 percent of the 76 g/mi CO 2 emissions reductions associated with the final standards. The Projected 2-

122 As discussed in Section IV of this preamble.120 cycle CO 2 Emissions column shows the projected CO 2 emissions as measured over the EPA 2- cycle tests, which will allow compliance with th e standard assuming proj ected utilization of the FFV, TLAAS, and A/C credits.

Table III.A.3-2 Projected Fleetwide CO 2 Emissions Values (grams per mile)

Model

Year Projected

CO 2 Emissions

for theFootprintBased

Standard Projected

FFV

Credit Projected

TLAAS

Credit Projected

CO 2 Emissions Projected

A/C Credit Projected 2-cycle

CO 2 Emissions

2011 - - - (326) - (326)

2012 295 6.5 1.2 303 3.5 307

2013 286 5.8 0.9 293 5.0 298

2014 276 5.0 0.6 282 7.5 290

2015 263 3.7 0.3 267 10.0 277

2016 250 0.0 0.1 250 10.6 261

EPA is also finalizing a series of fl exibilities for compliance with the CO 2 standard which are not expected to significantly affect the projected compliance and achieved values shown above, but which should reduce the costs of ach ieving those reductions. These flexibilities include the ability to earn: annua l credits for a manufacturer’s over-compliance with its unique fleet-wide average standard, early credits from MY2009-2011, credit for “off-cycle” CO 2 reductions from new and innovative technologies that are not reflected in CO 2 /fuel economy tests, as well as the carry-forward and carry-backward of credits, and the ability to transfer credits between a manufacturer’s car and truck fleets. These flexibilities are being adopted with only very minor changes from the proposal, as discussed in Section III.C.

EPA is finalizing an incentive to encourage the commercialization of advanced GHG/fuel economy control technologies, including electric vehi cles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles (FCVs), for model years 2012-2016. EPA’s proposal included an emissions compliance value of zero grams/mile for EVs and FCVs, and the electric portion of PHEVs, and a multiplier in the range of 1.2 to 2.0, so that each advanced technology vehicle would count as greater than one vehicle in a manufacturer’s fleet-wide compliance calculation. Several commenters were very concerned about these credits and upon considering the public comments on this issue, EPA is finalizing an advanced technology vehicle incentive program to assign a zero gram/mile emissions compliance value for EVs and FCVs, and the electric portion of PHEVs, for up to the first 200,000 EV/PHEV/FCV vehicles produced by a given manufacturer during MY2012-2016. For any production greater than this amount, the compliance value for the vehicle will be greater than zero gram/mile, set at a level that reflects the vehicle’s average net increase in upstream greenhouse gas emissions in comparison to the gasoline or diesel vehicle it replaces. EPA is not finalizing a multiplier based on the concerns potentially excessive credits using that incentive. EPA agrees that the multiplier, in combination with the zero grams/mile compliance value, would be excessive. EPA will also allow this early121 advanced technology incentive program beginning in MYs 2009 through 2011. Further discussion on the advanced technology vehicle incentives, including more detail on the public comments and EPA’s response, is found in Section III.C.

EPA is also finalizing a temporary lead-time allowance (TLAAS) for manufacturers that sell vehicles in the U.S. in MY 2009 and for which vehicle sales in that model year are below 400,000 vehicles. This allowance will be av ailable only during the MY 2012-2015 phase-in years of the program. A manufacturer that satisfies the threshold criteria will be able to treat a limited number of vehicles as a separate averagi ng fleet, which will be subject to a less stringent

GHG standard. 123 Specifically, a standard of 125 percent of the vehicle’s otherwise applicable foot-print target level will apply to up to 100,000 vehicles total, spread over the four year period of MY 2012 through 2015. Thus, the number of vehicles to which the flexibility could apply is limited. EPA also is setting appropriate restrictio ns on credit use for these vehicles, as discussed further in Section III. By MY 2016, these allowance vehicles must be averaged into the manufacturer’s full fleet (i.e., they will no longe r be eligible for a different standard). EPA

discusses this in more detail in Section III.B of the preamble.

EPA received comments from several smaller manufacturers that the TLAAS program

was insufficient to allow manufacturers with ve ry limited product lines to comply. These manufacturers commented that they need additional leadtime to meet the standards, because their

CO 2 baselines are significantly higher and their vehicle product lines are even more limited, reducing their ability to average across their fleets compared even to other TLAAS manufacturers. EPA fully summarizes the public comments on the TLAAS program, including comments not supporting the program, in Section III.B. In summary, in response to the lead time issues raised by manufacturers, EPA is m odifying the TLAAS program that applies to manufacturers with between 5,000 and 50,000 vehicle sales in MY 2009. These manufactures would have an increased allotment of vehicles, a total of 250,000, compared to 100,000 vehicles (for other TLAAS-eligible manufacturers. In addition, the TLAAS program for these manufacturers would be extended by one year, through MY2016 for these vehicles. The other provisions of the TLAAS program would continue to apply, such as the restrictions on credit trading and the level of the standard. Additional restrictions would also apply to these vehicles, as discussed in Section III.B.5. In addition, fo r the smallest volume manufacturers, those with below 5,000 vehicle sales, EPA is not setting st andards at this time but is instead deferring standards until a future rulemaking. This is the same approach we are using for small businesses. The unique issues involved with these manufacturers will be addressed in that future rulemaking. Further discussion of the public comment on these issues and details on these changes from the proposed program are included in Section III.B.6. The agency received comments on its compliance with the Regulatory Flexibility Act. As stated in Section III.I.3, small entities are not significantly impacted by this rulemaking.

EPA is also adopting caps on the tailpipe emissions of nitrous oxide (N 2 O) and methane (CH 4 )--0.010 g/mi for N 2 O and 0.030 g/mi for CH 4 —over the EPA FTP test. While N 2 O and

CH 4 can be potent greenhouse gases on a relative mass basis, their emission levels from modern

123 EPCA does not permit such an allowance. Consequently , manufacturers who may be able to take advantage of a lead-time allowance under the GHG standards would be require d to comply with the applicable CAFE standard or be subject to penalties for non-compliance. Comment [A21]: Global or US?

Comment [A22]: Over 4 years?122 vehicle designs are extremely low and represent only about 1% of total late model light vehicle GHG emissions. These cap standards are designed to ensure that N 2 O and CH 4 emissions levels do not rise in the future, rather than to force reductions in the already low emissions levels. Accordingly, these standards are not designed to require automakers to make any changes in current vehicle designs, and thus EPA is not projecting any environmental or economic costs or

benefits associated with these standards.

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

EPA received numerous comments on issues related to the impacts on stationary sources, due to the Clean Air Act’s provisions for permitting requirements related to the setting of GHG standards. Some comments suggested that EPA had underestimated the number of stationary sources that may be subject to GHG permitting requirements; other comments suggested that EPA did not adequately consider the permitting impact on small business sources. Other comments related to EPA’s interpretation of the CAA’s provisions for subjecting stationary sources to permit regulation after GHG standards are set. EPA’s response to these comments in contained in the Response to Comments document; however, many of these comments pertain to issues that EPA is addressing in its consider ation of the final Greenhouse Gas Permit Tailoring Rule, 124 and will thus fully be addressed in that rulemaking.

Further, some of the comments relating to the stationary source permitting issues also suggested that EPA should defer setting GHG standards to avoid such stationary source permitting impacts. EPA is issuing these final GHG standards for light-duty vehicles as part of its efforts to expeditiously respond to the Supreme Court’s nearly three year old ruling that greenhouse gases are air pollutants under the Clean Air Act. As discussed above, EPA has made findings that six greenhouse gases threaten public health and welfare, and that the combined emissions of these greenhouse gases from new motor vehicles and new motor vehicle engines contribute to the greenhouse gas pollution which threatens public health and welfare. 125 EPA takes very seriously the obligation to respond to the Supreme Court’s opinion. Furthermore, in the absence of these final standards, there would be three separate federal and state regimes independently regulating light-duty vehicles to reduce fuel consumption and GHG emissions: NHTSA’s CAFE standards, EPA’s GHG standard s, and the GHG standards applicable in California and other states adopting the Californi a standards. This joint EPA-NHTSA program will allow automakers to meet both the NHTSA and EPA requirements with a single national fleet. In addition, California’s commitment to defer to the federal program is also conditioned on EPA adopting GHG standards of this type. Calif ornia and several other states have expressed concern that, without comparable federal vehicle GHG standards, the states will not be able to

124 Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule; Proposed Rule, 74 FR 55292 (October 27, 2009).

125 74 FR 66496 (December 15, 2009)123 offer the federal program as an alternative compliance option to automakers. 126 Thus, the states expressed a concern that, without a federal harmonized program, benefits would be lost to the

automakers and consumers.

In addition, the agency received comments on its compliance with the Regulatory Flexibility Act. As stated in Section III.I.3, sm all entities are not signifi cantly impacted by this rulemaking.

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

In Table III.A.3-3 EPA presents estimated an nual net benefits for the indicated calendar years. The table also shows the net present values of those benefits for the calendar years 2012- 2050 using both a 3 percent and a 7 percent discount rate. As discussed previously, EPA recognizes that much of these same costs and benefi ts are also attributable to the CAFE standard contained in this joint final rule.

Table III.A.3-3 Projected Quantifiable Benefits and Costs for CO 2 Standard (in million 2007$)

2020 2030 2040 2050 NPV, 3% a NPV, 7% a Quantified Annual

Costs b -$20,100 -$64,000 -$101,900 -$152,200 -$1,199,700 -$480,700

Benefits from Reduced CO 2 Emissions at each assumed SCC value c, d ,e
Avg SCC at 5% $900 $2,700 $4,600 $7,200 $34,500 $34,500 Avg SCC at 3% $3,700 $8,900 $14,000 $21,000 $176,700 $176,700 Avg SCC at 2.5% $5,800 $14,000 $21,000 $30,000 $299,600 $299,600

95 th percentile SCC at

3% $11,000 $27,000 $43,000 $62,000 $538,500 $538,500

Other Quantified Externalities
Criteria Pollutant

Benefits f,g,h [XX Will be available pending results of air quality modeling]

Energy Security Impacts (price shock) $2,200 $4,500 $6,000 $7,600 $81,900 $36,900

Reduced Refueling $2,400 $4,800 $6,300 $8,000 $87,900 $40,100

Value of Increased Driving i $4,200 $8,800 $13,000 $18,400 $171,500 $75,500

Accidents, Noise, Congestion -$2,300 -$4,600 -$6,100 -$7,800 -$84,800 -$38,600

Quantified Net Benefits at each assumed SCC value c, d ,e

126 Letter dated February 23, 2010 from Commissioners of California, Maine, New Mexico, Oregon and Washington to Senators Harry Reid and Mitch McConnell. Comment [A23]: Please separate these into two lines - upfront costs and fuel savings. This is not at all transparent and has many assumptions embedded in it (consumer welfare assumptions, discount rate assumptions, etc.)

Comment [A24]: Reduced refueling and value of increased driving are not externalities but private benefits. Please move these two lines to a private savings section that also includes fuel savings.124 Avg SCC at 5% $27,500 $80,200 $125,700 $185,600 $1,490,700 $629,100 Avg SCC at 3% $30,300 $86,400 $135,100 $199,400 $1,632,900 $771,300 Avg SCC at 2.5% $32,400 $91,500 $142,100 $208,400 $1,755,800 $894,200

95 th percentile SCC at

3% $37,600 $104,500 $164,100 $240,400 $1,994,700 $1,133,100

a Note that net present value of redu ced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for internal consistency. Refer to Section III.F for more detail.

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

c Monetized GHG benefits exclude the value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benefits, as explai ned in Section III.F.2. The SCC Technical Support Document (TSD) notes the difference between the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value non-CO 2 emissions in future analyses.

d Section III.H.6 notes that SCC increases projects over time. Corresponding to the years in this table, the SCC estimates range as follows: for Average SCC at 5%: $5-$16; for Average SCC at 3% : $21-$45; for Average SCC at 2.5%: $35-$65; and for 95 th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.

e Note that net present value of redu ced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for internal consistency. Refer to SCC TSD for more detail.

f Note that the co-pollutant impacts as sociated with the standards presented he re do not include the full complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-related impacts. The full complement of human health and welfare effects associated with PM and ozone remain unquantified

because of current limitations in methods or available data . We have not quantified a number of known or suspected health effects linked with ozone and PM for which appropria te health impact functions are not available or which do not provide easily interpretable outcomes (e.g., changes in heart rate variability). A dditionally, we are unable to quantify a number of known welfare effects, including reduced acid and particulate deposition damage to cultural monuments and other materials, and envi ronmental benefits due to reductions of impacts of eutrophication in coastal areas. As a result, the health benefits quantified in th is section are likely underestimates of the total benefits

attributable to the final rule.

g The benefits presented in this table include an estimate of premature mortality deri ved from the ACS study (Pope et al., 2002). If the benefit estimates were based on the Six Cities study (Laden et al., 2006), the values would be approximately 145% (nearly two-and-a-half times) larger.

h The benefits presented in this table assume a 3% discount rate in the valuation of PM-related premature mortality to account for a twenty-year segmented cessation lag. If a 7% discount rate had been used, the values would be approximately 9% lower.

i Calculated using pre-tax fuel prices.

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

EPA statutory authority under section 202(a) (1) of the Clean Air Act (CAA) is discussed in more detail in Section I.C.2 of the proposed rule (74 FR at 49464-65). The following is a summary of the basis for the final GHG standards under section 202(a), which is discussed in more detail in the following portions of Section III.

With respect to CO 2 and HFCs, EPA is adopting attribute-based light-duty car and truck standards that achieve large and important emissions reductions of GHGs. EPA has evaluated the technological feasibility of the standards, and the information and analysis performed by

EPA indicates that these standards are feasible in the lead time provided. EPA and NHTSA have125 carefully evaluated the effectiveness of individual technologies as well as the interactions when technologies are combined. EPA’s projection of the technology that would be used to comply

with the standards indicates that manufacturers will be able to meet the standards by employing a wide variety of technologies that are already co mmercially available and can be incorporated into their vehicles at the time of redesign. In addition to the consideration of the manufacturers’ redesign cycle, EPA’s analysis also takes into account certain flexibilities that will facilitate compliance especially in the early years of the program when potential lead time constraints are most challenging. These flexibilities include averaging, banking, and trading of various types of credits. For the industry as a whole, EPA’s projections indicate that the standards can be met using technology that will be available in the lead-time provided. At the same time, it must be noted that because technology is commercially available today does not mean it can automatically be incorporated fleet-wide during the model years in question. As discussed below, and in detail in Section III.D.7, EPA and NHTSA carefully analyzed issues of adequacy of lead time in determining the level of the standards, and the agencies are convinced both that

lead time is sufficient to meet the standards but that major further additions of technology across the fleet is not possible during these model years.

To account for additional lead-time concer ns for various manufacturers of typically higher performance vehicles, EPA is adopting a Temporary Lead-time Allowance similar to that proposed that will further facilitate compliance for limited volumes of such vehicles in the program’s initial years. For a few very small volume manufacturers, EPA is deferring standards pending later rulemaking.

EPA has also carefully considered the cost to manufacturers of meeting the standards, estimating piece costs for all candidate technologies, direct manufacturing costs, cost markups to account for manufacturers’ indirect costs, and manufacturer cost reductions attributable to learning. In estimating manufacturer costs, EP A took into account manufacturers’ own practices such as making major changes to model technology packages during a planned redesign cycle. EPA then projected the average cost across the industry to employ this technology, as well as manufacturer –by- manufacturer costs. EPA considers the per vehicle costs estimated from this analysis to be within a reasonable range in light of the emissions reductions and benefits received. EPA projects, for example, that the fuel savings over the life of the vehicles will more

than offset the increase in cost associated with the technology used to meet the standards.

EPA has also evaluated the impacts of these standards with respect to reductions in GHGs and reductions in oil usage. For the lifetime of the model year 2012-2016 vehicles we estimate GHG reductions of approximately 960 million metric tons CO 2 eq. and fuel reductions of 1.8 billion barrels of oil. These are impo rtant and significant reductions. EPA has also analyzed a variety of other impacts of the standards, ranging from the standards’ effects on emissions of non-GHG pollutants, impacts on noise, energy, safety and congestion. EPA has also quantified the cost and benefits of the standards, to the extent practicable. Our analysis to date indicates that the overall quantified benefits of the standards far outweigh the projected costs. Utilizing a 3% discount rate, we estimate the total net social benefits over the life of the model year 2012-2016 vehicles is $192 billion, and the net present value of the net social benefits of the126 standards through the year 2050 is $1.9 trillion dollars. 127 These values are estimated at $136 billion and $787 billion, respectively, using a 7% discount rate and the SCC discounted at 3

percent. 128

Under section 202(a) EPA is called upon to set standards that provide adequate lead-time for the development and application of technology to meet the standards. EPA’s standards satisfy this requirement, as discussed above. In setting the standards, EPA is called upon to weigh and balance various factors, and to exercise judgment in setting standards that are a reasonable balance of the relevant factors. In this case, EPA has considered many factors, such as cost, impacts on emissions (both GHG and non-GHG), impacts on oil conservation, impacts on noise, energy, safety, and other factors, and has where practicable quantified the costs and benefits of the rule. In summary, given the technical feasibility of the standard, the moderate cost per vehicle in light of the savings in fuel costs over the life time of the vehicle, the very significant reductions in emissions and in oil us age, and the significantly greater quantified benefits compared to quantified costs, EPA is confident that the standards are an appropriate and reasonable balance of the factors to consider under section 202(a). See Husqvarna AB v. EPA

, 254 F. 3d 195, 200 (D.C. Cir. 2001) (great discreti on to balance statutory factors in considering level of technology-based standard, and statutory requirement “to [give appropriate] consideration to the cost of applying ... technol ogy” does not mandate a specific method of cost analysis); see also Hercules Inc. v. EPA , 598 F. 2d 91, 106 (D.C. Cir. 1978) (“In reviewing a numerical standard we must ask whether the agency’s numbers are within a zone of reasonableness, not whether its numbers are precisely right”); Permian Basin Area Rate Cases

, 390 U.S. 747, 797 (1968) (same); Federal Power Commission v. Conway Corp. , 426 U.S. 271, 278 (1976) (same); Exxon Mobil Gas Marketing Co. v. FERC , 297 F. 3d 1071, 1084 (D.C. Cir. 2002) (same).

EPA recognizes that the vast majority of technologies which we are considering for purposes of setting standards unde r section 202(a) are commercial ly available and already being

utilized to a limited extent across the fleet. The vast majority of the emission reductions which would result from this rule would result from the increased use of these technologies. EPA also recognizes that this rule would enhance the development and limited use of more advanced technologies, such as PHEVs and EVs. In this technological context, there is no clear cut line that indicates that only one projection of technology penetration could potentially be considered feasible for purposes of section 202(a), or only one standard that could potentially be considered a reasonable balancing of the factors relevant under section 202(a). EPA therefore evaluated two sets of alternative standards, one more stri ngent than the promulgated standards and one less stringent.

The alternatives are 4% per year increase in standards which would be less stringent and a 6% per year increase in the standards which would be more stringent. EPA is not adopting either of these. As discussed in Section III.D.7, the 4% per year forgoes CO 2 reductions which

127 Based on the mean SCC at 3 percent discount rate, which is $21 per metric ton CO 2 in 2010 rising to $45 per

metric ton CO 2 in 2050.

128 SCC was discounted at 3 percent to maintain internal c onsistency in the SCC calculations while all other benefits were discounted at 7 percent. Specifically, the same discount rate used to discount the value of damages from future

CO 2 emissions is used to calculate net present value of SCC.127 can be achieved at reasonable cost and are achievable by the industry within the rule’s timeframe. The 6% per year alternative requires a significant increase in the projected required technology penetration which appears inappropriate in this timeframe due to the limited available

lead time and the current difficult financial cond ition of the automotive industry. (See Section III.D.7 for a detailed discussion of why EPA is no t adopting either of th e alternatives.). EPA

also believes that the no backslid ing standards it is adopting for N 2 O and CH 4 are appropriate under section 202 (a).

B. GHG Standards for Light-duty Vehicl es, Light-duty Truc ks, and Mediumduty Passenger Vehicles

EPA is finalizing new emission standards to control greenhouse gases (GHGs) from light-duty vehicles. First, EPA is finalizing an emission standard for carbon dioxide (CO 2 ) on a gram per mile (g/mile) basis that will apply to a manufacturer’s fleet of cars, and a separate standard that will apply to a manufacturer’s fleet of trucks. CO 2 is the primary pollutant resulting from the combustion of vehicular fuels, and the amount of CO 2 emitted is directly correlated to the amount of fuel consumed. Second, EPA is providing auto manufacturers with the opportunity to earn credits toward the fleet-wide average CO 2 standards for improvements to air conditioning systems, including both hydrofluor ocarbon (HFC) refrigerant losses (i.e., system leakage) and indirect CO 2 emissions related to the increased load on the engine. Third, EPA is finalizing separate emissions standards for two other GHG pollutants: methane (CH 4 ) and nitrous oxide (N 2 0). CH 4 and N 2 O emissions relate closely to the de sign and efficient use of emission control hardware (i.e., catalytic converters). The standards for CH 4 and N 2 O will be set as a cap that will limit emissions increases and prevent backsliding from current emission levels. The final standards described below will apply to passenger cars, light-duty trucks, and medium-duty passenger vehicles (MDPVs). As an overall group, they are referred to in this preamble as light vehicles or simply as vehicles. In this preamble section passenger cars may be referred to simply as “cars”, and light-duty trucks and MDPVs as “light trucks” or “trucks.” 129

EPA’s program includes a number of credit oppor tunities and other flexibilities to help manufacturers comply, especially in the early ye ars of the program. EPA is establishing a system of averaging, banking, and trading of credits integral to the fleet averaging approach, based on manufacturer fleet average CO 2 performance, as discussed in Section III.B.4. This approach is similar to averaging, banking, and trading (ABT) programs EPA has established in other programs and is also similar to provisions in the CAFE progra m. In addition to traditional ABT credits based on the fleet emissions average, EP A is also including A/C credits as an aspect of the standards, as mentioned above. EPA is al so including several additional credit provisions that apply only in the initial model years of the program. These include flex fuel vehicle credits, incentives for the early commercialization of certain advanced technology vehicles, credits for new and innovative “off-cycle” technologies that are not captured by the current test procedures, and generation of credits prior to model year 2012. The A/C credits and additional credit opportunities are described in Section III.C. Th ese credit programs will provide flexibility to manufacturers, which may be especially important during the early transition years of the program. EPA will also allow a manufacturer to ca rry a credit deficit into the future for a limited

129 As described in Section III.B.2., GHG emissions standard s will use the same vehicle category definitions as are used in the CAFE program.128 number of model years. A parallel provision, refe rred to as credit carry-back, will be part of the CAFE program. Finally, EPA is finalizing an optional compliance flexibility, the Temporary Leadtime Allowance Alternative Standard program, for intermediate volume manufacturers, and is deferring standards for the smallest manufac turers, as discussed in Sections III.B.5 and 6

below.

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

The attribute-based CO 2 standards, are projected to achieve a national fleet-wide average, covering both light cars and trucks, of 250 grams/mile of CO 2 in model year (MY) 2016. This

includes CO 2 -equivalent emission reductions from A/C improvements, reflected as credits in the standard. The standards will begin with MY 2012, with a generally linear increase in stringency from MY 2012 through MY 2016. EPA will have separate standards for cars and light trucks. The tables in this section below provide overall fleet average levels that are projected for both cars and light trucks over the phase-in period which is estimated to correspond with the standards. The actual fleet-wide average g/mi level that will be achieved in any year for cars and trucks will depend on the actual production for that year, as well as the use of the various credit and averaging, banking, and trading provisions. For example, in any year, manufacturers may generate credits from cars and use them for compliance with the truck standard. Such transfer of credits between cars and trucks is not reflected in the table below. In Section III.F, EPA discusses the year-by-year estimate of emissions reductions that are projected to be achieved by

the standards.

In general, the schedule of standards acts as a phase-in to the MY 2016 standards, and reflects consideration of the appropriate lead -time for each manufacturer to implement the requisite emission reductions tec hnology across its product line. 130 Note that 2016 is the final model year in which standards become more stringent. The 2016 CO 2 standards will remain in place for 2017 and later model years, until re vised by EPA in a future rulemaking.

EPA estimates that, on a combined fleet-wide na tional basis, the 2016 MY standards will achieve a level of 250 g/mile CO 2 , including CO 2 -equivalent credits from A/C related reductions. The derivation of the 250 g/mile estima te is described in Section III.B.2.

EPA has estimated the overall fleet-wide CO 2 -equivalent emission levels that correspond with the attribute-based standards, based on the projections of the composition of each manufacturer’s fleet in each year of the program. Tables III.B.1-1 and III.B.1-2 provides these

estimates for each manufacturer. 131

As a result of public comments and updated economic and future fleet projections, the attribute based curves have been updated for this final rule, as discussed in detail in Section II.B of this preamble and Chapter 2 of the Joint TSD. This update in turn affects costs, benefits, and other impacts of the final standards - thus EPA's overall projection of the impacts of the final rule

130 See CAA section 202(a)(2).

131 These levels do not include the effect of flexible fuel credits, transfer of credits between cars and trucks, temporary lead time allowance, or any other credits.129 standards have been updated and the results are different than for the NPRM, though in general not by a large degree.

Table III.B.1-1 Estimated Fleet CO 2 -equivalent Levels Corresponding to the Standards for Cars

Manufacturer Model Year

2012 2013 2014 2015 2016

BMW 266 259 250 239 228 Chrysler 269 262 254 243 232

Daimler 274 267 259 249 238

Ford 267 259 251 240 229

General

Motors 268 261 252 241 230

Honda 260 252 244 233 222 Hyundai 260 254 246 233 222

Kia 263 255 247 235 224

Mazda 260 252 243 232 221

Mitsubishi 257 249 241 230 219

Nissan 263 256 248 237 226

Porsche 244 237 228 217 206

Subaru 253 246 237 226 215

Suzuki 245 238 230 218 208

Tata 288 280 272 261 250 Toyota 259 251 243 232 221 Volkswagen 256 249 240 229 219

Table III.B.1-2 Estimated Fleet CO 2 -equivalent Levels Corresponding to the Standards for Light

Trucks

Manufacturer Model Year

2012 2013 2014 2015 2016

BMW 330 320 310 297 283
Chrysler 342 333 323 309 295

Daimler 343 332 323 308 294

Ford 354 344 334 319 305

General

Motors 364 354 344 330 316

Honda 327 318 309 295 281
Hyundai 325 316 307 292 278

Kia 335 327 318 303 289

Mazda 319 308 299 285 271

Mitsubishi 316 306 297 283 269

Nissan 343 334 323 308 294

Porsche 334 325 315 301 287

Subaru 315 305 296 281 267 Comment [A25]: Are these g/mi? Please clarify

for all tables.130 Suzuki 320 310 300 286 272

Tata 321 310 301 287 272
Toyota 342 333 323 308 294
Volkswagen 341 331 322 307 293

These estimates were aggregated based on projected production volumes into the fleetwide averages for cars and trucks (Table III.B.1-3). 132

Table III.B.1-3 Estimated Fleet-wide CO 2 -equivalent Levels Corresponding to the Standards

Cars Trucks

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

2012 263 346

2013 256 337

2014 247 326

2015 236 312

2016 and later 225 298

As shown in Table III.B.1-3, fleet-wide CO 2 -equivalent emission levels for cars under the approach are projected to decrease from 263 to 225 grams per mile between MY 2012 and MY 2016. Similarly, fleet-wide CO 2 -equivalent emission levels for trucks are projected to decrease from 346 to 398 grams per mile. These numbers do not include the effects of other flexibilities and credits in the program. The estimated achieved values can be found in Chapter 5 of the Regulatory Impact Analysis (RIA).

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

Table III.B.1-4 Estimated Fleet-wide Combined CO 2 -equivalent Levels Corresponding to the

Standards

Combined Car and Truck

Model Year CO 2 (g/mi)

2012 295

2013 286

2014 276

2015 263

2016 250

As noted above, EPA is finalizing standards that will result in increasingly stringent

levels of CO 2 control from MY 2012 though MY 2016 – applying the CO 2 footprint curves

132 Due to rounding during calculations, the estimated fleet-wide CO 2 -equivalent levels may vary by plus or minus 1

gram.131 applicable in each model year to the vehicles expected to be sold in each model year produces

fleet-wide annual reductions in CO 2 emissions. Comments from the Center for Biological Diversity (CBD) challenged EPA to increase the st ringency of the standards for all of the years of the program, and even argued that 2016 standards should be feasible in 2012. Other commenters noted the non-linear increase in the standards from 2011 (CAFE) to the 2012 GHG standards. As explained in greater detail in Section III.D below and the relevant support documents, EPA believes that the level of improvement achieves important CO 2 emissions reductions through the application of feasible co ntrol technology at reasonable cost, considering the needed lead time for this program. EPA further believes that the averaging, banking and trading provisions, as well as other credit-gene rating mechanisms, allow manufacturers further

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

EPA has analyzed the feasibility under the CAA of achieving the CO 2 standards, based on projections of what actions manufacturers ar e expected to take to reduce emissions. The results of the analysis are discussed in detail in Section III.D below and in the RIA. EPA also presents the estimated costs and benefits of the car and truck CO 2 standards in Section III.H. In developing the final rule, EPA ha s evaluated the kinds of technologi es that could be utilized by the automobile industry, as well as the associated costs for the industry and fuel savings for the consumer, the magnitude of the GHG reductions that may be achieved, and other factors relevant

under the CAA.

With respect to the lead time and cost of incorporating technology improvements that reduce GHG emissions, EPA and NHTSA place impo rtant weight on the fact that during MYs 2012-2016 manufacturers are expected to redesign and upgrade their light-duty vehicle products (and in some cases introduce entirely new vehicles not on the market today). Over these five model years there will be an opportunity for manuf acturers to evaluate almost every one of their vehicle model platforms and add technology in a cost-effective way to control GHG emissions and improve fuel economy. This includes redesign of the air conditioner systems in ways that

will further reduce GHG emissions. The time-frame and levels for the standards, as well as the ability to average, bank and trade credits and carry a deficit forward for a limited time, are expected to provide manu facturers the time needed to incor porate technology that will achieve GHG reductions, and to do this as part of the normal vehicle redesign process. This is an important aspect of the final rule, as it will avoid the much higher costs that will occur if manufacturers needed to add or change technology at times other than these scheduled redesigns. This time period will also provide manufacturers the opportunity to plan for compliance using a multi-year time frame, again in accord with their normal business practice. Further details on lead time, redesigns and feasibility can be found in Section III-D.

Consistent with the requirement of CAA secti on 202(a)(1) that standards be applicable to vehicles “for their useful life,” EPA is finalizing CO 2 vehicle standards that will apply for the useful life of the vehicle. Under section 202(i) of the Act, which authorized the Tier 2 standards, EPA established a useful life period of 10 years or 120,000 miles, whichever first occurs, for all Tier 2 light-duty vehicles and light-duty trucks. 133 Tier 2 refers to EPA’s standards for criteria pollutants such as NO X , HC, and CO. EPA is finalizing new CO 2 standards for the same group

133 See 65 FR 6698 (February 10, 2000).132 of vehicles, and therefore the Tier 2 useful life will apply for CO 2 standards as well. The in-use emission standard will be 10% higher than the m odel-level certification emission test results, to address issues of production variability and test-to-test variability. The in-use standard is

discussed in Section III.E.

EPA is requiring manufacturers to measure CO 2 for certification and compliance purposes using the same test procedures currently used by EPA for measuring fuel economy. These procedures are the Federal Test Procedure (FTP or ‘‘city’’ test) and the Highway Fuel Economy Test (HFET or ‘‘highway’’ test). 134 This corresponds with the data used to develop the footprint-based CO 2 standards, since the data on control technology efficiency was also developed in reference to these test procedures. Although EPA recently updated the test procedures used for fuel economy labeling, to better reflect the actual in-use fuel economy achieved by vehicles, EPA is not using these test procedures for the CO 2 standards in this final rule, given the lack of data on control tech nology effectiveness under these procedures. 135 There were a number of commenters that advocated for a change in either the test procedures or the fuel economy calculation weighting factors. The U. S. Coalition for Advanced Diesel Cars urged a changing of the city/highway weighting factors from their current values of 45/55 to 43/57 to be more consistent with the EPA (5-cycle) fuel economy labeling rule. EPA has decided that such a change would not be appropriate, nor consis tent with the technical analyses supporting the 5-cycle fuel economy label rulemaking. The city/highway weighting of 43/57 was found to be appropriate when the city fuel economy is based on a combination of Bags 2 and 3 of the FTP and the city portion of the US06 test cycle, and when the highway fuel economy is based on a combination of the HFET and the highway portion of the US06 cycle. When city and highway fuel economy are based on the FTP and HFET cycles, respectively, the appropriate city/highway weighting is not 43/57, but very close to 55/45. Therefore, the weighting of the city and highway fuel economy values contained in this rule is appropriate for and consistent with the use of the FTP and HFET cycles to measure city and highway fuel economy.

The American Council for an Energy-Efficient Economy (ACEEE), Cummins, and Sierra Club all suggested using more real-world test proce dures. It is not feasible at this time to base

the final CO 2 standards on EPA’s five-cycle fuel econom y formulae. Consistent with its name, these formulae require vehicle testing over five te st cycles, the two cycles associated with the proposed CO 2 standards, plus the cold temperature FTP, the US06 high speed, high acceleration cycle and the SC03 air conditioning test. EPA considered employing the five-cycle calculation of fuel economy and GHG emissions for this rule, but there were a number of reasons why this was not practical. As discussed extensively in the Joint TSD, setting the appropriate levels of

CO 2 standards requires extensive knowledge of the CO 2 emission control effectiveness over the certification test cycles. Such knowledge has been gathered over the FTP and HFET cycles for decades, but is severely lacking for the other three test cycles. EPA simply lacks the technical basis to project the effectiveness of the availabl e technologies over these three test cycles and therefore, could not adequately support a rule which set CO 2 standards based on the five-cycle

134 EPA established the FTP for emissions measurement in the early 1970s. In 1976, in response to the Energy Policy and Conservation Act (EPCA) statute, EPA extended the use of the FTP to fuel economy measurement and added the HFET. The provisions in the 1976 regulation, ef fective with the 1977 model year, established procedures to calculate fuel economy values both for labeling and for CAFE purposes.

135 See 71 FR 77872, December 27, 2006.133 formulae. The benefits of today’s rule do presume a strong connection between CO 2 emissions measured over the FTP and HFET cycles and onroad operation. Since CO 2 emissions determined by the five-cycle formulae are believed to correlate re asonably with onroad emissions, this implies a strong connection between emissions over the FTP and HFET cycles and the five cycle formulae. However, while we believe that this correlation is reasonable on average for the vehicle fleet, it may not be reasona ble on a per vehicle basis, nor for any single manufacturer’s vehicles. Thus, we believe that it is reasonable to project a direct relationship between the percentage change in CO 2 emissions over the two certification cycles and onroad emissions (a surrogate of which is the five-cycle formulae), but not reasonable to base the certification of specific vehicles on that untested relationship. Furthermore, EPA is allowing for off-cycle credits to encourage technologies that may not be not properly captured on the 2-cycle city/highway test procedure (although these credits could apply toward compliance with EPA's standards, not toward compliance with the CAFE standards). For future analysis, EPA will consider examining new drive cycles and test procedures for fuel economy. 136

EPA is finalizing standards that include hydrocarbons (HC) and carbon monoxide (CO)

in its CO 2 emissions calculations on a CO 2 -equivalent basis. It is well accepted that HC and CO are typically oxidized to CO 2 in the atmosphere in a relatively short period of time and so are effectively part of the CO 2 emitted by a vehicle. In terms of standard stringency, accounting for the carbon content of tailpipe HC and CO emissions and expressing it as CO 2 -equivalent emissions will add less than one percent to the overall CO 2 -equivalent emissions level. This will also ensure consistency with CAFE calculations since HC and CO are included in the “carbon balance” methodology that EPA uses to determine fuel usage as part of calculating vehicle fuel economy levels.

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

EPA is finalizing the same vehicle category definitions that are used in the CAFE program for the 2011 model year standards. 137 This approach allows EPA’s CO 2 standards and

the CAFE standards to be harmonized across all vehicles. In other words, vehicles will be subject to either car standards or truck standards under both programs, and not car standards under one program and trucks standards under the other. The CAFE vehicle category definitions differ slightly from the EPA definitions for cars and light trucks used for the Tier 2 program and other EPA vehicle programs. However, EPA is not changing the vehicle category definitions for any other light-duty mobile source programs, except the GHG standards.

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

136 There were also a number of comments on air conditioner test procedures; these will be discussed in Section III.C

and the RIA.

137 See 49 CFR 523.134 Some commenters requested a single or converging curve for both cars and trucks. 138
EPA is not finalizing a single fleet standard wh ere all cars and trucks are measured against the same footprint curve for several reasons. First, so me vehicles classified as trucks (such as pickup trucks) have certain attributes not common on cars which attributes contribute to higher CO 2 emissions – notably high load carrying capability and/or high towing capability. 139 Due to these differences, it is reasonable to separate the light- duty vehicle fleet into two groups. Second, EPA wishes to harmonize key program design elemen ts of the GHG standards with NHTSA’s CAFE program where it is reasonable to do so. NHTSA is required by statute to set separate standards for passenger cars and for non-passenger cars. As discussed in Section IV, EPCA does not preclude NHTSA from issuing converging standards if its analysis indicates that these are the appropriate standards under the statute applicable separately to each fleet.

Finally, most of the advantages of a single st andard for all light duty vehicles are also present in the two-fleet standards finalized here. Because EPA is allowing unlimited credit

transfer between a manufacturer’s car and truck fl eets, the two fleets can essentially be viewed as a single fleet when manufacturers consider compliance strategies. Manufacturers can thus choose on which vehicles within their fleet to focus GHG reducing technology and then use credit transfers as needed to demonstrate compliance, just as they will if there was a single fleet standard. The one benefit of a single light-duty fl eet not captured by a two-fleet approach is that a single fleet prevents potential “gaming” of the car and truck definitions to try and design vehicles which are more similar to passenger car s but which may meet the regulatory definition of trucks. Although this is of concern to EPA, we do not believe at this time that concern is sufficient to outweigh the other reasons for finali zing separate car and truck fleet standards. However, it is possible that in the future, recent trends may continue such that cars may become more truck-like and trucks may become more car-l ike. Therefore, EPA will reconsider whether it is appropriate to use converging curv es if justified by future analysis.

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

CO 2 = a, if x ≤ l

CO 2 = cx + d, if l < x ≤ h

CO 2 = b, if x > h

Where,

CO 2 = the CO 2 target value for a given footprint (in g/mi)

a = the minimum CO 2 target value (in g/mi)

b = the maximum CO 2 target value (in g/mi) c = the slope of the linear function (in g/mi per sq ft) d = is the zero-offset for the line (in g/mi CO 2 )

138 CBD, ICCT and NESCAUM supported a single curve and the students at UC Santa Barbara commented on converging curves.

139 There is a distinction between body-on-frame trucks and unibody cars and trucks that make them technically different in a number of ways. Also, 2WD vehicles tend to have lower CO 2 emissions than their 4WD counterparts (all other things being equal). More discussion of this can be found in the TSD and RIA.135 x = footprint of the vehicle model (in square feet, rounded to the nearest tenth) l & h are the lower and higher footprint limits, constraints, or the boundary (“kinks”) between the flat regions and the intermediate sloped line

EPA’s parameter values that define the family of functions for the CO 2 fleetwide average

car and truck standards are as follows:

Table III.B.2-1 Parameter Values for Cars (for CO 2 gram per mile targets)

Model Year a b C D Lower

constraint Upper

constraint

2012 244 315 4.72 50.5 41 56

2013 237 307 4.72 43.3 41 56

2014 228 299 4.72 34.8 41 56

2015 217 288 4.72 23.4 41 56

2016 and

later 206 277 4.72 12.7 41 56

Table III.B.2-2 Parameter Values for Trucks (for CO 2 gram per mile targets)

Model Year a b C D Lower

constraint Upper

constraint

2012 294 395 4.04 128.6 41 66

2013 284 385 4.04 118.7 41 66

2014 275 376 4.04 109.4 41 66

2015 261 362 4.04 95.1 41 66

2016 and

later 247 348 4.04 81.1 41 66

The equations can be shown graphically for each vehicle category, as shown in Figures III.B.2-1 and III.B.2-2. These standards (or func tions) decrease from 2012-2016 with a vertical

shift.

The EPA received a number of comments on both the attribute and the shape of the curve. For reasons described in Section IIC and Chapter 2 of the TSD, the EPA feels that footprint is the most appropriate choice of attrib ute for this rule. More background discussion on other alternative attributes and curves EPA explored can be found in the EPA RIA. EPA recognizes that the CAA does not mandate that EPA use an attribute based standard, as compared to NHTSA’s obligations under EPCA. The EPA believes that a footprint-based program will harmonize EPA’s program and the CAFE program as a single national program, resulting in reduced compliance complexity for manufacturers. EPA’s reasons for using an

attribute based standard are discussed in more de tail in the Joint TSD. Also described in these other sections are the reasons why EPA is finalizing the slopes and the constraints as shown above. For future analysis, EPA will cons ider other options and suggestions made by

commenters.136Figure III.B.2-1. CO2(g/mi) Car standard curves.137Figure III.B.2-2. CO2(g/mi) Truck standard curves.138 3. Overview of How EPA’s CO 2 Standards Will Be Impl emented for Individual

Manufacturers

This section provides a brief overview of how EPA will implement the CO 2 standards. Section III.E explains EPA’s approach to certifi cation and compliance in detail. As proposed, EPA is finalizing two kinds of standards – fleet average standards determined by a manufacturer’s fleet makeup, and in-use standards th at will apply to the individual vehicles that make up the manufacturer’s fleet. Although this is similar in concept to the current light-duty vehicle Tier 2 program, there are important differences. In explaining EPA’s CO 2 standards, it is useful to summarize how the Tier 2 program works.

Under Tier 2, manufacturers select a test vehi cle prior to certification and test the vehicle and/or its emissions hardware to determine both its emissions performance when new and the emissions performance expected at the end of its useful life. Based on this testing, the vehicle is assigned to one of several specified bins of emissions levels, identified in the Tier 2 rule, and this

bin level becomes the emissions sta ndard for the test group the test vehicle represents. All of the vehicles in the group must meet the emissions level for that bin throughout their useful life. The emissions level assigned to the bin is also used in calculating the manufacturer’s fleet average emissions performance.

Since compliance with the Tier 2 fleet average depends on actual test group sales volumes and bin levels, it is not possible to de termine compliance at the time the manufacturer applies for and receives a certificate of conformity for a test group. Instead, at certification, the

manufacturer demonstrates that the vehicles in th e test group are expected to comply throughout their useful life with the emissions bin assigned to that test group, and makes a good faith demonstration that its fleet is expected to comply with the Tier 2 average when the model year is over. EPA issues a certificate for the vehicles covered by the test group based on this demonstration, and includes a condition in the ce rtificate that if the manufacturer does not comply with the fleet average then production vehicles from that test group will be treated as not covered by the certificate to the extent needed to bring the manufacturer’s fleet average into compliance with Tier 2.

EPA is retaining the Tier 2 approach of re quiring manufacturers to demonstrate in good

faith at the time of certification that vehicles in a test group will meet applicable standards throughout useful life. EPA is also retainin g the practice of cond itioning certificates upon attainment of the fleet average standard. However, there are several important differences between a Tier 2 type of program and the CO 2 standards program. These differences and resulting modifications to EPA’s certification pr otocols are summarized below and are described

in detail in Section III.E.

EPA will continue to certify test groups as it does for Tier 2, and the CO 2 emission results

for the test vehicle will serve as the initial or de fault standard for all of the vehicles in the test group. However, manufacturers will later collect and submit data for individual vehicle model139 types 140 within each test group, based on the extensive fuel economy testing that occurs through the course of the model year. This model type da ta will be used to assign a distinct certification level for each model type, thus replacing the initial test group data as the compliance value for each model. It is these model type values that will be used to calculate the fleet average after the end of the model year. 141 The option to substitute model type da ta for the test group data is at the manufacturer's discretion, except they are required, as they are under the CAFE test protocols, to submit sufficient vehicle test data to represent no less than 90 percent of their actual model year production. The test group emissions data will continue to apply for any model type that is not covered by vehicle test data specific to that model type.

EPA’s CO 2 standards also differ from Tier 2 in th at the fleet average calculation for Tier 2 is based on test group bin levels and test group sales whereas under the CO 2 program the CO 2 fleet average could be based on a combination of test group and model type emissions and model type production. For the new CO 2 standards, the final regulations use production rather than sales in calculating the fleet average in order to closely conform with the CAFE program, which is a production-based program. 142 Production as defined in the regulations is relatively easy for manufacturers to track, but once the vehicle is delivered to dealerships the manufacturer becomes once step removed from the sale to the ultimate customer, and it becomes more difficult to track

that final transaction. There is no environmen tal impact of using production instead of actual sales, and many commenters supported maintain ing alignment between EPA’s program and the CAFE program where possible.

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

As explained above, EPA is finalizing a fleet average CO 2 program for passenger cars and light trucks. EPA has previously implemented similar averaging programs for a range of motor vehicle types and pollutants, from the Tier 2 fleet average for NO X to motorcycle hydrocarbon (HC) plus oxides of nitrogen (NO X ) emissions to NO X and particulate matter (PM) emissions from heavy-duty engines. 143 The program will operate much like EPA’s existing averaging programs in that manufacturers will calculate production-weighted fleet average emissions at the end of the model year and compare their fleet average with a fleet average emission standard to determine compliance. As in other EPA averaging programs, the Agency is also finalizing a comprehensive program for averaging, banking, and trading of credits which together will help manufacturers in planning and implementing the orderly phase-in of emissions control technology in their production, consiste nt with their typical redesign schedules.

140 “Model type” is defined in 40 CFR 600.002-08 as “... a unique combination of car line, basic engine, and transmission class.” A “car line” is essentially a model na me, such as “Camry,” “Malibu,” or “F150.” The fleet average is calculated on the basis of model type emissions

141 The final in-use vehicle standards for each vehicle will al so be based on the testing used to determine the model type values. As discussed in Section III.E.4, an in-use adjust ment factor will be applied to the vehicle test results to

determine the in-use standard that will a pply during the useful life of the vehicle.

142 “Production” is defined as “vehicles produced and delivered for sale” and is not a measure of the number of vehicles actually sold.

143 For example, see the Tier 2 light-duty vehicle emission standards program (65 FR 6698, February 10, 2000), the 2010 and later model year motorcycle emissions program (69 FR 2398, January 15, 2004), and the 2007 and later model year heavy-duty engine and vehicle standa rds program (66 FR 5001, January 18, 2001).140 Averaging, Banking, and Trading (ABT) of emissions credits has been an important part of many mobile source programs under CAA Title II, both for fuels programs as well as for engine and vehicle programs. ABT is important because it can help to address many issues of technological feasibility and lead-time, as well as considerations of cost. ABT is an integral part of the standard setting itself, and is not just an add-on to help reduce costs. In many cases, ABT resolves issues of lead-time or technical feasibility , allowing EPA to set a standard that is either numerically more stringent or goes into effect ear lier than could have been justified otherwise. This provides important environmental benefits an d at the same time it increases flexibility and reduces costs for the regulated industry. A wide range of commenters expressed general support for the ABT provisions. Some commenters noted issues regarding specific provisions of the ABT program, which will be discussed in the a ppropriate context below. Several commenters requested that EPA publicly release manufacturer-specific ABT data to improve the transparency

of credit transactions. These comments are addressed in Section III.E.

This section discusses generation of credits by achieving a fleet average CO 2 level that is

lower than the manufacturer’s CO 2 fleet average standard. The final rule includes a variety of additional ways credits may be generated by manufacturers. Section III.C describes these additional opportunities to generate credits in detail. Manufacturers may earn credits through A/C system improvements beyond a specified baseline. Credits can also be generated by producing alternative fuel vehicles, by producing advanced technology vehicles including electric vehicles, plug-in hybrids, and fuel cell vehicles, and by using technologies that improve off-cycle emissions. In addition, early credits can be generated prior to the program’s MY 2012 start date. The credits will be used to determine a manufacturer’s compliance at the end of the model year. These credit generating opportunities are described below in Section III.C.

As explained earlier, manufacturers will determ ine the fleet average standard that applies

to their car fleet and the standard for their truck fleet from the applicable attribute-based curve. A manufacturer’s credit or debit balance will be determined by comparing their fleet average

with the manufacturer’s CO 2 standard for that model year. The standard will be calculated from footprint values on the attribute curve and actual production levels of vehicles at each footprint. A manufacturer will generate credits if its car or truck fleet achieves a fleet average CO 2 level lower than its standard and will generate debits if its fleet average CO 2 level is above that standard. At the end of the model year, each manufacturer will calculate a production-weighted fleet average for each averaging set (cars and truc ks). A manufacturer’s car or truck fleet that achieves a fleet average CO 2 level lower than its standard will generate credits, and if its fleet average CO 2 level is above that standard its fleet will generate debits.

The regulations will account for the difference in expected lifetime vehicle miles traveled (VMT) between cars and trucks in order to preserve CO 2 reductions when credits are transferred between cars and trucks. As directed by EISA, NHTSA accomplishes this in the CAFE program by using an adjustment factor that is applied to credits when they are transferred between car and truck compliance categories. The CAFE adjustment factor accounts for two different influences that can cause the transfer of car and truck credits (expressed in tenths of a mpg), if left unadjusted, to potentially negate fuel reductions. Fi rst, mpg is not linear with fuel consumption, i.e., a 1 mpg improvement above a standard will imply a different amount of actual fuel consumed depending on the level of the standard. Second, NHTSA’s conversion corrects for the141 fact that the typical lifetime miles for cars is less than that for trucks, meaning that credits earned for cars and trucks are not necessarily equal. NHTSA’s adjustment factor essentially converts credits into vehicle lifetime gallons to ensure pr eservation of fuel savings and the transfer credits on an equal basis, and then converts back to the statutorily-required credit units of tenths of a mile per gallon. To convert to gallons NHTSA’s conversion must take into account the expected lifetime mileage for cars and trucks. Because EPA’s standards are expressed on a CO 2 gram per mile basis, which is linear with fuel consum ption, EPA’s credit calculations do not need to account for the first issue noted above. However, EPA is accounting for the second issue by expressing credits when they are generated in total lifetime Megagrams (metric tons), rather than through the use of conversion factors that would a pply at certain times. In this way credits may be freely exchanged between car and truck compliance categories without the need for adjustment. Additional detail rega rding this approach, including a discussion of the vehicle lifetime mileage estimates for cars and trucks can be found in Section III.E.5. A discussion of the derivation of the estimated vehicle lifetime miles traveled can be found in Chapter 4 of the Joint Technical Support Document.

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

First, EPA proposed that the manufacturer must use any credits earned to offset any deficit that had accrued in the current year or in a prior model year that had been carried over to the current model year. NRDC commented that such a provision is necessary to prevent credit “shell games” from delaying the adoption of new technologies. EPA’s Tier 2 program includes such a restriction, and EPA is applying an iden tical restriction to the GHG program. Simply stated, a manufacturer may not bank (or carry forw ard) credits if that manufacturer is also carrying a deficit. In such a case, the manufacturer is obligated to use any current model year

credits to offset that deficit. Using current model year credits to offset a prior model year deficit is referred to in the CAFE program as credit carry-back. EPA’s deficit carry-forward, or credit carry-back provisions are described further, below.

Second, after satisfying any needs to offset pre-existing deficits, remaining credits may be banked, or saved for use in future years. Cred its generated in this program will be available to the manufacturer for use in any of the five model years after the model year in which they were generated, consistent with the CAFE program under EISA. This is also referred to as a credit carry-forward provision.

EPA received a number of comments regarding the credit carry-back and carry-forward provisions. Many supported the proposed consistency of these provisions with EISA and the flexibility provided by these provisions, and severa l offered qualified or tentative support. For example, NRDC encouraged EPA to consider further restrictions in the 2017 and later model years. Public Citizen expressed concern regarding the complexity of the program and how these provisions might obscure a straightforward dete rmination of compliance in any given model142 year. At least two automobile manufacturers suggested modeling the program after California,

which allows credits to be carried forward fo r three additional years following a discounting

schedule.

For other new emission control programs, EP A has sometimes initially restricted credit life to allow time for the Agency to assess whether the credit progr am is functioning as intended. When EPA first offered averaging and banking pr ovisions in its light-duty emissions control program (the National Low Emission Vehicle Program) , credit life was restricted to three years. The same is true of EPA’s early averaging and banking program for heavy-duty engines. As these programs matured and were subsequently revised, EPA became confident that the programs were functioning as intended and that the standards were sufficiently stringent to

remove the restrictions on credit life. EPA is th erefore acting consistently with our past practice in finalizing reasonable restrictions on credit life in this new program. The Agency believes that a credit life of five years represents an appr opriate balance between promoting orderly redesign and upgrade of the emissions control technology in the manufacturer’s fleet and the policy goal of preventing large numbers of credits accumulated early in the program from interfering with the incentive to develop and transition to other more advanced emissions control technologies. As discussed below in Section III.C, early credits generated by a manufacturer are also be subject to the five year credit carry-forward rest riction based on the year in which they are generated. This limits the effect of the early credits on the long-term emissions reductions anticipated to result from the new standards.

Third, the new program enables manufacturers to transfer credits between the two averaging sets, passenger cars and trucks, within a manufacturer. For example, credits accrued by over-compliance with a manufacturer’s car fleet average standard may be used to offset debits accrued due to that manufacturer’s not meeting the truck fleet average standard in a given year. EPA believes that such cross-category use of credits by a manufacturer provides important additional flexibility in the tran sition to emissions control technology without affecting overall emission reductions. Comments regarding the credit transfer provisions expressed general support, noting that it does not matter to the environment whether a gram of pollutant is generated from a car or a truck. Additional comments regarding EPA’s streamlined megagram approach and method of accounting for expected ve hicle lifetime miles traveled are summarized

in Section III.E.

Finally, accumulated credits may be traded to another vehicle manufacturer. As with intra-company credit use, such inter-company cred it trading provides flexib ility in the transition to emissions control technology without affecting ov erall emission reductions. Trading credits to another vehicle manufacturer could be a straight forward process between the two manufacturers, but could also involve third parties that could serve as credit brokers. Brokers may not own the credits at any time. These sorts of exchanges are typically allowed under EPA’s current emission credit programs, e.g., the Tier 2 light-duty vehicle NO X fleet average standard and the heavy-duty engine NO X fleet average standards, although manufacturers have seldom made such exchanges. Comments generally reflected support for the credit trading flexibility, although some questioned the extent to which trading might actually occur. As noted above, comments regarding program transparency are addressed in Section III.E.143 If a manufacturer has accrued a deficit at the end of a model year – that is, its fleet average level failed to meet the required fleet average standard – the manufacturer may carry that deficit forward (also referred to credit carry-back) for a total of three model years after the model year in which that deficit was generated. EPA continues to believe that three years is an appropriate amount of time that gives the manufacturers adequate time to respond to a deficit situation but does not create a lengthy period of prolonged non-compliance with the fleet average

standards. 144 As noted above, such a deficit carry-forward may only occur after the manufacturer has applied any banked credits or credits from a nother averaging set. If a deficit still remains after the manufacturer has applied all available credits, and the manufacturer did not obtain credits elsewhere, the deficit may be carried forward for up to three model years. No deficit may

be carried into the fourth mode l year after the model year in which the deficit occurred. Any deficit from the first model year that remains afte r the third model year wi ll constitute a violation of the condition on the certificate, which will constitute a violation of the Clean Air Act and will be subject to enforcement action.

The averaging, banking, and trading provis ions are generally consistent with those included in the CAFE program, with a few notable exceptions. As with EPA’s approach, CAFE allows five year carry-forward of credits and three year carry-back. Under CAFE, transfers of credits across a manufacturer’s car and truck averaging sets are also allowed, but with limits established by EISA on the use of transferred cred its. The amount of transferred credits that can be used in a year is limited, and transferred credits may not be used to meet the CAFE minimum domestic passenger car standard. CAFE allows cred it trading, but again, traded credits cannot be used to meet the minimum domestic passenger car standard. EPA did not propose, and is not finalizing, these constraints on th e use of transferred credits.

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

5. CO 2 Temporary Lead-Time Allowance Alternative Standards

EPA proposed adopting a limited and narrowly prescribed option, called the Temporary Lead-time Allowance Alternative Standards (TLAAS), to provide additional lead time for a certain subset of manufacturers. As noted in the proposal, this option was designed to address two different situations where we project that more lead time is needed, based on the level of emissions control technology and emissions control performance currently exhibited by certain

vehicles. One situation involves manufacturers who have traditionally paid CAFE fines instead of complying with the CAFE fleet average, and as a result at least part of their vehicle production currently has significantly higher CO 2 and lower fuel economy levels than the industry average. More lead time is needed in the program’s initial years to upgrade these vehicles to meet the aggressive CO 2 emissions performance levels required by the final rule. The other situation involves manufacturers who have a limited line of vehicles and are therefore unable to average emissions performance across a full line of production. For example, some smaller volume manufacturers produce only vehicles with emissions above the corresponding CO 2 footprint

144 EPA emission control programs that incorporate ABT provi sions (e.g., the Tier 2 program and the Mobile Source Air Toxics program) have provided this three-year deficit carry-forward provision for this reason. See 65 FR 6745 (February 10, 2000), and 71 FR 8427 (February 26, 2007).144 target, and do not have other types of vehicles (that exceed their compliance targets) in their production mix with which to average. Often, these manufacturers also pay fines under theCAFE program rather than meeting the applicable CAFE standard. Because voluntary noncompliance through payment of civil penalties is impermissible for the GHG standards under the CAA, both of these types of manufacturers need additional lead time to upgrade vehicles and meet the standards. EPA proposed that this subset of manufacturers be allowed to produce up to 100,000 vehicles over model years 2012-2015 that would be subject to a somewhat less stringent

CO 2 standard of 1.25 times the standard that wo uld otherwise apply to those vehicles. Only manufacturers with total U.S. sales of less than 400,000 vehicles per year in MY 2009 would be eligible for this allowance. Those manufacturers would have to exhaust designated program flexibilities in order to be elig ible, and credit generating and trad ing opportunities for the eligible

vehicles would be restricted. See 74 FR 49522-224.

EPA is finalizing the optional TLAAS provisio ns, with certain limited modifications, so that these manufacturers can have sufficient lead time to meet the tougher MY 2016 GHG standards, while preserving consumer choice of vehicles during this time. EPA is finalizing modified provisions to address the unique lead-time issues of smaller volume manufacturers. One provision involves additional flexibility un der the TLAAS program fo r manufacturers below 50,000 vehicle sales, as discussed further in Section III.B.5.b below. Another provision defers

the CO 2 standards for the smallest volume manufacturers, those below 5,000 vehicle sales, as

discussed in Section III.B.6.

Comments from several manufacturers strongly supported the TLAAS program as critical to provide the lead time needed for manufacturers to meet the standards. Volkswagen commented that TLAAS is an important aspect of EPA’s proposal and that it responds to the

needs of some smaller manufacturers for additi onal lead time and flexibility under the CAA. Daimler Automotive Group commented that TLAAS is a critical element of the program and falls squarely within EPA’s discretion to prov ide appropriate lead time to limited-line lowvolume manufacturers. BMW also commented th at TLAAS is needed because most of the companies with limited lines will have to meet a more stringent fleet standard by 2016 than fullline manufacturers because they sell “feature-dense” vehicles (as opposed to light-weight large wheel-base vehicles) and no pick-up trucks. BMW commented that their MY 2016 footprintbased standard is projected to be 4 percent more stringent than the fleet average standard of 250 g/mile. The Alliance of Automobile Manufacturer s supported the flexibilities proposed by EPA, including TLAAS. As discussed in detail below, EPA received extensive comments from many smaller volume manufacturers that the proposed TLAAS program was insufficient to address lead time and feasibility issues they will face under the program.

In contrast, EPA also received comments from the Center for Biological Diversity opposing the TLAAS program, commenting that an exception for high performance vehicles is

not allowed under EPCA or the CAA and that it rewards manufacturers that pay penalties under CAFE and penalizes those that have complied with CAFE. This commenter suggests that

manufacturers could decrease vehicl e mass or power output of engines, purchase credits from another manufacturer, or earn off-cycle credits. EPA responds to these comments below.145 After carefully considering the public comme nts, EPA continues to believe that the TLAAS program is essential in providing nece ssary lead time and flexibility to eligible manufacturers in the early years of the standards. First, EPA believes that it is acting well within its legal authority in adopting the various TL AAS provisions. EPA is required to provide sufficient lead time for industry as a whole for standards under section 202 (a) (1), which mandates that standards are to take effect only “after providing such period as the Administrator finds necessary to permit the development and application of the requisite technology, giving appropriate consideration to the cost of compliance within such period.” Thus, although section 202 (a)(1) does not explicitly authorize this or any other specific lead time provision, it affords ample leeway for EPA to craft provisions designed to provide adequate lead time, and to tailor those provisions as appropriate. We show below that the types of technology penetrations required for TLAAS-eligible vehicles in the program’s earlier years raise critical issues as to adequacy of lead time. As discussed in the EPA feasibility analysis provided in section III.D.6 and III.D.7 several manufacturers eligible fo r TLAAS are projected to face a compliance shortfall in MY2016 without the TLAAS program, ev en with the full application of technologies assumed by the OMEGA Model, including hybrid use of up to 15 percent. These include BMW, Jaguar Land Rover, Daimler, Porsche, and Volkswagen In addition, the smaller volume manufacturers of this group (i.e., Jaguar Land Rover and Porsche) face the greatest shortfall (see Table III.D.6-4). Even with TLAAS, these manuf acturers will need to take technology steps to comply with standards above and beyond those of other manufacturers. These manufacturers have relatively few models with high baseline emissions and this flexibility allows them additional lead time to adapt to a longer term stra tegy of meeting the final standards within their vehicle redesign cycles.

Second, EPA has carefully evaluated other means of eligible manufacturers to meet the standards, such as utilizing available credit opp ortunities. Indeed, elig ibility for the TLAAS, and for temporary deferral of regulation for very small volume manufacturers, is conditioned on first exhausting the various programmatic flexibilities in cluding credit utilization. At the same time, a basic reason certain manufacturers are faced with sp ecial lead time difficulties is their inability to generate credits which can be then be averaged across their fleet because of limited product lines. And although purchasing credits is an option under the program, there are no guarantees that credits will be available. Historic practice in fact suggests that manufacturers do not sell credits to competitors. While some of the smaller manufacturers covered by the TLAAS program may be in a position to obtain credits, th ey are not likely to be available for the TLAAS manufacturers across the board in the volume needed to comply without the TLAAS provisions. At the same time the TLAAS provisions have be en structured such that any credits that do become available would likely be used before a ma nufacturer would turn to the more restricted and limiting TLAAS provisions.

As discussed in Section III.C., off-cycle credits are available if manufacturers are able to employ new and innovative technologies not al ready in widespread use, which provide realworld emissions reductions not captured on the curr ent test cycles. Further, these credits are eligible only for technologies th at are newly introduced on just a few vehicle models, and are not yet in widespread use across the fleet. The magnitude of these credits are highly uncertain because they are based on new technologies, and EPA is not aware of any such technologies that would provide enough credits to bring these manufacturers into compliance without TLAAS lead146 time flexibility. Manufacturers first must deve lop these technologies and then demonstrate their emissions reductions capabilitie s, which will require lead time . Moreover, the technologies mentioned in the proposal which are the most likel y to be eligible based on present knowledge, including solar panels and active aerodynamics, are likely to provide only small incremental

emissions reductions.

We agree with the comment that reducing vehicle mass or power are potential methods for reducing emissions that should be employed by TLAAS-eligible manufacturers to help them meet standards. However, based on our assessment of the lead time needed for these manufacturers to comply with the standards, especially given their more limited product offerings and higher baseline emissions, we believe that additional time is needed for them to come into compliance. EPA can permissibly consider the TLAAS and other manufacturers’ lead time, cost, and feasibility issues in developing the primary standards and has discretion in setting the overall stringency of the standards to account for these factors. Natural Resources Defense

Council v. Thomas , 805 F. 2d 410, 421 (D.C. Cir. 1986) (even when implementing technologyforcing provisions of Title II , EPA may base standards on an industry-wide capability “taking into account the broad spectrum of technological cap abilities as well as cost and other factors” across the industry). EPA is not legally required to set standards that drive these manufacturers or their products out of the market, nor is EPA legally required to preserve a certain product line or vehicle characteristic. Instead EPA has broad discretion under section 202(a)(1) to set standards that reasonably balance lead time needs across the industry as a whole and vehicle availability. In this rulemaking, EPA has cons istently emphasized the importance of obtaining very significant reductions in emissions of GH Gs from the industry as a whole, and obtaining those reductions through regulatory approaches that avoid limiting the ability of manufacturers to provide model availability and choice for consumer s. The primary mechanis m to achieve this is the use of a footprint attribute curve in setting th e increasingly stringent mo del year standards. The TLAAS provisions are a temporary and strictly limited modification to these attribute standards allowing the TLAAS manufacturers lead time to upgrade their product lines to meet the 2016 GHG standards. EPA has made a reasonable choice here to preserve the overall stringency of the program, and to afford increased flexibility in the program’s early years to a limited class of vehicles to assure adequate lead time for all manufacturers to meet the strictest of the standards by MY 2016.

As described below, EPA also carefully considered the comments of smaller volume

manufacturers and believes additional lead time is needed. Therefore, EPA is finalizing the TLAAS program, similar to that proposed, and is also finalizing an additional TLAAS option for manufacturers with annual U.S. sales under 50,000 vehicles. EPA is also deferring standards for manufacturers with annual sales of less than 5, 000 vehicles. These new TLAAS provisions and

the small volume manufacturer deferment are disc ussed in detail below and in Section III.B.6, respectively.

a. Base TLAAS Program

As proposed, EPA is establishing the TLAAS program for a specified subset of manufacturers. This alternative standard is an opt ion only for manufacturers with total U.S. sales of less than 400,000 vehicles per year, using 2009 model year final sales numbers to determine147 eligibility for these alternative st andards. For manufacturers with annual sales of 50,000 or more but less than 400,000 vehicles, EPA is finalizi ng the TLAAS program largely as proposed. EPA proposed that under the TLAAS, qualifying manufacturers would be allowed to produce up to 100,000 vehicles that would be subject to a somewhat less stringent CO 2 standard of 1.25 times the standard that would otherwise apply to those vehicles. This 100,000 volume is not an annual limit, but is an absolute limit for the total nu mber of vehicles which can use the TLAAS program over the model years 2012-2015. Any additional production woul d be subject to the same standards as any other manufacturer. EPA is reta ining this limit for manufacturers with baseline MY 2009 sales of 50,000 but less than 400,000. In addition, as discussed further below, EPA is finalizing a variety of restrictions on the use of the TLAAS program, to ensure that only manufacturers who need more lead time for the kinds of reasons noted above are likely to use the

program.

EPA received only supportive comments on the appropriateness of an upper bound of 400,000 vehicles to determine eligibility for TLAAS (except of course from commenters challenging the entire TLAAS). However, Volvo and Saab commented that basing eligibility strictly on MY2009 sales would be problematic for these companies, which are being spun-off from larger manufacturer in the MY2009 time frame due to the upheaval in the auto industry over the past few years. These commenters offered a variety of suggestions including using MY2010 as the eligibility cut-off instead of MY200 9, reassessing eligibility on a year-by-year basis as corporate relationships change, or allowing companies separated from a larger parent company by the end of 2010 to use their MY2009 branded U.S. sales to qualify for TLAAS. In response to these concerns, EPA recognizes that these companies currently being sold by larger

manufacturer will share the same characteristics of the manufacturers for which the TLAAS program was designed. As newly independent companies, these firms will face the challenges of

a narrower fleet of vehicles across which to aver age, and may potentially be in a situation, at least in the first few years, of paying fines under CAFE. Lead time concerns in the program’s initial years are in fact partic ularly acute for these manufacturers since they will be newly independent, and thus would have even less of an opportunity to modify their vehicles to meet the standards. Therefore, EPA is finalizing an approach that allows manufacturers with U.S. “branded sales” in MY2009 under the umbrella of a larger manufacturer that become independent by the end of calendar year 2010 to use their MY2009 branded sales to qualify for TLAAS eligibility. In other words, a manufactur er will be eligible fo r TLAAS if it produced vehicles for the U.S. market in MY 2009, its branded sales of U.S. vehicles were less than 400,000 in MY2009 but whose vehicles were sold as part of a larger manufacturer, and it becomes independent by the end of calendar year 2010, if the new entity has sales below 400,000

vehicles.

Manufacturers with no U.S. sales in MY2009 are not eligible to utilize the TLAAS program. EPA does not support the commenter’s suggestion of a year-by-year eligibility determination because it opens up the TLAAS program to an unknown universe of potential eligible manufacturers, with the potential for gaming. EPA does not believe the TLAAS program should be available to new entrants to the U.S. market since these manufacturers are not transitioning from the CAFE regime which allows fine paying as a means of compliance to a CAA regime which does not, and hence do not present the same types of lead time issues.148 Manufacturers entering the U.S. market for the fi rst time thus will be fully subject to the GHG fleet-average standards.

As proposed, manufacturers qualifying for TL AAS will be allowed to meet slightly less stringent standards for a limited number of vehicles. An eligible manufacturer could have a total of up to 100,000 units of cars or trucks combined over model years 2012 – 2015 which would be subject to a standard 1.25 times the standard th at would otherwise apply to those vehicles under the primary program. In other words, the footprint curves upon which the individual

manufacturer standards for the TLAAS fleets are based would be less stringent by a factor of 1.25 for up to 100,000 of an eligible manufacturer’s vehicles for model years 2012-2015. EPA believes that 100,000 units over four model years achieves an appropriate balance, as the emissions impact is quite small, but does provide companies with necessary lead time during MY 2012 – 2015. For example, for a manufacturer producing 400,000 vehicles per year, this would be a total of up to 100,000 vehicles out of a total production of up to 1.6 million vehicles over the four year period, or about 6 percent of total production.

Finally, for manufacturers of 50,000 but less than 400,000 U.S. vehicles sales during 2009, the program expires at the end of MY 2015 as proposed. EPA continues to believe the program reasonably addresses a real world lead ti me constraint for these manufacturers, and does so in a way that balances the need for more l ead time with the need to minimize any resulting loss in potential emissions reductions. In MY 201 6, the TLAAS option thus ends for all but the smallest manufacturers opting for TLAAS, and manufacturers must comply with the same CO 2 standards as non-TLAAS manufacturers; under the CAFE program companies would continue to be allowed to pay civil penalties in lieu of complying with the CAFE standards. However, because companies must meet both the CAFE standards and the EPA CO 2 standards, the National Program will have the practical impact of providing a level playing field for almost all except the smallest companies beginning in MY2016. This option, even with the modifications being adopted, thereby results in more fuel savings and CO 2 reductions than would be the case under the CAFE program by itself.

EPA proposed that manufacturers meeting the cut-point of below 400,000 sales for MY 2009 but whose U.S. sales grew above 400,000 in any subsequent model years would remain eligible for the TLAAS program. The total sales number applies at the corporate level, so if a corporation owns several vehicle brands the aggregate sales for the corporation must be used. These provisions would help prevent gaming of th e provisions through corporate restructuring. Corporate ownership or control relationships would be based on determinations made under CAFE for model year 2009 (except in the case of a manufacturer being sold by a larger manufacturer by the end of calendar year 2010, as discussed above). In other words, corporations grouped together for purposes of meeting CAFE standards in MY2009, must be grouped together for determining whether or not they are eligible under the 400,000 vehicle cut point. EPA is finalizing these provisions with the following modifications. EPA recognizes the dynamic corporate restructuring occurring in the auto industry and believes it is important to structure additional provisions to ensure there is no ability to game the TLAAS provisions and to

ensure no unintended loss of feasible environm ental benefits. Therefore, EPA is finalizing a provision that if two or more TLAAS eligible companies are later merged, with one company having at least 50% or more ownership of the other, or if the companies are combined for the149 purposes of EPA certification and compliance, the TLAAS allotment is not additive. The merged company will only be allowed the allotmen t for what is considered the parent company under the new corporate structure. Further, if the newly formed company would have exceeded the 400,000 vehicle cut point based on combined MY2009 sales, the new entity is not eligible for TLAAS in the model year following the merger. EPA believes that such mergers and acquisitions would give the parent company add itional opportunities to average across its fleet, eliminating one of the primary needs for the TLAAS program. This provision will not be retroactive and will not affect the TLAAS program in the year of the merger or for previous model years. EPA believes these additional provisio ns are essential to ensure the integrity of the TLAAS program by ensuring that it does not become available to large manufacturers through mergers and acquisitions.

As proposed, the TLAAS vehicles will be separate car and truck fleets for that model year and subject to the less stringent footprin t-based standards of 1.25 times the primary fleet average that would otherwise apply. The manufacturer will determine what vehicles are assigned to these separate averaging sets for each model year. As proposed, credits from the primary fleet average program can be transferred and used in the TLAAS program. Credits generated within the TLAAS program may also be transferred between the TLAAS car and truck averaging sets (but not to the primary fleet as explained below) for use through MY2015 when

the TLAAS ends.

EPA is finalizing a number of restrictions on credit trading within the TLAAS program, as proposed. EPA is concerned that if credit us e in the TLAAS program were unrestricted, some manufacturers would be able to place relatively clean vehicles in the TLAAS fleet, and generate credits for the primary program fleet. First, credits generated under TLAAS may not be transferred or traded to the primary program. Therefore, any unused credits under TLAAS expire after model year 2015 (or 2016 for manufacturers with annual sales less than 50,000 vehicles). EPA believes that this is necessary to limit the program to situations where it is needed and to prevent the allowance from being inappropriately transferred to the long-term primary program where it is not needed. EPA conti nues to believe this provision is necessary to prevent credits from being earned simply by removing some high-emitting vehicles from the primary fleet. Absent this restriction, manufact urers would be able to choose to use the TLAAS

for these vehicles and also be able to earn cr edits under the primary program that could be banked or traded under the primary program without restriction. Second, EPA is finalizing two additional restrictions on the use of TLAAS by requiring that for any of the 2012-2015 model years for which an eligible manufacturer would like to use the TLAAS, the manufacturer must use two of the available flexibilities in the GHG pr ogram first in order to try and comply with the primary standard before accessing the TLAAS -- i.e ., TLAAS eligibility is not available to those manufacturers with other readily-available means of compliance. Specifically, before using the TLAAS a manufacturer must: (1) use any banked emission credits from previous model years; and, (2) use any available credits from the companies’ car or truck fleet for the specific model year (i.e., use credit transfer from cars to trucks or from trucks to cars). That is, before using the TLAAS for either the car fleet or the truck fleet, the company must make use of any available

intra-manufacturer credit transfers first. Finall y, EPA is restricting the use of banking and trading between companies of credits in the primary program in years in which the TLAAS is being used. No such restriction is in place for years when the TLAAS is not being used.150 EPA received several comments in support of these credit restrictions for the TLAAS program. On the negative side, one manufacturer commented that the restrictions were not necessary, saying that the restrictions are counter to providing manufacturers with flexibility and that the emissions impacts estimated by EPA due to the full use of the program are small. However, EPA continues to believe that the restrictions are appropriate to prevent the potential gaming described above, and to ensure that the TLAAS program is used only by those

manufacturers that have exhausted all other readily available compliance mechanisms and consequently have legitimat e lead time issues.

One manufacturer commented that the program is restrictive due to the requirement that manufacturers must decide prior to the start of the model year whether or not and how to use the TLAAS program. EPA did not intend for manufactures to have to make this determination prior to the start of the model year. EPA expects that manufacturers will provide a best estimate of the need to use the TLAAS program during certification based on projected model year sales, but clarifies that the manufacturer may determine the program’s actual use at the end of the model year during the process of demonstrating year-end compliance.

b. Additional TLAAS Flexibility for Ma nufacturers with MY 2009 Sales of Less Than 50,000 Vehicles

EPA received extensive comments that the TL AAS program would not provide sufficient lead time and flexibility for companies with sales of significantly less than 400,000 vehicles. Jaguar Land Rover, which separated from Ford in 2008, commented that it sells products only in the middle and large vehicle segments and that its total product range remains significantly more limited in terms of segments in comparison w ith its main competitors which typically have approximately 75% of their passenger car fleet in the small and middle segments. Jaguar Land Rover also commented that it has already commi tted $1.3 billion of investment to reducing CO 2 from its vehicle fleet and that this investment is already delivering a range of technologies to improve the fuel economy and CO 2 performance of its existing vehicles. Jaguar Land Rover

submitted confidential business in formation regarding their future product plans and emissions performance capabilities of their vehicles which documents their assertions.

Porsche commented that their passenger car footprint-based standard is the most stringent of any manufacturer and this, combined with their high baseline emissions level, means that it would need to reduce emissions by about 10 percent per year over the 2012 – 2016 time-frame. Porsche commented that such reductions were not feasible. They commented that their competitors will be able to continue to offer th eir full line of product s because the competitors have a wider range of products with which to average. Porsche further commented that their product development cycles are longer than larger competitors. Porsche recommended for small limited line niche manufacturers that EPA requir e an annual 5 percent reduction in emissions from baseline up to a total reduction of 25 percent, or to modify the TLAAS program to require such reductions. Porsche noted that this percent reduction would be in line with the average emissions reductions required for larger manufacturers.151 EPA also received comments from several very small volume manufacturers that, even with the TLAAS program, the proposed standards are not feasible for them, certainly not in the MY 2012-2016 MY time frame. These manufacturers included Aston Martin, McLaren, Lotus, and Ferrari. Their comments consistently focused on the need for separate, less stringent standards for small volume manufacturers. The manufacturers commented that they are willing to make progress in reducing emissions, but that separate, less-str ingent small volume

manufacturer standards are needed for them to remain in the U.S. market. The commenters note that their product line consists entirely of high end sports cars. Most of these manufacturers have only a few vehicle models, have annual sales on the order of a few hundred to a few thousand vehicles, and several have average baseline CO 2 emissions in excess of 500 g/mile – nearly twice the industry average. McLaren commented that its vehicle model to be introduced in MY2011 will have class leading CO 2 performance but that it would not be able to offer the vehicle in the U.S. market because it does not have other vehicle models with which to average. Similarly,

Aston Martin commented that it is of utmost importance that it is not required to reduce emissions significantly more than equivalent vehicles from la rger manufacturers, which would render them uncompetitive due purely to the size of its business. Manufactu rers also noted that they launch new products less frequently than larger manufacturers (e.g., Ferrari noted that their production period for models is 7-8 years), and that suppliers serve large manufacturers first because they can buy in larger volumes. Some manufacturers also noted that they would be willing to purchase credits at a reasonable price, but they believed that credit availability from other manufacturers was highly unlikely due to the competitive nature of the auto industry. Several of these manufacturers provided confidential business information indicating their preliminary plans for reducing GHG emissions across their product lines through MY2016 and beyond.

The Association of International Automobile Manufacturers (AIAM) also commented that, because of their essential features, vehicl es produced by small volume manufacturers would not be able to meet the proposed greenhouse gas standards. AIAM commented that “while it is possible that these small volume manufacturers (SVMs) might be able to comply with greenhouse gas standards by purchasing credits from other manufacturers, this is far too speculative a solution. The market for credits is unpredictable at this point. Other than exiting the U.S. market, therefore, the only other possible solution for an independent SVM would be to sell an equity interest in the company to a larger, full-line manufacturer, so that the emissions of the luxury vehicles could be averaged in with the much larger volume of other vehicles produced by the major manufacturer. This cannot possibly be the outcome EPA intends, especially when measured against the minimal, if any, environmental benefit that would result.” AIAM commented further that “there is ample legal authority for EPA to provide SVMs a more generous lead-time allowance or an alternative standard. Indeed, EPA recognizes such authority in the proposal for a small entity deferment (for those companies defined under the Small Business Administration's regulations), see 74 FR at 49574, and in the TLAAS. These provisions are consistent with previous EPA rulemaking under the Clean Air Act which offer relief to SVMs.” AIAM recommended deferring standards for SVMs to a future rulemaking, providing EPA with adequate time to assess rele vant product plans and technology feasibility information from SVMs, conduct the necessary reviews and modeling that may be needed, and

consult with the stakeholders.152 These commenters noted that standards for the smallest manufacturers were deferred in the California program until MY2016 and that California’s program would have established standards for small volume manufacturers in MY 2016 at a level that would be technologically feasible. The commenters also suggested that California’s approach is similar to the approach being taken by EPA for small business entities. Fu rther, these commenters noted that in Tier 2 and other light-duty vehicle programs, EPA has allowed small volume manufacturers (SVMs) until the end of the phase-in period to comply with standards. The commenters recommended that EPA should defer standards for SVMs, and conduct a future rulemaking to establish appropriate standards for SVMs starting in model year 2016. Alternatively, some manufacturers recommended establishing much less stringent standards for SVMs as part of the current rulemaking.

In summary, the manufacturers commented that their range of products was insufficient to allow them to meet the standards in the time provided, even with the proposed TLAAS program. Many of these manufacturers have baseline emissions significantly higher than their larger-volume competitors, and thus the CO 2 reductions required from baseline under the program are larger for many of these companies than for other companies. Although they are investing substantial resources to reduce CO 2 emissions, they believe that they will not be able to achieve the standards under the proposed approach.

EPA also received comments urging us not to expand the TLAAS program. The commenters are concerned about the loss of benefits that would occur with any expansion.

EPA has considered the comments carefully and concludes that additional flexibility is needed for these companies. After assessing the issues raised by commenters, EPA believes there are two groups of manufacturers that need additional lead time. The first group includes manufacturers with annual U.S. sales of less than 5,000 vehicles per year. Standards for these small volume manufacturers are being deferred until a future rulemaking in the 2012 timeframe, as discussed in Section III.B.6, below. This will allow EPA to determine the appropriate level of standards for these manufacturers, as well as the small business entities, at a later time. The second group includes manufacturers with MY 2009 U. S. sales of less than 50,000 vehicles but above the 5,000 vehicle threshold being established for small volume manufacturers. EPA has selected a cut point of 50,000 vehicles in orde r to limit the additional flexibility to only the smaller manufacturers with much more limited product lines over which to average. EPA has tailored these provisions as narrowly as possible to provide additional lead time only as needed by these smaller manufacturers. We estimate that the TLAAS program, including the changes below will result in a total decrease in overall emissions reductions of about one percent of the total projected GHG program emission benefits. These estimates are provided in RIA Chapter 5 Appendix A.

For some of the companies, the reduction from baseline CO 2 emissions required to meet the standards is clearly greater than for other TLAAS-eligible manufacturers. Compared with other TLAAS-eligible manufacturers, these companies also have more limited fleets across which to average the standards. Some companies have only a few vehicle models all of a similar utility, and thus their averaging abilities are extrem ely limited posing lead time issues of greater severity than other TLAAS-eligible manufacturers. EPA’s feasibility analysis provided in153 Section III.D., shows that these companies face a co mpliance shortfall significantly greater than other TLAAS companies (see Table III.D.6-4). This shortfall is primarily due to their narrow product lines and more limited ability to average across their vehicle fleets. In addition, with fewer models with which to average, there is a higher likelihood that phase-in requirements may conflict with normal product redesign cycles.

Therefore, for manufacturers with MY2009 U.S. sales of less than 50,000 vehicles, EPA is finalizing additional TLAAS compliance flex ibility through model year 2016. These manufacturers will be allowed to place up to 200,000 vehicles in the TLAAS program in MY2012-2015 and an additional 50,000 vehicles in MY2016. To be eligible for the additional allotment above the base TLAAS level of 100,000 vehicles, manufacturers must annually demonstrate that they have dilig ently attempted to purchase credit s from other manufacturers in order to comply with the base TLAAS program, but that sufficient credits were not available. Manufacturers must secure credits to the extent they are available at a reasonable price from other manufacturers to offset the difference between their emissions reductions obligations under the base TLAAS program and the expanded TLAAS program. Manufacturers must document their efforts to purchase credits as part of their end of year compliance report. All other aspects of the TLAAS program including the 1.25x adjustment to the standards and the credits provision

restrictions remain the same as described above fo r the same reasons. This will still require the manufacturers to reduce emissions significantly in the 2012-2016 time-frame and to meet the final emissions standards in MY2017. The standards remain very challenging for these

manufacturers but these additiona l provisions will allow them the necessary lead time for implementing their strategy for compliance with the final, most stringent standards.

The eligibility limit of 50,000 vehicles will be treated in a similar way as the 400,000 vehicle eligibility limit is treated, as described a bove. Manufacturers with model year 2009 U.S. sales of less than 50,000 vehicles are elig ible for the expanded TLAAS flexibility. Manufacturers whose sales grow in later year s above 50,000 vehicles without merger or acquisition will continue to be eligible for the expanded TLAAS program. However, manufacturers that exceed the 50,000 vehicle li mit through mergers or acquisitions will not be eligible for the expanded TLAAS program in the mo del year following the merger or acquisition, but may continue to be eligible for the base TLAAS program if the MY2009 sales of the new company would have been below the 400,000 vehicle eligibility cut point. The use of TLAAS by all the entities within the company in years pr ior to the merger must be counted against the 100,000 vehicle limit of the base program. If the 100,000 vehicle limit has been exceeded, the company is no longer eligible for TLAAS.

6. Deferment of CO 2 Standards for Small Volume Ma nufacturers with Annual Sales Less than 5,000 Vehicles

In the proposal, in the context of the TLAAS program, EPA recognized that there would be a wide range of companies within the eligible manufacturers with sales less than 400,000 vehicles in model year 2009. As noted in the proposal, some of these companies, while having relatively small U.S. sales volumes, are large global automotive firms, including companies such as Mercedes and Volkswagen. Other companies ar e significantly smaller niche firms, with sales volumes closer to 10,000 vehicles per year worldw ide, such as Aston Martin. EPA anticipated154 that there are a small number of such smaller volume manufacturers, which may face greater challenges in meeting the standards due to their limited product lines across which to average. EPA requested comment on whether the proposed TLAAS program would provide sufficient lead-time for these smaller firms to incorporate the technology needed to comply with the proposed GHG standards. See 74 FR at 49524.

EPA received comments from several very small volume manufacturers that the TLAAS program would not provide sufficient lead time, as described above. EPA agrees with comments that the standards would be extremely challenging and potentially infeasible for these small volume manufacturers, absent credits from other manufacturers, and that credit availability at this point is highly uncertain –Although thes e companies are planning to introduce significant GHG-reducing technologies to their product lines, they are still highly unlikely to meet the standards by MY2016. Because the products produced by these manufacturers are so unique, these manufacturers were not included in EPA’s OMEGA modeling assessment of the technology feasibility and costs to meet the proposed standards. As noted above, these manufacturers have only a few models and have very high baseline emissions. TLAAS manufacturers are projected to be required to redu ce emissions by up to 39%, whereas SVMs in many cases would need to cut their emissions by more than half to comply with MY2016

standards.

Given the unique feasibility issues raised for these manufacturers, EPA is deferring establishing CO 2 standards for manufacturers with sales of less than 5,000 vehicles. This will provide EPA more time to consider the unique challenges faced by these manufacturers. EPA expects to conduct this rulemaking in the 2012 timeframe. The deferment only applies to CO 2 standards and SVMs must meet N 2 O and CH 4 standards. EPA plans to set standards for these manufacturers as part of a future rulemaking in the next 18 months. This future rulemaking will allow EPA to fully examine the technologies and emissions levels of vehicles offered by small manufacturers and to determine the potential emi ssions control capabilities, costs, and necessary lead time. This timing may also allow a credits market to develop, so that EPA may consider the availability of credits during the rulemaking process. See State of Mass. v. EPA , 549 U.S. at 533 (EPA retains discretion as to timing of any regulations addressing vehicular GHG emissions under section 202 (a)(1)). We expect that standards would begin to be implemented in the MY2016 time frame. This approach is consistent with that envisioned by California for these manufacturers. EPA estimates that eligible small volume manufacturers currently comprise less than 0.1 percent of the total light-duty vehicle sales in the U.S., and therefore the deferment will have a very small impact on the GHG emissions reductions from the standards, as discussed in RIA Chapter 5, Appendix A.

In addition to the 5,000 vehicle per year cut point, to be eligible for deferment each year, manufacturers must also demonstrate due diligen ce in attempting to secure credits from other

manufacturers. Manufacturers must secure credits to the extent they are available at a reasonable price from other manufacturers to offset the difference between their baseline emissions and what their obligations would be under the TLAAS program starting in MY2012.

Eligibility will be determined somewhat di fferently compared to the TLAAS program. Manufacturers with either MY2008 or MY2009 sales of less than 5,000 vehicles will be initially155 eligible. This includes “branded sales” for companies that sold vehicles under a larger manufacturer but has become independent by the end of calendar year 2010. EPA is including MY2008 as well as MY2009 because some manufacturers in this market segment have such limited sales that they often drop in and out of the market from year to year.

In determining eligibility, manufacturers must be aggregated according to the provisions of 40 CFR 86.1838-01(b)(3), which requires the sales of different firms to be aggregated in various situations, including where one firm has a 10% or more equity ownership of another firm, or where a third party has a 10% or more equity ownership of two or more firms. EPA received public comment from a manufacturer requesting that EPA should allow a manufacturer to apply to EPA to establish small volume manufacturer status based on the independence of its research, development, testing, design, and manu facturing from another firm that may have an ownership interest in that manufacturer. EPA ha s reviewed this comment, but is not finalizing such a provision at this time. EPA believes that this issue likely presents some competitive issues, which we would like to be fully considered through the public comment process. Therefore, EPA plans to consider this issue and seek public comments in our proposal for small

volume manufacturer CO 2 standards, which we expect to complete within 18 months.

To remain eligible for the deferral from standards, the rolling average of three consecutive model years of sales must remain be low 5,000 vehicles. EPA is establishing the 5,000 vehicle threshold to allow for some sales growth by SVMs, as SVMs typically have annual sales of below 2,000 vehicles. However, EPA want s to ensure that standards for as few vehicles as possible are deferred and therefore believes it is appropriate that manufacturers growing to above 5,000 vehicles per year be required to comply with standards (including TLAAS, as applicable). Manufacturers with unusually strong sales in a given year would still likely remain eligible, based on the three year rolling average. However, if a manufacturer takes steps to expand in the U.S. market on a permanent basis such that they consistently sell more than 5,000 vehicles per year, they must meet the TLAAS standards. EPA believe s a manufacturer will be able to consider these provisions, along with othe r factors, in its planning to significantly expand

in the U.S. market.

For manufacturers exceeding the 5,000 vehicle rolling average through mergers or acquisitions of other manufacturers, those manu facturers will lose eligibility in the MY immediately following the last year of the rolling average. For manufacturers exceeding this level through sales growth, but remaining below a 50,000 vehicle threshold, the manufacturer will lose eligibility for the deferred standards in the second model year following the last year of the rolling average. For example, if the rolling average of MYs 2009-2011 exceeded 5,000 vehicles but was below 50,000 vehicles, the manufacturer would not be eligible for the deferred standards in MY2013. For manufacturers with a 3-year rolling average exceeding 50,000 vehicles, the manufacturer would lose eligibility in the MY immediately following the last model year in the rolling average. For example, if the rolling average of MYs 2009-2011 exceeded 50,000 vehicles, the manufacturer would not be eligible for the deferred standards in MY2012. Such manufacturers may continue to be eligible for TLAAS, or the expanded TLAAS program, per the provisions described above. EPA believes these provisions are needed to ensure that the SVM deferment remains targeted to true small volume manufacturers and does not become available to larger manufacturers through mergers or acquisitions. EPA is including the 50,000156 vehicle criteria to differentiate between manuf acturers that may slowly gain more sales and manufacturers that have taken major steps to si gnificantly increase their presence in the U.S. market, such as by introducing new vehicle models. EPA believes manufacturers selling more than 50,000 vehicles should not be able to take advantage of the deferment, as they should be able to meet the applicable TLAAS standards through averaging across their larger product line.

EPA is requiring that potential SVMs submit a declaration to EPA containing a detailed written description of how the manufacturer qualifies as a small volume manufacturer. The declaration must contain eligibility information including MY2008 and 2009 U.S. sales, the last three completed MYs sales information, detailed information regarding ownership relationships with other manufacturers, and documentation of efforts to purchase credits from other manufacturers. Because such manufacturers are not automatically exempted from other EPA regulations for light-duty vehicles and light-duty tr ucks, entities are subject to the greenhouse gas control requirements in this program until such a declaration has been submitted and approved by EPA. The declaration must be submitted annually at the time of vehicle emissions certification under the EPA Tier 2 program, beginning in MY2012.

7. Nitrous Oxide and Methane Standards

In addition to fleet-average CO 2 standards, as proposed, EPA is establishing separate pervehicle standards for nitrous oxide (N 2 O) and methane (CH 4 ) emissions. The agency's intention is to set emissions standards that act to cap em issions to ensure that future vehicles do not

increase their N 2 O and CH 4 emissions above levels typical of today's vehicles. EPA proposed to cap N 2 O at a level of 0.010 g/mi and to cap CH 4 at a level of 0.03 g/mi. Both of these pollutants are more potent contributors to global warming than CO 2; N 2 O has a global warming potential, or GWP, of 298 and CH 4 has a GWP of 25. 145

EPA received many comments on the proposed N 2 O and CH 4 standards. A range of stakeholders supported the proposed approach of "cap" standards and the proposed emission levels, including most states and environmental or ganizations that addressed this topic, and the

Manufacturers of Emissions Control Association. These commenters stated that EPA needs to address all mobile greenhouse gases under the Clean Air Act, and N 2 O and CH 4 are both more potent contributors to global warming than CO 2 . The Center for Biological Diversity commented that in light of the potency of these polluta nts, EPA should develop standards which reduce emissions over current levels and that EPA had not analyzed either the technologies or the costs of doing so. EPA discusses these comments and our responses below and in the Joint Response

to Comments Document.

Auto manufacturers generally did not support standards for these pollutants, stating that the levels of these pollutants from current vehicles are too small to warrant standards at this time.

These commenters also stated that if EPA were to proceed with "cap" standards, the stringency of the proposed levels could restrict the introduction of some new technologies. Commenters specifically raised this concern with the exam ples of diesel and lean-burn gasoline for N 2 O, or natural gas and ethanol fueled vehicles for CH 4 . Only one manufacturer, Volkswagen, submitted

145 The global warming potentials (GWP) used in this rule are consistent with the Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report (AR4).157 actual test data to support these claims; very limited emission data on two concept vehicles -- a

CNG vehicle and a flexible-fuel vehicle -- indicate d measured emission levels near or above the proposed standards, but included no indication of whether any technological steps had been taken to reduce emissions below the cap levels. Many commenters support an approach of establishing a CO 2 -equivalent standard, where N 2 O and CH 4 could be averaged with CO 2 emissions to result in an overall CO 2 -equivalent compliance value, similar to the approach

California has used for its GHG standards 146 Under such an approach, the auto industry commenters supported using a default value for N 2 O emissions in lieu of a measured test value. Several auto manufacturers also had concerns that a new requirement to measure N 2 O would require significant equipment and facility upgrades and would create testing challenges with new measurement equipment with which they have little experience.

EPA has considered these comments and is finalizing the cap standards for N 2 O and CH 4 as proposed. EPA agrees with the NGO, state, and other commenters that light-duty vehicle emissions are small but important contributors to the U.S. N 2 O and CH 4 inventories, and that in the absence of a limitation, the potential for significant emission increases exists with the evolution of new vehicle and engine technologies. (Indeed, the industry commenters concede as much in stating that they are contemplating intr oducing vehicle technologies that could result in emissions exceeding the cap standard levels). . EPA also believes that in most cases N 2 O and

CH 4 emissions from light-duty vehicles will remain well below the cap standards. Therefore, we are setting cap standards for these pollutants at the proposed levels. However, as described below, the agency is incorporating several provisions intended to address industry concerns about technological feasibility and leadtime, including an optional CO 2 -equivalent approach and,

for N 2 O, more leadtime before testing will be required to demonstrate compliance with the emissions standard (in interim, manufacturers may certify based on a compliance statement based on good engineering judgment).

a. Nitrous Oxide (N2O) Exhaust Emission Standard

As stated above, N 2 O is a global warming gas with a high global warming potential. 147 It accounts for about 2.3% of the current greenhouse gas emissions from cars and light trucks. 148
EPA is setting a per-vehicle N 2 O emission standard of 0.010 g/mi, measured over the traditional FTP vehicle laboratory test cycles. The standa rd will become effective in model year 2012 for all light-duty cars and trucks. The standard is designed to prevent increases in N 2 O emissions from current levels; i.e., it is a no-backsliding standard.

N 2 O is emitted from gasoline and diesel vehicles mainly during specific catalyst temperature conditions conducive to N 2 O formation. Specifically, N 2 O can be generated during periods of emission hardware warm-up when rising catalyst temperatures pass through the temperature window when N 2 O formation potential is possible. For current Tier 2 compatible gasoline engines with conventiona l three-way catalyst technology, N 2 O is not generally produced

146 California Environmental Protection Agency Air Resources Board, Staff Report: Initial Statement of Reasons for Proposed Rulemaking Public Hearing To Consider Adoption Of Regulations To Control Greenhouse Gas Emissions From Motor Vehicles, August 6, 2004.

147 N 2 O has a GWP of 298 according to the IPCC Fourth Assessment Report (AR4).

148 See RIA Chapter 2.158 in significant amounts because the time the catal yst spends at the critical temperatures during warm-up is short. This is largely due to the need to quickly reach the higher temperatures necessary for high catalyst efficiency to achieve emission compliance for criteria pollutants. As several auto manufacturer comments noted, N 2 O is a more significant concern with diesel vehicles, and potentially future gasoline lean-burn engines, equipped with advanced catalytic

NO X emissions control systems. In the absence of N 2 O emission standards, these systems could be designed in a way that emphasizes efficient NO X control while at the same time allowing the formation of significant quantities of N 2 O. Excess oxygen present in the exhaust during leanburn conditions in diesel or lean-burn gasoline engines equipped with these advanced systems

can favor N 2 O formation if catalyst temperatures are no t carefully controlled. Without specific attention to controlling N 2 O emissions in the development of such new NO X control systems,

vehicles could have N 2 O emissions many times greater than are emitted by current gasoline

vehicles.

EPA is setting an N 2 O emission standard that the agency believes will be met by currenttechnology gasoline vehicles at essentially no cost. As just noted, N 2 O formation in current catalyst systems occurs, but the emission levels are relatively low, because the time the catalyst spends at the critical temperatures during warm-up when N 2 O can form is short. At the same time, EPA believes that the standard will ensure that the desi gn of advanced NO X control systems, especially for future diesel and lean-burn gasoline vehicles, will control N 2 O emission

levels. While current NO X control approaches used on current Tier 2 diesel vehicles do not tend

to favor the formation of N 2 O emissions, EPA believes that this N 2 O standard will discourage new emission control designs that achieve criteria emissions compliance at the cost of increased

N 2 O emissions. Thus, the standard will cap N 2 O emission levels, with the expectation that current gasoline and diesel vehicle control appr oaches that comply with the Tier 2 vehicle

emission standards for NO X will not increase their emission levels, and that the cap will ensure that future vehicle designs will be appropriately controlled for N 2 O emissions.

The level of the N 2 O standard is approximately two times the average N 2 O level of current gasoline passenger cars and light-duty trucks that meet the Tier 2 NO X standards. EPA has not previously regulated N 2 O emissions, and available data on current vehicles is limited. However, EPA derived the standard from a combination of emission factor values used in modeling light duty vehicle emissions and limited recent EPA test data. 149,150 Because the standard represents a level 100 percent higher than the average current N 2 O level, we continue to believe that most if not all Tier 2 compliant gaso line and diesel vehicles will easily be able to meet the standards. Manufacturers typically use design targets for NO X emission levels of about 50% of the standard, to account for in-use emissions deterioration and normal testing and production variability, and EPA expects that manufacturers will use a similar approach for N 2 O emission compliance. EPA did not propose and is not finalizing a more stringent standard for

current vehicles because we believe that the stringent Tier 2 program and the associated NO X fleet average requirement already result in significant N 2 O control, and the agency does not expect current N 2 O levels to rise for these vehicles. Moreover, EPA believes that the CO 2 standards will be challenging for the industry and that these standards should be the industry’s

149 Memo to docket “Derivation of Proposed N 2 O and CH 4 Cap Standards," Tad Wysor, EPA, November 19, 2009. Docket EPA-HQ-OAR-2009-0472-6801

150 Memo to docket “EPA NVFEL N 2 O Test Data,” Tony Fernandez, EPA.159 chief focus in this first phase of vehicular GHG emission controls. See Massachusetts v. EPA

, 549 U.S. at 533 (EPA has significant discretion as to timing of GHG regulations); see also Sierra Club v. EPA, 325 F. 3d 374, 379 (D.C. Cir. 2003) (upholding anti-backsliding standards for air toxics under technology-forcing section 202 (l) because it is reasonable for EPA to assess the effects of its other regulations on the motor vehicle sector before aggressively regulating emissions of toxic vehicular air pollutants.

Diesel cars and light trucks with advanced emission control technology are in the early stages of development and commercialization. As this segment of the vehicle market develops,

the N 2 O standard will likely require these manufacturers to incorporate control strategies that

minimize N 2 O formation. Available approaches include using electronic controls to limit catalyst conditions that might favor N 2 O formation and consider different catalyst formulations. While some of these approaches may have modest associated costs, EPA believes that they will be small compared to the overall costs of the advanced NO X control technologies already required to meet Tier 2 standards.

In the proposal, EPA sought comment on an approach of expressing N 2 O and CH 4 in

common terms of CO 2 -equivalent emissions and combining them into a single standard along

with CO 2 emissions. 74 FR at 49524. California’s “Pavley” program adopted such a CO 2 - equivalent emissions standards approach to GHG emissions. 151 EPA was primarily concerned that such an approach could undermine the stringency of the CO 2 standards, as the proposed standards were designed to “cap” N 2 O and CH 4 emissions, rather than reflecting a level either that is the industry fleet-wide average or that would effect reductions in these pollutants.

As noted above, several auto manufacturers expressed interest in such a CO 2 -equivalent approach, due to concerns that the caps could be limiting for some advanced technology

vehicles. While we continue to believe that the va st majority of light-duty vehicles will be able to easily meet the standards, we acknowledge that advanced diesel or lean-burn gasoline vehicles of the future may face slightly greater challenges. Therefore, after considering these comments, EPA is finalizing an optional compliance approach to provide flexibility for any advanced technologies that may have challenges in meeting the N 2 O or CH 4 cap standards.

In lieu of complying with the separate N 2 O and CH 4 cap standards, a manufacturer may choose to comply with a CO 2 -equivalent standard. A manufacturer choosing this option will

convert its N 2 O and CH 4 test results (or, as described below, a default N 2 O value for MY 2012- 2014) into CO 2 -equivalent values and add this sum to their CO 2 emissions. This CO 2 -equivalent value will still need to comply with the manufacturer’s footprint-based CO 2 target level. In other words, a manufacturer could offset any N 2 O emissions (or any CH 4 emissions) by taking steps to

further reduce CO 2 . A manufacturer choosing this option w ill need to apply this approach to all of the test groups in its fleet. This approach is more environmentally protective overall than the cap standard approach, since the ma nufacturer will need to reduce its CO 2 emissions to offset the higher N 2 O (or CH 4 ) levels, but will not be allowed to increase CO 2 above its footprint target level by reducing N 2 O (or CH 4 ).

151 California Environmental Protection Ag ency Air Resources Board, Staff Repor t: Initial Statement of Reasons for Proposed Rulemaking Public Hearing To Consider Adoption Of Regulations To Control Greenhouse Gas Emissions From Motor Vehicles, August 6, 2004.160 The compliance level in g/mi for the optional CO 2 -equivalent approach is calculated as

CO 2 + (310 x N 2 O) + (21 x CH 4 ). The N 2 O and CH 4 values are the measured emission values for these pollutants, except N 2 O in model years 2012 through 2014. For these model years, manufacturers may use a default N 2 O value of 0.010 g/mi, the same value as the N 2 O cap standard. For MY 2015 and later, the manufacturer would need to provide actual test data on the emission data vehicle for each test group. (That is, N 2 O data would not be required for each model type, since EPA believes that there will likely be little N 2 O variability among model types within a test group.) EPA believes that its selection of 0.010 g/mi as the N 2 O default value is an appropriately protective level, on the high end of current technologies, as further discussed below. Finally, for manufacturers using this option, the CO 2 -equivalent emission level would also be the basis for any credits that the manufacturer might generate.

Manufacturers expressed concerns about their ability to acquire and install N 2 O analytical equipment. However, the agency continues to be lieve that such burdens, while not trivial, will also not be excessive. While many manufacturers do not appear to have invested yet in adding

N 2 O measurement equipment to their test facilities, EPA is not aware of any information to indicate that that suppliers will have difficulty providing sufficient hardware, or that such equipment is unusually expensive or complex compared to existing measurement hardware.

EPA allows N 2 O measurement using any of four methods, all of which are commercially available today. The costs of certification and ot her indirect costs of this rule are accounted for in the Indirect Cost Multipliers, discussed in Section III.H below.

Still, given the short lead-time fo r this rule and the newness of N 2 O testing to this industry, EPA proposed that manufacturers be able to apply for a certificate of conformity with

the N 2 O standard for model year 2012 provided that they supply a compliance statement based on good engineering judgment. Under the proposal, beginning in MY2013, manufacturers

would have needed to base certification on actual N 2 O testing data This approach was intended to reasonably ensure that the emission standards are being met, while allowing manufacturers lead time to purchase new N 2 O emissions measurement equipment, modify certification test facilities, and begin N 2 O testing. After consideration of the comments, EPA agrees with manufacturers that one year of addi tional lead-time to begin actual N 2 O measurement across their vehicle fleets may be still be insufficien t for manufacturers to efficiently make the necessary facility changes and equipment purchases . Therefore, EPA is extending the ability to certify based on a compliance statement for two additional years, through model year 2014. For 2015 and later model years, manufacturers will need to submit measurements of N 2 O for compliance purposes.

b. Methane (CH 4 ) Exhaust Emission Standard

Methane (CH 4 ) is a greenhouse gas with a high global warming potential. 152 It accounts for about 0.2% of the greenhouse gases from cars and light trucks. 153

152 CH 4 has a GWP of 25 according to the IP CC Fourth Assessment Report (AR4).

153 See RIA Chapter 2.161 EPA is setting a CH 4 emission standard of 0.030 g/mi as measured on the FTP, to apply beginning with model year 2012 for both cars and trucks. EPA believes that this level for the standard will be met by current gasoline and dies el vehicles, and will prevent large increases in

future CH 4 emissions. This is particularly a concern in the event that alternative fueled vehicles with high methane emissions, like some past dedicated compressed natural gas (CNG) vehicles and some flexible-fueled vehicle when operated on E85 fuel, become a significant part of the vehicle fleet. Currently EPA does not have separate CH 4 standards because unlike other hydrocarbons it does not contribute significantly to ozone formation. 154 However, CH 4 emissions levels in the gasoline and diesel car an d light truck fleet have nevertheless generally been controlled by the Tier 2 standards for non-methane organic gases (NMOG). However,

without an emission standard for CH 4 , there is no guarantee that future emission levels of CH 4 will remain at current levels as ve hicle technologies and fuels evolve.

The standard will cap CH 4 emission levels, with the expect ation that emissions levels of current gasoline and diesel vehicles meeting the Tier 2 emission standards will not increase. The level of the standard will generally be achieva ble for typical vehicles through normal emission control methods already required to meet the Tier 2 emission standards for NMOG. Also, since

CH 4 is already measured under the current Tier 2 regulations (so that it may be subtracted to calculate non-methane hydrocarbons), we believe that the standard will not result in any additional testing costs Therefore, EPA is not attr ibuting any costs to this part of this program.

Since CH 4 is produced during fuel combustion in gasoline and diesel engines similarly to other hydrocarbon components, controls targeted at re ducing overall NMOG levels are generally also effective in reducing CH 4 emissions. Therefore, for typical gasoline and diesel vehicles, manufacturer strategies to comply with the Tier 2 NMOG standards have to date tended to prevent increases in CH 4 emissions levels. The CH 4 standard will ensure that emissions will be addressed if in the future there are increases in the use of natural gas or other alternative fuels or technologies that may result in higher CH 4 emissions.

As with the N 2 O standard, EPA is setting the level of the CH 4 standard to be approximately two times the level of average CH 4 emissions from Tier 2 gasoline passenger cars and light-duty trucks. EPA believes the standard wi ll easily be met by current gasoline vehicles, and that flexible fuel vehicles operating on et hanol can be designed to resolve any potential CH 4 emissions concerns. Similarly, since current diesel vehicles generally have even lower CH 4 emissions than gasoline vehicles, EPA belie ves that diesels will also meet the CH 4 standard. However, EPA also believes that to set a CH 4 emission standard more stringent than the proposed standard could effectively make the Ti er 2 NMOG standard more stringent and is inappropriate for that reason (and untimely as well, given the challenge of meeting the CO 2 standards, as noted above).

Some CNG-fueled vehicles have historically produced significantly higher CH 4 emissions than gasoline or diesel vehicles. This is because CNG fuel is essentially methane and any unburned fuel that escapes combustion and is not oxidized by the catalyst is emitted as methane. However, in recent model years, the few dedicated CNG vehicles sold in the U.S. meeting the Tier 2 standards have had CH 4 control as effective as that of gasoline or diesel

154 But see Ford Motor Co. v. EPA , 604 F. 2d 685 (D.C. Cir. 1979) (permissible for EPA to regulate CH 4 under CAA section 202 (b)).162 vehicles. Still, even if these vehicles meet the Tier 2 NMOG standard and appear to have

effective CH 4 control by nature of the NMOG controls, Tier 2 standards do not require CH 4 control. Although EPA believes th at in most cases that the CH 4 cap standard should not require any different emission control designs beyond what is already required to meet Tier 2 NMOG standards on a dedicated CNG vehicle, the cap will ensure that systems main tain the current level

of CH 4 control.

Some manufacturers have also expressed some concerns about CH 4 emissions from flexible fueled vehicles operating on E85 (85% ethanol, 15% gasoline). However, we are not aware of any information would indicate that if engine-out CH 4 proves to be higher than for a typical gasoline vehicle, that such emissions could not be managed by reasonably available control strategies (perhaps similar to thos e of used in dedicated CNG vehicles).

As described above, in response to the comments, EPA will also allow manufacturers to choose to comply with a CO 2 -equivalent standard in lieu of complying with a separate CH 4 cap standards. A manufacturer choosing this option would convert its N 2 O and CH 4 test results into

CO 2 -equivalent values (using the respective GWP values), and would then compare this value to the manufacturer's footprint-based CO 2 target level to determine co mpliance. However, as with

N 2 O, this approach will not permit a manufacturer to increase its CO 2 by reducing CH 4 ; the company's footprint-based CO 2 target level would remain the same.

8. Small Entity Deferment

As proposed, EPA is deferring setting G HG emissions standards for small entities meeting the Small Business Administration (SBA) size criteria of a small business as described in 13 CFR 121.201. EPA would instead consider appropriate GHG standards for these entities as part of a future regulatory action. This includes both U.S.-based and foreign small entities in three distinct categories of businesses for li ght-duty vehicles: small volume manufacturers, independent commercial importers (ICIs), and alternative fuel vehicle converters.

EPA has identified about 13 entities that fit the Small Business Administration (SBA) size criterion of a small business. EPA estimates there currently are approximately two small volume manufacturers, eight ICIs, and three alternative fuel vehicle converters in the light-duty vehicle market. Further detail is provided in Section III.I.3, below. EPA estimates that these small entities comprise less than 0.1 percent of the tota l light-duty vehicle sales in the U.S., and therefore the deferment will have a negligible im pact on the GHG emissi ons reductions from the

standards.

To ensure that EPA is aware of which comp anies would be deferred, EPA is requiring that such entities submit a declaration to EPA containing a detailed written description of how that manufacturer qualifies as a small entity under the provisions of 13 CFR 121.201. Because such entities are not automatically exempted from other EPA regulations for light-duty vehicles and light-duty trucks, the entity is subject to the greenhouse gas control requirements in this GHG program until such a decl aration has been submitted a nd approved by EPA. The declaration must be submitted annually at time of vehicle emissions certification under the EPA Tier 2 program, beginning in model year 2012. Small entities are currently covered by a number163 of EPA motor vehicle emission regulations, and they routinely submit information and data on an annual basis as part of their compliance res ponsibilities. EPA expects that the additional paperwork burden associated with completing and submitting a small entity declaration to gain deferral from the GHG standards would be negligible and easily done in the context of other routine submittals to EPA. However, EPA has acco unted for this cost with a nominal estimate included in the Information Collection Request completed under the Paperwork Reduction Act.

Additional information can be found in the Pa perwork Reduction Act discussion in Section

III.I.2.

EPA did not receive adverse comments regarding the proposed small entity deferment. EPA received comments concerning whether or not the small entity deferment applies to foreign manufacturers. EPA clarifies that foreign manufacturers meeting the SBA size criteria are eligible for the deferment, as wa s EPA’s intent during the proposal.

C. Additional Credit Opportunities for CO 2 Fleet Average Program

The final standards represent a significant multi-year challenge for manufacturers, especially in the early years of the program. Section III.B.4 above describes EPA's provisions for manufacturers to be able to generate credits by achieving fleet average CO 2 emissions below their fleet average standard, and also how manufacturers can use credits to comply with the

standards. As described in Sec tion III.B.4, credits can be carried forward five years, carried back three years, transferred between vehicle categories, and traded between manufacturers. The credits provisions described below provide manuf acturers with additional ways to earn credits starting in MY 2012. EPA is also including early credits provisions for the 2009–2011 model years, as described below in Section III.C.5.

The provisions described below provide add itional flexibility, especially in the early years of the program. This helps to address is sues of lead-time or technical feasibility for various manufacturers and in several cases provides an incentive for promotion of technology pathways that warrant further development. EPA is finalizing a variety of credit opportunities because manufacturers are not likely to be in a position to use every credit provision. EPA expects that manufacturers are likely to select the credit opportunities that best fit their future plans.

EPA believes it is critical that manufacturers have options to ease the transition to the final MY 2016 standards. At the same time, EPA believes these credit programs must be and are designed in a way to ensure that they achieve emission reductions that achieve real-world reductions over the full useful life of the vehicle (or, in the case of FFV credits and Advanced Technology incentives, to incentivize the introduction of those vehicle technologies) and are verifiable. In addition, EPA believes that th ese credit programs do not provide an opportunity for manufacturers to earn “windfall” credits. Comments on the proposed EPA credit programs are summarized below along with EPA’s response , and are detailed in the Joint Response to

Comments document.

1. Air Conditioning Related Credits164 Manufacturers will be able to generate and us e credits for improved air conditioner (A/C) systems in complying with the CO 2 fleetwide average standards described above (or otherwise to be able to bank or trade the credits). EPA exp ects that most manufacturer s will choose to utilize the A/C provisions as part of its compliance demonstration (and for this reason cost of compliance with A/C related emission reductions are assumed in the cost analysis). The A/C provisions are structured as credits, unlike the CO 2 standards for which manufacturers will demonstrate compliance using 2-cycle (city/highway) tests (see Sections III.B and III.E.). Those tests do not measure either A/C leakage or tailpipe CO 2 emissions attributable to A/C load. Thus, it is a manufacturer’s option to include A/ C GHG emission reductions as an aspect of its compliance demonstration. Since this is an elec tive alternative, EPA is referring to the A/C part

of the rule as a credit.

EPA estimates that direct A/C GHG emissions - emissions due to the leakage of the hydrofluorocarbon refrigerant in common use today - account for 5.1% of CO 2 -equivalent GHGs from light-duty cars and trucks. This includes the direct leakage of refrigerant as well as the subsequent leakage associated with maintenance an d servicing, and with disposal at the end of

the vehicle’s life. The emissions that are asso ciated with leakage reductions are the direct leakage and the leakage associated with maintenance and servicing. Together these are equivalent to CO 2 emissions of approximately 13.6 g/mi per car and light-truck. EPA also estimates that indirect GHG emissions (additional CO 2 emitted due to the load of the A/C system on the engine) account for another 3.9% of light-duty GHG emissions. 155 This is equivalent to

CO 2 emissions of approximately 14.2 g/mi per vehi cle. The derivation of these figures can be found in Chapter 2.2 of the EPA RIA.

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

overall vehicle GHG emissions.

Over 95% of the new cars and light trucks in the United States are equipped with A/C systems and, as noted, there are two mechanisms by which A/C systems contribute to the emissions of greenhouse gases: through leakage of refrigerant into the atmosphere and through the consumption of fuel to provide mechanical power to the A/C system. With leakage, it is the high global warming potential (GWP) of the cu rrent automotive refrigerant (HFC-134a, with a GWP of 1430) that results in the CO 2 -equivalent impact of 13.6 g/mi. 156 Due to the high GWP of this HFC, a small leakage of the refrigerant has a much greater global warming impact than a

similar amount of emissions of CO 2 or other mobile source GHGs

. Manufacturers can reduce A/C leakage emissions by using leak-tight co mponents. Also, manufacturers can largely eliminate the global warming impact of leakage emissions by adopting systems that use an

155 See Chapter 2, Section 2.2.1.2 of the RIA.

156 The global warming potentials (GWP) used in this rule are consistent with Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report (AR4). (At this time, the IPCC Second Assessment Report (SAR) GWP values are used in the official U.S. greenhouse gas inventory submission to the climate change framework.)165 alternative, low-GWP refrigerant, as discussed below. 157 The A/C system also contributes to

increased CO 2 emissions through the additional work requ ired to operate the compressor, fans, and blowers. This additional work typically is provided through the engine’s crankshaft, and delivered via belt drive to the alternator (which provides electric energy for powering the fans and blowers) and the A/C compressor (which pressu rizes the refrigerant during A/C operation). The additional fuel used to supp ly the power through the cranksha ft necessary to operate the A/C system is converted into CO 2 by the engine during combustion. This incremental CO 2 produced from A/C operation can thus be reduced by increa sing the overall efficiency of the vehicle’s A/C system, which in turn will reduce the additio nal load on the engine from A/C operation. 158

Manufacturers can make very feasible improvements to their A/C systems to address A/C system leakage and efficiency. EPA is finalizing two separate credit approaches to address leakage reductions and efficiency improvements independently. A leakage reduction credit will take into account the various technologies that could be used to reduce the GHG impact of refrigerant leakage, including the use of an a lternative refrigerant with a lower GWP. An efficiency improvement credit will account for the various types of hardware and control of that hardware available to increase the A/C system efficiency. For purposes of use of A/C credits at certification, manufacturers will be required to atte st to the durability of the leakage reduction and the efficiency improvement technologies over the full useful life of the vehicle.

EPA believes that both reducing A/C system leakage and increasing efficiency are highly cost-effective and technologically feasible. EP A expects most manufacturers will choose to use these A/C credit provisions, although some may not find it necessary to do so.

a. A/C Leakage Credits

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

Because the process of refrigerant leakage has similar root causes as those that cause fuel evaporative emissions from the fuel system, some of the emission control technologies are similar (including hose materials and connecti ons). There are, however, some fundamental differences between the systems that require a different approach, both to controlling and to documenting that control. The most notable difference is that A/C systems are completely

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

as described below.

158 We chose not to address changes to the weight of the A/C system, since the issue of CO 2 emissions from the fuel consumption of normal (non-A/C) operation, including basic ve hicle weight, is inherently addressed by the primary

CO 2 standards (Section III.B above).166 closed systems and always under significant pres sure, whereas the fuel system is not. Fuel systems are meant to be refilled as liquid fuel is consumed by the engine, while the A/C system ideally should never require “recharging” of the c ontained refrigerant. Thus it is critical that the A/C system leakages be kept to an absolute minimum. As a result, these emissions are typically too low to accurately measure in most current SHED chambers designed for fuel evaporative emissions measurement, especially for A/C sy stems that are new or early in life.

A few commenters suggested that we allow manufacturers, as an option, to use an industry-developed “mini-shed” test procedure (SAE J2763 – Test Procedure for Determining Refrigerant Emissions from Mobile Air Conditio ning Systems) to meas ure and report annual refrigerant leakage. 159 However, while EPA generally prefers performance testing, for an individual vehicle A/C system or component, there is not a strong inherent correlation between a performance test using SAE J2763 and the design-based approach we are adopting (based on SAE J2727, as discussed below). 160 Establishing such a correlation would require testing of a fairly broad range of current-technology systems in order to establish the effects of such factors as production variability and assembly practices (which are included in J2727 scores, but not in J2763 measurements). To EPA's knowledge, such a correlation study has not been done. At the same time, as discussed below, there are indicati ons that much of the industry will eventually be moving toward alternative refrigerants with ve ry low GWPs. EPA believes such a transition would diminish the value of any correlation st udies that might be done to confirm the appropriateness of the SAE J2763 procedure as an option in this rule. For these reasons, EPA is therefore not adopting such an optional direct measurement approach to addressing refrigerant leakage at this time.

Instead, as proposed, EPA is adopting a design-based method for manufacturers to demonstrate improvements in their A/C system s and components. Manufacturers implementing system designs expected to result in reduced refrigerant leakage w ill be eligible for credits that

could then be used to meet their CO 2 emission compliance requirements (or otherwise banked or traded). The A/C Leakage Credit provisions will generally assign larger credits to system designs that would result in greater leakage reduc tions. In addition, proportionately larger A/C Leakage Credits will be available to manufacturer s that substitute a refrigerant with lower GWP than the current HFC-134a refrigerant.

Our method for calculating A/C Leakage Credits is based closely on an industryconsensus leakage scoring method, described below. This leakage scoring method is correlated to experimentally-measured leakage rates from a nu mber of vehicles using the different available A/C components. Under the approach, manufacturers will choose from a menu of A/C equipment and components used in their vehicles in order to establish l eakage scores which will characterize their A/C system leakage performan ce. Credits will be generated from leakage reduction improvements that exceed average fleetwide leakage rates.

EPA believes that the design-based approach w ill result in estimates of leakage emissions reductions that will be comparab le to those that will eventua lly result from performance-based

159 Honeywell and Volvo supported this vi ew; most other commenters did not.

160 However, there is a correlation in the fleet between J2763 measurements and J2727 scores.167 testing. We believe that this method appropriate ly approximates the real-world leakage rates for the expected MY 2012-2016 A/C systems.

The cooperative industry and government Improved Mobile Air Conditioning (IMAC)

program 161 has demonstrated that new-vehicle leakage emissions can be reduced by 50%. This program has shown that this level of improvement can be accomplished by reducing the number and improving the quality of the components, fitti ngs, seals, and hoses of the A/C system. All of these technologies are already in commercial use and exist on some of today’s systems.

As proposed, a manufacturer wishing to gene rate A/C Leakage Credits will compare the components of its A/C system with a set of l eakage-reduction technologies and actions based closely on that developed through IMAC and the Society of Automotive Engineers (as SAE Surface Vehicle Standard J2727, August 2008 version). The J2727 approach was developed from laboratory testing of a variety of A/C rela ted components, and EPA believes that the J2727 leakage scoring system generally represents a reasonable correlation with average real-world leakage in new vehicles. The EPA credit approach addresses the same A/C components as does SAE J2727 and associates each component with th e same gram-per-year leakage rate as the SAE method, although, as described below, EPA limits the credits allowed and also modifies it for other factors such as alternative refrigerants.

A manufacturer choosing to generate A/C Le akage Credits will sum the leakage values for an A/C system for a total A/C leakage score according to the following formula. Because the primary GHG program standards are expressed in terms of vehicle exhaust CO 2 emissions as measured in grams per mile, the credits programs adopted in this rule , including A/C related credits, must ultimately be converted to a common metric for proper calculation of credits toward compliance with the primary vehicle standa rds. This formula describes the conversion of the grams-per-year leakage score to a grams-per-mile CO 2 eq value, taking vehicle miles traveled (VMT) and the GWP of the refrigerant into account:

A/C Leakage Credit = (MaxCredit) * [ 1 - (LeakScore/AvgImpact) * (GWPRefrigerant/1430)]

Where:

MaxCredit is 12.6 and 15.6 g/mi CO 2 eq for cars and trucks, respectively. These values become 13.8 and 17.2 for cars and trucks, respectively, if low-GWP refrigerants are used, since this would generate additional credits from reducing emissions during maintenance events, accidents,

and at end-of-life.

LeakScore is the leakage score of the A/C system as measured according to the EPA leakage method (based on the J2727 procedure, as discussed above) in units of g/yr. The minimum score that EPA considers feasible is fixed at 8.3 and 10.4 g/yr for cars and trucks respectively (4.1 and 5.2 g/yr for systems using electric A/C compressors) as discussed below.

Avg Impact is the average current A/C leakage emission rate, which is 16.6 and 20.7 g/yr for cars and trucks, respectively

161 Team 1-Refrigerant Leakage Reduction: Final Report to Sponsors, SAE, 2007.168 GWPRefrigerant is the global warming potential (GWP) for direct radiative forcing of the refrigerant. For purposed of this rule, the GWP of HFC-134a is 1430, the GWP of HFC-152a is 124, the GWP of HFO-1234yf is 4, and the GWP of CO 2 as a refrigerant is 1.

The EPA Final RIA elaborates further on the development of each of the values incorporated in the A/C Leakage Credit formula above, as summarized here. First, as proposed, EPA estimates that leakage emission rates for systems using the current refrigerant (HFC-134a) could be feasibly reduced to rates no less than 50% of current rates -- or 8.3 and 10.4 g/yr for cars and trucks, respectively -- based on the conclusions of the IMAC study as well as consideration of refrigerant emissions over the full life of the vehicle.

Also, some commenters noted that A/C compre ssors powered by electric motors (e.g. as used today in several hybrid vehicle models) were not included in the IMAC study and yet allow for leakage emission rate reductions beyond EP A's estimates for systems with conventional beltdriven compressors. EPA agrees with these comments, and we have incorporated lower minimum emission rates into the formula above – 4.1 and 5.2 g/yr for cars and trucks, respectively – in order to allow additional leakage reduction credits for vehicles that use sealed electric A/C compressors. The maximum availa ble credits for these two approaches are

summarized in Table III.C.1-1 below.

AIAM commented that EPA should not set a lower limit on the leakage score, even for non-electric compressors. EPA has determined not to do so. First, although there do exist vehicles in the Minnesota data with lower scores than our proposed (and now final) minimum scores, there are very few car models that have scores less than 8.3, and these range from 7.0 to about 8.0 and the difference are small compared to our minimum score. 162 More important, lowering the leakage limit would necessarily in crease credit opportunities for equipment design changes, and EPA believes that these changes could discourage the environmentally optimal result of using low GWP refrigerants. Intr oduction of low GWP refrigerants could be discouraged because it may be less costly to reduce leakage than to replace many of the A/C system components. Moreover, due to the likelihood of in-use factors, even a leakless (according to J2727) R134a system will have some emissions due to manufacturing variability, accidents, deterioration, maintenance, and end of life emissions, a further reason to cap the amount of credits available through equipment design. The only way to guarantee a near zero emission system in-use is to use a low GWP refrigerant. The EPA has therefore decided for the purposes of this final rule to not change the minimum score for belt driven compressors due to the reason cited above and to the otherwise overwhelming support for the program as proposed

from commenters.

In addition, as discussed above, EPA recogni zes that substituting a refrigerant with a significantly lower GWP will be a very effectiv e way to reduce the impact of all forms of refrigerant emissions, including maintenance, accidents, and vehicle scrappage. To address future GHG regulations in Europe and Californi a, systems using alternative refrigerants -- including HFO1234yf, with a GWP of 4 and CO 2 with a GWP of 1 -- are under serious

162 The Minnesota refrigerant leakage data can be found at http://www.pca.state.mn.us/climatechange/mobileair.html#leakdata169 development and have been demonstrated in prototypes by A/C component suppliers. The European Union has enacted regulations phasing in alternative refrigerants with GWP less than 150 starting this year, and the State of California proposed providing credits for alternative refrigerant use in its GHG rule. Within the ti meframe of MYs 2012-2016, EPA is not expecting widespread use of low-GWP refrigerants. However, EPA believes that these developments are promising, and, as proposed, has included in the A/C Leakage Credit formula above a factor to account for the effective GHG reductions that could be expected from refrigerant substitution. The A/C Leakage Credits that will be available w ill be a function of the GWP of the alternative refrigerant, with the largest credits being available for refrigerants with GWPs at or approaching a value of 1. For a hypothetical alternative refrigerant with a GWP of 1 (e.g., CO 2 as a refrigerant), effectively eliminating leakage as a GHG concern, our credit calculation method could result in maximum credits equal to total average emissions, or credits of 13.8 and 17.2 g/mi CO 2 eq for cars and trucks, respectively, as incorporated into the A/C Leakage Credit

formula above as the "MaxCredit" term.

Table III.C.1-1 summarizes the maximum A/C leakage credits available to a manufacturer, according to the formula above.

Table III.C.1-1 Maximum Leakage Credit Available to Manufacturers Car (g/mi) Truck (g/mi) R-134a refrigerant with belt-driven

compressor 6.3 7.8

R-134a refrigerant with electric motor-driven compressor 9.5 11.7

Lowest-GWP refrigerant (GWP=1) 13.8 17.2

It is possible that alternative refrigerants could, without compensating action by the manufacturer, reduce the efficiency of the A/C system (see related discussion of the A/C Efficiency Credit below.) However, as noted at proposal and discussed further in the following section, EPA believes that manufacturers will have substantial incentives to design their systems to maintain the efficiency of the A/C system. Therefore EPA is not accounting for any potential efficiency degradation due to the use of alternative refrigerants.

Beyond the comments mentioned above, commenters generally supported or were silent about EPA's refrigerant leakage methodology (as based on SAE J2727), including the maximum leakage credits available, the technologies eligible for credit and their associated leakage reduction values, and the potential for alternativ e refrigerants. All comments related to A/C credits are addressed in the Joint Response to Comments Document.

b. A/C Efficiency Credits

Manufacturers that make improvements in thei r A/C systems to increase efficiency and

thus reduce CO 2 emissions due to A/C system operation may be eligible for A/C Efficiency Credits. As with A/C Leakage Credits, manuf acturers could apply A/C Efficiency Credits toward compliance with their overall CO 2 standards (or otherwise bank and trade the credits).170 As mentioned above, EPA estimates that the CO 2 emissions due to A/C related loads on the engine account for approximately 3.9% of total greenhouse gas emissions from passenger vehicles in the United States. Usage of A/C sy stems is inherently higher in hotter and more humid months and climates; howev er, vehicle owners may use their A/C systems all year round in all parts of the nation. For example, people commonly use A/C systems to cool and dehumidify the cabin air for passenger comfort on hot humid days, but they also use the systems to de-humidify cabin air to assi st in defogging/de-icing the front windshield and side glass in cooler weather conditions for improved visibility. A more detailed discussion of seasonal and geographical A/C usage rates can be found in the RIA.

Most of the additional load on the engine from A/C system operation comes from the compressor, which pumps the refrigerant around th e system loop. Significant additional load on the engine may also come from electric or hydraulic fans, which are used to move air across the condenser, and from the electric blower, which is used to move air across the evaporator and into the cabin. Manufacturers have several currently-existing technology options for improving efficiency, including more efficient compressors, fans, and motors, and system controls that avoid over-chilling the air (and subsequently re-h eating it to provide the desired air temperature with an associated loss of efficiency). For vehicles equipped with automatic climate-control systems, real-time adjustment of several aspects of the overall system (such as engaging the full capacity of the cooling system only when it is needed, and maximizing the use of recirculated air) can result in improved efficiency. Table III. C.1-2 below lists some of these technologies and their respective efficiency improvements.

As discussed in the proposal, EPA is adopting a design-based “menu” approach for estimating efficiency improvements and, thus, quantifying A/C Efficiency Credits. However, EPA’s ultimate preference is performance-based standards and credit mechanisms (i.e., using actual measurements) as typically providing a more accurate measure of performance. However, EPA has concluded that a practical, performance-based procedure for the purpose of accurately quantifying A/C-related CO 2 emission reductions, and thus efficiency improvements for assigning credits, is not yet available. Still, EPA is introducing a new specialized performancebased test for the more limited purpose of demonstrating that actual efficiency improvements are being achieved by the design improvements for which a manufacturer is seeking A/C credits. As discussed below, beginning in MY 2014, manufacturers wishing to generate A/C Efficiency Credits will need to show improvement on the new A/ C Idle Test in order to then use the "menu" approach to quantify the number of cred its attributable to those improvements.

In response to comments concerning the appli cability and effectiveness of technologiesthat were or were not included in our analysis, we have made several changes to the designbased menu. 163 First, we have separated the credit available for ‘recirculated air’ 164 technologies into those with closed-loop control of the air supply and those with open-loop control. By “closed-loop” control, we mean a system that uses feedback from a sensor, or sensors, (e.g., humidity, glass fogging, CO 2 , etc.) to actively control the interior air quality. For those systems

163 Commenters included the Alliance of Automobile Manufacturers, Jaguar Land Rover, Denso, and the Motor and Equipment Manufacturers Association, among others.

164 Recirculated air is defined as air present in the passenger compartment of the vehicle (versus outside air) available for the A/C system to cool or condition.171 that use “open-loop” control of the air supply, we project that since this approach cannot precisely adjust to varying ambient humidity or passenger respiration levels, the relative

effectiveness will be less than that fo r systems using closed -loop control.

Second, many commenters indicated that the electronic expansion valve, or EXV, should not be included in the menu of technologies, as its effectiveness may not be as high as we projected. Commenters noted that the SAE IMAC report stated efficiency improvements for an EXV used in conjunction with a more efficient compressor, and not as a stand alone technology and that no manufacturers are considering this technology for their products within the timeframe of this rulemaking. We believe other technologies (improved compressor controls for example) can achieve the same benefit as an EXV, without the need for this unique component, and therefore are not adopting it as an option in the design menu of efficiency-improving A/C technologies.

Third, many commenters requested that an internal heat exchanger, or IHX, be added to the design menu. EPA initially co nsidered adding this technology , but in our initial review of studies on this component, we had understood that the value of the technology is limited to systems using the alternative refrigerant HFO-1234yf. Some manufacturers, however, commented that an IHX can also be used with systems using the current refrigerant HFC-134a to improve efficiency, and that they plan on implemen ting this technology as part their strategy to improve A/C efficiency. Based on these comments, and projections in a more recent SAE Technical Paper, we project that an IHX in a conventional HFC-134a system can improve system efficiency by 20%, resulting in a credit of 1.1 g/mi. 165 Further discussion of IHX technology can be found in the RIA.

Fourth, we have modified the definition of ‘improved evaporators and condensers’ to recognize that improved versions of these heat exchangers may be used separately or in conjunction with one another, and that an engineering analysis must indicate a COP improvement of 10% or better when using either or both components (and not a 10% COP improvement for each component). Furthermore, we have modified the regulation text to clarify what is considered to be the ‘baseline’ components for this analysis. We consider the baseline component to be the version which a manufacturer most recently had in production on the same

vehicle or a vehicle in a similar EPA vehicle cla ssification. The dimensional characteristics (e.g. tube configuration/ thickness/spacing, and fin density) of the baseline components are then compared to the new components, and an engineering analysis is required to demonstrate the COP improvement.

For model years 2012 and 2013, a manufacturers wishing to generate A/C Efficiency Credits for a group of its vehicles with simila r A/C systems will compare several of its vehicle A/C-related components and systems with a list of efficiency-related technology improvements (see Table III.C.1-2 below). Based on the technologies the manufacturer chooses, an A/C Efficiency Credit value will be established. This design-based approach will recognize the relationships and synergies among efficiency-rel ated technologies. Manufacturers could receive credits based on the technologies they chose to incorporate in their A/C systems and the

165 Mathur, Gursaran D., "Experimental Investigation with Cross Fluted Double-Pipe Su ction Line Heat Exchanger to Enhance A/C System Performance,” SAE 2009-01-0970, 2009.172 associated credit value for each technology. The to tal A/C Efficiency Credit will be the total of these values, up to a maximum allowable credit of 5.7 g/mi CO 2 eq. This will be the maximum improvement from current average efficiencies for A/C systems (see the RIA for a full

discussion of our derivation of the reductions and credit values for individual technologies and for the maximum total credit available). Althou gh the total of the individual technology credit values may exceed 5.7 g/mi CO 2 eq, synergies among the technologies mean that the values are not additive. A/C Efficiency Credits as adopted may not exceed 5.7 g/mi CO 2 eq.

Table III.C.1-2 Efficiency-Improving A/C Technologies and Credits Technology Description Estimated

Reduction in

A/C CO 2 Emissions A/C Efficiency Credit (g/mi

CO 2 ) Reduced reheat, with externally-controlled, variable-displacement compressor 30% 1.7

Reduced reheat, with externally-controlled,fixed-displacement or pneumatic variabledisplacement compressor 20% 1.1

Default to recirculated air with closed-loop control of the air supply (sensor feedback to control interior air quality) whenever the ambient temperature is 75 °F or higher (although deviations from this temperature are allowed if accompanied by an engineering analysis) 30% 1.7

Default to recirculated air with open-loop control air supply (no sensor feedback) whenever the ambient temperature 75 °F or higher lower temperatures are allowed) 20% 1.1

Blower motor controls which limit wasted electrical energy (e.g., pulse width modulated power controller) 15% 0.9

Internal heat exchanger 20% 1.1 Improved condensers and/or evaporators (with system analysis on the component(s) indicating a COP improvement greater than 10%, when compared to previous industry standard designs) 20% 1.1

Oil Separator (with engineering analysis demonstrating effectiv eness relative to the baseline design) 10% 0.6

The proposal requested comment on adjusting the efficiency credit for alternative refrigerants. Although a few commenters noted th at the efficiency of an HFO1234yf system173 may differ from a current HFC-134a system, 166 we believe that this difference does not take into account any efficiency improvements that may be recovered or gained when the overall system is specifically designed with consideration of the new refrigerant properties (as compared to only substituting the new refrigerant). EPA is therefor e not adjusting the credit s based on efficiency

differences for this rule.

As noted above, for model years 2014 and later, manufacturers seeking to generate design-based A/C Efficiency Credits will also need to use a specific new EPA performance test to confirm that the design changes are resulting in improvements in A/C system efficiency as integrated into the vehicle. As proposed, beginning in MY 2014 manufacturers will need to perform an A/C CO 2 Idle Test for each A/C system (family) for which it desires to generate Efficiency Credits. Manufacturers will need to demonstrate an improvement over current average A/C CO 2 levels (21.3 g/minute on the Idle Te st) to qualify for the menu approach credits. Upon qualifying on the Idle Test, the manufacturer will be eligible to use the menu approach above to quantify the potential credits it could generate. To earn the full amount of credits available in the menu approach (limited to the maximum), the test must demonstrate a 30% or greater improvement in CO 2 levels over the current average.

For A/C systems that achieve an improvement between 0-and-30% (or a result between 21.3 and 14.9 g/minute result on the A/C CO 2 Idle Test), a credit can still be earned, but a multiplicative credit adjustment factor will be app lied to the eligible credits. As shown in Figure

III.C.1-1 this factor will be scaled from 1.0 to 0, with vehicles demonstrating a 30% or better improvement (14.9 g/min or lower) receiving 100% of the eligible credit (adj. factor = 1.0), and vehicles demonstrating a 0% improvement - 21.3 g/min or higher result -- receiving no credit (adj. factor = 0)). We adopted this adjustment factor in response to commenters who were concerned that a vehicle which incorporated many efficiency-improving technologies may not achieve the full 30% improvement, and as a result would receive no credit (thus discouraging them from using any of the technologies). Because there is environmental benefit (reduced CO 2 ) from the use of even some of these efficiency-improving technologies, EPA believes it is appropriate to scale the A/C efficiency credits to account for these partial improvements.

166 Ford noted that “the physical properties of the alterna tive refrigerant R1234yf could result in a reduction of efficiency by 5 to 10 percent compared to R134a in use today with a simi lar refrigerant system and controls technology.”174Figure III.C.1-1 A/C Credit Adjustment Factor175 EPA is adopting the A/C CO 2 Idle Test procedure as proposed in most respects. This laboratory idle test is performed while the vehicl e is at idle, similar to the idle carbon monoxide (CO) test that was once a part of EPA vehicle ce rtification. The test determines the additional

CO 2 generated at idle when the A/C system is operated. The A/C CO 2 Idle Test will be run with and without the A/C system cooling the interior cabin while the vehicle’s engine is operating at idle and with the system under complete control of the engine and climate control system. The test includes tighter restrictions on test cell temp eratures and humidity levels than apply for the basic FTP test procedure in order to more clos ely control the loads from operation of the A/C system. EPA is also adopting additional refine ments to the required in-vehicle blower fan settings for manually controlled sy stems to more closely represent “real world” usage patterns.

Many commenters questioned the ability of this test to measure the improved efficiency of certain A/C technologies, and stated that the test was not representative of real-world driving conditions. However, although EP A acknowledges that this test directly simulates a relatively limited range of technologies and conditions, we determined that it is sufficiently robust for the purpose of demonstrating that the system design changes are indeed implemented properly and are resulting in improved efficiency of a vehicle’ s A/C system, at idle as well as under a range of operating conditions. Further details of the A/C Idle Test can be found in the RIA and the regulations, as well as in the Joint Response to Comments Document.

The design of the A/C CO 2 Idle Test represents a balancing of the need for performance tests whenever possible to ensure the most accurate quantification of efficiency improvements, with practical concerns for testing burden and facility requirements. EPA believes that the Idle Test adds to the robust quantification of A/C cr edits that will result in real-world efficiency improvements and reductions in A/C-related CO 2 emissions. The Idle Test will not be required in order to generate A/C Efficiency Credits until MY 2014 to allow sufficient time for manufacturers to make the necessary facilities im provements and to gain experience with the

test.

EPA also considered and invited comment on a more comprehensive testing approach to quantifying A/C CO 2 emissions that could be somewhat more technically robust, but would require more test time and test facility improvements for many manufacturers. EPA invited comment on using an adapted version of the SCO3, an existing test procedure that is part of the Supplemental Federal Test Procedure. EPA discussed and invited comment on the various benefits and concerns associated with using an adapted SCO3 test. There were many comments opposed to this proposal, and very few supporters. Most of the comments opposing this approach echoed the concerns made by in the NPRM. These included excessive testing burden, limited test facilities and the cost of adding ne w ones, and the concern that the SC03 test may not be sufficiently representative of in use A/C usage. Some commenters supported a derivative of the SCO3 test or multiple runs of other urban cycles (such as the LA-4) for quantifying A/C system efficiency. While EPA considers a test cycle that covers a broader range of vehicle speed and climatic conditions to be ideal, developing such a representative A/C test would involve the work of many stakeholders, and would require a significant amount of time, exceeding the scope of this rule. EPA expects to continue working with industry, the California Air Resources Board, and other stakeholders to move toward increasingly robust performance tests and methods for176 determining the efficiency of mobile A/C sy stems and the related impact on vehicle CO 2 emissions, including a potential adapted SC03 test.

c. Interaction with Title VI Refrigerant Regulations

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

On September 14, 2006, EPA proposed to approve R-744 (CO 2 ) for use in motor vehicle A/C systems (71 FR 55140) and on October 19, 2009, EPA proposed to approve the low-GWP refrigerant HFO-1234yf for these systems (74 FR 53445), both subject to certain requirements. Final action on both of these proposals is expected later this year. EPA previously issued a final rule allowing the use of HFC-152a as a refrigerant in motor vehicle A/C systems subject to certain requirements (June 12, 2008; 73 FR 33304). As discussed above, manufacturers transitioning to any of the approved refrigerants would be eligible for A/C Leakage Credits, the value of which would depend on the GWP of their refrigerant and the degree of leakage reduction of their systems.

EPA views this rule as complementing these Title VI programs, and not conflicting with them. To the extent that manufacturers choose to reduce refrigerant leakage in order to earn A/C Leakage Credits, this will dovetail with the T itle VI section 609 standards which apply to maintenance events, and to end-of-vehicle life disposal. In fact, as noted, a benefit of the A/C credit provisions is that there should be fewer and less impactive maintenance events for MVACs, since there will be less leakage. In add ition, the credit provision s will not conflict (or overlap) with the Title VI sectio n 609 standards. EPA also believes the menu of leak control technologies described in this rule will comple ment the section 612 requirements, because these177 control technologies will help ensure that HFC- 134a (or other refrigerants) will be used in a manner that further minimizes potential adverse effects on human health and the environment.

2. Flexible Fuel and Alternative Fuel Vehicle Credits

EPA is finalizing its proposal to allow flexible -fuel vehicles (FFVs) and alternative fuel vehicles to generate credits for purposes of the GHG rule starting in the 2012 model year. FFVs

are vehicles that can run on both an alternative fuel and a conventional fuel. Most FFVs are E85 vehicles, which can run on a mixture of up to 85 percent ethanol and gasoline. Dedicated alternative fuel vehicles are vehicles that run exclusively on an alternative fuel (e.g., compressed natural gas). These credits are designed to complement the treatment of FFVs under CAFE, consistent with the emission reduction objectives of the CAA. As explained at proposal, EPCA includes an incentive under the CAFE program for production of dual-fueled vehicles or FFVs,

and dedicated alternative fuel vehicles. 167 For FFVs and dual-fueled vehicles, the EPCA/EISA credits have three elements: 1) the assumption th at the vehicle is operated 50% of the time on the conventional fuel and 50% of the time on the alternative fuel, 2) that 1 gallon of alternative fuel is treated as 0.15 gallon of fuel, essen tially increasing the fuel economy of a vehicle on alternative fuel by a factor of 6.67, and 3) a “cap” provision that limits the maximum fuel economy increase that can be applied to a manu facturer’s overall CAFE compliance value for all CAFE compliance categories (i.e., domestic passenger cars, import passenger cars, and light trucks) to 1.2 mpg. EPCA’s provisions were amended by the EISA to extend the period of availability of the FFV credits, but to begin phasing them out by annually reducing the amount of

FFV credits that can be used in demonstr ating compliance with the CAFE standards. 168 EPCA does not premise the availability of the FFV credits on actual use of alternative fuel. Under EPCA, after MY 2019 no FFV credits will be available for CAFE compliance. 169 Under EPCA, for dedicated alternative fuel vehicles, there ar e no limits or phase-out. As proposed, FFV and

Alternative Fuel Vehicle Credits will be cal culated as a part of the calculation of a manufacturer’s overall fleet average fuel economy and fleet average carbon-related exhaust emissions (§ 600.510-12).

Manufacturers supported the inclusion of FFV credits in the program. Chrysler noted that the credits encourage manufacturers to cont inue production of vehicles capable of running on alternative fuels as the production and distribution systems of such fuels are developed. Chrysler believes the lower carbon intensity of such fuels is an opportunity for further greenhouse gas reductions and increased energy independence, and the continuance of such incentives recognizes the important potential of this technology to reduce GHGs. Toyota noted that because actions taken by manufacturers to comply with EPA's regulation will, to a large extent, be the same as those taken to comply with NHTSA's CAFE regulation, it is appropriate

for EPA to consider flexibilitie s contained in the CAFE program that clearly impact product plans and technology deployment plans already in place or nearly in place. Toyota believes that

167 49 U.S.C 32905

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

referred to as an FFV credit.

169 49 U.S.C 32906178 adopting the FFV credit for a transitional period of time appears to recognize this reality, while providing a pathway to eventually phase-out the flexibility.

As proposed, electric vehicles (EVs) or pl ug-in hybrid electric vehicles (PHEVs) are not eligible to generate this type of credit. These vehicles are covered by the advanced technology vehicle incentives provisions described in Section III. C.3, so including them here would lead to a double counting of credits.

a. Model Year 2012 – 2015 Credits

i. FFVs

For the GHG program, EPA is allowing FFV credits corresponding to the amounts allowed by the amended EPCA but only during the period from MYs 2012 to 2015. (As discussed below in Section III.E., EPA is not a llowing CAFE-based FFV credits to be generated as part of the early credits program.) As noted at proposal, several manufacturers have already taken the availability of FFV credits into accoun t in their near-term future planning for CAFE

and this reliance indicates that these credits need to be considered in assessing necessary lead

time for the CO 2 standards. Manufacturers commented that the credits are necessary in allowing them to transition to the new standards. EPA thus believes that allowing these credits, in the near term, would help provide adequate lead ti me for manufacturers to implement the new multiyear standards, but that for the longer term there is adequate lead time without the use of such

credits. This will also tend to harmonize the GHG and the CAFE program during these interim years. As discussed below, EPA is requiring fo r MY 2016 and later that manufacturers will need to reliably estimate the extent to which the alternative fuel is actually being used by vehicles in

order to count the alternative fuel use in the vehicle’s CO 2 emissions level determination. Beginning in MY2016, the FFV credits as described above for MY2012-2015 will no longer be available for EPA’s GHG program. Rather, GHG compliance values will be based on actual emissions performance of the FFV on conventional and alternative fuels, weighted by the actual

use of these fuels in the FFVs.

As with the CAFE program, EPA will base MY 2012-2015 credits on the assumption that the vehicles would operate 50% of the time on the alternative fuel and 50% of the time on conventional fuel, resulting in CO 2 emissions that are based on an arithmetic average of

alternative fuel and conventional fuel CO 2 emissions. 170 In addition, the measured CO 2 emissions on the alternative fuel will be multipli ed by a 0.15 volumetric conversion factor which is included in the CAFE calculation as provided by EPCA. Through this mechanism a gallon of alternative fuel is deemed to contain 0.15 gallons of fuel. 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 2 350 15

. 0 330

2 = + ×

=

170 49 U.S.C 32905 (b)179 EPA understands that by using the CAFE approach -- including the 0.15 factor -- the CO 2 emissions value for the vehicle is calculated to be significantly lower than it actually would be otherwise, even if the vehicle were assumed to operate on the alternative fuel at all times. This represents a “credit” being provided to FFVs.

EPA notes also that the above equation and example are based on an FFV that is an E85 vehicle. EPCA, as amended by EISA, also establishes the use of this approach, including the 0.15 factor, for all altern ative fuels, not just E85. 171 The 0.15 factor is used for B-20 (20 percent biofuel and 80 percent diesel) FFVs. EPCA also establishes this approach, including the 0.15 factor, for gaseous-fueled dual-fueled vehicles, such as a vehicle able to operate on gasoline and

CNG. 172 (For natural gas dual-fueled vehicles, EPCA establishes a factor of 0.823 gallons of fuel for every 100 cubic feet a natural gas used to calculate a gallons equivalent. 173 ) The EISA’s use of the 0.15 factor in this way provides a similar regulatory treatment across the various types

of alternative fuel vehicles. EPA also will use the 0.15 factor for all FFVs in order not to disrupt manufacturers’ near-term compliance planning and assure sufficient lead time. EPA, in any case, expects the vast majority of FFVs to be E85 vehicles, as is the case today.

The FFV credit limits for CAFE are 1.2 mpg for model years 2012-2014 and 1.0 mpg for model year 2015. 174 In CO 2 terms, these CAFE limits translate to declining CO 2 credit limits over the four model years, as the CAFE standards increase in stringency. As the CAFE standard increases numerically, the limit becomes a smaller fraction of the standard. EPA proposed, but is not adopting, credit limits based on the overall industry average CO 2 standards for cars and trucks. EPA also requested comments on basing the calculated CO 2 credit limits on the individual manufacturer fleet-average standards calculated from the footprint curves. EPA received comment from one manufacturer supporting this approach. EPA also received comments from another manufacturer recommending that the credit limits for an individual manufacturer be based instead on that manufacturer’s fleet average performance. The commenter noted that this approach is in line with how CAFE FFV credit limits are applied. This is due to the fact that the GHG-equivalent of the CAFE 1.2 mpg cap will vary due to the non-linear relationship between fuel economy and GHGs/fuel consumption. EPA agrees with this approach since it best harmonizes how cred it limits are determined in CAFE. EPA intended and continues to believe it is appropriate to prov ide essentially the same FFV credits under both programs for MYs 2012-2015. Therefore, EPA is finalizing FFV credits limits for MY2012- 2015 based on a manufacturer’s fleet-average performance. For example, if a manufacturer’s 2012 car fleet average emissions performance wa s 260 g/mile (34.2 mpg), the credit limit in CO 2 terms would be 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.

ii. Dedicated Alternative Fuel Vehicles

As proposed, EPA will calculate CO 2 emissions from dedicated alternative fuel vehicles for MY 2012 – 2015 by measuring the CO 2 emissions over the test procedure and multiplying

171 49 U.S.C 32905 (c)

172 49 U.S.C 32905 (d).

173 49 U.S.C 32905 (c).

174 49 U.S.C 32906 (a).180 the results by the 0.15 conversion factor described above. For example, for a dedicated alternative fuel vehicle that would achieve 330 g/mi CO 2 while operating on alcohol (ethanol or methanol), the effective CO 2 emissions of the vehicle for use in determining the vehicle’s CO 2 emissions would be calculated as follows:

mi g CO / 5

. 49 15

. 0 330 2 = × =

b. Model Years 2016 and Later

i. FFVs

EPA is treating FFV credits the same as under EPCA for model years 2012-2015, but is applying a different approach starting with model year 2016. EPA recognizes that under EPCA automatic FFV credits are entirely phased out of the CAFE program by MY 2020, and apply in the prior model years with certain limitations, bu t without a requirement that the manufacturers

demonstrate actual use of the alternative fuel . Unlike EPCA, CAA section 202(a) does not mandate that EPA treat FFVs in a specific way. Instead EPA is required to exercise its own judgment and determine an appropriate approach that best promotes the goals of this CAA section. Under these circumstances, EPA will treat FFVs for model years 2012-2015 the same as under EPCA, as part of providing sufficient lead time given manufacturers’ compliance strategies which rely on the existence of these EPCA statutory credits, as explained above.

Starting with model year 2016, as proposed, EPA will no longer allow manufacturers to base FFV emissions on the use of the 0.15 factor credit described above, and on the use of an assumed 50% usage of alternative fuel. Instead, EPA believes the appropriate approach is to

ensure that FFV emissions are based on demonstrat ed emissions performance. This will promote the environmental goals of the final program. EPA received several comments in support of EPA’s proposal to use this approach instead of the EPCA approach for MY2016 and later. Under the EPA program in MY2016 and later, manu facturers will be allowed to base an FFV’s emissions compliance value in part on the vehicle test values run on the alternative fuel, for that portion of its fleet for which the manufacturer dem onstrates utilized the alternative fuel in the field. In other words, the default is to assume FFVs operate on 100% gasoline, and the emissions

value for the FFV vehicle will be based on the vehi cle’s tested value on gasoline. However, if a manufacturer can demonstrate that a portion of its FFVs are using an alternative fuel in use, then the FFV emissions compliance value can be calculated based on the vehicle’s tested value using the alternative fuel, prorated based on the percentage of the fleet using the alternative fuel in the field. An example calculation is described below. EPA believes this approach will provide an

actual incentive to ensure that such fuels are used. The incentive arises since actual use of the flexible fuel typically results in lower tailpip e GHG emissions than use of gasoline and hence improves the vehicles’ performance, making it more likely that its performance will improve a manufacturers’ average fleetwide performance. Ba sed on existing certification data, E85 FFV

CO 2 emissions are typically about 5 percent lower on E85 than CO 2 emissions on 100 percent gasoline. Moreover, currently ther e is little incentive to optimize CO 2 performance for vehicles when running on E85. EPA believes the above approach would provide such an incentive to manufacturers and that E85 vehicles could be optimized through engine redesign and calibration to provide additional CO 2 reductions.181 Under the EPCA credit provisions, there is an incentive to produce FFVs but no actual

incentive to ensure that the alternative fuels ar e used, or that actual vehicle fuel economy improves. GHG and energy security benefits are only achieved if the alternative fuel is actually used and (for GHGs) that performance improves, and EPA’s approach for MY2016 and beyond will now provide such an incentive. This approach will promote greater use of alternative fuels, as compared to a situation where there is a credit but no usage requirement. This is also consistent with the agency’s overall commitment to the expanded use of renewable fuels. Therefore, EPA is basing the FFV program for MYs 2016 and thereafter on real-world reductions: i.e., actual vehicle CO 2 emissions levels based on actual use of the two fuels, without the 0.15 conversion factor specified under EISA.

For 2016 and later model years, EPA will ther efore treat FFVs similarly to conventional

fueled vehicles in that FFV emissions would be based on actual CO 2 results from emission testing on the fuels on which it operates. In ca lculating the emissions performance of an FFV, manufacturers may base FFV emissions on vehicle testing based on the alternative fuel emissions, if they can demonstrate that the alterna tive fuel is actually being used in the vehicles. Performance will otherwise be calculated assuming use only of conventional fuel. The manufacturer must establish the ratio of operation th at is on the alternative fuel compared to the

conventional fuel. The ratio w ill be used to weight the CO 2 emissions performance over the 2- cycle test on the two fuels. The 0.15 conversion factor will no longer be included in the CO 2 emissions calculation. For example, for a flexible-fuel vehicle that emitted 300 g/mi CO 2 operating on E85 ten percent of the time and 350 g/mi CO 2 operating on gasoline ninety percent of the time, the CO 2 emissions for the vehicles to be used in the manufacturer’s fleet average

would be calculated as follows:

g/mi 345 ) 90

. 0 350 ( ) 10

. 0 300 ( 2 = × + × = CO

The most complex part of this approach is to establish what data are needed for a manufacturer to accurately demonstrate use of the alternative fuel, where the manufacturer intends for its performance to be calculated base d on some use of alternative fuels. One option EPA is finalizing is establishing a rebuttabl e presumption using a national average approach based on national E85 fuel use. Manufacturers could use this value along with their vehicle emissions results demonstrating lower emissions on E85 to determine the emissions compliance values for FFVs sold by manufacturers under this program. For example, national E85 volumes and national FFV sales may be used to prorate E85 use by manufacturer sales volumes and FFVs already in-use. EPA will conduct an analysis of vehicle miles travelled (VMT) by year for all FFVs using its emissions inventory MOVES model. Using the VMT ratios and the overall E85 sales, E85 usage will be assigned to each vehicle. This method accounts for the VMT of new FFVs and FFVs already in the existing fleet using VMT data in the model. The model will then be used to determine the ratio of E85 and gasoline for new vehicles being sold. Fluctuations in E85 sales and FFV sales will be taken into account to adjust the manufacturers’ E85 actual use estimates annually. EPA plans to make this assigned fuel usage factor available through guidance prior to the start of MY 2016 and adjust it annually as necessary. EPA believes this is a reasonable way to apportion E85 use across the fleet.182 If manufacturers decide not to use EPA’s assigned fuel usage based on the national average analysis, they have a second option of presenting their own data for consideration as thebasis for evaluating fuel usage. Manufacturers have suggested demonstrations using vehicle onboard data gathering through the use of on-board sensors and computers. California’s program allows FFV credits based on FFV use and envisioned manufacturers collecting fuel use data from vehicles in fleets with on-site refueling. Manu facturers must present a statistical analysis of alternative fuel usage data collected on actual vehicle operation. EPA is not attempting to specify how the data is collected or the amount of data needed. However, the analysis must be based on sound statistical methodology. Uncertainty in the analysis must be accounted for in a way that provides reasonable certainty that th e program does not result in loss of emissions

reductions.

EPA received comments that the 2016 and later FFV emissions performance methodology should be based on the life cycle emissions (i.e., including the upstream GHG emissions associated with fuel feedstocks, producti on, and transportation) associated with the use

of the alternative fuel. Commenters are concerned th at the use of ethanol will not result in lower GHGs on a lifecycle basis. After considering these comments, EPA is not including lifecycle

emissions in the calculation of vehicle credits. EP A continues to believe that it is appropriate to base credits for MY2012-2015 on the EPCA/CAFE credits and to base compliance values for MY2016 on the demonstrated tailpipe emissions performance on gasoline and E85, and is finalizing this approach as proposed. EP A recently finalized its RFS2 rulemaking which addresses lifecycle emissions from ethanol a nd the upstream GHG benefits of E85 use are already captured by this program. 175

ii. Dedicated Alternative Fuel Vehicles

As proposed, for model years 2016 and later dedicated alternative fuel vehicles, CO 2 will be measured over the 2-cycle test in order to be included in a manufacturer’s fleet average CO 2 calculations. As noted above, this is different than CAFE methodology which provides a methodology for calculating a petroleum-based mpg equivalent for alternative fuel vehicles so they can be included in CAFE. However, because CO 2 can be measured directly from alternative fuel vehicles over the test procedur e, EPA believes this is the simplest and best approach since it is consistent with all other vehicle testing under the CO 2 program. EPA did not receive comments on this approach.

3. Advanced Technology Vehicle Incentives for Electric Vehicles, Plug-in Hybrids,

and Fuel Cell Vehicles

EPA is finalizing provisions that provide a temporary regulatory incentive for the

commercialization of certain ad vanced vehicle power trains—electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles (FCVs)—for model year 2012-2016 light-duty and medium-duty passenger vehicles. Th e purpose of these provisions is to provide a temporary incentive to promote technologies which have the potential to produce very large GHG reductions in the future, but which face major challenges such as vehicle cost, consumer acceptance, and the development of low-GHG fuel production infrastructure. The tailpipe GHG

175 XX Cite RFS2 FR notice183 emissions from EVs, PHEVs operated on grid electricity, and hydrogen-fueled FCVs are zero, and traditionally the emissions of the vehicle itself are all that EPA takes into account for purposes of compliance with standards set under section 202(a). Focusing on vehicle tailpipe emissions has not raised any issues for criteria po llutants, as upstream emissions associated with production and distribution of the fuel are addressed by comprehensive regulatory programs focused on the upstream sources of those emissions. 176 At this time, however, there is no such comprehensive program addressing upstream emissions of GHGs, and the upstream GHG emissions associated with production and dist ribution of electricity are higher than the corresponding upstream GHG emissions of gasoline or other petroleum based fuels. In the future, if there were a program to comprehensively control upstream GHG emissions, then the zero tailpipe levels from these vehicles have the potential to produce very large GHG reductions, and to transform the transportation sector’s contribution to nationwide GHG emissions.

This temporary incentive program applies only for the model years 2012-2016 covered by this final rule. EPA will reassess the issu e of how to address EVs, PHEVs, and FCVs in rulemakings for model years 2017 and beyond, based on the status of advanced vehicle technology commercialization, the status of upstream GHG emissions control programs, and

other relevant factors.

In the Joint Notice of Intent, EPA stated that “EPA is currently considering proposing additional credit opportunities to encourage the commercialization of advanced GHG/fuel economy control technology such as electric vehicles and plug-in hy brid electric vehicles. These ‘super credits’ could take the form of a mult iplier that would be a pplied to the number of vehicles sold such that they would count as mo re than one vehicle in the manufacturer’s fleet average.” 177 Following through, EPA proposed two me chanisms by which these vehicles would earn credits: 1) a zero grams/mile compliance value for EVs, FCVs, and for PHEVs when operated on grid electricity, and 2) a vehicle multiplier in the range of 1.2 to 2.0. 178

The zero grams/mile compliance value for EVs (and for PHEVs when operated on grid electricity, as well as for FCVs which involv e similar upstream GHG issues with respect to hydrogen production) is an incentive that ope rates like a credit because, while it accurately accounts for tailpipe GHG emissions, it does no t reflect the increase in upstream GHG emissions associated with the electricity used by EVs co mpared to the upstream GHG emissions associated with the gasoline or diesel fuel used by conventional vehicles. 179 For example, based on GHG emissions from today’s national average electricity generation (including GHG emissions associated with feedstock extraction, processing, and transportation) and other key assumptions related to vehicle electricity consumption, vehicle charging losses, and grid transmission losses, a midsize EV might have an upstream GHG emissions of about 180 grams/mile, compared to the upstream GHG emissions of a typical midsize gaso line car of about 60 grams/mile. Thus, the EV would cause a net upstream GHG emissions increase of about 120 grams/mile (in general, the net

176 In this section, “upstream” means all fuel-related GHG emis sions prior to the fuel being introduced to the vehicle.

177 Notice of Upcoming Joint Rulemaking to Establish Ve hicle GHG Emissions and CAFE Standards, 74 FR 24007, 24011 (May 22, 2009)

178 74 FR 49533-34.

179 See 74 FR 49533 (“EPA recognizes that for each EV that is sold, in reality the total emissions off-set relative to the typical gasoline or diesel powered vehicle is not zero, as there is a correspon ding increase in upstream CO 2 emissions due to an increase in the requirements for electric utility generation”).184 upstream GHG increase would be less for a smaller EV and more for a larger EV). The zero grams/mile compliance value provides an incentive because it is less than the 120 grams/mile value that would fully account for the net increase in GHG emissions, counting upstream

emissions. 180 The net upstream GHG impact could change over time, of course, based on changes in electricity generation or gasoline production.

The proposed vehicle multiplier incentive would also have operated like a credit as it would have allowed an EV, PHEV, or FCV to count as more than one vehicle in the manufacturer’s fleet average. For example, combining a multiplier of 2.0 with a zero grams/mile compliance value for an EV would allow that EV to be counted as two vehicles, each with a zero grams/mile compliance value, in the manufacturer’s fleet average calculations. In effect, a multiplier of 2.0 would double the overall credit associated with an EV, PHEV, or FCV.

EPA explained in the proposal that the potential for large future emissions benefits from these technologies provides a strong reason for pr oviding incentives at this time to promote their commercialization in the 2012-2016 model years. At the same time, EPA acknowledged that the zero grams/mile compliance value did not acco unt for increased upstream GHG emissions. EPA requested comment on providing some type of incentive, the appropriateness of both the zero grams/mile and vehicle multiplier incentive mechan isms, and on any alternative approaches for addressing advanced technology vehicle incentives. EPA received many comments on these issues, which will be briefly summarized below.

Although some environmental organizations a nd State agencies supported the principle of including some type of regulatory incentive me chanism, almost all of their comments were opposed to the combination of both the zero gr ams/mile compliance value and multipliers in the higher end of the proposed range of 1.2 to 2.0. The California Air Resources Board stated that the proposed credits “are excessive” and the Un ion of Concerned Scientists stated that it “strongly objects” to the approa ch that lacks “technical justif ication” by not “accounting for upstream emissions.” The Natural Resources Defe nse Council (NRDC) stated that the credits

could “undermine the emissions benefits of the program and will have the unintended consequence of slowing the development of conventional cleaner vehicle emission reduction technologies into the fleet.” NRDC, along with several other commenters who made the same point, cited an example based on Nissan’s public statements that it plans on producing up to 150,000 Nissan Leaf EVs in the near future at its plant in Smyrna, Tennessee. 181 NRDC’s analysis showed that if EVs were to account for 10% of Nissan’s car fleet in 2016, the combination of the zero grams/mile and 2.0 multiplier would allow Nissan to make only relatively small improvements to its gasoline car fleet and still be in compliance. NRDC described a detailed methodology for calculating “true full fuel cycle emissions impacts” for EVs. The Sierra Club suggested that the zero gram s/mile credit would “taint” EVs as the public

180 This 120 grams/mile value for a midsize EV is approxima tely similar to the compliance value for today’s most efficient conventional hybrid vehicle, so the EV would not be significantly more “GHG-positive” than the most efficient conventional hybrid counterpart under a full acc ounting approach. It should be noted that these emission levels would still be well below the footpr int targets for the vehicles in question.

181 ”Secretary Chu Announces Closing of $1.4 Billion Loan to Nissan,” Department of Energy, January 28, 2010, http://www.energy.gov/news/8581.htm185 comes to understand that these vehicles are not zero-GHG vehicles, and that the zero grams/mile incentive would allow higher gasoline vehicle GHG emissions.

Most vehicle manufacturers were supportive of both the zero grams/mile compliance value and a higher vehicle multiplier. The Allia nce of Automobile Manufacturers supported zero grams/mile “since customers need to receive a clear signal that they have made the right choice by preferring an EV, PHEV, or EREV....However, the Alliance recognizes the need for a comprehensive approach with shared responsibility in order to achieve an overall carbon reduction.” Nissan claimed that zero grams/mile is “legally required,” stating that EPA’s 2-cycle test procedures do not account for upstream GHG emissions, that accounting for upstream

emissions from electric vehicles but not from ot her vehicles would be arbitrary, and that including upstream GHG would “disrupt the car eful balancing embedded into the National Program.” Several other manufacturers, including Ford, Chrysler, Toyota, and Mitsubishi, also supported the proposed zero grams/mile compliance value

. BMW suggested a compliance value approach similar to that used for CAFE compliance (described below), which would yield a very low, non-zero grams/mile compliance value. Honda opposed the zero grams/mile incentive. Honda suggested that EPA should fully acco unt for upstream GHG and “should separate

incentives and credits from the measurement of emissions.” Automakers universally supported higher multipliers, many higher than the maximum 2.0 level proposed by EPA. Honda suggested a multiplier of 16.0 for FCVs. Mitsubishi supported the concept of larger, temporary incentives until advanced technology vehicle sales achieved a 10% market share. Finally, some commenters suggested that other technologies should also receive incentives, such as diesel vehicles, hydrogen-fueled internal combustion engines, and natural gas vehicles.

Based on a careful consideration of these comments, EPA is modifying its proposed advanced technology vehicle incentive program for EVs, PHEVs, and FCVs produced in 2012- 2016. EPA is not extending the program to include additional technologies at this time. The final incentive program, and our rationale for it, are described below.

One, the incentive program retains the zero grams/mile value for EVs and FCVs, and for PHEVs when operated on grid electricity, subject to vehicle production caps discussed below. Although EVs and FCVs will have compliance va lues of zero grams/mile, PHEV compliance values will be determined by combining zero gr ams/mile for grid electricity operation with the GHG emissions from the 2-cycle test results during operation on liquid fuel, and weighting these values by the percentage of miles traveled that EPA believes will be performed on grid electricity and on liquid fuel, which will vary for different PHEVs. EPA acknowledges that, based on current electricity and hydrogen produc tion processes, that EVs, PHEVs, and FCVs yield higher upstream GHG emissions than comparable gasoline vehicles. But EPA reiterates its support for temporarily rewarding advanced emis sions control technologies by foregoing modest

emissions reductions in the short term in order to lay the foundation for the potential for much larger emission reductions in the longer term. 182 EPA notes that EVs, PHEVs, and FCVs are potential GHG “game changers” if major cost and consumer barriers can be overcome and if

there is a nationwide transformation to low-GHG el ectricity (or hydrogen, in the case of FCVs).

182 EPA has adopted this strategy in several of its most recent and important mobile source rulemakings, such as its Tier 2 Light-Duty Vehicle, 2007 Heavy-Duty Highw ay, and Tier 4 Nonroad Diesel rulemakings.186 EPA agrees with the comments by the envi ronmental organizations, States, and Honda that the zero grams/mile compliance value will reduce the overall GHG benefits of the program. However, EPA believes these reductions in GHG benefits will be relatively small based on the projected production of EVs, PHEVs, and FCVs during the 2012-2016 timeframe, along with the other changes that we are making in the incent ive program. EPA believe s this modest potential for reduction in near-term emissions control is more than offset by the potential for very large

future emissions reductions that commercializ ation of these technologies could promote.

Two, the incentive program will not include any vehicle multipliers, i.e., an EV’s zero grams/mile compliance value will count as one vehicle in a manufacturer’s fleet average, not as more than one vehicle as proposed. EPA has concluded that the combination of the zero grams/mile and multiplier credits would be ex cessive. Compared to the maximum multiplier of 2.0 that EPA had proposed, dropping this multiplier reduces the aggregate impact of the overall credit program by a factor of two (less so for lower multipliers, of course).

Three, EPA is placing a cumulative cap on the total production of EVs, PHEVs, and FCVs for which an individual manufacturer can claim the zero grams/mile compliance value during model years 2012-2016. Th e cumulative production cap w ill be 200,000 vehicles, except those manufacturers that sell at least 25,000 EV s, PHEVs, and FCVs in MY2012 will have a cap of 300,000 vehicles for MY2012-2016. This higher cap option is an additional incentive for those manufacturers that take an early leadership role in aggressively and successfully marketing advanced technology vehicles. These caps are a second way to limit the potential GHG benefit losses associated with the incentive program and therefore are another response to the concerns that the proposed incentives were excessive and could significantly undermine the program’s GHG benefits. If, for example, 500,000 EVs were produced in 2012-2016 that qualified for the zero grams/mile compliance value, the loss in GH G benefits due to this program would be about 25 million metric tons, or less than 3 percent of the total projected GHG benefits of this

program. 183 The rationale for these caps is that the in centive for EVs, PHEVs, and FCVs is most critical when individual automakers are beginning to introduce advanced technologies in the market, and less critical once individual automakers have successfully achieved a reasonable market share and technology costs decline due to higher production volumes and experience. EPA believes that cap levels of 200,000-300,000 vehicles over a five model year period are reasonable, as production greater than this would indicate that the manufacturer has overcome at

least some of the initial market barriers to th ese advanced technologies. Further, EPA believes that it is unlikely that many manufacturers will approach these cap levels in the 2012-2016

timeframe. 184

Production beyond the cumulative vehicle production cap for a given manufacturer in MY2012-2016 would have its compliance values calculated according to a methodology that

183 See Regulatory Impact Analysis, Appendix 5.B. While it is, of course, impossible to predict the number of EVs, PHEVs, and FCVs that will be produced between 2012 and 2016 with absolute certainty, EPA believes that 500,000 “un-capped” EVs is an optimistic scenario. Fewer EVs, or a combination of 500,000 EVs and PHEVs, would lessen

the short-term reduction in GHG benef its. Production of more than 500,0 00 “un-capped” EVs would increase the

short-term reduction in GHG benefits.

184 Fundamental power train changes in the automotive market typically evolve slowly over time. For example, over ten years after the U.S. introduction of the first conventional hybrid electric vehicle, total hybrid sales are approximately 300,000 units per year.187 accounts in full for the net increase in upstrea m GHG emissions. For an EV, for example, this would involve: 1) measuring the vehicle electric ity consumption in watt-hours/mile over the 2- cycle test (in the example introduc ed earlier, a midsize EV might have a 2-cycle test electricity consumption of 230 watt-hours/mile), 2) adjusting this watt-hours/mile value upward to account for electricity losses during transmission and vehicle charging (dividing 230 watt-hours/mile by 0.93 to account for grid/transmission losses and by 0.90 to reflect losses during vehicle charging yields a value of 275 watt-hours/mile), 3) multip lying the adjusted watt-hours/mile value by a nationwide average electricity upstream GHG emissions rate of 0.642 grams/watt-hour at the powerplant 185 (275 watt-hours/mile multiplied by 0.642 grams GHG/watt-hour yields 177 grams/mile), and 4) subtracting the upstream GHG emissions of a comparable midsize gasoline vehicle of 56 grams/mile to reflect a true net increase in upstream GHG emissions (177 grams/mile for the EV minus 56 grams/mile for the gasoline vehicle yields a net increase and EV compliance value of 121 grams/mile). 186 187 The full accounting methodology for the portion of PHEV operation on grid electricity would use this same approach.

EPA projects that the aggregate impact of the incentive program on advanced technology vehicle GHG compliance values will be similar to the way advanced technologies are treated under DOT’s CAFE program. In the CAFE progr am, the mpg value for an EV is determined using a “petroleum equivalency factor” that has a 1/0.15 factor built into it similar to the flexible

fuel vehicle credit. 188 For example, under current regulations, an EV with a 2-cycle electricity consumption of 230 watt-hours/mile would have a CAFE rating of about 360 miles per gallon, which would be equivalent to a gasoline vehicle GHG emissions value of 25 grams/mile, which is close to EPA’s zero grams/mile for EV produc tion that is below an individual automaker’s cumulative vehicle production cap. The exception would be if a manufacturer exceeded its cumulative vehicle production cap during MY2012-2016. Then, the same EV would have a GHG compliance value of about 120 grams/mile, which would be significantly higher than the 25 gram/mile implied by the 360 mile/gallon CAFE value.

185 The nationwide average electricity upstream GHG emissi ons rate of 0.642 grams GHG/watt-hour was calculated from 2005 nationwide powerplant data for CO 2 , CH 4 , and N 2 O emissions from eGRID2007 (http://www.epa.gov/cleanenergy/energy-resources/egrid/index.html), converting to CO 2 -e using Global Warming

Potentials of 25 for CH 4 and 298 for N 2 O, and multiplying by a factor of 1.06 to account for GHG emissions associated with feedstock extraction, transportation, and processing (based on Argonne National Laboratory’s The Greenhouse Gases, Regulated Emissions, and Energy Us e in Transportation (GREET) Model, Version 1.8c.0, available at http://www.transportation.an l.gov/modeling_simulation/GREET/). EPA recognizes that there are many issues involved with projecting the electricity upstream GHG emissions associated with future EV and PHEV use including, but not limited to, average vs marginal, daytim e vs nighttime vehicle charging, geographical differences, and changes in future electricity feedstocks. EPA chose to use the 2005 national average value because it is known and documentable. Values appropriate for future vehicle use may be higher or lower than this value. EPA will reevaluate this value in future rulemakings.

186 A midsize gasoline vehicle with a footprint of 45 s quare feet would have a MY2016 GHG target of about 225 grams/mile; dividing 8887 grams CO2/gallon of gasoline by 225 grams/mile yields an equivalent fuel economy level of 39.5 mpg; and dividing 2208 grams upstream GHG/gall on of gasoline by 39.5 mpg yields a midsize gasoline vehicle upstream GHG value of 56 grams/mile. The 22 08 grams upstream GHG/gallon of gasoline is calculated from 19,200 grams upstream GHG/mmBtu (Department of Energy: National Energy Technology Laboratory. 2009. NETL: Petroleum-Based Fuels Life Cycle Greenhouse Gas Analysis - 2005 Baseline Model. Available at http://www.netl.doe.gov/energy-analyses) and mu ltiplying by 0.115 mmBtu/gallon of gasoline.

187 Manufacturers can utilize alternate calcu lation methodologies if shown to yiel d equivalent or superior results and if approved in advance by the Administrator.

188 65 FR 36987 (June 12, 2000).188 EPA disagrees with Nissan that excluding upstream GHGs is legally required under section 202(a)(1). In this rulemaking, EPA is adopting standards under section 202(a)(1), which provides EPA with broad discretion in setting emis sions standards. This includes authority to structure the emissions standards in a way that provides an incentive to promote advances in emissions control technology. This discretion includes the adjustments to compliance values adopted in the final rule, the multipliers we proposed, and other kinds of incentives. EPA recognizes that we have not previously made adjustments to a compliance value to account for upstream emissions in a section 202(a) vehicle em issions standard, but that does not mean we do not have authority to do so in this case. In addition, EPA is not directly regulating upstream GHG emissions from stationary sources, but instead is deciding how much value to assign to a motor vehicle for purposes of compliance calculations with the motor vehicle standard. While the logical place to start is the emissions leve l measured under the test procedure, section 202(a)(1) does not require that EPA limit itself to only that level. For vehicles above the production volume cap described above, EPA will adjust the measured value to a level that reflects the net difference in upstream GHG emissions compared to a comparable conventional

vehicle. This will account for the actual GHG em issions increase associated with the use of the EV. As shown above, upstream GHG emissions a ttributable to increased electricity production to operate EVs or PHEVs currently exceed the upstream GHG emissions attributable to gasoline

vehicles. There is a rational basis for EPA to accou nt for this net difference, as that best reflects the real world effect on the air pollution problem we are addressing. For vehicles above the cap, EPA is reasonably and fairly accounting for the incremental increase in upstream GHG

emissions from both the electric vehicles and th e conventional vehicles. EPA is not, as Nissan suggested, arbitrarily counting upstream emissions for electric vehicles but not for conventional fuel vehicles. Nor is EPA arbitrarily ignoring up stream GHG emissions of flexible fuel vehicles (FFVs) that can operate on E85. Data show that, on average, FFVs operate on gasoline over 99 percent of the time, and on E85 fuel less than 1 percent of the time. 189 EPA’s recently promulgated Renewable Fuel Standard Program shows that, with respect to non-tailpipe GHG emissions (such as feedstock growth, transportatio n, fuel production, and land use), ethanol from corn using advanced production technologies emits about 20 percent less GHG than gasoline

from oil. 190 Given this difference, and that E85 is us ed in FFVs less than 1 percent of the time, EPA has concluded that it is not necessary to adopt a more complicated upstream accounting for FFVs. Accordingly, EPA’s incentive approach here is both reasonable and authorized under section 202(a)(1).

In summary, EPA believes that this program for MY2012-2016 strikes a reasoned balance by providing a temporary regulatory in centive to help promote commercialization of advanced vehicle technologies which are potential game-changers, but which also face major barriers, while effectively minimizing potential GHG losses by dropping the proposed multiplier and adding individual automaker production volume caps. In the future, if there were a comprehensive program to control upstream emissions of GHGs from utilities and other fuel production facilities, then these advanced technology vehicles have the potential to produce very large reductions in GHG emissions, and to transf orm the transportation sector’s contribution to

nationwide GHG emissions. EPA will reassess th e issue of how to address EVs, PHEVs, and

189 Renewable Fuel Standard Program (RFS2), Regulatory Impact Analysis, Section 1.7.4, February 2010.

190 XX (fill in after RFS publication)189 FCVs in rulemakings for model years 2017 and beyond based on the status of advanced vehicle technology commercialization, the status of upstream GHG control programs, and other relevant

factors.

Finally, the criteria and definitions for what vehicles qualify for the advanced technology vehicle incentives are provided in Section III.E. These definitions for EVs, PHEVs, and FCVs ensure that only credible advanced technology vehicles are provided the incentives.

4. Off-cycle Technology Credits

As proposed, EPA is adopting an optional credit opportunity intended to apply to new and innovative technologies that reduce vehicle CO 2 emissions, but for which the CO 2 reduction benefits are not captured over the 2-cycle test procedure used to determine compliance with the fleet average standards (i.e., “off-cycle”). Eligible innovative technologies are those that are relatively newly introduced in one or more vehicle models, but that are not yet implemented in widespread use in the light-duty fleet. EPA will not approve credits for technologies that are not innovative or do not provide novel approaches to reducing greenhouse gas emissions. Manufacturers must obtain EPA approval for new and innovative technologies at the time of vehicle certification in order to earn credits for these technologies at the end of the model year. This approval must include the testing methodology to be used for quantifying credits. Further, any credits for these off-cycle technologies mu st be based on real-world GHG reductions not captured on the current 2-cycle tests and verifiable test methods, and represent average U.S. driving conditions.

Similar to the technologies used to reduce A/C system indirect CO 2 emissions by increasing A/C efficiency, eligible technologies would not be active during the 2-cycle test and therefore the associated improvements in CO 2 emissions would not be captured. Because these technologies are not nearly so well developed and understood, EPA is not prepared to consider them in assessing the stringency of the CO 2 standards. However, EPA is aware of some emerging and innovative technologies and concep ts in various stages of development with CO 2 reduction potential that might not be adequately captured on the FTP or HFET. EPA believes that manufacturers should be able to gene rate credit for the emission reductions these technologies actually achieve, assuming these reductions can be adequately demonstrated and verified. Examples include solar panels on hybrids or electric vehicles, adaptive cruise control, and active aerodynamics. EPA believes it would be appropriate to provide an incentive to encourage the introduction of these types of technologies, that bona fide reductions from these technologies should be considered in determining a manufacturer’s fleet average, and that a credit mechanism is an effective way to do this. This optional credit opportunity would be available through the 2016 model year.

EPA received comments from a few manufacture rs that the “new and innovative” criteria should be broadened. The commenters pointed out that there are technologies already in the marketplace that would provide emissions reduc tions off-cycle and that their use should be incentivized. One manufacturer suggested that off-cycle credits should be given for start-stop technologies. EPA does not agree that this t echnology, which EPA’s modeling projects will be widely used by manufacturers in meeting the CO 2 standards, should qualify for off-cycle credits.190 Start-stop technology already achieves a CO 2 benefit on the current 2-cy cle tests, which is why many manufacturers have announced plans to adopt in across large segments of the fleet. EPA recognizes there may be additional benefits to start-stop technology beyond the 2-cycle tests (e.g., heavy idle use), and that this is likely th e case for other technologies that manufacturers will rely on to meet the MY2012-2016 standards. EPA plans to continue to assess the off-cycle potential for these technologies in the future. However, EPA does not believe that off-cycle credits should be granted for technologies which we expect manufacturers to rely on in widespread use throughout the fleet in meeting the CO 2 standards. Such credits could lead to double counting, as there is already some CO 2 benefit over the 2-cycle tests. EPA expects that most if not all technologies that reduce CO 2 emission on the 2-cycle test will also reduce CO 2 emissions during the wide variety of in-use operation that is not directly captured in the 2-cycle

test. This is no different than what occurs from the control technology on vehicles for criteria pollutants. We expect that the catalytic converter and other emission control technology will operate to reduce emissions throughout in-use driving, and not just when the vehicle is tested on the specified test procedure. The aim for this off-cycle credit provisions is to provide an incentive for technologies that normally would not be chosen as a GHG control strategy, as their GHG benefits are not measured on the specified 2-cy cle test. It is not designed to provide credits for technology that does provide GHG benefits on the 2-cycle test and as expected will also typically provide GHG benefits in other kinds of operation. Thus, EPA is finalizing the “new and innovative” criteria as propose d. That is, the potential to earn off-cycle credits will be limited to those technologies that are new and innovative, are introduced in only a limited number of vehicle models (i.e., not in widespread use), and are not captured on the current 2- cycle tests. This approach w ill encourage future innovation, wh ich may lead to the opportunity

for future emissions reductions.

As proposed, manufacturers would quantify CO 2 reductions associated with the use of the innovative off-cycle technologies such that the cr edits could be applied on a g/mile equivalent basis, as is the case with A/C system improvemen ts. Credits must be based on real additional

reductions of CO 2 emissions and must be quantifiable and verifiable with a repeatable methodology. As proposed, the technologies upon which the credits are based would be subject to full useful life compliance provisions, as with other emissions controls. Unless the manufacturer can demonstrate that the technology would not be subject to in-use deterioration over the useful life of the vehicle, the manufacturer must account for deterioration in the

estimation of the credits in order to ensure that the credits are based on real in-use emissions

reductions over the life of the vehicle.

As discussed below, EPA is finalizing a two-tiered process for demonstrating the CO 2 reductions of an innovative and novel technology with benefits not captured by the FTP and HFET test procedures. First, a manufacturer must determine whether the benefit of the technology could be captured using the 5-cycle methodology currently used to determine fuel economy label values. EPA established the 5-cycle test methods to better represent real-world factors impacting fuel economy, including higher speeds and more aggressive driving, colder temperature operation, and the use of air conditioni ng. If this determination is affirmative, the manufacture must follow the procedures described below (as codified in today’s rules). If the manufacturer finds that the technology is such that the benefit is not adequately captured using the 5-cycle approach, then the manufacturer would have to develop a robust methodology,191 subject to EPA approval, to demonstrate th e benefit and determine the appropriate CO 2 gram per mile credit. As discussed below, EPA is also providing opportunity for public comment as part of the approval process for such non-5-cycle credits.

a. Technology Demonstration Using EPA 5-Cycle Methodology

As noted above, the CO 2 reduction benefit of some innovative technologies could be demonstrated using the 5-cycle approach currently used for EPA’s fuel economy labeling program. The 5-cycle methodology was finalized in EPA’s 2006 fuel economy labeling rule, 191
which provides a more accurate fuel economy label estimate to consumers starting with 2008 model year vehicles. In addition to the FTP and HFET test procedures, the 5-cycle approach

folds in the test results from three additional te st procedures to determine fuel economy. The additional test cycles include cold temperature operation, high temperature, high humidity and solar loading, and aggressive and high-speed driving; thus these tests could be used to demonstrate the benefit of a technology that reduces CO 2 over these types of driving and environmental conditions. Using the test results from these additional test cycles collectively with the 2-cycle data provides a more precise estimate of the average fuel economy and CO 2 emissions of a vehicle for both the city and highway independently. A significant benefit of using the 5-cycle methodology to measure and quantify the CO 2 reductions is that the test cycles are properly weighted for the expected average U.S. operation, meaning that the test results could be used without further adjustments.

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

Although A/C credits for efficiency improvem ents will largely be captured in the A/C credits provisions through the credit menu of known efficiency improving components and controls, certain new technologies may be able to use the high temperatures, humidity, and solar load of the SC03 test cycle to accurately measure their impact. An example of a new technology may be a refrigerant storage device that accum ulates pressurized refrigerant during driving operation or uses recovered vehicle kinetic energy during deceleration to pressurize the refrigerant. Much like the waste heat capture device used in cold weather, this device would also allow additional engine-off operation while maintaining appropriate vehicle interior occupant comfort levels. SC03 test data measuring the relative impact of innovative A/C-related technologies could be applied to the 5-cycle equation to quantify the CO 2 reductions of the technology.

191 Fuel Economy Labeling of Motor Vehicles: Revisions to Improve Calculation of Fuel Economy Estimates; Final Rule (71 FR 77872, December 27, 2006).192 The US06 cycle may be used to capture innovative technologies designed to reduce CO 2 emissions during higher speed and more aggressi ve acceleration conditions, but not reflected on the 2-cycle tests. An example of this is an active aerodynamic technology. This technology recognizes the benefits of reduced aerodynamic drag at higher speeds and makes changes to the vehicle at those speeds. The changes may include active front or grill air deflection devices designed to redirect frontal ai rflow. Certain active suspension devices designed primarily to reduce aerodynamic drag by lowering the vehicle at higher speeds may also be measured on the US06 cycle. To properly measure these tech nologies on the US06, the vehicle would require unique load coefficients with and without the technologies. The different load coefficient (properly weighted for the US06 cycle) could effectively result in reduced vehicle loads at the higher speeds when the technologies are active. Similar to the previously discussed cycles, the

results from the US06 test with and withou t the technology could then use the 5-cycle methodology to quantify CO 2 reductions.

If the 5-cycle procedures can be used to demonstrate the innovative technology, then the regulatory evaluation/approval process will be re latively simple. The manufacturer will simply test vehicles with and without the technology inst alled or operating and compare results. All 5- cycles must be tested with the technology enabled and disabled, a nd the test results will used to calculate a combined city/highway CO 2 value with the technology and without the technology. These values will then be compared to determ ine the amount of the credit; the combined city/highway CO 2 value with the technolo gy operating will be subtracted from the combined city/highway CO 2 value without the technology operati ng to determine the gram per mile CO 2 credit. It is likely that multiple tests of each of th e five test procedures will need to be performed in order to achieve the necessary strong degree of statistical significance of the credit determination results. This will have to be done for each model type for which a credit is sought, unless the manufacturer could demonstrate that the impact of the technology was independent of the vehicle configuration on whic h it was installed. In this case, EPA may consider allowing the test to be performed on an engine family basis or other grouping. At the end of the model year, the manufacturer will determine the number of vehicles produced subject to each credit amount and report that to EPA in the final model year re port. The gram per mile credit value determined with the 5-cycle comparison testing will be multipl ied by the total producti on of vehicles subject

to that value to determine the total number of credits.

EPA received a few comments regarding the 5-cycle approach. While not commenting directly on the 5-cycle testing methodology, the Alliance raised general concerns that the proposed approach did not offer manufacturers enough certainty with regard to credit applications and testing in order to take advantage of the credits. The Alliance further commented that the proposal did not provide a level playing field to all manufacturers in terms of possible credit availability. The Alliance recomm ended that rather than attempting to quantify

CO 2 reductions with a prescribed test procedure on unknown technologies, EPA should handle credit applications and testing guidelines via future guidance letters, as technologies emerge and are developed.

EPA believes that 5-cycle testing methodology is one clear and objective way to demonstrate certain off-cycle emissions control technologies, as discussed above. It provides193 certainty with regard to testing, and is availabl e for all manufacturers. As discussed below, there are also other options for manufactures where th e 5-cycle test is not appropriate. EPA is retaining this as a primary methodology for determining off-cycle credits. For technologies not able to be demonstrated on the 5-cycle test, EPA is finalizing an approach that will include a public comment opportunity, as discussed below, which we believe addresses commenter concerns regarding maintaining a level playing field.

b. Alternative Off-Cycle Credit Methodologies

As proposed, in cases where the benefit of a technological approach to reducing CO 2 emissions can not be adequately represented usi ng existing test cycles, manufacturers will need to develop test procedures and analytical approaches to estimate the effectiveness of the technology for the purpose of generating credits. As discussed above, the first step must be a thorough assessment of whether the 5-cycle approach can be used to demonstrate a reduction in emissions. If EPA determines that the 5-cycle process is inadequate for the specific technology being considered by the manufactu rer (i.e., the 5-cycle test does not demonstrate any emissions reductions), then an alternativ e approach may be developed and submitted to EPA for approval.The demonstration program must be robust, verifiable, and capable of demonstrating the realworld emissions benefit of the technology with strong statistical significance.

The CO 2 benefit of some technologies may be able to be demonstrated with a modeling approach, using engineering principles. An exampl e would be where a roof solar panel is used to charge the on-board vehicle battery. The amount of potential electrical power that the panel could supply could be modeled for average U.S. conditions and the units of electrical power could be translated to equivalent fuel energy or annualized CO 2 emission rate reduction from the captured solar energy. The CO 2 reductions from other technologies may be more challenging to quantify, especially if they are interactive w ith the driver, geographic location, environmental condition, or other aspect related to operation on actual roads. In these cases, manufacturers might have to design extensive on-road test programs. Any such on-road testing programs would need to be statistically robust and based on average U.S. driving conditions, factoring in differences in geography, climate, and driving behavior across the U.S.

Whether the approach involves on-road testing, modeling, or some other analytical approach, the manufacturer will be required to present a proposed methodology to EPA. EPA will approve the methodology and credits only if certain criteria are met. Baseline emissions and control emissions must be clearly demonstrat ed over a wide range of real world driving

conditions and over a sufficient number of vehicles to address issues of uncertainty with the data. The analytical approach must be robust, verifiable, and capable of demonstrating the real-world emissions benefit with strong st atistical significance. Data mu st be on a vehicle model-specific

basis unless a manufacturer demo nstrated model specific data was not necessary. Approval of the approach to determining a CO 2 benefit will not imply approval of the results of the program or methodology; when the testing, modeling, or an alyses are complete the results will likewise be subject to EPA review and approval. EPA believes that manufacturers could work together to develop testing, modeling, or analytical methods for certain technologies, similar to the SAE approach used for A/C refrigerant leakage credits.194 In addition, EPA received several comments recommending that the approval process include an opportunity for public comment. As noted above, some manufacturers are concerned that there be a level playing field in terms of all manufacturers having a reasonable opportunity to earn credits under an approved approach. Commenters also want an opportunity for input in the methodology to ensure the accuracy of credit determinations fo r these technologies. Commenters point out that there are a broad number of stakeholders with experience in the issues pertaining to the technologies that coul d add value in determining the most appropriate method to assess these technologies’ performanc e. EPA agrees with these comments and is including an opportunity for public comment as part of the approval process. If and when EPA receives an application for off-cycle credits using an alternative non 5-cycle methodology, EPA will publish a notice of availability in the Federa l Register with instructions on how to comment on draft off-cycle credit methodology. The public information available for review will focus on the methodology for determining credits but the public review obviously is limited to nonconfidential business information. The timing fo r final approval will depend on the comments received. EPA also believes that a public review will encourage manufacturers to be thorough in their preparation prior to submitting their applic ation for credits to EPA for approval. EPA will take comments into consideration, and where appr opriate, work with the manufacturer to modify their approach prior to approving any off-cycle credits methodology. EPA will give final notice of its determination to the general public as well as the applicant. Off-cycle credits would be available in the model year following the fina l approval. Thus, it will be imperative for a manufacturer pursuing this option to begin the process as early as possible.

EPA also received comments that the off-c ycle credits highlights the inadequacy of current test procedures, and that there is a clea r need for updated certification test procedures. As discussed in Section III. B., EPA believes th e current test procedures are adequate for implementing the standards finalized today. Ho wever, EPA is interest ed in improving test procedures in the future and believes that the off-cycle credits program has the potential to provide useful data and insights both for the 5-cycle test procedures and also other test procedures that capture off-cycle emissions.

5. Early Credit Options

EPA is finalizing a program to allow manufac turers to generate early credits in model years 2009-2011. As described below, credits may be generated through early additional fleet average CO 2 reductions, early A/C system improvements, early advanced technology vehicle credits, and early off-cycle credits. As with other credits, early credits are subject to a five year carry-forward limit based on the model year in which they are generated. Manufacturers may transfer early credits between vehicle categories (e.g., between the car and truck fleet). With the exception of MY2009 early program credits, as discussed below, a manufacturer may trade other early credits to other manufacturers without limits . The agencies note that CAFE credits earned in MYs prior to MY 2011 will still be available to manufacturers for use in the CAFE program in accordance with applicable regulations.

EPA is not adopting certification, compliance, or in-use requirements for vehicles generating early credits. Since manufacturers are already certifying MY 2010 and in some cases even MY 2011 vehicles, doing so would make cert ification, compliance, and in-use requirements195 unworkable. As discussed below, manufacturers are required to submit an early credits report to EPA for approval no later than 90 days after the end of MY 2011. This report must include details on all early credits the manufacturer generates, why the credits are bona fide, how they are quantified, and how they can be verified.

a. Credits Based on Early Fleet Average CO 2 Reductions

As proposed, EPA is finalizing opportunitie s for early credit generation in MYs 2009- 2011 through over-compliance with a fleet average CO 2 baseline established by EPA. EPA is finalizing four pathways for doing so. In order to generate early CO 2 credits, manufacturers must select one of the four paths for credit generation for the entire three year period and may not switch between pathways for different model years. For two pathways, EPA is establishing the baseline equivalent to the California standa rds for the relevant model year. Generally, manufacturers that over-comply with those CARB standards would earn credits. Two additional pathways, described below, include credits based on over-compliance with CAFE standards in states that have not adopted the California standards.

EPA received comments from manufacturers in support of the early credits program as a necessary compliance flexibility. The Allianc e commented that the early credits reward manufacturers for providing fleet performance that exceeds California and Federal standards and

do not result in a windfall. AIAM commented th at early credits are essential to assure the feasibility of the proposed standards and the need for such credits must be evaluated in the context of the dramatic changes the standards will necessitate in vehicle design and the current economic environment in which manufacturers are called upon to make the changes. Manufacturers also supported retaining all four pathways, commenting that eliminating pathways would diminish the flexibility of the program. EPA also received comments from many environmental organizations and states that the program would provide manufacturers with

windfall credits because manufacturers will not ha ve to take any steps to earn credits beyond those that are already planned and in some cases implemented. These commenters were particularly concerned that the California truck standards in MY 2009 are not as stringent as CAFE, so overcompliance with the California standards could be a windfall in MY 2009, and possibly even MY2010. These commenters supported an early credits program based on overcompliance with the more stringent of either the CAFE or California standards in any given year. EPA is retaining the early credits program because EPA judges that they are not windfall credits, and manufacturers in some cases have reasonably relied on the availability of these credits, and have based early model year compliance strategies on their availability so that the credits are needed to provide adequate lead for the initial years of the program. However, as discussed below, EPA is restricting credit trading for MY2009 credits earned under the California-based pathways.

Manufacturers selecting Pathway 1 will generate credits by over-complying with the California equivalent baseline established by EPA over the manufacturer’s fleet of vehicles sold nationwide. Manufacturers selecting Pathway 2 will generate credits against the California equivalent baseline only for the fleet of vehicles sold in California and the CAA section 177196 states. 192 This approach includes all CAA 177 states as of the date of promulgation of the Final Rule in this proceeding. Manufacturers are required to include both cars and trucks in the program. Under Pathways 1 and 2, EPA is requiring manufacturers to cover any deficits incurred against the baseline levels established by EPA during the three year period 2009-2011 before credits can be carried forward into the 2012 model year. For example, a deficit in 2011 would have to be subtracted from the sum of credits earned in 2009 and 2010 before any credits could be applied to 2012 (or later) model year fleets. EPA is including this provision to help ensure the early credits generated under this program are consistent with the credits available under the California program during these model years. In its comments, California supported such an approach.

Table III.C.5-1 provides the California equivalent baselines EPA is finalizing to be used

as the basis for CO 2 credit generation under the California-based pathways. These are the California GHG standards for the model years shown. EPA proposed to adjust the California standards by 2.0 g/mile to account for the exclusion of N 2 O and CH 4 , which are included in the California GHG standards, but not included in the credits program. EPA received comments from one manufacturer that this adjustment is in error and should not be made. The commenter noted that EPA already includes total hydrocarbons in the carbon balance determination of carbon related exhaust emissions and therefore already accounts for CH 4 . EPA also includes CO

in the carbon related exhaust emissions determina tion which acts to offset the need for an N 2 0 adjustment. The commenter noted that THC a nd CO add about 0.8 to 3.0 g/mile to the determination of carbon related emissions and therefore EPA should not make the 2.0g/mile adjustment. The commenter is correct, and ther efore the final levels shown in the table below are 2.0 g/mile higher than proposed. These comments are further discussed in the Joint Response to Comments document. Manufacturers will generate CO 2 credits by achieving fleet average CO 2 levels below these baselines. As shown in the table, the California-based early credit pathways are based on the California vehicle categories. Also, the California-based baseline levels are not footprint-based, but universal levels that all manufacturers would use.

Manufacturers will need to achieve fleet levels below those shown in the table in order to earn credits, using the California vehicle category definitions.

Table III.C.5-1 California Equivalent Baselines CO 2 Emissions Levels for Early Credit

Generation

Model Year Passenger Cars and Light

Trucks with an LVW of 0- 3,750 lbs Light Trucks with a LVW of 3,751 or more and a GVWR of up to 8,500 lbs plus Medium-duty Passenger Vehicles

2009 323 439

2010 301 420

2011 267 390

Manufacturers using Pathways 1 or 2 above will use year end car and truck sales in each category. Although production data is used for the program starting in 2012, EPA is using sales

192 CAA 177 states refers to states that have adopted the California GHG standards. At present, there are thirteen CAA 177 states: New York, Massachusetts, Maryland, Vermont, Maine, Connecticut, Arizona, New Jersey, New Mexico, Oregon, Pennsylvania, Rhode Island, Washington, as well as Washington, DC.197 data for the early credits program in order to apportion vehicles by state. This is described further below. Manufacturers must calculate actual fleet average emissions over the appropriate vehicle fleet, either for vehicles sold nationwid e for Pathway 1, or California plus 177 states sales for Pathway 2. Early CO 2 credits are based on the difference between the baseline shown in the table above and the actual fleet average emissions level achieved. Any early A/C credits generated by the manufacturer, described below in Section III.C.5.b, will be included in the fleet average level determination. In model year 2009, the California CO 2 standard for cars (323 g/mi

CO 2 ) is equivalent to 323 g/mi CO 2 , and the California light-truck standard (437 g/mi CO 2 ) is less stringent than the equivalent CAFE standard , recognizing that there are some differences between the way the California program and the CAFE program categorize vehicles. Manufacturers are required to show that they over comply over the entire three model year time period, not just the 2009 model year, to generate early credits under either Pathways 1, 2 or 3. A manufacturer cannot use credits generated in model year 2009 unless they offset any debits from model years 2010 and 2011.

EPA received comments that this approach wi ll provide windfall credits to manufacturers because the MY2009 California light truck standards is less stringent than the corresponding

CAFE standards. While this could be accurate if credits were based on performance in just MY 2009, that is not how credits are determined. Credits are based on the performance over a three model year period, MY 2009-2011. As noted in the proposal, EPA expects that the requirement to over comply over the entire tim e period covering these three model years should mean that the credits that are generated are real and are in excess of what would have otherwise occurred. However, because of the circumstances involving the 2009 model year, in particular for companies with significant truck sales, there is some concern that under Pathways 1, 2, and 3, there is a potential for a large number of credits generated in 2009 against the California standard, in particular for a number of companies who have significantly over-achieved on CAFE in recent model years. Some commenters were very concerned about this issue and commented in support of restricting credit tradi ng between firms of MY2009 credits based on the California program. EPA requested comments on this approach and is finalizing this credit trading restriction based on continued concerns regarding the issue of windfall credits. EPA wants to avoid a situation where, contrary to expectation, some part of the early credits generated by a manufacturer are in fact not excess, where companies could trade such credits to other manufacturers, risking a delay in the addition of new technology across the industry from the

2012 and later EPA CO 2 standards. Therefore, manufacturer s selecting Pathways 1, 2, or 3 will not be allowed to trade any MY 2009 credits that they may generate.

Commenters also recommended basing credits on the more stringent of the standards between CAFE and CARB, which for MY2009, would be the CAFE standards. However, EPA believes that this would not be necessary in light of the credit provisions requiring manufacturers choosing the California based pathways to use the California pathway for all three MYs 2009- 2011, and the credit trading restrictions for MY2009 discussed above.198 In addition, for Pathways 1 and 2, EPA is allowing manufacturers to include alternative compliance credits earned per the California alternative compliance program. 193 These alternative compliance credits are based on the demonstrated use of alternative fuels in flex fuel vehicles. As with the California program, the credits are available beginning in MY 2010. Therefore, these early alternative compliance credits are available under EPA’s program for the 2010 and 2011 model years. FFVs are otherwise included in the early credit fleet average based

on their emissions on the conventional fuel. Th is does not apply to EVs and PHEVs. The

emissions of EVs and PHEVs are to be determined as described in Section III.C.3. Manufacturers may choose to either include their EVs and PHEVs in one of the four pathways described in this section or under the early advanced technology emissions credits described below, but not both due to issues of credit double counting.

EPA is also finalizing two additional early credit pathways manufacturers could select. Pathways 3 and 4 incorporate credits based on over-compliance with CAFE standards for vehicles sold outside of California and CAA 177 states in MY 2009-2011. Pathway 3 allows manufacturers to earn credits as under Pathway 2, plus earn CAFE-based credits in other states. Credits may not be generated for cars sold in Ca lifornia and CAA 177 states unless vehicle fleets in those states are performing better than th e standards which otherwise would apply in those states, i.e., the baselines shown in Table III.C.5-1 above.

Pathway 4 is for manufacturers choosing to forego California-based early credits entirely and earn only CAFE-based credits outside of California and CAA 177 states. Manufacturers may not include FFV credits under the CAFE-based early credit pathways since those credits do not automatically reflect actual reductions in CO 2 emissions.

The baselines for CAFE-based early pathways are provided in Table III.C.5-2 below. They are based on the CAFE standards for the 2009-2011 model years. For CAFE standards in 2009-2011 model years that are footprint-based, the baseline would vary by manufacturer. Footprint-based standards are in effect for the 2011 model year CAFE standards. 194
Additionally, for Reform CAFE truck standards, footprint standards are optional for the 2009- 2010 model years. Where CAFE footprint-based stan dards are in effect, manufacturers will calculate a baseline using the footprints and sales of vehicles outside of California and CAA 177

states. The actual fleet CO 2 performance calculation will also only include the vehicles sold outside of California and CAA 177 states, and as mentioned above, may not include FFV credits.

Table III.C.5-2 CAFE Equivalent Baselines CO 2 Emissions Levels for Early Credit Generation

Model Year Cars Trucks

2009 323 381*

2010 323 376* 2011 Footprint-based standard Footprint-based standard * Must be footprint-based standard for manu facturers selecting footprint option under CAFE

193 See Section 6.6.E, California Envi ronmental Protection Agency Air Reso urces Board, Staff Report: Initial Statement of Reasons For Proposed Rulemaking, Public H earing to Consider Adoption of Regulations to Control Greenhouse Gas Emissions From Motor Vehicles, August 6, 2004.

194 74 FR 14196, March 30, 2009.199 For the CAFE-based pathways, EPA is usin g the NHTSA car and truck definitions that are in place for the model year in which credits are being generated. EPA understands that the NHTSA definitions change starting in the 2011 model year, and therefore changes part way through the early credits program. EPA further recognizes that medium-duty passenger vehicles (MDPVs) are not part of the CAFE program until the 2011 model year, and therefore are not be part of the early credits calculations for 2009 – 2010 under the CAFE-based pathways.

Pathways 2 through 4 involve splitting the vehi cle fleet into two groups, vehicles sold in

California and CAA 177 states and vehicles sold out side of these states. This approach requires a clear accounting of location of vehicle sales by the manufacturer. EPA believes it will be reasonable for manufacturers to accurately track sa les by state, based on its experience with the National Low Emissions Vehicle (NLEV) Program . NLEV required manufacturers to meet separate fleet average standards for vehicles sold in two different regions of the country. 195 As with NLEV, the determination is to be based on where the completed vehicles are delivered as a point of first sale, which in mo st cases would be the dealer. 196

As noted above, manufacturers choosing to generate early CO 2 credits must select one of the four pathways for the entire early credits program and would not be able to switch among them. Manufacturers must submit their early cr edits report to EPA when they submit their final CAFE report for MY 2011 (which is required to be submitted no later than 90 days after the end of the model year). Manufacturers will have until then to decide which pathway to select. This gives manufacturers enough time to determine which pathway works best for them. This timing may be necessary in cases where manufacturers earn credits in MY 2011 and need time to assess data and prepare an early credits submittal for final EPA approval.

The table below provides a summary of the four fleet average-based CO 2 early credit pathways EPA is finalizing:

Table III.C.5-3 Summary of Early Fleet Average CO 2 Credit Pathways Common Elements - Manufacturers select a pathway. Once selected, may not switch among pathways - All credits subject to 5 year carry-forward

restrictions - For Pathways 2-4, vehicles apportioned by state based on point of first sale Pathway 1: California-based

Credits for National Fleet - Manufacturers earn credits based on fleet average emissions compared with California equivalent baseline set by EPA

- Based on nationwide CO 2 sales-weighted fleet

average - Based on use of California vehicle categories - FFV alternative compliance credits per California program may be included - Once in the program, manufacturers must make up

195 62 FR 31211, June 6, 1997.

196 62 FR 31212, June 6, 1997200 any deficits that are incurr ed prior to 2012 in order to carry credits forward to 2012 and later Pathway 2: California-based

Credits for vehicles sold in California plus CAA 177 States - Same as Pathway 1, but manufacturers only

includes vehicles sold in California and CAA 177 states in the fleet average calculation Pathway 3: Pathway 2 plus

CAFE-based Credits outside of California plus CAA 177 States - Manufacturer earns credits as provided by Pathway

2: California-based credit s for vehicles sold in California plus CAA 177 States, plus:

- CAFE-based credits allowed for vehicles sold

outside of California and CAA 177 states - For CAFE-based credits, manufacturers earn credits based on fleet average emissions compared with baseline set by EPA

- CAFE-based credits based on NHTSA car and

truck definitions

- FFV credits not allowed to be included for CAFEbased credits Pathway 4: Only CAFE-based Credits outside of California plus

CAA 177 States - Manufacturer elects to only earn CAFE-based

credits for vehicles sold outside of California and

CAA 177 states. Earns no California and 177 state

credits. - For CAFE-based credits, manufacturers earn credits based on fleet average emissions compared with baseline set by EPA

- CAFE-based credits based on NHTSA car and

truck definitions

- FFV credits not allowed to be included for CAFEbased credits

b. Early A/C Credits

As proposed, EPA is finalizing provisions allowing manufacturers to earn early A/C credits in MYs 2009-2011 using the same A/C system design-based EPA provisions being finalized for MYs commencing in 2012, as described in Section III.C.1, above. Manufacturers will be able to earn early A/C CO 2 -equivalent credits by demons trating improved A/C system performance, for both direct and indirect emissi ons. To earn credits for vehicles sold in California and CAA 177 states, the vehicles must be included in one of the California-based early credit pathways described above in III.C.5.a. EPA is finalizing this constraint in order to avoid credit double counting with the California program in place in those states, which also allows A/C system credits in this time frame. Manufacturers must fold the A/C credits into the fleet average CO 2 calculations under the California-based pathway. For example, the MY 2009 California-based program car baseline would be 323 g/mile (see Table III.C.5-1). If a manufacturer under Pathway 1 had a MY 2009 car fleet average CO 2 level of 320 g/mile and then earned an additional 9 g/mile CO 2 -equivalent A/C credit, the manufacturers would earn a201 total of 10 g/mile of credit. Ve hicles sold outside of California and 177 states would be eligible for the early A/C credits whether or not the manufacturers participate in other aspects of the early credits program. The early A/C credits for vehicles sold outside of California and 177 states are based on the NHTSA vehicle categories established for the model year in which early A/C credits are being earned.

c. Early Advanced Technology Vehicle Incentive

As discussed in Section III.C.3, above, EP A is finalizing an incentive for sales of advanced technology vehicles including EVs, PHEVs, and fuel cell vehicles. EPA is not including a multiplier for these vehicles. However, EPA is allowing the use of the 0 g/mile value for electricity operation for up to 200,000 vehicles per manufacturer (or 300,000 vehicles for any manufacturer that sells 25,000 or more advanced technology vehicles in MY 2012). EPA believes that providing an incentive for the sales of such vehicles prior to MY 2012 is consistent with the goal encouraging the introduction of such vehicles as early as possible. Therefore, manufacturers may use the 0 g/mile value for vehicles sold in MY2009-2011 consistent with the approach being finalized for MY 2012-2016. An y vehicles sold prior to MY 2012 under these provisions must be counted against the cumulative sales cap of 200,000 (or 300,000, if applicable) vehicles. Manufacturers selling such vehicles in MY 2009-2011 have the option of either folding them into the early credits calculation under Pathways 1 through 4 described in III.C.5.a above, or tracking the sales of these vehicles separately for use in their fleetwide average compliance calculation in MY 2012 or later years, but may not do both as this would lead to double counting. Manufacturers tracking the sales of vehicles not folded into Pathways 1-4, may choose to use the vehicle counts along with the 0 g/mi emissions value (up to the applicable vehicle sales cap) to comply with 2012 or later standards. For example, if a manufacturer sells 1,000 EVs in MY 2011, the manufacturer would then be able to include 1,000 vehicles at 0 g/mile in their MY 2012 fleet to decrease the fleet average for that model year. Again, these 1,000 vehicles would be counted against the cumulative cap of 200,000 or 300,000, as applicable, vehicles. Also, these 1,000 EVs would not be included in the early credit pathways discussed above in Section III.C.5.a, otherwise the vehicles would be double counted. As with early credits, these early advanced technology vehicles will be tracked by model year (2009, 2010, or 2011) and subject to the 5 year carry-forward restrictions.

d. Early Off-Cycle Credits

EPA’s is finalizing off-cycle innovative technology credit provisions, as described in Section III.C.4. EPA requested comment on beginning these credits in the 2009-2011 time frame, provided manufactur ers are able to make the necessary demonstrations outlined in Section III.C.4, above. EPA is finalizing this approach for early off-cycle credits as a way to encourage innovation to lower emissions as early as possib le, including the requirements for public review described in Section III.C.4. Upon EPA approval of a manufacturer’s application for credits, the credits may be earned retroactively. EPA did not receive comments specifically on early offcycle credits.

D. Feasibility of the Final CO 2 Standards202 This final rule is based on the need to obtain significant GHG emissions reductions from the transportation sector, and the recognition that there are cost-effective technologies to achieve such reductions for MY 2012-2016 vehicles. As in many prior mobile source rulemakings, the decision on what standard to set is largely base d on the effectiveness of the emissions control technology, the cost and other impacts of implem enting the technology, and the lead time needed for manufacturers to employ the control technology. The standards derived from assessing these factors are also evaluated in terms of the need for reductions of greenhouse gases, the degree of reductions achieved by the standards, and the impacts of the standards in terms of costs, quantified benefits, and other impacts of the standards. The availability of technology to achieve reductions and the cost and other aspects of this technology are therefore a central focus of this rulemaking.

EPA is taking the same basic approach in this rulemaking, although the technological problems and solutions involved in this rulemaking differ in some ways from prior mobile source rulemakings. Here, the focus of the emissi ons control technology is on reducing CO 2 and other greenhouse gases. Vehicles combust fuel to pe rform two basic functions: 1) to transport the vehicle, its passengers and its contents (and any towed loads), and 2) to operate various accessories during the operation of the vehicle such as the air conditioner. Technology can

reduce CO 2 emissions by either making more efficient use of the energy that is produced through combustion of the fuel or reducing the energy needed to perform either of these functions.

This focus on efficiency calls for looking at the vehicle as an entire system, and the proposed and now final standards reflect this basic paradigm. In addition to fuel delivery, combustion, and aftertreatment technology, any as pect of the vehicle that affects the need to produce energy must also be considered. For exam ple, the efficiency of the transmission system, which takes the energy produced by the engine and transmits it to the wheels, and the resistance of the tires to rolling both have major impacts on the amount of fuel that is combusted while operating the vehicle. The braking system, the aerodynamics of the vehicle, and the efficiency of accessories, such as the air conditioner, all affect how much fuel is combusted as well.

In evaluating vehicle efficiency, we have ex cluded fundamental changes in vehicles’ size and utility. For example, we did not evaluate converting minivans and SUVs to station wagons, converting vehicles with four wheel drive to two wheel drive, or reducing headroom in order to lower the roofline and reduce aerodynamic drag. We have limited our assessment of technical feasibility and resultant vehicle cost to technolog ies which maintain vehicle utility as much as possible. Manufacturers may decide to alter th e utility of the vehicles which they sell in response to this rule, but this is not a necessary consequence of the rule but rather a matter of

automaker choice.

This need to focus on the efficient use of energy by the vehicle as a system leads to a broad focus on a wide variety of technologies that affect almost all the systems in the design of a vehicle. As discussed below, there are many technologies that are currently available which can reduce vehicle energy consumpti on. These technologies are alre ady being commercially utilized to a limited degree in the current light-duty fleet. These technologies include hybrid technologies that use higher efficiency electric motors as the power source in combination with or instead of internal combustion engines. Wh ile already commercialized, hybrid technology203 continues to be developed and offers the potential for even greater efficiency improvements. Finally, there are other advanced technologies under development, such as lean burn gasoline engines, which offer the potential of improved energy generation through improvements in the basic combustion process. In addition, the ava ilable technologies are not limited to powertrain improvements but also include mass reduction, electrical system efficiencies, and aerodynamic improvements.

The large number of possible technologies to consider and the breadth of vehicle systems that are affected mean that consideration of the manufacturer’s design and production process plays a major role in developing the final sta ndards. Vehicle manufacturers typically develop many different models by basing them on a limite d number of vehicle platforms. The platform typically consists of a common set of vehicle ar chitecture and structural components. This allows for efficient use of design and manufacturing resources. Given the very large investment put into designing and producing each vehicle model, manu facturers typically plan on a major redesign for the models approximately every 5 years. At the redesign stage, the manufacturer will upgrade or add all of the technology and make most other changes supporting the manufacturer’s plans for the next several years, including plan s related to emissions, fuel economy, and safety regulations.

This redesign often involves a package of changes designed to work together to meet the various requirements and plans for the model for several model years after the redesign. This often involves significant engineering, developm ent, manufacturing, and marketing resources to create a new product with multiple new features. In order to leverage this significant upfront investment, manufacturers plan vehicle redesigns with several model years’ of production in mind. Vehicle models are not completely static between redesigns as limited changes are often incorporated for each model year. This interim process is called a refresh of the vehicle and generally does not allow for major technology changes although more minor ones can be done (e.g., small aerodynamic improvements, valve timing improvements, etc). More major technology upgrades that affect multiple systems of the vehicle thus occur at the vehicle redesign stage and not in the time period between rede signs. The Center for Biological Diversity commented on EPA’s assumptions on redesign cycles, and these comments are addressed in

Section III.D.7 below.

As discussed below, there are a wide variety of CO 2 reducing technologies involving several different systems in the vehicle that are available for consideration. Many can involve major changes to the vehicle, such as changes to the engine block and cylinder heads, redesign of the transmission and its packaging in the vehicle, changes in vehicle shape to improve aerodynamic efficiency and the application of al uminum (and other lightweight materials) in body panels to reduce mass. Logically, the in corporation of emissions control technologies would be during the periodic redesign process. This approach would allow manufacturers to develop appropriate packages of technology upgra des that combine technologies in ways that work together and fit with the overall goals of the redesign. It also allows the manufacturer to fit the process of upgrading emissions control technology into its multi-year planning process, and it avoids the large increase in resources and costs that would occur if technology had to be added outside of the redesign process.204 This final rule affects five years of vehicle production, model years 2012-2016. Given the now-typical five year redesign cycle, nearly all of a manufacturer’s vehicles will be redesigned over this period. However, this assumes that a manufacturer has sufficient lead time to redesign the first model year af fected by this final rule with th e requirements of this final rule in mind. In fact, the lead time available for th e start of model year 2012 (January 2011) is relatively short, less than a ye ar. The time between this final rule and the start of 2013 model year (January 2012) production is under two years. At the same time, manufacturer product plans indicate that they are planning on introduci ng many of the technologies EPA projects could be used to show compliance with the final CO 2 standards in both 2012 and 2013. In order to account for the relatively short lead time available prior to the 2012 and 2013 model years, albeit mitigated by their existing plans, EPA has fact ored this reality into how the availability is modeled for much of the technology being considered for model years 2012-2016 as a whole. If the technology to control greenhouse gas emissions is efficiently folded into this redesign process, then EPA projects that 85 percent of each manufacturer’s sales will be able to be redesigned with many of the CO 2 emission reducing technologies by the 2016 model year, and as discussed below, to reduce emissions of HFCs from the air conditioner.

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

As described below, the vast majority of technology required by this final rule is commercially available and already being employed to a limited extent across the fleet (although the final rule will necessitate far wider penetration of these technologies throughout the fleet). The vast majority of the emission reductions which will result from this final rule will be produced from the increased use of these technologies. EPA also believes that this final rule will encourage the development and limited use of more advanced technologies, such as PHEVs and EVs, and the final rule is struct ured to facilitate this result

In developing the final standard, EPA built on the technical work performed by the State of California during its development of its st atewide GHG program. EPA began by evaluating a nationwide CAA standard for MY 2016 that would require the levels of technology upgrade, across the country, which California standards woul d require for the subset of vehicles sold in California under Pavley 1. In essence, EPA developed an assessment of an equivalent national

new vehicle fleet-wide CO 2 performance standards for model year 2016 which would result in

the new vehicle fleet in the State of California having CO 2 performance equal to the performance from the California Pavley 1 standards. This assessment is documented in Chapter 3.1 of the RIA. The results of this assessment predicts that a national light-duty vehicle fleet which adopts technology that achieves performance of 250 g/mile CO 2 for model year 2016 will result in

vehicles sold in California that would achieve the CO 2 performance equivalent to the Pavley 1

standards.205 EPA then analyzed a level of 250 g/mi CO 2 in 2016 using the OMEGA model (described in more detail below), and the car and truck footprint curves’ relative stringency discussed in Section II to determine what technology will be n eeded to achieve a fleet wide average of 250 g/mi CO 2 . As discussed later in this section we believe this level of technolo gy application to the light-duty vehicle fleet can be achieved in this time frame, that such standards will produce significant reductions in GHG emissions, and that the costs for both the industry and the costs to the consumer are reasonable. EPA also developed standards for the model years 2012 through 2015 that lead up to the 2016 level.

EPA’s independent technical assessment of the technical feasibility of the final

MY2012-2016 standards is described below. EPA has also evaluated a set of alternative standards for these model years, one that is more stringent than th e final standards and one that is less stringent. The technical feasibility of these alternative standards is discussed at the end of

this section.

Evaluating the feasibility of these standard s primarily includes identifying available technologies and assessing their effectiveness, cost, and impact on relevant aspects of vehicle performance and utility. The wide number of technologies which are available and likely to be used in combination requires a more sophisticated assessment of their combined cost and effectiveness. An important factor is also the degree that these technologies are already being used in the current vehicle fleet and thus, unavailable for use to improve energy efficiency beyond current levels. Finally, the challenge for manufacturers to design the technology into their products, and the appropriate lead time n eeded to employ the technology over the product line of the industry must be considered.

Applying these technologies efficiently to the wide range of vehicles produced by various manufacturers is a challenging task. In order to assist in this task, EPA has developed a computerized model called the Optimization Model for reducing Emissions of Greenhouse gases from Automobiles (OMEGA) model. Broadly, the model starts with a description of the future vehicle fleet, including manufacturer, sales, base CO 2 emissions, footprint and the extent to which emission control technologies are already employed. For the purpose of this analysis, over 200 vehicle platforms were used to capture the important differences in vehicle and engine design and utility of future vehicle sales of roughly 16 million units in the 2016 timeframe. The model is then provided with a list of technolog ies which are applicable to various types of vehicles, along with their cost and effectiveness and the percentage of vehicle sales which can receive each technology during the redesign cycle of interest. The model combines this information with economic parameters, such as fuel prices and a discount rate, to project how various manufacturers would apply the available te chnology in order to meet various levels of emission control. The result is a description of which technologies are added to each vehicle platform, along with the resulting cost. Wh ile OMEGA can apply tec hnologies which reduce

CO 2 emissions and HFC refrigerant emissions associat ed with air conditioner use, this task is currently handled outside of the OMEGA model. The model can be set to account for various types of compliance flexibilities, such as FFV credits.

The remainder of this section describes the techni cal feasibility analysis in greater detail. Section III.D.1 describes the development of our projection of the MY 2012-2016 fleet in the206 absence of this final rule. Section III.D.2 describe s our estimates of the effectiveness and cost of the control technologies available for application in the 2012-2016 timeframe. Section III.D.3 combines these technologies into packages li kely to be applied at the same time by a manufacturer. In this section, the overall effectiv eness of the technology packages vis-à-vis their effectiveness when combined individually is de scribed. Section III.D.4 describes the process which manufacturers typically use to apply new technology to their vehi cles. Section III.D.5 describes EPA’s OMEGA model and its approach to estimating how manufacturers will add technology to their vehicles in order to comply with CO 2 emission standards. Section III.D.6 presents the results of the OMEGA modeling, namely the level of technology added to

manufacturers’ vehicles and its cost. Section III.D. 7 discusses the feasibility of the alternative 4- percent-per-year and 6-percent-per-year standards. Further detail on all of these issues can be found in EPA and NHTSA’s Joint Technical Support Document as well as EPA’s Regulatory Impact Analysis.

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

In order to calculate the impacts of this fi nal rule, it is necessary to project the GHG

emissions characteristics of the future vehicle fl eet absent this regulation. This is called the “reference” fleet. EPA and NHTSA develop this reference fleet using a three step process. Step one develops a set of detailed vehicle characteristics and sales for a specific model year (in this case, 2008). This is called the baseline fleet. Step two adjusts the sales of these vehicles using projections made by AEO and CSM to account for expected changes in market conditions. Step three applies fuel saving and emission control technology to these vehicles to the extent necessary for manufacturers to comply with the MY2011 CAFE standards. Thus, the reference

fleet differs from the MY 2008 baseline fleet in bo th the level of technology utilized and in terms of the sales of any particular vehicle.

EPA and NHTSA perform steps one and two in an identical manner. The development of

the characteristics of the baseline 2008 fleet and the adjustment of sales to match AEO and CSM forecasts is described in detail in Section II.B above. The two agencies perform step three in a conceptually identical manner, but each agency utilizes its own vehicle technology and emission model to project the technology ne eded to comply with the 2011 CAFE standards. The agencies use the same two models to project the technology and cost of the 2012-2016 standards. Use of the same model for both pre-control and post-control costs ensures consistency.

The agencies received one comment from the Ce nter for Biological Diversity that the use of 2008 vehicles in our baseline and reference fleets inherently includes vehicle models which already have or will be discontinued by the time this rule takes effect and will be replaced by more advanced vehicle models. This is true. However, we believe that the use of 2008 vehicle designs is still the most appropriate approach available. First, as discussed in Section II.B above, the designs of these new vehicles at the level of detail required for emission and cost modeling are not publically available. Even the confiden tial descriptions of these vehicle designs are usually not of sufficient detail to facilitate the level of technology and emission modeling performed by both agencies. Second, steps two and three of the process used to create the reference fleet adjust both the sales and technology of the 2008 vehicles. Thus, our reference Comment [A26]: Please mention/tee up the issue of using the AEO 2010 (also true for 2009) to calibrate the baseline – they build into the AEO a

shift in the number of cars vs. trucks sold as a result of this proposed CAFÉ rule.207 fleet reflects the extent that completely new ve hicles are expected to shift the light vehicle market in terms of both segment and manufacturer. Also, by adding technology to facilitate compliance with the 2011 CAFE standards, we ac count for the vast majority of ways in which these new vehicles will differ from their older counterparts.

The agencies also received a comment that some manufacturers have already announced plans to introduce technology well beyond that required by the 2011 MY CAFE standards. This commenter indicated that the agencies’ approach over-estimated the technology and cost required by the proposed standards and resulted in less stringent standards being proposed than a more realistic reference fleet would have supported. First, the agencies agree that limiting the application of additional technology beyond that already on 2008 vehicles to only that required by the 2011 CAFE standards could under-estimate the use of such technology absent this rule. However, it is difficult, if not impossible, to separate future fuel economy improvements made for marketing purposes from those designed to fa cilitate compliance with anticipated CAFE or

CO 2 emission standards. For example, EISA was signed over two years ago, which contained specific minimum limits on light vehicle fuel ec onomy in 2020, while also requiring ratable improvements in the interim. NHTSA proposed fuel economy standards for the 2012-2015 model years under the EISA provisions in April of 2008, although NHTSA finalized only 2011 standards for passenger vehicles. It is also true that manufacturers can change their plans based on market conditions and other factors. Thus, annou ncements of future plans are not certain. As mentioned above, these plans do not include specifi c vehicle characteristics. Thus, in order to avoid under-estimating the cost associated with this rule, the agencies have limited the fuel economy improvements in the reference fleet to those projected to result from the existing CAFE standards. We disagree with the commenter that this has caused the standards being promulgated today to be less stringent than would have been the case had we been able to confidently predict additional fuel economy and CO 2 emission improvements which will occur absent this rule. The inclusion of such technology in the reference fleet would certainly have reduced the cost of this final rule, as well as the benefits, but would not have changed the final level of technology required to meet the final st andards. Also, we believe that the same impacts would apply to our evaluations of the two alternative sets of standards, the 4% per year and 6% per year standards. We are confident that the vast majority of manufacturers would not comply with the least stringent of these standards (the 4% per year standards) in the absence of this rule. Thus, changes to the reference fleet would not have affected the differences in technology, cost or benefits between the final standards and the two alternatives. As described below, our rejection of the two alternatives in favor of the final standards is based primarily on the relative technology, cost and benefits associ ated with the three sets of sta ndards than the absolute cost or benefit relative to the reference fleet. Thus, we do not agree with the commenter that our choice of reference fleet adversely impacted the development of the final standards being promulgated today.

The addition of technology to the baseline fleet so that it complies with the MY 2011

CAFE standards is described later in Section III.D.4, as this uses the same methodology used to project compliance with the final CO 2 emission standards. In summary, the reference fleet represents vehicle characteristics and sales in the 2012 and later model years absent this final rule. Technology is then added to these vehicles in order to reduce CO 2 emissions to achieve compliance with the final CO 2 standards. As noted above, EPA did not factor in any changes to208 vehicle utility or characteristics, or sales in pr ojecting manufacturers’ co mpliance with this final

rule.

After the reference fleet is created, the ne xt step aggregates vehicle sales by a combination of manufacturer, vehicle platform, and engine design. As discussed in Section III.D.4 below, manufacturers implement major design changes at vehicle redesign and tend to implement these changes across a vehicle platform . Because the cost of modifying the engine depends on the valve train design (such as SOHC, DOHC, etc.), the number of cylinders and in some cases head design, the vehicle sales are br oken down beyond the platform level to reflect relevant engine differences. The vehicle groupings are shown in Table III.D.1-1. These groupings are the same as those used in the NPRM.

Table III.D.1-1 Vehicle Groupings a

Vehicle Description Vehicle Type Vehicle Description Vehicle Type Large SUV (Car) V8+ OHV 13 Subcompact Auto I4 1 Large SUV (Car) V6 4v 16 Large Pickup V8+ DOHC 19 Large SUV (Car) V6 OHV 12 Large Pickup V8+ SOHC 3v 14 Large SUV (Car) V6 2v SOHC 9 Large Pickup V8+ OHV 13 Large SUV (Car) I4 and I5 7 Large Pickup V8+ SOHC 10 Midsize SUV (Car) V6 2v SOHC 8 Large Pickup V6 DOHC 18 Midsize SUV (Car) V6 S/DOHC 4v 5 Large Pickup V6 OHV 12 Midsize SUV (Car) I4 7 Large Pickup V6 SOHC 2v 11 Small SUV (Car) V6 OHV 12 Large Pickup I4 S/DOHC 7 Small SUV (Car) V6 S/DOHC 4 Small Pickup V6 OHV 12 Small SUV (Car) I4 3 Small Pickup V6 2v SOHC 8 Large Auto V8+ OHV 13 Small Pickup I4 7 Large Auto V8+ SOHC 10 Large SUV V8+ DOHC 17 Large Auto V8+ DOHC, 4v SOHC 6 Large SUV V8+ SOHC 3v 14 Large Auto V6 OHV 12 Large SUV V8+ OHV 13 Large Auto V6 SOHC 2/3v 5 Large SUV V8+ SOHC 10 Midsize Auto V8+ OHV 13 Large SUV V6 S/DOHC 4v 16 Midsize Auto V8+ SOHC 10 Large SUV V6 OHV 12 Midsize Auto V7+ DOHC, 4v SOHC 6 Large SUV V6 SOHC 2v 9 Midsize Auto V6 OHV 12 Large SUV I4/ 7

Midsize Auto V6 2v SOHC 8 Midsize SUV V6 OHV 12

Midsize Auto V6 S/DOHC 4v 5 Midsize SUV V6 2v SOHC 8

Midsize Auto I4 3 Midsize SUV V6 S/DOHC 4v 5 Compact Auto V7+ S/DOHC 6 Midsize SUV I4 S/DOHC 7 Compact Auto V6 OHV 12 Small SUV V6 OHV 12 Compact Auto V6 S/DOHC 4v 4 Minivan V6 S/DOHC 16 Compact Auto I5 7 Minivan V6 OHV 12 Compact Auto I4 2 Minivan I4 7 Subcompact Auto V8+ OHV 13 Cargo Van V8+ OHV 13 Subcompact Auto V8+ S/DOHC 6 Cargo Van V8+ SOHC 10209 Subcompact Auto V6 2v SOHC 8 Cargo Van V6 OHV 12 Subcompact Auto I5/V6 S/DOHC 4v 4

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

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

MY CAFE standards.

The levels of the 2011 MY CAFE standards are straightforward to apply to future sales fleets, as is the potential fine-paying flexibility afforded by the CAFE program (i.e., $55 per mpg of shortfall). However, projecting some of the compliance flexibilities afforded by EISA and the CAFE program are less clear. Two of these compliance flexibilities are relevant to EPA’s analysis: 1) the credit for FFVs, and 2) the limit on the transferring of credits between car and truck fleets. The FFV credit is limited to 1.2 mpg in 2011 and EISA gradually reduces this credit, to 1.0 mpg in 2015 and eventually to zero in 2020. In contrast, the limit on car truck transfer is limited to 1.0 mpg in 2011, and EISA increases this to 1.5 mpg beginning in 2015 and then to 2.0 mpg beginning in 2020. The question here is whether to hold the 2011 MY CAFE provisions constant in the future or incorporate the changes in the FFV credit and car-truck credit trading limits contained in EISA.

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

standards.

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

the NPRM.210 A more detailed description of the methodology used to develop these sales projections

can be found in the Joint TSD. Detailed sales projections by model year and manufacturer can

also be found in the TSD.

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

EPA and NHTSA worked together to jointly develop information on the effectiveness

and cost of the CO 2 -reducing technologies, and fuel econom y-improving technologies, other than A/C related control technologies. This joint work is reflected in Chapter 3 of the Joint TSD and in Section II of this preamble. A summary of the effectiveness and cost of A/C related technology is contained here. For more detailed information on the effectiveness and cost of A/C related technology, please re fer to Section III.C of this pr eamble and Chapter 2 of EPA’s

RIA.

A/C improvements are an integral part of EPA’s technology analysis and have been included in this section along with the other technology options. While discussed in Section III.C as a credit opportunity, air conditioni ng-related improvements are included in Table III.D.2-1.because A/C improvements are a ve ry cost-effective technology at reducing CO 2 (or

CO 2 -equivalent) emissions. EPA expects most manufacturers will choose to use AC improvement credit opportunities as a strategy for meeting compliance with the CO 2 standards.

Note that the costs shown in Table III.D.2-1 do not include maintenance savings that would be expected from the new AC systems. Further, EPA does not include AC-related maintenance savings in our cost and benefit analysis presen ted in Section III.H. EPA discusses the likely maintenance savings in Chapter 2 of the RIA, though these savings are not included in our final cost estimates for the final rule. The EPA approx imates that the level of the credits earned will increase from 2012 to 2016 as more vehicles in the fleet are redesigned. The penetrations and average levels of credit are summarized in Table III.D.2-2, though the derivation of these numbers (and the breakdown of car vs. truck credits) is described in the RIA. As demonstrated in the IMAC study (and described in Section III.C as well as the RIA), these levels are feasible and achievable with technologies that are available and cost-effective today.

These improvements are categorized as e ither leakage reduction, including use of alternative refrigerants, or system efficien cy improvements. Unlike the majority of the technologies described in this section, A/C impr ovements will not be demonstrated in the test cycles used to quantify CO 2 reductions in this final rule. As described earlier, for this analysis

A/C-related CO 2 reductions are handled outside of OMEGA model and therefore their CO 2 reduction potential is expressed in grams per mile rather than a percentage used by the OMEGA model. See Section III.C.1 for the method by which potential reductions are calculated or measured. Further discussion of the technologic al basis for these improvements is included in Chapter 2 of the RIA.

Table III.D.2-1 Total CO 2 Reduction Potential and 2016 Cost for A/C Related Technologies for all Vehicle Classes (Costs in 2007 dollars)

CO 2 Reduction Potential Incremental Compliance Costs211 A/C refrigerant leakage reduction 7.5 g/mi 197 $17 A/C efficiency improvements 5.7 g/mi $53

Table III.D.2-2 A/C Related Technology Penetration and Credit Levels Expected to be

Earned Technology

Penetration Average credit over entire fleet Car Truck Fleet Average

2012 28% 198 3.4 3.8 3.5

2013 40% 4.8 5.4 5.0

2014 60% 7.2 8.1 7.5

2015 80% 9.6 10.8 10.0

2016 85% 10.2 11.5 10.6

3. How can Technologies be Combined into “Packages” and What is the Cost and Effectiveness of Packages?

Individual technologies can be used by manufacturers to achieve incremental CO 2 reductions. However, as mentioned in Sectio n III.D.1, EPA believes that manufacturers are more likely to bundle technologies into “packages” to capture synergistic aspects and reflect progressively larger CO 2 reductions with additions or changes to any given packag e. In addition, manufacturers typically apply new technologies in packages during model redesigns that occur approximately once every five years, rather than adding new technologies one at a time on an annual or biennial basis. This way, manufac turers can more efficiently make use of their redesign resources and more effect ively plan for changes necessary to meet future standards.

Therefore, as explained at proposal, the approach taken here is to group technologies into packages of increasing cost and effectiveness. EPA determined that 19 different vehicle types provided adequate representation to accurately mo del the entire fleet. This was the result of analyzing the existing light duty fleet with respect to vehicle size and powertrain configurations. All vehicles, including cars and trucks, were firs t distributed based on their relative size, starting from compact cars and working upward to large trucks. Next, each vehicle was evaluated for powertrain, specifically the engine size, I4, V6, and V8, and finally by the number of valves per cylinder. Note that each of these 19 vehicle types was mapped into one of the five classes of

vehicles mentioned in Section III. D.2. While the five classes provide adequate representation for the cost basis associated with most technology ap plication, they do not adequately account for all existing vehicle attributes such as base vehicl e powertrain configuration and mass reduction. As an example, costs and effectiveness estimates for engine friction reduction for the small car class were used to represent cost and effectiveness for three vehicle types: subcompact cars, compact cars, and small multi-purpose vehicles (MPV) eq uipped with a 4-cylinder engine, however the mass reduction associated for each of these vehicle types was based on the vehicle type sales-

197 This represents 50% improvement in leakage and thus 50% of the A/C leakage impact potential compared to a maximum of 15 g/mi credit that can be achieved through the incorporation of a low very GWP refrigerant.

198 We assume slightly higher A/C penetration in 2012 than was assumed in the proposal to correct for rounding that occurred in the curve setting process.212 weighted average. In another example, a vehicle type for V8 single overhead cam 3-valve engines was created to properly account for the incremental cost in moving to a dual overhead cam 4-valve configuration. Note also that th ese 19 vehicle types span the range of vehicle footprint (smaller footprints for smaller vehicles and larger footprints for larger vehicles) which serve as the basis for the standards being promulgated today. A complete list of vehicles and their associated vehicle types is shown above in Table III.D.1-1.

Within each of the 19 vehicle types, multip le technology packages were created in increasing technology content resulting in increasing effectiveness. Important to note that the effort in creating the packages attempted to ma intain a constant utility for each package ascompared to the baseline package. As such, each package is meant to provide equivalent driverperceived performance to the baseline packag e. The initial packages represent what a manufacturer will most likely implement on all vehicles, including low rolling resistance tires, low friction lubricants, engine friction reduction, aggressive shift logic, early torque converter lock-up, improved electrical accessories, and low drag brakes. 199 Subsequent packages include advanced gasoline engine and transmission tech nologies such as turbo/downsizing, GDI, and

dual-clutch transmission. The most technologically advanced packages within a segment included HEV, PHEV and EV designs. The end result is a list of several packages for each of 19 different vehicle types from which a manufacturer could choose in order to modify its fleet such that compliance could be achieved.

Before using these technology packages as i nputs to the OMEGA model, EPA calculated the cost and effectiveness for the package. The first step was to apply the scaling class for each technology package and vehicle type combination. The scaling class establishes the cost and effectiveness for each technology with respect to the vehicle size or type. The Large Car class was provided as an example in Section III.D.2. Additional classes include Small Car, Minivan, Small Truck, and Large Truck and each of the 19 vehicle types was mapped into one of those five classes. In the next step, the cost for a particular technology package was determined as the sum of the costs of the applied technologies. The final step, determination of effectiveness, requires greater care due to the synergistic effect s mentioned in Section III.D.2. This step is described immediately below.

Usually, the benefits of the engine and transmission technologies can be combined multiplicatively. For example, if an engine technology reduces CO 2 emissions by five percent and a transmission technology reduces CO 2 emissions by four percent, the benefit of applying both technologies is 8.8 percent (100% - (100% – 4%) * (100% - 5%)). In some cases, however,

the benefit of the transmission-related technol ogies overlaps with many of the engine technologies. This occurs because the primary goa l of most of the transmission technologies is to shift operation of the engine to more efficient locations on the engine map. This is accomplished by incorporating more ratio se lections and a wider ratio span into the transmissions. Some of the engine technol ogies have the same goal, such as cylinder deactivation, advanced valvetrains, and turbocharging. In order to account for this overlap and

199 When making reference to low friction lubricants, the t echnology being referred to is the engine changes and possible durability testing that would be done to accomm odate the low friction lubricants, not the lubricants

themselves.213 avoid over-estimating emissions reduction effectiveness, EPA has developed a set of adjustment factors associated with specific pairs of engine and transmission technologies.

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

EPA has chosen to use an engineering approach known as the lumped-parameter technique to determine these adjustment factors. The results from this approach were then applied directly to the vehicle packages. The lumped-parameter technique is well documented in the literature, and the specific approach developed by EPA is detailed in Ch apter 1 of the RIA.

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

Table III.D.3-1 Reduction in Effectiveness for Selected Technology Pairs Engine Technology Transmission Technology Reduction in Combined

Effectiveness Intake cam phasing 5 speed automatic 0.5% Coupled cam phasing 5 speed automatic 0.5% Coupled cam phasing Aggressive shift logic 0.5% Cylinder deactivation 5 speed automatic 1.0% Cylinder deactivation Aggressive shift logic 0.5%

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

Table III.D.3-2 CO 2 Reducing Technology Vehicle Packages for a Large Car Effectiveness and Costs in 2016 (Costs in 2007 dollars) Engine Technology Transmission Technology Additional Technology CO 2 Reduction Package

Cost 3.3L V6 4 speed automatic None Baseline

3.0L V6 + GDI

+ CCP 6 speed automatic 3% Mass Reduction 17.9% $985

3.0L V6 + GDI

+ CCP + Deac 6 speed automatic 5% Mass Reduction 20.6% $1,238

2.2L I4 + GDI +

Turbo + DCP 6 speed DCT 10% Mass Reduction Start-Stop 34.3% $1,903214 4. Manufacturer’s Application of Technology

Vehicle manufacturers often introduce major product changes together, as a package. In this manner the manufacturers can optimize their available resources, including engineering, development, manufacturing and marketing activ ities to create a product with multiple new features. In addition, manufacturers recognize that a vehicle will need to remain competitive over its intended life, meet future regulatory requirements, and contribute to a manufacturer’s CAFE requirements. Furthermore, automotive manufacturers are largely focused on creating vehicle platforms to limit the development of en tirely new vehicles and to realize economies of scale with regard to variable cost. In very limited cases, manufacturers may implement an individual technology outside of a vehicle’s redesign cycle. 200 In following with these industry practices, EPA has created set of vehicle technology packages that represent the entire light duty

fleet.

In evaluating needed lead time, EPA has hist orically authorized manufacturers of new vehicles or nonroad equipment to phase in available emission control technology over a number of years. Examples of this are EPA’s Tier 2 program for cars and light trucks and its 2007 and

later PM and NO X emission standards for heavy-duty vehicles. In both of these rules, the major modifications expected from the rules were the addition of exhaust aftertreatment control technologies. Some changes to the engine were ex pected as well, but these were not expected to affect engine size, packaging or performance. The CO 2 reduction technologies described above potentially involve much more significant changes to car and light truck designs. Many of the engine technologies involve changes to the engine block and heads. The transmission technologies could change the size and shape of the transmission and thus, packaging. Improvements to aerodynamic drag could involve body design and therefore, the dies used to produce body panels. Changes of this sort potentially involve new capital investment and the obsolescence of existing investment.

At the same time, vehicle designs are not static, but change in major ways periodically. The manufacturers’ product plans indicate that vehicles are usually redesigned every 5 years on

average. 201 Vehicles also tend to receive a more modest “refresh” between major redesigns, as discussed above. Because manufacturers are already changing their tooling, equipment and designs at these times, further changes to vehicle design at these times involve a minimum of stranded capital equipment. Thus, the timing of any major technological changes is projected to coincide with changes that manufacturers are already making to their vehicles. This approach effectively avoids the need to quantify any costs associated with discarding equipment, tooling, emission and safety certification, etc. when CO 2 -reducing equipment is incorporated into a

vehicle.

This final rule affects five years of vehicle production, model years 2012-2016. Given the now-typical five year redesign cycle, nearly all of a manufacturer’s vehicles will be redesigned over this period. However, this assumes that a manufacturer has sufficient lead time to redesign the first model year af fected by this final rule with th e requirements of this final rule

200 The Center for Biological Diversity submitted comments di sputing this distinction as well as the need for lead

time. These comments are addressed in Section III.D.7.

201 See discussion in Section III.D.7 with references215 in mind. In fact, the lead time available for m odel year 2012 is relatively short. The time between a likely final rule and the start of 2013 model year production is likely to be just over two years. At the same time, the manufacturer product plans indicate that they are planning on introducing many of the technologies projected to be required by this final rule in both 2012 and 2013. In order to account for the relatively short lead time available prior to the 2012 and 2013 model years, albeit mitigated by their existing pl ans, EPA projects that only 85 percent of each

manufacturer’s sales will be able to be redesigned with major CO 2 emission-reducing technologies by the 2016 model year. Less in trusive technologies can be introduced into essentially all of a manufacturer’s sales. This re sulted in three levels of technology penetration caps, by manufacturer. Common technologies (e.g., low friction lubes, aerodynamic improvements) had a penetration cap of 100%. More advanced powertrain technologies (e.g., stoichiometric GDI, turbocharging) had a penetration cap of 85%. The most advanced technologies considered in this analysis (e.g., diesel engines, 202 as well as IMA, powersplit and 2-mode hybrids) had a 15% penetration cap.

This is the same approach as was taken in the NPRM. EPA received several comments commending it on its approach to establishing technical feasibility via its use of the OMEGA model. The only adverse comment received regarding the application of technology was from the Center for Biological Diversity (CBD), whic h criticized EPA’s use of the 5-year redesign cycle. CBD argued that manufacturers occasion ally redesign vehicles sooner than 5 years and that EPA did not quantify the cost of shortening the redesign cycle to less than 5 years and compare this cost to the in creased benefit of reduced CO 2 emissions. CBD also noted that manufacturers have been recently dropping vehi cle lines and entire divisions with very little leadtime, indicating their ability to change product plans much quicker than projected above.

EPA did not explicitly evaluate the cost of reducing the average redesign cycle to less than 5 years for two reasons. One, in the past, manufacturers have usually shortened the redesign cycle to address serious problems with the current design, usually lower than anticipated sales. However, the amortized cost of the capital necessary to produce a new vehicle design will increase by 23%, from one-fifth of th e capital cost to one-fourth (and assuming a 3% discount rate). This would be on top of the co st of the emission control equipment itself. The only benefit of this increase in societal cost will be earlier CO 2 emission reductions (and the

other benefits associated with CO 2 emission control). The capital costs associated with vehicle redesign go beyond CO 2 emission control and potentially involve every aspect of the vehicle and can represent thousands of dollars. We believe th at it would be an inefficient use of societal resources to incur such costs when they can be obtained much more cost effectively just one year

later.

Two, the examples of manufacturers dropping vehicle lines and divisions with very short lead time is not relevant to the redesign of vehicles. There is no relationship between a manufacturer’s ability to stop selling a vehicl e model or to close a vehicle division and a manufacturer's ability to redesign a vehicle. A co mpany could decide to stop selling all of its products within a few weeks – but it would still take a firm approximately 5 years to introduce a major new vehicle line. It is relatively easy to stop the manufacture of a particular product

202 While diesel engines are a mature technology and not “a dvanced”, the aftertreatment systems necessary for them

in the U.S. market are advanced.216 (though this too can incur some cost -- such as plant wind-down costs, employee layoff or relocation costs, and dealership re lated costs). It is much more difficult to perform the required engineering design and development, design, purchase, and install the necessary capital equipment and tooling for components and vehicle manufacturing and develop all the processes associated with the application of a new techno logy. Further discussion of the CBD comments

can be found in III.D.7 below.

5. How is EPA Projecting that a Manufacturer Decides Between Options to Improve

CO 2 Performance to Meet a Fleet Average Standard?

EPA is generally taking the same approach to projecting the application of technology to

vehicles as it did for the NPRM. With the exce ption of two comments, all commenters agreed with the modeling approach taken in the NPRM. One of these two comments is addressed is Section III.D.1 above, while the other is addressed in Section III.D.3. above.

There are many ways for a manufacturer to reduce CO 2 -emissions from its vehicles. A manufacturer can choose from a myriad of CO 2 reducing technologies and can apply one or more of these technologies to some or all of its vehicles. Thus, for a variety of levels of CO 2 emission control, there are an almost infinite number of technology combina tions which produce the

desired CO 2 reduction. As noted earlier, EPA developed a new vehicle model, the OMEGA model in order to make a reasonable estimate of how manufacturers will add technologies to

vehicles in order to meet a fleet-wide CO 2 emissions level. EPA has described OMEGA’s specific methodologies and algorithms in a memo to the docket for this rulemaking (Docket EPA-HQ-OAR-2009-0472).

The OMEGA model utilizes four basic sets of input data. The first is a description of the vehicle fleet. The key pieces of data requir ed for each vehicle are its manufacturer, CO 2 emission level, fuel type, projected sales and footprint. The model also requires that each vehicle be assigned to one of the 19 vehicle types, which tells the model which set of technologies can be applied to that vehicle. (For a description of how the 19 vehicle types were created, reference Section III.D.3.) In addition, the degree to whic h each vehicle already re flects the effectiveness and cost of each available technology must also be input. This avoids the situation, for example, where the model might try to add a basic engine improvement to a current hybrid vehicle. Except for this type of information, the development of the required data regarding the reference fleet was described in Section III.D.1 above and in Chapter 1 of the Joint TSD.

The second type of input data used by the model is a description of the technologies available to manufacturers, primarily their cost an d effectiveness. Note that the five vehicle classes are not explicitly used by the model, ra ther the costs and effectiveness associated with each vehicle package is based on the associated class. This information was described in Sections III.D.2 and III.D.3 above as well as Chap ter 3 of the Joint TSD. In all cases, the order of the technologies or technology packages for a particular vehicle type is determined by the217 model user prior to running the model. Several criteria can be used to develop a reasonable ordering of technologies or packages. These are described in the Joint TSD.

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

Joint TSD.

The fourth type of data describes the CO 2 emission standards being modeled. These

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

for CO 2 emissions over the 2-cycle test which is assessed in our OMEGA modeling.

As mentioned above for the market data input file utilized by OMEGA, which characterizes the vehicle fleet, our modeling must and does account for the fact that many 2008 MY vehicles are already equipped with one or more of the technologies discussed in Section III.D.2 above. Because of the choice to apply technologies in packages, and 2008 vehicles are equipped with individual technologies in a wide variety of combinations, accounting for the presence of specific technologies in terms of their proportion of package cost and CO 2 effectiveness requires careful, detailed analysis. The first step in this analysis is to develop a list of individual technologies which are either co ntained in each technology package, or would supplant the addition of the relevant portion of each technology package. An example would be a 2008 MY vehicle equipped with variable valve timing and a 6-speed automatic transmission. The cost and effectiveness of variable valve timing would be considered to be already present for any technology packages which included the addition of variable valve timing or technologies which went beyond this technology in terms of engine related CO 2 control efficiency. An example of a technology which supplants seve ral technologies would be a 2008 MY vehicle which was equipped with a diesel engine. Th e effectiveness of this technology would be considered to be present for technology pack ages which included improvements to a gasoline engine, since the resultant gasoline engines have a lower CO 2 control efficiency than the diesel engine. However, if these packages which included improvements also included improvements unrelated to the engine, like transmission improvements, only the engine related portion of the package already present on the vehicle would be co nsidered. The transmission related portion of the package’s cost and effectiveness would be allowed to be applied in order to comply with

future CO 2 emission standards.

The second step in this process is to determine the total cost and CO 2 effectiveness of the technologies already present and relevant to each available package. Determining the total cost usually simply involves adding up the costs of the individual technologies present. In order to

determine the total effectiveness of the technologies already present on each vehicle, the lumped parameter model described above is used. Because the specific technologies present on each 2008 vehicle are known, the applicable synergies and dis-synergies can be fully accounted for.218 The third step in this process is to divide the total cost and CO 2 effectiveness values determined in step 2 by the total cost and CO 2 effectiveness of the relevant technology packages. These fractions are capped at a value of 1.0 or less, since a value of 1.0 causes the OMEGA model to not change either the cost or CO 2 emissions of a vehicle when that technology package

is added.

As described in Section III.D.3 above, technology packages are applied to groups of vehicles which generally represent a single vehicle platform and which are equipped with a single engine size (e.g., compact cars with four cylinder engine produced by Ford). These grouping are described in Table III.D.1-1. Thus, the fourth step is to combine the fractions of the cost and effectiveness of each technology package already present on the individual 2008 vehicles models for each vehicle grouping. For cost, percentages of each package already present are combined using a simple sales-weighting procedure, since the cost of each package is the same for each vehicle in a grouping. For effectiveness, the individual percentages are combined by weighting them by both sales and base CO 2 emission level. This appropriately weights vehicle models with either higher sales or CO 2 emissions within a grouping. Once again, this process prevents the model from adding technology which is already present on vehicles, and thus ensures that the model does not double count technology effectiveness and cost associated with complying with th e 2011 MY CAFE standards and the final CO 2 standards.

Conceptually, the OMEGA model begins by determining the specific CO 2 emission standard applicable for each manufacturer and its vehicle class (i.e., car or truck). Since the final rule allows for averaging across a manufacturer ’s cars and trucks, the model determines the CO 2 emission standard applicable to each manufacturer’s car and truck sales from the two sets of coefficients describing the piecewise linear sta ndard functions for cars and trucks in the inputs,

and creates a combined car-truck standard. This combined standard considers the difference in lifetime VMT of cars and trucks, as indicated in the final regulations which govern credit trading

between these two vehicle classes. For both the 2011 CAFE and 2016 CO 2 standards, these standards are a function of each manufacturer’s sales of cars and trucks and their footprint values. When evaluating the 2011 MY CAFE standards, the car-truck trading was limited to 1.2 mpg. When evaluating the final CO 2 standards, the OMEGA model was run only for MY 2016. OMEGA is designed to evaluate technology addition over a complete redesign cycle and 2016 represents the final year of a redesign cycle starting with the first year of the final CO 2 standards, 2012. Estimates of the technology and cost for the interim model years are developed from the model projections made for 2016. This process is discussed in Chapter 6 of EPA’s RIA to this final rule. When evaluating the 2016 sta ndards using the OMEGA model, the final CO 2 standard

which manufacturers will otherwise have to meet to account for the anticipated level of A/C credits generated was adjusted. On an industry wide basis, the projection shows that manufacturers will generate 11 g/mi of A/C credit in 2016. Thus, the 2016 CO 2 target for the fleet evaluated using OMEGA was 26 1 g/mi instead of 250 g/mi.

As noted above, EPA estimated separately the cost of the improved A/C systems required to generate the 11 g/mi credit. This is consiste nt with our final A/C credit procedures, which will grant manufacturers A/C credits based on their total use of improved A/C systems, and not on the increased use of such systems relative to some base model year fleet. Some manufacturers219 may already be using improved A/C technology. However, this represents a small fraction of current vehicle sales. To the degree that su ch systems are already being used, EPA is overestimating both the cost and benefit of the addi tion of improved A/C technology relative to the true reference fleet to a small degree.

The model then works with one manufacturer at a time to add technologies until that manufacturer meets its applicable standard. The OMEGA model can utilize several approaches to determining the order in which vehicles receive technologies. For this analysis, EPA used a “manufacturer-based net cost-effectiveness factor” to rank the technology packages in the order in which a manufacturer is likely to apply them. Conceptually, this approa ch estimates the cost of adding the technology from the manufacturer’s perspective and divides it by the mass of CO 2 the technology will reduce. One component of th e cost of adding a technology is its production cost, as discussed above. However, it is expected that new vehicle purchasers value improved fuel economy since it reduces the cost of operating the vehicle. Typical vehicle purchasers are assumed to value the fuel savings accrued over the period of time which they will own the vehicle, which is estimated to be roughly five years. It is also assumed that consumers discount these savings at the same rate as that used in the rest of the analysis (3 or 7 percent). Any residual value of the additional technology which might remain when the vehicle is sold is not

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

Given this definition, the higher priority technologies are those with the lowest manufacturer-based net cost-effectiveness value (r elatively low technology cost or high fuel savings leads to lower values). Because the order of technology application is set for each vehicle, the model uses the manufacturer-based net cost-effectiveness primarily to decide which vehicle receives the next technology addition. Initially, technology package #1 is the only one available to any particular vehicle. However, as soon as a vehicle receives technology package #1, the model considers the manufacturer-based net cost-effectiveness of technology package #2 for that vehicle and so on. In general terms, the equation describing the calculation of

manufacturer-based cost effectiveness is as follows: 

## [ ]

[ ] [ ] ( ) 

# ∑ ∑

+ =



### − × × − × ×

−

= 35 1



### 1 1 2 ) 1 ( 1

i

i i PP

i i i



### Gap VMT dCO Gap VMT dFS TechCost

ff ManufCostE

Where ManufCostEff = Manufacturer-Based Cost Effectiveness (in dollars per kilogram CO 2 ), TechCost = Marked up cost of the technology (dollars), PP = Payback period, or the number of years of vehicle use over which consumers value fuel savings when evaluating the value of a new vehicle at time of purchase,

dFS i = Difference in fuel consumption due to the addition of technology times fuel price in year i,

dCO 2 = Difference in CO 2 emissions due to the addition of technology,220 VMTi = product of annual VMT for a vehicle of age i and the percentage of vehicles of age i still on the road, and 1- Gap = Ratio of onroad fuel economy to two-cycle (FTP/HFET) fuel economy

The OMEGA model does not currently allow for the VMT used in determining the various technology ranking factors to be a function of the rebound factor. If the user believed that the consideration of rebound VMT was important , they could increase their estimate of the payback period to simulate the impact of the rebound VMT.

EPA describes the technology ranking methodology and manufacturer-based cost effectiveness metric in greater detail in a technica l memo to the Docket for this final rule (Docket EPA-HQ-OAR-2009-0472).

When calculating the fuel savings, the full reta il price of fuel, including taxes is used. While taxes are not generally included when calculating the cost or benefits of a regulation, the net cost component of the manufacturer-based net cost-effectiveness equation is not a measure of the social cost of this final rule, but a measure of the private cost, (i.e., a measure of the vehicle purchaser’s willingness to pay more for a vehicle with higher fuel efficiency). Since vehicle operators pay the full price of fuel, including taxes, they value fuel costs or savings at this level,

and the manufacturers will consider this wh en choosing among the technology options.

This definition of manufacturer-based net cost-effectiveness ignores any change in the

residual value of the vehicle due to the additional technology when the vehicle is five years old. As discussed in Chapter 1 of the RIA, based on historic used car pricing, applicable sales taxes, and insurance, vehicles are worth roughly 23% of their original cost after five years, discounted to year of vehicle purchase at 7% per annum. It is reasonable to estimate that the added technology to improve CO 2 level and fuel economy will retain this same percentage of value when the vehicle is five years old. However, it is less clear whether first purchasers, and thus, manufacturers consider this residual value when ranking technologies and making vehicle purchases, respectively. For this final rule, this factor was not included in our determination of manufacturer-based net cost-effectiveness in the analys es performed in support of this final rule.

The values of manufacturer-based net cost-e ffectiveness for specific technologies will vary from vehicle to vehicle, often substantially. This occurs for three reasons. First, both the cost and fuel-saving component cost, ownership fuel-savings, and lifetime CO 2 effectiveness of a specific technology all vary by the type of vehicle or engine to which it is being applied (e.g., small car versus large truck, or 4-cylinder versus 8-cylinder engine). Second, the effectiveness of a specific technology often depends on the presence of other technologies already being used on the vehicle (i.e., the dis-synergies. Third, the absolute fuel savings and CO 2 reduction of a percentage an incremental reduction in fuel consumption depends on the CO 2 level of the vehicle prior to adding the technology. Chapter 1 of the RIA of this final rule contains further detail on

the values of manufacturer-based net cost-eff ectiveness for the variou s technology packages.

6. Why are the Final CO 2 Standards Feasible?221 The finding that the final standards are te chnically feasible is based primarily on two factors. One is the level of technology needed to meet the final standards. The other is the cost of this technology. The focus is on the final st andards for 2016, as this is the most stringent standard and requires the most extensive use of technology.

With respect to the level of technology requi red to meet the standards, EPA established technology penetration caps. As described in Sec tion III.D.4, EPA used two constraints to limit the model’s application of technology by manufacturer. The first was the application of common fuel economy enablers such as low rolling resistance tires and transmission logic changes. These were allowed to be used on all vehicles and hence had no penetration cap. The second constraint was applied to most other technologies and limited their application to 85% with the exception of the most advanced technologies (e.g., power-split hybrid and 2-mode hybrid) and diesel 203

, whose application was limited to 15%.

EPA used the OMEGA model to project the technology (and resultant cost) required for

manufacturers to meet the current 2011 MY CAFE standards and the final 2016 MY CO 2 emission standards. Both sets of standards were evaluated using the OMEGA model. The 2011 MY CAFE standards were applied to cars and trucks separately with the transfer of credits from one category to the other allowed up to an increase in fuel economy of 1.0 mpg as allowed under the applicable MY2011 CAFE regulations. Chrysler, Ford and General Motors are assumed to utilize FFV credits up to the maximum of 1.2 mpg fo r both their car and truck sales. Nissan is assumed to utilize FFV credits up to the maximum of 1.2 mpg for only their truck sales. The use of any banked credits from previous model years was not considered. The modification of the reference fleet to comply with the 2011 CAFE standards through the application of technology by the OMEGA model is the final step in creating the final reference fleet. This final reference fleet forms the basis for comparison for the model year 2016 standards.

Table III.D.6-1 shows the usage level of selected technologies in the 2008 vehicles coupled with 2016 sales prior to projecting their compliance with the 2011 MY CAFE standards. These technologies include converting port fuel -injected gasoline engines to direct injection (GDI), adding the ability to deactivate certain en gine cylinders during low load operation to overhead cam engines (OHC-DEAC), adding a turbocharger and downsizing the engine (Turbo), diesel engine technology, increasing the number of transmission speeds to 6

, or converting

automatic transmissions to dual-clutch automate d manual transmissions (Dual-Clutch Trans), adding 42 volt start-stop capability (Start-Stop), and converting a vehicle to an intermediate or strong hybrid design. This last category includes three current hybrid de signs: integrated motor assist (IMA), power-split (PS), 2-mode hybrids and electric vehicles. 204

Table III.D.6-1 Penetration of Technology in 2008 Vehicles with 2016 Sales: Cars and Trucks

203 While diesel engines are not an “advanced technology” pe r se, diesel engines that can meet EPA’s light duty Tier

2 Bin 5 NO

x standards have advanced (and somewhat costly) aftertreatment systems on them that make this technology penetration cap appropriate in addition to their relatively high incremental costs.

204 EPA did not project reliance on the use of any plug-in hybrid or battery electric vehicles when projecting manufacturers’ compliance with the 2016 standards. Howe ver, BMW did sell a battery electric vehicle in the 2008 model year, so these sales are included in the technology penetration estimates for the reference case and the final

and alternative standards evaluated for 2016.222 GDI OHCDEAC Turbo Diesel 6 Speed

Auto

Trans Dual

Clutch

Trans StartStop Hybrid

BMW 7.5% 0.0% 6.1% 0.0% 86% 0.9% 0% 0.1% Chrysler 0.0% 0.0% 0.5% 0.1% 14% 0.0% 0% 0.0%

Daimler 0.0% 0.0% 6.5% 5.6% 76% 7.5% 0% 0.0%

Ford 0.4% 0.0% 2.2% 0.0% 29% 0.0% 0% 0.0%

General Motors 3.1% 0.0% 1.4% 0.0% 15% 0.0% 0% 0.3%

Honda 1.4% 7.1% 1.4% 0.0% 0% 0.0% 0% 2.1% Hyundai 0.0% 0.0% 0.0% 0.0% 3% 0.0% 0% 0.0%

Kia 0.0% 0.0% 0.0% 0.0% 0% 0.0% 0% 0.0%

Mazda 13.6% 0.0% 13.6% 0.0% 26% 0.0% 0% 0.0%

Mitsubishi 0.0% 0.0% 0.0% 0.0% 10% 0.0% 0% 0.0%

Nissan 0.0% 0.0% 0.0% 0.0% 0% 0.0% 0% 0.8%

Porsche 58.6% 0.0% 14.9% 0.0% 49% 0.0% 0% 0.0%

Subaru 0.0% 0.0% 9.8% 0.0% 0% 0.0% 0% 0.0%

Suzuki 0.0% 0.0% 0.0% 0.0% 0% 0.0% 0% 0.0%

Tata 0.0% 0.0% 17.3% 0.0% 99% 0.0% 0% 0.0%
Toyota 6.8% 0.0% 0.0% 0.0% 21% 0.0% 0% 11.6% Volkswagen 50.6% 0.0% 39.5% 0.0% 69% 13.1% 0% 0.0%

Overall 3.8% 0.8% 2.6% 0.1% 19.1% 0.5% 0.0% 2.2%

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

Table III.D.6-2 shows the usage level of the same technologies in the reference case fleet after projecting their compliance with the 2011 MY CAFE standards. Except for mass reduction, the figures shown represent the percentages of each manufacturer’s sales which are projected to be equipped with the indicated technology. For mass reduction, the overall mass reduction projected for that manufacturer’s sales is also shown. The last row in Table III.D.6-2 shows the increase in projected technology penetration due to compliance with the 2011 MY CAFE standards. The results of DOT’s Volpe modeling were used to project that all manufacturers would comply with the 2011 MY standards in 2016 without the need to pay fines, with one exception. This exception was Porsche in the case of their car fleet. When projecting Porsche’s compliance with the 2011 MY CAFE standard for cars, NHTSA projected that Porsche would

achieve a CO 2 emission level of 304.3 g/mi instead of the required 284.8 g/mi level (29.2 mpg instead of 31.2 mpg), and pay fines in lieu of further control.223 Table III.D.6-2 Penetration of Technology Under 2011 MY CAFE Standards in 2016 Sales: Cars and Trucks (Percent of Sales)

GDI OHCDEAC Turbo 6 Speed

Auto

Trans Dual

Clutch

Trans StartStop Mass

Reduction (%)

BMW 44% 12% 30% 53% 37% 13% 2% Chrysler 0% 0% 0% 18% 0% 0% 0%

Daimler 23% 22% 8% 52% 34% 26% 2%

Ford 0% 0% 3% 27% 0% 0% 0%
General

Motors 3% 0% 1% 15% 0% 0% 0%

Honda 2% 6% 2% 0% 0% 0% 0% Hyundai 0% 0% 0% 3% 0% 0% 0%

Kia 0% 0% 0% 0% 0% 0% 0%

Mazda 13% 0% 13% 20% 0% 0% 0%

Mitsubishi 32% 0% 2% 25% 35% 0% 1%

Nissan 0% 0% 0% 0% 0% 0% 0%

Porsche 92% 0% 75% 5% 55% 38% 4%

Subaru 0% 0% 9% 0% 0% 0% 0%

Suzuki 70% 0% 0% 3% 67% 67% 3%

Tata 85% 54% 20% 27% 73% 73% 6%
Toyota 7% 0% 0% 19% 0% 0% 0% Volkswagen 89% 5% 81% 14% 78% 18% 3%

Overall 10% 2% 7% 16% 7% 3% 0%

Increase over

2008 MY 6% 1% 4% -3% 6% 3% 0%

As can be seen, the 2011 MY CAFE standards, when evaluated on an industry wide basis, require only a modest increase in the us e of these technologies. The projected MY2016 fraction of automatic transmission with more ge arsets actually decreases slightly due to

conversion of these units to more efficient desi gns such as automated manual transmissions and hybrids. However, the impact of the 2011 MY CAFE standards is much greater on selected manufacturers, particularly BMW, Daimler, Porsche, Tata (Jaguar/Land Rover) and VW. All of these manufacturers are projected to increase their use of direct injection gasoline engine technology, advanced transmission technology, and start-stop technology. It should be noted that these manufacturers have traditionally paid fines under the CAFE program. However, with higher fuel prices and the lower cost mature t echnology projected to be available by 2016, these manufacturers would likely find it in their best interest to improve their fuel economy levels instead of continuing to pay fines (again with the exception of Porsche cars). While not shown, no gasoline engines were projected to be converted to diesel technology and no hybrid vehicles were projected. Most manufacturers do not require the level of CO 2 emission control associated224 with either of these technologies. The few manufa cturers that would were projected to choose to pay CAFE fines in 2011 in lieu of adding diesel or hybrid technologies.

This 2008 baseline fleet, modified to meet 2011 standards, becomes our “reference” case.

See Section II.B above. This is the fleet against which the final 2016 standards are compared. Thus, it is also the fleet that is assumed to exist in the absence of this rule. No air conditioning improvements are assumed for model year 2011 vehicles. The average CO 2 emission levels of this reference fleet vary slightly from 2012-2016 due to small changes in the vehicle sales by market segments and manufacturer. CO 2 emissions from cars range from 282-284 g/mi, while those from trucks range from 382-384 g/mi. CO 2 emissions from the combined fleet range from 316-320. These estimates are described in greater detail in Section 5.3.2.2 of the EPA RIA.

Conceptually, both EPA and NHTSA perform the same projection in order to develop their respective reference fleets. However, because the two agencies use two different models to modify the baseline fleet to meet the 2011 CAFE standards, the projected technology that could be added will be slightly different. The differ ences, however, are rela tively small since most manufacturers only require modest addition of technology to meet the 2011 CAFE standards.

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

to meet the final 2016 CO 2 emission standards. Using the results of the OMEGA model, every manufacturer was projected to be able to meet the final 2016 standards with the technology described above except for four: BMW, VW, Porsche and Tata (which is comprised of Jaguar and Land Rover vehicles in the U.S. fleet) . For these manufacturers, the results presented below are those with the fully allowable applicatio n of technology available in EPA’s OMEGA modeling analysis and not for the technology pr ojected to enable compliance with the final standards. Described below are a number of potential feasible solutions for how these companies can achieve compliance. The overall level of technology needed to meet the final 2016 standards is shown in Table III.D.6-3. As discussed above, all manufacturers are projected to improve the air conditioning systems on 85% of their 2016 sales. 205

Table III.D.6-3 Final Penetration of Technology for 2016 CO 2 Standards: Cars and Trucks

GDI OHCDEAC Turbo Diesel 6 Speed

Auto

Trans Dual

Clutch

Trans StartStop Hybrid Mass

Reduction (%)

BMW 80% 21% 61% 6% 13% 63% 65% 14% 5% Chrysler 79% 13% 17% 0% 31% 52% 54% 0% 6%

Daimler 76% 30% 53% 5% 12% 72% 67% 14% 5%

Ford 84% 21% 19% 0% 27% 60% 61% 0% 6%
General

Motors 67% 25% 14% 0% 8% 61% 61% 0% 6%

Honda 43% 6% 2% 0% 0% 49% 18% 2% 3% Hyundai 59% 0% 1% 0% 8% 52% 32% 0% 3%

205 Many of the technologies shown in this table are mutually exclusive. Thus, 85% penetration might not be possible. For example, any use of hybrids will reduce the DEAC, Turbo, 6SPD, DCT, and 42V S-S technologies. Additionally, not every technology is avai lable to be used on every vehicle type.225 Kia 33% 0% 1% 0% 0% 52% 4% 0% 2%

Mazda 60% 0% 14% 1% 17% 47% 41% 0% 4%

Mitsubishi 74% 0% 33% 0% 14% 74% 74% 0% 6%

Nissan 66% 7% 11% 0% 2% 62% 58% 1% 5%

Porsche 83% 15% 62% 8% 5% 45% 62% 15% 4%

Subaru 60% 0% 9% 0% 0% 58% 44% 0% 3%

Suzuki 77% 0% 0% 0% 10% 67% 67% 0% 4%

Tata 85% 55% 27% 0% 14% 70% 70% 15% 5%
Toyota 26% 7% 3% 0% 13% 40% 7% 12% 2% Volkswagen 82% 18% 71% 11% 10% 68% 60% 15% 4%

Overall 60% 13% 15% 1% 12% 55% 42% 4% 4%

Increase

over 2011

CAFE 49% 11% 9% 1% -4% 48% 39% 2% 4%

Table III.D.6-4 shows the 2016 standards, as well as the achieved CO 2 emission levels for the five manufacturers which are not able to meet these standards under the premises of our modeling. It should be noted that the two sets of combined emission levels shown in Table III.D.6-4 are based on sales weighting car and truck emission levels.

Table III.D.6-4 Emissions of Manufacturers Unable to Meet Final 2016 Standards (g/mi CO 2 )

Achieved Emissions 2016 Standards Shortfall

Manufacturer Car Truck Combined Car Truck Combined Combined

BMW 236.3 278.7 248.5 228.4 282.5 243.9 4.6

Tata 258.6 323.6 284.2 249.9 272.5 258.8 25.4

Daimler 246.3 297.8 262.6 238.3 294.3 256.1 6.5

Porsche 244.1 332.0 273.4 206.1 286.9 233.0 40.4 Volkswagen 223.5 326.6 241.6 218.6 292.7 231.6 10.0

As can be seen, BMW and Daimler have the smallest shortfalls, 5-6 g/mi, while Porsche has the largest, 40 g/mi.

On an industry average basis, the technology penetrations are very similar to those projected in the proposal. There is a slight shift from the use of cylinder deactivation to the two advanced transmission technologies. This is du e to the fact that the estimated costs for these three technologies have been updated, and thus, their relative cost effectiveness when applied to specific vehicles have also shifted. The reader is referred to Section II.E of this preamble as well as Chapter 3 of the Joint TSD for a detailed descri ption of the cost estimates supporting this final rule and to the RIA for a description of the selection of technology packages for specific vehicle types. The other technologies shown in Table III.D.6-4 changed by 2 percent or less between the proposal and this final rule.226 As can be seen, the overall average reduction in vehicle weight is projected to be 4 percent. This reduction varies across the two vehicle classes and vehicle base weight. For cars below 2,950 pounds curb weight, the average reduction is 2.8 percent (75 pounds), while the average was 4.3 percent (153 pounds) for cars above 2,950 curb weight. For trucks below 3,850 pounds curb weight, the average reduction is 4.7 percent (163 pounds), while it was 5.1 percent (240 pounds) for trucks above 3,850 curb weight. Splitting trucks at a higher weight, for trucks below 5,000 pounds curb weight, the average reduction is 4.4 percent (186 pounds), while it was 7.0 percent (376 pounds) for trucks above 5,000 curb weight.

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

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

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

levels shown in Table III.D.6-3.

Similarly, the final CO 2 emission standards adjust the required CO 2 level according to a vehicle’s footprint, requiring lower absolute emis sion levels from smaller vehicles. Thus, just because a manufacturer produces larger vehicles than another manufacturer does not explain the

differences seen in Table III.D.6-3.

In order to remove these two factors from our comparison, the EPA lumped parameter model described above was used to estimate the degree to which technology present on each 2008 MY vehicle in our reference fleet was impr oving fuel efficiency. The effect of this technology was removed and each vehicle’s CO 2 emissions were estimated as if it utilized no additional fuel efficiency technology beyond the baseline. The differences in vehicle size were accounted for by determining the difference between the sales-weighted average of each manufacturer’s “no technology” CO 2 levels to their required CO 2 emission level under the final 2016 standards. The industry-wide difference wa s subtracted from each manufacturer’s value to227 highlight which manufacturers had lower and higher than average “no technology” emissions. The results are shown in Figure III.D.6-1.228-60-40-20020406080100120 BM W

Chr y sler Daimler Ford Ge ne ralM o tors H ond a Hyundai Kia M az da M it sub ish i Ni s san

P orsche Su b aru Suz u ki T ata Toyota Volk s wage n

CO2 Emissions (g/mi )CarTruckFigure III.D.6-1 CO2Emission Reduction Required in 2016 from 2008 Vehicles After Removing theBenefit of Technology Already Present, Relative to That for the Fleet as a Whole229 As can be seen in Table III.D.6-3 the manufacturers projected to require the greatest levels of technology also show the highest offsets relative to the industry. The greatest offset shown in Figure III.D.6-1 is for Tata’s trucks (Land Rover) . These vehicles are estimated to have 100 g/mi greater CO 2 emissions than the average 2008 MY truck after accounting for differences in the use of fuel saving technology and footprint. The lowest adjustment is for Subaru’s trucks, which have 50 g/mi CO 2 lower emissions than the average truck.

While this comparison confirms the differen ces in the technology penetrations shown in Table III.D.6-3, it does not yet explain why these differences exist. Two well known factors affecting vehicle fuel efficiency are vehicle weight and acceleration performance (henceforth referred to as “performance”). The footprint-based form of the final CO 2 standard accounts for most of the difference in vehicle weight seen in the 2008 MY fleet. However, even at the same footprint, vehicles can have varying weights. Higher performing vehicles also tend to have higher CO 2 emissions over the two-cycle fuel economy test procedure. So manufacturers with higher average performance levels w ill tend to have higher average CO 2 emissions for any given footprint. This variability at any given footprint contributes to much of the scatter in the data (shown for example on plots like Figures II.C.1-3 through II.C.1-6).

We developed a methodology to assess the impact of these two factors on each manufacturer’s projected compliance with the 2016 standards. First, we had to remove (or isolate) the effect of CO 2 control technology already being employed on 2008 vehicles. As described above, 2008 vehicles exhibit a wide range of control technology and leaving these impacts in place would confound the assessment of performance and weight on CO 2 emissions. Thus, the first step was to estimate each vehicle’s “no technology” CO 2 emissions. To do this, we used the EPA lumped parameter model (descr ibed in the TSD) to estimate the overall percentage reduction in CO 2 emissions associated with technology already on the vehicle and then backed out this effect mathematically. Second, we performed a least-square linear regression of these no technology CO 2 levels against curb weight and the ratio of rated engine horsepower to curb weight simultaneously. The ratio of rated engine horsepower to curb weight is a good surrogate for acceleration performance and the data is available for all vehicles, whereas the zero to sixty time is not. Both factor s were found to be statistically significant at the 95% confidence level. Together, they explained over 80% of the variability in vehicles’ CO 2 emissions for cars and over 70% for trucks. Third, we determined the sales-weighted average curb weight per footprint for cars and trucks, respectively, for the fleet as a whole. We also determined the sales-weighted average of the ratio of rated engine horsepower to curb weight for cars and trucks, respectively, for the fleet as a whole. Fourth, we adjusted each vehicle’s “no technology” CO 2 emissions to eliminate the degree to which the vehicle had higher or lower acceleration performance or curb weight per footprint relative to the car or truck fleet as a whole. For example, if a car’s ratio of horsepower to weight was 0.007 and the average ratio for all cars was 0.006, then the vehicle’s “no technology” CO 2 emission level was reduced by the difference between these two values (0.001) times the impact of the ratio of horsepower to weight on car

CO 2 emissions from the ab ove linear regression. Finally, we substituted these performance and weight adjusted CO 2 emission levels for the original, “no technology” CO 2 emission levels shown in Figure III.D.6-1. The results are shown in Figure III.D.6-2.230-40-30-20-100102030 BMW Daimler Ge nera l Motors Hyund a i Maz d a

Ni s s a n S u ba r u T ata Vo l kswag e n

CO2 Emissions (g/mi )CarTruckFigure III.D.6-2Figure III.D.6-2 CO2Emission Reduction Required in 2016 From 2008 Vehicles After 1) Removingthe Benefit of Technology Already Present, and 2) Adjusting for Differences in Weight perFootprint,andPerformance, Relative to That for the Fleet as a as a Whole231 First, note that the scale in Figure III.D.6-2 is much smaller by a factor of 3 than that in Figure III.D.6-1. In other words, accounting for differences in vehicle weight (at constant footprint) and performance dramatically reduces the variability among the manufacturers’ CO 2 emissions. Most of the manufacturers with high positive offsets in Figure III.D.6-1 now show low or negative offsets. For example, BMW’s and VW’s trucks show very low CO 2 emissions. Tata’s emissions are very close to the industry average. Daimler’s vehicles are no more than 10 g/mi above the average for the industry. This analysis indicates that the primary reasons for the differences in technology penetrations shown fo r the various manufacturers in Table III.D.6-3 are weight and acceleration performance. EPA has not determined why some manufacturers’ vehicle weight is relatively high for its foot print value, or whether this weight provides additional utility for the consumer. Performance is more straightforward. Some consumers desire high acceleration performance and some manufacturers orient their sales towards these consumers. However, the cost in terms of CO 2 emissions is clear. Manufacturers producing relatively heavy or high performance vehicles presently (with concomitant increases CO 2 emissions) will require greater levels of technology in order to meet the final CO 2 standards in

2016.

As can be seen from Table III.D.6-3 above, widespread use of several technologies is projected due to the final standards. The vast majority of engines are projected to be converted to direct injection, with some of these engine s including cylinder deac tivation or turbocharging and downsizing. More than 60 percent of all transmissions are projected to be either 6+ speed

automatic transmissions or dual-clutch automated manual transmissions. More than one third of the fleet is projected to be equipped with 42 vo lt start-stop capability. This technology was not utilized in 2008 vehicles, but as discussed ab ove, promises significant fuel efficiency improvement at a moderate cost.

In their comments, Porsche stated that their vehicles have twice the power-to-weight ratio as the fleet average and that their vehicles presently have a high degree of technology penetration, which allows them to meet the 2009 CAFE standards. Porsche also commented that the 2016 standards are not feasible for their firm, in part due to the high level of technologies already present in their vehicles and due to their “very long production life cycles”. BMW in

their comments stated that their vehicles are “f eature-dense” thus “requiring additional efforts to comply” with future standards. 206 Ferrari, in their comments, st ates that the standards are not feasible for high-performance sports cars without compromising on their “distinctiveness”. They also state that because they already have many technologies on the vehicles, “there are limited possibilities for further improvements.” Finally Ferrari states that smaller volume manufacturers have higher costs “because they can be distri buted over very limited production volumes”, and they have longer product lifecycles. The latter vi ew was also shared by Lotus. These comments will be addressed below, but are cited here as supporting the conclusions from the above analysis that high performance and feature dense vehicles have a greater challenge meeting the 2016 standards. In general, other manufacturers covering the rest of the fleet and other commenters

206 As a side note, one of the benefits for the off-cycl e technology credits allowed in this final rule is the opportunity this flexibility provides for some of these ‘feature dense’ vehicles to generate such credits to assist, to some extent, in the companies’ ability to comply.232 agreed with EPA’s analysis in the proposal of projected technology usage, and supported the view that the 2016 model year standards were feasible in the lead-time provided.

In response to the comments above, EPA forese es no significant technical or engineering issues with the projected deployment of these technologies across the fleet by MY 2016, with their incorporation being folded into the vehicle redesign process (with the exception of some of the small volume manufacturers). All of these technologies are commercially available now. The automotive industry has already begun to convert its port fuel-injected gasoline engines to direct injection. Cylinder deactivation and turbocharging technologies are already commercially available. As indicated in Table III.D.6-1, hi gh speed transmissions are already widely used. However, while more common in Europe, automated manual transmissions are not currently used extensively in the U.S. Widespread use of this technology would require significant capital investment but does not present any significant technical or engineering issues. Start-stop systems based on a 42-volt architecture also represent a challenge because of the complications involved in a changeover to a higher voltage electrical architecture. However, with appropriate capital investments (which are captured in the EPA estimated costs), these technology penetration rates are achievable within the time frame of this rule. While most manufacturers have some plans for these systems, our projections indicate that their use may exceed 35% of sales, with some manufacturers projected to use higher levels.

Most manufacturers are not projected to hybr idize any vehicles to comply with the final standards. The hybrids shown for Toyota are projected to be sold even in the absence of the final standards. However the relatively high hybrid penetrations (14-15%) projected for BMW, Daimler, Porsche, Tata and Volkswagen deserve further discussion. These manufacturers are all projected by the OMEGA model to utilize the maximum application of full hybrids allowed by our model in this time frame, which is 15 percent.

As discussed in the EPA RIA, a maximum 2016 technology penetration rate of 85% is projected for the vast majority of available technologies, however, for full hybrid systems the projection shows that given the available lead-time full hybrids can only be applied to approximately 15% of a manufacturer’s fleet. This number of course can vary by manufacturer. Hybrids are a relatively costly technology option which requires significant changes to a vehicle’s powertrain design, and EPA estimates that manufacturers will require a significant amount of lead time and capital i nvestment to introduce this technology into the market in very large numbers. Thus the EPA captures this signi ficant change in production facilities with a lower penetration cap. A more thorough discussion of lead time limitations can be found below

and in Section III.B.5.

While the hybridization levels of BMW, Da imler, Porsche, Tata and Volkswagen arerelatively high, the sales levels of these five manufacturers are relatively low. Thus, industrywide, hybridization reaches only 4 percent, compared with 3 percent in the reference case. This 4 percent level is believed to be well within the capability of the hybrid component industry by 2016. Thus, the primary challenge for these five companies would be at the manufacturer level, redesigning a relatively large percentage of sales to include hybrid technology. The final TLAAS provisions will provide significant needed lead time to these manufacturers for pre-2016 compliance, since all qualified companies are able to take advantage of these provisions.233 By 2016, it is likely that these manufacturers would also be able to change vehicle characteristics which currently cause their vehicles to emit much more CO 2 than similar sized vehicles produced by other manufacturers. These factors may include changes in model mix, further mass reduction, electric and/or plug-in hy brid vehicles as well as technologies that may not be included in our packages. Also, companies may have technology penetration rates of less costly technologies (listed in th e above tables) greater than 85%, and they may also be able to apply hybrid technology to mo re than 15 percent of their fleet (while the 15% cap on the application of hybrid technology is reasonable for the industry as a whole, higher percentages are certainly possible for individual manufacturers, particularly those with small volumes). For example, a switch to a low GWP alternative refrigerant in a large fraction of a fleet can replace many other much more costly technologies, but this option is not captured in the modeling. In addition, these manufacturers can also take advantag e of flexibilities, such as early credits for air conditioning and trading with other manufacturers.

EPA believes it is likely that there will be certain high volume ma nufacturers that will earn a significant amount of early GHG credits star ting in 2010 that would expire 5 years later, by 2015, unused. It is possible that these manu facturers may be willing to sell these credits to

manufacturers with whom there is little or no direct competition. 207 Furthermore, a large number of manufacturers have also stated publicly that they support the 2016 standards. The following companies have all submitted letters in support of the national program, including the 2016 MY levels discussed above: BMW, Chrysler, Daimler, Ford, GM, Nissan, Honda, Mazda, Toyota, and Volkswagen. This supports the view that the emissions reductions needed to achieve the standards are technically and economically feas ible for all these companies, and that EPA’s projection of model year 2016 non-compliance for BMW, Daimler, and Volkswagen is based on an inability of our model at this time to fully acco unt for the full flexibil ities of the EPA program as well as the potentially unique technology approaches or new product offerings which these manufactures are likely to employ.

In addition, manufacturers do not need to apply technology exactly according to our projections. Our projections simply indicate one path which would achieve compliance. Those manufacturers whose vehicles are heavier (feature dense) and higher performing than average in particular have additional options to facilitate compliance and reduce their technological burden closer to the industry average. These options include decreasing the mass of the vehicles and/or decreasing the power output of the engines. Finally, EPA allows compliance to be shown through the use of emission credits obtained from other manufacturers. Especially for the lower volume sales of some manufacturers that could be one component of an effective compliance strategy, reducing the technology that need s to be employed on their vehicles.

For light-duty cars and trucks, manufacturers have available to them a range of technologies that are currently commercially av ailable and can feasibly be employed in their vehicles by MY 2016. Our modeling projects widespread use of these technologies as a technologically feasible approach to complying with the final standards. Comments from the manufactures provided broad support for this conclusion. A limited number of commenters

207 For example, a manufacturer that only sells electric vehicl es may very well sell the credits they earn to another manufacturer that does not sell any electric vehicles.234 presented specific concerns about their technology opportunities, and EPA has described above (and elsewhere in the rule) the path s available for them to comply.

In sum, EPA believes that the emissions redu ctions called for by the final standards are technologically feasible, based on projections of widespread use of commercially available technology, as well as use by some manufacturers of other technology approaches and compliance flexibilities not fully reflected in our modeling.

EPA also projected the cost associated with these projections of technology penetration. Table III.D.6-4 shows the cost of technology in order for manufacturers to comply with the 2011 MY CAFE standards, as well as those associated with the final 2016 CO 2 emission standards.

The latter costs are incremental to those associated with the 2011 MY standards and also include $60 per vehicle, on average, for the cost of projected use of improved air-conditioning

systems. 208

Table III.D.6-4 Cost of Technology per Vehicle in 2016 ($2007)
2011 MY CAFE Standards,

Relative to 2008 MY Final 2016 CO 2 Standards, Relative to

2011 MY CAFE Standards

Cars Trucks All Cars Trucks All

BMW $346 $423 $368 $1,558 $1,195 $1,453 Chrysler $33 $116 $77 $1,129 $1,501 $1,329

Daimler $468 $683 $536 $1,536 $931 $1,343

Ford $73 $161 $106 $1,108 $1,442 $1,231

General Motors $31 $181 $102 $899 $1,581 $1,219

Honda $0 $0 $0 $635 $473 $575 Hyundai $0 $69 $10 $802 $425 $745

Kia $0 $42 $7 $667 $247 $594

Mazda $0 $0 $0 $855 $537 $808

Mitsubishi $328 $246 $295 $817 $1,218 $978

Nissan $0 $61 $18 $686 $1,119 $810

Porsche $473 $706 $550 $1,506 $759 $1,257

Subaru $68 $62 $66 $962 $790 $899

Suzuki $49 $232 $79 $1,015 $537 $937

Tata $611 $1,205 $845 $1,181 $680 $984
Toyota $0 $0 $0 $381 $609 $455 Volkswagen $228 $482 $272 $1,848 $972 $1,694

Overall $63 $138 $89 $870 $1,099 $948

208 Note that the actual cost of the A/C technology is estimated at $71 per vehicle as shown in Table III.D.2-3. However, we expect only 85 percent of the fleet to add that technology. Therefore, the cost of the technology when spread across the entire fleet is $60 per vehicle ($71 x 85% = $60).235 As can be seen, the industry average cost of complying with the 2011 MY CAFE standards is quite low, $89 per vehicle. This cost is $11 per vehicle higher than that projected in the NPRM. This change is very small and is due to several factors, mainly changes in the projected sales of each manufacturer’s specific vehicles, and changes in estimated technology costs. Similar to the costs projected in the NPRM, the range of costs across manufacturers is quite large. Honda, Mazda and Toyota are projec ted to face no cost. In contrast, Mitsubishi, Porsche, Tata and Volkswagen face costs of at least $272 per vehicle. As described above, three of these last four manufacturers (all but Mitsubishi) face high costs to meet even the 2011 MY

CAFE standards due to either their vehicles’ wei ght per unit footprint or performance. Porsche would have been projected to face lower costs in 2016 if they were not expected to pay CAFE

fines in 2011.

As shown in the last row of Table III.D.6-4, the average cost of technology to meet the

final 2016 standards for cars and trucks combined relative to the 2011 MY CAFE standards is $948 per vehicle. This is $103 lower than that projected in the NPRM, due primarily to lower technology cost projections for the final rule co mpared to the NPRM for certain technologies. (See Chapter 1 of the Joint TSD for a detailed description of how our technology costs for the final rule differ from those used in the NPRM). As was the case in the NPRM, Table III.D.6-4 shows that the average cost for cars would be sl ightly lower than that for trucks. Toyota and Honda show projected costs significantly below the average, while BMW, Porsche, Tata and Volkswagen show significantly higher costs. On average, the $948 per vehicle cost is significant, representing 3.4 percent of the total cost of a new vehicle. However, as discussed below, the fuel savings associated with the fina l standards exceed this cost significantly. In general, commenters supported EPA’s cost projections, as discussed in Section II.

While the CO 2 emission compliance modeling usin g the OMEGA model focused on the final 2016 MY standards, the final standards for 2012-2015 are also feasible. As discussed above, manufacturers develop their future vehicl e designs with several model years in view. Generally, the technology estimated above for 2016 MY vehicles represents the technology which would be added to those vehicles which are being redesigned in 2012-2015. The final

CO 2 standards for 2012-2016 reduce CO 2 emissions at a fairly steady rate. Thus, manufacturers which redesign their vehicles at a fairly steady rate will automatically co mply with the interim standard as they plan for compliance in 2016.

Manufacturers which redesign much fewer than 20% of their sales in the early years of the final program would face a more difficult challenge, as simply implementing the “2016 MY” technology as vehicles are redesigned may not enable compliance in the early years. However, even in this case, manufacturers would have several options to enable compliance. One, they could utilize the debit carry-forward provisions described above. This may be sufficient alone to enable compliance through the 2012-2016 MY time period, if their redesign schedule exceeds 20% per year prior to 2016. If not, at some point, the manufacturer might need to increase their use of technology beyond that projected above in order to generate the credits necessary to balance the accrued debits. For most manufacturers representing the vast majority of U.S. sales, this would simply mean extending the same techno logy to a greater percentage of sales. The added cost of this in the later years of the program would be balanced by lower costs in the earlier years. Two, the manufacture could take advantage of the many optional credit generation236 provisions contained in this final rule, including early-credit generation for model years 2009- 2011, credits for advanced technology vehicles, and credits for the application of technology which result in off-cycle GHG reductions. Finally, the manufacturer could buy credits from another manufacturer. As indicated above, several manufacturers are projected to require less stringent technology than the average. These manufacturers would be in a position to provide credits at a reasonable technology cost. Thus, EPA believes the final standards for 2012-2016

would be feasible. Further discussion of the tech nical feasibility of the interim year standards, including for smaller volume manufacturers can be found in Section III.B, in the discussion on the Temporary Leadtime Allowa nce Alternative Standards.

7. What Other Fleet-Wide CO 2 Levels Were Considered?

Two alternative sets of CO 2 standards were considered. One set would reduce CO 2 emissions at a rate of 4 percent per year. The second set would reduce CO 2 emissions at a rate of 6 percent per year. The analysis of these standards followed the exact same process as described above for the final standards. The only difference was the level of CO 2 emission standards. The footprint-based standard coefficients of the car and truck curves for these two alternative control scenarios were discussed above. The resultant projected CO 2 standards in 2016 for each

manufacturer under these two alternative scenario s and under the final rule are shown in Table

III.D.7-1.

Table III.D.7-1 Overall Average CO 2 Emission Standards by Manufacturer in 2016 4% per Year Final Rule 6% per Year

BMW 248 244 224 Chrysler 270 266 245

Daimler 260 256 236

Ford 261 257 237

General Motors 275 271 250

Honda 248 244 224 Hyundai 234 231 212

Kia 239 236 217

Mazda 232 228 210

Mitsubishi 244 239 219

Nissan 250 245 226

Porsche 237 233 213

Subaru 238 234 214

Suzuki 222 218 199

Tata 263 259 239 Toyota 249 245 225 Volkswagen 236 232 213

Overall 254 250 230

Tables III.D.7-2 and III.D.7-3 show the tech nology penetration levels for the 4 percent per year and 6 percent per year standards in 2016.237 Table III.D.7-2 Technology Penetration - 4% per Year CO 2 Standards in 2016: Cars and Trucks

Combined

GDI OHCDEAC Turbo Diesel 6 Speed

Auto

Trans Dual

Clutch

Trans StartStop Hybrid Mass

Reduction (%)

BMW 80% 21% 61% 6% 13% 63% 65% 14% 5%

Chrysler 67% 13% 17% 0% 26% 52% 54% 0% 6%

Daimler * 76% 30% 53% 5% 12% 72% 67% 14% 5%

Ford 77% 18% 16% 0% 25% 58% 59% 0% 5%

General

Motors 62% 24% 11% 0% 7% 57% 57% 0% 5%

Honda 44% 6% 2% 0% 0% 49% 15% 2% 2%

Hyundai 52% 0% 1% 0% 3% 52% 28% 0% 3%

Kia 37% 0% 1% 0% 0% 57% 0% 0% 2%

Mazda 79% 0% 14% 1% 17% 66% 60% 0% 5%

Mitsubishi 85% 0% 31% 0% 16% 72% 72% 0% 6%

Nissan 69% 7% 11% 0% 2% 64% 61% 1% 6%

Porsche * 83% 15% 62% 8% 5% 45% 62% 15% 4%

Subaru 72% 0% 9% 0% 0% 70% 37% 0% 3%

Suzuki 70% 0% 0% 0% 3% 67% 67% 0% 3%

Tata * 85% 55% 27% 0% 14% 70% 70% 15% 5%

Toyota 15% 7% 0% 0% 13% 30% 7% 12% 1%

Volkswagen * 82% 18% 71% 11% 10% 68% 60% 15% 4%

Overall 56% 13% 14% 1% 11% 53% 41% 4% 4%

Increase over

2011 CAFE 46% 11% 7% 1% -5% 46% 38% 2% 4% * These manufacturers were unable to meet the final 2016 standards with the imposed caps on technology.

Table III.D.7-3 Technology Penetration - 6% per Year Alternative Standards in 2016: Cars and

Trucks Combined

GDI OHCDEAC Turbo Diesel 6 Speed

Auto

Trans Dual

Clutch

Trans StartStop Hybrid Mass

Reduction (%)

BMW * 80% 21% 61% 6% 13% 63% 65% 14% 5%

Chrysler 85% 13% 50% 0% 3% 82% 83% 2% 8%

Daimler * 76% 30% 53% 5% 12% 72% 67% 14% 5%

Ford* 85% 13% 57% 0% 4% 74% 75% 10% 7%

General

Motors 85% 25% 43% 0% 2% 83% 83% 2% 8%

Honda 68% 6% 10% 0% 1% 65% 65% 2% 6%

Hyundai 73% 1% 12% 0% 9% 64% 64% 0% 5%

Kia 62% 0% 1% 0% 0% 62% 61% 0% 5%238 Mazda 85% 0% 19% 1% 4% 80% 82% 0% 7%

Mitsubishi* 85% 4% 42% 0% 4% 75% 75% 10% 7%

Nissan 85% 8% 38% 0% 0% 78% 81% 4% 8%

Porsche * 83% 15% 62% 8% 5% 45% 62% 15% 4%

Subaru 84% 0% 18% 1% 3% 79% 80% 0% 6%

Suzuki 85% 0% 85% 0% 0% 85% 85% 0% 8%

Tata * 85% 55% 27% 0% 14% 70% 70% 15% 5%

Toyota 71% 7% 5% 0% 20% 49% 47% 12% 4%

Volkswagen * 82% 18% 71% 11% 10% 68% 60% 15% 4%

Overall 79% 12% 33% 1% 7% 69% 69% 6% 6%

Increase over

2011 CAFE 69% 10% 26% 1% -9% 62% 66% 4% 6% * These manufacturers were unable to meet the final 2016 standards with the imposed caps on technology.

With respect to the 4 percent pe r year standards, the levels of requisite control technology are lower than those under the final standards, as would be expected. Industry-wide, the largest decreases were a 7 percent decrease in use of gasoline direct injection engines, a 4 percent decrease in the use of dual clutch transmissions, and a 2 percent decrease in the application of start-stop technology. On a manufacturer specific basis, the most significant decreases were a 10 percent or larger decrease in the use of stop-start technology for Honda, Kia, Mitsubishi and Suzuki and a 12 percent drop in turbocharger use for Mitsubishi. These are relatively small changes and are due to the fact that the 4 percent per year standards only require 4 g/mi CO 2 less control than the final standards in 2016. Porsche, Tata and Volkswagen continue to be unable to comply with the CO 2 standards in 2016, even under the 4 percent per year standard scenario. BMW just complied under this scenario, so its co sts and technology penetrations are the same as

under the final standards.

With respect to the 6 percent pe r year standards, the levels of requisite control technology increased substantially relative to those under the final standards, as again would be expected. Industry-wide, the largest increase was a 25 per cent increase in the application of start-stop technology and 13-17 percent increases in the use of gasoline direct injection engines, turbocharging and dual clutch transmissions. On a manufacturer specific basis, the most significant increases were a 10 percent increase in hybrid penetration for Ford and Mitsubishi. These are more significant changes and are due to the fact that the 6 percent per year standards require 20 g/mi CO 2 more control than the final standards in 2016. Our projections for BMW, Porsche, Tata and Volkswagen continue to s how they are unable to comply with the CO 2 standards in 2016, so our projections for these manufacturers do not differ relative to the final standards, though the amount of short-fall for each firm increases significantly, by an additional 20 g/mi CO 2 per firm. However, Ford and Mitsubishi jo in this list as can be seen from Figure

III.D.6-2. The CO 2 emissions from Ford's cars are very similar to those of the industry when adjusted for technology, weight and performance. However, their trucks emit more than 25%

more CO 2 per mile than the industry average. It is possible that addressing this issue would resolve their difficulty in complying with the 6 percent per year scenario. Both Mitsubishi's cars and truck emit roughly 10% more than the industry average vehicles after adjusting for239 technology, weight and performance. Again, ad dressing this issue could resolve their difficulty in complying with the 6 percent per year scenario. Five manufacturers are projected to need to increase their use of start-stop techno logy by at least 30 percent.

Table III.D.7-4 shows the projected cost of the two alternative sets of standards.

Table III.D.7-4 Technology Cost per Vehicle in 2016 – Alternative Standards ($2007) 4 Percent per Year Standards,

relative to 2011 MY CAFE

standards 6 Percent per Year Standards,

relative to 2011 MY CAFE

standards

Cars Trucks All Cars Trucks All

BMW $1,558 $1,195 $1,453 $1,558 $1,195 $1,453 Chrysler $1,111 $1,236 $1,178 $1,447 $2,156 $1,827

Daimler $1,536 $931 $1,343 $1,536 $931 $1,343

Ford $1,013 $1,358 $1,140 $1,839 $2,090 $1,932

General Motors $834 $1,501 $1,148 $1,728 $2,030 $1,870

Honda $598 $411 $529 $894 $891 $893 Hyundai $769 $202 $684 $1,052 $1,251 $1,082

Kia $588 $238 $527 $1,132 $247 $979

Mazda $766 $537 $733 $1,093 $1,083 $1,092

Mitsubishi $733 $1,164 $906 $1,224 $1,840 $1,471

Nissan $572 $1,119 $729 $1,151 $1,693 $1,306

Porsche $1,506 $759 $1,257 $1,506 $759 $1,257

Subaru $962 $616 $836 $1,173 $1,316 $1,225

Suzuki $1,015 $179 $879 $1,426 $1,352 $1,414

Tata $1,181 $680 $984 $1,181 $680 $984
Toyota $323 $560 $400 $747 $906 $799 Volkswagen $1,848 $972 $1,694 $1,848 $972 $1,694

Overall $811 $1,020 $883 $1,296 $1,538 $1,379

As can be seen, the average cost of the 4 percent per year standards is only $65 per

vehicle less than that for the final standards. This incremental cost is very similar to that projected in the NPRM. In contrast, the average cost of the 6 percent per year standards is over $430 per vehicle more than that for the final standards, which is $80 less than that projected in the NPRM (again due to lower technology costs). Compliance costs are entering the region of non-linearity. The $65 cost savings of the 4 percent per year standards relative to the final rule represents $19 per g/mi CO 2 increase. The $430 cost increase of the 6 percent per year standards relative to the final rule represents a 25 per g/mi CO 2 increase. More importantly, two additional manufacturers, Ford and Mitsubishi, are projected to be unable to comply with the 6% per year standards. In addition, under the 6% per year standards, four manufacturers (Chrysler, General Motors, Suzuki and Nissan) are within 2 g/mi CO 2 of the minimum achievable levels projected by EPA’s OMEGA model analysis for 2016.240 EPA does not believe the 4% per year alte rnative is an appropriate standard for the MY2012-2016 time frame. As discussed above, the 250 g/mi final rule is technologically feasible in this time frame at reasonable costs, and provides higher GHG emission reductions at a modest cost increase over the 4% per year alternative (less than $100 per vehicle). In addition, the 4% per year alternative does not result in a harmonized National Program for the country. Based on California’s letter of May 18, 2009, the emission standards under this alternative would not result in the State of California revising its regulations such that compliance with EPA’s GHG standards would be deemed to be in compliance with California’s GHG standards for these model years. Thus, the consequence of promulgating a 4% per year standard would be to require manufacturers to produce two vehicle fleets: a fleet meeting the 4% per year federal standard, and a separate fleet meeting the more stringent Cali fornia standard for sale in California and the section 177 states. This further increases the costs of the 4% per year standard and could lead to additional difficulties for the already stressed automotive industry.

EPA also does not believe the 6% per year alternative is an appropriate standard for the MY 2012-2016 time frame. As shown in Tables III.D.7-3 and III.D.7-4, the 6% per year alternative represents a significant increase in bo th the technology required and the overall costs compared to the final standards. In absolute percent increases in the technology penetration, compared to the final standards the 6% per year a lternative requires for the industry as a whole: an 18% increase in GDI fuel systems, an 11% increase in turbo-downsize systems, a 6% increase in dual-clutch automated manual transmissions (DCT ), and a 9% increase in start-stop systems. For a number of manufacturers the expected increase in technology is greater: for GM, a 15% increase in both DCTs and start-stop systems, fo r Nissan a 9% increase in full hybrid systems, for Ford an 11% increase in full hybrid systems, for Chrysler a 34% increase in both DCT and start-stop systems and for Hyundai a 23% increase in the overall penetration of DCT and startstop systems. For the industry as a whole, the per-vehicle cost increase for the 6% per year alternative is nearly $500. On average this is a 50% increase in costs compared to the final standards. At the same time, CO 2 emissions would be reduced by about 8%, compared to the 250 g/mi target level.

As noted above, EPA’s OMEGA model predicts that for model year 2016, Ford, Mitsubhisi, Mercedes, BMW, Volkswagen, Jaguar-LandRover, and Porsche do not meet their target under the 6 percent per year scenario. In addition, Chrysler, General Motors, Suzuki and Nissan all are within 2 grams/mi CO 2 of maximizing the applicable technology allowed under EPA’s OMEGA model – that is, these companies have almost no head-room for compliance. In total, these 11 companies represent more than 58 percent of total 2016 projected U.S. light-duty vehicle sales. This provides a strong indication that the 6 percent per year standard is much more stringent than the final standards, and presents a significant risk of non-compliance for many firms, including four of the seven largest firms by U.S. sales.

These technology and cost increases are si gnificant, given the amount of lead-time between now and model years 2012-2016. In order to achieve the levels of technology penetration for the final standards, the industry needs to invest significant capital and product development resources right away, in particular for the 2012 and 2013 model year, which is only 2-3 years from now. For the 2014-2016 time frame, significant product development and capital241 investments will need to occur ove r the next 2-3 year in order to be ready for launching these new products for those model years. Thus a major part of the required capital and resource investment will need to occur now and over the next few years, under the final standards. EPA believes that the final rule (a target of 2 50 gram/mile in 2016) already requires significant investment and product development costs for the industry, focused on the next few years.

It is important to note, and as discussed late r in this preamble, as well as in the Joint Technical Support Document and the EPA Regulatory Impact Analysis document, the average model year 2016 per-vehicle cost increase of nearly $500 includes an estimate of both the increase in capital investments by the auto compan ies and the suppliers as well as the increase in product development costs. These costs can be significant, especially as they must occur over the next 2-3 years. Both the domestic and transp lant auto firms, as well as the domestic and world-wide automotive supplier base, is experien cing one of the most difficult markets in the U.S. and internationally that has been seen in the past 30 years. One major impact of the global downturn in the automotive industry and certainl y in the U.S. is the significant reduction in product development engineers and staffs, as well as a tightening of the credit markets which allow auto firms and suppliers to make the near-term capital investments necessary to bring new technology into production. The 6% per year alternative standard would impose significantly increased pressure on capital and other resources, indicating it is too stringent for this time frame, given both the relatively limited amount of lead-time between now and model years 2012- 2016, the need for much of these resources over the next few years, as well the current financial

and related circumstances of the automotive industry. EPA is no t concluding that the 6% per year alternative standards are technologically infeasible, but EPA believes such standards for this time frame would be overly stringent given the si gnificant strain it would place on the resources of the industry under current conditions. EPA believes this degree of stringency is not

warranted at this time. Theref ore EPA does not believe the 6% per year alternative would be an appropriate balance of various relevant factors for model years 2012-1016.

Jaguar/Land Rover, in their comments, agreed that the more stringent standards would not be economically practicable, and several automotive firms indicated that the proposed standards, while feasible, would be overly challenging. 209 On the other hand, the Center for Biological Diversity (henceforth referred to here as CBD), strongly urged EPA to adopt more stringent standards. CBD gives examples of higher standards in other nations to support their contention that the standards should be more string ent. CBD also claims that the agencies are “setting standards that deliberately delay implemen tation of technology that is available now” by setting lead time for the rule greater than 18 months. CBD also accuses the agencies of arbitrarily “adhering to strict five-year manufac turer ‘redesign cycles.’” CBD notes that the agencies have stated that all of the “technol ogies are already available today,” and EPA and NHTSA’s assessment is that manufacturers “would be able to meet the proposed standards through more widespread use of these technologies across the fleet

. ” Based on the agencies’ previous statements, CBD concludes that the flee t can meet the 250 g/mi target in 2010. EPA believes that in all cases, CBD’s analysis for fe asibility and necessary lead time is flawed.

Other countries’ absolute fleetwide standard s are not a reliable or directly relevant comparison. The fleet make-up in other nations is quite different than that of the United States.

209 See comments from To yota, General Motors242 CBD primarily cites the European Union and Japan as examples. Both of these regions have a large fraction of small vehicles (with lower average weight, and footprint size) when compared

to vehicles in the U.S. Also the U.S. has a much greater fraction of light-duty trucks. In particular in Europe, there is a much higher fraction of diesel vehicles in the existing fleet, which

leads to lower CO 2 emissions in the baseline fleet as compared to the U.S. This is in large part due to the significantly different fuel prices seen in Europe as compared to the U.S. The European fleet also has a much higher penetration of manual transmission than the U.S., which

also results in lower CO 2 emissions. Moreover

, these countries use different test cycles, which

bias CO 2 emissions relative to the EPA 2 cycle test cycles. When looked at from a technologybasis, with the exception of the existing large pe netration of diesels and manual transmissions in the European fleet – there is no “magic” in the European and Japanese markets which leads to

lower fleet-wide CO 2 emissions. In fact, from a technology perspective, the standards contained in this final rule are premised to a large degree on the same technologies which the European and Japanese governments have relied upon to establish their CO 2 & fuel economy limits for this same time frame and for the fleet mixes in their countries. That is for example, large increases in the use of 6+ speed transmissions, automated manual transmissions, gasoline direct injection, engine downsizing and turbocharging, and st art-stop systems. CBD has not provided any detailed analysis of what technologies are avai lable in Europe which EPA is not considering – and there are no such “magic” technologies. The vast majority of the differences between the

current and future CO 2 performance of the Japanese and European light-duty vehicle fleets are due to differences in the size and current composition of the vehicle fleets in those two regions – not because EPA has ignored technologies which are available for application to the U.S. market

in the 2012-2016 time frame.

If CBD is advocating a radical reshifting of domestic fleet composition, (such as requiring U.S. consumers to purchase much smaller vehicles and requiring U.S. consumers to purchase vehicles with manual transmissions), it is sufficient to say that standards forcing such a result are not compelled under section 202 (a), where reasonable preservation of consumer choice remains a pertinent factor for EPA to consider in balancing the relevant statutory factors.

See also International Harvester (478 F. 2d at 640 (Administrator required to consider issues of basic demand for new passenger vehicles in making technical feasibility and lead time determinations). Thus EPA believes that the standard is at the proper level of stringency for the projected domestic fleet in the 2012-2016 model years taking into account the wide variety of

consumer choice that is reflected in this projection of the domestic fleet.

As mentioned earlier (in III.D.4), CBD’s comments on available lead time also are inaccurate. Under section 202 (a), standards are to take effect only “after providing such period as the Administrator finds necessary to permit the development and application of the requisite technology, giving appropriate consideration to the cost of compliance within such period.” Having sufficient lead time includes among other things, the time required to certify vehicles. For example, model year 2012 vehicles will be tested and certified for the EPA within a short time after the rule is finalized, and this can start as early as calendar year 2010, for MY 2012 vehicles that can be produced in calendar year 2011. In addition, these 2012 MY vehicles have already been fully designed, with prototypes built se veral years earlier. It takes several years to redesign a vehicle, and several more to design an entirely new vehicle not based on an existing platform. Thus, redesign cycles are an inextri cable component of adequate lead time under the243 Act. A full line manufacturer only has limited staffing and financial resources to redesign vehicles, therefore the redesigns are staggered throughout a multi-year period to optimize human capital. 210 Furthermore, redesigns require a significant outlay of capital from the manufacturer. This includes research and development, material and equipment purchasing, overhead, benefits, etc. These costs are significant and are included in the cost estimates for the technologies in this rule. Because of the manpower and financial capital constraints, it would only be possible to redesign all the vehicles across a manufacturer ’s line simultaneously if the manufacturer has access to tremendous amounts of ready capital and an unrealistically large engineering staff– However no major automotive firm in the world has the capability to undertake such an effort, and it is unlikely that the supplier basis could support such an effort if it was required by all major automotive firms. Even if this unlikely condition were possible, the large engineering staff would then have to be downsized or work on the next redesign of the entire line another few years later. This would have the effect of increasing the cost of the vehicles.

There is much evidence to indicate that the av erage redesign cycle in the industry is about 5 years. 211 There are some manufacturers who have longer cycles (such as smaller manufacturers described above), and there are others who have shorter cycles for some of their products. EPA believes that there are no full line manufacturers who can maintain significant redesigns of vehicles (with relative large sales) in 1 or 2 years, and CBD has provided no evidence indicating this is technically feasible. A complete redesign of the entire U.S. light-duty fleet by model year 2012 is clearly infeasib le, and EPA believes that several model years additional lead time is necessary in order for the manufacturers to meet the standards. The graduated increase in the stringency of the standards from MYs 2012 through 2016 accounts for

this needed lead time.

There are other reasons that th e fleet cannot meet the 250g/mi CO 2 target in 2012 (much less in 2010). The commenter reasons that if technology is in use now – even if limited use—it can be utilized across the fleet nearly immediately. This is not the case. An immediate demand from original equipment manufacturers (OEMs) to supply 100% of the fleet with these technologies in 2012 would cause their suppliers to encounter the same lead time issues discussed above. Suppliers have limited capacity to change their current production over to the newer technologies quickly. Part of this reason is due to engineering, cost and manpower constraints as described above, but additionally, th e suppliers face an issue of “stranded capital”. This is when the basic tooling and machines that produce the technologies in question need to be replaced. If these tools and machines are replaced before they near the end of their useful life, the suppliers are left with “stranded capital” i.e., a significant financial loss because they are replacing perfectly good equipment with newer equipment. This situation can also occur for the OEMs. In an extreme example, a plant that switches over from building port fuel injected gasoline engines to building batteries and motors, will require a nearly complete retooling of the plant. In a less extreme example, a plant that builds that same engine and switches over to suddenly building smaller turbocharged direct in jection engines with starter alternators might have significant retooling costs as well as stra nded capital. Finally, it takes a significant amount

210 See for example “How Automakers Plan Their Products”, Center for Automotive Research, July 2007.

211 See for example “Car Wars 2009-2012, The U.S. automotive product pipeline”, John Murphy, Research Analyst, Merrill Lynch research paper , May 14, 2008 and “Car Wa rs 2010-2013, The U.S. automotive product pipeline”, John Murphy, Research Analyst, Bank of Americ a/Merrill Lynch research paper, July 15, 2009.244 of time to retool a factory and smoothly validate the tooling and processes to mass produce a replacement technology. This is why most manufacturers do this process over time, replacing equipment as they wear out. CBD has not accounted for any of these considerations. EPA believes that attempting to force the types of massive technology penetration needed in the early model years of the standard to achieve the 2016 standards would be physically and cost prohibitive.

A number of automotive firms and associatio ns (including the Alliance of Automobile Manufacturers, Mercedes, and Toyota) commented that the standards during the early model years, in particular MY2012, are too stringent, and that a more linear phase-in of the standards beginning with the MY2011 CAFE standards and ending with the 250 gram/mi proposed EPA projected fleet-wide level in MY2016 is more appropriate. In the May 19, 2009 Joint Notice of Intent, EPA and NHTSA stated that the standards would have “... a generally linear phase-in from MY 2012 through to model year 2016. ” (74 FR 24008). The Alliance of Automobile Manufacturers stated that the phase-in of th e standards is not linear, and they proposed a methodology for the CAFE standards to be a linear progression from MY2011 to MY2016. The California Air Resources Board commented that the proposed level of stringency, including the EPA proposed standards for MY2012-2015, were appropriate and urged EPA to finalize the standards as proposed and not reduce the stringency in the early model years as this would result in a large loss of the GHG reductions from the National Program. EPA agrees with the comments from CARB, and we have not reduced the stringency of the program for the early model years. While some automo tive firms indicated a desire to see a linear transition from the Model Year 2011 CAFE standards, our technology a nd cost analysis indicates that our standards are appropriate for these interim years. As show n in Section III.H of this final rule, the final standards result in significant GHG reductions , including the reductions from MY2012-2015, and at reasonable costs, providing appropriate lead time. The automotive industry commenters did not point to a specific technical issue with th e standards, but rather their desire for a linear phase-in from the existing 2011 CAFE standards.

In summary, the EPA believes that the MY2012-2016 standards finalized are feasible and that there are compelling reasons not to adopt more stringent standards, based on a reasonable weighing of the statutory factors, including av ailable technology, its co st, and the lead time necessary to permit its development and application.. For further discussion of these issues, see Chapter 4 of the RIA as well as the response to comments.

E. Certification, Compliance, and Enforcement

1. Compliance Program Overview

This section describes EPA's comprehensive program to ensure compliance with emission standards for carbon dioxide (CO 2 ), nitrous oxide (N 2 O), and methane (CH 4 ), as

described in Section III.B. An effective co mpliance program is essential to achieving the environmental and public health benefits promised by these mobile source GHG standards. EPA's GHG compliance program is designed aro und two overarching priorities: 1) to address Clean Air Act (CAA) requirements and policy obje ctives; and 2) to streamline the compliance process for both manufacturers and EPA by building on existing practice wherever possible, and by structuring the program such that manufacturer s can use a single data set to satisfy both the245 new GHG and Corporate Average Fuel Economy (CAFE) testing and reporting requirements. The EPA and NHTSA programs recognize, and replicate as closely as possible, the compliance protocols associated with the existing CAA Tier 2 vehicle emission standards, and with CAFE standards. The certification, testing, reporting, and associated compliance activities closely track current practices and are thus familiar to manufacturers. EPA already oversees testing, collects and processes test data, and performs calculati ons to determine compliance with both CAFE and CAA standards. Under this coordinated approach, the compliance mechanisms for both programs are consistent and non-duplicative.

Vehicle emission standards established under the CAA apply throughout a vehicle's full useful life. Today’s rule establishes fleet average greenhouse gas standards where compliance with the fleet average is determined based on the testing performed at time of production, as with the current CAFE fleet average. EPA is also es tablishing in-use standards that apply throughout a vehicle’s useful life, with the in-use standard determined by adding an adjustment factor to the

emission results used to calculate the fleet av erage. EPA’s program will thus not only assess compliance with the fleet average standards desc ribed in Section III.B, but will also assess compliance with the in-use standards. As it does now, EPA will use a variety of compliancemechanisms to conduct these assessments, including pre-production certification and postproduction, in-use monitoring once vehicles enter customer service. Specifically, EPA is establishing a compliance program for the fleet average that utilizes CAFE program protocols with respect to testing, a certification procedur e that operates in conjunction with the existing CAA Tier 2 certification procedures, and an assessment of compliance with the in-use standards concurrent with existing EPA and manufacturer Tier 2 emission compliance testing programs. Under this compliance program manufacturers will also be afforded numerous flexibilities to help achieve compliance, both stemming from the program design itself in the form of a manufacturer-specific CO 2 fleet average standard, as well as in various credit banking and trading opportunities, as described in Section III.C. EPA received broad comment from regulated industry and from the public interest community supporting this overall compliance program structure. The compliance program is outlined in further detail below.

2. Compliance with Fleet-Average CO 2 Standards

Fleet average emission levels can only be determined when a complete fleet profile becomes available at the close of the model ye ar. Therefore, EPA will determine compliance with the fleet average CO 2 standards when the model year closes out, as is currently the protocol under EPA’s Tier 2 program as well as under the current CAFE program. The compliance determination will be based on actual production figures for each model and on model-level emissions data collected through testing over the course of the model year. Manufacturers will submit this information to EPA in an end-of-year report which is discusse d in detail in Section

III.E.5.h below.

Manufacturers currently conduct their CAFE testing over an entire model year to maximize efficient use of testing and engineeri ng resources. Manufacturers submit their CAFE test results to EPA and EPA conducts confirmatory fuel economy testing at its laboratory on a

subset of these vehicles under EPA's Part 600 regulations. EPA’s proposal to extend this approach to the GHG program received overwhelming support from vehicle manufacturers. EPA246 is finalizing GHG requirements under which manu facturers will continue to perform the model level testing currently required for CAFE fuel economy performance and measure and report the

CO 2 values for all tests conducted. 212 Manufacturers will submit one data set in satisfaction of both CAFE and GHG requirements such that EPA’s program will not impose additional timing or testing requirements on manufacturers beyo nd that required by the CAFE program. For example, manufacturers currently submit fuel economy test results at the subconfiguration and configuration levels to satisfy CAFE requirem ents. Now manufacturers will also submit CO 2 values for the same vehicles. Section III.E.3 di scusses how this will be implemented in the certification process.

a. Compliance Determinations

As described in Section III.B above, the fleet average standards will be determined on a manufacturer by manufacturer basis, separately for cars and trucks, using the footprint attribute curves. EPA will calculate the fleet average em ission level using actual production figures and, for each model type, CO 2 emission test values generated at the time of a manufacturer's CAFE testing. EPA will then compare the actual fleet av erage to the manufacturer 's footprint standard to determine compliance, taki ng into consideration use of averaging and credits.

Final determination of compliance with fleet average CO 2 standards may not occur until several years after the close of the model year due to the flexib ilities of carry-forward and carryback credits and the remediation of deficits (s ee Section III.C). A failure to meet the fleet average standard after credit opportunities have been exhauste d could ultimately result in penalties and injunctive orders under the CAA as described in Section III.E.6 below.

EPA received considerable comment ab out the need for transparency in its implementation of the greenhouse gas program and specifically about the need for public access to information about Agency compliance determinations. Many comments emphasized the importance of making greenhouse gas compliance information publicly available to ensure such transparency. EPA also received comment from industry about the need to protect confidential business information. Both transparency and protection of confidential information are longstanding EPA practices, and both will remain priorities in EPA’s implementation of the greenhouse gas program. EPA periodically provides mobile source emissions and fuel economy information to the public, for example through the annual Compliance Report 213 and Fuel Economy Trends Report. 214 As proposed, EPA plans to expand these reports to include GHG performance and compliance trends information, such as annual status of credit balances or debits, use of various credit programs, attained fleet average emission levels compared with

212 As discussed in Section III.B.1, vehicle and fleet average compliance will be based on a combination of CO 2 , HC, and CO emissions. This is consistent with the car bon balance methodology used to determine fuel consumption for the labeling and CAFE programs. The final regulati ons account for these total carbon emissions appropriately

and refer to the sum of these emissions as the “carbon-related exhaust emissions” (CREE). Although regulatory text

uses the more accurate term “CREE” to represent the CO 2 – equivalent sum of carbon emissions, the term CO 2 is used as shorthand throughout Section III.E as a more familiar term for most readers.

213 2007 Progress Report Vehicle and Engine Compliance Activities; EPA-420-R-08-011; October 2008. This document is available electronically at http://www.epa.gov/otaq/about/420r08011.pdf

214 Light-Duty Automotive Technology and Fuel-Economy Trends: 1975 Through 2008; EPA-420-S-08-003; September 2008. This document is available elect ronically at http://www.epa.gov/otaq/fetrends.htm247 standards, and final compliance status for a mode l year after credit reconciliation occurs. EPA intends to regularly disseminate non-confidential, model-level and fleet information for each manufacturer after the close of the model year . EPA will reassess data release needs and opportunities once the program is underway.

Beyond transparency in reporting emissi ons data and compliance status, EPA is concerned, as a matter of principle moving in to a new era of greenhouse gas control, that greenhouse gas reductions reported for purposes of compliance with the standards adopted in this rule will be reflected in the real world and not just as calculated fleet average emission levels or

measured certification test results. Therefore EP A will pay close attention to technical details behind manufacturer reports. For example, EPA intends to look closely at each manufacturer’s certification testing procedures, GHG calculation procedures, and laboratory correlation with EPA’s laboratory, and to carefully review manuf acturer pre-production, production, and in-use testing programs. In addition, EPA plans to monitor GHG performance through its own in-use surveillance program in the coming years. This will ensure that th e environmental benefits of the rule are achieved as well as ensure a level playing field for all.

b. Required Minimum Testing For Fleet Average CO 2

EPA received no public comme nt on provisions that would extend current CAFE testing requirements and flexibilities to the GHG program, and is finalizing as proposed minimum testing requirements for fleet average CO 2 determination. EPA will require and use the same test data to determine a manufacturer’s compliance with both the CAFE standard and the fleet average CO 2 emissions standard. CAFE requires manu facturers to submit test data representing

at least 90% of the manufacturer's m odel year production, by configuration. 215 The CAFE testing covers the vast majority of models in a manufacturer’s fleet. Manufacturers industrywide currently test more than 1,000 vehicles each year to meet this requirement. EPA believes this minimum testing requirement is necessary and applicable for calculating accurate CO 2 fleet average emissions. Manufacturers may test additional vehicles, at their option. As described above, EPA will use the emissions results from the model-level testing to calculate a manufacturer's fleet average CO 2 emissions and to determine compliance with the CO 2 fleet average standard.

EPA will continue to allow certain tes ting flexibilities that exist under the CAFE program. EPA has always permitted manufacturers some ability to reduce their test burden in tradeoff for lower fuel economy numbers. Specifically the practice of “data substitution” enables manufacturers to apply fuel economy test values from a “worst case” configuration to other configurations in lieu of testing them. Th e substituted values may only be applied to configurations that would be expected to have better fuel economy and for which no actual test data exist. EPA will continue to accept use of substituted data in the GHG program, but only

when the substituted data are also used for CAFE purposes.

EPA's regulations for CAFE fuel economy testing permit the use of analytically derived fuel economy data in lieu of actual fuel economy testing in certain situations. 216 Analytically

215 See 40 CFR 600.010-08(d).

216 40 CFR 600.006-08(e)248 derived data are generated mathematically usin g expressions determined by EPA and are allowed on a limited basis when a manufacturer has not tested a specific vehicle configuration. This has been done as a way to reduce some of the testing burden on manufacturers without sacrificing accuracy in fuel economy measurement. EPA has issued guidance that provides details on analytically derived data and that specifies th e conditions when analytically derived fuel economy may be used. EPA will apply the same guidance to the GHG program and will allow any analytically derived data used for CAFE to also satisfy the GHG data reporting requirements. EPA will revise the terms in the current equations for analytically derived fuel economy to specify them in terms of CO 2 . Analytically derived CO 2 data will not be permitted for the Emission Data Vehicle representing a te st group for pre-production certification, only for

the determination of the model level test resu lts used to determine actual fleet-average CO 2 levels.

EPA is retaining the defin itions needed to determine CO 2 levels of each model type (such as "subconfiguration," "configuration," "base level," etc.) as they are currently defined in EPA's fuel economy regulations.

3. Vehicle Certification

CAA section 203(a)(1) prohibits manufacturers from introducing a new motor vehicle into commerce unless the vehicle is covered by an EPA-issued certificate of conformity. Section 206(a)(1) of the CAA describes the requirements fo r EPA issuance of a certificate of conformity, based on a demonstration of compliance with th e emission standards established by EPA under

section 202 of the Act. The certification demons tration requires emission testing, and must be done for each model year. 217

Under Tier 2 and other EPA emission standard programs, vehicle manufacturers certify a group of vehicles called a test group. A test gr oup typically includes multiple vehicle car lines and model types that share critic al emissions-related features. 218 The manufacturer generally selects and tests one vehicle to represent the entire test group for certification purposes. The test vehicle is the one expected to be the worst case for the emission standard at issue. Emission results from the test vehicle are used to assign the test group to one of several specified bins of emissions levels, identified in the Tier 2 rule, and this bin level becomes the in-use emissions standard for that test group. 219

Since compliance with the Tier 2 fleet average depends on actual test group sales volumes and bin levels, it is not possible to dete rmine compliance with the fleet average at the time the manufacturer applies for and receives a certificate of conformity for a test group. Instead, EPA requires the manufacturer to make a good faith demonstration in the certification application that vehicles in the test group will both 1) comply throughout their useful life with

217 CAA section 206(a)(1).

218 The specific test group criteria are described in 40 CF R 86.1827-01, car lines and model types have the meaning given in 40 CFR 86.1803-01.

219 Initially in-use standards were different from the bin level determined at certification as the useful life level. The current in-use standards, however, are the same as the bin le vels. In all cases, the bin level, reflecting useful life levels, has been used for determini ng compliance with the fleet average.249 the emissions bin assigned, and 2) contribute to fleet-wide compliance with the Tier 2 average when the year is over. EPA issues a certificate for the vehicles included in the test group based on this demonstration, and includes a condition in the certificate that if the manufacturer does not comply with the fleet average, then production vehicl es from that test group will be treated as not covered by the certificate to the extent needed to bring the manufacturer’s fleet average into compliance with Tier 2.

The certification process often occurs several months prior to production and manufacturer testing may occur months before the certificate is issued. The certification process for the Tier 2 program is an efficient way for manufacturers to conduct the needed testing well in advance of certification, and to receive the need ed certificates in a time frame which allows for the orderly production of vehicles. The use of a condition on the certificate has been an effective way to ensure compliance with the Tier 2 fleet average.

EPA will similarly condition each certificate of conformity for the GHG program upon a manufacturer's demonstration of compliance w ith the manufacturer’s fleet-wide average CO 2 standard. The following discussion explains how EPA will integrate the new GHG vehicle certification program into the existing certification program.

a. Compliance Plans

In an effort to expedite the Tier 2 progr am certification process and facilitate early resolution of any compliance related concerns, EPA conducts annual reviews of each manufacturer’s certification, in-use compliance and fuel economy plans for upcoming model year vehicles. EPA meets with each manufacturer individually, typically before the manufacturer begins to submit applications fo r certification for the new model year. Discussion topics include compliance plans for the upcoming model year, any new product offerings/new technologies, certification and/or testing issues, phase-in a nd/or ABT plans, and a projection of potential EPA confirmatory test vehicles. EPA has been conducting these compliance preview meetings for more than 10 years and has found them to be very useful for both EPA and manufacturers. Besides helping to expedite the certification proc ess, certification preview meetings provide an opportunity to resolve potential issues before the process begins. The meetings give EPA an early opportunity to assess a manufacturer’s compliance strategy, which in turn enables EPA to address any potential concerns before plans are finalized. The early interaction reduces the likelihood of unforeseen issues occurring during the actual certification of a test group which can result in the delay or even terminat ion of the certification process.

For the reasons discussed above, along with additional factors, EPA believes it is appropriate for manufacturers to include their GH G compliance plan information as part of the new model year compliance preview process. This requirement is both consistent with existing practice under Tier 2 and very similar to the pre-model year report required under existing and new CAFE regulation. Furthermore, in light of the production weighted fleet average program design in which the final compliance determinat ion cannot be made until after the end of the model year, EPA believes it is especially importa nt for manufacturers to demonstrate that they have a credible compliance plan prior to the beginning of certification.250 Several commenters raised concerns about EPA’s proposal for requiring manufacturers to submit GHG compliance plans. AIAM stated that EPA did not identify a clear purpose for the review of the plans, criteria for evaluating the plans, or consequences if EPA found the plans to be unacceptable. AIAM also expressed concern over the appropriateness of requiring manufacturers to prepare regulatory compliance plans in advance, since vicissitudes of the market and other factors beyond a manufacturer’s direct control may change over the course of the year and affect the model year outcome. Finally, AIAM commented that EPA should not attempt to take any enforcement action based on an asserted inadequacy of a plan. They felt that compliance should be determined only after the end of a model year and the subsequent credit earning period. The Alliance commented that th ere was an inconsistency between the proposed preamble language and the regulatory language in 600.514-12(a)(2)(i). The preamble language indicated that the compliance report should be submitted prior to the beginning of the model yearand prior to the certification of any test group, while the regulatory language stated that the premodel year report must be submitted during the month of December. The Alliance pointed out that if EPA wanted GHG compliance plan information before the certification of any test groups, the regulatory language would need to be corrected.

EPA understands that a manufacturer’s plan may change over the course of a model year and that compliance information manufacturers present prior to the beginning of a new model year may not represent their final compliance outcome. Rather, EPA views the compliance plan as a manufacturer’s good-faith projection of strategy for achieving compliance with the greenhouse gas standard. It is not EPA’s intent to base compliance action solely on differences between projections in the compliance plan and end of year results. EPA understands that compliance with the GHG program will be determ ined at the end of the model year after all appropriate credits have been taken into consideration.

As stated earlier, a requirement to incl ude GHG compliance information in the new model year compliance preview me etings is consistent with long standing EPA policy. The information will provide EPA with an early ov erview of the manufacturer’s GHG compliance plan and allow EPA to make an early assessment as to possible issues, questions, or concerns with the program in order to expedite the certification process and help manufacturers better understand overall compliance provisions of the G HG program. Therefore, EPA is finalizing revisions to 40 CFR 600.514-12 which will require manufacturers to submit a compliance plan to EPA prior to the beginning of the model year and prior to the certification of any test group. The compliance plan must, at a minimum, include a manufacturer’s projected footprint profile, projected total and model-level production volumes, projected fleet average and model-level CO 2 emission values, projected fleet average CO 2 standards and projected fleet average CO 2 credit status. In addition, EPA will expect the complia nce plan to explain the various credit, transfer and trading options that will be used to comply with the standard, including the amount of credit the manufacturer intends to generate for air conditioning leakage, air conditioning efficiency, off-cycle technology, and various early credit programs. The compliance plan should also indicate how and when any deficits will be pa id off through accrual of future credits.

EPA has corrected the inconsistency between the proposed preamble and regulatory language with respect to when the compliance report must be submitted and what level of information detail it must contain. EPA is finalizing revisions to 40 CFR 600.514-12 which251 require the compliance plan to be submitted to EP A prior to the beginning of the model year and prior to the certification of any test group. Today’s action will also finalize simplified reporting requirements as discussed above.

b. Certification Test Groups and Test Vehicle Selection

Manufacturers currently divide their fleet into "test groups" for certification purposes. The test group is EPA's unit of certification; one certificate is issued per test group. These groupings cover vehicles with similar emission control system designs expected to have similar emissions performance. 220 The factors considered for determining test groups include combustion cycle, engine type, engine displacement, number of cylinders and cylinder arrangement, fuel type, fuel metering system , catalyst construction and precious metal composition, among others. Vehicles having these features in common are generally placed in the same test group. 221 Cars and trucks may be included in the same test group as long as they have similar emissions performance (manufacturers frequently produce cars and trucks that have identical engine designs and emission controls).

EPA recognizes that the Tier 2 test group criteria do not necessarily relate to CO 2 emission levels. For instance, while some of the criteria, such as combustion cycle, engine type and displacement, and fuel metering, may have a relationship to CO 2 emissions, others, such as those pertaining to the catalyst, may not. In fact , there are many vehicle de sign factors that affect

CO 2 generation and emissions but are not included in EPA's test group criteria. 222 Most important among these may be vehicle weight, horsepower, aerodynamics, vehicle size, and performance features.

As described in the proposal, EPA considered but did not propose a requirement for separate CO 2 test groups established around criteria more directly related to CO 2 emissions. Although CO 2 -specific test groups might more consistently predict CO 2 emissions of all vehicles in the test group, the addition of a CO 2 test group requirement would greatly increase the preproduction certification burden for both manufacturers and EPA. For example, a current Tier 2 test group would need to be split into two gro ups if automatic and manual transmissions models had been included in the same group. Two- and fo ur-wheel drive vehicles in a current test group would similarly require separation, as would wei ght differences among vehicles. This would at least triple the number of test groups. EPA believes that the added burden of creating separate

CO 2 test groups is not warranted or necessary to maintain an appropriately rigorous certification program because the test group data are later replaced by model specific data which are used as the basis for determining compliance with a manufacturer’s fleet average standard.

For these reasons, EPA will retain the current Tier 2 test group structure for cars and light

trucks in the certifica tion requirements for CO 2 . EPA believes that the current test group concept is also appropriate for N 2 0 and CH 4 because the technologies that are employed to control N 2 O

220 40 CFR 86.1827-01.

221 EPA provides for other groupings in certain circumstances, and can establish its own test groups in cases where the criteria do not apply. 40 CFR 86.1827-01(b), (c) and (d).

222 EPA noted this potential lack of connection between fu el economy testing and testing for emissions standard purposes when it first adopted fuel economy test procedures. See 41 FR at 38677 (Sept. 10, 1976).252 and CH 4 emissions will generally be the same as t hose used to control the criteria pollutants. Vehicle manufacturers agreed with this assessment and universally supported the use of current Tier 2 test groups in lieu of developing separate CO 2 test groups.

At the time of certification, manufacturers may use the CO 2 emission level from the Tier 2 Emission Data Vehicle as a surrogate to represent all of the models in the test group. However, following certification further testing will genera lly be required for compliance with the fleet average CO 2 standard as described below. EPA's issuance of a certificate will be conditioned upon the manufacturer's subsequent model leve l testing and attainment of the actual fleet average. Further discussion of these requi rements is presented in Section III.E.6.

As just discussed, the “worst case” Emission s Data Vehicle selected to represent a test group under Tier 2 (40 CFR 86.1828-01) may not have the highest levels of CO 2 in that group. For instance, there may be a heavier, more powerful configuration that emits higher CO 2 , but may, due to the way the catalytic converter has be en matched to the engine , actually have lower

NO X , CO, PM or HC.

Therefore, in lieu of a separate CO 2 -specific test group, EPA considered requiring

manufacturers to select a CO 2 test vehicle from within the Tier 2 test group that would be expected, based on good engineering judgment, to have the highest CO 2 emissions within that test group. The CO 2 emissions results from this vehicle would be used to establish an in-use CO 2 emission standard for the test group. The requirement for a separate, worst case CO 2 vehicle would provide EPA with some assurance that a ll vehicles within the test group would have CO 2 emission levels at or below those of the selected vehicle, even if there is some variation in the

CO 2 control strategies within the test group (suc h as different transmission types). Under this approach, the test vehicle might or might not be the same one that would be selected as worst case for criteria pollutants. Vehicle manufacturer s expressed concern with this approach as well, and EPA ultimately rejected this approach because it could have required manufacturers to test two vehicles in each test group, rather than a single vehicle. This would represent an added timing burden to manufacturers because they might need to build additional test vehicles at the time of certification that previously weren't required to be tested.

Instead, EPA proposed and will adopt provisions that allow a single Emission Data Vehicle to represent the test group for both Tier 2 and CO 2 certification. The manufacturer will be allowed to initially apply the Emission Data Vehicle’s CO 2 emissions value to all models in the test group, even if other models in the test group are expected to have higher CO 2 emissions. However, as a condition of the certificate, this surrogate CO 2 emissions value will generally be replaced with actual, model-level CO 2 values based on results from CAFE testing that occurs later in the model year. This model level data will become the official certif ication test results (as per the conditioned certificate) and will be used to determine compliance with the fleet average. Only if the test vehicle is in fact the worst case CO 2 vehicle for the test group could the manufacturer elect to apply the Emission Data Vehi cle emission levels to all models in the test group for purposes of calculating fleet average emissions. Manufacturers would be unlikely to make this choice, because doing so would ignore the emissions performance of vehicle models in

their fleet with lower CO 2 emissions and would unnecessarily inflate their CO 2 fleet average. Testing at the model level already occurs and data is already being submitted to EPA for CAFE253 and labeling purposes, so it would be an unusual situation that would cause a manufacturer to ignore these data and choose to accept a higher CO 2 fleet average.

Manufacturers will be subject to two standards, the fleet average standard and the in-use

standard for the useful life of the vehicle. Co mpliance with the fleet average standard is basedon production-weighted averaging of the test data applied to each model. For each model, the inuse standard will generally be set at 10% higher th an the level used for that model in calculating the fleet average (see Section III.E.4). 223 The certificate will cover both of these standards, and the manufacturer will have to demonstrate compliance with both of these standards for purposes of receiving a certificate of conformity. The cert ification process for the in-use standard is

discussed below in Section III.E.4.

c. Certification Testing Protocols and Procedures

To be consistent with CAFE, EPA will combine the CO 2 emissions results from the FTP and HFET tests using the same calculation method used to determine fuel economy for CAFE purposes. This approach is appropriate for CO 2 because CO 2 and fuel economy are so closely related. Other than the fact that fuel economy is calculated using a harmonic average and CO 2 emissions can be calculated using a conventional average, the calculation methods are very

similar. The FTP CO 2 data will be weighted at 55%, and the highway CO 2 data at 45%, and then averaged to determine the combined number. See Section III.B.1 for more detailed information

on CO 2 test procedures, Section III.C.1 on Air Co nditioning Emissions, and Section III.B.7 for

N 2 O and CH 4 test procedures.

For the purposes of compliance with the fleet average and in-use standards, the emissions measured from each test vehicle will include hydrocarbons (HC) and carbon monoxide (CO), in

addition to CO 2 . All three of these exhaust constituents are currently measured and used to determine the amount of fuel burned over a given test cycle using a “carbon balance equation” defined in the regulations, and thus measurement of these is an integral part of current fuel economy testing. As explained in Section III.C, it is important to account for the total carbon content of the fuel. Therefore the carbon-related combustion products HC and CO must be included in the calculations along with CO 2, and any other carbon-containing exhaust components such as aldehyde emissions from alcohol-fueled vehicles. CO emissions are adjusted by a coefficient that reflects the carbon weight fraction (CWF) of the CO molecule, and HC emissions are adjusted by a coefficient that reflects the CWF of the fuel being burned (the molecular weight approach doesn’t work since there are many different hydrocarbons compounds being accounted for). Thus, EPA will calculate the carbon-related exhaust emissions, also known as “CREE,” of each te st vehicle according to the following formula, where HC, CO, and CO 2 are in units of grams per mile:

carbon-related exhaust emissions (grams/mile) = CWF*HC + 1.571*CO + CO 2 where: CWF = the carbon weight fraction of the test fuel

223 In cases where configuration or sub-co nfiguration level data exist, the in-use standard will be set at 10% higher

than those emissions test results. See Section III.E.4254 As part of the current CAFE and Tier 2 compliance programs, EPA selects a subset of vehicles for confirmatory testing at its Nationa l Vehicle and Fuel Emissions Laboratory. The purpose of confirmatory testing is to validate the manufacturer’s emissions and/or fuel economy data. Under this rule, EPA will add CO 2 , N 2 O, and CH 4 to the emissions measured in the course of Tier 2 and CAFE confirmatory testing. The N 2 O and methane measurement requirements will begin for model year 2015, when requirements for manufacturer measurement to comply with

the standard also take effect. The emission values measured at the EPA laboratory will continue to stand as official, as under existing regulatory programs.

Under current practice, if during EPA’s conf irmatory fuel economy testing, the EPA fuel economy value differs from the manufacturer's value by more than 3%, manufacturers can request a re-test. Results of the re-test sta nd as official, even if they differ from the manufacturer value by more than 3%. EPA proposed extending this practice to CO 2 results, but

manufacturers commented that this could lead to duplicative testing and increased test burden. EPA agrees that the close relationship between CO 2 and fuel economy precludes the need to conduct additional confirmatory tests for both fuel economy and CO 2 to resolve potential discrepancies. Therefore EPA will continue to al low a re-test request based on a 3% or greater disparity in manufacturer and EPA confirmatory fuel economy test values, since a manufacturer's fleet average emissions level would be established on the basis of model level testing only (unlike Tier 2 for which a fixed bin standard st ructure provides the opportunity for a compliance buffer)..

4. Useful Life Compliance

Section 202(a)(1) of the CAA requires emission standards to apply to vehicles throughout their statutory useful life, as further described in Section III.A. For emission programs that have fleet average standards, such as Tier 2 NOx fleet average standards and the new CO 2 standards, the useful life requirement applies to individual ve hicles rather than to the fleet average standard. For example, in Tier 2 the useful life requirem ents apply to the individual emission standard levels or “bins” that the vehicles are certified to, not the fleet average standard. For Tier 2, the useful life requirement is 10 years 224 or 120,000 miles with an optional 15 year or 150,000 mile provision. A similar approach is used for heavy-duty engines, however a specific Family Emissions Level is assigned to the engine family at certification, as compared to a pre-defined

bin emissions level as in Tier 2.

As noted above, the in-use CO 2 standard under the greenhouse gas program, like Tier 2, will apply to individual vehicles and is separate from the fleet-average standard. However, unlike the Tier 2 program and other EPA fleet average standards, the model-level CO 2 test
results are themselves used to calculate the flee t average standard for compliance purposes. This is consistent with the current CAFE practice, but it means the fleet average standard and the emission test results used to calculate compliance with the fleet average standard do not take into account test-to-test variability and production variability that can affe ct in-use levels. Since the

CO 2 fleet average uses the model level emissions test results themselves for purposes of calculating the fleet average, EPA proposed an ad justment factor for the in-use standard to provide some margin for production and test-to-test variability that could result in differences

224 11 years for heavy-light-duty trucks, ref. 40 CFR 86.1805-12255 between the initial emission test results used to calculate the fleet average and emission results obtained during subsequent in-use testing. EPA proposed that each model’s in-use CO 2 standard would be the model specific level used in calcu lating the fleet average, adjusted to be 10% higher.

EPA received significant co mment from industry expressi ng concern with the in-use standard. The comments focused on concerns about manufacturer liability for in-use CO 2 performance and for the most part did not address the proposed 10% adjustment level or even the need for an adjustment to account for variability. Some comments suggested that an in-use standard is not necessary because in-use testing is not mandated in the CAA. Others stated that

since there is no evidence that CO 2 emission levels increase over time, there is no need for an inuse standard. Finally, there was a general concern that failure to meet the in-use standard would result in recall liability and that recall can only be used in cases where it can be demonstrated that a “repair” can remedy the nonconformity. One manufacturer provided comments supporting the use of a 10% adjustment factor for the in-use standard. These comments also recommended that the 10% adjustment factor be applied to configuration or subconfiguration data rather than to model-level data unless there was no subconfigura tion data available. Finally, the manufacturer expressed concern that a straight 10% adjustment would result in inequity between high- and low-emitting vehicles.

Section 202(a)(1) specifies that emissions standa rds are to be applicable for the useful life

of the vehicle. The in-use emissions standard for CO 2 implements this provision. In addition, while EPA agrees that the CAA does not require th e Agency to perform in-use testing to monitor compliance with in-use standards, the Act clearly authorizes in-use testing and EPA has a long tradition of performing in-use testing. EPA has found it to be an effective tool in the Agency’s overall light-duty vehicle compliance program. EPA continues to believe that it is appropriate to perform in-use testing and that the evaluation of individual vehicle performance for all regulated emission constituents, including CO 2 , N 2 O and CH 4 , is necessary to ensure compliance with all light-duty requirements. EPA al so believes that the CAA clearly mandates that all emission standards apply for a vehicle’s useful life and that an in-use standard is therefore necessary.

EPA agrees with industry commenters that th ere is little evidence to indicate that CO 2 emission levels from current-technology vehicles in crease over time. However, as stated above,

the CAA mandates that all emission standards a pply for a vehicle’s useful life regardless of whether the emissions increase over time. In addition, there are factors other than emission

deterioration over time that can cause in-use emi ssions to be greater than emission standards. The most obvious are component defects, production mistakes, and the stacking of component production and design tolerances. Any one of these can cause an exceedance of emission standards for individual vehicles or whole model lines. Finally EPA believes that it is essential to monitor in-use GHG emissions performance of new technologies, for which there is currently no in-use experience, as they enter the market. Thus EPA believes there is value in establishing an in-use standard that extends beyond just a ddressing emission deterioration over time from current technology vehicles.

The concern over recall liability in cases where there is no effective repair remedy has some legitimate basis. For example, EPA agrees there would be a concern if a number of256 vehicles for a particular model were to have in-use emissions that exceed the in-use standard, with no effective repair available to remedy the noncompliance. However, EPA does not anticipate a scenario involving exceedance of the in-use standard that would cause the Agency to pursue a recall unless there is a repairable cause of the exceedance. At the same time, failures to emission-related components, systems, software, and calibrations do occur that could result in a

failure of the in-use CO 2 standard. For example, a defective oxygen sensor that could cause a vehicle to burn excessive fuel would result in higher CO 2 levels that could exceed the in-use standard. While it is likely that such a problem would also affect other emissions as well, there would still be a demonstratable problem that ca n be repaired and a recall may be valid. Therefore, EPA believes that a CO 2 in-use standard is statutorily required and can serve as a useful tool for determining co mpliance with the GHG program.

EPA agrees with the industry comment that it is appropriate to apply the 10% adjustment factor to the vehicle-level emission test results, rather than to a model-type value that includes production weighting factors. If no subconfiguration test data are available, then the adjustment factor will be applied to the model-type value. Therefore, EPA is finaliz ing an in-use standard based on a 10% multiplicative adjustment factor but the adjustment will be applied to emissionstest results for the vehicle subconfiguration if such data exist, or to the configuration or modeltype emissions level used to calculate the fleet average if subconfiguration test data are not

available..

This in-use standard will apply for the same usef ul life period as in Tier 2. Section 202 (i) (3) (D) of the CAA allows EPA to adopt useful li fe periods for light duty vehicles and light-duty trucks which differ from those in section 202(d). Similar to Tier 2, the useful life requirements will be applicable to the model-level CO 2 certification values (similar to the Tier 2 bins), not to the fleet average standard.

EPA believes that the useful life period es tablished for criteria pollutants under Tier 2 is also appropriate for CO 2 . Data from EPA’s current in-use compliance test program indicate that

CO 2 emissions from current technology vehicles increase very little with age and in some cases may actually improve slightly. The stable CO 2 levels are expected because unlike criteria pollutants, CO 2 emissions in current technology vehicles are not controlled by after treatment systems that may fail with age. Rather, vehicle CO 2 emission levels depend primarily on fundamental vehicle design characteristics that do not change over time. Therefore, vehicles designed for a given CO 2 emissions level will be expected to sustain the same emissions profile

over their full useful life.

The CAA requires emission standards to be appl icable for the vehicle’s full useful life. Under Tier 2 and other vehicle emission standard programs, EPA requires manufacturers to

demonstrate at the time of certific ation that the new vehicles being certified will continue to meet emission standards throughout their useful life. EPA allows manufacturers several options for predicting in-use deterioration, including full ve hicle testing, bench-aging specific components, and application of a deterioration factor based on data and/or engineering judgment.

In the specific case of CO 2 , EPA does not currently anticipate notable deterioration and has therefore determined that an assigned deterioration factor be applied at the time of Comment [A27]: Is this a good example?257 certification. At this time EPA will use an add itive assigned deterioration factor of zero, or a multiplicative factor of one. EPA anticipates that the deterioration factor will be updated from time to time, as new data regard ing emissions deterioration for CO 2 are obtained and analyzed. Additionally, EPA may consider technology-specifi c deterioration factors, should data indicate

that certain CO 2 control technologies deteriorate differently than others.

During compliance plan discussions prior to the beginning of the certification process, EPA will explore with each manufacturer any ne w technologies that could warrant use of a different deterioration factor. For any vehicle model determined likely to experience increases in

CO 2 emissions over the vehicle’s useful life, ma nufacturers will not be allowed to use the assigned deterioration factor but rather will be requi red to establish an appropriate factor. If such an instance were to occur, EPA would allow manufacturers to use the whole-vehicle mileage accumulation method currently offered in EPA's regulations. 225

N 2 O and CH 4 emissions are directly affected by vehicle emission control systems. Any of the durability options offered under EPA's current compliance program can be used to

determine how emissions of N 2 O and CH 4 change over time. EPA recognizes that manufacturers have not been required to account for durability effects of N 2 O and CH 4 prior to now. EPA also realizes that industry will need sufficient time to explore durability options and become familiar with procedures for determining deterioration of N 2 O and CH 4 . Therefore, until the 2015 model year, rather than requiring manufacturers to establish a durability program for N 2 O and CH 4 , EPA will allow manufacturers to attest that vehi cles meet the deteriorated, full useful life standard. If manufacturers choose to comply with the optional CO 2 equivalent standard, EPA

will allow the use of the manufacturer’s existing NO X deterioration factor for N 2 O and the existing NMOG deterioration factor for CH 4.

a. Ensuring Useful Life Compliance

The CAA requires a vehicle to comply with emission standards over its regulatory useful life and affords EPA broad authority for the implementation of this requirement. As such, EPA has authority to require a manufacturer to remedy any noncompliance issues. The remedy can range from adjusting a manufacturer’s credit balance to the voluntary or mandatory recall of noncompliant vehicles. These potential remedies provide manufacturers with a strong incentive to design and build complying vehicles.

Currently, EPA regulations require manufactur ers to conduct in-use testing as a condition of certification. Specifically, manufacturers must commit to later procure and test privatelyowned vehicles that have been normally used and maintained. The vehicles are tested to determine the in-use levels of criteria pollutants wh en they are in their first and fourth years of service. This testing is referred to as the In -Use Verification Program (IUVP) testing, which was first implemented as part of EPA’s CAP 2000 certification program. 226 The emissions data collected from IUVP serve several purposes. I UVP results provide EPA with annual real-world in-use data representing the majority of certified vehicles. EPA uses IUVP data to identify inuse problems, validate the accuracy of the certification program, verify the manufacturer’s

225 40 CFR 86.1823-08

226 64 FR 23906, May 4, 1999.258 durability processes, and support emission modeling efforts. Manufacturers are required to test low mileage and high mileage vehicles over the FTP and US06 test cycles. They are also required to provide evaporative emissions, onboard refueling vapory recovery (ORVR) emissions and on-board diagnostics (OBD) data.

Manufacturers are required to provide data for all regulated criteria pollutants. Some manufacturers have voluntarily submitted CO 2 data as part of IUVP. EPA proposed that manufacturers provide CO 2 , N 2 O, and CH 4 data as part of the IUVP. EPA also proposed that in order to adequately analyze and assess in-use CO 2 results, which are based on the combination of FTP and highway cycle test results, the highway fuel economy test would also need to be part of IUVP. The University of California, Santa Barbara expressed support for including N 2 O and

CH 4 emissions as part of the IUVP. Manufactur er comments were almost unanimously opposed to including any GHG standards as part of the IUVP. Specifically, industry commented that CO 2 emissions do not deteriorate over time and in some cases actually improve. Ford provided data for several 2004 through 2007 model year vehicles that indicate CO 2 emissions actually improved an average of 1.42% when vehicles were tested over 5,000 miles. Since CO 2 emissions do not deteriorate over time, manufacturers commented that including CO 2 emissions and the highway test cycle as part of the IUVP would provide no benefit and would unnecessarily burden

manufacturers. Manufacturers also commented that N 2 O and CH 4 emissions are very low and by EPA’s own account only represent about 1% of total light-duty vehicle GHG emissions. They also expressed concern over the cost and burden of measuring N 2 O for IUVP, since many

manufacturers use contractor laboratories to assi st in their IUVP testing and many of these facilities do not have the necessary equipment to measure N 2 O. They stated that since it was unnecessary to include CO 2 emissions as part of IUVP and since N 2 O and CH 4 were such small contributors to GHG emissions, it did not make sense to include N 2 O and CH 4 as part of the IUVP either. They felt that N 2 O and CH 4 could be more appropriately handled through attestation or an annual unregulated emissions report.

As discussed above, although EPA shares the view expressed in manufacturer comments

that historical data demonstrate little CO 2 deterioration, in-use emissions can increase for a number of reasons other than deterioration over time. For example, production or design errors can result in increased GHG emissions. Components that aren’t built as they were designed or vehicles inadvertently assembled improperly or with the wrong parts or with parts improperly designed can result in GHG emissions greater than those demonstrated to EPA during the certification process and used in calculating the manufacturers fleet average. The “stacking” of component design and production tolerances can also result in in-use emissions that are greater than those used in calculating a manufacturer’s fleet average.

EPA believes IUVP testing is also important to monitor in-use versus certification emission levels. Because the emphasis of the GHG program is on a manufacturer’s fleet average standard, it is difficult for EPA to make an assessment as to whether manufacturer’s vehicles are actually producing the GHG levels claimed in th eir fleet average without some in-use data for comparison. For example, EPA has expressed concern that with the in-use standard based on a 10% adjustment factor, there would be an incentive for manufacturers to develop their fleet average utilizing the full range of the 10% in-use standard. The only way for EPA to assess259 whether manufacturers are designing and producing ve hicles that meet their respective fleet average standards is for EPA to be able to review in-use GHG emissions from the IUVP.

Finally EPA does have some concern about potential CO 2 emissions deterioration in advanced technologies for which we currently have no in-use experience or data. Since CAFE has never had an in-use requirement and today’s final regulations are the first ever GHG standards, there has been no need to focus on GH G emissions in use as there will be with the new GHG standards. Many of the advanced tec hnologies that EPA expects manufacturers to use to meet the GHG standards have been introduced in production vehicles, but until now not for the purpose of controlling greenhouse gas emissi ons. For example, advanced dual-clutch or seven-speed automatic transmissions, and start-stop technologies have not been broadly tested in the field for their long-term CO 2 performance. In-use GHG performance information for vehicles using these technologies is needed for many reasons, including evaluation of whether allowing use of assigned deterioration factors for CO 2 in lieu of actual deterioration factors will continue to be appropriate.

Therefore, EPA is finalizing the requirement that all manufacturers must provide IUVP

emission data for CO 2. EPA will also require manufacturers to perform the highway test cycle as part of IUVP. Since the CO 2 standard reflects a combined value of FTP and highway results, it is necessary to include the highway emission test in IUVP to enable EPA to compare an in-use

CO 2 level with a vehicle’s in-use standard. EPA understands that requiring manufacturers to

also measure N 2 O and CH 4 will be initially challenging, since many manufacturer facilities do not currently have the proper analytical equipment. To be consistent with timing of the N 2 O and

CH 4 emissions standards for this rule, N 2 O and CH 4 will not be required for IUVP until the 2015 model year.

Another component of the CAP 2000 certification program is the In-Use Confirmatory Program (IUCP). This is a manufacturer-conducted recall quality in-use test program that can be

used as the basis for EPA to order an emission recall . In order for vehicles tested in the IUVP to qualify for IUCP, there is a threshold of 1.30 times the certification emission standard and an additional requirement that at least 50% of the test vehicles for the test group fail for the same pollutant. EPA proposed to exclude IUVP data for CO 2 , N 2 O, and CH 4 emissions from the IUCP

thresholds EPA felt that there was not suffi cient data to determine if the existing IUCP thresholds were appropriate or even applicable to those emissions. The University of California, Santa Barbara disagreed with EPA’s concerns and recommended that CO 2 , N 2 O, and CH 4 emissions all be subject to the IUVP threshold criteria. Manufacturers commented that since

CO 2 performance is a function of vehicle design and cannot be remedied in the field with the addition or replacement of emissions control devices like traditional criteria pollutants, it would not be appropriate or necessary to include IUCP threshold criteria for GHG emissions.

EPA continues to believe that the IUCP is an important part of EPA’s in-use compliance program and it will continue to be so for traditi onal criteria pollutants. For GHG emissions, EPA

believes the IUCP will also be a valuable future tool for achieving compliance, but believes that

there is insufficient data toda y to determine whether the current IUCP threshold criteria are appropriate for GHG emissions. Once EPA can gather more data from the IUVP program and

from EPA’s internal surveillan ce program described below, EPA will reassess the need to260 exclude IUCP thresholds, and if warranted, propose a separate rulemaking establishing IUCP threshold criteria which may include CO 2 , N 2 O, and CH 4 emissions. Therefore, for today’s final action, EPA will exclude IUVP data for CO 2 , N 2 O, and CH 4 emissions from the IUCP

thresholds.

EPA has also administered its own in-use testing program for light-duty vehicles under authority of section 207(c) of the CAA for more than 30 years. In this program, EPA procures and tests representative privately owned vehicles to determine whether they are complying with emission standards. When testing indicates noncompliance, EPA works with the manufacturer to determine the cause of the problem and to conduct appropriate additional testing to determine its extent or the effectiveness of identified remedies. This program operates in conjunction with the IUVP program and other sources of information to provide a comprehensive picture of the compliance profile for the entire fleet and address compliance problems that are identified. EPA

will add CO 2 , N 2 O, and CH 4 to the emissions measurements it collects during surveillance testing.

b. In-Use Compliance Standard

For Tier 2, the in-use standard and the standard used for fleet average calculation are thesame. In-use compliance for an individual vehicle is determined by comparing the vehicle’s inuse emission results with the emission standard le vels or “bin” to which the vehicle is certified rather than to the Tier 2 fleet average standard for the manufacturer. This is because as part of a fleet average standard, individual vehicles can be certified to various emission standard levels, which could be higher or lower than the fleet average standard. Thus, it would be inappropriate to compare an individual vehicle to the fleet averag e, since that vehicle could have been certified

to an emission level that is diff erent than the fleet average level.

This will also be true for the CO 2 fleet average standard. Therefore, to ensure that an individual vehicle complies with the CO 2 standards in-use, it is necessary to compare the

vehicle’s in-use CO 2 emission result with the appropriate model-level certification CO 2 level used in determining the manufact urer’s fleet average result.

There is a fundamental difference between the CO 2 standards and Tier 2 standards. For Tier 2, the standard level used for the fleet aver age calculation is one of eight different emission levels, or “bins,” whereas for the CO 2 fleet average standard, the standard level used for the fleet average calculation is the model-level certification CO 2 result. The Tier 2 fleet average standard is calculated using the “bin” emission level or stan dard, not the actual certification emission level

of the certification test vehicle. So no matte r how low a manufacturer’s actual certification emission results are, the fleet average is still ca lculated based on the “bin” level rather than the

lower certification result. 227 In contrast, the CO 2 fleet average standard will be calculated using

the actual vehicle model-level CO 2 values from the certification te st vehicles. With a specified certification emission standard, such as the Tier 2 “bins,” manufacturers typically attempt to over-comply with the standard to give themselv es some cushion for po tentially higher in-use testing results due to emissions pe rformance deterioration and/or variability that could result in

227 In a similar fashion, the fleet av erage for heavy-duty engines is calculated using a Family Emission Level, determined by the manufacturer, which is differ ent from the emission level of the test engine.261 higher emission levels during subsequent in-use testing. For our CO 2 standards, the emission level used to calculate the fleet average is th e actual certification vehicle test result, thus manufacturers cannot over comply since the certification test vehicle result will always be the value used in determining the CO 2 fleet average. If the manufacturer attempted to design the

vehicle to achieve a lower CO 2 value, similar to Tier 2 for in-use purposes, the new lower CO 2 value would simply become the new value used for calculating the fleet average.

The CO 2 fleet average standard is based on th e performance of pre-production technology that is representative of the point of production, and while there is expected to be limited if any deterioration in effectiveness for any vehicle duri ng the useful life, the fleet average standarddoes not take into account the test to test variability or production variability that can affect inuse levels. Therefore, EPA believes that unlike Tier 2, it is necessary to have a different in-use

standard for CO 2 to account for these variabilities. EPA proposed an in-use standard that was 10% higher than the appropriate model-level certification CO 2 level used in determining the manufacturer’s fleet average result.

As described above, manufacturers typically design their vehicles to emit at emission levels considerably below the certification standa rds. This intentional difference between the

actual emission level and the emission standard is referred to as “certifica tion margin,” since it is typically the difference between the certification emission level and the emission standard. The certification margin can provide manufacturers with some protection from exceeding emission standards in-use, since the in-use standards are ty pically the levels used to calculate the fleet average. For Tier 2, the certification margin is the delta between the specific emission standard level, or “bin,” to which the vehicle is certified, and the vehicle’s certification emission level.

Since the level of the fleet average standard does not reflect this kind of variability, EPA believes it is appropriate to set an in-use standard that provides a reasonable cushion for in-use variability that is beyond a manufacturer’s control. EPA proposed a factor of 10% that would act as a surrogate for a certification margin. The factor would only be applicable to CO 2 emissions, and would be applied to the model-level test resu lts that would be used to establish the modellevel in-use standard

EPA selected a value of 10% for the in-use standard based on a review of EPA’s fuel economy labeling and CAFE confirmatory test results for the past several vehicle model years.

The EPA data indicate that it is common for test variability to range between three to six percent and only on rare occasions to exceed 10%. EPA believes that a value of 10% should be sufficient to account for testing variability a nd any production variability that a manufacturer may encounter. EPA considered both higher and lower values. The Tier 2 fleet as a whole, for example, has a certification margin approaching 50%. 228 However, there are some fundamental

differences between CO 2 emissions and other criteria pollutants in the magnitude of the pollutants. Tier 2 NMOG and NO X emission standards are hundredths of a gram per mile (e.g., 0.07 g/mi NO X & 0.09 g/mi NMOG), whereas the CO 2 standards are four orders of magnitude greater (e.g., 250 g/mi). Thus EPA does not believe it is appropriate to consider a value on the

228 See pages 39-41 of EPA’s Vehicle and Engine Comp liance Activities 2007 Progress Report (EPA-420-R-08-011) published in October, 2008. This document is available electronically at http://epa.gov/otaq/about/420r08011.pdf262 order of 50 percent. In addition, little deterioration in emissions control is expected in-use. The adjustment factor addresses only one element of what is usually built into a compliance margin.

The intent of the separate in-use standard, based on a 10% compliance factor adjustment, is to provide a reasonable margin such that vehicles are not automatically deemed as exceeding standards simply because of normal variability in test results. EPA has some concerns however that this in-use compliance factor could be perc eived as providing manufacturers with the ability to design their fleets to generate CO 2 emissions up to 10% higher than the actual values they use to certify and to calculate the year end fleet av erage value that determines compliance with the fleet average standard. This concern provide s additional rationale for requiring FTP and HFET

IUVP data for CO 2 emissions to ensure that in-use values are not regularly 10% higher than the values used in the fleet average calculation. If in the course of reviewing a manufacturer’s IUVP data it becomes apparent that a manufacturer’s CO 2 results are consistently higher than the

values used for calculation of the fleet average, EPA will discuss the matter with the manufacturer and consider possible resolutions such as changes to ensure that the emissions test data more accurately reflect the emissions level of vehicles at the time of production, increased EPA confirmatory testing, and other similar measures.

Commenters generally did not comment on whether 10% was the appropriate level forthe adjustment factor. Honda did support use of the proposed 10% adjustment factor for the inuse standard. But Honda also recommended that the 10% adjustment factor be applied to subconfiguration data rather than the model-level data unless there was no subconfiguration data available. Honda also expressed some concern over the inequity a 10% value would provide between high- and low-emitting vehicles. They sugge sted that rather than using a straight 10% multiplicative adjustment factor applied to the model-level CO 2 value for all vehicles, it would be more equitable to take the sum of a 5% mu ltiplicative factor applied to the model-level CO 2 value and a 5% factor applied to the manufacturer’s fleet CO 2 target.

EPA understands that use of a multiplicative adjustment factor would result in a higher

absolute in-use value for a vehicle that has higher CO 2 than for a vehicle with a lower CO 2

. However, this difference is not relevant to th e purpose of the adjustment factor, which is to provide some cushion for test and production variability. EPA does not believe the difference would be great enough to confer the higher-emitt ing vehicles with an unfair advantage with respect to emissions variability.

Given that the purpose of the in-use standard is to enable a fair comparison between certification and in-use emission levels, EPA agrees that it is appropriate to apply the 10% adjustment factor to actual emission test results rather than to model-type emission levels which are production weighted. Therefore, EPA is fi nalizing an in-use standard that applies a multiplicative 10% adjustment factor to the s ubconfiguration emissions values, if such are

available. If no emissions data exist at the confi guration level the adjustment will be applied to the model-type value as originally proposed. If the in-use emission result for a vehicle exceeds the emissions level, as applicable, adjusted as just described by 10%, then the vehicle will have

exceeded the in-use emission standard. The in-u se standard will apply to all in-use compliance testing including IUVP, selective enforcement audits, and EPA’s internal test program.263 5. Credit Program Implementation

As described in Section III.E.2 above, for each manufacturer’s model year production, the manufacturer will average the CO 2 emissions within each of the two averaging sets (passenger cars and trucks) and compare that with its respective fleet average standards (which in turn will have been determined from the approp riate footprint curve applicable to that model year). In addition to this within-company averaging, when a manufacturer’s fleet average CO 2 values of vehicles produced in an averaging set over-complies compared to the applicable fleet average standard, the manufacturer could generate credits that it could save for later use (banking) or could sell or otherwise distribute to another manufacturer (trading). Section III.C discusses opportunities for manufacturers to improve their fleet average, beyond the credits that are simply calculated by over-achieving their ap plicable fleet average standard. Implementation of the credit program generally involves two steps: calculation of the credit amount and reporting

the amount and the associated data and calculations to EPA.

EPA is promulgating two broad types of credit programs under this rulemaking. One type of credit directly lowers a manufacturer’s actual fleet average by virtue of being applied within the methodology for calculating the fleet av erage emissions. Examples of this type of credit include the credits available for alternative fuel vehicles and the advanced technology vehicle provisions. The second type of credit is independent of the calculation of a manufacturer’s fleet average. Rather than giving credit by lowering a manufacturer’s fleet average via a credit mechanism, these credits (i n megagrams) are calculated separately and are simply added to the manufacturer’s overall “bank” of credits (or debits). Using a fictional example, the remainder of this section reviews th e different types of credits and shows where and how they are calculated and how they impact a manufacturer’s available credits.

a. Basic Credits: Fleet Average Emissions are Below the Standard

As just noted, basic credits are earned by a manufacturer’s fleet that performs better than the applicable fleet average standard. Manufactu rers will calculate their fleet average standards (separate standards are calculated for cars and trucks) using the footprint-based equations described in Section III.B. A manufacturer’s actual end-of-year fleet average is calculated similarly to the way in which CAFE values are cu rrently calculated; in fact, the regulations are essentially identical. The current CAFE calculatio n methods are in 40 CFR Part 600. As part of this rulemaking, EPA has amended key subparts and sections of Part 600 to require that fleet average CO 2 emissions be calculated in a manner parallel to the way CAFE values are calculated. First, manufacturers will determine a CO 2 -equivalent value for each model type.

The CO 2 -equivalent value is a summation of the carb on-containing constituents of the exhaust

emissions on a CO 2 -equivalent basis. For gasoline and diesel vehicles this simply involves measurement of total hydrocarbons and carbon monoxide in addition to CO 2 . The calculation becomes somewhat more complex for alternative fuel vehicles due to the different nature of their exhaust emissions. For example, for ethanol-fu eled vehicles, the emission tests must measure ethanol, methanol, formaldehyde, and acetaldehyde in addition to CO 2 . However, all these measurements are currently necessary to determine fuel economy for the labeling and CAFE264 programs, and thus no new testing or data collection will be required. 229 Second, manufacturers will calculate a fleet average by weighting the CO 2 value for each model type by the production of that model type, as they currently do for the CAFE program. Again, this will be done separately for cars and trucks. Finally, the manufacturer will compare the calculated standard with the fleet average that is actually achieved to determine the credits (or debits) that are generated. Both the determination of the applicable standard and the actual fleet average will be done after the model year is complete and using final model year vehicle production data.

Consider a basic hypothetical example where Manufacturer “A” has calculated a car fleet average standard of 300 grams/mile and a car fleet average of 290 grams/mile (Table III.E.5-1). Further assume that the manufacturer produced 500,000 cars. The credit is calculated by taking the difference between the standard and the fleet average (300-290=10) and multiplying it by the manufacturer’s production of 500,000. This result is then multiplied by the assigned lifetime vehicle miles travelled (for cars this is 195,264 miles, as discussed in Joint TSD Chapter 4), then finally divided by 1,000,000 to convert from grams to total megagrams. The result is the total number of megagrams of credit generated by the manufacturer’s car fleet. The same methodology is used to calculate the total number of megagrams of deficit, if the manufacturer was not able to comply with the fleet average standard. In this example, the result is 976,320 megagrams of credits, as shown in Table III.E.5-1.

Table III.E.5-1 Summary for Manufacturer A: Earning Basic Credits

CO 2 Totals Total production Conventional: 500,000 290 g/mi 500,000 Fleet average

standard 300 g/mi

Fleet average 290 g/mi Credits [(300-290) × 500,000 × 195,264] ÷ 1,000,000 = 954,855 Mg

b. Interim Advanced Technology Vehicle Provisions

The lower exhaust greenhouse gas emissions of some advanced technology vehicles can directly benefit a manufacturer’s fleet average, thus increasing the amount of fleet average-based credits they earn (or reducing the amount of debits that would otherwise accrue). Manufacturers that produce electric vehicles, plug-in hybrid electr ic vehicles, or fuel cell electric vehicles will include these vehicles in the fleet average calculat ion with their model type emission values. As described in detail in Section III.C.3, the emissions from electric vehicles and plug-in hybrid electric vehicles when operating on electricity will be accounted for by assuming zero emissions (0 g/mi CO 2 ) for a limited number of vehicles through the 2016 model year. This interim limited use of 0 g/mi will be allowed for the technologie s specifically noted above and as defined in the regulations, with the limitation that the vehicles must be certified to Tier 2 Bin 5 emission standards or cleaner (i.e., advanced technology vehicles must contribute to criteria pollutant reductions as well as to greenhouse gas emission reductions).

229 Note that the final rule also provides an option for manufacturers to incorporate N 2 O and CH 4 in this calculation

at their CO 2 -equivalent values.265 EPA proposed specific definitions for the vehicle technologies eligible for these provisions. One manufacturer suggested the following changes in their comments:

• Insert an additional criterion for electric vehicl es that specifically states that an electric vehicle may not have an onboard combustion engine/generator system.

• A minor deletion of text from the definition for “Fuel cell.”

• The deletion of the requirement that a PHEV have an equivalent all-electric range of

more than 10 miles.

EPA agrees with the first comment. As writte n in the proposal, a vehicle with an onboard combustion engine that serves as a generator would not have been excluded from the definition of electric vehicle. However, EPA believes it should be. Although such a vehicle might be propelled by an electric motor directly, if the indirect source of electricity is an onboard combustion engine then the vehicle is fundamenta lly not an electric vehicle. EPA is also adopting the commenter’s proposed rephrasing of th e definition for “Fuel cell,” which is simpler and clearer. Finally, in the context of the adva nced technology incentive pr ovisions in this final rule, EPA concurs with the commenter that the re quirement that a PHEV have an equivalent allelectric range of at least ten miles is unnecessary. In the context of the proposed credit multiplier EPA was concerned that some vehicles could install a charging system on a limited battery and gain credit beyond what the limited technology wo uld deserve simply by virtue of being defined as a PHEV. However, because EPA is not fina lizing the proposed multiplier provisions (see Section III.C.3) and is instead using as the sole incentive the zero emission tailpipe level as the compliance value for a manufacturer’s fleetwide average, this concern is no longer valid. Since EPA is not promulgating multipliers, the concer n expressed at proposal no longer applies, and each PHEV will get a benefit from electricity commensurate with its measured use of grid electricity, thus EPA is no longer concerned about the multiplier effect. Thus, EPA is finalizing the following definitions in the regulations:

• Electric vehicle means a motor vehicle that is powered solely by an electric motor drawing current from a rechargeable energy storage system, such as from storage batteries or other portable electrical ener gy storage devices, including hydrogen fuel cells, provided that:

o Recharge energy must be drawn from a source off the vehicle, such as residential electric service;

o The vehicle must be certified to the emi ssion standards of Bin #1 of Table S04-1 in paragraph (c)(6) of §86.1811; and

o The vehicle does not have an onboard combustion engine/generator system as a means of providing electrical energy.

• Fuel cell electric vehicle means a motor vehicle propelled solely by an electric motor where energy for the motor is supplied by a fuel cell.

• Fuel cell means an electrochemical cell that produces electricity via the non-combustion reaction of a consumable fuel, typically hydrogen.

• Plug-in hybrid electric vehicle (PHEV) means a hybrid electric vehicle that has the capability to charge the battery from an off- vehicle electric source, such that the offvehicle source cannot be connected to the vehicle while the vehicle is in motion.266 With some simplifying assumptions, assume that 25,000 of Manufacturer A’s fleet are now plug-in hybrid electric vehicles with a calculated CO 2 value of 80 g/mi, and the remaining 475,000 are conventional technology vehicles with an average CO 2 value of 290 grams/mile. By including the advanced technology PHEVs in their fleet, Manufacturer A now has more than 2.9 million credits (Table III.E.5-2).

Table III.E.5-2 Summary for Manufacturer A: Earning Basic and Interim Advanced Technology Credits

CO 2 Totals Total production Conventional: 475,000 290 g/mi 500,000

PHEV: 25,000 80 g/mi Fleet average

standard 300 g/mi Fleet average [(475,000 × 290) + (25,000 × 80)] ÷ [500,000] 280 g/mi Credits [(300-280) × 500,000 × 195,264] ÷ 1,000,000 = 1,952,640 Mg

c. Flexible-Fuel Vehicle Credits

As noted in Section III.C, treatment of flexib le-fuel vehicle (FFV) credits differs between model years 2012-2015 and 2016 and later. For the 2012 through 2015 model years the FFV credits will be calculated as they are in the CAFE program for the same m odel years, except that formulae in the final regulations have been modifi ed as needed to do the calculations in terms of grams per mile of CO 2 values rather than miles per gallon. These credits are integral to the fleet average calculation and allow the vehicles to be represented by artificially reduced emissions. To use this credit program, the CO 2 values of FFVs will be represented by the average of two things: the CO 2 value while operating on gasoline and the CO 2 value while operating on the alternative fuel multiplied by 0.15.

For MY 2012 to 2015 for example, Manufacturer A makes 30,000 FFVs with CO 2 values of 280 g/mi using gasoline and 260 g/mi using E85. The CO 2 value that would represent the FFVs in the fleet average calculatio n would be calculated as follows:

FFV emissions = [280 + (260×0.15)] ÷ 2 = 160 g/mi

Including these FFVs with the applicable cr edit in Manufacturer A’s fleet average, as shown below in Table III.E.5-3, further reduces the fleet average to 256 grams/mile and

increases the manufacturer’s credits to about 4.2 million megagrams.

Table III.E.5-3 Summary for Manufacturer A: Earning Basic, Interim Advanced Technology, and Flexible Fuel Vehicle Credits267 CO 2 Totals Total production Conventional: 445,000 290 g/mi 500,000 PHEV: 25,000 80 g/mi FFV: 30,000 160 g/mi Fleet average

standard 300 g/mi

Fleet average [(445,000 × 290) + (25,000 × 80) + 30,000 x 160] ÷ [500,000] 272 g/mi

Credits [(300-272) × 500,000 × 195,264] ÷ 1,000,000 = 2,733,696 Mg

In the 2016 and later model years, the calcul ation of FFV emissions differ substantially from prior years in that the determination of the CO 2 value to represent an FFV model type will be based upon the actual use of the alternative fuel and on actual emissions while operating on that fuel. EPA’s default assumption in the regu lations is that the alternative fuel is used negligibly, and the CO 2 value that will apply to an FFV by default would be the value determined for operation on conventional fuel. However, if the manufacturer believes that the alternative fuel is used in real-world driving and that accounting for this use could improve the fleet average, the manufacturer has two options. First, the regulations allow a manufacturer to request that EPA determine an a ppropriate weighting value for an alternative fuel to reflect the degree of use of that fuel in FFVs relative to real-world use of the conventional fuel. Section III.C describes how EPA might make this determinat ion. Any value determined by EPA will be published by EPA, and that weighting value would be available for all manufacturers to use for that fuel. The second option allows a manufactur er to determine the degree of alternative fuel use for their own vehicle(s), using a variety of potential methods. Both the method and the use of the final results must be approved by EPA before their use is allowed. In either case, whether EPA supplies the weighting factors or EPA approve s a manufacturer’s alternative fuel weighting factors, the CO 2 emissions of an FFV in 2016 and later would be as follows (assuming non-zero use of the alternative fuel):

(W1×CO2conv)+(W2×CO2alt),

where W1 and W2 are the proportion of miles driven using conventional fuel and alternative fuel, respectively, CO2conv is the CO 2 value while using conventional fuel, and CO2alt is the

CO 2 value while using the alternative fuel. In the example above, for instance, the default CO 2 value for the fictional FFV described above would be the gasoline value of 280 g/mi, and the resulting fleet average and total credits would be 279 g/mi and 2,050,272 megagrams, respectively. However, if the EPA determines that real-world ethanol use amounts to 40 percent of driving, then using the equation above the FFV would be included in the fleet average

calculation with a CO 2 value of 272 g/mi, resulting in an overall fleet average of 278 g/mi and total credit accumulation of 2,147,904 megagrams.

d. Dedicated Alternative Fuel Vehicle Credits268 Like the FFV credit program described above, these credits will be treated differently in the first years of the program than in the 2016 and later model years. In fact, these credits are essentially identical to the FFV credits except fo r two things: (1) there is no need to average CO 2 values for gasoline and alternative fuel, and (2 ) in 2016 and later there is no demonstration needed to get a benefit from the alternative fuel. The CO 2 values are essentially determined the same way they are for FFVs operating on the alternative fuel. For the 2012 through 2015 model years the CO 2 test results are multiplied by the credit adjustment factor of 0.15, and the result is production-weighted in the fleet average calculation. For example, assume that Manufacturer A now produces 20,000 dedicated CNG vehicles with CO 2 emissions of 220 grams/mile, in addition to the FFVs and PHEVs already included in their fleet (Table III.E.5-4). Prior to the 2016 model year the CO 2 emissions representing these CNG vehicles will be 33 grams/mile (220 × 0.15).

Table III.E.5-4 Summary for Manufacturer A:

Earning Basic, Advanced Technology, Flexible Fuel Vehicle, and Dedicated Alternative Fuel

Vehicle Credits

CO 2 Totals Total production Conventional: 425,000 290 g/mi 500,000 PHEV: 25,000 80 g/mi FFV: 30,000 160 g/mi CNG: 20,000 33 g/mi Fleet average

standard 300 g/mi

Fleet average [(425,000 × 290) + (25,000 × 80) + (30,000 × 160) + (20,000 × 33)] ÷ [500,000] 261 g/mi

Credits [(300-261) × 500,000 × 195,264] ÷ 1,000,000 = 3,807,648 Mg

The calculation for 2016 and later will be the same except the 0.15 credit adjustment factor is removed from the equation, and the CNG vehicles in this example would simply be production-weighted in the equation using their actual emissions value of 220 grams/mile instead of the “credited” value of 33 grams/mile.

e. Air Conditioning Leakage Credits

Unlike the credit programs described above, air conditioning-related credits do not affect the overall calculation of the fleet average or fleet average standard. Whether a manufacturer generates zero air conditioning credits or many, the calculated fleet average remains the same. Air conditioning credits are calculated and added to any credits (or deficit) that results from the fleet average calculations shown above. Thus, these credits can increase a manufacturer’s credit balance or offset a deficit, but their calculation is external to the fleet average calculation. As noted in Section III.C, manufacturers can generate credits for reducing the leakage of refrigerant from their air conditioning systems. To do this the manufacturer will identify an air conditioning system improvement, indicate th at they intend to use the improve ment to generate credits, and then calculate an annual leakage rate (grams/year) for that system based on the method defined269 by the regulations. Air conditioning credits will be determined separately for cars and trucks using the car and truck-specific equatio ns described in Section III.C.

In order to put these credits on the same basis as the basic and other credits describe above, the air conditioning leakage credits will need to be calculated separately for cars and trucks. Thus, the resulting grams per mile credit determined from the appropriate car or truck equation will be multiplied by the lifetime VMT assigned by EPA (195,264 for cars; 225,865 for trucks), and then divided by 1,000,000 to get the total megagrams of CO 2 credits generated by the improved air conditioning system. Although the calculations are done separately for cars and trucks, the total megagrams will be summed and then added to the overall credit balance maintained by the manufacturer.

For example, assume that Manufacturer A has improved an air conditioning system that is installed in 250,000 cars and that the calculated leakage rate is 12 grams/year. Assume that the manufacturer has also implemented a new refrigerant with a Global Warming Potential of 850. In this case the credit per air conditioning unit, rounded to the nearest gram per mile would

be:

[13.8 × [1 – (12/16.6 × 850/1430)] = 7.9 g/mi.

Total megagrams of credits would then be:

[ 7.9 × 250,000 × 195,264] ÷ 1,000,000 = 385,646 Mg.

These credits would be added directly to a manufacturer’s total bala nce; thus in this example Manufacturer A would now have, after cons ideration of all the above credits, a total of 4,193,294 megagrams of credits.

f. Air Conditioning Efficiency Credits

As noted in Section III.C.1.b, manufacturers may earn credits for improvements in air conditioning efficiency that reduce the impact of the air conditioning system on fuel consumption. These credits are similar to the air conditioning leakage credits described above, in that these credits are determined independently from the manufacturer’s fleet average calculation, and the resulting credits are adde d to the manufacturer’s overall balance for the respective model year. Like the air conditioning leakage credits, these credits can increase a manufacturer’s credit balance or offset a deficit, but their calculation is external to the fleet average calculation.

In order to put these credits on the same basis as the basic and other credits describe above, the air conditioning efficiency credits are calculated separately for cars and trucks. Thus, the resulting grams per mile credit determined in the above equation is multiplied by the lifetime VMT, and then divided by 1,000,000 to get the total megagrams of efficiency credits generated by the improved air conditioning system. Although the calculations are done separately for cars and trucks, the total megagrams can be summed and then added to the overall credit balance maintained by the manufacturer.270 As described in Section III.C, manufactur ers will determine their credit based on selections from a menu of technologies, each of which provides a gram per mile credit amount. The credits will be summed for all the technologies implemented by the manufacturer, but cannot exceed 5.7 grams per mile. Once this is done, the calculation is a straightforward translation of a gram per mile credit to to tal car or truck megagrams, using the same methodology described above. For example, if Manufacturer A implements enough technologies to get the maximum 5.7 grams per mile for an air conditioning system that sells 250,000 units in cars, the calculation of total credits would be as follows:

[ 5.7 × 250,000 × 195,264] ÷ 1,000,000 = 278,251 Mg.

These credits would be added directly to a manufacturer’s total bala nce; thus in this example Manufacturer A would now have, after cons ideration of all the above credits, a total of 4,471,545 megagrams of credits.

g. Off-Cycle Technology Credits

As described in Section III.C, these credits will be available for certain new or innovative technologies that achieve real-world CO 2 reductions that aren’t adequately captured on the city or highway test cycles used to determine compli ance with the fleet average standards. Like the air conditioning credits, these credits are independe nt of the fleet average calculation. Section III.C.4 describes two options for generating thes e credits: either using EPA’s 5-cycle fuel economy labeling methodology, or if that method fails to capture the CO 2 -reducing impact of the technology, the manufacturer could propose and use, with EPA approval, a different analytical approach to determining the credit amount. Like the air conditioning credits above, these credits will have to be determined separately for cars and trucks because of the differing lifetime mileage assumptions between cars and trucks.

Using the 5-cycle approach is relatively straightforward, and because the 5-cycle

formulae account for nationwide variations in dr iving conditions, no additional adjustments to the test results would be necessary. The manufacturer would simply calculate a 5-cycle CO 2 value with the technology installed and operating and compare it with a 5-cycle CO 2 value determined without the technology installed and/or operating. Existing regulations describe how to calculate 5-cycle fuel economy values, and the GHG regulations contain provisions that describe how to calculate 5-cycle CO 2 values (see 40 CFR 600.114-08). The manufacturer will have to design a test program that accounts for vehicle differences if the technology is installed in different vehicle types, and enough data will ha ve to be collected to address data uncertainty issues. Manufacturers seeking to generate off-cycle credits based on a 5-cycle analysis will be required to submit a description of their test program and the results to EPA for approval.

As noted in Section III.C.4, a manufacturer-d eveloped testing, data collection, and analysis program will require additional EPA approval and oversight. EPA received considerable comment from environmental and public interest organizations suggesting that EPA’s decisions about which technologies merit off-cycle credit should be open and public. EPA agrees that a public process will help ensure a fair review and alleviate concerns about potential271 misuse of the off-cycle credit flexibility. Ther efore EPA intends to s eek public comment on manufacturer proposals for off-cycle credit that do not use the 5-cycle approach to quantify emission reductions. EPA will consider any comme nts it receives in determining whether and how much credit is appropriate. Manufacturers should submit proposals well in advance of their desired decision date to allow time for these public and EPA reviews.

Once the demonstration of the CO 2 reduction of an off-cycle technology is complete, and the resulting value accounts for variations in driving, climate and other conditions across the country, the two approaches are treated fundamen tally the same way and in a way that parallels the approach for determining the air conditioning credits described above. Once a gram per mile value is approved by the EPA, the manufacturer will determine the total credit value by multiplying the gram per mile per vehicle credit by the production volume of vehicles with that technology and approved for use of the credit. This would then be multiplied by the lifetime vehicle miles for cars or trucks, whichever applies, and divided by 1,000,000 to obtain total megagrams of CO 2 credits. These credits would then be added to the manufacturer’s total balance for the given model year. Just like the above air conditioning case, an off-cycle technology that is demonstrat ed to achieve an average CO 2 reduction of 4.4 grams /mile and that is installed in 175,000 cars w ould generate credits as follows:

[ 4.4 × 175,000 × 195,264] ÷ 1,000,000 = 150,353 Mg.

h. End-of-Year Reporting

In general, implementation of the averaging, banking, and trading (ABT) program, including the calculation of cr edits and deficits, will be acco mplished via existing reporting mechanisms. EPA’s existing regulations define how manufacturers calculate fleet average miles per gallon for CAFE compliance purposes. Today’ s action modifies these regulations to also require the parallel calculation of fleet average CO 2 levels for car and light truck compliance categories. These regulations already require an end-of-year report for each model year, submitted to EPA, which details the test re sults and calculations that determine each manufacturer’s CAFE levels. EPA will now requir e a similar report that includes fleet average

CO 2 levels and related information. That can be integrated with the CAFE report at the manufacturer’s option. In addition to requiring reporting of the actual fleet average achieved, this end-of-year report will also contain the calcula tions and data determining the manufacturer’s applicable fleet average standard for that model year. As under the existing Tier 2 program, the report will be required to contain the fleet averag e standard, all values required to calculate the fleet average standard, the actual fleet average CO 2 that was achieved, all values required to calculate the actual fleet average, the number of credits generated or debits incurred, all the values required to calculate the credits or debits, the number of credits bought or sold, and the resulting balance of credits or debits.

Because of the multitude of credit programs that are available under the greenhouse gas program, the end-of-year report will be required to have more data and a more defined and specific structure than the CAFE end–of-year report does today. Although requiring “all the data required” to calculate a given value should be inclusive, the report will contain some requirements specific to certain types of credits. For advanced technology credits that apply to272 vehicles like electric vehicles and plug-in hybrid electric vehicles, manufacturers will be required to identify the number and type of these vehicles and the effect of these credits on their fleet average. The same will be true for credits due to flexible-fuel and alternative-fuel vehicles, although for 2016 and later flexible-fuel credits manufacturers may also have to provide a

demonstration of the actual use of the alternativ e fuel in-use and the resulting calculations of

CO 2 values for such vehicles. For air conditioning leakage credits manufacturers will have to include a summary of their use of such credits that will include which air conditioning systems were subject to such credits, information regarding the vehicle models which were equipped with credit-earning air conditioning systems, the production volume of these air conditioning systems, the leakage score of each air conditioning system generating credits, and the resulting calculation of leakage credits. Air conditioning efficiency reporting will be somewhat more complicated given the phase-in of the efficiency test procedure, and reporting will have to detail compliance with the phase-in as well as the test results and th e resulting efficiency credits generated. Similar reporting requirements will also apply to the vari ety of possible off-cy cle credit options, where manufacturers will have to report the applicable technology, the amount of credit per unit, the production volume of the technology, and the total credits from that technology.

Although it is the final end-of-year report, when final production numbers are known, that will determine the degree of compliance and the actual values of any credits being generated by manufacturers, EPA will expect manufacturer s to be prepared to discuss their compliance approach and their potential use of the variety of credit options in pre-certification meetings that EPA routinely has with manufacturers. In add ition, and in conjunction with a pre-model year report required under the CAFE program, the manufacturer will be required to submit projections of all of the elements described above, plus any projected credit trading transactions (described below).

Finally, to the extent that there are any cred it transactions, the manufacturer will have to detail in the end-of-year report documentation on all credit transactions that the manufacturer has engaged in. Information for each transaction w ill include: the name of the credit provider, the name of the credit recipient, the date the transfer occurred, the qua ntity of credits transferred, and the model year in which the cred its were earned. The final repor t is due to EPA within 90 days of the end of the model year, or no later than March 31 in the calendar year after the calendar year named for the model year. For example, the final GHG report for the 2012 model year is due no later than March 31, 2013. Failure by the manufacturer to submit the annual report in the specified time period will be considered to be a violation of section 203 (a)(1) of the Clean Air

Act.

6. Enforcement

As discussed above in Section III.E.5, manu facturers will report to EPA their fleet average and fleet average standard for a given model year (reporting separately for each of the car and truck averaging sets), the credits or deficits generated in the current year, the balance of credit balances or deficits (taking into account banked credits, deficit carry-forward, etc. see Section III.E.5), and whether they were in compli ance with the fleet average standard under the terms of the regulations. EPA will review the an nual reports, figures, and calculations submitted by the manufacturer to determine any nonconformance.273 Each certificate, required prior to intro duction into commerce, will be conditioned upon the manufacturer attaining the CO 2 fleet average standard. If a manufacturer fails to meet this condition and has not generated or purchased enough credits to cover the fleet average exceedance following the three year deficit carry-forward (Section III.B.4, then EPA will review the manufacturer's production for the model year in which the deficit originated and designate which vehicles caused the fleet average standard to be exceeded.

EPA proposed that the vehicles that would be identified as nonconforming would come from the most recent model year, and some commen ts pointed out that this was inconsistent with how the NLEV and Tier 2 programs were structured. EPA agrees with these comments and is finalizing an enforcement structure that is essen tially identical to that for existing programs. EPA would designate as nonconforming those vehicl es with the highest emission values first, continuing until a number of vehicles equal to the calculated number of non-complying vehicles as determined above is reached. Those vehicles would be considered to be not covered by the certificates of conformity covering those model types. In a test group where only a portion of vehicles would be deemed nonconforming, EP A would determine the actual nonconforming vehicles by counting backwards from the last vehicle produced in that model type. A manufacturer would be subject to penalties and inju nctive orders on an individual vehicle basis for sale of vehicles not covered by a certificate. This is the same general mechanism used for the National LEV and Tier 2 corporate average standards.

Section 205 of the CAA authorizes EPA to assess penalties of up to $37,500 per vehicle for violations of the requirements or prohibitions of this rule. 230 This section of the CAA provides that the agency shall take the follo wing penalty factors into consideration in determining the appropriate penalty for any specific case: the gravity of the violation, the economic benefit or savings (if any) resulting fr om the violation, the size of the violator's business, the violator's history of compliance with this title, action taken to remedy the violation, the effect of the penalty on the violator's ability to continue in business, and such other matters as justice may require.

Manufacturer comments expressed concern about potential enforcement action for violations of the greenhouse gas standards, and the circumstances under which EPA would impose penalties. Manufacturers also suggest ed that EPA should adopt a penalty structure similar to the one in place under CAFE.

The CAA specifies different civil penalty provisions for noncompliance than EPCA does, and EPA cannot therefore adopt the CAFE penalty structure. However, EPA recognizes that it may be appropriate, should a manufacturer fail to comply with the NHTSA fuel economy

standards as well as the CO 2 standard in a case arising out of the same facts and circumstances, to take into account the civil penalties that NHTSA has assessed for violations of the CAFE standards when determining the appropriate penalty amount for violations of the CO 2 emissions standards. This approach is consistent with EPA’s broad discretion to consider “such other matters as justice may require,” and will allow EPA to exercise its discretion to prevent injustice

230 42 U.S.C. 7524(a), Civil Monetary Penalty Inflation Adju stment, 69 FR 7121 (Feb. 13, 2004) and Civil Monetary Penalty Inflation Adjustment Rule, 73 FR 75340 (Dec. 11,2008).274 and ensure that penalties for violations of the CO 2 rule are assessed in a fair and reasonable

manner.

The statutory penalty factor that allows EP A to consider “such other matters as justice may require” vests EPA with broad discretion to reduce the penalty when other adjustment factors prove insufficient or inappropriate to achieve justice. 231 . The underlying principle of this penalty factor is to operate as a safety mechanism when necessary to prevent injustice. 232

In other environmental statutes, Congress has specifically required EPA to consider penalties assessed by other government agencies where violations arise from the same set of facts. For instance, section 311(b)(8) of the Clean Water Act, 33 U.S.C. 1321(b)(8) authorizes EPA to consider any other penalty for the same incident when determining the appropriate Clean Water Act penalty. Likewise, section 113(e) of the CAA authorizes EPA to consider "payment by the violator of penalties previously assessed for the same violation" when assessing penalties

for certain violations of Title I of the Act.

7. Prohibited Acts in the CAA

Section 203 of the Clean Air Act describes acts that are prohibited by law. This section and associated regulations apply equally to the greenhouse gas standards as to any other regulated pollutant. Acts that are prohibited by section 203 of the Clean Air Act include the

introduction into commerce or the sale of a vehicle without a certificate of conformity, removing or otherwise defeating emission control equipment, the sale or installation of devices designed to defeat emission controls, and other actions. EP A proposed to include in the regulations a new section that details these prohibited acts. Pr ior regulations, such as the NLEV program, had included such a section, and although there is no burden associated with the regulations or any specific need to repeat what is in the Clean Air Act, EPA believes that including this language in the regulations provides clarity and improves the ease of use and completeness of the regulations. No comments were received on the proposal, and EPA is finalizing the section on prohibited acts (see 40 CFR 86.1854-12).

8. Other Certification Issues

a. Carryover/Carry Across Certification Test Data

EPA's certification program for vehicles allows manu facturers to carry certification test data over and across certification testing from one model year to the next, when no significant changes to models are made. EPA will also apply this policy to CO 2 , N 2 O and CH 4 certification test data. A manufacturer may also be eligible to use carryover and carry across data to demonstrate CO 2 fleet average compliance if they ha ve done so for CAFE purposes.

b. Compliance Fees

231 In re Spang & Co. , 6 E.A.D. 226, 249 (EAB 1995)

232 B.J. Carney Industries , 7 E.A.D. 171, 232, n. 82 (EAB 1997).275 The CAA allows EPA to collect fees to cover the costs of issuing certificates of conformity for the classes of vehicles and engines covered by this rule. On May 11, 2004, EPA updated its fees regulation based on a study of th e costs associated with its motor vehicle and engine compliance program (69 FR 51402). At the time that cost study was conducted the current rulemaking was not considered.

At this time the extent of any added costs to EPA as a result of this rule is not known. EPA will assess its compliance testing and other activities associated with the rule and may amend its fees regulations in the futu re to include any warranted new costs.

c. Small Entity Deferment

EPA is deferring CO 2 standards for certain small entitie s, and these entities (necessarily) would not be subject to the certification requirements of this rule.

As discussed in Section III.B.8, businesse s meeting the Small Bu siness Administration (SBA) criterion of a small business as described in 13 CFR 121.201 would not be subject to the GHG requirements, pending future regulatory action. Such entities instead are required to submit a declaration to EPA containing a detaile d written description of how that manufacturer qualifies as a small entity under the provisions of 13 CFR 121.201. This declaration would have to be signed by a chief officer of the company, and would have to be made at least 30 days prior to the introduction into commerce of any vehicles for each model year for which the small entity status is requested, but not later than December of the calendar year prior to the model year for which deferral is requested. For example, if a manufacturer will be introducing model year 2012 vehicles in October of 2011, then the small entity declaration would be due in September, 2011. If 2012 model year vehicles are not planned for introducti on until March, 2012, then the

declaration would have to be submitted in De cember 2011. Such entities are not automatically exempted from other EPA regulations for light-dut y vehicles and light-duty trucks; therefore,

absent this annual declaration EPA would a ssume that each entity was not deferred from compliance with the greenhouse gas standards. As discussed in detail in Section III.B.6, small volume manufacturers with annual sales volumes of less than 5,000 vehicles will also be deferred from the CO2 standards, pending future regulatory action. These manufacturers would still be required to meet N2O and CH4 standards, however. To qualify for CO2 standard deferral, manufacturers would need to submit a declaration to EPA as described above, and would also be required to demonstrate due diligence in having attempted to first secu re credits from other manufacturers.

d. Onboard Diagnostics (OBD) and CO 2 Regulations

The light-duty on-board diagnostics (OBD) regulations require manufacturers to detect and identify malfunctions in all monitored emission-relat ed powertrain systems or

components. 233 Specifically, the OBD system is requir ed to monitor catalysts, oxygen sensors, engine misfire, evaporative system leaks, and any other emission control systems directly intended to control emissions, such as exhaust gas recirculation (EGR), secondary air, and fuel control systems. The monitoring threshold for all of these systems or components is 1.5 times

233 40 CFR 86.1806-04276 the applicable standards, which typically include NMHC, CO, NO X , and PM. EPA did not propose that CO 2 emissions would become one of the applicable standards required to be monitored by the OBD system. EPA did not propose CO 2 become an applicable standard for OBD because it was confident that many of the emission-related systems and components currently monitored would effectively catch any malfunctions related to CO 2 emissions. For example, malfunctions resulting from engine misfire, oxygen sensors, the EGR system, the secondary air system, and the fuel control system would all have an impact on CO 2 emissions. Thus, repairs made to any of these systems or components should also result in an improvement

in CO 2 emissions. In addition, EPA did not have da ta on the feasibility or effectiveness of monitoring various emission systems and components for CO 2 emissions and did not believe that it would be prudent to include CO 2 emissions without such information.

EPA did not address whether N 2 O or CH 4 emissions should become applicable standards for OBD monitoring in the proposal. Several manu facturers felt that EPA’s silence on this issue implied that EPA was proposing that N 2 O and CH 4 emissions become applicable OBD standards. They commented that EPA should not include them as part of OBD. They felt that adding N 2 O

and CH 4 would significantly increase OBD development burden, without significant benefit, since any malfunctions that increase N 2 O and CH 4 would likely be caught by current OBD system designs. EPA agrees with the manufacturer’s comments on including N 2 O and CH 4 as applicable standards. Therefore, at this time, EPA is not requiring CO 2 , N 2 O, and CH 4 emissions as one of the applicable standards required for the OBD monitoring threshold. EPA plans to evaluate OBD monitoring technology, with rega rd to monitoring these GHG emissions-related systems and components, and may choose to propose to include CO 2 , N 2 O, and CH 4 emissions as part of the OBD requirements in a future regulatory action.

e. Applicability of Cu rrent High Altitude Provisions to Greenhouse Gases

Vehicles covered by this proposal must meet the CO 2 , N 2 O and CH 4 standard at altitude. The CAA requires emission standards under sectio n 202 for light-duty vehicles and trucks to apply at all altitudes. 234 EPA does not expect vehicle CO 2 , CH 4 , or N 2 O emissions to be significantly different at high altitudes based on vehicle calibrations commonly used at all altitudes. Therefore, EPA will retain its current high altitude regulations so manufacturers will not normally be required to submit vehicle CO 2 test data for high altit ude. Instead, they must submit an engineering evaluation indicating that common calibration approaches will be utilized at high altitude. Any deviation in emission contro l practices employed only at altitude will need

to be included in the auxiliary emission control device (AECD) descriptions submitted by manufacturers at certification. In addition, an y AECD specific to high altitude will be required to include emissions data to allow EPA evaluate and quantify any emission impact and validity

of the AECD.

f. Applicability of Standard s to Aftermarket Conversions

With the exception of the small entity and small volume deferments, EPA’s emission standards, including greenhouse gas standards, will continue to apply as stated in the applicability sections of the relevant regulations. The greenhouse gas standards are being

234 See CAA 206(f).277 incorporated into 40 CFR part 86, subpart S, which includes exhaust and evaporative emission standards for criteria pollutants. Subpart S incl udes requirements for new light-duty vehicles, light-duty trucks, medium-duty passenger vehicles, Otto-cycle complete heavy-duty vehicles, and some incomplete light-duty trucks. Subpar t S is currently specifically applicable to aftermarket conversion systems, aftermarket conve rsion installers, and aftermarket conversion certifiers, as those terms are defined in 40 CFR 85.502. EPA expects that some aftermarket conversion companies will qualify for and seek the small entity and/or small volume deferment, but those that do not qualify will be required to me et the applicable emission standards, including the greenhouse gas standards.

g. Geographical Location of Greenhouse Gas Fleet Vehicles

One manufacturer commented that the CAFE sales area location defined by Department of Transportation regulations is different than the EPA sales area location defined by the CAA. DOT regulations require CAFE compliance 235 in the 50 states, the District of Columbia, and Puerto Rico. However, EPA emission certific ation regulations require emission compliance 236

in the 50 states, the District of Columbia, the Puerto Rico, the Virgin Islands, Guam, American

Samoa and the Commonwealth of the Northern Mariana Islands.

The comment stated that EPA has the discre tion under the CAA to align the sales area location of production vehicles for the greenhouse gas fleet with the sales area location for the CAFE fleet and recommended that EPA amend the definitions in 40 CFR 86.1803 accordingly. This would exclude from greenhouse gas requirements production vehicles that are introduced into commerce in the Virgin Islands, Guam, American Samoa, and the Commonwealth of the

Northern Mariana.

Although EPA has tried to harmonize greenhouse gas and CAFE requirements in this rule to the extent possible, EPA believes that the a pproach suggested in comment would be contrary to the requirements of the Act. EPA does not believe that the Agency has discretion under the CAA to exclude from greenhouse gas requirements production vehicles introduced into commerce in the Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands. In addition, this change would introduce an undesirable level of complexity into the certification process and resu lt in confusion due to vehicles intended for commerce in separate geographical locations being covered under a single certificate. For these

235 DOT regulations at 49 CFR 525.4(a)(5) read “The term customs territory of the United States is used as defined

in 19 U.S.C. 1202.” Section 19 U.S.C. 1202 has been replaced by the Harmonized Tariff Schedule of the United States. The Harmonized Tariff Schedule reads in part that "The term 'customs territory of the United States'...includes only the States, the District of Columbia, and Puerto Rico."

236 Section 216 of the Clean Air Act defines the term co mmerce to mean “(A) comm erce between any place in any State and any place outside thereof; and (B) commer ce wholly within the District of Columbia.” Section 302(d) of the Clean Air Act reads “The term ``State'' means a State, the District of Columbia, the Commonwealth of Puerto Rico, the Vi rgin Islands, Guam, and American Samoa and includes the Commonwealth of the Northern Mariana Islands.” In addition, 40 CFR 85.1 502 (14) regarding the importation of motor vehicles and motor vehicle engines defines the United States to include “the States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Marian a Islands, Guam, American Samoa, and the U.S. Virgin

Islands.”278 reasons, EPA will retain the proposed greenhouse gas production vehicle sales area location as

defined in the CAA.

9. Miscellaneous Revisions to Existing Regulations

a. Revisions and Additions to Definitions

EPA has amended its definitions of "engine code," "transmission class," and "transmission configuration" in its vehicle certif ication regulations (Part 86) to conform to the definitions for those terms in its fuel economy regulations (Part 600). The exact terms in Part 86 are used for reporting purposes and are not used for any compliance purpose (e.g., an engine

code will not determine which vehicle was selected for emission testing). However, the terms are used for this purpose in Part 600 (e.g., en gine codes, transmission class, and transmission configurations are all criteria used to determine which vehicles are to be tested for the purposes of establishing corporate average fuel economy). Since the same vehicles tested to determine corporate average fuel economy will also be tested to determine fleet average CO 2 , the same definitions will apply. Thus EPA has amended its Part 86 definitions of the above terms to

conform to the definitions in Part 600.

Two provisions have been amended to bring EPA's fuel economy regulations in Part 600 into conformity with the fleet average CO 2 requirement contained in this rulemaking and with NHTSA's reform truck regulations. First, the defin ition of "footprint" in this rule is also being added to EPA's Part 86 and 600 regulations. This definition is based on the definition promulgated by NHTSA at 49 CFR 523.2. Second, EPA is amending its model year CAFE reporting regulations to include the footprint information necessary for EPA to determine the reformed truck standards and the corporate average fuel economy. This same information is included in this rule for fleet average CO 2 and fuel economy compliance.

b. Addition of Ethanol Fuel Economy Calculation Procedures

EPA has amended part 600 to add calculation procedures for determining the carbonrelated exhaust emissions and calculating the fuel eco nomy of vehicles operating on ethanol fuel. Manufacturers have been using these procedures as needed, but the regulatory language – which specifies how to determine the fuel economy of gasoline, diesel, compressed natural gas, and methanol fueled vehicles – has not previously been updated to specify procedures for vehicles operating on ethanol. Under today’s rule EPA is requiring use of a carbon balance approach for

ethanol-fueled vehicles that is similar to the way carbon-related exhaust emissions are calculated for vehicles operating on other fuels for the purpose of determining fuel economy and for compliance with the fleet average CO 2 standards. The carbon balance formula is similar to the one in place for methanol, except that ethanol an d acetaldehyde emissions must also be measured for ethanol-fueled vehicles. The carbon balance equation for determining fuel economy is as follows, where CWF is the carbon weight fraction of the fuel and CWF exHC is the carbon weight fraction of the exhaust hydrocarbons:

mpg = (CWF × SG × 3781.8)/((CWF exHC × HC) + (0.429 × CO) + (0.273 × CO 2 ) + (0.375 ×

CH 3 OH) + (0.400 × HCHO) + (0.521 × C 2 H 5 OH) + (0.545 × C 2 H 4 O))279 The equation for determining the total carbon-relat ed exhaust emissions for compliance with the

CO 2 fleet average standards is the following, where CWF exHC is the carbon weight fraction of the exhaust hydrocarbons:

CO 2 -eq = (CWF exHC × HC) + (0.429 × CO) + (0.375 × CH 3 OH) + (0.400 × HCHO) + (0.521 ×

C 2 H 5 OH) + (0.545 × C 2 H 4 O) + CO 2

.

c. Revision of Electric Ve hicle Applicability Provisions

In 1980 EPA issued a rule that provided for the inclusion of electric vehicles in the CAFE

program. 237 EPA now believes that certain provisions of the regulations should be updated to

reflect the current state of motor vehicle emissi on and fuel economy regulations. In particular, EPA believes that the exemption of electric vehicles in certain cases from fuel economy labeling and CAFE requirements should be reevaluated and revised.

The 1980 rule created an exemption for electric vehicles from fuel economy labeling in the following cases: (1) if the electric vehicl es are produced by a company that produces only electric vehicles; and (2) if th e electric vehicles are produced by a company that produces fewer than 10,000 vehicles of all kinds worldwide. EP A believes that this exemption language is no longer appropriate and is deleting it from the affected regulations. First, since 1980 many regulatory provisions have been put in place to address the concerns of small manufacturers and enable them to comply with fuel economy and emission programs with reduced burden. EPA believes that all small volume manufacturers should compete on a fair and level regulatory playing field and that there is no longer a need to treat small volume electric vehicles any differently than small volume manufacturers of other types of vehicles. Current regulations contain streamlined certification procedures for small companies, and because electric vehicles emit no direct pollution there is effectively no certification emission testing burden. For example, the greenhouse gas regulations contain a provis ion allowing the exempt ion of certain small entities. Meeting the requirements for fuel ec onomy labeling and CAFE will entail a testing, reporting, and labeling burden, but these burdens are not extraordinary and should be applied equally to all small volume manufacturers, regard less of the fuel that moves their vehicles. EPA has been working with existing electric vehi cle manufacturers on fuel economy labeling, and EPA believes it is important for the consumer to have impartial, accurate, and useful label information regarding the energy consumption of these vehicles. Second, EPCA does not provide for an exemption of electric vehicl es from NHTSA’s CAFE program, and NHTSA regulations regarding the applicability of the CAFE program do not provide an exemption for electric vehicles. Third, the blanket exempti on for any manufacturer of only electric vehicles assumed at the time that these companies would all be small, but the exemption language inappropriately did not account for size and would allow large manufacturers to be exempt as well. Finally, because of growth expected in the electric vehicle market in the future, EPA believes that the labeling and CAFE regulations need to be designed to more specifically accommodate electric vehicles and to require that consumers be provided with appropriate information regarding these vehicles. For these reasons EPA has revised 40 CFR Part 600

237 45 FR 49256, July 24, 1980.280 applicability regulations such that these electric vehicle exemptions are deleted starting with the 2012 model year.

d. Miscellaneous Conforming Regulatory Amendments

EPA has made a number of minor amendments to update the regulations as needed or to ensure that the regulations are consistent with ch anges discussed in this preamble. For example, for consistency with the ethanol fuel economy calculation procedures discussed above, EPA has amended regulations where necessary to requir e the collection of emissions of ethanol and acetaldehyde. Other changes are made to applicability sections to remove obsolete regulatory requirements such as phase-ins related to EPA’ s Tier 2 emission standards program, and still other changes are made to better accommodate electric vehicles in EPA emission control regulations. Not all of these minor amendments are noted in this preamble, thus the reader should carefully evaluate regulatory text to ensu re a complete understanding of the regulatory changes being promulgated by EPA.

10. Warranty, Defect Reporting, and Ot her Emission-related Components Provisions

As outlined in the proposal, Section 207(a) of the Clean Air Act (CAA) requires manufacturers to provide a defect warranty that warrants a vehicle is designed to comply with emission standards and will be free from defects that may cause noncompliance over the specified warranty period which is 2 years/24, 000 miles (whichever is first) or, for major emission control components, 8 years/ 80,000 miles. The warranty covers parts which must function properly to assure continued compliance with emission standards. The proposal explained that under the greenhouse gas rule, this coverage would include compliance with the proposed CO 2 , CH 4 , and N 2 O standards. The proposal did not discuss the CAA Section 207(b) performance warranty.

EPA proposed to include air conditioning system components under the CAA section 207(a) emission warranty in cases where manufacturers use air conditioning leakage and efficiency credits to comply with the proposed fleet average CO 2 standards. The warranty period of 2 years/ 24,000 miles would apply. EPA requested comments as to whether any other parts or components should be designated as ‘‘emission re lated parts’’ and thus subject to warranty and defect reporting provisions under this proposal.

The Alliance of Automobile Manufacturers (Alliance), Toyota and the State of New Jersey provided comments. The State of New Jersey supported EPA’s proposal to include motor vehicle air conditioning system components under the emission warranty provisions. Both the Alliance and Toyota commented that emission warranty requirements are not appropriate for mobile air conditioners because 1) in-use performance of the air conditioning system at levels comparable to a new vehicle is not needed to achieve the emission levels targeted by EPA and 2) manufacturer general warranties already cover air conditioning systems and are typically longer than the two-year/24,000 mile proposed emissions warranty period.

Regarding direct emissions (refrigerant l eakage), the Alliance and Toyota commented that warranty requirements are unnecessary for refrigerants with a global warming potential281 (GWP) below 150 because the environmental impa ct is negligible even if refrigerants are released from the system. Regarding indirect emissions (fuel consumed to power the air conditioning system), the Alliance commented that EPA should not require warranty coverage of the air conditioning system because in the vast majority of air conditioning failure modes, the system stops cooling and ceases operation -- either because the critical moving parts stop moving or because the system is switched off -- thereby actually reducing the indirect CO 2 emissions.

EPA received no comments regarding 1) other parts or components which should be designated as ‘‘emission related parts’’ subject to warranty requirements, 2) defect reporting requirements, or 3) other requirements associated with warranty and defect reporting requirements (e.g., voluntary emission-related recall reporting requirements, performance warranty requirements, voluntary aftermarket parts certification requirements or tampering requirements.

Defect Warranty. EPA’s current policy for defect warranty requirements is provided in Section 207 of the Act. There are currently no defect warranty regulations. Congress provided under Section 207(a) and (b) of the CAA that emission-related components shall be covered under the 207(a) defect warranty and the 207(b) performance warranty for the warranty period outlined in section 207(i) of the CAA. For example, section 207(a) reads in part:

“....the manufacturer of each new motor vehicle and new motor vehicle engine shall warrant to the ultimate purchaser and each subsequent pur chaser that such vehicle or engine is (A) designed, built and equipped so as to conform at the time of sale with applicable regulations under section 202, and (B) free from defects in materials and workmanship which cause such vehicle or engine to fail to conform with a pplicable regulations for its useful life (as determined under sec. 202(d)). In the case of vehicles and engines manufactured in the model year 1995 and thereafter such warranty shall require that the vehicle or engine is free from any such defects for the warranty period provided under subsection (i).”

Section 207(i) reads in part:

"(i) Warranty Period.--- (1) In General.—For purposes of subsection (a)(1) and subsection (b), the warranty period, effective with respect to new light-duty truc ks and new light-duty vehicles and engines, manufactured in model year 1995 and thereafter, shall be the first 2 years or 24,000 miles of use (whichever first occurs), except as provided in paragraph (2). For the purposes of subsection (a)(1) and subsection (b), for other vehicles and engines the warranty period shall be the period established by the Administrator by regulation (promulgated prior to the

enactment of the Clean Air Act Amendments of 1990) for such purposes unless the Administrator subsequently modifies such regulation. (2) In the case of a specified major emission control component, the warranty period for new light-duty trucks and new light-duty vehicles manufactured in the model year 1995 and thereafter for purposes of subsection (a)(1) and subsection (b) shall be 8 years or 80,000 miles of use (whichever first occurs). As used in this paragraph, the term 'specified major emission control component' means only a catalytic converter, an electronic emissions control unit, and an onboard emissions diagnostic device, except that the Administrator may designate any other pollution control device or component as a specified major emission control component if--- (A) the device or component was not in gene ral use on vehicles and engines manufactured prior to the model year 1990; and (B) the Ad ministrator determines that the retail cost (exclusive of installation costs) of such device or component exceeds $200 (in 1989 dollars,282 adjusted for inflation or deflation as calcula ted by the Administrator at the time of such

determination....."

Thus, the CAA provides the basis of the warranty requirements contained in today’s final rule, which will cover “emission related parts” necessary to provide compliance with CO 2, CH 4 , and N 2 O standards. Emission related parts would include those parts, systems, components and software installed for the specific purpose of controlling emissions or those components, systems, or elements of design which must function properly to assure continued vehicle emission compliance, including compliance with CO 2, CH 4 , and N 2 O standards; (similar to the current definition of “emission related parts” provided in 40 CFR 85.2102(14) for performance warranty requirements). For example, today’s action will extend defect warranty requirements to emission-related components on advanced technology vehicles such as cylinder deactivation components or batteries used in hybrid-electric vehicles.

Under today’s rule, EPA will extend the defe ct warranty requirement to emission-related components necessary to meet CO 2, CH 4 , and N 2 O standards, including emission-related components which are used to obtain optional cred its for 1) certification of advanced technology vehicles, 2) credits for reduction of air conditioning refrigerant leakage, 3) credits for improving air conditioning system efficiency, 4) credits for off-cycle CO 2 reducing technologies, and 5) optional early credits for 2009-2011 model year vehicles outlined in the provisions of 40 CFR 86.1867-12 (which are required to be reported to EPA after the 2011 model year).

Regarding the comments received by the Allianc e and Toyota, that warranty coverage is not needed for air conditioning components, EPA believes that the Clean Air Act requires warranty coverage on components used to demonstrate compliance with the emission standards, including components used in the optional credit programs for reduction of air conditioning refrigerant leakage and air conditioning efficiency improvements. EPA does not have the discretion to forgo warranty requirements by regulation in today’s final rule. Thus, the Agency is adopting defect warranty requirements for air conditioning components as proposed.

Effective date of Warranty for Components used to Obtain Early Credits . Regarding the defect warranty for emission-related components used to obtain optional early credits for 2009- 2011 vehicles, the defect warranty should provide coverage for these components at the time the early credits report is submitted to EPA (e.g., no later than 90 days after the end of the 2011 model year). For example, the defect warranty for early credit components does not have to apply retroactively (before the manufacturer declares the credits to EPA). The Agency believes this approach is reasonable, because 1) manufacturer’s early credit plans may not be finalized until after vehicles have been produced; 2) manuf acturers will be provided satisfactory lead timeto provide warranty requirements to customers; and 3) the manufacturer’s basic (bumper-tobumper) warranty for air conditioning and other early credit components are typically longer than the two-year/24,000 mile proposed warranty period which will be applicable to most early credit components. ).

Performance Warranty . EPA did not propose any changes to the current performance warranty requirements, because the performa nce warranty preconditions outlined in section 207(b) of the CAA have not been satisfied. For example, section 207(b) of the CAA comes into play if EPA issues performance warranty short te st regulations and determines that there are283 inspection facilities available in the field to de termine when vehicles do not comply with greenhouse gas emission standards. Once EPA issues performance warranty short test regulations, then the CAA performance warranty provisions require the manufacturer to pay for emission-related repairs if a vehicle is properly maintained and used, and fails the short test and is required to repair the vehicle. Currently the provisions of 85.2207 and 85.2222 provide performance warranty short test (commonly called an inspection and maintenance or I/M test). The provisions of 85.2207 and 85.2222 provide an I/M test procedure and failure criteria based on an inspection of the onboard diagnostic (OBD) system of the vehicle. The OBD inspection procedure in 85.2222 is currently used in most areas of the country where I/M tests are required. For example, a vehicle fails the OBD test procedure outlined in 85.2222 if the vehicle’s MIL is commanded to be “on” during the I/M test procedure.

Although most areas of the country which requi re I/M testing use the OBD test procedure outlined in 40 CFR 85.2207 and 85.2222, the NPRM did not propose that the OBD system would be required monitor CO 2 , CH 4 or N 2 O emission performance, ref 74 FR 49574 and 74 FR 49755. Therefore, the performance warranty preconditions in 201(b) of the CAA are not currently in effect for greenhouse gas CO 2 emissions (and the performance warranty continues to apply for criteria pollutants but not for greenhouse emissions).

Defect Reporting and Voluntary Emission -related Recall Reporting Requirements . EPA did not propose any changes to the current defe ct reporting and voluntary emission-related recall reporting requirements outlined in the provisions of 40 CFR 85.1901-1909. Although EPA requested comments, we did not receive any comments on defect reporting and voluntary emission-related recall reporting requirements. Current regulations require manufacturers to submit a defect report to EPA whenever an emission-related defect exists in 25 or more in-use vehicles or engines of the same model year. The defect report is required to be submitted to EPA within 15 working days of the time the manufactur er become aware of that a defect affects 25 ormore vehicles. Current regulations require manufacturers to submit to EPA voluntary emissionrelated recall reports within 15 working days of the date when owner notification begins.

Similar to the performance warranty requirements outlined above, the Agency believes that as proposed, defect reporting and voluntary emission-related recall reporting requirements would apply to emission-related components necessary to meet CO 2, CH 4 , and N 2 O standards for the useful life of the vehicle, including emis sion-related components which are used to obtain optional credits for 1) certification of advanced technology vehicles, 2) credits for reduction of air conditioning refrigerant leakage, 3) credits for improving air conditioning system efficiency, and 4) credits for off-cycle CO 2 reducing technologies, and 5) optional early credits for 2009- 2011 model year vehicles outlined in the provi sions of 40 CFR 86.1867-12 (which are required to be reported to EPA after the 2011 model year). For early credit components, defect reporting requirements and voluntary emission-related re call reporting requirements become effective at the time the early credits report is submitted to EP A (e.g., no later than 90 days after the end of the 2011 model year).

The final rule includes a minor clarification to the provisions of 40 CFR 85.1902 (b) and (d) to clarify that beginning with the 2012 model year, manufacturers are required to report284 emission-related defects and voluntary emission recalls to EPA, including emission-related defects and voluntary emission recalls related to greenhouse gas emissions (CH 4 , N 2 O and CO2).

Voluntary Aftermarket Parts Certification Program . EPA did not propose any changes to or receive comments on the current voluntary aftermarket parts certification program outlined in the provisions of 40 CFR 85.2102 and 85.2112-2123. These regulations provide an optional method for aftermarket manufacturers to certify that aftermarket parts (notably aftermarket catalysts) comply with current EPA emission re quirements for criteria pollutants. The current regulations, although they need updating to conform to current Tier 2 requirements (including the 120,000 mile full useful life requirement for passenger cars), are being used today by several aftermarket parts manufacturers.

The current aftermarket parts regulations were not intended to evaluate the effect of aftermarket parts on greenhouse gas emissions. For example, the current aftermarket parts regulations, when promulgated, provided durability requirements (which are not currently considered a major issue with CO 2 emissions) and did not consider the ramifications of certifying aftermarket parts to fleet average or in-use CO 2 standards. However, current regulations seem appropriate to evaluate the effe cts of aftermarket parts on CH 4 and N 2 O emissions, because the emission control components used to control CH 4 and N 2 O are similar to the emission control components used to control other criteria pollutants.

Therefore, the Agency is including some mino r revisions in the final to the provisions of 40 CFR 85.2112. The revisions clarify that be ginning with the 2012 model year, the currentaftermarket parts regulations are applicable to light-duty vehicles, light-duty trucks and mediumduty passenger vehicles for exhaust emissions (including CH 4 and N 2 O emissions) but should not

be used to evaluate the effects of automotive aftermarket parts on CO 2 emissions. Also included

in the final rule is a revision to ensure that beginning with the 2012 model year, the useful life requirements contained in the 40 CFR Part 85 aftermarket parts regulations are consistent with the useful life requirements contained in 40 CFR Part 86 regulations.

Tampering . EPA did not provide any tampering guidance in the proposal, nor did EPA receive any comments on tampering. Even though EPA did not address tampering or receive any comments on the subject, EPA believes that once implementation of the GHG regulations begins, there may be interest among manufacturers and the gene ral public as to how EPA will view tampering with respect to the GHG standards. EPA believes that a reasonable approach for the interpretation of tampering through the 2016 model year would be to not consider any alteration or modification made to a light-duty vehicl e that is temporary in nature to be construed as tampering for the purposes of CO 2 emissions. Examples of this might include temporary roof racks and temporary snow tires. All parts suppliers should provide clear instructions about the temporary nature of any aftermarket part that may affect greenhouse gas emissions, and this provision does not apply to any aftermarket part or modifications affecting criteria pollutant emissions. Even if a modification is not tempor ary, EPA will permit modifications to vehicles that involve components weighing less than or equal to 500 pounds, consistent with Advisory Circular (A/C) 64 238 . All A/C-64 requirements must still be met for modifications that affect

238 This document can be found electronically at http://iaspub.epa.gov/otaqpub/display_file.jsp?docid=14366&fl ag=1. AC-64 requires dealer modifications to be less285 criteria pollutants. EPA plans to review in-use data on vehicles in modi fied conditions, and plans to revisit the above exclusions from the prohibition against tampering 239 once the impact of

various vehicle alterations on CO 2 rates has been more thoroughly analyzed. For the 2017 model year and beyond, EPA may readdress both of these tampering exemptions from modifications that may affect carbon related exhaust emission rates.

For OEMs, EPA expects any modification or addition that is considered a vehicle “option” and may affect emission rate will cont inue to follow testing requirements in 40 CFR

86.1832-01.

11. Light Duty Vehicles and Fuel Economy Labeling

American consumers need accurate and meaningful information about the environmental and fuel economy performance of new light duty vehicles. EPA believes it is important that the fuel-economy label affixed to the new vehicles provide consumers with the critical information they need to make smart purchase decisions, especially in light of the expected increase in market share of electric and other advanced technology vehicles. Consumers may need new and different information than today’s vehicle labels provide in order to help them understand the energy use and associated cost of owning thes e electric and advanced technology vehicles.

Therefore, in proposing this greenhouse gas action, EPA sought comment on issues surrounding consumer vehicle labeling in general, and labeling of advanced technology vehicles in particular. EPA specifically asked for inpu t as to whether today’s miles per gallon fuel economy metric provides adequate information to consumers.

EPA received considerable public input in response to the request for comment in the proposal. Since the greenhouse gas rule was proposed in September, 2009, EPA has initiated a separate rulemaking to explore in detail the information displayed on the fuel economy label and the methodology for deriving that information. The purpose of the vehicle labeling rulemaking is to ensure that American consumers continue to have the most accurate, meaningful, and useful information available to them when purchasing new vehicles, and that the information is presented to them in clear and understandable terms.

EPA will consider all vehicle labeling commen ts received in response to the greenhouse gas proposal in its development of the new labeling rule in coming months. We encourage the interested public to stay engaged and continue to provide input on this issue in the context of the vehicle labeling rulemaking.

F. How Will This Final Rule Reduce GHG Emissions and Their Associated

Effects?

This action is an important step towards cu rbing steady growth of GHG emissions from cars and light trucks. In the absence of control, GHG emissions worldwide and in the U.S. are

than or equal to 500 pounds and not remove the vehicle from its original test group or evaporative emissions family. Both criteria are still required for modificat ions that affect criteria pollutants.

239 42 U.S.C. 7522(a)(3)286 projected to continue steady growth. Table III.F-1 shows emissions of CO 2 , methane, nitrous oxide and air conditioning refrigerants on a CO 2 -equivalent basis for calendar years 2010, 2020, 2030, 2040 and 2050. As shown below, U.S. GHGs are estimated to make up roughly 17 percent of total worldwide emissions in 2010, and the co ntribution of direct emissions from cars and light-trucks to this U.S. share is growing over time, reaching an estimated 19 percent of U.S. emissions by 2030 in the absence of control. As disc ussed later in this section, this steady rise in

GHG emissions is associated with numerous adverse impacts on human health, food and agriculture, air quality, and water and forestry resources.

Table III.F-1 Reference Case GHG Emissions by Calendar Year (MMTCO 2 eq)

2010 2020 2030 2040 2050

All Sectors (Worldwide) a 41,016 48,059 52,870 56,940 60,209

All Sectors (U.S. Only) a 7,118 7,390 7,765 8,101 8,379

U.S. Cars/Light Truck Only b 1,243 1,293 1,449 1,769 2,219

a ADAGE model projections, U.S. EPA 240

b MOVES2010 (2010), OMEGA Model (2020-50) U.S. EPA. See RIA Chapter 5.3 for modeling details.

EPA’s GHG rule will result in significant reduc tions as newer, cleaner vehicles come into the fleet, and the rule is estimated to have a measurable impact on world global temperatures. As discussed in Section I, this GHG rule is part of a joint National Program such that a large majority of the projected benefits would be achieved jointly with NHTSA’s CAFE standards,

which are described in detail in Section IV. EP A estimates the reductions attributable to theGHG program over time assuming the model year 2016 standards continue indefinitely post2016, 241 compared to a reference scenario in which the 2011 model year fuel economy standards continue beyond 2011.

Using this approach EPA estimates these standards would cut annual fleetwide car and light truck tailpipe CO 2- eq emissions by 21 percent by 2030, when 90 percent of car and light truck miles will be travelled by vehicles meeting the new standards. Roughly 20 percent of these reductions are due to “upstream” emission reductions from gasoline extraction, production and distribution processes as a result of reduced gasolin e demand associated with this rule. Some of the overall emission reductions also come from projected improvements in the efficiency of vehicle air conditioning systems, which will subs tantially reduce direct emissions of HFCs, one of the most potent greenhouse gases, as well as indirect emissions of tailpipe CO 2 emissions attributable to reduced engine load from air condi tioning. In total, EPA estimates that compared to a baseline of indefinite 2011 model year standards, net GHG emission reductions from the program would be 307 million metric tons CO 2 -equivalent (MMTCO 2 eq) annually by 2030,

240 U.S. EPA (2009). “EPA Analysis of the American Clean Energy and Security Act of 2009: H.R. 2454 in the 111th Congress.” U.S. Environmental Protection Agency, Washington, DC, USA (www.epa.gov/climatechange/economics/economicanalyses .html). ADAGE model projec tions of worldwide and U.S. totals include EISA, and are provided for context.

241 This analysis does not include the EISA requirement for 35 MPG through 2020 or California’s Pavley 1 GHG

standards. The standards are intended to supersede these requirements, and the baseline case for comparison are the

emissions that would result without further action above th e currently promulgated fuel economy standards.287 which represents a reduction of 4 percent of total U.S. GHG emissions and 0.6 percent of total worldwide GHG emissions projected in that year . This estimate accounts for all upstream fuel production and distribution emission reductions, ve hicle tailpipe emission reductions including air conditioning benefits, as well as increased vehicle miles travelled (VMT) due to the

"rebound" effect discussed in S ection III.H. EPA estimates this would be the equivalent of removing approximately 60 million cars and lig ht trucks from the road in this timeframe. 242

EPA projects the total reduction of the program over the full life of model year 2012-

2016 vehicles to be about 960 MMTCO 2 eq, with fuel savings of 78 billion gallons (1.8 billion barrels) of gasoline over the life of these vehi cles, assuming that some manufacturers take advantage of low-cost HFC reduction strategies to help meet these standards.

The impacts on global mean temperature and global mean sea level rise resulting from

these emission reductions are discussed in Section III.F.3.

1. Impact on GHG Emissions

This action will reduce GHG emissions emitte d directly from vehicles due to reduced fuel use and more efficient air conditioning systems. In addition to these “downstream” emissions, reducing CO 2 emissions translates directly to re ductions in the emissions associated with the processes involved in getting petrol eum to the pump, including the extraction and transportation of crude oil, and the production and distribution of finished gasoline (termed “upstream” emissions). Reductions from tailpi pe GHG standards grow over time as the fleet turns over to vehicles subject to the standards, meaning the benefit of the program will continue as long as the oldest vehicles in the fleet are replaced by newer, lower CO 2 emitting vehicles.

EPA is not projecting any reductions in tailpipe CH 4 or N 2 O emissions as a result of the emission caps set forth in this rule, which are me ant to prevent emission backsliding and to bring diesel vehicles equipped with advanced te chnology aftertreatment, and other advanced technology vehicles such as lean-burn gasoline vehicles, into alignment with current gasoline

vehicle emissions. 243

No substantive comments were received on the emissions modeling methods or on the greenhouse gas inventories presented in the proposal. These analyses are updated here to include model revisions and more recent economic analysis, including revised estimates of future vehicle sales, fuel prices, and vehicle miles traveled. The primary source for these data is the AEO 2010 preliminary release. 244 For more details, please se e the TSD and RIA Chapter 5.

As detailed in the RIA, EPA es timated calendar year tailpipe CO 2 reductions based on pre- and post-control CO 2 gram per mile levels from EPA’s OMEGA model and assumed to

242 Estimated using MOVES2010, the average vehicl e in the light duty fleet emitted 5.1 tons of CO 2 during calendar year 2008.

243 EPA is adopting a compliance option whereby manufacturers can comply with a CO 2 equivalent standard in lieu of meeting the CH 4 and N 2 O standards. This should have no effect on the estimated GHG reductions attributable to the rule since a condition of meeting that al ternative standard is that the fleetwide CO 2 target remains in place.

244 Energy Information Administration. Annual Energy Outlook 2010 Early Release. http://www.eia.doe.gov/oiaf/aeo/.288 continue indefinitely into the future, coupled with VMT projections derived from AEO 2010 Early Release. These estimates reflect the real-world CO 2 emissions reductions projected for the entire U.S. vehicle fleet in a specified cale ndar year, including the projected effect of air conditioning credits, the TLAAS program and FFV credits. EPA also estimated full lifetime reductions for model years 2012-2016 using pre- and post-control CO 2 levels projected by the OMEGA model, coupled with projected vehicle sales and lifetime mileage estimates. These

estimates reflect the real-world CO 2 emissions reductions projected for model years 2012 through 2016 vehicles over their entire life.

This rule allows manufacturers to earn credits for improved vehicle air conditioning efficiency. Since these improvements are relative ly low cost, EPA projects that manufacturers will take advantage of this flexibility, leadin g to reductions from emissions associated with vehicle air conditioning systems. As explaine d above, these reductions will come from both direct emissions of air conditioning refrigeran t over the life of the vehicle and tailpipe CO 2 emissions produced by the increased load of the A/C system on the engine. In particular, EPA estimates that direct emissions of HFCs, one of the most potent greenhouse gases, would be reduced 50 percent from light-duty vehicles when the fleet has turned over to more efficient vehicles. The fuel savings derived from lower tailpipe CO 2 would also lead to reductions in upstream emissions. Our estimated reductions from the A/C credits program are based on our analysis of how manufacturers are expected to take advantage of this credit opportunity in complying with the CO 2 fleetwide average tailpipe standards.

Upstream emission reductions associated w ith the production and distribution of fuel were estimated using emission factors from DO E’s GREET1.8 model, with some modifications as detailed in Chapter 5 of the RIA. These es timates include both inte rnational and domestic emission reductions, since reductions in foreign exports of finished gasoline and/or crude would make up a significant share of the fuel savings resulting from the GHG standards. Thus, significant portions of the upstream GHG emissi on reductions will occur outside of the U.S.; a breakdown of projected international versus domestic reductions is included in the RIA.

a. Calendar Year Reductions for Future Years

Table III.F.1-1 shows reductions estimated from these GHG standards assuming a precontrol case of 2011 MY standards continuing indefinitely beyond 2011, and a post-control case in which 2016 MY GHG standards continue indefinitely beyond 2016. 245 These reductions are broken down by upstream and downstream components, including air conditioning improvements, and also account for the offset from a 10 percent VMT “rebound” effect as discussed in Section III.H. Including the reductions from upstream emissions, total reductions

are estimated to reach 307 MMTCO 2 eq annually by 2030 (a 21 percent reduction in U.S. car and light truck emissions), and grow to over 500 MMTCO 2 eq in 2050 as cleaner vehicles continue to come into the fleet (a 23 percent reduction in U.S. car and light truck emissions).

Table III.F.1-1 Projected GHG Reductions (MMTCO 2 eq per year)

245 Legally, the 2011 CAFE standards only apply to the 2011 model year and no standards apply to future model years. However, we do not believe that it would be a ppropriate to assume that no CAFE standards would apply beyond the 2011 model year when projecting the impacts of this rule. Comment [A28]: Please tee up the issue of leakage – since there will be a discernible impact on the world price of crude oil, we expect greater consumption of oil in other countries as a result of our rule, which will have implications for GHG emissions. Can you please state the likely magnitude

of that effect?289 Calendar Year: 2020 2030 2040 2050

Net Reduction * 156.4 307.0 401.5 505.9

Net CO 2 139.1 273.3 360.4 458.7

Net other GHG 17.3 33.7 41.1 47.2

Downstream Reduction 125.2 245.7 320.7 403.0

CO 2 (excluding A/C) 101.2 199.5 263.2 335.1

A/C – indirect CO 2 10.6 20.2 26.5 33.8

A/C – direct HFCs 13.3 26.0 30.9 34.2

CH 4 (rebound effect) 0.0 0.0 0.0 0.0

N

2 O (rebound effect) 0.0 -0.1 -0.1 -0.1

Upstream Reduction 31.2 61.3 80.8 102.9

CO 2 27.2 53.5 70.6 89.9

CH 4 3.9 7.6 10.0 12.7

N

2 O 0.1 0.3 0.3 0.4

Percent reduction relative to U.S. reference (cars + light trucks) 12.1% 21.2% 22.7% 22.8%

Percent reduction relative to U.S. reference (all sectors) 2.1% 4.0% 5.0% 6.0%

Percent reduction relative to

worldwide reference 0.3% 0.6% 0.7% 0.8% * includes impacts of 10% VMT rebound rate presented in Table III.F.1-3

b. Lifetime Reductions for 2012-2016 Model Years

EPA also analyzed the emission reductions over the full life of the 2012-2016 model year cars and trucks affected by this program. 246 These results, including both upstream and downstream GHG contributions, are presented in Tabl e III.F.1-2, showing lifetime reductions of

about 960 MMTCO 2 eq, with fuel savings of 78 billion ga llons (1.8 billion barrels) of gasoline.

Table III.F.1-2 Projected Net GHG Reductions ( MMTCO 2 eq per year )

Model Year Lifetime GHG

Reduction (MMT CO 2 EQ) Lifetime Fuel Savings (Billion Gallons)

2012 88.9 7.3

2013 130.2 10.5

2014 174.2 13.9

2015 244.2 19.5

2016 324.6 26.5

246 As detailed in the RIA Chapter 5 and TSD Chapter 4, for this analysis the full life of the vehicle is represented by average lifetime mileages for cars (195,000 miles) and tr ucks (226,000 miles) averaged over calendar years 2012 through 2030, a function of how far vehicles drive per year and scrappage rates.290 Total Program Benefit 962.0 77.7

c. Impacts of VMT Rebound Effect

As noted above and discussed more fully in Se ction III.H., the effect of fuel cost on VMT (“rebound”) was accounted for in our assessment of economic and environmental impacts of this rule. A 10 percent rebound case was used for this analysis, meaning that VMT for affected model years is modeled as increasing by 10 percent as much as the increase in fuel economy; i.e., a 10 percent increase in fuel economy would yield a 1.0 percent increase in VMT. Results are shown in Table III.F.1-3; using the 10 percent rebound rate results in an overall emission

increase of 25.0 MMTCO 2 eq annually in 2030 (this increase is accounted for in the reductions presented in Tables III.F.1-1 and III.F.1-2). Our estimated changes in CH 4 or N 2 O emissions as

a result of these vehicle GHG standards are at tributed solely to this rebound effect.

Table III.F.1-3 GHG Impact Of 10% VMT Rebound a
( MMTCO 2 eq per year )

2020 2030 2040 2050

Total GHG Increase 13.0 25.0 32.9 41.9

Tailpipe & Indirect A/C CO 2 10.2 19.6 25.8 32.8

Upstream GHGs b 2.8 5.4 7.1 9.1

Tailpipe CH 4 0.0 0.0 0.0 0.0

Tailpipe N 2 O 0.0 0.1 0.1 0.1

a These impacts are included in the reductions shown in Table III.F.1-1 and III.F.1-2.

b Upstream rebound impact calculated as upstream total CO 2 effect times ratio of downstream tailpipe rebound

CO 2 effect to downstream tailpipe total CO 2 effect.

d. Analysis of Alternatives

EPA analyzed two alternative scenarios, including 4% and 6% annual increases in GHG emission standards. In addition to this annual increase, EPA assumed that manufacturers would use air conditioning improvements in identical pe netrations as in the primary scenario. Under these assumptions, EPA expects achieved fleetwide average emission levels of 253 g/mile CO 2 eq (4%), and 230 g/mile CO 2 eq(6%) in 2016.

As in the primary scenario, EP A assumed that the fleet complie d with the standards. For full details on modeling assumptions, please refer to RIA Chapter 5. EPA’s assessment of these alternative standards, including our response to public comments, is discussed in Section III.D.291 Table III.F.1-4 Calendar Year Impacts Of Alternative Scenarios

Calendar Year

Scenario CY 2020 CY2030 CY 2040 CY 2050

Total GHG Reductions (MMT

CO 2 eq) Primary -156.4 -307.0 -401.5 -505.8

4% -141.9 -286.2 -375.4 -472.9

6% -202.6 -403.4 -529.3 -668.7
Fuel Savings (Billion Gallons

Gasoline Equivalent) Primary -12.6 -24.7 -32.6 -41.5

4% -11.3 -22.9 -30.3 -38.6

6% -16.7 -33.2 -43.9 -55.9

Table III.F.1-5 Model Year Impacts of Alternative Scenarios

Model Year Lifetime

Scenario MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Total

Total GHG Reductions (MMT

CO 2 eq) Primary -88.8 -130.2 -174.2 -244.2 -324.6 -962.0

4% -39.9 -96.6 -155.4 -226.5 -303.6 -822.0

6% -61.7 -146.5 -237.0 -332.2 -427.6 -1,204.9
Fuel Savings (Billion Gallons

Gasoline Equivalent) Primary -7.3 -10.5 -13.9 -19.5 -26.5 -77.7

4% -2.9 -7.1 -12.2 -18.0 -24.6 -64.8

6% -4.9 -12.0 -19.4 -27.3 -35.6 -99.1

2. Overview of Climate Change Impacts from GHG Emissions

Once emitted, GHGs that are the subject of this regulation can rema in in the atmosphere for decades to centuries, meaning that 1) their concentrations become well-mixed throughout the global atmosphere regardless of emission origin, an d 2) their effects on c limate are long lasting. GHG emissions come mainly from the combustion of fossil fuels (coal, oil, and gas), with additional contributions from the clearing of forest s and agricultural activities. The transportation sector represents a significant po rtion, 28%, of U.S. GHG emissions. 247

This section provides a summary of observed and projected changes in GHG emissions and associated climate change impacts. The source document for the section below is the Technical Support Document (TSD) 248 for EPA’s Endangerment and Cause or Contribute Findings Under the Clean Air Act. 249 Below is the Executive Summary of the TSD which provides technical support for the endangerment and cause or contribute analyses concerning GHG emissions under section 202(a) of the Clean Air Act. The TSD reviews observed and projected changes in climate based on current and projected atmospheric GHG concentrations and emissions, as well as the related impacts and risks from climate change that are projected in the absence of GHG mitigation actions, including th is action and other U.S. and global actions. The TSD was updated and revised based on expert technical review and public comment as part of EPA’s rulemaking process for the final Endangerment Findings. The key findings synthesized

247 U.S. EPA (2009) Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–2007 . EPA-430-R-09-004, Washington, DC.

248 “Technical Support Document for Endangerment and Ca use or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act” Docket: EPA-HQ-OAR-2009-0472-11292

249 See 74 FR 66496 (Dec. 15, 2009)292 here and the information throughout the TSD are primarily drawn from the assessment reports of the Intergovernmental Panel on Climate Change (IPCC), the U.S. Climate Change Science Program (CCSP), the U.S. Global Change Research Program (USGCRP), and the National Research Council (NRC). 250

a. Observed Trends in Greenhouse Gas Emissions and Concentrations

The primary long-lived GHGs directly emitted by human activities include carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2 O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF 6 ). Greenhouse gases have a warming effect by trapping heat in the atmosphere that would otherwise escape to space. In 2007, U.S. GHG emissions were 7,150 teragrams 251 of CO 2 equivalent 252 (TgCO 2 eq). The dominant gas

emitted is CO 2 , mostly from fossil fuel combustion. Methane is the second largest component of U.S. emissions, followed by N 2 O and the fluorinated gases (HFCs, PFCs, and SF 6 ). Electricity generation is the largest emitting sector (34% of total U.S. GHG emissions), followed by transportation (28%) and industry (19%).

Transportation sources under Section 202(a) 253 of the Clean Air Act (passenger cars, light duty trucks, other trucks and buses, motorcycles, and passenger cooling) emitted 1,649 TgCO 2 eq in 2007, representing 23% of total U.S. GHG emissions. U.S. transportation sources under Section 202(a) made up 4.3% of total global GHG emissions in 2005, 254 which, in addition to the United States as a whole, ranked only behind to tal GHG emissions from China, Russia, and India but ahead of Japan, Brazil, Germany, and the rest of the world’s countries. In 2005, total U.S. GHG emissions were responsible for 18% of global emissions, ranking only behind China, which was responsible for 19% of global GHG emissions. The scope of this action focuses on GHG emissions under Section 202(a) from passenger cars and light duty trucks source categories (see Section III.F.1).

The global atmospheric CO 2 concentration has increased about 38% from pre-industrial levels to 2009, and almost all of the increase is due to anthropogenic emissions. The global atmospheric concentration of CH 4 has increased by 149% since pre-industrial levels (through 2007); and the N 2 O concentration has increased by 23% (through 2007). The observed concentration increase in these gases can also be attributed primarily to anthropogenic emissions. The industrial fluorinated gases, HFCs, PFCs, and SF 6 , have relatively low atmospheric

250 For a complete list of core references from IPCC, USGCRP/CCSP, NRC and others relied upon for development of the TSD for EPA’s Endangerment and Cause or Contribut e Findings see section 1(b), specifically, Table 1.1 of

the TSD.

251 One teragram (Tg) = 1 million metric tons. 1 metric ton = 1,000 kilograms = 1.102 short tons = 2,205 pounds.

252 Long-lived GHGs are compared and summed together on a CO 2 -equivalent basis by multiplying each gas by its global warming potential (GWP), as estimated by IPCC. In accordance with United Nations Framework Convention on Climate Change (UNFCCC) reporting procedures, the U.S. quantifies GHG emissions using the 100-year timeframe values for GWPs established in the IPCC Second Assessment Report.

253 Source categories under Section 202(a) of the Clean Air Ac t are a subset of source categories considered in the transportation sector and do not include emissions from non-highway sources such as boats, rail, aircraft, agricultural equipment, construction/mining equipment, and other off-road equipment.

254 More recent emission data are available for the United St ates and other individual countries, but 2005 is the most recent year for which data for all c ountries and all gases are available.293 concentrations but the total radiative forcing due to these gases is increasing rapidly; these gases are almost entirely anthropogenic in origin.

Historic data show that current atmospheri c concentrations of the two most important directly emitted, long-lived GHGs (CO 2 and CH 4 ) are well above the natural range of atmospheric concentrations compared to at least the last 650,000 years. Atmospheric GHG concentrations have been increasing because anthropogenic emissions have been outpacing the rate at which GHGs are removed from the atmosphe re by natural processes over timescales of

decades to centuries.

b. Observed Effects Associated With Global Elevated Concentrations of GHGs

Current ambient air concentrations of CO 2 and other GHGs remain well below published exposure thresholds for any direct adverse health effects, such as respiratory or toxic effects.

The global average net effect of the increa se in atmospheric GHG concentrations, plus other human activities (e.g., land-use change an d aerosol emissions), on the global energy balance since 1750 has been one of warming. This total net heating effect, referred to as forcing, is estimated to be +1.6 (+0.6 to +2.4) watts per square meter (W/m 2 ), with much of the range surrounding this estimate due to uncertainties about the cooling and warming effects of aerosols. However, as aerosol forcing has more regional va riability than the well-mixed, long-lived GHGs, the global average might not capture some regional effects. The combined radiative forcing due to the cumulative (i.e., 1750 to 2005) increase in atmospheric concentrations of CO 2 , CH 4 , and

N 2 O is estimated to be +2.30 (+2.07 to +2.53) W/m 2 . The rate of increase in positive radiative forcing due to these three GHGs during the industrial era is very likely to have been unprecedented in more than 10,000 years.

Warming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice, and rising global average sea level. Global mean surface temperatures have risen by 1.3 ± 0.32 ° F (0.74°C ± 0.18 ° C) over the last 100 years. Eight of the 10 warmest years on record have occurred since 2001. Global mean surface temperature was higher during the last few decades of the 20th century than during any comparable period during the preceding four centuries.

Most of the observed increase in global av erage temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic GHG concen trations. Climate model simulations suggest natural forcing alone (i.e., changes in solar irradiance) cannot explain the observed warming.

U.S. temperatures also warmed during the 20 th and into the 21 st century; temperatures are now approximately 1.3°F (0.7°C) warmer than at the start of the 20 th century, with an increased rate of warming over the past 30 years. Both the IPCC 255 and the CCSP reports attributed recent

255 Hegerl, G.C. et al. (2007) Understanding and Attributing Climate Change. In: Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental294 North American warming to elevated GHG concentrations. In the CCSP (2008) report, 256 the authors find that for North America, “more than half of this warming [for the period 1951-2006] is likely the result of human-caused greenhouse gas forcing of climate change.”

Observations show that changes are occurring in the amount, intensity, frequency and type of precipitation. Over the contiguous Unite d States, total annual precipitation increased by 6.1% from 1901 to 2008. It is likely that there have been increases in the number of heavy precipitation events within many land regions, even in those where there has been a reduction in total precipitation amount, consistent with a warming climate.

There is strong evidence that global sea level gradually rose in the 20 th century and is currently rising at an increased rate. It is not cl ear whether the increasing rate of sea level rise is a reflection of short-term variability or an increas e in the longer-term trend. Nearly all of the Atlantic Ocean shows sea level rise during the last 50 years with the rate of rise reaching amaximum (over 2 millimeters [mm] per year) in a band along the U.S. east coast running eastnortheast.

Satellite data since 1979 show that annual average Arctic sea ice extent has shrunk by 4.1% per decade. The size and speed of recent Arctic summer sea ice loss is highly anomalous relative to the previous few thousands of years.

Widespread changes in extreme temperatures have been observed in the last 50 years across all world regions, including the United States. Cold days, cold nights, and frost have become less frequent, while hot days, hot nights, and heat waves have become more frequent.

Observational evidence from all continents and most oceans shows that many natural systems are being affected by regional climat e changes, particularly temperature increases. However, directly attributing specific regional changes in climate to emissions of GHGs from human activities is difficult, especially for precipitation.

Ocean CO 2 uptake has lowered the average ocean pH (increased acidity) level by approximately 0.1 since 1750. Consequences for marine ecosystems can include reduced calcification by shell-forming organisms, and in the longer term, the dissolution of carbonate

sediments.

Observations show that climate change is currently affecting U.S. physical and biological systems in significant ways. The consistency of these observed changes in physical and biological systems and the observed significant warming likely cannot be explained entirely due to natural variability or other confounding non-climate factors.

Panel on Climate Change [Solomon, S., D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M. Tignor, and H.L. Miller (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.

256 CCSP (2008) Reanalysis of Historical Climate Data for Key Atmospheric Features: Implications for Attribution of Causes of Observed Change . A Report by the U.S. Climate Change Science Program and the Subcommittee on Global Change Research [Randall Dole, Martin Hoerling, and Siegfried Schubert (eds.)]. National Oceanic and Atmospheric Administration, National Climatic Data Center, Asheville, NC, 156 pp.295 c. Projections of Future Climate Change W ith Continued Increases in Elevated GHG

Concentrations

Most future scenarios that assume no ex plicit GHG mitigation ac tions (beyond those already enacted) project increasing global GHG emissions over the century, with climbing GHG concentrations. Carbon dioxide is expected to remain the dominant anthropogenic GHG over the

course of the 21 st century. The radiative forcing associated with the non-CO 2 GHGs is still significant and increasing over time.

Future warming over the course of the 21 st century, even under scenarios of low-emission growth, is very likely to be greater than observed warming over the past century. According to climate model simulations summarized by the IPCC, 257 through about 2030, the global warming rate is affected little by the choice of different future emissions scenarios. By the end of the 21 st
century, projected average global warming (compared to average temperature around 1990) varies significantly depending on the emissi on scenario and climate sensitivity assumptions, ranging from 3.2 to 7.2 ° F (1.8 to 4.0 ° C), with an uncertainty range of 2.0 to 11.5 ° F (1.1 to

6.4 ° C).

All of the United States is very likely to wa rm during this century, and most areas of the United States are expected to warm by more than the global average. The largest warming is projected to occur in winter over northern parts of Alaska. In western, central and eastern regions of North America, the projected warming has less seasonal variation and is not as large, especially near the coast, consistent with less warming over the oceans.

It is very likely that heat waves will beco me more intense, more frequent, and longer lasting in a future warm climate, whereas cold episodes are projected to decrease significantly.

Increases i n the amount of precipitation are ve ry likely in higher latitudes, while decreases are likely in most subtropical latitude s and the southwestern United States, continuing observed patterns. The mid-continental area is expected to experience drying during summer, indicating a greater risk of drought.

Intensity of precipitation events is projected to increase in the United States and other regions of the world. More intense precipitation is expected to increase the risk of flooding and result in greater runoff and erosion that has the potential for adverse water quality effects.

It is likely that hurricanes will become more intense, with stronger peak winds and more heavy precipitation associated with ongoing in creases of tropical sea surface temperatures. Frequency changes in hurricanes are currently too uncertain for confident projections.

257 Meehl, G.A. et al. (2007) Global Climate Projections. In: Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessme nt Report of the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, M. Manning, Z. Chen, M. Ma rquis, K.B. Averyt, M. Tignor and H.L. Miller (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.296 By the end of the century, global average sea level is projected by IPCC 258 to rise between 7.1 and 23 inches (18 and 59 centimeter [cm]), relative to around 1990, in the absence of increased dynamic ice sheet loss. Recent rapid changes at the edges of the Greenland and

West Antarctic ice sheets show acceleration of fl ow and thinning. While an understanding of these ice sheet processes is incomplete, their incl usion in models would likely lead to increased sea level projections for the end of the 21 st century.

Sea ice extent is projected to shrink in the Arctic under all IPCC emissions scenarios.

d. Projected Risks and Impacts Associated With Future Climate Change

Risk to society, ecosystems, and many natural Earth processes increase with increases in both the rate and magnitude of climate change. Climate warming may increase the possibility of large, abrupt regional or global climatic events (e.g., disintegration of the Greenland Ice Sheet or collapse of the West Antarctic Ice Sheet). Th e partial deglaciation of Greenland (and possibly West Antarctica) could be triggered by a sustained temperature increase of 2 to 7 ° F (1 to 4oC) above 1990 levels. Such warming would cause a 13 to 20 feet (4 to 6 meter) rise in sea level, which would occur over a time period of centuries to millennia.

The CCSP 259 reports that climate change has the potential to accentuate the disparities already evident in the American health care system, as many of the expected health effects are likely to fall disproportionately on the poor, the elderly, the disabled, and the uninsured. The

IPCC 260 states with very high confidence that climate change impacts on human health in U.S. cities will be compounded by population growth and an aging population.

Severe heat waves are projected to intensify in magnitude and duration over the portions of the United States where these events already occur, with potential increases in mortality and morbidity, especially among the elderly, young, and frail.

Some reduction in the risk of death related to extreme cold is expected. It is not clear whether reduced mortality from cold will be greate r or less than increased heat-related mortality in the United States due to climate change.

I ncreases in regional ozone pollution relative to ozone levels without climate change are expected due to higher temperatures and weaker circulation in the United States and other world

258 IPCC (2007) Summary for Policymakers. In: Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M. Tignor and H.L. Miller (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.

259 Ebi, K.L., J. Balbus, P.L. Kinney, E. Lipp, D. Mills, M.S. O’Neill, and M. Wilson (2008) Effects of Global Change on Human Health. In: Analyses of the effects of global change on human health and welfare and human

systems . A Report by the U.S. Climate Change Science Pr ogram and the Subcommittee on Global Change Research. [Gamble, J.L. (ed.), K.L. Ebi, F.G. Sussman, T.J. Wi lbanks, (Authors)]. U.S. Environmental Protection Agency, Washington, DC, USA, pp. 2-1 to 2-78.

260 Field, C.B. et al. (2007) North America. In: Climate Change 2007: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Fourth Assess ment Report of the Intergovernmental Panel on Climate Change [M.L. Parry, O.F. Canziani, J.P. Palutikof, P.J. van der Linden and C.E. Hanson (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.297 cities relative to air quality levels without cl imate change. Climate ch ange is expected to increase regional ozone pollution, with associat ed risks in respirator y illnesses and premature death. In addition to human health effects, tropospheric ozone has significant adverse effects on crop yields, pasture and forest growth, and speci es composition. The directional effect of climate change on ambient particul ate matter levels remains uncertain.

Within settlements experiencing climate change, certain parts of the population may be especially vulnerable; these include the poor, the elderly, those already in poor health, the disabled, those living alone, and/or indigenous populations dependent on one or a few resources. Thus, the potential impacts of climate change raise environmental justice issues.

The CCSP 261 concludes that, with increased CO 2 and temperature, the life cycle of grain and oilseed crops will likely progress more rapidly. But, as temperature rises, these crops will increasingly begin to experience failure, espe cially if climate variability increases and precipitation lessens or becomes more variable. Furthermore, the marketable yield of many

horticultural cr ops (e.g., tomatoes, onions, fruits) is very likely to be more sensitive to climate change than grain and oilseed crops.

Higher temperatures will very likely reduce livestock production during the summer season in some areas, but these losses will very lik ely be partially offset by warmer temperatures during the winter season.

Cold-water fisheries will likely be negati vely affected; warm-water fisheries will generally benefit; and the results for cool-water fisheries will be mixed, with gains in the northern and losses in the southern portions of ranges.

Climate change has very likely increased the size and number of forest fires, insect outbreaks, and tree mortality in the interior West , the Southwest, and Alaska, and will continue to do so. Over North America, forest growth and productivity have been observed to increase

since the middle of the 20 th century, in part due to observed climate change. Rising CO 2 will very likely increase photosynthesis for forests, but the increased photosynthesis will likely only increase wood production in young forests on fertile soils. The combined effects of expected increased temperature, CO 2 , nitrogen deposition, ozone, and forest disturbance on soil processes and soil carbon storage remain unclear.

Coastal communities and habitats will be incr easingly stressed by c limate change impacts interacting with developmen t and pollution. Sea level is rising along much of the U.S. coast, and the rate of change will very likely increase in the future, exacerbating the impacts of progressive inundation, storm-surge flooding, and shoreline erosion. Storm impacts are likely to be more

261 Backlund, P., A. Janetos, D.S. Schimel, J. Hatfield, M.G. Ryan, S.R. Archer, and D. Lettenmaier (2008) Executive Summary. In: The Effects of Climate Change on Agriculture, Land Resources, Water Resources, and Biodiversity in the United States. A Report by the U.S. Climate Change Science Program and the Subcommittee on Global Change Research. Washington, DC., USA, 362 pp.298 severe, especially along the Gulf and Atlantic co asts. Salt marshes, other coastal habitats, and dependent species are threatened by sea level ri se, fixed structures blocking landward migration, and changes in vegetation. Population growth and rising value of infrastructure in coastal areas increases vulnerability to climate variability and future climate change.

Climate change will likely further constrai n already overallocated water resources in some regions of the United States, increasi ng competition among agri cultural, municipal, industrial, and ecological uses. Although water management practices in the United States are generally advanced, particularly in the West, the reliance on past conditions as the basis for current and future planning may no longer be appropriate, as climate change increasingly creates

conditions well outside of historical observati ons. Rising temperatures will diminish snowpack and increase evaporation, affecting seasonal availa bility of water. In the Great Lakes and major river systems, lower water levels are likely to exacerbate challenges re lating to water quality, navigation, recreation, hydropower generation, water transfers, and binational relationships. Decreased water supply and lower water levels are likely to exacerbate challenges relating to aquatic navigation in the United States.

Higher water temperatures, increased precipita tion intensity, and longer periods of low flows will exacerbate many forms of water pollution, potentially making attainment of water quality goals more difficult. As waters become warmer, the aquatic life they now support will be replaced by other species better adapted to warmer water. In the long term, warmer water and changing flow may result in deterioration of aquatic ecosystems.

Ocean acidification is projected to con tinue, resulting in the reduced biological production of marine calcifiers, including corals.

Climate change is likely to affect U.S. energy use and energy production and physical

and institutional infrastructures. It will also likely interact with and po ssibly exacerbate ongoing environmental change and environmental pressures in settlements, particularly in Alaska where indigenous communities are facing major environmental and cultural impacts. The U.S. energy sector, which relies heavily on water for hydropower and cooling capacity, may be adversely impacted by changes to water supply and quality in reservoirs and ot her water bodies. Water infrastructure, including drinking water and wastewater treatment plants, and sewer and stormwater management systems, will be at gr eater risk of flooding, sea level rise and storm surge, low flows, and other factor s that could impair performance.

Disturbances such as wildfires and insect outbreaks are increasing in the United States and are likely to intensify in a warmer future with warmer winters, drier soils, and longer growing seasons. Although recent climate trends have increased vegetation growth, continuing

increases in disturbances are likely to limit carbon storage, facilitate invasive species, and disrupt
ecosystem services.

Over the 21 st century, changes in climate will cause species to shift north and to higher elevations and fundamentally rearrange U.S. ecosystems. Differential capacities for range shifts

and constraints from development, habitat fragm entation, invasive species, and broken ecological connections will alter ecosystem structure, function, and services.299 Climate change impacts will vary in nature and magnitude across different regions of the

United States.

• Sustained high summer temperatures, heat waves, and declining air quality are projected in the Northeast, 262 Southeast, 263 Southwest, 264 and Midwest. 265 Projected climate change would continue to cause loss of sea ice, glacier retreat, permafrost thawing, and coastal

erosion in Alaska.

• Reduced snowpack, earlier spring snowmelt, and increased likelihood of seasonal summer droughts are projected in the Northeast, Northwest, 266 and Alaska. More severe, sustained droughts and water scarcity are projected in the Southeast, Great Plains, 267 and Southwest.

• The Southeast, Midwest, and Northwest in par ticular are expected to be impacted by an increased frequency of heavy downpours and greater flood risk.

• Ecosystems of the Southeast, Midwest, Great Plains, Southwest, Northwest, and Alaska are expected to experience altered distribution of native species (including local extinctions), more frequent and intense wildfires, and an increase in insect pest outbreaks and invasive species.

• Sea level rise is expected to increase storm surge height and strength, flooding, erosion, and wetland loss along the coasts, particularly in the Northeast, Southeast, and islands.

• Warmer water temperatures and ocean acidification are expected to degrade important aquatic resources of islands and coasts such as coral reefs and fisheries.

• A longer growing season, low levels of warmi ng, and fertilization effects of carbon dioxide may benefit certain crop species and forests, particularly in the Northeast and Alaska. Projected summer rainfall increases in the Pacific islands may augment limited freshwater supplies. Cold-related mortality is projected to decrease, especially in the Southeast. In the Midwest in particular, heating oil demand and snow-related traffic accidents are expected to

decrease.

Climate change impacts in certain regions of the world may exacerbate problems that raise humanitarian, trade, and national securi ty issues for the United States. The IPCC 268
identifies the most vulnerable world regions as th e Arctic, because of the effects of high rates of projected warming on natural systems; Africa, especially the sub-Saharan region, because of current low adaptive capacity as well as climate change; small islands, due to high exposure of

262 Northeast includes West Virginia, Maryland, Delawa re, Pennsylvania, New Jers ey, New York, Connecticut, Rhode Island, Massachusetts, Vermont, New Hampshire, and Maine.

263 Southeast includes Kentucky, Virginia , Arkansas, Tennessee, North Carolina, South Carolina, southeast Texas, Louisiana, Mississippi, Alabama, Georgia, and Florida.

264 Southwest includes California, Nevada, Utah, wester n Colorado, Arizona, New Me xico (except the extreme eastern section), and southwest Texas.

265 The Midwest includes Minnesota, Wisconsin, Michigan, Iowa, Illinois, Indiana, Ohio, and Missouri.

266 The Northwest includes Washington, Idaho, western Montana, and Oregon.

267 The Great Plains includes central and eastern Mont ana, North Dakota, South Dakota, Wyoming, Nebraska, eastern Colorado, Nebraska, Kansas, extreme eastern New Mexico, central Texas, and Oklahoma

268 Parry, M.L. et al. (2007) Technical Summary. In: Climate Change 2007: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Fourth Assess ment Report of the Intergovernmental Panel on Climate Change [ M.L. Parry, O.F. Canziani, J.P. Palutikof, P.J. van der Linden, and C.E. Hanson (eds.)], Cambridge University Press, Cambridge, United Kingdom, pp. 23 S 78.300population and infrastructure to risk of sea level rise and increased storm surge; and Asian megadeltas, such as the Ganges-Brahmaputra and the Zhujiang, due to large populations and high exposure to sea level rise, storm surge and river flooding. Climate change has been described as a potential threat multiplier with re gard to national security issues.

3. Changes in Global Mean Temperature and Sea Level Rise Associated with the

Rule’s GHG Emissions Reductions

EPA examined 269 the reductions in CO 2 and other GHGs associated with this action and analyzed the projected effects on global mean surface temperature and sea level, two common indicators of climate change. The analysis projec ts that this action will reduce climate warming and sea level rise. Although the projected reductions are small in overall magnitude by themselves, they are quantifiable and would contri bute to reducing climate change risks. A commenter agreed that the modeling results showed small, but quantifiable, reductions in the global atmospheric CO 2 concentration, as well as a reduction in projected global mean surface temperature and sea level rise, from implementation of this action, across all climate sensitivities. As such, the commenter encourages the agencies to move forward with this action while continuing to develop additional, more st ringent vehicle standards beyond 2016.

Another commenter indicated that the projec ted changes in climate impacts resulting

from this action are small and therefore not mean ingful. EPA disagrees with this view as the reductions may be small in overall magnitude, but in the globa l climate change context, they are quantifiable showing a clear di rectional signal across a range of climate sensitivities. 270,271 EPA therefore determines that the proj ected reductions in atmospheric CO 2 , global mean temperature and sea level rise are meaningful in the context of this rule. EPA addresses this point further in the Joint Response to Comments document. For this final rule, EPA has provided an additional climate change impact analysis for projected changes in ocean pH in the context of this action. In addition, EPA updated the modeling analysis based on the revised GHG emission reductions provided in Section III.F.1; however, the change in modeling results was very small in magnitude. Based on the reanalysis the results for projected atmospheric CO 2 concentrations are estimated to be reduced by an average of 2.9 ppm (previously 3.0 ppm), global mean temperatureis estimated to be reduced by 0.006 to 0.015 °C by 2100 (previously 0.007 to 0.016 °C) and sealevel rise is projected to be reduced by approximately 0.06-0.14cm by 2100 (previously 0.06- 0.15cm).

269 Using the Model for the Assessment of Greenhouse Gas Induced Climate Change (MAGICC, http://www.cgd.ucar.edu/cas/wigley/magicc/), EPA estimated th e effects of this action’s greenhouse gas emissions reductions on global mean temperature and sea level. Please refer to Chapter 7.4 of the RIA for additional

information.

270 The National Research Council (NRC) 2001 study, Climate Change Science: An Analysis of Some Key Questions , defines climate sensitivity as the sensitivity of the climate system to a forcing is commonly expressed in terms of the global mean temperature change that would be expected after a time sufficiently long enough for both the atmosphere and ocean to come to equilib rium with the change in climate forcing.

271 To capture some of the uncer tainty in the climate system, the changes in atmospheric CO 2 , projected temperatures and sea level were estimated across the most current Intergovernmental Panel on Climate Change (IPCC) range of climate sensitivities, 1.5°C to 6.0°C.301 a. Estimated Projected Reductions in Atmospheric CO 2 Concentration, Global Mean Surface Temperatures and Sea Level Rise

EPA estimated changes in the atmospheric CO 2 concentration, global mean surface temperature and sea level to 2100 resulting from th e emissions reductions in this action using the

Model for the Assessment of Greenhouse Gas In duced Climate Change (MAGICC, version 5.3). This widely-used, peer reviewed modeling tool was also used to project temperature and sea

level rise under different emissions scenarios in the Third and Fourth Assessments of the Intergovernmental Panel on Climate Change (IPCC).

GHG emissions reductions from Section III.F.1 were applied as net reductions to a peer reviewed global reference case (or baseline) em issions scenario to generate an emissions scenario specific to this action. For the scenar io related to this action, all emissions reductions were assumed to begin in 2012, with zero emissions change in 2011 (from the reference case) followed by emissions linearly increasing to eq ual the value supplied in Section III.F.1 for 2020 and then continuing to 2100. Details about the reference case scenario and how the emissions reductions were applied to generate the scenario can be found in the RIA Chapter 7.

Changes in atmospheric CO 2 concentration, temperature, and sea-level for both the reference case and the emissions scenarios associated with this action were computed using MAGICC. To compute the reductions in the atmospheric CO 2 concentrations as well as in temperature and sea level resulting from this acti on, the output from the scenario associated with

this final rule was subtracted from an ex isting Global Change Assessment Model (GCAM, formerly MiniCAM) reference emission scenario . To capture some key uncertainties in the climate system with the MAGICC model, changes in temperature and sea-level rise were projected across the most curr ent IPCC range for climate sens itivities which ranges from 1.5°C to 6.0°C (representing the 90% confidence interval). 272 This wide range reflects the uncertainty in this measure of how much the global mean temperature would rise if the concentration of carbon dioxide in the atmosphere were to double. Details about this modeling analysis can be found in the RIA Chapter 7.4.

The results of this modeling, su mmarized in Table III.F.3-1, show small, but quantifiable, reductions in atmospheric CO 2 concentrations, projected global mean surface temperature and sea level resulting from this action, across all climate sensitivities. As a result of the emission reductions from this action, the atmospheric CO 2 concentration is projected to be reduced by an average of 2.9 parts per million (ppm), the global mean temperature is projected to be reduced by approximately 0.006-0.015°C by 2100, and global mean sea level rise is projected to be reduced by approximately 0.06-0.14cm by 2100. The reductions are small relative to the IPCC’s 2100 “best estimates” for global mean temperature increases (1.8 – 4.0oC) and sea level rise (0.20- 0.59m) for all global GHG emissions sources for a range of emissions scenarios. EPA used a

272 In IPCC reports, equilibrium climate sensitivity refers to the equilibrium change in the annual mean global surface temperature following a doubling of the atmospheri c equivalent carbon dioxide concentration. The IPCC states that climate sensitivity is “likely” to be in the range of 2°C to 4.5°C, “very unlikely” to be less than 1.5°C, and “values substantially higher than 4.5°C cannot be excluded.” IPCC WGI, 2007, Climate Change 2007 - The Physical Science Basis, Contribution of Working Group I to the Fourth Assessment Report of the IPCC, http://www.ipcc.ch/302 peer reviewed model, the MAGICC model, to do this analysis. This analysis is specific to this rule and therefore does not come from previously published work. Further discussion of EPA’s modeling analysis is found in the final RIA.

Table III.F.3-1 Effect of GHG Emissions Reduc tions On Projected Changes in Global Climate

for the Final Vehicles Rule making (for climate sensitivities ranging from 1.5-6°C) Measure Units Year Projected Change Atmospheric CO 2 Concentration ppm 2100 -2.7-3.1

Global Mean Surface Temperature o C 2100 -0.006-0.015

Sea Level Rise cm 2100 -0.06-0.14 Ocean pH pH units 2100 0.0015

As a substantial portion of CO 2 emitted into the atmosphere is not removed by natural processes for millennia, each unit of CO 2 not emitted into the atmosphere avoids essentially permanent climate change on centennial time scales. Though the magnitude of the avoided climate change projected here is small, these reductions would represent a reduction in the adverse risks associated with climate change (though these risks were not formally estimated for this action) across all climate sensitivities.

The IPCC 273 has noted that ocean acidification due to the direct effects of elevated CO 2 concentrations will impair a wi de range of planktonic and ot her marine organisms that use aragonite to make their shells or skeletons. EPA used the Program CO2SYS, 274 version 1.05 to estimate projected changes in tropical ocean pH based on the atmospheric CO 2 concentration reductions resulting from this action. The prog ram performs calculations relating parameters of the carbon dioxide (CO 2 ) system in seawater. EPA used the program to calculate ocean pH as a function of atmospheric CO 2 , among other specified input conditions. Based on the projected atmospheric CO 2 concentration reductions (average of 2.9 ppm by 2100) that would result from this rule, the program calculates an increase in ocean pH of about 0.0015 pH units in 2100. Thus, this analysis indicates the proj ected decrease in atmospheric CO 2 concentrations from today’s rule would result in an increase in ocean pH.

EPA’s analysis of the rule’s effect on global climate conditions is intended to quantify these potential reductions using the best available science. Wh ile EPA’s modeling results of the

effect of this rule alone show smal l differences in climate effects (CO 2 concentration, temperature, sea-level rise, ocean pH), when expressed in terms of global climate endpoints and global GHG emissions, they yield results that ar e repeatable and consistent within the modeling

frameworks used.

273 Fischlin, A. et al. (2007) Ecosystems, their Properties, Goods, and Services. In: Climate Change 2007: Impacts, Adaptation and Vulnerability. Contribu tion of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [M.L. Parry, O.F. Canziani, J.P. Palutikof, P.J. van der Linden and C.E. Hanson (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.

274 Lewis, E., and D. W. R. Wallace. 1998. Program Developed for CO 2 System Calculations. ORNL/CDIAC-105. Carbon Dioxide Information Analysis Center, Oak Ridge National Laboratory, U.S. Department of Energy, Oak Ridge, Tennessee.303 4. Weight Reduction and Potential Safety Impacts

XX- To be added through discussion with NHTSA

G. How Will the Standards Impact Non- GHG Emissions and Their Associated

Effects?

In addition to reducing the emissions of greenhouse gases, this rule will influence the emissions of “criteria” air pollutants and air toxi cs (i.e., hazardous air pollutants). The criteria air pollutants include carbon monoxide (CO), fine particulate matter (PM2.5), sulfur dioxide (SO X ) and the ozone precursors hydrocarbons (VOC) and oxides of nitrogen (NO X ); the air toxics include benzene, 1,3-butadiene, formaldehyde, acetaldehyde, and acrolein. Our estimates of these non-GHG emission impacts from the GHG program are shown by pollutant in Table III.G-1 and Table III.G-2 in total, and broken do wn by the two drivers of these changes: a) “upstream” emission reductions due to decrease d extraction, production and distribution of motor gasoline; and b) “downstream” emission increases, reflecting the effects of VMT rebound (discussed in Sections III.F and III.H) and an increased market share of 10 percent ethanol blended fuel (E10), as discussed below. Total program impacts on criteria and toxics emissions are discussed below, followed by individual discussions of the upstream and downstream impacts. Those are followed by discussions of the effects on air quality, health, and other

environmental concerns.

As in the proposal, for this analysis we attribute decreased fuel consumption from this program to gasoline only, while assuming no effect on volumes of ethanol and other renewable

fuels mandated under the Renewable Fuel Standard. Since the absolute volume of renewable fuel components used in the gasoline pool is ma ndated, the result is a greater projected market share of E10 in the control case, which af fects downstream non-GHG emissions. In the proposal, EPA stated these same fuel assumptions and qualitatively noted that there were likely unquantified impacts on non-GHG emissions between the two cases. In DRIA Chapter 5, EPA indicated its plans to quantify these impacts in the air quality modeling and in the final rule inventories. Upstream emission impacts depend only on fuel volumes, so the impacts presented here reflect only the reduced gasoline consumption.

The inventories presented in this rulemaking include an analysis of these fuel effects which was conducted using EPA’s Motor Vehicle Emission Simulator (MOVES2010). The

emission model results indicate that increased E10 market share has some effect on fleetwide average non-GHG emission rates. The most notable impact, although still relatively slight, is a 2.2 percent increase in 2030 in national acetaldehyde emissions over the baseline scenario. It should be noted that these emission impacts ar e estimated as a consequence of an assumed constant ethanol volume in the face of reduced gasoline volumes which result from the new304 GHG standards; in actuality this rule will not be th e driver of this shift. This program does not mandate an increase in E10, nor any particular fuel blend. The emission impact of this shift was

also modeled in the RFS2 rule. As shown in Table III.G-1, EPA estimates that this program would result in reductions of

NO X , VOC, PM and SO X , but would increase CO emissions. For NO x, VOC, and PM we estimate net reductions because the emissions reductions from upstream sources are larger than the emission increases due to downstream sources. In the case of CO, we estimate slight emission increases, because there are relatively small reductions in upstream emissions, and thus the projected downstream emission increases are greater than the projected emission decreases due to reduced fuel production. For SO

x , downstream emissions are roughly proportional to fuel consumption, therefore a decrease is seen in both upstream and downstream sources.

For all criteria pollutants the overall impa ct of the program would be relatively small compared to total U.S. inventories across all sect ors. In 2030, EPA estimates the program would

reduce total NO X , PM and SO X inventories by 0.1 to 0.8 percent and reduce the VOC inventory by 1.0 percent, while increasing the total national CO inventory by 0.6 percent.

As shown in Table III.G-2, EPA estimates that the GHG program would result in small changes for air toxic emissions compared to total U.S. inventories across all sectors. In 2030, EPA estimates the program would reduce total benzene and 1,3 butadiene emissions by 0.1 to 0.3 percent. Total acrolein and formaldehyde emissions would increase by 0.1 percent. Acetaldehyde emissions would increase by 2.2 percent.

One commenter requested that EPA present emis sion inventories for additional air toxics. EPA is presenting inventories for certain air t oxic emissions which were identified as key national and regional-scale cancer and noncancer risk drivers in past National Air Toxics Assessments (NATA). For additional details, pl ease refer to the Joint Response to Comments

document. 275

Other factors which may impact non-GHG emission s, but are not estimated in this analysis,

include:

• Vehicle technologies used to reduce tailpipe CO 2 emissions; because the regulatory standards for non-GHG emissions are the pr imary driver for these emissions, EPA expects the impact of this program to be negligible on non-GHG emission rates per mile.

• The potential for increased market penetration of diesel vehicles; because these vehicles

would be held to the same certification and in -use standards for criteria pollutants as their gasoline counterparts, EPA expects their impact to be negligible on criteria pollutants and other non-GHG emissions. EPA does not project increased penetration of diesels as necessary to meet the GHG standards.

• Early introduction of electric vehicles and plug-in hybrid electric vehicles, which would

reduce criteria emissions in cases where those ve hicles are able to be certified to lower certification standards. This would also likely reduce gaseous air toxics.

275 U.S. EPA. National Air Toxics Assessment. 2002, 1999 , and 1996. Available at: http://www.epa.gov/nata/305 • Reduced refueling emissions due to less fre quent refueling events and reduced annual refueling volumes resulting from the GHG standards.

• Increased hot soak evaporative emissions due to the likely increase in number of trips

associated with VMT rebound modeled in this rule.

Table III.G-1 Annual Criteria Emission Impacts of Program (short tons) Total Impacts Upstream Impacts Downstream Impacts

2020 2030 2020 2030 2020 2030

VOC -60,187 -115,542 -64,506 -126,749 4,318 11,207

% of total

inventory -0.51% -1.01% -0.55% -1.11% 0.04% 0.01%

CO 3,992 170,675 -6,165 -12,113 10,156 182,788

% of total

inventory 0.01% 0.56% -0.02% -0.04% 0.01% 0.6%

NO X -5,881 -21,763 -19,291 -37,905 13,410 16,143

% of total

inventory -0.02 -0.07% -0.06% -0.12% 0.04% 0.05%

PM2.5 -2,398 -4,564 -2,629 -5,165 231.0 602.3

% of total

inventory -0.03% -0.05% -0.03% -0.06% 0.00% 0.01%

SO X -13,832 -27,443 -11,804 -23,194 -2,027 -4,249

% of total

inventory -0.41% -0.82% -0.35% -0.69% -0.06% -0.13%

Table III.G-2 Annual Air Toxic Emi ssion Impacts of Program (short tons) Total Impacts Upstream Impacts Downstream Impacts

2020 2030 2020 2030 2020 2030

1,3-Butadiene -95 -21 -1.5 -3.0 -93.6 -18.1

% of total

inventory -0.38% -0.10% -0.01% -0.01% -0.37% -0.09%
Acetaldehyde 760 668 -6.8 -13.4 766.9 681.5

% of total

inventory 2.26% 2.18% -0.02% -0.04% 2.28% 2.22%

Acrolein 1 5 -0.9 -1.8 1.7 6.5

% of total

inventory 0.01% 0.07% -0.01% -0.03% 0.03% 0.10%

Benzene -890 -523 -139.6 -274.3 -750.0 -248.3

% of total

inventory -0.48% -0.29% -0.08% -0.15% -0.40% -0.14%
Formaldehyde -49 15 -51.4 -101.0 2.1 116.3

% of total

inventory -0.06% 0.02% -0.06% -0.12% 0.00% 0.14%

1. Upstream Impacts of Program

No substantive comments were received on the upstream inventory modeling used in the proposal. The rulemaking inventories were updated with the revised estimates of fuel savings as

detailed in Section III.F.306 Reducing tailpipe CO 2 emissions from light-duty cars and trucks through tailpipe standards and improved A/C efficiency will result in reduced fuel demand and reductions in the emissions associated with all of the processes involved in getting petroleum to the pump. These upstream emission impacts on criteria pollutants ar e summarized in Table III.G-1. The upstream reductions grow over time as the fleet turns over to cleaner CO 2 vehicles, so that by 2030 VOC would decrease by 127,000 tons, NO X by 38,000 tons, and PM2.5 by 5,000 tons. Table III.G-2 shows the corresponding impacts on upstream air toxic emissions in 2030. Formaldehyde decreases by 101 tons, benzene by 274 tons, acetaldehyde by 13 tons, acrolein by 2 tons, and 1,3- butadiene by 3 tons.

To determine these impacts, EPA estimated the impact of reduced petroleum volumes on the extraction and transportation of crude oil as well as the production and distribution of finished gasoline. For the purpose of assessing domestic-only emission reductions it was necessary to estimate the fraction of fuel savings attributable to domestic finished gasoline, and of this gasoline what fraction is produced from domestic crude. For this analysis EPA estimated that 50 percent of fuel savings is attributable to domestic finished gasoline and that 90 percent of this gasoline originated from imported crude. Emission factors for most upstream emission sources are based on the GREET1.8 model, developed by DOE’s Argonne National Laboratory, 276 but in some cases the GREET values were modified or updated by EPA to be consistent with the National Emission Inventory (NEI). 277 The primary updates for this analysis were to incorporate newer information on gasolin e distribution emissions for VOC from the NEI, which were significantly higher than GREET es timates; and the incorporation of upstream emission factors for the air toxics estimated in this analysis: benzene, 1,3-butadiene, acetaldehyde, acrolein, and formaldehyde. The deve lopment of these emission factors is detailed in RIA Chapter 5.

2. Downstream Impacts of Program

No substantive comments were received on the emission modeling or emission inventories presented in this section. However, two changes in modeling differentiate the analysis presented here from that presented in the proposal. Economic inputs such as fuel prices and vehicle sales were updated from AEO 2009 to AEO 2010 Early Release, and as described above, fuel supplies were updated to include the effects of increased market share of E10 fuel in the control case. Thus, the primary differences in non-GHG emissions between the proposed rule and final rule are attributed more to these change s in analytic inputs, and less to changes in the GHG standards program.

Downstream emission impacts attributable to this program are due to the VMT rebound effect and the modeled change in fuel supply. As discussed in more detail in Section III.H, the effect of fuel cost on VMT (“rebound”) was accounted for in our assessment of economic and environmental impacts of this rule. A 10 percent rebound case was used for this analysis,

276 Greenhouse Gas, Regulated Emissions, and Energy Use in Transportation model (GREET), U.S. Department of Energy, Argonne National Laboratory, http://www.tr ansportation.anl.gov/modeling_simulation/GREET/

277 U.S. EPA. 2002 National Emissions Inve ntory (NEI) Data and Documentation, http://www.epa.gov/ttn/chief/net/2002inventory.html .307 meaning that VMT for affected model years is modeled as increasing by 10 percent as much as the increase in fuel economy; i.e., a 10 percent increase in fuel economy would yield approximately a 1 percent increase in VMT.

As detailed in the introduction to this section, fuel composition also has effects on vehicle emissions and particularly air toxics. The re lationship between fuel composition and emission impacts used in MOVES2010 and applied in this analysis match those developed for the recent Renewable Fuels Standard (RFS2) requirement, and are extensively documented in the RFS2 RIA and supporting documents. 278

Downstream emission impacts of the rebound ef fect are summarized in Table III.G-1 for criteria pollutants and precursors and Table III.G-2 for air toxics. The emission impacts from the rebound effect and the change in fuel supply grow over time as the fleet turns over to cleaner

CO 2 vehicles, so that by 2030 VOC would increase by 11,000 tons, NO X by 16,000 tons, and PM2.5 by 600 tons. Table III.G-2 shows the co rresponding impacts on air toxic emissions. These impacts in 2030 include 18 fewer tons of 1,3-butadiene, 668 additional tons of acetaldehyde, 248 fewer tons of benzene, 116 additional tons of formaldehyde, and 6.5

additional tons of acrolein.

For this analysis, MOVES2010 was us ed to estimate base VOC, CO, NO X , PM and air

toxics emissions for both control and reference cases. Rebound emissions from light duty cars and trucks were then calculated using the OMEGA model post-processor and added to the control case. A more complete discussion of the inputs, methodology, and results is contained in RIA Chapter 5.

3. Health Effects of Non-GHG Pollutants

In this section we discuss hea lth effects associated with expo sure to some of the criteria and air toxics impacted by the vehicle standards; PM, ozone, NO X and SO X , CO and air toxics. No substantive comments were received on the health effects of non-GHG pollutants.

a. Particulate Matter

i. Background

Particulate matter is a generic term for a broad class of chemically and physically diverse substances. It can be principally characterized as discrete particles that exist in the condensed (liquid or solid) phase spanning several orders of magnitude in size. Since 1987, EPA has delineated that subset of inhalable particles small enough to penetrate to the thoracic region (including the tracheobronchial and alveolar regi ons) of the respiratory tract (referred to as thoracic particles). Current NAAQS use PM 2.5 as the indicator for fine particles (with PM 2.5 referring to particles with a nominal mean aerodyn amic diameter less than or equal to 2.5 μm),

and use PM 10 as the indicator for purposes of regulating the coarse fraction of PM 10 (referred to as thoracic coarse particles or coarse-fraction particles; generally including particles with a

278 EPA 2010, Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis. EPA-420-R-10-006. February 2010. Docket EPA-HQ-OAR-2009-0472-11332308 nominal mean aerodynamic diameter greater than 2.5 μm and less than or equal to 10 μm, or

PM 10-2.5 ). Ultrafine particles are a subset of fine particles, generally less than 100 nanometers (0.1 μ m) in aerodynamic diameter.

Fine particles are produced primarily by comb ustion processes and by transformations of gaseous emissions (e.g., SO X , NO X and VOC) in the atmosphere. The chemical and physical properties of PM 2.5 may vary greatly with time, region, meteorology, and source category. Thus,

PM 2.5 may include a complex mixture of different po llutants including sulfates, nitrates, organic compounds, elemental carbon and metal compounds. These particles can remain in the atmosphere for days to weeks and travel hundreds to thousands of kilometers.

ii. Health Effects of PM

Scientific studies show ambient PM is associated with a series of adverse health effects.

These health effects are discussed in detail in EPA’s Integrated Science Assessment for Particulate Matter (ISA). 279 Further discussion of health effects associated with PM can also be

found in the RIA for this rule. The ISA summarizes evidence associated with PM 2.5 , PM 10-2.5 , and ultrafine particles (UFPs).

The ISA concludes that health effects associated with short-term exposures (hours to days) to ambient PM 2.5 include non-fatal cardiovascular effects, mortality, and respiratory effects, such as exacerbation of asthma symptoms in children and hospital admissions and emergency department visits for chronic obstructive pulmonary disease (COPD) and respiratory

infections. 280 The ISA notes that long-term exposure to PM 2.5 (months to years) is associated with the development/progression of cardiovascular disease, premature mortality, and respiratory effects, including reduced lung function growth, increased respiratory symptoms, and asthma development. 281 The ISA concludes that that the curre ntly available scientific evidence from epidemiologic, controlled human exposure studies, and toxicological studies supports that a causal association exists between short- and long-term exposures to PM 2.5 and cardiovascular effects and mortality. Furthermore, the ISA concludes that the collective evidence supports likely causal associations between short- and long-term PM 2.5 exposures and respiratory effects. The ISA also concludes that the evidence is suggestive of a causal association for reproductive and developmental effects and cancer, mutagenicity, and genotoxicity and long-term exposure to

PM 2.5

. 282

For PM 10-2.5 , the ISA concludes that the current evidence is suggestive of a causal relationship between short-term exposures and cardiovascular effects, such as hospitalization for ischemic heart disease. There is also suggestive evidence of a causal relationship between short-

279 U.S. EPA (2009) Integrated Science Assessment for Particulate Matter. EPA 600/R-08/139F, Docket EPA-HQOAR-2009-0472-11295

280 U.S. EPA (2009). Integrated Science Assessment for Pa rticulate Matter (Final Report). U.S. Environmental Protection Agency, Washington, DC, EPA/600/R-08/139F, 2009. Section 2.3.1.1.

281 U.S. EPA (2009). Integrated Science Assessment for Pa rticulate Matter (Final Report). U.S. Environmental Protection Agency, Washington, DC, EPA/600/R-08/139F, 2009. page 2-12, Sections 7.3.1.1 and 7.3.2.1.

282 U.S. EPA (2009). Integrated Science Assessment for Pa rticulate Matter (Final Report). U.S. Environmental Protection Agency, Washington, DC, EPA/600/R-08/139F, 2009. Section 2.3.2.309 term PM 10-2.5 exposure and mortality and respiratory effects. Data are inadequate to draw conclusions regarding the health effects associated with long-term exposure to PM 10-2.5

. 283

For UFPs, the ISA concludes that there is suggestive evidence of a causal relationship between short-term exposures and cardiovascular effects, such as changes in heart rhythm and

blood vessel function. It also concludes that there is suggestive evidence of association between short-term exposure to UFPs and respiratory eff ects. Data are inadequate to draw conclusions regarding the health effects associat ed with long-term exposure to UFP’s. 284

b. Ozone

i. Background

Ground-level ozone pollution is typically formed by the reaction of VOC and NO X in the lower atmosphere in the presence of heat and sunlight. These pollutants, often referred to as ozone precursors, are emitted by many types of pollution sources, such as highway and nonroad motor vehicles and engines, power plants, chemic al plants, refineries, makers of consumer and commercial products, industrial faci lities, and smaller area sources.

The science of ozone formation, transport, and accumulation is complex. 285 Ground-level ozone is produced and destroyed in a cyclical set of chemical reactions, many of which are sensitive to temperature and sunlig ht. When ambient temperatures and sunlight levels remain high for several days and the air is relatively stagnant, ozone and its precursors can build up and result in more ozone than typically occurs on a single high-temperature day. Ozone can be transported hundreds of miles downwind from prec ursor emissions, resulting in elevated ozone

levels even in areas with low local VOC or NO X emissions.

ii. Health Effects of Ozone

The health and welfare effects of ozone are well documented and are assessed in EPA’s 2006 Air Quality Criteria Document (ozone AQCD) and 2007 Staff Paper. 286, 287 Ozone can irritate the respiratory system, causing coughing, throat irritation, and/or uncomfortable sensation in the chest. Ozone can reduce lung function and make it more difficult to breathe deeply; breathing may also become more rapid and shallow than normal, thereby limiting a person’s activity. Ozone can also aggravate asthma, leading to more asthma attacks that require medical attention and/or the use of additional medication. In addition, there is suggestive evidence of a

283 U.S. EPA (2009). Integrated Science Assessment for Pa rticulate Matter (Final Report). U.S. Environmental Protection Agency, Washington, DC, EPA/600/R-08/139F, 2009. Section 2.3.4, Table 2-6.

284 U.S. EPA (2009). Integrated Science Assessment for Pa rticulate Matter (Final Report). U.S. Environmental Protection Agency, Washington, DC, EPA/600/R-08/139F, 2009. Section 2.3.5, Table 2-6.

285 U.S. EPA. (2006). Air Quality Criteria for Ozone an d Related Photochemical Oxidants (Final). EPA/600/R05/004aF-cF. Washington, DC: U.S. EPA. Docket EPA-HQ-OAR-2009-0472-0099 through -0101.

286 U.S. EPA. (2006). Air Quality Criteria for Ozone and Related Photochemical Oxidants (Final). EPA/600/R05/004aF-cF. Washington, DC: U.S. EPA.

287 U.S. EPA. (2007). Review of the National Ambient Air Quality Standards for Ozone: Policy Assessment of Scientific and Technical Information, OAQPS Staff Paper. EPA-452/R-07-003. Washington, DC, U.S. EPA. Docket EPA-HQ-OAR-2009-0472-0105 through -0106.310 contribution of ozone to cardiovascular-related morbidity and highly suggestive evidence that short-term ozone exposure directly or indirectly contributes to non-accidental and cardiopulmonary-related mortality, but additional research is needed to clarify the underlying mechanisms causing these effects. In a recent report on the estimation of ozone-related premature mortality published by the National Research Council (NRC), a panel of experts and reviewers concluded that short-term exposure to ambient ozone is likely to contribute to premature deaths and that ozone-related mortality should be included in estimates of the health benefits of reducing ozone exposure. 288 Animal toxicological evidence indicates that with repeated exposure, ozone can inflame and damage the lining of the lungs, which may lead to permanent changes in lung tissue and irreversible reductions in lung function. People who are more susceptible to effects associated with expos ure to ozone can include children, the elderly, and individuals with respiratory disease such as asthma. Those with greater exposures to ozone, for instance due to time spent outdoors (e.g., children and outdoor workers), are of particular

concern.

The 2006 ozone AQCD also examined relevant new scientific information that has emerged in the past decade, including the impact of ozone exposure on such health effects as changes in lung structure and biochemistry, inflammation of the lungs, exacerbation and causation of asthma, respiratory illness-rela ted school absence, hospital admissions and premature mortality. Animal toxicological studies have suggested potential interactions between ozone and PM with increased responses observed to mixtures of the two pollutants compared to either ozone or PM alone. The respiratory morbidity observed in animal studies along with the evidence from epidemiologic studies supports a causal relationship between acute ambient ozone exposures and increased respiratory-related emergency room visits and hospitalizations in the warm season. In addition, there is suggestive evidence of a contribution of ozone to cardiovascular-related morbidity and non-a ccidental and cardiopulmonary mortality.

c. NO X and SO X

i. Background

Nitrogen dioxide (NO 2 ) is a member of the NO X family of gases. Most NO 2 is formed in the air through the oxidation of nitric oxide (NO) emitted when fuel is burned at a high temperature. SO 2 , a member of the sulfur oxide (SO X ) family of gases, is formed from burning fuels containing sulfur (e.g., coal or oil deri ved), extracting gasoline from oil, or extracting

metals from ore.

SO 2 and NO 2 can dissolve in water vapor and further oxidize to form sulfuric and nitric

acid which react with ammonia to form sulfat es and nitrates, both of which are important components of ambient PM. The health effects of ambient PM are discussed in Section III.G.3.a

288 National Research Council (NRC), 2008. Estimating Mortality Risk Reduction and Economic Benefits from Controlling Ozone Air Pollution . The National Academies Press: Wash ington, D.C. Docket EPA-HQ-OAR-2009-

0472-0322.311 of this preamble. NO X along with non-methane hydrocarbon (NMHC) are the two major precursors of ozone. The health effects of ozone are covered in Section III.G.3.b.

ii. Health Effects of NO 2

Information on the health effects of NO 2 can be found in the EPA Integrated Science Assessment (ISA) for Nitrogen Oxides. 289 The EPA has concluded that the findings of epidemiologic, controlled human exposure, and animal toxicological studies provide evidence that is sufficient to infer a likely causal rela tionship between respiratory effects and short-term

NO 2 exposure. The ISA concludes that the strongest evidence for such a relationship comes from epidemiologic studies of respiratory effects in cluding symptoms, emergency department visits, and hospital admissions. The ISA also draws two broad conclusions regarding airway responsiveness following NO 2 exposure. First, the ISA concludes that NO 2 exposure may enhance the sensitivity to allergen-induced decrements in lung function and increase the allergen-induced airway inflammatory response following 30-minute exposures of asthmatics to

NO 2 concentrations as low as 0.26 ppm. In a ddition, small but significant increases in nonspecific airway hyperresponsiveness were reported following 1-hour exposures of asthmatics to 0.1 ppm NO 2 . Second, exposure to NO 2 has been found to enhance the inherent responsiveness of the airway to subsequent nonspecific challenges in controlled human exposure studies of asthmatic subjects. Enhanced airway responsiven ess could have important clinical implications for asthmatics since transient increases in airway responsiveness following NO 2 exposure have the potential to increase symptoms and worsen as thma control. Together, the epidemiologic and experimental data sets form a plausible, consis tent, and coherent description of a relationship

between NO 2 exposures and an array of adverse health effects that range from the onset of respiratory symptoms to hospital admission.

Although the weight of evidence supporting a causal relationship is somewhat less certain

than that associated with respiratory morbidity, NO 2 has also been linked to other health endpoints. These include all-cause (nonaccidental) mortality, hospital admissions or emergency department visits for cardiovascular disease, and decrements in lung function growth associated with chronic exposure.

iii. Health Effects of SO 2

Information on the health effects of SO 2 can be found in the EPA Integrated Science

Assessment for Sulfur Oxides. 290 SO 2 has long been known to cause adverse respiratory health effects, particularly among individuals with asthma. Other potentially sensitive groups include children and the elderly. During periods of el evated ventilation, asthmatics may experience symptomatic bronchoconstriction within minu tes of exposure. Following an extensive evaluation of health evidence from epidemiologic and laboratory studies, the EPA has concluded that there is a causal relationship between respir atory health effects and short-term exposure to

289 U.S. EPA (2008). Integrated Science Assessment for Oxides of Nitrogen – Health Criteria (Final Report). EPA/600/R-08/071. Washington, DC: U.S.EPA. Docket EPA-HQ-OAR-2009-0472-0350.

290 U.S. EPA. (2008). Integrated Science Assessment (ISA) for Sulfur Oxides – Health Criteria (Final Report)

. EPA/600/R-08/047F. Washington, DC: U.S. Environmental Protection Agency. Docket EPA-HQ-OAR-2009-0472-

0335.312 SO 2 . Separately, based on an evaluation of the epidemiologic evidence of associations between short-term exposure to SO 2 and mortality, the EPA has concluded that the overall evidence is suggestive of a causal relationship between short-term exposure to SO 2 and mortality.

d. Carbon Monoxide

Information on the health effects of carbon monoxide (CO) can be found in the EPA Integrated Science Assessment (ISA) for Carbon Monoxide. 291 The ISA concludes that ambient

concentrations of CO are associated with a number of adverse health effects. 292 This section provides a summary of the health effects associat ed with exposure to ambient concentrations of

CO. 293

Human clinical studies of subjects with coronary artery disease show a decrease in the time to onset of exercise-induced angina (che st pain) and electrocardiogram changes following CO exposure. In addition, epidemiologic studi es show associations between short-term CO exposure and cardiovascular morbidity, particularly increased emergency room visits and hospital admissions for coronary heart disease (including ischemic heart disease, myocardial infarction, and angina). Some epidemiologic ev idence is also availabl e for increased hospital admissions and emergency room visits for congestive heart failure and cardiovascular disease as

a whole. The ISA concludes that a causal relati onship is likely between short-term exposures to CO and cardiovascular morbidity. It also concludes that available data are inadequate to conclude that a causal relationship exists betwee n long-term exposures to CO and cardiovascular morbidity.

Animal studies show various neurological effe cts with in-utero CO exposure. Controlled human exposure studies report inconsistent neural and behavioral effects following low-level CO exposures. The ISA concludes the evidence is suggestive of a causal relationship with both short- and long-term exposure to CO and central nervous system effects.

A number of epidemiologic and animal toxicological studies cited in the ISA have evaluated associations between preterm birth an d cardiac birth defects and CO exposure. The epidemiologic studies provide limited evidence of a CO-induced effect on pre-term births and birth defects, with weak evidence for a decrease in birth weight. Animal toxicological studies have found associations between perinatal CO exposure and decrements in birth weight, as well as other developmental outcomes. The ISA concludes these studies are suggestive of a causal relationship between long-term exposures to CO and developmental effects and birth outcomes.

291 U.S. EPA, 2010. Integrated Science Assessment for Carbon Monoxide (Final Report). U.S. Environmental Protection Agency, Washington, DC, EPA/600/R-09/019F, 2010. http://cfpub.epa.gov/ncea/cfm/r ecordisplay.cfm?deid=218686

292 The ISA evaluates the health evidence associated with different health effects, assigning one of five “weight of evidence” determination: causal relationship, likely to be a causal relationship, suggestive of a causal relationship, inadequate to infer a causal relationship, and not likely to be a causal relationship. For definitions of these levels of evidence, please refer to Section 1.6 of the ISA.

293 Personal exposure includes contributions from many s ources, and in many different environments. Total personal exposure to CO includes both ambient and nonam bient components; and both components may contribute

to adverse health effects.313 Epidemiologic studies provide evidence of effects on respiratory morbidity such as changes in pulmonary function, respiratory symptoms, and hospital admissions associated with

ambient CO concentrations. A limited number of epidemiologic studies considered copollutants such as ozone, SO 2 , and PM in two-pollutant models and found that CO risk estimates were generally robust, although this limited evidence make s it difficult to disentangle effects attributed to CO itself from those of the larger complex ai r pollution mixture. Controlled human exposure studies have not extensively evaluated the effect of CO on respiratory morbidity. Animal studies at levels of 50-100 ppm CO show preliminary evidence of altered pulmonary vascular remodeling and oxidative injury. The ISA conclude s that the evidence is suggestive of a causal relationship between short-term CO exposure and respiratory morbidity, and inadequate to conclude that a causal relationship exists between long-term exposure and respiratory morbidity.

Finally, the ISA concludes that the epidem iologic evidence is suggestive of a causal relationship between short-term exposures to CO and mortality. Epidemiologic studies provide evidence of an association between short-term exposure to CO and mortality, but limited evidence is available to evaluate cause-specific mortality outcomes associated with CO exposure. In addition, the attenuation of CO risk estimates which was often observed in copollutant models contributes to the uncertainty as to whether CO is acting alone or as an indicator for other combustion-related pollutants. The ISA also conclu des that there is not likely to be a causal relationship between relevant long-term exposures to CO and mortality.

e. Air Toxics

Motor vehicle emissions contribute to ambient le vels of air toxics known or suspected as human or animal carcinogens, or that have noncan cer health effects. The population experiences an elevated risk of cancer and other noncancer health effects from exposure to the class of pollutants known collectively as “air toxics”. 294 These compounds include, but are not limited to, benzene, 1,3-butadiene, formaldehyde, acetaldehyde, acrolein, polycyclic organic matter (POM), and naphthalene. These compounds, except acetaldehyde, were identified as national or regional risk drivers in the 2002 National-scale Air Toxics Assessment (NATA) and have significant inventory contri butions from mobile sources. 295 Emissions and ambient concentrations of compounds are discussed in the RIA chapter on emission inventories and air quality (Chapters 5 and 7, respectively).

i. Benzene

The EPA’s IRIS database lists benzene as a known human carcinogen (causing leukemia) by all routes of exposure, and concludes that exposure is associated with additional health effects, including genetic changes in both humans and animals and increased proliferation of

bone marrow cells in mice. 296,297,298 EPA states in its IRIS database that data indicate a causal

294 U. S. EPA. 2002 National-Scale Air Toxics Asse ssment. http://www.epa.gov/ttn/atw/nata12002/risksum.html Docket EPA-HQ-OAR-2009-0472-11322

295 U.S. EPA .2009. National-Scale Air Toxics Assessment for 2002. http://www.epa.gov/ttn/atw/nata2002/ Docket EPA-HQ-OAR-2009-0472-11321

296 U.S. EPA. 2000. Integrated Risk Information System File for Benzene. This material is available electronically at http://www.epa.gov/iris/subst/0276.htm. Docket EPA-HQ-OAR-2009-0472-1659.314 relationship between benzene exposure and acute lymphocytic leukemia and suggest a relationship between benzene exposure and chronic non-lymphocytic leukemia and chronic lymphocytic leukemia. The International Agency for Research on Carcinogens (IARC) has determined that benzene is a human carcinogen and the U.S. Department of Health and Human Services (DHHS) has characterized benzene as a known human carcinogen. 299,300

A number of adverse noncancer health effects including blood disorders, such as preleukemia and aplastic anemia, have also been associated with long-term exposure to

benzene. 301,302 The most sensitive noncancer effect observed in humans, based on current data, is the depression of the absolute lymphocyte count in blood. 303, 304 In addition, recent work, including studies sponsored by the Health Eff ects Institute (HEI), provides evidence that biochemical responses are occurring at lower levels of benzene exposure than previously

known. 305,306,307,308 EPA’s IRIS program has not yet evaluated these new data.

ii. 1,3-Butadiene

297 International Agency for Research on Cancer (IARC). 1982. Monographs on the evaluation of carcinogenic risk of chemicals to humans, Volume 29. Some industrial ch emicals and dyestuffs, World Health Organization, Lyon, France, p. 345-389. Docket EPA-HQ-OAR-2009-0472-0366

298 Irons, R.D.; Stillman, W.S.; Colagiovanni, D.B.; Henry, V.A. 1992. Synergistic action of the benzene metabolite hydroquinone on myelopoietic stimulating activity of granul ocyte/macrophage colony-stimulating factor in vitro, Proc. Natl. Acad. Sci. 89:3691-3695. Docket EPA-HQ-OAR-2009-0472-0370.

299 International Agency for Research on Cancer (IARC). 1982. Monographs on the evaluation of carcinogenic risk of chemicals to humans, Volume 29. Some industrial ch emicals and dyestuffs, World Health Organization, Lyon, France. Docket EPA-HQ-OAR-2009-0472-0366

300 U.S. Department of Health and Human Services National Toxicology Program 11th Report on Carcinogens available at: http://ntp.n iehs.nih.gov/go/16183.

301 Aksoy, M. (1989). Hematotoxicity and carcinogenicity of benzene. Environ. Health Perspect. 82: 193-197. Docket EPA-HQ-OAR-2009-0472-0368.

302 Goldstein, B.D. (1988). Benzene toxicity. Occupational medicine. State of the Art Reviews. 3: 541-554. Docket EPA-HQ-OAR-2009-0472-0325.

303 Rothman, N., G.L. Li, M. Dosemeci, W.E. Bechtold, G.E. Marti, Y.Z. Wang, M. Linet, L.Q. Xi, W. Lu, M.T. Smith, N. Titenko-Holland, L.P. Zhang, W. Blot, S.N. Yin, and R.B. Hayes (1996) Hematotoxicity among Chinese workers heavily exposed to benzene. Am. J. Ind. Med. 29: 236-246. Docket EPA-HQ-OAR-2009-0472-0326.

304 U.S. EPA (2002) Toxicological Review of Benzene (Noncancer Effects). Enviro nmental Protection Agency, Integrated Risk Information System (IRIS), Research and Development, National Center for Environmental Assessment, Washington DC. This material is available electronically at http://www.epa.gov/iris/subst/0276.htm. Docket EPA-HQ-OAR-2009-0472-0327.

305 Qu, O.; Shore, R.; Li, G.; Jin, X.; Chen, C.L.; Cohen, B.; Melikian, A.; Eastmond, D.; Rappaport, S.; Li, H.; Rupa, D.; Suramaya, R.; Songnian, W.; Huifant, Y.; Meng, M.; Winnik, M.; Kwok, E.; Li, Y.; Mu, R.; Xu, B.; Zhang, X.; Li, K. (2003) HEI Report 115, Validation & Ev aluation of Biomarkers in Workers Exposed to Benzene in China. Docket EPA-HQ-OAR-2009-0472-0328.

306 Qu, Q., R. Shore, G. Li, X. Jin, L.C. Chen, B. Cohen, et al. (2002) Hematological changes among Chinese workers with a broad range of benzene exposures. Am. J. Industr. Med. 42: 275-285. Docket EPA-HQ-OAR-2009-

0472-0329.

307 Lan, Qing, Zhang, L., Li, G., Vermeulen, R., et al. ( 2004) Hematotoxically in Workers Exposed to Low Levels of Benzene. Science 306: 1774-1776. Docket EPA-HQ-OAR-2009-0472-0330.

308 Turtletaub, K.W. and Mani, C. (2003) Benzene metabolis m in rodents at doses relevant to human exposure from Urban Air. Research Reports Health Effect Inst. Report No.113. Docket EPA-HQ-OAR-2009-0472-0385.315 EPA has characterized 1,3-butadiene as carcinogenic to humans by inhalation. 309,310 The IARC has determined that 1,3-butadiene is a human carcinogen and the U.S. DHHS has characterized 1,3-butadiene as a known human carcinogen. 311,312 There are numerous studies consistently demonstrating that 1,3-butadiene is metabolized into genotoxic metabolites by experimental animals and humans. The specific mechanisms of 1,3-butadiene-induced carcinogenesis are unknown; however, the scientific evidence strongly suggests that the carcinogenic effects are mediated by genotoxic metabolites. Animal data suggest that females may be more sensitive than males for cancer effects associated with 1,3-butadiene exposure;

there are insufficient data in humans from which to draw conclusions about sensitive subpopulations. 1,3-butadiene also causes a variety of reproductive and developmental effects in mice; no human data on these effects are availa ble. The most sensitive effect was ovarian atrophy observed in a lifetime bioassay of female mice. 313

iii. Formaldehyde

Since 1987, EPA has classified formaldehyde as a probable human carcinogen based on evidence in humans and in rats, mice, hamsters, and monkeys. 314 EPA is currently reviewing recently published epidemiological data. For instance, research conducted by the National Cancer Institute (NCI) found an increa sed risk of nasopharyngeal cancer and lymphohematopoietic malignancies such as leukemia among workers exposed to formaldehyde. 315, 316 In an analysis of the lymphohematopoietic cancer mortality from an extended follow-up of these workers, NCI confirmed an association between lymphohematopoietic cancer risk and peak exposures. 317 A recent National Institute of Occupational Safety and Health (NIOSH) study of garment workers also found increased risk of

309 U.S. EPA (2002) Health Assessment of 1,3-Butadiene. Office of Research and Development, National Center for Environmental Assessment, Washington Office, Washington, DC. Report No. EPA600-P-98-001F. This document is available electronically at http://www.epa.gov/iris/supdocs/buta-sup.pdf. Docket EPA-HQ-OAR-2009-0472-0386.

310 U.S. EPA (2002) Full IRIS Summary for 1,3-butadiene (CASRN 106-99-0). Environmental Protection Agency, Integrated Risk Information System (IRIS), Research and Development, National Center for Environmental Assessment, Washington, DC http://www.epa.gov/iris/subst/0139.htm. Docket EPA-HQ-OAR-2009-0472-1660

311 International Agency for Research on Cancer (IARC) (1999) Monographs on the evaluation of carcinogenic risk of chemicals to humans, Volume 71, Re-evaluation of so me organic chemicals, hydrazine and hydrogen peroxide and Volume 97 (in preparation), World Health Organization, Lyon, France. Docket EPA-HQ-OAR-2009-0472-0387

312 U.S. Department of Health and Human Services (2005) National Toxicology Program 11th Report on Carcinogens available at: ntp.niehs.nih.gov/index.cfm?objectid=32BA9724-F1F6-975E-7FCE50709CB4C932.

313 Bevan, C.; Stadler, J.C.; Elliot, G.S.; et al. (1996) Subc hronic toxicity of 4-vinylcyclohexene in rats and mice by inhalation. Fundam. Appl. Toxicol. 32:1-10. Docket EPA-HQ-OAR-2009-0472-0388.

314 U.S. EPA (1987) Assessment of Health Risks to Garm ent Workers and Certain Home Residents from Exposure to Formaldehyde, Office of Pesticides and Toxic Substances, April 1987. Docket EPA-HQ-OAR-2009-0472-0389.

315 Hauptmann, M..; Lubin, J. H.; Stewart, P. A.; Hayes, R. B.; Blair, A. 2003. Mortality from lymphohematopoetic malignancies among workers in formaldehyde industries. Journal of the National Cancer Institute 95: 1615-1623. Docket EPA-HQ-OAR-2009-0472-0336.

316 Hauptmann, M..; Lubin, J. H.; Stewart, P. A.; Hayes, R. B.; Blair, A. 2004. Mortality from solid cancers amongworkers in formaldehyde industries. American Journal of Epidemiology 159: 1117-1130. Docket EPA-HQ-OAR2009-0472-0337.

317 Beane Freeman, L. E.; Blair, A.; Lubin, J. H.; Stewart, P. A.; Hayes, R. B.; Hoover, R. N.; Hauptmann, M. 2009. Mortality from lymphohematopoietic malignancies among work ers in formaldehyde industries: The National Cancer Institute cohort. J. National Cancer Inst. 101: 751-761. Docket EPA-HQ-OAR-2009-0472-0338.316 death due to leukemia among workers exposed to formaldehyde. 318 Extended follow-up of a

cohort of British chemical workers did not find evidence of an increase in nasopharyngeal or lymphohematopoietic cancers, but a continuing statistically significant excess in lung cancers was reported. 319 Recently, the IARC re-classified formaldehyde as a human carcinogen (Group 1). 320

Formaldehyde exposure also causes a range of noncancer health effects, including irritation of the eyes (burning and watering of th e eyes), nose and throat. Effects from repeated exposure in humans include respiratory tract irri tation, chronic bronchitis and nasal epithelial lesions such as metaplasia and loss of cilia. An imal studies suggest that formaldehyde may also cause airway inflammation – including eosinophil in filtration into the airways. There are several studies that suggest that formaldehyde may increa se the risk of asthma – particularly in the

young. 321,322

iv. Acetaldehyde

Acetaldehyde is classified in EPA’s IRIS database as a probable human carcinogen, based on nasal tumors in rats, and is considered toxic by the inhalation, oral, and intravenous

routes. 323 Acetaldehyde is reasonably anticipated to be a human carcinogen by the U.S. DHHS

in the 11 th Report on Carcinogens and is classified as possibly carcinogenic to humans (Group 2B) by the IARC. 324,325 EPA is currently conducting a reassessment of cancer risk from inhalation exposure to acetaldehyde.

The primary noncancer effects of exposure to acetaldehyde vapors include irritation of the eyes, skin, and respiratory tract. 326 In short-term (4 week) rat studies, degeneration of

318 Pinkerton, L. E. 2004. Mortality among a cohort of garment workers exposed to formaldehyde: an update. Occup. Environ. Med. 61: 193-200. Docket EPA-HQ-OAR-2009-0472-0339.

319 Coggon, D, EC Harris, J Poole, KT Palmer. 2003. Exte nded follow-up of a cohort of British chemical workers exposed to formaldehyde. J National Cancer Inst. 95:1608-1615. Docket EPA-HQ-OAR-2009-0472-0340.

320 International Agency for Research on Cancer (IARC ). 2006. Formaldehyde, 2-Butoxyethanol and 1-tertButoxypropan-2-ol. Volume 88. (in preparation), World He alth Organization, Lyon, France. Docket EPA-HQ-OAR2009-0472-1164

321 Agency for Toxic Substances and Disease Registry (ATSDR). 1999. Toxicological profile for Formaldehyde. Atlanta, GA: U.S. Department of Health a nd Human Services, Public Health Service. http://www.atsdr.cdc.gov/toxpro files/tp111.html Docket EPA-HQ-OAR-2009-0472-1191.

322 WHO (2002) Concise International Chemical Assessmen t Document 40: Formaldehyde. Published under the joint sponsorship of the United Nations Environment Programme, the International Labour Organization, and the World Health Organization, and produced within the frame work of the Inter-Organization Programme for the Sound Management of Chemicals. Geneva. Docket EPA-HQ-OAR-2009-0472-1199.

323 U.S. EPA. 1991. Integrated Risk Information System File of Acetaldehyde. Research and Development, National Center for Environmental Assessment, Washington, DC. This material is available electronically at http://www.epa.gov/iris/subst/0290.htm. Docket EPA-HQ-OAR-2009-0472-0390.

324 U.S. Department of Health and Human Services National Toxicology Program 11th Report on Carcinogens available at: ntp.niehs.nih.gov/index.cfm?objectid=32BA9724-F1F6-975E-7FCE50709CB4C932.

325 International Agency for Research on Cancer (IARC). 1999. Re-evaluation of some organic chemicals, hydrazine, and hydrogen peroxide. IARC Monographs on th e Evaluation of Carcinogenic Risk of Chemical to Humans, Vol 71. Lyon, France. Docket EPA-HQ-OAR-2009-0472-0387

326 U.S. EPA. 1991. Integrated Risk Information System File of Acetaldehyde. This material is available electronically at http://www.epa.gov/iris/subst/0290.htm.317 olfactory epithelium was observed at various concentration levels of acetaldehyde exposure. 327,

328 Data from these studies were used by EPA to develop an inhalation reference concentration. Some asthmatics have been shown to be a sensitive subpopulation to decrements in functional expiratory volume (FEV1 test) and bronchoconstriction upon acetaldehyde inhalation. 329 The agency is currently conducting a reassessment of the health hazards from inhalation exposure to acetaldehyde.

v. Acrolein

Acrolein is extremely acrid and irritating to humans when inhaled, with acute exposure resulting in upper respiratory tract irritation, mucus hypersecretion and congestion. The intense irritancy of this carbonyl has been demonstrated during controlled tests in human subjects, who suffer intolerable eye and nasal mucosal sensory reactions within minutes of exposure. 330 These data and additional studies regarding acute effects of human exposure to acrolein are

summarized in EPA’s 2003 IRIS Human Health Assessment for acrolein. 331 Evidence available from studies in humans indicate that levels as low as 0.09 ppm (0.21 mg/m 3 ) for five minutes may elicit subjective complaints of eye irritation with increasing concentrations leading to more extensive eye, nose and respiratory symptoms. 332 Lesions to the lungs and upper respiratory tract of rats, rabbits, and hamsters have been observed after subchronic exposure to acrolein. 333
Acute exposure effects in animal studies report bronchial hyper-responsiveness. 334 In a recent study, the acute respiratory irritant effects of exposure to 1.1 ppm acrolein were more pronounced in mice with allergic airway disease by comparison to non-diseased mice which also showed decreases in respiratory rate. 335 Based on these animal data and demonstration of similar effects in humans (e.g., reduction in respiratory rate), individuals with compromised

327 Appleman, L. M., R. A. Woutersen, V. J. Feron, R. N. Hooftman, and W. R. F. Notten. 1986. Effects of the variable versus fixed exposure levels on the toxicity of acetaldehyde in rats. J. Appl. Toxicol. 6: 331-336.

328 Appleman, L.M., R.A. Woutersen, and V.J. Feron. 1982. Inhalation toxicity of acetaldehyde in rats. I. Acute and

subacute studies. Toxicology. 23: 293-297. Docket EPA-HQ-OAR-2009-0472-0392.

329 Myou, S.; Fujimura, M.; Nishi K.; Ohka, T.; and Ma tsuda, T. 1993. Aerosolized acetaldehyde induces

histamine-mediated bronchoconstriction in asthmatics. Am. Rev. Respir.Dis. 148(4 Pt 1): 940-3. Docket EPA-HQOAR-2009-0472-0408.

330 Sim VM, Pattle RE. Effect of possible smog irritants on human subjects JAMA165: 1980-2010, 1957. Docket EPA-HQ-OAR-2009-0472-0395.

331 U.S. EPA (U.S. Environmental Protection Agency). (200 3) Toxicological review of acrolein in support of summary information on Integrated Risk Information System (IRIS) National Center for Environmental Assessment, Washington, DC. EPA/635/R-03/003. Available online at: http://www.epa.gov/ncea/iris

. 332 Weber-Tschopp, A; Fischer, T; Gierer, R; et al. (197 7) Experimentelle reizwir kungen von Acrolein auf den Menschen. Int Arch Occup Environ Hlth 40(2):117-130. In German Docket EPA-HQ-OAR-2009-0472-0394.

333 Integrated Risk Information System File of Acrolein. Office of Research and Development, National Center for Environmental Assessment, Washington, DC. This material is available at http://www.epa.gov/iris/subst/0364.htm Docket EPA-HQ-OAR-2009-0472-0391.

334 U.S. EPA (U.S. Environmental Protection Agency). (2003) Toxicological review of acrolein in support of summary information on Integrated Risk Informat ion System (IRIS) National Center for Environmental Assessment, Washington, DC. EPA/635/R-03/003. Available online at: http://www.epa.gov/ncea/iris

. 335 Morris JB, Symanowicz PT, Olsen JE, et al. 2003. Immedi ate sensory nerve-mediated respiratory responses to irritants in healthy and allergic airway-diseased mi ce. J Appl Physiol 94(4):1563-1571. Docket EPA-HQ-OAR2009-0472-0396.318 respiratory function (e.g., emphysema, asthma) are expected to be at increased risk of developing adverse responses to strong respiratory irritants such as acrolein.

EPA determined in 2003 that the human carcinogenic potential of acrolein could not be

determined because the available data were in adequate. No information was available on the carcinogenic effects of acrolein in humans and the animal data provided inadequate evidence of carcinogenicity. 336 The IARC determined in 1995 that acrolein was not classifiable as to its carcinogenicity in humans. 337

vi. Polycyclic Organic Matter (POM)

POM is generally defined as a large class of organic compounds which have multiple benzene rings and a boiling point greater than 100 degrees Celsius. Many of the compounds included in the class of compounds known as POM are classified by EPA as probable human carcinogens based on animal data. One of these compounds, naphthalene, is discussed separately below. Polycyclic aromatic hydrocarbons (PAHs) are a subset of POM that contain only hydrogen and carbon atoms. A number of PAHs are known or suspected carcinogens. Recent studies have found that maternal exposures to PAHs (a subclass of POM) in a population of pregnant women were associated with severa l adverse birth outcomes, including low birth weight and reduced length at birth, as well as impaired cognitive development at age three. 338,339
EPA has not yet evaluated these recent studies.

vii. Naphthalene

Naphthalene is found in small quantities in gasoline and diesel fuels. Naphthalene emissions have been measured in larger quantities in both gasoline and diesel exhaust compared with evaporative emissions from mobile source s, indicating it is primarily a product of

combustion. EPA released an external review draft of a reassessment of the inhalation carcinogenicity of naphthalene based on a number of recent animal carcinogenicity studies. 340

336 U.S. EPA . 2003. Integrated Risk Information System File of Ac rolein. Research and Development, National Center for Environmental Assessment, Washington, DC. This material is available at http://www.epa.gov/iris/subst/0364.htm

337 International Agency for Research on Cancer (IARC). 1995. Monographs on the evaluation of carcinogenic risk of chemicals to humans, Volume 63. Dry cleaning, some ch lorinated solvents and other industrial chemicals, World Health Organization, Lyon, France. Docket EPA-HQ-OAR-2009-0472-0393

338 Perera, F.P.; Rauh, V.; Tsai, W-Y.; et al. (2002) Effect of transplacental exposure to environmental pollutants on birth outcomes in a multiethnic population. Environ Health Perspect. 111: 201-205. Docket EPA-HQ-OAR-2009-

0472-0372.

339 Perera, F.P.; Rauh, V.; Whyatt, R.M.; Tsai, W.Y.; Tang, D.; Diaz, D.; Hoepner, L.; Barr, D.; Tu, Y.H.; Camann, D.; Kinney, P. (2006) Effect of prenatal exposure to airborne polycyclic aromatic hydrocarbons on neurodevelopment in the first 3 years of life among inner-c ity children. Environ Health Perspect 114: 1287-1292. Docket EPA-HQ-OAR-2009-0472-0373.

340 U. S. EPA. 2004. Toxicological Review of Naphthalene (Reassessment of the Inhalation Cancer Risk), Environmental Protection Agency, Inte grated Risk Information System, Research and Development, National Center for Environmental Assessment, Washington, DC. This material is available electronically at http://www.epa.gov/iris/subst/0436.htm. Docket EPA-HQ-OAR-2009-0472-0272.319 The draft reassessment completed external peer review. 341 Based on external peer review comments received, additional analyses are being undertaken. This external review draft does not represent official agency opinion and was released solely for the purposes of external peer review and public comment. The National Toxicology Program listed naphthalene as "reasonably anticipated to be a human carcinogen" in 2004 on the basis of bioassays reporting clear evidence of carcinogenicity in rats and some evidence of carcinogenicity in mice. 342
California EPA has released a new risk assessment for naphthalene, and the IARC has reevaluated naphthalene and re-classified it as Group 2B: possibly carcinogenic to humans. 343
Naphthalene also causes a number of chronic non- cancer effects in animals, including abnormal cell changes and growth in respiratory and nasal tissues. 344

viii. Other Air Toxics

In addition to the compounds described above, other compounds in gaseous hydrocarbon

and PM emissions from vehicles will be affected by this final rule. Mobile source air toxic compounds that would potentially be impacted include ethylbenzene, propionaldehyde, toluene, and xylene. Information regarding the health effects of these compounds can be found in EPA’s

IRIS database. 345

f. Exposure and Health Effects Associated with Traffic

Populations who live, work, or attend schoo l near major roads experience elevated exposure concentrations to a wide range of air po llutants, as well as higher risks for a number of adverse health effects. While the previous sections of this preamble have focused on the health effects associated with individual criteria pollu tants or air toxics, this section discusses the mixture of different exposures near major roadways, rather than the effects of any single pollutant. As such, this section emphasizes tr affic-related air pollution, in general, as the relevant indicator of exposure rather than any particular pollutant.

Concentrations of many traffic-generated air pollutants are elevated for up to 300-500 meters downwind of roads with high traffic volumes. 346 Numerous sources on roads contribute to elevated roadside concentrations, includi ng exhaust and evaporative emissions, and resuspension of road dust and tire and brake wear. Concentrations of several criteria and hazardous air pollutants are elevated near major roads. Furthermore, different semi-volatile

341 Oak Ridge Institute for Science and Education. (2004). External Peer Review for the IRIS Reassessment of the Inhalation Carcinogenicity of Naphthalene. August 2004. http://cfpub.epa.gov/ncea/cfm/reco rdisplay.cfm?deid=84403 Dock et EPA-HQ-OAR-2009-0472-0273.

342 National Toxicology Program (NTP). (2004). 11th Report on Carcinogens. Public Health Service, U.S. Department of Health and Human Services, Research Triangle Park, NC. Avai lable from: http://ntpserver.niehs.nih.gov.

343 International Agency for Research on Cancer (IARC). (2002). Monographs on the Evaluation of the Carcinogenic Risk of Chemicals for Humans. Vol. 82. Lyon, France. Docket EPA-HQ-OAR-2009-0472-0274.

344 U. S. EPA. 1998. Toxicological Review of Naphthalene , Environmental Protection Agency, Integrated Risk Information System, Research and Development, National Center for Environmental Assessment, Washington, DC. This material is available electronically at http://www.epa.gov/iris/subst/0436.htm

345 U.S. EPA Integrated Risk Information System (IRI S) database is available at: www.epa.gov/iris

346 Zhou, Y.; Levy, J.I. (2007) Factors influencing the spatia l extent of mobile source air pollution impacts: a metaanalysis. BMC Public Health 7: 89. doi:10.1186/1471-2458-7-89320 organic compounds and chemical components of particulate matter, including elemental carbon, organic material, and trace metals, have been reported at higher concentrations near major roads.

Populations near major roads experience greater risk of certain adverse health effects. The Health Effects Institute published a report on the health effects of traffic-related air pollution. 347 It concluded that evidence is “suffi cient to infer the presence of a causal association” between traffic exposure and exacerbation of childhood asthma symptoms. The HEI report also concludes that the evidence is either “sufficient” or “suggestive but not

sufficient” for a causal association between tra ffic exposure and new childhood asthma cases. A review of asthma studies by Salam et al. (2008) reaches similar conclusions. 348 The HEI report also concludes that there is “suggestive” eviden ce for pulmonary function deficits associated with traffic exposure, but concluded that there is “inadequate and insufficient” evidence for causal associations with respir atory health care utilization, ad ult-onset asthma, COPD symptoms, and allergy. A review by Holguin (2008) notes that the effects of traffic on asthma may be modified by nutrition status, medication use, and genetic factors. 349

The HEI report also concludes that evidence is “suggestive” of a causal association between traffic exposure and all-cause and cardiovascular mortality. There is also evidence of an association between traffic-related air pollutant s and cardiovascular effects such as changes in heart rhythm, heart attack, and cardiovascular disease. The HEI report characterizes this evidence as “suggestive” of a causal association, and an independent epidemiological literature review by Adar and Kaufman (2007) concludes that there is “consistent evidence” linking traffic-related pollution and adverse cardiovascular health outcomes. 350

Some studies have reported associations between traffic exposure and other health effects, such as birth outcomes (e.g., low birt h weight) and childhood cancer. The HEI report concludes that there is currently “inadequate and insufficient” evidence for a causal association between these effects and traffic exposure. A review by Raaschou-Nielsen and Reynolds (2006)

concluded that evidence of an association be tween childhood cancer and traffic-related air pollutants is weak, but noted the inability to dr aw firm conclusions based on limited evidence. 351

There is a large population in the U.S. living in close proximity of major roads. According to the Census Bureau’s American Housing Survey for 2007, approximately 20 million residences in the U.S., 15.6% of all homes, are located within 300 feet (91 m) of a highway with 4+ lanes, a railroad, or an airport. 352 Therefore, at current population of approximately 309

347 HEI Panel on the Health Effects of Air Pollution. (2010) Traffic-related air pollution: a critical review of the literature on emissions, exposure, and health effects. [Online at www.healtheffects.org]

348 Salam, M.T.; Islam, T.; Gilliland, F.D. (2008) Recent evidence for adverse effects of residential proximity to traffic sources on asthma. Current Opin Pulm Med 14: 3-8.

349 Holguin, F. (2008) Traffic, outdoor air pollution, and asthma. Immunol Allergy Clinics North Am 28: 577-588.

350 Adar, S.D.; Kaufman, J.D. (2007) Cardiovascular di sease and air pollutants: evaluating and improving epidemiological data implicating traffi c exposure. Inhal Toxicol 19: 135-149.

351 Raaschou-Nielsen, O.; Reynolds, P. (2006) Air pollution and childhood cancer: a review of the epidemiological

literature. Int J Cancer 118: 2920-2929.

352 U.S. Census Bureau (2008) American Housing Survey for the United States in 2007. Series H-150 (National Data), Table 1A-7. [Accessed at http://www.census. gov/hhes/www/housing/ahs/ahs07/ ahs07.html on January 22, 2009]321 million, assuming that population and housing similarly distributed, there are over 48 million people in the U.S. living near such sources. The HEI report also notes that in two North American cities, Los Angeles and Toronto, over 40% of each city’s population live within 500 meters of a highway or 100 meters of a major road. It also notes that about 33% of each city’s population resides within 50 meters of major roads. Together, the evidence suggests that a large U.S. population lives in areas with elevated traffic-related air pollution.

People living near roads are often socioeconomically disadvantaged. According to the2007 American Housing Survey, a renter-occupied property is over twice as likely as an owneroccupied property to be located near a highway with 4+ lanes, railroad or airport. In the same survey, the median household income of rental housing occupants was less than half that of owner-occupants ($28,921/$59,886). Numerous studies in individual urban areas report higher levels of traffic-related air pollutants in areas with high minority or poor populations. 353,354,355

Students may also be exposed in situations where schools are located near major roads. In a study of nine metropolitan areas across the U.S., Appatova et al. (2008) found that on average greater than 33% of schools were located within 400 m of an Interstate, U.S., or state highway, while 12% were located within 100 m. 356 The study also found that among the metropolitan areas studied, schools in the Eastern U.S. were more often sited near major roadways than schools in the Western U.S.

Demographic studies of students in schools near major roadways suggest that this population is more likely than the general student population to be of non-white race or Hispanic ethnicity, and more often live in low socioeconomic status locations. 357,358,359 There is some inconsistency in the evidence, which may be du e to different local development patterns and measures of traffic and geographic scale used in the studies. 356

4. Environmental Effects of Non-GHG Pollutants

In this section we discuss some of the envi ronmental effects of PM and its precursors such as visibility impairment, atmospheric deposi tion, and materials damage and soiling, as well as environmental effects associated with the presence of ozone in the ambient air, such as impacts on plants, including trees, agronomic crops and urban ornamentals, and environmental

353 Lena, T.S.; Ochieng, V.; Carter, M.; Holguín-Veras, J.; Kinney, P.L. (2002) Elemental carbon and PM2.5 levels in an urban community heavily impacted by truck tr affic. Environ Health Perspect 110: 1009-1015.

354 Wier, M.; Sciammas, C.; Seto, E.; Bhatia, R.; Rivard, T. (2009) Health, traffic, and environmental justice: collaborative research and community action in San Franci sco, California. Am J Public Health 99: S499-S504.

355 Forkenbrock, D.J. and L.A. Schweitzer, Envir onmental Justice and Transportation Investment Policy . Iowa City: University of Iowa, 1997.

356 Appatova, A.S.; Ryan, P.H.; LeMasters, G.K.; Grinshpun, S.A. (2008) Proximal exposure of public schools and students to major roadways: a nationwide U.S. survey. J Environ Plan Mgmt

357 Green, R.S.; Smorodinsky, S.; Kim, J.J.; McLaughlin, R.; Ostro, B. (2004) Proximity of California public schools to busy roads. Environ Health Perspect 112: 61-66.

358 Houston, D.; Ong, P.; Wu, J.; Winer, A. (2006) Proximity of licensed child care facilities to near-roadway vehicle pollution. Am J Public Health 96: 1611-1617.

359 Wu, Y.; Batterman, S. (2006) Proximity of schools in De troit, Michigan to automobile and truck traffic. J Exposure Sci Environ Epidemiol 16: 457-470.322 effects associated with air toxics. No substantive comments were received on the environmental effects of non-GHG pollutants.

a. Visibility

Visibility can be defined as the degree to wh ich the atmosphere is transparent to visible light. 360 Visibility impairment is caused by light scattering and absorption by suspended particles and

gases. Visibility is important because it has direct significance to people’s enjoyment of daily activities in all parts of the country. Individuals value g ood visibility for the well-being it provides them directly, where they live and work, and in places where they enjoy recreational opportunities. Visibility is also highly valued in significant natural areas, such as national parks and wilderness areas, and special emphasis is given to protecting visibility in these areas. For more information on visibility see the final 2009 PM ISA. 361

EPA is pursuing a two-part strategy to address visibility. First, EPA has concluded that

PM 2.5 causes adverse effects on visibility in vari ous locations, depending on PM concentrations and factors such as chemical composition and average relative humidity, and has set secondary

PM 2.5 standards. 362 The secondary PM 2.5 standards act in conjunction with the regional haze program. The regional haze rule (64 FR 35714) was put in place in July 1999 to protect the visibility in mandatory class I federal areas. There are 156 national parks, forests and wilderness areas categorized as mandatory class I federal areas (62 FR 38680-81, July 18, 1997). 363
Visibility can be said to be impaired in both PM 2.5 nonattainment areas and mandatory class I

federal areas.

b. Plant and Ecosystem Effects of Ozone

Elevated ozone levels contribute to environmental effects, with impacts to plants and ecosystems being of most concern. Ozone can produce both acute and chronic injury in sensitive species depending on the concentration level and the duration of the exposure. Ozone effects also tend to accumulate over the growing season of the plant, so that even low concentrations experienced for a longer duration have the poten tial to create chronic stress on vegetation. Ozone damage to plants includes visible injury to leaves and impaired photosynthesis, both of which can lead to reduced plant growth and reproduction, resulting in reduced crop yields, forestry production, and use of sensitive ornamentals in landscaping. In addition, the impairment of photosynthesis, the process by which the plant makes carbohydrates (its source of energy and food), can lead to a subsequent reduction in root growth and carbohydrate storage below ground, resulting in other, more subtle plant and ecosystems impacts.

360 National Research Council, 1993. Protecting Visibility in National Parks and Wilderness Areas. National Academy of Sciences Committee on Haze in National Parks and Wilderness Areas. National Academy Press, Washington, DC. Docket EPA-HQ-OAR-2005-0161. This book can be viewed on the National Academy Press Website at http://www.nap. edu/books/0309048443/html/

361 U.S. EPA (2009). Integrated Science Assessment for Part iculate Matter (Final Report). U.S. Environmental Protection Agency, Washington, DC, EPA/600/R-08/139F, 2009. Docket EPA-HQ-OAR-2009-0472-11295.

362 The existing annual primary and secondary PM2.5 standards have been remanded and are being addressed in the currently ongoing PM NAAQS review.

363 These areas are defined in CAA section 162 as those national parks exceeding 6,000 acres, wilderness areas and memorial parks exceeding 5,000 acres, and all internati onal parks which were in existence on August 7, 1977.323 These latter impacts include increased susceptibil ity of plants to insect attack, disease, harsh weather, interspecies competition and overall decreased plant vigor. The adverse effects of ozone on forest and other natural vegetation can potentially lead to species shifts and loss from the affected ecosystems, resulting in a loss or reduction in associated ecosystem goods and services. Lastly, visible ozone injury to leaves ca n result in a loss of aesthetic value in areas of special scenic significance like national parks a nd wilderness areas. The final 2006 Ozone Air Quality Criteria Document presents more detailed information on ozone effects on vegetation and ecosystems.

c. Atmospheric Deposition

Wet and dry deposition of ambient particulate matter delivers a complex mixture of metals (e.g., mercury, zinc, lead, nickel, aluminum, cadmium), organic compounds (e.g., POM, dioxins, furans) and inorganic compounds (e.g., nitrate, sulfate) to terrestrial and aquatic ecosystems. The chemical form of the compounds deposited depends on a variety of factors including ambient conditions (e.g., temperature, hum idity, oxidant levels) and the sources of the material. Chemical and physical transformations of the compounds occur in the atmosphere as well as the media onto which they deposit. Th ese transformations in turn influence the fate, bioavailability and potential toxicity of these compounds. Atmospheric deposition has been identified as a key component of the environmental and human health hazard posed by several pollutants including mercury, dioxin and PCBs. 364

Adverse impacts on water quality can occur when atmospheric contaminants deposit to the water surface or when material deposited on the land enters a waterbody through runoff. Potential impacts of atmospheric deposition to waterbodies include those related to both nutrient and toxic inputs. Adverse effects to human health and welfare can occur from the addition of excess nitrogen via atmospheric deposition. Th e nitrogen-nutrient enrichment contributes to toxic algae blooms and zones of depleted oxygen, which can lead to fish kills, frequently in coastal waters. Deposition of heavy metals or ot her toxics may lead to the human ingestion of contaminated fish, impairment of drinking water, damage to the marine ecology, and limits to

recreational uses. Several studies have been condu cted in U.S. coastal wa ters and in the Great Lakes Region in which the role of ambient PM deposition and runoff is investigated. 365,366,367,368,369

364 U.S. EPA (2000) Deposition of Air Pollutants to the Great Waters: Third Report to Congress. Office of Air Quality Planning and Standards. EPA-453/R-00-0005. Docket EPA-HQ-OAR-2009-0472-0091.

365 U.S. EPA (2004) National Coastal Condition Report II. Of fice of Research and Development/ Office of Water. EPA-620/R-03/002. Docket EPA-HQ-OAR-2009-0472-0089.

366 Gao, Y., E.D. Nelson, M.P. Field, et al. 2002. Characterization of atmospheric trace elements on PM2.5 particulate matter over the New York-New Jersey harbor estuary. Atmos. Environ. 36: 1077-1086. Docket EPAHQ-OAR-2009-0472-11297.

367 Kim, G., N. Hussain, J.R. Scudlark, and T.M. Church. 2000. Factors influencing the atmospheric depositional fluxes of stable Pb, 210Pb, and 7Be into Chesapeake Bay. J. Atmos. Chem. 36: 65-79. Docket EPA-HQ-OAR2009-0472-11299.

368 Lu, R., R.P. Turco, K. Stolzenbach, et al. 2003. Dry deposition of airborne trace metals on the Los Angeles Basin and adjacent coastal waters. J. Geophys. Res. 108(D2, 4074): AAC 11-1 to 11-24. Docket EPA-HQ-OAR2009-0472-11296.324 Atmospheric deposition of nitrogen and sulfur contributes to acidification, altering biogeochemistry and affecting animal and plant li fe in terrestrial and aquatic ecosystems across the U.S. The sensitivity of terrestrial and aquatic ecosystems to acidification from nitrogen and sulfur deposition is predominantly governed by geology. Prolonged exposure to excess nitrogen and sulfur deposition in sensitive areas acidifies lakes, rivers and soils. Increased acidity in surface waters creates inhospitable conditions fo r biota and affects the abundance and nutritional value of preferred prey species, threatening biodiversity and ecosystem function. Over time, acidifying deposition also removes essential nutrient s from forest soils, depleting the capacity of soils to neutralize future acid loadings and ne gatively affecting forest sustainability. Major effects include a decline in sensitive forest tree species, such as red spruce ( Picea rubens ) and sugar maple ( Acer saccharum ), and a loss of biodiversity of fishes, zooplankton, and macro

invertebrates.

In addition to the role nitrogen deposition play s in acidification, nitrogen deposition also leads to nutrient enrichment and altered biogeochemical cycling. In aquatic systems increased nitrogen can alter species assemblages and cause eutrophication. In terrestrial systems nitrogen loading can lead to loss of nitr ogen sensitive lichen species, decreased biodiversity of grasslands,

meadows and other sensitive habita ts, and increased potential for in vasive species. For a broader explanation of the topics treated here, refer to the description in Section 7.1.2 of the RIA.

Adverse impacts on soil chemistry and plant life have been observed for areas heavily influenced by atmospheric deposition of nutrients, metals and acid species, resulting in species shifts, loss of biodiversity, forest decline and damage to forest productivity. Potential impacts also include adverse effects to human health through ingestion of contaminated vegetation or livestock (as in the case for dioxin deposition), re duction in crop yield, and limited use of land

due to contamination.

Atmospheric deposition of pollutants can re duce the aesthetic appeal of buildings and culturally important articles through soiling, and ca n contribute directly (or in conjunction with other pollutants) to structural damage by means of corrosion or erosion. Atmospheric deposition may affect materials principally by promoti ng and accelerating the corrosion of metals, by degrading paints, and by deteriorating building materials such as concrete and limestone.

Particles contribute to these effects because of their electrolytic, hygroscopic, and acidic properties, and their ability to adsorb corrosi ve gases (principally sulfur dioxide).

d. Environmental Effects of Air Toxics

Fuel combustion emissions contribute to ambient levels of pollutants that contribute to adverse effects on vegetation. Volatile organic compounds (VOCs), some of which are considered air toxics, have long been suspected to play a role in vegetation damage. 370 In

369 Marvin, C.H., M.N. Charlton, E.J. Reiner, et al. 2002. Surficial sediment contamination in Lakes Erie and Ontario: A comparative analysis. J. Great Lakes Res. 28(3): 437-450. Docket EPA-HQ-OAR-2009-0472-11300.

370 U.S. EPA. 1991. Effects of organic chemicals in the atmo sphere on terrestrial plants. EPA/600/3-91/001. Docket EPA-HQ-OAR-2009-0472-0401.325 laboratory experiments, a wide range of tolerance to VOCs has been observed. 371 Decreases in harvested seed pod weight have been reported for the more sensitive plants, and some studies have reported effects on seed germination, flowering and fruit ripening. Effects of individual VOCs or their role in conjunction with other st ressors (e.g., acidificatio n, drought, temperature extremes) have not been well studied. In a recen t study of a mixture of VOCs including ethanol and toluene on herbaceous plants, significant effe cts on seed production, leaf water content and photosynthetic efficiency were reported for some plant species. 372

Research suggests an adverse impact of vehicle exhaust on plants, which has in some cases been attributed to aromatic compounds and in other cases to nitrogen oxides. 373, 374, 375 The impacts of VOCs on plant reproduction may have long-term implications for biodiversity and survival of native species near major roadways. Most of the studies of the impacts of VOCs on vegetation have focused on short-term exposure and few studies have focused on long-term effects of VOCs on vegetation and the potential for metabolites of these compounds to affect

herbivores or insects.

5. Air Quality Impacts of Non-GHG Pollutants

Air quality modeling was performed to assess the impact of the vehicle standards on criteria and air toxic pollutants. In this section, we present information on current modeled levels of pollution as well as projections for 2030, with respect to ambient PM 2.5 , ozone, selected air toxics, visibility levels and nitrogen and sulfur deposition. The results are discussed in more

detail below and in Section 7.2 of the RIA. No substantive comments were received on our plans for non-GHG air quality modeling that were detailed in the proposal for this rule

We used the Community Multi-scale Air Qua lity (CMAQ) photochemical model, version 4.7, for our analysis. This version of CMAQ includes a number of improvements to previous versions of the model that are important in assessing impacts of the increased use of renewable fuels, including additional pathways for formation of soluble organic aerosols (SOA). These improvements are discussed in Section 7.2 of the RIA.

a. Particulate Matter

i. Current Levels

371 Cape JN, ID Leith, J Binnie, J Content, M Donkin, M Skewes, DN Price AR Brown, AD Sharpe. 2003. Effects of VOCs on herbaceous plants in an open-top chamber expe riment. Environ. Pollut. 124:341-343. Docket EPA-HQOAR-2009-0472-0357.

372 Cape JN, ID Leith, J Binnie, J Content, M Donkin, M Skewes, DN Price AR Brown, AD Sharpe. 2003. Effects of VOCs on herbaceous plants in an open-top chamber expe riment. Environ. Pollut. 124:341-343. Docket EPA-HQOAR-2009-0472-0357.

373 Viskari E-L. 2000. Epicuticular wax of Norway spruce needles as indicator of traffic pollutant deposition. Water, Air, and Soil Pollut. 121:327-337. Docket EPA-HQ-OAR-2009-0472-1128.

374 Ugrekhelidze D, F Korte, G Kvesitadze. 1997. Uptake and transformation of benzene and toluene by plant leaves. Ecotox. Environ. Safety 37:24-29. Docket EPA-HQ-OAR-2009-0472-1142.

375 Kammerbauer H, H Selinger, R Rommelt, A Ziegler-Jons, D Knoppik, B Hock. 1987. Toxic components of motor vehicle emissions for the spruce Picea abies. Envi ron. Pollut. 48:235-243. Docket EPA-HQ-OAR-2009-

0472-0358.326 PM 2.5 concentrations exceeding the level of the PM 2.5 NAAQS occur in many parts of the country. In 2005, EPA designated 39 nonattainment areas for the 1997 PM 2.5 NAAQS (70 FR 943, January 5, 2005). These areas are composed of 208 full or partial counties with a total population exceeding 88 million. The 1997 PM 2.5 NAAQS was revised in 2006 and the 2006 24-

hour PM 2.5 NAAQS became effective on December 18, 2006. On October 8, 2009, the EPA issued final nonattainment area designations for the 2006 24-hour PM 2.5 NAAQS (74 FR 58688, November 13, 2009). These designations include 31 areas composed of 120 full or partial counties with a population of over 70 million. In total, there are 54 PM 2.5 nonattainment areas composed of 245 counties with a population of 101 million people.

ii. Projected Levels without this Rule

States with PM 2.5 nonattainment areas are required to take action to bring those areas into compliance in the future. Areas designated as not attaining the 1997 PM 2.5 NAAQS will need to

attain the 1997 standards in the 2010 to 2015 time frame, and then maintain them thereafter. The

2006 24-hour PM 2.5 nonattainment areas will be requ ired to attain the 2006 24-hour PM 2.5 NAAQS in the 2014 to 2019 time frame and then be required to maintain the 2006 24-hour PM 2.5 NAAQS thereafter.

EPA has already adopted many emission control programs that are expected to reduce

ambient PM 2.5 levels and which will assist in reducing the number of areas that fail to achieve

the PM 2.5 NAAQS. Even so, our air quality modeling projects that in 2030, with all current controls but excluding the impacts of the vehicl e standards adopted here, at least XX counties with a population of almost 28 million may not attain the 1997 annual PM 2.5 standard of 15 μg/m 3 and XX counties with a population of over XX million may not attain the 2006 24-hour

PM 2.5 standard of 35 μg/m 3

. 376 These numbers do not account for those areas that are close to (e.g., within 10 percent of) the PM 2.5 standards. These areas, although not violating the standards, will also benefit from any reductions in PM 2.5 ensuring long-term maintenance of the

PM 2.5 NAAQS.

iii. Projected Levels with this Rule

XX- to be completed when we have AQ modeling results

b. Ozone

i. Current Levels

8-hour ozone concentrations exceeding the level of the ozone NAAQS occur in many parts of the country. In 2008, the EPA amen ded the ozone NAAQS (73 FR 16436, March 27, 2008). The final 2008 ozone NAAQS rule set fo rth revisions to the previous 1997 NAAQS for ozone to provide increased protection of public he alth and welfare. EPA recently proposed to reconsider the 2008 ozone NAAQS (75 FR 2938, Ja nuary 19, 2010). Because of the uncertainty the reconsideration proposal creates regarding the continued applicability of the 2008 ozone

376 U.S. EPA (2009). Final Rule “Control of Emissions from New Marine Compression-Ignition Engines at or Above 30 Liters per Cylinder”. (XX FR XXXXX, DATE).327 NAAQS, EPA has used its authority to exte nd by 1 year the deadline for promulgating designations for those NAAQS (75 FR 2936, January 19, 2010). The new deadline is March 12, 2011. EPA intends to complete the reconsideration by August 31, 2010. If EPA establishes new ozone NAAQS as a result of the reconsideration, they would replace the 2008 ozone NAAQS and requirements to designate areas and impl ement the 2008 NAAQS would no longer apply.

As of January 6, 2010 there are 51 areas designated as nonattainment for the 1997 8-hour ozone NAAQS, comprising 266 full or partial counties with a total population of over 122 million people. These numbers do not include the people living in areas where there is a future risk of failing to maintain or attain the 1997 8-hour ozone NAAQS. The numbers above likely underestimate the number of counties that are not meeting the ozone NAAQS because the

nonattainment areas associated with the more stringent 2008 8-hour ozone NAAQS have not yet been designated. Table III.G.5-1 provides an estimate, based on 2005-07 air quality data, of the counties with design values greater than the 2008 8-hour ozone NAAQS of 0.075 ppm.

Table III.G.5-1 Counties with Design Values Greater Than the 2008 Ozone NAAQS Based on 2005-2007 Air Quality Data

NUMBER OF

COUNTIES POPULATION a

1997 Ozone Standard: counties within the 51 areas currently designated as nonattainment (as of 1/6/10) 266 122,343, 799

2008 Ozone Standard: additional counties that would not meet the 2008 NAAQS b 227 41,285,262

Total 493 163,629,061

Notes:

a Population numbers are from 2000 census data.

b Area designations for the 2008 ozone NAAQS have not yet been made. Nonattainment for the 2008 Ozone NAAQS would be based on three years of air quality data from later years. Also, the county numbers in this row include only the counties with monitors violating the 20 08 Ozone NAAQS. The numbers in this table may be an underestimate of the number of counties and populations th at will eventually be included in areas with multiple counties designated nonattainment.

ii. Projected Levels without this Rule

States with 8-hour ozone nonattainment areas are required to take action to bring those areas into compliance in the future. Based on the final rule designating and classifying 8-hour ozone nonattainment areas for the 1997 standard (69 FR 23951, April 30, 2004), most 8-hour ozone nonattainment areas will be required to a ttain the ozone NAAQS in the 2007 to 2013 time frame and then maintain the NAAQS thereafter. EPA has recently proposed to reconsider the 2008 ozone NAAQS. If EPA promulgates different ozone NAAQS in 2010 as a result of the reconsideration, they would fully replace the 2008 ozone NAAQS and there would no longer be a requirement to designate areas for the 200 8 NAAQS. EPA would designate nonattainment areas for a potential new 2010 primary ozone NAAQS based on the reconsideration of the 2008 ozone NAAQS in 2011. The attainment dates for areas designated nonattainment for a potential328 new 2010 primary ozone NAAQS are likely to be in the 2014 to 2031 timeframe, depending on the severity of the problem.

EPA has already adopted many emission control programs that are expected to reduce ambient ozone levels and assist in reducing the number of areas that fail to achieve the ozone NAAQS. Even so, our air quality modeling projects that in 2030, with all current controls but excluding the impacts of the vehicle standards, up to XX counties with a population of over XX million may not attain the 2008 ozone standard of 0.075 ppm (75 ppb). These numbers do not account for those areas that are close to (e.g., within 10 percent of) the 2008 ozone standard. These areas, although not violating the standards, will also benefit from any reductions in ozone ensuring long-term maintenance of the ozone NAAQS.

iii. Projected Levels with this Rule

XX- to be completed when we have AQ modeling results

c. Air Toxics

i. Current Levels

The majority of Americans continue to be expo sed to ambient concentrations of air toxics at levels which have the potentia l to cause adverse health effects. 377 The levels of air toxics to which people are exposed vary depending on where people live and work and the kinds of activities in which they engage, as discussed in detail in U.S. EPA’s most recent Mobile Source

Air Toxics Rule. 378 According to the National Air Toxic Assessment (NATA) for 2002, 379
mobile sources were responsible for 47 percent of outdoor toxic emissions, over 50 percent of the cancer risk, and over 80 percent of the noncancer hazard. Benzene is the largest contributor to cancer risk of all 124 pollutants quantitatively assessed in the 2002 NATA and mobile sources were responsible for 59 percent of benzene emissions in 2002. Over the years, EPA has implemented a number of mobile source and fuel controls resulting in VOC reductions, which

also reduce benzene and other air toxic emissions.

ii. Projected Levels

XX- to be completed when we have AQ modeling results

d. Nitrogen and Sulfur Deposition

i. Current Levels

Over the past two decades, the EPA has undertaken numerous efforts to reduce nitrogen and sulfur deposition across the U.S. Analyses of long-term monitoring data for the U.S. show that deposition of both nitrogen and sulfur compounds has decreased over the last 17 years

377 U. S. EPA. (2009) 2002 National-Scale Air Toxics Assessment. http://www.epa.gov/ttn/atw/nata2002/

378 U. S. Environmental Protection Agency (2007). Control of Hazardous Air Pollutants from Mobile Sources; Final Rule. 72 FR 8434, February 26, 2007.

379 U. S. EPA. (2009) 2002 National-Scale Air Toxics Assessment. http://www.epa.gov/ttn/atw/nata2002/329 although many areas continue to be negatively impacted by depos ition. Deposition of inorganic nitrogen and sulfur species routinely measured in the U.S. between 2004 and 2006 were as high as 9.6 kilograms of nitrogen per hectare per year (kg N/ha/yr) and 21.3 kilograms of sulfur per hectare per year (kg S/ha/yr). The data show that reductions were more substantial for sulfur compounds than for nitrogen compounds. These numbers are generated by the U.S. national monitoring network and they likely underestima te nitrogen deposition because neither ammonia nor organic nitrogen is measured. In the eastern U.S., where data are most abundant, total sulfur deposition decreased by about 36% between 1990 and 2005, while total nitrogen deposition decreased by 19% over the same time frame. 380

ii. Projected Levels

XX- to be completed when we have AQ modeling results

e. Visibility

i. Current Levels

As mentioned in Section III.5.a, millions of people live in nonattainment areas for the

PM 2.5 NAAQS. These populations, as well as large numbers of individuals who travel to these areas, are likely to experience visibility impairme nt. In addition, while visibility trends have improved in mandatory class I federal areas, the most recent data show that these areas continue to suffer from visibility impairment. In su mmary, visibility impairment is experienced throughout the U.S., in multi-state regions, urban areas, and remote mandatory class I federal

areas.

ii. Projected Levels

XX- to be completed when we have AQ modeling results

H. What are the Estimated Cost, Economic, and Other Impacts of the Program?

In this section, EPA presents the costs an d impacts of EPA’s GHG program. It is important to note that NHTSA’s CAFE standa rds and EPA’s GHG standards will both be in effect, and each will lead to aver age fuel economy increases and CO 2 emissions reductions. The two agencies’ standards comprise the National Program, and this discussion of costs and benefits of EPA’s GHG standard does not change the fact that both the CAFE and GHG standards, jointly, are the source of the benefits and costs of the National Program.

This section outlines the basis for assessing the benefits and costs of the GHG standards and provides estimates of these costs and benefits. Some of these effects are private, meaning that they affect consumers and producers directly in their sales, purchases, and use of vehicles. These private effects include the upfront costs of the technology, fuel savings, and the benefits of additional driving and reduced refueling. Other costs and benefits affect people outside the

380 U.S. EPA. U.S. EPA's 2008 Report on the Environment (Final Report). U.S. Environmental Protection Agency, Washington, D.C., EPA/600/R-07/045F (NTIS PB2008-112484). Docket EPA-HQ-OAR-2009-0472-11298. Comment [A29]: Please revise to indicate that

these are costs and benefits from the National Program,not just EPA’s program. This makes it seem like NTHSA’s program does not exist. Please characterize all costs and benefits as stemming from the National Program.

Comment [A30]: Suggest adding: While analyzed separately, the costs and benefits should not be added together as compliance with the joint rulemaking significantly overlaps and therefore so

too do the costs and benefits.330 markets for vehicles and their use; these effects are termed external costs , because they affect people in ways other than the effect on the market for and use of new vehicles and are generally not taken into account by the purchaser of the vehicle . The external effects include the climate impacts, the effects on non-GHG pollutants, energy security impacts, and the effects on traffic, accidents, and noise due to additional driving. The sum of the private and external benefits and

costs is the net social benefits of the program. There is some debate about the role of private benefits in assessing the bene fits and costs of the program: if consumers optimize their purchases of fuel economy, with full informati on and perfect foresight, in perfectly efficient

markets , with complete and accu rate technology cost and fuel savings estimates , it is possible that they have already considered these benefits in their vehicle purchase decisions. If so, then no net private benefits would result from the program, because consumers would already buy vehicles with the amount of fuel economy that is optimal for them; requiring additional fuel economy would alter both the purchase prices of new cars and their lifetime streams of operating costs in ways that will inevitably reduce consumer s’ well-being. If these conditions do not hold,

then it is likely that the private benefits and will outweigh the consumer welfare and upfront

costs and therefore some portion would be a part of count toward the program’s net benefits. Section III.H.1 discusses this issue more fully.

EPA’s final program costs consist of the vehicle program costs (costs of complying with

the vehicle CO 2 standards, taking into account FFV credits through 2015, the temporary leadtime alternative allowance standard program (T LAASP), full car/truck trading, and the A/C credit program, and other flexibili ties built into the final program) , along with the cost reduction due to fuel savings associated with reduced fuel usage resulting from the program . The program

benefits include private fuel savings that accrue to drivers over the lifetime of the vehicle, external benefits associated with greenhouse gas emissions, noise, congestion, accidents, other pollutants, and energy security impacts, and private benefits from reduced refueling events time, and increased driving due to the “rebound” effect. External benefits associated with the rule are both positive and negative: reductions in greenh ouse gas emissions, increases in noise, congestion, accidents, other pollutants, and improvements in energy security. EPA also presents

the cost-effectiveness of the standards.

The total monetized benefits (excluding fuel savings and other private benefits ) under the program are projected to be $XX to $XX billion in 2030, assuming a 3 pe rcent discount rate and depending on the value used for the social cost of carbon. The costs of the program in 2030 are estimated to be approximately $15.8 billion for new vehicle technology less $79.8 billion in savings realized by consumers through fewer fuel expenditures (calculated using pre-tax fuel prices).

EPA has undertaken an analysis of the economy-wide impacts of the GHG tailpipe standards as an exploratory exercise that EPA believes could provide additional insights into the potential impacts of the program. 381 These results were not a factor regarding the appropriateness of the GHG tailpipe standards. It is important to note that the results of this modeling exercise are dependent on the assumptions associated with how producers will make fuel economy improvements and how consumers w ill respond to increases in higher vehicle

381 See Memorandum to Docket, “Economy-Wide Impacts of Proposed Greenhouse Gas Tailpipe Standards,” March 4, 2010. Docket EPA-HQ-OAR-2009-0472. Comment [A31]: They don’t need to know the cost of the technology – they will see the higher price of the car (they don’t even have to know why its higher) and will re-optimize across attributes given that it is now more expensive.

Comment [A32]: They are always part of the calculation – it is just that they are more likely to be net positive.

Comment [A33]: The write up is very confusing because sometimes you refer to fuel savings as a cost

and other times a benefit.

Comment [A34]: At 7 percent.331 costs and improved vehicle fuel economy as a result of the program. Section III.H.1 discusses the underlying distinctions and implications of the role of consumer response in economic impacts.

Further information on these and other aspects of the economic impacts of our rule are summarized in the following sections and are pr esented in more detail in the RIA for this rulemaking.

1. Conceptual Framework for Evaluating Consumer Impacts

For this rule, EPA projects significant private gains to consumers in three major areas: (1) reductions in spending on fuel, (2) time saved du e to less refueling, and (3) welfare gains from additional driving that results from the rebound effect. In combination, these private savings, mostly from fuel savings, appear to outweigh by a large margin the costs of the program, even without accounting for externalities.

Admittedly, these findings pose an economic conundrum. On the one hand, consumers are expected to gain significantly from the rules, as the increased cost of fuel efficient cars appears to be far smaller than the fuel savings . Yet these technologies are readily available; financially savvy consumers could have sought vehicles with improved fuel efficiency, and auto makers seeking those customers could have offered them. Assuming full information, perfect foresight, perfect competition, and financially rational consumers and producers, standard economic theory suggests that normal market operations would have provided the private net gains to consumers, and the only benefits of the rule would be due to external benefits. Assuming those conditions, if our analysis projec ts that there are net private benefits that consumers have not realized in this perfectly functioning market, then increased fuel economy should be accompanied by a corresponding loss in consumer welfare. This calculation assumes that consumers accurately predic t and act on all the benefits th ey will get from a new vehicle, and that producers market products providing those benefits. The existence of large private net benefits from this rule, then, suggests either that the assumptions noted above do not hold, or that EPA’s analysis has missed some factor(s) tied to improved fuel economy that reduce(s) consumer welfare. With respect to the latter, EPA believes the costs of the technologies developed for this rule take into account the co st needed to ensure that all vehicle qualities (including performance, reliability, and size) stay constant, except for fuel economy and vehicle price. As a result, there would need to be some other changed qualities that would reduce the

benefits consumers receive from their vehicles. Changing circumstances (e.g., increased demand for horsepower in response to a drop in fuel prices ), and any changes in vehicle attributes that

manufacturers elect to make ma y result in additional private impacts to vehicle buyers from requiring increased fuel economy. Most comments generally supported the cost estimates and the maintenance of vehicle quality, though two comments expressed concern over unspecified losses to vehicle quality. Even if there is so me such unidentified loss, EPA believes that under realistic assumptions, the private gains from the ru le, together with the social gains (in the form of reduction of externalities), will continue to significantly outweigh the costs.332 The central conundrum has been referred to as the Energy Paradox in this setting (and in several others). 382 In short, the problem is that consumers appear not to purchase products that

are in their economic self-interest. There are st rong theoretical reasons why this might be so. 383
Consumers might be myopic and hence undervalue the long-term; they might lack information or a full appreciation of information even when it is presented; they might be especially averse to

the short-term losses associated with the hi gher prices of energy efficient products (the behavioral phenomenon of “loss aversion”); even if consumers have relevant knowledge, the benefits of energy efficient vehicles might not be sufficiently salient to them at the time of purchase; or, in the case of vehicle fuel efficiency, consumers may have relatively few choices to purchase vehicles with greater fuel economy once other characteristics, such as vehicle class, are

chosen. 384 A great deal of work in behavioral economics identifies factors of this sort, which help account for the Energy Paradox. 385 This point holds in the context of fuel savings (the main focus here), but it applies equally to the other private benefits, including reductions in refueling time and additional driving. 386

Considerable research suggests that the The research investigating the possible underlying

reasons for the observed Energy Paradox is real and significant mixed, however. Some studies find that a substantial portion of this seeming undervaluation can be explained by inaccurate assessments of energy savings, or by uncertainty and irreversibility of energy investments due to fluctuations in energy prices. 387 Consumer fuel savings also vary across individuals, who travel different amounts and have different driving styl es. Cost calculations based on the average do not distinguish between those that may ga in or lose as a result of the policy. 388 These results do not imply failure on the part of consumers in making adequate decisions, but rather that the rate of return on the investment necessary for energy efficiency investments is much higher for many

382 Jaffe, A. B., and Stavins, R. N. (1994). The Energy Paradox and the Diffusion of Conservation Technology. Resource and Energy Economics, 16(2), 91-122. Docket EPA-HQ-OAR-2009-0472-11415.

383 For an overview, see id.

384 For instance, the range of fuel economy (combined city and highway) available among all listed 2010 6-cylinder minivans is 18 to 20 miles per gallon. With a manual-tran smission 4-cylinder minivan, it is possible to get 24 mpg. See http://www.fueleconomy.gov, which is jointly maintain ed by the U.S. Department of Energy and the EPA.

385 Jaffe, A. B., and Stavins, R. N. (1994). The Energy Paradox and the Diffusion of Conservation Technology. Resource and Energy Economics, 16(2), 91-122. Docket EPA-HQ-OAR-2009-0472-11415.

386 For example, it might be maintained that, at the time of purchase, consumers take full account of the time spent refueling potentially saved by fuel-efficient cars, but it might also be questioned whether they have adequate information to do so, or whether that f actor is sufficiently salient to play the proper role in purchasing decisions.

387 Greene, D., J. German, and M. Delucchi (2009). “Fuel Economy: The Case for Market Failure” in Reducing

Climate Impacts in the Transportation Sector

, Sperling, D., and J. Cannon, eds. Springer Science; Dasgupta, S., S.
Siddarth, and J. Silva

‐ Risso (2007). “To Lease or to Buy? A Structural Model of a Consumer’s Vehicle and Contract

Choice Decisions.” Journal of Marketing Research 44: 490

– 502; Metcalf, G., and D. Rosenthal (1995). "The ‘New’

View of Investment Decisions and Public Policy Analysis: An Application to Green Lights and Cold Refrigerators,’’

Journal of Policy Analysis and Management 14: 517–531. Metcalf and Hassett (1995). "Energy Tax Credits and

Residential Conservation Investment: Evidence from Panel Data" Journal of Public Economics 57: 201

‐ 217. Metcalf,

G., and K. Hassett (1999). "Measuring the Energy Savings from Home Improvement Investments: Evidence from
Monthly Billing Data." The Review of Economics and Statistics 81(3): 516

‐ 528; van Soest D., Bulte E. (2000). “Does

the Energy

‐ Efficiency Paradox Exist? Technological Progress and Uncertainty.” Environmental and Resource

Economics 18: 101–12.

388 Hausman J., Joskow P. (1982). “Evaluating the Costs and Benefits of Appliance Efficiency Standards.” American

Economic Review 72: 220–25. Comment [A35]: Not quite right – they are more averse to a loss than they are to a gain of an equivalent amount.333 consumers than what is implied by a net pres ent value calculation that does not account for uncertainty or heterogeneity. Still other studies suggest that consumer s “undervalue” future energy savings due to routine mistakes in how they evaluate these trade-offs. 389 due in part to

consumers’ inabil ity to value future fu el savings appropriately . For example, Sanstad and Howarth (1994) argue that consumers optimize beha vior without full information by resorting to imprecise but convenient rules of thumb. C onsumers face difficulty in predicting the fuel savings that they are likely to get from a vehicle, for a number of reasons. For instance, the calculation of fuel savings is complex, and consumers may not make it correctly. 390 Larrick and Soll (2008) find evidence find that consumers do not understand how to translate changes in miles-per-gallon into fuel savings (a concern th at EPA is continuing to attempt to address). 391 In addition, future fuel price (a major component of fuel savings) is highly uncertain. Consumer fuel savings also vary across indi viduals, who travel different amounts and have different driving styles. The disagreement in the literature about whether consumers value fuel savings appropriately at the time of purchase leaves no clear analytic path forward on how to properly account for or model this aspect of decision-making. , Studies regularly show that fuel economy plays a role in consumers’ vehicle purchases, but modeling that role may still be in development. 392

A recent review commissioned by EPA supports the finding of great variability, by looking at the role of fuel economy in consumers’ vehicle purchase decisions. 393 It finds no consensus on the role of fuel economy in c onsumer purchase decisions. Of 22 studies, approximately equal numbers find that consumers undervalue, overvalue, or value approximately correctly the fuel savings that they will receive from improved fuel economy. The variation in the value of fuel economy in these studies is so high that it appears to be inappropriate to identify one central estimate from the literature. Thus, estimating consumer response to higher vehicle fuel economy is still unsettled science.

389 Sanstad, A., and R. Howarth (1994). “’Normal’ Markets, Market Imperfections, and Energy Efficiency.” Energy Policy 22(10): 811

‐ 818; Larrick, R. P., and J.B. Soll (2008). “The MPG illusion

. ” Science 320: 1593

‐ 1594; Yates S,

Aronson E. (1983). “A Social Psychological Perspective on Energy Conservation in Residential Buildings.” American Psychologist 38: 435–44; Levinson A, Niemann S. (2004). “Energy Use by Apartment Tenants When Landlords Pay

for Utilities.” Resource and Energy Economics 26: 51–75; Friedman L. (2002). “Bounded Rationality versus Standard
Utility

‐ Maximization: A Test of Energy Price Responsiveness.” In Judgments, Decisions, and Public Policy

, ed. R
Gowda, J Fox, pp. 138–73. New York: Cambridge University Press. Hartman R, Doane M, Woo C

‐ K. (199)1.

“Consumer Rationality and the Status Quo.” Quarterly Journal of Economics 106: 141–62; Kempton W,
Montgomery L. 1982. Folk Quantification of Energy. Energy 7: 817–27

390 Turrentine, T. and K. Kurani (2007). “Car Buyers and Fuel Economy?” Energy Policy 35: 1213-1223 (Docket EPA-HQ-OAR-2009-0472); Larrick, R. P., and J.B. Soll (2008). “The MPG illusion

. ” Science 320: 1593-1594 (Docket EPA-HQ-OAR-2009-0472-0041).

391 Sanstad, A., and R. Howarth (1994). “’Normal’ Markets, Market Imperfections, and Energy Efficiency.” Energy
Policy 22(10): 811-818 (Docket EPA-HQ-OAR-2009-0472-11415 ) ; Larrick, R. P., and J.B. Soll (2008). “The MPG

illusion

. ” Science 320: 1593-1594 (Docket EPA-HQ-OAR-2009-0472-0043 )

. 392 Busse, Meghan R., Christopher R. Knittel, and Florian Ze ttelmeyer (2009). “Pain at the Pump: How Gasoline Prices Affect Automobile Purchasing in New and Used Markets,” Working paper (accessed 6/30/09), available at
http://www.econ.ucdavis.edu/faculty/knittel/papers/ga spaper_latest.pdf (Docke t EPA-HQ-OAR-2009-0472-0044)

. 393 Greene, David L. XX- to fill in later Comment [A36]: This is a partial and therefore

mis-characterization of the research to-date. Other papers find no evidence to support this conclusion. Also, the Larrick and Sol paper should not begeneralized to the country since it uses a small, nonrepresentative sample. Instead, it is suggestive.

I have rewritten to make the discussion more

balanced.

Also, unpublished working papers should not be used tas sole support these arguments instead of peer-reviewed published papers.334 If there is a difference between fuel savings and consumers’ willingness to pay for fuel savings, the next question is, which is the appropriate measure of consumer benefit? Fuel savings measure the actual monetary value that consumers will receive after purchasing a vehicle; the willingness to pay for fuel economy measures the value that, before a purchase, consumers place on additional fuel economy. As noted, there are a number of reasons that consumers may incorrectly estimate the benefits that they get from improved fuel economy, including risk or loss aversion, and poor ability to estimate savings. In addition, fuel economy may not be as salient as other vehicle characteris tics when a consumer is considering vehicles. If these arguments are valid, then there will be significant gains to consumers of the government mandating additional fuel economy.

EPA requested and received a number of comments discussing the role of the Energy Paradox in consumer vehicle purchase decisions. Ten commenters, primarily from a number of academic and non-governmental organizations, supported the existence of a gap between the fuel economy that consumers purchased and the cost-effective amount, due to a number of market and behavioral phenomena. These include consumers having inadequate information about future fuel savings relative to up-front costs; imperfect competition among auto manufacturers; lack of choice over fuel economy within classes; lack of salience of fuel economy relative to other vehicle features at the time of vehicle pur chase; consumers using heuristic decision-making processes or other rules of thumb, rather than analyzing fuel economy decisions; consumer risk and loss aversion leading to more attention to up-front costs than future fuel savings; and consumer emphasis on visible, status-providing features of vehicles more than on relatively invisible features such as fuel economy. The RIA, Chapter 8.1.2, includes further discussion of these phenomena. However, the extent of that gap is unclear.

Because of the gap between the fuel economy consumers purchase and the cost-effective amount, those and additional commenters support using the full value of fuel savings as a benefit of the rule, because consumers will spend less money on fuel. A few asserted, in addition, that auto companies would benefit from offering vehicles with improved fuel economy. Automakers might underprovide fuel economy because they believe consumers would not buy it, or that it is not as salient as price when consumers are buying a vehicle. The commenters who supported the existence of the gap cite these phenomena as a basis for regulation of fuel economy. In contrast, two commenters (the United Auto Workers and one nonprofit research organization) argued that the market for fuel economy works efficientl y; consumers reveal through their purchase decisions that additional fuel economy is not important for them. These commenters expressed concern that regulation to promote more fuel ec onomy would limit consumers’ choices as well as

the value of the vehicles to consumers. Yet ot her commenters (including some states) noted that the rule protects the existing variety and choice of vehicles in the market; the value of vehicles to

consumers should not suffer due to the rule.

EPA continues to include the full fuel savings as a private benefit of the rule. Improved fuel economy will reduce consumer expenditures on fuel. However, limitations in modeling affect our ability to estimate how much of these savings would have occurred in the absence of the rule. For example, some of the technologies predicted to be adopted in response to the rule may already be taking place due to shifts in cons umer demand for fuel economy. It is possible that some of these savings would have occurred in the absence of the rule. If so, then some of335 the fuel savings, as well as some of the costs of the technology to achieve those savings, may be due to market forces, not to the rule itself. In the absence of robust means to identify the changes in fuel economy that would have occurred withou t the rule, we estimate the benefits and costs under the assumption that the rule will lead to more fuel-efficient vehicles than would have occurred without the rule. As discussed below, li mitations in modeling also affect our ability to

estimate the effects of the rule on ne t benefits in the market for vehicles.

Consumer vehicle choice models estimate wh at vehicles consumers buy based on vehicle and consumer characteristics. In principle, they could provide a means of understanding both the role of fuel economy in consumers’ purchase decisions and the effects of this rule on the benefits that consumers will get from vehicles. The NPRM included a discussion of the wide variation in the structure and results of these models. Models or model results have not frequently been systematically compared to each other. When they have, the results show large variation over, for instance, the value that consumers place on additional fuel economy. As a result, EPA found that further assessment needed to be done before adopting a consumer vehicle choice model. In the NPRM, EPA asked for comment on the state of the art of consumer vehicle choice modeling and whether it is sufficiently develope d for use in regulatory analysis.

The responses were varied. Of the six commenters on this issue, five supported EPA’s performing consumer vehicle choice modeling, but only in general terms; they did not provide recommendations for how to evaluate the quality of different models or identify a model appropriate for EPA’s purposes. One commenter argued that, if key differences across models were controlled, then different models would produce similar results, but there were no suggestions for what choices to make to control the key differences. One commenter specifically asked for estimates that quantify losses to cons umer welfare. Two commenters mentioned the importance of taking into account any losses in vehicle attributes due to increasing fuel economy, but without specific guidance for how to do so. Some commenters, including some who supported the use of these models, highlighted some of the models’ potential limitations. Two commenters noted the challenges of modeling for vehicles that are not yet in the market.

Most consumer vehicle choice models are based on existing vehicle fleets. Future vehicles will present combinations of vehicle characteristics not previously seen in markets, such as higher fuel economy and higher price with other character istics constant; the existing models may not do well in predicting consumer responses to these changes. One comment suggested that the models might be sufficient for predicting changes in consumer purchase patterns, but not for calculating the welfare gains and losses to consumers of the changes.

EPA has not used a consumer vehicle choice model for the final rule analysis, due to concerns we explained in the proposal (and discussed in Chapter 8.1 of the RIA), and because no

new information became available to resolve those concerns. In fact, a recent review commissioned by EPA supports the finding of great variability, by looking at one key parameter:

the role of fuel eco nomy in consumers’ vehicle purchase decisions. 394 It finds no consensus on the role of fuel economy in consumer purchase decisions. Of 22 studies, approximately equal numbers find that consumers undervalue, overvalue, or value approximately correctly the f uel savings that they will receive from improved fuel economy. The variation in the value of fuel economy in these studies is so high that it app ears to be inappropriate to identify one central

394 Gr eene, David L. XX

- to fill in later336 estimate from the literature. Thus, estimating consumer resp onse to higher vehicle fuel economy

is still unsettled science. It is likely that this variation exists as well in measuring consumer response to changes in fuel economy as well as other vehicle characteristics, such as performance. Thus, there does not appear to be evidence at this time to develop robust estimates of consumer welfare effects of changes in vehicle attributes. As noted earlier, EPA’s and NHTSA’s cost estimates are based on maintaining these other vehicle attributes. Comments generally supported the finding that our cost and technology estimates succeeded in maintaining

these other attributes.

EPA will continue its efforts to review th e literature, but, given the known difficulties, EPA has not conducted an analysis using these models for this program. These issues are discussed in detail in RIA Chapter 8.1.2.

The next issue is the potential for loss in cons umer welfare due to the rule. As mentioned above (and discussed more thoroughly in Section III.D of this preamble), the technology cost estimates developed here take into account the costs to hold other vehicle attributes, such as size and performance, constant. In addition, the anal ysis assumes that the full technology costs are passed along to consumers. With these assumptions, because welfare losses are monetary estimates of how much consumers would have to be compensated to be made as well off as in the absence of the change, 395 the price increase measures the loss to the consumer. 396 Assuming that the full technology cost gets passed along to the consumer as an increase in price, the technology cost thus measures the welfare loss to the consumer. Increasing fuel economy would have to lead to other changes in the vehicles that consumers find undesirable for there to be additional losses not included in the technology costs. At this time EPA has no available methods to estimate potential additional effects on consumers not included in the technology cost estimates, e.g., due to changes in vehicles that consumers find undesirable, shifts in consumer demand for other attributes, and uncertainties about the long term reliability of new technologies. Comments on the rule generally supported EPA’s analysis of the technology costs and the assumption that other vehicle characteristics were not adversely affected.

Chapter 8.1 of the RIA discusses in more depth the research on the Energy Paradox and the state of the art of consumer vehicle choice modeling.

2. Costs Associated with the Vehicle Program

395 This approach describes the economic concept of comp ensating variation, a payment of money after a change that would make a consumer as well off after the change as before it. A related conc ept, equivalent variation, estimates the income change that would be an alternativ e to the change taking place. The difference between them is whether the consumer’s point of refe rence is her welfare before the change (compensating variation) or after the change (equivalent variation). In practice, these two measures are typically very close together.

396 Indeed, it is likely to be an overestim ate of the loss to the consumer, because the consumer has choices other than buying the same vehicle with a higher price; she could ch oose a different vehicle, or decide not to buy a new vehicle. The consumer would choose one of those options only if the alternative invo lves less loss than paying the higher price. Thus, the increase in price that the co nsumer faces would be the upper bound of loss of consumer welfare, unless there are other changes to the vehicle due to the fuel economy improvements that make the vehicle

less desirable to consumers.337 In this section, EPA presents our estimate of the costs associated with the final vehicle program. The presentation here summarizes the costs associated with the new vehicle technology expected to be added to meet the new GHG standards, including hardware costs to comply with the A/C credit program. The analysis summarized here provides our estimate of incremental costs on a per vehicle basis and on an annual total basis.

The presentation here summarizes the outputs of the OMEGA model that was discussed in some detail in Section III.D of this preamble. For details behind the analysis such as the OMEGA model inputs and the estimates of cost s associated with indi vidual technologies, the reader is directed to Chapters 1 and 2 of the RIA, and Chapter 3 of the Joint TSD. For more detail on the outputs of the OMEGA model and the overall vehicle program costs summarized here, the reader is directed to Chapters 4 and 7 of the RIA.

With respect to the cost estimates for vehicle technologies, EPA notes that, because these estimates relate to technologies which are in mo st cases already available, these cost estimates are technically robust. Some comments were received that addressed the technology costs that served as inputs to the OMEGA model as was me ntioned in Section II.E. While those comments did not result in changes to the technology cost inputs, the technology cost estimates for a select group of technologies have changed since the NP RM thus changing the vehicle program costs presented here. These changes, as summarized in Section II.E and in Chapter 3 of the Joint TSD, were made in response to updated cost estimates, from the FEV teardown study, available to the agencies shortly after publication of the NPRM, not in response to comments. Those cost changes are summarized in Section II.E and in Chapter 3 of the Joint TSD. EPA believes that we have been conservative in estimating the vehicl e hardware costs associated with this rule.

With respect to the aggregate cost estimations presented in Section III.H.2.b, EPA notes that there are a number of areas where the results of our analysis may be conservative and, in general, EPA believes we have directionally overestimated the costs of compliance with these new standards, especially in not accounting for the full range of credit opportunities available to manufacturers. For example, some cost saving programs are considered in our analysis, such as full car/truck trading, while others are not, such as early credit generation and advanced vehicle technology credits.

a. Vehicle Compliance Costs Associated with the CO 2 Standards

For the technology and vehicle package costs associated with adding new CO 2 -reducing technology to vehicles, EPA began with EP A’s 2008 Staff Report and NHTSA’s 2011 CAFE FRM both of which presented costs generated using existing literature, meetings with manufacturers and parts suppliers, and meetings with other experts in the field of automotive

cost estimation. 397 EPA has updated some of those tec hnology costs with new information from our contract with FEV, through further discu ssion with NHTSA, and by converting from 2006 dollars to 2007 dollars using the GDP price de flator. The estimated costs presented here represent the incremental costs asso ciated with this rule relative to what the future vehicle fleet

397 “EPA Staff Technical Report: Cost and Effectivenes s Estimates of Technologies Used to Reduce Light-duty Vehicle Carbon Dioxide Emissions,” EPA 420-R-08- 008; NHTSA 2011 CAFE FRM is at 74 FR 14196; both documents are contained in Docket EPA-HQ-OAR-2009-0472.338 would be expected to look like absent this rule. A more detailed description of the factors

considered in our reference case is presented in Section III.D.

The estimates of vehicle compliance costs cover the years of implementation of the program – 2012 through 2016. EPA has also estimated compliance costs for the years following implementation so that we can shed light on the long term (2022 and late r) cost impacts of the

program. 398 EPA used the year 2022 here because our short-term and long-term markup factors described shortly below are applied in five year increments with the 2012 through 2016 implementation span and the 2017 through 2021 span both representing the short-term. Some of the individual technology cost estimates are presen ted in brief in Section III.D, and account for

both the direct and indirect costs incurred in th e automobile manufacturing and dealer industries (for a complete presentation of technology costs, please refer to Chapter 3 of the Joint TSD). To account for the indirect costs, EPA has applied an indirect cost markup (ICM) factor to all of our direct costs to arrive at the estimated technology cost. 399 The ICM factors used range from 1.11 to 1.64 in the short-term (2012 through 2021), depending on the complexity of the given technology, to account for differenc es in the levels of R&D, toolin g, and other indirect costs that will be incurred. Once the program has been fully implemented, some of the indirect costs will no longer be attributable to these standards and, as such, a lower ICM factor is applied to direct costs in years following full implementation. The ICM factors used range from 1.07 to 1.39 in the long-term (2022 and later) depending on the complexity of the given technology. 400 Note that the short-term ICMs are used in the 2012 through 2016 years of implementation and continue through 2021. EPA does this since the standards are s till being implemented during the 2012 through 2016 model years. Therefore, EPA considers the five year period following full implementation also to be short-term. Note that, in general the comments received were supportive of our use of ICMs as opposed to the more traditional Retail Price Equivalent (RPE). 401 However, we did receive some comment that we applied inappropriate ICM factors to some technologies. We have not changed our approach in response to those comments as explained in greater detail in our Joint Response to Comments document.

398 Note that the assumption made here is that the standard s would continue to apply for years beyond 2016 so that new vehicles sold in model years 2017 a nd later would continue to incur costs as a result of this rule. Those costs are estimated to get lower in 2022 because some of the indir ect costs attributable to this rule in the years prior to

2022 would be eliminated in 2022 and later.

399 Need to add the recent reference for this study by RTI. Alex Rogozhin et al., Auto mobile Industry Regail Price Equivalent and Indirect Cost Multipliers . Prepared for EPA by RTI International and Transportation Research Institute, University of Michigan. EPA-420-R-09-003, February 2009 (Docket EPA-HQ-OAR-2009-0472).

400 Gloria Helfand and Todd Sherwood, “Documentation of the Development of Indirect Cost Multipliers for ThreeAutomotive Technologies,” Office of Transportation and Air Quality, USEPA, August 2009 (Docket EPA-HQOAR-2009-0472).

401 The RPE is based on the historical relationship between di rect costs and consumer prices; it is intended to reflect the average markup over time required to sustain the industry as a viable operation. Unlike the RPE approach, the ICM focuses more narrowly on the changes that are required in direct response to regulation-induced vehicle design changes which may not directly influence all of the indirect costs that are incurred in the normal course of business. For example, an RPE markup captures all indirect costs in cluding costs such as the retirement benefits of retired employees. However, the retirement benefits for retired em ployees are not expected to change as a result of a new GHG regulation and, therefore, those indirect costs shoul d not increase in relation to newly added hardware in response to a regulation.339 EPA has also considered the impacts of manufacturer learning on the technology cost estimates. Consistent with past EPA rulemaki ngs, EPA has estimated that some costs would decline by 20 percent with each of the first two doublings of production beginning with the first year of implementation. These volume-based cost declines, which EPA calls “volume” based learning, take place after manufacturers have had the opportunity to find ways to improve upon their manufacturing processes or otherwise manufacture these technologies in a more efficient way. After two 20 percent cost reduction steps, the cost reduction learning curve flattens out considerably as only minor improvements in ma nufacturing techniques and efficiencies remain to be had. By then, costs decline roughly three percent per year as manufacturers and suppliers continually strive to reduce costs. These time-based cost declines, which EPA calls “time” based learning, take place at a rate of three percent per year. EPA has considered learning impacts on most but not all of the technologies expected to be used because some of the expected technologies are already used rather widely in the industry and, presumably, learning impacts have already occurred. EPA has considered volume-based learning for only a handful of technologies that EPA considers to be new or emerging technologies such as the hybrids and electric vehicles. For most technologies, EPA has considered them to be more established given their current use in the fleet and, hence, we have applied the lower time based learning. We have more discussion of our learning approach and the technologies to which we have applied which type of learning in Chapter 3 of the Joint TSD.

The technology cost estimates discussed in Section III.D and detailed in Chapter 3 of the Joint TSD are used to build up technology package cost estimates which are then used as inputs to the OMEGA model. EPA discusses our technology packages and package costs in Chapter 1

of the RIA. The model determines what level of CO 2 improvement is required considering the reference case for each manufacturer’s fleet. The vehicle compliance costs are the outputs of the model and take into account FFV credits through 2015, TLAASP, full car/truck trading, and the A/C credit program. Table III.H.2-1 presents th e fleet average incremental vehicle compliance costs for this rule. As the table indicates, 2012- 2016 costs increase every year as the standards become more stringent. Costs per car and per truck then remain stable through 2021 while cost per vehicle (car/truck combined) decline slightly as the fleet mix trends slowly to increasing car sales. In 2022, costs per car and per truck dec line as the long-term ICM is applied because some indirect costs decrease or are no longer considered attributable to the program ( e.g., warranty costs go down). Costs per car and per truck remain constant thereafter while the cost per vehicle declines slightly as the fleet continues to trend toward cars. By 2030, projections of fleet mix changes become static and the cost per vehicle remains constant. EPA has a more detailed presentation of vehicle compliance costs on a manufacturer by manufacturer basis in Chapter 6

of the RIA.

Table III.H.2-1 Industry Average Vehicle Compli ance Costs Associated with the Tailpipe CO 2 Standards ($/vehicle in 2007 dollars)

Calendar Year $/car $/truck $/vehicle (car & truck combined)
2012 $342 $314 $331
2013 $507 $496 $503340 2014 $631 $652 $639
2015 $749 $820 $774 2016 $869 $1,098 $948 2017 $869 $1,098 $947 2018 $869 $1,098 $945 2019 $869 $1,098 $943 2020 $869 $1,098 $940 2021 $869 $1,098 $939 2022 $817 $1,032 $882 2030 $817 $1,032 $878 2040 $817 $1,032 $875 2050 $817 $1,032 $875

b. Annual Costs of the Vehicle Program

The costs presented here represent the incr emental costs for newly added technology to comply with the final program. Together with the projected increases in car and light-truck sales, the increases in per-vehicle average costs shown in Table III.H.2-1 above result in the total annual costs reported in Table I II.H.2-2 below. Note that the costs presented in Table III.H.2-2 do not include the savings that would occur as a result of the improvements to fuel consumption. Those impacts are presented in Section III.H.4.

Table III.H.2-2 Quantified Annual Costs Associated with the Vehicle Program ($Millions of 2007 dollars)

Year Quantified

Annual Costs 2012 $4,900 2013 $8,000 2014 $10,300 2015 $12,700 2016 $15,600 2020 $15,600 2030 $15,800 2040 $17,400 2050 $19,000 NPV, 3% $345,900 NPV, 7% $191,900

3. Cost per Ton of Emissions Reduced

EPA has calculated the cost per ton of GHG (CO 2 -equivalent, or CO 2 e) reductions associated with this rule using the above costs and the emissions reductions described in Section III.F. More detail on the costs, emission reductions, and the cost per ton can be found in the RIA and Joint TSD. EPA has calculated the cost per metric ton of GHG emissions reductions in the years 2020, 2030, 2040, and 2050 using the annual vehicle compliance costs and emission reductions for each of those years. The value in 2050 represents the long-term cost per ton of the341 emissions reduced. EPA has also calculated the cost per metric ton of GHG emission reductions including the savings associated with reduced fuel consumption (presented below in section III.H.4). This latter calculation does not include the other benefits associated with this rule such as those associated with criteria pollutant reductio ns or energy security benefits as discussed later in sections III.H.4 through III.H.9. By including th e fuel savings in the cost estimates, the cost per ton is less than $0, since the estimated valu e of fuel savings outweighs the vehicle program costs. With regard to the CH 4 and N 2 O standards, since these stan dards will be emissions caps designed to ensure that manufacturers do not backslide from current levels, EPA has not estimated costs associated with the standards (s ince the standards will not require any change from current practices nor does EPA estimate they will result in emissions reductions).

The results for CO 2 e costs per ton under the rule are shown in Table III.H.3-1.

Table III.H.3-1 Annual Cost Per Metric Ton of CO 2 e Reduced, in $2007 dollars

Year Vehicle Program

Cost a ($Millions) Fuel Savings b ($Millions) CO 2 e Reduced (Million Metric Tons) Cost per Ton

of the Vehicle Program Only a Cost per Ton

of the Vehicle Program with Fuel Savings b 2020 $15,600 -$35,700 160 $100 -$130 2030 $15,800 -$79,800 310 $50 -$210 2040 $17,400 -$119,300 400 $40 -$250 2050 $19,000 -$171,200 510 $40 -$300

a Costs here include vehicle compliance costs and do not include any fuel savings.

b Fuel savings calculated using pre-tax fuel prices.

4. Reduction in Fuel Consumption and its Impacts

a. What Are the Projected Changes in Fuel Consumption?

The new CO 2 standards will result in significant impr ovements in the fuel efficiency of

affected vehicles. Drivers of those vehicles will see corresponding savings associated with reduced fuel expenditures. EPA has estimated the impacts on fuel consumption for both the tailpipe CO 2 standards and the A/C credit program. To do this, fuel consumption is calculated using both current CO 2 emission levels and the new CO 2 standards. The difference between these estimates represents the net savings from the CO 2 standards. Note that the total number of miles that vehicles are driven each year is different under each of the control case scenarios than in the reference case due to the “rebound effect,” which is discussed in Section III.H.4.c.

The expected impacts on fuel consumption are shown in Table III.H.4-1. The gallons shown in the tables reflect impacts from the new CO 2 standards, including the A/C credit program, and include increased consumption resulting from the rebound effect.

Table III.H.4-1 Fuel Consumption Impacts of the Vehicle Standards and A/C Credit Programs (Million gallons)

Year Total342 2012 550

2013 1,320

2014 2,330

2015 3,750

2016 5,670

2020 12,590

2030 24,730

2040 32,620

2050 41,520

b. What are the Monetized Fuel Savings?

Using the fuel consumption estimates presen ted in Section III.H.4.a, EPA can calculate the monetized fuel savings associated with the CO 2 standards. To do this, we multiply reduced fuel consumption in each year by the correspondi ng estimated average fuel price in that year, using the reference case taken from the AEO 2010 Early Release. 402 AEO is the government consensus estimate used by NHTSA and many other government agencies to estimate the projected price of fuel. EPA has done this calculation using both the pre-tax and post-tax fuel prices. Since the post-tax fuel prices are what consumers pay, the fuel savings calculated using these prices represent the savings consumers will see. The pre-tax fuel savings are those savings that society will see. These results are shown in Table III.H.4-2. Note that in Section III.H.10, EPA presents the benefit-cost of the rule and, for that reason, presents only the pre-tax fuel savings and presents them as negative costs of the program while here EPA presents them as positive savings.

Table III.H.4-2 Estimated Monetized Fuel Savings (Millions of 2007 dollars)

Calendar Year Fuel Savings (pre-tax) Fuel Savings (post-tax)

2012 $1,137 $1,400

2013 $2,923 $3,800

2014 $5,708 $6,900

2015 $9,612 $11,300

2016 $14,816 $17,400

2020 $35,739 $41,100

2030 $79,838 $89,100

2040 $119,324 $131,700

2050 $171,248 $186,300 NPV, 3% $1,545,638 $1,723,900 NPV, 7% $672,629 $755,700

402 Energy Information Administration. Annual Energy Outlook 2010 Early Release. Supplemental Transportation Tables. December 2009. http://www.eia .doe.gov/oiaf/aeo/supplement/sup_tran.xls343 As shown in Table III.H.4-2, EPA is projecti ng that consumers would realize very large fuel savings as a result of the standards contained in this rule. As discussed further in Section III.H.1, it is a conundrum from an economic perspective that these large fuel savings have not been provided by automakers and purchased by consumers. A number of behavioral and market phenomena may lead to this disparity between th e fuel economy that makes financial sense to consumers and the fuel economy they purchase. Regardless how consumers make their

decisions on how much fuel eco nomy to purchase, EPA expects that they will gain these fuel savings, which will provide act ual money in consumers’ pockets. We received considerable comment on this issue, as discussed in Sectio n III.H.1, and the issue is discussed further in Chapter 8 of the RIA.

c. VMT Rebound Effect

The fuel economy rebound effect refers to the fraction of fuel savings expected to result from an increase in vehicle fuel economy, particularly one required by higher fuel efficiency standards, that is offset by additional vehicle use. The increase in vehicle use occurs because higher fuel economy reduces the fuel cost of driving, which is typically the largest single component of the monetary cost of operating a vehicle, and vehicle owners respond to this reduction in operating costs by driving slightly more.

For this rule, EPA is using an estimate of 10% for the rebound effect. This value is based on the most recent time period analyzed in the Small and Van Dender 2007 paper, 403 and falls within the range of the larger body of historical work on the rebound effect. 404 Recent work by David Greene on the rebound effect for light-duty vehicles in the U.S. further supports the hypothesis that the rebound effect is decreasing over time. 405 If we were to use a dynamic estimate of the future rebound effect, our analysis shows that the rebound effect could be in the range of 5% or lower. 406 The rebound effect is also further discussed in Chapter 4 of the Joint

TSD which reviews the relevant literature and discusses in more depth the reasoning for the

rebound values used here.

We received several comments on the proposed value of the rebound effect. The California Air Resources Board (CARB) and th e New Jersey Department of Environmental Protection supported the use of a 10% rebound effect, although CARB encouraged EPA to

403 Small, K. and K. Van Dender, 2007a . “Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect”, The Energy Journal, vol. 28, no. 1, pp. 25-51 (Docket EPA-HQ-OAR-2009-0472-0018).

404 Sorrell, S. and J. Dimitropoulos, 2007. “UKERC Revi ew of Evidence for the Rebound Effect, Technical Report 2: Econometric Studies”, UKERC/WP/TPA/2007/010, UK En ergy Research Centre, London, October (Docket EPA-HQ-OAR-2009-0472-0012).

405 Report by Kenneth A. Small of University of California at Irvine to EPA, “The Rebound Effect from Fuel Efficiency Standards: Measurement and Projection to 2030”, June 12, 2009 (Docket EPA-HQ-OAR-2009-0472- 0002).

406 Report by David Greene of Oak Ridge National Laboratory to EPA, “Rebound 2007: Analysis of National LightDuty Vehicle Travel Statistics,” March 24, 2009 (Docke t EPA-HQ-OAR-2009-0472-0220). This paper has been accepted for an upcoming special issue of the Energy J ournal, although the publication date has not yet been

determined. Comment [A37]: This statement should be struck

– this statement is not true if consumers invest in less fuel economy than predicted because the USG has a simplistic model that assumes with certainty that the gasoline price will be X, when in reality we know that it probably will not. If instead we modeled it with uncertainty, it might look very different. Consumers will gain more or less in their pockets depending on whether our gasoline price projection is too low or too high. Also, this is only the average consumer but we know that people drive different distances, and drive more or less aggressively, so some may end up with more or less than what is estimated here base don the average.344 consider lowering the value to 5%. Other comme nters, such as the Missouri Department of Natural Resources, the International Council on Clean Transportation (ICCT), the Center for Biological Diversity, and the Consumer Federation of America, recommended using a lower rebound effect. ICCT specifically recommended that the dynamic rebound effect methodology utilized by Small & Van Dender was the most appropriate methodology, which would support a rebound effect of 5% or lower. In contrast, th e National Association of Dealerships asserted that the rebound effect should be higher (e.g., in the lower range of the 15-30% historical range), but did not submit any data to support this claim.

While we appreciate the input provided by commenters, we did not receive any new data or analysis to justify revising our initial estimate s of the rebound effect at this time. Based on the positive comments we received, we will continue using the dynamic rebound effect to help inform our estimate of the rebound effect in future rulemakings. However, given the relatively new nature of this analytical approach, we believe the larger body of historical studies should also be considered when determining the value of the rebound effect. As we described in the Technical Support Document, the more recent literature suggests that the rebound effect is 10% or lower, whereas the larger body of historical studies suggests a higher rebound effect. Therefore, we will continue to use the 10% rebo und effect for this rulemaking. However, we plan to update our estimate of the rebound effect in future rulemakings as new data becomes

available.

We also invited comments on whether we should also explore other alternatives for estimating the rebound effect, such as whether it would be appropriate to use the price elasticity of demand for gasoline to guide the choice of a value for the rebound effect. We received only

one comment on this issue from ICCT. In th eir comments, ICCT stated that the short run elasticity can provide a useful point of comparison for rebound effect estimates, but it should not be used to guide the choice of a value for the rebound effect. Therefore, we have not incorporated this metric into our analysis.

5. Impacts on U.S. Vehicle Sales and Payback Period

a. Vehicle Sales Impacts

This analysis compares two effects. On the one hand, the vehicles will become more expensive, which would, by itself, discourage sale s. On the other hand, the vehicles will have improved fuel economy and thus lower operating costs, which makes them more attractive to consumers. The basic question is, then, which effect dominates? The methodology EPA used for estimating the impact on vehicle sales is relatively straightforward, but makes a number of simplifying assumptions. According to the literat ure, the price elasticity of demand for vehicles is commonly estimated to be -1.0. 407 In other words, a one percent increase in the price of a

407 Kleit A.N., 1990. “The Effect of Annual Changes in Automobile Fuel Economy Standards.” Comment [A38]: The answer to this seems obvious – there is nothing about a fuel economy standard that changes the way in which consumers make decisions, so to the extent they are rationally consuming less fuel economy than they should or making mistakes in how they value fuel economy, they will continue to do so. They will just be contemplating it for a somewhat more fuel economy

intensive vehicle fleet.345 vehicle would be expected to decrease sales by one percent, holding all other factors constant. For our estimates, EPA calculated the effect of an increase in vehicle costs due to the GHG standards and assumes that consumers will face the full increase in costs, not an actual (estimated) change in vehicle price. (The estima ted increases in vehicle co st due to the rule are discussed in Section III.H.2) This is a conservative methodology, since an increase in cost may not pass fully into an increase in market price in an oligopolistic industry such as the automotive

sector. 408 EPA also notes that we have not used these estimated sales impacts in the OMEGA

Model.

Although EPA uses the one percent price elasticity of demand for vehicles as the basis for our vehicle sales impact estimates, we assumed that the consumer would take into account both the higher vehicle purchasing costs as well as some of the fuel savings benefits when deciding whether to purchase a new vehicle. Therefore, the incremental cost increase of a new vehicle would be offset by reduced fuel expenditu res over a certain period of time (i.e., the “payback period”). For the purposes of this rulemaking, EPA used a five-year payback period, which is consistent with the length of a typical new light-duty vehicle loan. 409 The one commenter on this analysis stated that use of the five-year payback period was reasonable. This approach may not accurately reflect the role of fuel savings in consumers’ purchase decisions, as the discussion in Section III.H.1 suggests. If consumers consider fuel savings in a different fashion than modeled here, then this approach w ill not accurately reflect the impact of this rule

on vehicle sales.

This increase in costs has other effects on co nsumers as well: if vehicle prices increase, consumers will face higher insurance costs and sa les tax, and additional finance costs if the vehicle is bought on credit. In addition, the resa le value of the vehicles will increase. EPA received no comments on these adjustments. The only change to these adjustments between the NPRM and this discussion is an updating of the inte rest rate on auto loans. EPA estimates that, with corrections for these factors, the effect on consumer expenditures of the cost of the new technology should be 0.914 times the cost of the technology at a 3% discount rate, and 0.876 times the cost of the technology at a 7% discount rate. The details of this calculation are in the RIA, Chapter 8.l.

Once the cost estimates are adjusted for thes e additional factors, the fuel cost savings associated with the rule, discussed in Section III. H.4, are subtracted to get the net effect on consumer expenditures for a new vehicle. With the assumed elasticity of demand of -1, the

Journal of Regulatory Economics 2: 151-172 (Docket EPA-HQ-OAR-2009-0472-0015); McCarthy, Patrick S.,

1996. “Market Price and Income Elasticities of New Ve hicle Demands.” Review of Economics and Statistics 78: 543-547 (Docket EPA-HQ-OAR-2009-0472-0016); Goldberg, Pinelopi K., 1998. “The Effects of the Corporate Average Fuel Efficiency Standards in the U.S.,” Journal of Industrial Economics 46(1): 1-33 (Docket EPA-HQOAR-2009-0472-0017).

408 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-HQ-OAR-2009-0472-0007).

409 As discussed further in Section III.H.1, there is not a consensus in the literature on how consumers consider fuel economy in their vehicle purchases. Re sults 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 (2010) 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. Comment [A39]: The Kubik survey suggests less than three years. What happens when you use his payback period? Where is the cut point?346 percent change in this “effective price,” estimated as the adjusted increase in cost, is equal to the negative of the percent change in vehicle purchases. The net effect of this calculation is in Table

III.H.5-1 and Table III.H.5-2. The values have changed slightly from the NPRM, due to changes in fuel prices and fuel savings, technology costs, and baseline vehicle sales projections, in addition to the adjustment in financing costs.

The estimates provided in Table III.H.5-1 and Table III.H.5-2 are meant to be illustrative rather than a definitive prediction. When viewed at the industry-wide leve l, they give a general indication of the potential impact on vehicle sa les. As shown below, the overall impact is positive and growing over time for both cars and trucks. Because the fuel savings associated with this rule are expected to exceed the technology costs, the effective prices of vehicles (the adjusted increase in technology cost less the fuel savings over five years) to consumers will fall, and consumers will buy more new vehicles. As a result, the lower net cost of the vehicles is projected to lead to an increase in sales for both cars and truc ks. Note this analysis has not accounted for a number of factors that might affect consumer vehicle purchases, such as changing market conditions, changes in vehicle characteristics that might accompany improvements in fuel economy, or consumers considering a different “payback period” for their fuel economy purchases. These complications add considerable uncertainty to our vehicle sales impact analysis.

Table III.H.5-1 Vehicle Sales Impacts Using a 3% Discount Rate Change in Car

Sales % Change Change in

Truck Sales % Change

2012 67,500 0.7 62,100 1.1
2013 76,000 0.8 190,200 3.2
2014 114,000 1.1 254,900 4.3
2015 222,200 2.1 352,800 6.1
2016 360,500 3.3 488,000 8.6

Table III.H.5-1 shows the impacts on new vehicle sales using a 3% discount rate. The fuel savings over five years are always higher th an the technology costs. Although both cars and trucks show very small effects initially, over ti me vehicle sales become increasingly positive, as increased fuel prices make improved fuel economy more desirable. The increases in sales for trucks are larger than the increases for trucks (except in 2012) in both absolute numbers and
percentage terms.

Table III.H.5-2 New Vehicle Sales Impacts Using a 7% Discount Rate Change in Car

Sales % Change Change in

Truck Sales % Change

2012 62,800 0.7 58,300 1
2013 70,500 0.7 92,300 1.5 2014 106,100 1 127,700 2.1
2015 208,400 2 194,200 3.3
2016 339,400 3.1 280,000 4.9 Comment [A40]: This is a rather nonsensical result. I recommend it be dropped. Regulation is not a win-win – this implies that regulation actually makes the private market better off (absent any social reason for intervention) than when left on its own, a highly contentious result.

Also the assumed discount rate used by consumers

matters.347 Table III.H.5-2 shows the impacts on new vehicle sales using a 7% interest rate. While a 7% interest rate shows slightly lower impacts than using a 3% discount rate, the results are qualitatively similar to those using a 3% discount rate. Sales increase for every year. For both cars and trucks, sales become increasingly positive over time, as higher fuel prices make improved fuel economy more valuable. The car market grows more than the truck market in absolute numbers, but less on a percentage basis.

The effect of this rule on the use and scrappa ge of older vehicles will be related to its effects on new vehicle prices, the fuel efficiency of new vehicle models, and the total sales of new vehicles. If the value of fuel savings resulti ng from improved fuel efficiency to the typical potential buyer of a new vehicle outweighs the average increase in new models’ prices, sales of new vehicles will rise, while scrappage rates of used vehicles will increase slightly. This will cause the “turnover” of the vehicle fleet (i.e., the retirement of used vehicles and their replacement by new models) to accelerate slightly, thus accentuating the anticipated effect of the rule on fleet-wide fuel consumption and CO 2 emissions. However, if potential buyers value future fuel savings resulting from the increased fu el efficiency of new models at less than the increase in their average selling price, sales of ne w vehicles will decline, as will the rate at which

used vehicles are retired from service. This effect will slow the replacement of used vehicles by new models, and thus partly offset the anticipated effects of this rule on fuel use and emissions.

Because the agencies are uncertain about how the value of projected fuel savings from this rule to potential buyers will compare to thei r estimates of increases in new vehicle prices, we have not attempted to estimate explicitly the effect s of the rule on scrappage of older vehicles

and the turnover of the vehicle fleet.

A detailed discussion of the vehicle sales impacts methodology is provided in the Chapter

8 of EPA’s RIA.

b. Consumer Payback Period and Lifetime Savings on New Vehicle Purchases

Another factor of interest is the payback period on the purchase of a new vehicle that complies with the new standards. In other words, how long would it take for the expected fuel savings to outweigh the increased cost of a new vehicle? For example, a new 2016 MY vehicle is estimated to cost $948 more (on average, and relative to the reference case vehicle) due to the addition of new GHG reducing technology (see Section III.D.6 for details on this cost estimate). This new technology will result in lower fuel consumption and, therefore, savings in fuel expenditures (see Section III.H.10) for details on fuel savings). But how many months or years would pass before the fuel savings exceed the upfront cost of $948?

Table III.H.5-3 provides the answer to this question for a vehicle purchaser who pays for the new vehicle upfront in cash (we discuss later in this section the payback period for consumers who finance the new vehicle purchase with a loan). The table uses annual miles driven (vehicle miles traveled, or VMT) and su rvival rates consistent with the emission and348 benefits analyses presented in Chapter 4 of the Joint TSD. The control case includes rebound VMT but the reference case does not, consistent with other parts of the analysis. Also included are fuel savings associated with A/C controls (i n the control case only). Not included here are the likely A/C-related maintenance savings as disc ussed in Chapter 2 of EPA’s RIA. Further, this analysis does not include other societal impa cts such as the value of increased driving, or noise, congestion and accidents since the focus is meant to be on those factors consumers think about most while in the showroom considering a new car purchase. Car/truck fleet weighting is handled as described in Chapter 1 of the Joint TSD. As can be seen in the table, it will take under 3 years (2 years and 7 months at a 3% discount rate, 2 years and 9 months at a 7% discount rate) for the cumulative discounted fuel savings to exce ed the upfront increase in vehicle cost. More detail on this analysis can be found in Chapter 8 of EPA’s RIA.

Table III.H.5-3 Payback Period on a 2016 MY New Vehicle Purchase via Cash (2007 dollars)

YEAR OF

OWNERSHIP INCREASED

VEHICLE COST a ANNUAL FUEL

SAVINGS b CUMULATIVE

DISCOUNTED

FUEL SAVINGS

AT 3% CUMULATIVE

DISCOUNTED

FUEL SAVINGS

AT 7% 1 $1,018 $424 $418 $410
2 $420 $820 $790 3 $414 $1,204 $1,139 4 $402 $1,567 $1,457

a Increased vehicle cost due to the rule is $948; the value here includes nationwide average sales tax of 5.3% and increased insurance premiums of 1.98%; both of these pe rcentages are discussed in Section 8.1.1 of EPA’s RIA.

b Calculated using AEO 2010 Early Release reference case fuel price including taxes.

However, most people purchase a new vehicle using credit rather than paying cash up front. The typical car loan today is a five year, 60 month loan. As of February 9, 2010, the national average interest rate for a 5 year new car loan was 6.54 percent. If the increased vehicle cost is spread out over 5 years at 6.54 pe rcent, the analysis would look like that shown in Table III.H.5-4. As can be seen in this table, the fuel savings immediately outweigh the increased payments on the car loan, amounting to $177 in discounted net savings (3% discount rate) in the first year and similar savings for th e next two years before reduced VMT starts to cause the fuel savings to fall. Results are similar using a 7% discount rate. This means that for every month that the average owner is making a payment for the financing of the average new vehicle their monthly fuel savings would be greater than the increase in the loan payments. This amounts to a savings on the order of $9 to $15 per month throughout the duration of the 5 year loan. Note that in year six when the car loan is paid off, the net savings equal the fuel savings (as would be the case for the remaining years of ownership).

Table III.H.5-4 Payback Period on a 2016 MY New Vehicle Purchase via Credit (2007 dollars)

YEAR OF

OWNERSHIP INCREASED

VEHICLE COST a ANNUAL FUEL

SAVINGS b ANNUAL

DISCOUNTED

NET SAVINGS AT

3% ANNUAL

DISCOUNTED

NET SAVINGS AT

7%
1 $245 $424 $177 $173
2 $245 $420 $167 $158
3 $245 $414 $157 $142
4 $245 $402 $142 $124
5 $245 $391 $127 $107349 6 $0 $374 $318 $258

a This uses the same increased cost as Table III.H.4-3 but spreads it out over 5 years assuming a 5 year car loan at 6.54 percent.

b Calculated using AEO 2010 Early Release reference case fuel price including taxes.

The lifetime fuel savings and net savings can also be calculated for those who purchase the vehicle using cash and for those who purchase the vehicle with credit. This calculation applies to the vehicle owner who retains the vehicl e for its entire life and drives the vehicle each year at the rate equal to the national projected av erage. The results are shown in Table III.H.5-5. In either case, the present value of the lifetim e net savings is greater than $3,100 at a 3% discount rate, or $2,300 at a 7% discount rate.

Table III.H.5-5 Lifetime Discounted Net Savings on a 2016 MY New Vehicle Purchase (2007 dollars)

PURCHASE

OPTION INCREASED

DISCOUNTED

VEHICLE COST LIFETIME

DISCOUNTED

FUEL SAVINGS B LIFETIME

DISCOUNTED

NET SAVINGS

3% discount rate Cash $1,018 $4,306 $3,303

Credit a $1,140 $4,306 $3,166

7% discount rate Cash $1,018 $3,381 $2,396

Credit a $1,040 $3,381 $2,340

a Assumes a 5 year loan at 6.54 percent.

b Fuel savings here were calculated using AEO 2010 Early Release reference case fuel price including taxes.

Note that throughout this consumer payback discussion, the average number of vehicle miles traveled per year has been used. Drivers who drive more miles than the average would incur fuel related savings more quickly and, therefore, the payback would come sooner. Drivers who drive fewer miles than the average would incur fuel related savings more slowly and, therefore, the payback would come later.

6. Benefits of Reducing GHG Emissions

a. Social Cost of Carbon

In today’s final rule, EPA and NHTSA as signed a dollar value to reductions in CO 2 emissions using the marginal dollar value of climate-related damages resulting from carbon emissions, also referred to as “social cost of carbon” (SCC). The SCC estimates used in today’s rule were recently developed by an interagency process, in which EPA and NHTSA participated. EPA and NHTSA have critically evaluated the d ecisions of the interage ncy group and the new SCC estimates and endorse them as reasonable for this final rule for the reasons presented below. As part of the interagency group, EPA and NHTSA have critically evaluated the new SCC estimates and endorse them for use in our regulatory analyses, for the reasons presented

below.” The SCC TSD, Social Cost of Carbon for Regulatory Impact Analysis Under Executive

Order 12866 , presents a more detailed description of the methodology used to generate the new estimates, the underlying assumptions, and the limitations of the new SCC estimates.350 Under Executive Order 12866, agencies are required, to the extent permitted by law, “to

assess both the costs and the benefits of the inte nded regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned

determination that the benefits of the intended regulation justify its costs.” The purpose of the SCC estimates presented here is to incorporat e the social benefits of reducing carbon dioxide (CO 2 ) emissions from light-duty vehicles into a cost -benefit analysis of this final rule, which has a small, or “marginal,” impact on cumulative gl obal emissions. The estimates are presented with an acknowledgement of the many uncertainties involved and with a clear understanding that they should be updated over time to reflect increasing knowledge of the science and economics of climate impacts.

The interagency process that developed these SCC estimates involved a group of technical experts from numerous agencies, which met on a regular basis to consider public comments, explore the technical literature in relevant fields, and discuss key model inputs and assumptions. The main objective of this process was to develop a range of SCC values using a defensible set of input assumptions grounded in the existing scientific and economic literatures. In this way, key uncertainties and model differe nces transparently and consistently inform the range of SCC estimates used in this rulemaking process.

The interagency group selected four SCC values for use in regulatory analyses, which EPA and NHTSA have applied to this final rule. Three values are based on the average SCC from three integrated assessment models, at discount rates of 2.5, 3, and 5 percent. The fourth value, which represents the 95th percentile SCC estimate across all three models at a 3 percent discount rate, is included to represent higher-than-expected impacts from temperature change

further out in the tails of the SCC distribution.

Table III.H.6-1 Social Cost of CO 2 , 2010 – 2050 a (in 2007 dollars)

Discount Rate 5% 3% 2.5% 3%

Year Avg Avg Avg 95th

2010 5 21 35 65

2015 6 24 38 73

2020 7 26 42 81

2025 8 30 46 90

2030 10 33 50 100

2035 11 36 54 110

2040 13 39 58 119

2045 14 42 62 128

2050 16 45 65 136

a The SCC estimates presented above have been rounded to nearest dollar for consistency with the benefits analysis. The SCC TSD presents estimates rounded

to the nearest tenth of a cent.

i. Monetizing Carbon Dioxide Emissions351 The “social cost of carbon” (SCC) is an es timate of the monetized damages associated

with an incremental increase in carbon emissions in a given year. It is intended to include (but is not limited to) changes in net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem serv ices. We report estimates of the social cost of carbon in dollars per metric ton of carbon dioxide throughout this document.

When attempting to assess the incremen tal economic impacts of carbon dioxide emissions, the analyst faces a number of serious challenges. A 2009 report from the National Academies of Science poin ts out that any assessment will suff er from uncertainty, speculation, and lack of information about (1) future emissions of greenhouse gases, (2) the effects of past and future emissions on the climate system, (3) the impact of changes in climate on the physical and biological environment, and (4) the translation of these environmental impacts into economic damages. 410 As a result, any effort to quantify and monetize the harms associated with climate change will raise serious questions of science, economics, and ethics and should be viewed as provisional.

Despite the serious limits of both quantificat ion and monetization, SCC estimates can be useful in estimating the social benefits of redu cing carbon dioxide emissions. Under Executive Order 12866, agencies are required, to the extent permitted by law, “to assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs.” EP A and NHTSA have used the SCC estimates to incorporate social benefits from reducing carbon di oxide emissions from light-duty vehicles into a cost-benefit analysis of this final rule, which ha s a small, or “marginal,” impacts on cumulative global emissions. Most federal regulatory actions can be expected to have marginal impacts on global emissions.

For policies that have marginal impacts on global emissions, the benefits from reduced (or costs from increased) emissions in any futu re year can be estimated by multiplying the change in emissions in that year by the SCC value appropriate for that year. The net present value of the benefits can then be calculated by mu ltiplying each of these future benefits by an appropriate discount factor and summing across all affected years. This approach assumes that the marginal damages from increased emissions are constant for small departures from the baseline emissions path, an approximation that is reasonable for policies that have effects on emissions that are small relative to cumulative gl obal carbon dioxide emissions. For policies that have a large (non-marginal) impact on global cu mulative emissions, there is a separate question of whether the SCC is an appropriate tool for ca lculating the benefits of reduced emissions; we do not attempt to answer that question here.

As noted above, the interagency group convened on a regular basis to consider public comments, explore the technical literature in relevant fields, and discuss key inputs and assumptions in order to generate SCC estimates. In addition to EPA and NHTSA, agencies that actively participated in the interagency proce ss included the Departments of Agriculture, Commerce, Energy, and Treasury. This process was convened by the Council of Economic

410 National Research Council (2009). Hidden Costs of Energy: Unpriced Consequences of Energy Production and

Use . National Academies Press.352 Advisers and the Office of Management and Budg et, with active participation and regular input from the Council on Environmental Quality, National Economic Council, Office of Energy and Climate Change, and Office of Science and Technology Policy. The main objective of this process was to develop a range of SCC values us ing a defensible set of input assumptions that are grounded in the existing literature. In this way, key uncertainties and model differences can more transparently and consistently inform the range of SCC estimates used in the rulemaking

process.

The interagency group selected four global SCC estimates for use in regulatory analyses. For 2010, these estimates are $5, $21, $35, and $65 (in 2007 dollars). The first three estimates are based on the average SCC across models and socio-economic and emissions scenarios at the 5, 3, and 2.5 percent discount rates, respectively. The fourth value is included to represent the higher-than-expected impacts from temperature change further out in the tails of the SCC distribution. For this purpose, we use the SCC value for the 95th percentile at a 3 percent discount rate. The central value is the average SCC across models at the 3 percent discount rate. For purposes of capturing the uncertainties involv ed in regulatory impact analysis, we emphasize the importance and value of considering the fu ll range. These SCC estimates also grow over time. For instance, the central va lue increases to $24 per ton of CO 2 in 2015 and $26 per ton of

CO 2 in 2020. See the SCC TSD for the full range of annual SCC estimates from 2010 to 2050.

These new SCC estimates represent global measures and the center of our current

attention because of the distinc tive nature of the climate change problem. The climate change problem is highly unusual in at least two respects. First, it involves a global externality: emissions of most greenhouse gases contribute to damages around the world even when they are emitted in the United States. Consequently, to address the global nature of the problem, the SCC must incorporate the full (global) damages caused by GHG emissions. Second, climate change presents a problem that the United States alone cannot solve. Even if the United States were to reduce its greenhouse gas emissions to zero, that step would be far from enough to avoid substantial climate change. Other countries would al so need to take action to reduce emissions if significant changes in the global climate are to be avoided.

It is important to emphasize that the intera gency process is committed to updating these estimates as the science and economic understanding of climate change and its impacts on society improves over time. Specifically, the interagency group has set a preliminary goal of revisiting the SCC values within two years or at such time as substantially updated models become available, and to continue to support research in this area. In the meantime, the interagency group will continue to explore the issues raised in the SCC TSD and consider public comments as part of the ongoing interagency process.

ii. Social Cost of Carbon Values Used in Past Regulatory Analyses

To date, economic analyses for Federal regulations have used a wide range of values to estimate the benefits associated with reducing ca rbon dioxide emissions. In the final model year 2011 CAFE rule, the Department of Transportation (DOT) used both a “domestic” SCC value of $2 per ton of CO 2 and a “global” SCC value of $33 per ton of CO 2 for 2007 emission reductions (in 2007 dollars), increasing both values at 2.4 pe rcent per year. It also included a sensitivity353 analysis at $80 per ton of CO 2 . A domestic SCC value is meant to reflect the value of damages in the United States resulting from a unit change in carbon dioxide emissions, while a global

SCC value is meant to reflect the value of damages worldwide.

A 2008 regulation proposed by DOT assumed a domestic SCC value of $7 per ton CO 2 (in 2006 dollars) for 2011 emission reductions (with a range of $0-$14 for sensitivity analysis), also increasing at 2.4 percent per year. A regulation finalized by DOE in October of 2008 used a domestic SCC range of $0 to $20 per ton CO 2 for 2007 emission reductions (in 2007 dollars). In addition, EPA’s 2008 Advance Notice of Proposed Rulemaking for Greenhouse Gases identified what it described as “very preliminary” SCC estimates subject to revision. EPA’s global mean values were $68 and $40 per ton CO 2 for discount rates of approximately 2 percent and 3 percent, respectively (in 2006 dollars for 2007 emissions).

In 2009, an interagency process was initiated to offer a preliminary assessment of how best to quantify the benefits from reducing carbon dioxide emissions. To ensure consistency in how benefits are evaluated across agencies, th e Administration sought to develop a transparent and defensible method, specifically designed for the rulemaking process, to quantify avoided climate change damages from reduced CO 2 emissions. The interagency group did not undertake any original analysis. Instead, it combined SCC estimates from the existing literature to use as interim values until a more comprehensive analysis could be conducted.

The outcome of the preliminary assessment by the interagency group was a set of five interim values: global SCC estimates for 2007 (in 2006 dollars) of $55, $33, $19, $10, and $5 per ton of CO2. The $33 and $5 values represented model-weighted means of the published estimates produced from the most recently available versions of three integrated assessment models (DICE, PAGE, and FUND) at approximately 3 and 5 percent discount rates. 411 The $55 and $10 values were derived by adjusting the published estimates for uncertainty in the discount rate (using factors developed by Newell and Pizer (2003)) at 3 and 5 percent discount rates, respectively. 412 The $19 value was chosen as a central value between the $5 and $33 per ton

estimates. All of these values were assumed to increase at 3 percent annually to represent growth in incremental damages over time as the magnitude of climate change increases.

These interim values represent the first sust ained interagency effo rt within the U.S. government to develop an SCC for use in regulatory analysis. The results of this preliminary effort were presented in several proposed and final rules and were offered for public comment in connection with proposed rules. In particular , EPA and NHTSA used the interim SCC estimates in the joint proposal leading to this final rule.

411 The DICE (Dynamic Integrated Climate and Economy) model by William Nordhaus evolved from a series of energy models and was first presented in 1990 (Nordhaus and Boyer 2000, Nordhaus 2008). The PAGE (PolicyAnalysis of the Greenhouse Effect) model was developed by Chris Hope in 1991 for use by European decisionmakers in assessing the marginal impact of carbon em issions (Hope 2006, Hope 2008). The FUND (Climate Framework for Uncertainty, Negotiation, and Distribution) model, developed by Richard Tol in the early 1990s, originally to study international capital tr ansfers in climate policy. is now widely used to study climate impacts (e.g., Tol 2002a, Tol 2002b, Anthoff et al. 2009, Tol 2009).

412 Newell, R., and W. Pizer. 2003. Discounting the distant future: how much do uncertain rates increase valuations? Journal of Environmental Economics and Management 46: 52-71.354 iii. Approach and Key Assumptions

Since the release of the interim values, interagency group has reconvened on a regular basis to generate improved SCC estimates, whic h EPA and NHTSA used in this final rule. Specifically, the group has considered public comments and further explored the technical

literature in relevant fields. The general approach to estimating SCC values was to run the three integrated assessment models (FUND, DICE, and PAGE) using the following inputs agreed upon by the interagency group:

• A Roe and Baker distribution for the climate sensitivity parameter bounded between 0 and 10 with a median of 3 °C and a cumulative probability between

2 and 4.5 °C of two-thirds. 413

• Five sets of GDP, population and carbon emissions trajectories based on the recent Stanford Energy Modeling Forum, EMF-22.

• Constant annual discount rates of 2.5, 3, and 5 percent.

The SCC TSD presents a summary of the results and details the modeling exercise and the choices and assumptions that underlie the resulting estimates of the SCC. The complete model

results are available in the docket for this final rule [EPA-HQ-OAR-2009-0472].

It is important to recognize that a number of key uncertainties remain, and that current SCC estimates should be treated as provisional and revisable since they will evolve with improved scientific and economic understanding. The interagency group also recognizes that the existing models are imperfect and incomplete. The National Academy of Science (2009) points out that there is tension between the goal of producing quantified estimates of the economic damages from an incremental ton of carbon and the limits of existing efforts to model these effects. The SCC TSD highlights a number of concerns and problems that should be addressed by the research community, including research programs housed in many of the agencies participating in the interagency pr ocess to estimate the SCC.

The U.S. Government will periodically review and reconsider estimates of the SCC used for cost-benefit analyses to reflect increasing knowledge of the science and economics of climate impacts, as well as improvements in modeling. In this context, statements recognizing the limitations of the analysis and calling for furthe r research take on exceptional significance. The interagency group offers the new SCC values w ith all due humility about the uncertainties embedded in them and with a sincere prom ise to continue work to improve them.

iv. Use of New SCC Estimates to Calculate GHG Benefits for this Final Rule

The table below summarizes the total GHG benefi ts for the lifetime of the rule, which are calculated by using the four new SCC values. Specifically, EPA calculated the total monetized benefits in each year by multiplying the marg inal benefits estimates per metric ton of CO 2 (the SCC) by the reductions in CO 2 for that year.

Table III.H.6-2 Monetized CO 2 Benefits of Vehicle Program, CO 2 Emissions a,b (Million 2007$)

413 Roe, G., and M. Baker. 2007. “Why is climate sensitivity so unpredictable?” Science 318:629-632355 YEAR CO 2 EMISSIONS

REDUCTION (Million Metric Tons) BENEFITS

Avg SCC at 5% ($5-$16) c Avg SCC at 3% ($21-$45) c Avg SCC at 2.5% ($35-$65) c 95 th percentile

SCC at 3% ($65-$136) c

2020 139 $900 $3,700 $5,800 $11,000 2030 273 $2,700 $8,900 $14,000 $27,000 2040 360 $4,600 $14,000 $21,000 $43,000 2050 459 $7,200 $21,000 $30,000 $62,000

a Monetized GHG benefits exclude the value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benefits, as expl ained in Section III.F.2. The SCC TSD notes the difference

between the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value

non-CO 2 emissions in future analyses.

b Numbers may not compute exactly from Tables III.H.6-1 and III.H.6-2 due to rounding.

c As noted above, SCC increases over time; tables lists range s for years 2010 through 2050. See Table III.H.6-1 for the SCC estimates corresponding to the years in this table.

b. Summary of the Response to Comments

EPA and NHTSA received extensive public comments about the scientific, economic, and ethical issues involved in estimating the SCC, including the proposed rule’s estimates of the

value of emissions reductions from new cars and trucks. 414 In particular, the comments addressed the methodology used to derive the in terim SCC estimates, limitations of integrated assessment models, discount rate selection, treatment of uncertainty and catastrophic impacts, use of global and domestic SCC, and the presentati on and use of SCC estimates. The rest of this preamble section briefly summarizes EPA’s resp onse to the comments; the Joint Response to Comments document provides the complete re sponses to all comments received.

EPA received extensive comments about the methodology and discount rates used to

derive the interim SCC estimates. While one co mmenter from the auto industry noted that the interim methodology was acceptable given available data, many commenters (representing academic and environmental organizations) expresse d concerns that the filters were too narrow, stated that model-weighting averaging was inappropriate, and recommended that EPA use lower

discount rates. These commenters also discussed alternative approaches to select discount rates and generally recommended that EPA use lower ra tes to give more weight to climate damages experienced by future generations.

For the final rule, EPA conducted new analyses of SCC. EPA did not continue with its interim approach to derive estimates from the existing literature and instead conducted new model runs that produced a vast amount of SCC data at three separate certainty-equivalent discount rates (2.5, 3, and 5 percent). As discussed further in the SCC TSD, this modeling

exercise resulted in a fuller distribution of SCC estimates and better accounted for uncertainty

414 EPA estimated GHG benefits in the proposed rule using a set of interim SCC values developed by an interagency group, in which EPA and NHTSA participated. As discus sed in the SCC TSD, the inte ragency group selected the interim estimates from the existing literature and agreed to use those interim estimates in regulatory analyses until it could develop a more comprehensive characterization of the SCC.356 through a Monte Carlo analysis. Comments on specific issues are addressed in the Joint Response to Comments document.

EPA received comments on the limitations of the integrated assessment models concluding that the selection of models and reliance on the model authors’ datasets contributed

to the downward bias of the interim SCC estimates. In this final rule, EPA relied on the default values in each model for the remaining parameter; research gaps and practical constraints required EPA to limit its modification of the mode ls to socioeconomic and emissions scenarios, climate sensitivity, and discount rate. While EPA recognizes that the models’ translations of physical impacts to economic values are incomplete, approximate, and highly uncertain, it regards them as the best currently available representations. EPA also considered, for each model, the treatment of uncertai nty, catastrophic impacts, and omitted impacts, and as discussed in the SCC TSD and the Joint Response to Commen ts document, used best available information and techniques to quantify such impacts as feas ible and supplemented the SCC with qualitative assessments. Comments on specific issues are addressed in the Joint Response to Comments

document.

Six commenters, representing academia and environmental organizations, supported the proposed rule’s preference for global SCC estimat es while several industry groups stated that under the Clean Air Act, EPA is prohibited from using global estimates. EPA agrees that a global measure of GHG mitigation benefits is both appropriate and lawful for EPA to consider in evaluating the benefits of GHG emissions stan dards adopted under section 202(a). Global climate change represents a problem that the Un ited States cannot solve alone without global action, and for a variety of reasons there is a value to the U.S. from domestic emissions reductions that reduce the harm occurring globally. This is not exercise of regulatory authority over conduct occurring overseas, but instead is a reasonable exercise of discretion in how to place a monetary value on a reduction in domestic emissions. See the Joint Response to Comments document for a complete discussion of this issue.

Finally, EPA received various comments regarding the presentation of the SCC methodology and resulting estimates. EPA has re sponded to these concerns by presenting a detailed discussion about the methodology, including key model assumptions, as well as uncertainties and research gaps a ssociated with the SCC estimates and the implications for the SCC estimates. Among these key assumptions a nd uncertainties are issues involving discount rates, climate sensitivity and socioeconomic s cenario assumptions, incomplete treatment of potential catastrophic impacts, incomplete treatmen t of non-catastrophic im pacts, uncertainty in extrapolation of damages to high temperatur es, incomplete treatment of adaptation and technological change, and assumptions about risk aversion to high-impact outcomes (see SCC TSD).

7. Non-Greenhouse Gas Health and Environmental Impacts

This section presents EPA’s analysis of the non-GHG health and environmental impacts that can be expected to occur as a result of the light-duty vehicle GHG rule. GHG emissions are predominantly the byproduct of fossil fuel combustion processes that also produce criteria and hazardous air pollutants. The vehicles that are subject to the standards are also significant357 sources of mobile source air pollution such as direct PM, NO X , VOCs and air toxics. The

standards will affect exhaust emissions of these pollutants from vehicles. They will also affect emissions from upstream sources related to changes in fuel consumption. Changes in ambient
ozone, PM 2.5 , and air toxics that will result from th e standards are expected to affect human health in the form of premature deaths and other serious human health effects, as well as other important public health and welfare effects.

As many commenters noted, it is important to quantify the hea lth and environmental impacts associated with the final rule because a fa ilure to adequately consider these ancillary copollutant impacts could lead to an incorrect assessment of their net costs and benefits. Moreover, co-pollutant impacts tend to accrue in the near term, while any effects from reduced climate change mostly accrue over a time frame of several decades or longer.

This section is split into two sub-sections: the first presents the PM- and ozone-related health and environmental impacts associated with final rule in calendar year (CY) 2030; thesecond presents the PM-related benefits-per-ton values used to monetize the PM-related cobenefits associated with the model year (MY) analysis of the final rule. 415

a. Quantified and Monetized Non-GHG Human Health Benefits of the 2030 Calendar Year (CY) Analysis

XX- To be completed when we have air quality results

b. PM-related Monetized Benefits of the Model Year (MY) Analysis

As described in Section III.G, the final stan dards will reduce emissions of several criteria and toxic pollutants and precursors. In the MY analysis, EPA estimates the economic value of the human health benefits associated with reducing PM 2.5 exposure. Due to analytical limitations, this analysis does not estimate benefi ts related to other criteria pollutants (such as ozone, NO 2 or SO 2 ) or toxics pollutants, nor does it monetize all of the potential health and

welfare effects associated with PM 2.5

.

The MY analysis uses a “benefit-per-ton” method to estimate a selected suite of PM 2.5 - related health benefits described below. These PM 2.5 benefit-per-ton estimates provide the total monetized human health benefits (the sum of premature mortality and premature morbidity) of reducing one ton of directly emitted PM 2.5 , or its precursors (such as NO X , SO X , and VOCs), from a specified source. Ideally, the human hea lth benefits associated with the MY analysis would be estimated based on changes in ambient PM 2.5 as determined by full-scale air quality modeling. However, this modeling was not possi ble in the timeframe for the final rule.

415 EPA typically analyzes rule impacts (emissions, air quality, costs and benefits) in the year in which they occur; for this analysis, we selected 2030 as a representative future year. We refer to this analysis as the “Calendar Year” (CY) analysis. EPA also conducted a separate analysis of the impacts over the model year lifetimes of the 2012 through 2016 model year vehicles. We re fer to this analysis as the “Model Year ” (MY) analysis. In contrast to the CY analysis, the MY lifetime analysis shows the lifetim e impacts of the program on each of these MY fleets over

the course of its lifetime.358 The dollar-per-ton estimates used in this analysis are provided in Table III.H.7-6. In the summary of costs and benefits, Section III.H.10 of this preamble, EPA presents the monetized value of PM-related improvements associated with the rule.

Table III.H.7-6 Benefits-per-ton Values (2007$) Derived Using the ACS Cohort Study for PMrelated Premature Mortality (Pope et al., 2002) a and a 3% Discount Rate b

Year c All Sources d Stationary (Non-EGU) Sources Mobile Sources

SO X VOC NO X Direct PM2.5 NO X Direct PM2.5 2015 $28,000 $1,200 $4,700 $220,000 $4,900 $270,000 2020 $31,000 $1,300 $5,100 $240,000 $5,300 $290,000 2030 $36,000 $1,500 $6,100 $280,000 $6,400 $350,000 2040 $43,000 $1,800 $7,200 $330,000 $7,600 $420,000

a The benefit-per-ton estimates presented in this table are based on an estimate of premature mortality derived from the ACS study (Pope et al., 2002). If the benefit-per-ton es timates were based on the Six Cities study (Laden et al., 2006), the values would be approximately 145% (nearly two-and-a-half times) larger.

b The benefit-per-ton estimates presented in this table assume a 3% discount rate in the valuation of premature mortality to account for a twenty-year segmented cessation lag. If a 7% discount rate had been used, the values would be approximately 9% lower.

c Benefit-per-ton values were estimated for the y ears 2015, 2020, and 2030. For 2040, EPA and NHTSA extrapolated exponentially based on the growth between 2020 and 2030.

d Note that the benefit-per-ton value for SO X is based on the value for Stationary (Non-EGU) sources; no SO X value was estimated for mobile sources. The benefit-per-t on value for VOCs was estimated across all sources.

The benefit per-ton technique has been used in previous analyses, including EPA’s recent Ozone National Ambient Air Quality Standards (NAAQS) RIA (U.S. EPA, 2008a), 416 the proposed Portland Cement National Emissions Standards for Hazardous Air Pollutants (NESHAP) RIA (U.S. EPA, 2009a), 417 and the proposed NO 2 NAAQS (U.S. EPA, 2009b). 418
Table III.H.7 -7 shows the quantified and unquantified PM 2.5 -related co-benefits captured in those benefit-per-ton estimates.

416 U.S. Environmental Protection Agency (U.S. EPA). 2008a. Regulatory Impact Analysis, 2008 National Ambient Air Quality Standards for Ground-level Ozone, Chapter 6. Office of Air Quality Planni ng and Standards, Research Triangle Park, NC. March. Available at <http://www.epa.gov/ttn/ecas/regdata/RIAs/6-ozoneriachapter6.pdf>.

417 U.S. Environmental Protection Agency (U.S. EPA). 2009a. Regulatory Impact Analysis: National Emission Standards for Hazardous Air Pollutants from the Portland Cement Manufacturing Industry. Office of Air Quality Planning and Standards, Research Triangle Park, NC. April. Available on the Internet at <http://www.epa.gov/ttn/ecas/regdata/R IAs/portlandcementria_4-20-09.pdf>.

418 U.S. Environmental Protection Agency (U.S. EPA). 2009b. Proposed NO2 NAAQS Regulatory Impact Analysis (RIA). Office of Air Quality Planning and Standards, Resear ch Triangle Park, NC. April. Available on the Internet at http://www.epa.gov/ttn/ecas/regdata/RIAs/proposedno2ria.pdf. Comment [A41]: Can you show these for 7 percent as well?359 Table III.H.7-7 Human Health and Welfare Effects of PM 2.5
Pollutant /

Effect Quantified and Monetized in Primary Estimates Unquantified Effects Changes in:

PM 2.5 Adult premature mortality

Bronchitis: chronic and acute Hospital admissions: respiratory and

cardiovascular Emergency room visits for asthma Nonfatal heart attacks (myocardial infarction) Lower and upper respiratory illness Minor restricted-activity days Work loss days Asthma exacerbations (asthmatic population) Infant mortality Subchronic bronchitis cases Low birth weight Pulmonary function Chronic respiratory diseases other than chronic

bronchitis Non-asthma respiratory emergency room visits Visibility Household soiling

Consistent with the NO 2 NAAQS, 419 the benefits estimates utilize the concentrationresponse functions as reported in the epidemiology literature. To calculate the total monetized impacts associated with quantified health impact s, EPA applies values derived from a number of sources. For premature mortality, EPA applies a value of a statistical life (VSL) derived from the mortality valuation literature. For certain he alth impacts, such as chronic bronchitis and a number of respiratory-related ailments, EPA app lies willingness-to-pay estimates derived from the valuation literature. For the remaining health impacts, EPA applies values derived from current cost-of-illness and/or wage estimates.

Readers interested in reviewing the complete methodology for creating the benefit-perton estimates used in this analysis can consult the Technical Support Document (TSD) 420
accompanying the recent final ozone NAAQS RIA (U.S. EPA, 2008a). Readers can also refer to Fann et al. (2009) 421 for a detailed description of the benefit-per-ton methodology. 422 A more detailed description of the benefit-per-ton estimates is also provided in the Draft Joint TSD that accompanies this rulemaking.

As described in the documentation for the benefit per-ton estimates cited above, national per-ton estimates were developed for selected pollutant/source category combinations. The perton values calculated therefore apply only to to ns reduced from those specific pollutant/source combinations (e.g., NO 2 emitted from mobile sources; direct PM emitted from stationary

419 Although we summarize the main issues in this chapter, we encourage intere sted readers to see benefits chapter of the NO2 NAAQS for a more detailed description of recent changes to the PM benefits presentation and preference for the no-threshold model.

420 U.S. Environmental Protection Agency (U.S. EPA). 2008b. Technical Support Document: Calculating Benefit Per-Ton estimates, Ozone NAAQS Docket #EPA-HQ-OAR-20 07-0225-0284. Office of Air Quality Planning and Standards, Research Triangle Park, NC. March. Ava ilable on the Internet at <http://www.regulations.gov>.

421 Fann, N. et al. (2009). The influence of location, s ource, and emission type in estimates of the human health benefits of reducing a ton of air pollution. Air Qu al Atmos Health. Published online: 09 June, 2009.

422 The values included in this report are different from those presented in the article cited above. Benefits methods change to reflect new information and evaluation of the sc ience. Since publication of the June 2009 article, EPA has made two significant changes to its benefits methods: (1) We no longer assume that a threshold exists in PM-related models of health impacts; and (2) We have revised the Va lue of a Statistical Life to equal $6.3 million (year 2000$), up from an estimate of $5.5 million (year 2000$) used in the June 2009 report. Please refer to the following website for updates to the dollar-per-ton estimates: http://www.epa.gov/air/benmap/bpt.html360 sources). Our estimate of PM 2.5 benefits is therefore based on the total direct PM 2.5 and PMrelated precursor emissions controlled by sect or and multiplied by each per-ton value.

The benefit-per-ton estimates are subject to a number of assumptions and uncertainties.

• Dollar-per-ton estimates do not reflect lo cal variability in population density, meteorology, exposure, baseline health incidence rates, or other local factors that might lead to an overestimate or underestimate of the actual benefits of controlling fine particulates. In Section III.G, we describe the full-scale air quality modeling conducted for the 2030 calendar year analysis in an effort to capture this variability.

• There are several health benefits categories that EPA was unable to quantify in the MY analysis due to limitations associated with using benefits-per-ton estimates, several of which could be substantial. Because the NO X and VOC

emission reductions associated with th is rule are also precursors to ozone,

reductions in NO X and VOC would also reduce ozone formation and the health effects associated with ozone exposure. Unfortunately, benefits-per-ton estimates do not exist due to issues associated with the complexity of the atmospheric air chemistry and nonlinearities as sociated with ozone formation. The PM-related benefits-per-ton estimates also do not include any human welfare or ecological benefits. Please refer to Chapter 7 of th e RIA that accompanies this rule for a description of the quantification and monetization of health impacts for the CY analysis and a description of the unquantified co-pollutant benefits associated with this rulemaking.

• The benefit-per-ton estimates used in this analysis incorporate projections of key
variables, including atmospheric conditions, source level emissions, population,
health baselines and incomes, technology. These projections introduce some
uncertainties to the benefit per ton estimates.

• As described above, using the benefit-per-ton value derived from the ACS study (Pope et al., 2002) alone provides an incomplete characterization of PM 2.5 benefits. When placed in the context of th e Expert Elicitation results, this estimate

falls toward the lower end of the dist ribution. By contrast, the estimated PM 2.5 benefits using the coefficient reported by Laden in that author’s reanalysis of the

Harvard Six Cities cohort fall toward th e upper end of the Expert Elicitation

distribution results.

As mentioned above, emissions changes and benefits-per-ton estimates alone are not a good indication of local or regional air quality and health impacts, as there may be localized impacts associated with this rulemaking. Add itionally, the atmospheri c chemistry related to

ambient concentrations of PM 2.5 , ozone and air toxics is very complex. Full-scale photochemical modeling is therefore necessary to provide the needed spatial and tem poral detail to more completely and accurately estimate the changes in ambient levels of these pollutants and their associated health and welfare impacts. Timi ng and resource constraints precluded EPA from conducting full-scale photochemical air quality modeling for the MY analysis. We have, however, conducted national-scale air quality modeling for the CY analysis to analyze the impacts of the standards on PM 2.5 , ozone, and selected air toxics.361 8. Energy Security Impacts

This rule to reduce GHG emissions in light-duty vehicles results in improved fuel efficiency which, in turn, helps to reduce U.S. petroleum imports. A reduction of U.S. petroleum imports reduces both financial and strategic risks caused by potential sudden disruptions in the supply of imported petroleum to the U.S. This reduction in risk is a measure of improved U.S. energy security. This section summarizes our estimate of the monetary value of the energy security benefits of the GHG vehicle standard s against the reference case by estimating the impact of the expanded use of lower-GHG vehicle technologies on U.S. oil imports and avoided U.S. oil import expenditures. Additional discussion of this issue can be found in Chapter 5.1 of

EPA’s RIA and Section 4.2.8 of the TSD.

a. Implications of Reduced Petroleum Use on U.S. Imports

In 2008, U.S. petroleum import expenditures re presented 21 percent of total U.S. imports of all goods and services. 423 In 2008, the U.S. imported 66 percent of the petroleum it consumed, and the transportation sector accounted for 70 percent of total U.S. petroleum consumption. This compares to approximately 37 percent of petroleum from imports and 55 percent of consumption from petroleum in the transportation sector in 1975. 424 It is clear that petroleum imports have a significant impact on the U.S. economy. Requiri ng lower-GHG vehicle technology in the U.S. is expected to lower U.S. petroleum imports.

b. Energy Security Implications

In order to understand the energy security implications of reducing U.S. petroleum imports, EPA worked with Oak Ridge National Laboratory (ORNL), which has developed approaches for evaluating the economic costs and energy security implications of oil use. Theenergy security estimates provided below are based upon a methodology developed in a peerreviewed study entitled " The Energy Security Benefits of Reduced Oil Use, 2006-2015 ," completed in March 2008. This study is included as part of the docket for this rulemaking. 425,426

When conducting this analysis, ORNL considered the economic cost of importing petroleum into the U.S. The economic cost of importing petroleum into the U.S. is defined to include two components in addition to the purchase price of petroleum itself. These are: (1) the higher costs for oil imports resulting from the effect of increasing U.S. import demand on the world oil price and on OPEC market power (i.e., the "demand" or "monopsony" costs); and (2)

423 Source: U.S. Bureau of Economic Analysis, U.S. Intern ational Transactions Accounts Data, as shown on June 24,

2009.

424 Source: U.S. Department of Energy, Annual Energy Re view 2008, Report No. DOE/EIA-0384(2008), Tables 5.1 and 5.13c, June 26, 2009.

425 Leiby, Paul N. " Estimating the Energy Security Bene fits of Reduced U.S. Oil Imports " Oak Ridge National Laboratory, ORNL/TM-2007/028, Final Report, 2008. (Docket EPA-HQ-OAR-2009-0472)

426 The ORNL study “ The Energy Security Benefits of Reduced Oil Use, 2006-2015 ," completed in March 2008, is an update version of the approach used for estimating th e energy security benefits of U.S. oil import reductions developed in an ORNL 1997 Report by Leiby, Paul N., Do nald W. Jones, T. Randall Curlee, and Russell Lee,

entitled “ Oil Imports: An Assessment of Benefits and Costs. " (Docket EPA-HQ-OAR-2009-0472)362 the risk of reductions in U.S. economic output and disruption of the U.S. economy caused by sudden disruptions in the supply of imported petroleum to the U.S. (i.e., macroeconomic disruption/adjustment cost s). Maintaining a U.S. military pres ence to help secure stable oil supply from potentially vulnerable regions of the world was not included in this analysis because its attribution to particular missions or activities is hard to quantify.

One commenter on this rule felt that that the magnitude of the economic disruption portion of the energy security benefit may be too high. This commenter cites a recent paper written by Stephen P.A. Brown and Hillard G. Huntington, entitled " Estimating U.S. Oil Security

Premiums " (September 2009) as the basis for their comment. The Agency reviewed this paper and found that it conducted a somewhat different analysis than the one conducted by ORNL in support of this rule. The Brown and Huntington paper focuses on policies and the energy security implications of increasing U.S. demand for oil (or at least holding U.S. oil consumption constant), while the ORNL analysis examines the energy security implications of decreasing U.S. oil consumption and oil imports. These asymmetrical analyses would be expected to yield somewhat different energy security results.

However, even given the different scenarios consider, the Brown and Huntington estimates are roughly similar to the ORNL estim ates. For example, for an increase in U.S. consumption that leads to an increase in U.S. imports of oil, Brown and Huntington estimate a 2015 disruption premium of $4.87 per barrel, with an uncertainty range from $1.03 to $14.10 per barrel. The corresponding 2015 estimate for ORNL as the result of a reduction in U.S. oil imports is $6.70 per barrel, with an uncertainty range of $3.11 to $10.67 per barrel. Given that the two studies analyze different scenarios, since the Brown and Huntington disruption premiums are well within the uncertainty range of the ORNL study, and given that the ORNL scenario matches the specific oil market impact s anticipated from the rule while the Brown and Huntington paper does not, the Agency has concluded that the ORNL disruption security premium estimates are more applicable for analyzing this final rule.

In addition, the Agency received several comments on how to account for the potential military cost associated with main taining a U.S. military presence to help secure stable oil supply from potentially vulnerable regions of the world. Some commenters indicated that the Agency should attempt to monetize U.S. military costs and include these costs in the energy security analysis, while other commenters agreed with the Agency that these costs should be excluded since they are too difficult to quantify. The Agency did not receive any new analysis or methodological approach from commenters which could be used to monetize U.S. military costs in a meaningful or credible manner. Moreover, a recent study conducted by the National Academy of Sciences (NAS) 427 notes that it is difficult to disentangle military spending to achieve political goals from spending to protect petroleum supply routes. Further, it notes that spending to protect petroleum supply routes would not likely change, given a moderate reduction in oil flowing from volatile regions to the U.S. However, the NAS study also suggests that a very large reduction in oil demand could affect military spending. The EPA has adopted the NAS position that a change in military spending is unlikely given a moderate reduction in oil demand, and continues to exclude a

427 Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use , NAS, ISBN - 10: 0-309-14636- 4. February 2010.363 monetary estimate of military cost s in our energy security calcula tions for this rule. However, the Agency also believes that more examination of this issue is warranted in the future.

For this rule, ORNL estimated the energy se curity premium by incorporating the oil price forecast of the Energy Information Administration’s 2009 Annual Energy Outlook (AEO) to its model. The Agency considered, but rejected the option, of further updating this analysis using the oil price estimates provided by the AEO 2010. Given the broad uncertainty bands around oil price forecasts and the relatively modest change in oil price forecasts between the AEO 2009 and AEO 2010, the Agency felt that updating to AEO 2010 oil prices would not significantly change the results of this energy security analysis . Finally, the EPA used its OMEGA model in conjunction with ORNL’s energy security premium estimates to develop the total energy security benefits for a number of different years; please refer to Table III.H.8-1 for this information for years 2015, 2020, 2030 and 2040, 428 as well as a breakdown of the components of the energy security premium for each of these years. The components of the energy security premium and their values are discussed in detail in the Joint TSD Chapter 4.

Table III.H.8-1 Energy Security Premium in 2015, 2020, 2030 and 2040 (2007$/Barrel)

Year (range) Monopsony Macroeconomic Disruption/Adjustment Costs Total Mid-Point

2015 $11.79 ($4.26 - $21.37) $6.70 ($3.11 – $10.67) $18.49 ($9.80 - $28.08)
2020 $12.31 ($4.46 - $22.53) $7.62 ($3.77 – $12.46) $19.94 ($10.58 - $30.47)
2030 $10.57 ($3.84 – 18.94)) $8.12 ($3.90 – $13.04) $18.69 ($10.52 - $27.89)
2040 $10.57 ($3.84 – $18.94) $8.12 ($3.90 - $13.04) $18.69 ($10.52 - $27.89)

The literature on the energy security for the last two decades has routinely combined the monopsony and the macroeconomic disruption components when calculating the total value of the energy security premium. However, in the c ontext of using a global value for the Social Cost of Carbon (SCC) the question ar ises: how should the energy security premium be used when some benefits from the rule, such as the benefits of reducing greenhouse gas emissions, are calculated using a global value? Monopsony benefi ts represent avoided payments by the U.S. to oil producers in foreign countries that result from a decrease in the world oil price as the U.S. decreases its consumption of imported oil. Although there is clearly a benefit to the U.S. when considered from the domestic perspective, the decrease in price due to decreased demand in the U.S. also represents a loss of income to oil-pr oducing countries. Given the redistributive nature of this effect, do the negative effects on other countries “net out” the positive impacts to the U.S.? If this is the case, then the monopsony portion of the energy security premium should be

excluded from the net benefits calculation for the rule. OMB’s Circular A-4 gives guidance in

428 AEO 2009 forecasts energy market trends and values on ly to 2030. The energy security premium estimates post2030 were assumed to be the 2030 estimate.364 this regard. Domestic pecuniary benefits (or transfers between buyers and sellers) generally should not be included because they do not represent real resource costs, though A-4 notes that transfers to the U.S. from other countries may be counted as benefits as long as the analysis is conducted from a U.S. perspective.

However, even when the global value for greenhouse gas reduction benefits is used, an argument can be made that the monopsony benefits should be included in net benefits calculations for this rule. Maintaining the earth’s climate is a global public good and as such requires that a global cooperative perspective be taken on the benefits of GHG mitigation by all nations, including the U.S. Given t hat a cooperative global approach is required to address the climate change issue, each country (and market participant) should face the global SCC. In other words, using the global SCC does not transform th e calculation from a domestic (i.e., U.S.) to a global one. Instead, the global SCC represents the domestic valu e that the U.S. should utilize to contribute cooperatively to a global solution of the climate change problem.

Energy security

, on the other hand, is broadly defined as protecting the U.S. economy against circumstances that threaten significant sh ort- and long-term increases in energy costs. Energy security is inherently a domestic benefit. Accordingly, it is possible to argue that the use of the domestic monopsony benefit is may not necessarily in conflict with the use of the global SCC, because the global SCC represents the bene fits against which the costs of our (i.e., the U.S.’s) domestic mitigation efforts should be judged. If this reasoning holds, the two benefits (the global bene fits of reducing greenhouse gas emissions and the full energy security premium, including the monopsony benefits) should be counted in the net benefits estimates of the rule. However, i I n the final analysis, the Agency determined that the first argument i s more compelling and therefore has determined that using only the macroeconomic disruption component of the energy security benefit is the appropriate metric for this rule.

At proposal, the Agency took the position that since a global perspective was being taken with the use of the global SCC, that the monops ony benefits “net out” and were a transfer. Two commenters felt that the monopsony effect should be excluded from net benefits calculations for the rule since it is a “pecuniary” externality or does not represent an efficiency gain. One of the commenters suggested that EPA instead conduc t a distributional analysis of the monopsony impacts of the final rule. The Agency disagrees th at all pecuniary externalities should necessarily be excluded from net benefits calculations as a general rule. In this case considered here, the oil market is non-competitive, and if the social decision-making unit of interest is the U.S., there is an argument for accounting for the monopsony premium to assess the excess transfer of wealth caused by the exercise of cartel power outside of the U.S.

However, for the final rule, the Agency c ontinues to take a global perspective with respect to climate change by using the global SCC. Therefore, the Agency did not count monopsony benefits since they “net out” with losses to other countries outside the U.S. Since a global perspective has been taken, a distributional analysis was not undertaken for this final rule, since the losses to the losers (oil producers that export oil to the U.S.) would equal the gains to the winners (U.S. consumers of imported oil). As a result, the Agency has included only the macroeconomic disruption portion of the energy s ecurity benefits to monetize the total energy security benefits of this rule. Hence, the total annual energy security benefits are derived from365 the estimated reductions in U.S. imports of finished petroleum products and crude oil using only the macroeconomic disruption/adjustment portion of the energy security premium. These values

are shown in Table III.H.8-2. 429 The reduced oil estimates were derived from the OMEGA model, as explained in Section III.F of this preamble. EPA used the same assumption that NHTSA used in its Corporate Average Fuel Economy and CAFE Reform for MY 2008-2011 Light Trucks rule, which assumed that each gallon of fuel saved reduces total U.S. imports of crude oil or refined products by 0.95 gallons. 430

Table III.H.8-2 Total Annual Energy Security Benefits Using Only the Macroeconomic Disruption/Adjustment Component of the Energy Security Premium in 2015, 2020, 2030 and 2040 (billions of 2007$)

Year Benefits
2015 $0.57
2020 $2.17
2030 $4.55
2040 $6.00

9. Other Impacts

There are other impacts associated with the CO 2 emissions standards and associated reduced fuel consumption that vary with m iles driven. Lower fuel consumption would, presumably, result in fewer trips to the filling station to refuel and, thus, time saved. The rebound effect, discussed in deta il in Section III.H.4.c, produces additional benefits to vehicle

owners in the form of consumer surplus from the increase in vehicle-miles driven, but may also

increase the societal costs associated with traf fic congestion, motor vehicle crashes, and noise. These effects are likely to be relatively small in comparison to the value of fuel saved as a result of the standards, but they are nevertheless important to include. Table III.H.9-1 summarizes the other economic impacts. Please refer to Pr eamble Section II.F and the Joint TSD that accompanies this rule for more information about these impacts and how EPA and NHTSA use them in their analyses. Note that for the estimat ed value of less frequent refueling events, EPA's estimate is subject to a number of uncertainties which we discuss in detail in Chapter 4.1.11 of the Joint TSD, and the actual value could be higher or lower than the value presented here.

429 Estimated reductions in U.S. imports of finished petr oleum products and crude oil are 95% of 89 million barrels (MMB) in 2015, 300 MMB in 2020, 590 MMB in 2030, and 778 MMB in 2040.

430 Preliminary Regulatory Impacts Analysis, April 2008. Based on a detailed analysis of differences in fuel consumption, petroleum imports, and imports of re fined petroleum products among the Reference Case, High Economic Growth, and Low Economic Growth Scenarios presented in the Energy Information Administration’s Annual Energy Outlook 2007, NHTSA estimated that approximately 50 percent of the reduction in fuel consumption is likely to be reflected in reduced U.S. imports of refined fuel, while the remaining 50 percent would be expected to be reflected in reduced domestic fuel refini ng. Of this latter figure, 90 percent is anticipated to reduce U.S. imports of crude petroleum for use as a refinery feedstock, while the remaining 10 percent is expected to reduce U.S. domestic production of crude petroleum. Thus on balance, each gallon of fuel saved is anticipated to reduce total U.S. imports of crude petroleum or refined fuel by 0.95 gallons.366 Table III.H.9-1 Other Impacts Associated with the Light-Duty Vehicle GHG Program ($Millions of 2007 dollars)

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

Value of Less Frequent Refueling $2,400 $4,800 $6,300 $8,000 $87,900 $40,100

Value of

Increased Driving a $4,200 $8,800 $13,000 $18,400 $171,500 $75,500

Accidents, Noise, Congestion -$2,300 -$4,600 -$6,100 -$ 7,800 -$84,800 -$38,600

a Calculated using post-tax fuel prices.

10. Summary of Costs and Benefits

In this section, EPA presents a summary of co sts, benefits, and net benefits of the rule. EPA presents fuel consumption impacts as negative costs of the vehicle program.

Table III.H.10-1 shows the estimated annual societal costs of the vehicle program for the indicated calendar years. The table also shows the net present values of those costs for the calendar years 2012-2050 using both a 3 percent and a 7 percent discount rate. In this table, fuel savings are calculated using pre-tax fuel prices and are presented as negative costs associated with the vehicle program (rather than positive savings).

Consumers are expected assumed to receive the fuel savings presented here. The cost estimates for the fuel-saving technology also are based on designs that will hold assume all

vehicle attributes are held constant except fuel economy and technology cost. This analysis also assumes that consumers will not change the vehicles that they purchase or purchase fewer

vehicles as a result of the standards

. Automakers may redesign vehicles as part of their compliance strategies. The redesigns should be expected to make th e vehicles more attractive to consumers, because the ability to hold all other at tributes constant means that the only reason to change them is to make them more marketable to consumers. In addition, However, consumers may choose to purchase different vehicles than they would in the absence of this rule. They may also decide to put off purchasing a vehicle given the higher upfront cost. And manufacturers may choose to redesign vehicles in ways that change the attributes offered. These changes may affect the net benefits that consumers receive from their vehicles. If consumers can

b uy the same vehicle as before, except with increased price and fuel economy, then the increase in vehicle price is the maximum loss in welfar e to the consumer, because compensating the increase in price would leave her able to buy her previous vehicle wit h no change. If she decides to purchase a different vehicle, or not to purchase a vehicle, she would do so only if she were better off than buying her original choice. Because of the unsettled st ate of the modeling of consumer choices (discussed in Section III.H.1 and in RIA Section 8.1.2), this analysis does not Comment [A42]: Please note that these estimates

are biased and hence not best estimates.

Comment [A43]: You assume they can keep all other attributes constant, that may or may not be true in reality. It is circular to argue that because you assumed this, manufacturers will conform to this assumption.

Comment [A44]: This is neither here nor there – you assume that the exact same set of vehicles are available as before, you assume a given discount rate for trading off upfront costs and fuels savings. These assumptions could very well be incorrect, which is the point.

Comment [A45]: Not clear – her original choice is no longer available – she now must choose between her new choice (same attributes plus more fuel economy and greater upfront cost) and other altered choices – or spending her money elsewhere.367 measure these effects. If the technology costs are not sufficient to maintain other vehicle attributes, then it is possible that automakers woul d be required to make less marketable vehicles in order to comply with the rule; as a result, there may be an additional loss in consumer welfare due to the rule. While EPA received comments expressing concern over the possibility of these losses, there were no sp ecific losses identified. Due to the unsettled nature of this issue, we distinguish between private fuel savings and social benefit categories in the tables presented throughout the Preamble and RIA.

Table III.H.10-1 Estimated Societal Costs of the Light-Duty Vehicle GHG Program (Millions of 2007 dollars)

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

Vehicle Compliance

Costs $15,600 $15,800 $17,400 $19,000 $345,900 $191,900

Fuel Savings a -$35,700 -$79,800 -$119,300 -$171,200 -$1,545,600 -$672,600
Quantified

Annual Costs -$20,100 -$64,000 -$101,900 -$152,200 -$1,199,700 -$480,700

a Calculated using pre-tax fuel prices.

Table III.H.10-2 presents estimated annual societal benefits for the indicated calendar years. The table also shows the net present values of those benefits for the calendar years 2012- 2050 using both a 3 percent and a 7 percent discount rate. The table shows the benefits of

reduced CO 2 emissions—and consequently the annual qu antified benefits (i.e., total benefits)— for each of four SCC values considered by EPA. As discussed in the RIA Section 7.5, the IPCC Fourth Assessment Report (2007) concluded that that the benefit estimates from CO 2 reductions are “very likely” underestimates. One of the prim ary reasons is that models used to calculate SCC values do not include information about impacts that have not been quantified.

In addition, these monetized GHG benefits exclude the value of reductions in non-CO 2 GHG emissions (HFC, CH 4 , N 2 O) expected under this final rule. Although EPA has not

monetized the benefits of reductions in non-CO 2 GHGs, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benefits, as explained in Section III.F. The SCC TSD notes the difference between the

social cost of non-CO 2 emissions and SCC and specifies a goal to develop methods to value nonCO 2 emissions in future analyses.

Table III.H.10-2 Estimated Societal Benefits Associated with the Light-Duty Vehicle GHG Program (Millions of 2007 dollars)
Benefits Category 2020 2030 2040 2050 NPV, 3% a NPV, 7% a

Social Benefits

Reduced CO 2 Emissions at each assumed SCC value b ,c

Avg SCC at 5% $900 $2,700 $4,600 $7,200 $34,500 $34,500
Avg SCC at 3% $3,700 $8,900 $14,000 $21,000 $176,700 $176,700
Avg SCC at 2.5% $5,800 $14,000 $21,000 $30,000 $299,600 $299,600

95 th percentile SCC at 3% $11,000 $27,000 $43,000 $62,000 $538,500 $538,500

Criteria Pollutant Benefits d,e,f [XX Will be available pending results of air quality modeling]
Energy Security Impacts (price shock) $2,200 $4,500 $6,000 $7,600 $81,900 $36,900 Comment [A46]: This tale needs to be reorganized so that private savings are separated from social benefits. I have reorganized it accordingly.368 Accidents, Noise, Congestion -$2,300 -$4,600 -$6,100 -$7,800 -$84,800 -$38,600

Private Benefits
Fuel Savings
Reduced Refueling $2,400 $4,800 $6,300 $8,000 $87,900 $40,100
Value of Increased Driving g $4,200 $8,800 $13,000 $18,400 $171,500 $75,500
Accidents, Noise, Congestion - $2,300

- $4,600

- $6,100

- $7,800

- $84,800

- $38,600

Quantified Annual Benefits at each assumed SCC value b ,c

Avg SCC at 5% $7,400 $16,200 $23,800 $33,400 $291,000 $148,400
Avg SCC at 3% $10,200 $22,400 $33,200 $47,200 $433,200 $290,600
Avg SCC at 2.5% $12,300 $27,500 $40,200 $56,200 $556,100 $413,500

95 th percentile SCC at 3% $17,500 $40,500 $62,200 $88,200 $795,000 $652,400

a Note that net present value of redu ced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for internal cons istency. Refer to the SCC TSD for more detail.

b Monetized GHG benefits exclude th e value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benefits, as expl ained in Section III.F.2. The SCC TSD notes the difference

between the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value

non-CO 2 emissions in future analyses.

c Section III.H.6 notes that SCC increases over time. Corre sponding to the years in th is table, the SCC estimates range as follows: for Average SCC at 5%: $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at 2.5%: $36-$65; and for 95 th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.

d Note that the co-pollutant impacts associated with the standards presented here do not include the full complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-related impacts. The full complement of human health and welfare effects associated with PM and ozone remain unquantified

because of current limitations in methods or available data . We have not quantified a number of known or suspected health effects linked with ozone and PM for which appropria te health impact functions are not available or which do not provide easily interpretable outcomes (e.g., changes in h eart rate variability). Additionally, we are unable to quantify a number of known welfare effects, including reduced acid and particulate deposition damage to cultural monuments and other materials, and envi ronmental benefits due to reductions of impacts of eutrophication in coastal areas. As a result, the health benefits quantified in th is section are likely underestimates of the total benefits

attributable to the final rule.

e The benefits presented in this table include an estima te of premature mortality derived from the ACS study (Pope et al., 2002). If the benefit estimates were based on the Six Cities study (Laden et al., 2006), the values would be approximately 145% (nearly two-and-a-half times) larger.

f The benefits presented in this table assume a 3% discount rate in the valuation of PM-related premature mortality to account for a twenty-year segmented cessation lag. If a 7% discount rate had been used, the values would be approximately 9% lower.

g Calculated using pre-tax fuel prices.

Table III.H.10-3 presents estimated annual net benefits for the indicated calendar years. The table also shows the net present values of those net benefits for the calendar years 2012- 2050 using both a 3 percent and a 7 percent discount rate. The table includes the benefits of

reduced CO 2 emissions (and consequently the annual net benefits) for each of four SCC values considered by EPA. As noted above, the benefit estimates from CO 2 reductions are “very likely,” according to the IPCC Fourth Assessment Report, underestimates because, in part,

models used to calculate SCC values do not in clude information about impacts that have not been quantified. Comment [A47]: Please note in this table that

these values are biased and are not best estimates.369 Table III.H.10-3 Quantified Net Benefits [XX NO TE that co-pollutant benefits are not yet available] Associated with the Light-Duty Vehicle GHG Program a, b (Millions of 2007 dollars)

2020 2030 2040 2050 NPV, 3% c NPV, 7% c Quantified Annual

Costs -$20,100 -$64,000 -$101,900 -$152,200 -$1,199,700 -$480,700

Quantified Annual Benefits at each assumed SCC value d,e

Avg SCC at 5% $7,400 $16,200 $23,800 $33,400 $291,000 $148,400
Avg SCC at 3% $10,200 $22,400 $33,200 $47,200 $433,200 $290,600
Avg SCC at 2.5% $12,300 $27,500 $40,200 $56,200 $556,100 $413,500

95 th percentile SCC at

3% $17,500 $40,500 $62,200 $88,200 $795,000 $652,400

Quantified Net Benefits at each assumed SCC value d,e

Avg SCC at 5% $27,500 $80,200 $125,700 $185,600 $1,490,700 $629,100
Avg SCC at 3% $30,300 $86,400 $135,100 $199,400 $1,632,900 $771,300
Avg SCC at 2.5% $32,400 $91,500 $142,100 $208,400 $1,755,800 $894,200

95 th percentile SCC at

3% $37,600 $104,500 $164,100 $240,400 $1,994,700 $1,133,100

a Note that the co-pollutant impacts associated with the standards presen ted here do not include the full complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-related impacts. The full complement of human health and welfare effects associated with PM and ozone remain unquantified

because of current limitations in methods or available data . We have not quantified a number of known or suspected health effects linked with ozone and PM for which appropria te health impact functions are not available or which do not provide easily interpretable outcomes (e.g., changes in h eart rate variability). Additionally, we are unable to quantify a number of known welfare effects, including reduced acid and particulate deposition damage to cultural monuments and other materials, and envi ronmental benefits due to reductions of impacts of eutrophication in coastal areas. As a result, the health benefits quantified in th is section are likely underestimates of the total benefits

attributable to the final rule.

b Fuel impacts were calculated using pre-tax fuel prices.

c Note that net present value of redu ced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for internal cons istency. Refer to the SCC TSD for more detail.

d Monetized GHG benefits exclude th e value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benefits, as expl ained in Section III.F.2. The SCC TSD notes the difference

between the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value

non-CO 2 emissions in future analyses.

e Section III.H.6 notes that SCC increases over time. Corre sponding to the years in th is table, the SCC estimates range as follows: for Average SCC at 5%: $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at 2.5%: $36-$65; and for 95 th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.

EPA also conducted a separate analysis of the total benefits over the model year lifetimes of the 2012 through 2016 model year vehicles. In contrast to the calendar year analysis presented in Table III.H.10-1 through Table III.H.10-3, the model year lifetime analysis shows the lifetime impacts of the program on each of these MY fleets over the course of its lifetime. Full details of the inputs to this analysis can be found in RIA Chapter 5. The societal benefits of the full life of each of the five model years from 2012 through 2016 are shown in Tables III.H.10-4 and III.H.10-5 at both a 3 percent and a 7 percent discount rate, respectively. The net benefits are shown in Tables III.H.10-6 and III.H.10-7 for both a 3 percent and a 7 percent discount rate. Note that the quantified annual benefits shown in Table III.H.10-4 and Table III.H.10-5 include fuel savings as a positive bene fit. As such, the quantified annual costs as370 shown in Table III.H.10-6 and Table III.H.10-7 do not include fuel savings since those are included as benefits. Also note that each of the Tables III.H.10-4 through Table III.H.10-7

include the benefits of reduced CO 2 emissions—and consequently th e total benefits—for each of four SCC values considered by EPA. As noted above, the benefit estimates from CO 2 reductions are “very likely,” according to the IPCC Fourth Assessment Report, underestimates because, in part, models used to calculate SCC values do not include information about impacts that have not been quantified.

Table III.H.10-4 Estimated Societal and Private Benefits Associated with the Lifetimes of 2012- 2016 Model Year Vehicles (Millions of 2007 dollars; 3% Discount Rate)

Monetized Values (millions) 2012MY 2013MY 2014MY 2015MY 2016MY Sum

Private Benefits Pretax Fuel Savings ($) $16,100 $23,900 $32,200 $46,000 $63,500 $181,800
Value of Reduced Refueling time ($) $1,100 $1,600 $2,100 $3,000 $4,000 $11,900
Value of Additional Driving ($) $2,400 $3,400 $4,400 $6,000 $7,900 $24,000

Social Benefits Cost of Noise, Accident, Congestion ($) -$1,100 -$1,600 -$2,100 -$2,900 -$3,900 -$11,600
Pretax Fuel Savings ($) $16,100 $23,900 $32,200 $46,000 $63,500 $181,800
Energy Security (price shock) ($) a $900 $1,400 $1,800 $2,500 $3,500 $10,100

Value of Reduced Refueling time ($) $1,100 $1,600 $ 2,100 $3,000 $4,000 $11,900
Value of Additional Driving ($) $2,400 $3,400 $4,400 $6,000 $7,900 $24,000

Value of PM 2.5 -related Health Impacts ($) b,c,d $700 $900 $1,300 $1,800 $2,400 $7,000

Reduced CO 2 Emissions at each assumed SCC value e,f,g

Avg SCC at 5% $400 $500 $700 $1,000 $1,300 $3,800
Avg SCC at 3% $1,700 $2,400 $3,100 $4,400 $5,900 $17,000
Avg SCC at 2.5% $2,700 $3,900 $5,200 $7,200 $9,700 $29,000

95 th percentile SCC at 3% $5,100 $7,300 $9,600 $13,000 $18,000 $53,000

Total Benefits at each assumed SCC value e,f,g

Avg SCC at 5% $20,500 $30,100 $40,400 $57,400 $78,700 $227,000
Avg SCC at 3% $21,800 $32,000 $42,800 $60,800 $83,300 $240,200
Avg SCC at 2.5% $22,800 $33,500 $44,900 $63,600 $87,100 $252,200

95 th percentile SCC at 3% $25,200 $36,900 $49,300 $69,400 $95,400 $276,200

a Note that, due to a calculation error in the proposal, the energy security impacts for th e model year analysis were roughly half what they should have been.

b Note that the co-pollutant impacts as sociated with the standards presented he re do not include the full complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-related impacts. Instead, the co-pollutant benefits are based on benefit- per-ton values that reflect only human health impacts associated with reductions in PM2.5 exposure. Ideally, hum an health and environmental benefits would be based on changes in ambient PM2.5 and ozone as determined by fu ll-scale air quality modeling. However, EPA was unable to conduct a full-scale air quality modeling analysis associat ed with the vehicle model year lifetimes for the final

rule.

c The PM2.5-related benefits (derived from benefit-per-ton values) presented in this table are based on an estimate of premature mortality derived from the ACS study (Pope et al ., 2002). If the benefit-per-ton estimates were based on the Six Cities study (Laden et al., 2006), the values woul d be approximately 145% (nearly two-and-a-half times) larger. Formatted: Left371 d The PM2.5-related benefits (derived from benefit-per-ton va lues) presented in this table assume a 3% discount rate in the valuation of premature mortality to account for a twenty-year segmented cessation lag. If a 7% discount rate had been used, the values would be approximately 9% lower.

e Note that net present value of redu ced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for internal consis tency. Refer to the SCC TSD for more detail.

f Monetized GHG benefits exclude the value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benefits, as expl ained in Section III.F.2. The SCC TSD notes the difference

between the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value

non-CO 2 emissions in future analyses.

g Section III.H.6 notes that SCC increases over time. Co rresponding to the years in th is table, the SCC estimates range as follows: for Average SCC at 5%: $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at 2.5%: $36-$65; and for 95 th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.

Table III.H.10-5 Estimated Societal Benefits A ssociated with the Lifetimes of 2012-2016 Model Year Vehicles (Millions of 2007 dollars; 7% Discount Rate)

Monetized Values (millions) 2012MY 2013MY 2014MY 2015MY 2016MY Sum Cost of Noise, Accident, Congestion ($) -$900 -$1,200 -$1,600 -$ 2,300 -$3,100 -$9,200
Pretax Fuel Savings ($) $12,500 $18,600 $25,100 $36,000 $49,600 $141,900
Energy Security (price shock) ($) a $800 $1,100 $1,400 $2,000 $2,700 $8,000
Value of Reduced Refueling time ($) $900 $1,300 $1,700 $2,400 $3,200 $9,400
Value of Additional Driving ($) $1,900 $2,700 $3,500 $4,700 $6,200 $19,000

Value of PM 2.5 -related Health Impacts ($) b,c,d $500 $800 $1,000 $1,400 $1,900 $5,600

Reduced CO 2 Emissions at each assumed SCC value e,f,g

Avg SCC at 5% $400 $500 $700 $1,000 $1,300 $3,800
Avg SCC at 3% $1,700 $2,400 $3,100 $4,400 $5,900 $17,000
Avg SCC at 2.5% $2,700 $3,900 $5,200 $7,200 $9,700 $29,000

95 th percentile SCC at 3% $5,100 $7,300 $9,600 $13,000 $18,000 $53,000

Total Benefits at each assumed SCC value e,f,g Comment [A48]: Change so that private benefit categories are presented separate from social benefits

– see above.372 Avg SCC at 5% $16,100 $23,800 $31,800 $45,200 $61,800 $178,500
Avg SCC at 3% $17,400 $25,700 $34,200 $48,600 $66,400 $191,700
Avg SCC at 2.5% $18,400 $27,200 $36,300 $51,400 $70,200 $203,700

95 th percentile SCC at 3% $20,800 $30,600 $40,700 $57,200 $78,500 $227,700

a Note that, due to a calculation error in the proposal, the energy security impacts for th e model year analysis were roughly half what they should have been.

b Note that the co-pollutant impacts associated with the standards presented here do not include the full complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-related impacts. Instead, the co-pollutant benefits are based on benefit- per-ton values that reflect only human health impacts associated with reductions in PM2.5 exposure. Ideally, hum an health and environmental benefits would be based on changes in ambient PM2.5 and ozone as determined by fu ll-scale air quality modeling. However, EPA was unable to conduct a full-scale air quality modeling analysis associat ed with the vehicle model year lifetimes for the final

rule.

c The PM2.5-related benefits (derived from benefit-per-ton values) presented in this table are based on an estimate of premature mortality derived from the ACS study (Pope et al ., 2002). If the benefit-per-ton estimates were based on the Six Cities study (Laden et al., 2006), the values woul d be approximately 145% (nearly two-and-a-half times) larger.

d The PM2.5-related benefits (derived from benefit-per-ton va lues) presented in this table assume a 3% discount rate in the valuation of premature mortality to account for a twenty-year segmented cessation lag. If a 7% discount rate had been used, the values would be approximately 9% lower.

e Note that net present value of redu ced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for internal cons istency. Refer to the SCC TSD for more detail.

f Monetized GHG benefits exclude the value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benefits, as expl ained in Section III.F.2. The SCC TSD notes the difference

between the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value

non-CO 2 emissions in future analyses.

g Section III.H.6 notes that SCC increases over time. Co rresponding to the years in th is table, the SCC estimates range as follows: for Average SCC at 5%: $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at 2.5%: $36-$65; and for 95 th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.

Table III.H.10-6 Quantified Net Benefits Associ ated with the Lifetimes of 2012-2016 Model

Year Vehicles a (Millions of 2007 dollars; 3% Discount Rate)

Monetized Values (millions) 2012MY 2013MY 2014MY 2015MY 2016MY Sum Quantified Annual Costs (excluding fuel savings) b $4,900 $8,000 $10,300 $12,700 $15,600 $51,500

Quantified Annual Benefits at each assumed SCC value c,d,e

Avg SCC at 5% $20,500 $30,100 $40,400 $57,400 $78,700 $227,000
Avg SCC at 3% $21,800 $32,000 $42,800 $60,800 $83,300 $240,200
Avg SCC at 2.5% $22,800 $33,500 $44,900 $63,600 $87,100 $252,200

95 th percentile SCC at 3% $25,200 $36,900 $49,300 $69,400 $95,400 $276,200

Quantified Net Benefits at each assumed SCC value c,d,e373 Avg SCC at 5% $15,600 $22,100 $30,100 $44,700 $63,100 $175,500
Avg SCC at 3% $16,900 $24,000 $32,500 $48,100 $67,700 $188,700
Avg SCC at 2.5% $17,900 $25,500 $34,600 $50,900 $71,500 $200,700

95 th percentile SCC at 3% $20,300 $28,900 $39,000 $56,700 $79,800 $224,700

a Note that the co-pollutant impacts as sociated with the standards presented he re do not include the full complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-related impacts. Instead, the co-pollutant benefits are based on benefit- per-ton values that reflect only human health impacts associated with reductions in PM2.5 exposure. Ideally, hum an health and environmental benefits would be based on changes in ambient PM2.5 and ozone as determined by fu ll-scale air quality modeling. However, EPA was unable to conduct a full-scale air quality modeling analysis associat ed with the vehicle model year lifetimes for the final

rule.

b Quantified annual costs as shown here are the increased costs for new vehicles in each given model year. Since those costs are assumed to occur in the given model year (i .e., not over a several year time span), the discount rate

does not affect the costs.

c Note that net present value of redu ced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for internal cons istency. Refer to the SCC TSD for more detail.

d Monetized GHG benefits exclude the value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benefits, as expl ained in Section III.F.2. The SCC TSD notes the difference

between the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value

non-CO 2 emissions in future analyses.

e Section III.H.6 notes that SCC increases over time. Corre sponding to the years in th is table, the SCC estimates range as follows: for Average SCC at 5%: $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at 2.5%: $36-$65; and for 95 th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.

Table III.H.10-7 Quantified Net Benefits Associated with the Lifetimes of 2012-2016 Model

Year Vehicles a (Millions of 2007 dollars; 7% Discount Rate)

Monetized Values (millions) 2012MY 2013MY 2014MY 2015MY 2016MY Sum Quantified Annual Costs (excluding fuel savings) b $4,900 $8,000 $10,300 $12,700 $15,600 $51,500

Quantified Annual Benefits at each assumed SCC value c,d,e

Avg SCC at 5% $16,100 $23,800 $31,800 $45,200 $61,800 $178,500
Avg SCC at 3% $17,400 $25,700 $34,200 $48,600 $66,400 $191,700
Avg SCC at 2.5% $18,400 $27,200 $36,300 $51,400 $70,200 $203,700

95 th percentile SCC at 3% $20,800 $30,600 $40,700 $57,200 $78,500 $227,700

Quantified Net Benefits at each assumed SCC value c,d,e

Avg SCC at 5% $11,200 $15,800 $21,500 $32,500 $46,200 $127,000
Avg SCC at 3% $12,500 $17,700 $23,900 $35,900 $50,800 $140,200
Avg SCC at 2.5% $13,500 $19,200 $26,000 $38,700 $54,600 $152,200

95 th percentile SCC at 3% $15,900 $22,600 $30,400 $44,500 $62,900 $176,200374 a Note that the co-pollutant impacts as sociated with the standards presented he re do not include the full complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-related impacts. Instead, the co-pollutant benefits are based on benefit- per-ton values that reflect only human health impacts associated with reductions in PM2.5 exposure. Ideally, hum an health and environmental benefits would be based on changes in ambient PM2.5 and ozone as determined by fu ll-scale air quality modeling. However, EPA was unable to conduct a full-scale air quality modeling analysis associat ed with the vehicle model year lifetimes for the final

rule.

b Quantified annual costs as shown here are the increased costs for new vehicles in each given model year. Since those costs are assumed to occur in the given model year (i .e., not over a several year time span), the discount rate

does not affect the costs.

c Note that net present value of redu ced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for internal cons istency. Refer to the SCC TSD for more detail.

d Monetized GHG benefits exclude th e value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benefits, as expl ained in Section III.F.2. The SCC TSD notes the difference

between the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value

non-CO 2 emissions in future analyses.

e Section III.H.6 notes that SCC increases over time. Corres ponding to the years in this table, the SCC estimates range as follows: for Average SCC at 5%: $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at 2.5%: $36-$65; and for 95 th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.

I. Statutory and Executive Order Reviews

1. Executive Order 12866: Regulatory Planning and Review

Under section 3(f)(1) of Executive Order (EO) 12866 (58 FR 51735, October 4, 1993), this action is an "economically significant regula tory action” because it is likely to have an annual effect on the economy of $100 million or more. Accordingly, EPA submitted this action to the Office of Management and Budget (OMB) for review under EO 12866 and any changes made in response to OMB recommendations have been documented in the docket for this action.

In addition, EPA prepared an analysis of the potential costs and benefits associated with this action. This analysis is contained in the Final Regulatory Impact Analysis, which is available in the docket for this rulemaking a nd at the docket internet address listed under

ADDRESSES above.

2. Paperwork Reduction Act

The information collection requirements in this final rule have been submitted for approval to the Office of Management and Budget (OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq., and has been assigned OMB control number 0783.57. The information collection requirements are not enforceable until OMB approves them.

The Agency is finalizing requirements for manuf acturers to submit information to ensure compliance with the provisions in this rule. Th is includes a variety of requirements for vehicle manufacturers. Section 208(a) of the Clean Air Act requires that vehicle manufacturers provide

information the Administrator may reasonably require to determine compliance with the375 regulations; submission of the information is ther efore mandatory. We w ill consider confidential all information meeting the requirements of section 208(c) of the Clean Air Act.

As shown in Table III.I.2-1, the total annual burden associated with this rule is about 39,900 hours and $5 million, based on a projection of 33 respondents. The estimated burden for

vehicle manufacturers is a total estimate for new reporting requirements. Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, or disclose or provide information to or for a Federal agen cy. This includes the time needed to review instructions; develop, acquire, install, and utilize technology and systems for the purposes of collecting, validating, and verifying information, processing and maintaining information, and disclosing and providing information; adjust th e existing ways to comply with any previously applicable instructions and requirements; train personnel to be able to respond to a collection of information; search data sources; complete a nd review the collection of information; and

transmit or otherwise disclose the information.

Table III.I.2-1 Estimated Burden for Reporting and Recordkeeping Requirements

Number of respondents Annual burden

hours Annual

costs 33 39,940 $5,001,000

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9. In addition, EPA is amending the table in 40 CFR part 9 of currently approved OMB control numbers for various regulations to list the regulatory c itations for the information requir ements contained in this final

rule.

3. Regulatory Flexibility Act

a. Overview

The Regulatory Flexibility Act (RFA) genera lly requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a signifi cant economic impact on a substantial number of small entities directly subject to the rule. Sm all entities include small businesses, small organizations, and small governmental jurisdictions.

For purposes of assessing the impacts of this ru le on small entities, small entity is defined as: (1) a small business as defined by the Small Business Ad ministration’s (SBA) regulations at 13 CFR 121.201 (see table below); (2) a small governmental jurisdiction that is a government of a city, county, town, school distri ct or special district with a population of less than 50,000; and (3) a small organization that is any not-for-prof it enterprise which is independently owned and operated and is not dominant in its field.

Table III.I.3-1 provides an overview of the primary SBA small business categories376 included in the light-duty vehicle sector:

Table III.I.3-1 Primary SBA Small Business Ca tegories in the Light-Duty Vehicle Sector

Industry a Defined as small entity by SBA if less

than or equal to: NAICS Codes b

Light-duty vehicles:

- vehicle manufacturers ( including small volume manufacturers )

- independent commercial importers

- alternative fuel vehicle converters 1,000 employees

$7 million annual sales
$23 million annual sales 100 employees

50 employees 750 employees 1,000 employees
$7 million annual sales 336111

811111, 811112, 811198

441120 423110, 424990

336312, 336322, 336399

335312 454312, 485310, 811198

Notes:

a Light-duty vehicle entities that qualify as small businesses would not be subject to this rule. We are deferring action on small vehicle entities, and we in tend to address these entities in a future rule.

b North American Industrial Classification System

b. Summary of Po tentially Affected Small Entities

EPA has not conducted a Regulatory Flexibil ity Analysis or a SBREFA SBAR Panel for the rule because we are certifying that the rule would not have a significant economic impact on a substantial number of small entities directly subj ect to the rule. As proposed, EPA is deferring standards for manufacturers meeting SBA’s business size criteria for small business as provided in 13 CFR 121.201, due to the short lead time to develop this rule, the extremely small emissions contribution of these entities, and the potential need to develop a program that would be structured differently for them (which would require more time). EPA would instead consider appropriate GHG standards for these entities as part of a future re gulatory action. This includes U.S. and foreign small entities in three distinct categories of businesses for light-duty vehicles: small volume manufacturers (SVMs), independent commercial importers (ICIs), and alternative fuel vehicle converters. EPA has identified a total of about 47 vehicle businesses; about 13 entities (or 28 percent) fit the Small Business Admi nistration (SBA) criteria of a small business. There are about 2 SVMs, 8 ICIs, and 3 alternativ e fuel vehicle converters in the light-duty vehicle market which are small businesses (no ma jor vehicle manufacturers meet the small-entity criteria as defined by SBA). EPA estimates that these small entities comprise about 0.03 percent of the total light-duty vehicle sales in the U.S., a nd therefore the deferment will have a negligible impact on the GHG emissions reductions from the standards.

To ensure that EPA is aware of which comp anies would be deferred, EPA is requiring

that such entities submit a declaration to EPA containing a detailed written description of how that manufacturer qualifies as a small entity under the provisions of 13 CFR 121.201. Small377 entities are currently covered by a number of EPA motor vehicle emission regulations, and they routinely submit information and data on an annual basis as part of their compliance responsibilities. Because such entities are not automatically exempted from other EPA regulations for light-duty vehicles and light-dut y trucks, absent such a declaration and EPA approval, EPA will assume that the entity is subj ect to the greenhouse gas control requirements

in this GHG rule. The declaration must be subm itted at time of vehicle emissions certification under the EPA Tier 2 program. EPA expects that the additional paperwork burden associated with completing and submitting a small entity declaration to gain deferral from the GHG standards would be negligible and easily done in the context of other routine submittals to EPA. However, EPA has accounted for this cost with a nominal estimate included in the Information Collection Request completed under the Paperwork Reduction Act. Additional information can be found in the Paperwork Reduction Act discussion in Section III.I.2. Based on this, EPA is certifying that the rule would not have a significant economic impact on a substantial number of

small entities.

c. Conclusions

I therefore certify that this rule will not have a significant economic impact on a substantial number of small entities. However, EP A recognizes that some small entities continue to be concerned about the potential impacts of the statutory imposition of PSD requirements that may occur given the various EPA rulemakings currently under consideration concerning greenhouse gas emissions. As explained in the preamble for the proposed PSD tailoring rule (74 FR 55292, Oct. 27, 2009), EPA used the discretion afforded to it under section 609(c) of the RFA to consult with OMB and SBA, with input from outreach to small entities, regarding the potential impacts of PSD regulatory requirements that might occur as EPA considers regulations of GHGs. Concerns about the potential impact s of statutorily imposed PSD requirements on small entities were the subject of deliberations in that consultation and outreach. EPA has compiled a summary of that consultation and outrea ch, which is available in the docket for the Tailoring Rule (EPA-HQ-OAR-2009-0517).

4. Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 1531-1538, requires Federal agencies, unless otherwise prohib ited by law, to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of the UMRA, EPA generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with "Feder al mandates" that may result in expenditures to State, local, and tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year.

This rule is not subject to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments. This rule contains no Federal mandates (under the regulatory provisions of Title II of the UMRA) for State, local, or tribal governments. The rule imposes no enforceable duty on any State, local or tribal governments. EPA has determined that this rule contains no regulatory requirements that might significantly or uniquely affect small governments. EPA has determined that this rule378 contains a Federal mandate that may result in expenditures of $100 million or more for the private sector in any one year. EPA believes th at the action represents the least costly, most cost-effective approach to achieve the statutory requirements of the rule. The costs and benefits associated with the rule are discussed above and in the Final Regulatory Impact Analysis, as required by the UMRA.

5. Executive Order 13132 (Federalism)

This action does not have federalism implicat ions. It will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. This rulemaking applies to manufacturers of motor vehicles and not to state or local governments. Thus, Executive Order 13132 does not apply to this action. Although section 6 of Executive Order 13132 does not apply to this action, EPA did consult with representatives of state governments in developing this action.

In the spirit of Executive Order 13132, and consistent with EPA policy to promote

communications between EPA and State and lo cal governments, EPA specifically solicited comment on the proposed action from State and local officials. Many state and local governments submitted public comments on the rule, the majority of which were supportive of the EPA’s greenhouse gas program. However, these entities did not provide comments indicating there would be a substantial direct effect on state or local governments resulting from

this rule.

6. Executive Order 13175 (Consultation and Coordination with Indian Tribal Governments)

This action does not have tribal implications, as specified in Executive Order 13175 (65 FR 67249, November 9, 2000). This rule will be implemented at the Federal level and impose compliance costs only on vehicle manufacturers. Tribal governments will be affected only to the extent they purchase and use regulated vehicles. Thus, Executive Order 13175 does not apply to

this action.

7. Executive Order 13045: “Protection of Children from Environmental Health Risks and Safety Risks”

This action is subject to EO 13045 (62 FR 19885, April 23, 1997) because it is an economically significant regulatory action as defined by EO 12866, and EPA believes that the environmental health or safety risk addressed by this action may have a disproportionate effect on children. A synthesis of the science and research regarding how climate change may affect children and other vulnerable subpopulations is contained in the Technical Support Document for Endangerment or Cause or Contribute Findings for Greenhouse Gases under Section 202(a)379 of the Clean Air Act, which can be fou nd in the public docket for this rule. 431 A summary of the analysis is presented below.

With respect to GHG emission s, the effects of climate ch ange observed to date and projected to occur in the future include the in creased likelihood of more frequent and intense heat waves. Specifically, EPA’s analysis of the scientific assessment lite rature has determined that severe heat waves are projected to intensify in magnitude, frequency, and duration over the portions of the U.S. where these events already occur, with potential increases in mortality and morbidity, especially among the young, elderly, and frail. EPA has estimated reductions in projected global mean surface temperatures as a result of reductions in GHG emissions

associated with the standards finalized in th is action (Section III.F). Children may receive

benefits from reductions in GHG emissions beca use they are included in the segment of the population that is most vulnerable to extreme temperatures.

For non-GHG pollutants, EPA has determined that climate change is expected to increase regional ozone pollution, with associated risks in respiratory infection, aggravation of asthma, and premature death. The directional effect of climate change on ambient PM levels remains uncertain. However, disturbances such as wildfires are increasing in the U.S. and are likely to intensify in a warmer future with drier soils and longer growing seasons. PM emissions from

forest fires can contribute to acute and chronic ill nesses of the respiratory system, particularly in children, including pneumonia, upper respiratory diseases, asthma and chronic obstructive pulmonary diseases.

8. Executive Order 13211 (Energy Effects)

This rule is not a “significant energy action” as defined in Executive Order 13211, “Actions Concerning Regulations That Significant ly Affect Energy Supply, Distribution, or Use” (66 FR 28355 (May 22, 2001)) because it is not likel y to have a significant adverse effect on the supply, distribution, or use of energy. In fact, this rule has a positive effect on energy supply and

use. Because the GHG emission standards finaliz ed today result in significant fuel savings, this rule encourages more efficient use of fuels. Ther efore, we have concluded that this rule is not likely to have any adverse energy effects. Our energy effects analysis is described above in

Section III.H.

9. National Technology Transfer Advancement Act

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Public Law No. 104-113, 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Volunt ary consensus standards are technical standards (e.g., materials specifications, test methods, samp ling procedures, and business practices) that are developed or adopted by voluntary consensus st andards bodies. NTTAA directs EPA to provide

431 U.S. EPA. (2009). Technical Support Document for Endangerment or Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Ac t. Washington, D.C.: U.S. EPA.. Docket EPA-HQOAR-2009-0472-11292380 Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards.

The rulemaking involves technical standards. Therefore, the Agency conducted a search to identify potentially applicable voluntary consensus standards. For CO 2 , N 2 O, and CH 4 emissions, we identified no such standards, and none were brought to our attention in comments. Therefore, EPA is collecting data over the same test cycles that are used for the CAFE program following standardized test methods and sampling procedures. This will minimize the amount of testing done by manufacturers, since manufacturers are already required to run these tests. For A/C system leakage improvement credits, EPA identified a Society of Automotive Engineers (SAE) methodology and EPA’s approach is based closely on this SAE methodology. For the A/C system efficiency improvement credits, including the new idle test, EPA generally uses standardized test methods and sampling procedures. However, EPA knows of no consensus standard available for an A/C idle test to measure system efficiency improvements.

10. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations

Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health orenvironmental effects of their programs, policies, and activities on minority populations and lowincome populations in the United States.

With respect to GHG emissions, EPA has determ ined that this final rule will not havedisproportionately high and adverse human health or environmental effects on minority or lowincome populations because it increases the leve l of environmental protection for all affected populations without having any disproportionately high and adverse human health or environmental effects on any population, including any minority or low-income population. The

reductions in CO 2 and other GHGs associated with the standards will affect climate change projections, and EPA has estimated reductions in projected global mean surface temperatures (Section III.F.3). Within communities experien cing climate change, certain parts of the population may be especially vulnerable; these in clude the poor, the elderly, those already in poor health, the disabled, those living alone, and/or indigenous populations dependent on one or

a few resources. 432 In addition, the U.S. Climate Change Science Program 433 stated as one of its conclusions: “The United States is certainly ca pable of adapting to the collective impacts of climate change. However, there will still be ce rtain individuals and locations where the adaptive capacity is less and these individuals and their communities will be disp roportionally impacted

432 U.S. EPA. (2009). Technical Support Document for Endangerment or Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act. Washington, D.C.: U.S. EPA. Docket EPA-HQOAR-2009-0472-11292

433 CCSP (2008) Analyses of the effects of global change on human health and welfare and human systems . A Report by the U.S. Climate Change Science Program and the Subcommittee on Global Change Research. [Gamble, J.L. (ed.), K.L. Ebi, F.G. Sussman, T.J. Wilbanks, (Authors)]. U.S. Environmental Protection Agency, Washington, DC, USA.381 by climate change.” Therefore, these specific sub-populations may receive benefits from

reductions in GHGs.

For non-GHG co-pollutants such as ozone, PM 2.5 , and toxics, EPA has concluded that it is not practicable to determine whether there would be disproportionately high and adverse

human health or environmental effects on minor ity and/or low income populations from this

final rule.

11. Congressional Review Act

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must subm it a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and ot her required information to the U.S. Senate, the U.S. House of Representatives, and the Comptr oller General of the United States prior to publication of the rule in the Federal Register. A Ma jor rule cannot take effect until 60 days after it is published in the Federal Register. This action is a “major rule” as defined by 5 U.S.C. 804(2). This rule will be effective [Insert date 60 days after publication in the Federal Register], sixty days after date of publication in the Federal Register

.

J. Statutory Provisions and Legal Authority

Statutory authority for the vehicle controls finalized today is found in section 202 (a) (which authorizes standards for emissions of pollutants from new motor vehicles which emissions cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare), 202 (d), 203-209, 216, and 301 of the Clean Air Act, 42 U.S.C. 7521 (a), 7521 (d), 7522, 7523, 7524, 7525, 7541, 7542, 7543, 7550, and 7601.

IV. NHTSA Final Rule and Record of Decision for Passenger Car and Light Truck

CAFE Standards for MYs 2012-2016

A. Executive Overview of NHTSA Final Rule

1. Introduction

The National Highway Traffic Safety Administ ration (NHTSA) is establishing Corporate Average Fuel Economy (CAFE) standards for passenger automobiles (passenger cars) and nonpassenger automobiles (light trucks) for model years (MY) 2012-2016. Improving vehicle fuel economy has been long and widely recognized as one of the key ways of achieving energy independence, energy security, and a low carbon economy. 434 NHTSA’s CAFE standards will

434 Among the reports and studies noting this point are the following:382 require passenger cars and light trucks to meet an estimated combined average of 34.1 mpg in MY 2016. This represents an average annual increase of 4.3 percent from the 27.6 mpg combined fuel economy level in MY 2011. NHTSA’s final rule projects total fuel savings of approximately 61 billion gallons over the lifetimes of the vehicles sold in model years 2012- 2016, with corresponding net societal benefits of over $180 billion using a 3 percent discount

rate. 435

The significance accorded to improving fuel economy reflects several factors. Conserving energy, especially reducing the nation’s dependence on petroleum, benefits the U.S. in several ways. Improving energy efficiency has benefits for economic growth and the environment, as well as other benefits, such as reducing pollution and improving security of energy supply. More specifically, reducing total petroleum use decreases our economy’s vulnerability to oil price shocks. Reducing dependence on oil imports from regions with uncertain conditions enhances our energy security. Additionally, the

emission of CO 2 from the tailpipes of cars and light trucks is one of the largest sources of

U.S. CO 2 emissions. 436 Using vehicle technology to improve fuel economy, thereby reducing tailpipe emissions of CO 2 , is one of the three main measures of reducing those tailpipe emissions of CO 2

. 437 The two other measures for reducing the tailpipe emissions

of CO 2 are switching to vehicle fuels with lower carbon content and changing driver behavior, i.e. , inducing people to drive less.

John Podesta, Todd Stern and Kim Batten, “Capturing the Energy Opportunity; Creating a Low-Carbon Economy,” Center for American Progress (November 2007), pp. 2, 6, 8, and 24-29, available at : http://www.americanprogress.org/issues/2007/11/pdf/ energy_chapter.pdf (last accessed March 1, 2010). Sarah Ladislaw, Kathryn Zyla, Jonathan Pershing, Fra nk Verrastro, Jenna Goodward, David Pumphrey, and Britt Staley, “A Roadmap for a Secure, Low-Carbon Energy Eco nomy; Balancing Energy Security and Climate Change,” World Resources Institute and Center for Strategic and In ternational Studies (January 2009), pp. 21-22; available at : http://pdf.wri.org/secure_low_carbon_energy_economy_roadmap.pdf (last accessed March 1, 2010). Alliance to Save Energy et al., “Reducing the Cost of Addressing Climate Change Through Energy Efficiency (2009), available at : http://Aceee.org/energy/climate/leg .htm (last accessed March 1, 2010). John DeCicco and Freda Fung, “Global Warming on the Ro ad; The Climate Impact of America’s Automobiles,” Environmental Defense (2006) pp. iv-vii; available at : http://www.edf.org/documents/5301_Globalwarmingont heroad.pdf (last accessed March 1, 2010). “Why is Fuel Economy Important?,” a webpage maintain ed by the Department of Energy and Environmental Protection Agency, available at http://www.fueleconomy.gov/feg/why.shtml (last accessed March 1, 2010); Robert Socolow, Roberta Hotinski, Jeffery B. Greenbla tt, and Stephen Pacala, “Solving The Climate Problem: Technologies Available to Curb CO 2 Emissions,” Environment , volume 46, no. 10, 2004. pages 8–19, available at : http://www.princeton.edu/mae/people/faculty/socolow/ENVI RONMENTDec2004issue.pdf (last accessed March 1, 2010).

435 This value is based on what NHTSA refers to as “Reference Case” inputs, which are based on the assumptions that NHTSA has employed for its main analysis (as opposed to sensitivity analyses to examine the effect of variations in the assumptions on costs and benefits). Th e Reference Case inputs include fuel prices based on the AEO 2010 Reference Case, a 3 percent discount rate, a 10 percent rebound effect, a value for the social cost of carbon (SCC) of $21/metric ton CO 2 (in 2010, rising to $45/metric ton in 2050, at a 3 percent discount rate), etc. For a full listing of the Reference Case input assumptions, see Section IV.C.3 below.

436 EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990 – 2006 (April 2008), pp. ES-4, ES-8, and 2-

24. Available at http://www.epa.gov/climatechan ge/emissions/usgginv_archive.htm l (last accessed March 1, 2010).

437 Podesta et al., p. 25; Ladislaw et al. p. 21; DeCicco et al. p. vii; “Reduce Climate Change,” a webpage maintained by the Department of Energy and Environmental Protection Agency at http://www.fueleconomy.gov/feg/climate.shtml (last accessed March 1, 2010).383 While NHTSA has been setting fuel economy standards since the 1970s, today’s action represents the first-ever joint final rule by NHTSA with another agency, the Environmental Protection Agency. As discussed in Section I, NHTSA’s final MYs 2012-2016 CAFE standards are part of a joint National Program. A large majority of the projected benefits are achieved jointly with EPA’s GHG rule, described in detail above in Section III of this preamble. These

final CAFE standards are consistent with the President’s National Fuel Efficiency Policy announcement of May 19, 2009, which called for harmonized rules for all automakers, instead of three overlapping and potentially inconsistent re quirements from DOT, EPA, and the California Air Resources Board. And finally, the final CAFE standards and the analysis supporting them also respond to President’s Obama’s January 26 memorandum regarding the setting of CAFE standards for model years 2011 and beyond.

2. Role of Fuel Economy Improvements in Promoting Energy Independence, Energy Security, and a Low Carbon Economy

The need to reduce energy consumption is more crucial today than it was when EPCA was enacted in the mid-1970s. U.S. energy consumption has been outstripping U.S. energy production at an increasing rate. Net petroleum imports now account for approximately 57 percent of U.S. domestic petroleum consumption, and the share of U.S. oil consumption for transportation is approximately 71 percent. 438 Moreover, world crude oil production continues to be highly concentrated, exacerbating the risks of supply disruptions and their negative effects on both the U.S. and global economies.

Gasoline consumption in the U.S. has hist orically been relatively insensitive to fluctuations in both price and consumer income, and people in most parts of the country tend to view gasoline consumption as a non-discretionary expense. Thus, when gasoline’s share in consumer expenditures rises, the public experiences fiscal distress. This fiscal distress can, in some cases, have macroeconomic consequences for the economy at large. Additionally, since U.S. oil production is only affected by fluctuations in prices over a period of years, any changes in petroleum consumption (as through increased fuel economy) largely flow into changes in the quantity of imports. Since petroleum imports account for about 2 percent of GDP, increase in oil imports can create a discernable fiscal drag. As a consequence, measures that reduce petroleum consumption, such as fuel economy standards, will directly benefit the balance-of-payments account, and strengthen the domestic economy to some degree. And finally, U.S. foreign policy has been affected for decades by rising U.S. and world dependency of crude oil as the basis for modern transportation systems, although fuel economy standards have only an indirect and general impact on U.S. foreign policy.

The benefits of a low carbon economy are manifold. The U.S. transportation sector is a significant contributor to total U.S. and global anthropogenic emissions of greenhouse gases. Motor vehicles are the second largest greenhouse gas-emitting sector in the U.S., after electricity generation, and accounted for 24 percent of total U.S. greenhouse gas emissions in 2006. Concentrations of greenhouse gases are at unprecedented levels compared to the recent and distant past, which means that fuel economy improvements to reduce those emissions are a

438 Energy Information Administration, Petroleum Basic Statistics, updated July 2009. Available at http://www.eia.doe.gov/basics/quickoil.html (last accessed March 1, 2010).384 crucial step toward addressing the risks of global climate change. These risks are well

documented in Section III of this notice.

3. The National Program

NHTSA and EPA are each announcing final rules that have the effect of addressing the urgent and closely intertwined challenges of energy independence and security and global warming. These final rules call for a strong and coordinated federal greenhouse gas and fuel economy program for passenger cars, light-duty-trucks, and medium-duty passenger vehicles (hereafter light-duty vehicles), referred to as the National Program. The final rules represent a coordinated program that can achieve substantial reductions of greenhouse gas (GHG) emissions and improvements in fuel economy from the light- duty vehicle part of the transportation sector, based on technology that will be commercially available and that can be incorporated at a reasonable cost in the rulemaking timeframe. The agencies’ final rules will also provide regulatory certainty and consiste ncy for the automobile industry by setting harmonized national standards. They were developed and are design ed in ways that recognize and accommodate the relatively short amount of lead time for the model years covered by the rulemaking and the serious current economic situation faced by this industry.

These joint standards are consistent with the President’s announcement on May 19, 2009 of a National Fuel Efficiency Policy that will reduce greenhouse gas emissions and improve fuel economy for all new cars and light-dut y trucks sold in the United States, 439 and with the Notice of Upcoming Joint Rulemaking signed by DOT and EPA on that date. 440 This joint final rule also responds to the President’s January 26, 2009 memorandum on CAFE standards for model years 2011 and beyond, the details of which can be found below.

a. Building Blocks of the National Program

The National Program is both needed and possible because the relationship between improving fuel economy and reducing CO 2 tailpipe emissions is a very direct and close one.

CO 2 is the natural by-product of the combustion of fuel in motor vehicle engines. The more fuel efficient a vehicle is, the less fuel it burns to tr avel a given distance. The less fuel it burns, the

less CO 2 it emits in traveling that distance. 441 Since the amount of CO 2 emissions is essentially constant per gallon combusted of a given type of fuel, the amount of fuel consumption per mile is directly related to the amount of CO 2 emissions per mile. In the r eal world, there is a single pool of technologies for reducing fuel consumption and CO 2 emissions. Using those technologies in the way that minimizes fuel consumption also minimizes CO 2 emissions. While there are emission control technologies that can capture or destroy the pollutants ( e.g. , carbon monoxide) that are produced by imperfect combustion of fuel, there is at present no such technology for CO 2 . In fact, the only way at presen t to reduce tailpipe emissions of CO 2 is by reducing fuel consumption. The National Program thus has dual benefits: it conserves energy

439 President Obama Announces National Fuel Efficiency Policy, The White House, May 19, 2009.

440 74 FR 24007 (May 22, 2009).

441 Panel on Policy Implications of Greenhouse Warming, National Academy of Sciences, National Academy of Engineering, Institute of Medicine, “Policy Implications of Greenhouse Warming: Mitigation, Adaptation, and the Science Base,” National Acad emies Press, 1992, at 287.385 by improving fuel economy, as required of NHTSA by EPCA and EISA; in the process, it necessarily reduces tailpipe CO 2 emissions consonant with EPA’s purposes and responsibilities

under the Clean Air Act.

i. DOT’s CAFE Program

In 1975, Congress enacted the Energy Policy and Conservation Act (EPCA), mandating a regulatory program for motor vehicle fuel economy to meet the various facets of the need to conserve energy, including ones having energy independence and security, environmental and foreign policy implications. EPCA allocates the responsibility for implementing the program

between NHTSA and EPA as follows:

• NHTSA sets Corporate Average Fuel Economy (CAFE) standards for passenger cars and light trucks.

• Because fuel economy performance is measur ed during emissions regulation testing, EPA establishes the procedures for testi ng, tests vehicles, collects and analyzes manufacturers’ test data, and calculates the average fuel economy of each manufacturer’s passenger cars and light trucks. EPA determines fuel economy by measuring the amount

of CO 2 emitted from the tailpipe, rather than by attempting to measure directly the amount of fuel consumed during a vehicle test, a difficult task to accomplish with precision. EPA then uses the carbon content of the test fuel 442 to calculate the amount of fuel that had to be consumed per mile in order to produce that amount of CO 2. Finally, EPA converts that fuel consumption figure into a miles-per-gallon figure.

• Based on EPA’s calculation, NHTSA enforces the CAFE standards

The CAFE standards and compliance testing cannot capture all of the real world CO 2 emissions, because EPCA currently requires EPA to use the 1975 passenger car test procedures

under which vehicle air conditioners are no t turned on during fuel economy testing. 443 CAFE standards also do not address the 5-8 percent of GHG emissions that are not CO 2 , i.e. , nitrous oxide (N 2 O), and methane (CH 4 ) as well as emissions of hydrofluorocarbons (HFCs) related to operation of the air conditioning system.

NHTSA has been setting CAFE standards pursuant to EPCA since the enactment of the statute. Fuel economy gains since 1975, due bot h to the standards and market factors, have resulted in saving billions of barrels of oil and avoiding billions of metric tons of CO 2 emissions. In December 2007, Congress enacted the Energy Independence and Securities Act (EISA), amending EPCA to require, among other things, attribute-based standards for passenger cars and light trucks. The most recent CAFE rulemaking action was the issuance of standards governing model years 2011 cars and trucks.

ii. EPA’s Greenhouse Gas Program

On April 2, 2007, the U.S. Supreme Court issued its opinion in Massachusetts v. EPA

, 444
a case involving a 2003 order of the Environmental Protection Agency (EPA) denying a petition

442 This is the method that EPA uses to dete rmine compliance with NHTSA’s CAFE standards.

443 See 49 U.S.C. 32904(c).

444 127 S.Ct. 1438 (2007).386 for rulemaking to regulate greenhouse gas emissions from motor vehicles under the Clean Air

Act. 445 The Court ruled that greenhouse gases are “pollutants” under the CAA and that the Act therefore authorizes EPA to regulate greenhous e gas emissions from motor vehicles if that agency makes the necessary findings and determinations under section 202 of the Act. The Court considered EPCA only briefly, stating that the two obligations may overlap, but there is no reason to think the two agencies cannot bot h administer their obligations and yet avoid inconsistency.

EPA has been working on appropriate responses that are consistent with the decision of the Supreme Court in Massachusetts v. EPA

. 446 As part of those responses, in July 2008, EPA issued an Advance Notice of Proposed Rulemaking seeking comments on the impact of greenhouse gases on the environment and on ways to reduce greenhouse gas emissions from motor vehicles. EPA recently also issued a fina l rule finding that emissions of GHGs from new motor vehicles and motor vehicle engines cause or contribute to air pollution that endanger public health and welfare. 447

iii. California Air Resources Board’s Greenhouse Gas Program

In 2004, the California Air Resources Board approved standards for new light-duty vehicles, which regulate the emission of not only CO 2 , but also other GHGs. Since then, thirteen states and the District of Columbia, comprisi ng approximately 40 percent of the light-duty vehicle market, have adopted California’s standards. These standards apply to model years 2009 through 2016 and require CO 2 emissions levels for passenger cars and some light trucks of 323 g/mil in 2009, decreasing to 205 g/mi in 2016, and 439 g/mi for light trucks in 2009, decreasing to 332 g/mi in 2016. In 2008, EPA denied a request by California for a waiver of preemption under the CAA for its GHG emissions standards. However, consistent with another Presidential Memorandum of January 26, 2009, EPA reconsidered the prior denial of California’s request. 448
EPA withdrew the prior denial and granted Calif ornia’s request for a waiver on June 30, 2009. 449
The granting of the waiver permits California’ s emission standards to come into effect notwithstanding the general preemption of state em ission standards for new motor vehicles that otherwise applies under the Clean Air Act.

b. The President’s Announcement of National Fuel Efficiency Policy (May 2009)

The issue of three separate regulatory frameworks and overlapping requirements for reducing fuel consumption and CO 2 emissions has been a subject of much controversy and legal disputes. On May 19, 2009 President Obama announced a National Fuel Efficiency Policy aimed at both increasing fuel economy and reducing greenhouse gas pollution for all new cars

445 68 FR 52922 (Sept. 8, 2003).

446 549 U.S. 497 (2007). For further information on Massachusetts v. EPA see the July 30, 2008 Advance Notice of Proposed Rulemaking, “Regulating Greenhouse Gas Emissions under the Clean Air Act”, 73 FR 44354 at 44397. There is a comprehensive discussion of the litigation’s history, the Supreme Court’s findings, and subsequent actions undertaken by the EPA from 2007-2008 in response to the Supreme Court remand.

447 74 FR 66496 (Dec. 15, 2009).

448 74 FR 66495 (Dec. 15, 2009). The endangerment fi nding was challenged by industry in a filing submitted December 23, 2009; a hearing date does not appear to have been set.

449 74 FR 32744 (July 8, 2009).387 and trucks sold in the United States, while also providing a predictable regulatory framework for the automotive industry. The policy seeks to se t harmonized federal standards to regulate both fuel economy and greenhouse gas emissions while preserving the legal authorities of the Department of Transportation, the Environmental Protection Agency and the State of California. The program covers model year 2012 to model year 2016 and ultimately requires the equivalent of an average fuel economy of 35.5 mpg in 2016, if all CO 2 reduction were achieved through fuel economy improvements. Building on the MY 2011 standard that was set in March 2009, this represents an average of 5 percent increase in average fuel economy each year between 2012

and 2016.

In conjunction with the President’s announcement, the Department of Transportation and the Environmental Protection Agency issued on May 19, 2009, a Notice of Upcoming Joint Rulemaking to propose a strong and coordinated fuel economy and greenhouse gas National Program for Model Year (MY) 2012-2016 light du ty vehicles. Consistent, harmonized, and streamlined requirements under that program hold out the promise of delivering environmental and energy benefits, cost savings, and administ rative efficiencies on a nationwide basis that might not be available under a less coordinated approach. The National Program makes it possible for the standards of two different federal agencies and the standards of California and other states to act in a unified fashion in providing these benefits. A harmonized approach to regulating light-duty vehicle greenhouse gas (GHG) emissions and fuel economy is critically important given the interdependent goals of addressing climate change and ensuring energy independence and security. Additionally, a harmon ized approach may help to mitigate the cost to manufacturers of having to comply with mu ltiple sets of federal and state standards

4. Review of CAFE Standard Setting Me thodology Per the Pres ident’s January 26, 2009 Memorandum on CAFE Standards for MYs 2011 and Beyond

On May 2, 2008, NHTSA published a Notic e of Proposed Rulemaking entitled Average Fuel Economy Standards, Passenger Cars and Light Trucks; Model Years 2011-2015, 73 Fed. Reg. 24352. In mid-October, the agency completed and released a final environmental impact statement in anticipation of issuing standa rds for those years. Based on its consideration of the public comments and other available info rmation, including inform ation on the financial condition of the automotive industry, the agency adjusted its analysis and the standards and prepared a final rule for MYs 2011-2015. On November 14, the Office of Information and Regulatory Affairs (OIRA) of the Office of Ma nagement and Budget concluded review of the

rule as consistent with the Order. 450 However, issuance of the final rule was held in abeyance. On January 7, 2009, the Department of Transportation announced that the final rule would not be

issued.

a. Requests in the President’s Memorandum

In light of the requirement to prescribe standards for MY 2011 by March 30, 2009 and in order to provide additional time to consider issues concerning the analysis used to determine the

450 Record of OIRA’s action can be found at http://w ww.reginfo.gov/public/do/eoHi stReviewSearch (last accessed March 1, 2010). To find the report on the clearance of the draft final rule, select “Department of Transportation” under “Economically Significant Reviews Completed” and select “2008” under “Select Calendar Year.”388 appropriate level of standards for MYs 2012 and beyond, the President issued a memorandum on January 26, 2009, requesting the Secretary of Tr ansportation and Admini strator of the National Highway Traffic Safety Administration NHTSA to di vide the rulemaking into two parts: (1) MY 2011 standards, and (2) standards for MY 2012 and beyond.

i. CAFE Standards for Model Year 2011

The request that the final rule establishing CAFE standards for MY 2011 passenger cars and light trucks be prescribed by March 30, 2009 was based on several factors. One was the requirement that the final rule regarding fuel economy standards for a given model year must be adopted at least 18 months before the beginning of that model year (49 U.S.C. 32902(g)(2)). The other was that the beginning of MY 2011 is co nsidered for the purposes of CAFE standard setting to be October 1, 2010.

ii. CAFE Standards for Model Years 2012 and Beyond

The President requested that, before promulgating a final rule concerning the model years after model year 2011, NHTSA [C]onsider the appropriate legal factors under the EISA, the comments filed in response to the Notice of Proposed Rulemaking, the relevant technological and scientific considerations, and to the exte nt feasible, the forthcoming report by the National Academy of Sciences mandated under section 107 of EISA.

In addition, the President requested that NHTSA consider whether any provisions regarding preemption are appropriate under applicable law and policy.

b. Implementing the President’s Memorandum

In keeping with the President’s remarks on January 26, 2009 for new national policies to address the closely intertwined issues of ener gy independence, energy security and climate change, and for the initiation of serious and sustained domestic and international action to address them, NHTSA has developed CAFE standards for MY 2012 and beyond after collecting new information, conducting a careful review of technical and economic inputs and assumptions, and standard setting methodology, a nd completing new analyses.

The goal of the review and re-evaluation was to ensure that the approach used for MY 2012 and thereafter would produce standards that contribute, to the maximum extent possible under EPCA/EISA, to meeting the energy and environmental challenges and goals outlined by the President. We have sought to craft our program with the goal of creating the maximum incentives for innovation, providing flexibility to the regulated parties, and meeting the goal of making substantial and continuing reductions in the consumption of fuel. To that end, we have made every effort to ensure that the CAFE program for MYs 2012-2016 is based on the best scientific, technical, and economic information available, and that such information was developed in close coordination with other federa l agencies and our stakeholders, including the

states and the vehicle manufacturers.389 We have also re-examined EPCA, as amended by EISA, to consider whether additional opportunities exist to improve the effectiveness of the CAFE program. For example, EPCA authorizes increasing the amount of civil penalties for violating the CAFE standards. 451 Further, if the test procedures used for light trucks were revised to provide for the operation of air conditioning during fuel economy testing, vehi cle manufacturers would have a regulatory incentive to increase the efficiency of air co nditioning systems, thereby reducing both fuel consumption and tailpipe emissions of CO 2

. 452

With respect to the President’s request that NHTSA consider the issue of preemption, NHTSA is deferring further consideration of the pr eemption issue. The agency believes that it is unnecessary to address the issue further at this time because of the consistent and coordinated federal standards that apply nationally under the National Program.

As requested in the President’s memorandum, NHTSA reviewed comments received on the MY 2011 rulemaking and revisited its assu mptions and methodologies for purposes of developing the proposed MY 2012-2016 standards. For more information on how the proposed CAFE standards were developed with those comments in mind, see the NPRM and the supporting documents.

5. Summary of the Final MY 2012-2016 CAFE Standards

NHTSA is issuing CAFE standards that ar e, like the standards NHTSA promulgated in March 2009 for MY 2011, expressed as mathematical functions depending on vehicle footprint. Footprint is one measure of vehicle size, and is determined by multiplying the vehicle’s wheelbase by the vehicle’s average track width. 453 Under the final CAFE standards, each light vehicle model produced for sale in the United States has a fuel economy target. The CAFE levels that must be met by the fleet of each manufacturer will be determined by computing the sales-weighted harmonic average of the targets applicable to each of the manufacturer’s passenger cars and light trucks. These targets, the mathematical form and coefficients of which are presented later in today’s notice, appear as follows when the values of the targets are plotted versus vehicle footprint:

451 Under 49 U.S.C. 32912(c), roughly, NHTSA may raise the penalty amount if the agency decides that doing so will increase energy conservation substantially without having a substantial deleterious impact on the economy, employment, or competition among automobile manufacturers.

452 Under 49 U.S.C. 32904(c), EPA must use the same procedures for passenger automobiles that the Administrator used for model year 1975 (weighted 55 percent urban cycle and 45 percent highway cycle), or procedures that give comparable results.

453 See 49 CFR 523.2 for the exact definition of “footprint.”390 Figure IV.A.5-1. Final MY 2011 and Final MY 2012-2016 Passenger Car Fuel Economy Targets

20 25 30 35 40 45

35 40 45 50 55 60 65 70 T a r g e t ( m p g )

Footprint (sf) 2011 2016

2015

2014

2013

2012391 Figure IV.A.5-2. Final MY 2011 and Final MY 2012-2016 Light Truck Fuel Economy Targets

20 25 30 35 40 45

35 40 45 50 55 60 65 70 T a r g e t ( m p g )

Footprint (sf) 2011 2016

2015

2014

2013

2012392 Under these final footprint-based CAFE standards, the CAFE levels required of individual manufacturers depend, as noted above, on the mix of vehicles sold. It is important to note that NHTSA’s CAFE standards and EPA’s GHG standards will both be in effect, and each will lead to increases in average fuel economy and CO 2 emissions reductions. The two agencies’ standards together comprise the National Program, and this discussion of costs and benefits of NHTSA’s CAFE standards does not change the fa ct that both the CAFE and GHG standards, jointly, are the source of the benefits and costs of the National Program.

Based on the forecast developed for this fi nal rule of the MYs 2012-2016 vehicle fleet, NHTSA estimates that the target s shown above will result in th e following estimated average required CAFE levels:

Table IV.A.5-1. Estimated Average Required Fuel Economy (mpg)

under Final Standards

2012 2013 2014 2015 2016 Passenger Cars 33.3 34.2 34.9 36.2 37.8 Light Trucks 25.4 26.0 26.6 27.5 28.8

Combined Cars & Trucks 29.7 30.5 31.3 32.6 34.1

For the reader’s reference, these miles per gallon values would be equivalent to the following gallons per 100 miles values for passenger cars and light trucks:

2012 2013 2014 2015 2016 Passenger Cars 3.00 2.92 2.87 2.76 2.65 Light Trucks 3.94 3.85 3.76 3.64 3.47

Combined Cars & Trucks 3.37 3.28 3.19 3.07 2.93

NHTSA estimates that average achieved fuel economy levels will correspondingly increase through MY 2016, but that manufacturers will, on average, undercomply 454 in some model years and overcomply 455 in others, reaching a combined average fuel economy of 32.7 mpg in MY 2016. 456 Table IV.A.5-1 is the estimated required fuel economy for the final CAFE standards while Table IV.A.5-2 includes the effects of some manufacturers’ payment of CAFE fines and use of FFV credits. In addition, Sect ion IV.G.4 below contains an analysis of the

454 In NHTSA’s analysis, “undercompliance” is mitigated either through use of FFV cr edits, use of existing or “banked” credits, or through fine payment. Because NHTSA cannot consider availability of credits in setting standards, the estimated achieved CAFE levels presented here do not account for their us e. In contrast, because NHTSA is not prohibited from considering fine payment, the estimated achieved CAFE levels presented here include the assumption that BMW, Daimler ( i.e. , Mercedes), Porsche, and, Tata ( i.e. , Jaguar and Rover) will only apply technology up to the point that it would be less expensive to pay civil penalties.

455 In NHTSA’s analysis, “overcomplia nce” occurs through multi-year planning: manufacturers apply some “extra” technology in early model years ( e.g. , MY 2014) in order to carry that tech nology forward and thereby facilitate compliance in later model years ( e.g. , MY 2016)

456 Consistent with EPCA, NHTSA has not accounted for ma nufacturers’ ability to earn CAFE credits for selling FFVs, carry credits forward and back between model years, and transfer credits between the passenger car and light

truck fleets.393 achieved levels (and projected fuel savings, costs, and benefits) when the use of FFV credits is

assumed.

Table IV.A.5-2. Estimated Average Achieved Fuel Economy (mpg)

under Final Standards

2012 2013 2014 2015 2016 Passenger Cars 32.3 33.5 34.2 35.0 36.2 Light Trucks 24.5 25.1 25.9 26.7 27.5

Combined Cars & Trucks 28.7 29.7 30.6 31.5 32.7

For the reader’s reference, these miles per gallon values would be equivalent to the following gallons per 100 miles values for passenger cars and light trucks:

2012 2013 2014 2015 2016
Passenger Cars 3.10 2.99 2.92 2.86 2.76 Light Trucks 4.08 3.98 3.86 3.75 3.64

Combined Cars & Trucks 3.48 3.37 3.27 3.17 3.06

NHTSA estimates that these fuel economy increases will lead to fuel savings totaling 61 billion gallons during the lifetimes of vehicles sold in MYs 2012-2016 (all following tables assume Reference Case economic inputs):

Table IV.A.5-3. Fuel Saved (billion gallons)

under Final Standards

Model Year 2012 2013 2014 2015 2016 Total Passenger Cars 2.4 5.2 7.2 9.4 11.4 35.7 Light Trucks 1.8 3.7 5.3 6.5 8.1 25.4

Combined 4.2 8.9 12.5 16.0 19.5 61.0

The agency also estimates that these new CA FE standards will lead to corresponding

reductions of CO 2 emissions totaling 655 million metric tons (mmt) during the useful lives of

vehicles sold in MYs 2012-2016:

Table IV.A.5-4. Avoided Carbon Dioxide Emissions (mmt)

under Final Standards

2012 2013 2014 2015 2016 Total Passenger Cars 25 54 77 101 123 380 Light Trucks 19 40 57 71 88 275

Combined 44 94 134 172 210 655394 The agency estimates that these fuel economy increases would produce other benefits ( e.g. , reduced time spent refueling), as well as some disbenefits ( e.g. , increased traffic congestion) caused by drivers’ tendency to increase travel when the cost of driving declines (as it does when fuel economy increases). The agency has estimated the total monetary value to society of these benefits and disbenefits, and estimates that the final standards will produce significant benefits to society. NHTSA estimates that, in present value terms, these benefits
would total over $180 billion over the useful liv es of vehicles sold during MYs 2012-2016:

Table IV.A.5-5. Present Value of Benefits ($billion)

under Final CAFE Standards

2012 2013 2014 2015 2016 Total Passenger Cars 6.8 15.2 21.6 28.7 35.2 107.5 Light Trucks 5.1 10.7 15.5 19.4 24.3 75.0

Combined 11.9 25.8 37.1 48 59.5 182.5

NHTSA attributes most of these benefi ts—about $143 billion, as noted above—to reductions in fuel consumption, valuing fuel (for societal purposes) at future pretax prices in the Energy Information Administration’s (EIA’s) reference case forecast from Annual Energy Outlook (AEO) 2010. The Final Regulatory Impact Analysis (FRIA) accompanying today’s final rule presents a detailed analysis of specific benefits of the final rule.

Amount Monetized Value (Discounted)

3% Discount Rate 7% Discount Rate Fuel savings 61.0 billion gallons $143.0 billion $112.0 billion

CO 2 emissions

reductions 457 655 mmt $14.5 billion $14.5 billion

NHTSA estimates that the necessary increases in technology application will involve considerable monetary outl ays, totaling $52 billion in incremental outlays ( i.e. , beyond those attributable to the MY 2011 standards) by new vehicle purchasers during MYs 2012-2016:

Table IV.A.5-6. Incremental Technology Outlays ($b)

under Final CAFE Standards

2012 2013 2014 2015 2016 Total Passenger Cars 4.1 5.4 6.9 8.2 9.5 34.2 Light Trucks 1.8 2.5 3.7 4.3 5.4 17.6

Combined 5.9 7.9 10.5 12.5 14.9 51.7

457 We note that the net present value of reduced CO 2 emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5 percent, 3 percent, and 2.5 percent) is used to calculate the net present value of th e SCC for internal consistency. Additionally, we note that

the SCC increases over time. See the SCC TSD [still TBD] for more information. Comment [A49]: Can you please separate out more clearly the social benefits from the private savings?395 Corresponding to these outlays and, to a mu ch lesser extent, civil penalties that some companies are expected to pay for noncompliance, the agency estimates that the final standards would lead to increases in average new vehicl e prices, ranging from $322 per vehicle in MY 2012 to $961 per vehicle in MY 2016:

Table IV.A.5-7. Incremental Increases in Average New Vehicle Prices ($)

under Final CAFE Standards

2012 2013 2014 2015 2016 Passenger Cars 505 573 690 799 907 Light Trucks 322 416 621 752 961

Combined 434 513 665 782 926

Tables IV.A.5-8 and IV.A.5-9 below present itemized costs and benefits for a 3 percent and a 7 percent discount rate, respectively, for the combined fleet (passenger cars and light trucks) in each model year and for all model years combined, again assuming Reference Case inputs (except for the variation in discount rate). Numbers in parentheses represent negative

values.

Table IV.A.5-8. Itemized Cost and Benefit Es timates for the Combined Vehicle Fleet, 3%

Discount Rate

MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Total

Costs Technology

Costs 5,903 7,890 10,512 12,539 14,904 51,748

Private Savings Benefits Savings in

Lifetime Fuel Expenditures 9,265 20,178 29,083 37,700 46,823 143,048

Consumer Surplus from

Additional Driving 696 1,504 2,150 2,754 3,387 10,491

Value of Savings in Refueling

Time 706 1,383 1,939 2,464 2,950 9,443

Social Benefits

Reduction in

Petroleum

Market

Externalities 545 1,154 1,630 2,080 2,543 7,952

Reduction in

Climate-Related Damages from 921 2,025 2,940 3,840 4,804 14,528 Formatted: Font: Bold

Formatted: Left

Formatted Table396 Lower CO2

Emissions 458

Social Dis-Benefits from Increased Driving:
Congestion Costs (447) (902) (1,282) (1,633) (2,000) (6,264)
Noise Costs (9) (18) (25) (32) (39) (122)
Crash Costs (217) (430) (614) (778) (950) (2,989)
Reduction in Health Damage Costs from Lower Emissions of Criteria Air Pollutants:

CO 0 0 0 0 0 0

VOC 42 76 102 125 149 494

NOX 70 104 126 146 166 612

PM 205 434 612 776 946 2,974

SOX 158 332 469 598 731 2,288

Total Benefits 11,936 25,840 37,132 48,040 59,509 182,457

Net Benefits 6,033 17,950 26,619 35,501 44,606 130,709

Table IV.A.5-9. Itemized Cost and Benefit Es timates for the Combined Vehicle Fleet, 7%

Discount Rate

MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Total

Costs Technology

Costs 5,903 7,890 10,512 12,539 14,904 51,748

Benefits Private Savings Savings in

Lifetime Fuel Expenditures 9,265 20,178 29,083 37,700 46,823 143,048

Consumer Surplus from

Additional Driving 696 1,504 2,150 2,754 3,387 10,491

Value of Savings in Refueling

Time 706 1,383 1,939 2,464 2,950 9,443

Social Benefits

Reduction in

Petroleum

Market

Externalities 545 1,154 1,630 2,080 2,543 7,952

Reduction in

Climate-Related 921 2,025 2,940 3,840 4,804 14,528

458 See supra note [directly above here] Formatted: Font: Bold

Formatted: Left

Formatted Table397 Damages from

Lower CO2

Emissions 459

Social Dis-Benefits from Increased Driving:
Congestion Costs (447) (902) (1,282) (1,633) (2,000) (6,264)
Noise Costs (9) (18) (25) (32) (39) (122)
Crash Costs (217) (430) (614) (778) (950) (2,989)
Reduction in Health Damage Costs from Lower Emissions of Criteria Air Pollutants:

CO 0 0 0 0 0 0

VOC 42 76 102 125 149 494

NOX 70 104 126 146 166 612

PM 205 434 612 776 946 2,974

SOX 158 332 469 598 731 2,288

Total Benefits 11,936 25,840 37,132 48,040 59,509 182,457

Net Benefits 6,033 17,950 26,619 35,501 44,606 130,709

Neither EPCA nor EISA requires that NHTSA conduct a cost-benefit analysis in determining average fuel economy standards, but too, neither precludes its use. 460 EPCA does require that NHTSA consider economic practicability among other factors, and NHTSA has concluded, as discussed elsewhere herein, th at the standards it promulgates today are economically practicable. Further validating and supporting its conclusion that the standards it promulgates today are reasonable, a comparison of the standards’ costs and benefits shows that the standards’ estimated benefits far outweigh its estimated costs. Based on the figures reported above, NHTSA estimates that the total benefits of today’s final standards would be more than three times the magnitude of the corresponding costs, such that the final standards would produce net benefits of over $130 billion over the useful lives of vehicles sold during MYs 2012-

2016.

B. Background

1. Chronology of Events Since the National Academy of Sciences Called for Reforming and Increasing CAFE Standards

a. National Academy of Sciences Issues Report on Future of CAFE Program (February 2002)

459 See supra note [directly above]

460 Center for Biological Diversity v. NHTSA , 508 F.3d 508 (9 th Cir. 2007) (rejecting argument that EPCA precludes the use of a marginal cost-benefit analysis that attempted to weigh all of the social benefits ( i.e. , externalities as well as direct benefits to consumers) of improved fuel savings in determining the stringency of the CAFE standards). See also Entergy Corp. v. Riverkeeper, Inc. , 129 S.Ct. 1498, 1508 (2009) (“[U]nder Chevron , that an agency is not required to [conduct a cost-benefit analysis] doe s not mean that an agency is not permitted to do so.”)398 i. Significantly Increasing CAFE Standard s Without Making them Attribute-based Would Adversely Affect Safety

In the 2002 congressionally-mandated report entitled “Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards,” 461 a majority of the committee of the National Academy of Sciences (NAS) (“2002 NAS Report”) concluded that the then-existing form of passenger car and light truck CAFE standards permitted vehicle manufacturers to comply in part by downweighting and even downsi zing their vehicles and that these actions had led to additional fatalities. The committee explai ned that this safety problem arose because, at that time, the CAFE standards were not attributed -based and thus subjected all passenger cars to the same fuel economy target and all light trucks to the same target, regardless of their weight, size, or load-carrying capacity. 462 The committee said that th is experience suggests that consideration should be given to developing a ne w system of fuel economy targets that reflects

differences in such vehicle attributes. Without a thoughtful restructuring of the program, there would be trade-offs that must be made if CAFE standards were increased by any significant

amount. 463

In response to these conclusions, NHTSA cons idered various attributes and ultimately issued footprint-based CAFE standards for light trucks and sought legislative authority to issue attribute-based CAFE standards for passenger cars before undertaking to raise the car standards.Congress went a step further in enacting EISA, not only authorizing the issuance of attributebased standards, but also mandating them.

ii. Climate Change and Other Externalities Ju stify Increasing the CAFE Standards

The NAS committee said that there are two compelling concer ns that justify increasing the fuel economy standards, both relating to externalities. The first and most important concern, it argued, is the accumulation in the atmosphere of greenhouse gases, principally carbon

dioxide. 464

A second concern is that petroleum imports have been steadily rising because of the nation’s increasing demand for gasoline without a corresponding increase in domestic supply. The high cost of oil imports poses two risks: downward pressure on the strength of the dollar (which drives up the cost of goo ds that Americans import) and an increase in U.S. vulnerability to macroeconomic shocks that cost the economy considerable real output.

461 National Research Council, “Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards,” National Academy Press, Washington, DC (2002). Available at http://www.nap.edu/openbook.php?isbn=0309076013 (last accessed March 1, 2010). The conference committee report for the Department of Transportation and Relate d Agencies Appropriations Act for FY 2001 (Pub. L. 106- 346) directed NHTSA to fund a study by NAS to evaluate the effectiveness and impacts of CAFE standards (H. Rep. No. 106-940, p. 117-118). In response to the direction from Congress, NAS published this lengthy report.

462 NHTSA formerly used this approach for CAFE standards. EISA prohibits its use after MY 2010.

463 NAS, p. 9. As discussed at length in prior CAFE rules, two members of the NAS Committee dissented from the majority opinion that there would be safety imp acts to downweighting under a flat-standard system.

464 NAS, pp. 2, 13, and 83.399 To determine how much the fuel economy standards should be increased, the committee urged that all social benefits of such increases be considered. That is, it urged not only that the dollar value of the saved fuel be considered, bu t also that the dollar value to society of the resulting reductions in greenhouse gas emissions and in dependence on imported oil should be

calculated and considered.

iii. Reforming the CAFE Program Could Address Inequity Arising from the CAFE

Structure

The 2002 NAS report expressed concerns about increasing the standards under the CAFE program as it was then structured. While raising CAFE standards under the then existing structure would reduce fuel consumption, doing so under alternative structures “could accomplish the same end at lower cost, provide more flexibility to manufacturers, or address inequities arising from the present” structure. 465

To address those structural problems, the re port suggested various possible reforms. The report found that the “CAFE program might be improved significantly by converting it to a system in which fuel targets depend on vehicle attributes.” 466 The report noted further that under an attribute-based approach, the required CAFE levels could vary among the manufacturers based on the distribution of their product mix. NAS stated that targets could vary among passenger cars and among trucks, based on some attri bute of these vehicles such as weight, size, or load-carrying capacity. The report explained that a particular manufacturer’s average target for passenger cars or for trucks would depend upon the fractions of vehicles it sold with particular levels of these attributes. 467

b. NHTSA Issues Final Rule Establishing Attribute-Based CAFE Standards for MY 2008-2011 Light Trucks (March 2006)

The 2006 final rule reformed the structure of the CAFE program for light trucks by introducing an attribute-based approach and using that approach to establish higher CAFE standards for MY 2008-2011 light trucks. 468 Reforming the CAFE program enabled it to achieve larger fuel savings, while enhancing safety and preventing adverse economic consequences.

As noted above, fuel economy standards were restructured so that they were based on a vehicle attribute, a measure of vehicle size called “footprint.” It is the product of multiplying a vehicle’s wheelbase by its track width. A target level of fuel economy was established for each increment in footprint (0.1 ft 2 ). Trucks with smaller footprints have higher fuel economy targets; conversely, larger ones have lower targets. A particular manufacturer’s compliance obligation for a model year is calculated as the harmonic average of the fuel economy targets for the manufacturer’s vehicles, weighted by the distri bution of the manufacturer’s production volumes among the footprint increments. Thus, each manufacturer is required to comply with a single overall average fuel economy level for each model year of production.

465 NAS, pp. 4-5 (Finding 10).

466 NAS, p. 5 (Finding 12).

467 NAS, p. 87.

468 71 FR 17566 (Apr. 6, 2006).400 Compared to non-attribute-based CAFE, attribute-based CAFE enhances overall fuel savings while providing vehicle manufacturers with the flexibility they need to respond to changing market conditions. Attribute-based CAFE also provides a more equitable regulatory framework by creating a level playing field for manufacturers, regardless of whether they are

full-line or limited-line manufacturers. We were particularly encouraged that attribute-based CAFE will confer no compliance advantage if vehicle makers choose to downsize some of their fleet as a CAFE compliance strategy, thereby re ducing the adverse safety risks associated with the non-attribute-based CAFE program.

c. Ninth Circuit Issues Decision re Final Rule for MY 2008-2011 Light Trucks (November 2007)

On November 15, 2007, the United States Court of Appeals for the Ninth Circuit issued

its decision in Center for Biological Diversity v. NHTSA

, 469 the challenge to the MY 2008-11 light truck CAFE rule. The court held that EPCA permits, but does not require, the use of a marginal cost-benefit analysis. The court specif ically emphasized NHTSA’s discretion to decide how to balance the statutory factors – as long as that balancing does not undermine the fundamental statutory purpose of energy conservation. Although the Court found that NHTSA had been arbitrary and capricious in several respects, the Court did not vacate the standards, but

instead said it would remand the rule to NHTSA to promulgate new standards consistent with its opinion “as expeditiously as possible and for the earliest model year practicable.” Under the decision, the standards established by the April 2006 final rule would remain in effect unless and until amended by NHTSA. In addition, it directed the agency to prepare an Environmental Impact Statement.

d. Congress Enacts Energy Security and Independence Act of 2007 (December 2007)

As noted above in Section I.B., EISA si gnificantly changed the provisions of EPCA governing the establishment of future CAFE standards. These changes made it necessary for NHTSA to pause in its efforts so that it could assess the implications of the amendments made by EISA and then, as required, revise some aspects of the proposals it had been developing ( e.g., the model years covered and credit issues).

e. NHTSA Proposes CAFE Standards for MYs 2011-2015 (April 2008)

The agency could not set out the exact level of CAFE that each manufacturer would have been required to meet for each model year under the passenger car or light truck standards since the levels would depend on information that would not be available until the end of each of the model years, i.e., the final actual production figures for each of those years. The agency could, however, project what the industry-wide level of average fuel economy would have been for passenger cars and for light trucks if each manufacturer produced its expected mix of automobiles and just met its obligations under the proposed “optimized” standards for each model year.

469 508 F.3d 508.401 Passenger

cars mpg Light trucks

mpg MY 2011 31.2 25.0

MY 2012 32.8 26.4

MY 2013 34.0 27.8

MY 2014 34.8 28.2

MY 2015 35.7 28.6

The combined industry-wide average fuel economy (in miles per gallon, or mpg) levels for both cars and light trucks, if each manufacturer just met its obligations under the proposed “optimized” standards for each model year, would have been as follows:

Combined mpg

MY 2011 27.8

MY 2012 29.2

MY 2013 30.5

MY 2014 31.0

MY 2015 31.6

The annual average increase during this five year period would have been approximately 4.5 percent. Due to the uneven distribution of new model introductions during this period and to the fact that significant technological changes co uld be most readily made in conjunction with those introductions, the annual percentage increases were greater in the early years in this period.

f. Ninth Circuit Revises its Decision re Final Rule for MY 2008-2011 Light Trucks (August 2008)

In response to the Government petition for rehearing, the Ninth Circuit modified its decision by replacing its direction to prepare an EIS with a direction to prepare either a new EA or, if necessary, an EIS. 470

g. NHTSA Releases Final Environmental Impact Statement (October 2008)

On October 17, 2008, EPA published a notice announcing the availability of NHTSA’s final environmental impact statement (FEIS) for the MYs 2011-2015 rulemaking. 471 Throughout the FEIS, NHTSA relied extensively on findings of the United Nations Intergovernmental Panel on Climate Change (IPCC) and the U.S. Climate Change Science Program (USCCSP). In particular, the agency relied he avily on the most recent, thoroughly peer-reviewed, and credible assessments of global climate change and its impact on the United States: the IPCC Fourth Assessment Report Working Group I4 and II5 Reports, and reports by the USCCSP that include

470 See CBD v. NHTSA , 538 F.3d 1172 (9 th Cir. 2008).

471 73 FR 61859 (Oct. 18, 2008).402 Scientific Assessments of the Effects of Global Climate Change on the United States and Synthesis and Assessment Products.

In the FEIS, NHTSA compared the environmenta l impacts of its pref erred alternative and those of reasonable alternatives. It considered direct, indirect, and cumulative impacts and describes these impacts to inform the decisionmaker and the public of the environmental impacts

of the various alternatives.

Among other potential impacts, NHTSA analyzed the direct and indirect impacts related to fuel and energy use, emissions, including carbon dioxide and its effects on temperature and climate change, air quality, natural resources, and the human environment. Specifically, the FEIS used a climate model to estimate and report on four direct and indirect effects of climate change, driven by alternative scen arios of GHG emissions, including:

1. Changes in CO 2 concentrations; 2. Changes in global mean surface temperature; 3. Changes in regional temperature and precipitation; and 4. Changes in sea level.

NHTSA also considered the cumulative impacts of the proposed standards for MY 2011- 2015 passenger cars and light trucks, toge ther with estimated impacts of NHTSA’s implementation of the CAFE program through MY 2010 and NHTSA’s future CAFE rulemaking

for MYs 2016-2020.

h. Department of Transportation Decides Not to Issue MY 2011-2015 Final Rule (January 2009)

On January 7, 2009, the Department of Transportation announced that the Bush

Administration would not issue the final rule , notwithstanding the Office of Information and Regulatory Affairs’ completion of review of the rule under Executive Order 12866, Regulatory Planning and Review, on November 14, 2008. 472

i. The President Requests NHTSA to Issue Final Rule for MY 2011 Only (January 2009)

As explained above, in his memorandum of January 26, 2009, the President requested the agency to issue a final rule adopting CAFE standards for MY 2011 only. Further, the President requested NHTSA to establish standards for MY 2012 and later after considering the appropriate legal factors, the comments filed in response to the May 2008 proposal, the relevant technological and scientif ic considerations, and, to the extent feasible, a forthcoming report by the National Academy of Sciences assessing automotive technologies that can practicably be used to improve fuel economy.

j. NHTSA Issues Final Rule for MY 2011 (March 2009)

472 The statement can be found at http://www.dot.gov/ affairs/dot0109.htm (last accessed March 1, 2010).403 i. Standards

The final rule established footprint-based fuel economy standards for MY 2011 passenger cars and light trucks. Each vehicle manufacturer ’s required level of CAFE was based on target levels of average fuel economy set for vehicles of different sizes and on the distribution of that manufacturer’s vehicles among those sizes. The curves defining the performance target at each footprint reflect the technological and economic capabilities of the industry. The target for each footprint is the same for all manufacturers, regard less of differences in their overall fleet mix. Compliance would be determined by comparing a manufacturer’s harmonically averaged fleet fuel economy levels in a model year with a required fuel economy level calculated using the manufacturer’s actual production levels and the targets for each footprint of the vehicles that it produces.

The agency analyzed seven regulatory alternatives, one of which maximizes net benefits

within the limits of available information and was known at the time as the “optimized standards.” The optimized standards were set at levels, such that, considering all of the manufacturers together, no other alternative is estimated to pr oduce greater net benefits to society. Upon a considered analysis of all information available, including all information submitted to NHTSA in comments, the agency ad opted the “optimized standard” alternative as

the final standards for MY 2011. 473 By limiting the standards to levels that can be achieved using technologies each of which are estimated to provide benefits that at least equal its costs, the net benefit maximization approach helped, at the time, to assure the marketability of the manufacturers’ vehicles and thus economic pr acticability of the standards, for the reasons discussed extensively in that final rule.

The following levels were projected for what the industry-wide level of average fuel economy will be for passenger cars and for light trucks if each manufacturer produced its expected mix of automobiles and just met its obligations under the “optimized” standards.

Passenger cars mpg Light trucks mpg

MY 2011 30.2 24.1

The combined industry-wide average fuel economy (in miles per gallon, or mpg) levels for both cars and light trucks, if each manufacture r just met its obligations under the “optimized” standards, were projected as follows:

Combined

mpg mpg increase over prior

year MY 2011 27.3 2.0

473 The agency notes, for NEPA purposes, that the “optimi zed standard” alternative adopted as the final standards corresponds to the “Optimized Mid-2” scenario described in Section 2.2.2 of the FEIS.404 In addition, per EISA, each manufacturer’s domestic passenger fleet is required in MY 2011 to achieve 27.5 mpg or 92 percent of the CAFE of the industry-wide combined fleet of domestic and non-domestic passenger cars 474 for that model year, whichever is higher. This requirement resulted in the follo wing projected alternative minimum standard (not attributebased) for domestic passenger cars:

Domestic passenger cars mpg

MY 2011 27.8

ii. Credits

NHTSA also adopted a new Part 536 on use of “credits” earned for exceeding applicable CAFE standards. Part 536 implements the provi sions in EISA authorizing NHTSA to establish by regulation a credit trading program and directi ng it to establish by regulation a credit transfer

program. 475 Since its enactment, EPCA has permitted manufacturers to earn credits for exceeding the standards and to apply those credit s to compliance obligations in years other than the model year in which it was earned. EISA extended the “carry-forward” period to five model years, and left the “carry-back” period at three model years. Under Part 536, credit holders (including, but not limited to, manufacturers) wi ll have credit accounts with NHTSA, and will be able to hold credits, apply them to compliance with CAFE standards, transfer them to another “compliance category” for applica tion to compliance there, or trade them. A credit may also be cancelled before its expiry date, if the credit holder so chooses. Traded and transferred credits will be subject to an “adjustment factor” to ensure total oil savings are preserved, as required by EISA. EISA also prohibits credits earned before MY 2011 from being transferred, so NHTSA has developed several regulatory restrictions on tr ading and transferring to facilitate Congress’ intent in this regard.

2. Energy Policy and Conservation Act, as Amended by the Energy Independence and Security Act

NHTSA establishes CAFE standards for passenger cars and light trucks for each model year under EPCA, as amended by EISA. EPCA mandates a motor vehicle fuel economy regulatory program to meet the various facets of the need to conserve energy, including ones having environmental and foreig n policy implications. EPCA allocates the responsibility for implementing the program between NHTSA and EP A as follows: NHTSA sets CAFE standards for passenger cars and light trucks; EPA establishe s the procedures for testing, tests vehicles, collects and analyzes manufacturers’ data, and calculates the average fuel economy of each manufacturer’s passenger cars and light trucks ; and NHTSA enforces the standards based on

EPA’s calculations.

a. Standard Setting

474 Those numbers set out several paragraphs above.

475 Congress required that DOT establish a credit “transfe rring” regulation, to allow individual manufacturers to move credits from one of their fleets to another ( e.g. , using a credit earned for exceeding the light truck standard for compliance with the domestic passenger car standard). Congress allowed DOT to establish a credit “trading” regulation, so that credits may be bought and sold between manufacturers and other parties.405 We have summarized below the most important aspects of standard setting under EPCA, as amended by EISA.

For each future model year, EPCA requires that NHTSA establish standards at “the maximum feasible average fuel economy level th at it decides the manufacturers can achieve in that model year,” based on the agency’s consideration of four statutory factors: technological feasibility, economic practicability, the effect of other standards of the Government on fuel economy, and the need of the nation to conserve energy. EPCA does not define these terms or specify what weight to give each concern in balancing them; thus, NHTSA defines them and determines the appropriate weighting based on the circumstances in each CAFE standard rulemaking. 476

For MYs 2011-2020, EPCA further requires that separate standards for passenger cars and for light trucks be set at levels high eno ugh to ensure that the CAFE of the industry-wide combined fleet of new passenger cars and light trucks reaches at least 35 mpg not later than MY

2020.

i. Factors That Must be Considered in Deciding the Appropriate Stringency of

CAFE Standards

(1) Technological feasibility

“Technological feasibility” refers to whet her a particular method of improving fuel economy can be available for commercial application in the model year for which a standard is being established. Thus, the agency is not lim ited in determining the level of new standards to technology that is already being commercially applied at the time of the rulemaking. NHTSA has historically considered all types of techno logies that improve real-world fuel economy, except those whose effects are not reflected in fuel economy testing. Principal among them are technologies that improve air conditioner effici ency because the air conditioners are not turned on during testing under existing test procedures.

(2) Economic practicability

“Economic practicability” refers to whether a standard is one “within the financial capability of the industry, but not so stringent as to” lead to “adverse economic consequences, such as a significant loss of jobs or the un reasonable elimination of consumer choice.” 477 This factor is especially important in the context of current events, where the automobile industry is facing significantly adverse econom ic conditions, as well as significant loss of jobs. In an attempt to ensure the economic practicability of attribute-based standards, NHTSA considers a variety of factors, including the annual rate at which manufacturers can increase the percentage

476 See Center for Biological Diversity v. NHTSA, 538 F.3d. 1172, 1195 (9 th Cir. 2008) (“The EPCA clearly requires the agency to consider these four factors, but it gives NHTSA discretion to decide how to balance the statutory factors—as long as NHTSA’s balancing does not undermine the fundamental purpose of the EPCA: energy conservation.”)

477 67 FR 77015, 77021 (Dec. 16, 2002).406 of its fleet that employs a particular type of fuel-saving technology, and cost to consumers. Consumer acceptability is also an element of economic practicability, one which is particularly difficult to gauge during times of frequently-changing fuel prices. NHTSA believes this approach is reasonable for the MY 2012-2016 standards in view of the facts before it at this time.

At the same time, the law does not preclude a CAFE standard that poses considerable challenges to any individual manufacturer. The Conference Report for EPCA, as enacted in 1975, makes clear, and the case law affirms, “a determination of maximum feasible average fuel economy should not be keyed to the single manuf acturer which might have the most difficulty achieving a given level of average fuel economy.” 478 Instead, NHTSA is compelled “to weigh the benefits to the nation of a higher fuel econom y standard against the difficulties of individual

automobile manufacturers.” Id. The law permits CAFE standards exceeding the projected capability of any particular manufacturer as long as the standard is economically practicable for the industry as a whole. Thus, while a particul ar CAFE standard may pose difficulties for one manufacturer, it may also present opportunitie s for another. The CAFE program is not necessarily intended to maintain the competitive positioning of each particular company. Rather, it is intended to enhance fuel economy of the vehicle fleet on American roads, while protecting motor vehicle safety and being mindful of the risk of harm to the overall United States

economy.

(3) The effect of other motor vehicle standards of the Government on fuel economy

“The effect of other motor vehicle standards of the Government on fuel economy,” involves an analysis of the effe cts of compliance with emission, 479 safety, noise, or damageability standards on fuel economy capability and thus on average fuel economy. In previous CAFE rulemakings, the agency has said th at pursuant to this provision, it considers the adverse effects of other motor vehicle standards on fuel economy. It said so because, from the CAFE program’s earliest years 480 until present, the effects of such compliance on fuel economy capability over the history of the CAFE program have been negative ones. For example, safety standards that have the effect of increasing vehi cle weight lower vehicle fuel economy capability and thus decrease the level of average fuel econom y that the agency can determine to be feasible.

NHTSA also recognizes that in some cases the effect of other motor vehicle standards of the Government on fuel economy may be neutral or positive. For example, to the extent the GHG standards set by EPA and California result in increases in fuel economy, they would do so almost exclusively as a result of inducing manufactu rers to install the same types of technologies used by manufacturers in complying with the CAFE standards. The primary exception would involve lower-GHG-producing air conditioners. The agency considered EPA’s standards and the harmonization benefits of the National Program in developing its own standards.

(4) The need of the United States to conserve energy

478 CEI-I , 793 F.2d 1322, 1352 (D.C. Cir. 1986).

479 In the case of emission standards, this includes sta ndards adopted by the Federal government and can include standards adopted by the States as well, since in certain circumstances the Clean Air Act allows States to adopt and

enforce State standards different from the Federal ones.

480 42 FR 63184, 63188 (Dec. 15, 1977). See also 42 FR 33534, 33537 (Jun. 30, 1977).407 “The need of the United States to conserve energy” means “the consumer cost, national balance of payments, environmental, and foreign policy implications of our need for large quantities of petroleum, especially imported petroleum.” 481 Environmental implications principally include reductions in emissions of criteria pollutants and carbon dioxide. Prime examples of foreign policy implications are en ergy independence and security concerns.

(a) Fuel prices and the value of saving fuel

Projected future fuel prices are a critical input into the preliminary economic analysis of alternative CAFE standards, because they determine the value of fuel savings both to new vehicle buyers and to society. In this rule, NHTSA relies on fuel price projections from the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook (AEO) for this analysis. Federal government agencies generally use EIA’s projections in their assessments of future energy-related policies.

(b) Petroleum consumption and import externalities

U.S. consumption and imports of petroleum products impose costs on the domestic economy that are not reflected in the market price for crude petroleum, or in the prices paid by consumers of petroleum products such as gasoline. These costs include (1) higher prices for petroleum products resulting from the effect of U.S. oil import demand on the world oil price; (2) the risk of disruptions to the U.S. economy caused by sudden reductions in the supply of imported oil to the U.S.; and (3) expenses for ma intaining a U.S. military presence to secure imported oil supplies from unstable regions, and for maintaining the strategic petroleum reserve (SPR) to provide a response option should a disr uption in commercial oil supplies threaten the U.S. economy, to allow the United States to me et part of its International Energy Agency obligation to maintain emergency oil stocks, and to provide a national defense fuel reserve. Higher U.S. imports of crude oil or refined petroleum products increase the magnitude of these external economic costs, thus increasing the true economic cost of supplying transportation fuels above the resource costs of producing them. Conversely, reducing U.S. imports of crude petroleum or refined fuels or reducing fuel consumption can reduce these external costs.

(c) Air pollutant emissions

While reductions in domestic fuel refining an d distribution that result from lower fuel consumption will reduce U.S. emis sions of various pollutants, additional vehicle use associated

with the rebound effect 482 from higher fuel economy will increa se emissions of th ese pollutants. Thus, the net effect of stricter CAFE standard s on emissions of each pollutant depends on the relative magnitudes of its reduced emissions in fu el refining and distribution, and increases in its

emissions from vehicle use.

481 42 FR 63184, 63188 (1977).

482 The “rebound effect” refers to the tendency of drivers to drive their vehicles more as the cost of doing so goes down, as when fuel economy improves.408 Fuel savings from stricter CAFE standard s also result in lower emissions of CO 2 , the main greenhouse gas emitted as a result of refining , distribution, and use of transportation fuels. Lower fuel consumption reduces carbon dioxide emissions directly, because the primary source of transportation-related CO 2 emissions is fuel combustion in internal combustion engines.

NHTSA has considered environmental issues, both within the context of EPCA and the National Environmental Policy Act, in making decisions about the setting of standards from the earliest days of the CAFE program. As courts of appeal have noted in three decisions stretching over the last 20 years, 483 NHTSA defined the “need of the Natio n to conserve energy” in the late 1970s as including “the consumer cost, national balance of payments, environmental, and foreign policy implications of our need for large quantities of petroleum, esp ecially imported petroleum.” 484 Pursuant to that view, NHTSA declined in the past to include diesel engines in determining the appropriate level of standards for passenger cars and for light trucks because particulate emissions from diesels were then both a source of concern and unregulated. 485 In 1988, NHTSA included climate change concepts in its CAFE notices and prepared its first environmental assessment addressing that subject. 486 It cited concerns about climate change as one of its reasons for limiting the extent of its reduction of the CAFE standard for MY 1989

passenger cars. 487 Since then, NHTSA has considered the benefits of reducing tailpipe carbon dioxide emissions in its fuel economy rulemaki ngs pursuant to the statutory requirement to consider the nation’s need to conserve energy by reducing fuel consumption.

ii. Other Factors Considered by NHTSA

NHTSA considers the potential for adverse safety consequences when in establishing CAFE standards. This practice is recognized approvingly in case law. 488 Under the universal or “flat” CAFE standards that NHTSA was previously authorized to establish, manufacturers were encouraged to respond to higher standards by building smaller, less safe vehicles in order to “balance out” the larger, safer vehicles that the public generally preferred to buy, which resulted in a higher mass differential between the smallest and the largest vehicles, with a

483 Center for Auto Safety v. NHTSA , 793 F.2d 1322, 1325 n. 12 (D.C.Cir.1986); Public Citizen v. NHTSA

, 848 F.2d 256, 262-3 n. 27 (D.C. Cir. 1988)(noting that “NHTSA itself has interpreted the factors it must consider in setting CAFE standards as including environmental effects”); and Center for Biological Diversity v. NHTSA , 538 F.3d 1172 (9 th Cir. 2007).

484 42 FR 63184, 63188 (Dec. 15, 1977) (emphasis added)

485 For example, the final rules establishing CA FE standards for MY 1981-84 passenger cars, 42 FR 33533, 33540-1 and 33551 (Jun. 30, 1977), and for MY 1983-85 light trucks, 45 FR 81593, 81597 (Dec. 11, 1980).

486 53 FR 33080, 33096 (Aug. 29, 1988).

487 53 FR 39275, 39302 (Oct. 6, 1988).

488 See, e.g., Center for Auto Safety v. NHTSA (CAS), 793 F. 2d 1322 (D.C. Cir. 1986) (Administrator’s consideration of market demand as component of economic practicability found to be reasonable); Public Citizen 848 F.2d 256 (Congress established broad guidelines in the fuel economy statute; agency’s decision to set

lower standard was a reasonable accommodation of conflicti ng policies). As the United States Court of Appeals pointed out in upholding NHTSA's exercise of judgment in setting the 1987-1989 passenger car standards, “NHTSA has always examined the safety consequences of the CAFE standards in its overall consideration of relevant factors since its earliest rulemaking under the CAFE program.” Competitive Enterprise Institute v. NHTSA (CEI I), 901 F.2d 107, 120 at n.11 (D.C. Cir. 1990).409 correspondingly greater risk to safety. Under the attribute-based standards being proposed today, that risk is reduced because building smaller vehicles would tend to raise a manufacturer’s overall CAFE obligation, rather than only ra ising its fleet average CAFE, and because all vehicles are required to continue improving their fuel economy.

In addition, the agency considers consumer demand in establishing new standards and in assessing whether already established standards remained feasible. In the 1980s, the agency relied in part on the unexpected drop in fuel prices and the resulting unexpected failure of consumer demand for small cars to develop in explaining the need to reduce CAFE standards for a several year period in order to give manufact urers time to develop alternative technology-based strategies for improving fuel economy.

iii. Factors that NHTSA is Statutorily Prohibited from Considering in Setting

Standards

EPCA provides that in determining the level at which it should set CAFE standards for a particular model year, NHTSA may not consider th e ability of manufacture rs to take advantage of several EPCA provisions that facilitate co mpliance with the CAFE standards and thereby reduce the costs of compliance. 489 As noted below, manufacturers can earn compliance credits by exceeding the CAFE standards and then use those credits to achieve compliance in years in which their measured average fuel economy falls below the standards. Manufacturers can also increase their CAFE levels through MY 2019 by producing alternative fuel vehicles. EPCA provides an incentive for producing these vehicles by specifying that their fuel economy is to be determined using a special calculation procedure th at results in those vehicles being assigned a high fuel economy level.

iv. Weighing and Balancing of Factors

NHTSA has broad discretion in balancing the above factors in determining the average fuel economy level that the manufacturers can achieve. Congress “specifically delegated the process of setting ... fuel economy standards with broad guidelines concerning the factors that the agency must consider. The breadth of those guidelines, the absence of any statutorily prescribed formula for balancing the factors, the fa ct that the relative weight to be given to the various factors may change from rulemaking to rulemaking as the underlying facts change, and the fact that the factors may often be conflictin g with respect to whether they militate toward higher or lower standards give NHTSA discretion to decide what weight to give each of the competing policies and concerns and then determ ine how to balance them-as long as NHTSA's balancing does not undermine the fundamental purpose of the EPCA: energy conservation, and as long as that balancing reasonably accommoda tes “conflicting policies that were committed to the agency's care by the statute.’”

Thus, EPCA does not mandate that any pa rticular number be adopted when NHTSA determines the level of CAFE standards. Rather, any number within a zone of reasonableness may be, in NHTSA’s assessment, the level of stringency that manufacturers can achieve. See, e.g., Hercules Inc. v. EPA , 598 F. 2d 91, 106 (D.C. Cir. 1978) (“In reviewing a numerical

489 49 U.S.C. 32902(h).410 standard we must ask whether the agency’s numbers are within a zone of reasonableness, not whether its numbers are precisely right”).

v. Other Requirements Related to Standard Setting

The standards for passenger cars and those for light trucks must increase ratably each year. This statutory requirement is interpreted, in combination with the requirement to set the standards for each model year at the level determined to be the maximum feasible level that manufacturers can achieve for that model year, to mean that the annual increases should not be disproportionately large or small in relation to each other.

The standards for passenger cars and light trucks must be based on one or more vehicle attributes, like size or weight, that correlate with fuel economy and must be expressed in terms of a mathematical function. Fuel economy targets are set for individual vehicles and increase as the attribute decreases and vice versa. For example, size-based ( i.e. , size-indexed) standards assign higher fuel economy targets to smaller (and generally, but not necessarily, lighter) vehicles and lower ones to larger (and generally, but not necessarily, heavier) vehicles. The fleet-wide average fuel economy that a particular manufacturer is required to achieve depends on the size mix of its fleet, i.e. , the proportion of the fleet that is small-, medium- or large-sized.

This approach can be used to require virtually all manufacturers to increase significantly the fuel economy of a broad range of both passenger cars and light trucks, i.e. , the manufacturer must improve the fuel economy of all the vehicles in its fleet. Further, this approach can do so without creating an incentive for manufacturers to make small vehicles smaller or large vehicles larger, with attendant im plications for safety.

b. Test Procedures for Measuring Fuel Economy

EPCA provides EPA with the responsibility for establishing CAFE test procedures. Current test procedures measure the effects of many fuel saving technologies. The principal exception is improvements in air conditioning e fficiency. By statutory law in the case of passenger cars and by administrative regulation in the case of light trucks, air conditioners are not turned on during fuel economy testing.

The fuel economy test procedures for light trucks could be amended through rulemaking to provide for air conditioner operation during te sting and to take other steps for improving the accuracy and representativeness of fuel economy measurements. NHTSA sought comment in the NPRM regarding implementing such amendments beginning in MY 2017 and also on the more immediate interim alternative step of prov iding CAFE program credits under the authority of 49 U.S.C. 32904(c) for light trucks equipped with relatively efficient air conditioners for MYs 2012-2016, but decided against finalizing either opti on for purposes of this final rule, choosing to defer the matter for now. Modernizing the passenger car test procedures, or even providing similar credits, would not be possible under EPCA as currently written.

c. Enforcement and Compliance Flexibility411 EPA is responsible for measur ing automobile manufacturers’ CAFE so that NHTSA can determine compliance with the CAFE standards. When NHTSA finds that a manufacturer is not in compliance, it notifies the manufacturer. Su rplus credits generated from the five previous years can be used to make up the deficit. The amount of credit earned is determined by multiplying the number of tenths of a mpg by which a manufacturer exceeds a standard for a particular category of autom obiles by the total volume of automobiles of that category manufactured by the manufacturer for a given model year. If there are no (or not enough) credits available, then the manufacturer can either pay the fine, or submit a carry back plan to NHTSA. A carry back plan describes what the manufacturer plans to do in the following three model years to earn enough credits to make up for the deficit. NHTSA must examine and determine whether to approve the plan.

In the event that a manufacturer does not comp ly with a CAFE standard, even after the consideration of credits, EPCA provides for the a ssessing of civil penalties, unless, as provided below, the manufacturer has earned credits for exceeding a standard in an earlier year or expects to earn credits in a later year. 490 The Act specifies a precise formula for determining the amount of civil penalties for such a noncompliance. The penalty, as adjusted for inflation by law, is $5.50 for each tenth of a mpg that a manufacturer’s average fuel economy falls short of the standard for a given model year multiplied by the total volume of those vehicles in the affected fleet (i.e., import or domestic passenger car, or light truck), manufactured for that model year. The amount of the penalty may not be reduced except under the unusual or extreme circumstances specified in the statute.

Unlike the National Traffic and Motor Vehicl e Safety Act, EPCA does not provide for recall and remedy in the event of a noncompliance. The presence of recall and remedy provisions 491 in the Safety Act and their absence in EP CA is believed to arise from the difference in the application of the safety standards and CAFE standards. A safety standard applies to individual vehicles; that is, each vehicle must possess the requisite equipment or feature that must provide the requisite type and level of performance. If a vehicle does not, it is noncompliant. Typically, a vehicle does not entirely lack an item or equipment or feature. Instead, the equipment or features fails to perform adequately. Recalling the vehicle to repair or replace the noncompliant equipment or feature can usually be readily accomplished.

In contrast, a CAFE standard applies to a manuf acturer’s entire fleet for a model year. It does not require that a particular individual vehicle be equipped with any particular equipment or feature or meet a particular level of fuel economy. It does require that the manufacturer’s fleet, as a whole, comply. Further, although under the attribute-based approach to setting CAFE standards fuel economy targets are established for individual vehicles based on their footprints, the vehicles are not required to comply with those targets. However, as a practical matter, if a manufacturer chooses to design some vehicles that fall below their target levels of fuel economy, it will need to design other vehicles that exceed their targets if the manufacturer’s overall fleet average is to meet the applicable standard.

490 EPCA does not provide authority for seeking to enjoin violations of the CAFE standards.

491 49 U.S.C. 30120, Remedies for defects and noncompliance.412 Thus, under EPCA, there is no such thing as a noncompliant vehicle, only a noncompliant fleet. No particular vehicle in a noncompliant fleet is any more, or less, noncompliant than any other vehicle in the fleet.

C. Development and Feasibility of the Final Standards

1. How Was the Baseline and Reference Vehicle Fleet Developed?

a. Why Do the Agencies Establish a Baseline and Reference Vehicle Fleet?

As also discussed in Section II.B above, in order to determine what levels of stringency are feasible in future model years, the agencies must project what vehicles will exist in those model years, and then evaluate what technologies can feasibly be applied to those vehicles in order to raise their fuel economy and lower their CO 2 emissions. The agencies therefore established a baseline vehicle fleet representing those vehicles, based on the best available transparent information. Each agency then developed a separate reference fleet, accounting (via their respective analytical models) for the effect that the MY 2011 CAFE standards have on the baseline fleet. This reference fleet is then used for comparisons of technologies’ incremental cost and effectiveness, as well as for other relevant comparisons in the rule.

Because NHTSA and EPA have different esta blished practices, the agencies’ rulemaking documents (the Federal Register notice, joint Technical Support Document, agency-specific Regulatory Impact Analyses, and NHTSA Environmental Impact Analysis) have some differences in terminology. In connection with its first-ever GHG emissions rule under the CAA,

EPA has used the term “baseline flee t” to refer to the MY 2008 fleet ( i.e. , from EPA certification and fuel economy data for MY 2008) prior to adjustment to reflect projected shifts in market composition. NHTSA, as in recent CAFE rulemaki ngs, refers to the resultant market forecast, as specified in CAFE model input files (and corresponding input files for EPA’s OMEGA model),

as the “baseline” fleet. EPA refers to this fleet as the “reference fleet.” NHTSA refers to the “no action” standards identified in the EIS (that is, the MY 2011 standards carried forward through MY 2016) as defining the “baseline” scenario, and refers to the fleet to which technologies have been added in response to these standards as the “adjusted baseline” fleet. 492 EPA refers to this as the “final reference fleet.” These differences in terminology are summarized in the following

table:

Fleet Description EPA Terminology NHTSA Terminology

MY 2008 Fleet with MY 2008 Production Volumes Baseline MY 2008 Fleet MY 2008 Fleet Adjusted to Reflect Projected Market

Shifts Reference Fleet Baseline [Market Forecast]

MY 2008 Fleet Adjusted to Reflected Projected Market Shifts and Response to MY 2011 CAFE Standards [Final] Reference Fleet Adjusted Baseline

The agencies have retained this mixed terminology in order to facilitate comparison to past rulemakings. In general, EPA’s RIA and the joint TSD apply EPA’s nomenclature, NHTSA’s RIA and EIS apply NHTSA’s nomenclature, and the joint Federal Register notice

492 Some manufacturers’ baseline fleets (as reflected in the agencies’ market forecast) do not, without applying additional technology and/or CAFE credits, do not show compliance with the baseline standards.413 uses EPA’s nomenclature when focusing on GHG emissions standards, and NHTSA’s nomenclature when focusing CAFE standards.

b. What Data Did the Agencies Use to Construct the Baseline, and How Did They

Do So?

As explained in the Technical Support Document (TSD) prepared jointly by NHTSA and EPA, both agencies used a baseline vehicle fleet constructed beginning with EPA fuel economy certification data for the 2008 model year, the most recent model year for which final data is currently available from manufacturers. These data were used as the source for MY 2008 production volumes and some vehicle engineering characteristics, such as fuel economy ratings, engine sizes, numbers of cylinders, and transmission types.

Some information important for analyzing new CAFE standards is not contained in the EPA fuel economy certification data. EPA staff estimated vehicle wheelbase and track widths using data from Motortrend.com and Edmunds.com. This information is necessary for estimating vehicle footprint, which is required fo r the analysis of footprint-based standards. Considerable additional information regarding vehicle engineering characteristics is also important for estimating the potential to add new technologies in response to new CAFE standards. In general, such information helps to avoid “adding” technologies to vehicles that already have the same or a more advanced technology. Examples include valvetrain configuration ( e.g. , OHV, SOHC, DOHC), presence of cylinder deactivation, and fuel delivery ( e.g. , MPFI, SIDI). To the extent that such engi neering characteristics were not available in certification data, EPA staff relied on data published by Ward’s Automotive, supplementing this

with information from internet sites such as Motortrend.com and Edmunds.com. NHTSA staff also added some more detailed engineering characteristics ( e.g , type of variable valve timing) using data available from ALLDATA® Online. Comb ined with the certification data, all of this information yielded the MY 2008 baseline vehicle fleet.

After the baseline was created the next step was to project the sales volumes for 2011- 2016 model years. EPA used projected car and truck volumes for this period from Energy Information Administration’s (EIA’s) 2009 Annual Energy Outlook (AEO). 493 However, AEO projects sales only at the car and truck level, not at the manufacturer and model-specific level,

which are needed in order to estimate the effects new standards will have on individual manufacturers. Therefore, EPA purchased data from CSM-Worldwide and used their projections of the number of vehicles of each type predicted to be sold by manufacturers in 2011-2015. 494
This provided the year-by-year percentages of cars and trucks sold by each manufacturer as well as the percentages of each vehicle segment. The changes between company market share and industry market segments were most signi ficant from 2011-2014, while for 2014-2015 the changes were relatively small. Noting this, a nd lacking a credible forecast of company and

493 Available at http://www.eia.doe.gov/oiaf/aeo/index.html. Sp ecifically, while the total volume of both cars and trucks was obtained from AEO 2010, the car-truck split wa s obtained from AEO 2009. The agencies have also used fuel price forecasts from AEO 2010. Both agencies rega rd AEO a credible source not only of such forecasts, but also of many underlying forecasts, including forecasts of the size the future light vehicle market.

494 EPA also considered other sources of similar informa tion, such as J.D. Powers, and concluded that CSM was more appropriate for purposes of this rulemakjng analysis.414 segment shares after 2015, the agencies assumed 2016 market share and market segments to be the same as for 2015. Using these percentages normalized to the AEO projected volumes then provided the manufacturer-specific market share and model-specific sales for model years 2011-

2016.

The processes for constructing the MY 2008 baseline vehicle fleet and subsequently adjusting sales volumes to construct the MY 2011-2016 baseline vehicle fleet are presented in detail in Chapter 1 of the Joint Technical Su pport Document accompanying today’s final rule.

c. How is This Different From NHTSA’s Historical Approach and Why is This Approach Preferable?

As discussed above in Section II.B.4, NHTS A has historically based its analysis of potential new CAFE standards on detailed product plans the agency has requested from manufacturers planning to produce light-duty vehicles for sale in the United States. In contrast, the current market forecast is based primarily on information sources whic h are all either in the public domain or available commercially. There are advantages to this approach, namely transparency and the potential to reduce some errors due to manufacturers’ misunderstanding of NHTSA’s request for information. There are also disadvantages, namely that the current market forecast does not represent certain changes likely to occur in the future vehicle fleet as opposed to the MY 2008 vehicle fleet, such as vehicles being discontinued and newly introduced. On balance, however, the agencies have carefully considered these advantages and disadvantages of using a market forecast derived from public and commercial sources rather than from manufacturers’ product plans, and conclude that the advantages outweigh the disadvantages.

Although manufacturers did not comment on the agency’s proposal to rely on public and

commercial information rather than manufacturers’ confidential product plans when developing a market forecast, those organizations that did co mment on this issue supported this change. The California Air Resources Board (CARB) and Ce nter for Biological Diversity (CBD) both commended the resultant increase in transparency. CARB further indicated that the use of public and commercial information should produce a better forecast. On the other hand, as discussed above in Section I, CBD and the Northeast States for Coordinated Air Use Management (NESCAUM) both raised concerns regarding the resultant omission of some new vehicle models, and the inclusion of some vehicles to be discontinued, while CARB suggested that the impact of these inaccuracies should be minor.

As discussed above in Section II.B.4, while a baseline developed using publicly and commercially available sources has both advantages and disadvantages relative to a baseline developed using manufacturers’ product plans, NHTSA has concluded for today’s rule that the advantages outweigh the disadvantages. Today’s approach is much more transparent han the agency’s past approach of relying on product plans, and as discussed in Section II.B.4, any inaccuracies related to new or discontinued vehicle models should have only a minor impact on the agency’s analysis.

For subsequent rulemakings, NHTSA remains hopeful that manufacturers will agree to make public their plans for model years that are very near, so that this information could be415 incorporated into analysis available for public review and comment. In any event, because NHTSA is releasing market inputs used in the agen cy’s analysis of this final rule, all interested parties can review these inputs fully, as intend ed in adopting the transparent approach. More information on the advantages and disadvantages of the current approach and the agencies’

decision to follow it is available in Section II.B.4.

d. How is This Baseline Different Quantitatively from the Baseline That NHTSA Used for the MY 2011 (March 2009) Final Rule?

As discussed above, the current baseline was developed from adjusted MY 2008 compliance data and covers MYs 2011-2016, while the baseline that NHTSA used for the MY 2011 CAFE rule was developed from confidential manufacturer product plans for MY 2011. This section describes, for the reader’s comparis on, some of the differences between the current baseline and the MY 2011 CAFE rule baseline. This comparison provides a basis for understanding general characteristics and measures of the difference, in this case, between using publicly (and commercially) available sources and using manufacturers’ confidential product plans. The current baseline, while developed using the same methods as the baseline used for MYs 2012-2016 NPRM, reflects updates to the underlying commercially-available forecast of manufacturer and market segment shares of the future light vehicle market. These changes are

discussed above in Section II.B.

Estimated vehicle sales : The sales forecasts, based on the Energy In formation Administration’s (EIA’s) Annual Energy Outlook 2010 (AEO 2010), used in the current baseline indicate that the total number of light vehicles expected to be sold during MYs 2011-2015 is 77 million, or about 15.4 million vehicles annually. NHTSA’s MY 2011 final rule forecast, based on AEO 2008, of the total number of light vehicles likely to be sold during MY 2011 through MY 2015 was 83 million, or about 16.6 million vehicles annually. Light trucks are expected to make up 41 percent of the MY 2011 baseline market forecast in the current baseline, compared to 42 percent of the baseline market forecast in the MY 2011 final rule. These changes in both the overall size of the light

vehicle market and the relative market shares of passenger cars and light trucks reflect changes in the economic forecast underlying AEO, and changes in AEO’s forecast of future fuel prices.

The figures below attempt to demonstrate graphically the difference between the variation of fuel economy with footprint for passenger cars under the current baseline and MY 2011 final rule, and for light trucks under the current baseline and MY 2011 final rule, respectively. Figures IV.C.1-1 and 1-2 show th e variation of fuel economy with footprint for passenger car models in the current baseline and in the MY 2011 final rule, while Figures

IV.C.1-3 and 1-4 show the variation of fuel econo my with footprint for light truck models in the

current baseline and in the MY 2011 final rule. However, it is difficult to draw meaningful conclusions by comparing figures from the current baseline with those of the MY 2011 final rule. In the current baseline the number of make/models, and their associated fuel economy and footprint, are fixed and do not vary over time—this is why the number of data points in the current baseline figures appears smaller as compared to the number of data points in the MY 2011 final rule baseline. In contrast, the baseline fleet used in the MY 2011 final rule varies over Comment [A50]: Please note that AEO 2010 actually models the effects of the proposed CAFÉ

stds and as such includes a shift in the number of

cars vs. trucks on the road.416 time as vehicles (with different fuel economy and footprint characteristics) are added to and dropped from the product mix.417 Figure IV.C.1-1. Planned Fuel Economy vs. Footprint, Passenger Cars in Current Baseline

10 15 20 25 30 35 40 45 50 55 60 65 70

35 40 45 50 55 60 65 70 75

Footprint (sf)Fuel Economy(mpg)418 Figure IV.C.1-2. Planned Fuel Economy vs. Footprint, Passenger Cars in MY 2011 Final Rule

10 15 20 25 30 35 40 45 50 55 60 65 70

35 40 45 50 55 60 65 70 75 80

Footprint (sf)Fuel Economy (mpg)419 Figure IV.C.1-3. Planned Fuel Economy vs. Footprint, Light Trucks in Current Baseline

10 15 20 25 30 35 40 45 50 55 60 65 70

35 40 45 50 55 60 65 70 75 80

Footprint (sf)Fuel Economy (mpg)420 Figure IV.C.1-4. Planned Fuel Economy vs. Footprint, Light Trucks in MY 2011 Final Rule

10 15 20 25 30 35 40 45 50 55 60 65 70

35 40 45 50 55 60 65 70 75 80

Footprint (sf)Fuel Economy (mpg)421 Estimated manufacturer market shares : NHTSA’s expectations regarding manufacturers’ market shares (the basis for which is discussed below) have also changed since the MY 2011 final rule, given that the agency is relying on different sources of material for these assumptions as discussed in Section II.B above and Chapter 1 of the joint TSD. These change s are reflected below in Table IV.C.1-1, which shows the agency’s sales forecasts for passenger cars and light trucks under the current baseline

and the MY 2011 final rule. 495

Table IV.C.1-1. Sales Forecasts (Production for U.S. Sale in MY 2011, Thousand Units)

Current Baseline MY 2011 Final Rule Manufacturer Passenger Nonpassenger Passenger Nonpassenger Chrysler 326 737 707 1,216 Ford 1,344 792 1,615 1,144 General Motors 1,249 1,347 1,700 1,844 Honda 851 585 1,250 470 Hyundai 382 46 655 221

Kia 306 88

Nissan 612 331 789 479 Toyota 1,356 888 1,405 1,094

Other Asian 664 246 441 191 European 833 396 724 190 Total 7,923 5,458 9,286 6,849

Dual-fueled vehicles : Manufacturers have also, during and since MY 2008, indicated to the agency that they

intend to sell more dual-fueled or flexible-fuel vehicles (FFVs) in MY 2011 than indicated in the current baseline of adjusted MY 2008 compliance data. FFVs create a potential market for alternatives to petroleum-based gasoline and diesel fuel. For purposes of determining compliance with CAFE standards, the fuel economy of a FFV is, subject to limitations, adjusted upward to account for this potential. 496 However, NHTSA is precluded from “taking credit” for the compliance flexibility by accounting for manuf acturers’ ability to earn and use credits in setting the level of the standards.” 497 Some manufacturers plan to produce a considerably greater share of FFVs than can earn full credit under EPCA. The projected average FFV share of the market in MY 2011 is 7 percent for the current baseline, versus 17 percent for the MY 2011 final rule. NHTSA notes that in MY 2008 (the model year providing the vehicle models upon which today’s market forecast is based), the three U.S.-based OEMs produced most of the FFVs offered for sale in the U.S., yet these OEMs account are projected to account for a smaller share of the

495 As explained below, although NHTSA normalized each manufacturer’s overall market share to produce a realistically-sized fleet, the product mix for each manuf acturer that submitted product plans was preserved. The agency has reviewed manufacturers’ product plans in detail , and understands that manufacturers do not sell the same mix of vehicles in every model year.

496 See 49 U.S.C. 32905 and 32906.

497 49 U.S.C..32902(h).422 future market in the forecast the agency has used to develop and analyze today’s rule than in the forecast the agency used to develop and analyze the MY 2011 standards.

Estimated achieved fuel economy levels : Because manufacturers’ product plans also reflect simultaneous changes in fleet mix and other vehicle characteristics, the relationshi p between increased technology utilization andincreased fuel economy cannot be isolated with any certainty. To do so would require an applesto-apples “counterfactual” fleet of vehicles that are, except for technology and fuel economy, identical—for example, in terms of fleet mix and vehicle performance and utility. The current baseline market forecast shows industry-wide average fuel economy levels somewhat lower in

MY 2011 than shown in the MY 2011 final rule and the MYs 2012-2016 NPRM. Under the current baseline, average fuel economy for MY 2011 is 26.4 mpg, versus 26.5 mpg under the baseline in the MY 2011 final rule, and 26.7 mpg under the baseline in the MYs 2012-2016 NPRM. The 0.3 mpg change relative to the MYs 2012-2016 baseline is the result of changes in manufacturer and market segment shares of the MY 2011 market.

These differences are shown in greater de tail below in Table IV.C.1-2, which shows manufacturer-specific CAFE levels (not counting FFV credits that some manufacturers expect to earn) from the current baseline versus the MY 2 011 final rule baseline (from manufacturers’ 2008 product plans) for passenger cars and light trucks. Table IV.C.1-3 shows the combined averages of these planned CAFE levels in the respective baseline fleets. These tables demonstrate that, while the difference at the industr y level is not so large, there are significant

differences in CAFE at the manufacturer level between the current baseline and the MY 2011 final rule baseline. For example, while Volkswag en is essentially the same under both, Toyota and Nissan show increased combined CAFE levels under the current baseline (by 1.9 and 0.7 mpg respectively), while Chrysler, Ford, and GM show decreased combined CAFE levels under the current baseline (by 1.4, 1.1, and 0.8 mpg, respectively) relative to the MY 2011 final rule

baseline.

Table IV.C.1-2. Current Baseline Planned CAFE Levels in MY 2011 versus MY 2011 Final Rule Planned CAFE Levels (Passenger and Nonpassenger)

Current baseline CAFE

levels MY 2011 planned CAFE

levels Manufacturer Passenger Nonpassenger Passenger Nonpassenger

BMW 27.2 23.0 27.0 23.0 Chrysler 27.8 21.8 28.2 23.1

Ford 28.0 21.0 29.3 22.5

Subaru 29.2 26.1 28.6 28.6

General Motors 28.2 21.2 30.3 21.4

Honda 33.5 25.0 32.3 25.2 Hyundai 32.5 24.3 31.7 26.0

Tata 24.6 19.6 24.7 23.9

Kia 498 31.7 23.7

498 Again, Kia is not listed in the table for the MY 2011 fina l rule because it was considered as part of Hyundai for purposes of that analysis ( i.e. , Hyundai-Kia).423 Mazda 499 30.6 26.0

Daimler 26.4 21.0 25.2 20.6

Mitsubishi 29.4 23.6 29.3 26.7

Nissan 31.7 21.7 31.3 21.4

Porsche 26.2 20.0 27.2 20.0

Ferrari 500 16.2

Maserati 501 18.2

Suzuki 30.9 23.3 28.7 24.0 Toyota 35.1 23.7 33.2 22.7 Volkswagen 29.1 20.2 28.5 20.1 Total/Average 30.3 22.2 30.4 22.6

Table IV.C.1-3. Current Baseline Planned CAFE Levels in MY 2011 versus MY 2011 Final Rule Planned CAFE Levels (Combined)

Manufacturer Current

baseline MY 2011 Final

Rule baseline

BMW 25.0 26.0 Chrysler 23.3 24.7

For d 24.9 26.0

Subaru 27.9 28.6

General Motors 24.1 24.9

Honda 29.5 30.0 Hyundai 31.3 30.0

Tata 21.4 24.4

Kia 29.5

Mazda 29.8

Daimler 24.4 23.6

Mitsubishi 27.4 29.1

Nissan 27.3 26.6

Porsche 23.7 22.0

Ferrari 16.2

Maserati 18.2

Suzuki 29.7 27.8 Toyota 29.5 27.6 Volkswagen 27.0 27.1 Total/Average 26.4 26.5

499 Mazda is not listed in the table for the MY 2011 final ru le because it was considered as part of Ford for purposes of that analysis.

500 EPA did not include Ferrari in the current baseline base d on the conclusion that including them would not impact the results, and therefore Fe rrari is not listed in the table for the current baseline.

501 EPA did not include Maserati in the current baseline based on the conclusion that including them would not impact the results, and therefore Maserati is not listed in the table for the current baseline.424 Tables IV.C.1-4 through 1-6 summarize other differences between the current baseline and manufacturers’ product plans submitted to NHTSA in 2008 for the MY 2011 final rule. These tables present average vehicle footprint, curb weight, and power-to-weight ratios for each manufacturer represented in the current baseline and of the seven largest manufacturers represented in the product plan data used in th at rulemaking, and for the overall industry. The tables containing product plan data do not identify manufacturers by name, and do not present them in the same sequence.

Tables IV.C.1-4a and 1-4b show that the current baseline reflects a slight decrease in overall average passenger vehicle size relative to th e manufacturers’ plans. This is a reflection of the market segment shifts underlying the sales forecasts of the current baseline.

Table IV.C.1-4a. Current Baseline Average MY 2011 Vehicle Footprint (Square Feet) Manufacturer PC LT Avg.

BMW 45.4 49.9 47.5 Chrysler 46.8 52.8 50.9

Daimler 47.1 53.3 49.0

Ford 46.3 56.1 49.9

General

Motors 46.4 58.2 52.5

Honda 44.3 49.1 46.3 Hyundai 44.4 48.7 44.8

Kia 45.2 51.0 46.5

Mazda 44.4 47.3 44.9

Mitsubishi 43.8 46.5 44.6

Nissan 45.3 53.9 48.3

Porsche 38.6 51.0 42.8

Subaru 43.1 26.6 36.8

Suzuki 40.8 47.2 41.6

Tata 50.3 47.8 48.8 Toyota 44.0 53.0 47.6 Volkswagen 43.5 52.6 45.1 Industry Average 45.2 53.5 48.6

Table IV.C.1-4b. MY 2011 Final Rule Average Planned MY 2011 Vehicle Footprint (Square Feet) PC LT Avg.

Manufacturer 1 46.7 58.5 52.8

Manufacturer 2 46.0 5.4 47.1

Manufacturer 3 44.9 52.8 48.4

Manufacturer 4 45.4 55.8 49.3

Manufacturer 5 45.2 57.5 50.3

Manufacturer 6 48.5 54.7 52.4425 Manufacturer 7 45.1 49.9 46.4 Industry Average 45.6 55.1 49.7

Tables IV.C.1-5a and 1-5b show that the current baseline reflects a decrease in overall average vehicle weight relative to the manufacturers’ plans. As above, this is most likely a reflection of the market segment shifts underlying the sales forecasts of the current baseline.

Table IV.C.1-5a. Current Baseline Average MY 2011 Vehicle Curb Weight (Pounds) Manufacturer PC LT Avg.
BMW 3,535 4,648 4,055 Chrysler 3,572 4,469 4,194 Daimler 3,583 5,127 4,063 Ford 3,526 4,472 3,877 General Motors 3,528 4,978 4,281 Honda 3,040 4,054 3,453 Hyundai 3,014 4,078 3,129 Kia 3,035 4,007 3,252 Mazda 3,258 3,803 3,348 Mitsubishi 3,298 3,860 3,468 Nissan 3,251 4,499 3,689 Porsche 3,159 4,906 3,760 Subaru 3,176 2,001 2,727 Suzuki 2,842 3,843 2,965 Tata 3,906 5,171 4,627 Toyota 3,109 4,321 3,589 Volkswagen 3,445 5,672 3,839 Industry Average 3,313 4,499 3,797

Table IV.C.1-5b. MY 2011 Final Rule Average Planned MY 2011 Vehicle Curb Weight (Pounds) PC LT Avg. Manufacturer 1 3,197 4,329 3,692 Manufacturer 2 3,691 4,754 4,363 Manufacturer 3 3,293 4,038 3,481 Manufacturer 4 3,254 4,191 3,510 Manufacturer 5 3,547 5,188 4,401 Manufacturer 6 3,314 4,641 3,815 Manufacturer 7 3,345 4,599 3,865 Industry Average 3,380 4,687 3,935

Tables IV.C.1-6a and IV.C.1-6b show that the current baseline reflects a decrease in average performance relative to that of the manufacturers’ product plans. This decreased426 performance is most likely a reflection of th e market segment shifts underlying the sales forecasts of the current baseline, that is, an assumed shift away from higher performance

vehicles.

Table IV.C.1-6a. Current Baseline Average MY 2011 Vehicle Power-to-Weight Ratio (hp/lb) Manufacturer PC LT Avg.

BMW 0.072 0.061 0.067 Chrysler 0.055 0.052 0.053

Daimler 0.068 0.056 0.064

Ford 0.058 0.054 0.056

General Motors 0.057 0.056 0.056

Honda 0.056 0.054 0.056 Hyundai 0.052 0.055 0.052

Kia 0.050 0.056 0.051

Mazda 0.052 0.055 0.052

Mitsubishi 0.053 0.056 0.054

Nissan 0.059 0.057 0.058

Porsche 0.105 0.073 0.094

Subaru 0.060 0.030 0.048

Suzuki 0.049 0.062 0.051

Tata 0.077 0.057 0.065 Toyota 0.053 0.062 0.056 Volkswagen 0.057 0.052 0.056 Industry Average 0.057 0.056 0.056

Table IV.C.1-6b. MY 2011 Final Rule Average Planned MY 2011 Vehicle Power-to-Weight Ratio (hp/lb) PC LT Avg.

Manufacturer 1 0.065 0.058 0.060

Manufacturer 2 0.061 0.065 0.062

Manufacturer 3 0.053 0.059 0.056

Manufacturer 4 0.060 0.058 0.059

Manufacturer 5 0.060 0.057 0.059

Manufacturer 6 0.063 0.065 0.065

Manufacturer 7 0.053 0.055 0.053 Industry Average 0.060 0.059 0.060

As discussed above, the agencies’ market forecast for MY 2012-2016 holds the performance and other characteristics of individu al vehicle models constant, adjusting the size and composition of the fleet from one model year to the next.

Refresh and redesign schedules (for application in NHTSA’s modeling) : Expected model years in which each vehicle model will be redesigned or freshened constitute another important aspect of NHTSA’ s market forecast. As discussed in Section IV.C.2.c below, NHTSA’s analysis supporting the current rulemaking times the addition of427 nearly all technologies to coincide with either a vehicle redesign or a vehicle freshening. Product plans submitted to NHTSA preceding the MY 2011 final rule contained manufacturers’ estimatesof vehicle redesign and freshening schedules and NHTSA’s estimates of the timing of the fiveyear redesign cycle and the two- to three-year refresh cycle were made with reference to those plans. In the current baseline, in contrast, estimates of the timing of the refresh and redesign cycles were based on historical dates— i.e. , counting forward from known redesigns occurring in or prior to MY 2008 for each vehicle in the fleet and assigning refresh and redesign years accordingly. After applying these estimates, the shares of manufacturers’ passenger car and light truck estimated to be redesigned in MY 2011 were as summarized below for the current baseline and the MY 2011 final rule. Table IV.C.1-7 below shows the percentages of each manufacturer’s fleets expected to be redesigned in MY 2011 fo r the current baseline. Table IV.C.1-8 presents corresponding estimates from the market forecast used by NHTSA in the analysis supporting the MY 2011 final rule (again, to protect confidential information, manufacturers are not identified by name).

Table IV.C.1-7. Current Baseline, Share of Fleet Redesigned in MY 2011 Manufacturer PC LT Avg.

BMW 32% 37% 34% Chrysler 0% 13% 9%

Daimler 0% 0% 0%

Ford 12% 8% 11%

General Motors 17% 3% 9%

Honda 29% 26% 28% Hyundai 26% 0% 23%

Kia 38% 83% 48%

Mazda 0% 0% 0%

Mitsubishi 0% 59% 18%

Nissan 5% 25% 12%

Porsche 0% 100% 34%

Subaru 0% 42% 16%

Suzuki 4% 21% 6%

Tata 28% 100% 69% Toyota 5% 15% 9% Volkswagen 16% 0% 13% Industry Average 13% 15% 14%428 Table IV.C.1-8. MY 2011 Final Rule, Share of Fleet Redesigned in MY 2011 PC LT Avg.

Manufacturer 1 19% 0% 11%

Manufacturer 2 34% 27% 29%

Manufacturer 3 5% 0% 3%

Manufacturer 4 7% 0% 5%

Manufacturer 5 19% 0% 11%

Manufacturer 6 34% 28% 33%

Manufacturer 7 27% 28% 28%

Overall 20% 9% 15%

We continue, therefore, to estimate that manufacturers’ redesigns will not be uniformly distributed across model years. This is in keep ing with standard industry practices, and reflects what manufacturers actually do–NHTSA has observed that manufacturers in fact do redesign more vehicles in some years than in others. NHTSA staff have closely examined manufacturers’ planned redesign schedules, contacting some manufa cturers for clarification of some plans, and confirmed that these plans remain unevenly distributed over time. For example, although Table 8 shows that NHTSA expects Company 2 to redesign 34 percent of its passenger car models in MY 2011, current information indicates that this company will then redesi gn only (a different) 10 percent of its passenger cars in MY 2012. Similarly, although Table 8 shows that NHTSA expects four of the largest seven light truck manufacturers to redesign virtually no light truck models in MY 2011, current information also indicates that these four manufacturers will redesign 21-49 percent of their light trucks in MY 2012.

e. How does Manufacturer Product Plan Data Factor into the Baseline Used in this Proposal?

As discussed in Section II.B.5 above, while the agencies received updated product plans in Spring and Fall 2009 in response to NHTSA’s requests, the baseline data used in this final rule is not informed by these product plans, except with respect to specific engineering characteristics ( e.g. , GVWR) of some MY 2008 vehicle models, because these product plans contain

confidential business informatio n that the agencies are legally required to protect from disclosure, and because the agencies have concluded that, for purposes of this final rule, a transparent baseline is preferable.

For the NPRM, NHTSA conducted a separate analysis that did make use of these product plans. NHTSA performed this separate analysis for purposes of comparison only. For today’s final rule NHTSA used the public ly available baseline for all analysis related to the development and evaluation of the new CAFE standards. As discussed above in Section II.B.4, while a baseline developed using publicly and commercially available sources has both advantages and disadvantages relative to a baseline developed using manufacturers’ product plans, NHTSA has concluded for today’s rule that the advantages outweigh the disadvantages. NHTSA plans to consider these advantages and disadvantages further in connection with future rulemakings, taking into account changes in the market, changes in the scope and quality of publicly and429 commercially available data, and any changes in manufacturers’ willingness to make some product planning information publicly available.

2. How were the Technology Inputs Developed?

As discussed above in Section II.E, for developing the technology inputs for the MY 2012-2016 CAFE and GHG standards, the agencies primarily began with the technology inputs used in the MY 2011 CAFE final rule and in the July 2008 EPA ANPRM, and then reviewed, as requested by President Obama in his January 26 memorandum, the technology assumptions that NHTSA used in setting the MY 2011 standards and the comments that NHTSA received in response to its May 2008 Notice of Proposed Rulemaking, as well as the comments received to the NPRM for this rule. In addition, the agencies supplemented their review with updated

information from the FEV tear-down studies cont racted by EPA, more current literature, new product plans and from EPA certification testing. More detail is available regarding how the agencies developed the technology inputs for this fi nal rule above in Section II.E, in Chapter 3 of the Joint TSD, and in Section V of NHTSA’s FRIA.

a. What Technologies does NHTSA Consider?

Section II.E.1 above describes the fuel-savi ng technologies considered by the agencies that manufacturers could use to improve the fuel economy of their vehicles during MYs 2012- 2016. The majority of the technologies described in this section are readily available, well known, and could be incorporated into vehicl es once production decisions are made. As discussed, the technologies considered fall into five broad categories: engine technologies, transmission technologies, vehicle technologies , electrification/accessory technologies, and hybrid technologies. Table IV.C.2-1 below lists all the technologies considered and provides the

abbreviations used for th em in the Volpe model, 502 as well as their year of availability, which for purposes of NHTSA’s analysis means the first model year in the rulemaking period that the Volpe model is allowed to apply a te chnology to a manufacturer’s fleet. 503 Year of availability recognizes that technologies must achieve a leve l of technical viability before they can be implemented in the Volpe model, and are thus a means of constraining technology use until such time as it is considered to be technologically fe asible. For a more detailed description of each technology and their costs and effectiveness, we refer the reader to Chap ter 3 of the joint TSD

and Section V of NHTSA’s FRIA.

Table IV.C.2-1. List of technologies in NHTSA’s analysis

Technology Model Abbreviation Year Available

Low Friction Lubricants LUB 2011
Engine Friction Reduction EFR 2011
VVT - Coupled Cam Phasing (CCP) on SOHC CCPS 2011
Discrete Variable Valve Lift (DVVL) on SOHC DVVLS 2011

502 The abbreviations are used in this section both for brevity and for the reader’s reference if they wish to refer to the expanded decision trees and the model input and output sheets, which are available in Docket No. NHTSA2009-0059 and on NHTSA’s website.

503 A date of 2011 means th e technology can be applied in all model years, while a date of 2014 means the technology can only be applied in model years 2014 through 2016.430 Cylinder Deactivation on SOHC DEACS 2011
VVT - Intake Cam Phasing (ICP) ICP 2011
VVT – Dual Cam Phasing (DCP) DCP 2011
Discrete Variable Valve Lift (DVVL) on DOHC DVVLD 2011
Continuously Variable Valve Lift (CVVL) CVVL 2011
Cylinder Deactivation on DOHC DEACD 2011
Cylinder Deactivation on OHV DEACO 2011
VVT - Coupled Cam Phasing (CCP) on OHV CCPO 2011
Discrete Variable Valve Lift (DVVL) on OHV DVVLO 2011

Conversion to DOHC with DCP CDOHC 2011
Stoichiometric Gasoline Direct Injection (GDI) SGDI 2011

Combustion Restart CBRST 2014
Turbocharging and Downsizing TRBDS 2011
Exhaust Gas Recirculation (EGR) Boost EGRB 2013

Conversion to Diesel following CBRST DSLC 2011

Conversion to Diesel following TRBDS DSLT 2011
6-Speed Manual/Improved Internals 6MAN 2011
Improved Auto. Trans. Controls/Externals IATC 2011
Continuously Variable Transmission CVT 2011
6/7/8-Speed Auto. Trans with Improved Internals NAUTO 2011

Dual Clutch or Automated Manual Transmission DCTAM 2011
Electric Power Steering EPS 2011
Improved Accessories IACC 2011
12V Micro-Hybrid MHEV 2011
Belt Integrated Starter Generator BISG 2011
Crank Integrated Starter Generator CISG 2011
Power Split Hybrid PSHEV 2011
2-Mode Hybrid 2MHEV 2011
Plug-in Hybrid PHEV 2011
Mass Reduction 1 (1.5%) MS1 2011
Mass Reduction 2 (3.5% – 8.5%) MS2 2014
Low Rolling Resistance Tires ROLL 2011
Low Drag Brakes LDB 2011
Secondary Axle Disconnect 4WD SAX 2011
Aero Drag Reduction AERO 2011

For purposes of this final rule and as discus sed in greater detail in the joint TSD, NHTSA and EPA carefully reviewed the list of technologies used in the agency’s analysis for the MY

2011 final rule. NHTSA and EPA concluded that th e considerable majority of technologies were correctly defined and continued to be appropriate for use in the analysis supporting the final431 standards. However, some refinements were made as discussed in the NPRM. 504 Additionally, the following refinements were made for purposes of the final rule.

Specific to its modeling, NHTSA has revised two technologies used in the final rule analysis from those considered in the NPRM. These revisions were based on comments received in response to the NPRM and the identification of area to improve accuracy. In the NPRM, a diesel engine option (DSLT or DSLC) was not available for small vehicles because it did not appear to be a cost-effective option. However, based on comments received in response to the NPRM, the agency added a diesel engine option for small vehicles. Additionally, in the NPRM,

the mass reduction/material su bstitution technology, MS1, assumed engine downsizing. However, for purposes of the final rule, engine downsizing is no longer assumed for MS1, thus slightly lowering the effectiveness estimate to better reflect how manufacturers might implement small amounts of mass reduction/material substitution. Chapter 3 of the Joint TSD and Section V of NHTSA’s FRIA provide a more detailed explanation of these revisions.

b. How Did NHTSA Determine the Costs and Effectiveness of Each of These Technologies for Use in its Modeling Analysis?

Building on NHTSA’s estimates developed for the MY 2011 CAFE final rule and EPA’s Advanced Notice of Proposed Rulemaking, which relied on EPA’s 2008 Staff Technical Report, 505 the agencies took a fresh look at tec hnology cost and effectiveness values and incorporated additional FEV tear-down study results for purposes of this final rule. This joint work is reflected in Chapter 3 of the Joint TSD an d in Section II of this preamble, as summarized below. For more detailed information on the effectiveness and cost of fuel-saving technologies, please refer to Chapter 3 of the joint TSD an d Section V of NHTSA’s FRIA. NHTSA and EPA are confident that the thorough review conducted for purposes of this final rule led to the best available conclusions regarding technology costs and effectiveness estimates for the current rulemaking and resulted in excellent consistency between the agencies’ respective analyses for developing the CAFE and CO 2 standards.

Generally speaking, while NHTSA and EPA found that much of the cost information used in NHTSA’s MY 2011 final rule and EPA’s 2008 Staff Report was consistent to a great extent, the agencies, in reconsidering informati on from many sources revised several component costs of several major technologies for purposes of the NRPM: mild and strong hybrids, diesels, SGDI, and Valve Train Lift Technologies. In addition, based on FEV tear-down studies, the costs for turbocharging/downsizing, 6-,7-,8-sp eed automatic transmissions, and dual clutch

transmissions were revised for this final rule. Th ese revisions are discussed at length in the joint

TSD and in NHTSA’s FRIA.

Most effectiveness estimates used in both the MY 2011 final rule and the 2008 EPA Staff Report were determined to be accurate and were carried forward without significant change into this rulemaking. When NHTSA a nd EPA’s estimates for effectiveness diverged slightly due to differences in how the agencies apply technologies to vehicles in their respective models, we

504 74 Fed. Reg. at 49655-56 (Sept. 28, 2009).

505 EPA Staff Technical Report: Cost and Effectiveness Estimates of Technologies Used to Reduce Light-Duty Vehicle Carbon Dioxide Emissions. EPA420-R-08-008, March 2008.432 report the ranges for the effectiven ess values used in each model. For purposes of the final rule analysis, NHTSA made only a couple of changes to the effectiveness estimates. Specifically, in reviewing the NPRM effectiveness estimates fo r this final rule NHTSA discovered that the DCTAM effectiveness value for Subcompact and Compact subclasses was incorrect; the (lower) wet clutch effectiveness estimate had been used instead of the intended (higher) dry clutch

estimate for these vehicle classes. 506 Thus, NHTSA corrected these effectiveness estimates. Additionally, as discussed above, the effectiv eness estimate for MS1 was revised (lowered) to better represent the impact of reducing mass at a refresh. For much more information on the costs and effectiveness of individual technologies , we refer the reader to Chapter 3 of the joint

TSD and Section V of NHTSA’s FRIA.

As a general matter, NHTSA received relatively few comments related to technology cost and effectiveness estimates as compared to the number received on these issues in previous CAFE rulemakings. The California Air Resour ces Board (CARB) generally agreed with cost estimates used in the NPRM analysis. NHTSA also received comments from the Aluminum Association, General Motors, Honeywell, Intern ational Council on Clean Transportation (ICCT), Manufacturers of Emission Controls Association (MECA), Motor and Equipment Manufacturers Association (MEMA) and the New Jersey Depart ment of Environmental Protection related to cost and effectiveness estimates for specific tec hnologies, including but not limited to hybrids, diesels, turbocharging and downsizing, and mass reduction/material substitution. A detailed description of these comments and NHTSA’s resp onses can be found in Section V of NHTSA’s

FRIA.

NHTSA notes that, in developing technology cost and effectiveness estimates, the agencies have made every effort to hold constant aspects of vehicle performance and utility typically valued by consumers, such as horsepower, carrying capacity, and towing and hauling capacity. For example, NHTSA includes in its analysis technology co st and effectiveness estimates that are specific to performance passenger cars ( i.e. , sports cars), as compared to nonperformance passenger cars. NHTSA sought comment on the extent to which commenters believed that the agencies have been successful in holding constant these elements of vehicle performance and utility in developing the technology cost and effectiveness estimates, but received relatively little in response. NHTSA thus concludes that commenters had no significant issues with its approach for purposes of this ru lemaking, but the agency will continue to analyze this issue going forward.

Additionally, NHTSA notes that the technology co sts included in this final rule take into account only those associated with the initial build of the vehicle. The agencies sought comment on the additional lifetime costs, if any, associated with the implementation of advanced technologies, including warranty , maintenance and replacement costs, such as the replacement costs for low rolling resistance tires, low fric tion lubricants, and hybrid batteries, and

506 “Dry clutch” DCTAMs and “wet clutch” DCTAMs have diff erent characteristics and different uses. A dry clutch DCTAM is more efficient and less expensive than a wet clutch DCTAM, which requires a wet-clutch-type hydraulic system to cool the clutches. However, without a coolin g system, a dry clutch DCTAM has a lower torque capacity. Dry clutch DCTAMs are thus ideal for smaller vehicles wi th lower torque ratings, like those in the Subcompact and Compact classes, while wet clutch DCTAMs would be more appropriate for, e.g. , larger trucks. Thus, it is appropriate to distinguish accordingly in DCTAM effectiveness between subclasses.433 maintenance costs for diesel aftertreatment components, but received no responses. The agency will continue to examine this issue closely for subsequent rulemakings, particularly as manufacturers turn increasingly to even more adva nced technologies in th e future that may have more significant lifetime costs.

The tables below provide examples of the incremental cost and effectiveness estimates employed by the agency in develo ping this final rule, according to the decision trees used in the Volpe modeling analysis. Thus, the effectiveness an d cost estimates are not absolute to a single reference vehicle, but are incremental to the technology or technologies that precede it.434435Table IV.C.2-2. Technology Effectiveness Estimates Employed in the Volpe Model for Certain TechnologiesVEHICLE TECHNOLOGY INCREMENTAL FUEL CONSUMPTION REDUCTION (-%)Subcomp.CarCompactCarMidsizeCarLargeCarPerform.Subcomp.CarPerform.CompactCarPerform.MidsizeCarPerform.LargeCarMinivanLTSmallLTMidsizeLTLargeLTLow Friction Lubricants 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5VVT - Dual Cam Phasing(DCP)2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0Discrete Variable ValveLift (DVVL) on DOHC1.0 - 3.0 1.0 - 3.0 1.0 - 3.0 1.0 - 3.0 1.0 - 3.0 1.0 - 3.0 1.0 - 3.0 1.0 - 3.0 1.0 - 3.0 1.0 - 3.0 1.0 - 3.0 1.0 - 3.0Cylinder Deactivation onOHVn.a. n.a. n.a. 3.9 - 5.5 n.a. 3.9 - 5.5 3.9 - 5.5 3.9 - 5.5 3.9 - 5.5 n.a. 3.9 - 5.5 3.9 - 5.5Stoichiometric GasolineDirect Injection (GDI)2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0Turbocharging andDownsizing4.2 - 4.8 4.2 - 4.8 4.2 - 4.8 1.8 - 1.9 4.2 - 4.8 1.8 - 1.9 1.8 - 1.9 1.8 - 1.9 1.8 - 1.9 4.2 -4.8 1.8 - 1.9 1.8 - 1.96/7/8-Speed Auto. Transwith Improved Internals1.4 - 3.4 1.4 - 3.4 1.4 - 3.4 1.4 - 3.4 1.4 - 3.4 1.4 - 3.4 1.4 - 3.4 1.4 - 3.4 1.4 - 3.4 1.4 - 3.4 1.4 - 3.4 1.4 - 3.4Electric Power Steering 1.0 - 2.0 1.0 - 2.0 1.0 - 2.0 1.0 - 2.0 1.0 - 2.0 1.0 - 2.0 1.0 - 2.0 1.0 - 2.0 1.0 - 2.0 1.0 - 2.0 1.0- 2.0 1.0 - 2.012V Micro-Hybrid 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.5 - 3.5 2.0 - 3.0 2.5 - 3.5 2.5 - 3.5 3.0 - 4.0 2.5 - 3.5 2.0 - 3.0 2.5 - 3.5n.a.Crank mountedIntegrated StarterGenerator8.6 - 8.9 8.6 - 8.9 8.6 - 8.9 8.7 - 8.9 8.6 - 8.9 8.7 - 8.9 8.7 - 8.9 8.7 - 8.9 8.7 - 8.9 8.6 - 8.9 8.7 - 8.914.1 -16.3Power Split Hybrid 6.3 - 12.46.3 -12.46.3 -12.46.3 -12.46.3 - 12.46.3 -12.46.3 -12.46.3 -12.46.3 -12.46.3 -12.46.3 -12.4n.a.Aero Drag Reduction 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0436Table IV.C.2-3. Technology Cost Estimates Employed in the Volpe Model for Certain TechnologiesVEHICLE TECHNOLOGY ICM COSTS PER VEHICLE ($)Subcomp.CarCompactCarMidsizeCarLargeCarPerform.Subcomp.CarPerform.CompactCarPerform.MidsizeCarPerform.LargeCarMinivanLTSmallLTMidsizeLTLargeLTNominal baseline engine (forcost purpose)Inline 4 Inline 4 Inline 4 V6 Inline 4 V6 V6 V8 V6Inline4V6 V8Low Friction Lubricants 3 3 3 3 3 3 3 3 3 3 3 3VVT - Dual Cam Phasing (DCP) 38 38 38 82 38 82 82 82 82 38 82 82Discrete Variable Valve Lift(DVVL) on DOHC142 142 142 206 142 206 206 294 206 142 206 294Cylinder Deactivation on OHV n.a. n.a. n.a. 168 n.a. 168 168 192 168 n.a. 168 192Stoichiometric Gasoline DirectInjection (GDI)236 236 236 342 236 342 342 392 342 236 342 392Turbocharging and Downsizing 445 445 445 325 445 325 325 919 325 445 325 9196/7/8-Speed Auto. Trans withImproved Internals112 112 112 112 112 - 214 112 - 214 112 - 214 112 - 214 112 - 214 112 112 - 214 112 - 214Electric Power Steering 106 106 106 106 106 106 106 106 106 106 106 10612V Micro-Hybrid 288 311 342 367 314 337 372 410 337 325 376 n.a.Crank mounted IntegratedStarter Generator2,791 3,107 3,319 3,547 2,839 3,149 3,335 3,571 3,149 3,141 3,611 5,124Power Split Hybrid 1,600 2,133 2,742 3,261 3,661 4,018 5,287 6,723 4,018 2,337 3,462 n.a.Aero Drag Reduction 48 48 48 48 48 48 48 48 48 48 48 48437438 c. How Does NHTSA Use These Assumptions in its Modeling Analysis?

NHTSA relies on several inputs and data files to conduct the compliance analysis using the Volpe model , as discussed further below and in Section V of the FRIA. For the purposes of applying technologies, the Vo lpe model primarily uses two data files, one that contains data on the vehicles expected to be manufactured in the model years covered by the rulemaking and identifies the appropriate stage within the vehicle’s lifecycle for the technology to be applied, and one that contains data/parameters regarding the available technologies the model can apply. These inputs are discussed below.

As discussed above, the Volpe model begins with an initial state of the domestic vehicle market, which in this case is the market for passenger cars and light trucks to be sold during the period covered by the final standards. The vehicle market is defined on a model-by-model, engine-by-engine, and transm ission-by-transmission basis, such that each defined vehicle model refers to a separately defined engine and a separately defined

transmission.

For the current standards, which cover MYs 2012-2016, the light-duty vehicle (passenger car and light truck) market forecast was developed jointly by NHTSA and EPA staff using MY 2008 CAFE compliance data. The MY 2008 compliance data includes about 1,100 vehicle models, about 400 specific engines, and about 200 specific transmissions, which is a somewhat lower le vel of detail in the representation of the vehicle market than that used by NHTSA in recent CAFE analyses—previous analyses would count a vehicle as “new” in any year when significant technology differences are made, such as at a redesign. 507 However, within the limitations of information that can be made available to the public, it provides the foundation for a realistic analysis of manufacturer-specific costs and the analysis of attribute-based CAFE standards, and is much greater than the level of detail used by many other models and analyses relevant to light-duty vehicle fuel economy. 508

In addition to containing data about each vehicle, engine, and transmission, this file contains information for each technology under consideration as it pertains to the specific vehicle (whether the vehicle is equipp ed with it or not), the estimated model year the vehicle is undergoing redesign, and information about the vehicle’s subclass for purposes of technology application. In essence, the model considers whether it is appropriate to apply a technology to a vehicle.

507 The market file for the MY 2011 final rule, which included data for MYs 2011-2015, had 5500 vehicles, about 5 times what we are using in this analysis of the MY 2008 certification data.

508 Because CAFE standards apply to the average pe rformance of each manufacturer’s fleet of cars and light trucks, the impact of potential standards on i ndividual manufacturers cannot be credibly estimated without analysis of the fleets that manufacturers can be expected to produce in the future. Furthermore, because required CAFE levels under an attribute-based CAFE standa rd depend on manufacturers’ fleet composition, the stringency of an attribute-based sta ndard cannot be predicted without performing analysis

at this level of detail.439 Is a vehicle already equipped, or can it not be equipped, with a particular technology?

The market forecast file provides NHTS A the ability to identify, on a technology by technology basis, which technologies may already be present (manufactured) on a particular vehicle, engine, or transmission, or which technologies are not applicable (due to technical considerations) to a particular vehicle, engine, or transmission. Theseidentifications are made on a model-by-model, engine-by-engine, and transmission-bytransmission basis. For example, if the ma rket forecast file indicates that Manufacturer X’s Vehicle Y is manufactured with Technology Z, then for this vehicle Technology Z will be shown as used. Additionally, NHTSA has determined that some technologies are only suitable or unsuitable when certain vehicl e, engine, or transmission conditions exist. For example, secondary axle disconnect is only suitable for 4WD vehicles, and cylinder deactivation is unsuitable for any engine wi th fewer than 6 cylinders, while CVTs can only be applied to unibody vehicles. Similarly, comments received to the 2008 NPRM indicated that cylinder deactivation could not lik ely be applied to vehicles equipped with manual transmissions during the rulemaking timeframe, due primarily to the cylinder deactivation system not being able to anticipate gear shifts. The Volpe model employs “engineering constraints” to address issues like these, which are a programmatic method of controlling technology application that is independent of other constraints. Thus, the market forecast file would indicate that the technology in question should not be applied to the particular vehicle/engine/transmission ( i.e. , is unavailable). Since multiple vehicle models may be equipped with an engine or transmission, this may affect multiple models. In using this aspect of the market foreca st file, NHTSA ensures the Volpe model only applies technologies in an appropriate manner, since before any application of a technology can occur, the model checks the market forecast to see if it is either already present or unavailable.

In response to the NPRM, NHTSA receiv ed comments from GM that included a description of technical considerations, concerns, limitations and risks that need to be considered when implementing turbocharging and downsizing technologies on full size trucks. These include concerns related to engine knock, drivability, control of boost pressure, packaging complexity, enhanced cooling for vehicles that are designed for towing or hauling, and noise, vibration and harshness. NHTSA judges that the expressed technical considerations, concerns, limitations and risks are well recognized within the industry and it is standard industry practice to address each during the design and development phases of applying turbochargi ng and downsizing technologies. Cost and effectiveness estimates used in the final rule are based on analysis that assumes each of these factors is addressed prior to production implementation of the technologies. In comments related to full size trucks, GM co mmented that potential to address knock limit concerns through various alternatives, which include use of higher octane premium fuel and/or the addition of a supplemental ethanol injection system. For this rulemaking, NHTSA has not assumed that either of these approaches is implemented to address knock440 limit concerns, and these technologies are not included in assessment of turbocharging and downsizing feasibility, cost or effectiveness. 509 In addition, NHTSA has received confidential business information from a manufacturer that supports that turbocharging and downsizing is feasible on a full size truck product during the rulemaking period.

Is a vehicle being redesigned or refreshed?

Manufacturers typically plan vehicle change s to coincide with certain stages of a vehicle’s life cycle that are appropriate for th e change, or in this case the technology being applied. In the automobile industry there are two terms that describe when technology changes to vehicles occur: redesign and refresh ( i.e. , freshening). Vehicle redesign usually refers to significant changes to a vehicle’s appearance, shape, dimensions, and powertrain. Redesign is tradit ionally associated with the introduction of “new” vehicles into the market, often characterized as the “next generation” of a vehicle, or a new platform. Vehicle refresh usually refers to less extensive vehicle modifications, such as minor changes to a vehicle’s appearance, a moderate upgrade to a powertrain system, or small changes to the vehicle’s featur e or safety equipment content. Refresh is traditionally associated with mid-cycle cosmetic changes to a vehicle, within its current generation, to make it appear “fresh.” Vehicle refresh generally occurs no earlier than two years after a vehicle redesign, or at leas t two years before a scheduled redesign. For the majority of technologies discussed today, manufacturers will only be able to apply them at a refresh or redesign, because their application would be significant enough to involve some level of engineering, testing, and calibration work. 510

Some technologies ( e.g. , those that require significant revision) are nearly always applied only when the vehicle is expected to be redesigned, like turbocharging and engine downsizing, or conversion to diesel or hybrid ization. Other technologies, like cylinder deactivation, electric power steering, and aerodynamic drag reduction can be applied either when the vehicle is expected to be refreshed or when it is expected to be redesigned, while a few others, like low fricti on lubricants, can be applied at any time, regardless of whether a refresh or redesign event is conducted. Accordingly, the model

509 Note that for one of the teardown analysis cost studies of turbocharging and downsizing conducted by FEV, in which a 2.4L I4 DOHC naturally aspirate d engine was replaced by a 1.6L I4 DOHC SGDI turbocharged engine, the particular 1.6L turbocharged engine chosen for the study was a premium octane fuel engine. For this rulemaking, NHTSA intends that a turbocharged and downsized engine achieve comparable performance to a baseline engine without requiring premium octane fuel. For the FEV study of the 1.6L turbocharged engine, this could be achiev ed through the specificati on of an engine with a displacement of slightly greater than 1.6L. NHTSA j udges that a slightly larger engine would have small effect on the overall cost analysis used in this ru lemaking. For all other teardown studies conducted by FEV, both the naturally aspirated engine and the re placement turbocharged and downsized engine were specified to use regular octane fuel.

510 For example, applying material substitution through weight reduction, or even something as simple as low rolling-resistance tires, to a vehicle will likely re quire some level of validat ion and testing to ensure that the vehicle may continue to be certified as compliant with NHTSA’s Federal Motor Vehicle Safety Standards (FMVSS). Weight reduction might affect a vehicle’s crashworthiness; low rolling-resistance tires might change a vehicle’s braking characteristics or how it performs in crash avoidance tests.441 will only apply a technology at the particular point deemed suitable. These constraints are intended to produce results consistent with manufacturers’ technology application practices. For each technology under consideration, NHTSA stipulates whether it can be applied any time, at refresh/redesign, or only at redesign. The data forms another input to the Volpe model. NHTSA develops redesign and refresh schedules for each of a

manufacturer’s vehicles included in the an alysis, essentially based on the last known redesign year for each vehicle and projected forward in a 5-year redesign and a 2-3 year refresh cycle, and this data is also stored in the market forecast file. We note that this approach is different than NHTSA has employed previously for determining redesign and refresh schedules, where NHTSA included the redesign and refresh dates in the market forecast file as provided by manufacturers in confidential product plans. The new approach is necessary given the nature of the new baseline which as a single year of data does not contain its own refresh and redesign cycle cues for future model years, and to ensure the complete transparency of the agency’s analysis. Vehicle redesign/refresh assumptions are discussed in mo re detail in Section V of the FRIA and in Chapter 3 of

the TSD.

NHTSA received comments from the Center for Biological Diversity (CBD) and Ferrari regarding redesign cycles. CBD stated that manufacturers do not necessarily adhere to the agencies’ assumed five-year redesign cycle, and may add significant technologies by redesigning vehicles at more frequent intervals, albeit at higher costs. CBD argued that NHTSA should analyze the costs and benefits of manufacturers choosing to redesign vehicles more frequently than a 5-year average. Conversely, Ferrari agreed with the agencies that major technology changes are introduced at vehicle redesigns, rather than at vehicle freshenings, stating further that as compared to full-line manufacturers, small-volume manufacturers in fact may have 7 to 8-year redesign cycles. In response, NHTSA recognizes that not al l manufacturers follow a precise five-year redesign cycle for every vehicle they produce, 511 but continues to believe that the fiveyear redesign cycle assumption is a reasonable estimate of how often manufacturers can make major technological changes for purposes of its modeling analysis. 512 NHTSA has

511 In prior NHTSA rulemakings, the agency was able to account for shorter redesign cycles on some models ( e.g. , some sedans), and longer redesign cycles on others ( e.g. , cargo vans), but has standardized the redesign cycle in this analysis using the transparent baseline.

512 In the MY 2011 final rule, NHTSA noted that the CAR report submitted by the Alliance, prepared by the Center for Automotive Research and EDF, stated that “For a given vehicle line, the time from conception to first production may span two and one-half to five years,” but that “The time from first production (“Job#1”) to the last vehicle off the line (“ Balance Out”) may span from four to five years to eight to ten years or more, depending on the dynamics of the market segment,” The CAR report then stated that “At the point of final production of the current vehicle line, a new model with the same badge and similar characteristics may be ready to take its place, continuing the cycle, or the old model may be dropped in favor of a different product.” See NHTSA-2008-0090-0170.1, Attachment 16, at 8 (393 of pdf). NHTSA explained that this description, which states that a vehicle model will be redesigned or dropped after 4-10 years, was consistent with other character izations of the redesign and freshening process, and supported the 5-year redesign and 2-3 year refresh cycle assumptions used in the MY 2011 final rule. See

id. , at 9 (394 of pdf). Given that the situation faced by the auto industry today is not so wholly different from that in March 2009, when the MY 2011 final rule was published, and given that the commenters did442 considered attempting to quantif y the increased cost impacts of setting standards that rise in stringency so rapidly that manufacturers are forced to apply “usual redesign” technologies at non-redesign intervals, but such an analysis would be exceedingly complex and is beyond the scope of this rulemaking given the timeframe and the current condition of the industry. NHTSA emphatically disagrees that the redesign cycle is a barrier to increasing penetration of technolo gies as CBD suggests, but we also believe that standards so stringent that they woul d require manufacturers to abandon redesign cycles entirely would be beyond the realm of economic practicability and technological feasibility, particularly in this rulemaki ng timeframe given lead time and capital

constraints. Manufacturers can and will acc omplish much improvement in fuel economy and GHG reductions while applying technology consistent with their redesign schedules.

Once the model indicates that a technology should be applied to a vehicle, the model must evaluate which technology shou ld be applied. This will depend on the vehicle subclass to which the vehicle is assigned; what technologies have already been applied to the vehicle ( i.e. , where in the “decision tree” the vehicle is); when the technology is first available ( i.e. , year of availability); whether the technology is still available ( i.e. , “phase-in caps”); and the costs and effectiveness of the technologies being considered. Technology costs may be reduced, in turn, by learning effects, while technology effectiveness may be increased or reduced by synergistic effects between technologies. In the technology input file, NHTSA has developed a separate set of technology data variables for each of the twelve vehicle subclasses. Each set of variables is referred to as an “input sheet,” so for example, the subcompact input sheet holds the technology data that is appropriate for the subcompact subclass. Each input sheet contains a list of technologies available for members of the particular vehicle subclass. The following items are provided for each technology: the name of the technology, its abbreviation, the decision tree with which it is associated, the (first) year in which it is available, the upper and lower cost and effectiveness (fuel consumption reduction) estimates, the learning type a nd rate, the cost basis, its applicability, and the phase-in

values.

To which vehicle subclass is the vehicle is assigned?

As part of its consideration of technol ogical feasibility, the agency evaluates whether each technology could be implemented on all types and sizes of vehicles, and whether some differentiation is necessary in applying certain technologies to certain types and sizes of vehicles, and with respect to the cost incurred and fuel consumption

and CO 2 emissions reduction achieved when doing so. The 2002 NAS Report

not present information to suggest that these assumptions are unreasonable (but rather simply that different manufacturers may redesign their vehicles more or less frequently, as the range of cycles above indicates), NHTSA believes that the assumptions remain reasonable for purposes of this final rule analysis. See also “Car Wars 2009-2012, The U.S. automotive product pipeline”, John Murphy, Research Analyst, Merrill Lynch research paper, May 14, 2008 and “Car Wars 2010-2013, The U.S. automotive product pipeline”, John Murphy, Research Analyst, Bank of America/Merrill Lynch research paper, July 15, 2009.443 differentiated technology applic ation using ten vehicle “classes” (4 cars classes and 6 truck classes), 513 but did not determine how cost and effectiveness values differ from class to class. NAS’s purpose in separating vehicles into these classes was to create groups of “like” vehicles, i.e. , vehicles similar in size, pow ertrain configuration, weight, and consumer use, and for which similar t echnologies are applicable. NHTSA similarly differentiates vehicles by “subclass” for the purpose of applying technologies to “like” vehicles and assessing their incremental cost s and effectiveness. NHTSA assigns each vehicle manufactured in the rulemaking period to one of 12 subclasses: for passenger cars, Subcompact, Subcompact Performance, Compact, Compact Performance, Midsize, Midsize Performance, Large, and Large Pe rformance; and for light trucks, Small SUV/Pickup/Van, Midsize SUV/Pickup/Van, Large SUV/Pickup/Van, and Minivan.

For this final rule as for the NPRM, NHTSA divides the vehicle fleet into subclasses based on model inputs, and applies subclass-specific estimates, also from model inputs, of the applicability, cost, and ef fectiveness of each fuel-saving technology. Therefore, the model’s estimates of the cost to improve the fuel economy of each vehicle model depend upon the subclass to which the vehicle model is assigned.

Each vehicle’s subclass is stored in the market forecast file. When conducting a compliance analysis, if the Volpe model seeks to apply technology to a particular vehicle,

it checks the market forecast to see if the technology is available and if the refresh/redesign criteria are met. If these conditions are satisfied, the model determines

the vehicle’s subclass from the market data f ile, which it then uses to reference another input called the technology input file. NHT SA reviewed its methodology for dividing vehicles into subclasses for purposes of te chnology application that it used in the MY 2011 final rule, and concluded that the same methodology would be appropriate for this

final rule for MYs 2012-2016. No comments were received on the vehicle subclasses employed in the agency’s NPRM analysis, and NHTSA has retained the subclasses and the methodology for dividing vehicles among them for the final rule analysis. Vehicle

subclasses are discussed in more detail in Sec tion V of the FRIA and in Chapter 3 of the

TSD.

For the reader’s reference, the subclasses and example vehicles from the market forecast file are provided in the tables below.

Passenger Car Subclasses Example (MY 2008) Vehicles Class Example vehicles Subcompact Chevy Aveo, Hyundai Accent Subcompact Performance Mazda MX-5, BMW Z4 Compact Chevy Cobalt, Nissan Sentra and Altima Compact Performance Audi S4, Mazda RX-8 Midsize Chevy Impala, Toyota Camry, Honda Accord,

513 The NAS classes included subcompact cars, compact cars, midsize cars, large cars, small SUVs, midsize SUVs, large SUVs, small pickups, large pickups, and minivans.444 Hyundai Azera Midsize Performance Chevy Corvette, Ford Mustang (V8), Nissan G37 Coupe Large Audi A8, Cadillac CTS and DTS Large Performance Bentley Arnage, Daimler CL600

Light Truck Subclasses Ex ample (MY 2008) Vehicles Class Example vehicles Minivans Dodge Caravan, Toyota Sienna

Small SUV/Pickup/Van Ford Escape & Ranger, Nissan Rogue

Midsize SUV/Pickup/Van Chevy Colorado, Jeep Wrangler, Toyota Tacoma

Large SUV/Pickup/Van Chevy Silverado, Ford E-Series, Toyota Sequoia

What technologies have already been applied to the vehicle ( i.e. , where in the “decision trees” is it)?

NHTSA’s methodology for technology application analysis developed out of the approach taken by NAS in the 2002 Report, and evaluates the application of individual technologies and their incremental costs and effectiveness. Incremental costs and effectiveness of individual technologies are re lative to the prior technology state, which means that it is crucial to understand what technologies are already present on a vehicle

in order to determine correct incremental cost and effectiveness values. The benefit of the incremental approach is transparency in accounting, insofar as when individual technologies are added incrementally to individual vehicles, it is clear and easy to

determine how costs and effectiveness a dd up as technology levels increase.

To keep track of incremental costs and effectiveness and to know which technology to apply and in which order, the Volpe model’s architecture uses a logicalsequence, which NHTSA refers to as “decision trees,” for applying fuel economyimproving technologies to individual vehicles. In the MY 2011 final rule, NHTSA worked with Ricardo to modify previously-employed decision trees in order to allow for a much more accurate application of technologies to vehicles. For purposes of the final rule, NHTSA reviewed the technology sequencing architecture and updated, as appropriate, the decision trees used in the an alysis reported in the final rule for MY 2011

and in the MY 2012-2016 NPRM.

In general, and as described in great detail in the MY 2011 final rule and in Section V of the current FRIA, each technology is assigned to one of the five following categories based on the system it aff ects or impacts: engine, transmission,445 electrification/accessory, hybrid or vehicle. Each of these categories has its own decision tree that the Volpe model uses to apply te chnologies sequentially during the compliance analysis. The decision trees were designed a nd configured to allow the Volpe model to apply technologies in a cost-effective, logical order that also considers ease of implementation. For example, software or control logic changes are implemented before replacing a component or system with a comp letely redesigned one, which is typically a much more expensive option. In some cases, and as appropriate, the model may combine the sequential technologies shown on a decision tree and apply them simultaneously, effectively developing dynamic technology packages on an as-needed basis. For example, if compliance demands indicate, the model may elect to apply LUB, EFR, and ICP on a dual overhead cam engine, if they are not already present, in one single step. An example simplified decision tree for engi ne technologies is provided below; the other simplified decision trees may be found in Ch apter 3 of the joint TSD and in the FRIA. Expanded decision trees are available in the docket for this final rule.446 Figure IV.C.2-1. Engine Technology (EngMod) Decision Tree447 Each technology within the decision trees has an incremental cost and an

incremental effectiveness estimate associated with it, and estimates are specific to a particular vehicle subclass (see the tables in Section V of the FRIA). Each technology’s

incremental estimate takes into account its position in the decision tree path. If a technology is located further down the decision tree, the estimates for the costs and

effectiveness values attributed to that te chnology are influenced by the incremental estimates of costs and effectiveness values for prior technology applications. In essence, this approach accounts for “in-path” effectiveness synergies, as well as cost effects that occur between the technologies in the sa me path. When comparing cost and effectiveness estimates from various sources and those provided by commenters in this and the previous CAFE rulemakings, it is important that the estimates evaluated are analyzed in the proper context, especially as concerns their likely position in the decision trees and other technologies that may be pres ent or missing. Not all estimates available in the public domain or that have been offered for the agencies’ consideration can be evaluated in an “apples-to-apples” comparison with those used by the Volpe model, since in some cases the order of application, or included technology content, is inconsistent

with that assumed in the decision tree.

The MY 2011 final rule discussed in detail the revisions and improvements made to the Volpe model and decision trees during that rulemaking process, including the improved handling and accuracy of valve train technology application and the development and implementation of a method for accounting path-dependent correction factors in order to ensure that technologies are evaluated within the proper context. The

reader should consult the MY 2011 final rule documents for further information on these modeling techniques, all of which continued to be utilized in developing this final rule. 514
To the extent that the decision trees have changed for purposes of the NPRM and this final rule, it was due not to revisions in the order of technology application, but rather to redefinitions of technologies or additi on or subtraction of technologies.

NHTSA did not receive any comments related to the use or ordering of the decision trees, and the agency continued to use the decision trees as they were proposed

in the NPRM.

Is the next technology ava ilable in this model year?

As discussed above, the majority of technologies considered are available on vehicles today, and thus will be available for application (albeit in varying degrees) in the model years covered by this rule. Some technologies, however, will not become available for purposes of NHTSA’s analysis until later in the rulemaking time frame. When the model is considering whether to add a technology to a vehicle, it checks its

514 See, e.g. , 74 FR 14238-46 (Mar. 30, 2009) for a full discussion of the decision trees in NHTSA’s MY 2011 final rule, and Docket No. NHTSA-2009-0062-0003.1 for an expanded decision tree used in that rulemaking.448 year of availability—if the technology is availa ble, it may be added; if it is not available,

the model will consider whether to switch to a different decision tree to look for another technology, or will skip to the next vehicl e in a manufacturer’s fleet. The year of availability for each technology is provided above in Table IV.C.2-1.

CBD commented that because many of the technologies considered in the NPRM are currently available, manufacturers should be able to attain mpg levels equivalent to the MY 2016 standards in MY 2009. In response, as discussed above, technology “availability” is not determined based si mply on whether the technology exists, but depends also on whether the technology has achieved a level of technical viability that makes it appropriate for widespread application. This depends in turn on component supplier constraints, capital investment a nd engineering constraints, and manufacturer product cycles, among other things. Moreover, even if a technology is available for application, it may not be available for every vehicle. Some technologies may have considerable fuel economy benefits, but cannot be applied to some vehicles due to technological constraints – for example, cylinder deactivation cannot be applied to vehicles with current 4-cylinder engines (because not enough cylinders are present to deactivate some and continue moving the vehicle) or on vehicles with manual transmissions within the rulemaking timef rame. The agencies have provided for increases over time to reach the mpg level of the MY 2016 standards precisely because of these types of constraints, because they have a real effect on how quickly manufacturers can apply technology to vehicles in their fleets.

Has the technology reached the ph ase-in cap for this model year?

Besides the refresh/redesign cycles used in the Volpe model, which constrain the rate of technology application at the vehicle le vel so as to ensure a period of stability following any modeled technology applications, the other constraint on technology application employed in NHTSA’s analysis is “phase-in caps.” Unlike vehicle-level cycle settings, phase-in caps co nstrain technology application at the vehicle manufacturer

level. 515 They are intended to reflect a manufacturer’s overall resource capacity available for implementing new technologies (such as engineering and development personnel and financial resources), thereby ensuring that resource capacity is accounted for in the modeling process. At a high level, phase-in caps and refresh/redesign cycles work in conjunction with one another to avoid the modeling process out-pacing an OEM’s limited pool of available resources during the rulemaking time frame, especially in years where many models may be scheduled for refresh or redesign. This helps to ensure

515 While phase-in caps are expressed as specific percentages of a manufacturer’s fleet to which a technology may be applied in a given model year, phase -in caps cannot always be applied as precise limits, and the Volpe model in fact allows “override” of a cap in certain circumstances. When only a small portion of a phase-in cap limit remains, or when the cap is set to a very low value, or when a manufacturer has a very limited product line, the cap might preven t the technology from being applied at all since any application would cause the cap to be exceeded. Th erefore, the Volpe model evaluates and enforces each phase-in cap constraint after it has been exceeded by the application of the technology (as opposed to evaluating it before application), which can resu lt in the described overriding of the cap.449 technological feasibility and economic practicability in determining the stringency of the

standards.

NHTSA has been developing the concept of phase-in caps for purposes of the agency’s modeling analysis over the course of the last several CAFE rulemakings, as discussed in greater detail in the MY 2011 final rule, 516 and in Section V of the FRIA and Chapter 3 of the joint TSD. The MY 2011 final rule employed non-linear phase-in caps (that is, caps that varied from year to year) that were designed to respond to comments raising lead-time concerns in reference to the agency’s proposed MY 2011-2015 standards, but because the final rule covered only one model year, many phase-in caps for that model year were lower than had originally been proposed. NHTSA emphasized that the MY 2011 phase-in caps were based on assumptions for the full five year period of the proposal (2011-2015), and stated that it woul d reconsider the phase-in settings for all years beyond 2011 in a future rulemaking analysis. 517

For purposes of this final rule for MYs 2012-2016, as in the MY 2011 final rule, NHTSA combines phase-in caps for some groups of similar technologies, such as valve phasing technologies that are applicable to different forms of engine design (SOHC, DOHC, OHV), since they are very similar from an engineering and implementation standpoint. When the phase-in caps for two technologies are combined, the maximum total application of either or bo th to any manufacturer’s fleet is limited to the value of the

cap. 518 In contrast to the phase-in caps used in the MY 2011 final rule, NHTSA has increased the phase-in caps for most of the technologies, as discussed below.

In developing phase-in cap values for purp oses of this final rule, NHTSA initially considered the fact that many of the technologies commonly applied by the model, those placed near the top of the decision trees, such as low friction lubes, valve phasing, electric power steering, improved automatic transmission controls, and others, have been commonly available to manufacture rs for several years now. Many technologies, in fact, precede the 2002 NAS Report, which estimated that such technologies would take 4 to 8 years to penetrate the fleet. Since this final rule would take effect in MY 2012, nearly 10 years beyond the NAS report, and extends to MY 2016, and in the interest of harmonization with EPA’s proposal, NHTSA de termined that higher phase-in caps were likely justified. Additionally, NHTSA consider ed the fact that manufacturers, as part of the agreements supporting the National Program, appear to be anticipating higher technology application rates than those used in the MY 2011 final rule. This also supported higher phase-in caps for purposes of the analysis underlying this final rule.

Thus, while phase-in caps for the MY 2011 final rule reached a maximum of 50 percent for a couple of technologies and generally fell in the range between 0 and 20 percent, phase-in caps for this final rule for the majority of technologies are set to reach

516 74 FR 14268–14271 (Mar. 30, 2009)

517 See 74 FR at 14269 (Mar. 20, 2009).

518 See 74 FR at 14270 (Mar. 30, 2009) for further discussion and examples.450 85 or 100 percent by MY 2016, although more advanced technologies like diesels and strong hybrids reach only 15 percent by MY 2016.

NHTSA received comments from the Allia nce and ICCT relating to phase-in caps. The Alliance commented that the higher phase-in caps in the NPRM analysis (as compared to the MY 2011 final rule) “ignore OEM engine architecture differences/limitations,” arguing that the ag ency must consider manufacturing investment and lead time implications when defining phas e-in caps. ICCT did not raise the issue of phase-in caps directly, but commented that the agencies had not provided information in the proposal documents explaining when each manufacturer can implement the different technologies and how long it will take the tech nologies to spread across the fleet. ICCT argued that this information was crucial to considering how quickly the stringency of the standards could be increased, and at what cost.

In response to the Alliance comments, the phase-in cap constraint is, in fact, exactly intended to account for manufacturing investment and lead time implications, as discussed above: phase-in caps are intended to reflect a manufacturer’s overall resource capacity available for implementing new technologies (such as engineering and development personnel and financial resources), to help ensure that resource capacity is accounted for in the modeling process. Although the phase-in caps for the analysis supporting these standards are higher than the phase-in caps employed in the MY 2011 final rule, as stated in the NPRM, the agencies considered the fact that manufacturers, as part of the agreements supporting the National Program, appear to be anticipating higher technology application rates during the rulemaking timeframe – indicating that the values selected for the phase-in caps are more like ly within the range of practicability. Additionally, the agencies did not receive any comments from manufacturers indicating a direct concern with the proposed application ra tes, which they were able to review in the detailed manufacturer level model outputs. The agencies believe that as manufacturers focus their resources ( i.e. , engineering, capital investment, etc.) on fuel economyimproving technologies, many of which have been in production for many years, the application rates being modeled are appropriate for the timeframe being analyzed.

In response to ICCT’s comments, the combination of phase-in caps, refresh/redesign cycles, engineering constr aints, etc., are intended to simulate manufacturers’ technology application decisi ons, and ultimately define the technology application/implementation rates for each manufacturer. NHTSA has used the best public data available to define refresh and redesign schedules to define technology implementation, which allows us to apply technologies at the specific times each manufacturer is planning. There was full noti ce of not just the phase-in caps themselves, but their specific application as well. NH TSA notes that the PRIA and the FRIA do contain manufacturer-specific application/implementation rates for prominent technologies, and that manufacturer-specific technology application as employed in the agency’s analysis is available in full in the Volpe model outputs available on NHTSA’s451 website. The model outputs present the resultant application of technologies at the industry, manufacturer, and vehicle levels.

Theoretically, significantly hi gher phase-in caps, such as those used in the current proposal and final rule as compared to those used in the MY 2011 final rule, should result in higher levels of technology penetrati on in the modeling results. Reviewing the modeling output does not, however, indicate unreasonable levels of technology penetration for the final standards. 519 NHTSA believes that this is due to the interaction of the various changes in methodology for this final rule—changes to phase-in caps are but one of a number of revisions to the Volpe model and its inputs that could potentially impact the rate at which techno logies are applied in the mode ling analysis for this final rule as compared to prior rulemakings. Other revisions that could impact modeled application rates include the use of transparen t CAFE certification data in baseline fleet formulation and the use of other data for projecting it forward, 520 or the use of a multiyear planning programming technique to apply technology retroactively to earlier-MY vehicles, both of which may have a direct impact on the modeling process. Conversely the model and inputs remain unchanged in other areas that also could impact technology application, such as in the refresh/redes ign cycle settings, estimates used for the technologies, both of which remain largely unchanged from the MY 2011 final rule. These changes together make it difficult to predict how phase-in caps should be expected to function in the new modeling process.

Thus, after reviewing the output files, NHTSA concludes that the higher phase-in caps, and the resulting technology application rates produced by the Volpe model, at both the industry and manufacturer level, are appropriate for the analysis underlying these final standards, achieving a suitable level of stringency without requiring unrealistic or unachievable penetration rates.

Is the technology less expensive due to learning effects?

Historically, NHTSA did not explicitly account for the cost reductions a manufacturer might realize through learning achieved from experience in actually applying a technology. Since working with EPA to develop the 2008 NPRM for MYs 2011-2015, and with Ricardo to refine the concept for the March 2009 MY 2011 final rule, NHTSA has accounted for these cost reductions through two kinds of mutually exclusive learning, “volume-based” and “time-based” which it continues to use in this proposal, as discussed below.

In the 2008 NPRM, NHTSA applied learning factors to technology costs for the first time. These learning factors were developed using the parameters of learning

519 The modeling output for the analysis underlying thes e final standards is available on NHTSA’s website.

520 The baseline fleet sets the starting point, from a technology point of view, for where the model begins the technology application process, so changes have a direct impact on the projected net application of technology.452 threshold, learning rate, and the initial cost, and were based on the “experience curve” concept which describes reductions in production costs as a function of accumulated production volume. The typical curve shows a relatively steep initial decline in cost which flattens out to a gentle downwardly sloping line as the volume increase to large values. In the NPRM, NHTSA applied a learning rate discount of 20 percent for each successive doubling of production volume (on a per manufacturer basis), and a learning threshold of 25,000 units was assumed (thus a technology was viewed as being fully learned out at 100,000 units). The factor was only applied to certain technologies that were considered emerging or newly implem ented on the basis that significant cost improvements would be achieved as economies of scale were realized ( i.e. , the technologies were on the steep part of the curve).

In the MY 2011 final rule, NHTSA continued to use this learning factor, referring to it as volume-based learning since the cost reductions were determined by production volume increases, and again only applied it to emerging technologies. However, and in response to comments, NHTSA revised its assumptions on learning threshold, basing them instead on an industry-wide production basis, and increasing the threshold to 300,000 units annually.

Commenters to the 2008 NPRM also described another type of learning factor which NHTSA decided to adopt and implement in the MY 2011 final rule. Commenters described a relatively small negotiated cost decrease that occurred on an annual basis through contractual agreements with first tier component and systems suppliers for readily available, high volume technologies commonly in use by multiple OEMs. Based on the same experience curve principal, however at production volumes that were on the flatter part of the curve (and thus the types of volumes that represent annual industry volumes), NHTSA adopted this type learning a nd referred to it as time-based learning. An annual cost reduction of 3 percent in the second and each subsequent year, which was consistent with estimates from commenters and supported by work Ricardo conducted for NHTSA, was used in the final rule.

In developing the proposed standards, NHTSA and EPA reviewed both types of learning factors, and the thresholds (300,000) and reduction rates (20 percent for volume, 3 percent for time-based) they rely on, and as implemented in the MY 2011 final rule, and agreed that both factors continue to be accurate and appropriate; each agency thus implemented time- and volume-based learning in their analyses. Noting that only one type of learning can be applied to any single technology, if any learning is applied at all,the agencies reviewed each to determine which learning factor was appropriate. Volumebased learning was applied to the higher complexity hybrid technologies, while no learning was applied to technologies likely to be affected by commodity costs (LUB, ROLL) or that have loosely-defined BOMs (EFR, LDB), as was the case in the MY 2011 final rule. Chapter 3 of the joint TSD show s the specific learning factors that NHTSA has applied in this analysis for each technology, and discusses learning factors and each agencies’ use of them further.453 ICCT and Ferrari commented on learning curves. ICCT stated the agencies could improve the accuracy of the learning curve assumptions if they used a more dynamic or continuous learning curve that is more technology-specific, rather than using step decreases as the current time- and volume-based learning curves appear to do. ICCT also commented on the appropriate application of volume- versus time-based learning, and stated further that worldwide production volumes should be taken into account when developing learning curves. Ferrari commented that is more difficult for small-volume manufacturers to negotiate cost decreases from things like cost learning effects with their suppliers, implying that learning effects may not be applicable equally for all

manufacturers.

NHTSA agrees that a continuous curve, if implemented correctly, could potentially improve the accuracy of modeling cost-learning effects, although the agency cannot estimate at this time how significant the improvement would be. To implement a continuous curve, however, NHTSA would need to develop a learning curve cost model to be integrated into the agency’s exis ting model for CAFE analysis. Due to timeconstraints the agencies were not able to investigate fully the use of a continuous costlearning effects curve for each technology, but we will investigate the applicability of this approach for future rulemakings. For purposes of the final rule analysis, however,

NHTSA believes that while more detailed co st learning approaches may eventually be possible, the approach taken for this final rule is valid.

Additionally, while the agencies agree that worldwide production volumes can impact learning curves, the agencies do not forecast worldwide vehicle production volumes in addition to the already complex ta sk of forecasting the U.S. market. That said, the agencies do consider current and projected worldwide technology proliferation when determining the maturity of a particular technology used to determine the appropriateness of applying time- or volume-based learning, which helps to account for the effect of globalized production.

With regard to ICCT’s comments on the appropriate application of volumeversus time-based learning, however, it seems as though ICCT is referencing a study that defines volume- and time-based learning in a different manner than the current definitions used by the agencies, and so is not directly relevant. The agencies use “volume-based” learning for non-mature technologies that have the potential for significant cost reductions through learning , while “time-based” learning is used for mature technologies that have already had significant cost reductions and only have the potential for smaller cost reductions. For “time-based” learning, the agencies chose to emulate the small year-over-year cost reductions manufacturers realize through defined cost reductions, approximately 3 percent per year, negotiated into contracts withsuppliers. A more detailed description of how the agencies define volume- and timebased learning can be found in NHTSA’s PRIA.454 And finally, in response to Ferrari’s comment, NHTSA recognizes that cost negotiations can be different for different manufacturers, but believes that on balance, cost learning at the supplier le vel will generally impact costs to all purchasers. Thus, if cost reductions are realized for a particul ar technology, all entities that purchase the technology will benefit from these cost reductions.

Is the technology more or less effective due to synergistic effects?

When two or more technologies are added to a particular vehicle model to improve its fuel efficiency and reduce CO 2 emissions, the resultant fuel consumption reduction may sometimes be higher or lower than the product of the individual

effectiveness values for those items. 521 This may occur because one or more technologies applied to the same vehicle partially address the same source (or sources) of engine, drivetrain or vehicle losses. Alternately, this effect may be seen when one technology shifts the engine operating points, and therefore increases or reduces the fuel consumption reduction achieved by another technology or set of technologies. The difference between the observed fuel consumption reduction associated with a set of technologies and the product of the individual ef fectiveness values in that set is referred to for purposes of this rulemaking as a “syn ergy.” Synergies may be positive (increased fuel consumption reduction compared to the pr oduct of the individual effects) or negative (decreased fuel consumption reduction). An example of a positive synergy might be a vehicle technology that reduces road loads at highway speeds ( e.g. , lower aerodynamic drag or low rolling resistance tires), that could extend the vehicle operating range over which cylinder deactivation may be employed. An example of a negative synergy might be a variable valvetrain system technology, which reduces pumping losses by altering the profile of the engine speed/load map, and a six-speed automatic transmission, which shifts the engine operating points to a portion of the engine speed/load map where pumping losses are less significant. As the co mplexity of the technology combinations is increased, and the number of interacting te chnologies grows accordingly, it becomes increasingly important to account for these synergies.

NHTSA and EPA determined synergistic impacts for this rulemaking using EPA’s “lumped parameter” analysis tool, which EPA described at length in its March 2008 Staff Technical Report. 522 The lumped parameter tool is a spreadsheet model that represents energy consumption in terms of average performance over the fuel economy test procedure, rather than explicitly analyz ing specific drive cycles. The tool begins

521 More specifically, the products of the differences between one and the technology-specific levels of effectiveness in reducing fuel consumption. For exam ple, not accounting for interactions, if technologies A and B are estimated to reduce fuel consumption by 10 percent ( i.e ., 0.1) and 20 percent ( i.e. , 0.2) respectively, the “product of the individual effectiven ess values” would be 1 – 0.1 times 1 – 0.2, or 0.9 times 0.8, which equals 0.72, corresponding to a comb ined effectiveness of 28 pe rcent rather than the 30 percent obtained by adding 10 percent to 20 percent. The “synergy factors” discussed in this section further adjust these multiplicativel y combined effectiveness values.

522 EPA Staff Technical Report: Cost and Effectivenes s Estimates of Technologies Used to Reduce Lightduty Vehicle Carbon Dioxide Emissions; EPA420-R-08-008, March 2008.455 with an apportionment of fuel consumption across several loss mechanisms and accounts for the average extent to which different technologies affect these loss mechanisms using estimates of engine, drivetrain and vehicle characteristics that are averaged over the EPA fuel economy drive cycle. Results of this analysis were generally consistent with those of full-scale vehicle simulation modeling performed in 2007 by Ricardo, Inc.

For the current rulemaking, NHTSA used the lumped parameter tool as modified

in the MY 2011 CAFE final rule. NHTSA m odified the lumped parameter tool from the version described in the EPA Staff Technical Report in response to public comments received in that rulemaking. The modificatio ns included updating the list of technologies

and their associated effectiveness values to ma tch the updated list of technologies used in the final rule. NHTSA also expanded the list of synergy pairings based on further consideration of the technologies for which a competition for losses would be expected.

These losses are described in more detail in Section V of the FRIA.

NHTSA and EPA incorporate synergistic im pacts in their analyses in slightly different manners. Because NHTSA applies technologies individually in its modeling analysis, NHTSA incorporates synergistic effects between pairings of individual technologies. The use of discrete technology pair incremental synergies is similar to that in DOE’s National Energy Modeling System (NEMS). 523 Inputs to the Volpe model incorporate NEMS-identified pairs, as we ll as additional pairs from the set of technologies considered in the Volpe model.

NHTSA notes that synergies that occu r within a decision tree are already

addressed within the incremental values assi gned and therefore do not require a synergy pair to address. For example, all engine technologies take into account incremental synergy factors of preceding engine technologies, and all transmission technologies take into account incremental synergy factors of preceding transmission technologies. These factors are expressed in the fuel consumption improvement factors in the input files used by the Volpe model.

For applying incremental synergy factors in separate path technologies, the Volpe model uses an input table (see the tables in Chapter 3 of the TSD and in the FRIA) which lists technology pairings and incremental syne rgy factors associated with those pairings, most of which are between engine technolo gies and transmission/ electrification/hybrid technologies. When a technology is applied to a vehicle by the Volpe model, all instances of that technology in the incremen tal synergy table which match technologies already applied to the vehicle (either pre-ex isting or previously applied by the Volpe model) are summed and applied to the fuel consumption improvement factor of the technology being applied. Synergies for the strong hybrid technology fuel consumption

523 U.S. Department of Energy, Energy Information Administration, Transportation Sector Module of the National Energy Modeling System: Model Documentation 2007 , May 2007, Washington, DC, DOE/EIAM070(2007), at 29-30. Available at http://tonto.eia.doe.gov/ftproot/modeldoc/m070(2007).pdf (last accessed Feb. 22, 2010).456 reductions are included in the incremental va lue for the specific hybrid technology block since the model applies technologies in the order of the most effectiveness for least cost and also applies all available electrifica tion and transmission technologies before applying strong hybrid technologies.

NHTSA received only one comment regarding synergies, from MEMA, who commented that NHTSA’s Volpe model adequately addressed synergistic effects. Having received no information to the contrary, NHTSA finalized the synergy approach

and values for the final rule.

d. Where Can Readers Find More Detailed Information about NHTSA’s Technology Analysis?

Much more detailed information is pr ovided in Section V of the FRIA, and a discussion of how NHTSA and EPA jointly reviewed and updated technology assumptions for purposes of th is final rule is available in Chapter 3 of the TSD. Additionally, all of NHTSA’s model input and output files are now public and available for the reader’s review and consideration. The technology input files can be found in the docket for this final rule, Docket No. NHTSA-2009-0059, and on NHTSA’s website. And finally, because much of NHTSA’s technology analysis for purposes of this final rule builds on the work that was done for the MY 2011 final rule, we refer readers to that document as well for background information concerning how NHTSA’s methodology for technology application analysis has evolved over the past several rulemakings, both in response to comments and as a result of the agency’s growing experience with this type of analysis. 524

3. How Did NHTSA Develop its Economic Assumptions?

NHTSA’s analysis of alternative CAFE standards for the model years covered by this rulemaking relies on a range of forecast variables, economic assumptions, and parameter values. This section describes the sources of these forecasts, the rationale underlying each assumption, and the agency’s choices of specific parameter values. These economic values play a significant role in determining the benefits of alternative CAFE standards, as they have for the la st several CAFE rulemakings. Under those

alternatives where standards would be establis hed by reference to their costs and benefits,

these economic values also affect the levels of the CAFE standards themselves. Some of these variables have more important effects on the level of CAFE standards and the benefits from requiring alternative increases in fuel economy than do others.

In reviewing these variables and the agency’s estimates of their values for purposes of this final rule, NHTSA reconsid ered previous comments it had received and comments received to the NPRM, as well as reviewed newly available literature. As a consequence, the agency elected to revise some of its economic assumptions and

524 74 FR 14233-308 (Mar. 30, 2009).457 parameter estimates from previous rulemaki ngs at the NPRM stage, while retaining others. Some of the most important changes, which are discussed in greater detail below, as well as in Chapter 4 of the joint TSD and in Chapter VIII of the FRIA, include significant revisions to the markup factor s for technology costs; reducing the rebound effect from 15 to 10 percent; and revising the value of reducing CO 2 emissions based on recent interagency efforts to develop estimates of this value for government-wide use. The comments the agency received and its responses are discussed in detail below, as well as in the TSD and FRIA. For the reader’s reference, Table IV.C.3-1 below

summarizes the values used to calculate the economic benefits from each alternative.

Table IV.C.3-1. Economic Values for Benefits Computations (2007$)

Fuel Economy Rebound Effect 10% "Gap" between test and on-road MPG 20% Value of refueling time per ($ per vehicle-hour) $ 24.64
Annual growth in average vehicle use 1.15% Fuel Prices (2012-50 average, $/gallon)

Retail gasoline price $3.66 Pre-tax gasoline price $3.29 Economic Benefits from Reducing Oil Imports ($/gallon)

"Monopsony" Component $ 0.00 Price Shock Component $ 0.17 Military Security Component $ 0.00 Total Economic Costs ($/gallon) $ 0.17 Emission Damage Costs (2020, $/ton or $/metric ton)

Carbon monoxide $ 0 Volatile organic compounds (VOC) $ 1,300 Nitrogen oxides (NOx) – vehicle use $ 5, 300 Nitrogen oxides (NOx) – fuel pr oduction and distribution $ 5,100 Particulate matter (PM 2.5 ) – vehicle use $ 290,000 Particulate matter (PM 2.5 ) – fuel production and distribution $ 240,000 Sulfur dioxide (SO 2 ) $ 31,000 Carbon dioxide (CO 2 ) $ 21 525

Annual Increase in CO 2 Damage Cost Varies by

year External Costs from Additional Automobile Use ($/vehiclemile)

Congestion $ 0.054
Accidents $ 0.023
Noise $ 0.001
Total External Costs $ 0.078

525 The $21 value is for CO 2 emissions in 2010, which rises to $45/ton in 2050, at an average discount rate of 3 percent.458External Costs from Additional Light Truck Use ($/vehiclemile)

Congestion $0.048
Accidents $0.026
Noise $0.001
Total External Costs $0.075
Discount Rate Applied to Future Benefits 3%

a. Costs of Fuel Economy-Improving Technologies

NHTSA and EPA previously developed detailed estimates of the costs of applying fuel economy-improving technologies to vehicle models for use in analyzing the impacts of alternative standards considered in the proposed rulemaking, including varying cost estimates for applying certain fuel economy technologies to vehicles of different sizes and body styles. These esti mates were modified for purposes of this analysis as a result of extensive consultations among engineers from NHTSA, EPA, and the Volpe Center. Building on NHTSA’s estimates developed for the MY 2011 CAFE final rule and EPA’s Advanced Notice of Proposed Rulemaking, which relied on EPA’s 2008 Staff Technical Report, the two agencies took a fresh look at technology cost and effectiveness values and incorporated FEV tear-down study results for purposes of this joint final rule under the National Program.

While NHTSA generally found that much of the cost information used in the MY 2011 final rule and EPA’s 2008 Staff Report was consistent to a great extent, the agencies, in reconsidering information from many sources, revised the component costs of several major technologies including: turbocharging/downsizing, mild and strong hybrids, diesels, SGDI, and Valve Train Lift Technologies for purposes of the NPRM. In addition, based on FEV tear-down studies, th e costs for turbocharging/downsizing, 6-,7- ,8-speed automatic transmissions, and dual cl utch transmissions were revised for this

final rule.

The technology cost estimates used in this analysis are intended to represent manufacturers’ direct costs for high-volume production of vehicles with these technologies and sufficient experience with th eir application so that all remaining cost reductions due to “learning curve” effects have been fully realized. However, NHTSA recognizes that manufacturers’ actual costs for employing these technologies include additional outlays for accompanying design or engineeri ng changes to models that use them, development and testing of prototype versions, recalibrating engine operating parameters, and integrating the technology with other attributes of the vehicle. Manufacturers’ indirect costs for employing th ese technologies also include expenses for product development and integration, modifying assembly processes and training assembly workers to install them, increa sed expenses for operation and maintaining assembly lines, higher initial warranty co sts for new technologies, any added expenses459 for selling and distributing vehicles that us e these technologies, and manufacturer and dealer profit.

In previous CAFE rulemakings and in NHTSA’s safety rulemakings, the agency has accounted for these additional costs by using a Retail Price Equivalent (RPE) multiplier of 1.5. For purposes of this rulemaking, based on recent work by EPA, NHTSA has applied indirect cost multipliers ranging from 1.11 to 1.64 to the estimates of vehicle manufacturers’ direct costs for pr oducing or acquiring each technology to improve fuel economy. 526 These multipliers vary with the complexity of each technology

and the time frame over which costs are es timated. More complex technologies are associated with higher multipliers because of the larger increases in manufacturers’ indirect costs for developing, producing (or procuring), and deploying these more complex technologies. The appropriate multipliers decline over time for technologies of all complexity levels, since increased familiar ity and experience with their application is assumed to reduce manufacturers’ indirect costs for employing them.

NHTSA and EPA received far fewer specific comments on technology cost estimates than in previous CAFE rulemakings, which suggests that most, although not all, stakeholders generally agreed with the agencies’ assumptions. Several commenters supported the agencies’ use of tear-down studies for developing some of the technology costs, largely citing the agencies’ own reasons in support of that methodology. Some specific comments were received with regard to hybrid and other technology costs, to which the agencies are responding directly in Chapter 3 of the joint TSD and in the agencies’ respective FRIAs. Generally speaking, however, to the extent that commenters disagreed with the agencies’ cost estimates, often the disagreement stemmed from assumptions about the technology’s maturity, which the agencies have tried to account for in the analysis. These issues are discussed further in Chapter 3 of the TSD. Additionally, we note that technology costs will also be addressed in the upcoming revised NAS report.

With regard to the indirect cost multip lier approach, commenters also generally supported the higher level of specificity provided by the ICM approach compared to the RPE approach, although some commenters suggested specific refinements to the measurement of ICMs. For example, whil e the automotive dealer organization NADA argued that all dealer costs of sales should be included in “dealer profit,” another commenter noted expressly that the ICM does not include profits. Comments from ICCT also argued in favor of revising the “technology complexity” component of the ICM to account for the complexity of integrating a new technology into a vehicle, rather than for only the complexity of producing the technology itself. These comments and others on the ICM are addressed in Chapter 3 of the joint TSD and in the agencies’ respective FRIAs. NHTSA notes that profits were not incl uded in the indirect cost estimates of this

526 NHTSA notes that in addition to the technology cost analysis employing this “ICM” approach, the FRIA contains a sensitivity analysis using a technology cost multiplier of 1.5.460 rule. NHTSA continues to study this issue and may employ a different approach in future rulemakings.

b. Potential Opportunity Costs of Improved Fuel Economy

An important concern is whether achieving the fuel economy improvements required by alternative CAFE standards might result in manufacturers compromising the performance, carrying capacity, safety, or comfort of their vehicle models. To the extent that it does so, the resulting sacrifice in the value of these attributes to consumers represents an additional cost of achieving the required improvements in fuel economy. (This possibility is addressed in detail in Section IV.G.6.) Although exact dollar values

of these attributes to consumers are difficu lt to infer, differences in vehicle purchase prices and buyers’ choices among competing models that feature varying combinations of these characteristics clearly demonstrate that ch anges in these attributes affect the utility and economic value that vehicles offer to potential buyers. 527

NHTSA and EPA have approached this potential problem by developing cost estimates for fuel economy-improving tec hnologies that include any additional manufacturing costs that would be necessary to maintain the originally planned levels of performance, comfort, carrying capacity, and safety of any light-duty vehicle model to which those technologies are applied. In doi ng so, the agencies followed the precedent established by the 2002 NAS Report, which estimated “constant performance and utility” costs for fuel economy technologies. NHTSA has used these as the basis for its continuing efforts to refine the technology co sts it uses to analyze manufacturer’s costs for complying with alternative passenger ca r and light truck CAFE standards for MYs 2012-2016. Although the agency has revised its estimates of manufacturers’ costs for some technologies significantly for use in this rulemaking, these revised estimates are still intended to represent costs that wo uld allow manufacturers to maintain the performance, carrying capacity, and utility of vehicle models while improving their fuel

economy.

Although we believe that our cost estimates for fuel economy-improving technologies include adequate provision for accompanying outlays that are necessary to prevent any significant degrada tion in other attributes that vehicle owners value, it is possible that they do not include adequate allowance for the necessary efforts by manufacturers to prevent sacrifices in these attr ibutes on all vehicle models. If this is the case, the true economic costs of achieving higher fuel economy should include the opportunity costs to vehicle owners of any sacrifices in vehicles’ performance, carrying

527 See

, e.g. , Kleit A.N., 1990. “The Effect of Annual Changes in Automobile Fuel Economy Standards.” Journal of Regulatory Economics 2: 151-172; Berry, Steven, James Levinsohn, and Ariel Pakes, 1995. “Automobile Prices in Market Equilibrium,” Econom etrica 63(4): 841-940; McCarthy, Patrick S., 1996.

“Market Price and Income Elasticities of New Vehicle Demands.” Review of Economics and Statistics 78: 543-547; and Goldberg, Pinelopi K., 1998. “The Effects of the Corporate Average Fuel Efficiency Standards in the US,” Journal of Industrial Economics 46(1): 1-33.461 capacity, and utility, and omitting these w ill cause the agency’s estimated technology costs to underestimate the true economic costs of improving fuel economy.

Recognizing this possibility, it would be desirable to estimate explicitly the changes in vehicle buyers’ welfare from the combination of higher prices for new vehicle models, increases in their fuel economy, and any accompanying changes in vehicle attributes such as performance, passenger- and cargo-carrying capacity, or other dimensions of utility. The net change in buyer’s welfar e that results from the combination of these changes would provide a more accurate estimate of the true economic costs for improving fuel economy. Although the agency has been unable to develop a procedure for doing so as part of this rulemaking, Section IV.G.6. below includes a detailed analysis and discussion of how omitting possible changes in vehicle attributes other than their prices and fuel eco nomy might affect its estimates of benefits and costs resulting from the sta ndards this rule establishes.

c. The On-Road Fuel Economy “Gap”

Actual fuel economy levels achieved by light-duty vehicles in on-road driving fall

somewhat short of their levels measured under the laboratory-like test conditions used by EPA to establish its published fuel economy ratings for different models. In analyzing the fuel savings from alternative CAFE standards, NHTSA has previously adjusted the actual fuel economy performance of each light truck model downward from its rated value to reflect the expected size of this on-road fuel economy “gap.” On December 27, 2006, EPA adopted changes to its regulations on fuel economy labeling, which were intended to bring vehicles’ rated fuel economy levels closer to their actual on-road fuel economy levels. 528

In its Final Rule, EPA estimated that actual on-road fuel economy for light-duty vehicles averages 20 percent lower than published fuel economy levels. For example, if the overall EPA fuel economy rating of a light truck is 20 mpg, the on-road fuel economy actually achieved by a typical driver of that vehicle is expected to be 16 mpg (20*.80). NHTSA employed EPA’s revised estimate of this on-road fuel economy gap in its analysis of the fuel savings resulting from alternative CAFE standards evaluated in the

MY 2011 final rule.

For purposes of this final rule, NHTSA conducted additional analysis of this issue. The agency used data on the number of passenger cars and light trucks of each model year that were registered for use during calendar years 2000 through 2006, average rated fuel economy for passenger cars and light trucks produced during each model year, and estimates of average miles driven per year by cars and light trucks of different ages. These data were combined to develop estimates of the average fuel economy that the U.S. passenger vehicle fleet would have achieved from 2000 through 2006 if cars and light

528 71 FR 77871 (Dec. 27, 2006).462 trucks of each model year achieved the same fuel economy levels in actual on-road driving as they did under test conditions when new.

NHTSA compared these estimates to the Federal Highway Administration’s (FHWA) published values of actual on-road fuel economy for passenger cars and light trucks during each of those years. 529 FHWA’s estimates of actual fuel economy for passenger cars averaged 22 percent lower than NHTSA’s estimates of its fleet-wide average value under test conditions over this period, while FHWA’s estimates for light trucks averaged 17 lower than NHTSA’s estimates of average light truck fuel economy under test conditions. These results appear to confirm that the 20 percent on-road fuel economy discount or gap represents a reasonable estimate for use in evaluating the fuel savings likely to result from alternative CAFE standards for MY 2012-2016 vehicles.

NHTSA received no commen ts on this issue in response to the NPRM. Accordingly, it has not revised its estimate of the on-road fuel economy gap from the 20 percent figure used previously.

d. Fuel Prices and the Value of Saving Fuel

Projected future fuel prices are a critical input into the economic analysis of alternative CAFE standards, be cause they determine the value of fuel savings both to new vehicle buyers and to society. NHTSA relied on the most recent fuel price projections from the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook (AEO) for this analysis. Specifically, we used the AEO 2010 Early Release (December 2009) Reference Case forecasts of inflation-adjusted (constant-dollar) retail gasoline and diesel fuel prices, which represent the EIA’s most up- to-date estimate of the most likely course of future prices for petroleum products. 530 This forecast is somewhat lower than the AEO 2009 Reference Case forecast the agency relied upon in the analysis it conducted for the NPRM. Over the period from 2010 to 2030, the AEO 2010 Early Release Reference

529 Federal Highway Administration, Highway Statistics, 2000 through 2006 editions, Table VM-1; see http://www.fhwa.dot.gov/policy/ohpi/hss/hss pubs.cfm (last accessed March 1, 2010).

530 Energy Information Administration, Annual Energy Outlook 2010 Early Release, Reference Case (December 2009), Table A12. Available at http://www.eia.doe.gov/oiaf/aeo/pdf/appa.pdf, p. 25(last accessed March 1, 2010). These forecasts reflect the provisions of the Energy Independence and Security Act of 2007 (EISA), including the requirement that the combined mpg level of U.S. cars and light trucks reach 35 miles per gallon by model year 2020. Because this provision w ould be expected to reduce future U.S. demand for gasoline and lead to a decline in its future price, there is some concern about whether the AEO 2010 forecast of fuel prices partly reflects the incr eases in CAFE standards considered in this rule, and thus whether it is suitable for valuing the projected reductions in fuel use. In response to this concern, the agency notes that EIA issued a revised version of AEO 2008 in June 2008, which modified its previous December 2007 Early Release of AEO 2008 to re flect the effects of then recently-passed EISA legislation. 530 The fuel price forecasts reported in EIA’ s Revised Release of AEO 2008 differed by less than one cent per gallon throughout th e entire forecast period (2008-230) from those previously issued as part of its initial release of AEO 2008. Thus, the agencies are reasonably confident that the fuel price forecasts presented in AEO 2010 and used to analyze the value of fuel savings projected to result from this rule are not unduly affected by the CAFE provisions of EISA.463 Case forecast of retail gasoline prices used in this analysis averages $3.18 per gallon (in 2007 dollars), in contrast to the $3.38 per gallon average price for that same period forecast in the earlier AEO 2009 Reference Case and used in the NPRM analysis.

While NHTSA relied on the forecasts of fuel prices presented in AEO 2008 High Price Case in the MY 2011 final rule, we noted at the time that we were relying on that estimate primarily because volatility in the oil market appeared to have overtaken the Reference Case. We also anticipated that the Reference Case forecasts would be significantly higher in subsequent editions of AEO, and that in future rulemaking analyses the agency would be likely to rely on the Reference Case rather than High Price Case forecasts. In fact, both EIA’s AEO 20 09 Reference Case and its subsequent AEO 2010 Early Release Reference Case forecasts project higher retail fuel prices in most future years than those forecast in the High Price Case from AEO 2008. NHTSA is thus confident that the AEO 2010 Early Release Refe rence Case is an appropriate forecast for projected future fuel prices.

NHTSA and EPA received relatively few comments on the fuel prices used in the NPRM analysis, compared to previous CAFE rulemakings. Two commenters, CARB and NADA, supported the use of AEO’s Reference Case for use in the agencies’ analysis, although they disagreed on the agencies’ use of the High and Low Price Cases for sensitivities. Both commenters emphasized the sensitivity of the market and the agencies’ analysis to higher and lower gas prices, and on that basis, CARB supported the use of the High and Low Price Cases in sens itivity analysis but urged the agencies to caveat the “Reference Case” results more explicitly. In contrast, NADA argued that the agencies should not use the High and Low Price Cases, because EIA does not assign specific probabilities to either of them. On ly one commenter, James Adcock, argued that the agencies should use forecasts of future fu el prices other than those reported in AEO; Adcock stated that future fuel prices should be assumed to be higher than current pump prices.

Measured in constant 2007 dollars, the AEO 2010 Early Release Reference Case forecast of retail gasoline prices during calendar year 2010 is $2.44 per gallon, and rises gradually to $3.83 by the year 2035 (these values include federal, state and local taxes). However, the agency’s analysis of the value of fuel savings over the lifetimes of MY 2012-2016 cars and light trucks requires forecasts extending through calendar year 2050, approximately the last year during which a si gnificant number of MY 2016 vehicles will remain in service. To obtain fuel price forecasts for the years 2036 through 2050, the agency assumes that retail fuel prices will c ontinue to increase after 2035 at the average annual rates projected for 2025 through 2035 in the AEO 2010 Early Release Reference

Case. 531 This assumption results in a projected retail price of gasoline that reaches $4.49 in 2007 dollars during the year 2050.

531 This projection uses the rate of increase in fuel pr ices for 2020-2030 rather than that over the complete forecast period (2009-2030) because there is extreme volatility in the fo recasts for the years 2009 through464 The value of fuel savings resulting from improved fuel economy to buyers of light-duty vehicles is determined by the retail price of fuel, which includes federal, state, and any local taxes imposed on fuel sales. The agency has updated the estimates of gasoline taxes it employed in the NPRM using the recent data on state fuel tax rates; expressed in 2007 dollars, federal gasoline taxes are currently $0.178, while state and local gasoline taxes together average $0.231 per gallon, for a total tax burden of $0.401 per gallon. Because fuel taxes represent transfers of resources from fuel buyers to government agencies, however, rather than real resources that are consumed in the process of supplying or using fuel, NHTSA deducts their value from retail fuel prices to determine the true value of fuel savings resulting from more stringent CAFE standards to the U.S. economy.

NHTSA follows the assumptions used by EIA in AEO 2010 Early Release that state and local gasoline taxes will keep pace with inflation in nominal terms, and thus remain constant when expressed in constant dollars. In contrast, EIA assumes that federal gasoline taxes will remain unchanged in nominal terms, and thus decline throughout the forecast period when expressed in constant dollars. These differing assumptions about the likely future behavior of federal and state/local fuel taxes are

consistent with recent historical experience, which reflects the fact that federal as well as most state motor fuel taxes are specified on a cents-per-gallon rather than an ad valorem basis, and typically require legislation to change. The projected value of total taxes is deducted from each future year’s forecast of retail gasoline and diesel prices to determine the economic value of each gallon of fuel saved during that year as a result of improved fuel economy. Subtracting fuel taxe s from the retail prices forecast in AEO 2010 Early Release results in a projected value for saving gasoline of $2.04 per gallon during 2010, rising to $3.48 per gallon by the year 2035,and averaging $2.91 over this 25-year period.

Although the Early Release of AEO 2010 contains only the Reference Case forecast, EIA includes “High Price Case” and “Low Price Case” forecasts in each year’s complete AEO, which reflect uncertainties regarding future levels of oil production and demand. For this final rule, NHTSA has continued to use the most recent “High Price Case” and “Low Price Case” forecasts available, which are those from AEO 2009. While NHTSA recognizes that these forecasts are not probabilistic, as NADA commented, we continue to believe that using them for sens itivity analyses provides valuable information for agency decision-makers, because it illust rates the sensitivity of the rule’s primary economic benefit resulting from uncertainty about future growth in world demand for petroleum energy and the strategic behavior of oil suppliers.

These alternative scenarios project retail ga soline prices that range from a low of $2.02 to a high of $5.04 per gallon during 2020, and from $2.04 to $5.47 per gallon

approximately 2020. Using the average rate of chan ge over the complete 2009-2030 forecast period would result in projections of declining fuel prices after 2030.465 during 2030 (all figures in 2007 dollars). In conjunction with our assumption that fuel

taxes will remain constant in real or infl ation-adjusted terms over this period, these forecasts imply pre-tax values of saving fuel ranging from $1.63 to $4.65 per gallon during 2020, and from $1.66 to $5.09 per gallon in 2030 (again, all figures are in constant 2007 dollars). In conducting the analysis of uncertainty in benefits and costs from alternative CAFE standards required by OM B, NHTSA evaluated the sensitivity of its

benefits estimates to these alternative forecast s of future fuel prices. Detailed results and discussion of this sensitivity analysis can be found in the FRIA. Generally, however, this analysis confirmed that as several commenters suggested, the primary economic benefit resulting from the rule – the value of fuel sa vings – is quite sensitive to forecast fuel prices.

e. Consumer Valuation of Fuel Economy and Payback Period

In estimating the value of fuel economy improvements that would result from alternative CAFE standards to potential vehi cle buyers, NHTSA assumes, as in the MY 2011 final rule, that buyers value the resulting fuel savings over only part of the expected lifetime of the vehicles they purchase. Specifically, we assume that buyers value fuel savings over the first five years of a new vehicle’s lifetime, and discount the value of these future fuel savings at a 3 percent annual rate. The five-year figure represents approximately the current average term of consumer loans to finance the purchase of new vehicles. We recognize that the period over which individual buyers finance new vehicle purchases may not correspond exactly to the ti me horizons they apply in valuing fuel savings from higher fuel economy.

The agency deducts the discounted present value of fuel savings over the first five years of a vehicle model’s lifetime from the technology costs incurred by its manufacturer to improve that model’s fuel economy to determine the increase in its “effective price” to buyers. The Volpe model uses these estimates of effective costs for increasing the fuel economy of each vehicl e model to identify the order in which manufacturers would be likely to select mo dels for the application of fuel economyimproving technologies in order to comply with stricter standards. The average value of the resulting increase in effective cost from each manufacturer’s simulated compliance strategy is also used to estimate the impact of alternative standards on its total sales for future model years.

One commenter, NADA, supported the agency’s assumption of a five-year period for buyers’ valuation of fuel economy, on the basis that th e considerable majority of consumers seek to recoup costs quickly. However, NADA also encouraged the agencies to ensure that purchaser finance costs, opportunity costs of vehicle ownership, and increased maintenance costs were accounted for. Another commenter, James Adcock, argued that the assumption of a five-year period was irrational, because it did not account for the fact that first purchasers will be ab le to sell a higher-mpg vehicle for more money than a lower-mpg vehicle.466 In response to these comments, the agency notes that it estimates the aggregate value to the U.S. economy of fuel savings resulting from alternative standards – or their

“social” value – over the entire expected lifetimes of vehicles manufactured under those standards, rather than over the shorter 5-year “payback period” we assume that manufacturers employ to represent the preferences of vehicle buyers. The 5-year payback period is only utilized to identify the likely sequence of improvements in fuel economy that manufacturers are likely to make to their different vehicle models. The procedure the agency uses for calculating lifetim e fuel savings is discussed in detail in the following section, while alte rnative assumptions about the time horizon over which potential buyers consider fuel savings in their vehicle purchasing decisions are analyzed

and discussed in detail in Section IV.G.6 below.

Valuing fuel savings over vehicles’ entire lifetimes in effect recognizes the gains that future vehicle owners will receive, even if initial purchasers of higher-mpg models are not able to recover the entire remaining va lue of fuel savings when they re-sell those vehicles. The agency acknowledges, however, that it has not accounted for any effects of increased financing costs for purchasing vehi cles with higher fuel economy or increased expenses for maintaining them on benefits to vehicle owners, over either the short-run payback period or the full lifetimes of vehicles.

f. Vehicle Survival and Use Assumptions

NHTSA’s first step in estimating lifetime fuel consumption by vehicles produced during a model year is to calculate the number expected to remain in service during each year following their production and sale. 532 This is calculated by multiplying the number of vehicles originally produced during a model year by the proportion typically expected to remain in service at their age during each later year, often referred to as a “survival

rate.”

As discussed in more detail in Section II.B.3 above and in Chapter 1 of the TSD, to estimate production volumes of passenger cars and light trucks for individual manufacturers, NHTSA relied on a baseline market forecast constructed by EPA staff beginning with MY 2008 CAFE certificati on data. After constructing a MY 2008 baseline, EPA and NHTSA used projected car and truck volumes for this period from

532 Vehicles are defined to be of age 1 during the cal endar year corresponding to the model year in which they are produced; thus for example, model year 2000 vehicles are considered to be of age 1 during calendar year 2000, age 1 during calendar year 2001, and to reach their maximum age of 26 years during calendar year 2025. NHTSA considers the maximum lifetime of vehicles to be the age after which less than 2 percent of the vehicles originally produced du ring a model year remain in service. Applying these conventions to vehicle registration data indicates th at passenger cars have a maximum age of 26 years, while light trucks have a maximum lifetime of 36 years. See Lu, S., NHTSA, Regulatory Analysis and Evaluation Division, “Vehicle Survivability and Travel Mileage Schedules,” DOT HS 809 952, 8-11 (January 2006). Available at http://www-nrd.nhtsa.dot.gov/Pubs /809952.pdf (last accessed March 1, 2010)

.467 Energy Information Administration’s (EIA’s) Annual Energy Outlook (AEO) 2009 in the NPRM analysis. 533 For the analysis supporting this final rule, NHTSA substituted the revised forecasts of total volume reported in EIA’s Annual Energy Outlook 2010 Early Release. However, Annual Energy Outlook forecasts only total car and light truck sales,

rather than sales at the manufacturer and mo del-specific level, which the agencies require

in order to estimate the eff ects new standards will have on individual manufacturers. 534

To estimate sales of individual car and light truck models produced by each manufacturer, EPA purchased data from CSM Worldwide and used its projections of the number of vehicles of each type (car or truck) that will be produced and sold by manufacturers in model years 2011 through 2015. 535 This provided year-by-year estimates of the percentage of cars and trucks sold by each manufacturer, as well as the sales percentages accounted for by each vehicl e market segment. (The distributions of car and truck sales by manufacturer and by market segment for the 2016 model year and beyond were assumed to be the same as CSM’s forecast for the 2015 calendar year.) Normalizing these percentages to the total car and light truck sales volumes projected for 2012 through 2016 in AEO 2009 provided manufacturer-specific market share and model-specific sales estimates for those model years. The volumes were then scaled to AEO 2010 total volume for each year.

To estimate the number of passenger cars and light trucks originally produced during model years 2012 through 2016 that will remain in use during each subsequent year, the agency applied age-specific survival rates for cars and light trucks to these adjusted forecasts of passenger car and light truck sales. In 2008, NHTSA updated its previous estimates of car and light truck surv ival rates using the most current registration data for vehicles produced during recent model years, in order to ensure that they reflected recent increases in the durability and expected life spans of cars and light

trucks. 536

The next step in estimating fuel use is to calculate the total number of miles that model year 2012-2016 cars and light trucks re maining in use will be driven each year.

533 Available at http://www.eia.doe.gov/oiaf/aeo/index.html. NHTSA and EPA made the simplifying assumption that projected sales of cars and light trucks during each calendar year from 2012 through 2016 represented the likely production volumes for the corresponding model year. The agency did not attempt to establish the exact correspondence between projected sales during individual calen dar years and production volumes for specific model years.

534 Because AEO 2009’s “car” and “truck” classes did not reflect NHTSA’s recent reclassification (in March 2009 for enforcement beginning MY 2011) of many two wheel drive SUVs from the nonpassenger ( i.e. , light truck) fleet to the passenger car fleet, EPA st aff made adjustments to account for such vehicles in

the baseline.

535 EPA also considered other sources of similar inform ation, such as J.D. Powers, and concluded that CSM was better able to provide forecasts at the requisite level of detail for most of the model years of interest.

536 Lu, S., NHTSA, Regulatory Analysis and Evaluatio n Division, “Vehicle Survivability and Travel Mileage Schedules,” DOT HS 809 952, 8-11 (January 2006). Available at http://wwwnrd.nhtsa.dot.gov/Pubs/809952.pdf (last accessed March 1, 2010). These updated survival rates suggest that the expected lifetimes of recent-model passeng er cars and light trucks are 13.8 and 14.5 years.468 To estimate total miles driven, the number proj ected to remain in use during each future year is multiplied by the average number of miles they are expected to be driven at the age they will reach in that year. The agency estimated annual usage of cars and light trucks of each age using data from the Federal Highway Administration’s 2001 National Household Transportation Survey (NHTS). 537 Because these estimates reflect the historically low gasoline prices that prevailed at the time the 2001 NHTS was conducted, however, NHTSA adjusted them to account for the effect on vehicle use of subsequent increases in fuel prices. Details of this adjustment are provided in Chapter VIII of the FRIA and Chapter 4 of the joint TSD.

Increases in average annual use of cars and light trucks have been an important source of historical growth in the total numbe r of miles they are driven each year. To estimate future growth in their average an nual use for purposes of this rulemaking, NHTSA calculated the rate of growth in the adjusted mileage schedules derived from the 2001 NHTS necessary for total car and light truck travel to increase at the rate forecast in the AEO 2010 Early Release Reference Case. 538 This rate was calculated to be consistent with future changes in the overall size and age distributions of the U.S. passenger car and light truck fleets that result from the agency ’s forecasts of total car and light truck sales and updated survival rates. The resulting gr owth rate in average annual car and light truck use of 1.15 percent per year was applied to the mileage figures derived from the 2001 NHTS to estimate annual mileage during each year of the expected lifetimes of MY 2012-2016 cars and light trucks. 539

Finally, the agency estimated total fuel consumption by passenger cars and light trucks remaining in use each year by dividing the total number of miles surviving vehicles are driven by the fuel economy they are expected to achieve under each alternative CAFE standard. Each model year’s total lifetime fuel consumption is the sum of fuel use by the cars or light trucks produced during that model year during each year of their life spans. In turn, the savings in a model year’s lifetime fuel use that will result

from each alternative CAFE standard is the di fference between its lifetime fuel use at the fuel economy level it attains under the Baseline alternative, and its lifetime fuel use at the higher fuel economy level it is projected to achieve under that alternative standard. 540

537 For a description of the Survey, see http://nhts.ornl.gov/quickStart.s html (last accessed March 1, 2010).

538 This approach differs from that used in the MY 2011 final rule, where it was assumed that future growth in the total number of cars and light trucks in use resulting from projected sales of new vehicles was adequate by itself to account for growth in total vehicle use, without assuming continuing growth in average vehicle use.

539 While the adjustment for future fuel prices reduces average mileage at each age from the values derived from the 2001 NHTS, the adjustment for expected future growth in average vehicle use increases it. The net effect of these two adjustments is to increase expected lifetime mileage by about 18 percen t significantly for both passenger cars and about 16 percent for light trucks.

540 To illustrate these calculations, the agency’s ad justment of the AEO 2009 Revised Reference Case forecast indicates that 9.26 million passenger cars will be produced dur ing 2012, and the agency’s updated survival rates show that 83 percent of these vehicles, or 7.64 million, are projected to remain in service469 NHTSA and EPA received no comments on their respective NPRMs indicating that these assumptions should be updated or reconsidered. Thus the agencies have continued to employ them in the an alysis supporting this final rule.

g. Accounting for the Fuel Economy Rebound Effect

The fuel economy rebound effect refers to the fraction of fuel savings expected to result from an increase in vehicle fuel economy – particularly an increase required by the adoption of higher CAFE standards – that is offset by additional vehicle use. The increase in vehicle use occurs because higher fuel economy reduces the fuel cost of driving, typically the largest single compon ent of the monetary cost of operating a vehicle, and vehicle owners respond to this reduction in operating costs by driving slightly more. By lowering the marginal cost of vehicle use, improved fuel economy may lead to an increase in the number of miles vehicles are driven each year and over their lifetimes. Even with their higher fuel econom y, this additional driving consumes some fuel, so the rebound effect reduces the net fuel savings that result when new CAFE standards require manufacturers to improve fuel economy.

The magnitude of the rebound effect is an important determinant of the actual fuel savings that are likely to result from adopting stricter CAFE standards. Research on the magnitude of the rebound effect in light-duty vehicle use dates to the early 1980s, and generally concludes that a statistically signific ant rebound effect occurs when vehicle fuel efficiency improves. 541 The agency reviewed studies of the rebound effect it had previously relied upon, considered more recently published estimates, and developed new estimates of its magnitude for purposes of the NPRM. 542 Recent studies provide some evidence that the rebound effect has been declining over time, and may decline further

over the immediate future if incomes rise fast er than gasoline prices. This result appears plausible, because the responsiveness of vehicle use to variation in fuel costs is expected to decline as they account for a smaller proportion of the total monetary cost of driving,

during the year 2022, when they will have reached an age of 10 years. At that age, passenger achieving the fuel economy level they are projected to achieve unde r the Baseline alternative ar e driven an average of about 800 miles, so surviving model year 2012 passenger cars will be driven a total of 82.5 billion miles (= 7.64 million surviving vehicles x 10,80 0 miles per vehicle) during 2022. Summing the results of similar calculations for each year of their 26-year maximu m lifetime, model year 2012 passenger cars will be driven a total of 1,395 billion miles under the Baselin e alternative. Under that alternative, they are projected to achieve a test fuel economy level of 32.4 mpg, which corresponds to actual on-road fuel economy of 25.9 mpg (= 32.4 mpg x 80 percent). Thus their lifetime fuel use under the Baseline alternative is projected to be 53.9 billion gallons (= 1,395 billion miles divided by 25.9 miles per gallon).

541 Some studies estimate that the long-run rebound e ffect is significantly larger than the immediate response to increased fuel efficiency. Although thei r estimates of the adjustment period required for the rebound effect to reach its long-run magnitude vary, this long-run effect is most appropriate for evaluating the fuel savings and emissions reductions resulting from stricter standards that would apply to future model

years.

542 For details of the agency’s analys is, see Chapter VIII of the PRIA a nd Chapter 4 of the draft joint TSD accompanying this proposed rule.470 which has been the case until very recently. At the same time, rising personal incomes would be expected to reduce the sensitivity of vehicle use to fuel costs as the time component of driving costs – which is likely to be related to income levels – accounts for a larger fraction the total co st of automobile travel.

NHTSA developed new estimates of the rebound effect by using national data on light-duty vehicle travel over the period from 1950 through 2006 to estimate various econometric models of the relationship betwee n vehicle miles-traveled and factors likely to influence it, including household income, fuel prices, vehicle fuel efficiency, road supply, the number of vehicles in use, vehicle prices, and other factors. 543 The results of NHTSA’s analysis are consistent with th e findings from other recent research: the average long-run rebound effect ranged from 16 percent to 30 percent over the period from 1950 through 2007, while estimates of the rebound effect in 2007 range from 8 percent to 14 percent. Projected values of the rebound effect for the period from 2010 through 2030, which the agency developed using forecasts of personal income, fuel prices, and fuel efficiency from AEO 2009’s Reference Case, range from 4 percent to 16 percent, depending on the specific model used to generate them.

In light of these results, the agency’s judg ment is that the apparent decline over time in the magnitude of the rebound effect justifies using a value for future analysis that is lower than historical estimates, which average 15-25 percent. Because the lifetimes of vehicles affected by the alternative CAFE st andards considered in this rulemaking will extend from 2012 until nearly 2050, a value that is significantly lower than historical estimates appears to be appropriate. Thus NHTSA used a 10 percent rebound effect in its analysis of fuel savings and other benefits from higher CAFE standards for the NPRM. The agency also sought comment on other alternatives for estimating the rebound effect, such as whether it would be appropriate to use the price elasticity of demand for gasoline, or other alternative approaches, to guide the choice of a value for the rebound effect.

NHTSA and EPA received far fewer comments on the rebound effect than were previously received to CAFE rulemakings. Only one commenter, NJ DEP, expressly supported the agencies’ assumption of 10 percent for the rebound effect; other commenters (CARB, CBD, ICCT) argued that 10 percent should be the absolute maximum value and that the rebound effect assumed by the agencies should be lower, and would also be expected to decline over time. ICCT added that the price elasticity of gasoline demand could be a useful comparison for the rebound effect, but should not be used to derive it. Other commenters argued that a rebound effect either was unlikely to occur (James Hyde), or was unlikely to produce a uniform increase in use of all vehicles with improved fuel economy (Missouri DNR). NADA argued, in contrast, that the agencies had not provided sufficient justification for lowering the rebound effect to 10 percent from the “historically justif ied” range of 15 to 30 percent.

543 The agency used several different model specificat ions and estimation procedures to control for the effect of fuel prices on fuel efficiency in order to obtain accurate estimates of the rebound effect.471 The agency’s interpretation of historical and recent evidence on the magnitude of the rebound effect is that a significant fuel economy rebound effect exists, and commenters did not provide any additional data or analysis to justify revising our initial estimates of the rebound effect. Therefore, the data available at this time do not justify using a rebound effect below the 10 percent figure employed in its NPRM analysis. NHTSA believes that projections of a continued decline in the magnitude of the rebound effect are unrealistic because they assume the rate at which it declines in response to increasing incomes remain constant, and in so me cases imply that the rebound effect will become negative in the near future. In addi tion, the continued increases in fuel prices used in this analysis will tend to increase the magnitude of the rebound effect, thus offsetting part of the effect of rising incomes. Thus the agency has continued to use the 10 percent rebound effect over the entire fu ture period spanned by the analysis it

conducted for this final rule.

h. Benefits from Increased Vehicle Use

The increase in vehicle use from the reboun d effect provides additional benefits to their owners, who may make more frequent trips or travel farther to reach more desirable destinations. This additional travel provides benefits to drivers and their passengers by improving their access to social and econo mic opportunities away from home. As evidenced by their decisions to make more frequent or longer trips when improved fuel economy reduces their costs for driving, the be nefits from this additional travel exceed the costs drivers and passengers incur in making more frequent or longer trips.

The agency’s analysis estimates the economic benefits from increased reboundeffect driving as the sum of fuel costs dr ivers incur plus the consumer surplus they receive from the additional accessibility it provides. 544 Because the increase in travel depends on the extent of improvement in fuel economy, the value of benefits it provides differs among model years and alternative CAFE standards. Under even those alternatives that would impose the highest standards, however, the magnitude of these benefits represents a small fraction of to tal benefits. Because no comments addressed this issue of benefits from increased vehicle use or the procedure used to estimate them, the agencies have finalized their proposed assumptions for purposes of the final rule analysis.

i. The Value of Increased Driving Range

Improving vehicles’ fuel economy may also increase their driving range before they require refueling. By reducing the frequency with which drivers typically refuel, and by extending the upper limit of the range they can travel before requiring refueling,

544 The consumer surplus provided by added travel is es timated as one-half of the product of the decline in fuel cost per mile and the resulting increase in the annual number of miles driven.472 improving fuel economy thus provides some additional benefits to their owners. 545
NHTSA re-examined this issue for purposes of this rulemaking, and found no

information in comments or elsewhere that w ould cause the agency to revise its previous approach. Since no direct estimates of the value of extended vehicle range are available, NHTSA calculates directly the reduction in the annual number of required refueling cycles that results from improved fuel economy, and applies DOT-recommended values of travel time savings to convert the re sulting time savings to their economic value. 546

As an illustration, a typical small light tr uck model has an average fuel tank size of approximately 20 gallons. Assuming that drivers typically refuel when their tanks are 55 percent full ( i.e. , 11 gallons in reserve), increasing this model’s actual on-road fuel economy from 24 to 25 mpg would extend its driving range from 216 miles (= 9 gallons x 24 mpg) to 225 miles (= 9 gallons x 25 mpg). Assuming that it is driven 12,000 miles/year, this reduces the number of times it needs to be refueled each year from 55.6 (= 12,000 miles per year / 216 miles per refueling) to 53.3 (= 12,000 miles per year / 225 miles per refueling), or by 2.3 refuelings per year.

Weighted by the nationwide mix of urban and rural driving, personal and businesstravel in urban and rural areas, and average vehicle occupancy for driving trips, the DOTrecommended values of travel time per vehicle-hour is $24.64 (in 2007 dollars). 547 Assuming that locating a station and filling up requires a total of five minutes, the annual value of time saved as a result of less frequent refueling amounts to $4.72 (calculated as 5/60 x 2.3 x $24.64). This calculation is repeated for each future year that model year 2012-2016 cars and light trucks would remain in service. Like fuel savings and other benefits, the value of this bene fit declines over a model year ’s lifetime, because a smaller number of vehicles originally produced during that model year remain in service each year, and those remaining in service are driven fewer miles.

Although the agencies received no public comments on the procedures they used to estimate the benefits from less frequent refueling or the magnitude of those benefits,

545 If manufacturers respond to improved fuel economy by reducing the size of fuel tanks to maintain a constant driving range, the resulting cost saving will presumably be reflected in lower vehicle sales prices.

546 See Department of Transportation, Guidance Memo randum, “The Value of Saving Travel Time: Departmental Guidance for Conducting Economic Evaluations,” Apr. 9, 1997. http://ostpxweb.dot.gov/policy/Data/VOT97guid. pdf (last accessed March 1, 2010); update available at http://ostpxweb.dot.gov/policy/Data/VOTrevision1_2-11-03.pdf (last accessed March 1, 2010).

547 The hourly wage rate during 2008 is estimated to average $25.50 when expressed in 2007 dollars. Personal travel in urban areas (which represents 94 per cent of urban travel) is valued at 50 percent of the hourly wage rate, while business travel (the remaining 6 percent of urban travel) is valued at 100 percent of the hourly wage rate. For intercity travel, personal trav el (87 percent of total intercity travel) is valued at 70 percent of the wage rate, while business travel (13 percent) is valued at 100 percent of the wage rate. The resulting values of travel time are $12.67 for urban travel and $17.66 for intercity travel, and must be multiplied by vehicle occupancy (1.6) to obtain the esti mated values of time per vehicle hour in urban and rural driving. Finally, about 66% of driving occurs in urban areas, while the remaining 34% takes place in rural areas, and these percentages are used to calcula te a weighted average of the value of time in all driving.473 NHTSA recognizes that many assumptions made in its estimate for the value of increased driving range are subject to uncertainty. Chapter 4 of the TSD and Chapter VIII of NHTSA’s FRIA present detailed discussions of potential sources of uncertainty regarding these assumptions, and explore the effect of varying those assumptions on the estimated benefits from less frequent refueling.

j. Added Costs from Congestion, Crashes and Noise

Increased vehicle use associated with the rebound effect also contributes to increased traffic congestion, motor vehicle accidents, and highway noise. NHTSA relies on estimates of per-mile congestion, accident, and noise costs caused by increased use of automobiles and light trucks developed by the Federal Highway Administration to

estimate these increased costs. 548 NHTSA employed these estimates previously in its analysis accompanying the MY 2011 final rule, and after reviewing the procedures used by FHWA to develop them and considering other available estimates of these values, continues to find them appropriate for use in this final rule. The agency multiplies FHWA’s estimates of per-mile costs by the annual increases in automobile and light truck use from the rebound effect to yield the estimated increases in congestion, accident, and noise externality costs during each future year.

One commenter, Inrix, Inc., stated that “deeply connected vehicles,” i.e. , those with built-in computer syst ems to help drivers identify alternative routes to avoid congestion, are better able to avoid congestion than conventional vehicles. The commenter argued that increased use of these models may be less likely to contribute to increased congestion, and urged the agencies to consider the impact of this on their

estimates of fuel use and GHG emissions. NHTSA notes that the number of such vehicles is extremely small at present, and is likely to remain modest for the model years affected by this rule, and has thus continued to employ the estimates of congestion costs from additional rebound-effect vehicle use that it utilized in the NPRM analysis. The agency recognizes that these vehicles may become sufficiently common in the future that their effect on the fuel economy drivers actual ly experience could become significant, but notes that to the extent this occurs, it woul d be reflected in the gap between test and onroad fuel economy. NHTSA will continue to monitor the production of such vehicles and their representation in the vehicle fl eet in its future rulemakings.

k. Petroleum Consumption and Import Externalities

U.S. consumption and imports of petroleum products also impose costs on the domestic economy that are not reflected in the market price for crude petroleum, or in the prices paid by consumers of petroleum products such as gasoline. These costs include (1) higher prices for petroleum products resulting from the effect of U.S. oil import demand on the world oil price; (2) the risk of disr uptions to the U.S. economy caused by sudden

548 These estimates were developed by FHWA for use in its 1997 Federal Highway Cost Allocation Study ;

see http://www.fhwa.dot.gov/policy/hcas/final /index.htm (last accessed March 1, 2010).474 reductions in the supply of imported oil to the U.S.; and (3) expenses for maintaining a U.S. military presence to secure imported oil supplies from unstable regions, and for maintaining the strategic petroleum reserve (SPR) to cushion against resulting price

increases. 549

Higher U.S. imports of crude oil or refined petroleum products increase the magnitude of these external economic costs, thus increasing the true economic cost of supplying transportation fuels above their ma rket prices. Conversely, lowering U.S. imports of crude petroleum or refined fuels by reducing domestic fuel consumption can reduce these external costs, and any reductio n in their total value that results from improved fuel economy represents an economic benefit of more stringent CAFE standards, in addition to the value of saving fuel itself.

NHTSA has carefully reviewed its assumptions regarding the appropriate value of these benefits for this final rule. In analyzi ng benefits from its recent actions to increase light truck CAFE standards for model years 2005-07 and 2008-11, NHTSA relied on a 1997 study by Oak Ridge National Laboratory (ORNL) to estimate the value of reduced economic externalities from petroleum consumption and imports. 550 More recently, ORNL updated its estimates of the value of these externalities, using the analytic framework developed in its original 1997 study in conjunction with recent estimates of the variables and parameters that determine their value. 551 The updated ORNL study was subjected to a detailed peer review comissio ned by EPA, and ORNL’s estimates of the value of oil import externalities were subseque ntly revised to reflect their comments and recommendations of the peer reviewers. 552 Finally, at the request of EPA, ORNL further

revised its 2008 estimates of external costs from U.S. oil imports to reflect recent changes in the outlook for world petroleum prices, as well as continuing changes in the structure and characteristics of global petroleum supply and demand.

These most recent revisions increase ORNL’s estimates of the “monopsony premium” associated with U.S. oil imports, which measures the increase in payments from U.S. oil purchasers to foreign oil suppliers beyond the increased purchase price of

549 See, e.g. , Bohi, Douglas R. and W. David Montgomery (1982). Oil Prices, Energy Security, and Import Policy Washington, DC: Resources for the Future, Johns Hopkins University Press; Bohi, D. R., and M. A. Toman (1993). "Energy and Security: Externalities and Policies," Energy Policy 21:1093-1109; and Toman, M. A. (1993). "The Economics of Energy S ecurity: Theory, Evidence, Po licy," in A. V. Kneese and J. L. Sweeney, eds. (1993). Handbook of Natural Resource and Energy Economics, Vol. III. Amsterdam: North-Holland, pp. 1167-1218.

550 Leiby, Paul N., Donald W. Jones, T. Randall Curlee, and Russell Lee, Oil Imports: An Assessment of Benefits and Costs , ORNL-6851, Oak Ridge National Laboratory, November 1, 1997. Available at http://pzl1.ed.ornl.gov/ORNL6851.pdf (last accessed March 1, 2010).

551 Leiby, Paul N. "Estimating the Energy Security Benefits of Reduced U.S. Oil Imports," Oak Ridge National Laboratory, ORNL/TM-2007/028, Revised July 23, 2007. Available at http://pzl1.ed.ornl.gov/energysecurity.html (click on link below “Oil Imports Costs and Benefits”) (last accessed March 1, 2010).

552 Peer Review Report Summary: Estimating the Energy Security Benefits of Reduced U.S. Oil Imports

, ICF, Inc., September 2007. [Locate]475 petroleum itself that results when increased U.S. import demand raises the world price of petroleum. 553 However, the monopsony premium represents a financial transfer from consumers of petroleum products to oil producers, which does not entail the consumption of real economic resources. Thus reducing the magnitude of the monopsony premium produces no savings in real economic resources globally or domestically, although it does reduce the value of the financial transfer from U.S. consumers of petroleum products to foreign suppliers of petroleum. Accordingly, NHTSA’s analysis of the benefits from adopting proposed CAFE standards for MY 2012-2016 cars and light trucks excluded the reduced value of monopsony payments by U.S. oil consumers that might result from lower fuel consumption by these vehicles. The agency sought comment on whether it would be reasonable to include the reduction in monopsony payments by U.S. consumers of petroleum products in their estimates of total economic benefits from reducing U.S. fuel consumption.

Commenters from NYU School of Law argued that monopsony payments should be treated as a distributional effect, not a st andard efficiency benefit. An individual commenter, A.G. Fraas, also supported the agencies’ exclusion of the monopsony benefit,arguing that it represents a pecuniary externality that should not be considered in benefitcost analyses of governmental actions—again, in essence, that it represents a distributional effect. These comments support the agency’s decision to exclude any reduction in monopsony premium payments that results from lower U.S. petroleum imports from its accounting of benefits from reduced fuel consumption. Thus the agency continues to exclude any reduction in monopsony premium payments from its estimates

of benefits for the stricter CAFE stan dards this final rule establishes.

ORNL’s most recently revised estimates of the increase in the expected costs associated with potential disruptions in U.S. petroleum imports imply that each gallon of imported fuel or petroleum saved reduces the expected costs of oil supply disruptions to the U.S. economy by $0.169 per gallon (in 2007$). In contrast to reduced monopsony premium payments, the reduction in expected disruption costs represents a real savings in resources, and thus contributes economic benefits in addition to the savings in fuel production costs that result from increasing fuel economy. NHTSA employs this value in its analysis of the economic benefits from adopting higher CAFE standards for MY 2012- 2016 cars and light trucks.

A.G. Fraas commented on this proposed rule and felt that that magnitude of the economic disruption portion of the energy security benefit may be too high. He cites a recent paper written by Stephen P.A. Brown and Hillard G. Huntington, entitled “Estimating U.S. Oil Security Premiums” (S eptember 2009). He commented that the Brown and Huntington premium associated with replacing oil imports by increased domestic oil production while keeping U.S. oil consumption unchanged ( i.e. , “the cost of

553 The reduction in payments from U.S. oil purchasers to domestic petroleum producers is not included as a benefit, since it represents a transfer that occurs entirely within the U.S. economy.476 displacing a barrel of domestic oil with a barrel of imported oil”) ranges from $2.17 per barrel in 2015 to $2.37 per barrel in 2030 (2007$), or $0.052 to $0.056 per gallon.

In contrast, this rule is not a domestic oil supply initiative, but is one intended to reduce domestic oil consumption and thereby also to a significant extent reduce U.S. oil imports. When NHTSA used the ORNL Energy Security Premium Analysis to calculate the energy security premium for this rule, it based the energy security premium on decreased demand for oil and oil products. The agency estimated that most of the decreased demand for oil and oil products would come from decreased imports of oil, given the inelasticity of U.S. supply and the mo dest estimated change in world oil price. The Brown and Huntington estimates for this change, considering the disruption component alone, are much in line with the ORNL estimates. For a reduction in U.S. consumption that largely leads to a reduction in imports, Brown and Huntington estimate a midpoint premium of $4.98 per barrel in 2015 rising to $6.82 per barrel by 2030 (2007$). The 2015 disruption premium estimate has an uncertainty range of $1.10 to $14.35 (2007$). The corresponding 2030 estimate from ORNL is only about 19 percent higher ($8.12/bbl), with an uncertainty range -- $3.90 to $13.04 – completely enclosed by that of Brown and Huntington. Thus, we conclude that the ORNL disruption security premium estimates for this rule is roughly consistent with the Brown and Huntington

results.

Commenters from the NYU School of Law agreed that reduced disruption costs should be counted as a benefit, but stated that the agencies should disaggregate and exclude any reduction in wealth transfers that occur during oil shocks from their

calculation of this benefit. NHTSA acknowled ges that for consistency with its exclusion of reductions in monopsony premium payments from the benefits of reduced fuel consumption and petroleum imports, it may be necessary to exclude reductions in the wealth transfer component of macroeconomic disruption costs from the benefits of reducing U.S. petroleum imports. In future rulemakings, the agency will assess the arguments for excluding the wealth transfer component of disruption costs from its accounting of benefits from reducing domestic fuel consumption and U.S. petroleum imports, and explore whether it is practical to estimate its value separately and exclude it

from the benefits calculations.

NHTSA’s analysis does not include savings in budgetary outlays to support U.S. military activities among the benefits of higher fuel economy and the resulting fuel savings. 554 NHTSA’s analysis of benefits fro m alternative CAFE standards for MY 2012-2016 also excludes any cost savings from maintaining a smaller SPR from its estimates of the external benefits of reducing gasoline consumption and petroleum imports. This view concurs with that of th e recent ORNL study of economic costs from U.S. oil imports, which concludes that savings in government outlays for these purposes

554 However, the agency conducted a sensitivity analys is of the potential effect of assuming that some reduction military spending would result from fuel savings and reduced petroleum imports in order to investigate its impacts on the standards and fuel savings.477 are unlikely to result from reductions in consumption of petroleum products and oil imports on the scale of those resulting from higher CAFE standards.

Commenters from the NYU School of Law stated that the agencies were justified in not including a value for military security, as long as the agencies incorporate the increased protection value of the SPR into th eir calculation of disruption effects. CBD and James Adcock disagreed, and stated that th e agencies should, in fact, include a value for military security – CBD cited several studies, and Mr. Adcock presented his own value of $0.275 per gallon. CARB stated simply that the agencies should include a sensitivity analysis for military security at $0.15 per gallon, in addition to the $0.05 per gallon already evaluated. EDF also cited studies claiming a benefit for increased national security

In response to the comments from CBD and Mr. Adcock, NHTSA’s examination

of the historical record indicates that while co sts for U.S. military security may vary over time in response to long-term changes in the level of oil imports into the U.S., these costs are unlikely to decline in response to the small reductions in U.S. oil imports (relative to total oil imports) that are typically projecte d to result from raising CAFE standards for light-duty vehicles. U.S. military activities in regions that represent vital sources of oil imports also serve a broader range of security and foreign policy objectives than simply protecting oil supplies, and as a consequence are unlikely to vary significantly in response to the modest changes in the level of oil imports likely to be prompted by higher

CAFE standards.

The agency does not find evidence in the historical record that Congress or the Executive Branch has ever attempted to calibra te U.S. military expenditures, overall force levels, or specific deployments to any measure of global oil market activity or U.S. reliance on petroleum imports, or to any calculation of the projected economic consequences of hostilities arising in the Pe rsian Gulf. Instead, changes in U.S. force levels, deployments, and thus military spending in that region have been largely governed by political events, emerging threats, and ot her military and political considerations, rather than by shifts in U.S. oil consumpti on or imports. NHTSA thus concludes that the levels of U.S. military activity and expenditures are likely to remain unaffected by even relatively large changes in light duty vehicle fuel consumption, and has continued to exclude any reduction in these outlays from its estimates of the economic benefits resulting from lower U.S. fuel consumption and petroleum imports.

In response to the comments from th e NYU School of Law, NHTSA will explore how it might estimate the contribution of the SPR to reducing potential macroeconomic costs from oil supply disruptions, although the agency notes that to some extent the existence of the SPR may already be reflected in the magnitude of price elasticities of the supplies of foreign oil available for import to the U.S. However, the agency notes that the size of the SPR has not appeared to cha nge significantly in response to historical variation in U.S. petroleum consumption or imports, suggesting that its effect on the478 magnitude of potential macroeconomic costs from disruptions in petroleum imports may

be limited.

Finally, in response to the comment from EDF, the agency notes that the value of $0.05 per gallon for the reduction in military se curity outlays that is used for sensitivity analysis assumes that the entire reduction in U.S. petroleum imports resulting from higher CAFE standards would reflect lower imports from Persian Gulf suppliers, that the estimate of annual U.S. military costs for securing Persian Gulf oil supplies reported by Delucchi and Murphy is correct, and that Congress would reduce half of these outlays in proportion to any decline in U.S. oil imports from the region. The $0.15 per gallon estimate recommended by CARB would thus require that U.S. military outlays to protect Persian Gulf oil supplies are three times as large as Delucchi and Murphy estimate, or that Congress would reduce military spending in that region more than in proportion to any reduction in U.S. petroleum imports or iginating there. Because it views these possibilities as unrealistic, NHTSA has contin ued to use the $0.05 figure in its sensitivity analysis, rather than the higher figure suggested.

Based on a detailed analysis of differences in fuel consumption, petroleum imports, and imports of refined petroleum products among the Reference Case, High Economic Growth, and Low Economic Growth Scenarios presented in AEO 2009, NHTSA estimated that approximately 50 percent of the reduction in fuel consumption resulting from adopting higher CAFE standards is likely to be reflected in reduced U.S. imports of refined fuel, while the remaining 50 percent would reduce domestic fuel refining. 555 Of this latter figure, 90 percent is an ticipated to reduce U.S. imports of crude petroleum for use as a refinery feedstock, while the remaining 10 percent is expected to reduce U.S. domestic production of crude petroleum. 556 Thus on balance, each 100 gallons of fuel saved as a consequence of higher CAFE standards is anticipated to reduce total U.S. imports of crude petroleum or refined fuel by 95 gallons. 557

NHTSA employed this estimate in the analysis presented in the NPRM, and received no comments on the assumptions or data used to develop it. Hence the agency has continued to assume that each 100 gallons of fuel saved as a consequence of the CAFE standards established by this final rule will reduce total U.S. imports of crude petroleum or refined fuel by 95 gallons. NHTSA has applied the estimates of economic benefits from lower U.S. petroleum imports to the resulting estimate of reductions in imports of crude petroleum and refined fuel.

555 Differences between for ecast annual U.S. imports of crude petr oleum and refined products among these three scenarios range from 24-89 percent of differen ces in projected annual gasoline and diesel fuel consumption in the U.S. These differences average 49 percent over the forecast period spanned by AEO

2009.

556 Differences between forecas t annual U.S. imports of crude petroleum among these three scenarios range from 67-97 percent of differences in total U.S. refining of crude petroleum, and average 85 percent over the forecast period sp anned by AEO 2009.

557 This figure is calculated as 50 gallons + 50 gallons*90% = 50 gallons + 45 gallons = 95 gallons.479 l. Air Pollutant Emissions

i. Changes in Criteria Air Pollutant Emissions

Criteria air pollutants emitted by vehicl es and during fuel production include carbon monoxide (CO), hydrocarbon compounds (usually referred to as “volatile organic compounds,” or VOC), nitrogen oxides (NO

x ), fine particulate matter (PM2.5), and sulfur oxides (SO

x ). While reductions in domestic fuel refining and distribution that result from lower fuel consumption will reduce U.S. emissi ons of these pollutants, additional vehicle

use associated with the reb ound effect from higher fuel economy will increase their

emissions. Thus the net effect of stricter CAFE standards on emissions of each criteria pollutant depends on the relative magnitudes of its reduced emissions in fuel refining and distribution, and increases in its emissions fr om vehicle use. Because the relationship between emissions in fuel refining and vehicle use is different for each criteria pollutant, the net effect of fuel savings from the proposed standards on total emissions of each pollutant is likely to differ. We note that any benefits in terms of criteria air pollutant reductions resulting from this rule would not be direct benefits.

With the exception of SO 2 , NHTSA calculated annual emissions of each criteria pollutant resulting from vehicle use by multiplying its estimates of car and light truck use during each year over their expected lifetimes by per-mile emission rates appropriate to each vehicle type, fuel, model year, and age. These emission rates were developed by U.S. EPA using its Motor Vehicle Emission Simulator (MOVES 2010). 558 Emission

rates for SO 2 were calculated by NHTSA using average fuel sulfur content estimates supplied by EPA, together with the assumption that the entire sulfur content of fuel is

emitted in the form of SO 2

. 559 Total SO 2 emissions under each alternative CAFE standard were calculated by applying the re sulting emission rates directly to estimated annual gasoline and diesel fuel use by cars and light trucks.

As with other impacts, the changes in emissions of criteria air pollutants resulting from alternative increases in CAFE standards for MY 2012-2016 cars and light trucks were calculated from the differences between emissions under each alternative that would increase CAFE standards, and emissions under the

baseline alternative.

NHTSA estimated the reductions in criter ia pollutant emissions from producing and distributing fuel that would occur under alternative CAFE standards using emission rates obtained by EPA from Argonne National Laboratories’ Greenhouse Gases and

558 The MOVES model assumes that the per-mile rates at which these pollutants are emitted are determined by EPA regulations and the effectiveness of catalytic after-treatment of engine exhaust emissions, and are thus unaffected by changes in car and light truck fuel economy.

559 These are 30 and 15 parts per million (ppm, measured on a mass basis) for gasoline and diesel respectively, which produces emission rates of 0.17 grams of SO 2 per gallon of gasoline and 0.10 grams per gallon of diesel.480 Regulated Emissions in Transportation (GREET) model. 560 The GREET model provides separate estimates of air pollutant emissions that occur in different phases of fuel production and distribution, including crude o il extraction, transportation, and storage, fuel refining, and fuel distribution and storage. 561 EPA modified the GREET model to change certain assumptions about emissions during crude petroleum extraction and transportation, as well as to update its emission rates to reflect adopted and pending EPA

emission standards. NHTSA converted thes e emission rates from the mass per fuel energy content basis on which GREET reports them to mass per gallon of fuel supplied using estimates of fuel energy content supplied by GREET.

The resulting emission rates were applie d to the agency’s estimates of fuel consumption under each alternative CAFE standard to develop estimates of total emissions of each criteria pollutant duri ng fuel production and distribution. The assumptions about the effects of changes in fuel consumption on domestic and imported sources of fuel supply discussed above were then employed to calculate the effects of reductions in fuel use from alternative CAFE standards on changes in imports of refined fuel and domestic refining. NHTSA’s analysis assumes that reductions in imports of refined fuel would reduce criteria pollutant em issions during fuel storage and distribution only. Reductions in domestic fuel refining using imported crude oil as a feedstock are assumed to reduce emissions during fuel refini ng, storage, and distribution, because each

of these activities would be reduced. Redu ced domestic fuel refining using domesticallyproduced crude oil is assumed to reduce emissions during all four phases of fuel production and distribution. 562

Finally, NHTSA calculated the net changes in domestic emissions of each criteria pollutant by summing the increases in em issions projected to result from increased vehicle use, and the reductions anticipated to result from lower domestic fuel refining and

distribution. 563 As indicated previously, the effect of adopting higher CAFE standards on total emissions of each criteria pollutant depends on the relative magnitudes of the resulting reduction in emissions from fuel refining and distribution, and the increase in

560 Argonne National Laboratories, The Greenhouse Gas and Regulated Emissions from Transportation (GREET) Model , Version 1.8, June 2007, available at http://www.transportation.anl.gov/modeling_simulation/GREET/index.html (last accessed August 9, 2009).

561 Emissions that occur during vehicle refueling at reta il gasoline stations (primarily evaporative emissions of volatile organic compounds, or VOCs) are already accounted for in the “tailpipe” emission factors used to estimate the emissions generated by increased light truck use. GREET estimates emissions in each phase of gasoline production and distribution in mass per unit of gasoline energy content; these factors are then converted to mass per gallon of gasoline usi ng the average energy content of gasoline.

562 In effect, this assumes that the distances crude oil travels to U.S. refineries are approximately the same regardless of whether it travels from domestic oilfie lds or import terminals, and that the distances that gasoline travels from refineries to retail stations are approximately the same as those from import terminals to gasoline stations. We note that while assuming th at all changes in upstream emissions result from a decrease in petroleum production and transport, our analysis of downstream criteria pollutant impacts assumes no change in the composition of the gasoline fuel supply.

563 All emissions from increased vehicle use are assume d to occur within the U.S., since CAFE standards would apply only to vehicles produced for sale in the U.S.481 emissions from additional vehicle use. A lthough these net changes vary significantly among individual criteria pollutants, the agency projects that on balance, adopting higher

CAFE standards would reduce emissions of all criteria air pollutants except carbon monoxide (CO).

The net changes in domestic emissions of fine particulates (PM 2.5 ) and its chemical precursors (such as NOx, SOx, and VOCs) are converted to economic values using estimates of the reductions in health damage costs per ton of emissions of each pollutant that is avoided, which were developed and recently revised by EPA. These savings represent the estimated reductions in the value of damages to human health resulting from lower atmospheric concentrations and population exposure to air pollution that occur when emissions of each pollutant that contributes to atmospheric PM 2.5 concentrations are reduced. The value of reductions in the risk of premature death due to exposure to fine particulate pollution (PM 2.5 ) account for a majority of EPA’s estimated values of reducing criteria pollutant em issions, although the value of avoiding other health impacts is also included in these estimates.

These values do not include a number of unquantified benefits, such as reduction in the welfare and environmental impacts of PM 2.5 pollution, or reductions in health and welfare impacts related to other criteria pollutants (ozone, NO 2 , and SO 2 ) and air toxics. EPA estimates different PM-related per-ton values for reducing emissions from vehicle use than for reductions in emissions of that occur during fuel production and

distribution. 564 NHTSA applies these separate valu es to its estimates of changes in emissions from vehicle use and fuel produc tion and distribution to determine the net change in total economic damages from emissions of these pollutants.

EPA projects that the per-ton values for reducing emissions of criteria pollutants from both mobile sources (including motor vehicles) and stationary sources such as fuel refineries and storage facilities will increase over time. These projected increases reflect rising income levels, which are assumed to increase affected individuals’ willingness to pay for reduced exposure to health threats from air pollution, as well as future population growth, which increases population exposure to future levels of air pollution.

NHTSA and EPA received no comments on the procedures they employed to

estimate the reductions in emissions of criteria air pollutants reported in their respective NPRMs, or on the unit economic values the agencies applied to those reductions to calculate their total value. Thus the agencies have continued to employ these procedures and values in the analysis repor ted in this final rule. Howe ver, the agencies have made some minor changes in the emission factor s used to calculate changes in emissions resulting from increased vehicle use; these revisions are detailed in Chapter 4 of the Final Technical Support Document accompanying this rule.

564 These reflect differences in the typical geographic distributions of emissions of each pollutant, their

contributions to ambient PM 2.5 concentrations, pollution levels (predominantly those of PM 2.5 ), and resulting changes in population exposure.482 ii. Reductions in CO 2 Emissions

Emissions of carbon dioxide and other greenhouse gases (GHGs) occur throughout the process of producing and distributing transportation fuels, as well as from fuel combustion itself. By reducing the volume of fuel consumed by passenger cars and light trucks, higher CAFE standards will reduc e GHG emissions generated by fuel use, as well as throughout the fuel supply cycle. Lowering these emissions is likely to slow the projected pace and reduce the ultimate extent of future changes in the global climate, thus reducing future economic damages that changes in the global climate are expected to cause. By reducing the probability that climate changes with potentially catastrophic economic or environmental impacts will occur, lowering GHG emissions may also result in economic benefits that exceed the resulting reduction in the expected future economic costs caused by gradual changes in the earth’s climatic systems.

Quantifying and monetizing benefits from reducing GHG emissions is thus an important step in estimating the total economic benefits likely to result from establishing higher CAFE standards. The agency estimated emissions of CO 2 from passenger car and light truck use by multiplying the number of gallons of each type of fuel (gasoline and diesel) they are projected to consume under alternative CAFE standards by the quantity

or mass of CO 2 emissions released per gallon of fuel consumed. This calculation

assumes that the entire carbon content of each fuel is converted to CO 2 emissions during the combustion process. Carbon dioxide emissions account for nearly 95 percent of total GHG emissions that result from fuel combustion during vehicle use.

iii. Economic Value of Reductions in CO 2 Emissions

NHTSA has taken the economic benefits of reducing CO 2 emission into account in this rulemaking, both in developing alternative CAFE standards and in assessing the

economic benefits of each alternative that was considered. Since direct estimates of the economic benefits from reducing CO 2 or other GHG emissions are generally not reported in published literature on the impacts of climate change, these benefits are typically assumed to be the “mirror image” of the estimated incremental costs resulting from an increase in those emissions. Thus the benefits from reducing CO 2 emissions are usually measured by the savings in estimated economic damages that an equivalent increase in

emissions would otherwise have caused.

The “social cost of carbon” (SCC) is intended to be a monetary measure of the incremental damage resulting from increased carbon dioxide (CO 2 ) emissions, including losses in agricultural productivity, the economic damages caused by adverse effects on human health, property losses and damages resulting from sea level rise, and changes in the value of ecosystem services. The SCC is usually expressed in dollars per additional

metric ton of CO 2 emissions occurring during a specified year, and is higher for more distant future years because the damages caused by an additional ton of emissions483 increase with larger existing concentrations of CO 2 in the earth’s atmosphere. Marginal

reductions in CO 2 emissions that are projected to result from lower fuel consumption, refining, and distribution during each future year are multiplied by the estimated SCC appropriate for that year, which is used to re present the value of eliminating each ton of

CO 2 emissions, to determine the total economic benefit from reduced emissions during that year. These benefits are then discounted to their present value as usual, using a discount rate that is consistent with that used to develop the estimate of the SCC itself.

[Insert comment summary]

After carefully considering comments receiv ed to the NPRM, for purposes of this final rule, NHTSA has relied on estimates of the SCC developed by a federal interagency working group convened for the specific purpose of developing new estimates to be used by U.S. federal agencies in regulatory evaluations. Under Executive Order 12866, federal agencies are required, to the extent permitted by law, “to assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs.” The group’s purpose in developing new estimates of the SCC was to allow federal agencies to incorporate the social benefits of reducing carbon dioxide (CO 2 ) emissions into cost-benefit analyses of regulatory actions that have small, or “marginal,” impacts on cumulative global emissions, as most federal regulatory actions can be expected to have.

The interagency group convened on a regular basis to consider public comments, explore the technical literature in relevant fields, and discuss key inputs and assumptions in order to generate SCC estimates. Agencies that actively participated in the interagency process included the Environmental Protection Agency and the Departments of Agriculture, Commerce, Energy, Transportation, and Treasury. This process was convened by the Council of Economic Advisers and the Office of Management and Budget, with active participation and regula r input from the Council on Environmental Quality, National Economic Council, Office of Energy and Climate Change, and Office of Science and Technology Policy. The main objective of this process was to develop a range of SCC values using a defensible set of input assumptions that are grounded in the existing literature. In this way, key unc ertainties and model differences can more transparently and consistently inform the range of SCC estimates used in the rulemaking

process.

The interagency group developed its estima tes of the SCC estimates while clearly acknowledging the many uncertainties involved, and with a clear understanding that they should be updated over time to reflect increasing knowledge of the science and economics of climate impacts. Technical experts from numerous agencies met on a regular basis to consider public comments, ex plore the technical literature in relevant fields, and discuss key model inputs and assumptions. The main objective of this process was to develop a range of SCC values using a defensible set of input assumptions484 grounded in the existing scientific and economic literature. In this way, key uncertainties and model differences transparently and consistently can inform the range of SCC estimates used in the rulemaking process.

The group ultimately selected four SCC values for use in regulatory analyses. Three values are based on the average SCC from three integrated assessment models, using discount rates of 2.5, 3, and 5 percent. The fourth value, which represents the 95 th
percentile SCC estimate across all three models at a 3 percent discount rate, is included to represent the possibility of higher-than-expe cted impacts from temperature change that

lie further out in the tails of the distribution of SCC estimates. Table IV.C.3-2 summarizes the interagency group’s estimates of the SCC during various future years. The SCC estimates reported in the table assume that the marginal damages from increased emissions are constant for small departures from the baseline emissions path, an approximation that is reasonable for policies that have effects on emissions that are small relative to cumulative global carbon dioxide emissions.

Table IV.C.3-2

Social Cost of CO 2 Emissions, 2010 – 2050 (2007 dollars)

Discount Rate 5% 3% 2.5% 3%

Source Average of Estimates 95 th Percentile Estimate

2010 4.7 21.4 35.1 64.9

2015 5.7 23.8 38.4 72.8

2020 6.8 26.3 41.7 80.7

2025 8.2 29.6 45.9 90.4

2030 9.7 32.8 50.0 100.0

2035 11.2 36.0 54.2 109.7

2040 12.7 39.2 58.4 119.3

2045 14.2 42.1 61.7 127.8

2050 15.7 44.9 65.0 136.2

As Table IV.C.3-2 shows, the four SCC estimates selected by the interagency group for use in regulatory analyses are $5, $21, $35, and $65 (in 2007 dollars) for emissions occurring in the year 2010. The first three estimates are based on the average SCC across models and socio-economic and emissions scenarios at the 5, 3, and 2.5 percent discount rates, respectively. The fourth value is included to represent the higherthan-expected impacts from temperature chan ge further out in the tails of the SCC distribution. For this purpose, the group elected to use the SCC value for the 95 th
percentile at a 3 percent discount rate.485 The central value identified by the inte ragency group is the average SCC across models at the 3 percent discount rate, or $21 per metric ton in 2010. To capture the uncertainties involved in regulatory impact analysis, however, the group emphasized the importance of considering the full range of estimated SCC values. As the table also shows, the SCC estimates also rise over time; for example, the central value increases to $24 per ton of CO 2 in 2015 and $26 per ton of CO 2 in 2020.

The interagency group is committed to upd ating these estimates as the science and economic understanding of climate change and its impacts on society improves over time. Specifically, the group has set a preliminary goal of revisiting the SCC values within two years or at such tim e as substantially updated mode ls become available, and to continue to support research in this area. U.S. federal agencies will periodically review

and reconsider estimates of the SCC used for cost-benefit analyses to reflect increasing knowledge of the science and economics of climate impacts, as well as improvements in modeling.

Details of the process used by the intera gency group to develop its SCC estimates, complete results including year-by-year esti mates of each of the four values, and a thorough discussion of their intended use and limitations is provided in the document Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866

, Interagency Working Group on Social Cost of Carbon, United States Government, February 2010. 565

m. Discounting Future Benefits and Costs

Discounting future fuel savings and other benefits is intended to account for the reduction in their value to society when they are deferred until some future date, rather than received immediately. The discount rate expresses the percent decline in the value of these benefits—as viewed from today’s perspective—for each year they are deferred into the future. In evaluating the benefits from alternative proposed increases in CAFE standards for MY 2012-2016 passenger cars and light trucks, NHTSA employed a discount rate of 3 percent per year, but also tested the sensitivity of presents these benefit

and cost estimates to the use of at

a 7 percent discount rate. Although these are the same discount rates that were used to analyze the benefits and costs of CAFE standards adopted in the agency’s MY 2011 final rule, NHTSA has chosen to rely on the 3 percent

rate as the basis for the Reference Case in this final rule rather than the 7 percent rate it employed in previous rulemakings, for the reasons discussed below

.

The primary reason that While both discount rates are presented, NHTSA has

selected believes that 3 percent i a s the more appropriate rate for discounting future

benefits from increased CAFE standards is that the agency believes because most or all of

565 This document is available at http://www2.eere.energy.gov/buildings/appliance_sta ndards/commercial/pdfs/sem_finalrule_appendix15a. pdf (last accessed March 2, 2010). Comment [A51]: These should both be presented as co-equals.486 vehicle manufacturers’ costs for complying with higher CAFE standards will ultimately be reflected in higher sales prices for thei r new vehicle models. By increasing sales prices for new cars and light trucks, CAFE re gulations will thus pr imarily affect vehicle purchases and other private consumption decisions. Both economic theory and OMB guidance on discounting indicate that the future benefits and costs of regulations that mainly affect private consumption should be discounted at consumers’ rate of time preference. 566

OMB guidance also indicates that savers ap pear to discount future consumption at an average real (that is, adjusted to remove th e effect of inflation) rate of about 3 percent when they face little risk about its likely level. Since the real rate that savers use to discount future consumption represents a reasonable estimate of consumers’ rate of time preference, NHTSA has employed believes that the 3 percent rate to discount projected future benefits and costs resulting from higher CAFE standards for MY 2012-2016 passenger cars and light trucks is more appropriate than 7 percent but presents both

. 567
One commenter, NRDC, supported the agencies’ use of a 3 percent discount rate as consistent with DOE practice in energy efficiency-related rulemakings and OMB guidance. OMB guidance actually requires that bene fits and costs be presented at both a 3 and 7 percent discount rate.

Because there is some remaining uncertainty about whether vehicle manufacturers will completely recover their costs for co mplying with higher CAFE standards by increasing vehicle sales prices, however, NHTSA has also tested the sensitivity of also

presents these benefit and cost estimates to the use of at

a higher percent discount rate. OMB guidance indicates that the real economy-wide opportunity cost of capital is the appropriate discount rate to apply to future benefits and costs when the primary effect of a regulation is “...to displace or alter the us e of capital in the private sector,” and OMB estimates that this rate currently averages about 7 percent. 568 Thus the agency has also testing the sensitivity of examined its benefit and cost estimates for alternative MY 2012-

2016 CAFE standards to the use of at

a 7 percent real discount rate.

In its proposed rule, NHTSA sought comment on whether it should evaluate CAFE standards using a discount rate of 3 percent, 7 percent, or an alternative value. NRDC not only opposed the agency’s use of a 7 percent discount rate, but also opposed conducting sensitivity analyses with discount rates higher than 3 percent. In contrast, two other commenters, NADA and the Institute for Energy Research, advised that the agencies should use discount rates of 7 percent or higher. NADA argued that the most appropriate discount rate would be one clos er to historical financing rates on motor vehicle loans (which currently average about 6.5 percent), while the Institute for Energy

566 Id.

567 Office of Management and Budget, Circular A-4, “Regulatory Analysis,” September 17, 2003, 33.

Available at http://www.whitehouse.gov/omb/circulars/a 004/a-4.pdf (last accessed August 9, 2009).

568 Id.487 Research argued that consumers may have much higher discount rates than the agencies assumed, perhaps even as high as 25 percent.

After carefully considering these comments, NHTSA has elected to rely primarily

on the use 3 and 7 percent discount rate in the analysis supporting this final rule. As indicated above, however, the agency believes that vehi cle manufacturers will recover most or all of their added costs for comp lying with the CAFE standards this rule establishes by raising sales prices for some or all vehicle models. As a consequence, this regulation will thus primarily affect vehicle purchases and related consumption decisions, which suggests that its future benefits and cost s should be discounted at the rate of time preference vehicle buyers reveal in their consumption and savings behavior. OMB’s 3 percent figure appears to be a conservative ( i.e. , low) estimate of this rate, because it assumes in effect that vehicle buyers face little risk about the value of future fuel savings and other benefits from the rule; neverthe less, in the current economic environment it appears to represent a reasonable estimate of consumers’ rate of time preference. Thus NHTSA has mainly relied upon the 3 percent rate to discount projected future benefits and costs resulting from higher CAFE standards for MY 2012-2016 passenger cars and light trucks

One important exception to the 3 percent discount rate is the rates used to discount benefits from reducing CO 2 emissions from the years in which reduced emissions occur, which span the lifetimes of MY 2012-2016 cars and light trucks, to their present values. In order to ensure consistenc y in the derivation and use of the interagency group’s estimates of the unit values of reducing CO 2 emissions, the benefits from reducing those emissions during each future year are discounted using the same “intergenerational” discount rates that were used to derive each of the alternative unit values of reducing CO 2 emissions. As indicate in Table IV.C.3-2 above, these rates are 2.5 percent, 3 percent, and 5 percent depending on which estimate of the SCC is being

considered. 569

n. Accounting for Uncertainty in Benefits and Costs

In analyzing the uncertainty surrounding its estimates of benefits and costs from alternative CAFE standards, NHTSA has c onsidered alternative estimates of those assumptions and parameters likely to have th e largest effect. These include the projected costs of fuel economy-improving technologies and their expected effectiveness in reducing vehicle fuel consumption, forecasts of future fuel prices, the magnitude of the rebound effect, the reduction in external economic costs resulting from lower U.S. oil imports, [_________________________] , and the discount rate applied to future benefits

569 The fact that the 3 percent discount rate used by th e interagency group to derive its central estimate of the SCC is identical to the 3 percent short-term or “i ntra-generational” discount rate used by NHTSA to

discount future benefits other than reductions in CO 2 emissions is coincidental, and should not be interpreted as a required condition that must be satisfied in future rulemakings.488 and costs. The range for each of these variables employed in the uncertainty analysis is presented in the section of this notice discussing each variable.

The uncertainty analysis was conducted by assuming independent normal probability distributions for each of these va riables, using the low and high estimates for each variable as the values below which 5 percent and 95 percent of observed values are

believed to fall. Each trial of the uncertainty analysis employed a set of values randomly drawn from each of these probability dist ributions, assuming that the value of each variable is independent of the others. Bene fits and costs of each alternative standard were estimated using each combination of variable s. A total of 1,000 trials were used to establish the likely probability distributions of estimated benefits and costs for each

alternative standard.

o. Where Can Readers Find More Information About the Economic Assumptions?

Much more detailed information is prov ided in Chapter VIII of the FRIA, and a discussion of how NHTSA and EPA jointly reviewed and updated economic assumptions for purposes of this final rule is available in Chapter 4 of the joint TSD. In addition, all of NHTSA’s model input and output files are now public and available for the reader’s review and consideration. The economic input files can be found in the docket for this final rule, NHTSA-2009-0059, and on NHTSA’s website. 570 Finally, because much of NHTSA’s economic analysis for purposes of this final rule builds on the work that was done for the MY 2011 final rule, we refer readers to that document as well for background information concerning how NHTSA’s assumptions regarding economic inputs for CAFE analysis have evolved over the past several rulemakings, both in response to comments and as a result of the agency’s growing experience with this type of analysis. 571

4. How Does NHTSA Use the Assumptions in its Modeling Analysis?

In developing today’s final CAFE standa rds, NHTSA has made significant use of results produced by the CAFE Compliance and Effects Model (commonly referred to as “the CAFE model” or “the Volpe model”), which DOT’s Volpe National Transportation Systems Center developed specifically to support NHTSA’s CAFE rulemakings. The model, which has been constructed specifically for the purpose of analyzing potential CAFE standards, integrates the following core capabilities: (1) estimating how manufacturers could apply technologies in response to new fuel economy standards, (2) estimating the costs that would be incurred in applying these technologies,

570 [link]

571 74 FR 14308-14358 (Mar. 30, 2009).489 (3) estimating the physical effects re sulting from the application of these technologies, such as changes in travel demand, fuel consumption, and

emissions of carbon dioxide and criteria pollutants, and (4) estimating the monetized societal benefits of these physical effects.

An overview of the model follows below. Separate model documentation provides a detailed explanation of the functions the model performs, the calculations it performs in doing so, and how to install the model, construct inputs to the model, and interpret the model’s outputs. Documentation of the model, along with model installation files, source code, and sample inputs are available at NHTSA’s web site. The model

documentation is also available in the docket for today’s final rule, as are inputs for and outputs from analysis of today’s final CAFE standards.

a. How Does the Model Operate?

As discussed above, the agency uses the Volpe model to estimate how manufacturers could attempt to comply with a given CAFE standard by adding technology to fleets that the agency anticipates they will produce in future model years.

This exercise constitutes a simulation of ma nufacturers’ decisions regarding compliance

with CAFE standards.

This compliance simulation begins with the following inputs: (a) the baseline and reference market forecast discussed above in Section IV.C.1 and Chapter 1 of the TSD, (b) technology-related estimates discussed above in Section IV.C.2 and Chapter 3 of the TSD, (c) economic inputs discussed above in Section IV.C.3 and Chapter 4 of the TSD, and (d) inputs defining baseline and potential new CAFE standards. For each manufacturer, the model applies technologies in a sequence that follows a defined engineering logic (“decision trees” discussed in the MY 2011 final rule and in the model documentation) and a cost-minimizing strategy in order to identify a set of technologies the manufacturer could apply in response to new CAFE standards. 572 The model applies technologies to each of the pr ojected individual vehicles in a manufacturer’s fleet, until one of three things occurs: (1) the manufacturer’s fleet achieves compliance with the applicable standard; (2) the manufacturer “exhausts” 573 available technologies; or

572 NHTSA does its best to remain scrupulously neutral in the application of technologies through the modeling analysis, to avoid picking technology “win ners.” The technology application methodology has been reviewed by the agency over the course of seve ral rulemakings, and commenters have been generally supportive of the agency’s approach. See

, e.g. , 74 Fed Reg. at 14238-14246 (Mar. 30, 2009).

573 In a given model year, the model makes additional t echnologies available to each vehicle model within several constraints, including (a) whether or not th e technology is applicable to the vehicle model’s technology class, (b) whether the vehicle is undergoi ng a redesign or freshening in the given model year, (c) whether engineering aspects of the ve hicle make the technology unavailable ( e.g. , secondary axle disconnect cannot be applied to two-wheel drive vehicl es), and (d) whether technology application remains within “phase in caps” constraining the overall share of a manufacturer’s fleet to which the technology can be added in a given model year. Once enough techno logy is added to a given manufacturer’s fleet in a490 (3) for manufacturers estimated to be willing to pay civil penalties, themanufacturer reaches the point at which doing so would be more costeffective (from the manufacturer’s perspective) than adding further technology. 574

As discussed below, the model has also been modified in order to apply additional technology in early model years if doing so will facilitate compliance in later model years. This is designed to simulate a manufacturer’s decision to plan for CAFE obligations several years in advance, which NHTSA believes better replicates manufacturers’ actual behavior as compared to the year-by-year evaluation which EPCA would otherwise require.

The model accounts explicitly for each model year, applying most technologies when vehicles are scheduled to be redesigned or freshened, and carrying forward technologies between model years. The CAFE model accounts explicitly for each model year because EPCA requires that NHTSA make a year-by-year determination of the appropriate level of stringency and then set th e standard at that level, while ensuring ratable increases in average fuel economy. 575 The multi-year planning capability mentioned above increases the model’s ability to simulate manufacturers’ real-world behavior, accounting for the fact that manuf acturers will seek out compliance paths for several model years at a time, while accommodating the year-by-year requirement.

The model also calculates the costs, effects, and benefits of technologies that it estimates could be added in response to a given CAFE standard. 576 It calculates costs by

given model year that these constraints make furthe r technology application unavailable, technologies are “exhausted” for that manufacturer in that model year.

574 This possibility was added to the model to acco unt for the fact that under EPCA/EISA, manufacturers must pay fines if they do not achieve compliance with applicable CAFE standards. 49 U.S.C. 32912(b). NHTSA recognizes that some manufacturers will find it more cost-effective to pay fines than to achieve compliance, and believes that to assume these manuf acturers would exhaust available technologies before paying fines would cause unrealistically high estimates of market penetration of expensive technologies such as diesel engines and strong hybrid electric vehicl es, as well as correspondingly inflated estimates of both the costs and benefits of any potential CAFE standards. NHTSA thus includes the possibility of manufacturers choosing to pay fines in its modeling analys is in order to achieve what the agency believes is

a more realistic simulation of manufacturer decision-ma king. Unlike flex-fuel and other credits, NHTSA is not barred by statute from considering fine-payment in determining maximum feasible standards under EPCA/EISA. 49 U.S.C. 32902(h).

575 49 U.S.C. 32902(a) states that at least 18 months be fore the beginning of each model year, the Secretary of Transportation shall prescribe by regulation av erage fuel economy standards for automobiles manufactured by a manufacturer in th at model year, and that each standard shall be the maximum feasible average fuel economy level that the Secretary decides the manufacturers can achieve in that year. NHTSA has long interpreted this statutory language to require year-by-year assessment of manufacturer capabilities. 49 U.S.C. 32902(b)(2)(C) also requires that standards increase ratably between MY 2011 and MY 2020.

576 As for all of its other rulemakings, NHTSA is required by Executive Order 12866 and DOT regulations to analyze the costs and benefits of CAFE standard s. Executive Order 12866, 58 FR 51735 (Oct. 4, 1993); DOT Order 2100.5, “Regulatory Policies and Procedures,” 1979, available at http://regs.dot.gov/rulemakingrequirement s.htm (last accessed February 21, 2010).491 applying the cost estimation techniques discussed above in Section IV.C.2, and by accounting for the number of affected vehicles. It accounts for effects such as changes in vehicle travel, changes in fuel consumption, and changes in greenhouse gas and criteria pollutant emissions. It does so by applying the fuel consumption estimation techniques also discussed in Section IV.C.2, and the vehicle survival and mileage accumulation forecasts, the rebound effect estimate and the fuel properties and emission factors discussed in Section IV.C.3. Considering changes in travel demand and fuel consumption, the model estimates the monetized value of accompanying benefits to society, as discussed in Section IV.C.3. The model calculates both the undiscounted and

discounted value of benefits that accrue over time in the future.

The Volpe model has other capabilities that facilitate the development of a CAFE

standard. It can be used to fit a mathematic al function forming the basis for an attributebased CAFE standard, following the steps described below. It can also be used to evaluate many ( e.g. , 200 per model year) potential levels of stringency sequentially, and identify the stringency at which specific criteria are met. For example, it can identify the stringency at which net benefits to society are maximized, the stringency at which a specified total cost is reached, or the stringency at which a given average required fuel economy level is attained. This allows the agency to compare more easily the impacts in terms of fuel savings, emissions reductions, and costs and benefits of achieving different levels of stringency according to different criteria. The model can also be used to perform uncertainty analysis ( i.e. , Monte Carlo simulation), in which input estimates are varied randomly according to specified probability distributions, such that the uncertainty of key measures ( e.g. , fuel consumption, costs, benefits) can be evaluated.

b. Has NHTSA Considered Other Models?

Nothing in EPCA requires NHTSA to use th e Volpe model. In principle, NHTSA could perform all of these tasks through other means. For example, in developing today’s final standards, the agency did not use the Vo lpe model’s curve fitting routines; rather, as discussed above in Section II, the agency fitted curves out side the model (as for the NPRM) but elected to retain the curve shapes defining the proposed standards. In general, though, these model capabilities have greatl y increased the agency’s ability to rapidly, systematically, and reproducibly conduct key analyses relevant to the formulation and

evaluation of new CAFE standards.

During its previous rulemaking, which led to the final MY 2011 standards promulgated earlier this year, NHTSA receiv ed comments from the Alliance and CARB encouraging NHTSA to examine the usefulness of other models. As discussed in that final rule, NHTSA, having undertaken such consideration, concluded that the Volpe model is a sound and reliable tool for the development and evaluation of potential CAFE

standards. 577 Also, although some observers have criticized analyses the agency has conducted using the Volpe model, those criticis ms have largely concerned inputs to the

577 74 FR 14372 (Mar. 30, 2009).492 model (such as fuel prices and the estimated economic cost of CO 2 emissions), not the model itself. In comments on the NPRM preceding today’s final rule, one of these observers, the Center for Biological Diversity (CBD), suggested that the revisions to such inputs have produced an unbiased cost-benefit analysis.

One commenter, the International Council on Clean Transportation (ICCT) suggested that the Volpe model is excessively complex and insufficiently transparent. However, in NHTSA’s view, the complexity of the Volpe model has evolved in response to the complex analytical demands surrounding very significant regulations impacting a large and important sector of the economy, and ICCT’s own comments illustrate some of the potential pitfalls of model simplification. Furthermore, ICCT’s assertions regarding model transparency relate to the use of confidential business information, not to the Volpe model itself; as discussed elsewhere in this final rule, NHTSA and the Volpe Center have taken pains to make the Volpe model transparent by releasing the model and supporting documentation, along with the underlying source code and accompanying model inputs and outputs. Therefore, the agen cy disagrees with these ICCT comments.

In reconsidering and reaffirming this conclusion for purposes of this NPRM, NHTSA notes that the Volpe model not only has been formally peer-reviewed and tested through three rulemakings, but also has some features especially important for the analysis of CAFE standards under EPCA/EISA. Among these are the ability to perform year-by-year analysis, and the ability to account for engineering differences between specific vehicle models.

EPCA requires that NHTSA set CAFE stan dards for each model year at the level that would be “maximum feasible” for that year. 578 Doing so requires the ability to analyze each model year and, when developing regulations covering multiple model years, to account for the interdependency of model years in terms of the appropriate levels of stringency for each one. Also, as part of the evaluation of the economic practicability of the standards, as required by EPCA, NHTSA has traditionally assessed the annual costs and benefits of the standards. The first (2002) version of DOT’s model treated each model year separately, and did not perform this type of explicit accounting. Manufacturers took strong exception to these shortcomings. For example, GM commented in 2002 that “although the table suggests that the proposed standard for MY 2007, considered in isolation, promises benefits exceeding costs, that anomalous outcome is merely an artifact of the peculiar Vo lpe methodology, which treats each year independently of any other...” In 2002, GM also criticized DOT’s analysis for, in some cases, adding a technology in MY 2006 and then replacing it with another technology in MY 2007. GM (and other manufacturers) argu ed that this completely failed to represent true manufacturer product-development cycles, and therefore could not be technologically feasible or economically practicable.

578 49 U.S.C. 32902(a).493 In response to these concerns, and to related concerns expressed by other manufacturers, DOT modified the CAFE model in order to account for dependencies between model years and to better represent manufacturers’ planning cycles, in a way that still allowed NHTSA to comply with th e statutory requiremen t to determine the appropriate level of the standards for each model year. This was accomplished by limiting the application of many technologies to model years in which vehicle models are scheduled to be redesigned (or, for some technologies, “freshened”), and by causing the model to “carry forward” applied technologies from one model year to the next.

During the recent rulemaking for MY 2011 passenger cars and light trucks, DOT

further modified the CAFE model to account fo r cost reductions attributable to “learning effects” related to volume ( i.e. , economies of scale) and the passage of time ( i.e. , timebased learning), both of which evolve on year-by-year basis. These changes were implemented in response to comments by environmental groups and other stakeholders.

The Volpe model is also able to accoun t for important engineering differences between specific vehicle models, and to thereby reduce the risk of applying technologies that may be incompatible with or already present on a given vehicle model. Some commenters have previously suggested that manufacturers are most likely to broadly apply generic technology “packages,” and the Volpe model does tend to form “packages” dynamically, based on vehicle characteristics, redesign schedules, and schedules for increases in CAFE standards. For example, under the final CAFE standards for passenger cars, the CAFE model estimated that manufacturers could apply turbocharged SGDI engines mated with dual-clutch AMTs to 2.4 million passenger cars in MY 2016, about 22 percent of the MY 2016 passenger car fleet. Recent modifications to the model, discussed below, to represent multi-year planning, increase the model’s tendency to add relatively cost-effective technologies when vehicles are estimated to be redesigned, and thereby increase the model’s tendency to form such packages.

On the other hand, some manufacturers have indicated that especially when faced with significant progressive increases in the stringency of new CAFE standards, they are likely to also look for narrower opportunities to apply specific technologies. By progressively applying specific technologies to specific vehicle models, the CAFE model also produces such outcomes. For example, under the final CAFE standards for passenger cars, the CAFE model estimated that in MY 2012, some manufacturers could find it advantageous to apply SIDI to some vehicle models without also adding turbochargers.

By following this approach of combining technologies incrementally and on a model-by-model basis, the CAFE model is able to account for important engineering differences between vehicle models and avoid unlikely technology combinations. For example, the model does not apply dual-clutch AMTs (or strong hybrid systems) to vehicle models with 6-speed manual transmissi ons. Some vehicle buyers prefer a manual transmission; this preference cannot be assumed away. The model’s accounting for494 manual transmissions is also important for vehicles with larger engines: for example, cylinder deactivation cannot be applied to ve hicles with manual transmissions, because there is no reliable means of predicting when the driver will change gears. By retaining cylinder deactivation as a specific technology rather than part of a pre-determined package and by retaining differentiation between vehicles with different transmissions, DOT’s model is able to target cylinder deactiva tion only to vehicle models for which it is technologically feasible.

The Volpe model also produces a single vehicle-level output file that, for each vehicle model, shows which technologies were present at the outset of modeling, which technologies were superseded by other technologies, and which technologies were ultimately present at the conclusion of modeling. For each vehicle, the same file shows resultant changes in vehicle weight, fuel econom y, and cost. This provides for efficient identification, analysis, and correction of er rors, a task with which the public can now assist the agency, since all inputs and outputs are public.

Such considerations, as well as those re lated to the efficiency with which the Volpe model is able to analyze attribute-ba sed CAFE standards and changes in vehicle classification, and to perform higher-level an alysis such as stringency estimation (to meet predetermined criteria), sensitivity analysis, an d uncertainty analysis, lead the agency to conclude that the model remains the best available to the agency for the purposes of analyzing potential new CAFE standards.

c. What Changes Has DOT Made to the Model?

As discussed in the NPRM preceding today’s final rule, the Volpe model has been revised to make some minor improvements, and to add one significant new capability: the ability to simulate manufacturers’ ability to engage in “multi-year planning.” Multiyear planning refers to the fact that when redesigning or freshening vehicles, manufacturers can anticipate future fuel economy or CO 2 standards, and add technologiesaccounting for these standards. For example, a manufacturer might choose to overcomply in a given model year when many vehicle models are scheduled for redesign, in order to facilitate compliance in a later model year when standards will be more stringent yet few vehicle models are scheduled for redesign. 579 Prior comments have indicated that the Volpe model, by not representing such manufacturer choices, tended to overestimate compliance costs. However, because of the technical complexity involved in representing these choices when, as in the Volpe model, each model year is accounted for separately and explicitly, the model could not be modified to add this capability prior to the statutory deadline for the MY 2011 final standards.

579 Although a manufacturer may, in addition, generate CAFE credits in early model years for use in later model years (or, less likely, in later years for us e in early years), EPCA does not allow NHTSA, when setting CAFE standards, to account for manufacturers’ use of CAFE credits.495 The model now includes this capability, and NHTSA has applied it in conducting analysis to support the NPRM and in analyzing the standards finalized today. Consequently, this new capability often produces results indicating that manufacturers could over-comply in some model years (with corresponding increases in costs and benefits in those model years) and thereby “carry forward” technology into later model years in order to reduce compliance costs in those later model years. NHTSA believes this better represents how manufacturers would actually respond to new CAFE standards, and thereby produces more realistic estimates of the costs and benefits of such standards.

The Volpe model has also been modified to accommodate inputs specifying the amount of CAFE credit to be applied to each manufacturer’s fleet. Although the model is not currently capable of estimating manufacturers’ decisions regarding the generation and use of CAFE credits, and EPCA does not allow NHTSA, in setting CAFE standards, to take into account manufacturers’ potential use of credits, this additional capability in the Volpe model provides a basis for more accurate ly estimating costs, effects, and benefits that may actually result from new CAFE standards. Insofar as some manufacturers actually do earn and use CAFE credits, this provides NHTSA with some ability to examine outcomes more realistically than EPCA allows for purposes of setting new

CAFE standards.

In comments on recent NHTSA rulemakings, some reviewers have suggested that the Volpe model should be modified to estima te the extent to which new CAFE standards would induce changes in the mix of vehicles in the new vehicle fleet. NHTSA, like EPA, agrees that a “market shift” model, also called a consumer vehicle choice model, could provide useful information regarding th e possible effects of potential new CAFE standards. An earlier experimental versi on of the Volpe model included a multinomial logit model that estimated changes in sales resulting from CAFE-induced increases in new vehicle fuel economy and prices. A fuller description of this attempt can be found in Section V of the FRIA. However, NHTSA has thus far been unable to develop credible coefficients specifying such a model. In addition, as discussed in Section II.H.4, such a

model is sensitive to the coeffi cients used in it, and there is great variation over some key

values of these coeffici ents in published studies.

In the NPRM preceding today’s final ru le, NHTSA sought comment on ways to improve on this earlier work and develop this capability effectively. Some comments implied that the agency should continue work to do so, without providing specific

recommendations. The Alliance of Automobile Manufacturers identified consumer

choice as one of several factors outside the industry’s control yet influential with respect to the agencies’ analysis. Also, the University of Pennsylvania Environmental Law Project suggested that the rule would chan ge consumers’ vehicle purchasing decisions, and the California Air Resources Board expressed support for continued consideration of consumer choice modeling. On the othe r hand, citing concerns regarding model calibration, handling of advanced technologies, and applicability to the future light vehicle market, ACEEE, ICCT, UCS, and NRDC all expressed opposition to the496 possibility of using consumer choice models in estimating the costs and benefits of new standards. Notwithstanding comments on this issue, NHTSA has been unable to further develop this capability in time to include it in the analysis supporting decisions regarding final CAFE standards. The agency will, how ever, continue efforts to develop and make use of this capability in future rulemakings, taking into account comments received in connection with today’s final rule.

d. Does the Model Set the Standards?

Since NHTSA began using the Volpe model in CAFE analysis, some commenters have interpreted the agency’s use of the model as the way by which the agency chooses the maximum feasible fuel economy standards. This is incorrect. Although NHTSA currently uses the Volpe model as a tool to inform its consideration of potential CAFE standards, the Volpe model does not dete rmine the CAFE standards that NHTSA proposes or promulgates as final regulations . The results it produces are completely dependent on inputs selected by NHTSA, ba sed on the best available information and data available in the agency’s estimation at the time standards are set. Although the model has been programmed in previous rulemakings to estimate at what stringency net benefits are maximized, it was not the model’s decision to seek that level of stringency, it was the agency’s, as it is always the agency’s decision what level of CAFE stringency is appropriate. Ultimately, NHTSA’s selection of appropriate CAFE standards is governed and guided by the statutory requirements of EPCA, as amended by EISA: NHTSA sets the standard at the maximum feasible average fuel economy level that it determines is achievable during a particul ar model year, considering technological feasibility, economic practicability, the effect of other standards of the Government on fuel economy, and the need of the nation to conserve energy.

NHTSA considers the results of analyses conducted by the Volpe model and analyses conducted outside of the Volpe mode l, including analysis of the impacts of carbon dioxide and criteria pollutant emissi ons, analysis of technologies that may be available in the long term an d whether NHTSA could expedite their entry into the market through these standards, and analysis of the extent to which changes in vehicle prices and fuel economy might affect vehicle production and sales. Using all of this information— not solely that from the Volpe model—the agency considers the governing statutory factors, along with environmental issues and othe r relevant societal issues such as safety, and promulgates the standards based on its best judgment on how to balance these

factors.

This is why the agency considered ei ght regulatory alternatives, only one of which reflects the agency’s final standards, based on the agency’s determinations and assumptions. Others assess alternative st andards, some of which exceed the final standards and/or the point at which net benefits are maximized. 580 These comprehensive analyses, which also included scenarios with different economic input assumptions as

580 See Section IV.F below for a discussion of the regulat ory alternatives considered in this rulemaking.497 presented in the FEIS and FRIA, are intended to inform and contribute to the agency’s consideration of the “need of the United States to conserve energy,” as well as the other statutory factors. 49 U.S.C. 32902(f). Additionally, the agen cy’s analysis considers the need of the nation to conserve energy by accounting for economic externalities of petroleum consumption and monetizing the economic costs of incremental CO 2 emissions in the social cost of carbon. NHTSA uses information from the model when considering what standards to propose and finalize, but the model does not determine the standards.

e. How Does NHTSA Make the Model Available and Transparent?

Model documentation, which is publicly available in the rulemaking docket and on NHTSA’s web site, explains how the model is installed, how the model inputs (all of which are available to the public) 581 and outputs are structured, and how the model is used. The model can be used on any Windows-based personal computer with Microsoft Office 2003 or 2007 and the Microsoft .NET framework installed (the latter available without charge from Microsoft). The executable version of the model and the underlying

source code are also available at NHTSA’s we b site. The input files used to conduct the core analysis documented in this final rule are available in the public docket. With the model and these input files, anyone is capable of independently running the model to repeat, evaluate, and/or modify the agency’s analysis.

NHTSA is aware of two attempts by co mmenters to install and use the Volpe model in connection with the NPRM. James Adcock, an individual reviewer, reported difficulties installing the model on a computer with Microsoft® Office 2003 installed. Also, students from the University of California at Santa Barbara, though successful in installing and running the model, reported being unable to reproduce NHTSA’s results underlying the development of the shapes of the passenger car and light truck curves.

Regarding the difficulties Mr. Adcock reported encountering, NHTSA staff is aware of no attempts to contact the agency for assistance locating supporting material related to the MYs 2012-2016 CAFE rulemaking. Further, the model documentation provides specific minimum hardware requ irements and also indicates operating environment requirements, both of which have remained materially unchanged for more than a year. Volpe Center staff members routinely install and run the model successfully on new laptops, desktops, and servers as part of normal equipment refreshes and interagency support activities. We believe, therefore, that if the minimum hardware and operating environment requirements are met, installing and running the model should be straightforward and successful. The model documentation notes that some of the development and operating environment used by the Volpe model ( e.g. , the software environment rather than the hardware on which that software environment operates), particularly the version of Microsoft® Excel used by the model, is Microsoft® Office 2003. We recognize that some users may have more recent versions of Microsoft®

581 We note, however, that files from any supplemental an alysis conducted that relied in part on confidential manufacturer product plans cannot be made public, as prohibited under 49 CFR Part 512.498 Office. However, as in the case of othe r large organizations, software licensing decisions, including the version of Microsoft® Office, is centralized in the Office of the Chief Information Officer. Nonetheless, the Volpe Model is proven on both Microsoft®

Office version 2003 and the newer 2007 version.

As discussed in Section II.C, consider ing comments by the UC Santa Barbara students regarding difficulties reproducing NHTSA’s analysis, NHTSA reexamined its analysis, and discovered some erroneous entries in model inputs underlying the analysis used to develop the curves proposed in the NPRM. These errors are discussed in the FRIA and have since been corrected. Updated inputs and outputs have been posted to NHTSA’s web site, and should enable outside replication of the analysis documented in today’s notice.

5. How Did NHTSA Develop the Shape of the Target Curves for the Final

Standards?

In developing the shape of the target curves for today’s final standards, NHTSA took a new approach, primarily in response to comments received in the MY 2011 rulemaking. NHTSA’s authority under EISA allows consideration of any “attribute related to fuel economy” and any “mathematical function.” While the attribute, footprint, is the same for these final standards as the attribute used for the MY 2011 standards, the

mathematical function is new.

Both vehicle manufacturers and public interest groups expressed concern in the MY 2011 rulemaking process that the constrained logistic function, particularly the function for the passenger car standards, was overly steep and could lead, on the one hand, to fuel economy targets that were overly stringent for small footprint vehicles, and on the other hand, to a greater incentive for manufacturers to upsize vehicles in order to reduce their compliance obligation (because larg er-footprint vehicles have less stringent targets) in ways that could compromise energy and environmental benefits. Given comments received in response to the NPRM pr eceding this final rule, it appears that the constrained linear function developed here significantly mitigates prior steepness concerns, and appropriately balances, for purposes of this rulemaking, the objectives of (1) discouraging vehicle downsizing that could compromise highway safety and (2) avoiding an overly strong incentive to increase vehicle sizes in ways that could compromise energy and environmental benefits.

a. Standards are Attribute-Based and Defined by a Mathematical Function

EPCA, as amended by EISA, expressly requires that CAFE standards for passenger cars and light trucks be based on one or more vehicle attributes related to fuel economy, and be expressed in the form of a mathematical function. 582 Like the MY 2011 standards, the MY 2012-2016 passenger car and light truck standards are attribute-based

582 49 U.S.C. 32902(a)(3)(A).499 and defined by a mathematical function. 583 Also like the MY 2011 standards, the MY 2012-2016 standards are based on the footprint attribute. However, unlike the MY 2011 standards, the MY 2012-2016 standards are defined by a constrained linear rather than a constrained logistic function. The reasons for these similarities and differences are explained below.

As discussed above in Section II, under attribute-based standards, the fleet-wide average fuel economy that a particular manufacturer must achieve in a given model year depends on the mix of vehicles that it pr oduces for sale. Until NHTSA began to set

“Reformed” attribute-based standards for li ght trucks in MYs 2008-2011, and until EISA gave NHTSA authority to set attribute-base d standards for passenger cars beginning in MY 2011, NHTSA set “universal” or “flat” industry-wide average CAFE standards. Attribute-based standards are preferable to universal industry-wide average standards for several reasons. First, attribute-based standards increase fuel savings and reduce emissions when compared to an equivalent universal industry-wide standard under which each manufacturer is subject to the same numerical requirement. Absent a policy to require all full-line manufacturers to pro duce and sell essentially the same mix of vehicles, the stringency of the universal indu stry-wide standards is constrained by the capability of those full-line manufacturers whose product mi x includes a relatively high proportion of larger and heavier vehicles. In effect, the standards are based on the mix of those manufacturers. As a result, the standards are generally set below the capabilities of

full-line and limited-line manufacturers that sell predominantly lighter and smaller

vehicles.

Under an attribute-based system, in contra st, every manufacturer is more likely to be required to continue adding more fuel-saving technology each year because the level of the compliance obligation of each manufacturer is based on its own particular product mix. Thus, the compliance obligation of a manufacturer with a higher percentage of lighter and smaller vehicles will have a higher compliance obligation than a manufacturer with a lower percentage of such vehicles. As a result, all manufacturers must use technologies to enhance the fuel economy levels of the vehicles they sell. Therefore, fuel savings and CO 2 emissions reductions should be higher under an attribute-based system than under a comparable industry-wide standard.

Second, attribute-based standards minimize the incentive for manufacturers to respond to CAFE in ways harmful to safety. 584 Because each vehicle model has its own target (based on the attribute chosen), attribute-based standards provide no incentive to build smaller vehicles simply to meet a fleet-wide average. Since smaller vehicles are

583 As discussed in Chapter 2 of the TSD, EPA is also setting attribute-based CO 2 standards that are defined by a mathematical function, given the advantages of using attribute-based standards and given the goal of coordinating and harmonizing the CAFE and CO 2 standards as expressed by President Obama in his announcement of the new National Program and in the joint NOI.

584 The 2002 NAS Report described at length and quantified the potential safety problem with average fuel economy standards that specify a single numerical requirement for the entire industry. See NAS Report at 5, finding 12.500 subject to more stringent fuel economy targets, a manufacturer’s increasing its proportion of smaller vehicles would simply caus e its compliance obligation to increase.

Third, attribute-based standards provide a more equitable regulatory framework

for different vehicle manufacturers. 585 A universal industry-wide average standard imposes disproportionate cost burdens and compliance difficulties on the manufacturers that need to change their product plans and no obligation on those manufacturers that have no need to change their plans. Attribute-based standards spread the regulatory cost burden for fuel economy more broadly across all of the vehicle manufacturers within the industry.

And fourth, attribute-based standards re spect economic conditions and consumer choice, instead of having the government mandate a certain fleet mix. Manufacturers are required to invest in technologies that improv e the fuel economy of their fleets, regardless of vehicle mix. Additionally, attribute-based standards help to avoid the need to conduct rulemakings to amend standards if economic conditions change, causing a shift in the mix of vehicles demanded by the public. NHTSA conducted three rulemakings during the 1980s to amend passenger car standards for MYs 1986-1989 in response to unexpected drops in fuel prices and resulting shifts in consumer demand that made the universal passenger car standard of 27.5 mpg infeasible for several years following the change in fuel prices.

As discussed above in Section II, for purposes of the CAFE standards finalized in this NPRM, NHTSA recognizes that the risk, even if small, does exist that low fuel prices in MYs 2012-2016 might lead indirectly to less than currently anticipated fuel savings

and emissions reductions. Section II discu sses the reasons that the agency does not believe that fuel savings and emissions re ductions will be significantly lower than anticipated such as to warrant additional ba ckstop measures beyond the one mandated by EISA, but the agency will monitor the situation and consider further rulemaking solutions if necessary and as lead time permits. See also Section IV.E.3 below for further discussion of NHTSA’s backstop authority.

b. What Attribute Does NHTSA Use, and Why?

Consistent with the MY 2011 CAFE standards, NHTSA is using footprint as the

attribute for the MY 2012-2016 CAFE standard s. There are several policy reasons why NHTSA and EPA both believe that footprint is the most appropriate attribute on which to base the standards, as discussed below.

As discussed in Section IV.D.1.a.ii below, in NHTSA’s judgment, from the standpoint of vehicle safety, it is important th at the CAFE standards be set in a way that does not encourage manufacturers to respond by selling vehicles that are in any way less safe. NHTSA’s research indicates that reductions in vehicle mass tend to compromise

585 Id . at 4-5, finding 10.501 vehicle safety if applied on an equal basis across the entire light duty vehicle fleet, however if greater mass reduction is applied to the higher mass vehicles (the larger light trucks), an improvement in aggregate fleet sa fety is possible. Footprint-based standards provide an incentive to use advanced lightweight materials and structures that, if carefully designed and validated, should minimize impacts on safety, although that will be better proven as these vehicles become more prevalent in the future.

Further, although we recognize that weight is better correlated with fuel economy than is footprint, we continue to believe th at there is less risk of “gaming” (artificial manipulation of the attribute(s) to achieve a more favorable target) by increasing footprint under footprint-based standards than by increasing vehicle mass under weightbased standards—it is relatively easy for a manufacturer to add enough weight to a vehicle to decrease its applicable fuel ec onomy target a significant amount, as compared to increasing vehicle footprint. We also ag ree with concerns raised in 2008 by some commenters in the MY 2011 CAFE rulemaking that there would be greater potential for gaming under multi-attribute standards, such as standards under which targets would also depend on attributes such as weight, torque, power, towing capability, and/or off-road capability. Standards that inco rporate such attributes in co njunction with footprint would not only be significantly more complex, but by providing degrees of freedom with respect to more easily-adjusted attributes, they woul d make it less certain that the future fleet would actually achieve the projected average fuel economy and CO 2 reduction levels.

As discussed above in Section II.C, NHTSA and EPA sought comment on whether the agencies should consider setting standards for the final rule based on another attribute or another combination of attributes. Although NHTSA specifically requested that the commenters address the concerns raised in the paragraphs above regarding the use of other attributes, and explain how st andards should be developed using the other attribute(s) in a way that contri butes more to fuel savings and CO 2 reductions than the footprint-based standards, without compromi sing safety, commenters raising the issue largely reiterated comments submitted in pr ior CAFE rulemakings, which the agency

answered in the MY 2011 final rule. 586 As a result, and as discussed further in Section II, the agencies finalized target curve standards based on footprint for MYs 2012-2016.

c. What Mathematical Function Did NHTSA Use for the RecentlyPromulgated MY 2011 CAFE Standards?

The MY 2011 CAFE standards are defined by a continuous, constrained logistic function, which takes the form of an S-curve, and is defined according to the following

formula:

( )

( ) 1

1 11

1 FOOTPRINT c d

F OOTPRINT c d TARGET

e

a ba e −

− = ⎛ ⎞

+ −

⎜ ⎟

+ ⎝ ⎠

586 See 74 Fed. Reg. at 14358-59 (Mar. 30, 2009).502 Here, TARGET is the fuel economy target (in mpg) applicable to vehicles of a given footprint ( FOOTPRINT , in square feet), b and a are the function’s lower and upper asymptotes (also in mpg), e is approximately equal to 2.718, 587 c is the footprint (in square feet) at which the inverse of the fuel economy target falls halfway between the inverses of the lower and upper asymptotes, and d is a parameter (in square feet) that determines how gradually the fuel economy target transitions from the upper toward the lower asymptote as the footprint increases.

After fitting this mathematical form (s eparately) to the passenger car and light truck fleets and determining the stringency of the standards ( i.e. , the vertical positions of the curves), NHTSA arrived at the following curves to define the MY 2011 standards:

Figure IV.C.5-2. MY 2011 CAFE Standards for Passenger Cars and Light Trucks

20 25 30 35 40 45

35 40 45 50 55 60 65 70

Footprint (sf)Target (mpg) Passenger Cars

Light Trucks

587 e is the irrational number for which the slope of the function y = number x is equal to 1 when x is equal to zero. The first 8 digits of e are 2.7182818.503 d. What Mathematical Function is NHTSA Using for the MYs 2012-2016 CAFE Standards, and Why?

In finalizing the MY 2011 standards, NHTSA noted that the agency is not required to use a constrained logistic function and indicated that the agency may consider defining future CAFE standards in terms of a different mathematical function. NHTSA

has done so for the final CAFE standards.

In revisiting this question, NHTSA found that the final MY 2011 CAFE standard for passenger cars, though less steep than the MY 2011 standard NHTSA final in 2008, continues to concentrate the sloped portion of the curve (from a compliance perspective, the area in which upsizing results in a slightly lower applicable target ) within a relatively narrow footprint range (approximately 47-55 squa re feet). Further, most passenger car models have footprints smaller than the curve’s 51.4 square foot inflection point, and many passenger car models have footprints at which the curve is relatively flat.

For both passenger cars and light trucks, a mathematical function that has some slope at most footprints where vehicles are produced is advantageous in terms of fairly balancing regulatory burdens among manufacturers, and in terms of providing a disincentive to respond to new standards by downsizing vehicles in ways thatcompromise vehicle safety. For example, a flat standard may be very difficult for a fullline manufacturer to meet, while requiring very little of a manufacturer concentrating on small vehicles, and a flat standard may provide an incentive to manufacturers to downsize certain vehicles, in order to “balance out” other vehicles subject to the same standard. As discussed above in Section II.C, NHTSA and EPA have considered comments by students from UC Santa Barbara indicating that the passenger car and light truck curves should be flatter. The agencies conclude th at flatter curves would reduce the incentives intended in shifting from “flat” CAFE st andards to attribute-based CAFE and GHG standards—those being the incentive to respond to attribute-based standards in ways that minimize compromises in vehicle safety, and the incentive for more manufacturers (than primarily those selling a wider range of vehicles ) across the range of the attribute to have to increase the application of fuel-saving technologies.

As a potential alternative to the constr ained logistic function, NHTSA had, in proposing MY 2011 standards, presented information regarding a constrained linear function. As shown in the 2008 NPRM, a constrained linear function has the potential to avoid creating a localized region (in terms of vehicle footprint) over which the slope of the function is relatively steep. Although NHTSA did not receive public comments on this option at that time, the agency indi cated that it still believed a linear function constrained by upper (on a gpm basis) and possibly lower limits could merit reconsideration in future CAFE rulemakings.

Having re-examined a constrained linear function for purposes of the final standards, and considered comments discussed above in Section II, NHTSA, with EPA,504 concludes that for both passenger cars and light trucks, the constrained linear functions finalized today remain meaningfully sloped over a wide footprint range, thereby providing a well-distributed disincentive to downsize vehicles in ways that could compromise highway safety. Further, the constrained linear functions finalized today are not so steeply sloped that they would provide a strong incentive to increase vehicle size in order to obtain a lower CAFE requirement and higher CO 2 limit, thereby compromising energy and environmental benefits. Therefore, today’s final CAFE standards are defined by constrained linear functions.

The constrained linear function is defined according to the following formula:

1

1 1

, , TARGET

MIN MAX c FOOTPRINT d a b = ⎡ ⎤ ⎛ ⎞

× + ⎜ ⎟ ⎢ ⎥ ⎝ ⎠ ⎣ ⎦

Here, TARGET is the fuel economy target (in mpg) applicable to vehicles of a given footprint ( FOOTPRINT , in square feet), b and a are the function’s lower and upper asymptotes (also in mpg), respectively, c is the slope (in gpm per square foot) of the sloped portion of the function, and d is the intercept (in gpm) of the sloped portion of the function (that is, the value the sloped portion would take if extended to a footprint of 0 square feet. The MIN and MAX functions take the minimum and maximum, respectively

of the included va lues; for example, MIN (1,2) = 1, MAX (1,2) = 2, and

MIN [ MAX (1,2),3)]=2.

e. How Did NHTSA Fit the Coefficients that Determine the Shape of the

Final Curves?

For purposes of this final rule and the preceding NPRM, and for EPA’s use in developing new CO 2 emissions standards, potential curve shapes were fitted using methods similar to those applied by NHTSA in fitting the curves defining the MY 2011 standards. We began with the market inputs discussed above, but because the baseline fleet is technologically heterogeneous, NHTS A used the CAFE model to develop a fleet to which nearly all the technologies discussed in Section V of the FRIA and Chapter 3 of the joint TSD 588 were applied, by taking the following steps: (1) treating all manufacturers as unwilling to pay civil penalties rather than applying technology, (2) applying any technology at any time, irrespective of scheduled vehicle redesigns or freshening, and (3) ignoring “phase-in caps” that constrain the overall amount of technology that can be applied by the model to a given manufacturer’s fleet. These steps helped to increase te chnological parity among vehicle models, thereby providing a better

588 The agencies excluded diesel engines and strong hy brid vehicle technologies from this exercise (and only this exercise) because the agenci es expect that manufacturers would not need to rely heavily on these technologies in order to comply w ith the final standards. NHTSA and EPA did include diesel engines and strong hybrid vehicle technologies in all other portions of their analyses.505 basis (than the baseline fleet) for estimating the statistical relationship between vehicle size and fuel economy.

However, while this approach produced curves that the agencies’ judged appropriate for the NPRM, it did not do so for the final rule. Corrections to some engineering inputs in NHTSA’s market forecast, while leading to a light truck curve nearly identical to that derived for the NPRM, yielded a considerably steeper passenger car curve. As discussed above in Section II, NHTSA and EPA are concerned about the incentives that would result from a signific antly steeper curve. Considering this, and considering that the updated analysis—in terms of the error measure applied by the agency—supports the curve from the NPRM nearly as well as it supports the steeper curve, NHTSA and EPA are promulgating final standards based on the curves proposed

in the NPRM.

More information on the process for fi tting the passenger car and light truck curves for MYs 2012-2016 is available above in Section II.C, and NHTSA refers the reader to that section and to Chapter 2 of the joint TSD. Section II.C also discusses comments NHTSA and EPA received on this pr ocess, and on the outcomes thereof.

D. Statutory requirements

1. EPCA, as Amended by EISA

a. Standard Setting

NHTSA must establish separate standards for MY 2011-2020 passenger cars and light trucks, subject to two principal requirements. 589 First, the standards are subject to a minimum requirement regarding stringency: they must be set at levels high enough to ensure that the combined U.S. passenger car and light truck fleet achieves an average fuel economy level of not less than 35 mpg not later than MY 2020. 590 Second, as discussed above and at length in the March 2009 final rule establishing the MY 2011 CAFE standards, EPCA requires that the agency establish standards for all new passenger cars and light trucks at the maximum feasible average fuel economy level that the Secretary decides the manufacturers can achieve in that model year, based on a balancing of

589 EISA added the following additional requirements--

• Standards must be attribute-base d and expressed in the form of a mathematical function. 49 U.S.C. 32902(b)(3)(A).

• Standards for MYs 2011-2020 mu st “increase ratably” in each model year. 49 U.S.C. 32902(b)(2)(C). This requirement does not have a precise mathematical meaning, particularly because it must be interpreted in conjunction with the requirement to set the standards for each model year at the level determined to be th e maximum feasible level for that model year. Generally speaking, the requirement for ratable increases means that the annual increases should not be disproportionately large or small in relation to each other.

590 49 U.S.C. 32902(b)(2)(A).506 express statutory and other factors. 591 The implication of this second requirement is that it calls for setting a standard that exceed s the minimum requirement if the agency

determines that the manufacturers can achi eve a higher level. When determining the level achievable by the manufacturers, EPCA requires that the agency consider the four statutory factors of technological feasibility, economic practicability, the effect of other motor vehicle standards of the Government on fuel economy, and the need of the United States to conserve energy. In addition, the agency has the authority to and traditionally does consider other relevant factors, such as the effect of the CAFE standards on motor vehicle safety. The ultimate determinati on of what standards can be considered maximum feasible involves a weighing and balancing of these factors. NHTSA received a number of comments on how the agency inte rprets its statutory requirements, and will respond to them in this section.

i. Statutory Factors Considered in Determining the Achievable Level of Average Fuel Economy

As none of the four factors is defined in EPCA and each remains interpreted only to a limited degree by case law, NHTSA has c onsiderable latitude in interpreting them. NHTSA interprets the four statut ory factors as set forth below.

(1) Technological Feasibility

“Technological feasibility” refers to wh ether a particular technology for improving fuel economy is available or can become available for commercial application in the model year for which a standard is be ing established. Thus, the agency is not limited in determining the level of new standards to technology that is already beingcommercially applied at the time of the rulemaking. It can, instead, set technologyforcing standards, i.e. , ones that make it necessary for manufacturers to engage in research and development in order to bring a new technology to market.

Commenters appear to have generally agreed with the agency’s interpretation of technological feasibility. NESCAUM commented that the proposed standards were technologically feasible and cost-effective in the rulemaking timeframe. CBD and the

UCSB students focused their comments more on the technology-forcing aspects of the definition of technological feasibility. CBD commented that the stan dards must be below the level of all that is technologically feasible if all the technology necessary to meet them is available today. The UCSB students similarly commented that the agencies should not base regulations for MY 2016 solely on technologies available today, that they should also consider technologies still in the research phase for the later years of the rulemaking timeframe.

While NHTSA agrees that the technological feasibility factor can include a degree of technology forcing, and that this could certainly be appropriate given EPCA’s

591 49 U.S.C. 32902(a).507 overarching purpose of energy conservation, we note that determining what levels of technology to require in the rulemaking timeframe requires a balancing of all relevant factors. Technologies that are still in th e research phase now may be sufficiently advanced to become available for commercial application in, for example, MY 2016. However, given the rate at which the standards already require average mpg to rise, and given the current state of the industry, NHTSA does not believe that it would be reasonable to set standards mandating that manufacturers devote substantial resources to bringing these technologies to market immedi ately rather than to simply improving the fuel economy of their fleets by applying more of the technologies on the market today.

As will be discussed further in section IV.F be low, technological feasibility is one of four factors that the agency balances in dete rmining what standards would be maximum feasible for each model year. As the balancing may vary depending on the circumstances at hand for the model years in which the standards are set, the extent to which technological feasibility is simply met or plays a more dynamic role may also shift.

(2) Economic Practicability

“Economic practicability” refers to whethe r a standard is one “within the financial capability of the industry, but not so stri ngent as to” lead to “adverse economic consequences, such as a significant loss of jobs or the unreasonable elimination of

consumer choice.” 592 In an attempt to ensure the sta ndards’ economic practicability, the agency considers a variety of factors, including the annual rate at which manufacturers can increase the percentage of the fleet that has a particular type of fuel saving technology, and cost to consumers. Consumer acceptability is also an element of economic practicability.

At the same time, the law does not pr eclude a CAFE standard that poses considerable challenges to any individual manufacturer. The Conference Report for EPCA, as enacted in 1975, makes clear, and the case law affirms, “(A) determination of maximum feasible average fuel economy should not be keyed to the single manufacturer which might have the most difficulty ac hieving a given level of average fuel economy.” 593 Instead, the agency is compelled “t o weigh the benefits to the nation of a higher fuel economy standard against the difficulties of individual automobile

manufacturers.” Id. The law permits CAFE standards exceeding the projected capability of any particular manufacturer as long as the standard is economically practicable for the industry as a whole. Thus, while a particular CAFE standard may pose difficulties for one manufacturer, it may also present opportunities for another. The CAFE program is not necessarily intended to maintain the competitive positioning of each particular company. Rather, it is intended to enhan ce fuel economy of the vehicle fleet on American roads, while protecting motor vehicl e safety and being mindful of the risk of harm to the overall United States economy.

592 67 FR 77015, 77021 (Dec. 16, 2002).

593 CEI-I , 793 F.2d 1322, 1352 (D.C. Cir. 1986).508 Thus, NHTSA believes that this factor must be considered in the context of the competing concerns associated with different levels of standards. Prior to the MY 2005- 2007 rulemaking, the agency generally sought to ensure the economy practicability of standards in part by setting them at or near the capability of the “least capable manufacturer” with a significant share of the market, i.e. , typically the manufacturer whose vehicles are, on average, the heaviest and largest. In the first several rulemakings to establish attribute based standards, the agency applied marginal cost benefit analysis. This ensured that the agency’s applicati on of technologies was limited to those that would pay for themselves and thus should have significant appeal to consumers. However, the agency can and has limited its application of technologies to those technologies, with or without the use of such analysis.

Besides the many commenters raising econ omic practicability as an issue in the context of the stringency of the proposed standards, some commenters also directly addressed the agency’s interpretation of economic practicability. AIAM commented that

NHTSA has wide discretion to consider econ omic practicability concerns as long as EPCA’s overarching purpose of energy conservation is met, and that it would be within NHTSA’s statutory discretion to set standards at levels below those at which net benefits are maximized due to economic practicability. GM and Mitsubishi both commented that consideration of economic practicability should include more focus on individual manufacturers: GM stated that NHTSA must consider sales and employment impacts on individual manufacturers and not just indu stry in the aggregate, while Mitsubishi emphasized the difficulties of limited-line ma nufacturers in meeting standards that might be economically practicable for full-line manufacturers. CBD commented that a determination of economic practicability s hould not be tied to “differences between incremental improvements” that “fail to consider all relevant costs and benefits and fail to analyze the overall impact of the proposed standards.” CBD pointed to the three-to-one benefit-cost ratio of the proposed standards to argue that much more stringent standards would still be economically practicable. ACEEE also commented that standards set at

the level at which net benefits are maximized should be considered a “lower bound” for determining economic practicability.

While NHTSA agrees with AIAM in gene ral that the agency has wide discretion to consider economic practicability con cerns, we do not believe that economic practicability will always counsel setting sta ndards lower than the point at which net benefits are maximized, given that it must be considered in the context of the overall balancing and EPCA’s overarching purpose of energy conservation. Depending on the conditions of the industry and the assumptions used in the agency’s analysis of alternative stringencies, NHTSA could well find that standards that maximize net benefits, or even higher standards, could be economically practicable. To that end, however, given the current conditions faced by the industry, which is perhaps just now passing the nadir of the economy-wide downturn and looking at a challenging road to recovery, and the relatively limited amount of lead time for MYs 2012-2016, we disagree

with CBD’s comment that the benefit-cost rati o of the final standards indicates that more509 stringent standards would be economically practicable during the rulemaking timeframe and with ACEEE’s comment that standards higher than those that would maximize net benefits would be economically practicable at this time. These comments overlook the fact that nearly all manufacturers are capital- constrained at this time and may be for the next couple of model years; access to capital in a down market is crucial to making the investments in technology that the final standards will require, and requiring more technology will require significantly more ca pital, to which manufacturers would not likely have access. Moreover, economic prac ticability depends as well on manufacturers’ ability to sell the vehicles that the standards re quire them to produce. If per-vehicle costs increase too much too soon, consumers may defer new vehicle purchases, which defeats the object of raising CAFE standards to ge t vehicles with better mileage on the road sooner and meet the need of the Nation to conserve energy. See Section IV.F below for

further discussion of these issues.

As for GM’s and Mitsubishi’s comments, while the agency does consider carefully the impacts on individual manufacturers in the agency’s analysis, as shown in the FRIA, we reiterate that economic practicability is not keyed to any single

manufacturer. One of the main benefits of attribute-based standards is greater regulatory fairness – for all the manufacturers who build vehicles of a particular footprint, the target for that footprint is the same, yet each ma nufacturer has their own individual compliance obligation depending on the mix of vehicles they produce for sale. More manufacturers are required to improve their fuel economy, yet in a fairer way. And while some manufacturers may face difficulties under a given CAFE standard, others will find opportunities. The agency’s consideration of economic practicability recognizes these difficulties and opportunities in the context of the industry as a whole, and in the context of balancing against the other statutory factors, as discussed further below.

(3) The Effect of Other Motor Vehicle Standards of the Government on Fuel Economy

“The effect of other motor vehicle standards of the Government on fuel economy,” involves an analysis of the effects of compliance with emission, 594 safety, noise, or damageability standards on fuel economy capability and thus on average fuel economy. In previous CAFE rulemakings, the agency has said that pursuant to this provision, it considers the adverse effects of other motor vehicle standards on fuel economy. It said so because, from the CAFE program’s earliest years 595 until present, the effects of such compliance on fuel econo my capability over the history of the CAFE program have been negative ones. In those instances in which the effects are negative, NHTSA has said that it is called upon to “mak[e] a straightforward adjustment to the fuel economy improvement projections to account for the impacts of other Federal standards,

594 In the case of emission standards, this includes st andards adopted by the Federal government and can include standards adopted by the States as well, sin ce in certain circumstances the Clean Air Act allows States to adopt and enforce State standards different from the Federal ones.

595 42 FR 63184, 63188 (Dec. 15, 1977). See also 42 FR 33534, 33537 (Jun. 30, 1977).510 principally those in the areas of emission control, occupant safety, vehicle damageability, and vehicle noise. However, only the unavoidable consequences should be accounted

for. The automobile manufacturers must be expected to adopt those feasible methods of achieving compliance with other Federal standards which minimize any adverse fuel economy effects of those standards.” 596 For example, safety standards that have the effect of increasing vehicle weight lower vehicle fuel economy capability and thus decrease the level of average fuel economy that the agency can determine to be feasible.

The “other motor vehicle standards” consideration has thus in practice functioned in a fashion similar to the provision in EPCA , as originally enacted, for adjusting the statutorily-specified CAFE standards for MY 1978-1980 passengers cars. 597 EPCA did not permit NHTSA to amend those standards based on a finding that the maximum feasible level of average fuel economy for any of those three years was greater or less than the standard specified for that year. Instead, it provided that the agency could only reduce the standards and only on one basis: if the agency found that there had been a federal standards fuel economy reduction, i.e. , a reduction in fuel economy due to changes in the Federal vehicle standards, e.g. , emissions and safety, relative to the year of enactment, 1975.

The “other motor vehicle standards” provision is broader than the federal standards fuel economy reduction provision. Although the effects analyzed to date under the “other motor vehicle standards” provision have been negative, there could be circumstances in which the effects are positive. In the event that the agency encountered such circumstances, it would be required to cons ider those positive effects. For example, if changes in vehicle safety technology led to NHTSA’s amending a safety standard in a way that permits manufacturers to reduce the weight added in complying with that standard, that weight reduction would increase vehicle fuel economy capability and thus increase the level of average fuel economy th at could be determined to be feasible.

In the wake of Massachusetts v. EPA and of EPA’s endangerment finding, its granting of a waiver to California for its motor vehicle GHG standards, and its own GHG standards for light-duty vehicles, NHTSA is confronted with the issue of how to treat those standards under the “other motor vehicle standards” provision. To the extent the GHG standards result in increases in fuel economy, they would do so almost exclusively as a result of inducing manufacturers to insta ll the same types of technologies used by manufacturers in complying with the CAFE standards. The primary exception would involve increases in the efficiency of air conditioners.

In the NPRM, NHTSA tentatively concluded that the effects of the EPA and California standards are neither positive nor ne gative because the proposed rule resulted in consistent standards among all components of the National Program, but sought comment on whether and in what way the effects of the California and EPA standards

596 42 FR 33534, 33537 (Jun. 30, 1977).

597 That provision was deleted as obsolete when EPCA was codified in 1994.511 should be considered under the “other motor vehicle standards” provision or other provisions of EPCA in 49 U.S.C. 32902, consistent with NHTSA’s independent obligation under EPCA/EISA to issue CAFE standards. NHTSA stated that it had already considered EPA’s proposal and the harmonization benefits of the National Program in developing its own proposed maximum feasible standards.

The Alliance commented that the extent to which the consideration of other motor vehicle standards of the government should affect NHTSA’s standard-setting process was entirely within the agency’s discretion. The Alliance agreed with NHTSA that the original intent of the factor was to ensure that NHTSA accounted for other government standards that might reduce fuel economy or inhibit fuel economy improvements, but stated that since GHG standards set by EPA and California overlap CAFE standards so extensively, and are thus functionally equivalent to CAFE standards (plus air conditioning), those standards should be “basic ally irrelevant to NHTSA’s mission to set fuel economy standards, unless some specif ic aspect of the GHG standards actually makes it harder for mfrs to improve fuel economy.” The Alliance stated further that

NHTSA must still determine what levels of CAFE standards would be maximum feasible regardless of the findings or standards set by EPA and California. Thus, the Alliance stated, for purposes of the MYs 2012-2016 CAFE standards, EPA’s GHG standards could be sufficiently considered by NHTSA gi ven the agency’s decision to harmonize as part of the National Program, 598 while California’s GHG standards need not be considered because of the state’s agreement under the National Program that compliance with EPA’s standards would constitute compliance with its own. Ford concurred individually with the Alliance comments. NADA, in contrast, commented that EPA’s GHG standards should not be considered as an “other vehicle standard” for purposes of this statutory factor, and argued that NHTSA need not and should not consider California’s GHG standards due to preemption under EPCA.

Commenters from the state of California (the Attorney General and the Air Resources Board), in contrast, stated that NHTSA must consider the effects of the California GHG standards on fuel economy as a baseline for NHTSA’s analysis, to give credit to the state’s leadership role in ac hieving the levels required by the National Program. CBD seconded this comment. 599 The California Attorney General further stated that Congress discussed both positive and negative impacts of other standards on fuel economy in the 1975 Conference Reports preceding EPCA’s enactment. 600 CARB and the University of Pennsylvania E nvironmental Law Project both cited the Green Mountain Chrysler 601 and Central Valley Chrysler 602 cases as supporting NHTSA’s

consideration of CARB’s GHG sta ndards pursuant to this factor.

598 The University of Pennsylvania Environmental Law Project offered a similar comment.

599 NHTSA answered similar comments in the FEIS. See FEIS Section 10.2.4.2 for the agency’s response.

600 Citing HR Rep 94-340 at 86-87, 89-91 (1975 USCCAN 1762, 1848-49, 1851-53).

601 Green Mountain Chrysler Plymouth Dodge Jeep v. Crombie, 508 F.Supp.2d 295 (D.Vt. 2007).

602 Central Valley Chrysler Jeep, Inc. v. Goldstene, 529 F.Supp.2d 1151 (E.D. Cal. 2007).512 NHTSA believes that these comments generally support the agency’s interpretation of this factor as stated in th e NPRM. While the agency may consider both positive and negative effects of other motor vehicle standards of the Government on fuel economy in determining what level of CAFE standards would be maximum feasible, given the fact that the final rule results in consistent standards among all components of the National Program, and given that NHTSA considered the harmonization benefits of the National Program in developing its own standards, the agency’s obligation to balance this factor with the others may be considered accounted for.

(4) The Need of the United States to Conserve Energy

“The need of the United States to conserve energy” means “the consumer cost, national balance of payments, environmental, and foreign policy implications of our need for large quantities of petroleum, especially imported petroleum.” 603 Environmental implications principally include those associat ed with reductions in emissions of criteria pollutants and CO 2 . A prime example of foreign policy implications are energy independence and security concerns.

While a number of commenters cited the need of the nation to conserve energy in calling for the agency to set more stringen t CAFE standards, none disagreed with the agency’s interpretation of this factor and its influence on the statutory balancing required by EPCA. CBD, for example, commented that “Increasing mileage standards for this vehicle fleet is the single most effective and quickest available step the U.S. can take to conserve energy and to reduce the U.S. dependence on foreign oil, and also has an immediate and highly significant effect on total U.S. GHG emissions,” and that accordingly, NHTSA should consider the need of the nation to conserve energy as counseling the agency to raise standards at a faster rate. NHTSA agrees that this factor tends to influence stringency upwards, but reiterates that the need of the nation to conserve energy is still but one of four factor s that must be balanced, as discussed below.

ii. Other Factors Considered by NHTSA

The agency historically has considered the potential for adverse safety consequences in setting CAFE standards. This practice is recognized approvingly in case law. As the courts have recognized, “NHTSA has always examined the safety consequences of the CAFE standards in its overall consideration of relevant factors since its earliest rulemaking under the CAFE program.” Competitive Enterprise Institute v.

NHTSA , 901 F.2d 107, 120 n. 11 (DC Cir. 1990) (“ CEI I ”) (citing 42 Fed. Reg. 33534, 33551 (June 30, 1977)). The courts have consistently upheld NHTSA’s implementation

of EPCA in this manner. See, e.g., Competitive Enterprise Institute v. NHTSA , 956 F.2d 321, 322 (D.C. Cir. 1992) (“ CEI II ”) (in determining the maximum feasible fuel economy standard, “NHTSA has always taken passenger safety into account.”) (citing CEI I , 901 F.2d at 120 n. 11); Competitive Enterprise Institute v. NHTSA , 45 F.3d 481, 482-83 (D.C.

603 42 FR 63184, 63188 (1977).513 Cir. 1995) (“ CEI III ”) (same); Center for Biological Diversity v. NHTSA , 538 F.3d 1172, 1203-04 (9th Cir. 2008) (upholding NHTSA’s anal ysis of vehicle safety issues associated with weight in connection with the MY 2008-11 light truck CAFE rule). Thus, in evaluating what levels of stringency woul d result in maximum feasible standards, NHTSA assesses the potential safety impact s and considers them in balancing the statutory considerations and to determine th e appropriate level of the standards.

Under the universal or “flat” CAFE standards that NHTSA was previously authorized to establish, manufacturers were encouraged to respond to higher standards by building smaller, less safe vehicles in order to “balance out” the larger, safer vehicles that the public generally preferred to buy, which resulted in a higher mass differential between the smallest and the largest vehicles, with a correspondingly greater risk to safety. Under the attribute-based standards be ing finalized today, that risk is reduced because building smaller vehicles would tend to raise a manufacturer’s overall CAFE obligation, rather than only raising its flee t average CAFE, and because all vehicles are required to continue improving their fuel economy. In prior rulemakings, NHTSA limited the application of mass reduction/materi al substitution in our modeling analysis to vehicles over 5,000 lbs GVWR, 604 but for purposes of today’s final standards, NHTSA has revised its modeling analysis to allow some application of mass reduction/material substitution for all vehicles, although it is c oncentrated in the largest and heaviest vehicles, because we believe that this is more consistent with how manufacturers will actually respond to the standards. However, as discussed above, NHTSA does not mandate the use of any particular technology by manufacturers in meeting the standards. More information on the new approach to modeling manufacturer use of downweighting/material substitution is availa ble in Chapter 3 of the joint TSD and in Section V of the FRIA; and the estimated safe ty impacts that may be due to the final

standards are described below.

iii. Factors that NHTSA is Prohibited From Considering

EPCA also provides that in determinin g the level at which it should set CAFE standards for a particular model year, NHTSA may not consider the ability of manufacturers to take advantage of severa l EPCA provisions that facilitate compliance with the CAFE standards and thereby reduce the costs of compliance. 605 As discussed further below, manufacturers can earn compliance credits by exceeding the CAFE

standards and then use those credits to ach ieve compliance in years in which their measured average fuel economy falls below the standards. Manufacturers can also increase their CAFE levels through MY 2019 by producing alternative fuel vehicles. EPCA provides an incentive for producing thes e vehicles by specifying that their fuel economy is to be determined using a special calculation procedure that results in those vehicles being assigned a high fuel economy level.

604 S ee 74 FR 14396-14407 (Mar. 30, 2009).

605 49 U.S.C. 32902(h).514 The effect of the prohibitions against c onsidering these flexibilities in setting the

CAFE standards is that the flexibilities rema in voluntarily-employed measures. If the agency were instead to assume manufacture r use of those flexibilities in setting new standards, that assumption would result in higher standards and thus tend to require

manufacturers to use those flexibilities.

iv

. Determining the Level of the Standards by Balancing the Factors

NHTSA has broad discretion in balancing the above factors in determining the appropriate levels of average fuel economy at which to set the CAFE standards for each model year. Congress “specifically delegated the process of setting ... fuel economy

standards with broad guidelines concerning the factors that the agency must consider.” 606
The breadth of those guidelines, the absence of any statutorily prescribed formula for balancing the factors, the fact that the relativ e weight to be given to the various factors may change from rulemaking to rulemaking as the underlying facts change, and the fact that the factors may often be conflicting with respect to whether they militate toward higher or lower standards give NHTSA broad discretion to decide what weight to give each of the competing policies and concerns and then determine how to balance them. The exercise of that discretion is subject to the necessity of ensuring that NHTSA's balancing does not undermine the fundamental purpose of the EPCA: energy conservation, 607 and as long as that balancing reasonably accommodates “conflicting policies that were committed to the agency's care by the statute.” 608 The balancing of the factors in any given rulemaking is highly dependent on the factual and policy context of that rulemaking. Given the changes over ti me in facts bearing on assessment of the various factors, such as those relating to the economic conditions, fuel prices and the state of climate change science, the agency recognizes that what was a reasonable balancing of competing statutory priorities in one rulemaking may not be a reasonable balancing of those priorities in another rulemaking. 609 Nevertheless, the agen cy retains substantial discretion under EPCA to choose among reasonable alternatives.

EPCA neither requires nor precludes the use of any type of cost-benefit analysis as a tool to help inform the balancing pro cess. While NHTSA used marginal cost-benefit analysis in the first two rulemakings to es tablish attribute-based CAFE standards, as noted above, it was not required to do so and is not required to continue to do so. Regardless of what type of analysis is or is not used, considerations relating to costs and benefits remain an important part of CAFE standard setting.

Because the relevant considerations and factors can reasonably be balanced in a variety of ways under EPCA, and because of uncertainties associated with the many

606 Center for Auto Safety v. NHTSA , 793 F.2d 1322, 1341 (C.A.D.C. 1986).

607 Center for Biological Diversity v. NHTSA , 538 F.3d 1172, 1195 (9 th Cir. 2008)

608 CAS , 1338 (quoting Chevron U.S.A., Inc. v. Natural Resources Defense Council , Inc ., 467 U.S. 837, 845)

609 CBD v. NHTSA , 538 F.3d 1172, 1198 (9 th Cir. 2008)515 technological and cost inputs, NHTSA considers a wide variety of alternative sets of standards, each reflecting different balancing of those policies and concerns, to aid it in discerning reasonable outcomes. Among the alternatives providing for an increase in the standards in this rulemaking, the alternatives range in stringency from a set of standards that increase, on average, 3 percent annually to a set of standards that increase, on average, 7 percent annually.

v. Other standards – minimum domestic passenger car standard

The minimum domestic passenger car standard was added to the CAFE program through EISA, when Congress gave NHTSA explicit authority to set universal standards for domestically-manufactured passenger cars at the level of 27.5 mpg or 92 percent of the average fuel economy of the combined domestic and import passenger car fleets in that model year, whichever was greater. 610 This minimum standard was intended to act as a “backstop,” ensuring that domestically-manufactured passenger cars reached a given mpg level even if the market shifted in ways likely to reduce overall fleet mpg. Congress was silent as to whether the agency could or should develop similar backstop standards for imported passenger cars and light trucks. NHTSA has struggled with this question

since EISA was enacted.

In the MY 2011 final rule, facing commen ts split fairly evenly between support and opposition to additional backstop standa rds, NHTSA noted Congress’ silence and “accept[ed] at least the possibility that ... [it] could be reasonably interpreted as permissive rather than restrictive,” but concluded based on the record for that rulemaking as a whole that additional backstop standard s were not necessary for MY 2011, given thelack of leadtime for manufacturers to change their MY 2011 vehicles, the apparentlygrowing public preference for smaller vehicles, and the anti-backsliding characteristics of the footprint-based curves. 611 NHTSA stated, however, that it would continue to monitor manufacturers’ product plans and compliance, and would revisit the backstop issue if it became necessary in future rulemakings. 612

Thus, in the MYs 2012-2016 NPRM, NHTSA again sought comment on the issue of additional backstop standards, recognizing the possibility that low fuel prices during the years that the MYs 2012-2016 vehicles are in service might lead to less than anticipated fuel savings. 613 NHTSA asked commenters, in addressing this issue, to consider reviewing the agency’s discussion in the MY 2011 final rule, which the agency described as concluding that its authority was likely limited by Congress’ silence to setting only the backstop that Congress expressly provided for. 614 EPA also sought

610 49 U.S.C. 32902(b)(4).

611 74 Fed. Reg. at 14412 (Mar. 30, 2009).

612 Id.

613 74 Fed. Reg. at 49685 (Sept. 28, 2009).

614 Id . at 49637, 49685 (Sept. 28, 2009).516 comment on whether it should set backstop standards under the CAA for MYs 2012-

2016.

As discussed above in Section II, many commenters addressed the backstop issue, and again comments were fairly evenly split between support and opposition to additional backstop standards. While commenters opposed to additional backstops, such as the Alliance, largely reiterated NHTSA’s previous statements with regard to its backstop authority, some commenters in favor of additional backstops provided more detailed legal arguments than have been previously presented for the agency’s consideration. Section II provides NHTSA’s and EPA’s general response to comments on the backstop issue; this section provides NHTSA’s specific response to the legal arguments by Sierra Club et
al

. 615 on the agency’s authority to se t additional backstop standards.

The Sierra Club et al . commented that a more permissive reading of Congress’ silence in EISA was appropriate given the context of the statute, the 9 th Circuit’s revised opinion in CBD v. NHTSA , and the assumptions employed in the NPRM analysis. The commenters stated that given that EISA includes the 35-in-2020 and ratable increase requirements, and given that CAFE standards were only just starting to rise for light trucks at the time of EISA’s enactment and had remained at the statutory level of 27.5 mpg for passenger cars for many years, it appears that Congress’ intent in EISA was to raise CAFE standards as rapidly as possible. Thus, the commenters stated, if the purpose of EISA was to promote the maximum feasible increase in fuel economy with ratable increases, then there was no reason to think th at backstop standards would be inconsistent with that purpose – if they were inconsistent, Congress would not have included one for domestic passenger cars. Similarly, Congre ss could not have thou ght that additional backstops were inconsistent with attribute-ba sed standards, or it would not have included one for domestic passenger cars. 616 The commenters also cited D.C. Circuit case law stating that congressional silence leaves room for agency discretion; specifically, that “[w]hen interpreting statutes that govern agency action, [the courts] have consistently recognized that a congressional mandate in one section and silence in another often ‘suggests not a prohibition but simply a decision not to mandate any solution in the second context, i.e., to leave the question to agency discretion.’” 617

The Sierra Club et al. also commented that it appeared that the 9 th Circuit’s revised opinion in CBD v. NHTSA supported the agency’s discretion to set additional backstops, since it was revised after the passage of EISA and did not change its earlier

615 NHTSA refers to these commenters by the shorthand “Sierra Club et al .,” but the group consists of the Sierra Club, the Safe Climate Campaign, the Coalition for Clean Air, the Alliance for Climate Protection, and Environment America. Their comments may be found at Docket No. EPA-HQ-OAR-2009-0472-

7278.1.

616 The commenters also suggested that NHTSA could set attribute-based backstop standards if it was concerned that Congress’ mandate to set attribute- based standards generally precluded additional flat backstops.

617 Citing Catawba County, N.C. v. EPA, 571 F.3d 20, 36 (D.C. Cir. 2009) (quoting Cheney R. Co. v. ICC

, 902 F.2d 66, 69 (D.C. Cir. 1990)).517 holding (pertaining to the original EPCA la nguage) that backstop standards were within the agency’s discretion. 618

And finally, the commenters stated that NHTSA’s rationale for not adopting additional backstops in the MY 2011 final rule should not be relied on for MYs 2012- 2016, namely, that the agency’s belief that backstop standards were unnecessary to ensure the expected levels of fuel savi ngs given the short lead time between the promulgation of the final standards and the beginning of MY 2011, the apparent growing consumer preference for smaller vehicles, a nd the existing anti-backsliding measures in the attribute-based curves. As described above in Section II, these commenters (and many others) expressed concern about the agencies’ fleet mix assumptions and their potential effect on estimated fuel savings.

In response, and given D.C. Circuit precedent as cited above, NHTSA agrees that whether to adopt additional minimum standard s for imported passenger cars and light trucks is squarely within the agency’s discretion, and that such discretion should be exercised as necessary to avoid undue losses in fuel savings due to market shifts or other forces while still respecting the statutorily-mandated manufacturer need for lead time in establishing CAFE standards. However, as discussed above in Section II.C, NHTSA remains confident that the projections of the fu ture fleet mix are reliable, and that future changes in the fleet mix of footprints and sale s are not likely to lead to more than modest changes in projected emissions reductions or fuel savings. There are only a relatively few model years at issue, and market trends today are consistent with the agencies’ estimates, showing shifts from light trucks to passenger cars and increased emphasis on fuel economy from all vehicles. The shapes of the curves also tend to avoid or minimize regulatory incentives for manufacturers to upsize their fleet to change their compliance burden, and the risk of vehicle upsizing or changing vehicle offerings to “game” the passenger car and light truck definitions to wh ich commenters refer is not so great for the model years in question, because the changes that commenters suggest manufacturers might make are neither so simple nor so likely to be accepted by consumers, as discussed

above.

Thus, NHTSA is confident that the anticipated increases in average fuel economy and reductions in average CO 2 emission rates can be achieved without backstops under EISA, as noted above. Nevertheless, we acknowledge that the MY 2016 fuel economy goal of 34.1 mpg is an estimate and not a standard, 619 and that changes in fuel prices, consumer preferences, and/or vehicle survival and mileage accumulation rates could result in either smaller or larger oil savings. However, as explained above and elsewhere in the rule, NHTSA believes that the possibi lity of not meeting (or, alternatively, exceeding) fuel economy goals exists, but is not likely to lead to more than modest changes in the currently-projected levels of fuel and GHG savings. NHTSA plans to conduct retrospective analysis to monitor progress, and has the authority to revise

618 Citing CBD v. NHTSA, 538 F.3d at 1204-06 (9 th Cir. 2008).

619 The MYs 2012-2016 passenger car and light truck curves are the actual standards.518 standards if warranted, as long as sufficient le ad time is provided. Given this, and given the potential complexities in designing an a ppropriate backstop, NHTSA believes that the balance here points to not adopting additional backstops at this time for the MYs 2012- 2016 standards other than NHTSA’s issuing the ones required by EPCA/EISA for domestic passenger cars. If, during the tim eframe of this rule, NHTSA observes a significant shift in the manufacturer’s product mix resulting in a relaxation of their estimated targets, NHTSA and EPA will re consider options, both for MYs 2012-2016 and future rulemakings.

2. Administrative Procedure Act

To be upheld under the “arbitrary and caprici ous” standard of judicial review in the APA, an agency rule must be rational, based on consideration of the relevant factors, and within the scope of the authority delegated to the agency by the statute. The agency

must examine the relevant data and articul ate a satisfactory explanation for its action including a “rational connection between the facts found and the choice made.” Burlington Truck Lines, Inc. v. United States , 371 U.S. 156, 168 (1962).

Statutory interpretations included in an ag ency’s rule are subjected to the two-step analysis of Chevron, U.S.A., Inc. v. Natural Resources Defense Council , 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Under step one, where a statute “has directly spoken to the precise question at issue,” id. at 842, 104 S.Ct. 2778, the court and the agency “must give effect to the unambiguously expressed intent of Congress,” id. at 843, 104 S.Ct. 2778. If the statute is silent or ambiguous regarding the specific question, the court proceeds to step two and asks “whether the agency's answer is based on a permissible construction of the statute.” Id.

If an agency’s interpretation differs from the one that it has previously adopted, the agency need not demonstrate that the prior position was wrong or even less desirable. Rather, the agency would need only to demonstrate that its new position is consistent with the statute and supported by the record, and acknowledge that this is a departure from past positions. The Supreme Court emphasized this recently in FCC v. Fox

Television , 129 S.Ct. 1800 (2009). When an agency changes course from earlier regulations, “the requirement that an agency provide reasoned explanation for its action would ordinarily demand that it display awareness that it is changing position,” but “need not demonstrate to a court's satisfaction that the reasons for the new policy are better than the reasons for the old one; it suffices that the new policy is permissible under the statute, that there are good reasons for it, and that the agency believes it to be better, which the conscious change of course adequately indicates.” 620

The APA also requires that agencies provide notice and comment to the public when proposing regulations. 621 Two commenters, the Amer ican Chemistry Council and

620 Ibid ., 1181.

621 5 U.S.C. 553.519 the American Petroleum Institute, argued that the agreements by auto manufacturers and California to support the National Program in dicated that a “deal” had been struck between the agencies and these parties, which was not available as part of the administrative record and which the public had not been given the opportunity to comment on. The commenters argued that this violated the APA.

In response, under the APA, agencies “must justify their rulemakings solely on the basis of the record [they] compile[] and make[] public.” 622 Any informal contacts that occurred prior to the release of the NPRM may have been informative for the agencies and other parties involved in developing the NPRM, but they did not release the agencies of their obligation consider and respond to public comments on the NPRM and to justify the final standards based on the public record. The agencies believe that the record fully justifies the final standards, de monstrating analytically that they are the maximum feasible and reasonable for the model years covered. Thus, we disagree that there has been any violation of the APA.

3. National Environmental Policy Act

As discussed above, EPCA requires the agency to determine what level at which to set the CAFE standards for each model year by considering the four factors of technological feasibility, economic practicability, the effect of other motor vehicle standards of the Government on fuel economy, and the need of the United States to conserve energy. NEPA directs that environmen tal considerations be integrated into that process. To accomplish that purpose, NEPA requires an agency to compare the potential environmental impacts of its proposed action to those of a reasonable range of

alternatives.

To explore the environmental consequences in depth, NHTSA has prepared both a draft and a final environmental impact statement. The purpose of an EIS is to “provide full and fair discussion of significant environmental impacts and [to] inform decisionmakers and the public of the reasonable alternatives which would avoid or minimize adverse impacts or enhance the quality of the human environment.” 40 CFR

1502.1.

NEPA is “a procedural statute that mandates a process rather than a particular

result.” Stewart Park & Reserve Coal., Inc. v. Slater , 352 F.3d at 557. The agency's overall EIS-related obligation is to “take a ‘hard look’ at the environmental consequences before taking a major action.” Baltimore Gas & Elec. Co. v. Natural Res. Def. Council,

Inc ., 462 U.S. 87, 97, 103 S.Ct. 2246, 76 L.Ed.2d 437 (1983). Significantly, “[i]f the adverse environmental effects of the proposed action are adequately identified and evaluated, the agency is not constrained by NEPA from deciding that other values outweigh the environmental costs.” Robertson v. Methow Valley Citizens Council , 490 U.S. 332, 350, 109 S.Ct. 1835, 104 L.Ed.2d 351 (1989).

622 Sierra Club v. Costle, 657 F.2d 298, 401 (D.C. Cir. 1981).520 The agency must identify the “environmentally preferable” alternative, but need not adopt it. “Congress in enacting NEPA . . . did not require agencies to elevate environmental concerns over other appropriate considerations.” Baltimore Gas and Elec. Co. v. Natural Resources Defense Council, Inc ., 462 U.S. 87, 97 (1983). Instead, NEPA requires an agency to develop alternatives to the proposed action in preparing an EIS. 42 U.S.C. 4332(2)(C)(iii). The statute does not command the agency to favor an environmentally preferable course of action, only that it make its decision to proceed with the action after taking a hard look at environmental consequences.

This final rule also constitutes a Record of Decision for NHTSA under NEPA. Section IV.K below provides much more information on the agency’s NEPA analysis for this rulemaking, and on how this final rule constitutes a Record of Decision.

E. What are the Final CAFE Standards?

1. Form of the Standards

Each of the CAFE standards that NHTSA is finalizing today for passenger cars and light trucks is expressed as a mathema tical function that defines a fuel economy target applicable to each vehicle model and, for each fleet, establishes a required CAFE level determined by computing the sales-we ighted harmonic average of those targets. 623

As discussed above in Section II.C, NHTSA has determined fuel economy targets using a constrained linear function defined according to the following formula:

1

1 1

, , TARGET

MIN MAX c FOOTPRINT d a b = ⎡ ⎤ ⎛ ⎞

× + ⎜ ⎟ ⎢ ⎥ ⎝ ⎠ ⎣ ⎦

Here, TARGET is the fuel economy target (in mpg) applicable to vehicles of a given footprint ( FOOTPRINT , in square feet), b and a are the function’s lower and upper asymptotes (also in mpg), respectively, c is the slope (in gpm per square foot) of the sloped portion of the function, and d is the intercept (in gpm) of the sloped portion of the function (that is, the value the sloped portion would take if extended to a footprint of 0 square feet. The MIN and MAX functions take the minimum and maximum, respectively

of the included values.

623 Required CAFE levels shown here are estimated required levels based on NHTSA’s current projection

of manufacturers’ vehicle fleets in MYs 2012-2016. Actual required levels are not determined until the end of each model year, when all of the vehicles produced by a manufacturer in that model year are known and their compliance obligation can be determined with certainty. The target cu rves, as defined by the constrained linear function, and as embedded in the function for the sales-weighted harmonic average, are the real “standards” being established today.521 In the NPRM preceding today’s final rule (as under the recently-promulgated MY 2011 standards), NHTSA proposed that the CAFE level required of any given manufacturer be determined by calculati ng the production-weighted harmonic average of the fuel economy targets applicable to each vehicle model:

i

i required

i

i i SALES

CAFE SALES

TARGET = 

## ∑

∑

Here, CAFE required is the required level for a given fleet, SALES i is the number of

units of model i produced for sale in the United States, TARGET i is the fuel economy target applicable to model i (according to the equation shown in Chapter II and based on the footprint of model i ), and the summations in the numerator and denominator are both performed over all models in the fleet in question.

However, comments by Honda and Toyota indicate that the defined variables used in the equations could be interpreted differently by vehicle manufacturers. The term “footprint of a vehicle model” could be interpreted to mean that a manufacturer only has to use one representative footprint within a model type or that it is necessary to use all the unique footprints and corresponding fuel economy target standards within a model type when determining a fleet target standard.

In the same NPRM, EPA proposed new regulations which also include the

calculation of standards based on the attribute of footprint. The EPA regulation text is specific and states that standa rds will be derived using the target values “for each unique combination of model type and footprint value” (proposed regulation text 40 CFR 86.1818-12 (c)(2)(ii)(B) for passenger automobiles and (c)(3)(ii)(B) for light trucks). Also, in an EPA final rule issued November 25, 2009, the manufacturers are required to provide in their final model year reports to EPA data for “each unique footprint within each model type” used to calculate the new CAFE program fuel economy levels (40 CFR 600.512-08(c)(8)and(9)). Using this term would be more definitive than using terms such as “footprint of a vehicle model” and would more fully harmonize the NHTSA and EPA regulations. Therefore, under the final CAFE standards promulgated today, a manufacturer’s “fleet target standard” will be derived from the summation of the targets for all and every unique footprint within each model type for all model types that make up a fleet of vehicles. Also, to provide grea ter clarity, the equation will use the variable

name PRODUCTION rather than SALES to refer to production of vehicles for sale in the United States. Otherwise, for purposes of the final rule the same equation will apply:

i

i required

i

i i

PRODUCTION

CAFE PRODUCTION

TARGET = 

## ∑

∑522 However, PRODUCTION i is the number of units produced for sale in the United

States of each i th unique footprint within each model type, produced for sale in the United States, and TARGET i is the corresponding fuel economy target (according to the equation shown in Chapter II and based on the corresp onding footprint), and the summations in the numerator and denominator are both performed over all unique footprint and model type combinations in the fleet in question. The equations and terms specified for calculating the required CAFE fleet values in Part 531.5 (b) and (c) for MYs 2012-2016, and Part 533.5 (g), (h) and (i) for MYs 2008-2016 w ill be updated accordin gly. Although the agency is not changing the equations for the MY 2011 standards, we would expect manufacturers to follow the same procedures fo r calculating their required levels for that model year. Also, the Appendices in each of these parts will also be updated to provide corresponding examples of calculating the fleet standards.

Corresponding changes to regulatory text defining CAFE standards are discussed

below in section IV.I.

The final standards are, therefore, specified by the four coefficients defining fuel
economy targets:

a = upper limit (mpg)

b = lower limit (mpg)

c = slope (gpm per square foot)

d

= intercept (gpm)

The values of the coefficients are different for the passenger car standards and the light

truck standards.

2. Passenger Car Standards for MYs 2012-2016

For passenger cars, NHTSA proposed CAFE standards defined by the following coefficients during MYs 2012-2016:

Table IV.E.2-1. Coefficients Defining Proposed MY 2012-2016 Fuel Economy Targets for Passenger Cars

Coefficient 2012 2013 2014 2015 2016

a (mpg) 36.23 37.15 38.08 39.55 41.38

b (mpg) 28.12 28.67 29.22 30.08 31.12

c (gpm/sf) 0.0005308 0.0005308 0.0005308 0.0005308 0.0005308

d

(gpm) 0.005842 0.005153 0.004498 0.003520 0.002406

After updating inputs to its analysis, and revisiting the form and stringency of both passenger cars and light truck standards, as discussed in Section II, NHTSA is finalizing passenger car CAFE standards defined by the following coefficients during

MYs 2012-2016:523 Table IV.E.2-2. Coefficients Defining Final MY 2012-2016 Fuel Economy Targets for Passenger Cars

Coefficient 2012 2013 2014 2015 2016

a (mpg) 35.95 36.80 37.75 39.24 41.09

b (mpg) 27.95 28.46 29.03 29.90 30.96

c (gpm/sf) 0.0005308 0.0005308 0.0005308 0.0005308 0.0005308

d

(gpm) 0.006057 0.005410 0.004725 0.003719 0.002573

These coefficients reflect the agency’s decision, discussed above in Section II, to leave the shapes of both the passenger car and light truck curves unchanged. They also reflect the agency’s reevaluation of the “gap” in stringency between the passenger car and light truck standard, also discussed in Section II.

These coefficients result in the footprint-dependent target curves shown graphically below. The MY 2011 final standard, which is specified by a constrained logistic function rather than a constrained linear function, is shown for comparison.524 Figure IV.E.2-1. Final MY 2011 and Final MY 2012-2016 Fuel Economy Target Curves for Passenger Cars

20 25 30 35 40 45

35 40 45 50 55 60 65 70 T a r g e t ( m p g )

Footprint (sf) 2011 2016

2015

2014

2013

2012

As discussed, the CAFE levels required of individual manufacturers will depend on the mix of vehicles they produce for sale in the United States. Based on the market

forecast of future sales that NHTSA has used to examine today’s final CAFE standards, the agency estimates that the targets shown above will result in the following average required fuel economy levels for individual manufacturers during MYs 2012-2016 (an updated estimate of the average required fuel economy level under the final MY 2011 standard is shown for comparison) 624 :

624 In the March 2009 final rule establishing MY 2011 standards for passenger cars and light trucks, NHTSA estimated that the required fuel economy le vels for passenger cars would average 30.2 mpg under the MY 2011 passenger car standard. Based on the agency ’s current forecast of the MY 2011 passenger car market, which anticipates greater numbers of passenge r cars than the forecast us ed in the MY 2011 final rule, NHTSA now estimates that the average required fuel economy level for passenger cars will be 30.4 mpg in MY 2011. This does not mean that the agency is making the standards more stringent for that model year, or that any manufacturer will necessarily face a more difficult CAFE standard, it simply reflects the change in assumptions about what vehicles will be produced for sale in that model year. The target curve remains the same, and each manufacturer’s compliance obligation will still be determined at the end of the model year.525 Table IV.E.2-3. Estimated Average Fuel Economy Required under Final MY 2011 and Final MY 2012-2016 CAFE Standards for Passenger Cars

Manufacturer MY 2011 MY 2012 MY 2013 MY 2014 MY 2015 MY 2016

BMW 30.2 33.0 33.7 34.5 35.7 37.3 Chrysler 29.4 32.6 33.3 34.1 35.2 36.7

Daimler 29.2 32.0 32.7 33.3 34.4 35.8

Ford 29.7 32.9 33.7 34.4 35.6 37.1

General Motors 30.3 32.7 33.5 34.2 35.4 36.9

Honda 30.8 33.8 34.6 35.4 36.7 38.3 Hyundai 30.9 33.8 34.3 35.1 36.6 38.2

Kia 30.6 33.4 34.2 35.0 36.3 37.9

Mazda 30.6 33.8 34.6 35.5 36.8 38.4

Mitsubishi 31.0 34.2 35.0 35.8 37.1 38.7

Nissan 30.7 33.3 34.1 34.9 36.1 37.7

Porsche 31.2 35.9 36.8 37.8 39.2 41.1

Subaru 31.0 34.6 35.5 36.3 37.7 39.4

Suzuki 31.2 35.8 36.6 37.5 39.0 40.8

Tata 28.0 30.7 31.4 32.1 33.3 34.7 Toyota 30.8 33.9 34.7 35.5 36.8 38.4 Volkswagen 30.8 34.3 35.0 35.9 37.2 38.8 Average 30.4 33.3 34.2 34.9 36.2 37.8

Because a manufacturer’s required average fuel economy level for a model year under the final standards will be based on its actual production numbers in that model year, its official required fuel economy level will not be known until the end of that model year. However, because the targets fo r each vehicle footprint will be established in advance of the model year, a manufacturer should be able to estimate its required level accurately.

3. Minimum Domestic Passenger Car standards

EISA expressly requires each manufacturer to meet a minimum fuel economy standard for domestically manufactured passenger cars in addition to meeting the standards set by NHTSA. According to the statute (49 U.S.C. 32902(b)(4)) the minimum standard shall be the greater of (A) 27.5 miles per gallon; or (B) 92 percent of the average fuel economy projected by the Secretary for the combined domestic and non-domestic passenger automobile fleets manufactured for sale in the United States by all manufacturers in the model year. The agency must publish the projected minimum

standards in the Federal Register when the passenger car standards for the model year in question are promulgated.

As published in the MY 2011 final rule, the domestic minimum passenger car standard for MY 2011 was set at 27.8 mpg, which represented 92 percent of the final526 projected passenger car standards promulgated for that model year. 625 NHTSA stated at

the time that “The final calculated minimu m standards will be upd ated to reflect any changes in the projected passenger car standards.” 626 Subsequently, in the NPRM proposing the MYs 2012-2016 standards, NHTSA noted that given changes in the projected estimated required passenger car standard for MY 2011, 627 92 percent of that standard would be 28.0 mpg, not 27.8 mpg, and proposed to raise the minimum domestic passenger car standard accordingly.

The Alliance commented to the NPRM that the minimum domestic passenger car standard is subject to the 18-month lead time rule for standards per 49 U.S.C. per 49 U.S.C. 32902(a), and that NHTSA therefore cannot revise it at this time. Toyota individually offered identical comments.

49 U.S.C. 32902(b)(4)(B) does state that the minimum domestic passenger car standard shall be 92 percent of the projected average fuel economy for the passenger car fleet, “which projection shall be published in the Federal Register when the standard for that model year is promulgated in accordance with this section.” In reviewing the statute, the agency concurs that the minimum domestic passenger car standard should be based on the agency’s fleet assumptions when the passenger car standard for that year is promulgated, which would make it inappropriate to change the minimum standard for MY 2011 at this time. However, we note that we do not read this language to preclude any change in the minimum standard after it is first promulgated for a model year. As long as the 18-month lead-time requirement of 49 U.S.C. 32902(a) is respected, NHTSA believes that the language of the statute suggests that the 92 percent should be determined anew any time the passenger car standards are revised.

The Alliance also commented that the minimum domestic passenger car standard should be based on the projected “actual” (NHTSA refers to this as “estimated achieved”) mpg level for the combined pa ssenger car fleet, rather than based on the projected “target” mpg level (NHTSA refers to this as “e stimated required”) for the combined fleet. The Alliance argued that the plain language of th e statute states that 92 percent should be taken of the “average fuel economy projected ... for the combined ... fleets,” which is different than the average fuel economy standard projected. The Alliance further argued that using the “estimated achieved” valu e to determine the 92 percent will avoid inadvertently “considering” FFV credits in setting the minimum standard, since the “estimated achieved” value is determined by ignoring FFV credits. Toyota individually

offered identical comments.

625 See 74 Fed. Reg. at 14410 (Mar. 30, 3009).

626 Id

. 627 Readers should remember, of course, that the “e stimated required standard” is not necessarily the ultimate mpg level with which manufact urers will have to comply, because the ultimate mpg level for each

manufacturer is determined at the e nd of the model year based on the target curves and the mix of vehicles that each manufacturer has produced for sale. The mpg level designated as “estimated required’ is exactly that, an estimate.527 NHTSA disagrees that the minimum standard should be based on the estimated

achieved levels rather than the estimated re quired levels. NHTSA interprets Congress’ reference in the second clause of 32902(b)(4)(B) to the standard promulgated in that model year as indicating that Congress intended “projected average fuel economy” in the first clause to pertain to the estimated requir ed level, not the estimated achieved level.

The Alliance’s concern that a minimum sta ndard based on the estimated required level “inadvertently considers” FFV credits is misplaced, because NHTSA is statutorily prohibited from considering FFV credits in se tting maximum feasible standards. Thus,

NHTSA has continued to determine the mini mum domestic passenger car standard based on the estimated required mpg levels proj ected for the model years covered by the rulemaking.

Based on NHTSA’s current market forecast, the agency’s estimates of these minimum standards under the final MY 2012-2016 CAFE standards (and, for comparison, the final MY 2011 minimum domestic passenger car standard) are

summarized below in Table IV.E.2-1.

Table IV.E.3-1. Estimated Minimum Standard for Domestically Manufactured Passenger Cars under Final MY 2011 and Final MY 2012-2016 CAFE Standards for Passenger Cars

2011 2012 2013 2014 2015 2016

27.8 30.7 31.4 32.1 33.3 34.7

4. Light Truck Standards

For light trucks, NHTSA proposed CAFE standards defined by the following coefficients during MYs 2012-2016:

Table IV.E.4-1. Coefficients Defining Proposed MY 2012-2016 Fuel Economy Targets for Light Trucks

Coefficient 2012 2013 2014 2015 2016

a (mpg) 29.44 30.32 31.30 32.70 34.38

b (mpg) 22.06 22.55 23.09 23.84 24.72

c (gpm/sf) 0.0004546 0.0004546 0.0004546 0.0004546 0.0004546

d

(gpm) 0.01533 0.01434 0.01331 0.01194 0.01045

After updating inputs to its analysis, and revisiting the form and stringency of both passenger cars and light truck standards, as discussed in Section II, NHTSA is finalizing light truck CAFE standards define d by the following coefficients during MYs

2012-2016:

Table IV.E.4-2. Coefficients Defining Final MY 2012-2016 Fuel Economy Targets for Light Trucks

Coefficient 2012 2013 2014 2015 2016528 a (mpg) 29.82 30.67 31.38 32.72 34.42

b (mpg) 22.27 22.74 23.13 23.85 24.74

c (gpm/sf) 0.0004546 0.0004546 0.0004546 0.0004546 0.0004546

d

(gpm) 0.014900 0.013968 0.013225 0.011920 0.010413

As for passenger cars, these coefficients reflect the agency’s decision, discussed above in Section II, to leave the shapes of both the passenger car and light truck curves unchanged. They also reflect the agency’s reevaluation of the “gap” in stringency between the passenger car and light truck standard, also discussed in Section II.

These coefficients result in the footprint-dependent targets shown graphically below. The MY 2011 final standard, which is specified by a constrained logistic function rather than a constrained linear function, is shown for comparison.529 Figure IV.E.4-1. Final MY 2011 and Final MY 2012-2016 Fuel Economy Targets for Light Trucks

20 25 30 35 40 45

35 40 45 50 55 60 65 70 T a r g e t ( m p g )

Footprint (sf) 2011 2016

2015

2014

2013

2012

Again, given these targets, the CAFE levels required of individual manufacturers will depend on the mix of vehicles they produce for sale in the United States. Based on the market forecast NHTSA has used to examine today’s final CAFE standards, the agency estimates that the targets shown above will result in the following average required fuel economy levels for individual manufacturers during MYs 2012-2016 (an updated estimate of the average required fuel economy level under the final MY 2011 standard is shown for comparison) 628 :

Table IV.E.4-3. Estimated Average Fuel Economy Required under Final MY 2011 and Final MY 2012-2016 CAFE Standards for Light Trucks

Manufacturer MY 2011 MY 2012 MY 2013 MY 2014 MY 2015 MY 2016

BMW 25.6 26.6 27.3 27.9 28.9 30.2 Chrysler 24.5 25.7 26.2 26.8 27.8 29.0

Daimler 24.7 25.6 26.3 26.9 27.8 29.1

628 In the March 2009 final rule establishing MY 2011 standards for passenger cars and light trucks, NHTSA estimated that the required fuel economy levels for light trucks would average 24.1 mpg under the MY 2011 light truck standard. Based on the agency’s current forecast of the MY 2011 light truck market, NHTSA now estimates that the required fuel economy levels will average 24.4 mpg in MY 2011. The increase in the estimate reflects a decrease in the size of the average light truck.530 Ford 23.7 24.8 25.4 26.0 27.0 28.1

General Motors 23.3 24.2 24.8 25.2 26.1 27.2

Honda 25.7 26.9 27.5 28.0 29.1 30.4 Hyundai 25.9 27.0 27.6 28.2 29.3 30.7

Kia 25.2 26.2 26.7 27.3 28.3 29.5

Mazda 26.2 27.6 28.4 28.9 30.1 31.5

Mitsubishi 26.4 27.8 28.5 29.1 30.2 31.7

Nissan 24.5 25.6 26.2 26.8 27.8 29.1

Porsche 25.5 26.3 26.9 27.5 28.5 29.8

Subaru 26.5 27.9 28.6 29.2 30.4 31.9

Suzuki 26.3 27.5 28.2 28.8 29.9 31.4

Tata 26.2 27.4 28.2 28.8 29.9 31.3 Toyota 24.6 25.7 26.2 26.8 27.8 29.1 Volkswagen 25.0 25.8 26.4 27.0 28.0 29.2 Average 24.4 25.4 26.0 26.6 27.5 28.8

As discussed above with respect to the final passenger cars standards, we note that a manufacturer’s required fuel economy level for a model year under the final standards will be based on its actual production numbers in that model year.

F. How Do the Final Standards Fulf ill NHTSA’s Statutory Obligations?

In developing the proposed MY 2012-16 standards, the agency developed and considered a wide variety of alternatives. In response to comments received in the last round of rulemaking, in our March 2009 notice of intent to prepare an environmental impact statement, the agency selected a range of candidate stringencies that increased annually, on average, 3% to 7%. 629 That same approach has been carried over to this final rule and to the accompanying FEIS and FRIA. Thus, the majority of the alternatives considered in this rulemaking are defined as average percentage increases in stringency— 3 percent per year, 4 percent per year, 5 percent per year, and so on. NHTSA believes that this approach clearly communicates the level of stringency of each alternative and allows us to identify alternatives that represent different ways to balance NHTSA’s statutory requirements under EPCA/EISA.

In the NPRM, we noted that each of the li sted alternatives represents, in part, a different way in which NHTSA could conceivably balance different policies and considerations in setting the standards. We were mindful that the agency needs to weigh and balance many factors, such as technological feasibility, economic practicability, including lead time considerations for the introduction of technologies and impacts on the auto industry, the impacts of the standards on fuel savings and CO 2 emissions, and fuel savings by consumers, as well as other relevant factors such as safety. For example, the

629 Notice of intent to prepare an EIS, 74 FR 14857, 14859-60, April 1, 2009.531 7% Alternative weighs energy conservation and climate change considerations more heavily and technological feasibility and eco nomic practicability less heavily. In contrast, the 3% Alternative, the least stringent alternative, places more weight on technological feasibility and economic practicability. We recognized that the “feasibility” of the alternatives also may re flect differences and uncertainties in the way in which key economic ( e.g. , the price of fuel and the social cost of carbon) and technological inputs could be assessed and estimated or valued. We also recognized that some technologies ( e.g. , , PHEVs and EVs) will not be available for more than limited commercial use through MY 2016, and that even those technologies that could be more widely commercialized through MY 2016 cannot all be deployed on every vehicle model in MY 2012 but require a realistic schedule for more widespread commercialization to be within the realm of economically practicability.

In addition to the alternatives that increase evenly at annual rates ranging from 3% to 7%, NHTSA also included alternatives developed using benefit-cost criteria. The agency emphasized benefit-cost-related alternatives in its rulemakings for MY 2008-2011 and, subsequently, MY 2011 standards. By including such alternatives in its current analysis, the agency is providing a degree of analytical continuity between the two approaches to defining alternatives in an effort to illustrate the similarities and dissimilarities. To that end, we included and analyzed two additional alternatives, one that sets standards at the point where net benefits are maximized (labeled “MNB” in the table below), and another that sets standards at the point at which total costs are most nearly equal to total benefits (labeled “TCTB” in the table below). 630 With respect to the first of those alternatives, we note that Executive Order 12866 focuses attention on anapproach that maximizes net benefits. Further, since NHTSA has thus far set attributebased CAFE standards at the point at which net benefits are maximized, we believed it would be useful and informative to consider the potential impacts of that approach as compared to the new approach for MYs 2012-2016.

After working with EPA in thoroughly re viewing and in some cases reassessing the effectiveness and costs of technologies (most of which are already being incorporated

in at least some vehicles ) , market forecasts and economic assumptions, NHTSA used the Volpe model extensively to assess the technologies that the manufacturers could apply in order to comply with each of the alternatives. This allowed us to assess the variety, amount and cost of the technologies that could be used to enable the manufacturers to comply with each of the alternatives. NHTS A estimated how the application of these and

630 The stringency indicated by each of these alternat ives depends on the value of inputs to NHTSA’s analysis. Results presented here for these two alternatives are based on NHTSA’s reference case inputs, which underlie the central analysis of the proposed standards. In the accompanying FRIA, the agency presents the results of that analysis to explore the sensitivity of results to changes in key economic inputs. Because of numerous changes in model inputs ( e.g. , discount rate, rebound effect, CO 2 value, technology cost estimates), our analysis often exhausts all ava ilable technologies before reaching the point at which total costs equal total benefits. In these cases, the st ringency that exhausts all available technologies is

considered.532 other technologies could increase vehicle cost s, reduce fuel consumption, and reduce CO 2 emissions.

The agency then assessed which alternative would represent a reasonable balancing of the statutory criteria, given th e difficulties confronting the industry and the economy, and other relevant goals and prior ities. Those priorities and goals include maximizing energy conservation and achieving a nationally harmonized and coordinated program for regulating fuel economy and GHG emissions.

Part of that assessment of alternatives entailed an evaluation of the stringencies necessary to achieve both Federal and State GHG emission reduction goals, especially those of California and the States that have adopted its GHG emission standard for motor vehicles. Given that EPCA requires a ttribute-based standards, NHTSA and EPA

determined the level at which a national attribute-based GHG emissions standard would

need to be set to achieve the same emission reductions in California as the California GHG program. This was done by evaluating a nationwide Clean Air Act standard for MY 2016 that would apply across the country and require the levels of emissions reduction which California standards would require for the subset of vehicles sold in California under the California standards for MY 2009-2016 (known as “Pavley 1”). In essence, the stringency of the California Pavley 1 program was evaluated, but for a

national standard. For a number of reasons discussed in section III.D, an assessment was developed of national new vehicle fleet-wide CO 2 performance standards for model year 2016 which would result in the new light-duty vehicle fleet in the State of California having CO 2 performance equal to the performan ce from the California Pavley 1 standards. That level, 250 g/mi, is equivalent to 35.5 mpg if the GHG standard were met exclusively by fuel economy improvements – and the overall result is the model year 2016 goals of the National Program.

However, the level of stringency for the National Program goal of 250 g/mi CO 2can be met with both fuel economy “tailpipe” improvements as well as other GHGreduction related improvements, such as A/C refrigerant leakage reductions. CAFE standards, as discussed elsewhere in this final rule, cannot be met by improvements that

cannot be accounted for on th e FTP/HFET tests. Thus, setting CAFE standards at 35.5 mpg would require more tailpipe technology (at more expense to manufacturers) than would be required under such a CAA standard. To obtain an equiva lent CAFE standard, we determined how much tailpipe technology would be necessary in order to meet an mpg level of 35.5 if manufacturers also employed what EPA deemed to be an average amount of A/C “credits” (leakage and efficiency) to reach the 250 g/mi equivalent. This results in a figure of 34.1 mpg as the appropriate counterpart CAFE standard. This differential gives manufacturers the opportunity to reach 35.5 mpg equivalent under the CAA in ways that would significantly reduce their costs. Were NHTSA instead to establish its standard at the same level, ma nufacturers would need to make substantially greater expenditures on fuel-saving technologies to reach 35.5 mpg under EPCA.533 Thus, as part of the process of considerin g all of the factors relevant under EPCA for setting standards, in a context where ac hieving a harmonized National Program is important, for the proposal we created a new alternative whose annual percentage increases would achieve 34.1 mpg by MY 2016. That alternative is one which increases on average at 4.3% annually. This new alternative, like the seven alternatives presented above, represents a unique balancing of th e statutory factors and other relevant considerations. For the reader’s reference, th e estimated required levels of stringency for each alternative in each model year are presented below:

Table IV.F.1. Estimated Required Fuel Economy Level for Regulatory

Alternatives. 631

Alt. 1 Alt. 2 Alt. 3 Alt. 4 Alt. 5 Alt. 6 Alt. 7 Alt. 8 Alt. 9

No

Action 3%/year

Increase 4%/year

Increase ~4.3%/year

Increase 5%/year

Increase ~6.0%/year

Increase

MNB 6%/year

Increase 7%/year

Increase ~6.6%/year

Increase
TCTB

2012
Passenger
Cars 30.5 31.7 32.1 33.4 32.4 33.0 32.7 33.0 33.4

Light Trucks 24.4 24.1 24.4 25.3 24.6 26.3 24.9 25.1 26.3

Combined 27.8 28.3 28.6 29.7 28.8 30.0 29.1 29.4 30.3

2013
Passenger
Cars 30.5 32.6 33.3 34.2 33.9 36.1 34.5 35.2 36.7

Light Trucks 24.4 24.8 25.3 25.9 25.8 27.7 26.3 26.8 28.0

Combined 27.8 29.1 29.7 30.5 30.3 32.3 30.8 31.4 32.8

2014
Passenger
Cars 30.5 33.5 34.5 35.0 35.5 38.1 36.5 37.6 39.2

Light Trucks 24.5 25.5 26.3 26.6 27.0 29.1 27.8 28.6 29.7

Combined 28.0 30.0 30.9 31.3 31.8 34.2 32.7 33.7 35.0

2015
Passenger
Cars 30.5 34.4 35.8 36.2 37.1 39.4 38.6 40.1 40.7

Light Trucks 24.4 26.2 27.2 27.5 28.3 30.3 29.4 30.5 30.7

Combined 28.0 31.0 32.2 32.6 33.4 35.6 34.7 36.0 36.5

2016
Passenger
Cars 30.5 35.4 37.2 37.8 39.0 40.9 40.9 42.9 42.3

Light Trucks 24.4 27.0 28.3 28.7 29.7 31.1 31.1 32.6 31.8

631 Also, the “MNB” and the “TCTB” alternatives depend on the inputs to the agencies’ analysis. The sensitivity analysis presented in the RIA documents th e response of these altern atives to changes in key economic inputs. For example, the combined averag e required fuel economy under the “MNB” alternative is 36.9 mpg under the reference case economic inputs presented here, and ranges from 32.0 mpg to 37.2 mpg under the alternative economic inputs presented in the RIA. [NOTE: Verify range based on alternatives included in FRIA.]534 Combined 28.1 32.0 33.6 34.1 35.2 36.9 36.9 38.7 38.0

The following figure presents this same information but in a different way, comparing estimated average fuel economy levels required of manufacturers under the eight regulatory alternatives in MYs 2012, 2014, and 2016. Required levels for MY 2013 and MY 2015 fall between those for MYs 2012 and 2014 and MYs 2014 and 2016, respectively. Although required levels for these interim years are not presented in the following figure to limit the complexity of the figure, they do appear in the accompanying FRIA.535 Figure IV.F.1. Average Estimated Required Fuel Economy (MYs 2012, 2014, and 2016)

20 25 30 35 40 45

A v e r a g e R e q u i r e d F u e l E c o n o m y ( m p g )

PC, 2012

LT, 2012

Comb., 2012

PC, 2014

LT, 2014

Comb., 2014

PC, 2016

LT, 2016

Comb. 2016

3%/y 4%/y Final 5%/y 6%/y Max

NB 7%/y TC=TB536 As this figure illustrates, the final st andards involve a “faster start” toward increased stringency than do any of the alternatives that increase steadily ( i.e. , the 3%/y, 4%/y, 5%/y, 6%/y, and 7%/y alternatives). However, by MY 2016, the stringency of the final standards reflects an average annual increase of 4.3%/y. The final standards, therefore, represent an alternative that could be referred to as “4.3% per year with a fast start” or a “front-loaded 4.3% average annual increase.”

For each alternative, including today’s final standards, NHTSA has estimated all corresponding effects for each model year, including fuel savings, CO 2 reductions, and other effects, as well as the estimated so cietal benefits of these effects. The accompanying FRIA presents a detailed analysis of these results. Table IV.F.2 presents fuel savings, CO2 reductions, and total industry cost outlays for model year 2012 – 2016 for the eight alternatives.

Table IV.F.2. Fuel Savings, CO 2 Reductions, and Technology Costs for Regulatory

Alternatives Regulatory Alternative Fuel Savings (b. gal) CO 2 Reductions (mmt) Cost ($b) 3% per Year 34 373 23 4% per Year 50 539 39 Final (4.3% per Year) 61 655 52 5% per Year 68 709 63 6% per Year 82 840 90

Maximum Net Benefit 90 925 103 7% per Year 93 945 111

Total Cost = Total Benefit 96 986 114

As noted earlier, NHTSA has used the Volpe model to analyze each of these alternatives based on analytical inputs de termined jointly with EPA. For a given regulatory alternative, the Volpe model estimates how each manufacturer could apply technology in response to the MY 2012 standard (separately for cars and trucks), carries technologies applied in MY 2012 forward to MY 2013, and then estimates how each manufacturer could apply technology in response to the MY 2013 standard. When analyzing MY 2013, the model considers the potential to add “extra” technology in MY 2012 in order to carry that technology into MY 2013, thereby avoiding the use of more expensive technologies in MY 2013. The model continues in this fashion through MY 2016, and then performs calculations to estim ate the costs, effects, and benefits of the applied technologies, and to estimate any civil penalties owed based on projected noncompliance. For each regula tory alternative, the model ca lculates incremental costs, effects, and benefits relative to the regulatory baseline ( i.e. , the no-action alternative), under which the MY 2011 CAFE standards continue through MY 2016. The model calculates results for each model year, because EPCA requires that NHTSA set its537 standards for each model year at the “maximum feasible average fuel economy level that the Secretary decides the manufacturers can achieve in that model year” considering four statutory factors. Pursuant to EPCA’s re quirement that NHTSA not consider statutory credits in establishing CAFE standards, NH TSA did not consider FFV credits, credits

carried forward and backwa rd, and transferred credits in this calculation 632, 633 In addition, the analysis incorpor ates fines for some manufacturers that have traditionally paid fines rather than comply with the st andards. Because it entails year-by-year examination of eight regulatory alternatives for, separately, passenger cars and light trucks, NHTSA’s analysis involves a large amount of information. Detailed results of this analysis are presented separately in NHTSA’s FRIA.

In reviewing the results of the variou s alternatives, NHTSA confirmed thatprogressive increases in stringency require progressively greater deployment of fuelsaving technology and corresponding increases in technology outlays and related costs, fuel savings, and CO 2 emission reductions. To be gin, NHTSA estimated total incremental outlays for additional technology in each model year. The following figure

shows cumulative results for MYs 2012-2016 for industry as a whole and Chrysler, Ford, General Motors, Honda, Nissan, and Toyota. This figure focuses on these manufacturers as they currently (in MY 2010) represent th ree large U.S.-headquartered and three large foreign-headquartered full-line manufacturers.

632 NHTSA has conducted a separate analysis, discusse d above in Section I, which accounts for EPCA’s provisions regarding FFVs.

633 For a number of reasons, the results of this modeling differ from EPA’s for specific manufacturers, fleets, and model years. These reasons include re presenting every model year explicitly, accounting for estimates of when vehicle model redesigns will occur, and not considering those compliance flexibilities where EPCA forbids such consideration in setting CAFE standards. It should be noted, however, that these flexibilities in fact provide manufacturers significant latitude to manage their compliance obligations.538 Figure IV.F.2. Incremental Technology Outlays (MYs 2012-2016)

- 20 40 60 80 100 120

- 5 10 15 20 25 30

3%/y 4%/y Final 5%/y 6%/y Max. NB 7%/y TC=TB I n c r e m e n t a l T e c h n o l o g y O u t l a y s ( $ b )

Chrysler

Ford

General Motors

Honda

Nissan

Toyota

Industry

As part of the incremental technolo gy outlays, NHTSA also analyzes which technologies manufacturers could apply to meet the standards. In NHTSA’s analysis, manufacturers achieve compliance with the fuel economy levels through application of technology rather than through changes in the mix of vehicles produced for sale in the U.S. The accompanying FRIA presents de tailed estimates of additional technology penetration into the NHTSA reference fleet asso ciated with each regulatory alternative. The following four charts illustrate the results of this analysis, considering the application of four technologies by six manufacturers and by the industry as a whole. Technologies include gasoline direct injec tion (GDI), engine turbocharging and downsizing, diesel engines, and strong HEV systems (including CISG systems). GDI and turbocharging are presented because they are among the technologies that play an important role in achieving the fuel economy improvements shown in NHTSA’s analysis, and diesels and strong HEVs are presented because they repr esent technologies involving significant cost and related lead time challenges for widespread use through MY 2016. These figures539 focus on Chrysler, Ford, General Motors, Honda, Nissan, and Toyota, as above. For each alternative, the figures show additiona l application of technology by MY 2016. 634

634 The FRIA presents results for all model years, technologies, and manufacturers, and NHTSA has

considered these broader results when cons idering the eight regulatory alternatives.540 Figure IV.F.3. Additional Application of GDI (MY 2016)

0% 20% 40% 60% 80% 100%

3%/y 4%/y Final 5%/y 6%/y Max. NB 7%/y TC=TB A d d i t i o n a l A p p l i c a t i o n ( % P r o d u c t i o n )

Chrysler

Ford

General Motors

Honda

Nissan

Toyota

Industry541 Figure IV.F.4. Additional Application of Engine Turbocharging & Downsizing (MY 2016)

0% 20% 40% 60% 80% 100%

3%/y 4%/y Final 5%/y 6%/y Max. NB 7%/y TC=TB A d d i t i o n a l A p p l i c a t i o n ( % P r o d u c t i o n )

Chrysler

Ford

General Motors

Honda

Nissan

Toyota

Industry542 Figure IV.F.5. Additional Application of Diesel Engines (MY 2016)

0% 20% 40% 60% 80% 100%

3%/y 4%/y Final 5%/y 6%/y Max. NB 7%/y TC=TB A d d i t i o n a l A p p l i c a t i o n ( % P r o d u c t i o n )

Chrysler

Ford

General Motors

Honda

Nissan

Toyota

Industry543 Figure IV.F.6. Additional Application of CISG and Strong HEV Systems (MY 2016)

0% 20% 40% 60% 80% 100%

3%/y 4%/y Final 5%/y 6%/y Max. NB 7%/y TC=TB A d d i t i o n a l A p p l i c a t i o n ( % P r o d u c t i o n )

Chrysler

Ford

General Motors

Honda

Nissan

Toyota

Industry544 The modeling analysis demonstrates that applying these technologies, of course, results in fuel savings. Relevant to EPCA’s requirement that NHTSA consider, among other factors, economic practicability and the need of the nation to conserve energy, the following figure compares the incremental technology outlays and related cost presented above for the industry to the corresponding cumulative fuel savings.

Figure IV.F.7. Incremental Technology Outlays and Fuel Savings (MYs 2012-2016)

- 20 40 60 80 100 120

- 20 40 60 80 100 120

3%/y 4%/y Final 5%/y 6%/y Max. NB 7%/y TC=TB F u e l S a v i n g s ( b . g a l

. )

T e c h n o l o g y O u t l a y s ( $ b )

Cost Fuel Savings545 These incremental technology outlays (and corresponding fuel savings) also result in corresponding increases in incremental cost per vehicle, as shown below. The following five figures show industry-wide average incremental ( i.e. , relative to the reference fleet) per-vehicle costs, for each model year, each fleet, and the combined fleet. Estimates specific to each manufacturer are shown in NHTSA’s FRIA.

Figure IV.F.8. Average Incremental Per-Vehicle Costs (MY 2012)

- 500 1,000 1,500 2,000 2,500

3%/y 4%/y Final 5%/y 6%/y Max. NB 7%/y TC=TB A v e r a g e T e c h n o l o g y C o s t ( $ / V e h i c l e )

PC

LT

Comb.546 Figure IV.F.9. Average Incremental Per-Vehicle Costs (MY 2013)

- 500 1,000 1,500 2,000 2,500

3%/y 4%/y Final 5%/y 6%/y Max. NB 7%/y TC=TB A v e r a g e T e c h n o l o g y C o s t ( $ / V e h i c l e )

PC

LT

Comb.547 Figure IV.F.10. Average Incremental Per-Vehicle Costs (MY 2014)

- 500 1,000 1,500 2,000 2,500

3%/y 4%/y Final 5%/y 6%/y Max. NB 7%/y TC=TB A v e r a g e T e c h n o l o g y C o s t ( $ / V e h i c l e )

PC

LT

Comb.548 Figure IV.F.11. Average Incremental Per-Vehicle Costs (MY 2015)

- 500 1,000 1,500 2,000 2,500

3%/y 4%/y Final 5%/y 6%/y Max. NB 7%/y TC=TB A v e r a g e T e c h n o l o g y C o s t ( $ / V e h i c l e )

PC

LT

Comb.549 Figure IV.F.12. Average Incremental Per-Vehicle Costs (MY 2016)

- 500 1,000 1,500 2,000 2,500

3%/y 4%/y Final 5%/y 6%/y Max. NB 7%/y TC=TB A v e r a g e T e c h n o l o g y C o s t ( $ / V e h i c l e )

PC

LT

Comb.

As discussed in the NPRM, the agency began the process of winnowing the alternatives by determining whether any of th e lower stringency alternatives should be eliminated from consideration. To begin with, the agency needs to ensure that its standards are high enough to enable the combined fleet of passenger cars and light trucks to achieve at least 35 mpg not later than MY 2020, as required by EISA. Achieving that level makes it necessary for the chosen alternat ive to increase at over 3 percent annually. Additionally, given that CO 2 and fuel savings are very closely correlated, the 3%/y and 4%/y alternative would not produce the reductions in fuel savings and CO 2 emissions that the Nation needs at this time. Picking either of those alternatives would unnecessarily result in foregoing substantial benefits, in terms of fuel savings and reduced CO 2 emissions, which would be achievable at reasonable cost. And finally, neither the 3%/y nor the 4%/y alternatives would lead to th e regulatory harmonization that forms a vital core principle of the National Program th at EPA and NHTSA are jointly striving to implement. These alternatives would give inadequate weight to other standards of the Government, specifically EPA’s and CARB’s. Thus, the agency concluded that alternatives less stringent than the proposed standards would not yield the emissions reductions required to produce a harmonized national program and would not produce550 corresponding fuel savings, and therefore would not place adequate emphasis on the nation’s need to conserve energy. NHTSA has therefore concluded that it must reject the 3%/y and 4%/y alternatives.

NHTSA then considered the “environmentally-preferable” alternative. Based on the information provided in the FEIS, the e nvironmentally-preferable alternative would be that involving stringencies that increase at 7% annually. 635 NHTSA notes that NEPA does not require that agencies choose the en vironmentally-preferable alternative if doing so would be contrary to the choice that the agency would otherwise make under its governing statute. Given the levels of technology and cost required by the environmentally-preferable alternative and the lack of lead time to achieve such levels between now and MY 2016, as discussed further below, NHTSA concludes that the environmentally-preferable alternative would not be economically practicable or technologically feasible, and thus concludes that it would result in standards that would be beyond the level achievable for MYs 2012-2016.

For the other alternatives, NHTSA determin ed that it would be inappropriate to choose any of the other more stringent alternatives due to concerns over lead time and economic practicability. There are real-world technological and economic time

constraints which must be considered due to the short lead time available for the early years of this program, in particular for MYs 2012 and 2013. The alternatives more stringent than the final standa rds begin to accrue costs considerably more rapidly than they accrue fuel savings and emissions reducti ons, and at levels that are increasingly economically burdensome, especially considering the need to make underlying investments ( e.g. , for engineering and tooling) well in advance of actual production. As shown in Figures IV-2 to IV-6 above, while the final standards already require aggressive application of technologies, more stringent standards would require more widespread use (including more substantial implementatio n of advanced technologies such as stoichiometric gasoline direct injection engine s, diesel engines, and strong hybrids), and would raise serious issues of adequacy of lead time, not only to meet the standards but to coordinate such significant changes with manufacturers’ redesign cycles. The agency maintains, as it has historically, that th ere is an important distinction between considerations of technological feasibilit y and economic practicability, both of which enter into the agency’s determination of the maximum feasible levels of stringency. A given level of performance may be technologically feasible ( i.e. , setting aside economic constraints) for a given vehicle model. However, it would not be economically practicable to require a level of fleet aver age performance that assu mes every vehicle will immediately ( i.e. , within 18 months of the rule’s promulgation) perform at its highest technologically feasible level, because manufacturers do not have unlimited access to the financial resources or the time required to hire enough engineers, build enough facilities, and install enough tooling. The lead time reasonably needed to make capital investments and to devote the resources and time to design and prepare for commercial production of

635 See, e.g. , FEIS, figure S-12, p. 18, which shows that 7%/y alternative yields greatest cumulative effect on global mean temperature.551 a more fuel efficient vehicle is an important element that NHTSA takes into

consideration in establishi ng the standards.

In addition, the figures presented above reveal that increasing stringency beyond the final standards would entail significant additional application of technology. Among the more stringent alternatives, the one clos est in stringency to the standards being finalized today is the alternative under whic h combined CAFE stringency increases at 5% annually. As indicated above, this alternative would yield fuel savings and CO 2 reductions about 11% and 8% higher, respectively, than the final standards. However, compared to the final standards, this a lternative would increase outlays for new technologies during MY 2012-2016 by about 22%, or $12b. Average MY 2016 cost increases would, in turn, rise from $903 under the final standards to $1,152 when stringency increases at 5% annually. This represents a 28% increase in per-vehicle cost for only a 3% increase in average performance (on a gallon-per-mile basis to which fuel savings are proportional). Additionally, th e 5%/y alternative disproportionally burdens the light truck fleet requiring a nearly $400 (42 percent) cost increase in MY 2016 compared to the final standards. The fo llowing three tables summarize estimated manufacturer-level average incremental costs for the 5%/y alternative and the average of the passenger and light truck fleets:

Table IV.F.3. Average Incremental Costs ($ /vehicle) under the 5%/y Alternative CAFE Standards for Passenger Cars

Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016

BMW 3 4 24 184 585 Chrysler 734 1,303 1,462 1,653 1,727 Daimler - - 410 801 1,109 Ford 743 1,245 1,261 1,583 1,923 General Motors 448 823 1,187 1,425 1,594

Honda 50 109 271 375 606 Hyundai 747 877 1,057 1,052 1,124

Kia 49 128 197 261 369 Mazda 555 718 1,166 1,407 1,427 Mitsubishi 534 507 2,534 3,213 3,141 Nissan 294 491 965 1,064 1,125 Porsche 68 (52) (51) (50) (49) Subaru 292 324 1,372 1,723 1,679 Suzuki - 959 1,267 1,316 1,540

Tata 111 93 183 306 710 Toyota 31 29 52 129 212 Volkswagen 145 428 477 492 783 Average 337 540 726 886 1,053

Table IV.F.4. Average Incremental Costs ($ /vehicle) under the 5%/y Alternative CAFE Standards for Light Trucks

Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016

BMW 169 160 201 453 868 Chrysler 360 559 1,120 1,216 1,432552 Daimler 60 55 51 52 51 Ford 1,207 1,663 1,882 2,258 2,225 General Motors 292 628 866 968 1,136 Honda 258 234 611 750 1,047 Hyundai 711 685 1,923 1,909 1,862 Kia 47 293 556 782 1,157

Mazda 248 408 419 519 768 Mitsubishi - - 1,037 1,189 1,556 Nissan 613 723 2,142 2,148 2,315 Porsche - (0) (1) 469 469 Subaru 1,225 1,220 1,365 1,374 1,330 Suzuki - 1,998 1,895 1,837 2,096

Tata - - - - 503 Toyota 63 187 594 734 991 Volkswagen - - 514 458 441 Average 415 628 1,026 1,173 1,343

Table IV.F.5. Average Incremental Costs ($ /vehicle) under the 5%/y Alternative CAFE

Standards

Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016

BMW 72 64 84 265 666 Chrysler 499 870 1,272 1,414 1,569

Daimler 20 20 281 554 773 Ford 914 1,407 1,498 1,838 2,034 General Motors 371 726 1,033 1,205 1,379

Honda 135 157 396 518 769 Hyundai 742 838 1,237 1,186 1,235

Kia 49 168 273 355 506 Mazda 500 667 1,053 1,272 1,330 Mitsubishi 371 352 1,973 2,386 2,506 Nissan 399 565 1,344 1,387 1,467 Porsche 52 (39) (35) 130 124 Subaru 617 628 1,369 1,597 1,553 Suzuki - 1,134 1,381 1,404 1,630

Tata 61 56 101 182 629 Toyota 43 82 239 333 466 Volkswagen 117 333 486 486 723 Average 367 573 836 987 1,152

These cost increases derive from increased application of advanced technologies as stringency increases past the levels in the final standards. For example, under the final standards, additional diesel application rates average 1.6% for the industry and range from 0% to 3% among Chrysler, Ford, GM, Honda, Nissan, and Toyota. Under standards increasing in combined stringency at 5% annu ally, these rates more than triple, averaging 6.2% for the industry and ranging from 0% to 21% for the same six manufacturers.

These technology and cost increases are significant, given the amount of leadtime between now and model years 2012-2016. In order to achieve the levels of technology penetration for the final standards, the industry needs to invest significant553 capital and product development resources right away, in particular for the 2012 and 2013 model year, which is only 2-3 years from now. For the 2014-2016 time frame, significant product development and capital investments will need to occur over the next 2-3 year in order to be ready for launching these new products for those model years. Thus a major part of the required capital and resource investment will need to occur now and over the next few years, under the final standards. NHTSA believes that the final rule requires significant investment and product development costs for the industry, focused on the next few years.

It is important to note, and as discussed later in this preamble, as well as in the Joint Technical Support Document and the agency’s Regulatory Impact Analysis, the average model year 2016 per-vehicle cost increase of more than $900 includes an estimate of both the increase in capital i nvestments by the auto companies and the suppliers as well as the increase in produc t development costs. These costs can be significant, especially as they must occur over the next 2-3 years. Both the domestic and transplant auto firms, as well as the domes tic and world-wide automotive supplier base, are experiencing one of the most difficult markets in the U.S. and internationally that has been seen in the past 30 years. One major impact of the global downturn in the automotive industry and certainly in the U.S. is the significant reduction in product development engineers and staffs, as well as a tightening of the credit markets which allow auto firms and suppliers to make the near-term capital investments necessary to bring new technology into production.

The agency concludes that the levels of technology penetration required by the final standards are reasonable. Increasing the standards beyond those levels would lead to rapidly increasing dependence on advanced technologies with higher costs— technology that, though perhaps technologically feasible for individual vehicle models, would, at the scales involved, pose too great an economic burden given the state of the industry, particularly in the early years of the rulemaking time frame. 636

Therefore, the agency concluded that these more stringent alternatives would give insufficient weight to economic practicability and related lead time concerns, given the current state of the industry and the rate of in crease in stringency that would be required. Overall, the agency concluded that among the alternatives considered by the agency, the proposed alternative contained the maximum feasible CAFE standards for MYs 2012- 2016 as they were the most appropriate ba lance of the various statutory factors.

636 Although the final standards are projected to be sli ghtly more costly than th e 5% alternative in MY 2012, that alternative standard becomes progressively mo re costly than the final standards in the remaining model years. See Figures IV.F.8 through IV.F.10 a bove. Moreover, as discussed above, after MY 2012, the 5% alternative standard yields less incremental fuel economy benefits at increased cost (both industrywide and per vehicle), directionally the less desirable re sult. These increased costs incurred to increase fuel economy through MY 2016 would impose significantly increased economic burden on the manufacturers in the next few calendar years to prepare for these future model years. In weighing the statutory factors, NHTSA accordingly rejected this alternative in favor of the final standard.554 Some commenters argued that the agency should select a more stringent alternative than that proposed in the NPRM. The Union of Concerned Scientists (UCS) commented that NHTSA should set standards to produce the “maximum environmental benefit” available at “reasonable” cost, and at least at the stringency maximizing net benefits. Students from the University of Cali fornia at Santa Barbara commented that the agency should have based standards not just on technologies known to be available, but also on technologies that may be available in the future—and should do so in order to force manufacturers to “reach” to greater levels of performance. Also, the Center for Biological Diversity (CBD) commented that, having conducted an unbiased cost-benefit analysis showing benefits three times the magni tude of costs for the proposed alternative, the agency should select a more stringent alte rnative. CBD also argued that the agency should have evaluated the extent to which manufacturers could deploy technology more rapidly than suggested by a five-year redesign cycle.

Conversely, other commenters argued th at NHTSA should select a less stringent alternative, either in all mode l years or at least in the earlier model years. Chrysler, VW,

and the Alliance of Automobile Manufactur ers commented that the stringency of

NHTSA’s CAFE standards should be further reduced relative to that of EPA’s GHG emissions standards, so that manufacturers would not be required by CAFE to add any tailpipe technology beyond what they thought would be necessary to meet an mpg level of 35.5 minus the maximum possible A/C cred its that could be obtained under the EPA program. Also, Chrysler, Daimler, Toyota, Volkswagen, and the Alliance argued that the agency should reduce the rate of increase in stringency to produce steadier and more “linear” increases between MY 2011 and MY 2016. In addition, the Heritage Foundation commented that the proposed standards woul d, in effect, force accelerated progress toward EISA’s “35 mpg by 2020” requirement, causing financially-stressed manufacturers to incur undue costs that would passed along to consumers.

However, most commenters supported the agency’s selection of the proposed standards. The American Chemical Society, the New York Department of Environmental Conservation, the Washington State Department of Ecology, and several individuals all expressed general support for the levels of stringency proposed by NHTSA as part of the joint proposal. Genera l Motors and Nissan both indicated that the proposed standards are consistent with the National Program announced by the President and supported in letters of commitment signed by these companies’ executives. Finally, the California Air Resources Board (CARB) strongly supported the stringency of the proposed standards, as well as the agencies’ underlying technical analysis and weighing of statutory factors. CARB further commented that the stringency increases in the earlier model years are essential to providing environmental benefits at least as great as would be achieved through state-level enforcement of CARB’s GHG emissions standards. 637

637 Generally speaking, the cumulative benefits (in terms of fuel savings and GHG reductions) of frontloaded standards will be greater th an standards that increase linearly.555 The agency has considered these comments and all others, and having considered those comments, believes the final standards best balance of all relevant factors that the agency considers when determ ining maximum feasible CAFE standards. As discussed below, having updated inputs to its analysis and correspondingly updated its definition and analysis of these regulatory alternatives, the agency continues to conclude that manufacturers can respond to the proposed st andards with technologies that will be available at reasonable cost. The agency finds that alternatives less stringent that the one adopted today would leave too much technology “on the shelf” unnecessarily, thereby failing to deliver the fuel savings that the nation needs or to yield environmental benefits necessary to support a harmonized national program. In response to some manufacturers’ suggestion that NHTSA’s CAFE standards should be made even less stringent compared to EPA’s GHG emissions standards, NHTSA not es that the difference, consistent with the underlying Notice of Intent, is based on the agencies’ estimate of the average amount of air conditioning credit earned, not the maximum theoretically available, and that NHTSA’s analysis indicates that most manufa cturers can achieve the CAFE standards by MY 2016 using tailpipe technologies. This is fu lly consistent with the agency’s historical position. As NHTSA explained in the NPRM, the Conference Report for EPCA, as enacted in 1975, makes clear, and applicable law affirms, “a determination of maximum feasible average fuel economy should not be keyed to the single manufacturer which might have the most difficulty achieving a gi ven level of average fuel economy.” CEI-I

, 793 F.2d 1322, 1352 (D.C. Cir. 1986). Instead, NHTSA is compelled “to weigh the benefits to the nation of a higher fuel ec onomy standard agains t the difficulties of

individual automobile manufacturers.” Id . Thus, the law permits CAFE standards exceeding the projected capability of any particular manufacturer as long as the standard is economically practicable for the industry as a whole.

While some manufacturers may find greater A/C improvements to be a more costeffective way of meeting the GHG standards, that does not mean those manufacturers

will be unable to meet the CAFE standards with tailpipe technologies. NHTSA’s analysis has demonstrated a feasible path to compliance with the CAFE standards for most manufacturers using those technologies. “Economic practicability” means just that, practicability, and need not always mean what is “cheapest” or “most cost-effective” for a specific manufacturer. Moreover, many of the A/C improvements on which manufacturers intend to rely for meeting the GHG standards will reduce GHG emissions, specifically HFC emissions, but they w ill not lead to greater fuel savings. 638 The core purpose of the CAFE standards under EPCA is to reduce fuel consumption. NHTSA believes that less stringent standards would allow tailpipe fuel economy technologies to be left on the table that can be feasibly and economically applied, and failing to apply them would lead to a loss in fuel savings. This would not place appropriate emphasis on the core CAFE purpose of conserving fuel. For this reason, we decline to reduce the

638 This is not to say that NHTSA means, in any way, to deter manufacturers from employing A/C technologies to meet EPA’s standards, but simply to say that NHTSA’s independent obligation to set maximum feasible CAFE standards to be met through a pplication of tailpipe technologies alone must be fulfilled, while recognizing the flexibilities offered in another regulatory program.556 stringency of our standards as requested by so me manufacturers. Similarly, we decline to pursue with EPA in this rulemaking the suggestion by one commenter that that agency’s calculation authority under EPCA be used to provide A/C credits.

With respect to some manufacturers’ concerns regarding the increase in stringency through MY 2013, the agency notes that stringency increases in these model years are especially important in terms of the accumulation of fuel savings and emission reductions over time. In addition, a weaken ing would risk failing to produce emission reductions at least as great as might be achieved through CARB’s GHG standards. Therefore, the agency believes that alternativ es less stringent than the one adopted today would not give sufficient emphasis to the nation’s need to conserve energy. The requirement to set standards that increase ratably between MYs 2011 and 2020 must also

be considered in the context of what levels of standards would be maximum feasible. The agency believes that the rate of increase of the final standards is reasonable.

On the other hand, the agency disagrees with comments by UCS, CBD, and others indicating that more stringent standards woul d be appropriate. As discussed above, alternatives more stringent than the one adopted today would entail a rapidly increasing dependence on the most expensive technologies and those which are technically more demanding to implement, with commensurately rapid increases in costs. In the agency’s considered judgment, these alternatives are not economically practicable, nor do they provide correspondingly sufficient lead time. The agency also disagrees with CBD’s assertion that NHTSA and EPA have been overly conservative in assuming an average redesign cycle of 5 years. There are some manufacturers who apply longer cycles (such as smaller manufacturers described above), there are others who have shorter cycles for some of their products, and there are some products ( e.g. , cargo vans) that tend to be redesigned on longer cycles. NHTSA believes that there are no full line manufacturers who can maintain significant redesigns of vehicles (with relative large sales) in 1 or 2 years, and CBD has provided no evidence indicating this would be practicable. A complete redesign of the entire U.S. light-d uty fleet by model year 2012 is clearly infeasible, and NHTSA and EPA believe that se veral model years additional lead time is necessary in order for the manufacturers to meet the most stringent standards. The graduated increase in the stringency of the standards from MYs 2012 through 2016 accounts for the economic necessity of timing the application of many major technologies to coincide with scheduled model redesigns.

In contrast, through analysis of the illustrative results shown above, as well as the more complete and detailed results presented in the accompanying FRIA, NHTSA has concluded that the final standards are technologically feasible and economically practicable. The final standards will require manufacturers to apply considerable additional technology, starting with very si gnificant investment in technology design, development and capital investment called for in the next few years. Although NHTSA cannot predict how manufacturers will respond to the final standards, the agency’s analysis indicates that the st andards could lead to significa ntly greater use of advanced557 engine and transmission technologies. As shown above, the agency’s analysis shows considerable increases in the application of SGDI systems and engine turbocharging and downsizing. Though not presented above, the agency’s analysis also shows similarly large increases in the use of dual-clutch automated manual transmissions (AMTs). However, the agency’s analysis does not suggest that the additional application of these technologies in response to the final standards would extend beyond levels achievable by the industry. These technologies are likely to be applied to at least some extent even in

the absence of new CAFE standards. In add ition, the agency’s analysis indicates that most manufacturers would rely only to a limited extent on the most costly technologies, such as diesel engines and advanced technologies, such as strong HEVs.

As shown below, NHTSA estimates that th e final standards could lead to average incremental costs ranging from $303 per vehicle (for light trucks in MY 2012) to $947 per vehicle (for light trucks in MY 2016), increasing steadily from $396 per vehicle for all light vehicles in MY 2012 to $903 for all light vehicle in MY 2016. NHTSA estimates that these costs would vary considerably among manufacturers, but would rarely exceed $1,800 per vehicle. The following three tables summarize estimated manufacturer-level average incremental costs for the final standards and the average of the passenger and light truck fleets:

Table IV.F.6. Average Incremental Costs ($/vehicle) under Final Passenger Car CAFE

Standards

Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016

BMW 3 4 24 184 585 Chrysler 734 1,043 1,129 1,270 1,358 Daimler - - 410 801 1,109 Ford 1,619 1,537 1,533 1,713 1,884 General Motors 448 896 1,127 1,302 1,323

Honda 33 98 205 273 456 Hyundai 559 591 768 744 838

Kia 110 144 177 235 277

Mazda 555 656 799 854 923 Mitsubishi 534 460 1,588 1,875 1,831

Nissan 119 323 707 723 832 Porsche 68 (52) (51) (50) (49) Subaru 292 324 988 1,385 1,361 Suzuki - 625 779 794 1,005

Tata 111 93 183 306 710 Toyota 31 29 41 121 126 Volkswagen 145 428 477 492 783 Average 455 552 670 774 880

Table IV.F.7. Average Incremental Costs ($/vehicle) under Final Light Truck CAFE

Standards

Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016

BMW 252 239 277 281 701 Chrysler 360 527 876 931 1,170

Daimler 60 51 51 52 51558 Ford 465 633 673 1,074 1,174

General Motors 292 513 749 807 986

Honda 233 217 370 457 806 Hyundai 693 630 1,148 1,136 1,113 Kia 400 467 582 780 1,137

Mazda 144 241 250 354 480 Mitsubishi - - 553 686 1,371 Nissan 398 489 970 1,026 1,362 Porsche - (1) (1) 469 469 Subaru 1,036 995 1,016 1,060 1,049 Suzuki - 1,797 1,744 1,689 1,732

Tata - - - - 503 Toyota 130 150 384 499 713 Volkswagen - - 514 458 441 Average 303 411 615 741 947

Table IV.F.8. Average Incremental Costs ($/vehicle) under Final CAFE Standards

Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016

BMW 106 94 110 213 618 Chrysler 499 743 989 1,084 1,257

Daimler 20 18 281 554 773 Ford 1,195 1,187 1,205 1,472 1,622 General Motors 371 705 946 1,064 1,165

Honda 116 144 266 343 585 Hyundai 577 599 847 805 879

Kia 176 221 263 334 426

Mazda 482 587 716 778 858 Mitsubishi 371 319 1,200 1,389 1,647

Nissan 211 376 792 813 984 Porsche 52 (39) (35) 130 124 Subaru 551 552 998 1,267 1,248 Suzuki - 823 954 946 1,123

Tata 61 56 101 182 629 Toyota 67 70 159 248 317 Volkswagen 117 333 486 486 723 Average 396 498 650 762 903

In summary, NHTSA has considered eight regulatory alternatives, including the final standards, examining technologies that could be applied in response to each alternative, as well as corresponding costs, effects, and benefits. The agency has concluded that alternatives less stringent than the final standards would not produce the fuel savings and CO 2 reductions necessary at this time to achieve either the overarching purpose of EPCA, i.e. , energy conservation, or an important part of the regulatory harmonization underpinning the National Program, and would forego these benefits even though there is adequate lead time to implement reasonable and feasible technology for the vehicles. Conversely, the agency has concluded that more stringent standards would involve levels of additional technology and cost that would be economically impracticable and, correspondingly, would provide inadequate lead time, considering the559 economic state of the automotive industry, would not be economically practicable. Therefore, having considered these eight re gulatory alternatives, and the statutorilyrelevant factors of technological feasibility, economic practicability , the effect of other motor vehicle standards of the Government on fuel economy, and the need of the United States to conserve energy, along with other rele vant factors such as the safety impacts of the final standards, 639 NHTSA concludes that the final standards represent a reasonable balancing of all of these concerns, and are the maximum feasible average fuel economy

levels that the manufacturers can achieve in MYs 2012-2016.

G. Impacts of the Proposed CAFE Standards

1. How Will These Standards Impr ove Fuel Economy and Reduce GHG

Emissions for MY 2012-2016 Vehicles?

As discussed above, the CAFE level required under an attribute-based standard depends on the mix of vehicles produced for sale in the U.S. Based on the market forecast that NHTSA and EPA have used to develop and analyze new CAFE and CO 2 emissions standards, NHTSA estimates that the new CAFE standards will require CAFE levels to increase by an average of 4.3 percent annually through MY 2016, reaching a combined average fuel economy requirement of 34.1 mpg in that model year:

Table IV.G.1-1. Estimated Average Required Fuel Economy (mpg)

under Final Standards

Model Year 2012 2013 2014 2015 2016 Passenger Cars 33.3 34.2 34.9 36.2 37.8 Light Trucks 25.4 26.0 26.6 27.5 28.8

Combined 29.7 30.5 31.3 32.6 34.1

NHTSA estimates that average achieved fuel economy levels will correspondingly increase through MY 2016, but that manufacturers will, on average,

639 See Section IV.G.7 below.560 undercomply 640 in some model years and overcomply 641 in others, reaching a combined average fuel economy of 33.7 mpg in MY 2016: 642

Table IV.G.1-2. Estimated Average Achieved Fuel Economy (mpg)

under Final Standards

Model Year 2012 2013 2014 2015 2016 Passenger Cars 32.8 34.4 35.3 36.3 37.2 Light Trucks 25.1 26.0 27.0 27.6 28.5

Combined 29.3 30.6 31.7 32.6 33.7

NHTSA estimates that these fuel economy increases will lead to fuel savings totaling 61 billion gallons dur ing the useful lives of vehi cles manufactured in MYs 2012-

2016:

Table IV.G.1-3. Fuel Saved (billion gallons)

under Final Standards

Model Year 2012 2013 2014 2015 2016 Total Passenger Cars 2.4 5.2 7.2 9.4 11.4 35.7 Light Trucks 1.8 3.7 5.3 6.5 8.1 25.4

Combined 4.2 8.9 12.5 16.0 19.5 61.0

The agency also estimates that th ese new CAFE standards will lead to corresponding reductions of CO 2 emissions totaling 655 million metric tons (mmt) during

the useful lives of vehicles sold in MYs 2012-2016:

Table IV.G.1-4. Carbon Dioxide Emissions (mmt) Avoided

under Final Standards

Model Year 2012 2013 2014 2015 2016 Total Passenger Cars 25 54 77 101 123 380 Light Trucks 19 40 57 71 88 275

Combined 44 94 134 172 210 655

640 In NHTSA’s analysis, “undercompliance” is mitigated either through use of FFV credits, use of existing or “banked” credits, or through fine payment. Becau se NHTSA cannot consider availability of credits in setting standards, the estimated achieved CAFE levels presented here do not account for their use. In contrast, because NHTSA is not prohibited from cons idering fine payment, the estimated achieved CAFE levels presented here include the assumption that BMW, Daimler ( i.e. , Mercedes), Porsche, and, Tata ( i.e.

, Jaguar and Rover) will only apply technology up to the point that it would be less expensive to pay civil penalties.

641 In NHTSA’s analysis, “overcompliance” occurs th rough multi-year planning: manufacturers apply some “extra” technology in early model years ( e.g. , MY 2014) in order to carry that technology forward and thereby facilitate compliance in later model years ( e.g. , MY 2016)

642 Consistent with EPCA, NHTSA has not accounted fo r manufacturers’ ability to earn CAFE credits for selling FFVs, carry credits forward and back between model years, and transfer credits between the passenger car and light truck fleets.561 2. How Will These Standards Impr ove Fleet-wide Fuel Economy and Reduce GHG Emissions Beyond MY 2016?

Under the assumption that CAFE standards at least as stringent as those being finalized today for MY 2016 would be established for subsequent model years, the effects of the final standards on fuel consumption an d GHG emissions will continue to increase for many years. This will occur because ove r time, a growing fraction of the U.S. lightduty vehicle fleet will be comprised of cars and light trucks that meet the MY 2016 standard. The impact of the new standards on fuel use and GHG emissions will continue to grow through approximately 2050, when virtually all cars and light trucks in service will have met standards as stringent as those established for MY 2016.

As Table IV.G.2-1 shows, NHTSA estimates that the fuel economy increases resulting from the final standards will lead to reductions in total fuel consumption by cars and light trucks of 10 billion gallons duri ng 2020, increasing to 32 billion gallons by 2050. Over the period from 2012, when the final standards would begin to take effect, through 2050, cumulative fuel savings would total 729 billion gallons, as Table IV.G.2-1

also indicates.

Table IV.G.2-1. Reduction in Fleet-Wide Fuel Use (billion gallons)

under Final Standards

Calendar Year 2020 2030 2040 2050 Total, 2012-

2050 Passenger Cars 6 13 17 21 469 Light Trucks 4 7 9 11 260

Combined 10 20 26 32 729

As a consequence of these reductions in fleet-wide fuel consumption, the agency

also estimates that the new CAFE standards for MYs 2012-2016 will lead to corresponding reductions in CO 2 emissions from the U.S. lig ht-duty vehicle fleet. Specifically, NHTSA estimates that total annual CO 2 emissions associated with passenger car and light truck use in the U.S. use will decline by 116 million metric tons (mmt) in 2020 as a consequence of the new standards, as Table IV.G.2-2 reports. The

table also shows that the this annual reduction is estimated to grow to nearly 400 million metric tons by the year 2050, and will total nearly 9 billion metric tons over the period from 2012, when the final standards would take effect, through 2050.

Table IV.G.2-2. Reduction in Fleet-Wide Carbon Dioxide Emissions (mmt) From Passenger Car and Light Truck Use under Final Standards

Calendar Year 2020 2030 2040 2050 Total, 2012-

2050562 Passenger Cars 69 153 205 255 5,607 Light Trucks 49 89 112 136 3,208

Combined 117 242 316 391 8,815

These reductions in fleet-wide CO 2 emissions, together with corresponding

reductions in other GHG emissions from fuel production and use, would lead to small but significant reductions in projected changes in the future global climate. These changes, based on analysis documented in the final Environmental Impact Statement (EIS) that informed the agency’s decisions regarding this rule, are summarized in Table IV.G.2-3

below.

Table IV.G.2-3. Effects of Reductions in Fleet-Wide Carbon Dioxide Emissions (mmt) on Projected Changes in Global Climate

Measure Units Date Projected Change in Measure

No

Action With Proposed

Standards Difference

Atmospheric CO 2 Concentration ppm 2100 783.0 780.3 -2.7

Increase in Global Mean Surface Temperature o C 2100 3.136 3.125 -0.011

Sea Level Rise cm 2100 38.00 37.91 -0.09 Global Mean Precipitation % change

from 1980- 1999 avg. 2090 4.59% 4.57% -0.02%

3. How Will These Final Standards Im pact Non-GHG emissions and Their

Associated Effects?

Under the assumption that CAFE standards at least as stringent as those proposed for MY 2016 would be established for subsequent model years, the effects of the new standards on air quality and its associated heal th effects will continue to be felt over the foreseeable future. This will occur because over time a growing fraction of the U.S. light-duty vehicle fleet will be comprised of cars and light trucks that meet the MY 2016 standard, and this growth will continue until approximately 2050.

Increases in the fuel economy of light-duty vehicles required by the new CAFE standards will cause a slight increase in th e number of miles they are driven, through the fuel economy “rebound effect.” In turn, this increase in vehicle use will lead to increases in emissions of criteria air pollutants and some airborne toxics, since these are products

of the number of miles vehicles are driven.563 At the same time, however, the projected reductions in fuel production and use reported in Table IV.G.2-1 above will lead to corresponding reductio ns in emissions of these pollutants that occur during fuel production and distribution (“upstream” emissions). For most of these pollutants, th e reduction in upstream emissions resulting from lower fuel production and distribution wi ll outweigh the increase in emissions from vehicle use, resulting in a net de cline in their total emissions. 643

Tables IV.G.3-1a and 3-1b report estimated reductions in emissions of selected criteria air pollutants (or their chemical precurs ors) and airborne toxics expected to result from the final standards during calendar year 2030. By that date, the majority of lightduty vehicles in use will have met the MY 2016 CAFE standards, so these reductions provide a useful index of the long-term impact of the final standards on air pollution and its consequences for human health.

Table IV.G.3-1a. Projected Changes in Emissions of Criteria Air Pollutants from Car and Light Truck Use (calendar year 2030; tons)

Vehicle

Class Source of

Emissions Criteria Air Pollutant

Nitrogen

Oxides (NOx) Particulate

Matter (PM2.5) Sulfur

Oxides (SOx) Volatile Organic Compounds (VOC)

Passenger

Cars Vehicle use 2,718 465 -2,442 2,523

Fuel production

and

distribution -20,970 -2,831 -12,698 -75,342

All sources -18,252 -2,366 -15,140 -72,820

Light

Trucks Vehicle use 3,544 176 -1,420 1,586

Fuel production

and

distribution -12,252 -1,655 -7,424 -43,763

All sources -8,707 -1,479 -8,845 -42,177

Total Vehicle use 6,263 642 -3,862 4,108

Fuel production

and

distribution -33,222 -4,487 -20,122 -119,106

643 As stated elsewhere, while the ag ency’s analysis assumes that all changes in upstream emissions result from a decrease in petroleum production and transport, the analysis of non-GHG emissions in future calendar years also assumes that retail gasoline compos ition is unaffected by this rule; as a result, the impacts of this rule on downstream non-GHG emissions (more specifically, on air toxics) may be

underestimated. See also Section III.G above for more information.564 All sources -26,959 -3,845 -23,984 -114,997

Table IV.G.3-1b. Projected Changes in Em issions of Airborne Toxics from Car and Light Truck Use (calendar year 2030; tons)

Vehicle Class Source of

Emissions Toxic Air Pollutant

Benzene 1,3-

Butadiene Formaldehyde

Passenger Cars Vehicle use 72 18 59 Fuel production

and distribution -161 -2 -58

All sources -89 16 1

Light Trucks Vehicle use 38 10 65 Fuel production

and distribution -94 -1 -34

All sources -55 9 32

Total Vehicle use 111 28 124 Fuel production

and distribution -254 -3 -91

All sources -144 25 33
Note: positive values indicate increases in emissions; negative values indicate reductions.

In turn, the reductions in emissions reported in Tables IV.G.3-1a and 3-1b are projected to result in significant declines in the health effects that result from population exposure to these pollutants. Table IV.G.3-2 reports the estimated reductions in selected

PM 2.5 -related human health impacts that are expected to result from reduced population exposure to unhealthful atmospheric concentrations of PM 2.5 . The estimates reported in Table IV.G.3-2, based on analysis documented in the final Environmental Impact Statement (EIS) that informed the agency’s decisions regarding this rule, are derived

from PM 2.5 -related dollar-per-ton estimates that include only quantifiable reductions in health impacts likely to result from reduced population exposure to particular matter (PM). They do not include all health impacts related to reduced exposure to PM, nor do they include any reductions in health impacts resulting from lower population exposure to other criteria air pollutants (particularly oz one) and air toxics. However, emissions changes and dollar-per-ton estimates alone are not necessarily a good indication of local or regional air quality and health impacts, as there may be localized impacts associated with this rulemaking, because the atmo spheric chemistry related to ambient

concentrations of PM 2.5 , ozone, and air toxics is very complex. Full-scale photochemical modeling provides the necessary spatial and temporal detail to more completely and accurately estimate the changes in ambient le vels of these pollutants and their associated health and welfare impacts. Although EPA conducted such modeling for purposes of the final rule, it was not available in time to be included in NHTSA’s FEIS. See Section III.G above for EPA’s description of the full-scale air quality modeling it conducted for the 2030 calendar year in an effort to capture this variability.565 Table IV.G.3-2. Projected Reductions in He alth Impacts of Exposure to Criteria Air Pollutants from Final Standards (calendar year 2030)

Health Impact Measure Projected

Reduction

(2030) Mortality (ages 30 and older) premature deaths per year 243 to 623

Chronic Bronchitis cases per year 160 Emergency Room Visits for Asthma number per year 222

Work Loss workdays per year 28,705566 Table IV.G.4-1. Addition of Technologies to Passenger Car Fleet

under Final Standards

Technology MY 2012 MY 2013 MY 2014 MY 2015 MY 2016

Low Friction Lubricants 15% 17% 18% 21% 21%
Engine Friction Reduction 15% 36% 41% 43% 52%
VVT - Coupled Cam Phasing (CCP) on SOHC 2% 3% 3% 5% 7%
Discrete Variable Valve Lift (DVVL) on SOHC 0% 1% 2% 4% 4%
Cylinder Deactivation on SOHC 0% 1% 1% 0% 0%
VVT - Intake Cam Phasing (ICP) 0% 0% 0% 0% 0%
VVT - Dual Cam Phasing (DCP) 11% 15% 16% 17% 25%
Discrete Variable Valve Lift (DVVL) on DOHC 13% 22% 26% 27% 33%
Continuously Variable Valve Lift (CVVL) 0% 0% 0% 0% 0%
Cylinder Deactivation on DOHC 0% 0% 0% 1% 1%
Cylinder Deactivation on OHV 0% 1% 1% 1% 1%
VVT - Coupled Cam Phasing (CCP) on OHV 0% 1% 2% 2% 2%
Discrete Variable Valve Lift (DVVL) on OHV 0% 2% 2% 3% 3%

Conversion to DOHC with DCP 0% 0% 0% 0% 0%
Stoichiometric Gasoline Direct Injection (GDI) 13% 22% 25% 28% 35%

Combustion Restart 0% 0% 1% 4% 10%
Turbocharging and Downsizing 8% 16% 17% 20% 23%
Exhaust Gas Recirculation (EGR) Boost 0% 9% 11% 15% 18%
Conversion to Diesel following TRBDS 2% 3% 3% 3% 3%
Conversion to Diesel following CBRST 0% 0% 0% 0% 0%
6-Speed Manual/Improved Internals 1% 1% 1% 1% 1%
Improved Auto. Trans. Controls/Externals 0% 3% 5% 3% -2%
Continuously Variable Transmission 0% 0% 0% 0% 0%
6/7/8-Speed Auto. Trans with Improved Internals 0% 0% 1% 1% 2%

Dual Clutch or Automated Manual Transmission 12% 26% 34% 46% 54%
Electric Power Steering 9% 28% 33% 33% 43%
Improved Accessories 18% 25% 28% 31% 43%
12V Micro-Hybrid 0% 0% 0% 0% 0%
Belt mounted Integrated Starter Generator 5% 11% 19% 24% 25%
Crank mounted Integrated Starter Generator 3% 3% 3% 3% 3%
Power Split Hybrid 2% 2% 2% 2% 2%
2-Mode Hybrid 0% 0% 0% 0% 0%
Plug-in Hybrid 0% 0% 0% 0% 0%
Material Substitution (1.5%) 21% 28% 34% 40% 48%
Material Substitution (5% to 10%) 0% 0% 17% 31% 40%
Material Substitution (NA) 0% 0% 0% 0% 0%
Low Rolling Resistance Tires 4% 20% 29% 36% 37%
Low Drag Brakes 2% 3% 4% 5% 7%
Secondary Axle Disconnect - Unibody 0% 0% 0% 0% 0%
Secondary Axle Disconnect - Ladder Frame 1% 2% 2% 2% 2%
Aero Drag Reduction 8% 22% 30% 34% 43%567 Table IV.G.4-2. Addition of Technologies to Light Truck Fleet

under Final Standards

Technology MY 2012 MY 2013 MY 2014 MY 2015 MY 2016

Low Friction Lubricants 11% 12% 13% 15% 23%
Engine Friction Reduction 0% 15% 17% 23% 38%
VVT - Coupled Cam Phasing (CCP) on SOHC 2% 2% 2% 2% 2%
Discrete Variable Valve Lift (DVVL) on SOHC 1% 1% 2% 2% 3%
Cylinder Deactivation on SOHC 0% -1% -1% -1% -1%
VVT - Intake Cam Phasing (ICP) 0% 0% 0% 0% 0%
VVT - Dual Cam Phasing (DCP) 2% 3% 7% 7% 12%
Discrete Variable Valve Lift (DVVL) on DOHC 6% 9% 14% 14% 19%
Continuously Variable Valve Lift (CVVL) 0% 0% 0% 0% 0%
Cylinder Deactivation on DOHC -1% 0% -1% 1% 1%
Cylinder Deactivation on OHV 0% 0% 0% 0% 6%
VVT - Coupled Cam Phasing (CCP) on OHV 0% 0% 0% 0% 13%
Discrete Variable Valve Lift (DVVL) on OHV 0% 13% 15% 20% 20%

Conversion to DOHC with DCP 0% 0% 0% 0% 0%
Stoichiometric Gasoline Direct Injection (GDI) 12% 17% 21% 23% 30%

Combustion Restart 0% 0% 3% 8% 14%
Turbocharging and Downsizing 4% 6% 10% 10% 12%
Exhaust Gas Recirculation (EGR) Boost 0% 2% 5% 5% 7%
Conversion to Diesel following TRBDS 3% 4% 4% 4% 4%
Conversion to Diesel following CBRST 0% 0% 0% 0% 0%
6-Speed Manual/Improved Internals 0% 0% 0% 0% 0%
Improved Auto. Trans. Controls/Externals 0% -11% -18% -30% -34%
Continuously Variable Transmission 0% 0% 0% 0% 0%
6/7/8-Speed Auto. Trans with Improved Internals -2% -2% 4% 5% 5%

Dual Clutch or Automated Manual Transmission 10% 32% 41% 53% 60%
Electric Power Steering 7% 14% 17% 23% 25%
Improved Accessories 4% 5% 7% 13% 21%
12V Micro-Hybrid 0% 0% 0% 0% 0%
Belt mounted Integrated Starter Generator 7% 11% 22% 25% 25%
Crank mounted Integrated Starter Generator 0% 0% 0% 0% 0%
Power Split Hybrid 1% 1% 1% 1% 1%
2-Mode Hybrid 0% 0% 0% 0% 0%
Plug-in Hybrid 0% 0% 0% 0% 0%
Material Substitution (1.5%) 4% 3% 22% 33% 48%
Material Substitution (5% to 10%) 0% 0% 19% 34% 53%
Material Substitution (NA) 0% 0% 0% 0% 0%
Low Rolling Resistance Tires 11% 12% 15% 15% 16%
Low Drag Brakes 10% 13% 16% 18% 42%
Secondary Axle Disconnect - Unibody 0% 0% 0% 0% 0%
Secondary Axle Disconnect - Ladder Frame 10% 9% 10% 13% 23%
Aero Drag Reduction 13% 15% 20% 22% 25%568 Table IV.G.4-3. Addition of Technologies to Overall Fleet

under Final Standards

Technology MY 2012 MY 2013 MY 2014 MY 2015 MY 2016

Low Friction Lubricants 14% 15% 16% 19% 21%
Engine Friction Reduction 9% 28% 32% 36% 47%
VVT - Coupled Cam Phasing (CCP) on SOHC 2% 3% 3% 4% 5%
Discrete Variable Valve Lift (DVVL) on SOHC 0% 1% 2% 3% 3%
Cylinder Deactivation on SOHC 0% 0% 0% 0% 0%
VVT - Intake Cam Phasing (ICP) 0% 0% 0% 0% 0%
VVT - Dual Cam Phasing (DCP) 7% 11% 12% 13% 20%
Discrete Variable Valve Lift (DVVL) on DOHC 10% 17% 21% 22% 28%
Continuously Variable Valve Lift (CVVL) 0% 0% 0% 0% 0%
Cylinder Deactivation on DOHC 0% 0% 0% 1% 1%
Cylinder Deactivation on OHV 0% 0% 0% 0% 3%
VVT - Coupled Cam Phasing (CCP) on OHV 0% 0% 1% 1% 5%
Discrete Variable Valve Lift (DVVL) on OHV 0% 6% 7% 9% 9%

Conversion to DOHC with DCP 0% 0% 0% 0% 0%
Stoichiometric Gasoline Direct Injection (GDI) 12% 20% 24% 27% 33%

Combustion Restart 0% 0% 2% 6% 11%
Turbocharging and Downsizing 6% 12% 14% 17% 19%
Exhaust Gas Recirculation (EGR) Boost 0% 6% 9% 11% 15%
Conversion to Diesel following TRBDS 3% 3% 3% 3% 3%
Conversion to Diesel following CBRST 0% 0% 0% 0% 0%
6-Speed Manual/Improved Internals 0% 1% 1% 1% 1%
Improved Auto. Trans. Controls/Externals 0% -2% -3% -9% -13%
Continuously Variable Transmission 0% 0% 0% 0% 0%
6/7/8-Speed Auto. Trans with Improved Internals -1% 0% 2% 3% 3%

Dual Clutch or Automated Manual Transmission 11% 28% 37% 49% 56%
Electric Power Steering 8% 23% 27% 29% 37%
Improved Accessories 12% 18% 20% 24% 35%
12V Micro-Hybrid 0% 0% 0% 0% 0%
Belt mounted Integrated Starter Generator 5% 11% 20% 24% 25%
Crank mounted Integrated Starter Generator 2% 2% 2% 2% 2%
Power Split Hybrid 2% 2% 2% 1% 1%
2-Mode Hybrid 0% 0% 0% 0% 0%
Plug-in Hybrid 0% 0% 0% 0% 0%
Material Substitution (1.5%) 14% 18% 30% 38% 48%
Material Substitution (5% to 10%) 0% 0% 18% 32% 44%
Material Substitution (NA) 0% 0% 0% 0% 0%
Low Rolling Resistance Tires 7% 17% 24% 28% 30%
Low Drag Brakes 5% 7% 9% 9% 19%
Secondary Axle Disconnect - Unibody 0% 0% 0% 0% 0%
Secondary Axle Disconnect - Ladder Frame 4% 4% 5% 6% 9%
Aero Drag Reduction 10% 19% 26% 30% 36%569 In order to pay for this additional tec hnology (and, for some manufacturers, civil penalties), NHTSA estimates that the cost of an average passenger car and light truck will, relative to levels resu lting from compliance with baseline (MY 2011) standards, increase by $505-$907 and $322-$961, respectively, during MYs 2011-2016. The following tables summarize the agency’s estimates of average cost increases for each manufacturer’s passenger car, light truck, and overall fleets (with corresponding averages for the industry):

Table IV.G.4-4. Average Passenger Car Incremental Cost Increases ($)

under Final Standards

Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016

BMW 157 196 255 443 855 Chrysler 794 1,043 1,129 1,270 1,358 Daimler 160 198 564 944 1,252 Ford 1,641 1,537 1,533 1,713 1,884 General Motors 552 896 1,127 1,302 1,323

Honda 33 98 205 273 456 Hyundai 559 591 768 744 838

Kia 110 144 177 235 277

Mazda 632 656 799 854 923 Mitsubishi 644 620 1,588 1,875 1,831

Nissan 119 323 707 723 832

Porsche 316 251 307 390 496

Subaru 413 472 988 1,385 1,361 Suzuki 242 625 779 794 1,005

Tata 243 258 370 532 924 Toyota 31 29 41 121 126 Volkswagen 293 505 587 668 964 Total/Average 505 573 690 799 907570 Table IV.G.4-5. Average Light Truck Incremental Cost Increases ($)

under Final Standards

Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016

BMW 252 272 338 402 827 Chrysler 409 527 876 931 1,170

Daimler 98 123 155 189 260 Ford 465 633 673 1,074 1,174

General Motors 336 513 749 807 986

Honda 233 217 370 457 806 Hyundai 693 630 1,148 1,136 1,113 Kia 406 467 582 780 1,137

Mazda 144 241 250 354 480 Mitsubishi 39 77 553 686 1,371 Nissan 398 489 970 1,026 1,362

Porsche 44 76 109 568 640 Subaru 1,036 995 1,016 1,060 1,049 Suzuki 66 1,797 1,744 1,689 1,732

Tata 66 110 137 198 690 Toyota 130 150 384 499 713 Volkswagen 44 77 552 557 606 Total/Average 322 416 621 752 961

Table IV.G.4-6. Average Incremental Cost Increases ($) By Manufacturer under Final Standards

Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016

BMW 196 225 283 430 847 Chrysler 553 743 989 1,084 1,257

Daimler 139 171 417 695 937 Ford 1,209 1,187 1,205 1,472 1,622 General Motors 446 705 946 1,064 1,165

Honda 116 144 266 343 585 Hyundai 577 599 847 805 879

Kia 177 221 263 334 426

Mazda 545 587 716 778 858 Mitsubishi 459 453 1,200 1,389 1,647

Nissan 211 376 792 813 984

Porsche 250 207 243 452 544 Subaru 630 650 998 1,267 1,248 Suzuki 231 823 954 946 1,123

Tata 164 199 265 396 832 Toyota 67 70 159 248 317 Volkswagen 245 410 579 648 901571 Total/Average 434 513 665 782 926

Based on the agencies’ estimates of manufacturers’ future sales volumes, these
cost increases will lead to a total of $51. 7 billion in incremental outlays during MYs 2012-2016 for additional technology attributable to the final standards:

Table IV.G.4-7. Incremental Technology Outlays ($b)

under Final Standards

2012 2013 2014 2015 2016 Total Passenger Cars 4.1 5.4 6.9 8.2 9.5 34.2 Light Trucks 1.8 2.5 3.7 4.3 5.4 17.6

Combined 5.9 7.9 10.5 12.5 14.9 51.7

NHTSA notes that these estimates of the economic costs for meeting higher CAFE standards omit certain potentially important categories of costs, and may also reflect underestimation (or possibly overestimati on) of some costs that are included. For example, although the agency’s analysis is intended to hold vehicle performance, capacity, and utility constant in estimating the costs of applying fuel-saving technologies to vehicles, the analysis imputes no cost to any actual reductions in vehicle performance, capacity, and utility that may result from ma nufacturers’ efforts to comply with the final CAFE standards. Although these costs are difficult to estimate accurately, they nonetheless represent a notable category of omitted costs if they have not been adequately accounted for in the cost estimates. Similarly, the agency’s estimates of costs for meeting higher CAFE standards does not estimate the economic value of potential increases in motor vehicle fatalities and injuri es that could result from reductions in the size or weight of vehicles. While NHTSA repo rts a range of estimates of these potential safety impacts below and in the FRIA, no estim ate of their economic value is included in the agency’s estimates of the net benefi ts resulting from the final standards.

Finally, while NHTSA is confident that th e cost estimates are the best available and appropriate for purposes of this final rule, it is possible that the agency may have underestimated or overestimated manufacturers’ direct costs for applying some fuel economy technologies, or the increases in manufacturer’s indirect costs associated with higher vehicle manufacturing costs. In either case, the technology outlays reported here will not correctly represent the costs of me eting higher CAFE standards. Similarly, NHTSA’s estimates of increased costs of congest ion, accidents, and noise associated with added vehicle use are drawn from a 1997 study, and the correct magnitude of these values may have changed since they were developed. If this is the case, the costs of increased vehicle use associated with the fuel economy rebound effect will differ from the agency’s estimates in this analysis. Thus, like th e agency’s estimates of economic benefits, estimates of total compliance costs reported here may underestimate or overestimate the

true economic costs of the final standards.572 However, offsetting these costs, the achi eved increases in fuel economy will also produce significant benefits to society. NH TSA estimates that, in present value terms (at a discount rate of 3 percent), these benefits will total $182.5 billion over the lifetimes of light vehicles sold during MYs 2012-2016:

Table IV.G.4-8. Present Value of Benefits ($billion)

under Final Standards 644

2012 2013 2014 2015 2016 Total Passenger Cars 6.8 15.2 21.6 28.7 35.2 107.5 Light Trucks 5.1 10.7 15.5 19.4 24.3 75.0

Combined 11.9 25.8 37.1 48 59.5 182.5

NHTSA attributes most of these benef its to reductions in fuel consumption, valuing fuel at future pretax prices in EIA’ s reference case forecast from AEO 2009. The total benefits shown in the above table also include other benefits and dis-benefits, examples of which include the social values of reductions in CO 2 and criteria pollutant emissions, the value of additional travel (induced by the rebound effect), and the social cost of additional congestion, accidents, and no ise attributable to that additional travel. The FRIA accompanying today’s final rule pr esents a detailed analysis of the rule’s specific benefits.

For both the passenger car and light truck fleets, NHTSA estimates that the benefits of today’s final standards will ex ceed the corresponding costs in every model year. Over the lifetimes of the affected (MY 2012-2016) vehicles, the agency estimates

that the benefits of the final standards will exceed the costs of the final standards by
$130.7 billion:

Table IV.G.4-9. Present Value of Net Benefits ($billion)

under Final Standards

2012 2013 2014 2015 2016 Total Passenger Cars 2.7 9.7 14.8 20.5 25.7 73.3 Light Trucks 3.4 8.2 11.8 15.0 18.9 57.4

Combined 6.0 17.9 26.6 35.5 44.6 130.7

NHTSA’s estimates of economic benefits from establishing higher CAFE are also subject to considerable uncertainty. Most im portant, the agency’s estimates of the fuel savings likely to result from adopting higher CAFE standards depend critically on the accuracy of the estimated fuel economy leve ls that will be achieved under both the baseline scenario, which assumes that manufac turers will continue to comply with the MY 2011 CAFE standards, and under alternative increases in the standards that apply to MY 2012-16 passenger cars and light trucks.

644 As for all tables in Section IV unless otherwise indicated, benefits are calculated using Reference Case input assumptions, with the social cost of carbon value discounted at 3 percent and not at 7 percent.573 Specifically, if the agency has underestimated the fuel economy levels that

manufacturers will achieve under the baseline scenario, its estimates of fuel savings and the resulting economic benefits attributable to the rule will be too large. As another example, the agency’s estimate of benefits from reducing the threat of economic damages from disruptions in the supply of imported petroleum to the U.S. applies to calendar year 2015. If the magnitude of this estimate would be expected to grow after 2015 in response to increases in U.S. petroleum imports, growth in the level of U.S. economic activity, or increases in the likelihood of disruptions in the supply of imported petroleum, the agency may have underestimated the benefits from the reduction in petroleum imports expected to result from adopting higher CAFE standards.

However, it is also possible that NHTS A’s estimates of economic benefits from establishing higher CAFE standards underestim ate the true economic benefits of the fuel savings those standards would produce. This is partly because the agency has been unable to develop monetized estimates of the economic value of certain potentially significant categories of benefits from reducing fuel consumption. Specifically, the agency’s estimate of the economic value of reduced damages to human health resulting from lower exposure to criteria air pollutants includes only the effects of reducing population exposure to PM 2.5 emissions. Although this is likely to be the most significant component of health benefits from reduced em issions of criteria air pollutants, it excludes the value of reduced damages to human health and other impacts resulting from lower emissions and reduced population exposure to other criteria air pollutants, including ozone and nitrous oxide (N 2 O), as well as airborne toxics . NHTSA’s analysis excludes these benefits because no reliable dollar-per-ton estimates of the health impacts of criteria pollutants other than PM 2.5 or of the health impacts of airborne toxics were available for NHTSA to use in developing estimates of these benefits.

In addition, the agency’s estimate of the value of reduced climate-related economic damages from lower emissions of GHGs excludes many sources of potential benefits from reducing the pace and extent of global climate change. 645 These include reductions in the risk of potential large-scale changes in the global climate, lower costs for necessary adaptations to changes in cl imate, reduced water supply within specific global sub-regions, reductions in damages caused by severe storms, lower population exposure to harmful air pollution levels, redu ctions in ecosystem impacts and risks to natural resources of global significance, and reduced threats from widespread social or political unrest. Including monetized estimate s of benefits from reducing the extent of climate change and these associated impacts would increase the agency’s estimates of benefits from adopting higher CAFE standards.

The benefits, costs, and net benefits shown above are all based on a discount rate of 3 percent. As documented in the accompanying FRIA, the agency examined the sensitivity of results to changes in many ec onomic inputs. With an alternative discount

645 [ref interagency SCC group document]574 rate of 7 percent, incremental technology outlays were virtually identical to those estimated at a 3 percent discount rate: 646

Table IV.G.4-10. Incremental Technology Outlays ($b) under Final Standards (using 7 percent Discount Rate)

2012 2013 2014 2015 2016 Total Passenger Cars 4.1 5.4 6.9 8.2 9.5 34.2 Light Trucks 1.8 2.5 3.7 4.3 5.4 17.6

Combined 5.9 7.9 10.5 12.5 14.9 51.7

However, the present value of the benefits accrued over the lifetime of the vehicles covered by the final standards is about 20 percent smaller when discounted at a 7 percent annual rate than when discounted at a 3 percent annual rate: 647

Table IV.G.4-11. Present Value of Benefits ($billion) under Final Standards (using 7 percent Discount Rate)

2012 2013 2014 2015 2016 Total Passenger Cars 5.5 12.3 17.5 23.2 28.6 87.0 Light Trucks 4.0 8.4 12.2 15.3 19.2 59.2

Combined 9.5 20.7 29.7 38.5 47.8 146.2

As a result, net benefits are 28 percent lo wer when total benefits are discounted at a 7 percent annual rate:

Table IV.G.4-12. Present Valu e of Net Benefits ($billion)

under Final Standards (using 7 percent Discount Rate)

2012 2013 2014 2015 2016 Total Passenger Cars 1.3 6.8 10.6 15.0 19.0 52.9 Light Trucks 2.3 5.9 8.6 11.0 13.9 41.6

Combined 3.6 12.8 19.2 26.0 32.9 94.5

The following tables also present itemi zed costs and benefits for the combined fleet for each year of the final standards and for all the years combined, at 3 and 7 percent discount rates, respectively. Numbers in parentheses represent negative values.

646 Because some economic inputs change the effective cost of some technologies, and NHTSA assumes some manufacturers will be willing to pay civil penalties based on economic considerations, this outcome

is not assured.

647 For these tables referring to a 7 percent discount rate, SCC was discounted at 3 percent to maintain internal consistency in the SCC calculations while all other benefits were discounted at 7 percent. Specifically, the same discount rate used to discount the value of damages from future CO 2 emissions is used to calculate the net present value of the SCC.575 Table IV.G.4-13. Itemized Cost and Benefi t Estimates for the Combined Vehicle Fleet, 3% Discount Rate ($m)

MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Total

Costs Technology

Costs 5,903 7,890 10,512 12,539 14,904 51,748

Benefits Savings in

Lifetime Fuel Expenditures 9,265 20,178 29,083 37,700 46,823 143,048

Consumer Surplus from

Additional Driving 696 1,504 2,150 2,754 3,387 10,491

Value of Savings in Refueling

Time 706 1,383 1,939 2,464 2,950 9,443

Reduction in

Petroleum

Market

Externalities 545 1,154 1,630 2,080 2,543 7,952

Reduction in

Climate-Related Damages from

Lower CO2

Emissions 648 921 2,025 2,940 3,840 4,804 14,528

Dis-Benefits from Increased Driving: Congestion Costs (447) (902) (1,282) (1,633) (2,000) (6,264)
Noise Costs (9) (18) (25) (32) (39) (122)
Crash Costs (217) (430) (614) (778) (950) (2,989)

Reduction in Health Damage Costs from Lowe r Emissions of Criteria Air Pollutants:

CO 0 0 0 0 0 0

VOC 42 76 102 125 149 494

NOX 70 104 126 146 166 612

PM 205 434 612 776 946 2,974

648 Using the central value of $21 for the SCC. We note that the net present value of reduced CO 2 emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5 percent, 3 per cent, and 2.5 percent) is used to calculate the net present value of the SCC for internal consistency. A dditionally, we note that the SCC increases over time.

See the SCC TSD [still TBD] for more information.576 SOX 158 332 469 598 731 2,288

Total Benefits 11,936 25,840 37,132 48,040 59,509 182,457

Net Benefits 6,033 17,950 26,619 35,501 44,606 130,709577 Table IV.G.4-14. Itemized Cost and Benefi t Estimates for the Combined Vehicle Fleet, 7% Discount Rate ($m)

MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Total

Costs Technology Costs 6,217 8,485 11,327 13,455 15,866 55,349

Benefits Savings in Lifetime Fuel Expenditures 6,978 15,658 22,930 29,870 37,237 112,673

Consumer Surplus

from Additional Driving 531 1,177 1,708 2,199 2,713 8,328

Value of Savings in Refueling Time 563 1,131 1,600 2,032 2,433 7,759

Reduction in

Petroleum Market

Externalities 423 917 1,314 1,682 2,061 6,398

Reduction in ClimateRelated Damages from

Lower CO2

Emissions 649 864 1,956 2,903 3,826 4,816 14,366

Dis-Benefits from Increased Driving: Congestion Costs (353) (731) (1,046) (1,333) (1,634) (5,097)
Noise Costs (7) (14) (20) (26) (32) (99)
Crash Costs (170) (345) (498) (632) (773) (2,418)

Reduction in Health Damage Costs from Lowe r Emissions of Criteria Air Pollutants:

CO 0 0 0 0 0 0

VOC 40 74 98 117 137 467

NOX 80 124 149 165 181 699

PM 168 341 495 627 761 2,393

SOX 124 266 380 486 594 1,850

Total Benefits 9,240 20,556 30,015 39,013 48,496 147,319

Net Benefits 3,024 12,071 18,688 25,558 32,629 91,970

The above benefit and cost estimates did not reflect the availability and use of flexibility mechanisms, such as compliance credits and credit trading, because EPCA prohibits NHTSA from consider ing the effects of those me chanisms in setting CAFE

649 See supra note [directly above]578 standards. However, the agency noted that, in reality, manufacturers were likely to rely to some extent on flexibility mechanisms provided by EPCA and would thereby reduce the cost of complying with the fina l standards to a meaningful extent.

As discussed in the FRIA, NHTSA has performed an analysis to estimate the costs and benefits if EPCA’s provisions re garding FFVs are accounted for. The agency considered also attempting to account fo r other EPCA flexibility mechanisms, in particular credit transfers between the passenger and nonpassenger fleets, but has concluded that, at least within a context in which each model year is represented explicitly, technologies carry forward between model years, and multi-year planning effects are represented, there is no basis to estimate reliably how manufacturers might use these mechanisms. Accounting for the FFV provisions indicates that achieved fuel economies would be 0.5-1.3 mpg lower than when these provisions are not considered (for comparison see Table IV.G.1-2 above):

Table IV.G.4-15. Average Achieved Fuel Economy (mpg) under Final Standards (with FFV Credits)

2012 2013 2014 2015 2016 Passenger Cars 32.3 33.5 34.2 35.0 36.2 Light Trucks 24.5 25.1 25.9 26.7 27.5

Combined 28.7 29.7 30.6 31.5 32.7

As a result, NHTSA estimates that, when FFV credits are taken into account, fuel savings will total 58.6 billion gallons—about 3. 9 percent less than the 61.0 billion gallons

estimated when these credits are not considered:

Table IV.G.4-16. Fuel Saved (billion gallons)

under Final Standards (with FFV Credits)

2012 2013 2014 2015 2016 Total Passenger Cars 2.7 4.7 6.4 8.4 11.0 33.1 Light Trucks 2.3 3.6 5.0 6.6 8.1 25.5

Combined 4.9 8.2 11.3 15.0 19.1 58.6

The agency similarly estimates CO 2 emissions reductions will total 636 million metric tons (mmt), about 2.9 percent less than the 655 mmt estimated when these credits

are not considered: 650

Table IV.G.4-17. Avoided Carbon Dioxide Emissions (mmt) under Final Standards (with FFV Credits)

2012 2013 2014 2015 2016 Total Passenger Cars 28 50 69 91 119 357

650 Differences in the application of diesel engines lead to differences in th e incremental percentage changes in fuel consumption and carbon dioxide emissions.579 Light Trucks 25 39 54 72 88 279

Combined 53 89 123 163 208 636

This analysis further indicates signific ant reductions in outlays for additional technology when FFV provisions are taken into account—about $37.5 billion, or about 27 percent less than the $51.7b estimated when excluding these provisions:

Table IV.G.4-18. Incremental Technology Outlays ($b) under Final Standards (with FFV Credits)

2012 2013 2014 2015 2016 Total Passenger Cars 2.6 3.6 4.8 6.1 7.5 24.6 Light Trucks 1.1 1.5 2.5 3.4 4.4 12.9

Combined 3.7 5.1 7.3 9.5 11.9 37.5

Because NHTSA’s analysis indicated that FFV provisions will not significantly reduce fuel savings, the agency’s estimate of discounted benefits when including these provisions, $175.6b, is only about 3.8 percent lower than the $182.5b shown above for the analysis that excluded these provisions:

Table IV.G.4-19. Present Value of Benefits ($billion) under Final Standards (with FFV Credits)

2012 2013 2014 2015 2016 Total Passenger Cars 7.6 13.7 19.1 25.6 34.0 100.0 Light Trucks 6.4 10.4 14.6 19.8 24.4 75.6

Combined 14.0 24.1 33.7 45.4 58.4 175.6

However, although the agency estimates lower discounted benefits when FFV provisions are taken into acc ount, the agency estimates that these provisions slightly increase net benefits (by about 5.7 percent, from $130.7b to $138.2b) because costs decrease by more than discounted benefits:

Table IV.G.4-20. Present Valu e of Net Benefits ($billion) under Final Standards (with FFV Credits)

2012 2013 2014 2015 2016 Total Passenger Cars 5.1 10.1 14.3 19.5 26.5 75.4 Light Trucks 5.3 8.8 12.1 16.4 20.0 62.7

Combined 10.4 19.0 26.5 35.9 46.5 138.2

The agency has performed several sensitivity analyses to examine the effects of varying several important assumptions. We ex amine the sensitivity of fuel savings, total economic benefits, and technology costs with respect to the following five economic

parameters:580 1) The price of gasoline: The Reference Case uses the AEO 2010 reference case estimate for the price of gasoline. In th is sensitivity analysis we examine the effect of instead using the AEO 2009 high or low forecast.

2) The discount rate: The Reference Case uses a discount rate of 3 percent to

discount future benefits. In the sens itivity analysis, we equally examine the effect of instead using a 7 percent discount rate.

3) The rebound effect: The Reference Case uses a rebound effect of 10 percent to project increased miles traveled as the cost per mile driven decreases. In the sensitivity analysis, we examine the effect of instead using a 5 percent or 15 percent rebound effect.

4) The values of CO 2 benefits: The Reference Case uses $21 per ton (in 2010 in 2007$, rising over time to $45 in 2030) to quantify the benefits of reducing CO 2 emissions and $0.17 per gallon to quantify the energy security benefits from reducing fuel consumption. In the sensiti vity analysis, we examine the effect of using values of $5, and $65 per ton instead of the reference value of $21 per ton

to value CO 2 benefits. These values can be tr anslated into cents per gallon by multiplying by 0.0089, 651 giving the following values:

($5 per ton CO 2 ) x 0.0089 = $0.045 per gallon ($21 per ton CO 2 ) x 0.0089 = $0.187per gallon ($35 per ton CO 2 ) x 0.0089 = $0.312 per gallon ($65 per ton CO 2 ) x 0.0089 = $0.596 per gallon

5) Military security: The Reference Case uses $0 per gallon to quantify the military security benefits of reducing fu el consumption. In the sensitivity analysis, we examine the impact of instead using a value of 5 cents per gallon.

Varying each of the above 5 parameters in isolation results in 8 additional economic scenarios, in addition to the Referenc e case. These are listed in Table IV.G.4- 21 below, together with two additional scenarios that use combinations of these parameters that together produce the lowest and highest benefits.

651 The molecular weight of Carbon (C) is 12, the molecu lar weight of Oxygen (O) is 16, thus the molecular weight of CO 2 is 44. One ton of C = 44/12 tons CO 2 = 3.67 tons CO 2 . 1 gallon of gas weighs 2,819 grams, of that 2,433 grams are carbon. $1.00 CO 2 = $3.67 C and $3.67/ton * ton/1000kg * kg/1000g * 2433g/gallon = (3.67 * 2433) / 1000 * 1000 = $0.0089/gallon.581 Table IV.G.4-21. Sensitivity Analyses Evaluated in NHTSA’s FRIA

Name Fuel Price Discount

Rate Rebound

Effect SCC Military Security

Reference AEO 20210

Reference Case 3% 10% $21 0¢/gal

High Fuel Price AEO 2009 High

Price Case 3% 10% $21 0¢/gal

Low Fuel Price AEO 2009 Low

Price Case 3% 10% $21 0¢/gal

7% Discount Rate AEO 20210

Reference Case 7% 10% $21 0¢/gal

5% Rebound Effect AEO 20210

Reference Case 3% 5% $21 0¢/gal

15% Rebound

Effect AEO 20210

Reference Case 3% 15% $21 0¢/gal

$65/ton CO2 Value AEO 20210

Reference Case 3% 10% $65 0¢/gal

$35/ton CO2 Value AEO 20210

Reference Case 3% 10% $35 0¢/gal

$5/ton CO2 Value AEO 20210

Reference Case 3% 10% $5 0¢/gal

$5/ton CO2 AEO 20210

Reference Case 3% 10% $5 0¢/gal

5¢/gal Military Security Value AEO 20210

Reference Case 3% 10% $21 5¢/gal

Lowest Discounted

Benefits AEO 2009 Low

Price Case 7% 15% $5 0¢/gal

Highest Discounted

Benefits AEO 2009 High

Price Case 3% 5% $67 5¢/gal

The basic results of the sensitivity analyses were as follows:

1) The various economic assumptions have no effect on the final passenger car and light truck standards established by this rule, because these are determined

without reference to economic benefits. 2) Varying the economic assumptions individually has comparatively modest impacts on fuel savings resulting from the adopted standards. The range of variation in fuel savings in response to changes in individual assumptions extends from a reduction of nearly 5 percent to an increase of that same
percentage. 3) The economic parameter with the greatest impacts on fuel savings is The magnitude of the rebound effect. Varying the rebound effect from 5 percent to 15 percent is responsible for the 4.6 percent increase and 4.6 percent582 reduction in fuel savings compared to the Reference results. The only other parameter that has a significant effect on fuel savings is forecast fuel prices, although its effect is complex because changes in fuel prices affect vehicle use and fuel consumption in both the baseline and under the final standards. 4) Variation in forecast fuel prices, the discount rate, and the value of reducing

CO 2 emissions each has a significant effect on the total economic benefits resulting from the final standards. Cha nging the fuel price forecast to AEO’s High Price forecast raises estimated economic benefits by almost 40 percent, while using AEO’s Low Price forecast reduces total economic benefits by only about 5 percent. Raising the discoun t rate to 7 percent from the 3 percent Reference value reduces the present value of economic benefits by nearly 20 percent, while raising the value of eliminating each ton of CO 2 emissions to $65 increases total benefits by 15 percent. 5) Varying all economic parameters simultaneously has a significant effect on economic benefits. The combination of parameter values producing the highest benefits increases their total by slightly more than 50 percent, while that producing the lowest benefits reduce s their value by almost 55 percent. However, varying these parameters in combination has less significant effects on other measures; for example, the high- and low-benefit combinations of parameter values raise or lower fuel savings and technology costs by only about 5 percent.

For more detailed inform ation regarding NHTSA’s sensitivit y analyses for this final rule, please see Chapter X of NHTSA’s FRIA.

5. How Would These Final Standards Impact Vehicle Sales?

Higher fuel economy standards are expected to increase the price of passenger cars and light trucks, because manufacturers w ill have to add technology to vehicles to increase their fuel economy, the cost for which they will likely pass on in some fashion to consumers. NHTSA examined the potential impact of higher vehicle prices on sales on an industry-wide basis for passenger cars and light trucks separately. We note that the analysis conducted for this rule does not have the precision to examine effects on

individual manufacturers or different vehicle classes.

There is a broad consensus in the economic literature that the price elasticity for demand for automobiles is approximately –1.0. 652 Thus, every one percent increase in the price of the vehicle would reduce sales by one percent. Elasticity estimates assume no perceived change in the quality of the pro duct. However, in this case, vehicle price

652 Kleit, A.N. (1990). “The Effect of Annual Changes in Automobile Fuel Economy Standards,” Journal of Regulatory Economics , vol. 2, pp 151-172; Bordley, R. (1994). “An Overlapping Choice Set Model of Automotive Price Elasticities,” Transportation Research B , vol 28B, no 6, pp 401-408; McCarthy , P.S. (1996). “Market Price and Income Elasticities of New Vehicle Demands,” The Review of Economics and

Statistics , vol. LXXVII, no. 3, pp. 543-547.583 increases result from adding technologies that improve fuel economy. If consumers did not value improved fuel economy at all, and considered nothing but the increase in price in their purchase decisions, then the estimated impact on sales from price elasticity could be applied directly. However, NHTSA believes that consumers do value improved fuel economy, because it reduces the operating cost of the vehicles. NHTSA also believes

that consumers consider other factors that aff ect their costs and have included these in the analysis.

The main question, however, is how much of the retail price needed to cover the technology investments to meet higher fuel economy standards will manufacturers be able to pass on to consumers. The ability of manufacturers to pass the compliance costs on to consumers depends upon how consumers value the fuel economy improvements. 653
Consumer valuation of fuel economy improvements often depends upon the price of gasoline, which has been very volatile over the past several years. The estimates reported below as part of NHTSA’s analysis on sales impacts assume that manufacturers will be able to pass all of their costs to improve fuel economy on to consumers. To the extent that NHTSA has accurately predicted the pr ice of gasoline and consumers reactions, and manufacturers can pass on all of the costs to consumers, then the sales and employment impact analyses are reasonable. On the othe r hand, if manufacturers only increase retail prices to the extent that consumers value these fuel economy improvements ( i.e. , to the extent that they value fuel savings), then there would be no impact on sales, although manufacturers’ profit levels would fall. Sales losses are predicted to occur only if consumers fail to value fuel economy improvem ents at least as much as they pay in higher vehicle prices. Likewise, if fuel prices rise beyond levels used in this analysis, consumer valuation of improved fuel economy could potentially increase beyond that estimated here, which could result in an increase in sales levels.

To estimate the average value consumers place on fuel savings at the time of purchase, NHTSA assumes that the average purchaser considers the fuel savings they would receive over a 5 year time frame. NHTSA chose 5 years because this is the average length of time of a financing agreement. 654 The present values of these savings were calculated using a 3 percent discount rate. NHTSA used a fuel price forecast that included taxes, because this is what consumers must pay. Fuel savings were calculated over the first 5 years and discounted back to a present value.

NHTSA believes that consumers may consider several other factors over the 5 year horizon when contemplating the purchase of a new vehicle. NHTSA added these factors into the calculation to represent how an increase in technology costs might affect consumers’ buying considerations.

653 Gron, Ann and Swenson, Deborah, 2000, “Cost Pass-Through in the U.S. Automobile Market,” The Review of Economics and Statistics , 82: 316-324.

654 National average financing terms for automobile loan s are available from the Board of Governors of the Federal Reserve System G.19 “Consumer Finance” release. See http://www.federalreserve.gov/releases /g19/ (last accessed February 26, 2010).584 First, consumers might consider the sale s taxes they have to pay at the time of purchasing the vehicle. NHTSA took sales taxes in 2007 by state and weighted them by population by state to determine a national weighted-average sales tax of 5.5 percent.

Second, NHTSA considered insurance costs over the 5 year period. More expensive vehicles will require more expensive collision and comprehensive ( e.g. , theft)

car insurance. The increase in insurance co sts is estimated from the average value of collision plus comprehensive insurance as a pr oportion of average new vehicle price. Collision plus comprehensive insurance is the portion of insurance costs that depend on vehicle value. The Insurance Information Institute provides the average value of collision plus comprehensive insurance in 2006 as $448. 655 This is compared to an average price for light vehicles of $24,033 for 2006. 656 Average prices and estimated sales volumes are needed because price elasticity is an estimate of how a percent increase in price affects the percent decrease in sales.

Dividing the insurance cost by the average price of a new vehicle gives the proportion of comprehensive plus collision in surance as 1.86 percent of the price of a vehicle. If we assume that this premium is proportional to the new vehicle price, it represents about 1.86 percent of the new vehicle price and insurance is paid each year for the five year period we are considering for payback. Discounting that stream of insurance costs back to present value indicates that the present value of the component of insurance costs that vary with vehicle price is equal to 8.5 percent of the vehicle’s price at a 3 percent discount rate.

Third, NHTSA considered that 70 percent of new vehicle purchasers take out loans to finance their purchase. The average new vehicle loan is for 5 years at a 6 percent

rate. 657 At these terms, the average person taking a loan will pay 16 percent more for their vehicle over the 5 years than a consumer paying cash for the vehicle at the time of purchase. 658 Discounting the additional 3.2 percent (16 percent / 5 years) per year over the 5 years using a 3 percent mid-year discount rate 659 results in a discounted present value of 14.87 percent higher for those taking a loan. Multiplying that by the 70 percent of consumers who take out a loan means that the average consumer would pay 10.2 percent more than the retail price for loans the consumer discounted at a 3 percent

discount rate.

655 Insurance Information Institute, 2008, “Average Expenditures for Auto Insurance By State, 2005-2006.”

Available at http://www.iii.org/media/facts/statsbyissue/auto/ (last accessed August 9, 2009).

656 $29,678/$26,201 = 1.1327 * $22,651 = $25,657 average price for light trucks. In 2006, passenger cars were 54 percent of the on-road fleet and light trucks were 46 percent of the on-road fleet, resulting in an average light vehicle price for 2006 of $24,033.

657 New car loan rates in 2007 averaged about 7.8 percent at commercial banks and 4.5 percent at auto finance companies, so their av erage is close to 7 percent.

658 Based on www.bankrate.com auto loan calcu lator for a 5 year loan at 6 percent.

659 For a 3 percent discount rate, the summation of 3.2 percent x 0.9853 in year one, 3.2 x 0.9566 in year two, 3.2 x 0.9288 in year three, 3.2 x 0.9017 in year 4, and 3.2 x 0.8755 in year five.585 Fourth, NHTSA considered the residual valu e (or resale value) of the vehicle after 5 years and expressed this as a percentage of the new vehicle price. In other words, if the price of the vehicle increases due to fuel economy technologies, the resale value of the vehicle will go up proportionately. The averag e resale price of a vehicle after 5 years is about 35 percent of the original purchase price. 660 Discounting the residual value back 5 years using a 3 percent discount rate (35 percent * .8755) gives an effective residual value at new of 30.6 percent.

NHTSA then adds these four factors toge ther. At a 3 percent discount rate, the consumer considers she could get 30.6 percent back upon resale in 5 years, but will pay 5.5 percent more for taxes, 8.5 percent more in insurance, and 10.2 percent more for loans, results in a 6.48 percent return on the increase in price for fuel economy technology. Thus, the increase in price per vehicle is multiplied by 0.9352 (1 – 0.0648) before subtracting the fuel savings to determine the overall net consumer valuation of the increase of costs on her purchase decision.

The following table shows the estimated impact on sales for passenger cars, light trucks, and both combined for the final standards. For all model years except MY 2012, NHTSA anticipates an increase in sales, based on consumers valuing the improvement in fuel economy more than the increase in price.

Table IV.G.5-1. Potential Impact on Sales, Passenger Cars and Light Trucks, and

Combined

MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Passenger Cars -65,202 46,801 103,422 168,334 227,039 Light Trucks 48,561 106,658 139,893 171,920 213,868

Combined -16,641 153,459 243,315 340,255 440,907

6. Potential Unquantified Consumer Welfare Impacts of The Final Standards

The underlying premise of the CAFE and GHG standards is to increase social welfare, in the broadest sense, and as shown in earlier sections, NHTSA projects that the MY 2012-2016 CAFE standards will yield large positive net social benefits. In its net benefits analysis, NHTSA made every attempt to include all of the costs and benefits that could be identified and quantified.

It is important to highlight several features of the rulemaking analysis that NHTSA believes gives high confidence to its conclusion that there are large net social

660 Consumer Reports, August 2008, “What That Car Really Costs to Own.” Available at http://www.consumerreports.org/cro/cars/pricing/what -that-car-really-costs-to-own-4-08/overview/whatthat-car-really-costs-to-own-ov.htm (last accessed February 26, 2010).586 benefits from these standards. First, the agencies adopted footprint-based standards in large part so that the full range of vehicle choices in the marketplace could be maintained. Second, the agencies performed a very rigo rous technological feasibility, cost, and leadtime analysis that showed that the sta ndards could be met while maintaining current levels of other vehicle attributes such as safety, utility, and performance. Third, widespread automaker support for the standards, in conjunction with the future product plans that have been provided by automakers to the agencies and recent industry announcements on new product offerings, provides further indication that the standards can be met while retaining the full spectrum of vehicle choices.

NHTSA recognizes that there may be consumer welfare impacts that are not accounted for in its social welfare analysis. The agencies received public comments expressing diverging views on this issue. While the majority of commenters on this issue suggested that potential losses in welfare from requiring higher fuel economy was likely to be only a minor issue because of the many possible reasons why the market for fuel economy does not function perfectly, other comments suggested that potential unidentified and unquantified consumer welfare losses could be large. This section identifies the potential issues and summariz es the key public comments. The FRIA provides a sensitivity analysis showing how various levels of unidentified consumer welfare losses would affect the projected ne t social benefits from the CAFE standards established by this final rule.

There are two viewpoints for evaluating th e costs and benefits of the proposed increase in CAFE standards: the private perspective of vehicle buyers themselves on the higher fuel economy levels the proposed rule would require, and the economy-wide or “social” perspective on the costs and benefits of requiring higher fuel economy. The agency’s analysis of benefits and costs from requiring higher fuel efficiency, presented above, includes some categories of benefits that extend throughout the U.S. economy, such as reductions in the energy security costs associated with U.S. petroleum imports and in the economic damages expected to result from climate change. In contrast, other categories of benefits – principally the economic value of future fuel savings projected to result from higher fuel economy – will be experienced exclusively by the initial purchasers and subsequent owners of vehicle models whose fuel economy manufacturers elect to improve as part of their strategies for complying with higher CAFE standards.

Although the economy-wide or “social” benefits from requiring higher fuel economy represent an important share of the total economic benefits from raising CAFE standards, NHTSA estimates that benefits to vehicle buyers themselves will significantly exceed the costs of complying with the stricter fuel economy standards this rule establishes, as shown above. Since the ag ency also assumes that the costs of new technologies manufacturers will employ to improve fuel economy will ultimately be shifted to vehicle buyers in the form of higher purchase prices, NHTSA concludes that the benefits to vehicle buyers from requiring higher fuel efficiency will far outweigh the costs they will be required to pay to obtain it. However, this raises the question of why587 current purchasing patterns do not result in higher average fuel economy, and why stricter fuel efficiency standards should be necessary to achieve that goal.

As an illustration, Table IV.G.6-1 report s the agency’s estimates of the average lifetime values of fuel savings for MY 2012-2016 passenger cars and light trucks calculated using future retail fuel prices, which are those likely to be used by vehicle buyers to project the value of fuel savings they expect from higher fuel economy. The table compares NHTSA’s estimates of the average lifetime value of fuel savings for cars and light trucks to the price in creases it projects to result as manufacturers attempt to recover their costs for complying with increased CAFE standards for those model years by increasing vehicle sales prices. As the table shows, the agency’s estimates of the present value of lifetime fuel savings (discounted using the OMB-recommended 3% rate) outweigh projected vehicle price increases for both cars and light trucks in every model year, even under the assumption that all of manufacturers’ technology outlays are passed on to buyers in the form of higher selling prices for new cars and light trucks. By model year 2016, NHTSA projects that average li fetime fuel savings will exceed the average price increase by more than $2,000 for cars, and by more than $2,700 for light trucks.

Table IV.G.6-1 Value of Lifetime Fuel Savings vs. Vehicle Price Increases

Fleet Measure Model year

2012 2013 2014 2015 2016

Passenger

Cars Value of Fuel Savings $759 $1,349 $1,914 $2,480 $2,932 Average Price Increase $505 $573 $690 $799 $907 Difference $255 $897 $1,264 $1,680 $2,025

Light

Trucks Value of Fuel Savings $828 $1,634 $2,277 $2,887 $3,700 Average Price Increase $322 $416 $621 $752 $961 Difference $506 $1,218 $1,656 $2,135 $2,739

The comparisons above raise the question of why current vehicle purchasing patterns do not result in average fuel econom y levels approaching those that this rule would require, and why stricter CAFE standa rds should be necessary to increase the fuel economy of new cars and light trucks. They also raise the question of why manufacturers do not elect to provide higher fuel economy even in the absence of increases in CAFE standards, since the comparisons in Tabl e IV.G.6-1 suggest that doing so would reduce the effective price of purchasing many new vehicle models, and thus to increase sales of new vehicles. More specifically, why would potential buyers of new vehicles hesitate to make investments in higher fuel economy that would produce the substantial economic returns illustrated by the comparisons pres ented in Table IV.G.6-1? And why would manufacturers voluntarily forego opportunitie s to increase the attractiveness, value, and588 competitive positioning of their car and light truck models by improving their fuel economy?

The majority of comments received on this topic answered this question by pointing out many reasons why the market for vehicle fuel economy does not appear to work perfectly, and accordingly, that properly designed CAFE standards would be expected to increase consumer welfare. Pu blished literature also provides some support for the agency’s assertion that the benefits buyers will experience from higher fuel economy far outweigh the costs they will pay to acquire, by identifying plausible – if short-sighted – aspects of normal behavior th at may make buyers reluctant to purchase vehicles whose higher fuel economy offers an attractive return. For example, consumers’ understandable aversion to the prospect of losses from making investments that do not produce their expected returns may exaggerate their uncertainty about the value of future fuel savings sufficiently to make purchasing a more fuel-efficient vehicle seem unattractive, even when doing so is likely to be a sound economic decision. As an illustration, Greene et al. (2009) find that the expected net present value of increasing the fuel economy of a passenger car from 28 to 35 miles per gallon falls from $405 when calculated using standard net present value calculations, to nearly zero when uncertainty regarding future cost savings is taken into account. 661

Another possible reconciliation of the agency’s claim that the average vehicle buyer will experience large fuel savings from the higher CAFE standards this rule

establishes with the fact that the average fuel economy of vehicles currently purchased

falls well short of the new standards is that the values consumers place on the future savings they expect to obtain from higher fuel economy vary widely. As an illustration, one recent review of consumers’ willingness to pay for improved fuel economy found

estimates that varied from less than 1% to almost ten times the present value of the resulting fuel savings when those are discounted at 7% over the vehicle’s expected

lifetime. 662 Although the wide variation in these estimates undoubtedly reflects methodological and measurement differences among the studies surveyed, it may also reveal that the expected savings from purcha sing a vehicle with higher fuel economy vary widely among individuals, because they travel different amounts, have different driving styles, or have different expectations about future fuel prices.

661 Greene, D., J. German, and M. Delucchi (2009). “Fuel Economy: The Case for Market Failure” in Reducing Climate Impacts in the Transportation Sector

, Sperling, D., and J. Cannon, eds. Springer Science. Surprisingly, the authors find that uncertainty regarding the future pri ce of gasoline appears to be less important than uncertainty surrounding the expected lifetimes of new vehicles.

662 Greene, David L., “How Consumers Value Fuel Eco nomy: A Literature Review,” Draft report to U.S. Environmental Protection Agency, Oak Ridge National Laboratory, December 29, 2009; see Table 10, p.

37. ?? See also? David Greene and Jin-Tan Liu (1 988). “Automotive Fuel Economy Improvements and Consumers’ Surplus.” Transportation Research Part A 22A(3): 203-218. The study actually calculated the willingness to pay for reduced vehicle operating co sts, of which vehicle fuel economy is a major
component.589 These differences may be reflected in the fact that buyers with high valuations of increased fuel economy already purchase vehicle models that offer it, while those with lower values of fuel economy emphasize other vehicle attributes in their purchasing decisions. A related possibility is that because the effects of differing fuel economy levels are relatively modest when compared to those provided by other, more prominent features of new vehicles – passenger and cargo-carrying capacity, performance, safety, etc. – it is simply not in many shoppers’ inte rest to spend the time and effort necessary to determine the economic value of higher fuel economy, attempt to isolate the component of a new vehicle’s selling price that is related to its fuel economy, and compare these two. In either case, although the agency’s estimates of the average value of fuel savings that will result from requiring cars and light truc ks to achieve higher fuel economy may be correct, they may not be large enough to lead a sufficient number of buyers to push for vehicles with higher fuel economy to increase average fuel economy from its current

levels.

Defects in the market for cars and light trucks could also lead manufacturers to undersupply fuel economy, even in cases where many buyers were willing to pay the increased prices necessary to provide it. Most obviously, an absence of vigorous competition among producers of cars and light trucks may lead manufacturers to undersupply attributes that contribute to th e overall quality of new vehicles, including fuel economy, because such “imperfect” comp etition reduces producers’ profit incentive to supply the level of fuel economy that buye rs are willing to pay for. Incomplete or “asymmetric” access to information on vehicle attributes such as fuel economy – whereby manufacturers of new vehicles or sellers of used cars and light trucks have more complete knowledge of vehicles’ actual fuel economy levels, or of the value of purchasing higher fuel economy, than do potential buyers – may also prevents sellers of new or used vehicles from capturing its full va lue. In this situation, the level of fuel efficiency provided in the markets for new or used vehicles might remain persistently lower than that demanded by potential buyers.

It is also possible that deliberate deci sions by manufacturers of cars and light trucks, rather than constraints on the combinations of fuel economy, carrying capacity, and performance that manufacturers can offer using current technologies, limit the range of fuel economy available to buyers within individual vehicle market segments, such as full-size automobiles, small SUVs, or minivans . As an illustration, once a potential buyer has decided to purchase a minivan, the range of fuel economy among current models extends only from 18 to 24 mpg. 663 Manufacturers might make such decisions if they underestimate the premiums that shoppers in certain market segments are willing to pay

for more fuel-efficient versions of the vehi cle models thy currently offer to prospective buyers within those segments. If this occurs , manufacturers may fail to supply levels of fuel efficiency as high as those buyers are willing to pay for, and the average fuel

663 This is the range of combined city and highway fuel economy levels from lowest (Toyota Siena 4WD) to highest (Mazda 5) available for model year 2010; http://www.fueleconomy.gov/feg/bestworstEPAtr ucks.htm (last accessed February 15, 2010).590 efficiency of their entire new vehicle fleets could remain below the levels that potential buyers demand and are willing to pay for.

Finally, some research suggests that the consumers’ apparent unwillingness to purchase more fuel efficient vehicles stem s from their inability to value future fuel savings correctly. For example, Larrick and Soll (2008) find evidence that consumers do not understand how to translate changes in fuel economy, which is denominated in miles

per gallon, into resulting changes in fuel c onsumption, measured in gallons per time period. 664 Sanstad and Howarth (1994) argue that consumers resort to imprecise but convenient rules of thumb to compare vehicles that offer different fuel economy ratings, and that this behavior can cause many buyers to underestimate the value of fuel savings, particularly from significant increases in fuel economy. 665 If the behavior identified in these studies is indeed widespread, then the agency’s calculations suggesting that the benefits to vehicle owners from requiring higher fuel economy significantly exceeds the costs of providing it may indeed be correct, yet the resulting difference is still insufficient to motivate buyers to purchase a mix of car or light truck vehicle models whose average fuel economy approaches those required by this rule.

However, other commenters suggested that, if one assumes a perfectly functioning market, there must be unidentifie d consumer welfare losses that would offset the private fuel savings that consumers are currently foregoing.

One explanation for this apparent paradox is that NHTSA’s estimates of benefits and costs from requiring manufacturers to impr ove the fuel efficiency of their vehicle models do not match potential vehicle buyers’ assessment of the likely benefits and costs from requiring higher fuel efficiency. This could occur because the agency’s underlying assumptions about some of the factors that affect the value of fuel savings differ from those made by potential buyers, because NHTS A has used different estimates for some components of the benefits from saving fuel than do buyers, or because the agency has failed to account for some potential costs of achieving higher fuel economy.

For example, buyers may not value increased fuel economy as highly as the agencies’ calculations suggest, because they have shorter time horizons than the full vehicle lifetimes assumed by NHTSA and EPA, or because, when buying vehicles, they discount future fuel future savings using higher rates than those prescribed by OMB for evaluating federal regulations. Potential buyers may also anticipate lower fuel prices in the future than those forecast by the Energy Information Administration, or may expect larger differences between vehicles’ rated and actual on-road mpg levels than the agencies estimate.

664 Larrick, R. P., and J.B. Soll (2008). “The MPG illusion

. ” Science 320: 1593-1594.

665 Sanstad, A., and R. Howarth (1994). “’Normal ’ Markets, Market Imperfections, and Energy Efficiency.” Energy Policy 22(10): 811-818.591 To illustrate the first of these possibilities, Table IV.G.6-2 shows the effect of differing assumptions about vehicle buyers ’ time horizons for assessing the value of future fuel savings. Specifically, the table compares the average value of fuel savings from purchasing a MY 2016 car or light tr uck when fuel savings are evaluated over

different time horizons to the estimated increa se in its price. This table shows that as reported previously in Table IV.G.6-2, when fuel savings are evaluated over the entire expected lifetime of a MY 2016 car (approximately 14 years) or light truck (about 16 years), their discounted present value (using the OMB-recommended 3% discount rate) lifetime fuel savings exceeds the estimated average price increase by more than $2,000 for cars and by more than $2,700 for light trucks.

If buyers are instead assumed to consider fuel savings over a 10-year time horizon, however, the present value of fuel savings exceeds the projected price increase for a MY 2016 car by about $1,300, and by somewhat more than $1,500 for a MY 2016 light truck. Finally, Table VI.G.6-2 shows that under the assumption that if buyers consider fuel savings only over the length of time for which they typically finance new car purchases (slightly more than 5 years during 2009), the value of fuel savings exceeds the estimated increase in the price of a MY 2016 car by only about $350, and the corresponding difference is reduced to slightly more than $500 for a MY 2016 light

truck.

Table IV.G.6-2 Value of Fuel Savings vs. Vehicle Price Increases with Alternative Assumptions about Vehicle Buyer Time Horizons

Vehicle Measure Value over Alternative Time Horizons Expected

Lifetime 666 10 Years Average Loan

Term 667

MY 2016 Passenger

Car Fuel Savings $2,932 $2,180 $1,254

Price Increase $907 $907 $907

Difference $2,025 $1,273 $347

MY 2016 Light Truck Fuel Savings $3,700 $2,508 $1,484
Price Increase $961 $961 $961

Difference $2,739 $1,547 $523

Potential vehicle buyers may also discount future fuel future savings using higher rates than those typically used to evaluate federal regulations. OMB guidance prescribes that future benefits and costs of regulati ons that mainly affect private consumption

666 Expected lifetimes are approximately 14 ye ars for cars and 16 years for light trucks.

667 Average term on new vehicle loans made by auto finance companies during 2009 was 62 months; see Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release G.19, Consumer

Credit. Available at http://www.federalreserve.gov/releases/g19/Current (last accessed March 1, 2010).592 decisions, as will be the case if manufactur ers’ costs for complying with higher fuel economy standards are passed on to vehicle buyers, should be discounted using a consumption rate of time preference. 668 OMB estimates that savers currently discount future consumption at an average real or inflation-adjusted rate of about 3 percent when they face little risk about its likely level, which makes it a reasonable estimate of the consumption rate of time preference. However, vehicle buyers may view the value of future fuel savings that results from purch asing a vehicle with higher fuel economy as risky or uncertain, or they may instead discount future consumption at rates reflecting their costs for financing the higher capital outlays required to purchase more fuelefficient models. In either case, they may di scount future fuel savings at rates well above the 3% assumed in NHTSA’s evaluation in their purchase decisions.

Table IV.G.6-3 shows the effect of higher discount rates on vehicle buyers’ evaluation of the fuel savings projected to result from the CAFE standards established by this rule, again using MY 2016 passenger cars and light trucks as an example. As Table IV.G.6-1 showed previously, average future fuel savings discounted at the OMB 3% consumer rate exceed the agency’s estimated price increases by more than $2,000 for MY 2016 passenger cars and by more than $2,700 for MY 2016 light trucks. If vehicle buyers instead discount future fuel savings at the average new-car loan rate during 2009 (6.7%), however, these differences decline to slightly more than $1,400 for cars and $1,900 for light trucks, as Table IV.G.6-3 illu strates. This is a particularly plausible alternative assumption, because buyers are likely to finance the increases in purchase prices resulting from compliance with higher CAFE standards as part of the process financing the vehicle purchase itself. Finally, as the table also shows, discounting future fuel savings using a consumer credit card rate (which averaged 13.4% during 2009) reduces these differences to less than $800 for a MY 2016 passenger car and less than $1,100 for the typical MY 2016 light truck. Even at these higher discount rates, the private net benefits from purchasing more fuel efficient vehicles remain large.

Table IV.G.6-3 Value of Fuel Savings vs. Vehicle Price Increases with Alternative Assumptions about Consumer Discount Rates

Vehicle Measure Value over Alternative Time Horizons

OMB

Consumer Rate (3%) New Car

Loan Rate (6.7%) 669 OMB

Investment Rate (7%) Consumer

Credit

Card Rate

668 Office of Management and Budget, Circular A-4, “Regulatory Analysis,” September 17, 2003, 33.

Available at http://www.whitehouse.gov/omb/assets/regulatory_matters_pdf/a-4.pdf (last accessed March 1, 2009).

669 Average rate on 48-month new vehicle loans ma de by commercial banks during 2009 was 6.72%; see Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release G.19, Consumer

Credit. Available at http://www.federalreserve.gov/releases/g19/Current (last accessed March 1, 2010).593 (13.4%) 670

MY 2016 Passenger

Car Fuel Savings $2,932 $2,336 $2,300 $1,669

Price Increase $907 $907 $907 $907

Difference $2,025 $1,429 $1,393 $762

MY 2016

Light

Truck Fuel Savings $3,700 $2,884 $2,836 $2,030
Price Increase $961 $961 $961 $961

Difference $2,739 $1,923 $1,875 $1,069

Combinations of a shorter time horizon and a higher discount rate could further reduce or even eliminate the difference between the value of fuel savings and the agency’s estimates of increases in vehicle prices. One plausible combination would be for buyers to discount fuel savings over the te rm of a new car loan, using the interest rate on that loan as a discount rate. Doing so would reduce the amount by which future fuel savings exceed the estimated increase in the prices of MY 2016 vehicles to about $340 for passenger cars and $570 for light trucks. Some evidence also suggests directly that vehicle buyers may employ combinations of higher discount rates and shorter time horizons for their purchase decisions; for example, consumers surveyed by Kubik (2006) reported that fuel savings would have to be adequate to pay back the additional purchase price of a more fuel-efficient vehicle in less than 3 years to persuade a typical buyer to purchase it. 671 As these comparisons and evidence illustrate, reasonable alternative assumptions about how consumers might evaluate the major benefit from requiring higher fuel economy can significantly affect the benefits they expect to receive when they decide to purchase a new vehicle.

Many plausible combinations of shorter time horizons, higher discount rates, and lower expectations about future fuel prices or annual vehicle use and fuel savings could make potential buyers hesitant or even unwilling to purchase vehicles offering the increased fuel economy levels this rule will require manufacturers to produce. At the same time, they might also cause vehicle buyers’ collective assessment of how the benefits from requiring higher fuel economy co mpare to the costs they will be required to pay for it to differ significantly from NHTSA’s assessment of the aggregate benefits and

costs of this rule. If consumers’ views about cr itical variables such as future fuel prices or the appropriate discount rate differ sufficiently from the assumptions used by the agency, potential vehicle buyers might conclude that the value of fuel savings and other benefits they will experience from higher fuel economy are not sufficient to justify the increase in purchase prices they expect to pay. This would explain why their current

670 Average rate on consumer credit card accounts at commercial banks during 2009 was 13.4%; see Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release G.19, Consumer Credit.

Available at http://www.federalreserve.gov/releases/g19/Current (last accessed March 1, 2010).

671 Kubik, M. (2006). Consumer Views on Transportation and Energy. Second Edition. Technical Report: National Renewable Energy Laboratory.594 choices among available models do not result in average fuel economy levels approaching those this rule would require.

Another possibility is that achieving the fuel economy improvements required by stricter fuel economy standards might mean th at manufacturers will forego planned future improvements in performance, carrying capacity, safety, or other features of their vehicle models that represen t important sources of utility to vehicle owners. Although the specific economic values that vehicle buyers a ttach to individual vehicle attributes such as fuel economy, performance, passenger- and cargo-carrying capacity, and other sources of vehicles’ utility are difficult to infer from their purchasing decisions and vehicle prices, changes in vehicle attributes can si gnificantly affect the overall utility that vehicles offer to potential buyers. Foregoing future improvements in these or other highly-valued attributes could be viewed by potential buyers as an additional cost of improving fuel economy.

As indicated in its previous discussion of technology costs, NHTSA hasapproached this potential problem by developing cost estimates for fuel economyimproving technologies that include allowa nces for any additional manufacturing costs that would be necessary to maintain the reference fleet (or baseline) levels of performance, comfort, capacity, or safety of light-duty vehicle models to which those technologies are applied. In doing so, the agency followed the precedent established by the 2002 NAS Report on improving fuel economy, which estimated “constant performance and utility” costs for technologies that manuf acturers could employ to increase the fuel efficiency of cars or light trucks. Although NHTSA has revised its estimates of manufacturers’ costs for some technologies significantly for use in this rulemaking, these revised estimat es are still intended to repr esent costs that would allow manufacturers to maintain the performance, safety, carrying capacity, and utility of vehicle models while improving their fuel ec onomy. The adoption of the footprint-based

standards also addresses this concern.

Finally, vehicle buyers may simply prefer the choices of vehicle models they now have available to the combinations of price, fuel economy, and other attributes that manufacturers are likely to offer when require d to achieve higher overall fuel economy. If this is the case, their choices among models – and even some buyers’ decisions about whether to purchase a new vehicle – will respond accordingly, and their responses to these new choices will reduce their overall welfare. Some may buy models with combinations of price, fuel efficiency, and other attributes that they consider less desirable than those they would otherwise have purchased, while others may simply postpone buying a new vehicle. The use of the footprint-based standards, the level of stringency, and the lead time this rule allows manufacturers are all intended to ensure that this does not occur. Although the losses in buyers’ welfare associated with these responses cannot be large enough to offset the estimated value of fuel savings reported in the agencies’ analyses, they might reduce the benefits from requiring manufacturers to595 achieve higher fuel efficiency, particularly in combination with the other possibilities outlined previously.

The agency has been unable to resolve the question of why the apparently large differences between its estimates of benefits from requiring higher fuel economy and the costs of supplying it do not result in higher average fuel economy for new cars and light trucks in the absence of this rule. One explanation is that NHTSA’s estimates are reasonable, and the market for fuel economy is not operating efficiently. NHTSA also acknowledges that this situation may mean that it has incorrectly characterized the impact of the CAFE standards this rule establishes on consumers. To recognize this possibility, this section presents an alternative acco unting of the benefits and costs of CAFE standards for MYs 2012-2016 passenger cars and light trucks and discusses its implications.

Table IV.G.6-4 displays the economic impacts of the rule from the perspective of potential buyers, and also reconciles the estimated net benefits of the rule as they are likely to be viewed by vehicle buyers with it s net benefits to the economy as a whole. As the table shows, the total benefits to vehicle buyers (line 4) consist of the value of fuel savings at retail fuel prices (line 1), the economic value of vehicle occupants’ savings in refueling time (line 2), and the economic benefits from added rebound-effect driving (line 3). As the zero entries in line 5 of the tabl e suggest, the agency’s estimate of the retail value of fuel savings reported in line 1 is assumed to be correct, and no losses in consumer welfare from changes in vehicle attributes (other than those from increases in vehicle prices) are assumed to occur. Thus there is no reduction in the total private benefits to vehicle owners, so that net private benefits to vehicle buyers (line 6) are equal to total private benefits (reported previously in line 4).

As Table IV.G.6-4 also shows, the decline in fuel tax revenues (line 7) that results from reduced fuel purchases is in effect a soci al cost that offsets part of the benefits of fuel savings to vehicle buyers (line 1). 672 Thus the sum of lines 1 and 7 is the savings in fuel production costs that was reported previous ly as the value of fuel savings at pre-tax prices in the agency’s usual accounting of benefits and costs. Lines 8 and 9 of Table IV.G.6-4 report the value of reductions in air pollution and climate-related externalities resulting from lower emissions during fuel production and consumption, while line 10 reports the savings in energy security exte rnalities to the U.S. economy from reduced consumption and imports of crude petroleum and refined fuel. Line 12 reports the costs of increased congestion delays, accidents, and noise that result from additional driving due to the fuel economy rebound effect; net social benefits (line 13) is thus the sum of the

672 Strictly speaking, fuel taxes represent a transfer of resources from consumers of fuel to government agencies and not a use of economic resources. Reducing the volume of fuel purchases simply reduces the value of this transfer, and thus canno t produce a real economic cost or be nefit. Representing the change in fuel tax revenues in effect as an economy-wide cost is necessary to offset th e portion of fuel savings included in line 1 that represents savings in fuel tax payments by consumers. This prevents the savings in tax revenues from being counted as a benefit from the economy-wide perspective.596 change in fuel tax revenues, the reduction in environmental and energy security externalities, and increased costs from added driving.

Line 14 of Table IV.G.6-4 shows manufacturers’ technology outlays for meeting higher CAFE standards for passenger cars and light trucks, which represent the principal cost of requiring higher fuel economy. The net total benefits (line 15 of the table) resulting from the rule consist of the sum of private (line 6) and external (line 13) benefits, minus technology costs (line 14); as expected, the figures reported in line 15 of the table are identical to those reported previously in the agency’s customary format.

Table IV.G.6-4 highlights several import ant features of this rule’s economic impacts. First, comparing the rule’s net private (line 6) a nd external (line 13) benefits makes it clear that virtually all of the benefits from requiring higher fuel economy are experienced by vehicle buyers, with only a small share distributed throughout the remainder of the U.S. economy. In turn, the vast majority of private benefits stem from fuel savings. External benefits are sm all because the value of reductions in

environmental and en ergy security externalities is almost exactly offset by the decline in

fuel tax revenues and the increased costs associated with added vehicle use via the rebound effect of higher fuel economy. As a consequence, the net economic benefits of the rule mirror closely its bene fits to private vehicle buyers and the technology costs for achieving higher fuel economy, again highlighting the importance of accounting for any other effects of the rule on the economic welfare of vehicle buyers.

Table IV.G.6-4 Private, Social, and Total Benefits and Costs of MY 2012-16 CAFE Standards: Passenger Cars plus Light Trucks

Entry Model Year Total,

2012-

2016 2012 2013 2014 2015 2016

1. Value of Fuel Savings (at Retail Fuel Prices) $10.5 $22.9 $32.9 $42.5 $52.7 $161.6 2. Savings in Refueling Time $0.7 $1.4 $1.9 $2.5 $3.0 $9.4 3. Consumer Surplus from Added Driving $0.7 $1.5 $2.2 $2.8 $3.4 $10.5 4. Total Private Benefits (=1+2+3) $11.9 $25.8 $37.0 $47.8 $59.0 $181.5
5. Reduction in Private Benefits $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 6. Net Private Benefits (=1+2) $11.9 $25.8 $37.0 $47.8 $59.0 $181.5

7. Change in Fuel Tax Revenues -$1.3 -$2.7 -$3.8 -$4.8 -$5.9 -$18.5 8. Reduced Health Damages from Criteria

Emissions $0.5 $0.9 $1.3 $1.6 $2.0 $6.4

9. Reduced Climate Damages from CO2

Emissions $0.9 $2.0 $2.9 $3.8 $4.8 $14.5

10. Reduced Energy Security Externalities $0.5 $1.2 $1.6 $2.1 $2.5 $8.0 11. Reduction in Externalities (=8+9+10) $1.9 $4.1 $5.9 $7.6 $9.3 $28.8 12. Increased Costs of Congestion, etc. -$0.7 -$1.3 -$1.9 -$2.4 -$3.0 -$9.4 13. Net Social Benefits (=7+11+12) $0.0 $0.1 $0.1 $0.3 $0.5 $1.0597 14. Technology Costs $5.9 $7.9 $10.5 $12.5 $14.9 $51.7

15. Net Social Benefits (=6+12-14) $6.0 $17.9 $26.6 $35.5 $44.6 $130.7

As discussed in detail previously, it is possible that NHTSA has overestimated the value of fuel savings to buyers and subsequent owners of the cars and light trucks to which higher CAFE standards will apply. It is also possible that the agency has failed to identify and value reductions in consumer welfare that could result from buyers’ responses to changes in vehicle attributes that manufacturers make as part of their efforts to achieve higher fuel economy. To acknow ledge these possibilities, NHTSA examines their potential impact on the rule’s benefits and costs, showing the rule’s economic impacts for MY 2012-16 passenger cars and light trucks under varying theoretical assumptions about the agency’s potential overestimation of private benefits from higher fuel economy and the value of potential changes in other vehicle attributes. See Chapter

VIII of the FRIA.

7. What are the Estimated Safety Impacts of These Proposed Standards?

[Placeholder]

8. What Other Impacts (Quantitativ e and Unquantifiable) will These Proposed Standards Have?

In addition to the quantified benefits and costs of fuel economy standards, the final standards will have other impacts that we have not quantified in monetary terms. The decision on whether or not to quantify a particular impact depends on several

considerations:

• Does the impact exist, and can the magnitude of the impact reasonably be attributed to the outcome of this rulemaking?

• Would quantification help NHTSA and the public evaluate standards that may be set in rulemaking?

• Is the impact readily quantifiable in monetary terms? Do we know how to quantify a particular impact?

• If quantified, would the monetary impact likely be material?

• Can a quantification be derived with a sufficiently narrow range of uncertainty so

that the estimate is useful?

NHTSA expects that this rulemaking will have a number of genuine, material impacts that have not been quantified due to one or more of the considerations listed above. In some cases, further research may yield estimates for future rulemakings.

Technology Forcing598 The final rule will improve the fuel economy of the U.S. new vehicle fleet, but it will also increase the cost (and presumably , the price) of new passenger cars and light trucks built during MYs 2012-2016. We anticipate that the cost, scope, and duration of this rule, as well as the steadily rising sta ndards it requires, will cause automakers and suppliers to devote increased attention to methods of improving vehicle fuel economy.

This increased attention will stimulate additional research and engineering, and we anticipate that, over time, innovative approaches to reducing the fuel consumption of light duty vehicles will emerge. Several commenters agreed. These innovative approaches may reduce the cost of the final rule in its later years, and also increase the set of feasible technologies in future years.

We have attempted to estimate the effect of learning on known technologies within the period of the rulemaking. We ha ve not attempted to estimate the extent to which not-yet-invented technologies will appear, either within the time period of the current rulemaking or that might be available after MY 2016.

Effects on Vehicle Maintenance, Operation, and Insurance Costs

Any action that increases th e cost of new vehicles will subsequently make such vehicles more costly to maintain, repair, a nd insure. In general, this effect can be expected to be a positive linear function of vehi cle costs. The final rule raises vehicle costs by over $900 by 2016, and for some manufacturers costs will increase by $1000- $1800. Depending on the retail price of the vehicle, this could represent a significant increase in the overall vehicle cost and subsequently increase insurance rates, operation costs, and maintenance costs. Comprehensive insurance costs are likely to be directly related to price increases, but liability premiums will go up by a smaller proportion because the bulk of liability coverage reflects the cost of personal injury. The impact on operation and maintenance costs is less clear, because the maintenance burden and useful life of each technology are not known. However, one of the common consequences of using more complex or innovative technologies is a decline in vehicle reliability and an increase in maintenance costs, borne, in part, by the manufacturer (through warranty costs, which are included in the indirect cost s of production) and, in part by the vehicle owner. NHTSA believes that this effect is difficult to quantify for purposes of this final rule. The agency will analyze this issue fu rther for future rulema kings to attempt to gauge its impact more completely.

Effects on Vehicle Miles Traveled (VMT)

While NHTSA has estimated the impact of the rebound effect on VMT, we have not estimated how a change in vehicle sales could impact VMT. Since the value of the fuel savings to consumers outweighs the technology costs, new vehicle sales are predicted to increase. A change in vehicle sales will have complicated and a hard-to-599 quantify effect on vehicle miles traveled given the rebound effect, the trade-in of older vehicles, etc. In general, overall VMT should not be significantly affected.

Effect on Composition of Passenger Car and Light Truck Sales

In addition, manufacturers, to the extent that they pass on costs to customers, may

distribute these costs across their motor vehicl e fleets in ways that affect the composition of sales by model. To the extent that chan ges in the composition of sales occur, this could affect fuel savings to some degree. However, NHTSA’s view is that the scope for compositional effects is relatively small, si nce most vehicles will to some extent be impacted by the standards. Compositional effects might be important with respect to compliance costs for individual manufacturers, but are unlikely to be material for the rule

as a whole.

NHTSA is continuing to study methods of estimating compositional effects and may be able to develop methods for use in future rulemakings.

Effects on the Used Vehicle Market

The effect of this rule on the use and scrappage of older vehicles will be related to its effects on new vehicle prices, the fuel e fficiency of new vehicle models, and the total

sales of new vehicles. Elsewhere in this analysis, NHTSA estimates that vehicle sales will increase. This would occur because the value of fuel savings resulting from improved fuel efficiency to the typical pote ntial buyer of a new vehicle outweighs the average increase in new models’ costs. Under these circumstances, sales of new vehicles will rise, while scrappage rates of used vehicles will increase slightly. This will cause the “turnover” of the vehicle fleet – that is, the retirement of used vehicles and their replacement by new models – to accelerate slightly, thus accentuating the anticipated effect of the rule on fleet-wide fuel consumption and CO 2 emissions. However, if potential buyers value future fuel savings resulting from the increased fuel efficiency of

new models at less than the increase in their average selling price, sales of new vehicles would decline, as would the rate at which used vehicles are retired from service. This effect will slow the replacement of used vehi cles by new models, and thus partly offset the anticipated effects of the proposed rules on fuel use and emissions.

Impacts of Changing Fuel Composition on Costs, Benefits, and Emissions

EPAct, as amended by EISA, creates a Renewable Fuels Standard that sets targets for greatly increased usage of renewable fuels over the next decade. The law requires fixed volumes of renewable fuels to be used—volumes that are not linked to actual usage of transportation fuels.

Ethanol and biodiesel (in the required volumes) may increase or decrease the cost of blended gasoline and diesel depending on crude oil prices and tax subsidies. The600 potential extra cost of renewable fuels would be borne through a cross-subsidy: the price of every gallon of blended gasoline could rise sufficiently to pay for any extra cost of renewable fuels. However, if the price of fuel increases enough, the consumer could actually realize a savings through the increased usage of renewable fuels. The final CAFE rule, by reducing total fuel consumption, could tend to increase any necessary cross-subsidy per gallon of fuel, and hence raise the market price of transportation fuels, while there would be no change in the volume or cost of renewable fuels used.

Tthese effects are indirectly incorporated in NHTSA’s analysis of the proposed CAFE rule because they are directly incorporated in EIA’s projections of future gasoline and diesel prices in the Annual Energy Outlo ok, which incorporates in its baseline both a Renewable Fuel Standard and an increasing CAFE standard.

The net effect of incorporating an RFS then might be to slightly reduce the benefits of the rule because affected vehicles might be driven slightly less, and because they emit slightly fewer greenhouse gas emissi ons per gallon. In addition there might be corresponding losses from the induced reduction in VMT. All of these effects are difficult to estimate, because of uncertainty in future crude oil prices, uncertainty in future tax policy, and uncertainty about how petroleum marketers will actually comply with the RFS, but they are likely to be sm all, because the cumulative deviation from baseline fuel consumption induced by th e final rule will itself be small.

Macroeconomic Impacts of this Rule

The final rule will have a number of c onsequences that may have short-run and longer-run macroeconomic effects. It is important to recognize, however, that these

effects do not represent benefits in addition to thos e resulting directly from reduced fuel consumption and emissions. Instead, they represent the economic effects that occur as these direct impacts filter through the interconnected markets comprising the U.S.

economy.

• Increasing the cost and quality (in the form of better fuel economy) of new passenger cars and light trucks will have ripple effects through the rest of the economy. Depending on the assumptions made, the rule could generate very small increases or declines in output.

• Reducing consumption of imported petroleum should induce an increase in longrun output.

• Decreasing the world price of oil should induce an increase in long-run output.

NHTSA has not studied the macroeconomic effects of the final rule, however a discussion of the economy-wide impacts of this rule conducted by EPA is presented in Section III.H and is included in the docket. Although economy-wide models do not capture all of the potential impacts of this rule ( e.g. , improvements in product quality),601 these models can provide valuable insights on how this final rule would impact the U.S. economy in ways that extend beyond the transportation sector.

Military Expenditures

This analysis contains quantified estimat es for the social cost of petroleum imports based on the risk of oil market disruption. We have not included estimates of monopsony effects or the cost of military expenditures associated with petroleum imports.

H. Vehicle Classification

Vehicle classification, for purposes of the CAFE program, refers to whether NHTSA considers a vehicle to be a passenger automobile or a light truck, and thus subject to either the passenger automobile or the light truck standards. As NHTSA explained in the MY 2011 rulemaking, EPCA categorizes some light 4-wheeled vehicles as passenger automobiles (cars) and the balance as non-passenger automobiles (light trucks). EPCA defines passenger automobiles as any automobile (other than an automobile capable of off-highway opera tion) which NHTSA decides by rule is manufactured primarily for use in the transportation of not more than 10 individuals. EPCA 501(2), 89 Stat. 901. NHTSA created regulatory definitions for passenger automobiles and light trucks, found at 49 CFR Part 523, to guide the agency and manufacturers in classifying vehicles.

Under EPCA, there are two general groups of automobiles that qualify as nonpassenger automobiles or light trucks: (1) those defined by NHTSA in its regulations as other than passenger automobiles due to their having design features that indicate they were not manufactured “primarily” for transporting up to ten individuals; and (2) those expressly excluded from the pa ssenger category by statute du e to their capability for offhighway operation, regardless of whether they might have been manufactured primarily for passenger transportation. 673 NHTSA’s classification rule directly tracks those two broad groups of non-passenger automobiles in subsections (a) and (b), respectively, of 49

CFR 523.5.

For the purpose of this NPRM for the MYs 2012-2016 standards, EPA agreed to use NHTSA’s regulatory definitions for determining which vehicles would be subject to

which CO 2 standards.

673 49 U.S.C. 32901(a)(18). We note that the statute refe rs both to vehicles that are 4WD and to vehicles over 6,000 lbs GVWR as potential candidates for off-ro ad capability, if they also meet the “significant feature ...designed for off-highway operation” as defined by the Secretary. NHTSA would consider “AWD” vehicles as 4WD for purposes of this determination – they send power to all wheels of the vehicle all the time, while 4WD vehicles may only do so part of the time, which appears to make them equal candidates for off-road capability give n other necessary characteristics.602 In the MY 2011 rulemaking, NHTSA took a fresh look at the regulatory definitions in light of several factors and deve lopments: its desire to ensure clarity in how vehicles are classified, the passage of EISA, and the Ninth Circuit’s decision in CBD

v. NHTSA

. 674 NHTSA explained the origin of the current definitions of passenger automobiles and light trucks by tracing them back through the history of the CAFE program, and did not propose to change the definitions themselves at that time, because the agency concluded that the definitions were largely consistent with Congress’ intent in separating passenger automobiles and light trucks, but also in part because the agency tentatively concluded that doing so would not lead to increased fuel savings. However, the agency tightened the definitions in § 523.5 to ensure that only vehicles that actually have 4WD will be classified as off-highw ay vehicles by reason of having 4WD (to prevent 2WD SUVs that also come in a 4WD “version” from qualifying automatically as “off-road capable” simply by reason of the exis tence of the 4WD version). It also took this action to ensure that manufacturers may only use the “greater cargo-carrying capacity” criterion of 523.5(a)(4) for cargo van-type vehicles, rather than for SUVs withremovable second-row seats unless they truly have greater cargo-carrying than passengercarrying capacity “as sold” to the first re tail purchaser. NHTSA concluded that these changes increased clarity, were consistent with EPCA and EISA, and responded to the Ninth Circuit’s decision with rega rd to vehicle classification.

However, NHTSA recognizes that manufacturers may have an incentive to classify vehicles as light trucks if the fuel economy target for light trucks with a given footprint is less stringent than the target for passenger cars with the same footprint. This is often the case given the current fleet, due to the fact that the curves are based on actual fuel economy capabilities of the vehicles to which they apply. Because of characteristics like 4WD and towing and hauling capacity (and correspondingly, although not necessarily, heavier weight), the vehicles in the current light truck fleet are generally less capable of achieving higher fuel economy levels as compared to the vehicles in the passenger car fleet. 2WD SUVs are the vehicles that could be most readily redesigned so that they can be “moved” from the passenger ca r to the light truck fleet. A manufacturer could do this by adding a third row of seats, for example, or boosting GVWR over 6,000 lbs for a 2WD SUV that already meets the ground clearance requirements for “off-road capability.” A change like this may only be possible during a vehicle redesign, but since vehicles are redesigned, on average, every 5 years, at least some manufacturers may choose to make such changes before or during the model years covered by this rulemaking.

In the NPRM, in looking forward to model years beyond 2011 and consideringhow CAFE should operate in the context of the National Program and previouslyreceived comments as requested by President Obama, NHTSA sought comment on the following potential changes to NHTSA’s vehicle classification system, as well as on whether, if any of the changes were to be adopted, they should be applied to any of the

674 538 F.3d 1172 (9 th Cir. 2008).603 model years covered by this rulemaking or whether, due to lead time concerns, they should apply only to MY 2017 and thereafter.

Reclassifying minivans and other “3-row” light trucks as passenger cars ( i.e. , removing 49 CFR 523.5(a)(5)) :

NHTSA has received repeated comments over the course of the last several rulemakings from environmental and consumer groups regarding the classification of minivans as light trucks instead of as passenger cars. Commenters have argued that because minivans generally have three rows of seats, are built on unibody chassis, and are used primarily for transporting passengers, they should be classified as passenger cars. NHTSA did not accept these arguments in the MY 2011 final rule, due to concerns that moving minivans to the passenger car fleet would lower the fuel economy targets for those passenger cars having essentially the same footprint as the minivans, and thus lower the overall fuel average fuel economy level th at the manufacturers would need to meet.However, due to the new methodology for setting standards, the as-yet-unknown fueleconomy capabilities of future minivans and 3-row 2WD SUVs, and the unknown state of the vehicle market (particularly for MYs 2 017 and beyond), NHTSA did not feel that it could say with certainty that moving these vehicles could negatively affect potential stringency levels for either passenger cars or light trucks. Thus, although such a change would not be made applicable during the MY 2012-2016 time frame, NHTSA sought comment on why the agency should or should not consider, as part of this rulemaking, reclassifying minivans (and other current light trucks that qualify as such because they have three rows of designated seating posi tions as standard equipment) for MYs 2017

and after.

Comments received on this issue were split between support and opposition. As perhaps expected, the Alliance, AIAM, NADA, Chrysler, Ford, and Toyota all

commented in favor of mainta ining 3-row vehicles as light trucks indefinitely. The Alliance and Chrysler stated that the existing definitions for light trucks are consistent with Congressional intent in EPCA and EI SA, given that Congress could have changed the 3-row definition in passing EISA but did not do so. The Alliance, AIAM, and Chrysler also argued that the functional characteristics of 3-row vehicles do make them “truck-like,” citing their “high lo ad characteristics” and ability to carry cargo if their seats are stowed or removed. Ford and Toyota emphasized the need for stability in the definitions as manufacturers adjust to the recent reclassification of many 2WD SUVs from the truck to the car fleet, and the A lliance argued further that moving the 3-row vehicles to the car fleet would simply deter manufacturers from continuing to provide them, causing consumers to purchase larger full-size vans instead and resulting in less fuel savings and emissions reductions. Toyota stated further that no significant changes have occurred in the marketplace (as in, not all 2WD SUVs suddenly have 3 rows) to trigger additional reclassification beyond that required by the MY 2011 final rule. Hyundai neither supported nor objected to reclassification, but requested ample lead time for the industry if any changes are eventually made.604 Other commenters favored reclassification of 3-row vehicles from the truck to the car fleet: NJ DEP expressed general suppor t for reclassifying 3-row vehicles for MYs 2017 and beyond, while the UCSB student commenters seemed to support reclassifying these vehicles for the current rulemaking. The UCSB students stated that EPCA/EISA properly distinguishes light trucks based on th eir “specialized utility,” either their ability to go off-road or to transport material loads, but that 3-row vehicles do not generally have such utility as sold, and are clearly primarily sold and used for transporting passengers. The UCSB students suggested that reclassify ing the 3-row vehicles from the truck to the car fleet could help to ensure the anticipated levels of fuel savings by moving the fleet closer to the 67/33 fleet split assumed in the agencies’ analysis for MY 2016, and stated that this would increase fuel economy over the long term. The students urged NHTSA to look at the impact on fuel savings from recl assifying these vehicles for the model years covered by the rulemaking.

In response, NHTSA did conduct such an analysis to attempt to consider the impact of moving these vehicles. As previous ly stated, the agency’s hypothesis is that moving 3-row vehicles from the truck to the car fleet will tend to bring the achieved fuel economy levels down in both fleets – the car fleet achieved levels could theoretically fall due to the introduction of many more vehicles that are relatively heavy for their footprint and thus comparatively less fuel economy-capable, while the truck fleet achieved levels could theoretically fall due to the characteris tics of the vehicles remaining in the fleet (4WDs and pickups, mainly) that are often comparatively less fuel-economy capable than 3-row vehicles, although more vehicles would be subject to the relatively more stringent passenger car standards, assuming the curves were not refit to the data.

The agency first identified which vehicles should be moved. We identified all of the 3-row vehicles in the baseline (MY 2008) fleet, 675 and then considered whether any could be properly classified as a light truck under a different provision of 49 CFR § 523.5 – about 40 vehicles were classifiable under § 523.5(b) as off-highway capable.

The agency then transferred those remain ing 3-row vehicles from the light truck to the passenger car input sheets for the Volpe model, re-estimated the gap in stringency between the passenger car and light truck standa rds, shifted the curves to obtain the same overall average required fuel economy as under the final standards, and ran the model to evaluate potential impacts (in te rms of costs, fuel savings, et c.) of moving these vehicles. The results of this analysis may be found in the same location on NHTSA’s web site as the results of the analysis of the final standards. In summary, moving the vehicles reduced the stringency of the passenger car standards by approximately 0.8 mpg on average for the five years of the rule, and reduced the stringency of the light truck standards by approximately 0.2 mpg on average for the five years of the rule. It also caused the gap between the car curve and the truck curve to decrease or narrow slightly, by 0.1 mpg. However, the analysis also showed that such a shift in 3-row vehicles could

675 Of the 430 light trucks models in the fleet, 175 of these had 3 rows.605 result in approximately 676 million fewer gallo ns of fuel consumed (equivalent to about 1 percent of the reduction in fuel consumption under the final standards) and 7.1 mmt

fewer CO 2 emissions (equivalent to about 1 percent of the reduction in CO 2 emissions under the final standards) over the lifetime of the MYs 2012-2016 vehicles. This result is attributable to slight differences (due to rounding precision) in the overall average required fuel economy levels in MYs 2012-2014, and to the retention of the relatively high lifetime mileage accumulation (compared to “traditional” passenger cars) of the vehicles moved from the light truck fleet to the passenger car fleet.

The changes in overall costs and vehicle price did not necessarily go in the same direction for both fleets, however. Overall costs of applying technology for the passenger car fleet went up approximately $1 billion per year for each of MYs 2012-2016, while overall costs for the light truck fleet went down by an average of approximately $800 million for each year, such that the net effect was approximately $200 million additional spending on technology each year (equivalent to about 2 percent of the average increase in annual technology outlays under the final standards). Assuming manufacturers would pass that cost forward to consumers by incr easing vehicle costs, vehicle prices would increase by an average of approximately $13 during MYs 2012-2016.

However, one important point to note in th is comparative analysis is that, due to time constraints, the agency did not attempt to refit the respective fleet target curves or to change the intended required stringency in MY 2016 of 34.1 mpg for the combined

fleets. If we had refitted curves followin g the same procedures described above in Section II, considering the vehicles in question, we expect that we might have obtained a somewhat steeper passenger car curve, and a somewhat flatter light truck curve. If so, this might have increased the gap in between portions of the passenger car and light truck

curves.

NHTSA agrees with the industry commenters that some degree of stability in the passenger car and light truck definitions will a ssist the industry in making the transition to the stringency of the new National Program , and therefore will not reclassify 3-row vehicles to the passenger car fleet for purp oses of MYs 2012-2016. Going forward, the real question is how to balance the benefits of regulatory stability against the potential benefits of greater fuel savings if reclassification is determined to lead in that direction. NHTSA believes that this question merits mu ch further analysis before the agency can make a decision for model years beyond MY 2016, and will provid e further opportunity for public comment regarding that analysis prior to finalizing any changes in the future.

Classifying “like” vehicles together :

Many commenters objected in the rulemaking for the MY 2011 standards to NHTSA’s regulatory separation of “like” vehi cles. Industry commenters argued that it was technologically inappropriate for NHTSA to place 4WD and 2WD versions of the same SUV in separate classes. They argued that the vehicles are the same, except for606 their drivetrain features, thus giving them similar fuel economy improvement potential. They further argued that all SUVs should be classified as light trucks. Environmental and consumer group commenters, on the other hand, argued that 4WD SUVs and 2WD SUVs that are “off-highway capable” by virtue of a GVWR above 6,000 pounds should be classified as passenger cars, since they are primarily used to transport passengers. In the MY 2011 rulemaking, NHTSA rejected both of these sets of arguments. NHTSA

concluded that 2WD SUVs that were ne ither “off-highway capable” nor possessed “truck-like” functional characteristics were appr opriately classified as passenger cars. At the same time, NHTSA also concluded th at because Congress explicitly designated vehicles with GVWRs over 6,000 pounds as “off-highway capable” (if they meet the ground clearance requirements established by the agency), NHTSA did not have authority to move these vehicles to the passenger car fleet.

With regard to the first argument, that “like” vehicles should be classified similarly ( i.e. , that 2WD SUVs should be classified as light trucks because, besides their drivetrain, they are “like” the 4WD versio n that qualifies as a light truck), NHTSA continues to believe that 2WD SUVs that do not meet any part of the existing regulatory definition for light trucks should be classi fied as passenger cars. However, NHTSA recognizes the additional point raised by industry commenters in the MY 2011 rulemaking that manufacturers may respond to this tighter classification by ceasing to build 2WD versions of SUVs, which could reduce fuel savings. In response to that point,

NHTSA stated in the MY 2011 final rule that it expects that manufacturer decisions about whether to continue building 2WD SUVs will be driven in much greater measure by consumer demand than by NHTSA’s regulatory definitions. If it appears, in the course of the next several model years, that manufacturers are indeed responding to the CAFE regulatory definitions in a way that reduces overall fuel savings from expected levels, it may be appropriate for NHTSA to review this question again. NHTSA sought comment in the NPRM on how the agency might go about reviewing this question as more information about manufacturer behavior is accumulated, but no commenters really responded to this issue directly, although se veral cited the possibility that manufacturers might cease to build 2WD SUVs as a way of avoiding the higher passenger car curve targets in arguing that the agencies should implement backstop standards for all fleets.

Since NHTSA has alread y stated above that it will revi sit the backstop question as necessary in the future, we may as well add that we will consider the need to classify “like” vehicles together as necessary in the future.

With regard to the second argument, that NHTSA should move vehicles that qualify as “off-highway capable” from the light truck to the passenger car fleet because they are primarily used to transport passengers , NHTSA reiterates that EPCA is clear that certain vehicles are non-passenger automobiles ( i.e. , light trucks) because of their offhighway capabilities, regardless of how they may be used day-to-day.

However, NHTSA suggested in the NP RM that it could explore additional approaches, although it cautioned that not all could be pursued on current law. Possible607 alternative legal regimes might include: a) classifying vehicles as passenger cars or light trucks based on use alone (rather than characteristics); b) removing the regulatory distinction altogether and setting standards for the entire fleet of vehicles instead of for separate passenger car and light truck flee ts; or c) dividing the fleet into multiple categories more consistent with current vehicle fleets ( i.e. , sedans, minivans, SUVs, pickup trucks, etc.). NHTSA sought comment on whether and why it should pursue any

of these courses of action.

Some commenters (ICCT, CBD, NESCAUM) did raise the issue of removing the regulatory distinction between car s and trucks and setting standa rds for the entire fleet of vehicles, but those commenters did not appear to recognize the fact that EPCA/EISA expressly requires that NHTSA set separate standards for passenger cars and light trucks. As the statute is currently written, NHTSA does not believe that a single standard would be appropriate unless the observed relationship between footprint and fuel economy of the two fleets converged significantly over time. Nevertheless, NHTSA will continue to monitor the issue going forward.

Besides these issues in vehicle cla ssification, NHTSA additionally received

comments from two manufacturers on issues not raised by NHTSA in the NPRM. VW requested clarification with respect to how the agency evaluates a vehicle for off-road capability under 49 CFR § 523.5(b)(2), asking the agency to measure vehicles with “active ride height management” at the “h eight setting representative of off-road operation if the vehicle has the capability to change ride height.” NHTSA issued an interpretation to Porsche in 2004 addressing this issue, when Porsche asked whether a

driver-controlled variable ride height suspension system co uld be used in the “off-road” ride height position to meet the suspension parameters required for an off- road

classification determination. 676 Porsche argued that a vehicle should not need to satisfythe four-out-of-five criteria at all ride heights in order to be deemed capable of offhighway operation. NHTSA agreed that 523.5(b)(2) does not require a vehicle to meet

four of the five criteria at all ride heights, but stated that a vehicle must meet four out of

the five criteria in at least one ride height. The agency determined that it would be appropriate to measure the vehicle’s runni ng clearance with the vehicle’s adjustable suspension placed in the position(s) intended for off-road operation under real-world

conditions.

Thus, NHTSA clarifies that the agency would consider it appropriate to measure vehicles for off-road capability at the height setting intended for off-road operation under real-world conditions. However, we note that before this question need be asked and answered, the vehicle must first either be equipped with 4WD or be rated at more than 6,000 pounds gross vehicle weight to be eligible for classification as a light truck under 49 CFR 523.5(b).

676 Available at http://isearch.nhtsa.gov/files/porschevrhs.html (last accessed Mar. 1, 2010).608 The final comment on the issue of vehicle classification was received from Honda, who recommended that deformable aero parts, such as strakes, should be excluded from the ride height measurements th at determine whether a vehicle qualifies as a truck for off-road capability. The air st rakes described by Honda are semi-deformable parts similar to a mud flap that can be used to improve a vehicle’s aerodynamics, and thus to improve its fuel economy. Honda argued that NHTSA would deter the application of this technology if it did not agree to measure ride height with the air strakes at their most deformed state, becaus e otherwise a vehicle so equipped would have to be classified as a passenger car and thus be faced with the more stringent standard.

In response, Honda did not provide enough information to the agency for the agency to make a decision with regard to how air strakes should be considered in measuring a vehicle for off-road capability. NHTSA personnel would prefer to directly examine a vehicle equipped with these devices before considering the issue further. The agency will defer consideration of this issue to another time, and no changes will be made in this final rule in response to this comment.

I. Compliance and Enforcement

1. Overview

NHTSA’s CAFE enforcement program and the compliance flexibilities available to manufacturers are largely established by statute – unlike the CAA, EPCA and EISA are very prescriptive and leave the agency lim ited authority to increase the flexibilities available to manufacturers. This was intentional, however. Congress balanced the energy saving purposes of the statute against the benefits of the various flexibilities and incentives it provided and placed precise limi ts on those flexibilities and incentives. For example, while the Department sought authority for unlimited transfer of credits between a manufacturer’s car and light truck fleets, Congress limited the extent to which a manufacturer could raise its average fuel economy for one of its classes of vehicles through credit transfer in lieu of adding more fuel saving technologies. It did not want these provisions to slow progress toward achieving greater energy conservation or other policy goals. In keeping with EPCA’s focus on energy conservation, NHTSA has done its best, for example, in crafting the credit transfer and trading regulations authorized by EISA, to ensure that total fuel savings ar e preserved when manufacturers exercise their compliance flexibilities.

The following sections explain how NHTSA determines whether manufacturers are in compliance with the CAFE standards for each model year, and how manufacturers may address potential non-compliance situations through the use of compliance flexibilities or fine payment.

2. How Does NHTSA Determine Compliance?609 a. Manufacturer Submission of Data and CAFE Testing by EPA

NHTSA begins to determine CAFE co mpliance by considering pre- and midmodel year reports submitted by manufacturers pursuant to 49 CFR Part 537, Automotive Fuel Economy Reports. 677 The reports for the current model year are submitted to NHTSA every December and July. As of the time of this final rule, NHTSA has received pre-model year reports from manufacturers fo r MY 2010, and anticipates receiving mid-- model year reports for MY 2010 in July of this year. Although the reports are used for NHTSA’s reference only, they help the agency, and the manufacturers who prepare them, anticipate potential compliance issues as early as possible, and help manufacturers plan compliance strategies. Currently, NHTSA rece ives these reports in paper form. In order to facilitate submission by manufacturers an d consistent with the President’s electronic government initiatives, NHTSA proposed to amend Part 537 to allow for electronic submission of the pre- and mid-model year CAFE reports. The only comments addressing this proposal were from Ferrari, who supported it in the interest of efficiency, and Ford, who did not object as long as CBI wa s sufficiently protected. Having received no comments objecting, NHTSA is fina lizing this change to Part 537.

NHTSA makes its ultimate determinatio n of manufacturers’ CAFE compliance upon receiving EPA’s official certified and reported CAFE data. The EPA certified data is based on vehicle testing and on final model year data submitted by manufacturers to EPA pursuant to 40 CFR 600.512, Model Year Report, no later than 90 days after the end of the calendar year. Pursuant to 49 U.S.C. 32904(e), EPA is responsible for calculating

automobile manufacturers’ CAFE values so that NHTSA can determine compliance with the CAFE standards. In measuring the fuel economy of passenger cars, EPA is required by EPCA 678 to use the EPA test procedures in place as of 1975 (or procedures that give comparable results), which are the city and hi ghway tests of today, with adjustments for procedural changes that have occurred since 1975. EPA uses similar procedures for light trucks, although, as noted above, EPCA does not require it to do so.

As discussed above in Section III, a number of commenters raised the issue of whether the city and highway test procedures and the calculation are still appropriate or whether they may be outdated. Several commenters argued that the calculation should be more “real-world”: for example, ACEEE stated that EPA should use a “correction

factor” like the one used for the fuel economy label in the interim until test procedures can be changed, while BorgWarner, Cummins, Honeywell, MECA, and MEMA argued that EPA should change the weighting of the city and highway cycles (to more highway and less city) to reflect current American driving patterns and to avoid biasing the calculation against technologies that provide greater efficiency in highway driving than in city driving. Sierra Club et al . commented that the fact that EPA was proposing to allow off-cycle credits indicated that the test pro cedures and the calculation needed updating. Several commenters (API, James Hyde, MECA, NACAA, and NY DEC) stated that the

677 49 CFR Part 537 is authorized by 49 U.S.C. 32907.

678 49 U.S.C. 32904(c).610 test procedures should use more “real-world” fu el, like E-10 instead of “indolene clear.”

The UCSB students also had a number of co mments aimed at making the test procedures more thorough and real-world. Several industry -related commenters (AIAM, Ferrari, and Ford) argued to the contrary that existing test procedures and calculations are fine for now, and that any changes would require signifi cant lead time to allow manufacturers to adjust their plans to the new procedures.

Statutorily, the decision to change the test procedures or calculation is within EPA’s discretion, so NHTSA will not attemp t to answer these comments in detail, see

supra Section III.[x] for EPA’s responses. We note simply that the agency recognizes the

need for lead time for the indu stry if test procedures were to change in the future to become more real-world, and will keep it in mind.

One notable shortcoming of the 1975 test procedure is that it does not include a provision for air conditioner usage during the te st cycle. As discussed in Section III above, air conditioner usage increases the load on a vehicle’s engine, reducing fuel efficiency and increasing CO 2 emissions. Since the air conditioner is not turned on during testing, equipping a vehicle model with a relatively inefficient air conditioner will not adversely affect that model’s measured fuel economy, while equipping a vehicle model with a relatively efficient air conditione r will not raise that model’s measured fuel economy. The fuel economy test procedures for light trucks could be amended through rulemaking to provide for air conditioner operation during testing and to take other steps for improving the accuracy and representativeness of fuel economy measurements. In the NPRM, NHTSA sought comment regarding implementing such amendments beginning in MY 2017 and also on the more immediate interim step of providing credits under 49 U.S.C. 32904(c) for light trucks equipped with relatively efficient air conditioners for MYs 2012-2016. NHTSA emphasized that modernizing the passenger car test procedures as well would not be possible under EPCA as currently written.

Comments were split as to whether the test procedure should be changed. Several manufacturers and manufacturer groups (BMW, GM, Toyota, VW, the Alliance) opposed changes to the test procedures to account for A/C usage on the grounds that any changes could create negative unintended consequences. Public Citizen also opposed changes to the test procedure, arguing that the fuel economy information presented to the consumer on the fuel economy label is already confusing, and that further changes to the light truck test procedures when there was no authority to change the passenger car test procedures would simply result in more confusion. In contrast, NJ DEP fully supported changes to the light truck test procedures beginning with MY 2017, and an individual commenter (Weber) also supported the inclusion of A/C in the test procedures to represent real-world

“A/C on” time.

However, some of the same commenters –BMW, Toyota, and VW, for example – that opposed changes to the test procedure supported NHTSA allowing credits for A/C. Toyota stated that it supported anything that increased compliance flexibility, while VW611 emphasized that A/C credits for CAFE would help to address the fact that NHTSA’s standards could end up being more stringent than EPA’s for manufacturers relying heavily on A/C improvements to meet the GHG standards. NJ DEP also supported interim A/C credits for light trucks, but in contrast to VW, argued that the light truck standards would have to be made more stringent to account for those credits if they were

allowed.

Other commenters (Chrysler, Daimler, Ferr ari) supported interim A/C credits for light truck CAFE, but stated that such credits could simply be added to EPA’s calculation of CAFE under 49 U.S.C. 32904(c) without any change in the test procedure ever being necessary. Daimler stated that the prohibition on changing the test procedure, according to legislative history, was to avoid sudden and dramatic changes and provide consistency for manufacturers in the beginning of the CAFE program, but that nothing indicated that EPA was barred from updating the way a manufacturer’s fuel economy is calculated after the test procedures are followed. Daimler emphasized that EPA has broad authority in how it calculates fuel economy, and that adding credits at the end of the calculation would make CAFE more consistent with the GHG program and recognize real-world benefits not measured by the test cycle. Daimler argued that if EPA did not include A/C credits as part of the calculation, it would remove incentives to improve A/C, because those gains could not be used for CAFE compliance and NHTSA has no authority to include A/C in determining stringency, beca use A/C is a “parasitic load” that does not impact mpg.

Some commenters opposed interim A/C cred its. CARB stated that no A/C credits should be given under EPCA unless the test procedures can be changed to fully account for A/C and NHTSA is given clear authority for A/C, while GM stated that NHTSA’s authority to create additional types of credits must be limited by the fact that Congress clearly provided in EPCA for some types of CAFE credits but not for A/C-related credits

for CAFE.

NHTSA has decided not to implement interim A/C credits for purposes of this final rule and MYs 2012-2016 light trucks. Changes to the test procedure for light trucks will be considered by the agencies in subsequent rulemakings.

While NHTSA agrees with commenters that the EPA authority to consider how fuel economy is calculated is broad, especially as to light trucks, we disagree that credits could simply be added to the CAFE calculation without making parallel changes in CAFE standard stringency to re flect their availability. CAFE stringency is determined, in part, with reference to the technologies available to manufacturers to improve mpg. If a technology draws power from the engine, like A/C, then making that technology more efficient to reduce its load on the engine will conserve fuel, consistent with EPCA’s purposes. However, as noted above, some technologies that improve mpg are not accounted for in current CAFE test procedures . NHTSA agrees that the test procedures should be updated to account for the real-world loads on the engine and their impact on612 fuel economy, but recognizes that manufacturers will need lead-time and advance notice in order to ready themselves for such changes and their impact on CAFE compliance.

Thus, if manufacturers are able to achieve improvements in mpg that are not reflected on the test cycle, then the level of CAFE that they are capable of achieving is higher than that which their performance on the test cycle would otherwise indicate, which suggests, in turn, that a higher stringen cy is feasible. NHTSA has determined that the current CAFE levels being finalized toda y are feasible using traditional “tailpipe technologies” alone. If manufacturers are capable of improving fuel economy beyond that level using A/C technologies, and wish to receive credit for doing so, then NHTSA believes that more stringent CAFE standards w ould need to be established. Not raising

CAFE could allow manufacturers to leave ta ilpipe technology on the table and make cheaper A/C improvements, which would not result in the maximum feasible fuel savings contemplated by EPCA.

Because raising CAFE stringency in conjunction with allowing A/C credits was not a possibility clearly contemplated in the NPRM, NHTSA does not believe that it would be within scope of notice for purposes of this rulemaking. Accordingly, the final rule cannot provide for interim A/C credits . However, if NHTSA were to allow A/C credits in the future, NHTSA believes it wo uld be required to increase standard stringency accordingly, to av oid losses in fuel savings, as stated above. NHTSA will consider this approach further, ensuring that any changes to the treatment of A/C andaccompanying changes in CAFE stringency are made with sufficient notice and leadtime.

b. NHTSA Then Analyzes EPA-Certified CAFE Values for Compliance

Determining CAFE compliance is fairly straightforward: after testing, EPA verifies the data submitted by manufact urers and issues final CAFE reports to manufacturers and to NHTSA between April a nd October of each year (for the previous model year), and NHTSA then identifies the manufacturers’ compliance categories (fleets) that do not meet the applicable CAFE fleet standards.

To determine if manufacturers have earned credits that would offset those shortfalls, NHTSA calculates a cumulative cr edit status for each of a manufacturer’s vehicle compliance categories according to 49 U.S.C. 32903. If a manufacturer’s compliance category exceeds the applicable fuel economy standard, NHTSA adds credits to the account for that compliance category. If a manufacturer’s vehicles in a particular compliance category fall below the standard fuel economy value, NHTSA will provide

written notification to the manufacturer that it has not met a particular fleet standard. The manufacturer will be required to confirm th e shortfall and must either: submit a plan indicating it will allocate existing credits, and/ or for MY 2011 and later, how it will earn, transfer and/or acquire credits; or pay the ap propriate civil penalty. The manufacturer must submit a plan or payment within 60 days of receiving agency notification. The613 amount of credits are determined by multiplying the number of tenths of a mpg by which a manufacturer exceeds, or falls short of, a standard for a particular category of automobiles by the total volume of automob iles of that category manufactured by the manufacturer for a given model year. Credits us ed to offset shortfalls are subject to the three and five year limitations as described in 49 U.S.C. 32903(a). Transferred credits are subject to the limitations specified by 49 U.S.C. 32903(g)(3). The value of each credit, when used for compliance, received via trade or transfer is adjusted, using the adjustment factor described in 49 CFR Part 536.4, pursuant to 49 U.S.C. 32903(f)(1). Credit allocation plans received from the manu facturer will be reviewed and approved by NHTSA. NHTSA will approve a credit allocation plan unless it finds the proposed credits are unavailable or that it is unlikely that the plan will result in the manufacturer earning sufficient credits to offset the subjec t credit shortfall. If a plan is approved, NHTSA will revise the respective manufacturer’s credit account accordingly. If a plan is rejected, NHTSA will notify the respective manufacturer and request a revised plan or payment of the appropriate fine.

In the event that a manufacturer does not comply with a CAFE standard, even

after the consideration of cred its, EPCA provides for the assessing of civil penalties. The Act specifies a precise formula for determinin g the amount of civil penalties for such a noncompliance. The penalty, as adjusted for inflation by law, is $5.50 for each tenth of a mpg that a manufacturer’s average fuel economy falls short of the standard for a given model year multiplied by the to tal volume of those vehicles in the affected fleet ( i.e., import or domestic passenger car, or light truck), manufactured for that model year. The amount of the penalty may not be reduced except under the unusual or extreme circumstances specified in the statute. All pe nalties are paid to the U.S. Treasury and not

to NHTSA itself. 679

Unlike the National Traffic and Motor Vehicle Safety Act, EPCA does not provide for recall and remedy in the event of a noncompliance. The presence of recall and remedy provisions 680 in the Safety Act and their abse nce in EPCA is believed to arise from the difference in the application of the safety standards and CAFE standards. A safety standard applies to individual vehicles; that is, each vehicle must possess the requisite equipment or feature which must provide the requisite type and level of performance. If a vehicle does not, it is noncompliant. Typically, a vehicle does not entirely lack an item or equipment or feature. Instead, the equipment or features fails to perform adequately. Recalling the vehicle to repair or replace the noncompliant equipment or feature can usually be readily accomplished.

679 Honeywell commented that any fines imposed and collected under the CAFE and GHG standards should be appropriated to the development of vehicle t echnologies that continue to improve fuel economy in the future, and that the direct application of the penalties collected would support the underlying legislative policy and drive innovation. While NHTSA certainly would not oppose such an outcome, it would lie within the hands of Congress and not the agen cy to direct the use of the fines in that manner.

680 49 U.S.C. 30120, Remedies for defects and noncompliance.614 In contrast, a CAFE standard applies to a manufacturer’s entire fleet for a model year. It does not require that a particul ar individual vehicle be equipped with any particular equipment or feature or meet a partic ular level of fuel economy. It does requirethat the manufacturer’s fleet, as a whole, comply. Further, although under the attributebased approach to setting CAFE standards fuel economy targets are established for individual vehicles based on their footprints, the vehicles are not required to comply with those targets on a model-by-model or vehicle-by-vehicle basis. However, as a practical matter, if a manufacturer chooses to design some vehicles so they fall below their target levels of fuel economy, it will need to design other vehicles so they exceed their targets if the manufacturer’s overall fleet average is to meet the applicable standard.

Thus, under EPCA, there is no such thing as a noncompliant vehicle, only a noncompliant fleet. No particular vehicle in a noncompliant fleet is any more, or less, noncompliant than any other vehicle in the fleet.

After enforcement letters are sent, NHTSA continues to monitor receipt of credit allocation plans or civil penalty payments that are due within 60 days from the date of receipt of the letter by the vehicle manu facturer, and takes further action if the manufacturer is delinquent in responding.

Several commenters encouraged the agency to increase the transparency of how the agency monitors and enforces CAFE compli ance. EDF, Public Citizen, Sierra Club et
al ., UCS, and Porsche all commented that NHTSA should publish an annual compliance report for manufacturers, and Porsche suggested that it be available online. Sierra Club et
al . and Porsche stated that this would help cl arify manufacturers’ credit status (for the benefit of the public and manufacturers looking to purchase credits, respectively) and sales, and Sierra Club et al . further stated that the agen cy should make public all information regarding credits and attained versus projected fleet average mpg levels. EDF similarly urged the agency to provide pub licly a compliance report every year that would include any recommended adjustments to the program, enforcement actions, or prospective policy action to ensure the policy objectives are achieved.

In response, NHTSA agrees that there co uld be substantial benefits to increasing the transparency of information concerning the credit holdings of each credit holder. Along with the MY 2011 final rule, NHTSA issued a new regulation 49 CFR Part 536 to implement the new CAFE credit trading and transfer programs authorized by EISA. Paragraph 536.5(e) requires that we periodically publish credit holding information. NHTSA plans to make this information availa ble to the public on the NHTSA web site. The exact format that will be used to display this information has not been finalized but it is our plan to begin making this information available no later than calendar year 2011 to

coincide with MY 2011 when manufacturers may begin utilizing credit trades and

transfers.615 3. What Compliance Flexibilities Ar e Available under the CAFE Program

and How Do Manufacturers Use Them?

There are three basic flexibilities permitted by EPCA/EISA that manufacturerscan use to achieve compliance with CAFE standards beyond applying fuel economyimproving technologies: (1) building dual- and alternative-fueled vehicles; (2) banking, trading, and transferring credits earned for exceeding fuel economy standards; and (3) paying fines. We note again that while these flexibility mechanisms will reduce compliance costs to some degree for most manufacturers, 49 U.S.C. 32902(h) expressly prohibits NHTSA from consideri ng the availability of credits (either for building dual- or

alternative-fueled vehicles or from accumula ted transfers or trades) in determining the level of the standards. Thus, NHTSA may not raise CAFE standards because manufacturers have enough credits to meet higher standards. This is an important difference from EPA’s authority under the CAA, which does not contain such a restriction, and which allows EPA to set higher standards as a result.

a. Dual- and Alternative-Fueled Vehicles

As discussed at length in prior rulemakings, EPCA encourages manufacturers to build alternative-fueled and dual- (or flexible -) fueled vehicles by providing special fuel economy calculations for “dedicated” (that is, 100 percent) alternative fueled vehicles and “dual-fueled” (that is, capable of running on either the alternative fuel or gasoline) vehicles. The fuel economy of a dedicated alternative fuel vehicle is determined by dividing its fuel economy in equivalent miles per gallon of gasoline or diesel fuel by

0.15. 681 Thus, a 15 mpg dedicated alternative fuel vehicle would be rated as 100 mpg. For dual-fueled vehicles, the rating is the average of the fuel economy on gasoline or diesel and the fuel economy on the alternative fuel vehicle divided by 0.15. 682

For example, this calculation procedure turns a dual-fueled vehicle that averages 25 mpg on gasoline or diesel into a 40 mpg vehicle for CAFE purposes. This assumes that (1) the vehicle operates on gasoline or diesel 50 percent of the time and on alternative fuel 50 percent of the time; (2) fuel economy while operating on alternative fuel is 15 mpg (15/.15 = 100 mpg); and (3) fu el economy while operating on gas or diesel is 25 mpg. Thus:

CAFE FE = 1/{0.5/(mpg gas) + 0.5/(mpg alt fuel)} = 1/{0.5/25 + 0.5/100) = 40 mpg

In the case of natural gas, the calculat ion is performed in a similar manner. The fuel economy is the weighted average while operating on natural gas and operating on gas or diesel. The statute specifies that 100 cubic feet (ft 3 ) of natural gas is equivalent to 0.823 gallons of gasoline. The gallon equivalency of natural gas is equal to 0.15 (as for

681 49 U.S.C. 32905(a).

682 49 U.S.C. 32905(b)616 other alternative fuels). 683 Thus, if a vehicle averages 25 miles per 100 ft 3 of natural gas,

then:

CAFE FE = (25/100) * (100/.823)*(1/0.15) = 203 mpg

Congress extended the incentive in EISA for dual-fueled automobiles through MY 2019, but provided for its phase out between MYs 2015 and 2019. 684 The maximum fuel economy increase which may be attribut ed to the incentive is thus as follows:

Model Year mpg increase

MYs 1993-2014........... 1.2

MY 2015................... 1.0

MY 2016................... 0.8

MY 2017................... 0.6

MY 2018................... 0.4

MY 2019................... 0.2

After MY 2019............ 0

49 CFR Part 538 implements the statutory alternative-fueled and dual-fueled automobile manufacturing incentive. NHTSA upd ated Part 538 as part of this final rule to reflect the EISA changes extending the ince ntive to MY 2019, but to the extent that 49 U.S.C. 32906(a) differs from the current version of 49 CFR 538.9, the statute supersedes the regulation, and regulated parties may rely on the text of the statute.

A major difference between EPA’s statutory authority and NHTSA’s statutory authority is that the CAA contains no specif ic prescriptions with regard to credits for dual- and alternative-fueled vehicles comparable to those found in EPCA/EISA. As an exercise of that authority, and as discusse d in Section III above, EPA is offering similar

credits for dual- and alternativ e-fueled vehicles through MY 2015 for compliance with its

CO 2 standards, but for MY 2016 and beyond EPA will establish CO 2 emission levels for

alternative fuel vehicles based on measurement of actual CO 2 emissions during testing, plus a manufacturer demonstration that the vehicles are actually being run on the

alternative fuel. The manufacturer would th en be allowed to weight the gasoline and alternative fuel test results based on the pr oportion of actual usage of both fuels, as discussed above in Section III.[x]. NHTSA has no such authority under EPCA/EISA to require that vehicles manufactured for the purpose of obtaining the credit actually be run on the alternative fuel, but re quested comment in the NPRM on whether it should seek legislative changes to revise its authority to address this issue.

683 49 U.S.C. 32905(c).

684 49 U.S.C. 32906(a). NHTSA notes that the incentive for dedicated alternative-fuel automobiles, automobiles that run exclusively on an alternative fuel, at 49 U.S.C. 32905(a), was not phased-out by

EISA.617 NHTSA received only one comment on th is issue: VW commented that NHTSA should not seek a change in its authority, because Congress’ intent for NHTSA is alreadyclear. VW did, however, encourage NHTSA to include the statutory FFV credit phaseout in Part 538, which the agency is doing.

b. Credit Trading and Transfer

As part of the MY 2011 final rule, NHTSA established Part 536 for credit trading

and transfer. Part 536 im plements the provisions in EISA authorizing NHTSA to establish by regulation a cred it trading program and directing it to establish by regulation a credit transfer program. 685 Since its enactment, EPCA has permitted manufacturers to earn credits for exceeding the standards and to carry those credits backward or forward. EISA extended the “carry-forward” period from three to five model years, and left the “carry-back” period at three model years. Under Part 536, credit holders (including, but not limited to, manufacturers) will have cr edit accounts with NHTSA, and will be able to hold credits, use them to achieve compli ance with CAFE standards, transfer them between compliance categories, or trade them. A credit may also be cancelled before its expiry date, if the credit holder so chooses. Traded and transferred credits are subject to an “adjustment factor” to ensure total oil savings are preserved, as required by EISA. 686
EISA also prohibits credits earned before MY 2011 from being transferred, so NHTSA has developed several regulatory restrictions on trading and transferring to facilitate Congress’ intent in this regard. EISA also establishes a “cap” for the maximum increase in any compliance category attributable to transferred credits: for MYs 2011-2013, transferred credits can only be used to increase a manufacturer’s CAFE level in a given compliance category by 1.0 mpg; for MYs 2014-2017, by 1.5 mpg; and for MYs 2018 and beyond, by 2.0 mpg.

NHTSA recognizes that some manufacturers may have to rely on credit transferring for compliance in MYs 2012-2017. 687 As a way to improve the transferring flexibility mechanism for manufacturers, NH TSA interprets EISA not to prohibit the

685 Congress required that DOT establish a credit “transferring” regulation, to allow individual manufacturers to move credits from one of their fleets to another ( e.g. , using a credit earned for exceeding the light truck standard for compliance with the dome stic passenger car standard). Congress allowed DOT to establish a credit “trading” regulation, so that credits may be bought and sold between manufacturers and other parties.

686 Ford and Toyota both commented on NHTSA’s use of the adjustment factor: Ford stated that it preferred a streamlined “megagrams” approach like EP A was proposing, while Toyota stated that NHTSA and EPA should use consistent VMT estimates for purposes of all analysis and for use in the adjustment factor. In response to Ford, NHTSA is maintaining use of the adjustment factor just finalized last March, which uses mpg rather than gallons or grams and is thus consistent with the rest of the CAFE program. In response to Toyota, NHTSA agrees that consistency of VMT estimates should be maintained and will revise the adjustment factor as necessary.

687 In contrast, manufacturers stated in comments in NHTSA’s MY 2011 rulemaking that they did not anticipate a robust market for credit trading, due to competitive concerns. NHTSA does not yet know whether those concerns will continue to deter manufacturers from exercising the trading flexibility during

MYs 2012-2016.618 banking of transferred credits for use in later model years. Thus, NHTSA believes that the language of EISA may be read to allow manufacturers to transfer credits from one fleet that has an excess number of credits, with in the limits specified, to another fleet that may also have excess credits instead of tran sferring only to a fleet that has a credit

shortfall. This would mean that a manufacturer could transfer a certain number of credits each year and bank them, and then the credits could be carried forward or back “without

limit” later if and when a shortfall ever occu rred in that same fleet. NHTSA bases this interpretation on 49 U.S.C. 32903(g)(2), which states that transferred credits “are available to be used in the same model year s that the manufacturer could have applied such credits under subsections (a), (b), (d), an d (e), as well as for the model year in which

the manufacturer earned such credits.” The EISA limitation applies only to the application of such credits for compliance in particular model years, and not their transfer

per se . If transferred credits have the same lifespan and may be used in carry-back and carry-forward plans, it seems reas onable that they should be allowed to be stored in any fleet, rather than only in the fleet in whic h they were earned. Of course, manufacturers could not transfer and bank credits for pur poses of achieving the minimum standard for domestically-manufactured passenger cars, as prohibited by 49 U.S.C. 32903(g)(4). Transferred and banked credits would additionally still be subject to the adjustment factor when actually used, which would help to ensu re that total oil savings are preserved while still offering greater flexibility to manufacturers . This interpretation of EISA also helps NHTSA, to some extent, to harmonize better with EPA’s CO 2 program, which allows unlimited banking and transfer of credits. NHT SA sought comment in the NPRM on this interpretation of EISA.

Only one commenter, VW, commented on NHTSA’s interpretation of EISA as allowing the banking of transferred credits, and agreed with it. VW suggested that NHTSA revise Part 536 to clarify accordingl y, and that NHTSA include the statutory transfer cap in Part 536 as well. While NHTSA does not believe that including the statutory transfer cap in the regulation is ne cessary, NHTSA will revise Part 536 in this final rule by amending the definition of “transfer” as follows (in bold and italics):

Transfer means the application by a manufact urer of credits earned by that manufacturer in one compliance category or credits acquired be trade (and originally earned by another manufacturer in that category) to achieve compliance with fuel economy standards with respect to a different compliance category. For example, a manufacturer may purchase light truck credits from another manufacturer, and transfer them to achieve compliance in the manufacturer’s domestically manufactured passenger car fleet. Subject to the credit transfer limitations of 49 U.S.C. 32903 (g)(3), credits can also be transferred across compliance categories and banked or saved in that category to be carried forward or backward to address a credit shortfall.

c. Payment of Fines619 If a manufacturer’s average miles per gallon for a given compliance category (domestic passenger car, imported passenger car, light truck) falls below the applicable standard, and the manufacturer cannot make up the difference by using credits earned or acquired, the manufacturer is subject to penalties. The penalty, as mentioned, is $5.50 for each tenth of a mpg that a manufacturer’s average fuel economy falls short of the standard for a given model year, multiplied by the total volume of those vehicles in the affected fleet, manufactured for that model year. NHTSA has collected $785,772,714.50 to date in CAFE penalties, the largest ever being paid by DaimlerChrysler for its MY 2006 import passenger car fleet, $30,257,920.00. For their MY 2008 fleets, six manufacturers paid CAFE fines for not meeting an applicable standard—Ferrari, Maserati, Mercedes-Benz, Porsche, Chrysler and Fiat—for a total of $12,922,255,50.

NHTSA recognizes that some manufacturers may use the option to pay fines as aCAFE compliance flexibility—presumably, when paying fines is deemed more costeffective than applying additional fuel economy-improving technology, or when adding fuel economy-improving technology would fundamentally change the characteristics of the vehicle in ways that the manufacturer believes its target consumers would not accept. NHTSA has no authority under EPCA/EISA to prevent manufacturers from turning to fine-payment if they choose to do so. Th is is another important difference from EPA’s authority under the CAA, which allows EPA to revoke a manufacturer’s certificate of conformity that permits it to sell vehicles if EPA determines that the manufacturer is in non-compliance, and does not permit manufacturers to pay fines in lieu of compliance with applicable standards.

NHTSA has grappled repeatedly with th e issue of whether fines are motivational for manufacturers, and whether raising fines would increase manufacturers’ compliance

with the standards. EPCA authorizes increa sing the civil penalty very slightly up to $10.00, exclusive of inflationary adjustments, if NHTSA decides that the increase in the penalty “will result in, or substantially fu rther, substantial energy conservation for automobiles in the model years in which th e increased penalty may be imposed; and will not have a substantial deleterious impact on the economy of the United States, a State, or a region of a State.” 49 U.S.C. 32912(c).

To support a decision that increasing the penalty would result in “substantial energy conservation” without having “a substantial deleterious impact on the economy,” NHTSA would likely need to provide some re asonably certain quantitative estimates of the fuel that would be saved, and the impact on the economy, if the penalty were raised. Comments received on this issue in the past have not explained in clear quantitative terms what the benefits and drawbacks to raising th e penalty might be. Additionally, it may be that the range of possible increase that the statute provides, i.e. , up to $10 per tenth of a mpg, is insufficient to result in substantial energy conservation, although changing this would require an amendment to the statute by Congress. While NHTSA continues to seek to gain information on this issue to inform a future rulemaking decision, we requested in the NPRM that commenters wishing to address this issue please provide, as620 specifically as possible, estima tes of how raising or not raising the penalty amount will or will not substantially raise energy conservation and impact the economy.

Only Ferrari and Daimler commented on this issue. Both manufacturers argued that raising the penalty would have no impact on fuel savings and would simply hurt the manufacturers forced to pay it. Daimler stated further that the agency’s asking for a quantitative analysis ignores the fact that manufacturers pay fines because they cannot increase energy savings any further. Thus, again, the agency finds itself without a clear quantitative explanation of what the benefits and drawbacks to raising the penalty might be, but it continues to appear that the range of possible increase is insufficient to result in additional substantial energy conservation. NHTSA will ther efore defer consideration of this issue for purposes of this rulemaking.

4. Other CAFE Enforcement Issues—Variations in Footprint

NHTSA has a standardized test procedure for determining vehicle footprint, 688
which is defined by regulation as follows:

Footprint is defined as the product of track width (measured in inches, calculated as the average of front and rear track widths, and rounded to the nearest tenth of an inch) times wheelbase (measured in inches and rounded to the nearest tenth of an inch), divided by 144 and then rounded to the nearest tenth of a square foot. 689

“Track width,” in turn, is defined as “the lateral distance between the centerlines of the base tires at ground, including the camber angle.” 690 “Wheelbase” is defined as “the longitudinal distance between front and rear wheel centerlines.” 691

NHTSA began requiring manufacturers to submit this information on footprint, wheelbase, and track width as part of their pre-model year reports in MY 2008 for light trucks, and will require manufacturers to subm it this information for passenger cars as well beginning in MY 2010. Manufacturers have submitted the required information for their light trucks, but NHTSA has identified several issues with regard to footprint measurement that could affect how required fuel economy levels are calculated for a

manufacturer as discussed below.

a. Variations in Track Width

688 NHTSA TP-537-01, March 30, 2009. Available at http://www.nhtsa.gov/portal/site/ nhtsa/menuitem.b166d560271 4f9a73baf3210 dba046a0/, scroll down to “537” (last accessed July 18, 2009).

689 49 CFR 523.2.

690 Id.

691 Id.621 By definition, wheelbase measurement should be very consistent from one vehicle to another of the same model. Track width, in contrast, may vary in two respects: wheel offset, 692 and camber. Most current vehicles ha ve wheels with positive offset, with technical specifications for offset typically expressed in millimeters. Additionally, for most vehicles, the camber angle of each of a vehicle’s wheels is specified as a range, i.e.

, front axle, left and right within minus 0.9 to plus 0.3 degree and rear axle, left and right within minus 0.9 to plus 0.1 degree. Given the small variations in offset and camber angle dimensions, the potential effects of components (wheels) and vehicle specifications (camber) within existing designs on vehicle footprints are considered insignificant.

However, NHTSA recognizes that manuf acturers may change the specifications of and the equipment on vehicles, even those that are not redesigned or refreshed, during a model year and from year to year. There may be opportunity for manufacturers to change specifications for wheel offset and camber to increase a vehicle’s track width and footprint, and thus decrease their required fuel economy level. NHTSA believes that this is likely easiest on vehicles that already have sufficient space to accommodate changes without accompanying changes to the body profile and/or suspension component

locations.

There may be drawbacks to such a decision, however. Changing from positive offset wheels to wheels with zero or negativ e offset will move tires and wheels outward toward the fenders. Increasing the negative upper limit of camber will tilt the top of the tire and wheel inward and move the bottom outward, placing the upper portion of the rotating tires and wheels in closer proximit y to suspension components. In addition, higher negative camber can adversely affect tire life and the on-road fuel economy of the vehicle. Furthermore, it is likely that most vehicle designs have already used the available space in wheel areas since, by doing so, the vehicle’s handling performance is improved. Therefore, it seem s unlikely that manufacturers will make significant changes

to wheel offset and camber. No comm ents were received on this issue.

b. How Manufacturers Designate “Base Tires” and Wheels

According to the definition of “track width” in 49 CFR 523.2, manufacturers must determine track width when the vehicle is equipped with “base tires.” Section 523.2 defines “base tire,” in turn, as “the tire specified as standard equipment by a manufacturer on each configuration of a model type.” NHTSA did not define “standard equipment.”

In their pre-model year reports required by 49 CFR Part 537, manufacturers have the option of either (A) reporting a base tire for each model type, or (B) reporting a base

692 Offset of a wheel is the distance from its hub mounting surface to the centerline of the wheel, i.e.

, measured laterally inboard or outboard. Zero offset – the hub mounting surface is even with the centerline of the wheel Positive offset – the hub mounting surface is outboard of the centerline of the wheel (toward street side) Negative offset – the hub mounting surface is inboard of the centerline of the wheel (away from street side)622 tire for each vehicle configuration within a model type, which represents an additional level of specificity. If different vehicle configurations have different footprint values, then reporting the number of vehicles for ea ch footprint will improve the accuracy of the required fuel economy level for the fleet, since the pre-model year report data is part of what manufacturers use to determine their CAFE obligations.

For example, assume a manufacturer’s pre- model year report listed five vehicle configurations that comprise one model type. If the manufacturer provides only one vehicle configuration’s front a nd rear track widths, wheelbase, footprint and base tire size to represent the model type, and the other vehicle configurations all have a different tire size specified as standard equipment, the footprint value represented by the manufacturer may not capture the full spectrum of footprint values for that model type. Similarly, the base tires of a model type may be mounted on two or more wheels with different offset dimensions for different vehicle configurations. Of course, if the footprint value for all vehicle configurations is essentially the same, there would be no need to report by vehicle configuration. However, if footprints are different—larger or smaller—reporting for each group with similar footprints or for each vehicle configuration would produce a more

accurate result. No comments were received on this issue.

c. Vehicle “Design” Values Reported by Manufacturers

NHTSA understands that the track widths and wheelbase values and the calculated footprint calculated values, as provided in pre-model year reports, are based on vehicle designs. This can lead to inaccurate ca lculations of required fuel economy level. For example, if the values reported by manufacturers are within an expected range of values, but are skewed to the higher end of the ranges, the required fuel economy level for the fleet will be artificially lower, an inaccurate attribute based value. Likewise, it would be inaccurate for manufacturers to submit values on the lower end of the ranges,

but would decrease the likelihood that measured values would be less than the values reported and reduce the likelihood of an agency inquiry. Since not every vehicle is identical, it is also probable that variations between vehicles exist that can affect track width, wheelbase and footprint. As with othe r self-certifications, each manufacturer must decide how it will report, by model type, ve hicle configuration, or a combination, and whether the reported values have sufficient margin to account for variations.

To address this, the agency will be monitoring the track widths, wheelbases and footprints reported by manufacturers, and anti cipates measuring vehicles to determine if the reported and measured values are consistent. We will look for year-to-year changes in the reported values. We can compare MY 2008 light truck information and MY 2010 passenger car information to the information reported in subsequent model years. Moreover, under 49 CFR 537.8, manufacturers may make separate reports to explain why changes have occurred or they may be contacted by the agency to explain them. No

comments were received on this issue.623 d. How Manufacturers Report this In formation in their Pre-Model Year Reports

49 CFR 537.7(c) requires that manufacturers’ pre-model year reports include “model type and configuration fuel economy and technical information.” The fuel economy of a “model type” is, for many manufacturers, comprised of a number of vehicle configurations. 49 CFR 537.4 states that “model type” and “vehicle configuration” are defined in 40 CFR Part 600. Under that Part, “model type” includes engine, transmission, and drive configuration (2WD, 4WD, or all-wheel drive), while “vehicle configuration” includes those para meters plus test weight. Model type is important for calculating fuel economy in the new attribute-based system—the required fuel economy level for each of a manufacturer ’s fleets is calculate d using the number of vehicles within each model type and the applicable fuel economy target for each model

type.

In MY 2008 and 2009 pre-model year reports for light trucks, manufacturers have expressed information in different ways. Some manufacturers that have many vehicle configurations within a model type have included information for each vehicle configuration’s track width, wheelbase and footprint. Other manufacturers reported vehicle configuration information per § 537.7(c)(4), but provided only model type track width, wheelbase and footprint information for subsections 537.7(c)(4)(xvi)(B)(3), (4) and (5). NHTSA believes that these manufac turers may have repo rted the information this way because the track widths, wheelbase and footprint are essentially the same for each vehicle configuration within each model type. A third group of manufacturers submitted model type information only, presumably because each model type contains only one vehicle configuration.

NHTSA does not believe that this variation in reporting methodology presents an inherent problem, as long as manufacturers follow the specifications in Part 537 for reporting format, and as long as pre-model year reports provide information that is accurate and represents each vehicle configuration within a model type. The report may, but need not, be similar to what manufacturer s submit to EPA as their end-of-model year report. However, NHTSA sought comment in the NPRM on any potential benefits or drawbacks to requiring a more standardized reporting methodology. NHTSA requested that, if commenters recommend increasing st andardization, they provide specific examples of what information should be required and how NHTSA should require it to be provided. but no comments were received on this specific issue.

However, on a related topic, Honda and Toyota both commented on the equations and corresponding terms used to calculate the fleet required standards. Both manufacturers indicated that the terms defined for use in the equations could be interpreted differently by vehicle manufacturer s. For example, the term “footprint of a vehicle model” could be interpreted to mean that a manufacturer only has to use one representative footprint within a model type or that it is necessary to use all the unique624 footprints and corresponding fuel economy target standards within a model type when determining a fleet target standard. This issue is discussed in more detail in section IV.E.

above.

5. Other CAFE Enforcement Issues – Miscellaneous

Hyundai commented that 49 CFR § 537.9 appeared to contain erroneous references to 40 CFR 600.506 and 600.506(a)(2), which seemed not to exist, and asked the agency to check those references. In response, NHTSA examined the issue and found that 40 CFR 600.506 was, in fact, eliminated by a final rule published on April 6, 1984 (49 FR 13832). That section of 40 CFR originally required manufacturers to submit preliminary CAFE data to EPA prior to submitting the final end of the year data. EPA’s primary intent for eliminating the requirement, as stated in the final rule, was to reduce

administration burden. To address these inac curate references, NHTSA is revising Part

537 to delete references to 40 CFR 600.506 . This will not impact the existing requirements for the pre-model year, mid-model year and supplemental reports

manufacturers must submit to NHTSA under Part 537.

J. Other Near-Term Rulemakings Mandated by EISA

1. Commercial Medium- and Heavy-Duty On-Highway Vehicles and Work

Trucks

EISA added new provisions to 49 U.S.C. 32902 requiring DOT, in consultation with DOE and EPA, to conduct a study regarding a program to require improvements in the fuel efficiency of commercial medi um- and heavy-duty on-highway vehicles and work trucks and then to conduct a rulemaking to adopt and implement such a program . In the study, the agency must examine the fuel efficiency of commercial medium- and heavy-duty on-highway vehicles 693 and work trucks 694 and determine the appropriate test procedures and methodologies for measuring their fuel efficiency, as well as the appropriate metric for measuring and expressing their fuel efficiency performance and the range of factors that affect their fuel efficiency. Then the agency must determine in arulemaking proceeding how to implement a commercial medium- and heavy-duty onhighway vehicle and work truck fuel efficiency improvement program designed to achieve the maximum feasible improvement, and adopt and implement appropriate test methods, measurement metrics, fuel economy standards, and compliance and enforcement protocols that are appropriate, cost-effective, and technologically feasible for commercial medium- and heavy-duty on-highway vehicles and work trucks. The agency is working closely with EPA on developing a proposal for these standards.

693 Defined as an on-highway vehicle with a gross ve hicle weight rating of 10,000 pounds or more.

694 Defined as a vehicle that is both rated at between 8,500 and 10,000 pounds gross vehicle weight; and also is not a medium-duty passenger vehicle (as define d in 40 CFR 86.1803-01, as in effect on the date of

EISA’s enactment.625 2. Consumer Information on Fuel Efficiency and Emissions

EISA also added a new provision to 49 U.S.C. 32908 requiring DOT, in consultation with DOE and EPA, to develop and implement by rule a program to require

manufacturers to label new automobiles sold in the United States with: 1) information reflecting an automobile’s performance on the basis of criteria that EPA shall develop, not later than 18 months af ter the date of the enactment of EISA, to reflect fuel economy and greenhouse gas and other emissions over the useful life of the automobile; and 2) a rating system that would make it easy for consumers to compare the fuel economy and greenhouse gas and other emissions of automobiles at the point of purchase, including a designation of automobiles with the lowest greenhouse gas

emissions over the useful life of the vehi cles; and with the highest fuel economy. DOT must also develop and implement by rule a program to require manufacturers to include in the owner’s manual for vehicles capable of operating on

alternative fuels information that describes that capability and the benefits of using alternative fuels, including the renewable na ture and environmental benefits of using

alternative fuels.

EISA further requires DOT, in co nsultation with DOE and EPA, to

• develop and implement by rule a consumer education program to improve consumer understanding of automobile performance described [by the label to be developed] and to inform consumers of the benefits of using alternative fuel in

automobiles and the locatio n of stations with alternative fuel capacity;

• establish a consumer education campaign on the fuel savings that would be recognized from the purchase of vehicles equipped with thermal management technologies, including energy efficient air conditioning systems and glass; and

• by rule require a label to be attached to the fuel compartment of vehicles capable of operating on alternative fuels, with the form of alternative fuel stated on the

label.

49 U.S.C. 32908(g)(2) and (3).

DOT has 42 months from the date of EISA’s enactment (by the end of 2011) to

issue final rules under this subsection. Workon developing these standards is also ongoing. The agency is working closely with EPA on developing a proposal for these regulations.

Additionally, in preparation for this fu ture rulemaking, NHTSA will consider appropriate metrics for presenting fuel economy-related information on labels. Based on the non-linear relationship between mpg and fuel costs as well as emissions, inclusion of the “gallons per 100 miles” metric on fuel economy labels may be appropriate going forward, although the mpg information is currently required by law. A cost/distance626 metric may also be useful, as could a CO 2 e grams per mile metric to facilitate comparisons between conventional vehicles and alternative fuel vehicles and to incorporate information about air conditioning-related emissions.

K. Record of Decision

On May 19, 2009 President Obama announced a National Fuel Efficiency Policy aimed at both increasing fuel economy and reducing greenhouse gas pollution for all new cars and trucks sold in the United States, while also providing a predictable regulatory framework for the automotive industry. The policy seeks to set harmonized federal standards to regulate both fuel economy and GHG emissions. The program covers model year 2012 to model year 2016 and ultimately requires the equivalent of an average fuel economy of 35.5 mpg in 2016, if all CO 2 reduction were achieved through fuel economy improvements.

In accordance with President Obama’s May 19, 2009 announcement, this Final Rule promulgates the fuel economy standards for MYs 2012-2016. This Final Rule constitutes the Record of Decision (R OD) for NHTSA’s MYs 2012-2016 CAFE standards, pursuant to the Na tional Environmental Policy Act (NEPA) and the Council on Environmental Quality’s (CEQ) implementing regulations. 695 See 40 CFR § 1505.2.

As required by CEQ regulations, this Final Rule and ROD sets forth the following: (1) the agency’s decision; (2) alternatives considered by NHTSA in reaching its decision, including the environmentally pref erable alternative; (3) the factors balanced by NHTSA in making its decision, including considerations of national policy; (4) how

these factors and considerations entered into its decision; and (5) the agency’s preferences among alternatives based on relevant factors, including economic and technical considerations and agency statutory missions. This Final Rule also briefly addresses mitigation.

The Agency’s Decision

In the DEIS and the FEIS, the agency identified the approximately 4.3-percent average annual increase alternative as NHTSA ’s Preferred Alternative. After carefully reviewing and analyzing all of the information in the public record including technical support documents, the FEIS, and public a nd agency comments submitted on the DEIS, the FEIS, and the NPRM, NHTSA has decided to proceed with the Preferred Alternative. The Preferred Alternative requires approximately a 4.3-percent average annual increase in mpg for MYs 2012-2016. This decision results in an estimated required MY 2016 fleetwide 37.8 mpg for passenger cars and 28.7 mpg for light trucks. As stated in the FEIS, the Preferred Alternative results in a combined estimated required fleetwide 34.1 mpg in MY 2016.

695 NEPA is codified at 42 U.S.C. §§ 4321-47. CEQ NEPA implementing regulations are codified at 40 Code of Federal Regulations (CFR) Parts 1500-08.627 Following publication of the FEIS, the federal government Interagency Working Group on Social Cost of Carbon made public a revised estimate of the Social Cost of Carbon to support federal regulatory activities where reducing CO 2 emissions is an important potential outcome. NHTSA relied upon the interagency group’s interim guidance published in August, 2009 for the FEIS analysis. For this Final Rule NHTSA has updated the analysis and now uses the central SCC value of $21 per metric ton (2010 emissions) identified in the interagency group’s revised guidance. 696 See Section

IV.C.3.l.iii.

The group’s purpose in developing new estimates of the SCC was to allow federal agencies to incorporate the social benefits of reducing carbon dioxide (CO 2 ) emissions into cost-benefit analyses of regulatory actions that have sm all, or “marginal,” impacts on cumulative global emissions, as most federal regulatory actions can be expected to have. The interagency group convened on a regular basis to consider public comments, explore the technical literature in relevant fields, an d discuss key inputs and assumptions in order to generate SCC estimates. The revised SCC estimates represent the interagency group’s consideration of the literature and judgments about how to monetize some of the benefits of GHG mitigation. 697 [CITATION]

Incorporating the revised estimate, NHTSA’s analysis indicates that the Agency’s Decision will likely result in slightly greater fuel savings and CO 2 emissions reductions than those noted in the EIS. The revised SCC valuation applied for purposes of the final rule resulted in a slightly smaller gap in st ringency between the passenger car and light truck standards; the ratio of passenger car stringency ( i.e. , average required fuel economy) to light truck stringency in MY 2016 shrank from 1.318 to 1.313, or about 0.4 percent. Because manufacturers projected to pay civil penalties (rather than fully complying with CAFE standards) account for a smaller share of the light truck market than of the passenger car market, and because lifetime mileage accumulation is somewhat higher for light trucks than for passenger cars, this slight shift in relative stringency caused average fuel economy levels achieved under the preferred alternative to increase by about 0.02 mpg during MYs 2012-2016, resulted in corresponding lifetime ( i.e. , over the full useful life of MYs 2012-2016 vehicl es) fuel savings increases of about 0.9 percent, and corresponding increases in lifetime CO 2 emission reductions of about 1.1 percent. For environmental impacts associ ated with NHTSA’s Decision, see Section

IV.G of this Final Rule.

696 The $21/ton estimate is for 2010 emissions and increases over time because of damages resulting from increased GHG concentrations. $21 is the average SCC at the 3 percent discount rate. The other 3 estimates include: Avg SCC at 5% ($5-$16); Avg SCC at 2.5% ($35-$65); and 95 th percentile at 3% ($65- $136).

697 The interagency group intends to update these esti mates as the science and economic understanding of climate change and its impacts on so ciety improves over time.628 The incorporation of the revised interage ncy estimate of SCC results in minimal changes to the required fleetwide mpg for some model years covered by this Final Rule. All changes are less than or equal to .1 mpg (but may reflect an increase when rounding up during calculations) and continue to result, on average, in a 4.3 percent annual increase in mpg. 698 See Section IV.F for discussion of required annual fleetwide mpg.

For a discussion of the agency’s selection of the Preferred Alternative as NHTSA’s Decision, see Section IV.F of this Final Rule.

Alternatives Considered by NHTSA in Reaching its Decision, Including the Environmentally Preferable Alternative

When preparing an EIS, NEPA requires an agency to compare the potential environmental impacts of its proposed action and a reasonable range of alternatives. NHTSA identified alternative stringencies that represent the spectrum of potential actions the agency could take. The environmental impacts of these alternatives, in turn, represent the spectrum of potential environmental impa cts that could result from NHTSA’s chosen action in setting CAFE standards. Specifically, the DEIS and FEIS analyzed the impacts of the following eight “action” alternatives : 3-Percent Alternative (Alternative 2), 4- Percent Alternative (Alternative 3), Prefe rred Alternative (Alternative 4), 5-Percent Alternative (Alternative 5), an alterna tive that maximizes net benefits (MNB) (Alternative 6), 6-Percent Alte rnative (Alternative 7), 7-Perc ent Alternative (Alternative 8), and an alternative under which total cost eq uals total benefit (TCTB) (Alternative 9). The DEIS and FEIS also analyzed the impacts that would be expected if NHTSA imposed no new requirements (the No Action Alternative). In accordance with CEQ regulations, the agency selected a Preferred Alternative in the DEIS and the FEIS (the approximately 4.3-percent average annual increase alternative).

In response to public comments, the FE IS expanded the analysis to determine how the proposed alternatives were affected by variations in the economic assumptions input into the computer model NHTSA uses to calculate the costs and benefits of various potential CAFE standards (the Volpe model). Variations in economic assumptions can be used to examine the sensitivity of costs and benefits of each of the alternatives, including future fuel prices, the value of reducing CO 2 emissions (referred to as the social cost of carbon or SCC) the discount rate, the magnitude of the rebound effect, and the value of oil import externalities. Differen t combinations of economic assumptions can also affect the calculation of environmental impacts of the various action alternatives. This occurs partly because some economic inputs to the Volpe model—notably fuel

698 There are no “substantial changes to the proposed action” and there are no “significant new circumstances or information relevant to environmental concerns and bearing on the proposed action or its impacts.” Therefore, consistent with 40 CFR 1502.9(c), no supplement to the EIS is required. Moreover, the environmental impacts of this decision fall within the spectrum of impacts analyzed in the DEIS and the

FEIS.629 prices and the size of the rebound effect – in fluence its estimates of vehicle use and fuel consumption, the main factors that determin e emissions of GHGs criteria air pollutants, and airborne toxics. See section 2.4 of the FEIS for a discussion of the sensitivity analysis conducted for the FEIS.

The agency considered and analyzed each of the individual economic assumptions to determine which assumptions most accurately represent future economic conditions. For a discussion of the analysis supporting the selection of the economic assumptions relied on by the agency in this Final Rule, see Section IV.C.3.

Also in response to comments, the agency conducted a national-scale photochemical air quality modeling and health risk assessment for a subset of the DEIS alternatives to support and confirm the health effects and health-related economic estimates of the EIS. The pho tochemical air quality study is included as Appendix F to the EIS. The study used air quality modeling and health benefits analysis tools to quantify the air quality and health-related bene fits associated with the alternative CAFE

standards. Four alternatives from the DEIS were modeled: the No Action Alternative and Alternative 2 (the 3-Percent Alternative) to represent fuel economy requirements at the lower end of the range; Alternative 4 (the Preferred Alternative) and Alternative 8 (the 7-Percent Alternative) to represent fuel economy requirements at the higher end of the range.

The agency compared the potential envi ronmental impacts of alternative mpg levels, analyzing direct, indirect, and cumulative impacts. For a discussion of the environmental impacts associated with each of the alternatives, see Chapters 3 and 4 of

the FEIS.

Alternative 8 (the 7-Percent Alternative) is the overall Environmentally Preferable Alternative, because it would result in th e largest reductions in fuel use and GHG emissions by vehicles produced during MYs 2012-2016 among the alternatives considered. Under each alternative the agency considered, the reduction in fuel consumption resulting from higher fuel economy causes emissions that occur during fuel refining and distribution to decline. For mo st pollutants, this decline is more than sufficient to offset the increase in tailpip e emissions that results from increased driving due to the fuel economy rebound effect, leading to a net reduction in total emissions from fuel production, distribution, and use. Because it leads to the largest reductions in fuel refining, distribution, and consumption among the alternatives considered, Alternative 8 would also lead to the largest net reductions in emissions of CO 2 and other GHGs, most criteria air pollutants, 699 as well as the mobile source air toxics (MSATs) benzene and diesel particulate matter (diesel PM).

699 Reductions in emissions of two criteria air pollutant s, fine particulate matter (PM2.5) and sulfur oxides (SOx), are forecast to be slightly larger for Altern ative 9 (TCTB) than for A lternative 8. Because the estimates of health benefits depend most critically on changes in particulate matter emissions, this causes the health benefits estimates reported in this FEIS to be slightly larger for Altern ative 9 than for Alternative630 However, NHTSA’s environmental analysis indicates that emissions of the MSATs acetaldehyde, acrolein, 1,3-butadiene, and formaldehyde would increase under some alternatives, with the la rgest increases in emissions of these MSATs projected to occur under Alternative 8 in most future years. This occurs because the rates at which these MSATs are emitted during fuel refining and distribution are very low relative to their emission rates during vehicle use. As a consequence, the reductions in their total emissions during fuel refining and distribution that result from lower fuel use are

insufficient to offset the increases in emissi ons that result from additional vehicle use. The amount by which increased tailpipe emissions of these MSATs exceeds the reductions in their emissions during fuel refining and distribution increases for alternatives that require larger improvements in fuel economy, and in most future years is smallest under Alternative 2 (which would in crease CAFE standards least rapidly among the action alternatives) and largest under A lternative 8 (which would require the most rapid increase in fuel economy). Thus while Alternative 8 is the environmentally preferable alternative on the basis of CO 2 and other GHGs, most criteria air pollutants, and some MSATs, other alternatives are environmentally preferable from the standpoint of the criteria air pollutants fine particulate matter and sulfur oxides, as well as the MSATs acetaldehyde, acrolein, 1,3-butadiene, and formaldehyde. Overall, however,

NHTSA considers Alternative 8 to be the Environmentally Preferable Alternative.

For additional discussion regarding the alte rnatives considered by the agency in reaching its decision, including the Environm entally Preferable Alternative, see Section IV.F of this Final Rule. For a discussion of the environmental impacts associated with each alternative, see Chapters 3 and 4 of the FEIS.

Factors Balanced By NHTSA In Making Its Decision

For discussion of the factors balanced by NHTSA in making its decision, see

Sections IV.D. and IV.F of this Final Rule.

How the Factors and Considerations Balanced by NHTSA Entered into its Decision

For discussion of how the factors and considerations balanced by the agency entered into NHTSA’s Decision, see Section IV.F of this Final Rule.

The Agency’s Preferences Among Alternatives Based on Relevant Factors, Including Economic and Technical Considerations and Agency Statutory Missions

For discussion of the agency’s preferences among alternatives based on relevant factors, including economic and technical cons iderations, see Section IV.F of this Final

Rule.

8. See section 3.3 of the FEIS. Nonetheless, fo r the other reasons explained above, NHTSA considers

Alternative 8 to be the overall Enviro nmentally Preferable Alternative.631 Mitigation

The CEQ regulations specify that a ROD must “state whether all practicable

means to avoid or minimize environmental ha rm from the alternative selected have been adopted, and if not, why they were not.” 49 CFR 1505.2(c). The majority of the environmental effects of NHTSA’s action are positive, i.e., beneficial environmental impacts, and would not raise issues of mitigation. The only negative environmental impacts are the projected increase in emissions of carbon monoxide and certain air toxics, as discussed above under the Environmentally Preferable Alternative, and in section 2.6 and Chapter 5 of the FEIS. The agency forecasts these increases because, under all the alternatives analyzed in the EIS, increase in vehicle use due to improved fuel economy is projected to result in growth in total miles traveled by passenger cars and light trucks. This growth is exacerbated by the expected growth in the number of passenger cars and light trucks in use in the United States. The growth in travel outpaces emissions reductions for some pollutants, resulting in projected increases for these pollutants.

NHTSA’s authority to promulgate new fuel economy standards is limited and does not allow regulation of vehicle emissions or of factors affecting vehicle emissions, including driving habits. Consequently, under the CAFE program, NHTSA must set standards but is unable to take steps to mitig ate the impacts of these standards. However, we note that the Department of Transportati on is currently implementing initiatives that work toward the stated Secretarial policy goal of reducing annual vehicle miles traveled. Chapter 5 of the FEIS outline s a number of other initiatives across government that could ameliorate the environmental impacts of motor vehicle use.

Following is a discussion of regulatory notices and analyses relevant to this rulemaking.

1. National Environmental Policy Act

Under NEPA, a Federal agency must prepare an Environmental Impact Statement (EIS) on proposed actions that could significantly impact the quality of the human environment. The requirement is designed to serve three major functions: (1) to provide the decisionmaker(s) with a detailed descripti on of the potential environmental impacts of a proposed action prior to its adoption, (2) to rigorously explore and evaluate all reasonable alternatives, and (3) to inform the public of, and allow comment on, such

efforts.

In addition, the CEQ regulations emphas ize agency cooperation early in the NEPA process, and allow a lead agency (in this case, NHTSA) to request the assistance of other agencies that either have jurisdiction by law or have special expertise regarding

issues considered in an EIS. 700 NHTSA invited EPA to be a cooperating agency because

700 40 CFR § 1501.6.632 of its special expertise in the areas of climate change and air quality. On May 12, 2009, EPA agreed to become a cooperating agency. EPA’s environmental analysis of its own proposed rulemaking is summarized and referenced in the appropriate sections of this

EIS. 701

NHTSA, in cooperation with EPA, prepar ed a draft EIS (DEIS), solicited public comments in writing and in a public hearing, and prepared a final EIS (FEIS) responding to those comments. Specifically, in April 2009, NHTSA published an NOI to prepare an EIS for proposed MY 2012-2016 CAFE standards. 702 See 40 CFR § 1501.7.

On September 25, 2009, EPA issued its Notice of Availability of the DEIS, 703
triggering the 45-day public comment period. See 74 FR 48951. See also 40 CFR § 1506.10. In accordance with CEQ regulations , the public was invited to submit written comments on the DEIS until November 9, 2009. See 40 CFR § 1503, et seq.

NHTSA mailed (both electronically and through regular U.S. mail) over 500 copies of the DEIS to interest ed parties, including federal, state, and local officials and agencies; elected officials, environmental and public interest groups; Native American tribes; and other interested individuals. NHTSA held a public hearing on the DEIS at the National Transportation Safety Board Conferen ce Center in Washington, DC on October 30, 2009.

NHTSA received 11 written comments from interested stakeholders, including federal agencies, state agencies, environmenta l advocacy groups, and private citizens. In addition, three interested parties spoke at the public hearing. The transcript from the public hearing and written comments submitted to NHTSA are part of the administrative record, and are available on the Federal Docket, which can be found on the Web at http://www.regulations.gov, Reference Docket No. NHTSA-2009-0059.

NHTSA reviewed and analyzed all comments received during the public comment period and revised the FEIS in response to comments on the EIS where

701 Consistent with the National Fuel Efficiency Policy that the President announced on May 19, 2009, EPA and NHTSA published their Notice of Upcoming Joint Rulemaking to ensure a coordinated National Program on GHG emissions and fuel economy for pa ssenger cars, light-duty trucks, and medium-duty passenger vehicles. NHTSA takes no position on wh ether the EPA proposed rule on GHG emissions could be considered a “connected action” under the CEQ regulation at 40 CFR Section 1508.25. For purposes of this EIS, however, NHTSA has decided to treat the EPA proposed rule as if it were a “connected action” under that regulation to improve the usefulness of the EIS for NHTSA decisionmakers and the public. NHTSA is aware that Section 7(c) of the Energy Supply and Environmental Coordination Act of 1974 expressly exempts from NEPA requireme nts EPA action taken under the CAA. See 15 U.S.C. § 793(c)(1).

702 See Notice of Intent to Prepare an Environmental Impact Statement for New Corporate Average Fuel Economy Standards, 74 FR 14857 (Apr. 1, 2009).

703 Also on September 25, 2009, NHTSA published a Federal Register Notice of Availability of its DEIS.

See 74 FR 48894. NHTSA’s Notice of Availability also announced the date and location of a public hearing, and invited the public to participate at the hearing on October 30, 2009, in Washington, DC. See

id.633 appropriate. 704 For a more detailed discussion of NHTSA’s scoping and comment periods, see Section 1.5 and Chapter 10 of the FEIS.

On February 22, 2010, NHTSA submitted the FEIS to the EPA. NHTSA also mailed (both electronically and through regular U.S. mail) over 500 copies of the FEIS to interested parties and posted the FEIS on its website, http://www.nhtsa.gov/portal/fueleconomy.jsp. On March 3, 2010, the EPA published a Notice of Availability of the FEIS in the Federal Register

. See 75 FR 9596.

The MYs 2012-2016s CAFE standards adopted in this Final Rule have been informed by analyses contained in the Final Environmental Impact Statement, Corporate Average Fuel Eocnomy Standards, Passenger Cars and Light Trucks, Model Years 2012- 2016, Docket No. NHTSA-2009-0059 (FEIS). For purposes of this rulemaking, the agency referred to an extensive compilation of technical and policy documents available in NHTSA’s EIS/Rulemaking docket and EPA’s docket. NHTSA’s EIS and rulemaking docket and EPA’s rulemaking docket can be found on the Web at http://www.regulations.gov, Reference Docket Nos.: NHTSA-2009-0059 (EIS and Rulemaking) and EPA-HQ-OAR-2009-0472 (EPA Rulemaking).

Based on the foregoing, the agency concl udes that the environmental analysis and public involvement process complies with NEPA implementing regulations issued by CEQ, DOT Order 5610.1C, and NHTSA regulations. 705

2. Clean Air Act (CAA)

The CAA (42 U.S.C. § 7401) is the primary Federal legislation that addresses air quality. Under the authority of the CAA and subsequent amendments, the EPA has established National Ambient Air Quality Stan dards (NAAQS) for six criteria pollutants, which are relatively commonplace pollutants that can accumulate in the atmosphere as a result of normal levels of human activity. The EPA is required to review the NAAQS every five years and to change the levels of the standards if warranted by new scientific

information.

The air quality of a geographic region is usually assessed by comparing the levels of criteria air pollutants found in the atmosphe re to the levels established by the NAAQS. Concentrations of criteria pollutants within th e air mass of a region are measured in parts of a pollutant per million parts of air (ppm) or in micrograms of a pollutant per cubic meter ( μ g/m3) of air present in repeated air samples taken at designated monitoring locations. These ambient concentrations of each criteria pollutant are compared to the

704 The agency also changed the FEIS as a result of updated information that became available after

issuance of the DEIS.

705 NEPA is codified at 42 U.S.C. §§ 4321-4347. CEQ’s NEPA implementing regulations are codified at 40 CFR Pts. 1500-1508, and NHTSA’s NEPA implementing regulations are codified at 49 CFR Part 520.634 permissible levels specified by the NAAQS in order to assess whether the region’s air quality is potentially unhealthful.

When the measured concentrations of a criteria pollutant within a geographic region are below those permitted by the NAAQS, the region is designated by the EPA as an attainment area for that pollutant, while regions where concentrations of criteria pollutants exceed Federal standards are called nonattainment areas (NAAs). Former NAAs that have attained the NAAQS are desi gnated as maintenance areas. Each NAA is required to develop and implement a State Implementation Plan (SIP), which documents how the region will reach attainment levels with in time periods specified in the CAA. In maintenance areas, the SIP documents how the State intends to maintain compliance with the NAAQS. When EPA changes a NAAQS, States must revise their SIPs to address how they will attain the new standard.

Section 176(c) of the CAA prohibits Federal agencies from taking actions in

nonattainment or maintenance areas that do not “conform” to the State Implementation Plan (SIP). The purpose of this conformity requi rement is to ensure that Federal activities do not interfere with meeting the emissions ta rgets in the SIPs, do not cause or contribute to new violations of the NAAQS, and do not impede the ability to attain or maintain the NAAQS. The EPA has issued two sets of regulations to implement CAA Section 176(c):

 The Transportation Conformity Rules (40 CFR 51 Subpart T), which apply to

transportation plans, programs, and projects funded under title 23 United States Code (U.S.C.) or the Federal Transit Act. Highway and transit infrastructure projects funded by FHWA or the Federal Transit Administration (FTA) usually are subject to transportation conformity.

 The General Conformity Rules (40 CFR 51 Subpart W) apply to all other

Federal actions not covered under transportation conformity. The General Conformity Rules establishe d emissions thresholds, or de minimis levels, for use in evaluating the conformity of a project. If the net emission increases due to the project are less than these thresholds, th en the project is presumed to conform and no further conformity evaluation is required. If the emission increases exceed any of these thresholds, then a conformity determination is required. The conformity determination may entail air quality modeling studies, consultation with EPA and State air quality agencies, and commitments to revise the SIP or to implement measures to mitigate air quality impacts.

The CAFE standards and associated program activities are not funded under title

23 U.S.C. or the Federal Transit Act. Fu rther, CAFE standards are established by NHTSA and are not an action undertaken by FHWA or FTA. Accordingly, the CAFE standards are not subject to transportation conformity.635 The General Conformity Rules contain seve ral exemptions applicable to “Federal actions,” which the conformity regulations define as: “any activity engaged in by a department, agency, or instrumentality of th e Federal Government, or any activity that a department, agency or instrumentality of the Federal Government supports in any way, provides financial assistance for, licenses, permits, or approves, other than activities [subject to transportation conformity].” 40 CFR § 51.852. “Rulemaking and policy development and issuance” are exempted at 40 CFR § 51.853(c)(2)(iii). Since NHTSA’s CAFE standards involve a rulemaking proc ess, its action is exempt from general conformity. Also, emissions for which a Federal agency does not have a “continuing program responsibility” are not considered “indirect emissions” subject to general conformity under 40 CFR § 51.852. “Emissions that a Federal agency has a continuing program responsibility for means emissions that are specifically caused by an agency carrying out its authorities, and does not include emissions that occur due to subsequent activities, unless such activities are required by the Federal agency.” 40 CFR § 51.852. Emissions that occur as a result of the final CAFE standards are not caused by NHTSA carrying out its statutory authorities and clearly occur due to subsequent activities, including vehicle manufacturers’ production of passenger car and light truck fleets and consumer purchases and driving behavior. Thus, changes in any emissions that result from NHTSA’s final CAFE standards are not those for which the agency has a “continuing program responsibility” and NHTSA is confident that a general conformity determination is not required. NHTSA has evaluated the potential impacts of air

emissions under NEPA.

3. National Historic Preservation Act (NHPA)

The NHPA (16 U.S.C. § 470) sets forth government policy and procedures regarding “historic properties”—that is, district s, sites, buildings, structures, and objects included in or eligible for the Nationa l Register of Historic Places (NRHP). See also 36 CFR Part 800. Section 106 of the NHPA requires federal agencies to “take into account” the effects of their actions on historic properties. The agency concludes that the NHPA is not applicable to NHTSA’s Decision, beca use it does not directly involve historic properties. The agency has, ho wever, conducted a qualitative review of the related direct, indirect, and cumulative impacts, positive or negative, of the alternatives on potentially affected resources, including historic and cultural resources. See Section 3.5 of the FEIS.

4. Executive Order 12898 (Environmental Justice)

Under Executive Order 12898, Federal agencies are required to identify and address any disproportionately high and adverse human health or environmental effects of its programs, policies, and activities on minority populations and low-income populations. NHTSA complied with this order by identifying and addressing the potential effects of the alternatives on mino rity and low-income populations in Section 3.5 of the FEIS, the agency set forth a qualitative analysis of the cumulative effects of the alternatives on these populations.636 5. Fish and Wildlife Conservation Act (FWCA)

The FWCA (16 U.S.C. § 2900) provides financial and technical assistance to States for the development, revision, and implementation of conservation plans and programs for nongame fish and wildlife. In addition, the Act encourages all Federal agencies and departments to utilize thei r authority to conserve and to promote conservation of nongame fish and wildlife and their habitats. The agency concludes that the FWCA is not applicable to NHTSA’s De cision, because it does not directly involve

fish and wildlife.

6. Coastal Zone Management Act (CZMA)

The Coastal Zone Management Act (16 U.S.C. § 1450) provides for the preservation, protection, development, and (w here possible) restoration and enhancement of the nation’s coastal zone resources. Under the statute, States are provided with funds and technical assistance in developing coastal zone management programs. Each participating State must submit its program to the Secretary of Commerce for approval. Once the program has been approved, any activity of a Federal agency, either within or outside of the coastal zone, that affects any la nd or water use or natural resource of the

coastal zone must be carried out in a manner that is cons istent, to the maximum extent practicable, with the enforceable po licies of the State’s program.

The agency concludes that the CZMA is not applicable to NHTSA’s Decision, because it does not involve an activity within, or outside of, the nation’s coastal zones. The agency has, however, conducted a qualitativ e review of the related direct, indirect, and cumulative impacts, positive or negative, of the alternatives on potentially affected resources, including coastal zones. See Section 4.5 of the FEIS.

7. Endangered Species Act (ESA) [Placeholder – will cite/copy EIS language]

8. Floodplain Management (Executive Order 11988 & DOT Order 5650.2)

These Orders require Federal agencies to avoid the long- and short-term adverse impacts associated with the occupancy and modification of floodplains, and to restore and preserve the natural and beneficial values served by floodplains. Executive Order 11988 also directs agencies to minimize the impact of floods on human safety, health and welfare, and to restore and preserve the natural and beneficial values served by floodplains through evaluating the potential effects of any actions the agency may take in a floodplain and ensuring that its program planning and budget requests reflect consideration of flood hazards and floodplain management. DOT Order 5650.2 sets forth DOT policies and procedures for implementing Executive Order 11988. The DOT Order requires that the agency determine if a propos ed action is within the limits of a base637 floodplain, meaning it is encroaching on the floodplain, and whether this encroachment is significant. If significant, the agency is required to conduct further analysis of the proposed action and any practicable alternativ es. If a practicable alternative avoids floodplain encroachment, then the agency is required to implement it.

In this rulemaking, the agency is not occupying, modifying and/or encroaching on floodplains. The agency, therefore, conclude s that the Orders are not applicable to NHTSA’s Decision. The agency has, however, conducted a review of the alternatives on potentially affected resources, including floodplains. See Section 4.5 of the FEIS.

9. Preservation of the Nation’s Wetlands (Executive Order 11990 & DOT Order 5660.1a)

These Orders require Federal agencies to avoid, to the extent possible, undertaking or providing assistance for new construction located in wetlands unless the agency head finds that there is no practicable alternative to such construction and that the proposed action includes all practicable meas ures to minimize harms to wetlands that may result from such use. Executive Order 11990 also directs agencies to take action to minimize the destruction, loss or degradation of wetlands in “conducting Federal activities and programs affecti ng land use, including but not limited to water and related land resources planning, regulating, and licensing activities.” DOT Order 5660.1a sets forth DOT policy for interpreting Executive Order 11990 and requires that transportation projects “located in or having an impact on wetlands” should be conducted to assure protection of the Nation’s wetlands. If a project does have a significant impact on wetlands, an EIS must be prepared.

The agency is not undertaking or providing assistance for new construction located in wetlands. The agency, therefore, concludes that these Orders do not apply to NHTSA’s Decision. The agency has, however, conducted a review of the alternatives on potentially affected resources, including wetlands. See Section 4.5 of the FEIS.

10. Migratory Bird Treaty Act (MBTA), Bald and Golden Eagle Protection Act (BGEPA), Executive Order 13186.

The MBTA provides for the protection of migratory birds that are native to the United States by making it illegal for anyone to pursue, hunt, take, attempt to take, kill, capture, collect, possess, buy, sell, trade, ship, import, or export any migratory bird covered under the statute. The statute prohib its both intentional and unintentional acts. Therefore, the statute is violated if an ag ency acts in a manner that harms a migratory bird, whether it was intended or not. See, e.g., United States v. FMC Corp. , 572 F.2d 902 (2nd Cir. 1978).638 The BGEPA (16 U.S.C. § 668) prohibits any form of possession or taking of both bald and golden eagles. Under the BGEPA, vi olators are subject to criminal and civil sanctions as well as an enhanced penalty provision for subsequent offenses.

Executive Order 13186, “Responsibilities of Federal Agencies to Protect Migratory Birds,” helps to further the purposes of the MBTA by requiring a Federal agency to develop a Memorandum of Understanding (MOU) with the Fish and Wildlife Service when it is taking an action that has (or is likely to have) a measurable negative impact on migratory bird populations.

The agency concludes that the MBTA, BGEPA, and Executive Order 13186 do not apply to NHTSA’s Decision, because there is no disturbance and/or take involved in

NHTSA’s Decision.

11. Department of Transportation Act (Section 4(f))

Section 4(f) of the Department of Transp ortation Act of 1966 (49 U.S.C. § 303), as amended by Pub. Law § 109-59, is designed to preserve publicly owned parklands, waterfowl and wildlife refuges, and significant historic sites. Specifically, Section 4(f) of the Department of Transportation Act provides that DOT agencies cannot approve a transportation program or project that requires the use of any publicly owned land from a significant public park, recreation area, or wildlife and waterfowl refuge, or any land from a significant historic site, un less a determination is made that:

 There is no feasible and prudent alte rnative to the use of land, and

 The program or project includes all possible planning to minimize harm to the property resulting from use, or

 A transportation use of Section 4(f) property results in a de minimis impact.

The agency concludes that the Section 4(f) is not applicable to NHTSA’s Decision because this rulemaking does not re quire the use of any publicly owned land. For a more detailed discussion, please see Section 3.5 of the FEIS.

L. Regulatory Notices and Analyses

1. Executive Order 12866 and DOT Regulatory Policies and Procedures

Executive Order 12866, “Regulatory Planning and Review” (58 FR 51735, Oct. 4, 1993), provides for making determinations whether a regulatory action is “significant” and therefore subject to OMB review and to the requirements of the Executive Order. The Order defines a “significant regulatory action” as one that is likely to result in a rule that may:639 (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or Tribal governments or communities;

(2) Create a serious inconsistency or othe rwise interfere with an action taken or planned by another agency;

(3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or

(4) Raise novel legal or policy issues aris ing out of legal mandates, the President’s priorities, or the principles set forth in the Executive Order.

The rulemaking proposed in this NPRM is economically significant. Accordingly, OMB reviewed it under Executive Order 12866. The rule is also significant within the meaning of the Department of Transportation’s Regulatory Policies and

Procedures.

The benefits and costs of this proposal are described above. Because the rule is economically significant under both the Departme nt of Transportation’s procedures and OMB guidelines, the agency has prepared a Final Regulatory Impact Analysis (FRIA) and placed it in the docket and on the agency’s website. Further, pursuant to OMB Circular A-4, we have prepared a formal probabilistic uncertainty analysis for this proposal. The circular requires such an analysis for complex rules where there are large, multiple uncertainties whose analysis raises technical challenges or where effects cascade and where the impacts of the rule exceed $1 b illion. This final rule meets these criteria

on all counts.

2. National Environmental Policy Act

On March 3, 2010 NHTSA published in the Federal Register the Final Environmental Impact Statement (EIS) for the MYs 2012-2016 CAFE standards. 75 FR 9596. The FEIS analyzes and discloses the potential environmental impacts of the proposed MYs 2012-2016 CAFE standards for the total fleet of passenger cars and light

trucks and reasonable alternative standard s for the NHTSA CAFE Program pursuant to the National Environmental Policy Act (NEP A), the Council on Environmental Quality (CEQ) regulations implementing NEPA, DOT Order 5610.1C, and NHTSA regulations. 706 The FEIS compared the potential en vironmental impacts of alternative mile per gallon (mpg) levels considered by NHT SA for the final rule. It also analyzed direct, indirect, and cumulative impacts and analyzes impacts in proportion to their

706 NEPA is codified at 42 U.S.C. 4321-4347. CEQ NEPA implementing regulations are codified at 40 Code of Federal Regulations (CFR) Parts 1500-1508. NHTSA NEPA implementing regulations are

codified at 49 CFR Part 520.640 significance. See the FEIS and the FEIS Summary for a discussion of the environmental impacts analyzed. Docket Nos. NHTSA-2009-0059-0140, NHTSA-2009-0059-0141.

3. Regulatory Flexibility Act

Pursuant to the Regulatory Flex ibility Act (5 U.S.C. 601 et seq. , as amended by the Small Business Regulatory Enforcement Fa irness Act (SBREFA) of 1996), whenever an agency is required to publish a notice of rulemaking for any proposed or final rule, it must prepare and make available for public co mment a regulatory flexibility analysis that describes the effect of the rule on small entities (i.e. , small businesses, small organizations, and small governmental jurisdictions). The Small Business Administration’s regulations at 13 CFR part 121 define a small business, in part, as a business entity “which operates primarily within the United States.” 13 CFR 121.105(a). No regulatory flexibility analysis is required if the head of an agency certifies the rule will not have a significant economic impact on a substantial number of small entities.

I certify that this final rule will not have a significant economic impact on a substantial number of small entities. The following is NHTSA’s statement providing the factual basis for the certification (5 U.S.C. 605(b)).

The final rule directly affects twenty-one large single stage motor vehicle

manufacturers. 707 According to current information, the final rule would also affect two small domestic single stage motor vehicle manufacturers, Saleen and Tesla. 708 According to the Small Business Administration’s small business size standards (see 13 CFR 121.201), a single stage automobile or light truck manufacturer (NAICS code 336111, Automobile Manufacturing; 336112, Light Truck and Utility Vehicle Manufacturing) must have 1,000 or fewer employees to qualify as a small business. Both Saleen and Tesla have less than 1,000 employees and make less than 1,000 vehicles per year. We believe that the rulemaking would not have a significant economic impact on these small vehicle manufacturers because under Part 525, passenger car manufacturers making less than 10,000 vehicles per year can petition NHTSA to have alternative standards set for those manufacturers. Tesla produces only elec tric vehicles with fuel economy values far above those finalized today, so we would not expect them to need to petition for relief.Saleen modifies a very small number of vehicles produced by one of the 21 large singlestage manufacturers, and currently does not meet the 27.5 mpg passenger car standard, nor is it anticipated to be able to meet the standards proposed today. However, Saleen already petitions the agency for relief. If th e standard is raised, it has no meaningful impact on Saleen, because it must still go thr ough the same process to petition for relief. Ferrari commented that NHTSA will not necessarily always grant the petitions of small vehicle manufacturers for alternative standards, and that therefore the relief is not

707 BMW, Daimler (Mercedes), Chrysler, Ferrari, Fo rd, Subaru, General Motors , Honda, Hyundai, Kia, Lotus, Maserati, Mazda, Mitsubishi, Nissan, Porsch e, Subaru, Suzuki, Tata, Toyota, and Volkswagen.

708 The Regulatory Flexibility Act only requires analysis of small domestic manufacturers. There are two passenger car manufacturers that we know of, Sal een and Tesla, and no light truck manufacturers.641 guaranteed. 709 In response, NHTSA notes that the fact that the agency may not grant a petition for an alternative stan dard for one manufacturer at one time does not mean that the mechanism for handling small businesses is unavailable for all. Thus, given that there already is a mechanism for handling small businesses, which is the purpose of the Regulatory Flexibility Act, a regulatory fl exibility analysis was not prepared.

4. Executive Order 13132 (Federalism)

Executive Order 13132 requires NHTSA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism im plications.” The Order defines the term “Policies that have federalism implications” to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” Under the Order, NHTSA may not issue a regulation that has federalism implications, that imposes substantial direct co mpliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, or NHTSA consults with State and local officials early in the process of developing the proposed regulation. Several state agencies provided comments to the proposed standards.

Additionally, in his January 26 memora ndum, the President requested NHTSA to “consider whether any provisions regarding pr eemption are consistent with the EISA, the Supreme Court's decision in Massachusetts v. EPA and other relevant provisions of law and the policies underlying them.” NHTSA is deferring consideration of the preemption issue. The agency believes that it is unnecessa ry to address the issue further at this time

because of the consistent and coordinated federal standards that will apply nationally under the National Program.

5. Executive Order 12988 (Civil Justice Reform)

Pursuant to Executive Order 12988, “Civil Justice Reform,” 710 NHTSA has considered whether this rulemaking would have any retroactive effect. This final rule does not have any retroactive effect.

6. Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires Federal agencies to prepare a written assessmen t of the costs, benefits, and other effects of a proposed or final rule that includes a Federal mandate likely to result in the

709 We note that Ferrari would not currently qualify fo r such an alternative standard, because it does not manufacture fewer than 10,000 passenger automobiles per year, as required by 49 U.S.C. 32902(d) for exemption from the main passenger car CAFE standard.

710 61 FR 4729 (Feb. 7, 1996).642 expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of more than $100 million in any one ye ar (adjusted for inflation with base year of 1995). Adjusting this amount by the implicit gross domestic product price deflator for 2006 results in $126 million (116.043/92.106 = 1.26). Before promulgating a rule for which a written statement is needed, section 205 of UMRA generally requires NHTSA to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective, or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, section 205 allows NHTSA to adopt an alternative other than the least costly, most cost-effective, or least burdensome alternative if the agency publishes with the final rule an explana tion why that alterna tive was not adopted.

This final rule will not result in the expenditure by State, local, or tribal governments, in the aggregate, of more th an $126 million annually, but it will result in the expenditure of that magnitude by vehicle manufacturers and/or their suppliers. In promulgating this final rule, NHTSA considered a variety of alternative average fuel economy standards lower and higher than those proposed. NHTSA is statutorily required

to set standards at the maximum feasible le vel achievable by manufacturers based on its consideration and balancing of relevant factors and has concluded that the final fuel economy standards are the maximum feasible standards for the passenger car and light truck fleets for MYs 2012-2016 in light of the statutory considerations.

7. Paperwork Reduction Act

[Placeholder. Do we still need this?]

8. Regulation Identifier Number

The Department of Transportation assigns a regulation identifier number (RIN) to each regulatory action listed in the Unif ied Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. You may use the RIN c ontained in the heading at the beginning of this document to find this action in the Unified Agenda.

9. Executive Order 13045

Executive Order 13045 711 applies to any rule that: (1) Is determined to be economically significant as defined under E.O. 12866, and (2) concerns an environmental, health, or safety risk th at NHTSA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, we must evaluate the environmental health or safety effects of the proposed rule on children, and explain why the proposed regulation is preferable to other potentially effective and reasonably foreseeable alternatives considered by us.

711 62 FR 19885 (Apr. 23, 1997).643 Chapter 4 of NHTSA’s FEIS notes that breathing PM can cause respiratory ailments, heart attack, and arrhythmias (Dockery et al. 1993, Samet et al. 2000, Pope et
al. 1995, 2002, 2004, Pope and Dockery 2006, Dominici et al. 2006, Laden et al. 2006,

all in Ebi et al. 2008). 712 Populations at greatest risk c ould include children, the elderly, and those with heart and lung disease, diabetes (Ebi et al. 2008), and high blood pressure (Künzli et al. 2005, in Ebi et al. 2008). Chronic exposure to PM could decrease lifespan by 1 to 3 years (Pope 2000, in American Lung Association 2008). Increasing PM concentrations are expected to have a measurable adverse impact on human health (Confalonieri et al. 2007).

Additionally, the FEIS notes that subs tantial morbidity and childhood mortality has been linked to water- and food-borne diseases. Climate change is projected to alter temperature and the hydrologic cycle through changes in precipitation, evaporation, transpiration, and water storage. These changes, in turn, potentially affect water-borne and food-borne diseases, such as salmonellosis, campylobacter, leptospirosis, and pathogenic species of vibrio. They also have a direct impact on surface water availability and water quality. Increased temperatures, greater evaporation, and heavy rain events have been associated with adverse impacts on drinking water through increased waterborne diseases, algal blooms, and toxins (Chorus and Bartram 1999, Levin et al. 2002, Johnson and Murphy 2004, all in Epstein et al. 2005). A seasonal signature has

been associated with waterborne disease ou tbreaks (EPA 2009b). In the United States, 68 percent of all waterborne diseases between 1948 and 1994 were observed after heavy rainfall events (Curriero et al. 2001a, in Epstein et al. 2005).

Climate change could further impact a pathogen by directly affecting its life cycle (Ebi et al. 2008). The global increase in the frequency, intensity, and duration of red tides could be linked to local impacts already associated with climate change (Harvell et
al. 1999, in Epstein et al. 2005); toxins associated with red tide directly affect the nervous system (Epstein et al. 2005).

Many people do not report or seek medical attention for their ailments of waterborne or food-borne diseases; hence, the number of actual cases with these diseases is greater than clinical records demonstrate (Mead et al . 1999, in Ebi et al. 2008). Many of the gastrointestinal diseases associated with water-borne and food-borne diseases can be self-limiting; however, vulnerable populations include young children, those with a compromised immune system, and the elderly.

Thus, as detailed in the FEIS, NHTSA has evaluated the environmental health and safety effects of agency’s action on children.

10. National Technology Transfer and Advancement Act

712 The references referred to in the remainder of this section are detailed in section 7.4.5 of the FEIS.644 Section 12(d) of the National Technology Transfer and Advancement Act (NTTAA) requires NHTA to evaluate and us e existing voluntary consensus standards in its regulatory activities unless doing so woul d be inconsistent with applicable law ( e.g. , the statutory provisions regarding NHTSA’s vehicle safety authority) or otherwise impractical.

Voluntary consensus standards are technical standards developed or adopted by voluntary consensus standards bodies. Techni cal standards are defined by the NTTAA as “performance-base or design-specific technical specification and related management systems practices.” They pertain to “products and processes, such as size, strength, or technical performance of a product, process or material.”

Examples of organizations generally regarded as voluntary consensus standards bodies include the American Society for Testing and Materials (ASTM), the Society of Automotive Engineers (SAE), and the American National Standards Institute (ANSI). If NHTSA does not use available and potentially applicable voluntary consensus standards, we are required by the Act to provide Congress, through OMB, an explanation of the reasons for not using such standards.

There are currently no voluntary consensus standards relevant to today’s final

CAFE standards.

11. Executive Order 13211

Executive Order 13211 713 applies to any rule that: (1) Is determined to be economically significant as defined under E.O. 1 2866, and is likely to have a significant adverse effect on the supply, distribution, or use of energy; or (2) that is designated by the

Administrator of the Office of Information a nd Regulatory Affairs as a significant energy action. If the regulatory action meets either criterion, we must evaluate the adverse energy effects of the final rule and explain why the final regulation is preferable to other potentially effective and reasonably feas ible alternatives considered by us.

The final rule seeks to establish passenger car and light truck fuel economy standards that will reduce the consumption of petroleum and will not have any adverse energy effects. Accordingly, this fina l rulemaking action is not designated as a significant energy action.

12. Department of Energy Review

In accordance with 49 U.S.C. 32902(j)(1), we submitted this final rule to the Department of Energy for review. That De partment did not make any comments that we

have not addressed.

713 66 FR 28355 (May 18, 2001).645 13. Privacy Act

Anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an organization, business, labor union, etc.). You may review DOT’s complete Privacy Act statement in the Federal Register (65 FR 19477-78, April 11, 2000) or you may visit http://www.dot.gov/privacy.html.

List of Subjects

40 CFR Part 85 Confidential business information, Imports, Labeling, Motor vehicle pollution, Reporting and recordkeeping requirements, Research, Warranties.

40 CFR Part 86 Administrative practice and procedure, Confidential business information, Labeling, Motor vehicle pollution, Reporting and recordkeeping requirements.

40 CFR Part 600 Administrative practice and procedure, Electr ic power, Fuel economy, Incorporation by reference, Labeling, Reporting and recordkeeping requirements.

49 CFR Part 531 and 533 Fuel economy.

49 CFR Part 537 Fuel economy, Reporting and recordkeeping requirements.

49 CFR Part 538 Administrative practice and procedure, Fuel economy, Motor vehicles, Reporting and recordkeeping requirements.

Environmental Protection Agency

40 CFR Chapter I646 For the reasons set forth in the preamble , the Environmental Protection Agency is amending parts 9, 85, 86, and 600 of title 40, Chapter I of the Code of Federal Regulations as follows:

PART 9—[Amended]

1. The authority citation for part 9 continues to read as follows: Authority: 7 U.S.C. 135 et seq ., 136–136y; 15 U.S.C. 2001, 2003, 2005, 2006, 2601– 2671; 21 U.S.C. 331j, 346a, 31 U.S.C. 9701; 33 U.S.C. 1251 et seq ., 1311, 1313d, 1314, 1318, 1321, 1326, 1330, 1342, 1344, 1345 (d) and (e), 1361; E.O. 11735, 38 FR 21243, 3 CFR, 1971–1975 Comp. p. 973; 42 U.S.C. 241, 242b, 243, 246, 300f, 300g, 300g–1, 300g–2, 300g–3, 300g–4, 300g–5, 300g–6, 300j–1, 300j–2, 300j–3, 300j–4, 300j–9, 1857 et seq ., 6901–6992k, 7401–7671q, 7542, 9601–9657, 11023, 11048.

2. The table in § 9.1 is amended by adding the following sections in numerical order under the undesignated center heading ‘‘Signi ficant New Uses of Chemical Substances’’

to read as follows:

§ 9.1 OMB approvals under the Paperwork Reduction Act.

* * * * *

40 CFR citation OMB control No.

* * * * * Control of Emissions From New and In-Use Highway Vehicles and Engines

* * * * *

86.165-12

86.166-12

86.1805-12

86.1809-10

86.1818-12

86.1823-08

86.1845-04

86.1865-12

86.1866-12

86.1867-12 2060-0104

* * * * *647 PART 85—CONTROL OF AIR POLLUTION FROM MOBILE SOURCES

3. The authority citation for part 85 continues to read as follows: Authority: 42 U.S.C. 7401–7671q.

Subpart T -- [Amended]

4. Section 85.1902 is amended by revising paragraphs (b) and (d) as follows:

§ 85.1902 Definitions.

* * * * * (b) The phrase emission-related defect shall mean: (1) A defect in design, materials, or workmanship in a device, system, or assembly described in the approved Application for Certification (required by 40 CFR 86.1843-01 and 86.1844-01, 40 CFR 86.098-22 and like provisions of subpart A of this part and 40 CFR part 86) which affects any parameter or specification enumerated in appendix VIII of this part; or (2) A defect in the design, materials, or workmanship in one or more emissions control or emission-related parts, components, systems, software or elements of design which must function properly to assure continued vehicle emission compliance (including compliance with greenhouse gas CH 4 , N 2 O, and carbon related exhaust emission standards);

* * * * * (d) The phrase Voluntary Emissions Recall shall mean a repair, adjustment, or modification program voluntarily initiated and conducted by a manufacturer to remedy any emission-related defect for which direct no tification of vehicle or engine owners has been provided, including programs to remedy defects related to greenhouse gas emissions (CH 4 , N 2 O and/or carbon-related exhaust emissions).

* * * * *648 PART 86--CONTROL OF EMISSIONS FROM NEW AND IN-USE HIGHWAY

VEHICLES AND ENGINES

5. The authority citation for part 86 continues to read as follows: Authority: 42 U.S.C. 7401-7671q.

6. Section 86.1 is amended by adding paragraphs (b)(2)(xxxix) through (xxxx) to read as

follows:

§ 86.1 Reference materials.

* * * * * (b) * * * (2) * * *(xxxix) SAE J2064, December 2005, R134a Refrigerant Automotive AirConditioned Hose, IBR approved for §86.166-12. (xxxx) SAE J2765, October, 2008, Procedure for Measuring System COP [Coefficient of Performance] of a Mobile Air Conditioning System on a Test Bench, IBR approved for §86.1866-12.

* * * * *649 Subpart B--[Amended]

7. Section 86.111-94 is amended by revising paragraph (b) introductory text to read as

follows:

§86.111-94 Exhaust gas analytical system.

* * * * * (b) Major component description. The exhaust gas analytical system, Figure B94– 7, consists of a flame ionization detector (FID) (heated, 235 °±15 °F (113 °±8 °C) for methanol-fueled vehicles) for the determination of THC, a methane analyzer (consisting of a gas chromatograph combined with a FID) for the determination of CH 4 , nondispersive infrared analyzers (NDIR) for the determination of CO and CO 2 , a chemiluminescence analyzer (CL) for the determination of NO X , and an analyzer meeting the requirements specified in §86. 167-12 for the determination of N 2 O for 2015 and later model year vehicles. A heated flame ioniza tion detector (HFID) is used for the continuous determination of THC from petroleum-fueled diesel-cycle vehicles (may also be used with methanol-fueled diesel-cycle vehicles), Figure B94–5 (or B94–6). The analytical system for methanol consists of a gas chromatograph (GC) equipped with aflame ionization detector. The analysis for formaldehyde is performed using highpressure liquid chromatography (HPLC) of 2,4-dinitrophenylhydrazine (DNPH) derivatives using ultraviolet (UV) detection. The exhaust gas analytical system shall conform to the following requirements:

* * * * *

8. A new section 86.127-12 is added to read as follows:

§86.127-12 Test procedures; overview. Applicability. The procedures described in this subpart are used to determine the conformity of vehicles with the standards set forth in subpart A or S of this part (as applicable) for light-duty vehicles, light-duty trucks, and medium-duty passenger vehicles. Except where noted, the procedures of paragraphs (a) through (b) of this section, §86.127–96 (c) and (d), and the contents of §§86.135–94, 86.136–90, 86.137–96, 86.140–94, 86.142–90, and 86.144–94 are applicable for determining emission results for vehicle exhaust emission systems designed to comply with the FTP emission standards,

or the FTP emission element required for determining comp liance with composite SFTP standards. Paragraphs (f) and (g) of this se ction discuss the additional test elements of aggressive driving (US06) and air conditi oning (SC03) that comprise the exhaust emission components of the SFTP. Section 86.127–96(e) discusses fuel spitback emissions and paragraphs (h) and (i) of this se ction are applicable to all vehicle emission test procedures. Section 86.127–00 includes te xt that specifies requirements that differ from §86.127–96. (a) The overall test consists of prescrib ed sequences of fueling, parking, and operating test conditions. Vehicles are tested for any or all of the following emissions, depending upon the specific test requirements and the vehicle fuel type:650 (1) Gaseous exhaust THC, NMHC, CO, NO X , CO 2 , N 2 O, CH 4 , CH 3 OH,

C 2 H 5 OH, C 2 H 4 O, and HCHO. (2) Particulates. (3) Evaporative HC (for gasoline-fueled , methanol-fueled and gaseous-fueled vehicles) and CH3OH (for methanol-fueled vehicles). The evaporative testing portion of the procedure occurs after the exhaust emission test; however, exhaust emissions need not be sampled to complete a te st for evaporative emissions. (4) Fuel spitback (this test is not required for gaseous-fueled vehicles). (b) The FTP Otto-cycle exhaust emission te st is designed to determine gaseous THC, CO, CO 2 , CH 4 , NO X , N 2 O, and particulate mass emissions from gasoline-fueled, methanol-fueled and gaseous-fueled Otto-cycle vehicles as well as methanol and formaldehyde from methanol-fueled Otto-cycle vehicles, as well as methanol, ethanol, acetaldehyde, and formaldehyde from ethanol-fueled vehicles while simulating an average trip in an urban area of 11 miles (18 ki lometers). The test consists of engine startups and vehicle operation on a chassis dynamometer through a specified driving schedule (see paragraph (a) of appendix I to this part for the Urban Dynamometer Driving Schedule). A proportional part of the dilu ted exhaust is collected continuously for subsequent analysis, using a constant volume (variable dilution) sampler or critical flow venturi sampler. (c) The diesel-cycle exhaust emission test is designed to determine particulate andgaseous mass emissions during a test similar to the test in §86.127(b). For petroleumfueled diesel-cycle vehicles, diluted exhaust is continuously analyzed for THC using a heated sample line and analyzer; the other gaseous emissions (CH 4 , CO, CO 2 , N 2 O, and

NO X ) are collected continuously for analysis as in §86.127(b). For methanol- and ethanol-fueled vehicles, THC, methanol, formaldehyde, CO, CO 2 , CH 4 , N 2 O, and NO X are collected continuously for analysis as in §86.127(b). Additionally, for ethanol-fueled vehicles, ethanol and acetaldehyde are collected continuously for analysis as in §86.127(b). THC, methanol, ethanol, acetaldehyde, and formaldehyde are collected using heated sample lines, and a heated FID is used for THC analyses. Simultaneous with the gaseous exhaust collection and analysis, particulates from a proportional part of the diluted exhaust are collected continuously on a filter. The mass of particulate is determined by the procedure described in §86.139. This testing requires a dilution tunnel as well as the constant volume sampler. (d) The evaporative emission test (gasoline-fueled vehicles, methanol-fueled and gaseous-fueled vehicles) is designed to dete rmine hydrocarbon and methanol evaporative emissions as a consequence of diurnal temperature fluctuation, urban driving and hot soaks following drives. It is associated wi th a series of events that a vehicle may experience and that may result in hydrocarbon and/or methanol vapor losses. The test procedure is designed to measure: (1) Diurnal emissions resulting from daily temperature changes (as well as relatively constant resting losses), measured by the enclosure technique (see §86.133); (2) Running losses resulting from a si mulated trip performed on a chassis dynamometer, measured by the enclosure or point-source technique (see §86.134; this test is not required for gaseous-fueled vehicles); and651 (3) Hot soak emissions, which result when the vehicle is parked and the hot engine is turned off, measured by the enclosure technique (see §86.138). (e) Fuel spitback emissions occur when a vehicle's fuel fill neck cannot accommodate dispensing rates. The vehicle test for spitback consists of a short drive followed immediately by a complete refuel ing event. This test is not required for gaseous-fueled vehicles. (f) The element of the SFTP for exhaust em issions related to aggressive driving (US06) is designed to determine gaseous THC, NMHC, CO, CO2, CH4, and NOXemissions from gasoline-fueled or diesel-fueled vehicles (see §86.158–00 Supplemental test procedures; overview , and §86.159–00 Exhaust emission test procedures for US06 emissions). The test cycle simulates urban driving speeds and accelerations that are not represented by the FTP Urban Dynamometer Driving Schedule simulated trips discussed in paragraph (b) of this section. The test consists of vehicle operation on a chassis dynamometer through a specified driving cycle (see paragraph (g), US06 Dynamometer Driving Schedule, of appendix I to this part). A proportional part of the diluted exhaust is collected continuously for subsequent analysis, using a constant volume (variable dilution) sampler or critical flow venturi sampler. (g)(1) The element of the SFTP related to the increased exhaust emissions caused by air conditioning operation (SC03) is designed to determine gaseous THC, NMHC, CO, CO2, CH4, and NOXemissions from gasoline-fueled or diesel fueled vehicles related to air conditioning use (see §86.158–00 Supplemental federal test procedures; overview and §86.160–00 Exhaust emission test procedure for SC03 emissions). The test cycle simulates urban driving behavior with the ai r conditioner operating. The test consists of engine startups and vehicle operation on a chassis dynamometer through specified driving cycles (see paragraph (h), SC03 Dynamometer Driving Schedule, of appendix I to this part). A proportional part of the diluted exhaust is collected continuously for subsequent analysis, using a constant volume (variable dilution) sampler or critical flow venturi sampler. The testing sequence includ es an approved preconditioning cycle, a 10 minute soak with the engine turned off, and the SC03 cycle with measured exhaust

emissions. (2) The SC03 air conditioning test is c onducted with the air conditioner operating at specified settings and the ambient test conditions of: (i) Air temperature of 95 °F; (ii) 100 grains of water/pound of dry air (approximately 40 percent relative humidity); (iii) Simulated solar heat intensity of 850 W/m2 (see §86.161–00(d)); and (iv) air flow directed at the vehicle th at will provide representative air conditioner system condenser cooling at all vehicle speeds (see §86.161–00(e)). (3) Manufacturers have the option of simulating air conditioning operation during testing at other ambient test conditions provi ded they can demonstrate that the vehicle tail pipe exhaust emissions are representative of the emissions that would result from the SC03 cycle test procedure and the ambient conditions of paragraph (g)(2) of this section. The Administrator has approved two optional air conditioning test simulation procedures AC1 and AC2 (see §86.162–00) for only the model years of 2000 through 2002. If a652 manufacturer desires to conduct simulation SC03 testing for model year 2003 and beyond, the simulation test procedure must be approved in advance by the Administrator (see §§86.162–00 and 86.163–00). (h) Except in cases of component malfunction or failure, all emission control systems installed on or incorporated in a new motor vehicle shall be functioning during all procedures in this subpart. Maintenance to correct component ma lfunction or failure shall be authorized in accordance with §86.098–25 or §86.1834–01 as applicable. (i) Background concentrations are measured for all species for which emissions measurements are made. For exhaust testing, this requires sampling and analysis of the dilution air. For evaporative testing, this re quires measuring initial concentrations. (When testing methanol-fueled vehicles, manufacturers may choose not to measure background concentrations of methanol and/or formaldehyde, and then assume that the concentrations are zero during calculations.)

9. A new section 86.135-12 is added to read as follows:

§86.135-12 Dynamometer procedure. (a) Overview. The dynamometer run consists of two tests, a “cold” start test, after a minimum 12-hour and a maximum 36-hour soak according to the provisions of §§86.132 and 86.133, and a “hot” start test following the “cold” start by 10 minutes. Engine startup (with all accessories turned off), operation over the UDDS and engine shutdown make a complete cold start test. En gine startup and operation over the first 505 seconds of the driving schedule complete the hot start test. The exhaust emissions are diluted with ambient air in the dilution tunnel as shown in Figure B94–5 and Figure B94– 6. A dilution tunnel is not required for testing vehicles waived from the requirement to measure particulates. Six particulate sample s are collected on filters for weighing; the first sample plus backup is collected during the first 505 seconds of the cold start test; the second sample plus backup is collected during the remainder of the cold start test (including shutdown); the third sample plus backup is collected during the hot start test. Continuous proportional samples of gaseous emissions are collected for analysis duringeach test phase. For gasoline-fueled, natural gas-fueled and liquefied petroleum gasfueled Otto-cycle vehicles, the composite samples collected in bags are analyzed for THC, CO, CO 2 , CH 4 , NO X , and, for 2015 and later model year vehicles, N 2 O. For petroleum-fueled diesel-cycle vehicles (o ptional for natural gas-fueled, liquefied petroleum gas-fueled and methanol-fueled diesel-cycle vehicles), THC is sampled and analyzed continuously according to the provisions of §86.110. Parallel samples of the dilution air are similarly analyzed for THC, CO, CO 2 , CH 4 , NO X , and, for 2015 and later model year vehicles, N 2 O. For natural gas-fueled, liquefied petroleum gas-fueled and methanol-fueled vehicles, bag samples are collected and analyzed for THC (if not sampled continuously), CO, CO 2 , CH 4 , NO X , and, for 2015 and later model year vehicles,

N 2 O. For methanol-fueled vehicles, methanol and formaldehyde samples are taken for both exhaust emissions and dilution air (a single dilution air formaldehyde sample, covering the total test period may be collected). For ethanol-fueled vehicles, methanol, ethanol, acetaldehyde, and formaldehyde samples are taken for both exhaust emissions653 and dilution air (a single dilution air formal dehyde sample, covering the total test period may be collected). Parallel bag samples of dilution air are analyzed for THC, CO, CO 2 , CH 4 , NO X , and, for 2015 and later model year vehicles, N 2 O. Methanol and formaldehyde samples may be omitted for 1990 through 1994 model years when a FID

calibrated on methanol is used. (b) During dynamometer operation, a fixed speed cooling fan shall be positioned so as to direct cooling air to the vehicle in an appropriate manner with the engine compartment cover open. In the case of vehicles with front engine compartments, the fan shall be squarely positioned within 12 inches (3 0.5 centimeters) of the vehicle. In the case of vehicles with rear engine compartments (or if special designs make the above impractical), the cooling fan shall be placed in a position to provide sufficient air to maintain vehicle cooling. The fan capacity shall normally not exceed 5300 cfm (2.50

m 3 /sec). However, if the manufacturer can show that during field operation the vehicle receives additional cooling, and that such additional cooling is needed to provide a representative test, the fan capacity may be increased, additional fans used, variable speed fan(s) may be used, and/or the engine compartment cover may be closed, if approved in advance by the Administrator. For example, the hood may be closed to provide adequate air flow to an intercooler through a factory installed hood scoop. Additionally, the Administrator may conduct certification, fuel economy and in-use testing using the additional cooling set-up approved for a specific vehicle. (c) The vehicle speed as measured from the dynamometer rolls shall be used. A speed vs. time recording, as evidence of dy namometer test validity, shall be supplied on request of the Administrator. (d) Practice runs over the prescribed driving schedule may be performed at test point, provided an emission sample is not ta ken, for the purpose of finding the minimum throttle action to maintain the proper spee d-time relationship, or to permit sampling system adjustment. Note: When using two -roll dynamometers a truer speed-time trace may be obtained by minimizing the rocking of the vehicle in the rolls; the rocking of the vehicle changes the tire rolling radius on each roll. This rocking may be minimized by restraining the vehicle horizontally (or nearly so) by using a cable and winch. (e) The drive wheel tires may be inflated up to a gauge pressure of 45 psi (310 kPa) in order to prevent tire damage. The drive wheel tire pressure shall be reported with

the test results. (f) lf the dynamometer has not been operated during the 2-hour period immediately preceding the test, it shall be warmed up for 15 minutes by operating at 30 mph (48 kph) using a non-test vehicle or as recommended by the dynamometer

manufacturer. (g) If the dynamometer horsepower must be adjusted manually, it shall be set within 1 hour prior to the exhaust emissions te st phase. The test vehicle shall not be used to make this adjustment. Dynamometers using automatic control of preselectable power settings may be set anytime prior to the beginning of the emissions test. (h) The driving distance, as measured by counting the number of dynamometer roll or shaft revolutions, shall be determined for the transient cold start, stabilized cold654 start, and transient hot start phases of the te st. The revolutions shall be measured on the same roll or shaft used for measuring the vehicle's speed. (i) Four-wheel drive and all- wheel drive vehicles may be tested either in a fourwheel drive or a two-wheel drive mode of ope ration. In order to test in the two-wheel drive mode, four-wheel drive and all-wheel drive vehicles may have one set of drive wheels disengaged; four-wheel and all-wheel drive vehicles which can be shifted to a two-wheel mode by the driver may be tested in a two-wheel drive mode of operation.

10. A new §86.165-12 is added to subpart B to read as follows:

§86.165-12 Air conditioning idle test procedure. (a) Applicability . This section describes procedures for determining air conditioning-related CO 2 emissions from light-duty vehicles, light-duty trucks, and medium-duty passenger vehicles. The results of this test are used to qualify for air conditioning efficiency CO 2 credits according to §86.1866-12(c). (b) Overview . The test consists of a brief period to stabilize the vehicle at idle, followed by a ten-minute period at idle when CO 2 emissions are measured without any air conditioning systems operating, followed by a ten-minute period at idle when CO 2 emissions are measured with the air conditioning system operating. This test is designed to determine the air conditioning-related CO 2 emission value, in grams per minute. If engine stalling occurs during cycle operation, follow the provisions of §86.136–90 to

restart the test. Measurement instruments must meet the specifications described in this subpart. (c) Test cell ambient conditions

. (1) Ambient humidity within the test ce ll during all phases of the test sequence shall be controlled to an average of 50 ± 5 grains of water/pound of dry air. (2) Ambient air temperature within the test cell during all phases of the test sequence shall be controlled to 75 ± 2 °F on average and 75 ± 5 °F as an instantaneous measurement. Air temperature shall be recorded continuously at a minimum of 30

second intervals. (d) Test sequence

. (1) Connect the vehicle exhaust system to the raw sampling location or dilution stage according to the provisions of this subpar t. For dilution systems, dilute the exhaust as described in this subpart. Continuous sampling systems must meet the specifications provided in this subpart. (2) Test the vehicle in a fully warmed-up condition. If the vehicle has soaked for two hours or less since the last exhaust test element, preconditioning may consist of a 505 Cycle, 866 Cycle, US06, or SC03, as these terms are defined in §86.1803-01, or a highway fuel economy test procedure, as defined in §600.002-08 of this chapter. For soak periods longer than two hours, precondition the vehicle using one full Urban Dynamometer Driving Schedule. Ensure that the vehicle has stabilized at test cell ambient conditions such that the vehicle interior temperature is not substantially different from the external test cell temperature. Windows may be opened during preconditioning

to achieve this stabilization.655 (3) Immediately after the preconditioning, turn off any cooling fans, if present, close the vehicle’s hood, fully close all th e vehicle’s windows, ensure that all the vehicle’s air conditioning systems are set to full off, start the CO 2 sampling system, and

then idle the vehicle for not less than 1 minute and not more than 5 minutes to achieve normal and stable idle operation. (4) Measure and record the continuous CO 2 concentration for 600 seconds.

Measure the CO 2 concentration continuously using raw or dilute sampling procedures. Multiply this concentration by the continuous (raw or dilute) flow rate at the emission sampling location to determine the CO 2 flow rate. Calculate the CO 2 cumulative flow rate continuously over the test interval. This cumulative value is the total mass of the emitted

CO 2

. (5) Within 60 seconds after completing the measurement described in paragraph (d)(4) of this section, turn on the vehicle’ s air conditioning system. Set automatic air conditioning systems to a temperature 9 °F (5 °C) below the ambient temperature of the test cell. Set manual air conditioning systems to maximum cooling with recirculation turned off, except that recirculation sha ll be enabled if the air conditioning system automatically defaults to a recirculation mode when set to maximum cooling. Continue idling the vehicle while measuring and recording the continuous CO 2 concentration for

600 seconds as described in paragraph (d)(4) of this sec tion. Air conditioning systems with automatic temperature cont rols are finished with the test after this 600 second idle period. Manually controlled air conditioni ng systems must complete one additional idle period described in paragraph (d)(6) of this section. (6) This paragraph (d)(6) applies only to manually controlled air conditioning systems. Within 60 seconds after completing the measurement described in paragraph (d)(5) of this section, leave the vehicle’s ai r conditioning system on and set as described in paragraph (d)(5) of this section but set the fan speed to the lowest setting that continues to provide air flow. Recirculation shall be turned off except that if the system defaults to

a recirculation mode when set to maximum co oling and maintains r ecirculation with the low fan speed, then recirculation shall continue to be enabled. After the fan speed has been set, continue idling the vehicle while measuring and recording the continuous CO 2 concentration for a total of 600 seconds as described in paragraph (d)(4) of this section. (e) Calculations . (1) For the measurement with no air conditioning, calculate the

CO 2 emissions (in grams per minute) by dividing the total mass of CO 2 from paragraph (d)(4) of this section by 10.0 (the duration in minutes for which CO2 is measured). Round this result to the nearest tenth of a gram per minute. (2)(i) For the measurement with air conditioning in operation for automatic air conditioning systems, calculate the CO 2 emissions (in grams per minute) by dividing the

total mass of CO 2 from paragraph (d)(5) of this section by 10.0. Round this result to the nearest tenth of a gram per minute. (ii) For the measurement with air conditioning in operation for manually controlled air conditioning systems, calculate the CO 2 emissions (in grams per minute) by summing the total mass of CO 2 from paragraphs (d)(5) and (d)(6) of this section and dividing by 20.0. Round this result to th e nearest tenth of a gram per minute.656 (3) Calculate the increased CO 2 emissions due to air conditioning (in grams per minute) by subtracting the results of paragraph (e)(1) of this section from the results of paragraph (e)(2)(i) or (ii) of this section, whichever is applicable. (f) The Administrator may prescribe procedur es other than those in this section for air conditioning systems and/or vehicles that may not be susceptible to satisfactory testing by the procedures and methods in this section. For example, the Administrator may prescribe alternative air conditioning system settings for systems with controls that are not able to meet the requirements in this section.

11. A new §86.166-12 is added to subpart B to read as follows:

§86.166-12 Method for calculating emissions due to air conditioning leakage. This section describes procedures used to determine a refrigerant leakage rate from vehicle-based air conditioning units. The results of this test are used to determine air conditioning leakage credits according to §86.1866-12(b). (a) Emission totals . Calculate an annual rate of refrigerant leakage from an air conditioning system using the following equation:

Grams/YR TOT = Grams/YR RP + Grams/YR SP + Grams/YR FH + Grams/YR MC +
Grams/YR C – Grams/YR CREDIT Where:

Grams/YR TOT = Total air conditioning system em ission rate in grams per year and rounded to the nearest tenth of a gram per year.

Grams/YR RP = Emission rate for rigid pipe connections as described in paragraph (b) of this section.

Grams/YR SP = Emission rate for service ports and refrigerant control devices as described in paragraph (c) of this section.

Grams/YR FH = Emission rate for flexible hoses as described in paragraph (d) of

this section.

Grams/YR MC = Emission rate for heat exchangers, mufflers, receiver/driers, and accumulators as described in paragraph (e) of this section.

Grams/YR C = Emission rate for compressors as described in paragraph (f) of this

section.

Grams/YR CREDIT = Leakage monitoring credit, as applicable, from paragraph (g)

of this section. (b) Fittings . Determine the grams per year emission rate for rigid pipe connections using the following equation:

Grams/YR RP = 0.00522 × [(125 × SO) + (75 × SCO) + (50 × MO) + (10 × SW) + (5 × SWO) + (MG)]

Where:

Grams/YR RP = Total emission rate for rigid pipe connections in grams per year. SO = The number of single O-ring connections. SCO = The number of single captured O-ring connections. MO = The number of multiple O-ring connections.

SW = The number of seal washer connections.657 SWO = The number of seal washer with O-ring connections. MG = The number of metal gasket connections. (c) Service ports and refrigerant control devices . Determine the grams per year emission rate for service ports and refrigerant control devices using the following equation:

Grams/YR SP = (0.3 × HSSP × 0.522) + (0.2 × LSSP × 0.522) + (0.2 × STV × 0.522) + (0.2 × TXV × 0.522)

Where:

Grams/YR SP = The emission rate for service ports and refrigerant control devices, in grams per year. HSSP = The number of high side service ports. LSSP = The number of low side service ports. STV = The total number of switches, transducers, and pressure relief valves. TXV = The number of TXV refrigerant control devices. (d) Flexible hoses . Determine the permeation emission rate in grams per year for each segment of flexible hose using the following equation, and then sum the values for each hose in the system to calculate a total emission rate for the system:

Grams/YR FH = 0.00522 × (3.14159 × ID × L × ER)

Where:

Grams/YR FH = Emission rate for a segment of flexible hose in grams per year.

ID = Inner diameter of hose, in millimeters. L = Length of hose, in millimeters. ER = Emission rate per unit internal surface area of the hose, in g/mm 2 . Select the appropriate value from the following table:

Material/configuration ER High-pressure

side Low-pressure

side

All rubber hose 0.0216 0.0144

Standard barrier or veneer hose 0.0054 0.0036 Ultra-low permeation barrier or veneer hose 0.00225 0.00167

(e) Heat exchangers, mufflers, receiver/driers, and accumulators . Use an emission rate of 0.261 grams per year as a combined value for all heat exchangers, mufflers, receiver/driers, and accumulators (Grams/YR MC ). (f) Compressors . Determine the emission rate for compressors using the following equation, except that the final term in the equation (“1500/SSL”) is not applicable to electric (or semi-hermetic) compressors:

Grams/YR C = 0.00522 × [(300 × OHS) + (200 × MHS) + (150 × FAP) + (100 × GHS) + (1500/SSL)]

Where:

Grams/YR C = The emission rate for the compressors in the air conditioning system, in grams per year. OHS = The number of O-ring housing seals.658 MHS = The number of molded housing seals. FAP = The number of fitting adapter plates. GHS = The number of gasket housing seals. SSL = The number of lips on shaft seal (for belt-driven compressors only). (g) Leakage monitoring credits. Electronic monitoring systems that provide indication of a refrigerant loss to the operator through an interior driver information display or an air conditioning-specific malfunction indicator when the air conditioning system has lost 40 percent of its charge capacity shall use a credit of 1 g/yr. (h) Definitions . The following definitions apply to this section: (1) All rubber hose means a Type A or Type B hose as defined by SAE J2064 with a permeation rate not greater than 15 kg/m 2 /year when tested according to SAE J2064. SAE J2064 is incorporated by reference; see §86.1. (2) Standard barrier or veneer hose means a Type C, D, E, or F hose as defined by SAE J2064 with a permeation rate not greater than 5 kg/m 2 /year when tested according to SAE J2064. SAE J2064 is incorporated by reference; see §86.1. (3) Ultra-low permeation barrier or veneer hose means a hose with a permeation rate not greater than 1.5 kg/m 2 /year when tested according to SAE J2064. SAE J2064 is incorporated by reference; see §86.1.

12. A new §86.167-12 is added to subpart B to read as follows:

§86.167-12 N 2 O measurement devices. (a) General component requirements . We recommend that you use an analyzer that meets the specifications in Table 1 of 40 CFR 1065.205. Note that your system must meet the linearity verification in 40 CFR 1065.307. (b) Instrument types . You may use any of the following analyzers to measure

N 2 O: (1) Nondispersive infra-red (NDIR) analyzer . You may use an NDIR analyzer that has compensation algorithms that are functions of other gaseous measurements and the engine’s known or assumed fuel properties. The target value for any compensation algorithm is 0.0 % (that is, no bias high and no bias low), regardless of the uncompensated signal’s bias. (2) Fourier transform infra-red (FTIR) analyzer . You may use an FTIR analyzer that has compensation algorithms that are fu nctions of other gaseous measurements and the engine’s known or assumed fuel properties. The target value for any compensation algorithm is 0.0 % (that is, no bias high and no bias low), regardless of the uncompensated signal’s bias. Use EPA Test Method 320 “Measurement of Vapor Phase Organic and Inorganic Emissions by Extractive Fourier Transform Infrared (FTIR) Spectroscopy” for spectral interpretation (see 40 CFR Part 63 Appendix A). (3) Photoacoustic analyzer . You may use a photoacoustic analyzer that has compensation algorithms that are functions of other gaseous measurements. The target value for any compensation algorithm is 0.0 % (that is, no bias high and no bias low), regardless of the uncompensated signal’s bias . Use an optical wheel configuration that gives analytical priority to measurement of the least stable components in the sample.659 Select a sample integration time of at least 5 seconds. Take into account sample chamber and sample line volumes when determining flush times for your instrument. (4) Gas chromatograph (GC) analyzer . You may use a gas chromatograph with Electron Capture Detector (ECD) to measure N 2 O concentrations of diluted exhaust for batch sampling. You may use a packed or porous layer open tubular (PLOT) column phase of suitable polarity and length to achieve adequate resolution of the N 2 O peak for analysis. Examples of acceptable columns are a PLOT column consisting of bonded polystyrene-divinylbenzene or a Porapack Q packed column. Take the column temperature profile and carrier gas selection into consideration when setting up your method to achieve adequate N 2 O peak resolution. (c) Interference validation . Perform interference valida tion for NDIR, FTIR, and Photoacoustic analyzers using the procedures of §86.168-12 as follows: (1) Certain interference gases can positively interfere with these analyzers by causing a response similar to N 2 O as follows: (i) The interference gases for NDIR analyzers are CO, CO 2 , H 2 O, CH 4 and SO 2

. Note that interference specie s, with the exception of H 2 O, are dependent on the N 2 O infrared absorption band chosen by the instrument manufacturer and should be determined independently for each analyzer. (ii) Use good engineering judgment to determine interference gases for FTIR. Note that interference specie s, with the exception of H 2 O, are dependent on the N 2 O infrared absorption band chosen by the instrument manufacturer and should be determined independently for each analyzer. (iii) The interference gases for photoacoustic analyzers are CO, CO 2 , and H 2 O. (2) Analyzers must have combined inte rference that is within (0.0 ± 1.0) mol/mol. We strongly recommend a lower in terference that is within (0.0 ± 0.5)

mol/.

13. A new §86.168-12 is added to subpart B to read as follows:

§86.168-12 Interference verification for N 2 O analyzers. (a) Scope and frequency . See 40 CFR 1065.275 to determine whether you need to verify the amount of interference after initial analyzer installation and after major

maintenance. (b) Measurement principles . Interference gasses can positively interfere with certain analyzers by causing a response similar to N 2 O. If the analyzer uses compensation algorithms that utilize measurements of other gases to meet this interference verification, simultaneously conduct these other measurements to test the compensation algorithms during the analyzer interference verification. (c) System requirements . See 40 CFR 1065.275 for system requirements related

to allowable interference levels. (d) Procedure . Perform the interference verification as follows: (1) Start, operate, zero, and span the N 2 O FTIR analyzer as you would before an emission test. If the sample is passed through a dryer during emission testing, you may run this verification test with the dryer if it meets the requirements of 40 CFR 1065.342.660 Operate the dryer at the same conditions as you will for an emission test. You may also

run this verification test without the sample dryer. (2) Create a humidified test gas by bu bbling a multi component span gas that incorporates the target interference specie s and meets the specifications in 40 CFR 1065.750 through distilled water in a sealed vesse l. If the sample is not passed through a dryer during emission testing, control the vessel temperature to generate an H 2 O level at least as high as the maximum expected during em ission testing. If the sample is passed through a dryer during emission testing, control the vessel temperature to generate an

H 2 O level at least as high as the level dete rmined in 40 CFR 106 5.145(e)(2) for that dryer. Use interference span gas concentrations that are at least as high as the maximum expected during testing. (3) Introduce the humidified interference test gas into the sample system. You may introduce it downstream of any sample dryer, if one is used during testing. (4) If the sample is not passed through a dryer during this verification test, measure the water mole fraction, x H2O , of the humidified interference test gas as close as possible to the inlet of the analyzer. For example, measure dewpoint, T dew , and absolute

pressure, p total , to calculate x H2O . Verify that the water cont ent meets the requirement in paragraph (d)(2) of this section. If the sample is passed through a dryer during this verification test, you must verify that the water content of the humidified test gas downstream of the vessel meets the requirement in paragraph (d)(2) of this section based on either direct measurement of the water content (e.g., dewpoint and pressure) or an estimate based on the vessel pressure and temperature. Use good engineering judgment to estimate the water content. For example, you may use previous direct measurements of water content to verify the vessel’s level of saturation. (5) If a sample dryer is not used in this verification test, use good engineering judgment to prevent condensation in the transfer lines, fittings, or valves from the point

where x H2O is measured to the analyzer. We recommend that you design your system so that the wall temperatures in the transfer lin es, fittings, and valves from the point where

x H2O is measured to the analyzer are at least 5 oC above the local sample gas dewpoint. (6) Allow time for the analyzer response to stabilize. Stabilization time may include time to purge the transfer line and to account for analyzer response. (7) While the analyzer measures the sample’s concentration, record its output for

30 seconds. Calculate the arithmetic mean of this data. (8) The analyzer meets the interference verification if the result of paragraph (d)(7) of this section meets the tolerance in 40 CFR 1065.275. (9) You may also run interference procedures separately for individual interference gases. If the interference gas levels used are higher than the maximum levels expected during testing, you may scale down each observed interference value by multiplying the observed interference by the ratio of the maximum expected concentration value to the actual value used during this procedure. You may run separate

interference concentrations of H 2 O (down to 0.025 mol/mol H 2 O content) that are lower than the maximum levels expected during testing, but you must scale up the observed

H 2 O interference by multiplying the observed interference by the ratio of the maximum expected H 2 O concentration value to the actual valu e used during this procedure. The661 sum of the scaled interference values must meet the tolerance specified in 40 CFR

1065.275.662 Subpart S--[Amended]

14. A new §86.1801-12 is added to read as follows:

§86.1801-12 Applicability. (a) Applicability. Except as otherwise indicated, th e provisions of this subpart apply to new light-duty vehicles, light-duty trucks, medium-duty passenger vehicles, and Otto-cycle complete heavy-duty vehicles, including multi-fueled, alternative fueled, hybrid electric, plug-in hybrid electric, and electric vehicles. These provisions also apply to new incomplete light-duty trucks below 8,500 Gross Vehicle Weight Rating. In cases where a provision applies only to a certain vehicle group based on its model year, vehicle class, motor fuel, engine type, or other distinguishing characteristics, the limited applicability is cited in the appropriate section of this subpart. (b) Aftermarket conversions. The provisions of this subpart apply to aftermarket conversion systems, aftermarket conversion installers, and aftermarket conversion certifiers, as those terms are defined in 40 CFR 85.502, of all model year light-duty vehicles, light-duty trucks, medium-duty passenger vehicles, and complete Otto-cycle heavy-duty vehicles. (c) Optional applicability. (1) [Reserved] (2) A manufacturer may request to certify any incomplete Otto-cycle heavy-duty vehicle of 14,000 pounds Gross Vehicle Weight Rating or less in accordance with the provisions for complete heavy-duty vehicles. Heavy-duty engine or heavy-duty vehicle provisions of subpart A of this part do not apply to such a vehicle. (3) [Reserved] (4) Upon preapproval by the Administrator, a manufacturer may optionally certify an aftermarket conversion of a complete heavy-duty vehicle greater than 10,000 pounds Gross Vehicle Weight Rating and of 14,000 p ounds Gross Vehicle Weight Rating or less under the heavy-duty engine or heavy-duty vehicle provisions of subpart A of this part. Such preapproval will be granted only upon demonstration that chassis-based certification would be infeasible or unreasonable for the manufacturer to perform. (5) A manufacturer may optionally certify an aftermarket conversion of a complete heavy-duty vehicle greater than 10,000 pounds Gross Vehicle Weight Rating and of 14,000 pounds Gross Vehicle Weight Rating or less under the heavy-duty engine or heavy-duty vehicle provisions of subpart A of this part without advance approval from the Administrator if the vehicle was originally certified to the heavy-duty engine or heavy-duty vehicle provisions of subpart A of this part. (d) Small volume manufacturers. Special certification proc edures are available for any manufacturer whose projected or actual comb ined sales in all states and territories of the United States of light-duty vehicles, light-duty trucks, heavy-duty vehicles, and heavy-duty engines in its product line (including all vehicles and engines imported under the provisions of 40 CFR 85.1505 and 85.1509) are fewer than 15,000 units for the model year in which the manufacturer seeks certification. The small volume manufacturer's663 light-duty vehicle and light-duty truck certification procedures and described in §86.1838–01. (e) - (g) [Reserved] (h) Applicability of provisions of this subpart to light-duty vehicles, light-duty trucks, medium-duty passenger vehicles, and heavy-duty vehicles. Numerous sections in this subpart provide requirements or procedures applicable to a “vehicle” or “vehicles.” Unless otherwise specified or otherwise dete rmined by the Administrator, the term “vehicle” or “vehicles” in those provisions apply equally to light-duty vehicles (LDVs), light-duty trucks (LDTs), medium-duty passenger vehicles (MDPVs), and heavy-duty vehicles (HDVs), as those terms are defined in §86.1803-01. (i) Applicability of provisions of this subpart to exhaust greenhouse gas

emissions . Numerous sections in this subpart refer to requirements relating to “exhaust emissions.” Unless otherwise specified or ot herwise determined by the Administrator, the term “exhaust emissions” refers at a minimum to emissions of all pollutants described by emission standards in this subpart, including carbon dioxide (CO 2 ), nitrous oxide (N 2 O), and methane (CH 4 ), starting with the 2012 model year. (j) Conditional exemption from greenhouse gas emission standards for small

businesses . Businesses meeting the Small Busi ness Administration size standard defining a small business as described in 13 CFR 121.201 are eligible for exemption from the greenhouse gas emission standards specified in §86.1818-12. Both U.S.-based and non-U.S.-based businesses are eligible for exemption under this paragraph (j). To be exempted from these provisions, businesses mu st submit a declaration to EPA containing a detailed written description of how the busine ss qualifies as a small business under the provisions of 13 CFR 121.201. This declaration must be signed by a chief officer of the company, and must be made prior to each model year for which the small business status is requested. The declaration must be subm itted to EPA at least 30 days prior to the introduction into commerce of any vehicles for each model year for which the small business status is requested, but not later than December of the calendar year prior to the model year for which exemption is requested. Exemption will be granted when EPA approves the small business declaration. The de claration of small business status must be sent to the Environmental Protection Agen cy at the following address: Director, Certification and Innovative Strategies Division, U.S. Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, Michigan 48105. (1) The following categories of businesse s (with their associated NAICS codes) may apply for exemption based on the Small Business Administration size standards in

13 CFR 121.201. (i) Vehicle manufacturers (NAICS code 336111). (ii) Independent commercial importers (NAICS codes 811111, 811112, 811198, 423110, 424990, and 441120). (iii) Alternate fuel vehicle converters (NAICS codes 335312, 336312, 336322, 336399, 454312, 485310, and 811198). (2) For purposes of determining the number of employees or annual sales revenue for small entities, the entity shall include the employees or annual sales revenue of any664 subsidiary companies, any parent company, subsidiaries of the parent company in which the parent has a controlling interest, and any joint ventures. (3) An entity may use the provisions of this paragraph (j) only if it has primary responsibility for (A) designing and assembli ng the vehicles, (B) converting the vehicles, or (C) modifying the vehicles. (4) An entity may import vehicles under this paragraph (j) only if that entity has primary responsibility for designing and asse mbling, converting or modifying the subject

vehicles.

15. Section 86.1803-01 is amended as follows: a. By adding the definition for “Air conditioning idle test.” b. By adding the definition for “Air conditioning system.” c. By revising the definition for “Banking.” d. By adding the definition for “Base level.” e. By adding the definition for “Base tire.” f. By adding the definition for “Base vehicle.” g. By revising the definition for “Basic engine.” i. By adding the definition for “Carbon-related exhaust emissions.” j. By adding the definition for “Combined CO 2 .” k. By adding the definition for “Combined CREE.” l. By adding the definition for “Electric vehicle.” m. By revising the definition for “Engine code.” n. By adding the definition for “Ethanol fueled vehicle.” o. By revising the definition for “Flexible fuel vehicle.” p. By adding the definition for “Footprint.” q. By adding the definition for “Fuel cell.” r. By adding the definition for “Fuel cell electric vehicle.” s. By adding the definition for “Highway fuel economy test procedure.” t. By adding the definition for “Hybrid electric vehicle.” u. By adding the definition for “Interior volume index.” v. By adding the definition for “Motor vehicle.” w. By adding the definition for “Multi-fuel vehicle.” x. By adding the definition for “Petroleum equivalency factor.” y. By adding the definition for “Petroleum-equivalent fuel economy.” z. By adding the definition for “Petroleum powered accessory.” aa. By adding the definition for “Plug-in hybrid electric vehicle.” bb. By adding the definition for “Production volume.” cc. By revising the definition for “Round, rounded, or rounding.” dd. By adding the definition for “Subconfiguration.” ee. By adding the definition for “Track width.” ff. By revising the definition for “Transmission class.” gg. By revising the definition for “Transmission configuration.” hh. By adding the definition for “Wheelbase.”665 §86.1803-01 Definitions.

* * * * * Air Conditioning Idle Test means the test procedure specified in §86.165-12. Air conditioning system means a unique combination of air conditioning andclimate control components, including: compressor type (e.g., belt, gear, or electricdriven, or a combination of compressor dr ive mechanisms); compressor refrigerant capacity; the number and type of rigid pipe and flexible hose connections; the number of high side service ports; the number of low side service ports; the number of switches, transducers, and expansion valves; the number of TXV refrigerant control devices; the number and type of heat exchangers, mufflers, receiver/dryers, and accumulators; and the length and type of flexible hose (e.g., rubber, standard barrier or veneer, ultra-low permeation).

* * * * * Banking means one of the following: (1) The retention of NO X emission credits for complete heavy-duty vehicles by the manufacturer generating the emission credits, for use in future model year certification programs as permitted by regulation. (2) The retention of cold temperature non-methane hydrocarbon (NMHC) emission credits for light-duty vehicles, light-duty trucks, and medium-duty passenger vehicles by the manufacturer generating the emission credits, for use in future model year certification programs as permitted by regulation. (3) The retention of NO X emission credits for light -duty vehicles, light-duty trucks, and medium-duty passenger vehicles for use in future model year certification programs as permitted by regulation. (4) The retention of CO 2 emission credits for light-duty vehicles, light-duty trucks, and medium-duty passenger vehicles for use in future model year certification programs as permitted by regulation.

Base level has the meaning given in §600.002-08 of this chapter.

Base tire has the meaning given in §600.002-08 of this chapter.

Base vehicle has the meaning given in §600.002-08 of this chapter. Basic engine has the meaning given in §600.002-08 of this chapter.

* * * * * Carbon-related exhaust emissions (CREE) has the meaning given in §600.002-08 of this chapter.

* * * * *

Combined CO 2 means the CO 2 value determined for a vehicle (or vehicles) by averaging the city and highway CO 2 values, weighted 0.55 and 0.45 respectively.

* * * * *

Combined CREE means the CREE value determined for a vehicle (or vehicles) by averaging the city and highway fuel CREE values, weighted 0.55 and 0.45 respectively.

* * * * *

Electric vehicle means a motor vehicle that is powered solely by an electric motor drawing current from a rechargeable energy storage system, such as from storage666 batteries or other portable electrical energy storage devices, including hydrogen fuel cells, provided that: (1) The vehicle is capable of drawing recharge energy from a source off the vehicle, such as residential electric service; and (2) The vehicle must be certified to th e emission standards of Bin #1 of Table S04-1 in §86.1811-09(c)(6). (3) The vehicle does not have an onboard combustion engine/generator system as a means of providing electrical energy.

* * * * * Engine code means a unique combination within a test group of displacement, fuel injection (or carburetor) calibration, ch oke calibration, distributor calibration, auxiliary emission control devices, and othe r engine and emission control system components specified by the Administrator. For electric vehicles, engine code means a unique combination of manufacturer, electric traction motor, motor configuration, motor controller, and energy storage device.

* * * * * Ethanol-fueled vehicle means any motor vehicle or motor vehicle engine that is engineered and designed to be operated using et hanol fuel (i.e., a fuel that contains at least 50 percent ethanol (C 2 H 5 OH) by volume) as fuel.

* * * * * Flexible fuel vehicle means any motor vehicle engineered and designed to be operated on a petroleum fuel, a methanol or ethanol fuel, or any mixture of the two. Methanol-fueled and ethanol-fueled vehicles that are only marginally functional when using gasoline (e.g., the engine has a drop in rated horsepower of more than 80 percent)

are not flexible fuel vehicles. Footprint is the product of track width (measured in inches, calculated as the average of front and rear track widths, and rounded to the nearest tenth of an inch) and wheelbase (measured in inches and rounded to the nearest tenth of an inch), divided by 144 and then rounded to the nearest tenth of a square foot.

Fuel cellmeans an electrochemical cell that produces electricity via the noncombustion reaction of a consumable fuel, typically hydrogen.

Fuel cell electric vehicle means an electric vehicle propelled solely by an electric motor where energy for the motor is supplied by a fuel cell.

* * * * * Highway Fuel Economy Test Procedure (HFET) has the meaning given in §600.002-08 of this chapter.

* * * * * Hybrid electric vehicle (HEV) means a motor vehicle which draws propulsion energy from onboard sources of stored energy that are both an internal combustion engine or heat engine using consumable fuel , and a rechargeable energy storage system such as a battery, capacitor, hydraulic accumulator, or flywheel, where recharge energy for the energy storage system comes solely from sources on board the vehicle.

* * * * *

Interior volume index has the meaning given in §600.315-08 of this chapter.667 * * * * *

Motor vehicle has the meaning given in 40 CFR 85.1703.

* * * * * Multi-fuel vehicle means any motor vehicle capable of operating on two or more different fuel types, either separately or simultaneously.

* * * * * Petroleum equivalency factor means the value specified in 10 CFR 474.3(b), which incorporates the parameters listed in 49 U.S.C. 32904(a)(2)(B) and is used to calculate petroleum-equivalent fuel economy. Petroleum-equivalent fuel economy means the value, expressed in miles per gallon, that is calculated for an electric vehicle in accordance with 10 CFR 474.3(a), and reported to the Administrator of the Environmental Protection Agency for use in determining the vehicle manufacturer's corporate average fuel economy.

* * * * * Petroleum-powered accessory means a vehicle accessory (e.g., a cabin heater, defroster, and/or air conditioner) that: (1) Uses gasoline or diesel fuel as its primary energy source; and (2) Meets the requirements for fuel, operation, and emissions in 40 CFR part 88.104–94(g). Plug-in hybrid elect ric vehicle (PHEV) means a hybrid electric vehicle that has the capability to charge the battery from an off-vehicle electric source, such that the offvehicle source cannot be connected to the vehicle while the vehicle is in motion.

* * * * *

Production volume has the meaning given in §600.002-08 of this chapter.

* * * * *
Round, rounded or rounding means, unless otherwise specified, that numbers will be rounded according to ASTM-E29-93a, which is incorporated by reference in this part pursuant to §86.1.

* * * * * Subconfiguration has the meaning given in §600.002-08 of this chapter.

* * * * *

Track width is the lateral distance between the centerlines of the base tires at ground, including the camber angle.

* * * * *

Transmission class has the meaning given in §600.002-08 of this chapter. Transmission configuration has the meaning given in §600.002-08 of this chapter.

* * * * *

Wheelbase is the longitudinal distance between front and rear wheel centerlines.

* * * * *

16. A new section 86.1805-12 is added to read as follows:

§86.1805-12 Useful life.668 (a) Except as permitted under paragraph (b) of this section or required under paragraphs (c) and (d) of this section, the fu ll useful life for all LDVs and LLDTs is a period of use of 10 years or 120,000 miles, whichever occurs first. The full useful life for all HLDTs, MDPVs, and complete heavy-duty vehicles is a period of 11 years or 120,000 miles, whichever occurs firs t. These full useful life values apply to all exhaust, evaporative and refueling emission requirements except for standards which are specified to only be applicable at the time of certifica tion. These full useful life requirements also apply to all air conditioning leakage credits, ai r conditioning efficiency credits, and other credit programs used by the manufacturer to comply with fleet average CO 2 emission

standards. (b) Manufacturers may elect to optionally certify a test group to the Tier 2 exhaust emission standards for 150,000 miles to gain additional NO X credits, as permitted in §86.1860–04(g), or to opt out of intermediate life standards as permitted in §86.1811– 04(c). In such cases, useful life is a period of use of 15 years or 150,000 miles, whichever occurs first, for all exhaust, evaporative and refueling emission requirements except for cold CO standards and standards which are applicable only at the time of certification. (c) Where intermediate useful life exhaust emission standards are applicable, such standards are applicable for five years or 50,000 miles, whichever occurs first. (d) Where cold CO standards are applicable, the useful life requirement for compliance with the cold CO standard only, is 5 years or 50,000 miles, whichever occurs

first.

17. Section 86.1806-05 is amended by revising paragraph (a)(1) to read as follows:

§86.1806-05 On-board diagnostics for vehicles less than or equal to 14,000 pounds

GVWR. (a) * * * (1) Except as provided by paragraph (a)(2) of this section, all light-duty vehicles, light-duty trucks and complete heavy-duty vehicles weighing 14,000 pounds GVWR or less (including MDPVs) must be equipped with an onboard diagnostic (OBD) system capable of monitoring all emission-related po wertrain systems or components during the applicable useful life of the vehicle. All systems and components required to be monitored by these regulations must be evaluated periodically, but no less frequently than once per applicable certification test cycl e as defined in paragraphs (a) and (d) of Appendix I of this part, or similar trip as approved by the Administrator. Emissions of

CO 2 , CH 4 , and N 2 O are not required to be monitored by the OBD system.

* * * * *

18. Section 86.1809-10 is amended by revising paragraphs (d)(1) and (e) to read as

follows:

§86.1809-10 Prohibition of defeat devices.

* * * * * (d) * * *669 (1) The manufacturer must show to the sa tisfaction of the Administrator that the vehicle design does not incorporate strategies that unnecessarily reduce emission control effectiveness exhibited during the Federal Test Procedure or Supplemental Federal Test Procedure (FTP or SFTP), or, for 2012 and later model years, the Highway Fuel Economy Test Procedure as described in subpart B of 40 CFR part 600, or the Air Conditioning Idle Test as described in §86.165-12, when the vehicle is operated under conditions that may reasonably be expected to be encountered in normal operation and

use. * * * * * (e) For each test group the manufacturer must submit, with the Part II certification application, an engineering evaluation de monstrating to the satisfaction of the Administrator that a discontinuity in emissions of non-methane organic gases, carbon monoxide, carbon dioxide, oxides of nitrogen, nitrous oxide, methane, and formaldehyde measured on the Federal Test Procedure (subpart B of this part) and on the Highway Fuel Economy Test Procedure (subpart B of 40 CFR Part 600) does not occur in the temperature range of 20 to 86 °F. For diesel vehicles, the engineering evaluation must also include particulate emissions.

19. Section 86.1810-09 is amended by revising paragraph (f) to read as follows:

§86.1810-09 General standards; increase in emissions; unsafe condition; waivers.

* * * * * (f) Altitude requirements. (1) All emission standards apply at low altitude conditions and at high altitude conditions, except for the following standards, which apply only at low altitude conditions: (i) The supplemental exhaust emission standards as described in §86.1811–04(f); (ii) The cold temperature NMHC emission standards as described in §86.1811– 10(g); (iii) The evaporative emission standards as described in §86.1811-09(e). (2) For vehicles that comply with the cold temperature NMHC standards described in §86.1811–10(g) and the CO 2 , N 2 O, and CH 4 exhaust emission standards described in §86.1818–12, manufacturers must submit an engineering evaluation indicating that common calibration approach es are utilized at high altitudes. Any

deviation from low altitude emission control practices must be included in the auxiliary emission control device (AECD) descriptions submitted at certification. Any AECD specific to high altitude must require en gineering emission data for EPA evaluation to quantify any emission impact and validity of the AECD.

* * * * *

20. A new §86.1818-12 is added to read as follows:

§86.1818-12 Greenhouse gas emission standards for light-duty vehicles, light-duty trucks, and medium-duty passenger vehicles.670 (a) Applicability. This section contains regulations implementing greenhouse gas

emission standards for CO 2 , N 2 O, and CH 4 applicable to all LDVs, LDTs and MDPVs. This section applies to 2012 and later mo del year LDVs, LDTs and MDPVs, including multi-fuel vehicles, vehicles fueled with altern ative fuels, hybrid electric vehicles, plug-in hybrid electric vehicles, electric vehicles, a nd fuel cell electric vehicles. Unless otherwise specified, multi-fuel vehicles must comply with all requirements established for each consumed fuel. The provisions of this section also apply to aftermarket conversion systems, aftermarket conversion installers, and aftermarket conversion certifiers, as those terms are defined in 40 CFR 85.502, of all model year light-duty vehicles, light-duty trucks, and medium-duty passenger vehicles. Manufacturers that have submitted a small business declaration for a model year according to the requirements of §86.1801-12(j) for which approval has been granted by the Administrator are exempted from the emission

standards in this section. Manufacturers that have submitted a small manufacturer declaration for a model year according to the requirements of paragraph (h) of this section for which approval has been granted by the Administrator are exempted from the emission standards in paragraphs (c) and (d) of this section for that model year. (b) Definitions . For the purposes of this sectio n, the following definitions shall apply: (1) Passenger automobile means a motor vehicle that is a passenger automobile as

that term is defined in 49 CFR 523.4. (2) Light truck means a motor vehicle that is a non-passenger automobile as that term is defined by the Department of Transportation in 49 CFR 523.5. (c) Fleet average CO 2 standards for passenger automobiles and light trucks . (1) For a given individual model year’s production of vehicles, manufacturers must comply with a fleet average CO 2 standard calculated according to the provisions of this paragraph (c). Manufacturers must calculate separate fleet average CO 2 standards for their passenger automobile and the light truck fleets, as those terms are defined in this section. Each manufacturer’s fleet average CO 2 standards determined in this paragraph (c) shall be expressed in whole grams per mile, in the model year specif ied as applicable. Manufacturers eligible for and choosing to participate in the Temporary Leadtime Allowance Alternative Standards for qualifying manufacturers specified in paragraph (e)

of this section shall not include vehicles subject to the Tempor ary Leadtime Allowance

Alternative Standards in the calculations of their primary passenger automobile or light truck standards determined in this paragraph (c). Manufacturers shall demonstrate compliance with the applicable standards according to the provisions of §86.1865-12. (2) Passenger automobiles

. (i) Calculation of CO 2 target values for passenger automobiles . A CO 2 target
value shall be determined for eac h passenger automobile as follows: (A) For passenger automobiles with a footprin t of less than or equal to 41 square feet, the gram/mile CO 2 target value shall be selected for the appropriate model year from the following table:

Model Year CO 2 Target

Value (grams/mile)671 2012 244.0

2013 237.0

2014 228.0

2015 217.0

2016 and later 206.0

(B) For passenger automobiles with a footprint of greater than 56 square feet, the gram/mile CO 2 target value shall be selected fo r the appropriate model year from the following table:

Model Year CO 2 Target

Value (grams/mile)

2012 315.0

2013 307.0

2014 299.0

2015 288.0

2016 and later 277.0

(C) For passenger automobiles with a footpr int that is greater than 41 square feet and less than or equal to 56 square feet, the gram/mile CO 2 target value shall be calculated using the following equation and rounded to the nearest 0.1 grams/mile:
Target CO 2 

## [ ] b f + × = 72

. 4

Where: f

is the vehicle footprint, as defined in §86.1803; and

b is selected from the following ta ble for the appropriate model year:

Model Year b

2012 50.5

2013 43.3

2014 34.8

2015 23.4

2016 and later 12.7

(ii) Calculation of the fleet average CO 2 standard for passenger automobiles . In each model year manufacturers must comply with the CO 2 exhaust emission standard for their passenger automobile fleet, calculated for that model year as follows: (A) A CO 2 target value shall be determined according to paragraph (c)(2)(i) of this section for each unique combination of model type and footprint value. (B) Each CO 2 target value, determined for e ach unique combination of model type and footprint value, shall be multipli ed by the total production of that model type/footprint combination for the appropriate model year. (C) The resulting products shall be summed, and that sum shall be divided by the total production of passenger automobiles in that model year. The result shall be rounded672 to the nearest whole gram per mile. This result shall be the applicable fleet average CO 2 standard for the manufacturer’s passenger automobile fleet. (3) Light trucks

. (i) Calculation of CO 2 target values for light trucks . A CO 2 target value shall be determined for each light truck as follows: (A) For light trucks with a footprint of less than or equal to 41 square feet, the gram/mile CO 2 target value shall be selected fo r the appropriate model year from the following table:

Model Year CO 2 Target

Value (grams/mile)

2012 294.0

2013 284.0

2014 275.0

2015 261.0

2016 and later 247.0

(B) For light trucks with a footprint of greater than 66 square feet, the gram/mile

CO 2 target value shall be selected for the appropriate model year from the following

table:

Model Year CO 2 Target

Value (grams/mile)

2012 395.0

2013 385.0

2014 376.0

2015 362.0

2016 and later 348.0 (C) For light trucks with a footprint that is greater than 41 square feet and less than or equal to 66 square feet, the gram/mile CO 2 target value shall be calculated using the following equation and rounded to the nearest 0.1 grams/mile: Target CO 2 

## ( ) b f + × = 04

. 4

Where: f

is the footprint, as defined in §86.1803; and

b is selected from the following ta ble for the appropriate model year:673 Model Year b

2012 128.6

2013 118.7

2014 109.4

2015 95.1

2016 and later 81.1

(ii) Calculation of fleet average CO 2 standards for light trucks . In each model year manufacturers must comply with the CO 2 exhaust emission standard for their light truck fleet, calculated for that model year as follows: (A) A CO 2 target value shall be determined according to paragraph (c)(3)(i) of this section for each unique combination of model type and footprint value. (B) Each CO 2 target value, which represents a unique combination of model type and footprint value, shall be multiplied by the total production of that model type/footprint combination for the appropriate model year. (C) The resulting products shall be summed, and that sum shall be divided by the total production of light trucks in that model year. The result shall be rounded to the nearest whole gram per mile. This result shall be the applicable fleet average CO 2 standard for the manufactur er’s light truck fleet. (d) In-use CO 2 exhaust emission standards. The in-use exhaust CO 2 emission standard shall be the combined city/highw ay carbon-related exhaust emission value calculated for the appropriate vehicle carline/subconfiguration according to the provisions of 40 CFR 600. 113-08(g)(4) multiplied by 1.1 and rounded to the nearest whole gram per mile. For in-use vehicle carlines/subconfigurations for which a combined city/highway carbon-related exhaust emission value was not determined under 40 CFR 600.113(g)(4), the in-use exhaust CO 2 emission standard shall be the combined city/highway carbon-related exhaust emission value calculated according to the provisions of 40 CFR 600.208 for the vehicle model type (except that total model year production data shall be used instead of sale s projections) multiplied by 1.1 and rounded to the nearest whole gram per mile. For ve hicles that are capable of operating on multiple fuels, including but not limited to alcohol dual fuel, natural gas dual fuel and plug-in hybrid electric vehicles, a separate in-use standard shall be determined for each fuel that the vehicle is capable of operating on. These standards apply to in-use testing performed by the manufacturer pursuant to regulations at §86.1845–04 and 86.1846–01 and to in-use testing performed by EPA. (e) Temporary Lead Time Allowance Alternative Standards. (1) The interim fleet average CO 2 standards in this paragraph (e) are optionally applicable to each qualifying

manufacturer as follows: (i) A qualifying manufacturer is a manufacturer with sales of 2009 model year combined passenger automobiles and light trucks in the United States of greater than zero and less than 400,000 vehicles. (A) If a manufacturer produced less than 400,000 but more than zero 2009 model year combined passenger automobiles and light trucks for sale in the United States while under the control of another manufacturer, where those 2009 model year passenger674 automobiles and light trucks bore the brand of the producing manufacturer, and where the producing manufacturer became independent no later than December 31, 2010, the producing manufacturer is a qualifying manufacturer. (B) In the case where two or more qualifying manufacturers combine as the result of merger or the purchase of 50 percent or more of one or more companies by another company, and if the combined 2009 model year U.S. production of the merged or combined companies is less than 400,000 but more than zero (combined passenger automobiles and light trucks), the corporate entity formed by the combination of two or more qualifying manufacturers shall continue to be a qualifying manufacturer. The total number of vehicles that the corporate entity is allowed to include under the Temporary

Leadtime Allowance Alternative Standards shal l be determined by paragraph (e)(2) or (e)(3) of this section where sales is the to tal combined 2009 model year U.S. production of all of the merged or combined companies. Vehicles produced by the companies that combined by merger/acquisition to form the corporate entity that were subject to the Temporary Leadtime Allowance Alternative Standards in paragraph (e)(4) of this section prior to the merger/acquisition shall be comb ined to determine the remaining number of vehicles that the corporate entity may incl ude under the Temporary Leadtime Allowance

Alternative Standards in this paragraph (e). (C) In the case where two or more manufacturers combine as the result of merger or the purchase of 50 percent or more of one or more companies by another company, and if the combined 2009 model year U.S. production of the merged or combined companies is equal to or greater than 400,000 (combined passenger automobiles and light trucks), the new corporate entity formed by the combination of two or more manufacturers is not a qualifying manufacturer. Such a manufacturer shall meet the emission standards in paragraph (c) of this section beginning with the model year that is numerically two years greater than the calendar year in which the merger/acquisition(s) took place. (ii) For the purposes of making the dete rmination in paragra ph (e)(1)(i) of this section, “manufacturer” shall mean that term as defined at 49 CFR 531.4 and as that definition was applied to the 2009 model year for the purpose of determining compliance with the 2009 corporate average fuel economy standards at 49 CFR parts 531 and 533. (iii) A qualifying manufacturer may not use these Temporary Leadtime Allowance Alternative Standards until they have used all available banked credits and/or credits available for transfer accrued under [insert reference]. A qualifying manufacturer with a net positive credit balance calculated under [insert reference] in any model year after considering all available credits either generated, carried forward from a prior model year, transferred from other averaging sets, or obtained from other manufacturers, may not use these Temporary Leadtime Allowance Alternative Standards in such model year. (2) Qualifying manufacturers may select any combination of 2012 through 2015 model year passenger automobiles and/or light trucks to include under the Temporary

Leadtime Allowance Alternative Standards de termined in this paragraph (e) up to a cumulative total of 100,000 vehicles. Vehicles selected to comply with these standards shall not be included in the calculations of the manufacturer’s fleet average standards under paragraph (c) of this section.675 (3) Qualifying manufacturers with sales of 2009 model year combined passenger automobiles and light trucks in the United States of greater than zero and less than 50,000 vehicles may select any combination of 2012 through 2015 model year passenger automobiles and/or light trucks to include under the Temporary Leadtime Allowance Alternative Standards determined in this pa ragraph (e) up to a cumulative total of 200,000 vehicles, and additionally may select up to 50,000 2016 model year vehicles to include under the Temporary Leadtime Allowance Alternative Standards determined in this paragraph (e). To be eligible for the provisions of this paragraph (e)(3) qualifying manufacturers must provide annual documentation of good-faith efforts made by the manufacturer to purchase credits from other manufacturers. Without such documentation, the manufacturer may use the Temporary Leadtime Allowance Alternative Standards according to the provisions of paragraph (e)(2) of this section, and the provisions of this paragraph (e)(3) shall not apply. Vehicles selected to comply with

these standards shall not be included in the calculations of the manufacturer’s fleet average standards under paragraph (c) of this section. (4) To calculate the applicable Temporary Leadtime Allowance Alternative Standards, qualifying manufacturers shall determine the fleet average standard separately for the passenger automobiles and light trucks selected by the manufacturer to be subject to the Temporary Leadtime Allowance Alternative Standards, subject to the limitations expressed in paragraphs (e)(1) through (3) of this section. (i) The Temporary Leadtime Allowance Alternative Standard applicable to qualified passenger automobiles shall be the standard calculated using the provisions of paragraph (c)(2)(ii) of this section for the appropriate model year multiplied by 1.25 and rounded to the nearest whole gram per mile. For the purposes of applying paragraph (c)(2)(ii) of this section to determine the standard, the passenger automobile fleet shall be limited to those passenger automobiles subj ect to the Temporary Leadtime Allowance

Alternative Standard. (ii) The Temporary Leadtime Allowance Alternative Standard applicable to qualified light trucks shall be the standard calculated using the provisions of paragraph (c)(3)(ii) of this section for the appropriate model year multiplied by 1.25 and rounded to the nearest whole gram per mile. For the purposes of applying paragraph (c)(3)(ii) of this section to determine the standard, the light truc k fleet shall be limited to those light trucks subject to the Temporary Leadtime Allowance Alternative Standard. (5) Manufacturers choosing to optionally apply these standards are subject to the restrictions on credit banking and trading specified in §86.1865-12. (f) Nitrous oxide (N 2 O) and methane (CH 4 ) exhaust emission standards for passenger automobiles and light trucks . Each manufacturer’s fleet of combined passenger automobile and light trucks must comply with N2O and CH4 standards using either the provisions of paragraph (f)(1) of this section or the provisions of paragraph (f)(2) of this section. The manufacturer ma y not use the provisions of both paragraphs (f)(1) and (f)(2) of this section in a model year. For example, a manufacturer may not use the provisions of paragraph (f)(1) of this sec tion for their passenger automobile fleet and the provisions of paragraph (f)(2) for their light truck fleet in the same model year. (1) Standards applicable to each test group

.676 (i) Exhaust emissions of nitrous oxide (N 2 O) shall not exceed 0.010 grams per mile at full useful life, as measured according to the Federal Test Procedure (FTP) described in subpart B of this part. (ii) Exhaust emissions of methane (CH 4 ) shall not exceed 0.030 grams per mile at full useful life, as measured according to the Federal Test Procedure (FTP) described in subpart B of this part. (2) Fleet averaging option . Manufacturers may elect to not meet the emission standards in paragraph (f)(1) of this section. Manufacturers making this election shall

include N 2 O and CH 4 emissions in the determination of their fleet average carbon-related exhaust emissions, as calculated in subpart F of part 600 of this title. Manufacturers using this option must include both N 2 O and CH 4 full useful life values in the fleet average calculations for passenger automobiles and light trucks. Use of this option will

account for N2O and CH4 emissions within the carbon-related exhaust emission value determined for each model type according to the provisions 40 CFR Part 600. This option requires the determination of full useful life emission values for both the Federal Test Procedure and the Highway Fuel Economy Test. (h) Deferral of standards for qualifying small manufacturers . Qualifying small manufacturers as described in this paragraph (h) may optionally request deferral from compliance with the emission standards described in paragraphs (c) and (d) of this

section. (1) Eligibility requirements . Eligibility as determined in this paragraph (h) shall

be based on the total sales in the states and territories of the United States of combined passenger automobiles and light trucks. Fo r the purpose of determ ining eligibility the sales of related companies shall be aggregated according to the provisions of §86.1838- 01(b)(3). (i) A manufacturer with 2008 or 2009 model year sales of more than zero and fewer than 5,000 is eligible for optional deferral of the greenhouse gas emission standards described in paragraphs (c) and (d) of this section. (ii) A manufacturer with 2008 or 2009 model year sales of more than zero and fewer than 5,000 while under the control of another manufacturer, where those 2008 or 2009 model year vehicles bore the brand of the producing manufacturer but were sold by or otherwise under the control of another manufacturer, and where the manufacturer producing the vehicles became independent no later than December 31, 2010, is eligible for optional deferral of the greenhouse gas emission standards described in paragraphs (c) and (d) of this section. (iii) If a manufacturer’s average sales for three consecutive model years exceeds 4999, and if the increase in sales is the result of corporate acquisitions, mergers, or purchase by another manufacturer, the manufacturer shall comply with the emission standards described in paragraphs (c), (d), and (e) of this section, as applicable, beginning with the second model year after the last year of the three consecutive model years. (iv) If a manufacturer’s average sales for three consecutive model years exceeds 4999 and is less than 50,000, and if the increase in sales is solely the result of the manufacturer’s expansion in vehicle production, the manufacturer shall comply with the emission standards described in paragraphs (c), (d), and (e) of this section, as applicable677 beginning with the third model year after th e last year of the three consecutive model

years. (v) If a manufacturer’s average sales for three consecutive model years exceeds 49,999, the manufacturer shall comply with the emission standards described in paragraphs (c), (d), and (e) of this section, as applicable, beginning with the second model year after the last year of the three consecutive model years. (2) Requesting deferral from standards . To be deferred from the standards described in paragraphs (c) an d (d) of this section, businesses must submit a declaration to EPA containing a detailed written description of how the business qualifies as a small volume manufacturer under the provisions of this paragraph (h). The declaration must describe eligibility information that includes the following: model year 2008 and 2009 sales, sales volumes for each of the most recent three model years, detailed information regarding ownership relationships with other manufacturers, details regarding the application of the provisions of §86.1838-01(b)(3) regarding the aggregation of sales of related companies, and documentation of good -faith efforts made by the manufacturer to purchase credits from other manufacturers. This declaration must be signed by a chief officer of the company, and must be made prior to each model year for which the deferral is requested. The declaration must be subm itted to EPA at least 30 days prior to the introduction into commerce of any vehicles for each model year for which the deferral is requested, but not later than December of the calendar year prior to the model year for which deferral is requested. Deferral w ill be granted when EPA approves the small

volume manufacturer deferral declaration. The declaration must be sent to the Environmental Protection Agency at the fo llowing address: Director, Compliance and Innovative Strategies Division, U.S. Envi ronmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, Michigan 48105.

21. Section 86.1823-08 is amended by adding paragraph (m) to read as follows:

§86.1823-08 Durability demonstratio n procedures for exhaust emissions.

* * * * * (m) Durability demonstration procedures for vehicles subject to the greenhouse gas exhaust emission standard s specified in 86.1818-12

. (1) CO 2 . (i) Unless otherwise specified under paragraph (m)(1)(ii) of this section, manufacturers may use a multiplicative CO 2 deterioration factor of one or an additive

deterioration factor of zero. (ii) Based on an analysis of industry-w ide data, EPA may periodically establish and/or update the deterioration factor for CO 2 emissions including air conditioning and other credit related emissions. Deterioration factors established and/or updated under this paragraph (m)(1)(ii) will provide adequate lead time for manufacturers to plan for the change. (iii) Alternatively, manufacturers may use the whole-vehicle mileage accumulation procedures in §86.1823-08 paragraphs (c) or (d)(1) to determine CO 2 deterioration factors. In this case, each FTP test performed on the durability data vehicle selected under §86.1822-01 of this part must also be accompanied by an HFET test, and678 combined FTP/HFET CO 2 results determined by averaging the city (FTP) and highway (HFET) CO 2 values, weighted 0.55 and 0.45 respectiv ely. The deterioration factor will

be determined for this combined CO 2 value. Calculated multiplicative deterioration factors that are less than one shall be set to equal one, and calculated additive

deterioration factors that are less th an zero shall be set to zero. (iv) If, in the good engineering judgment of the manufacturer, the deterioration factors determined according to paragraphs (m)(1)(i), (m)(1)(ii), or (m)(1)(iii) of this section do not adequately account for the expected CO 2 emission deterioration over the vehicle's useful life, the manufacturer ma y petition EPA to request a more appropriate

deterioration factor. (2) N 2 O and CH 4 . (i) For manufacturers selecting the emission standards for N 2 O

and CH 4 specified in 40 CFR 86.1818-12(f)(1), deterioration factors for N 2 O and CH 4 shall be determined according to the provisio ns of paragraphs (a) through (l) of this

section. (ii) For manufacturers selecting the fleet averaging option for N 2 O and CH 4 as allowed under 40 CFR 86.1818-12(f)(2), separate deterioration factors shall be determined for the FTP and HFET test cycles, therefore each FTP test performed on the durability data vehicle selected under 86.1822-01 of this part must also be accompanied by an HFET test. For the 2012 through 2014 model years only, manufacturers may use

alternative deterioration factors. For N 2 O, the alternative deterioration factor to be used to adjust FTP and HFET emissions is the deterioration factor determined for NO X emissions according to the provisions of this section. For CH 4 , the alternative deterioration factor to be used to adjust FTP and HFET emissions is the deterioration factor determined for NMOG or NMHC emissions according to the provisions of this

section. (3) Other carbon-related exhaust emissions . Deterioration factors shall be determined according to the provisions of paragraphs (a) through (l) of this section. Optionally, in lieu of determining emission-specific FTP and HFET deterioration factors

for CH 3 OH (methanol), HCHO (formaldehyde), C 2 H 5 OH (ethanol), and C 2 H 4 O (acetaldehyde), manufacturers may use the deterioration factor determined for NMOG or NMHC emissions according to the provisions of this section. (4) Air Conditioning leakage and efficiency or other emission credit requirements to comply with exhaust CO 2 standards . Manufactures will attest to the durability of components and systems used to meet the CO 2 standards. Manufacturers may submit engineering data to provide durability demonstration.

22. Section 86.1827-01 is amended by revising paragraph (a)(5) and by adding paragraph (f) to read as follows:

§86.1827-01 Test group determination.

* * * * * (a) * * * (5) Subject to the same emi ssion standards (except for CO 2 ), or FEL in the case of cold temperature NMHC standards, except that a manufacturer may request to group679 vehicles into the same test group as vehicles subject to more stringent standards, so long as all the vehicles within the test group are certified to the most stringent standards applicable to any vehicle within that test gr oup. Light-duty trucks and light-duty vehicles may be included in the same test group if all vehicles in the test group are subject to the same emission standards, with the exception of the CO 2 standard and/or the total HC

standard.

* * * * * (f) Unless otherwise approved by the Administrator, a manufacturer of electric vehicles must create separate test groups based on the type of battery technology, the capacity and voltage of the battery, and the type and size of the electric motor.

23. Section 86.1829-01 is amended by revising paragraph (b)(1)(i) and by adding paragraph (b)(1)(iii)(G) to read as follows:

§ 86.1829-01 Durability and emission testing requirements; waivers.

* * * * * (b) * * (1) * * * (i) Testing at low altitude . One EDV shall be tested in each test group for exhaust emissions using the FTP and SFTP test procedures of subpart B of this part and the HFET test procedure of subpart B of part 600 of th is chapter. The configuration of the EDV will be determined under the provisions of §86.1828–01 of this subpart.

* * * * * (iii) * * * (G) For the 2012 through 2014 model years only, in lieu of testing a vehicle for

N 2 O emissions, a manufacturer may provide a st atement in its application for certification that such vehicles comply with the applicable standards. Such a statement must be based on previous emission tests, development tests, or other appropriate information and good engineering judgment.

* * * * *

24. Section 86.1835-01 is amended as follows: a. By revising paragraph (a)(4). b. By revising paragraph (b)(1) introductory text. c. By adding paragraph (b)(1)(vi). d. By revising paragraph (b)(3). e. By revising paragraph (c)(1)(ii).

§86.1835-01 Confirmatory certification testing. (a) * * * (4) Retesting for fuel economy reasons or for compliance with applicable exhaust

CO 2 emission standards may be conducted under the provisions of 40 CFR 600.008–01. (b) * * *680 (1) If the Administrator determines not to conduct a confirmatory test under the provisions of paragraph (a) of this secti on, manufacturers of light-duty vehicles, lightduty trucks, and/or medium-duty passenger ve hicles will conduct a confirmatory test at their facility after submitting the original test data to the Administrator whenever any of the conditions listed in paragraphs (b)(1)(i) through (vi) of this section exist, and complete heavy-duty vehicles manufacturers will conduct a confirmatory test at their facility after submitting the original test data to the Administrator whenever the conditions listed in paragraph (b)(1)(i) or (b)(1 )(ii) of this section exist, as follows:

* * * * * (vi) The exhaust CO 2 emissions of the test as measured in accordance with the procedures in 40 CFR Part 600 are lower than expected based on procedures approved by

the Administrator.

* * * * * (3) For light-duty vehicles, light-duty truc ks, and medium-duty passenger vehicles the manufacturer shall conduct a retest of the FTP or highway test if the difference between the fuel economy of the confirmatory test and the original manufacturer's test equals or exceeds three percent (or such lower percentage to be applied consistently to all manufacturer conducted confirmatory testing as requested by the manufacturer and approved by the Administrator). (i) For use in the fuel economy and CO 2 fleet averaging program described in 40 CFR parts 86 and 600, the manufacturer may, in lieu of conducting a retest, accept as official the lower of the original and confirmatory test fuel economy results, and the higher of the original and confirmatory test CO 2 results. (ii) The manufacturer shall conduct a second retest of the FTP or highway test if the fuel economy difference between the second confirmatory test and the original manufacturer test equals or exceeds three percent (or such lower percentage as requested by the manufacturer and approved by the Administrator) and the fuel economy difference between the second confirmatory test and the first confirmatory test equals or exceeds three percent (or such lower percentage as requested by the manufacturer and approved by the Administrator). In lieu of conducting a second retest, the manufacturer may accept as official (for use in the fuel economy program and the CO 2 fleet averaging program) the lowest fuel economy and highest CO 2 emissions of the original test, the first confirmatory test, and the second confirmatory test fuel economy results. (c) * * * (1) * * * (ii) Official test results for fuel economy and exhaust CO 2 emission purposes are determined in accordance with the provisions of 40 CFR 600.008–01.

* * * * *

25. Section 86.1841-01 is amended by adding paragraph (a)(3) and revising paragraph (b)

to read as follows:

§86.1841-01 Compliance with emission standards for the purpose of certification. (a) * * *681 (3) Compliance with CO 2 exhaust emission standards shall be demonstrated at certification by the certification levels on the FTP and HFET tests for carbon-related exhaust emissions determined according to §600.113-08 of this chapter.

* * * * * (b) To be considered in compliance with the standards for the purposes of certification, the certification le vels for the test vehicle calculated in paragraph (a) of this section shall be less than or equal to the st andards for all emission constituents to which the test group is subject, at both full and interm ediate useful life as appropriate for that

test group.
* * * * *

26. Section 86.1845-04 is amended as follows: a. By revising paragraph (a)(1). b. By revising paragraph (b)(5)(i). c. By revising paragraph (c)(5)(i).

§86.1845-04 Manufacturer in-use verification testing requirements. (a) * * * (1) A manufacturer of LDVs, LDTs, MDPVs and/or complete HDVs must test, or cause to have tested, a specified number of LDVs, LDTs, MDPVs and complete HDVs. Such testing must be conducted in accordance with the provisions of this section. For purposes of this section, the term vehicle includes light-duty vehicles, light-duty trucks and medium-duty passenger vehicles.

* * * * * (b) * * * (5) * * * (i) Each test vehicle of a test group shall be tested in accordance with the Federal Test Procedure and the US06 portion of the Supplemental Federal Test Procedure as described in subpart B of this part, when such test vehicle is tested for compliance with applicable exhaust emission standards under this subpart. Test vehicles subject to applicable exhaust CO 2 emission standards under this subpart shall also be tested in accordance with the highway fuel economy test as described in subpart B of 40 CFR part

600.

* * * * * (c) * * * (5) * * * (i) Each test vehicle shall be tested in accordance with the Federal Test Procedure and the US06 portion of the Supplemental Federal Test Procedure as described in subpart B of this part when such test vehicle is tested for compliance with applicable exhaust emission standards under this subpart. Test ve hicles subject to applicable exhaust CO 2 emission standards under this subpart shall also be tested in accordance with the highway fuel economy test as described in subpart B of 40 CFR part 600. The US06 portion of the SFTP is not required to be performed on vehicles certified in accordance with the National LEV provisions of subpart R of this pa rt. One test vehicle from each test group682 shall receive a Federal Test Procedure at high altitude. The test vehicle tested at high altitude is not required to be one of the same test vehicles tested at low altitude. The test vehicle tested at high altitude is counte d when determining the compliance with the requirements shown in Table S04–06 and Table S04–07 in paragraph (b)(3) of this section or the expanded sample size as provided for in this paragraph (c).

* * * * *

27. Section 86.1846-01 is amended by revising paragraphs (a)(1) and (b) introductory

text to read as follows:

§86.1846-01 Manufacturer in-use confirmatory testing requirements. (a) * * * (1) A manufacturer of LDVs, LDTs and/or MDPVs must test, or cause testing to be conducted, under this section when the emission levels shown by a test group sample from testing under §§86.1845–01 or 86.1845–04, as applicable, exceeds the criteria specified in paragraph (b) of this section. The testing required under this section applies separately to each test group and at each test point (low and high mileage) that meets the specified criteria. The testing requirements apply separately for each model year startingwith model year 2001. These provisions do not apply to heavy-duty vehicles or heavyduty engines prior to the 2007 model year. These provisions do not apply to emissions of

CO 2 , CH 4 , and N 2 O.

* * * * * (b) Criteria for additional testing. A manufacturer shall test a test group or a subset of a test group as described in paragraph (j) of this section when the results from testing conducted under §§86.1845–01 and 86.1845–04, as applicable, show mean emissions for that test group of any pollutant(s) (except CO 2 , CH 4 , and N 2 O) to be equal to or greater than 1.30 times the applicable in-use standard and a failure rate, among the test group vehicles, for the corresponding pollutant(s) of fifty percent or greater.

* * * * *

28. Section 86.1848-10 is amended by adding paragraph (c)(9) to read as follows:

§86.1848-10 Certification.

* * * * * (c) * * * (9) For 2012 and later model year LDVs, LDTs, and MDPVs, all certificates of conformity issued are conditional upon compliance with all provisions of §§86.1818–12 and 86.1865–12 both during and after model year production. The manufacturer bears the burden of establishing to the satisfaction of the Administrator that the terms and conditions upon which the certificate(s) was (were) issued were satisfied. For recall and warranty purposes, vehicles not covered by a certificate of conformity will continue to be

held to the standards stated or referenced in the certificate that otherwise would have applied to the vehicles.683 (i) Failure to meet the fleet average CO 2 requirements will be considered a failure to satisfy the terms and conditions upon which the certificate(s) was (were) issued and the vehicles sold in violation of the fleet average CO 2 standard will not be covered by the certificate(s). The vehicles sold in violat ion will be determined according to §86.1865- 12(k)(7). (ii) Failure to comply fully with the proh ibition against selling credits that are not generated or that are not available, as sp ecified in §86.1865–12, will be considered a failure to satisfy the terms and conditions up on which the certificate(s) was (were) issued

and the vehicles sold in violation of th is prohibition will not be covered by the certificate(s).

* * * * *

29. A new §86.1854-12 is added to read as follows:

§86.1854-12 Prohibited acts. (a) The following acts and the causing thereof are prohibited: (1) In the case of a manufacturer, as defined by §86.1803, of new motor vehicles or new motor vehicle engines for distribution in commerce, the sale, or the offering for sale, or the introduction, or delivery for introduction, into commerce, or (in the case of any person, except as provided by regulation of the Administrator), the importation into the United States of any new motor vehicle or new motor vehicle engine subject to this subpart, unless such vehicle or engine is cove red by a certificate of conformity issued (and in effect) under regulations found in this subpart (except as provided in Section 203(b) of the Clean Air Act (42 U.S.C. 7522(b)) or regulations promulgated thereunder). (2)(i) For any person to fail or refuse to permit access to or copying of records or to fail to make reports or provide information required under Section 208 of the Clean Air Act (42 U.S.C. 7542) with regard to vehicles. (ii) For a person to fail or refuse to permit entry, testing, or inspection authorized under Section 206(c) (42 U.S.C. 7525(c)) or Section 208 of the Clean Air Act (42 U.S.C. 7542) with regard to vehicles. (iii) For a person to fail or refuse to perform tests, or to have tests performed as required under Section 208 of the Clean Air Act (42 U.S.C. 7542) with regard to

vehicles. (iv) For a person to fail to establish or maintain records as required under §§86.1844, 86.1862, 86.1864, and 86.1865 with regard to vehicles. (v) For any manufacturer to fail to make information available as provided by regulation under Section 202(m)(5) of the Clean Air Act (42 U.S.C. 7521(m)(5)) with regard to vehicles. (3)(i) For any person to remove or render inoperative any device or element of design installed on or in a vehicle or engine in compliance with regulations under this subpart prior to its sale and delivery to the ultimate purchaser, or for any person knowingly to remove or render inoperative any such device or element of design after such sale and delivery to the ultimate purchaser.684 (ii) For any person to manufacture, sell or offer to sell, or install, any part or component intended for use with, or as part of, any vehicle or engine, where a principal effect of the part or component is to bypass, defeat, or render inoperative any device or element of design installed on or in a vehicle or engine in compliance with regulations issued under this subpart, and where the person knows or should know that the part or component is being offered for sale or inst alled for this use or put to such use. (4) For any manufacturer of a vehicle or engine subject to standards prescribed under this subpart: (i) To sell, offer for sale, introduce or deliver into commerce, or lease any such vehicle or engine unless the manufacturer has complied with the requirements of Section 207 (a) and (b) of the Clean Air Act (42 U.S.C. 7541 (a), (b)) with respect to such vehicle or engine, and unless a label or tag is affixed to such vehicle or engine in accordance with Section 207(c)(3) of the Clean Air Act (42 U.S.C. 7541(c)(3)). (ii) To fail or refuse to comply with the requirements of Section 207 (c) or (e) of the Clean Air Act (42 U.S.C. 7541 (c) or (e)). (iii) Except as provided in Section 207(c)(3) of the Clean Air Act (42 U.S.C. 7541(c)(3)), to provide directly or indirectly in any communication to the ultimate purchaser or any subsequent purchaser that the coverage of a warranty under the Clean Air Act is conditioned upon use of any part, component, or system manufactured by the manufacturer or a person acting for the manufacturer or under its control, or conditioned upon service performed by such persons. (iv) To fail or refuse to comply with the terms and conditions of the warranty under Section 207 (a) or (b) of the Clean Air Act (42 U.S.C. 7541 (a) or (b)). (b) For the purposes of enforcement of this subpart, the following apply: (1) No action with respect to any element of design referred to in paragraph (a)(3) of this section (including any adjustment or alteration of such element) shall be treated as a prohibited act under paragraph (a)(3) of this section if such action is in accordance with Section 215 of the Clean Air Act (42 U.S.C. 7549); (2) Nothing in paragraph (a)(3) of this section is to be construed to require the use of manufacturer parts in maintaining or repairing a vehicle or engine. For the purposes of the preceding sentence, the term “manufacturer parts” means, with respect to a motor vehicle engine, parts produced or sold by the manufacturer of the motor vehicle or motor vehicle engine; (3) Actions for the purpose of repair or replacement of a device or element of design or any other item are not considered prohibited acts under paragraph (a)(3) of this section if the action is a necessary and temporary procedure, the device or element is replaced upon completion of the procedure, and the action results in the proper functioning of the device or element of design; (4) Actions for the purpose of a conversion of a motor vehicle or motor vehicle engine for use of a clean alternative fuel (as defined in title II of the Clean Air Act) are not considered prohibited acts under paragraph (a) of this section if: (i) The vehicle complies with the applicable standard when operating on the alternative fuel; and685 (ii) In the case of engines converted to dual fuel or flexible use, the device or element is replaced upon completion of the conversion procedure, and the action results in proper functioning of the device or element when the motor vehicle operates on

conventional fuel.

30. A new §86.1865-12 is added to subpart S to read as follows:

§86.1865-12 How to comply with the fleet average CO 2 standards. (a) Applicability. (1) Unless otherwise exempted under the provisions of §86.1801-12(j), CO 2 fleet average exhaust emission standards apply to: (i) 2012 and later model year passenger automobiles and light trucks. (ii) Aftermarket conversion systems as defined in 40 CFR 85.502. (iii) Vehicles imported by ICIs as defined in 40 CFR 85.1502. (2) The terms “passenger automobile” and “light truck” as used in this section have the meanings as defined in §86.1818–12. (b) Useful life requirements. Full useful life requirements for CO 2 standards are defined in §86.1818–12. There is not an intermediate useful life standard for CO 2 emissions. (c) Altitude. Altitude requirements for CO 2 standards are provided in §86.1810– 12(f). (d) Small volume manufacturer certification procedures. Certification procedures for small volume manufacturers are provided in §86.1838–01. Small businesses meeting certain criteria may be exempted from the greenhouse gas emission standards in §86.1818-12 according to the provisions of §86.1801-12(j). (e) CO 2 fleet average exhaust emission standards. The fleet average standards referred to in this section are the corporate fleet average CO 2 standards for passenger automobiles and light trucks set forth in 86.1818-12(c) and (e). The fleet average CO 2 standards applicable in a given model year are calculated separately for passenger automobiles and light trucks for each manufacturer and each model year according to the provisions in §86.1818–12. Each manufacturer must comply with the applicable CO 2 fleet average standard on a production-weighted average basis, for each separate averaging set, at the end of each model year, using the procedure described in paragraph (c) of this section. (f) In-use CO 2 standards. In-use CO 2 exhaust emission standards applicable to each model type are provided in §86.1818–12(d). (g) Durability procedures and method of de termining deterioration factors (DFs).

Deterioration factors for CO 2 exhaust emission standards are provided in §86.1823– 08(m). (h) Vehicle test procedures. (1) The test procedures for demonstrating compliance

with CO 2 exhaust emission standards are contained in subpart B of this part and subpart B of part 600 of this chapter. (2) Testing of all passenger automobiles and light trucks to determine compliance

with CO 2 exhaust emission standards set forth in th is section must be on a loaded vehicle weight (LVW) basis, as defined in §86.1803–01.686 (3) Testing for the purpose of providing certification data is required only at low

altitude conditions. If hardware and software emission control strategies used during low altitude condition testing are not used similarl y across all altitudes for in-use operation, the manufacturer must include a statement in the application for certification, in accordance with §§86.1844–01(d)(11) and 86.1810–12(f), stating what the different strategies are and why they are used. (i) Calculating the fleet average ca rbon-related exhaust emissions . (1) Manufacturers must compute separate produc tion-weighted fleet average carbon-related exhaust emissions at the end of the model year for passenger automobiles and light trucks, using actual production, where production means vehicles produced and delivered for sale, and certifying model types to standards as defined in §86.1818–12. The model type carbon-related exhaust emission results determined according to 40 CFR 600 subpart F (in units of grams per mile rounded to the nearest whole number) become the certification standard for each model type. (2) Manufacturers must separately calculate production-weighted fleet average carbon-related exhaust emissions levels for the following averaging sets according to the provisions of part 600 subpart F of this chapter: (i) Passenger automobiles subject to the fleet average CO 2 standards specified in §86.1818-12(c)(2); (ii) Light trucks subject to the fleet average CO 2 standards specified in §86.1818- 12(c)(3); (iii) Passenger automobiles subject to the Temporary Leadtime Allowance Alternative Standards specified in §86.1818-12(e), if applicable; and (iv) Light trucks subject to the Temporary Leadtime Allowance Alternative Standards specified in §86.1818-12(e), if applicable. (j) Certification compliance and enforcement requirements for CO 2 exhaust

emission standards. (1) Compliance and enforcement requirements are provided in §86.1864–10 and §86.1848–10(c)(9). (2) The certificate issued for each test group requires all model types within that test group to meet the emission standard to which each model type is certified. (3) Each manufacturer must comply with the applicable CO 2 fleet average standard on a production-weighted average basis, at the end of each model year, using the procedure described in paragraph (i) of this section. (4) Each manufacturer must comply on an annual basis with the fleet average

standards as follows: (i) Manufacturers must report in their annual reports to the Agency that they met the relevant corporate average standard by showing that their production-weighted average CO 2 emissions levels of passenger automobiles and light trucks, as applicable, are at or below the applicable fleet average standard; or (ii) If the production-weighted average is above the applicable fleet average standard, manufacturers must obtain and apply sufficient CO 2 credits as authorized under paragraph (k)(8) of this section. A manufacturer must show that they have offset any exceedence of the corporate average standard via the use of credits. Manufacturers must also include their credit balances or deficits in their annual report to the Agency.687 (iii) If a manufacturer fails to meet the corporate average CO 2 standard for four consecutive years, the vehicles causing the corporate average exceedence will be considered not covered by the certificate of conformity (see paragraph (k)(8) of this section). A manufacturer will be subject to penalties on an individual-vehicle basis for sale of vehicles not covered by a certificate. (iv) EPA will review each manufacturer's production to designate the vehicles that caused the exceedence of the corporate av erage standard. EPA will designate as nonconforming those vehicles in test gro ups with the highest certification emission values first, continuing until reaching a numbe r of vehicles equal to the calculated number of noncomplying vehicles as determined in paragraph (k)(8) of this section. In a group where only a portion of vehicles would be deemed nonconforming, EPA will determine the actual nonconforming vehicles by counting backwards from the last vehicle produced in that test group. Manufact urers will be liable for penalties for each vehicle sold that is not covered by a certificate. (k) Requirements for the CO 2 averaging, banking and trading (ABT) program . (1)

A manufacturer whose CO 2 fleet average emissions exceed the applicable standard must complete the calculation in paragraph (k)(4) of this section to determine the size of its

CO 2 deficit. A manufacturer whose CO 2 fleet average emissions are less than the applicable standard must complete the calcul ation in paragraph (k)(4) of this section to generate CO 2 credits. In either case, the number of credits or debits must be rounded to

the nearest whole number. (2) There are no property rights associated with CO 2 credits generated under this subpart. Credits are a limited authorization to emit the designated amount of emissions. Nothing in this part or any other provision of law should be construed to limit EPA's authority to terminate or limit this authorization through a rulemaking. (3) Each manufacturer must comply with the reporting and recordkeeping requirements of paragraph (l) of this section for CO 2 credits, including early credits. The averaging, banking and trading program is enforceable through the certificate of conformity that allows the manufacturer to introduce any regulated vehicles into

commerce. (4) Credits are earned on the last day of the model year. Manufacturers must calculate, for a given model year, the number of credits or debits it has generated according to the following equation, rounded to the nearest megagram:

CO 2 Credits or Debits (Mg) = [(CO 2 Standard - Manufacturer's ProductionWeighted Fleet Average CO 2 Emissions) × (Total Number of Vehicles Produced) × (Vehicle Lifetime Miles)] ÷ 1,000,000

Where:

CO 2 Standard = the applicable standard for the model year as determined by §86.1818-12; Manufacturer's Production-Weighted Fleet Average CO 2 Emissions = average calculated according to paragraph (i) of this section; Total Number of Vehicles Produced = The number of vehicles domestically produced plus those imported as defined in 40 CFR 600.511-80; and688 Vehicle Lifetime Miles is 195,264 for passenger automobiles and 225,865 for light trucks. (5) Total credits or debits generated in a model year, maintained and reported separately for passenger automobiles and light trucks, shall be the sum of the credits or debits calculated in paragraph (k)(4) of this section and any of the following credits, if applicable: (i) Air conditioning leakage credits earned according to the provisions of 86.1866- 12(b); (ii) Air conditioning efficiency credits earned according to the provisions of 86.1866-12(c); (iii) Off-cycle technology credits earned according to the provisions of 86.1866- 12(d). (6) Unused CO 2 credits shall retain their full value through the five subsequent model years after the model year in which they were generated. Credits available at the end of the fifth model year after the year in which they were generated shall expire. (7) Credits may be used as follows: (i) Credits generated and calculated according to the method in paragraph (k)(4) of this section may not be used to offset de ficits other than those deficits accrued with respect to the standard in §86.1818–12. Credits may be banked and used in a future model year in which a manufacturer's average CO 2 level exceeds the applicable standard. Credits may be exchanged between the passenger automobile and light truck fleets of a given manufacturer. Credits may also be traded to another manufacturer according to the provisions in paragraph (k)(8) of this section. Before trading or carrying over credits to the next model year, a manufacturer must apply available credits to offset any deficit, where the deadline to offset that credit deficit has not yet passed. (ii) The use of credits shall not change Selective Enforcement Auditing or in-use testing failures from a failure to a non-failure. The enforcement of the averaging standard occurs through the vehicle's certificate of conformity. A manufacturer's certificate of conformity is conditioned upon compliance with the averaging provisions. The certificate

will be void ab initio if a manufacturer fails to meet the corporate average standard and does not obtain appropriate credits to cover its shortfalls in that model year or subsequent model years (see deficit carry-forward provisions in paragraph (k)(8) of this section). (iii) Special provisions for manufacturers using the Temporary Leadtime

Allowance Alternative Standards. (A) Credits generated by vehicles subject to the fleet average CO 2 standards specified in §86.1818-12(c) may only be used to offset a deficit generated by vehicles subject to the Temporary Leadtime Allowance Alternative Standards specified in §86.1818-12(e). (B) Credits generated by a passenger automobile or light truck averaging set subject to the Temporary Leadtime Allowa nce Alternative Standards specified in §86.1818-12(e)(4)(i) or (ii) of this section may be used to offset a deficit generated by an averaging set subject to the Temporary Leadtime Allowance Alternative Standards through the 2015 model year. (C) Credits generated by an averaging set subject to the Temporary Leadtime Allowance Alternative Standards specified in §86.1818-12(e)(4)(i) or (ii) of this section689 may not be used to offset a deficit generate d by an averaging set subject to the fleet average CO 2 standards specified in §86.1818-12(c)(2) or (3) or otherwise transferred to an averaging set subject to the fleet average CO 2 standards specified in §86.1818-12(c)(2) or (3). (D) Credits generated by vehicles subject to the Temporary Leadtime Allowance Alternative Standards specified in §86.1818-12(e)(4)(i) or (ii) may be banked for use in a future model year (to offset a deficit generated by an averaging set subject to the Temporary Leadtime Allowance Alternative Standards), except that all such credits shall expire at the end of the 2015 model year. (E) A manufacturer with any vehicles subject to the Temporary Leadtime Allowance Alternative Standards specified in §86.1818-12(e)(4)(i) or (ii) of this section in a model year in which that manufacturer also generates credits with vehicles subject to the fleet average CO 2 standards specified in §86.1818-12(c) may not trade or bank credits earned against the fleet average standards in §86.1818-12(c) for use in a future model

year. (8) The following provisions apply if debits are accrued: (i) If a manufacturer calculates that it has negative credits (also called “debits” or a “credit deficit”) for a given model year, it may carry that deficit forward into the next three model years. Such a carry-forward may only occur after the manufacturer exhausts any supply of banked credits. At the end of the third model year, the deficit must be covered with an appropriate number of credits that the manufacturer generates or purchases. Any remaining deficit is subject to a voiding of the certificate ab initio, as described in this paragraph (k)(8). Manufactur ers are not permitted to have a credit deficit for four consecutive years. (ii) If debits are not offset within the specified time period, the number of vehicles not meeting the fleet average CO 2 standards (and therefore not covered by the certificate)

must be calculated. (A) Determine the gram per mile quantity of debits for the noncompliant vehicle category by multiplying the total megagram defi cit by 1,000,000 and then dividing by the vehicle lifetime miles for the vehicle categor y (passenger automobile or light truck) specified in paragraph (k )(4) of this section. (B) Divide the result by the fleet average standard applicable to the model year in

which the debits were first incurred and ro und to the nearest whole number to determine the number of vehicles not meeting the fleet average CO 2 standards. (iii) EPA will determine the vehicles no t covered by a certificate because the condition on the certificate was not satisfied by designating vehicles in those test groups with the highest CO 2 emission values first and continuing until reaching a number of vehicles equal to the calculated number of noncomplying vehicles as determined in paragraph (k)(7) of this section. If this calculation determines that only a portion of vehicles in a test group contribute to the de bit situation, then EPA will designate actual vehicles in that test group as not covered by the certificate, starting with the last vehicle produced and counting backwards. (iv)(A) If a manufacturer ceases production of passenger cars and light trucks, the manufacturer continues to be responsible for offsetting any debits outstanding within the690 required time period. Any failure to offset the debits will be considered a violation of paragraph (k)(7)(i) of this section and may subject the manufacturer to an enforcement action for sale of vehicles not covered by a certificate, pursuant to paragraphs (k)(7)(ii) and (iii) of this section. (B) If a manufacturer is purchased by, me rges with, or otherwise combines with another manufacturer, the controlling entity is responsible for offsetting any debits outstanding within the required time period. Any failure to offset the debits will be considered a violation of paragraph (k)(7)(i) of this section and may subject the manufacturer to an enforcement action for sale of vehicles not covered by a certificate, pursuant to paragraphs (k)(7)( ii) and (iii) of this section. (v) For purposes of calculating the statute of limitations, a violation of the requirements of paragraph (k)(7)(i) of this sec tion, a failure to satisfy the conditions upon which a certificate(s) was issued and hence a sale of vehicles not covered by the certificate, all occur upon the expiration of th e deadline for offsetting debits specified in paragraph (k)(7)(i) of this section. (9) The following provisions apply to CO 2 credit trading: (i) EPA may reject CO 2 credit trades if the involved manufacturers fail to submit the credit trade notification in the annual report. (ii) A manufacturer may not sell credits that are not available for sale pursuant to the provisions in paragraph (k)(6) of this section. (iii) In the event of a negative credit bala nce resulting from a transaction, both the buyer and seller are liable. EPA may void ab initio the certificates of conformity of all test groups participating in such a trade. (iv) (A) If a manufacturer trades a credit that it has not generated pursuant to paragraph (k) of this section or acquired fro m another party, the manufacturer will be considered to have generated a debit in the model year that the manufacturer traded the credit. The manufacturer must offset such debits by the deadline for the annual report for that same model year. (B) Failure to offset the debits within th e required time period will be considered a failure to satisfy the conditions upon whic h the certificate(s) was issued and will be addressed pursuant to paragraph (k)(7) of this section. (v) A manufacturer may only trade credits that it has generated pursuant to paragraph (k)(4) of this section or acquired from another party. (l) Maintenance of records and submittal of information relevant to compliance with fleet average CO 2 standards —(1) Maintenance of records . (i) Manufacturers producing any light-duty vehicles, light-duty trucks, or medium-duty passenger vehicles subject to the provisions in this subpart mu st establish, maintain, and retain all the following information in adequately organized records for each model year: (A) Model year. (B) Applicable fleet average CO 2 standards for each averaging set as defined in paragraph (i) of this section. (C) The calculated fleet average CO 2 value for each averaging set as defined in paragraph (i) of this section. (D) All values used in calculating the fleet average CO 2 values.691 (ii) Manufacturers producing any passenger cars or light trucks subject to the provisions in this subpart must establis h, maintain, and reta in all the following information in adequately organized records for each passenger car or light truck subject to this subpart: (A) Model year. (B) Applicable fleet average CO 2 standard. (C) EPA test group. (D) Assembly plant. (E) Vehicle identification number. (F) Carbon-related exhaust emission standard to which the passenger car or light

truck is certified. (G) In-use carbon-related exhaust emission standard. (H) Information on the point of first sale, including the purchaser, city, and state. (iii) Manufacturers must retain all required records for a period of eight years from the due date for the annual report. Records may be stored in any format and on any media, as long as manufacturers can promptly send EPA organized written records in English if we ask for them. Manufacturers must keep records readily available as EPA may review them at any time. (iv) The Administrator may require the ma nufacturer to retain additional records or submit information not specifically required by this section. (v) Pursuant to a request made by the Administrator, the manufacturer must

submit to the Administrator the information th at the manufacturer is required to retain. (vi) EPA may void ab initio a certificate of conformity for vehicles certified to emission standards as set forth or otherwise referenced in this subpart for which the

manufacturer fails to retain the records re quired in this section or to provide such information to the Administrator upon request, or to submit the reports required in this section in the specified time period. (2) Reporting . (i) Each manufacturer must submit an annual report. The annual report must contain for each applicable CO 2 standard, the calculated fleet average CO 2 value, all values required to calculate the CO 2 emissions value, the number of credits generated or debits incurred, all the values re quired to calculate the credits or debits, and the resulting balance of credits or debits. (ii) For each applicable fleet average CO 2 standard, the annual report must also include documentation on all credit transactions the manufacturer has engaged in since those included in the last report. Information for each transaction must include all of the following: (A) Name of credit provider. (B) Name of credit recipient. (C) Date the trade occurred. (D) Quantity of credits traded in megagrams. (E) Model year in which the credits were earned. (iii) Manufacturers calculating early air conditioning leakage and/or efficiency credits under paragraph (b) of this section shall report the following information for each692 model year separately for passenger automobiles and light trucks and for each air conditioning system used to generate credits: (A) A description of the air conditioning system. (B) The leakage credit value and all the information required to determine this

value. (C) The total credits earned for each averaging set, model year, and region, as applicable. (iv) Manufacturers calculating early adva nced technology vehicle credits under paragraph (c) of this section shall report, for each model year and separately for passenger automobiles and light tr ucks, the following information: (A) The number of each model type of eligible vehicle sold. (B) The cumulative model year production of eligible vehicles starting with the 2012 model year. (C) The carbon-related exhaust emission value by model type and model year. (v) Manufacturers calculating early off-cycle technology credits under paragraph (d) of this section shall report, for each model year and separately for passenger automobiles and light trucks, all test results and data required for calculating such credits. (vi) Unless a manufacturer reports the data required by this section in the annual production report required under §86.1844–01(e) or the annual report required under §600.512-12, a manufacturer must submit an annual report for each model year after production ends for all affected vehicles produced by the manufacturer subject to the provisions of this subpart and no later than May 1 of the calendar year following the given model year. Annual reports must be submitted to: Director, Compliance and Innovative Strategies Division, U.S. Environmental Protection Agency, 2000 Traverwood, Ann Arbor, Michigan 48105. (vii) Failure by a manufacturer to submit the annual report in the specified time period for all vehicles subject to the provision s in this section is a violation of section 203(a)(1) of the Clean Air Act (42 U.S.C. 7522 (a)(1)) for each applicable vehicle produced by that manufacturer. (viii) If EPA or the manufacturer determines that a reporting error occurred on an annual report previously submitted to EPA, th e manufacturer's credit or debit calculations will be recalculated. EPA may void erroneous credits, unless traded, and will adjust erroneous debits. In the case of traded erroneous credits, EPA must adjust the selling manufacturer's credit balance to reflect the sale of such credits and any resulting credit

deficit. (3) Notice of opportunity for hearing . Any voiding of the certificate under paragraph (l)(1)(vi) of this section will be made only after EPA has offered the affected manufacturer an opportunity for a hearing conducted in accordance with §86.614–84 for light-duty vehicles or §86.1014–84 for light-dut y trucks and, if a manufacturer requests such a hearing, will be made only after an initial decision by the Presiding Officer.

31. A new section 86.1866-12 is added to subpart S to read as follows:

§86.1866-12 CO 2 fleet average credit programs.693 (a) Incentive for certification of advanced technology vehicles . Electric vehicles, plug-in hybrid electric vehicles, and fuel cell electric vehicles, as those terms are defined in §86.1803-01, that are certified and produced in the 2012 through 2016 model years may be eligible for a reduced CO 2 emission value under the provisions of this paragraph (a) and under the provisions of part 600 of this chapter. (1) Electric vehicles, fuel cell electri c vehicles, and plug-in hybrid electric vehicles may use a value of 0 grams/mile to represent the proportion of electric operation of a vehicle that is derived from electricity that is generated from sources that are not

onboard the vehicle. (2) The use of 0 grams/mile is limite d to the first 200,000 combined electric vehicles, plug-in hybrid electric vehicles, and fuel cell electric vehicles produced and delivered for sale in the 2012 through 2016 model years, except that a manufacturer that produces and delivers for sale 25,000 or more such vehicles in the 2012 model year shall be subject to a limitation on the use of 0 grams/mile to the first 300,000 combined combined electric vehicles, plug-in hybrid elect ric vehicles, and fuel cell electric vehicles produced and delivered for sale in the 2012 through 2016 model years. (b) Credits for reduction of air conditioning refrigerant leakage . Manufacturers may generate credits applicable to the CO 2 fleet average program described in §86.1865- 12 by implementing specific air conditioning sy stem technologies designed to reduce air conditioning refrigerant leakage over the usef ul life of their passenger cars and/or light trucks. Credits shall be calculated according to this paragraph (b) for each air conditioning system that the manufacturer is using to generate CO 2 credits. Manufacturers may also generate early air conditioning refrigerant leakage credits under this paragraph (b) for the 2009 through 2011 model years according to the provisions of §86.1867-12(b). (1) The manufacturer shall calculate an annual rate of refrigerant leakage from an air conditioning system in grams per year according to the provisions of §86.166-12. (2) The CO 2 -equivalent gram per mile leakage reduction to be used to calculate the total credits generated by the air conditioning system shall be determined according to the following formulae, rounded to the nearest tenth of a gram per mile: (i) Passenger automobiles:

⎥ ⎦ ⎤ ⎢ ⎣ ⎡ ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛

× ⎟ ⎠ ⎞ ⎜ ⎝ ⎛

− × =

a HFC

NEW GWP

GWP Leakage MaxCredit L

134 6

. 16 1 credit eakage

Where: MaxCredit is 12.6 (grams CO2-equivalent/mile)for air conditioning systems using HFC 134a, and 13.8 (grams CO 2-equivalent/mile) for air conditioning systems using a refrigerant with a lower global warming potential. Leakage means the annual refrigerant leakage rate determined according to the provisions of §86.166-12(a), except if the calculated rate is less than 8.3 grams/year (4.1 grams/year for systems using electric compressors) the rate for the purpose of this formula shall be 8.3 grams/year (4.1 grams/year for systems using electric compressors); The constant 16.6 is the average passenger car impact of air conditioning leakage in units of grams/year;694 GWP NEW means the global warming potentia l of the refrigerant, if such refrigerant is not R134a, as determined by the Administrator;

GWP HFC134a means the global warming potential of HFC 134a, which shall be equal to 1430 unless determined otherwise by the Administrator. (ii) Light trucks:

⎥ ⎦ ⎤ ⎢ ⎣ ⎡ ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛

× ⎟ ⎠ ⎞ ⎜ ⎝ ⎛

− × =

a HFC

NEW GWP

GWP Leakage MaxCredit L

134 7

. 20 1 credit eakage

Where: MaxCredit is 15.6 (grams CO2-equivalent/mile) for air conditioning systems using HFC 134a, and 17.2 (grams CO2-equiva lent/mile) for air conditioning systems using a refrigerant with a lower global warming potential. Leakage means the annual refrigerant leakage rate determined according to the provisions of §86.166-12(a), except if the calcula ted rate is less than 10.4 grams/year (5.2 grams/year for systems using electric compressors) the rate for the purpose of this formula shall be 10.4 grams/year (5.2 grams/year for systems using electric compressors); The constant 20.7 is the average passenger car impact of air conditioning leakage in units of grams/year;

GWP NEW means the global warming potentia l of the refrigerant, if such refrigerant is not HFC 134a, as determined by the Administrator;

GWP R134a means the global warming potential of HFC 134a, which shall be equal to 1430 unless determined otherwise by the Administrator. (3) The total leakage reduction credits generated by the air conditioning system shall be calculated separately for passenger cars and light trucks according to the following formula: Total Credits (megagrams) = (Leakage x Production x VLM) ÷ 1,000,000

Where: Leakage = the CO 2 -equivalent leakage credit value in grams per mile determined in paragraph (b)(2) of this section. Production = The total number of passenge r cars or light trucks, whichever is applicable, produced with the air conditioning system to which to the leakage credit value from paragraph (b)(2) of this section applies. VLM = vehicle lifetime miles, which for passenger cars shall be 195,264 and for light trucks shall be 225,865. (4) The results of paragraph (b)(3) of this section, rounded to the nearest whole number, shall be included in the manuf acturer’s credit/debit totals calculated in §86.1865-12(k)(5). (c) Credits for improving air conditioning system efficiency . Manufacturers may generate credits applicable to the CO 2 fleet average program described in §86.1865-12 by implementing specific air conditioning syst em technologies designed to reduce air conditioning-related CO 2 emissions over the useful life of their passenger cars and/or light trucks. Credits shall be calculated according to this paragraph (c) for each air conditioning system that the manufacturer is using to generate CO 2 credits. Manufacturers may also generate early air conditioning efficiency credits under this695 paragraph (c) for the 2009 through 2011 model years according to the provisions of §86.1867-12(b). For model years 2012 and 2013 the manufacturer may determine air conditioning efficiency credits using the requirements in paragraphs (c)(1) through (4) of this section. For model years 2014 and later the eligibility requirements specified in paragraph (c)(5) of this section must be met before an air conditioning system is allowed to generate credits. (1) Air conditioning efficiency credits are available for the following technologies in the gram per mile amounts indicated: (i) Reduced reheat, with externally-controlled, variable-displacement compressor: 1.7 g/mi. (ii) Reduced reheat, with externally-controlled, fixed-displacement or pneumatic variable displacement compressor: 1.1 g/mi. (iii) Default to recirculated air with clos ed-loop control of the air supply (sensor feedback to control interior air quality) whenever the ambient temperature is 75 °F or higher: 1.7 g/mi. Air conditioning systems that operated with closed-loop control of the air supply at different temperatures may r eceive credits by submitting an engineering analysis to the Administrator for approval. (iv) Default to recirculated air with open-loop control air supply (no sensor feedback) whenever the ambient temperature is 75 °F or higher: 1.1 g/mi. Air conditioning systems that operate with open-loop control of the air supply at different temperatures may receive credits by submitting an engineering analysis to the Administrator for approval. (v) Blower motor controls which limit wa sted electrical energy (e.g. pulse width modulated power controller): 0.9 g/mi. (vi) Internal heat exchanger: 1.1 g/mi. (vii) Improved condensers and/or evaporators with system analysis on the component(s) indicating a coefficient of performance improvement for the system of greater than 10% when compared to previous industry standard designs): 1.1 g/mi. (viii) Oil separator: 0.6 g/mi. The manufacturer must submit an engineering analysis demonstrating the increased improvement of the system relative to the baseline design, where the baseline component for comparison is the version which a manufacturer most recently had in production on the same vehicle design or in a similar or related vehicle model. The characteristics of the baseline component shall be compared to the new component to demonstrate the improvement. (2) Air conditioning efficiency credits are determined on an air conditioning system basis. For each air conditioning system that is eligible for a credit based on the use of one or more of the items listed in paragraph (c)(1) of this section, the total credit value is the sum of the gram per mile values listed in paragraph (c)(1) of this section for each item that applies to the air conditioning system. If the sum of those values for an air conditioning system is greater than 5.7 grams per mile, the total credit value is deemed to be 5.7 grams per mile. (3) The total efficiency credits generated by an air conditioning system shall be calculated separately for passenger cars and light trucks according to the following

formula:696 Total Credits (Megagrams) = (Credit x Production x VLM) ÷ 1,000,000

Where:

Credit = the CO 2 efficiency credit value in grams per mile determined in paragraph (c)(2) or (c)(5) of this section, whichever is applicable. Production = The total number of passenge r cars or light trucks, whichever is applicable, produced with the air conditioning system to which to the efficiency credit value from paragraph (c)(2) of this section applies. VLM = vehicle lifetime miles, which for passenger cars shall be 195,264 and for light trucks shall be 225,865. (4) The results of paragraph (c)(3) of this section, rounded to the nearest whole number, shall be included in the manuf acturer’s credit/debit totals calculated in §86.1865-12(k)(5). (5) Use of the Air Conditioning Idle Test Procedure is required after the 2013 model year as specified in this paragraph (c)(5). (i) After the 2013 model year, for each air conditioning system selected by the manufacturer to generate air conditioning efficiency credits, the manufacturer shall perform the Air Conditioning Idle Test Procedure specified in §86.165-14 of this part. (ii) Using good engineering judgment, the manufacturer must select the vehicle configuration to be tested that is exp ected to result in the greatest increased CO 2 emissions as a result of the operation of the air conditioning system for which efficiency credits are being sought. If the air conditio ning system is being installed in passenger automobiles and light trucks, a separate de termination of the quantity of credits for passenger automobiles and light trucks must be made, but only one test vehicle is required to represent the air conditioning sy stem, provided it represents the worst-case impact of the system on CO 2 emissions. (iii) For an air conditioning system to be eligible to generate credits in the 2014 and later model years, the increased CO 2 emissions as a result of the operation of that air conditioning system determined according to the Idle Test Procedure in §86.165-14 must be less than 21.3 grams per minute. (A) If the increased CO 2 emissions determined from the Idle Test Procedure in §86.165-14 is less than or equal to 14.9 gr ams/minute, the total credit value for use in paragraph (c)(3) of this section shall be as de termined in paragraph (c)(2) of this section. (B) If the increased CO 2 emissions determined from the Idle Test Procedure in §86.165-14 is greater than 14.9 grams/minute and less than 21.3 grams/minute, the total credit value for use in paragraph (c)(3) of this section shall be as determined according to the following formula:

⎥ ⎦ ⎤ ⎢ ⎣ ⎡ ⎟ ⎠ ⎞ ⎜ ⎝ ⎛

−

− × = 4

. 6 9

. 14 1 1 ITP TCV TCV

Where:

TCV=The total credit value for use in paragraph (c)(3) of this section;

TCV 1 =The total credit value determined according to paragraph (c)(2) of this section; and697 ITP= the increased CO 2 emissions determined from the Idle Test Procedure in §86.165-14. (iv) Air conditioning systems with comp ressors that are solely powered by electricity shall submit Air Conditioning Idle Test Procedure data to be eligible to generate credits in the 2014 and later model years, but such systems are not required to meet a specific threshold to be eligible to generate such credits, as long as the engine remains off for a period of at least 2 minutes during the air conditioning on portion of the Idle Test Procedure in §86.165-12 (d). (6) The following definitions apply to this paragraph (c): (i) Reduced reheat, with externally-controlled, va riable displacement compressor means a system in which compressor displaceme nt is controlled via an electronic signal, based on input from sensors (e.g. position or setpoint of interior temperature control, interior temperature, evaporator outlet air temp erature, or refrigerant temperature) and air temperature at the outlet of the evaporator can be controlled to a level at 41 °F, or higher. (ii) Reduced reheat, with externally-controlled, fixed-displacement or pneumatic variable displacement compressor means a system in which the output of either compressor is controlled by cy cling the compressor clutch off-and-on via an electronic signal, based on input from sensors (e.g. position or setpoint of interior temperature control, interior temperature, evaporator outlet air temperature, or refrigerant temperature) and air temperature at the outlet of the evaporator can be controlled to a level at 41 °F, or higher. (iii) Default to recirculated air mode means that the default position of the mechanism which controls the source of air supplied to the air conditioning system shall change from outside air to recirculated air when the operator or the automatic climate control system has engaged the air conditioning system (i.e. evaporator is removing heat), except under those conditions where dehumidification is required for visibility (i.e. defogger mode). In vehicles equipped with interior air quality sensors (e.g. humidity sensor, or carbon dioxide sensor), the controls may determine proper blend of air supply

sources to maintain freshness of the cabin air while continuing to maximize the use of recirculated air. At any time, the vehi cle operator may manually select the nonrecirculated air setting during vehicle ope ration but the system must default to recirculated air mode on subsequent vehicl e operations (i.e. next vehicle start). The climate control system may delay switching to recirculation mode until the interior air temperature is less than the outside air temperature, at which time the system must switch

to recirculated air mode. (iv) Blower motor controls which limit waste energy means a method of controlling fan and blower speeds which does not use resistive elements to decrease the voltage supplied to the motor. (v) Improved condensers and/or evaporators means that the coefficient of performance (COP) of air conditioning system using improved evaporator and condenser designs is 10 percent higher, as determined using the bench test procedures described in SAE J2765 “Procedure for Measuring System COP of a Mobile Air Conditioning System on a Test Bench,” when compared to a system using standard, or prior model year, component designs. SAE J2765 is incorporated by reference; see §86.1. The698 manufacturer must submit an engineering analysis demonstrating the increased improvement of the system relative to th e baseline design, where the baseline component(s) for comparison is the version which a manufacturer most recently had in production on the same vehicle design or in a similar or related vehicle model. The dimensional characteristics (e.g., tube configuration/thickness/spacing, and fin density) of the baseline component(s) shall be compared to the new component(s) to demonstrate the improvement in coefficient of performance. (vi) Oil separator means a mechanism which removes at least 50 percent of the oil entrained in the oil/refrigerant mixture exiting the compressor and returns it to the compressor housing or compressor inlet, or a compressor design which does not rely on the circulation of an oil/refrigerant mixture for lubrication. (d) Credits for CO 2 -reducing technologies where the CO 2 reduction is not captured on the Federal Test Procedure or the Highway Fuel Economy Test . With prior EPA approval, manufacturers may optionally generate credits applicable to the CO 2 fleet average program described in §86.1865-12 by implementing innovative technologies that have a measurable, demonstrable, and verifiable real-world CO 2 reduction. These optional credits are referred to as “off-cycle” credits and may be earned through the 2016 model year. (1) Qualification criteria . To qualify for this credit, the following must be true: (i) The technology must be an innovative and novel vehicle- or engine-based approach to reducing greenhouse gas emissions, and not in widespread use. (ii) The CO 2 -reducing impact of the technology must not be significantly

measurable over the Federal Test Procedur e and the Highway Fuel Economy Test. The technology must improve CO 2 emissions beyond the driving conditions of those tests. (iii) The technology must be able to be demonstrated to be effective for the full

useful life of the vehicle. Unless the manufact urer demonstrates that the technology is not subject to in-use deterioration, the manufacturer must account for the deterioration in their analysis. (2) Quantifying the CO 2 reductions of an off-cycle technology . The manufacturer may use one of the two options specified in this paragraph (d)(2) to measure the CO 2 - reducing potential of an innovative off-cycle technology. The option described in paragraph (d)(2)(ii) of this section may be used only with EPA approval, and to use that option the manufacturer must be able to justify to the Administrator why the 5-cycle option described in paragraph (d)(2)(i) of th is section insufficiently characterizes the effectiveness of the off-cycle technology. The manufacturer should notify EPA in their pre-model year report of their intention to generate any credits under paragraph (d) of this

section. (i) Technology demonstration using EPA 5-cycle methodology . To demonstrate an off-cycle technology and to determine a CO 2 credit using the EPA 5-cyclemethodology, the manufacturer shall determine 5-cycle city/highway combined carbonrelated exhaust emissions both with the tech nology installed and operating and without the technology installed and/or operating. The manufacturer shall conduct the following steps, both with the off-cycle technology installed and operating and without the technology operating or installed.699 (A) Determine carbon-related exhaust emi ssions over the FTP, the HFET, the US06, the SC03, and the cold temperature FTP test procedures according to the test procedure provisions specified in 40 CFR part 600 subpart B and using the calculation procedures specified in §600.113-08 of this chapter. (B) Calculate 5-cycle city and highway carbon-related exhaust emissions using data determined in paragraph (d)(2)(i)(A) of this section according to the calculation procedures in paragraphs (d) through (f) of 40 CFR 600.114-08. (C) Calculate a 5-cycle city/highway combined carbon-related exhaust emission value using the city and highway values determined in paragraph (d)(2)(i)(B) of this

section. (D) Subtract the 5-cycle city/highway co mbined carbon-related exhaust emission value determined with the off-cycle technology operating from the 5-cycle city/highway combined carbon-related exhaust emission value determined with the off-cycle technology not operating. The result is the gram per mile credit amount assigned to the technology. (ii) Technology demonstration using a lternative EPA-approved methodology . In cases where the EPA 5-cycle methodology described in paragraph (d)(2)(i) of this section cannot adequately measure the emission reduction attributable to an innovative off-cycle technology, the manufacturer may develop an alternative approach. Prior to a model year in which a manufacturer intends to seek these credits, the manufacturer must submit a detailed analytical plan to EPA. EPA will wo rk with the manufacturer to ensure that an analytical plan will result in appropriate data for the purposes of generating these credits. The alternative demonstration program must be approved in advance by the

Administrator and should: (A) Use modeling, on-road testing, on-road data collection, or other approved analytical or engineering methods; (B) Be robust, verifiable, and capable of demonstrating the real-world emissions benefit with strong statistical significance; (C) Result in a demonstration of baseline and controlled emissions over a wide range of driving conditions and number of vehi cles such that issues of data uncertainty are minimized; (D) Result in data on a model type basis unless the manufacturer demonstrates that another basis is appropriate and adequate. (iii) Calculation of total off-cycle credits . Total off-cycle credits in Megagrams of

CO 2 (rounded to the nearest whole number) sha ll be calculated separately for passenger automobiles and light trucks according to the following formula: Total Credits (Megagrams) = (Credit x Production x VLM) ÷ 1,000,000

Where: Credit = the 5-cycle credit value in grams per mile determined in paragraph (d)(2)(i)(D) or (d)(2)(ii) of this section. Production = The total number of passenge r cars or light trucks, whichever is applicable, produced with th e off-cycle technology to which to the credit value determined in paragraph (d)(2)(i)(D) or (d)(2)(ii) of this section applies.700 VLM = vehicle lifetime miles, which for passenger cars shall be 195,264 and for light trucks shall be 225,865. (3) Notice and opportunity for public comment . The Administrator will publish a notice of availability in the Federal Regist er notifying the public of a manufacturer’s proposed alternative off-cycle credit calcu lation methodology. The notice will include details regarding the proposed methodology, but will not include any Confidential

Business Information. The notice will includ e instructions on how to comment on the methodology. The Administrator will take pu blic comments into consideration in the final determination, and will notify the public of the final determination. Credits may not be accrued using an approved methodology until the model year following the final approval.

32. A new §86.1867-12 is added to subpart S to read as follows:

§86.1867-12 Optional early CO2 credit programs. Manufacturers may optionally generate CO2 credits in the 2009 through 2011 model years for use in the 2012 and later model years subject to EPA approval and to the provisions of this section. Manufacturers may generate early fleet average credits, air conditioning leakage credits, air conditioning efficiency credits, early advanced technology credits, and early off-cycle technology credits. Manufacturers generating any credits under this section must submit an early credits report to the Administrator as required in this section. (a) Early fleet average CO2 reduction credits . Manufacturers may optionally generate credits for reductions in their fleet average CO2 emissions achieved in the 2009 through 2011 model years. To generate early fleet average CO2 reduction credits, manufacturers must select one of the four pathways described in paragraphs (a)(1) through (4) of this section. The manufacturer may select only one pathway, and that pathway must remain in effect for the 2009 through 2011 model years. Fleet average credits (or debits) must be calculated and reported to EPA for each model year under each selected pathway. Early credits are subj ect to five year carry-forward restrictions based on the model year in which the credits are generated. (1) Pathway 1 . To earn credits under this pa thway, the manufacturer shall calculate an average carbon-related exhaust emission value to the nearest one gram per

mile for the classes of motor vehicles identified in this paragraph (a)(1), and the results of such calculations will be reported to the Ad ministrator for use in determining compliance with the applicable CO2 early credit threshold values. (i) An average carbon-related exhaust emission value calculation will be made for the combined LDV/LDT1 averaging set. (ii) An average carbon-related exhaust emission value calculation will be made for the combined LDT2/HLDT/MDPV averaging set. (iii) Average carbon-related exhaust emission values shall be determined according to the provisions of 40 CFR 600.510-12, except that: (A) Total U.S. model year sales data will be used, instead of production data;701 (B) The average carbon-related exhaust emissions for alcohol fueled model types shall be calculated according to the provisions of 40 CFR 600.510-12(j)(2)(ii)(B), without the use of the 0.15 multiplicative factor. (C) The average carbon-related exhaust emissions for natural gas fueled model types shall be calculated according to the provisions of 40 CFR 600.510-12(j)(2)(iii)(B), without the use of the 0.15 multiplicative factor. (D) The average carbon-related exhaust em issions for alcohol dual fueled model types shall be the value measured using gasoline or diesel fuel, as applicable, and shall be calculated according to the provisions of 40 CFR 600.510-12(j)(2)(vi), without the use of the 0.15 multiplicative factor and with F=0. For the 2010 and 2011 model years only, ifthe California Air Resources Board has approved a manufacturer’s request to use a nonzero value of F, the manufacturer may use such an approved value. (E) The average carbon-related exhaust emissions for natural gas dual fueled model types shall be the value measured using gasoline or diesel fuel, as applicable, and shall be calculated according to the provisions of 40 CFR 600.510-12(j)(2)(vii), without the use of the 0.15 multiplicative factor and with F=0. For the 2010 and 2011 model years only, if the California Air Resources Board has approved a manufacturer’s request to use a non-zero value of F, the manufacturer may use such an approved value. (F) Carbon-related exhaust emission values for electric, fuel cell electric, and plug-in hybrid electric model types shall be included in the fleet average determined under paragraph (a)(1) of this section only to the extent that such vehicles are not being used to generate early advanced technology vehicle credits under paragraph (c) of this

section. (iv) Fleet average CO2 credit threshold values.

Model year LDV/LDT1 LDT2/HLDT/MDPV

2009 321 437

2010 299 418

2011 265 388

(v) Credits are earned on the last day of the model year. Manufacturers must calculate, for a given model year, the number of credits or debits it has generated according to the following equation, rounded to the nearest megagram:

CO 2 Credits or Debits (Mg) = [(CO 2 Credit Threshold - Manufacturer's Sales Weighted Fleet Average CO 2 Emissions) × (Total Number of Vehicles Sold) × (Vehicle Lifetime Miles)] ÷ 1,000,000

Where:

CO 2 Credit Threshold = the applicable cred it threshold value for the model year and vehicle averaging set as determined by paragraph (a)(1)(iv) of this section; Manufacturer's Sales Weighted Fleet Average CO 2 Emissions = average calculated according to paragraph (a)(1)(iii) of this section; Total Number of Vehicles Sold = The number of vehicles domestically sold as defined in 40 CFR 600.511-80; and702 Vehicle Lifetime Miles is 195,264 for the LDV/LDT1 averaging set and 225,865 for the LDT2/HLDT/MDPV averaging set. (vi) Deficits generated against the applicable CO2 credit threshold values in paragraph (a)(1)(iv) of this section in any averaging set for any of the 2009-2011 model years must be offset using credits accumulated by any averaging set in any of the 2009- 2011 model years before determining the number of credits that may be carried forward to the 2012. Deficit carry forward and credit banking provisions of §86.1865-12 apply to early credits earned under this paragraph (a)(1), except that deficits may not be carried forward from any of the 2009-2011 model years into the 2012 model year, and credits earned in the 2009 model year may not be traded to other manufacturers. (2) Pathway 2 . To earn credits under this pathway, manufacturers shall calculate an average carbon-related exhaust emission value to the nearest one gram per mile for the classes of motor vehicles identified in paragr aph (a)(1) of this section, and the results of such calculations will be reported to the Ad ministrator for use in determining compliance with the applicable CO2 early credit threshold values. (i) Credits under this pathway shall be calculated according to the provisions of paragraph (a)(1) of this section, except credits may only be generated by vehicles sold in a model year in California and in states with a section 177 program in effect in that model year. For the purposes of this section, “section 177 program” means State regulations or other laws that apply to vehicle emissions from any of the following categories of motor vehicles: Passenger cars, light-duty trucks up through 6,000 pounds GVWR, and medium-duty vehicles from 6,001 to 14,000 pounds GVWR, as these categories of motor

vehicles are defined in the California Code of Regulations, Title 13, Division 3, Chapter 1, Article 1, Section 1900. (ii) A deficit in any averaging set for any of the 2009-2011 model years must be offset using credits accumulated by any averaging set in any of the 2009-2011 model years before determining the number of credits that may be carried forward to the 2012 model year. Deficit carry forward and credit banking provisions of §86.1865-12 apply to early credits earned under this paragraph (a)(1), except that deficits may not be carried forward from any of the 2009-2011 model years into the 2012 model year, and credits earned in the 2009 model year may not be traded to other manufacturers. (3) Pathway 3 . Pathway 3 credits are those credits earned under Pathway 2 as described in paragraph (a)(2) of this section in California and in the section 177 states determined in paragraph (a)(2)(i) of this sec tion, combined with additional credits earned

in the set of states that does not include California and the section 177 states determined in paragraph (a)(2)(i) of this section and calculated according to this paragraph (a)(3). (i) Manufacturers shall earn additional credits under Pathway 3 by calculating an average carbon-related exhaust emission value to the nearest one gram per mile for the classes of motor vehicles identified in this paragraph (a)(3). The results of such calculations will be reported to the Admini strator for use in determining compliance with the applicable CO2 early credit threshold values. (ii) An average carbon-related exhaust emission value calculation will be made for the passenger automobile averaging set. The term “passenger automobile” shall have703 the meaning given by the Department of Tran sportation at 49 CFR 523.4 for the specific model year for which the calculation is being made. (iii) An average carbon-related exhaust emission value calculation will be made for the light truck averaging set. The term “ light truck” shall have the meaning given by the Department of Transportation at 49 CFR 523.5 for the specific model year for which the calculation is being made. (iv) Average carbon-related exhaust emission values shall be determined according to the provisions of 40 CFR 600.510-12, except that: (A) Total model year sales data will be used, instead of production data, except that vehicles sold in the section 177 states determined in paragraph (a)(2)(i) of this section shall not be included; (B) The average carbon-related exhaust emissions for alcohol fueled model types shall be calculated according to the provisions of 40 CFR 600.510-12(j)(2)(ii)(B), without the use of the 0.15 multiplicative factor. (C) The average carbon-related exhaust emissions for natural gas fueled model types shall be calculated according to the provisions of 40 CFR 600.510-12(j)(2)(iii)(B), without the use of the 0.15 multiplicative factor. (D) The average carbon-related exhaust em issions for alcohol dual fueled model types shall be calculated according to the provisions of 40 CFR 600.510-12(j)(2)(vi), without the use of the 0.15 multipli cative factor and with F=0. (E) The average carbon-related exhaust emissions for natural gas dual fueled model types shall be calculated according to the provisions of 40 CFR 600.510- 12(j)(2)(vii), without the use of the 0.15 multiplicative factor and with F=0. (F) 40 CFR 600.510-12(j)(3) shall not apply. Electric, fuel cell electric, and plugin hybrid electric model type carbon-related exhaust emission values shall be included in the fleet average determined under paragraph (a)(1) of this section only to the extent that such vehicles are not being used to generate early advanced technology vehicle credits under paragraph (c) of this section. (v) Pathway 3 fleet average CO2 credit threshold values. (A) For 2009 and 2010 model year passenger automobiles, the fleet average CO2 credit threshold value is 323 grams/mile. (B) For 2009 model year light trucks the fleet average CO2 credit threshold value is 381 grams/mile, or, if the manufacturer chose to optionally meet an alternative manufacturer-specific light truck fuel economy standard calculated under 49 CFR 533.5 for the 2009 model year, the gram per mile fleet average CO2 credit threshold shall be the CO2 value determined by dividing 8887 by that alternative manufacturer-specific fuel economy standard and rounding to the nearest whole gram per mile. (C) For 2010 model year light trucks the fleet average CO2 credit threshold value is 376 grams/mile, or, if the manufacturer chose to optionally meet an alternative manufacturer-specific light truck fuel economy standard calculated under 49 CFR 533.5 for the 2010 model year, the gram per mile fleet average CO2 credit threshold shall be the CO2 value determined by dividing 8887 by that alternative manufacturer-specific fuel economy standard and rounding to the nearest whole gram per mile.704 (D) For 2011 model year passenger automobiles the fleet average CO2 credit threshold value is the value determined by dividing 8887 by the manufacturer-specific passenger automobile fuel economy standard for the 2011 model year determined under 49 CFR 531.5 and rounding to the nearest whole gram per mile. (E) For 2011 model year light trucks the fleet average CO2 credit threshold value is the value determined by dividing 8887 by the manufacturer-specific light truck fuel economy standard for the 2011 model year determined under 49 CFR 533.5 and rounding to the nearest whole gram per mile. (vi) Credits are earned on the last day of the model year. Manufacturers must calculate, for a given model year, the number of credits or debits it has generated according to the following equation, rounded to the nearest megagram:

CO 2 Credits or Debits (Mg) = [(CO 2 Credit Threshold - Manufacturer's Sales Weighted Fleet Average CO 2 Emissions) × (Total Number of Vehicles Sold) × (Vehicle Lifetime Miles)] ÷ 1,000,000

Where:

CO 2 Credit Threshold = the applicable cred it threshold value for the model year and vehicle averaging set as determined by paragraph (a)(3)(vii) of this section; Manufacturer's Sales Weighted Fleet Average CO 2 Emissions = average calculated according to paragraph (a)(3)(vi) of this section; Total Number of Vehicles Sold = The number of vehicles domestically sold as defined in 40 CFR 600.511-80 except that vehicles sold in the section 177 states determined in paragraph (a)(2)(i) of this section shall not be included; and Vehicle Lifetime Miles is 195,264 for the LDV/LDT1 averaging set and 225,865 for the LDT2/HLDT/MDPV averaging set. (vii) Deficits in any averaging set for any of the 2009-2011 model years must be offset using credits accumulated by any averaging set in any of the 2009-2011 model years before determining the number of credits that may be carried forward to the 2012. Deficit carry forward and credit banking provisions of 86.1865-12 apply to early credits earned under this paragraph (a)(3), except that deficits may not be carried forward from any of the 2009-2011 model years into the 2012 model year, and credits earned in the 2009 model year may not be traded to other manufacturers. (4) Pathway 4 . Pathway 4 credits are those credits earned under Pathway 3 as described in paragraph (a)(3) of this section in the set of states that does not include California and the section 177 states determined in paragraph (a)(2)(i) of this section and calculated according to paragraph (a)(3) of this section. Credits may only be generated by

vehicles sold in the set of states that does not include the section 177 states determined in paragraph (a)(2)(i) of this section. (b) Early air conditioning leak age and efficiency credits . (1) Manufacturers may optionally generate air conditioning refrigerant leakage credits according to the provisions of paragraph (b) of §86.1866-12 and/or air conditioning efficiency credits according to the provisions of §86.1866-12(c) in model years 2009 through 2011. The early credits are subject to five year carry forward limits based on the model year in which the credits are generated. Credits must be tracked by model type and model year.705 (2) Manufacturers that are required to comply with California greenhouse gas requirements in model years 2009-2011 (for California and section 177 states) may not generate early air conditioning credits for vehicles sold in California and the section 177 states as determined in paragra ph (a)(2)(i) of this section. (c) Early advanced technology vehicle incentive . Vehicles eligible for this incentive are electric vehicles, fuel cell elect ric vehicles, and plug-in hybrid electric vehicles, as those terms are defined in §86. 1803-01. If a manufacturer chooses to not include electric vehicles, fuel cell electric vehi cles, and plug-in hybrid electric vehicles in their fleet averages calculated under any of the early credit pathways described in paragraph (a) of this section, the manufacturer may generate early advanced technology vehicle credits pursuant to this paragraph (c). (1) The manufacturer shall record the sales and carbon-related exhaust emission values of eligible vehicles by model type and model year for model years 2009 through 2011 and report these values to the Administrator under paragraph (e) of this section. (2) Manufacturers may use the 2009 through 2011 eligible vehicles in their fleetaverage calculations starting with the 2012 model year, subject to a five-year carryforward limitation. (i) Eligible 2009 model year vehicles may be used in the calculation of a manufacturer’s fleet average carbon-related exhaust emissions in the 2012 through 2014 model years. (ii) Eligible 2010 model year vehicles may be used in the calculation of a manufacturer’s fleet average carbon-related exhaust emissions in the 2012 through 2015 model years. (iii) Eligible 2011 model year vehicles may be used in the calculation of a manufacturer’s fleet average carbon-related exhaust emissions in the 2012 through 2016 model years. (3)(i) To use the advanc ed technology vehicle incentive, the manufacturer will apply the 2009, 2010, and/or 2011 model type sales volumes and their model type emission levels to a manufacturer’s fleet average calculation. (ii) Early advanced technology vehicle incentive must be used to offset a deficit in one of the 2012 through 2016 model years, as appropriate under paragraph (c)(2) of this

section. (iii) The advanced technology vehicle sales and emission values may be included in a fleet average calculation for passenger automobiles or light trucks, but may not be used to generate credits in the model year in which they are included or in the averaging set in which they are used. Use of early advanced technology vehicle credits is limited to offsetting a deficit that would otherwise be generated without the use of those credits. Manufacturers shall report the use of such credits in their model year report for the model year in which the credits are used. (4) Manufacturers may use zero grams/mile to represent the carbon-related exhaust emission values for the electric operation of 2009 through 2011 model year electric vehicles, fuel cell electric vehicles, a nd plug-in hybrid electric vehicles subject to the limitations in 86.[insert cite]. The 2009 through 2011 model year vehicles using zero706 grams per mile shall count against the 200,000 or 300,000 caps on use of this credit value, whichever is applicable. (d) Early off-cycle technology credits . Manufacturers may optionally generate credits for the implementation of certain CO2-reducing technologies according to the provisions of §86.1866-12(d). (e) Early credit reporting requirements . Each manufacturer shall submit a report to the Administrator, known as the early credits report, that reports the credits earned in the 2009 through 2011 model years under this section. (1) The report shall contain all informa tion necessary for th e calculation of the manufacturer’s early credits in each of the 2009 through 2011 model years. (2) The early credits report shall be in writing, signed by the authorized representative of the manufacturer and shall be submitted no later th an 90 days after the end of the 2011 model year. (3) Manufacturers using one of the optional early fleet average CO2 reduction credit pathways described in paragraph (a) of this section shall report the following information separately for the appropriate averaging sets (e.g. LDV/LDT1 and LDT2/HLDT/MDPV averaging sets for pathwa ys 1 and 2; LDV, LDT, LDV/LDT1 and LDT2/HLDT/MDPV averaging sets for Pathwa y 3; LDV and LDT/MDPV averaging sets for Pathway 4): (i) The pathway that they have selected (1, 2, 3, or 4). (ii) A carbon-related exhaust emission value for each model type of the manufacturer’s product line calculated according to paragraph (a) of this section. (iii) The manufacturer’s average carbon-related exhaust emission value calculated according to paragraph (a) of this section for the applicable averaging set and region and all data required to complete this calculation. (iv) The credits earned for each averaging set, model year, and region, as applicable. (4) Manufacturers calculating early air conditioning leakage and/or efficiency credits under paragraph (b) of this section shall report the following information for each model year separately for passenger automobiles and light trucks and for each air conditioning system used to generate credits: (i) A description of the air conditioning system. (ii) The leakage credit value and all the information required to determine this

value. (iii) The total credits earned for each averaging set, model year, and region, as applicable. (5) Manufacturers calculating early advanced technology vehicle credits under paragraph (c) of this section shall report, for each model year and separately for passenger automobiles and light tr ucks, the following information: (i) The number of each model type of eligible vehicle sold. (ii) The carbon-related exhaust emission value by model type and model year. (6) Manufacturers calculating early off-cycle technology credits under paragraph (d) of this section shall report, for each model year and separately for passenger automobiles and light trucks, all test results an d data required for calculating such credits.707 PART 600—FUEL ECONOMY AND CARBON-RELATED EXHAUST

EMISSIONS OF MOTOR VEHICLES

33. The authority citation for part 600 continues to read as follows: Authority: 49 U.S.C. 32901—23919q, Pub. L. 109–58.

34. The heading for Part 600 is revised as set forth above.

Subpart A—Fuel Economy and Carbon-related Exhaust Emission Regulations for

1977 and Later Model Year Automobiles—General Provisions

35. The heading for subpart A is revised as set forth above.

36. A new § 600.001-12 is added to subpart A to read as follows:

§ 600.001-12 General applicability. (a) The provisions of this subpart are applicable to 2012 and later model year automobiles and to the manufacturers of 2012 and later model year automobiles. (b) Fuel economy and related emissions data . Unless stated otherwise, references to fuel economy or fuel economy data in this subpart shall also be interpreted to mean the

related exhaust emissions of CO 2 , HC, and CO, and where applicable for alternative fuel vehicles, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC and CH 4 . References to average fuel economy shall be interpreted to also mean average carbon-related exhaust emissions. References to fuel economy data vehicles sha ll also be meant to refer to vehicles tested

for carbon-related exhaust emissions for the purpose of demonstrating compliance with fleet average CO 2 standards in 40 CFR 86.1818-12.

37. Section 600.002-08 is amended as follows: a. By adding the definition for “Base tire.” b. By adding the definition for “Carbon-related exhaust emissions.” c. By adding the definition for “Electric vehicle.” d. By adding the definition for “Footprint.” e. By adding the definition for “Fuel cell.” f. By adding the definition for “Fuel cell electric vehicle.” g. By adding the definition for “Hybrid electric vehicle.” h. By revising the definition for “Non-passenger automobile.” i. By revising the definition for “Passenger automobile.” j. By adding the definition for “Plug-in hybrid electric vehicle.” k. By adding the definition for “Track width.” l. By adding the definition for “Wheelbase.”

§ 600.002-08 Definitions.

* * * * *708 Base tire means the tire specified as standard equipment by the manufacturer.

* * * * * Carbon-related exhaust emissions (CREE) means the summation of the carboncontaining constituents of the exhaust emissions, with each constituent adjusted by a coefficient representing the carbon weight fraction of each constituent, as specified in §600.113-08.

* * * * *

Electric vehicle has the meaning given in §86.1803-01 of this chapter.

* * * * * Footprint has the meaning given in §86.1803-01 of this chapter.

* * * * *

Fuel cell has the meaning given in §86.1803-01 of this chapter.

Fuel cell electric vehicle has the meaning given in §86.1803-01 of this chapter.

* * * * * Hybrid electric vehicle (HEV) has the meaning given in §86.1803-01 of this chapter.

* * * * * Non-passenger automobile has the meaning given by the Department of Transportation at 49 CFR 523.5. This term is synonymous with “light truck.”

* * * * * Passenger automobile has the meaning given by the Department of Transportation at 49 CFR 523.4.

* * * * * Plug-in hybrid elect ric vehicle (PHEV) has the meaning given in §86.1803-01 of this chapter.

* * * * *

Track width has the meaning given in §86.1803-01 of this chapter.

* * * * *

Wheelbase has the meaning given in §86.1803-01 of this chapter.

* * * * *

38. Section 600.006-08 is amended as follows: a. By revising the heading. b. By revising paragraph (b)(2)(ii). c. By revising paragraph (b)(2)(iv). d. By revising paragraph (c) introductory text. e. By adding paragraph (c)(5). f. By revising paragraph (e). g. By revising paragraph (g)(3).

§ 600.006-08 Data and information requirements for fuel economy data vehicles.

* * * * * (b) * * * (2) * * *709 (ii) In the case of electric vehicles, pl ug-in hybrid electric vehicles, and hybrid electric vehicles, a description of all maintenance to electric motor, motor controller, battery configuration, or other components performed within 2,000 miles prior to fuel economy testing.

* * * * * (iv) In the case of electric vehicles, plug -in hybrid electric vehicles, and hybrid electric vehicles, a copy of calibrations for the electric motor, motor controller, battery configuration, or other components on the test vehicle as well as the design tolerances.

* * * * * (c) The manufacturer shall submit the following fuel economy data:

* * * * * (5) Starting with the 2012 model year, the data submitted according to paragraphs (c)(1) through (c)(4) of this sect ion shall include total HC, CO, CO 2 , and, where applicable for alternative fuel vehicles, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC and

CH 4 . Manufacturers incorporating N 2 O and CH 4 emissions in their fleet average carbonrelated exhaust emissions as allowed under 86.1818(f)(2) shall also submit N 2 O and CH 4 emission data where applicable. The fuel economy and CO 2 emission test results shall be adjusted in accordance with paragraph (g) of this section.

* * * * * (e) In lieu of submitting actual data from a test vehicle, a manufacturer may provide fuel economy values derived from a previously tested vehicle, where the fuel economy and carbon-related exhaust emissions are expected to be equivalent (or less fuel-efficient and with higher carbon-related exhaust emission s). Additionally, in lieu of submitting actual data from a test vehicle, a manufacturer may provide fuel economy and carbon-related exhaust emission values derived from an analytical expression, e.g., regression analysis. In order for fuel economy values derived from analytical methods to be accepted, the expression (form and coefficients) must have been approved by the

Administrator.

* * * * * (g) * * * (3)(i) The manufacturer shall adjust a ll fuel economy test data generated by vehicles with engine-drive system combinations with more than 6,200 miles by using the following equation:

FE 4,000mi = FE T [0.979 + 5.25×10 − 6 (mi)] − 1

Where:

FE 4,000mi = Fuel economy data adjusted to 4,000-mile test point rounded to the nearest 0.1 mpg.

FE T = Tested fuel economy value rounded to the nearest 0.1 mpg. mi = System miles accumulated at the start of the test rounded to the nearest

whole mile. (ii)(A) The manufacturer shall adjust all CO 2 exhaust emission test data generated by vehicles with engine-drive system combin ations with more than 6,200 miles by using the following equation:

CO2 4,000mi = CO 2T [0.979 + 5.25×10 − 6 (mi)]710 Where:

CO2 4,000mi = CO 2 emission data adjusted to 4,000-mile test point.

CO 2T = Tested emissions value of CO 2 in grams per mile. mi = System miles accumulated at the start of the test rounded to the nearest

whole mile. (B) Emissions test values and results used and determined in the calculations in paragraph (g)(3)(ii) of this section shall be rounded in accordance with 40 CFR 86.1837- 01 as applicable. CO 2 values shall be rounded to the nearest gram per mile.

* * * * *

39. Section 600.007-08 is amended as follows: a. By revising paragraph (b)(4) through (6). b. By revising paragraph (c). c. By revising paragraph (f) introductory text.

§ 600.007-08 Vehicle acceptability.

* * * * * (b) * * * (4) Each fuel economy data vehicle must meet the same exhaust emission standards as certification vehicles of the respective engine-system combination during the test in which the city fuel economy test resu lts are generated. This may be demonstrated using one of the following methods: (i) The deterioration factors established for the respective engine-system combination per §86.1841–01 of this chapter as applicable will be used; or (ii) The fuel economy data vehicle will be equipped with aged emission control components according to the provisions of 86.1823-01 of this chapter. (5) The calibration information submitted under §600.006(b) must be representative of the vehicle configuration for which the fuel economy and carbon-related

exhaust emissions data were submitted. (6) Any vehicle tested for fuel economy or carbon-related exhaust emissions purposes must be representative of a vehicle which the manufacturer intends to produce under the provisions of a certificate of conformity.

* * * * * (c) If, based on review of the information submitted under §600.006(b), the Administrator determines that a fuel economy data vehicle meets the requirements of this section, the fuel economy data vehicle will be judged to be acceptable and fuel economy and carbon-related exhaust emissions data from that fuel economy data vehicle will be reviewed pursuant to §600.008.

* * * * * (f) All vehicles used to generate fu el economy and carbon-related exhaust emissions data, and for which emission standards apply, must be covered by a certificate of conformity under part 86 of this chapter before:

* * * * *711 40. Section 600.008-08 is amended by revising the heading and paragraph (a)(1) to read

as follows:

§ 600.008-08 Review of fuel economy and carbon-related exhaust emission data, testing by the Administrator. (a) Testing by the Administrator. (1) (i) The Administrator may require that any one or more of the test vehicles be submitted to the Agency, at such place or places as the Agency may designate, for the purposes of conducting fuel economy tests. The Administrator may specify that such testing be conducted at the manufacturer's facility, in which case instrumentation and equipment speci fied by the Administrator shall be made available by the manufacturer for test operations. The tests to be performed may comprise the FTP, highway fuel economy test, US06, SC03, or Cold temperature FTP or any combination of those tests. Any testing conducted at a manufacturer's facility pursuant to this paragraph shall be scheduled by the manufacturer as promptly as possible. (ii) Starting with the 2012 model year, evaluatio ns, testing, and test data described in this section pertaining to fuel economy shall also be performed for carbon-related exhaust emissions, except that carbon-related exhaust emissions shall be arithmetically averaged instead of harmonically averaged, and in cases where the manufacturer selects the lowest of several fuel economy results to represent th e vehicle, the manufacturer shall select the highest of the carbon-related exhaust emissions test results to represent the vehicle.

* * * * *

41. Section 600.010-08 is amended by revising paragraph (d) to read as follows:

§ 600.010-08 Vehicle test requirements and minimum data requirements.

* * * * * (d) Minimum data requirements for the manufacturer's average fuel economy and average carbon-related exhaust emissions For the purpose of calculating the manufacturer's average fuel economy and average carbon-related exhaust emissions under §600.510, the manufacturer shall submit FTP (city) and HFET (highway) test data representing at least 90 percent of the manufacturer's actual model year production, by configuration, for each category identified for calculation under §600.510–08(a).

* * * * *

42. Section 600.011-93 is amended by revising paragraph the table in paragraph (b)(3) by adding two new rows to the bottom of the table to read as follows:

§ 600.011-93 Reference materials.

* * * * *712 Document No. and name 40 CFR part 600 reference

* * * * * SAE J1634, May 1993, Electric Vehicle Energy Consumption and Range Test

Procedure 600.113-12

SAE J2841, March 2009, Utility Factor Definitions for Plug-In Hybrid Electric Vehicles Using 2001 U.S. DOT National Household Travel Survey Data 600.113-12713 Subpart B—[Amended]

43. A new § 600.101-12 is added to subpart B to read as follows:

§ 600.101-12 General applicability. (a) The provisions of this subpart are applicable to 2012 and later model year automobiles and to the manufacturers of 2012 and later model year automobiles. (b) Fuel economy and carbon-related emissions data . Unless stated otherwise, references to fuel economy or fuel economy data in this subpart shall also be interpreted

to mean the related exhaust emissions of CO 2 , HC, and CO, and where applicable for alternative fuel vehicles, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC and CH 4 . References to average fuel economy shall be interpreted to also mean average carbon-related exhaust

emissions.

44. Section 600.113-08 is amended as follows: a. By revising the introductory text. b. By revising paragraph (a)(1). c. By revising paragraph (b)(1) and (2). d. By revising paragraph (c)(1). e. By revising paragraph (d)(1) and (2). f. By revising paragraph (e). g. By revising paragraphs (f)(1)(i) through (iii). h. By revising paragraphs (f)(2)(i) through (iii). i. By revising paragraphs (f)(3)(i) through (iii). g. By adding paragraph (f)(4). h. By revising paragraphs (g) through (l). i. By adding paragraphs (m) and (n).

§ 600.113-08 Fuel economy calculations for FTP, HFET, US06, SC03 and cold temperature FTP tests.

The Administrator will use the calculation procedure set forth in this paragraph for all official EPA testing of vehicles fuel ed with gasoline, diesel, alcohol-based or natural gas fuel. The calculations of the weighted fuel economy values require input of the weighted grams/mile values for total hydrocarbons (HC), carbon monoxide (CO), and carbon dioxide (CO 2 ); and, additionally for methanol -fueled automobiles, methanol (CH 3 OH) and formaldehyde (HCHO); and, additionally for ethanol-fueled automobiles, methanol (CH 3 OH), ethanol (C 2 H 5 OH), acetaldehyde (C 2 H 4 O), and formaldehyde (HCHO); and additionally for natural gas-fueled vehicles , non-methane hydrocarbons (NMHC) and methane (CH 4 ). Emissions shall be determined for the FTP, HFET, US06, SC03 and cold temperature FTP tests. Add itionally, the specific gravity, carbon weight fraction and net heating value of the test fuel must be determined. The FTP, HFET, US06, SC03 and cold temperature FTP fuel economy and carbon-related exhaust emission values shall be calculated as specified in this section. An example fuel economy calculation appears in Appendix II of this part.714 (a) * * * (1) Calculate the weighted grams/mile values for the FTP test for CO 2 , HC, and CO, and where applicable, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC, N 2 O and CH 4 as specified in §86.144(b) of this chapter. Measure and record the test fuel's properties as specified in paragraph (f) of this section.

* * * * * (b) * * * (1) Calculate the mass values for the highway fuel economy test for HC, CO and

CO 2 , and where applicable, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC, N 2 O and CH 4 as specified in §86.144(b) of this chapter. Measure and record the test fuel's properties as specified in paragraph (f) of this section. (2) Calculate the grams/mile values for the highway fuel economy test for HC,

CO and CO 2 , and where applicable CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC, N 2 O and

CH 4 by dividing the mass values obtained in paragraph (b)(1) of this section, by the actual distance traveled, measured in miles, as specified in §86.135(h) of this chapter.

* * * * * (c) * * * (1) Calculate the weighted grams/mile values for the cold temperature FTP test for HC, CO and CO 2 , and where applicable, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC,

N 2 O and CH 4 as specified in §86.144(b) of this chapter. For 2008 through 2010 dieselfueled vehicles, HC measurement is optional.

* * * * * (d) * * * (1) Calculate the total grams/mile values for the US06 test for HC, CO and CO 2 , and where applicable, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC, N 2 O and CH 4 as specified in §86.144(b) of this chapter. (2) Calculate separately the gram s/mile values for HC, CO and CO 2 , and where applicable, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC, N 2 O and CH 4 , for both the US06 City phase and the US06 Highway phase of the US06 test as specified in §86.164 of this chapter. In lieu of directly measuring the emissions of the separate city and highway phases of the US06 test according to the provisions of §86.159 of this chapter, the manufacturer may, with the advance approval of the Administrator and using good engineering judgment, optionally analytically determine the grams/mile values for the city and highway phases of the US06 test. To analytically determine US06 City and US06 Highway phase emission results, the ma nufacturer shall multiply the US06 total grams/mile values determined in paragra ph (d)(1) of this section by the estimated proportion of fuel use for the city and highway phases relative to the total US06 fuel use. The manufacturer may estimate the proportion of fuel use for the US06 City and US06 Highway phases by using modal CO 2 , HC, and CO emissions data, or by using appropriate OBD data (e.g., fuel flow rate in grams of fuel per second), or another method approved by the Administrator.

* * * * * (e) Calculate the SC03 fuel economy.715 (1) Calculate the grams/mile values for the SC03 test for HC, CO and CO 2 , and where applicable, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC, N 2 O and CH 4 as specified in §86.144(b) of this chapter. (2) Measure and record the te st fuel's properties as specified in paragraph (f) of

this section. (f) * * * (1) * * * (i) Specific gravity measured using ASTM D 1298–85 (Reapproved 1990) “Standard Practice for Density, Relative Density (Specific Gravity), or API Gravity of Crude Petroleum and Liquid Petroleum Produc ts by Hydrometer Method” (incorporated by reference at §600.011-93). (ii) Carbon weight fraction measured using ASTM D 3343–90 “Standard Test Method for Estimation of Hydrogen Content of Aviation Fuels” (incorporated by reference at §600.011-93). (iii) Net heating value (Btu/lb) determined using ASTM D 3338–92 “Standard Test Method for Estimation of Net Heat of Combustion of Aviation Fuels” (incorporated by reference at §600.011-93). (2) * * * (i) Specific gravity using either: (A) ASTM D 1298–85 (Reapproved 1990) “Standard Practice for Density, Relative Density (Specific Gravity), or AP I Gravity of Crude Petroleum and Liquid Petroleum Products by Hydrometer Method” (incorporated by reference at §600.011-93) for the blend, or: (B) ASTM D 1298–85 (Reapproved 1990) “Standard Practice for Density, Relative Density (Specific Gravity), or AP I Gravity of Crude Petroleum and Liquid Petroleum Products by Hydrometer Method” (incorporated by reference at §600.011-93) for the gasoline fuel component and also for the methanol fuel component and combining

as follows. SG = SGg× volume fraction gasoline + SGm× volume fraction methanol. (ii)(A) Carbon weight fraction using the following equation: CWF = CWFg× MFg+ 0.375 × MFm

Where: CWFg= Carbon weight fraction of gasoline portion of blend measured using ASTM D 3343–90 “Standard Test Method for Estimation of Hydrogen Content of Aviation Fuels” (incorporated by reference at § 600.011-93). MFg=Mass fraction gasoline=(G × SGg)/(G × SGg+ M × SGm) MFm=Mass fraction methanol=(M × SGm)/(G × SGg+ M × SGm)

Where: G=Volume fraction gasoline.

M=Volume fraction methanol. SGg=Specific gravity of gasoline as measured using ASTM D 1298–85 (Reapproved 1990) “Standard Practice for Density, Relative Density (Specific Gravity), or API Gravity of Crude Petroleum and Li quid Petroleum Products by Hydrometer Method” (incorporated by reference at §600.011-93).716 SGm=Specific gravity of methanol as measured using ASTM D 1298–85 (Reapproved 1990) “Standard Practice for Density, Relative Density (Specific Gravity), or API Gravity of Crude Petroleum and Li quid Petroleum Products by Hydrometer Method” (incorporated by reference at §600.011-93). (B) Upon the approval of the Administrator, other procedures to measure the carbon weight fraction of the fuel blend may be used if the manufacturer can show that the procedures are superior to or equally as accurate as those specified in this paragraph (f)(2)(ii). (iii) Net heating value (BTU/lb) measured using ASTM D 240–92 “Standard Test Method for Heat of Combustion of Liquid Hydrocarbon Fuels by Bomb Calorimeter” (incorporated by reference at §600.011-93). (3) * * * (i) Fuel composition measured using ASTM D 1945–91 “Standard Test Method for Analysis of Natural Gas By Gas Chromatography” (incorporated by reference at §600.011-93). (ii) Specific gravity measured as based on fuel composition per ASTM D 1945– 91 “Standard Test Method for Analysis of Natural Gas by Gas Chromatography” (incorporated by reference at §600.011-93). (iii) Carbon weight fraction, based on the carbon contained only in the hydrocarbon constituents of the fuel. This e quals the weight of carbon in the hydrocarbon constituents divided by the total weight of fuel. (iv) Carbon weight fraction of the fuel, which equals the total weight of carbon in the fuel (i.e , includes carbon contained in hydrocarbons and in CO 2 ) divided by the total weight of fuel. (4) Ethanol test fuel shall be analyzed to determine the following fuel properties: (i) Specific gravity using either: (A) ASTM D 1298–85 (Reapproved 1990) “Standard Practice for Density, Relative Density (Specific Gravity), or AP I Gravity of Crude Petroleum and Liquid Petroleum Products by Hydrometer Method” (incorporated by reference at §600.011-93)

for the blend. or: (B) ASTM D 1298–85 (Reapproved 1990) “Standard Practice for Density, Relative Density (Specific Gravity), or AP I Gravity of Crude Petroleum and Liquid Petroleum Products by Hydrometer Method” (incorporated by reference at §600.011-93) for the gasoline fuel component and also for the methanol fuel component and combining

as follows. SG = SGg× volume fraction gasoline + SGm× volume fraction ethanol. (ii)(A) Carbon weight fraction using the following equation: CWF = CWFg× MFg+ 0.375 × MFe

Where: CWFg= Carbon weight fraction of gasoline portion of blend measured using ASTM D 3343–90 “Standard Test Method for Estimation of Hydrogen Content of Aviation Fuels” (incorporated by reference at §600.011-93). MFg=Mass fraction gasoline=(G × SGg)/(G × SGg+ E × SGm) MFe=Mass fraction methanol=(E × SGm)/(G × SGg+ E × SGm)717 Where: G=Volume fraction gasoline.

E=Volume fraction ethanol. SGg=Specific gravity of gasoline as measured using ASTM D 1298–85 (Reapproved 1990) “Standard Practice for Density, Relative Density (Specific Gravity), or API Gravity of Crude Petroleum and Li quid Petroleum Products by Hydrometer Method” (incorporated by reference at §600.011-93). SGm=Specific gravity of methanol as measured using ASTM D 1298–85 (Reapproved 1990) “Standard Practice for Density, Relative Density (Specific Gravity), or API Gravity of Crude Petroleum and Li quid Petroleum Products by Hydrometer Method” (incorporated by reference at §600.011-93). (B) Upon the approval of the Administrator, other procedures to measure the carbon weight fraction of the fuel blend may be used if the manufacturer can show that the procedures are superior to or equally as accurate as those specified in this paragraph (f)(2)(ii). (iii) Net heating value (BTU/lb) measured using ASTM D 240–92 “Standard Test Method for Heat of Combustion of Liquid Hydrocarbon Fuels by Bomb Calorimeter” (incorporated by reference at §600.011-93).

* * * * * (g) Calculate separate FTP, highway, US06, SC03 and Cold temperature FTP fuel economy and carbon-related exhaust emissions fr om the grams/mile values for total HC, CO, CO 2 and, where applicable, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC, N 2 O, and

CH 4 , and the test fuel's specific gravity, car bon weight fraction, net heating value, and additionally for natural gas, th e test fuel's composition. (1) Emission values for fuel economy calculations . The emission values (obtained per paragraph (a) through (e) of this section, as applicable) used in the calculations of fuel economy in this section shall be rounded in accordance with §86.094–26(a)(6)(iii) or §86.1837–01 of this chapter as applicable. The CO 2 values (obtained per this section, as applicable) used in each calculation of fuel economy in this section shall be rounded to the nearest gram/mile. (2) Emission values for carbon-related exhaust emission calculations

. (i) If the emission values (obtained per paragraph (a) through (e) of this section, as applicable) were obtained from testing with aged exhaust emission control components as allowed under §86.1823-08, then these test values shall be used in the calculations of

carbon-related exhaust emis sions in this section. (ii) If the emission values (obtained per paragraph (a) through (e) of this section, as applicable) were not obtained from te sting with aged exhaust emission control components as allowed under §86.1823-08, then these test values shall be adjusted by the appropriate deterioration factor determined according to §86.1823-08 before being used

in the calculations of carbon-related exhaust emis sions in this section. For vehicles within a test group, the appropriate NMOG deterioration factor may be used in lieu of the

deterioration factors for CH 3 OH, C 2 H 5 OH, and/or C 2 H 4 O emissions. (iii) The emission values determined in paragraph (g)(2)(A) or (B) of this section

shall be rounded in accordance with §86.094–26(a)(6)(iii) or §86.1837–01 of this chapter718 as applicable. The CO 2 values (obtained per this section, as applicable) used in each

calculation of carbon-related exhaust emission s in this section shall be rounded to the nearest gram/mile. (iv) For manufacturers selecting the fleet averaging option for N 2 O and CH 4 as allowed under 40 CFR 86.1818-12(f)(2), and for the 2012 through 2014 model years only, manufacturers may use one of the two options in this paragraph (g)(2)(D) for determining N 2 O emission values for use in the calculation of carbon-related exhaust

emissions in this section. (A) The manufacturer may use FTP and HFET test values determined for the emission data vehicle according to the provisions of 86.1835-01. These values shall apply to all vehicles tested under this section that are included in the test group represented by the emission data vehicle and shall be adjust ed by the appropriate deterioration factordetermined according to §86.1823-01 before being used in the calculations of carbonrelated exhaust emissions in this section. (B) The manufacturer may use an assigned value of 0.010 g/mi for N 2 O FTP and HFET test values. This value is not required to be adjusted by a deterioration factor. (3) The specific gravity and the carbon weight fraction (obtained per paragraph (f) of this section) shall be recorded using three places to the right of the decimal point. The net heating value (obtained per paragraph (f) of this section) shall be recorded to the

nearest whole Btu/lb. (4) For the purpose of determining the applicable in-use emission standard under §86.1818-12(d), the combined city/highway carbon-related exhaust emission value for a vehicle subconfiguration is calculated by arithmetically averaging the FTP-based city and HFET-based highway carbon-related exhaus t emission values, as determined in §600.113(a) and (b) of this section for the subconfiguration, weighted 0.55 and 0.45 respectively, and rounded to the nearest tenth of a gram per mile. (h)(1) For gasoline-fueled automobiles tested on test fuel specified in §86.113– 04(a), the fuel economy in miles per gallo n is to be calculated using the following equation and rounded to the nearest 0.1 miles per gallon: mpg = (5174 × 10 4 × CWF × SG)/[((CWF × HC) + (0.429 × CO) + (0.273 ×

CO 2 )) × ((0.6 × SG × NHV) + 5471)]

Where: HC = Grams/mile HC as obtained in paragraph (g) of this section.

CO = Grams/mile CO as obtained in paragraph (g) of this section.

CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section. CWF = Carbon weight fraction of test fuel as obtained in paragraph (g) of this

section. NHV = Net heating value by mass of test fu el as obtained in paragraph (g) of this

section. SG = Specific gravity of test fuel as obta ined in paragraph (g) of this section. (2)(A) For 2012 and later model year gaso line-fueled automobile s tested on test fuel specified in §86.113–04(a), the carbon-re lated exhaust emissions in grams per mile is to be calculated using the following equation and rounded to the nearest 1 gram per mile:

CREE = CWF*HC + 1.571*CO + CO 2719 Where: CREE means the carbon-related exhaust emissions as defined in § 600.002-08. HC = Grams/mile HC as obtained in paragraph (g) of this section.

CO = Grams/mile CO as obtained in paragraph (g) of this section.

CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section. CWF = Carbon weight fraction of test fuel as obtained in paragraph (g) of this

section. (B) For manufacturers selecting the fleet averaging option for N 2 O and CH 4 as allowed under 40 CFR 86.1818-12(f)(2), the carbon-related exhaust emissions in grams per mile for 2012 and later model year gasoline-fueled automobiles tested on test fuel specified in §86.113–04(a) is to be calculated using the following equation and rounded to the nearest 1 gram per mile:

CREE = CWF NMHC ×NMHC + 1.571×CO + CO 2 + 298×N 2 O + 25×CH 4 Where: CREE means the carbon-related exhaust emissions as defined in § 600.002-08.

NMHC = Grams/mile NMHC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.

CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.

N 2 O= Grams/mile N 2 O as obtained in paragraph (g) of this section.

CH 4 = Grams/mile CH 4 as obtained in paragraph (g) of this section.

CWF NMHC = carbon weight fraction of the non-methane HC constituents in the fuel as determined from the speciated fuel composition per paragraph (f)(3) of this

section. (i)(1) For diesel-fueled automobiles, cal culate the fuel economy in miles per gallon of diesel fuel by dividing 2778 by the sum of three terms and rounding the quotient to the nearest 0.1 mile per gallon: (i)(A) 0.866 multiplied by HC (in grams/miles as obtained in paragraph (g) of this section), or (B) Zero, in the case of cold FTP diesel tests for which HC was not collected, as permitted in §600.113–08(c); (ii) 0.429 multiplied by CO (in grams/mile as obtained in paragraph (g) of this section); and (iii) 0.273 multiplied by CO 2 (in grams/mile as obtained in paragraph (g) of this section).(2)(A) For 2012 and later model year diesel-fueled automobiles, the carbonrelated exhaust emissions in grams per mile is to be calculated using the following equation and rounded to the nearest 1 gram per mile:

CREE = 0.866*HC + 1.571*CO + CO 2 Where: CREE means the carbon-related exhaust emissions as defined in § 600.002-08. HC = Grams/mile HC as obtained in paragraph (g) of this section.

CO = Grams/mile CO as obtained in paragraph (g) of this section.

CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.720 (B) For manufacturers selecting the fleet averaging option for N 2 O and CH 4 as allowed under 40 CFR 86.1818-12(f)(2), the carbon-related exhaust emissions in grams per mile for 2012 and later model year diesel-fueled automobiles is to be calculated using the following equation and rounded to the nearest 1 gram per mile:

CREE = 0.866×NMHC + 1.571×CO + CO 2 + 298×N 2 O + 25×CH 4 Where: CREE means the carbon-related exhaust emissions as defined in § 600.002-08.

NMHC = Grams/mile NMHC as obtained in paragraph (g) of this section.

CO = Grams/mile CO as obtained in paragraph (g) of this section.

CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.

N 2 O= Grams/mile N 2 O as obtained in paragraph (g) of this section.

CH 4 = Grams/mile CH 4 as obtained in paragraph (g) of this section. (j)(1) For methanol-fueled automobiles an d automobiles designed to operate on mixtures of gasoline and methanol, the fuel economy in miles per gallon is to be calculated using the following equation: mpg = (CWF × SG × 3781.8)/((CWF exHC × HC) + (0.429 × CO) + (0.273 × CO 2 ) + (0.375 × CH 3 OH) + (0.400 × HCHO))

Where: CWF = Carbon weight fraction of the fuel as determined in paragraph (f)(2)(ii) of

this section. SG = Specific gravity of the fuel as determined in paragraph (f)(2)(i) of this

section.

CWF exHC = Carbon weight fraction of exhaust hydrocarbons = CWF g as determined in (f)(2)(ii) of this section (for M100 fuel, CWF exHC = 0.866). HC = Grams/mile HC as obtained in paragraph (g) of this section.

CO = Grams/mile CO as obtained in paragraph (g) of this section.

CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.

CH 3 OH = Grams/mile CH 3 OH (methanol) as obtained in paragraph (d) of this

section. HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) of this

section. (2)(A) For 2012 and later model year methanol-fueled automobiles and automobiles designed to operate on mixtures of gasoline and methanol, the carbon-related exhaust emissions in grams per mile is to be calculated using the following equation and rounded to the nearest 1 gram per mile: CREE = (CWF exHC × HC) + (1.571 × CO) + (1.374 × CH 3 OH) + (1.466 × HCHO)

+ CO 2 Where: CREE means the carbon-related exhaust emission value as defined in § 600.002-

08.

CWF exHC = Carbon weight fraction of exhaust hydrocarbons = CWF g as determined in (f)(2)(ii) of this section (for M100 fuel, CWF exHC = 0.866). HC = Grams/mile HC as obtained in paragraph (g) of this section.

CO = Grams/mile CO as obtained in paragraph (g) of this section.721 CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.

CH 3 OH = Grams/mile CH 3 OH (methanol) as obtained in paragraph (d) of this

section. HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) of this

section. (B) For manufacturers selecting the fleet averaging option for N 2 O and CH 4 as allowed under 40 CFR 86.1818-12(f)(2), the carbon-related exhaust emissions in grams per mile for 2012 and later model year methanol-fueled automobiles and automobiles designed to operate on mixtures of gasoline and methanol is to be calculated using the following equation and rounded to the nearest 1 gram per mile: CREE = (CWF exHC × HC) + (1.571 × CO) + (1.374 × CH 3 OH) + (1.466 × HCHO)

+ CO 2 + 298×N 2 O + 25×CH 4 Where: CREE means the carbon-related exhaust emission value as defined in § 600.002-

08.

CWF exHC = Carbon weight fraction of exhaust hydrocarbons = CWF g as determined in (f)(2)(ii) of this section (for M100 fuel, CWF exHC = 0.866). HC = Grams/mile HC as obtained in paragraph (g) of this section.

CO = Grams/mile CO as obtained in paragraph (g) of this section.

CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.

CH 3 OH = Grams/mile CH 3 OH (methanol) as obtained in paragraph (d) of this

section. HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) of this

section.

N 2 O= Grams/mile N 2 O as obtained in paragraph (g) of this section.

CH 4 = Grams/mile CH 4 as obtained in paragraph (g) of this section. (k)(1) For automobiles fueled with natural gas, the fuel economy in miles per gallon of natural gas is to be calculated using the following equation:



## ( )( )( ) ( ) ( )

NG NMHC NG NG HC

e CO CO CO NMHC CWF CH D CWF mpg

2 2 4 / 273

. 0 429

. 0 749

. 0 5

. 121

− × + × + × + × × ×

=

Where:

mpg e =miles per equivalent gallon of natural gas.

CWF HC/NG =carbon weight fraction based on th e hydrocarbon constituents in the natural gas fuel as obtained in paragraph (g) of this section.

D NG =density of the natural gas fuel [grams/ft 3 at 68 °F (20 °C) and 760 mm Hg (101.3 kPa)] pressure as obtained in paragraph (g) of this section.

CH 4 , NMHC, CO, and CO 2 = weighted mass exhaust emissions [grams/mile] for methane, non-methane HC, carbon monoxide, and carbon dioxide as calculated in §600.113.

CWF NMHC = carbon weight fraction of the non-methane HC constituents in the fuel as determined from the speciated fuel composition per paragraph (f)(3) of this

section.722 CO 2NG = grams of carbon dioxide in the natural gas fuel consumed per mile of

travel.

CO 2NG = FC NG × D NG × WF CO2 Where: 

### ( )( ) ( ) ( )

NG NG 2 NMHC 4

NG D CWF CO 0.273 CO 0.429 NMHC CWF CH 0.749 FC

× × + × + × + ×

=

mile per consumed fuel gas natural of feet cubic =
Where:

CWF NG = the carbon weight fraction of the natural gas fuel as calculated in paragraph (f) of this section.

WF CO2 = weight fraction carbon dioxide of the natural gas fuel calculated using the mole fractions and molecular weights of the natural gas fuel constituents per ASTM D 1945–91 “Standard Test Method for Analysis of Natural Gas by Gas Chromatography” (incorporated by reference at § 600.011-93). (2)(A) For automobiles fueled with natural gas, the carbon-related exhaust emissions in grams per mile is to be calculated for 2012 and later model year vehicles using the following equation and rounded to the nearest 1 gram per mile:

CREE = 10.916 × CH 4 + CWF NMHC × NMHC + 1.571 × CO + CO 2 Where: CREE means the carbon-related exhaust emission value as defined in § 600.002-

08.

CH 4 = Grams/mile CH 4 as obtained in paragraph (g) of this section. NMHC = Grams/mile NMHC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.

CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.

CWF NMHC =carbon weight fraction of the non-methane HC constituents in the fuel as determined from the speciated fuel composition per paragraph (f)(3) of this section. (B) For manufacturers selecting the fleet averaging option for N 2 O and CH 4 as allowed under 40 CFR 86.1818-12(f)(2), the carbon-related exhaust emissions in grams per mile for 2012 and later model year automobiles fueled with natural gas is to be calculated using the following equation and rounded to the nearest 1 gram per mile:

CREE = 10.916 × 25 × CH 4 + CWF NMHC × NMHC + 1.571 × CO + CO 2 +

298×N 2 O

Where: CREE means the carbon-related exhaust emission value as defined in § 600.002-

08.

CH 4 = Grams/mile CH 4 as obtained in paragraph (g) of this section. NMHC = Grams/mile NMHC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.

CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.

CWF NMHC =carbon weight fraction of the non-methane HC constituents in the fuel as determined from the speciated fuel composition per paragraph (f)(3) of this section.

N 2 O= Grams/mile N 2 O as obtained in paragraph (g) of this section.723 (l)(1) For ethanol-fueled automobiles and automobiles designed to operate on mixtures of gasoline and ethanol, the fuel economy in miles per gallon is to be calculated using the following equation: mpg = (CWF × SG × 3781.8)/((CWF exHC × HC) + (0.429 × CO) + (0.273 × CO 2 ) + (0.375 × CH 3 OH) + (0.400 × HCHO) + (0.521 × C 2 H 5 OH) + (0.545 × C 2 H 4 O))

Where: CWF = Carbon weight fraction of the fuel as determined in paragraph (f)(4) of

this section. SG = Specific gravity of the fuel as determined in paragraph (f)(4) of this section.

CWF exHC = Carbon weight fraction of exhaust hydrocarbons = CWF g as determined in (f)(4) of this section. HC = Grams/mile HC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.

CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.

CH 3 OH = Grams/mile CH 3 OH (methanol) as obtained in paragraph (d) of this

section. HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) of this

section.

C 2 H 5 OH = Grams/mile C 2 H 5 OH (ethanol) as obtained in paragraph (d) of this

section.

C 2 H 4 O = Grams/mile C 2 H 4 O (acetaldehyde) as obtained in paragraph (d) of this

section. (2)(A) For 2012 and later model year ethanol-fueled automobiles and automobiles designed to operate on mixtures of gasoline and ethanol, the carbon-related exhaust emissions in grams per mile is to be calculated using the following equation and rounded to the nearest 1 gram per mile: CREE = (CWF exHC × HC) + (1.571 × CO) + (1.374 × CH 3 OH) + (1.466 × HCHO) + (0.955 × C 2 H 5 OH) + (0.999 × C 2 H 4 O) + CO 2 Where: CREE means the carbon-related exhaust emission value as defined in § 600.002-

08.

CWF exHC = Carbon weight fraction of exhaust hydrocarbons = CWF g as determined in (f)(4) of this section. HC = Grams/mile HC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.

CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.

CH 3 OH = Grams/mile CH 3 OH (methanol) as obtained in paragraph (d) of this

section. HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) of this

section.

C 2 H 5 OH = Grams/mile C 2 H 5 OH (ethanol) as obtained in paragraph (d) of this

section.

C 2 H 4 O = Grams/mile C 2 H 4 O (acetaldehyde) as obtained in paragraph (d) of this

section.724 (B) For manufacturers selecting the fleet averaging option for N 2 O and CH 4 as allowed under 40 CFR 86.1818-12(f)(2), the carbon-related exhaust emissions in grams per mile for 2012 and later model year ethanol-fueled automobiles and automobiles designed to operate on mixtures of gasoline and ethanol is to be calculated using the following equation and rounded to the nearest 1 gram per mile: CREE = (CWF exHC × HC) + (1.571 × CO) + (1.374 × CH 3 OH) + (1.466 × HCHO) + (0.955 × C 2 H 5 OH) + (0.999 × C 2 H 4 O) + CO 2 + 298×N 2 O + 25×CH 4 Where: CREE means the carbon-related exhaust emission value as defined in §600.002-

08.

CWF exHC = Carbon weight fraction of exhaust hydrocarbons = CWF g as determined in (f)(4) of this section. HC = Grams/mile HC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.

CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.

CH 3 OH = Grams/mile CH 3 OH (methanol) as obtained in paragraph (d) of this

section. HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) of this

section.

C 2 H 5 OH = Grams/mile C 2 H 5 OH (ethanol) as obtained in paragraph (d) of this

section.

C 2 H 4 O = Grams/mile C 2 H 4 O (acetaldehyde) as obtained in paragraph (d) of this

section.

N 2 O= Grams/mile N 2 O as obtained in paragraph (g) of this section.

CH 4 = Grams/mile CH 4 as obtained in paragraph (g) of this section. (m) Carbon-related exhaust emissions for advanced technology vehicles

. Manufacturers shall determine carbon-related exhaust emissions for electric vehicles, fuel cell electric vehicles, and plug-in hybrid elec tric vehicles according to the provisions of this paragraph (m). In lieu of the calculati ons described in paragraphs (m)(1) and (2) of this section, and subject to the limitations described in §86.1866-12(a), the manufacturer may be allowed to use a value of 0 grams/mile to represent the proportion of electric operation of a vehicle that is derived from elec tricity that is generated from sources that

are not onboard the vehicle. (1) For 2012 and later model year electri c vehicles, including fuel cell electric vehicles, the carbon-related exhaust emissions in grams per mile is to be calculated using the following equation and rounded to the nearest one gram per mile:

CREE = CREE UP - CREE GAS

Where: CREE means the carbon-related exhaust emission value as defined in §600.002- 08, which may shall be set equal to zero for eligible 2012 through 2016 model year vehicles as described in §86.1866-12(a).

CREE UP = EC × (0.642 / (0.93 × 0.90)), and725 CREE GAS = TargetCO 2 / (2208/8887),

Where: EC = The vehicle energy consumption in watt-hours per mile. TargetCO 2 = The CO 2 Target Value determined according to §86.1818-12(c)(2) for passenger automobiles and according to §86.1818-12(c)(3) for light trucks.

(2) For 2012 and later model year plug-in hybrid electric vehicles the carbonrelated exhaust emissions in grams per mile is to be calculated using the following equation and rounded to the nearest one gram per mile:

(n) Equations for fuels other than those specified in paragraphs (h) through (l) of this section may be used with advance EPA approval. Alternate calculation methods for fuel economy and carbon-related exhaust emissions may be used in lieu of the methods described in this section if shown to yield equivalent or superior results and if approved in advance by the Administrator.

45. Section 600.114-08 is amended as follows: a. By revising the heading. b. By revising the introductory text. c. By adding paragraphs (d) through (f).

§ 600.114-08 Vehicle-specific 5-cycle fu el economy and carbon-related exhaust

emission calculations. Paragraphs (a) through (c) of this section apply to data used for fuel economy labeling under Subpart D of this part. Paragraphs (d) through (f) of this section are used to calculate 5-cycle carbon-related exhaust emissions values for the purpose of determining optional technology-based CO 2 emissions credits under the provisions of paragraph (d) of §86.1866-12 of this title.

* * * * * (d) City carbon-related exhaust emission value. For each vehicle tested, determine the 5-cycle city carbon-related exhaust emissions using the following equation: (1) 

## ( ) E RunningCRE StartCREE 0.905 CityCREE + × =
Where: (i) StartCREE = 

## ( ) ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ × + ×
× 4.1 StartCREE 0.24 StartCREE 0.76 0.33 20 75

Where: 

## ( )

X X X CREE 3 Bag CREE 1 Bag 3.6 CREE Start

− × =
Where: Bag Y CREE X = the carbon-related exhaust emissions in grams per mile during the specified bag of the FTP test conducted at an ambient temperature of 75 °F or 20 °F. (ii) Running CREE =726 

### ( ) ( ) ( ) 

### [ ] ( )( ) 

### [ ] ( )( ) ( ) 

### [ ] CREE Bag2 0.39 CREE Bag3 0.61 CREE SC03 0.144 CREE Bag3 0.5 CREE Bag2 0.5 0.18 CREE City US06 0.11 CREE Bag3 0.41 CREE Bag2 0.48 0.82

75 75 20 20 75

75

× + ×

− × + × + × × + × + × + × ×

Where: BagY X CREE =carbon-related exhaust emissions in grams per mile over Bag Y at temperature X. US06 City CREE = carbon-related exhaust emissions in grams per mile over the “city” portion of the US06 test. SC03 CREE = carbon-related exhaust emissions in grams per mile over the SC03

test. (e) Highway carbon-related exhaust emissions. (1) For each vehicle tested, determine the 5-cycle highway carbon-related exhaust emissions using the following equation: 

## ( ) E RunningCRE StartCREE 0.905 E HighwayCRE + × =
Where: (i) StartCREE = 

## ( ) ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ × + ×
× = 60 StartCREE 0.24 StartCREE 0.76 0.33 20 75

Where: 

## ( )

X X X CREE 3 Bag CREE 1 Bag 3.6 CREE Start

− × = (ii) Running CREE = 

### ( ) ( ) 

### [ ] ( )( ) ( ) 

### [ ] CREE Bag CREE Bag CREE SC CREE HFET CREE Highway US

75 75 2 39

. 0 3 61

. 0 03 045

. 0 21

. 0 06 79

. 0 007

. 1

× + ×

− × + × + × ×

Where: BagY X CREE =carbon-related exhaust emissions in grams per mile over Bag Y at temperature X, US06 Highway CREE = carbon-related exhaust emissions in grams per mile over the highway portion of the US06 test,

HFET CREE = carbon-related exhaust em issions in grams per mile over the
HFET test, SC03 CREE = carbon-related exhaust emissions in grams per mile over the SC03

test. (f) Carbon-related exhaust emissions calculations for hybrid electric vehicles. Hybrid electric vehicles shall be tested according to California test methods which require FTP emission sampling for the 75 °F FTP test over four phases (bags) of the UDDS (cold-start, transient, warm-start, transient). Optionally, these four phases may be combined into two phases (phases 1 + 2 and phases 3 + 4). Calculations for these sampling methods follow. (1) Four-bag FTP equations. If the 4-bag sampling method is used, manufacturers may use the equations in paragraphs (a) and (b) of this section to determine city and highway carbon-related exhaust emissions values. If this method is chosen, it must be used to determine both city and highway carbon-related exhaust emissions. Optionally,727 the following calculations may be used, provided that they are used to determine both city and highway carbon-related exhaust emissions values: (i) City carbon-related exhaust emissions. 

## ( ) E RunningCRE StartCREE 0.905 CityCREE + × =
Where: (A) StartCREE = 

## ( ) ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ × + ×
× 4.1 StartCREE 0.24 StartCREE 0.76 0.33 20 75

Where: ( 1 ) StartCREE 75 = 

### ( ) ( )

75 75 75 4 2 9

. 3 75 3 1 6

. 3 CREE Bag CREE Bag CREE Bag CREE Bag

− × +

− ×

and ( 2 ) StartCREE 20 = 

## ( )

20 20 3 1 6

. 3 CREE Bag CREE Bag

− × = (B) RunningCREE = 

### ( )( ) ( ) 

### [ ] ( )( ) 

### [ ] ( )( ) ( ) 

### [ ] CREE Bag CREE Bag CREE SC CREE Bag CREE Bag CREE City US CREE Bag CREE Bag

75 75 20 20 75

75

4 39

. 0 3 61

. 0 03 144

. 0 3 5

. 0 2 5

. 0 18

. 0 06 11

. 0 3 41

. 0 4 48

. 0 82

. 0

× + ×

− × + × + × × + × + × + × ×

Where: US06 Highway CREE = carbon-related exhaust emissions in grams per mile over the city portion of the US06 test. US06 Highway CREE = carbon-related exhaust emissions in miles per gallon over the Highway portion of the US06 test.

HFET CREE = carbon-related exhaust em issions in grams per mile over the

HFET test. SC03 CREE = carbon-related exhaust emissions in grams per mile over the SC03

test. (ii) Highway carbon-related exhaust emissions. 

## ( ) E RunningCRE StartCREE 0.905 E HighwayCRE + × =
Where: (A) StartCREE = 

## ( ) ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ × + ×
× = 60 StartCREE 0.24 StartCREE 0.76 0.33 20 75

Where: 

### ( ) ( )

75 75 75 75 CREE 4 Bag CREE 2 Bag 3.9 CREE75 3 Bag CREE 1 Bag 3.6 CREE Start

− × +

− × =

and 

## ( )

20 20 20 CREE 3 Bag CREE 1 Bag 3.6 CREE Start

− × =

(B) RunningCREE =728 

### ( ) ( ) 

### [ ] ( )( ) ( ) 

### [ ] CREE Bag CREE Bag CREE SC CREE HFET CREE Highway US

75 75 4 39

. 0 3 61

. 0 03 045

. 0 21

. 0 06 79

. 0 007

. 1

× + ×

− × + × + × ×

Where: US06 Highway CREE = carbon-related exhaust emissions in grams per mile over the Highway portion of the US06 test,

HFET CREE = carbon-related exhaust em issions in grams per mile over the
HFET test, SC03 CREE = carbon-related exhaust emissions in grams per mile over the SC03

test. (2) Two-bag FTP equations. If the 2-bag sampling method is used for the 75 °F FTP test, it must be used to determine both city and highway carbon-related exhaust emissions. The following calculations must be used to determine both city and highway

carbon-related exhaust emissions: (i) City carbon-related exhaust emissions. 

## ( ) E RunningCRE StartCREE 0.905 CityCREE + × =
Where: (A) StartCREE = 

## ( ) ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ × + ×
× = 4.1 StartCREE 0.24 StartCREE 0.76 0.33 20 75

Where: 

## ( )

75 75 75 CREE 3/4 Bag CREE 1/2 Bag 3.6 CREE Start

− × =

and 

## ( )

20 20 20 CREE 3 Bag CREE 1 Bag 3.6 CREE Start

− × =

Where: Bag Y FE 20 = the carbon-related exhaust emissions in grams per mile of fuel during Bag 1 or Bag 3 of the 20 °F FTP test, and Bag X/Y FE 75 = carbon-related exhaust emissions in grams per mile of fuel during combined phases 1 and 2 or phases 3 and 4 of the FTP test conducted at an ambient temperature of 75 °F. (B) RunningCREE = 

### ( )( ) 

### [ ] ( )( ) 

### [ ] ( ) 

### [ ] CREE Bag3/4 CREE SC03 0.144 CREE Bag3 0.5 CREE Bag2 0.5 0.18 CREE City US06 0.10 CREE Bag3/4 0.90 0.82

75 20 20 75

− × + × + × × + × + × ×

Where: US06 City CREE = carbon-related exhaust emissions in grams per mile over the city portion of the US06 test, and SC03 CREE = carbon-related exhaust emissions in grams per mile over the SC03 test, and Bag X/Y FE 75 = carbon-related exhaust emissions in grams per mile of fuel during combined phases 1 and 2 or phases 3 and 4 of the FTP test conducted at an ambient temperature of 75 °F. (ii) Highway carbon-related exhaust emissions.729 

## ( ) E RunningCRE StartCREE 0.905 E HighwayCRE + × =
Where: (A) StartCREE = 

## ( ) ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ × + ×
× 60 StartCREE 0.24 StartCREE 0.76 0.33 20 75

Where: 

## ( )

75 75 75 CREE 3/4 Bag CREE 1/2 Bag 5

. 7 CREE Start

− × =

and 

## ( )

20 20 20 CREE 3 Bag CREE 1 Bag 3.6 CREE Start

− × = (B) RunningCREE = 

### ( ) ( ) 

### [ ] [ ] CREE Bag3/4 CREE SC03 0.045 CREE HFET 0.21 CREE Highway US06 0.79 1.007

75 − × + × + × ×

Where: US06 Highway CREE = carbon-related exhaust emissions in grams per mile over the city portion of the US06 test, and SC03 CREE = carbon-related exhaust emissions in gram per mile over the SC03 test, and Bag Y FE 20 = the carbon-related exhaust emissions in grams per mile of fuel during Bag 1 or Bag 3 of the 20 °F FTP test, and Bag X/Y FE 75 = carbon-related exhaust emissions in grams per mile of fuel during phases 1 and 2 or phases 3 and 4 of the FTP test conducted at an ambient temperature of

75 °F.730 Subpart C—Procedures for Calculating Fuel Economy and Carbon-related Exhaust

Emission Values for 1977 and Later Model Year Automobiles

46. The heading for subpart C is revised as set forth above.

47. A new § 600.201-12 is added to subpart C to read as follows:

§ 600.201-12 General applicability. The provisions of this subpart are applicable to 2012 and later model year automobiles and to the manufacturers of 2012 and later model year automobiles.

48. A new § 600.206-12 is added to subpart C to read as follows:

§ 600.206-12 Calculation and use of FTP-based and HFET-based fuel economy and carbon-related exhaust emission values for vehicle configurations. (a) Fuel economy and carbon-related exhaust emissions values determined for each vehicle under §600.113(a) and (b) and as approved in §600.008–08 (c), are used to determine FTP-based city, HFET-based highway, and combined FTP/Highway-based fuel economy and carbon-related exhaust emission values for each vehicle configuration

for which data are available. (1) If only one set of FTP-based city and HFET-based highway fuel economy values is accepted for a vehicle configuration, these values, rounded to the nearest tenth of a mile per gallon, comprise the city and highway fuel economy values for that configuration. If only one set of FTP-based city and HFET-based highway carbon-related exhaust emission values is accepted for a vehicle configuration, these values, rounded to the nearest gram per mile, comprise the city and highway carbon-related exhaust emission values for that configuration. (2) If more than one set of FTP-based city and HFET-based highway fuel economy and/or carbon-related exhaust emission values are accepted for a vehicle configuration: (i) All data shall be grouped according to the subconfiguration for which the data were generated using sales projections supplied in accordance with §600.208(a)(3). (ii) Within each group of data, all fuel economy values are harmonically averaged and rounded to the nearest 0.0001 of a mile per gallon and all carbon-related exhaust emission values are arithmetically averaged and rounded to the nearest tenth of a gram per mile in order to determine FTP-based city and HFET-based highway fuel economy and carbon-related exhaust emission values for each subconfiguration at which the vehicle configuration was tested. (iii) All FTP-based city fuel economy a nd carbon-related exhaust emission values and all HFET-based highway fuel economy and carbon-related exhaust emission values calculated in paragraph (a)(2)(ii) of this section are (separately for city and highway) averaged in proportion to the sales fraction (rounded to the nearest 0.0001) within the vehicle configuration (as provided to the Admi nistrator by the manufacturer) of vehicles of each tested subconfiguration. Fuel economy values shall be harmonically averaged and731 carbon-related exhaust emission values shall be arithmetically averaged. The resultant fuel economy values, rounded to the nearest 0.0001 mile per gallon, are the FTP-based city and HFET-based highway fuel economy values for the vehicle configuration. The resultant carbon-related exhaust emission values, rounded to the nearest tenth of a gram per mile, are the FTP-based city and HFET-based highway carbon-related exhaust emission values for the vehicle configuration. (3)(i) For the purpose of determining average fuel economy under §600.510–08, the combined fuel economy value for a vehicle configuration is calculated by harmonically averaging the FTP-based city and HFET-based highway fuel economy values, as determined in §600.206(a)(1) or (2) of this section, weighted 0.55 and 0.45 respectively, and rounded to the nearest 0.0001 mile per gallon. A sample of this calculation appears in Appendix II of this part. (ii) For the purpose of determining average carbon-related exhaust emissions under §600.510–08, the combined carbon-related exhaust emission value for a vehicleconfiguration is calculated by arithmetically averaging the FTP-based city and HFETbased highway carbon-related exhaust emission values, as determined in §600.206(a)(1) or (2) of this section, weighted 0.55 and 0.45 respectively, and rounded to the nearest tenth of gram per mile. (4) For alcohol dual fuel automobiles and natural gas dual fuel automobiles the procedures of paragraphs (a)(1) or (2) of this section, as applicable, shall be used to calculate two separate sets of FTP-based city, HFET-based highway, and combined fuel economy and carbon-related exhaust emission values for each configuration. (i) Calculate the city, highway, and combined fuel economy and carbon-related exhaust emission values from the tests performed using gasoline or diesel test fuel. (ii) Calculate the city, highway, and combined fuel economy and carbon-related exhaust emission values from the tests performed using alcohol or natural gas test fuel. (b) If only one equivalent petroleum-based fuel economy value exists for an electric vehicle configuration, that value, rounded to the nearest tenth of a mile per gallon, will comprise the petroleum-based fuel economy for that configuration. (c) If more than one equivalent petroleum-based fuel economy value exists for an electric vehicle configuration, all values fo r that vehicle configuration are harmonically averaged and rounded to the nearest 0.0001 mile per gallon for that configuration.

49. A new § 600.208-12 is added to subpart C to read as follows:

§ 600.208-12 Calculation of FTP-based and HFET-based fuel economy and carbonrelated exhaust emission values for a model type. (a) Fuel economy and carbon-related exhaust emission values for a base level are calculated from vehicle configuration fuel economy and carbon-related exhaust emission values as determined in §600.206–08(a), (b), or (c) as applicable, for low-altitude tests. (1) If the Administrator determines that automobiles intended for sale in the Stateof California are likely to exhibit significant differences in fuel economy and carbonrelated exhaust emission values from those intended for sale in other states, she will calculate fuel economy and carbon-related exhaust emission values for each base level732 for vehicles intended for sale in California and for each base level for vehicles intended

for sale in the rest of the states. (2) In order to highlight the fuel efficiency and carbon-related exhaust emission values of certain designs otherwise included within a model type, a manufacturer may wish to subdivide a model type into one or more additional m odel types. This is accomplished by separating subconfigurations from an existing base level and placing

them into a new base level. The new base le vel is identical to the existing base level except that it shall be considered, for the purposes of this paragraph, as containing a new basic engine. The manufacturer will be permitted to designate such new basic engines and base level(s) if: (i) Each additional model type resulting from division of another model type has a unique car line name and that name appears on the label and on the vehicle bearing that label; (ii) The subconfigurations included in the new base levels are not included in any other base level which differs only by basic engine (i.e., they are not included in the calculation of the original base level fuel economy values); and (iii) All subconfigurations within the new base level are represented by test data in accordance with §600.010–08(c)(1)(ii). (3) The manufacturer shall supply total model year sales projections for each car line/vehicle subconfiguration combination. (i) Sales projections must be supplied separately for each car line-vehicle subconfiguration intended for sale in California and each car line/vehicle subconfiguration intended for sale in the rest of the states if required by the Administrator under paragraph (a)(1) of this section. (ii) Manufacturers shall update sales proj ections at the time any model type value

is calculated for a label value. (iii) The provisions of paragraph (a)(3) of this section may be satisfied by providing an amended application for certification, as described in §86.1844–01. (4) Vehicle configuration fuel economy and carbon-related exhaust emission values, as determined in §600.206–08 (a), (b) or (c), as applicable, are grouped according

to base level. (i) If only one vehicle configuration within a base level has been tested, the fuel economy and carbon-related exhaust emission values from that vehicle configuration will constitute the fuel economy and carbon-related exhaust emission values for that base

level. (ii) If more than one vehicle configuration within a base level has been tested, the vehicle configuration fuel economy values are harmonically averaged in proportion to the respective sales fraction (rounded to the nearest 0.0001) of each vehicle configuration and the resultant fuel economy value rounded to the nearest 0.0001 mile per gallon; and the vehicle configuration carbon-related exhaust emission values are arithmetically averaged in proportion to the respective sales fraction (rounded to the nearest 0.0001) of each vehicle configuration and the resultant carbon-related exhaust emission value rounded to the nearest gram per mile.733 (5) The procedure specified in paragraph (a )(1) through (4) of this section will be repeated for each base level, thus establishing city, highway, and combined fuel economy

and carbon-related exhaust emission values for each base level. (6) For the purposes of calculating a base level fuel economy or carbon-related exhaust emission value, if the only vehicle configuration(s) within the base level are vehicle configuration(s) which are intended fo r sale at high altitude, the Administrator may use fuel economy and carbon-related exhaust emission data from tests conducted onthese vehicle configuration(s) at high altitude to calculate the fuel economy or carbonrelated exhaust emission value for the base level. (7) For alcohol dual fuel automobiles and natural gas dual fuel automobiles, the procedures of paragraphs (a)(1) through (6) of this section shall be used to calculate two separate sets of city, highway, and combined fuel economy and carbon-related exhaust

emission values for each base level. (i) Calculate the city, highway, and combined fuel economy and carbon-related exhaust emission values from the tests performed using gasoline or diesel test fuel. (ii) Calculate the city, highway, and combined fuel economy and carbon-related exhaust emission values from the tests performed using alcohol or natural gas test fuel. (b) For each model type, as determined by the Administrator, a city, highway, and combined fuel economy value and a carbon-re lated exhaust emission value will be calculated by using the projected sales and fuel economy and carbon-related exhaust emission values for each base level within the model type. Separate model typecalculations will be done based on the vehicle configuration fuel economy and carbonrelated exhaust emission values as determined in §600.206–08 (a), (b) or (c), as applicable. (1) If the Administrator determines that automobiles intended for sale in the Stateof California are likely to exhibit significant differences in fuel economy and carbonrelated exhaust emission values from those intended for sale in other states, she will calculate fuel economy and carbon-related exhaust emission values for each model type for vehicles intended for sale in California and for each model type for vehicles intended

for sale in the rest of the states. (2) The sales fraction for each base level is calculated by dividing the projected sales of the base level within the model type by the projected sales of the model type and rounding the quotient to the nearest 0.0001. (3)(i) The FTP-based city fuel economy values of the model type (calculated to the nearest 0.0001 mpg) are determined by dividing one by a sum of terms, each of which corresponds to a base level and which is a fraction determined by dividing: (A) The sales fraction of a base level; by (B) The FTP-based city fuel economy value for the respective base level. (ii) The FTP-based city carbon-related exhaust emission value of the model type (calculated to the nearest gram per mile) are determined by a sum of terms, each of which corresponds to a base level and which is a product determined by multiplying: (A) The sales fraction of a base level; by (B) The FTP-based city carbon-related exhaust emission value for the respective

base level.734 (4) The procedure specified in paragraph (b)(3) of this section is repeated in ananalogous manner to determine the highway and combined fuel economy and carbonrelated exhaust emission values for the model type. (5) For alcohol dual fuel automobiles and natural gas dual fuel automobiles, the procedures of paragraphs (b)(1) through (4) of this section shall be used to calculate two separate sets of city, highway, and combined fuel economy values and two separate sets of city, highway, and combined carbon-related exhaust emission values for each model
type. (i) Calculate the city, highway, and combined fuel economy and carbon-related exhaust emission values from the tests performed using gasoline or diesel test fuel. (ii) Calculate the city, highway, and combined fuel economy and carbon-related exhaust emission values from the tests performed using alcohol or natural gas test fuel.735 Subpart D—Fuel Economy Regulations for 1977 and Later Model Year Automobiles—Labeling

50. A new § 600.301-12 is added to subpart D to read as follows:

§ 600.301-12 General applicability. (a) Unless otherwise specified, the provisions of this subpart are applicable to 2012 and later model year automobiles. (b) [Reserved]736 Subpart F—Fuel Economy Regulations for Model Year 1978 Passenger Automobiles and for 1979 and Later Model Year Automobiles (Light Trucks and Passenger Automobiles)—Procedures for Determining Manufacturer's Average Fuel Economy and Manufacturer’s Average Carbon-related Exhaust Emissions

51. The heading for subpart F is revised as set forth above.

52. A new § 600.501-12 is added to subpart F to read as follows:

§ 600.501-12 General applicability. The provisions of this subpart are applicable to 2012 and later model year passenger automobiles and light trucks and to the manufacturers of 2012 and later model year passenger automobiles and light trucks. The provisions of this subpart are applicable to medium-duty passenger vehicles and to manufacturers of such vehicles.

53. A new § 600.507-12 is added to subpart F to read as follows:

§ 600.507-12 Running change data requirements. (a) Except as specified in paragraph (d) of this section, the manufacturer shall submit additional running change fuel economy and carbon-related exhaust emissions data as specified in paragraph (b) of this section for any running change approved or implemented under §§86.079–32, 86.079–33, or 86.082–34 or 86.1842–01 as applicable,

which: (1) Creates a new base level or, (2) Affects an existing base level by: (i) Adding an axle ratio which is at least 10 percent larger (or, optionally, 10 percent smaller) than the largest axle ratio tested. (ii) Increasing (or, optionally, decreasing) the road-load horsepower for a subconfiguration by 10 percent or more for the individual running change or, when considered cumulatively, since original certification (for each cumulative 10 percent increase using the originally certified road-load horsepower as a base). (iii) Adding a new subconfiguration by increasing (or, optionally, decreasing) the equivalent test weight for any previously tested subconfiguration in the base level. (iv) Revising the calibration of an el ectric vehicle, fuel cell electric vehicle, hybrid electric vehicle, plug-in hybrid el ectric vehicle or other advanced technology vehicle in such a way that the city or highway fuel economy of the vehicle (or the energy consumption of the vehicle, as may be applicable) is expected to become less fuel efficient (or optionally, more fuel efficient) by 4.0 percent or more as compared to the original fuel economy label values for fuel economy and/or energy consumption, as applicable. (b)(1) The additional running change fuel economy and carbon-related exhaust emissions data requirement in paragraph (a) of this section will be determined based on the sales of the vehicle configurations in the created or affected base level(s) as updated at the time of running change approval.737 (2) Within each newly created base level as specified in paragraph (a)(1) of this section, the manufacturer shall submit data from the highest projected total model year sales subconfiguration within the highest proj ected total model year sales configuration in

the base level. (3) Within each base level affected by a running change as specified in paragraph (a)(2) of this section, fuel economy and carbon-related exhaust emissions data shall be submitted for the vehicle configuration created or affected by the running change which has the highest total model year projected sales. The test vehicle shall be of the subconfiguration created by the running change which has the highest projected total model year sales within the applicable vehicle configuration. (c) The manufacturer shall submit the fuel economy data required by this section to the Administrator in accordance with §600.314(b). (d) For those model types created under §600.208–08(a)(2), the manufacturer shall submit fuel economy and carbon-related exhaust emissions data for each subconfiguration added by a running change.

54. A new § 600.509-12 is added to subpart F to read as follows:

§ 600.509-12 Voluntary submission of additional data. (a) The manufacturer may optionally submit data in addition to the data required by the Administrator. (b) Additional fuel economy and carbon-related exhaust emissions data may be submitted by the manufacturer for any vehicle configuration which is to be tested as required in §600.507 or for which fuel economy and carbon-related exhaust emissions data were previously submitted under paragraph (c) of this section. (c) Within a base level, additional fuel economy and carbon-related exhaust emissions data may be submitted by the manufacturer for any vehicle configuration which is not required to be tested by §600.507.

55. A new § 600.510-12 is added to subpart F to read as follows:

§ 600.510-12 Calculation of average fuel economy and average carbon-related

exhaust emissions. (a)(1) Average fuel economy will be calculated to the nearest 0.1 mpg for the categories of automobiles identified in this section, and the results of such calculations will be reported to the Secretary of Transportation for use in determining compliance with the applicable fuel economy standards. (i) An average fuel economy calculation will be made for the category of passenger automobiles as determined by the Secretary of Transportation. For example,categories may include, but are not limited to domestically manufactured and/or nondomestically manufactured passenger automobiles as determined by the Secretary of Transportation. (ii) [Reserved]738 (iii) An average fuel economy calculation will be made for the category of trucks as determined by the Secretary of Transportation. For example, categories may include, but are not limited to domestically manufactured trucks, non-domestically manufactured trucks, light-duty trucks, medium-duty passenger vehicles, and/or heavy-duty trucks as determined by the Secretary of Transportation. (iv) [Reserved] (2) Average carbon-related exhaust emissions will be calculated to the nearest one gram per mile for the categories of automobile s identified in this section, and the results of such calculations will be reported to the Administrator for use in determining compliance with the applicable CO 2 emission standards. (i) An average carbon-related exhaust emissions calculation will be made for passenger automobiles. (ii) An average carbon-related exhaust emissions calculation will be made for light trucks. (b) For the purpose of calculating average fuel economy under paragraph (c) of this section and for the purpose of calculating average carbon-related exhaust emissions under paragraph (j) of this section: (1) All fuel economy and carbon-related exhaust emissions data submitted in accordance with §600.006(e) or §600.512(c) shall be used. (2) The combined city/highway fuel economy and carbon-related exhaust

emission values will be calculated for each model type in acco rdance with §600.208–12 of this section except that: (i) Separate fuel economy values will be calculated for model types and base levels associated with car lines for each category of passenger automobiles and light trucks as determined by the Secretary of Transportation pursuant to paragraph (a)(1) of

this section. (ii) Total model year production data, as required by this subpart, will be used instead of sales projections; (iii) [Reserved] (iv) The fuel economy value will be rounded to the nearest 0.1 mpg; (v) The carbon-related exhaust emission valu e will be rounded to the nearest gram per mile; and (vi) At the manufacturer's option, those vehicle configurations that are selfcompensating to altitude changes may be se parated by sales into high-altitude sales categories and low-altitude sales categories. These separate sales categories may then be treated (only for the purpose of this section) as separate configurations in accordance with the procedure of §600.208–12(a)(4)(ii). (3) The fuel economy and carbon-related exhaust emission values for each vehicle configuration are the combined fuel economy and carbon-related exhaust emissions calculated according to §600.206–08(a)(3) except that: (i) Separate fuel economy values will be calculated for vehicle configurations associated with car lines for each category of passenger automobiles and light trucks as determined by the Secretary of Transportation pursuant to paragraph (a)(1) of this

section.739 (ii) Total model year production data, as required by this subpart will be used instead of sales projections; and (iii) The fuel economy value of diesel-p owered model types will be multiplied by the factor 1.0 to convert gallons of diesel fuel to equivalent gallons of gasoline. (c) Except as permitted in paragraph (d) of this section, the average fuel economy will be calculated individually for each category identified in paragraph (a) of this section

as follows: (1) Divide the total production volume of that category of automobiles; by (2) A sum of terms, each of which corresponds to a model type within that category of automobiles and is a fraction determined by dividing the number of automobiles of that model type produced by the manufacturer in the model year; by (i) For gasoline-fueled and diesel-fueled model types, the fuel economy calculated for that model type in accordance with paragraph (b)(2) of this section; or (ii) For alcohol-fueled model types, the fuel economy value calculated for that model type in accordance with paragraph (b)(2) of this section divided by 0.15 and rounded to the nearest 0.1 mpg; or (iii) For natural gas-fueled model types, the fuel economy value calculated for that model type in accordance with paragraph (b)(2) of this section divided by 0.15 and rounded to the nearest 0.1 mpg; or (iv) For alcohol dual fuel model types, for model years 1993 through 2019, the harmonic average of the following two terms; the result rounded to the nearest 0.1 mpg: (A) The combined model type fuel economy value for operation on gasoline or diesel fuel as determined in §600.208(b)(5)(i); and (B) The combined model type fuel economy value for operation on alcohol fuel as determined in §600.208(b)(5)(ii) divided by 0.15 provided the requirements of §600.510(g) are met; or (v) For natural gas dual fuel model types, for model years 1993 through 2019, the harmonic average of the following two terms; the result rounded to the nearest 0.1 mpg: (A) The combined model type fuel economy value for operation on gasoline or diesel as determined in §600.208(b)(5)(i); and (B) The combined model type fuel economy value for operation on natural gas as determined in §600.208(b)(5)(ii) divided by 0.15 provided the requirements of paragraph (g) of this section are met. (d) The Administrator may approve alternative calculation methods if they are part of an approved credit plan under the provisions of 15 U.S.C. 2003. (e) For passenger categories identified in pa ragraphs (a)(1) and (2) of this section, the average fuel economy calculated in accordance with paragraph (c) of this section shall be adjusted using the following equation:

AFE adj = AFE[((0.55 × a × c) + (0.45 × c) + (0.5556 × a) + 0.4487) / ((0.55 × a) + 0.45)] + IW

Where:

AFE adj = Adjusted average combined fuel economy, rounded to the nearest 0.1

mpg;740 AFE = Average combined fuel economy as calculated in paragraph (c) of this section, rounded to the nearest 0.0001 mpg; a = Sales-weight average (rounded to the nearest 0.0001 mpg) of all model typehighway fuel economy values (rounded to the nearest 0.1 mpg) divided by the salesweighted average (rounded to the nearest 0.0001 mpg) of all model type city fuel economy values (rounded to the nearest 0.1 mpg). The quotient shall be rounded to 4 decimal places. These average fuel economies shall be determined using the methodology of paragraph (c) of this section. c = 0.0014; IW = (9.2917 × 10 − 3 × SF 3IWC × FE 3IWC )

− (3.5123 × 10 − 3 × SF 4ETW × FE 4IWC ). Note: Any calculated value of IW less than zero shall be set equal to zero.

SF 3IWC = The 3000 lb. inertia weight class sales divided by total sales. The quotient shall be rounded to 4 decimal places.

SF 4ETW = The 4000 lb. equivalent test weight category sales divided by total sales. The quotient shall be rounded to 4 decimal places.

FE 4IWC = The sales-weighted average combined fuel economy of all 3000 lb. inertia weight class base levels in the compliance category. Round the result to the nearest 0.0001 mpg.

FE 4IWC = The sales-weighted average combined fuel economy of all 4000 lb. inertia weight class base levels in the compliance category. Round the result to the nearest 0.0001 mpg. (f) The Administrator shall calculate and apply additional average fuel economy adjustments if, after notice and opportunity for comment, the Administrator determines that, as a result of test procedure changes not previously considered, such correction is necessary to yield fuel economy test results that are comparable to those obtained under the 1975 test procedures. In making such de terminations, the Administrator must find

that: (1) A directional change in measured fuel economy of an average vehicle can be predicted from a revision to the test procedures; (2) The magnitude of the change in measured fuel economy for any vehicle or fleet of vehicles caused by a revision to the test procedures is quantifiable from theoretical calculations or best available test data; (3) The impact of a change on average fuel economy is not due to eliminating the ability of manufacturers to take advantage of flexibility within the existing test procedures to gain measured improvements in fuel economy which are not the result of actual improvements in the fuel economy of production vehicles; (4) The impact of a change on average fuel economy is not solely due to a greater ability of manufacturers to reflect in average fuel economy those design changes expected to have comparable effects on in-use fuel economy; (5) The test procedure change is required by EPA or is a change initiated by EPA in its laboratory and is not a change implemented solely by a manufacturer in its own laboratory. (g)(1) Alcohol dual fuel automobiles and natural gas dual fuel automobiles must provide equal or greater energy efficiency while operating on alcohol or natural gas as741 while operating on gasoline or diesel fuel to obtain the CAFE credit determined in paragraphs (c)(2)(iv) and (v) of this section or to obtain the carbon-related exhaust emissions credit determined in paragraphs (j)(2)(ii) and (iii). The following equation must

hold true:

E alt /E pet > or = 1

Where:

E alt = [FE alt /(NHV alt × D alt )] × 10 6 = energy efficiency while operating on

alternative fuel rounded to the nearest 0.01 miles/million BTU.

E pet = [FE pet /(NHV pet × D pet )] × 10 6 = energy efficiency while operating on gasoline or diesel (petroleum) fuel rounded to the nearest 0.01 miles/million BTU.

FE alt is the fuel economy [miles/gallon for liquid fuels or miles/100 standard cubic feet for gaseous fuels] while operated on the alternative fuel as determined in §600.113– 08(a) and (b);

FE pet is the fuel economy [miles/gallon] while operated on petroleum fuel (gasoline or diesel) as determined in §600.113(a) and (b);

NHV alt is the net (lower) heating value [BTU/lb] of the alternative fuel;

NHV pet is the net (lower) heating value [BTU/lb] of the petroleum fuel;

D alt is the density [lb/gallon for liquid fuels or lb/100 standard cubic feet for gaseous fuels] of the alternative fuel;

D pet is the density [lb/gallon] of the petroleum fuel. (i) The equation must hold true for both the FTP city and HFET highway fuel economy values for each test of each test vehicle. (ii)(A) The net heating value for alcohol fuels shall be premeasured using ASTM D 240–92 “Standard Test Method for Heat of Combustion of Liquid Hydrocarbon Fuels by Bomb Calorimeter” (incorporated by reference at §600.011-93). (B) The density for alcohol fuels shall be premeasured using ASTM D 1298–85 (Reapproved 1990) “Standard Practice for Density, Relative Density (Specific Gravity), or API Gravity of Crude Petroleum and Liquid Petroleum Products by Hydrometer Method” (incorporated by reference at §600.011-93). (iii) The net heating value and density of gasoline are to be determined by the manufacturer in accordance with §600.113(f). (2) [Reserved] (3) Alcohol dual fuel passenger automobiles and natural gas dual fuel passenger automobiles manufactured during model years 1993 through 2019 must meet the minimum driving range requirements established by the Secretary of Transportation (49 CFR part 538) to obtain the CAFE credit determined in paragraphs (c)(2)(iv) and (v) of

this section. (h) For model years 1993 and later, and for each category of automobile identified in paragraph (a) of this section, the maximum increase in average fuel economy determined in paragraph (c) of this section attributable to alcohol dual fuel automobiles and natural gas dual fuel automobiles shall be as follows:

Model Year Maximum Increase (mpg)

1993-2014 1.2742 2015 1.0

2016 0.8

2017 0.6

2018 0.4

2019 0.2

2020 and later 0.0

(1) The Administrator shall calculate the increase in average fuel economy to determine if the maximum increase provided in paragraph (h) of this section has been reached. The Administrator shall calculate the average fuel economy for each category of automobiles specified in paragraph (a) of this section by subtracting the average fuel economy values calculated in accordance with this section by assuming all alcohol dual fuel and natural gas dual fuel automobiles are operated exclusively on gasoline (or diesel) fuel from the average fuel economy values determined in paragraphs (b)(2)(vi), (b)(2)(vii), and (c) of this section. The di fference is limited to the maximum increase specified in paragraph (h) of this section.

(2) [Reserved]

(i) For model years 2012 through 2015, and for each category of automobileidentified in paragraph (a)(2) of this section, the maximum decrease in average carbonrelated exhaust emissions determined in para graph (j) of this section attributable to alcohol dual fuel automobiles and natural gas dual fuel automobiles shall be calculated using the following formula, and rounded to the nearest tenth of a gram per mile:

Maximum Decrease = 

### FltAvg

MPG FltAvg MAX 

### − ⎥ ⎦ ⎤ ⎢ ⎣ ⎡

− 8887 8887

Where:

FltAvg = The fleet average CREE value for passenger automobiles or light trucks determined for the applicable model year according to paragraph (j) of this section, except by assuming all alcohol dual fuel and natural gas dual fuel automobiles are operated exclusively on gasoline (or diesel) fuel.

MPG MAX = The maximum increase in miles per gallon determined for the appropriate model year in paragraph (h) of this section. : (1) The Administrator shall calculate the decrease in average carbon-related exhaust emissions to determine if the maximum decrease provided in paragraph (i) of this section has been reached. The Administrator shall calculate the average carbon-related exhaust emissions for each category of automobiles specified in paragraph (a)(2) of this section by subtracting the average carbon-related exhaust emission values determined in paragraph (j) of this section from the average carbon-related exhaust emission values calculated in accordance with this section by assuming all alcohol dual fuel and natural gas dual fuel automobiles743 are operated exclusively on gasoline (or diesel) fuel. The difference is limited to the maximum decrease specified in paragraph (i) of this section. (2) [Reserved] (j) The average carbon-related exhaust emissions will be calculated individually for each category identified in paragraph (a)(2) of this section as follows: (1) Divide the total production volume of that category of automobiles into: (2) A sum of terms, each of which corresponds to a model type within that category of automobiles and is a product determined by multiplying the number of automobiles of that model type produced by the manufacturer in the model year by: (i) For gasoline-fueled and diesel-fueled model types, the carbon-related exhaust emissions value calculated for that model type in accordance with paragraph (b)(2) of this section; or (ii)(A) For alcohol-fueled model types, for model years 2012 through 2015, the carbon-related exhaust emissions value calculated for that model type in accordance with paragraph (b)(2) of this section multiplied by 0.15 and rounded to the nearest gram per mile; or(B) For alcohol-fueled model types, for model years 2016 and later, the carbonrelated exhaust emissions value calculated for that model type in accordance with paragraph (b)(2) of this section; or (iii)(A) For natural gas-fueled model types, for model years 2012 through 2015, the carbon-related exhaust emissions value calculated for that model type in accordance with paragraph (b)(2) of this section multiplied by 0.15 and rounded to the nearest gram per mile; or (B) For natural gas-fueled model types, for model years 2016 and later, the carbon-related exhaust emissions value calculated for that model type in accordance with paragraph (b)(2) of this section; or (iv) For alcohol dual fuel model types, for model years 2012 through 2015, the arithmetic average of the following two terms, the result rounded to the nearest gram per

mile: (A) The combined model type carbon-related exhaust emissions value for operation on gasoline or diesel fuel as determined in §600.208(b)(5)(i); and (B) The combined model type carbon-related exhaust emissions value for operation on alcohol fuel as determined in §600.208(b)(5)(ii) multiplied by 0.15 provided the requirements of §600.510(g) are met; or (v) For natural gas dual fuel model types, for model years 2012 through 2015, the arithmetic average of the following two terms; the result rounded to the nearest gram per

mile: (A) The combined model type carbon-related exhaust emissions value for operation on gasoline or diesel as determined in §600.208(b)(5)(i); and (B) The combined model type carbon-related exhaust emissions value for operation on natural gas as determined in § 600.208(b)(5)(ii) multiplied by 0.15 provided the requirements of paragraph (g) of this section are met.744 (vi) For alcohol dual fuel model types, for model years 2016 and later, the combined model type carbon-related exhaust emissions value determined according to the following formula and rounded to the nearest gram per mile: CREE = (F × CREE alt ) + ( (1-F) × CREE gas )

Where: F = 0.00 unless otherwise approved by the Administrator according to the provisions of paragraph (k) of this section;

CREE alt = The combined model type carbon-related exhaust emissions value for operation on alcohol fuel as determined in §600.208(b)(5)(ii); and

CREE gas = The combined model type carbon-related exhaust emissions value for operation on gasoline or diesel fuel as determined in §600.208(b)(5)(i). (vii) For natural gas dual fuel model type s, for model years 2016 and later, the combined model type carbon-related exhaust emissions value determined according to the following formula and rounded to the nearest gram per mile: CREE = (F × CREE alt ) + ( (1-F) × CREE gas )

Where: F = 0.00 unless otherwise approved by the Administrator according to the provisions of paragraph (k) of this section;

CREE alt = The combined model type carbon-related exhaust emissions value for operation on natural gas as determined in §600.208(b)(5)(ii); and

CREE gas = The combined model type carbon-related exhaust emissions value for operation on gasoline or diesel fuel as determined in §600.208(b)(5)(i). (k) Alternative in-use weighting fact ors for dual fuel model types . Using one of the methods in either paragraph (k)(1) or (2) of this section, manufacturers may request the use of alternative values for the weighting factor F in the equations in paragraphs (j)(2)(vi) and (vii) of this section. Unless otherwise approved by the Administrator, the manufacturer must use the value of F that is in effect in paragraphs (j)(2)(vi) and (vii) of

this section. (1) Upon written request from a manufacturer, the Administrator 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. Such published values would be available for any manufacturer to use. The Administrator will periodically update these values upon written request from a

manufacturer. (2) The manufacturer may optionally submit to the Administrator its own demonstration regarding the real-world use of the alternative fuel in their vehicles and its own estimate of the appropriate value of F in the equations in paragraphs (j)(2)(vi) and (vii) of this section. Depending on the nature of the analytical approach, the manufacturer could provide estimates of F that are model type specific or that are generally applicable

to the manufacturer’s dual fuel fleet. The ma nufacturer’s analysis could include use of data gathered from on-board sensors and comput ers, from dual fuel vehicles in fleets that are centrally fueled, or from other sources. The analysis must be based on sound statistical methodology and must account for analytical uncertainty. Any approval by the745 Administrator will pertain to the use of values of F for the model types specified by the

manufacturer.

56. A new § 600.512-12 is added to subpart F to read as follows:

§ 600.512-12 Model year report. (a) For each model year, the manufacturer shall submit to the Administrator a report, known as the model year report, containing all information necessary for the calculation of the manufacturer's average fuel economy and all information necessary for the calculation of the manufacturer’s average carbon-related exhaust emissions. (1) The results of the manufacturer calculations and summary information of model type fuel economy values which are contained in the average fuel economy

calculation shall also be submitted to the Secr etary of the Department of Transportation, National Highway and Traffic Safety Administration. (2) The results of the manufacturer calculations and summary information of model type carbon-related exhaust emission values which are contained in the average

calculation shall be submitted to the Administrator. (b)(1) The model year report shall be in writing, signed by the authorized representative of the manufacturer and shall be submitted no later than 90 days after the end of the model year. (2) The Administrator may waive the requirement that the model year report be submitted no later than 90 days after the end of the model year. Based upon a request by the manufacturer, if the Administrator determines that 90 days is insufficient time for the manufacturer to provide all additional data required as determined in §600.507, the Administrator shall establish an alternative date by which the model year report must be

submitted. (3) Separate reports shall be submitted fo r passenger automobiles and light trucks (as identified in §600.510). (c) The model year report must in clude the following information: (1)(i) All fuel economy data used in the FTP/HFET-based model type calculations under §600.208–12, and subsequently required by the Administrator in accordance with §600.507; (ii) All carbon-related exhaust emission data used in the FTP/HFET-based model type calculations under §600.208–12, and subsequently required by the Administrator in accordance with §600.507; (2) (i) All fuel economy data for certificatio n vehicles and for vehicles tested for running changes approved under §86.1842–01 of this chapter; (ii) All carbon-related exhaust emission data for certification vehicles and for vehicles tested for running changes approved under §86.1842–01 of this chapter; (3) Any additional fuel economy and ca rbon-related exhaust emission data submitted by the manufacturer under §600.509; (4)(i) A fuel economy value for each model type of the manufacturer's product line calculated according to §600.510(b)(2);746 (ii) A carbon-related exhaust emission value for each model type of the manufacturer's product line calculated according to §600.510(b)(2); (5)(i) The manufacturer's average fuel economy value calculated according to §600.510(c); (ii) The manufacturer's average carbon-related exhaust emission value calculated according to §600.510(j); (6) A listing of both domestically and nondomestically produced car lines as determined in §600.511 and the cost information upon which the determination was made; and (7) The authenticity and accuracy of production data must be attested to by the corporation, and shall bear the signature of an officer (a corporate executive of at least the rank of vice-president) designated by the corporation. Such attestation shall constitute a representation by the manufacturer that the manufacturer has established reasonable, prudent procedures to ascertain and provide production data that are accurate and authentic in all material respects and that these procedures have been followed by employees of the manufacturer involved in the reporting process. The signature of the designated officer shall constitute a representation by the required attestation. (8) For 2008–2010 light truck model year reports, the average fuel economy standard or the “required fuel economy level” pursuant to 49 CFR Part 533, as applicable. Model year reports for light trucks meeting required fuel economy levels pursuant to 49 CFR 533.5(g) and (h) shall include information in sufficient detail to verify the accuracy of the calculated required fuel economy level. Such information is expected to include but is not limited to, production information for each unique footprint within each model type contained in the model year report and the formula used to calculate the required fuel economy level. Model year reports for required fuel economy levels shall include a statement that the method of measuring vehicl e track width, measuring vehicle wheelbase and calculating vehicle footprint is accurate and complies with applicable Department of Transportation requirements. (9) For 2011 and later model year reports, the “required fuel economy level” pursuant to 49 CFR Parts 531 or 533, as applicable. Model year reports shall include information in sufficient detail to verify the accuracy of the calculated required fuel economy level, including but is not limited to, production information for each unique footprint within each model type contained in the model year report and the formula used to calculate the required fuel economy level. Model year reports shall include a statement that the method of measuring vehicle track width, measuring vehicle wheelbase and calculating vehicle footprint is accurate and complies with applicable Department of Transportation requirements. (10) For 2012 and later model year reports, the “required fuel economy level” pursuant to 49 CFR Parts 531 or 533 as applicable, and the applicable fleet average CO2 emission standards. Model year reports shall include information in sufficient detail to verify the accuracy of the calculated required fuel economy level and fleet average CO2 emission standards, including but is not limited to, production information for each unique footprint within each model type contained in the model year report and the formula used to calculate the required fuel economy level and fleet average CO2747 emission standards. Model year reports shall include a statement that the method of measuring vehicle track width, measuring vehicle wheelbase and calculating vehicle footprint is accurate and complies with applicable Department of Transportation and EPA requirements. (11) For 2012 and later model year reports, a detailed (but easy to understand) list of vehicle models and the applicable in-use CREE emission standard. The list of models shall include the applicable carline/subconfiguration parameters (including carline, equivalent test weight, road-load horsepower, axle ratio, engine code, transmission class, transmission configuration and basic engine); the test parameters ( ETW and a, b, c, dynamometer coefficients) and the associated CREE emission standard. Themanufacturer shall provide the method of identifying EPA engine code for applicable inuse vehicles.

57. A new § 600.514-12 is added to subpart F to read as follows:

§ 600.514-12 Reports to the Environmental Protection Agency. This section establishes requirements fo r automobile manufacturers to submit reports to the Environmental Protection Agency regarding their efforts to reduce automotive greenhouse gas emissions. (a) General Requirements . (1) For each current model year, each manufacturer shall submit a pre-model year report. (2)(i) The pre-model year report required by this section for each model year must be submitted before the model year begins and before the certification of any test group, no later than December 31 of the calendar year two years before the model year. For example the pre-model year report for the 2012 model year must be submitted no later than December 31, 2010). (3) Each report required by this section must: (i) Identify the report as a pre-model year report; (ii) Identify the manufacturer submitting the report; (iii) State the full name, title, and address of the official responsible for preparing the report; (iv) Be submitted to: Director, Complian ce and Innovative Strategies Division, U.S. Environmental Protection Agency, 2000 Traverwood, Ann Arbor, Michigan 48105; (v) Identify the current model year; (vi) Be written in the English language; and (vii) Be based upon all information and data available to the manufacturer approximately 30 days before the report is submitted to the Administrator. (b) Content of pre model year reports . (1) Each pre-model year report must include the following information for each compliance category for the applicable future model year and to the extent possible, two model years into the future: (i) the manufacturer’s estimate of it’s footprint-based fleet average CO 2 standards (including temporary lead time allowan ce alternative standards, if applicable); (ii) projected total and model-level production volumes for each applicable standard category;748 (iii) projected fleet average CO 2 compliance level for each applicable standard category; and the model-level CO 2 emission values which form the basis of the projection; (iv) projected fleet average CO 2 credit/debit status for each applicable standard
category; (v) a description of the various credit, transfer and trading options that will be used to comply with each applicable standard category, including the amount of credit the manufacturer intends to generate for air conditioning leakage, air conditioning efficiency, off-cycle technology, and variou s early credit programs; and (vi) the methodology which will be used to comply with N 2 O and CH 4 emission

standards. (2) Manufacturers must submit, in the pre-model year report for each model year in which a credit deficit is generated (or projected to be generated), a compliance plan demonstrating how the manufacturer will comply with the fleet average CO2 standard by the end of the third year after the deficit occurred.749 National Highway Traffic Safety Administration

49 CFR Chapter V

In consideration of the foregoing, under the authority of 49 U.S.C. 32901, 32902, 32903, and 32907, and delegation of authority at 49 CFR 1.50, NHTSA amends 49 CFR Chapter

V as follows:

PART 531—PASSENGER AUTOMOBILE AVERAGE FUEL ECONOMY

STANDARDS 1. The authority citation for part 531 continues to read as follows:

Authority: 49 U.S.C. 32902; delegation of authority at 49 CFR 1.50.

2. Amend § 531.5 by redesignating paragraph (d) as paragraph (e), revising the introductory text of paragraph (a), revising paragraph (c) , and adding a new paragraph (d) to read as follows:

§ 531.5 Fuel economy standards.

(a) Except as provided in paragraph (e) of this section, each manufacturer of passenger automobiles shall comply with the average fuel economy standards in Table I, expressed in miles per gallon, in the model year specified as applicable:

* * * * * (c) For model years 2012-2016, a manufacturer’s passenger automobile fleet shall comply with the fuel economy level calculated for that model year according to Figure 2 and the appropriate values in Table III.

Where:

CAFE required is the required level for a given fleet (domestic passenger automobiles or import passenger automobiles),

Subscript i is a designation of multiple gr oups of automobiles, where each group’s designation, i.e,, i = 1, 2, 3, etc., represents automobiles that share a unique model type and footprint within the applicable fleet, either domestic passenger automobiles or import passenger automobiles.

Production i is the number of passenger automobiles produced for sale in the United States within each ith designation, i.e., which shares the same model type and footprint.750 TARGET i is the fuel economy target in mile s per gallon (mpg) applicable to the footprint of passenger automobiles within each ith designation, i.e., which shares the same model type and footprint, calculated according to Figure 3 and rounded to the nearest hundredth of a mpg, i.e., 35.455 = 35.46 mpg, and the summations in the numerator and denominator are both performed over all models in the fleet in question.

Figure 3: 1

1 1

, , TARGET

MIN MAX c FOOTPRINT d a b = ⎡ ⎤ ⎛ ⎞

× + ⎜ ⎟ ⎢ ⎥ ⎝ ⎠ ⎣ ⎦

Where:

TARGET is the fuel economy target (in mpg) applicable to vehicles of a given footprint ( FOOTPRINT , in square feet),

Parameters a , b

, c , and d are defined in Table III, and

The MIN and MAX functions take the minimum and maximum, respectively of

the included values.

T ABLE III—P ARAMETERS FOR THE P ASSENGER A UTOMOBILE F UEL E CONOMY T ARGETS

Model year Parameters

a b c d

2012................................. 36.23 28.12 0.0005308 0.005842

2013................................. 37.15 28.67 0.0005308 0.005153

2014................................. 38.08 29.22 0.0005308 0.004498

2015................................. 39.55 30.08 0.0005308 0.003520

2016................................. 41.38 31.12 0.0005308 0.002406

(d) In addition to the requirement of paragraphs (b) and (c) of this section, each manufacturer shall also meet the minimum standard for domestically manufactured passenger automobiles expressed in Table IV:

T ABLE IV Model year Minimum standard

2011.......................................... 27.8

2012.......................................... 30.7

2013.......................................... 31.4

2014.......................................... 32.1

2015.......................................... 33.3

2016.......................................... 34.7751 * * * * * 3. Add Appendix A to Part 531 to read as follows:

A PPENDIX A TO P ART 531

– E XAMPLE OF C ALCULATING C OMPLIANCE U NDER SECTION
531.5 P ARAGRAPH ( B )

Assume a hypothetical manufacturer (Manufacturer X) produces a fleet of domestic passenger automobiles in MY 2011 as follows:

Appendix A, Table 1

N OTE TO A PPENDIX A, T ABLE 1. Manufacturer X’s required corporate average fuel economy level standard under section 531.5(b) would first be calculated by determining the fuel economy targets applicable to each unique model type and footprint combination for model type groups 1-9 as illustrated in Appendix A, Table 2:752 Appendix A, Table 2

Manufacturer X calculates a fuel economy target standard for each unique model type and footprint combination.

N OTE TO A PPENDIX A, T ABLE 2. With the appropriate fuel economy targets determined for each unique model type and footprint combination, Manufacturer X’s required fuel economy target standard would be calculated as illustrated in Appendix A, Figure 1.

Appendix A, Figure 1

Calculation of Manufacturer X’s target fuel economy standard753 Fleet’s target fuel economy standard = 30.5 mpg

Appendix A, Figure 2

Calculation of Manufacturer X’s actual fuel economy value.

Fleet’s actual fuel economy = 30.6 mpg

N OTE TO A PPENDIX A, F IGURE 2. Since the actual average fuel economy of Manufacturer X’s fleet is 30.6 mpg, as compared to its required fuel economy level of 30.5 mpg, Manufacturer X complied with the CAFE standard for MY 2011 as set forth in section 531.5(b).

PART 533—LIGHT TRUCK FUEL ECONOMY STANDARDS 4. The authority citation for part 533 continues to read as follows:

Authority: 49 U.S.C. 32902; delegation of authority at 49 CFR 1.50.

5. Amend § 533.5 by adding Figures 2 and 3 and Table VI at the end of paragraph (a), and adding paragraph (i), to read as follows:

§ 533.5 Requirements (a) * * *

* * * * *754 Where:

CAFE required is the required level for a given fleet, Subscript i is a designation of multiple gr oups of light trucks, where each group’s designation, i.e,, i = 1, 2, 3, etc., represents light trucks that share a unique model type and footprint within the applicable fleet.

Production i is the number of units of light trucks produced for sale in the United States within each ith designation, i.e., which share the same model type and footprint.

TARGET i is the fuel economy target in mile s per gallon (mpg) applicable to the footprint of light trucks within each ith designation, i.e., which shares the same model type and footprint, calculated according to Figure 3 and rounded to the nearest hundredth of a mpg, i.e., 35.455 = 35.46 mpg, and the summations in the numerator and denominator are both performed over all models in the fleet in question.

Figure 3: 1

1 1

, , TARGET

MIN MAX c FOOTPRINT d a b = ⎡ ⎤ ⎛ ⎞

× + ⎜ ⎟ ⎢ ⎥ ⎝ ⎠ ⎣ ⎦

Where:

TARGET is the fuel economy target (in mpg) applicable to vehicles of a given footprint ( FOOTPRINT , in square feet),

Parameters a , b

, c , and d are defined in Table VI, and

The MIN and MAX functions take the minimum and maximum, respectively of

the included values.

T ABLE VI—P ARAMETERS FOR THE L IGHT T RUCK F UEL E CONOMY T ARGETS

Model year Parameters

A b c d

2012................................. 29.44 22.06 0.00004546 0.01533

2013................................. 30.32 22.55 0.00004546 0.01434

2014................................. 31.30 23.09 0.00004546 0.01331

2015................................. 32.70 23.84 0.00004546 0.01194

2016................................. 34.38 24.72 0.00004546 0.01045

* * * * *755 (i) For model years 2012-2016, a manufacturer’s light truck fleet shall comply with the fuel economy level calculated for that model year according to Figures 2 and 3 and the appropriate values in Table VI.

6. Revise Appendix A to Part 533 to read as follows:

A PPENDIX A TO P ART 533

-- E XAMPLE OF C ALCULATING C OMPLIANCE U NDER

SECTION 533.5 P ARAGRAPH (h)

Assume a hypothetical manufacturer (Manufacturer X) produces a fleet of light

trucks in MY 2011 as follows:

Appendix A, Table 1

N OTE TO A PPENDIX A, T ABLE 1. Manufacturer X’s required corporate average fuel economy level under section 533.5(h) would first be calculated by determining the fuel economy targets applicable to each unique model type and footprint combination for model type groups (1-11) illustrated in Appendix A, Table 2:

Appendix A, Table 2

Manufacturer X calculates a fuel economy target standard value for each unique model type and footprint combination.756 N OTE TO A PPENDIX A, T ABLE 2. With the appropriate fuel economy targets determined for each unique model type and footprint combination, Manufacturer X’s required fuel economy target standard would be calculated as illustrated in Appendix A, Figure 1.

Appendix A, Figure 1

Calculation of Manufacturer X’s target fuel economy standard value.

Fleet’s target fuel economy standard = 22.7 mpg

Appendix A, Figure 2

Calculation of Manufacturer X’s actual fuel economy value.757 Fleet’s actual fuel economy value = 23.3 mpg

N OTE TO A PPENDIX A, F IGURE 2. Since the actual average fuel economy of Manufacturer X’s fleet is 23.3 mpg, as compared to its required fuel economy level of 22.7 mpg, Manufacturer X did comply with the CAFE standard for MY 2011 as set forth in section 533.5(h).

* * * * *

PART 536—TRANSFER AND TRADING OF FUEL ECONOMY CREDITS 7. The authority citation for part 563 continues to read as follows:

Authority: Sec. 104, Pub. L. 110-140 (49 U.S.C. 32903); delegation of authority

at 49 CFR 1.50.

8. Amend § 536.3 by revising the definition of “Transfer” in paragraph (b) to read

as follows:

Transfer means the application by a manufacturer of credits earned by that manufacturer in one compliance category or credits acquired be trade (and originally earned by another manufacturer in that category) to achieve compliance with fuel economy standards with respect to a different compliance category. For example, a manufacturer may purchase light truck credits from another manufacturer, and transfer them to achieve compliance in the manufacturer’s domestically manufactured passenger car fleet. Subject to the credit transfer limitations of 49 U.S.C. 32903 (g)(3), credits can also be transferred across compliance categories and banked or saved in that category to

be carried forward or backwards later to address a credit shortfall.

9. Amend § 536.4 by revising the values for the lifetime vehicle miles traveled

used in the terms VMTe and VMTu required to calculate the adjustment factor in paragraph (c) as follows:758 VMTe = Lifetime vehicle miles traveled as provided in the following table for the model year and compliance category in which the credit was earned.

VMTu = Lifetime vehicle miles traveled as provided in the following table for the model year and compliance category in which the credit is used for compliance.

Model Year Lifetime Vehicle Miles Traveled (VMT)

2012 2013 2014 2015 2016 Passenger

Cars 177,238 177,366 178,652 180,497 182,134

Light

Trucks 208,471 208,537 209,974 212,040 213,954

* * * * *

PART 537—AUTOMOTIVE FUEL ECONOMY REPORTS 10. The authority citation for part 537 continues to read as follows:

Authority: 49 U.S.C. 32907, delegation of authority at 49 CFR 1.50.

11. Amend § 537.5 by revising paragraph (c)(4) to read as follows:

§ 537.5 General requirements for reports.

* * * * * (c) * * * (4) Be submitted in 5 copies to: Administrator, National Highway Traffic Safety Administration, 1200 New Jersey Avenue, SE, Washington, DC 20590, or submitted electronically to the following secure e-mail address: cafe@dot.gov. Electronic submissions should be provided in a pdf format.

* * * * *

12. Amend § 537.6 by deleting paragraph (c)(1) and redesignating paragraph (c)(2) as paragraph (c).

13. Amend § 537.7 by revising paragraphs (c)(4)(xvi)(A)(4 ) and (c)(4)(xvi)(B)(4 )

to read as follows:

§ 537.7 Pre-model year and mid-model year reports.

* * * * * (c) * * * (4) * * * (xvi)(A ) * * * (4 ) Beginning model year 2010, front axle, rear axle and average track width as defined in 49 CFR 523.2,

* * * * *759 (B ) * * * (4 ) Beginning model year 2010, front axle, rear axle and average track width as defined in 49 CFR 523.2,

* * * * *

14. Amend § 537.8 by deleting paragraph (c)(2) and revising paragraph (c)(1) to

read as follows:

§ 537.8 Supplementary reports.

* * * * * (c)(1) Each report required by paragraph (a)( 1), (2), or (3) of this section must be submitted in accordance with 537.5(c) not more than 45 days after the date on which the manufacturer determined, or could have de termined with reasona ble diligence, that a report is required under paragraph (a)(1), (2), or (3) of this section.

* * * * *

15. Amend § 537.9 by revising paragraph (c) to read as follows:

§ 537.9 Determination of fuel economy values and average fuel economy.

* * * * * (c) Average Fuel Economy . Average fuel economy must be based upon fuel economy values calculated under paragraph (b) of this section for each model type and must be calculated in accordance with subpart F of 40 CFR part 600, except that fuel economy values for running changes and for new base levels are required only for those changes made or base levels added before the average fuel economy is required to be submitted under this part.

* * * * *

PART 538—MANUFACTURING INCENTIVES FOR ALTERNATIVE FUEL

VEHICLES 16. The authority citation for part 538 continues to read as follows:

Authority: 49 U.S.C. 32901, 32905, and 32906; delegation of authority at 49

CFR 1.50.

17. Revise § 538.1 to read as follows:

§ 538.1 Scope. This part establishes minimum driving range criteria to aid in identifying passenger automobiles that are dual-fueled automobiles. It also establishes gallon equivalent measurements for gaseous fuels other than natural gas.

18. Revise § 538.2 to read as follows:760 § 538.2 Purpose. The purpose of this part is to specify one of the criteria in 49 U.S.C. chapter 329 “Automobile Fuel Economy” for identifying dual-fueled passenger automobiles that are manufactured in model years 1993 through 2019. The fuel economy of a qualifying vehicle is calculated in a special manner so as to encourage its production as a way of facilitating a manufacturer’s compliance with the Corporate Average Fuel Economy standards set forth in part 531 of this chapter. The purpose is also to establish gallon equivalent measurements for gaseous fuels other than natural gas.

19. Amend § 538.7(b)(1) by revising it to read as follows:

§ 538.7 Petitions for reduction of minimum driving range

* * * * * (b) Each petition shall: (1) Be addressed to: Administrato r, National Highway Traffic Safety Administration, 1200 New Jersey Avenue, SE, Washington, DC 20590.

* * * * *

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

Page XXX/XXX

Dated: March XX, 2010

____________________ Ray LaHood, Secretary, Department of Transportation

Dated: March XX, 2010

____________________ Lisa P. Jackson, Administrator, Environmental Protection Agency