Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standard s 9/3/09

III. EPA Proposal for Greenhouse Gas Vehicle Standa rds

A. Executive Overview of EPA Proposa l

1. Introduction

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

EPA is proposing three separate standards. The fi rst and most important is a set of fleet-wide average carbon dioxide (CO 2 ) emission standards for cars and trucks. These

standards are based on CO 2 emissions-footprint curves, where each vehicle has a different CO 2 emissions compliance target depending on its footp rint value. Vehicle CO 2 emissions would be measured over the EPA city and h ighway tests. The proposed

standard allows for credits based on demonstrated i mprovements in vehicle air conditioner systems, including both efficiency and refrigerant leakage improvement, which are not captured by the EPA tests. The EPA p rojects that the average light vehicle tailpipe CO 2 level in model year 2011 will be 326 grams per mil e while the average vehicle tailpipe CO 2 emissions compliance level for the proposed model year 2016 standard will be 250 grams per mile, an average red uction of 23 percent from today’s

CO 2 levels.

EPA is also proposing standards that will cap tail pipe nitrous oxide (N 2 O) and methane (CH 4 ) emissions at 0.010 and 0.030 grams per mile, resp ectively. Even after adjusting for the higher relative global warming po tencies of these two compounds, nitrous oxide and methane emissions represent less than one percent of overall vehicle greenhouse gas emissions from new vehicles. Accord ingly, the goal of these two proposed standards is to limit any potential increa ses in the future and not to force reductions relative to today’s low levels.

This proposal represents the second-phase of EPA’s response to the Supreme

Court’s 2007 decision in Massachusetts v. EPA 1 which found that greenhouse gases were air pollutants for purposes of the Clean Air Act. The Court held that the Administrator

1 549 U.S. 497 (2007). For further information on Massachusetts v. EPA see the July 30, 2008 Advance Notice of Proposed Rulemaking, “Regulating Greenhou se Gas Emissions under the Clean Air Act”, 73 FR 44354 at 44397. There is a comprehensive discussion of the litigation’s history, the Supreme Court’s findings, and subsequent actions undertaken by the Bush Administration and the EPA from 2007-2008 in response to the Supreme Court remand.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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must determine whether or not emissions from new mo tor vehicles cause or contribute to air pollution which may reasonably be anticipated t o endanger public health or welfare,

or whether the science is too uncertain to make a r easoned decision. The Court further ruled that, in make these decisions, the EPA Admini strator is required to follow the language of section 202(a) of the CAA. The Court r emanded the case back to the Agency for reconsideration in light of its finding.

The Administrator responded to the Court’s remand by issuing two proposed findings under section 202(a) of the Clean Air Act. 2 First, the Administrator proposed to find that the science supports a positive endangerm ent finding that a mix of certain greenhouse gases in the atmosphere endangers the pu blic health and welfare of current and future generations. This is referred to as the endangerment finding. Second, the Administrator proposed to find that the emissions o f four of these gases--carbon dioxide, methane, nitrous oxide, and hydrofluorocarbons -- f rom new motor vehicles and new motor vehicle engines contribute to the atmospheric concentrations of these key greenhouse gases and hence to the threat of climate change. This is referred to as the cause and contribute finding. Finalizing this prop osed light vehicle regulations is contingent upon EPA finalizing both the endangermen t finding and cause or contribute finding. Sections III.B.1 through III.B.4 below p rovide more details on the legal and scientific bases for this proposal.

As discussed in Section I, this GHG proposal is pa rt of a joint National Program such that a large majority of the projected benefit s are achieved jointly with NHTSA’s proposed CAFE rule which is described in detail in Section IV of this preamble. EPA’s proposal projects total carbon dioxide emissions sa vings of nearly 950 million metric tons, and oil savings of 1.8 billion barrels over t he lifetimes of the vehicles sold in model years 2012-2016. EPA projects net societal benefit s of $ 192 XX billion at a 3 percent

discount rate for these same vehicles , or $136 billion at a 7 percent discount rate (bot h values assume a $20/ton SCC value) . Accordingly, these proposed light vehicle greenhouse gas emissions standards would make an im portant "first step" contribution as part of the National Program toward meeting long-te rm greenhouse gas emissions and import oil reduction goals, while providing importa nt economic benefits as well.

2. Why is EPA Proposing this Rule?

This proposal addresses only light vehicles. EPA is addressing light vehicles as a first step in control of greenhouse gas emissions u nder the Clean Air Act for four reasons. First, light vehicles are responsible for almost 60 % of all mobile source greenhouse gas emissions, a share three times larger than any othe r mobile source subsector, and represent about one-sixth of all U.S. greenhouse ga s emissions. Second, technology exists that can be readily and cost-effectively app lied to these vehicles to reduce greenhouse gas emissions in the near term. Third, EPA already has an existing testing and compliance program for these vehicles, refined since the mid-1970s for emissions certification and fuel economy compliance, which wo uld require only minor modifications to accommodate greenhouse gas emissio ns regulations. Finally, this

2 74 FR 18886, April 24, 2009Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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proposal is an important first step in responding t o the Supreme Court’s ruling in

Massachusetts vs. EPA . In addition, EPA is currently evaluating control s for motor vehicles other than those covered by this proposal, and is reviewing seven petitions submitted by various states and organizations reque sting that EPA use its Clean Air Act authorities to take action to reduce greenhouse gas emissions from aircraft (under § 231(a)(2)), ocean-going vessels (under § 213(a)(4)), and other nonroad engines and vehicle sources (also under § 213(a)(4)).

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

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

These gases, once emitted, remain in the atmospher e for decades to centuries. Thus, they become well mixed globally in the atmosp here and their concentrations

accumulate when emissions exceed the rate at which natural processes remove greenhouse gases from the atmosphere. The heating e ffect caused by the human-induced buildup of greenhouse gases in the atmosphere is ve ry likely 3 the cause of most of the observed global warming over the last 50 years. Th e key effects of climate change observed to date and projected to occur in the futu re include, but are not limited to, more frequent and intense heat waves, more severe wildfi res, degraded air quality, heavier and more frequent downpours and flooding, increased dro ught, 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 c hange and its impact on health, society, and the environment is included in EPA’s t echnical support document for the recently released Proposed Endangerment and Cause o r Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act. 4

Transportation sources represent a large and growi ng share of United States greenhouse gases and include automobiles, highway h eavy duty trucks, airplanes, railroads, marine vessels and a variety of other so urces. In 2006, all transportation sources emitted 31.5% of all U.S. greenhouse gases, and were the fastest-growing source of greenhouse gases in the U.S., accounting for 47% of the net increase in total U.S. greenhouse gas emissions from 1990-2006

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

3 According to Intergovernmental Panel on Climate Ch ange (IPCC) terminology, “very likely” conveys a 90 to 99 percent probability of occurrence. “Virtua lly certain” conveys a greater than 99 percent probability, “likely” conveys a 66 to 90 percent pr obability, and “about as likely as not” conveys a 3 3 to 66 percent probability.

4 74 FR18886, April 24, 2009. Both the Federal Regi ster Notice and the Technical Support Document for this rulemaking are found in the public docket for this rulemaking. Docket is EPA-OAR-2009-0171.

5 Inventory of U.S. Greenhouse Gases and Sinks: 199 0-2006.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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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 i n the fuels is oxidized and emitted as

CO 2 and smaller amounts of other carbon compounds. 6 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-combus tion control of hydrocarbon emissions (such as catalytic converters). 7 Nitrous oxide (N 2 O) (and nitrogen oxide (NO X )) emissions from vehicles and their engines are cl osely related to air-fuel ratios, combustion temperatures, and the use of pollution c ontrol equipment. For example, some types of catalytic converters installed to reduce m otor vehicle NO X , carbon monoxide (CO) and hydrocarbon emissions can promote the form ation of N 2 O. 8
Hydrofluorocarbons (HFC) emissions are progressivel y replacing chlorofluorocarbons ( CFC) and hydrochlorofluorocarbons (HCFC) in these v ehicles’ cooling and refrigeration systems as CFCs and HCFCs are being phased out unde r the Montreal Protocol and Title VI of the CAA. There are multiple emissions pathwa ys for HFCs with emissions occurring during charging of cooling and refrigerat ion systems, during operations, and during decommissioning and disposal. 9

b. Basis for Action under Clean Air Act

Section 202(a)(1) of the Clean Air Act (CAA) states that “the Administrator shall by regulation prescribe (and from time to time revi se)...standards applicable to the emission of any air pollutant from any class or cla sses of new motor vehicles ..., which in his judgment cause, or contribute to, air pollut ion which may reasonably be anticipated to endanger public health or welfare.” As noted ab ove, the Administrator has proposed to find that the air pollution of elevated levels of g reenhouse gas concentrations may reasonably be anticipated to endanger public health and welfare. 10 The Administrator has proposed to define the air pollution to be the elevated concentrations of the mix of six GHGs: carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2 O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexaflu oride (SF 6 ). The Administrator has further proposed to find under CAA section 202(a) t hat CO 2, methane, N 2 O and HFC emissions from new motor vehicles and engines contr ibute to this air pollution. This preamble describes proposed standards that would co ntrol emissions of CO 2 , HFCs, nitrous oxide, and methane. Standards for these GH Gs would only be finalized if EPA

determines that the criteria have been met for enda ngerment by the air pollution, and that emissions of GHGs from new motor vehicles or engine s “cause or contribute” to that air pollution. In that case, section 202(a) would auth orize EPA to issue standards applicable

6 Mobile source carbon dioxide emissions in 2006 equ aled 26 percent of total U.S. CO 2 emissions.

7 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 nitroge n and oxygen during fuel combustion.

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

9 In 2006 HFC from these source categories equaled 5 6 percent of total U.S. HFC emissions, making it th e single largest source category of U.S. HFC emission s.

10 74 FR18886, April 24, 2009.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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to emissions of those pollutants. For further disc ussion of EPA’s authority under section 202(a), see Section I.C.2 of the proposal.

There are a variety of other CAA Title II provisio ns that are relevant to standards established under section 202(a). As noted above, the standards are applicable to motor

vehicles for their useful life. EPA has the discre tion in determining what standard applies over the useful life. For example, EPA may set a s ingle standard that applies both when the vehicles are new and throughout the useful life , or where appropriate may set a standard that varies during the term of useful life , such as a standard that is more stringent in the early years of the useful life and less stringent in the later years.

The standards established under CAA section 202(a) are implemented and enforced through various mechanisms. Manufacturers are required to obtain an EPA certificate of conformity with the section 202 regu lations before they may sell or introduce their new motor vehicle into commerce, ac cording to CAA section 206(a). The

introduction into commerce of vehicles without a ce rtificate of conformity is a prohibited act under CAA section 203 that may subject a manufa cturer 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 d etermine 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 t he manufacturer must submit and implement a remedial plan to address the problem (s ee CAA section 207(c)). There are

also emissions-based warranties that the manufactur er must implement under CAA section 207(a).

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

EPA’s Administrator recently signed a proposed act ion with two distinct findings regarding greenhouse gases under section 202(a) of the Clean Air Act. This action is called the Proposed Endangerment and Cause or Contr ibute Findings for Greenhouse Gases under the Clean Air Act (Endangerment Proposa l) 11 . The Administrator proposed an affirmative endangerment finding that the curren t and projected concentrations of a mix of six key greenhouse gases—carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2 O), hydrofluorocarbons (HFCs), perfluorocarbons (PF Cs), and sulfur hexafluoride(SF 6 )-- in the atmosphere threaten the public health an d welfare of current and future generations. She also proposed to find that the combined emissions of four of the gases-- carbon dioxide, methane, nitrous oxide and hydrofluorocarbons from new motor vehicles and motor vehicle engines -- contrib ute to the atmospheric concentrations of these greenhouse gases and therefore to the clim ate change problem.

Specifically, the Administrator proposed, after a thorough examination of the scientific evidence on the causes and impact of cur rent and future climate change, to find that the science compellingly supports a positive f inding that atmospheric concentrations of these greenhouse gases result in air pollution w hich may reasonably be anticipated to

11 74 FR 18886 (April 24,2009)Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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endanger both public health and welfare. In her pr oposed finding, the Administrator relied heavily upon the major findings and conclusi ons from the recent assessments of the U.S. Climate Change Science Program and the U.N. In tergovernmental Panel on Climate Change. 12 The Administrator proposed a positive endangermen t finding after considering both observed and projected future effects of clima te change, key uncertainties, and the full range of risks and impacts to public health an d welfare occurring within the United States. In addition, the proposed finding noted th at the evidence concerning risks and impacts occurring outside the U.S. provided further support for the proposed finding.

The key scientific findings supporting the propose d endangerment finding are

that:



### – Concentrations of greenhouse gases are at unprecede nted 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 floodi ng, increasing drought, greater sea level rise, more intense storms, harm t o water resources, harm to agriculture, and harm to wildlife and ecosystems. These impacts are effects on public health and welfare within the meaning of the Clean Air Act.

With regard to new motor vehicles and engines, the Administrator also proposed a finding that the combined emissions of four greenho use gases--carbon dioxide, methane, nitrous oxide and hydrofluorocarbons-- from new mot or vehicles and engines contributes to this air pollution, i.e., the atmospheric concen trations of the mix of six greenhouse gases which create the threat of climate change and its impacts. Key facts supporting the proposed cause and contribute finding for on-highwa y 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. 13

The Administrator also considered whether emissions of each greenhouse gas individually, as a separate air pollutant, would co ntribute to this air pollution.

If the Administrator makes affirmative findings und er section 202(a) on both endangerment and cause or contribute, then EPA is t o issue standards “applicable to emission” of the air pollutant or pollutants that E PA finds causes or contributes to the air pollution that endangers public health and welfare. The Endangerment Proposal invited public comment on whether the air pollutant should be considered the group of GHGs, or whether each GHG should be treated as a separate ai r pollutant. Either way, the emissions standards proposed today would satisfy th e requirements of section 202(a) as

12 The U.S. Climate Change Science Program (CCSP) is now called the U.S. Global Change Research Program (GCRP).

13 This figure includes the greenhouse gas contributi ons of light vehicles, heavy duty vehicles, and remaining on-highway mobile sources.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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the Administrator has significant discretion in how to structure the standards that apply to the emission of the air pollutant or air pollutants at issue. For example, under either approach EPA would have the discretion under sectio n 202(a) to adopt separate standards for each GHG, a single composite standard covering various gases, or any combination of these. In this rulemaking EPA is proposing separat e standards for nitrous oxide and methane, and a CO 2 standard that provides for credits based on reduct ions of HFCs, as the appropriate way to issue standards applicable t o emissions of these GHGs.

3. What is EPA Proposing?

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

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

2012 and later:

Table III.A.3-1 Proposed Industry-Wide Greenhouse G as Emissions Standards

Standard/

Covered

Pollutants Form of

Standard Level of

Standard Credits Test Cycles

CO 2 Standard 14 : Tailpipe CO 2 Fleetwide

average footprint

CO 2 -curves for

cars and trucks See footprint –

CO 2 curves in Figure I.C-1 for cars and Figure

I.C-2 for trucks CO 2 -e credits 15 EPA 2-cycle (FTP and HFET test cycles), with

separate
mechanisms for

A/C credits 16

N 2 O Standard: Tailpipe N 2 O Cap per vehicle 0.010 g/mi None EPA FTP test

CH 4 Standard: Cap per vehicle 0.030 g/mi None EPA FTP test

14 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 leve ls of carbon associated with vehicle tailpipe hydrocarbon (HC) and carbon m onoxide (CO) emissions, converted to CO 2 on a mass basis, as discussed further in section x

15 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 condition ing refrigerants) to be expressed as an equivalent mass (i.e., corrected for relative global warming potenc y) of CO 2 emissions.

16 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.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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Tailpipe CH 4

One important flexibility associated with the propo sed CO 2 standard is the proposed option for manufacturers to obtain credits associated with improvements in their air conditioning systems. As will be discuss ed in greater detail in later sections, EPA is establishing test procedures and design crit eria by which manufacturers can demonstrate improvements in both air conditioner ef ficiency (which reduces vehicle tailpipe CO 2 by reducing the load on the engine) and air condit ioner refrigerants (using lower global warming potency refrigerants and/or im proving system design to reduce GHG emissions associated with leaks). Neither of t hese strategies to reduce GHG

emissions from air conditioners would be reflected in the EPA FTP or HFET tests. These improvements would be translated to a g/mi CO 2 -equivalent credit that can be subtracted from the manufacturer’s tailpipe CO 2 compliance value. EPA expects a high percentage of manufacturers to take advantage of this flexibil ity to earn air conditioning-related

credits for MY2012-2016 vehicles such that the aver age credit earned is about 11 grams per mile CO 2 –equivalent in 2016.

A second flexibility being proposed is CO 2 credits for flexible and dual fuel vehicles, similar to the CAFE credits for such vehi cles which allow manufacturers to gain up to 1.2 mpg in their overall CAFE ratings. The E nergy Independence and Security Act of 2007 (EISA) mandated a phase-out of these flexib le fuel vehicle CAFE credits beginning in 2015, and ending after 2019. EPA is p roposing to allow comparable CO 2 credits for flexible fuel vehicles through MY 2015, but for MY 2016 and beyond, EPA is proposing to treat flexible and dual fuel vehicles on a CO 2 -performance basis, calculating

the overall CO 2 emissions for flexible and dual fuel vehicles base d on a fuel use-weighted average of the CO 2 levels on gasoline and on a manufacturer’s demonst rated actual usage

of the alternative fuel in its vehicle fleet.

Table III.A.3-2 summarizes EPA projections of indus try-wide 2-cycle CO 2 emissions and fuel economy levels that would be ach ieved by manufacturer compliance with the proposed GHG standards for MY2012-2016.

For MY2011, Table III.A.3-2 uses the projected NHTS A compliance values for its MY2011 CAFE standards of 30.2 mpg for cars and 24.1 mpg for trucks, converted to an equivalent combined car and truck CO 2 level of 325 grams per mile. 17 EPA believes this is a reasonable estimate with which to compare the proposed MY2012-2016 CO 2 emission standards. Identifying the proper MY2011 estimate is complicated for many reasons, among them being the turmoil in the curren t automotive market for consumers and manufacturers, uncertain and volatile oil and g asoline prices, the ability of

manufacturers to use flexible fuel vehicle credits to meet MY2011 CAFE standards, and the fact that most manufacturers have been surpassi ng CAFE standards (particularly the car standard) in recent years. Taking all of these considerations into account, EPA believes that the MY2011 projected CAFE compliance values, converted to CO 2 emissions levels, represent a reasonable estimate.

17 74 FR 14196.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

9 Table III.A.3-2 shows projected industry-wide avera ge 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 standar d that must be met. It is based on the proposed CO 2 -footprint curves and projected footprint values, a nd will decrease each year to 250 grams per mile (g/mi) in MY2016. For M Y2012-2015, the emissions impact of the projected utilization of flexible fuel vehic le (FFV) credits and the temporary leadtime allowance alternative standard (TLAAS, discuss ed below) are shown in the next two columns. Neither of these programs is proposed to be available in MY2016. The Projected CO 2 Emissions column gives the CO 2 emissions levels projected to be achieved given use of the flexible fuel credits and temporar y 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 y ears. The Projected A/C Credit column represents the industry wide average air con ditioner credit manufacturers are expected to earn on an equivalent CO 2 gram per mile basis in a given model year. In MY2016, the projected A/C credit of 10.6 g/mi repre sents 14 percent of the 75 g/mi CO 2 emissions reductions associated with the proposed s tandards. The Projected 2-cycle CO 2 Emissions column shows the projected CO 2 emissions as measured over the EPA 2-cycle tests, which would allow compliance with the standa rd assuming utilization of the projected 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

- - - (325)

- (325)

2012 295 6 0.3 302 3.1 305

2013 286 5.7 0.2 291 5.0 296

2014 276 5.4 0.2 281 7.5 289

2015 263 4.1 0.1 267 10.0 277

2016 250 0 0 250 10.6 261

EPA is also proposing a series of flexibilities for compliance with the CO 2 standard which are not expected to significantly af fect the projected compliance and achieved values shown above, but which should signi ficantly reduce the costs of achieving those reductions. These flexibilities in clude the ability to earn: annual credits for a manufacturer’s over-compliance with its uniqu e fleet-wide average standard, early credits from MY2009-2011, credits for early introd uction of advanced technology vehicles, credit for “off-cycle” CO 2 reductions not reflected in CO 2 /fuel economy tests, as well as the carry-forward and carry-backward of cre dits, the ability to transfer credits between a manufacturer’s car and truck fleets, and a temporary lead-time allowance alternative standard (included in the tables above) that will permit manufacturers with Formatted TableDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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less than 400,000 vehicles produced in MY 2009 to d esignate a fraction of their vehicles to meet a 25% higher CO 2 standard for MY 2012-2015. All of these proposed flexibilities are discussed in greater detail in la ter sections.

EPA is also proposing caps on the tailpipe emission s 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 vehicle designs are ext remely low and represent only about 1% of total 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, the se standards are not designed to require automakers to make any changes in current v ehicle designs, and thus EPA is not projecting any environmental or economic impacts as sociated with these proposed

standards.

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

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

Standards

In Table III.A.3-3 EPA presents estimated annual ne t benefits for the indicated calendar years. The table also shows the net prese nt 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 t hese same costs and benefits are also attributed to the proposed CAFE standard contained in this joint proposal.

Table III.A.3-3 Projected Quantifiable Benefits and Costs for Proposed CO 2 Standard

(in million 2007 $s) [note: B = unquantified benefi ts] 2020 2030 2040 2050 NPV, 3% NPV, 7% Quantified Annual

Costs a -$25,100 -$72,500 -$105,700 -$146,100 -$1,287,600 - $529,500

Benefits from Reduced GHG Emissions at each assumed SCC value
SCC 5% $1,200 $3,300 $5,700 $9,500 $69,200 $28,600 SCC 5% Newell-Pizer $2,500 $6,600 $11,000 $19,000 $ 138,400 $57,100 SCC from 3% and 5% $4,700 $12,000 $22,000 $36,000 $ 263,000 $108,500 SCC 3% $8,200 $22,000 $38,000 $63,000 $456,900 $188 ,500 SCC 3% Newell-Pizer $14,000 $36,000 $63,000 $100,00 0 $761,400 $314,200
Other Quantified ExternalitiesDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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PM 2.5 Related

Benefits b,c,d $1,400 $3,000 $4,600 $6,700 $59,800 $26,300

Energy Security Impacts (price shock) $2,300 $4,800 $6,200 $7,800 $85,800 $38,800

Reduced Refueling $2,500 $4,900 $6,400 $8,000 $89,600 $41,000

Value of Increased Driving e $4,900 $10,000 $13,600 $18,000 $184,700 $82,700

Accidents, Noise, Congestion -$2,400 -$4,900 -$6,300 -$7,900 -$88,200 -$40,200

Quantified Net Benefits at each assumed SCC value
SCC 5% $35,000 $93,600 $135,900 $188,200 $1,688,500 $706,700 SCC 5% Newell-Pizer $36,300 $96,900 $141,200 $197,7 00 $1,757,700 $735,200 SCC from 3% and 5% $38,500 $102,300 $152,200 $214,7 00 $1,882,300 $786,600 SCC 3% $42,000 $112,300 $168,200 $241,700 $2,076,20 0 $866,600 SCC 3% Newell-Pizer $47,800 $126,300 $193,200 $278, 700 $2,380,700 $992,300

a Quantified annual costs are negative because fuel savings are included as negative costs (i.e., posit ive savings). Since the fuel savings outweigh the vehi cle technology costs, the costs of as presented her e are actually negative (i.e., they represent savings).

b Note that the co-pollutant impacts associated with the standards presented here do not include the fu ll complement of endpoints that, if quantified and mon etized, would change the total monetized estimate o f rule-related impacts. Instead, the co-pollutant be nefits are based on benefit-per-ton values that ref lect only human health impacts associated with reductions in PM 2.5 exposure. Ideally, human health and environmental benefits would be based on changes in ambient PM 2.5 and ozone as determined by full-scale air quality modeling. However, EPA was unable to c onduct a full-scale air quality modeling analysis i n time for the proposal. EPA does intend to more ful ly capture the co-pollutant benefits for the analys is of

the final standards.

c The PM 2.5 -related benefits (derived from benefit-per-ton val ues) presented in this table are based on an estimate of premature mortality derived from the AC S study (Pope et al., 2002). If the benefit-per-to n estimates were based on the Six Cities study (Laden et al., 2006), the values would be approximately 1 45% (nearly two-and-a-half times) larger.

d The PM 2.5 -related benefits (derived from benefit-per-ton val ues) presented in this table assume a 3% discount rate in the valuation of premature mortali ty to account for a twenty-year segmented cessation lag. If a 7% discount rate had been used, the values wou ld be approximately 9% lower.

e Calculated using pre-tax fuel prices.

4. Basis for the Proposed GHG Standards under Sec tion 202(a)

EPA statutory authority under section 202(a) (1) o f the Clean Air Act (CAA) is

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

With respect to CO 2 and HFCs, EPA is proposing attribute-based light-d uty car and truck standards that achieve large and importan t emissions reductions of GHGs. EPA has evaluated the technological feasibility of the proposed standards, and the information and analysis performed by EPA indicates that these standards are feasible in the lead time provided. EPA and NHTSA have careful ly evaluated the effectiveness of individual technologies as well as the interactions when technologies are combined. EPA’s projection of the technology that would be us ed to comply with the proposed

standards indicates that manufacturers will be able to meet the proposed standards byDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

12

employing a wide variety of technology that is alre ady commercially available and can be incorporated into their vehicle at the time of rede sign. In addition to the use of the manufacturers’ redesign cycle, EPA’s analysis also takes into account certain flexibilities that will facilitate compliance especially in the e arly years of the program when potential lead time constraints are most challenging. These flexibilities include averaging, banking, and trading of various types of credits. For the industry as a whole, EPA’s projections indicate that the proposed standards ca n be met using technology that will be available in the lead-time provided.

To account for additional lead-time concerns for va rious manufacturers of typically higher performance vehicles, EPA is propo sing a Temporary Lead-time Allowance that will further facilitate compliance f or limited volumes of such vehicles in the program’s initial years. For a few very small volume manufacturers, EPA projects that manufacturers will likely comply using a combi nation of credits and technology.

EPA has also carefully considered the cost to manuf acturers of meeting the standards, estimating piece costs for all candidate technologies, direct manufacturing costs, cost markups to account for manufacturers’ i ndirect costs, and manufacturer cost reductions attributable to learning. In estimating manufacturer costs, EPA took into account manufacturers’ own standard practices such as making major changes to model technology packages during a planned redesign cycle . EPA then projected the average cost across the industry to employ this technology, as well as manufacturer –bymanufacturer costs. EPA considers the per vehicle costs estimated from this analysis to be well within a reasonable range in light of the e missions 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 associat ed with the technology used to meet the

standards.

EPA has also evaluated the impacts of these standar ds with respect to reductions in GHGs and reductions in oil usage. For the lifet ime of the model year 2012-2016 vehicles we estimate GHG reductions of approximatel y 950 million metric tons CO 2 eq. and fuel reductions of 1.8 billion barrels of oil. These are important and significant reductions that would be achieved by the proposed s tandards. 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 pr oposed standards, to the extent practicable. Our analysis to date indicates that t he overall quantified benefits of the proposed standards far outweigh the projected costs . Utilizing a 3% discount rate and a $20 per ton social cost of carbon we estimate the t otal net social benefits over the life of the model year 2012-2016 vehicles is $192 $ Z billion, and the net present value of the net social benefits of the standards through the ye ar 2050 is $1.9 trillion dollars. These values are estimated at $136 billion and $787 billi on, respectively, using a 7% discount rate and the $20 per ton SCC value.

Under section 202(a) EPA is called upon to set stan dards that provide adequate lead-time for the development and application of te chnology to meet the standards.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

13

EPA’s proposed standards satisfy this requirement, as discussed above. In setting the standards, EPA is called upon to weigh and balance various factors, and to exercise judgment in setting standards that are a reasonable balance of the relevant factors. In this case, EPA has considered many factors, such as cost , impacts on emissions (both GHG and non-GHG), impacts on oil conservation, impacts on noise, energy, safety, and other factors, and has where practicable quantified the c osts and benefits of the rule. In summary, given the technical feasibility of the sta ndard, the moderate cost per vehicle in light of the savings in fuel costs over the life ti me of the vehicle, the very significant reductions in emissions and in oil usage, and the s ignificantly greater quantified benefits compared to quantified costs, EPA is confident that the proposed standards are an appropriate and reasonable balance of the factors t o consider under section 202(a). See Husqvarna AB v. EPA , 254 F. 3d 195, 200 (D.C. Cir. 2001) (great discre tion to balance statutory factors in considering level of technolog y-based standard, and statutory requirement “to [give appropriate] consideration to the cost of applying ... technology” does not mandate a specific method of cost analysis ); see also Hercules Inc. v. EPA , 598 F. 2d 91, 106 (D.C. Cir. 1978) (“In reviewing a num erical standard we must ask whether the agency’s numbers are within a zone of reasonabl eness, not whether its numbers are precisely right”); Permian Basin Area Rate Cases , 390 U.S. 747, 797 (1968) (same); Federal Power Commission v. Conway Corp. , 426 U.S. 271, 278 (1976) (same); Exxon Mobil Gas Marketing Co. v. FERC , 297 F. 3d 1071, 1084 (D.C. Cir. 2002) (same).

EPA recognizes that the vast majority of technology which we are considering for purposes of setting standards under section 202(a) is commercially available and already being utilized to a limited extent across the fleet . The vast majority of the emission reductions which would result from this proposed ru le would result from the increased use of these technologies. EPA also recognizes tha t this proposed rule would enhance the development and limited use of more advanced techno logies, such as PHEVs and EVs. In this technological context, there is no clear cu t line that indicates that only one projection of technology penetration could potentia lly be considered feasible for purposes of section 202(a), or only one standard that could potentially be considered a reasonable balancing of the factors relevant under section 202 (a). EPA has therefore evaluated two sets of alternative standards, one more stringent t han the proposed standards and one less stringent.

The alternatives are 4% per year increase in standa rds which would be less stringent that our proposal and a 6% per year incre ase in the standards which would be more stringent than our proposal. EPA is not propos ing either of these. As discussed in Section III.D.7, the 4% per year compared to the pr oposal forgoes CO 2 reductions which

can be achieved at reasonable costs and are achieva ble by the industry within the rule’s timeframe. The 6% per year alternative requires a significant increase in the projected required technology which may not be achievable in this timeframe due to the limited

available lead time and the current difficult finan cial condition of the automotive industry. (See Section III.D.7 for a detailed disc ussion of why EPA is not proposing either of the alternatives.) EPA thus believes th at it is appropriate to propose the CO 2 standards discussed above. EPA invites comment on all aspects of this judgment, as well

as comment on the alternative standards.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

14 EPA is also proposing standards for N 2 O and CH 4

. They are designed to act as caps and to avoid increases in emissions. As discu ssed in Section III.B.6, EPA is also proposing standards for N 2 O and CH 4 . EPA has designed these standards to act as emission rate (i.e., gram per mile) caps and to avo id future increases in light duty vehicle emissions. As discussed in Section III.B.6, N 2 O and CH 4 emissions are already generally well controlled by current emissions standards relatively low compared to CO 2 emissions

, and EPA has not identified clear technological step s available to manufacturers today that would significantly reduce current emission levels for the vast majority of vehicles manufactured today (i.e., stoichometric gasoline ve hicles) . However, for both N 2 O and

CH 4 , some vehicle technologies (and, for CH 4 , use of natural gas fuel) could potentially increase emissions of these GHGs in the future, and EPA believes it is important that this be avoided. EPA expects that that , almost universally across current car and truck designs, manufacturers will be able to meet the “ca p” standards with little if any technological improvements or cost. EPA has designe d the level of the N 2 O and CH 4 standards with the intent that manufacturers would be able to meet them without the need for technological improvement; in other words, thes e emission standards are designed to be "anti-backsliding" standards. there is technology that w ill be available to meet these caps, and there should be little expense to industr y to meet these caps. EPA is proposing standards that will avoid backsliding in emissions of N 2 O and CH 4 . That is appropriate at this time, because [insert short summary of why we are not proposing standards to reduce as compared to a cap].

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

EPA is proposing new emission standards to control greenhouse gases (GHGs) from light-duty vehicles. First, EPA is proposing emission standards for carbon dioxide (CO 2 ) on a gram per mile (g/mile) basis that would appl y to a manufacturer’s fleet of cars, and a separate standard that would apply to a manufacturer’s fleet of trucks. CO 2 is the primary pollutant resulting from the combustion of vehicular fuels, and the amount of

CO 2 emitted is directly correlated to the amount of fu el consumed. Second, EPA is providing auto manufacturers with the opportunity t o earn credits toward the fleet-wide average CO 2 standards for improvements to air conditioning sys tems, including both hydrofluorocarbon (HFC) refrigerant losses (i.e., s ystem leakage) and indirect CO 2 emissions related to the increased load on the engi ne. Third, EPA is proposing separate emissions standards for two other GHG pollutants: m ethane (CH 4 ) and nitrous oxide (N 2 0). CH 4 and N 2 O emissions relate closely to the design and effici ent use of emission control hardware (i.e., catalytic converters). The standards for CH 4 and N 2 O would be set as a cap that would limit emissions increases and p revent backsliding from current emission levels. The proposed standards described below would apply to passenger cars, light-duty trucks, and medium-duty passenger vehicl es (MDPVs). As an overall group, they are referred to in this preamble as light vehi cles or simply as vehicles. In thisDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

15

preamble section passenger cars may be referred to simply as “cars”, and light-duty trucks and MDPVs as “light trucks” or “trucks.” 18

EPA is establishing a system of averaging, banking, and trading of credits integral to the fleet averaging approach, based on manufactu rer fleet average CO 2 performance, as discussed in Section III.B.4. This approach is sim ilar to averaging, banking, and trading (ABT) programs EPA has established in other program s and is also similar to provisions in the CAFE program. In addition to traditional AB T credits based on the fleet emissions average, EPA is also proposing to include A/C credi ts as an aspect of the standards, as mentioned above. EPA is also proposing several add itional credit provisions that apply only in the initial model years of the program. Th ese include flex fuel vehicle credits, credits based on the use of advanced technologies, and generation of credits prior to model year 2012. The proposed A/C credits and addi tional credit opportunities are described in Section III.C. These credit programs would provide flexibility to manufacturers, which may be especially important du ring the early transition years of the program. EPA is also proposing to allow a manufact urer to carry a deficit into the future for a limited number of model years. A parallel pr ovision, referred to as credit carryback, is proposed as part of the CAFE program.

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

The proposed attribute-based CO 2 standards, if made final, are projected to achieve a national fleet-wide average, covering bot h 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 cred its in the standard. The standards would begin with MY 2012, with a generally linear i ncrease in stringency from MY 2012 through MY 2016. EPA is proposing separate standar ds 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 whic h is estimated to correspond with the proposed standards. The actual fleet-wide average g/mi level that will be achieved in any year for cars and trucks will depend on the actual production for that year, as well as the use of the various credit and averaging, banking, a nd trading provisions. For example, in any year, manufacturers may generate credits from c ars and use them for compliance

with the truck standard. Such transfer of credits between cars and trucks is not reflected in the table below. In Section III.F, the year-by- year estimate of emissions reductions that are projected to be achieved by the proposed s tandards are discussed.

In general, the proposed schedule of standards acts as a phase-in to the MY 2016 standards, and reflects consideration of the approp riate lead-time for each manufacturer to implement the requisite emission reductions tech nology across its product line. 19 Note that 2016 is the final model year in which standard s become more stringent. The 2016

CO 2 standards would remain in place for 2017 and later model years, until revised by EPA in a future rulemaking.

18 As described in Section III.B.2., EPA is proposing for purposes of GHG emissions standards to use the same vehicle category definitions as are used in th e CAFE program.

19 See CAA section 202(a)(2).Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

16 EPA estimates that, on a combined fleet-wide nation al basis, the proposed 2016 MY standards would achieve a level of 250 g/mile CO 2 , including CO 2 -equivalent credits

from A/C related reductions. The derivation of t he 250 g/mile estimate is described in

Section III.B.2.

EPA has estimated the overall fleet-wide CO 2 -equivalent emission levels that correspond with the proposed attribute-based standa rds, based on the projections of the composition of each manufacturer’s fleet in each ye ar of the program. Tables III.B.1-1 and III.B.1-2 provides these estimates for each man ufacturer. 20

Table III.B.1-1 Estimated Fleet CO 2 -equivalent Levels Corresponding to the Proposed

Standards for Cars

Manufacturer Model Year

2012 2013 2014 2015 2016

BMW 265 257 249 238 227 Chrysler 266 259 251 242 231

Daimler 270 263 257 245 234

Ford 266 259 251 239 228

General

Motors 266 258 250 239 228

Honda 259 251 244 232 221 Hyundai 260 252 244 233 221

Kia 262 253 246 235 223

Mazda 258 250 243 231 220

Mitsubishi 255 247 240 228 217

Nissan 263 255 247 236 225

Porsche 242 234 227 215 204

Subaru 252 244 237 225 214

Suzuki 244 236 229 217 206

Tata 286 278 271 259 248 Toyota 257 250 242 231 220 Volkswagen 254 246 239 228 217

Table III.B.1-2 Estimated Fleet CO 2 -equivalent Levels Corresponding to the Proposed Standards for Light Trucks

Manufacturer Model Year

2012 2013 2014 2015 2016

BMW 334 324 313 298 283
Chrysler 349 339 329 315 300

Daimler 346 334 323 308 293

Ford 363 352 343 329 314

20 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

.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

17 General

Motors 372 361 351 337 322

Honda 333 322 311 295 280
Hyundai 330 320 308 293 278

Kia 341 330 319 303 288

Mazda 321 311 300 286 271

Mitsubishi 320 310 299 284 269

Nissan 352 341 332 318 303

Porsche 338 327 316 301 286

Subaru 319 308 297 282 267

Suzuki 324 313 301 286 271

Tata 326 316 305 289 275
Toyota 342 332 320 305 291
Volkswagen 344 333 322 307 292

These estimates were aggregated based on projected production volumes into the fleet-wide averages for cars and trucks (Table III. B.1-3). 21

Table III.B.1-3 Estimated Fleet-wide CO 2 -equivalent Levels Corresponding to the Proposed Standards

Cars Trucks

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

2012 261 352

2013 254 341

2014 245 331

2015 234 317

2016 and later 224 303

As shown in Table III.B.1-3, fleet-wide CO 2 -equivalent emission levels for cars under the proposed approach are projected to decrea se from 261 to 224 grams per mile between MY 2012 and MY 2016. Similarly, fleet-wide CO 2 -equivalent emission levels for trucks are projected to decrease from 352 to 30 3 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 Dr aft Regulatory Impact Analysis (DRIA).

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

21 Due to rounding during calculations, the estimated fleet-wide CO 2 -equivalent levels may vary by plus or minus 1 gram.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

18

Table III.B.1-4 Estimated Fleet-wide Combined CO 2 -equivalent Levels Corresponding to the Proposed 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 proposing standards that wou ld result in increasingly stringent levels of CO 2 control from MY 2012 though MY 2016 – applying the CO 2 footprint curves applicable in each model year to t he vehicles expected to be sold in each model year produces fleet-wide annual reductions in CO 2 emissions. As explained in Section III.D below and the relevant support docume nts, EPA believes that the proposed level of improvement achieves important CO 2 emissions reductions through the application of feasible control technology at reaso nable cost, considering the needed lead time for this program. EPA further believes that th e proposed averaging, banking and trading provisions, as well as other credit-generat ing mechanisms, allow manufacturers

further flexibilities which reduce the cost of the proposed CO 2 standards and help to provide adequate lead time. EPA believes this appr oach is justified under section 202(a)

of the Clean Air Act.

EPA has analyzed the feasibility under the CAA of a chieving the proposed CO 2 standards, based on projections of what actions man ufacturers are expected to take to reduce emissions. The results of the analysis are discussed in detail in Section III.D below and in the DRIA. EPA also presents the estim ated costs and benefits of the proposed car and truck CO 2 standards in Section III.H. In developing the pro posal, EPA has evaluated the kinds of technologies that could be utilized by the automobile industry, as well as the associated costs for the industry an d fuel savings for the consumer, the magnitude of the GHG reductions that may be achieve d, and other factors relevant under

the CAA.

With respect to the lead time and cost of incorpora ting 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 lightduty vehicle products (and in some cases introduce entirely new vehicles not on the market today). Over these five model years there wo uld be an opportunity for manufacturers to evaluate almost every one of their vehicle model platforms and add technology in a cost-effective way to control GHG e missions and improve fuel economy. This includes redesign of the air conditioner syste ms in ways that will further reduce GHG emissions. The time-frame and levels for the p roposed standards, as well as the ability to average, bank and trade credits and carr y a deficit forward for a limited time, are expected to provide manufacturers the time need ed to incorporate technology that will achieve GHG reductions, and to do this as part of t he normal vehicle redesign process. This is an important aspect of the proposal, as it would avoid the much higher costs thatDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

19

would occur if manufacturers needed to add or chang e technology at times other than these scheduled redesigns. This time period would also provide manufacturers the opportunity to plan for compliance using a multi-ye ar time frame, again in accord with their normal business practice.

Consistent with the requirement of CAA section 202( a)(1) that standards be applicable to vehicles “for their useful life,” EPA is proposing CO 2 vehicle standards that would apply for the useful life of the vehicle. Un der 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. 22 Tier 2 refers to EPA’s standards for criteria pol lutants such as NO X , HC, and CO. EPA is proposing new CO 2 standards for the same group of vehicles, and ther efore the Tier 2 useful life would apply for CO 2 standards as well. The in-use emission standard will be 10% higher than the certification standard, to address issues of production variability and test-to-test variability . The in-use standard is discussed in

Section III.E.

EPA is proposing to measure CO 2 for certification and compliance purposes using the same test procedures currently used by EPA for measuring fuel economy. These procedures are the Federal Test Procedure (FTP or ‘ ‘city’’ test) and the Highway Fuel Economy Test (HFET or ‘‘highway’’ test). 23 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, EP A is not proposing to use these test procedures for the CO 2 standards proposed here, given the lack of data on control technology effectiveness under these procedures. 24 As stated in Section I, EPA and NHTSA invite comments on potential amendments to th e CAFE and GHG test procedures, including but not limited to air condit ioner-related emissions, that could be implemented beginning in MY 2017.

EPA proposes to include hydrocarbons (HC) and car bon 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 ta ilpipe HC and CO emissions and expressing it as CO 2 -equivalent emissions would add less than one perce nt to the overall

CO 2 -equivalent emissions level. This will also ensure consistency with CAFE

calculations since HC and CO are included in the “c arbon balance” methodology that EPA uses to determine fuel usage as part of calcula ting vehicle fuel economy levels.

22 See 65 FR 6698 (February 10, 2000).

23 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. 23 The provisions in the 1976 regulation, effective with the 1977 model year, established procedures to calculate fuel econ omy values both for labeling and for CAFE purposes.

24 See 71 FR 77872, December 27, 2006.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

20

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

EPA proposes to use the same vehicle category defi nitions that are used in the CAFE program for the 2011 model year standards. 25 The CAFE vehicle category definitions differ slightly from the EPA definition s for cars and light trucks used for the Tier 2 program, as well as other EPA vehicle progra ms. Specifically, NHTSA's reconsideration of the CAFE program statutory langu age has resulted in many two-wheel drive SUVs under 6000 pounds gross vehicle weight b eing reclassified as cars under the CAFE program. The proposed approach of using CAFE definitions allows EPA’s proposed CO 2 standards and the proposed CAFE standards to be ha rmonized across all vehicles. In other words, vehicles would be subjec t to either car standards or truck standards under both programs, and not car standard s under one program and trucks

standards under the other.

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

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

Finally, most of the advantages of a single standar d for all light duty vehicles are also present in the two-fleet standards proposed he re. Because EPA is proposing to allow

unlimited credit transfer between a manufacturer’s car and truck fleets, the two fleets can essentially be viewed as a single fleet when manufa cturers consider compliance strategies. Manufacturers can thus choose on whic h vehicles within their fleet to focus GHG reducing technology and then use credit transfe rs as needed to demonstrate compliance, just as they would if there was a singl e fleet standard. The one benefit of a single light-duty fleet not captured by a two-fleet approach is that a single fleet prevents potential “gaming” of the car and truck definitions to try and design vehicles which are more similar to passenger cars but which may meet t he regulatory definition of trucks. Although this is of concern to EPA, we do not belie ve at this time that concern is sufficient to outweigh the other reasons for propos ing separate car and truck fleet standards. EPA requests comment on this approach.

25 See 49 CFR part 523.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

21

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

CO 2 = a, if x ≤ l

CO 2 = cx + d, if l < x ≤ h

CO 2 = b, if x > h

Where,

CO 2 = the CO 2 target value for a given footprint (in g/mi)

a = the minimum CO 2 target value (in g/mi)

b = the maximum CO 2 target value (in g/mi) c = the slope of the linear function (in g/mi per s q ft) d = is the zero-offset for the line (in g/mi CO 2 ) x = footprint of the vehicle model (in square feet, rounded to the nearest tenth) l & h are the lower and higher footprint limits, co nstraints, or the boundary (“kinks”) between the flat regions and the intermediate slope d line

EPA’s proposed parameter values that define the fam ily of functions for the proposed

CO 2 fleetwide average car and truck standards are as f ollows:

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 242 313 4.72 48.8 41 56

2013 234 305 4.72 40.8 41 56

2014 227 297 4.72 33.2 41 56

2015 215 286 4.72 22.0 41 56

2016 and

later 204 275 4.72 10.9 41 56

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 298 399 4.04 132.6 41 66

2013 287 388 4.04 121.6 41 66

2014 276 377 4.04 110.3 41 66

2015 261 362 4.04 95.2 41 66

2016 and

later 246 347 4.04 80.4 41 66

The equations can be shown graphically for each veh icle category, as shown in Figures III.B.2-1 and III.B.2-2. These standards ( or functions) decrease from 2012-2016 with a vertical shift. A more detailed description of the development of the attribute based standard can be found in Chapter 2 of the Dra ft Joint TSD. More background

discussion on other alternative attributes and curv es EPA explored can be found in theDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

22

EPA DRIA. EPA recognizes that the CAA does not man date that EPA use an attribute based standard, as compared to NHTSA’s obligations under EPCA. The EPA believes that proposing a footprint-based program will harmo nize EPA’s proposed program and the proposed CAFE program as a single national prog ram, resulting in reduced compliance complexity for manufacturers. EPA’s rea sons for proposing to use an

attribute based standard are discussed in more deta il in the Joint TSD. Comments are requested on this proposal to use the attribute-bas ed approach for regulating tailpipe CO 2 emissions.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

2320025030035040030 35 40 45 50 55 60 65 70Footprint (sq feet)

CO2 (grams per mile)20122016`Figure III.B.2-1. CO2 (g/mi) Car standard curves.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

2420025030035040030 35 40 45 50 55 60 65 70Footprint (sq feet)

CO2 (grams per mile)20122016Figure III.B.2-2. CO2 (g/mi) Truck standard curves.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

25 3. Overview of How EPA’s Proposed CO 2 Standards Would Be Implemented for Individual Manufacturers

This section provides a brief overview of how EPA proposes to implement the

CO 2 standards. Section III.E explains EPA’s proposed approach for certification and compliance in detail. EPA is proposing two kinds o f standards – fleet average standards determined by a manufacturer’s fleet profile of var ious models, and in-use standards that would apply to the various models that make up the manufacturer’s fleet. Although this is similar in concept to the current light-duty veh icle Tier 2 program, there are important differences. In explaining EPA’s proposal for the CO 2 standards, it is useful to summarize how the Tier 2 program works.

Under Tier 2, manufacturers select a test vehicle prior to certification and test the

vehicle and/or its emissions hardware to determine both its emissions performance when new and the emissions performance expected at the e nd 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 b ecomes the emissions standard for the test group the test vehicle represents. All of the vehi cles in the group must meet the emissions level for that bin throughout their usefu l life. The emissions level assigned to the bin is also used in calculating the manufacture r’s fleet average emissions performance.

Since compliance with the Tier 2 fleet average dep ends on actual test group sales volumes and bin levels, it is not possible to deter mine compliance at the time the manufacturer applies for and receives a certificate of conformity for a test group. Instead, at certification, the manufacturer demonstrates tha t the vehicles in the test group are expected to comply throughout their useful life wit h the emissions bin assigned to that test group, and makes a good faith demonstration th at its fleet is expected to comply with the Tier 2 average when the model year is over. EP A issues a certificate for the vehicles covered by the test group based on this demonstrati on, and includes a condition in the certificate that if the manufacturer does not compl y with the fleet average then production vehicles from that test group will be treated as no t covered by the certificate to the extent needed to bring the manufacturer’s fleet average in to compliance with Tier 2.

EPA proposes to retain the Tier 2 approach of requ iring manufacturers to demonstrate in good faith at the time of certificat ion that models in a test group will meet applicable standards throughout useful life. EPA al so proposes to retain the practice of conditioning certificates upon attainment of the fl eet average standard. However, there are several important differences between a Tier 2 type of program and the CO 2 standards program EPA is proposing. These differences and res ulting modifications to certification

are summarized below and are described in detail in Section III.E.

EPA is proposing to certify test groups as it does for Tier 2, with the CO 2 emission results for the test vehicle as the initia l or default standard for all of the models in the test group. However, manufacturers would la ter substitute test data for individualDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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models in that test group, based on the model level fuel economy testing that typically occurs through the course of the model year. This model level data would then be used to assign a distinct certification level for that mode l, instead of the initial test group level.

These model level results would then be used to cal culate the fleet average after the end of production. 26 The option to substitute model level test data fo r the test group data is at the manufacturer's discretion, except they are requ ired as under the CAFE test protocols to test, at a minimum, enough models to represent 9 0 percent of their production. The test group level would continue to apply for any mo del that is not covered by model level testing. A related difference is that the fleet av erage calculation for Tier 2 is based on test group bin levels and test group sales whereas under this proposal the CO 2 fleet level would be based on a combination of test group and m odel-level emissions and modellevel production. For the new CO 2 standards, EPA is proposing to use production rath er than sales in calculating the fleet average in orde r to more closely conform with CAFE, which is a production-based program. EPA does not expect any significant

environmental effect because there is little differ ence between production and sales, and this will reduce the complexity of the program for manufacturers.

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

As explained above, a fleet average CO 2 program for passenger cars and light trucks is proposed. EPA has implemented similar av eraging 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. 27 The proposed program would operate much like EPA’s existing averaging programs in that manufacturers would calculate production-weighted fleet average emissions at the end of the model year and compare their fleet average with a fleet average standard t o determine compliance. As in other EPA averaging programs, the Agency is also proposin g a comprehensive program for averaging, banking, and trading of credits which to gether will help manufacturers in planning and implementing the orderly phase-in of e missions control technology in their production, using their typical redesign schedules.

Averaging, Banking, and Trading (ABT) of emissions credits has been an important part of many mobile source programs under CAA Title II, both for fuels programs as well as for engine and vehicle programs . ABT is important because it can help to address many issues of technological feasib ility 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 standa rd that is either numerically more stringent or goes into effect earlier than could ha ve been justified otherwise. This

26 The final in-use vehicle standards for each model would also be based on the model-level fuel economy testing. As discussed in Section III.E.4, an in-use adjustment factor would be applied to the model le vel

results to determine the in-use standard that would apply during the useful life of the vehicle.

27 For example, see the Tier 2 light-duty vehicle emi ssion standards program (65 FR 6698, February 10, 2000), the 2010 and later model year motorcycle emi ssions program (69 FR 2398, January 15, 2004), and the 2007 and later model year heavy-duty engine and vehicle standards program (66 FR 5001, January 18, 2001).Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

27

provides important environmental benefits at the sa me time it increases flexibility and reduces costs for the regulated industry.

This section discusses generation of credits by ach ieving a fleet average CO 2 level

that is lower than the manufacturer’s CO 2 fleet average standard. EPA is proposing a variety of additional ways credits may be generated by manufacturers. Section III.C describes these additional opportunities to generat e credits in detail. EPA is proposing that credits could be earned through A/C system imp rovements beyond a specified baseline. Credits can also be generated by produci ng alternative fuel vehicles, by producing advanced technology vehicles including el ectric vehicles, plug-in hybrids, and fuel cell vehicles, and by using technologies that improve off-cycle emissions. In addition, EPA is proposing that early credits could be generated prior to the proposed program’s MY 2012 start date. The credits would be used in calculating the fleet averages at the end of the model year, with the exc eption of early credits which would be tracked separately. These proposed credit generati ng opportunities are described below

in Section III.C.

As explained earlier, manufacturers would determin e the fleet average standard that would apply to their car fleet and the standar d for their truck fleet from the applicable

attribute-based curve. A manufacturer’s credit or debit balance would be d etermined by comparing th at eir fleet average with the manufacturer’s CO 2 standard for that model year. The standard would be calculated from footpri nt values on the attribute curve and actual production levels of vehicles at each footpr int. A manufacturer would generate

credits if its car or truck fleet achieves a fleet average CO 2 level lower than its standard and would generate debits if its fleet average CO 2 level is above that standard. ” At the end of the model year, each manufacturer would calc ulate a production-weighted fleet average for each averaging set, cars and trucks. A manufacturer’s car or truck fleet that achieves a fleet average CO 2 level lower than its standard would generate credi ts, and if its fleet average CO 2 level is above that standard its fleet would gener ate debits.

EPA is proposing to account for the difference in expected lifetime vehicle miles traveled (VMT) between cars and trucks in order to preserve CO 2 reductions when credits

are transferred between cars and trucks. As direct ed by EISA, NHTSA accomplishes this in the CAFE program by using an adjustment factor t hat is applied to credits when they are transferred between car and truck compliance ca tegories. The CAFE adjustment

factor accounts for two different influences that c an cause the transfer of car and truck credits (expressed in tenths of a mpg), if left una djusted, to potentially negate fuel reductions. First, mpg is not linear with fuel cons umption, i.e., a 1 mpg improvement above a standard will imply a different amount of a ctual fuel consumed depending on the level of the standard. Second, NHTSA’s conversion corrects for the fact that the typical

lifetime miles for cars is less than that for truck s, meaning that credits earned for cars and trucks are not necessarily equal. NHTSA’s adjustmen t factor essentially converts credits into vehicle lifetime gallons to ensure preservatio n of fuel savings and the transfer credits on an equal basis, and then converts back to the st atutorily-required credit units of tenths of a mile per gallon. To convert to gallons NHTSA’ s conversion must take into account the expected lifetime mileage for cars and trucks. Because EPA is proposing standardsDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

28

that are expressed on a CO 2 gram per mile basis, which is linear with fuel con sumption,

EPA’s credit calculations do not need to account fo r the first issue noted above. However, EPA is proposing to account for the second issue by expressing credits when they are generated in total lifetime megagrams (met ric tons), rather than through the use of conversion factors that would apply at certain t imes. In this way credits could be freely exchanged between car and truck compliance c ategories without adjustment. Additional detail regarding this approach, includin g a discussion of the vehicle lifetime mileage estimates for cars and trucks can be found in Section III.E.5. A discussion of the

estimated vehicle lifetime miles traveled can be fo und in Chapter 4 of the draft Joint Technical Support Document. EPA requests comment o n the proposed approach.

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

First, the manufacturer would have to offset any d eficit that had accrued in that averaging set in a prior model year and had been ca rried over to the current model year. In such a case, the manufacturer would be obligated to use any current model year credits

to offset that deficit. This is referred to in the CAFE program as credit carry-back. EPA’s proposed deficit carry-forward, or credit car ry-back provisions are described further, below.

Second, after satisfying any needs to offset pre-e xisting deficits within a vehicle category, remaining credits could be banked, or sav ed for use in future years. EPA is proposing that credits generated in this program be available to the manufacturer for use in any of the five years after the year in which th ey were generated, consistent with the CAFE program under EISA. This is also referred to as a credit carry-forward provision. For other new emission control programs, EPA has so metimes initially restricted credit life to allow time for the Agency to assess whether the credit program is functioning as intended. When EPA first offered averaging and ban king provisions in its light-duty emissions control program (the National Low Emissio n 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 restricti ons on credit life.

EPA is therefore acting consistently with our past practice in proposing to reasonably restrict credit life in this new program . The Agency believes, subject to consideration of public comment, that a credit life of five years represents an appropriate balance between promoting orderly redesign and upgr ade of the emissions control technology in the manufacturer’s fleet and the poli cy goal of preventing large numbers of credits accumulated early in the program from inter fering with the incentive to developDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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and transition to other more advanced emissions con trol technologies. As discussed below in Section III.C, EPA is proposing that any e arly credits generated by a manufacturer, beginning as soon as MY 2009, would a lso be subject to the five year credit carry-forward restriction based on the year in which they are generated. This would limit the effect of the early credits on the long-term emissions reductions anticipated to result from the proposed new standar ds.

Third, EPA is proposing to allow manufacturers to transfer credits between the two averaging sets, passenger cars and trucks, with in a manufacturer. For example, credits accrued by over-compliance with a manufactu rer’s car fleet average standard

could be used to offset debits accrued due to that manufacturer’s not meeting the truck fleet average standard in a given year. EPA believ es that such cross-category use of credits by a manufacturer would provide important a dditional flexibility in the transition to emissions control technology without affecting o verall emission reductions.

Finally, accumulated credits could be traded to an other vehicle manufacturer. As with intra-company credit use, such inter-company c redit trading would provide flexibility in the transition to emissions control technology without affecting overall emission reductions. Trading credits to another ve hicle manufacturer would be a straightforward process between the two manufacture rs, but could also involve third parties that could serve as credit brokers. Broker s would not own the credits at any time. These sorts of exchanges are typically allowed unde r EPA’s current emission credit programs, e.g., the Tier 2 light-duty vehicle NO X fleet average standard and the heavyduty engine NO X fleet average standards, although manufacturers ha ve seldom made such exchanges. EPA seeks comment on enhanced repo rting requirements or other methods that could help EPA assess validity of cred its, especially those obtained from third-party credit brokers

If a manufacturer had a deficit at the end of a mod el year – that is, its fleet average level failed to meet the required fleet ave rage standard – EPA proposes that the manufacturer could carry that deficit forward (also referred to credit carry-back) for a total of three model years after the model year in which that deficit was generated. As noted above, such a deficit carry-forward could onl y occur after the manufacturer applied any banked credits or credits from another averagin g set. If a deficit still remained after the manufacturer had applied all available credits, and the manufacturer did not obtain credits elsewhere, the deficit could be carried ove r for up to three model years. No deficit could be carried into the fourth model year after t he model year in which the deficit occurred. Any deficit from the first model year th at remained after the third model year

would thus constitute a violation of the condition on the certificate, which would

constitute a violation of the Clean Air Act and wou ld be subject to enforcement action.

In the Tier 2 rulemaking proposal, EPA proposed to allow deficits to be carried forward for one year. In their comments on that pr oposal, manufacturers argued persuasively that by the time they can tabulate the ir average emissions for a particular model year, the next model year is likely to be wel l underway and it is too late to make calibration, marketing, or production mix changes t o adjust that year’s credit generation.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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Based on those comments, in the Tier 2 final rule E PA finalized provisions that allowed

the deficit to be carried forward for a total of th ree years. EPA continues to believe that three years is an appropriate amount of time that g ives the manufacturers adequate time to respond to a deficit situation but does not crea te a lengthy period of prolonged noncompliance with the fleet average standards. 28 Subsequent EPA emission control programs that incorporate ABT provisions (e.g., the Mobile Source Air Toxics rule) have provided this three-year deficit carry-forward prov ision for this reason. 29

The proposed averaging, banking, and trading provi sions are generally consistent with those included in the CAFE program, with a few notable exceptions. As with EPA’s proposed approach, CAFE allows five year carry-forw ard of credits and three year carryback. 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 credits. The

amount of transferred credits that can be used in a year is limited, and transferred credits may not be used to meet the CAFE minimum domestic p assenger car standard. CAFE allows credit trading, but again, traded credits ca nnot be used to meet the minimum domestic passenger car standard. EPA is not propos ing these constraints on the use of

transferred credits.

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

5. CO 2 Temporary Lead-time Allowance Alternative Standard s

Manufacturers with limited product lines may be esp ecially challenged in the early years of the proposed program. Manufactu rers 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 sel l. For example , some manufacturers in

this situation EPA is proposing a limited and narrowly prescribed provision, called the Temporary Lead-time Allowance Alternative Standards (TLAAS), to provide additional

lead time for a certain subset of manufacturers. T his provision is designed to address two different situations where we project that more lea d time is needed, based on the level of emissions control technology and emissions control performance currently exhibited by

certain vehicles. One situation involves manufactu rers who have traditionally paid CAFE fines instead of complying with the CAFE fleet aver age, and as a result at least part of their vehicle production currently has significantl y higher CO 2 and lower fuel economy levels than the industry average. More lead time i s needed in the program’s initial years to upgrade these vehicles to meet the aggressive CO 2 emissions performance levels required by the proposal. The other situation invo lves manufacturers who have a limited line of vehicles and are unable to take advantage o f averaging of emissions performance across a full line of production. For example, som e smaller volume manufacturers focus on high performance vehicles with higher CO 2 emissions, above the CO 2 emissions target for that vehicle footprint, but do not have other t ypes of vehicles in their production mix

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

29 See 71 FR 8427 (February 26, 2007).Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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with which to average. Often, these manufacturers also pay fines under the CAFE program rather than meeting the applicable CAFE sta ndard , but . Because voluntary noncompliance is impermissible for the GHG standards proposed under the CAA . EPA

believes that , both of these technological circumstances may call for a gradual phase

- in by establishing a temporary less stringent standard for MY 2012

- 2015 for a portion of the

vehicle sales so tha t manufacturer resources can be focused on meeting the 2016 levels. The program is structured so as to create no incent ives for any manufacturer to use it except for those with legitimate, critical types of manufacturers need additional lead

- time

constrai nts in the program's initial model years to upgrade vehicles and meet the proposed

standards

.

Therefore, EPA projects that the environmental impact of the proposed TLAAS program will be very small. If all companies eligible to use the TLAAS use it to the maximum extent allowed, total GHG emissions fro m the proposal will increase by

less than 0.4% over the lifetime of the MY 2012-2016 vehicles. EPA believes the impact will be even smaller, as we do not expect all of th e eligible companies to use the program, and we do not expect all companies who do use the program will use it to the maximum extent allowed, as we have included provisi ons which discourage companies from using the TLAAS any longer than it is needed.

EPA has structured the TLAAS program to provide mor e lead time in these kinds of situations, but to limit the program so that it would only be used in situations where

these kinds of lead time concerns arise. Based on historic data on sales, EPA is using a specific historic U

. S

, sales volume as the best way to identify the subse t of production that falls into this situation. Under the TLAAS, t hese manufacturers would be allowed to produce up to but no more than 100,000 vehicles tha t would be subject to a somewhat less stringent CO 2 standard. This 100,000 volume is not an annual li mit, but is an

absolute limit for the total number of vehicles whi ch can use the TLAAS program over the model years 2012-2015. Any additional producti on would be subject to the same standards as any other manufacturer. In addition, EPA is imposing a variety of restrictions on the use of the TLAAS program, discu ssed in more detail below, to ensure that only manufacturers who need more lead time for the kinds of reasons noted above are likely to use the program. Finally, the progra m is temporary and expires at the end of

MY 2015. A more complete discussion of the program is provided below. EPA believes the proposed program reasonably addresses a real wo rld lead time constraint, and does it in a way that balances the need for more lead time with the need to minimize any resulting loss in potential emissions reductions. EPA invites comment as to whether its proposal is the best way to balance these concerns.

EPA proposes to establish a Temporary Lead-time All owance Alternative Standards (TLAAS) for a specified subset of manufac turers. There are two types of companies who would make use of TLAAS- those manufa cturers who have paid CAFE fines in recent years, and consequently who need additional lead-time to bring

in incorporate the needed technology since they have not yet made significant fuel economy improvement to their vehicles ; and those companies who are not full-line manufacturers, who have a smaller range of models a nd vehicle types, who may needDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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additional lead-time as well. This alternative sta ndard would apply to manufacturers with total U.S. sales of less than 400,000 vehicles per year, using 2009 model year final sales numbers to determine eligibility for these alternat ive standards. EPA reviewed the sales volumes of manufacturers over the last few years, a nd determined that manufacturers below this level typically fit the characteristics discussed above, and manufacturers above

this level did not. Thus , EPA chose this level was chosen because it functionally identifies the group of manufacturers described abo ve, recognizing that there is nothing

intrinsic in the sales volume itself that warrants this allowance. EPA was not able to identify any other objective criteria that would mo re appropriately identify the

manufacturers and vehicle fleets described above.

EPA is proposing that manufacturers qualifying fo r TLAAS would be allowed to meet somewhat less stringent standards for a limite d number of vehicles for model years 2012 – 2015. Specifically, an eligible manufacture r could have a total of up to 100,000 units of cars and trucks combined over model years 2012 – 2015, and during those model years those vehicles would be subject to a standard 1.25 times the standard that would otherwise apply to those vehicles under the primary program. In other words, the footprint curves upon which the individual manufact urer 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. This As noted, this approach seeks to balance the need to provide additional lead-time without reducing the environmental benefits of the proposed program. EPA believes tha t 100, 000 000 units over four model

years achieves an appropriate balance as the emissions impact is quite small, but does provide companies with some flexibility during MY 2 012 – 2015. For example, for a manufacturer producing 400,000 vehicles per year, t his would be a total of up to 100,000 vehicles out of a total production of up to 1.6 mil lion vehicles over the four year period, or about 6 percent of total production.

Manufacturers with no U.S. sales in model year 2009 would not qualify for the TLAAS program. Manufacturers meeting the cut-point of 400,000 for MY 2009 but with U.S. directed production above 400,000 in any subse quent model years would remain eligible for the TLAAS program. Also, the total sa les number applies at the corporate level, so if a corporation owns several vehicle bra nds the aggregate sales for the corporation would be used. These provisions would help prevent gaming of the provisions through corporate restructuring. Corpor ate ownership or control relationships

would be based on determinations made under CAFE fo r model year 2009. In other words, corporations grouped together for purposes o f meeting CAFE standards, would be grouped together for determining whether or not the y are eligible under the 400,000 vehicle cut point.

EPA derived the 100,000 maximum unit set aside num ber based on a gradual phase-out schedule shown in Table III.B.5-1, below. However, individual manufacturers’ situations will vary significantly a nd so EPA believes a flexible approach

that allows manufacturers to use the allowance as t hey see fit during these model years would be most appropriate. Therefore, EPA is propo sing that a total of 100,000 vehiclesDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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of an eligible manufacturer, with any combination o f cars or trucks, could be subject to the alternative standard over the four year period without restrictions.

Table III.B.5-1 TLAAS Default Vehicle Production Vo lumes

Model Year 2012 2013 2014 2015
Sales Volume 40,000 30,000 20,000 10,000

The TLAAS vehicles would be separate car and truck fleets for that model year and would be subject to the less stringent footprin t-based standards of 1.25 times the primary fleet average that would otherwise apply. The manufacturer would determine what vehicles are assigned to these separate averag ing sets for each model year. EPA is proposing that credits from the primary fleet avera ge program can be transferred and used in the TLAAS program. Credits within the TLAAS pro gram may also be transferred between the TLAAS car and truck averaging sets for use through 2015 when the TLAAS would end. However, credits generated under TLAAS would not be allowed to be transferred or traded to the primary program. Ther efore, any unused credits under TLAAS would expire after model year 2015. EPA beli eves 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 primar y program.

EPA is concerned that some manufacturers would be a ble to place relatively clean

vehicles in the TLAAS to maximize TLAAS credits if credit use was unrestricted. However, any credits generated from the primary pro gram that are not needed for compliance in the primary program, should be used t o offset the TLAAS vehicles. EPA is thus proposing to restrict the use of banking an d trading between companies of credits in the primary program in years in which the TLAAS is being used. For example, manufacturers using the TLAAS in MY 2012 could not bank credits in the primary program during MY 2012 for use in MY 2013 and later . No such restriction would be in place for years when the TLAAS is not being used. EPA also believes this provision is necessary to prevent credits from being earned simp ly by removing some high-emitting vehicles from the primary fleet. Absent this restr iction, manufacturers would be able to

choose to use the TLAAS for these vehicles and also be able to earn credits under the primary program that could be banked or traded unde r the primary program without

restriction. EPA is proposing two additional restrictions regard ing the use of the TLAAS by requiring that for any of the 2012-2015 model ye ars for which an eligible manufacturer would like to use the TLAAS, the manuf acturer must use two of the available flexibilities in the GHG program first in order to try and show compliance with the primary standard before accessing the TLAAS. S pecifically, before using the TLAAS the manufacturer must: (1) use any banked emi ssion credits from a previous model year; and, (2) use any available credits from the companies’ car or truck fleet for the specific model year (i.e., use credit transfer from cars to trucks or from trucks to cars, that is, before using the TLAAS for either the car fleet or the truck fleet, make use of any available credit transfers first). EPA is requesting comments on all aspects of the proposed TLAAS program including comments on other provisions that might be needed to ensure that the TLAAS program is being used as i ntended and to ensure no gaming

occurs.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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

6. Proposed Nitrous Oxide and Methane Standards

In addition to fleet-average CO 2 standards, EPA is proposing separate per-vehicle standards for nitrous oxide (N 2 O) and methane (CH 4 ) emissions. Standards are being proposed that would cap vehicle N 2 O and CH 4 emissions at current levels. Our intention is to set emissions standards that act to cap emiss ions to ensure that future vehicles do not

increase their N 2 O and CH 4 emissions above levels that would be allowed under the proposal.

EPA considered an approach of expressing each of th ese standards in common

terms of CO 2 -equivalent emissions and combining them into a sin gle standard along with

CO 2 and HFC emissions. California’s “Pavley” program adopted such a CO 2 -equivalent emissions standards approach to GHG emissions in th eir program. 30 However, these pollutants are largely independent of one another i n terms of how they are generated by the vehicle and how they are tested for during impl ementation. Potential control technologies and strategies for each pollutant also differ. Moreover, an approach that provided for averaging of these pollutants could un dermine the stringency of the CO 2 standards , as at this time we are proposing standards which “cap” N 2 O and CH 4 emissions, rather then proposing a level which is e ither at the industry fleet-wide average or which would result in reductions from these poll utants. It is possible that once EPA begins to receive more detailed information on the N 2 O and CH 4 performance of the new vehicle fleet as a result of this proposed rule (if it were to be finalized as proposed) that for a future action for model years 2017 and later EPA could consider a CO 2 -equivalent standard which would not result in any increases in GHG emissions due to the current

lack of detailed data on N 2 O and CH 4 emissions performance.

Almost universally across current car and truck des igns, both gasoline- and dieselfueled, these emissions are relatively low, and our intent is to not are not proposed to require manufacturers to make technological improvements in order take steps to reduce

30 California Environmental Protection Agency Air Res ources Board, Staff Report: Initial Statement of Reasons for Proposed Rulemaking Public Hearing To C onsider Adoption Of Regulations To Control Greenhouse Gas Emissions From Motor Vehicles, Augus t 6, 2004.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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N 2 O and CH 4 at this time. However, it is important that futur e vehicle technologies or

fuels do not result in increases in these emissions , and this is the intent of the proposed “cap” standards.

EPA requests comments on our approach to regulating N 2 O and CH 4 emissions ( including the appropriateness of “cap” standards as opposed to “technology-forcing”

standards , the technical bases for the proposed N 2 O and CH 4 standards, the proposed test procedures, and timing. Specifically, EPA seeks comment on the appropriat eness of the proposed levels of the N 2 O and CH 4 standards to accomplish our stated intent. In addition, EPA seeks comment on any additional emiss ions data on N 2 O and CH 4 from current technology vehicles.

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

N 2 O is a global warming gas with a high global warmin g potential. 31 It accounts for about 2.7% of the current greenhouse gas emissi ons from cars and light trucks. EPA is proposing a per-vehicle N 2 O emission standard of 0.010 g/mi, measured over th e traditional FTP vehicle laboratory test cycles. Th e standard would become effective in model year 2012 for all light-duty cars and trucks. Averaging between vehicles would not be allowed. The standard is designed to prevent increases in N 2 O emissions from current levels, i.e. a no-backsliding standard.

N 2 O is emitted from gasoline and diesel vehicles main ly 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 ri sing 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 in significant amounts be cause the time the catalyst 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 of criteria pollutants. N 2 O is a more significant concern with diesel vehicles, and potentially future gasoline lean-burn engines, equipped with advanced catalytic NO X emissions control systems. These systems can but need not be designed in a way that emphasizes efficient NO X control while allowing the formation of significan t quantities of N 2 O. Excess oxygen present in the exhaust during lea n-burn conditions in diesel or lean-burn gasoline engines equipped with these advanced systems can favor

N 2 O formation if catalyst temperatures are not carefu lly 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 proposing an N 2 O emission standard that EPA believes would be met by current-technology gasoline vehicles at essentially no cost. As noted, N 2 O formation in current catalyst systems occurs, but the emission l evels are low, because the time the catalyst spends at the critical temperatures during warm-up when N 2 O can form is short.

31 N 2 O has a GWP of 310 according to the IPCC Second Ass essment Report (SAR).Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

36

At the same time, EPA believes that the proposed st andard would ensure that the design

of advanced NO X control systems, especially for future diesel and lean-burn gasoline vehicles, would control N 2 O emission levels. While current NO X control approaches

used on current Tier 2 diesel vehicles do not tend to form N 2 O emissions, EPA believes that the proposed standards would discourage any ne w emission control designs that achieve criteria emissions compliance at the cost o f increased N 2 O emissions. Thus, the proposed standard would cap N 2 O emission levels, with the expectation that curren t gasoline and diesel vehicle control approaches that comply with the Tier 2 vehicle

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

N 2 O. The proposed N 2 O level is approximately two times the average N 2 O level of current gasoline passenger cars and light-duty truc ks that meet the Tier 2 NO X standards. 32 Manufacturers typically use design targets for NO X emission levels of about 50% of the standard, to account for in-use emission s deterioration and normal testing and production variability, and manufacturers are expec ted to utilize a similar approach for

N 2 O emission compliance. EPA is not proposing a more stringent standard for current gasoline and diesel vehicles because the stringent Tier 2 program and the associated NO X fleet average requirement already result in signifi cant N 2 O control, and does not expect

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

While EPA believes that manufacturers will likely b e able to acquire and install

N 2 O analytical equipment, the agency also recognizes that some companies may face challenges. Given the short lead-time for this rul e, EPA proposes that manufacturers be

able to apply for a certificate of conformity with the N 2 O standard for model year 2012 based on a compliance statement based on good engi neering judgment. For 2013 and later model years, manufacturers would need to subm it measurements of N 2 O for compliance purposes.

Diesel cars and light trucks with advanced emission control technology are in the early stages of development and commercialization. As this segment of the vehicle market develops, the proposed N 2 O standard would require manufacturers to incorpora te control strategies that minimize N 2 O formation. Available approaches include using electronic controls to limit catalyst conditions th at might favor N 2 O formation and consider different catalyst formulations. While so me of these approaches may have modest associated costs, EPA believes that they wil l be small compared to the overall

costs of the advanced NO X control technologies already required to meet Tier 2

standards.

Vehicle emissions regulations do not currently requ ire testing for N 2 O, and most test facilities do not have equipment for its measu rement. Manufacturers without this capability would need to acquire and install approp riate measurement equipment. However, EPA is proposing four N 2 O measurement methods, all of which are commercially available today. EPA expects that mos t manufacturers would use photo-

32 Memo to docket “Deriving the standard from EPA’s M OVES model emission factors, ” December 2007..Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

37

acoustic measurement equipment, which the Agency es timates would result in a one-time cost of about $50,000-$60,000 for each test cell th at would need to be upgraded.

Overall, EPA believes that manufacturers of cars an d light trucks, both gasoline and diesel, would meet the proposed standard withou t implementing any significantly new technologies, and there are not expected to be any significant costs associated with this proposed standard.

b. Methane (CH 4 ) Exhaust Emission Standard

CH 4 (or methane) is greenhouse gas with a high global warming potential. 33 It accounts for about 0.2% of the greenhouse gases fro m cars and light trucks.

EPA is proposing a CH 4 emission standard of 0.030 g/mi as measured on the FTP, to apply beginning with model year 2012 for both ca rs and trucks. EPA believes that this level for the standard would be met by current gaso line and diesel vehicles, and would prevent large increases in future CH 4 emissions in the event that alternative fueled vehicles with high methane emissions, like some pas t dedicated compressed natural gas (CNG) vehicles, become a significant part of the ve hicle fleet. Currently EPA does not have separate CH 4 standards because unlike other hydrocarbons it doe s not contribute significantly to ozone formation, 34 However CH 4 emissions levels in the gasoline and diesel car and light truck fleet have nevertheless generally been controlled by the Tier 2 non-methane organic gases (NMOG) emission standards . However, without an emission

standard for CH 4 , future emission levels of CH 4 cannot be guaranteed to remain at current levels as vehicle technologies and fuels evolve.

The proposed standard would cap CH 4 emission levels, with the expectation that current gasoline vehicles meeting the Tier 2 emissi on standards would not increase their levels, and that it would ensure that emissions wou ld be addressed if in the future there are increases in the use of natural gas or any othe r alternative fuel. The level of the standard would generally be achievable through norm al emission control methods already required to meet Tier 2 program emission standards for NMOG and EPA is therefore not attributing any cost to this part of this proposal. Since CH 4 is produced in gasoline and diesel engines similar to other hydrocarbon compone nts, controls targeted at reducing overall NMOG levels generally also work at reducing CH 4 emissions. Therefore, for gasoline and diesel vehicles, the Tier 2 NMOG stand ards will generally prevent increases

in CH 4 emissions levels from today. CH 4 from Tier 2 light-duty vehicles is relatively low compared to other GHGs largely due to the high effe ctiveness of previous National Low Emission Vehicle (NLEV) and current Tier 2 programs in controlling overall HC

emissions.

33 CH 4 has a GWP of 21 according to the IPCC Second Asses sment Report (SAR).

34 But see Ford Motor Co. v. EPA , 604 F. 2d 685 (D.C. Cir. 1979) (permissible for E PA to regulate CH 4 under CAA section 202 (b)).Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

38 The level of the proposed standard is approximately two times the average Tier 2 gasoline passenger cars and light-duty trucks level

. 35 As with N 2 O, this proposed level recognizes that manufacturers typically set emissio n design targets at about 50% of the standard. Thus, EPA believes the proposed standard would be met by current gasoline vehicles. Similarly, since current diesel vehicles generally have even lower CH 4 emissions than gasoline vehicles, EPA believes that diesels would also meet the proposed standard. However, EPA also believes that to set a CH 4 emission standard more stringent than the proposed standard could effectively make t he Tier 2 NMOG standard more stringent.

In recent model years, a small number of cars and l ight trucks were sold that were designed for dedicated use of compressed natural ga s (CNG) that met Tier 2 emission standards. While emission control designs on these recent dedicated CNG-fueled

vehicles demonstrate CH 4 control as effective as gasoline or diesel equival ent vehicles, CNG-fueled vehicles have historically produced sign ificantly higher CH 4 emissions than gasoline or diesel vehicles. This is because their CNG fuel is essentially methane and any unburned fuel that escapes combustion and not oxidi zed by the catalyst is emitted as methane. However, 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 sta ndards do not require CH 4 control. While the proposed CH 4 cap standard should not require any different emission control designs beyond what is a lready required to meet Tier 2 NMOG standards on a dedicated CNG vehicle, the cap will ensure that systems maintain the

current level of CH 4 control. EPA is not proposing more stringent CH 4 standards because

the same controls that are used to meet Tier 2 NMOG standards should result in effective

CH 4 control. Increased CH 4 stringency beyond proposed levels could inadverten tly result in increased Tier 2 NMOG stringency absent an emiss ion control technology unique to

CH 4 . Since CH 4 is already measured under the current Tier 2 regul ations (so that it may be subtracted to calculate non-methane hydrocarbons ), the proposed standard would not result in additional testing costs. EPA requests c omment on whether the proposed cap standard would result in any significant technologi cal challenges for makers of CNG

vehicles.

7. Small Entity Deferment

EPA is proposing to defer setting GHG emissions st andards for small entities meeting the Small Business Administration (SBA) cri teria of a small business as

described in 13 CFR 121.201. EPA would instead con sider appropriate GHG standards for these entities as part of a future regulatory a ction. This includes small entities in three distinct categories of businesses for light-duty ve hicles: small volume manufacturers, independent commercial importers (ICIs), and altern ative fuel vehicle converters. EPA

has identified about 13 entities that fit the Small Business Administration (SBA) criterion

of a small business. EPA estimates there are 2 sma ll volume manufacturers, 8 ICIs, and 3 alternative fuel vehicle converters currently in th e light-duty vehicle market. EPA estimates that these small entities comprise less t han 0.1 percent of the total light-duty

35 Memo to docket “Deriving the standard from EPA’s M OVES model emission factors, ” December 2007.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

39

vehicle sales in the U.S., and therefore the propos ed deferment will have a negligible impact on the GHG emissions reductions from the pro posed standards. Further detail is provided in Section III.I.3, below.

To ensure that EPA is aware of which companies woul d be deferred, EPA is proposing that such entities submit a declaration t o 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 automat ically exempted from other EPA regulations for light-duty vehicles and light-duty trucks, absent such a declaration, EPA would assume that the entity was subject to the gre enhouse gas control requirements in this GHG proposal. The declaration would need to b e submitted at time of vehicle emissions certification under the EPA Tier 2 progra m. Small entities are currently covered by a number of EPA motor vehicle emission r egulations, and they routinely submit information and data on an annual basis as p art of their compliance responsibilities. EPA expects that the additional paperwork burden associated with completing and submitting a small entity declaratio n to gain deferral from the proposed GHG standards would be negligible and easily done i n 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 comp leted under the Paperwork

Reduction Act. Additional information can be found in the Paperwork Reduction Act

discussion in Section III.I.2.

C. Additional Credit Opportunities for CO 2 Fleet Average Program

The standards being proposed represent a significa nt multi-year challenge for manufacturers, especially in the early years of the program. Section III.B.4 described EPA proposals for how manufacturers could generate credits by achieving fleet average

CO 2 emissions below the fleet average standard, and al so how manufacturers could use credits to comply with standards. As described in Section III.B.4, credits could be carried forward five years, carried back three years, trans ferred between vehicle categories, and traded between manufacturers. The credits provisio ns proposed below would provide manufacturers with additional ways to earn credits starting in MY 2012. EPA is also proposing early credits provisions for the 2009 – 2 011 model years, as described below in

Section III.C.5.

The provisions proposed below would provide additio nal flexibility, especially in the early years of the program. This flexibility h elps to address issues of lead-time or technical feasibility for various manufacturers and in several cases provides an incentive for promotion of technology pathways that warrant f urther development, whether or not they are an important or central technology on whic h critical features of this program are premised. EPA is proposing a variety of credit op portunities 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 oppor tunities 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 beli eves these credit programs must be designed in a way to ensure that they achieve emiss ion reductions that achieve real-worldDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

40

reductions over the full useful life of the vehicle (or, in the case of FFV credits and Advanced Technology credits, to incentivize the int roduction of those vehicle technologies) and are verifiable. In addition, EPA wants to ensure these credit programs do not provide an opportunity for manufacturers to earn “windfall” credits. EPA seeks comments on how to best ensure these objectives are achieved in the design of the credit

programs. EPA requests comment on all aspects of these propos ed credits provisions.

1. Air Conditioning Related Credits

EPA proposes that manufacturers be able to generate and use credits for improved air conditioner (A/C) systems in complying with the CO 2 fleetwide average standards described above. EPA expects that most manufacture rs 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 tests (se e Sections III.B and III.E.). Those tests do not measure either A/C leakage or tailpipe CO 2 emissions attributable to A/C load (see Section III.C.1.b below describing propos ed alternative test procedures for assessing tailpipe CO 2 emission attributable to A/C engine load). Thus, it is a manufacturer’s option to include A/C GHG emission r eductions as an aspect of its compliance demonstration. Since this is an electiv e alternative, EPA is referring to the A/C part of the proposal as a credit.

EPA estimates that direct A/C GHG emissions – emiss ions due to the leakage of the hydrofluorocarbon refrigerant in common use tod ay -- account for 4.3% of CO 2 - equivalent GHGs from light-duty cars and trucks. T his includes the direct leakage of refrigerant as well as the subsequent leakage assoc iate with maintenance and servicing, and with disposal at the end of the vehicle’s life. The emissions that are impacted by leakage reductions are the direct leakage and the m aintenance and servicing. Together these are equivalent to CO 2 emissions of approximately 13.6 g/mi per vehicle ( this is 14.9 g/mi if end of life emissions are also included). EPA also estimates that indirect GHG emissions (additional CO 2 emitted due to the load of the A/C system on the e ngine) account for another 3.9% of light-duty GHGs. 36 This is equivalent to CO 2 emissions of approximately 14.2 g/mi per vehicle. The derivatio n of these figures can be found in the

EPA DRIA

. .

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

Over 95% of the new cars and light trucks in the Un ited 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 leaka ge of refrigerant into the atmosphere

36 See Chapter 2, s ection 2.2.1.2 of the DRIA [Add RIA reference for contribution percentages

. ]Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

41

and through the consumption of fuel to provide powe r to the A/C system. With leakage, it is the high global warming potential (GWP) of th e current automotive refrigerant – R134a, with a GWP of 1430 – that results in the CO 2 -equivalent impact of 13.6 g/mi. 37
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 emis sions of CO 2 or other mobile source

GHGs

. Manufacturers can choose to reduce A/C leakage emis sions by using leak-tight components. Also, manufacturers can largely elimin ate the global warming impact of leakage emissions by adopting systems that use an a lternative, low-GWP refrigerant. 38
The A/C system also contributes to increased CO 2 emissions through the additional work required to operate the compressor, fans, and blowe rs. This additional work typically is provided through the engine’s crankshaft, and deliv ered via belt drive to the alternator (which provides electric energy for powering the fa ns and blowers) and A/C compressor (which pressurizes the refrigerant during A/C opera tion). The additional fuel used to supply the power through the crankshaft necessary t o 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 increasin g the overall efficiency of the vehicle’s A/C system, which in turn will reduce the additional load on the engine from A/C operation. 39

Manufacturers can make very feasible improvements t o their A/C systems to address A/C system leakage and efficiency. EPA pro poses two separate credit approaches to address leakage reductions and effici ency improvements independently. A proposed leakage reduction credit would take into a ccount the various technologies that could be used to reduce the GHG impact of refrigera nt leakage, including the use of an alternative refrigerant with a lower GWP. A propos ed efficiency improvement credit would account for the various types of hardware and control of that hardware available to increase the A/C system efficiency. Manufacturers would be required to attest the durability of the leakage reduction and the efficie ncy improvement technologies over the

full useful life of the vehicle.

EPA believes that both reducing A/C system leakage and increasing efficiency are highly cost-effective and technologically feasible. EPA expects most manufacturers will choose to use these A/C credit provisions, although some may not find it necessary to do

so.

37 The global warming potentials (GWP) used in the NP RM analysis are consistent with Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Re port (AR4). At this time, the IPCC Second Assessment Report (SAR) global warming potential va lues have been agreed upon as the official U.S. framework for addressing climate change. The IPCC SAR GWP values are used in the official U.S. greenhouse gas inventory submission to the climate change framework. When inventories are recalculate d for the final rule, changes in GWP used may lead to adjustments.

38 Refrigerant emissions during maintenance and at th e end of the vehicle’s life (as well as emissions d uring the initial charging of the system with refrigerant ) are also addressed by the CAA Title VI stratosphe ric ozone program, as described below.

39 We will not be addressing changes to the weight of the A/C system, since the issue of CO 2 emissions from the fuel consumption of normal (non-A/C) opera tion, including basic vehicle weight, is inherently addressed with the primary CO 2 standards (Sec III.B above).Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

42 a. A/C Leakage Credits

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

Because the process of refrigerant leakage has simi lar root causes as those that cause fuel evaporative emissions from the fuel syst em, some of the control technologies are similar (including hose materials and connectio ns). There are however, some fundamental differences between the systems that re quire a different approach. The most notable difference is that A/C systems are complete ly closed systems, whereas the fuel system is not. Fuel systems are meant to be refill ed as liquid fuel is consumed by the engine, while the A/C system ideally should never r equire “recharging” of the contained refrigerant. Thus it is critical that the A/C syst em leakages be kept to an absolute minimum. These emissions are typically too low to accurately measure in most current SHED chambers designed for fuel evaporative emissio ns measurement, especially for systems that are new or early in life. Therefore, if leakage emissions were to be measured directly, new measurement facilities would need to be built by the OEM manufacturers and very accurate new test procedures would need to be developed. Especially because there are indications that much of the industry is moving toward alternative refrigerants (post-2016 for most manufa cturers), EPA is not proposing such a direct measurement approach to addressing refrigera nt leakage.

Instead, EPA proposes that manufacturers demonstrat e improvements in their A/C system designs and components through a design-base d method. Manufacturers implementing systems expected to result in reduced refrigerant leakage would be eligible

for credits that could then be used to meet their C O 2 emission compliance requirements. The proposed “A/C Leakage Credit” provisions would generally assign larger credits to system designs that are expected to result in great er leakage reduction. In addition, EPA proposes that proportionately larger A/C Leakage Cr edits be available to manufacturers that substitute a lower-GWP refrigerant for the cur rent R134a refrigerant.

Our proposed method for calculating A/C Leakage Cre dits is based closely on an industry-consensus leakage scoring method, describe d below. This leakage scoring method is correlated to experimentally-measured lea kage rates from a number of vehicles using the different available A/C components. Under the proposed approach, manufacturers would choose from a menu of A/C equip ment and components used in their vehicles in order to establish leakage scores which would characterize their A/C system leakage performance. The leakage score can b e compared to expected fleetwide leakage rates in order to quantify improvements for a given A/C system. Credits wouldDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

43

be generated from leakage reduction improvements th at exceeded average fleetwide leakage rates.

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

The cooperative industry and government Improved Mo bile Air Conditioning (IMAC) program 40 has demonstrated that new-vehicle leakage emission s 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 th e components, fittings, seals, and hoses of the A/C system. All of these technologies are already in commercial use and exist on some of today’s systems.

EPA is proposing that a manufacturer wishing to ear n A/C Leakage Credits would compare the components of its A/C system with a set of leakage-reduction technologies and actions that is based closely on that being dev eloped through IMAC and the Society of Automotive Engineers (as SAE Surface Vehicle Sta ndard J2727, August 2008 version). The J2727 approach is developed from lab oratory testing of a variety of A/C related components, and EPA believes that the J2727 leakage scoring system generally represents a reasonable correlation with average re al-world leakage in new vehicles. Like the IMAC approach, our proposed credit approac h would associate each component with a specific leakage rate in grams per year iden tical to the values in J2727. A manufacturer choosing to claim Leakage Credits woul d sum the leakage values for an A/C system for a total A/C leakage score. EPA is p roposing a formula for converting 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. This formula is:

Credit = (MaxCredit) * [ 1 - (LeakScore/AvgImpact) * (GWPRefrigerant/1430)]

Where:

MaxCredit is 12.6 and 15.7 g/mi CO 2 eq for cars and trucks respectively. These become

13.8 and 17.2 for cars and trucks if alternative re frigerants are used since they get

additional credits for end-of-life emissions reduct ions.

LeakScore is the leakage score of the A/C system as measured according to methods similar to the J2727 procedure in units of g/yr. T he minimum score which is deemed feasible is fixed at 8.3 and 10.4 g/yr for cars and trucks respectively.

AvgImpact is the average impact of A/C leakage, whi ch is 16.6 and 20.7 g/yr for cars and trucks respectively

40 Team 1-Refrigerant Leakage Reduction: Final Report to Sponsors, SAE, 2007.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

44

GWPRefrigerant is the global warming potential for direct radiative forcing of the refrigerant as defined by EPA (or IPCC).

All of the parameters and limits of the equation ar e derived in the EPA DRIA.

For systems using the current refrigerant, EPA prop oses that these emission rates could at most be feasibly reduced by half, based on the conclusions of the IMAC study,

and consideration of emission over the full life of the vehicle. (This latter point is discussed further in the DRIA.)

As discussed above, EPA recognizes that substitutin g an alternative refrigerant (one with a significantly lower global warming pote ntial, GWP), would potentially be a very effective way to reduce the impact of all form s of refrigerant emissions, including maintenance, accidents, and vehicle scrappage. To address future GHG regulations in Europe and California, systems using alternative re frigerants -- including HFO1234yf, with a GWP of 4 -- are under serious development an d have been demonstrated in prototypes by A/C component suppliers. These altern ative refrigerants have remaining cost, safety and feasibility hurdles for commercial applications. 41 However, the European Union has enacted regulations phasing in alternativ e refrigerants with GWP less than 150 starting in 2010, and the State of California propo sed providing credits for alternative refrigerant use in its GHG rule.

Within the timeframe of 2012 - 2016, EPA is not exp ecting the use of low-GWP refrigerants to be widespread. However, EPA believ es that these developments are promising, and have included in our proposed A/C Le akage Credit system provisions to account for the effective refrigerant reductions th at could be expected from refrigerant substitution. The quantity of A/C Leakage Credits that would be available would be a function of the GWP of the alternative refrigerant, with the largest credits being available for refrigerants approaching a GWP of zero. 42 For a hypothetical alternative refrigerant with a GWP of 1, effectively eliminating leakage as a GHG concern, our proposed credit

calculation method could result in maximum credits equal total average emissions, or credits of 13.4 and 17.8 g/mi CO 2 eq for cars and trucks, respectively. This option is also captured in the equation above.

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

41 Although see 71 FR 55140 (Sept. 21, 2006) (proposa l pursuant to section 612 of the CAA finding CO 2 and HFC 152a as acceptable refrigerant substitutes as replacements for CFC-12 in motor vehicle air conditioning systems, and stating (at 55142) that “ data ... indicate that use of CO 2 and HFC 152a with risk mitigation technologies does not pose greater risks compared to other substitutes”).

42 For example, the GWP for R152a is 120, the GWP of HFO-1234yf is 4, and the GWP of CO 2 as a refrigerant is 1.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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

system.

b. A/C Efficiency Credits

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

CO 2 standards.

As mentioned above, EPA estimates that the CO 2 emissions due to A/C related loads on the engine account for approximately 3.9% of total greenhouse gas emissions from passenger vehicles in the United States. Usag e of A/C systems 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 nati on. For example, people commonly use A/C systems to cool and dehumidify the cabin air fo r passenger comfort on hot humid days, but they also use the systems to de-humidify cabin air to assist in defogging/deicing the front windshield and side glass in cooler weather conditions for improved visibility. A more detailed discussion of seasonal and geographical A/C usage rates can

be found in the DRIA.

Most of the additional load on the engine from A/C system operation comes from the compressor, which pumps the refrigerant around the system loop. Significant additional load on the engine may also come from el ectric 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 currentlyexisting technology options for improving efficienc y, including more efficient compressors, fans, and motors, and systems controls that avoid over-chilling the air (and subsequently re-heating it to provide the desired a ir temperature with an associated loss of efficiency). For vehicles equipped with automa tic 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 maxi mizing the use of recirculated air) can result in improved efficiency. Table III.C.1-1 below lists some of these technologies and their respective efficiency improvements.

As with the A/C Leakage Credit program, EPA is inte rested in performance-based standards (or credits) based on measurement procedu res whenever possible. While design-based assessments of expected emissions can be a reasonably robust way of quantifying emission improvements, these approaches have inherent shortcomings, as discussed for the case of A/C leakage above. Desig n-based approaches depend on the quality of the data from which they are calibrated, and it is possible that apparently proper equipment may function less effectively than expected. Therefore, while the proposal uses a design-based menu approach to quant ify improvements in A/C efficiency, it is also proposed to begin requiring manufacturer s to confirm that technologies applying for Efficiency Credits are measurably improving sys tem efficiency.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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

For model years 2012 and 2013, EPA proposes that a manufacturer wishing to generate A/C Efficiency Credits for a group of its vehicles with similar A/C systems would compare several of its vehicle A/C-related co mponents and systems with a “menu” of efficiency-related technology improvements (see Table III.C.1-1 below). Based on the technologies the manufacturer chooses, an A/C Effic iency Credit value would be established. This design-based approach would reco gnize the relationships and synergies among efficiency-related technologies. Manufacture rs could receive credit based on the technologies they chose to incorporate in their A/C systems and the associated credit value for each technology. The total A/C Efficienc y Credit would be the total of these values, up to a maximum feasible credit of 5.7 g/mi CO 2 eq. This would be the maximum improvement from current average efficiencies for A /C systems (see the DRIA for a full discussion of our derivation of the proposed reduct ions and credit values for individual technologies and for the maximum total credit avail able). Although the total of the individual technology credit values may exceed 5.7 g/mi CO 2 eq, synergies among the technologies mean that the values are not additive, and thus A/C Efficiencly Efficiency

credit should could not exceed 5.7 g/mi CO 2 eq the total maximum feasible credit

.

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

. Because of synergies among the technologies, A/C Efficiency Credits would be orga nized into a two

- tiered system. A

gram

- per

- mile CO 2 - equivalent credit would be available for certain combinations of specific technologies that EPA believes will result in significant improvements in A/C system efficiency. For a manufacturer using all of these technologies, onl y a maximum credit of 5.7 g/mi CO 2 eq wou ld be attainable.

Table III.C.1-1 Efficiency-Improving A/C Technologi es 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, 30% 1.7Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

47 variable-displacement compressor Reduced reheat, with externally-controlled,fixed-displacement or pneumatic variabledisplacement compressor 20% 1.1

Default to recirculated air whenever ambient temperature is greater than 75 °F 30% 1.7

Blower motor and cooling fan controls which limit waste energy (e.g. pulse width modulated power controller) 15% 0.9

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

Oil Separator 10% 0.6

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

The proposed A/C CO 2 Idle Test procedure, which EPA has designed specif ically

to measure A/C CO 2 emissions, would be performed while the vehicle en gine is at idle. This proposed laboratory idle test would be similar to the idle carbon monoxide (CO) test that was once a part of EPA vehicle certification. The test would determine the

additional CO 2 generated at idle when the A/C system is operated. The A/C CO 2 Idle Test would be run with and without the A/C system c ooling the interior cabin while the vehicle’s engine is operating at idle and with the system under complete control of the engine and climate control system

The proposed A/C CO 2 Idle Test is similar to that proposed in April 200 9 for the Mandatory GHG Reporting Rule, with several improvem ents. These improvements include tighter restrictions on test cell temperatu res and humidity levels in order to more closely control the loads from operation of the A/C system. EPA also made additional refinements to the required in-vehicle blower fan s ettings for manually controlled systems to more closely represent “real world” usag e patterns. These details can be found in the DRIA and the regulations.

The design of the A/C CO 2 Idle Test represents a balancing of the need for performance tests whenever possible to ensure the m ost accurate quantification of efficiency improvements, with practical concerns fo r testing burden and facility requirements. EPA believes that the proposed Idle Test adds to the robust quantificationDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

48

of A/C credits that will result in real-world effic iency improvements and reductions in

A/C-related CO 2 emissions. EPA is proposing that the Idle Test be required in order to qualify for A/C Efficiency Credits beginning in 201 4 to allow sufficient time for manufacturers to make the necessary facilities impr ovements and to establish a comfort

level with the test.

EPA also considered a more comprehensive testing ap proach 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 m anufacturers. This approach would be to adapt an existing test procedure, the Supplem ental Federal Test Procedure (SFTP) for A/C operation, called the SC03, in specific way s for it to function as tool to evaluate

A/C CO 2 emissions. The potential test method is described in some detail here, and EPA encourages comment on how this type of test might o r might not accomplish the goals of robust performance-based testing and reasonable tes t burdens.

EPA designed the SC03 test to measure criteria poll utants under severe air conditioning conditions not represented in the FTP and Highway Fuel Economy Tests. EPA did not specifically design the SC03 to measure incremental reductions in CO 2 emissions from more efficient A/C technologies. Fo r example, due to the severity of the

SC03 test environmental conditions and the relative ly short duration of the SC03 cycle, it is difficult for the A/C system to achieve a stabil ized interior cabin condition that reflects incremental improvements. Many potential efficienc y improvements in the A/C components and controls (i.e., automatic recirculat ion and heat exchanger fan control) are specifically measured only during stabilized condit ions, and therefore become difficult or impossible to measure and quantify during this test . In addition, SC03 testing is also somewhat constrained and costly due to limited numb er of test facilities currently capable of performing testing under the required environmen tal conditions.

One value of using the SC03 as the basis for a new test to quantify A/C-related efficiency improvements would be the significant de gree of control of test cell ambient conditions. The load placed on an A/C system, and thus the incremental CO 2 emissions, are highly dependent on the ambient conditions in t he test cell, especially temperature and humidity, as well as simulated solar load. Thu s, as with the proposed Idle Test, a new SC03-based test would need to accurately and re liably control these conditions. (This contrasts with FTP testing for criteria pollu tants, which does not require precise

control of cell conditions because test results are generally much less sensitive to changes in cell temperature or humidity).

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

Another value of an SC03-based test would be the op portunity to create operating conditions for vehicle A/C systems that in some way s would better simulate “real world”Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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operation than either the proposed Idle Test or the current SC03. The SC03 test cycle, roughly 10 minutes in length, has a similar average speed, maximum speed, and percentage of time at idle as the FTP. However, si nce the SC03 test cycle was designed principally to measure criteria pollutants under ma ximum A/C load conditions, it is not long enough to allow temperatures in the passenger cabin to consistently stabilize. EPA believes that once the pull-down phase has occurred and cabin temperatures have dropped dramatically to a suitable interior comfort level, additional test cycle time would be needed to measure how efficiently the A/C system operates under stabilized

conditions.

To capture the A/C operation during stabilized oper ation, EPA would consider adding two phases to the SC03 test of roughly 10 mi nutes each. Each additional phase would simply be repeats of the SC03 drive cycle, wi th two exceptions. During the second phase, the A/C system would now be operating at cabin temperature at or approaching a stabilized condition. During the thi rd phase, the A/C system would be turned off. The purpose of the third phase would b e to establish the base CO 2 emissions with no A/C loads on the engine, which would provid e a baseline for the incremental CO 2 due to A/C use. EPA would likely weight the CO 2 g/mi results for the first and second phases of the test as follows: 50% for phase 1, and 50% for phase 2. From this average

CO 2 the methodology would subtract the CO 2 result from phase 3, yielding an

incremental CO 2 (in g/mi) due to A/C use.

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

c. Interaction with Title VI Refrigerant Regulation s

Title VI of the Clean Air Act deals with the protec tion of stratospheric ozone. Section 608 establishes a comprehensive program to limit emissions of certain ozonedepleting substances (ODS). The rules promulgated under section 608 regulate the use and disposal of such substances during the service, repair or disposal of appliances and industrial process refrigeration. In addition, sec tion 608 and the regulations promulgated under it, prohibit knowingly venting or releasing O DS during the course of maintaining, servicing, repairing or disposing of an appliance o r industrial process refrigeration equipment. Section 609 governs the servicing of mo tor vehicle air conditioners (MVACs). The regulations promulgated under section 609 (40 CFR part 82, subpart B) establish standards and requirements regarding the servicing of MVACs. These regulations include establishing standards for equi pment that recovers and recycles or only recovers refrigerant (CFC-12, HFC 134a, and fo r blends only recovers) from MVACs; requiring technician training and certificat ion by an EPA-approved organization; establishing recordkeeping requiremen ts; imposing sales restrictions; and prohibiting the venting of refrigerants. Section 6 12 requires EPA to review substitutes for class I and class II ozone depleting substances and to consider whether such

substitutes will cause an adverse effect to human h ealth or the environment as comparedDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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with other substitutes that are currently or potent ially available. EPA promulgated regulations for this program in 1992 and those regu lations are located at 40 CFR part 82, subpart G. When reviewing substitutes, in addition to finding them acceptable or unacceptable, EPA may also find them acceptable so long as the user meets certain use conditions. For example, all motor vehicle air cond itioning system must have unique fittings and a uniquely colored label for the refri gerant being used in the system.

EPA views this proposed rule as complementing these Title VI programs, and not conflicting with them. To the extent that manufact urers choose to reduce refrigerant leakage in order to earn A/C Leakage Credits, this would dovetail with the Title VI section 609 standards which apply to maintenance ev ents, and to end-of-vehicle life disposal. In fact, as noted, a benefit of the prop osed A/C credit provisions is that there should be fewer and less impactive maintenance even ts for MVACs, since there will be less leakage. In addition, the credit provisions w ould not conflict (or overlap) with the

Title VI section 609 standards. EPA also believes the menu of leak control technologies proposed today would complement the section 612 req uirements, because these control technologies would help ensure that R134a (or other refrigerants) would be used in a manner that further minimizes potential adverse eff ects on human health and the

environment.

2. Flex Fuel and Alternative Fuel Vehicle Credits

As described in this section, EPA is proposing cred its for flexible-fuel vehicles (FFVs) and alternative fuel vehicles starting in th e 2012 model year. FFVs are vehicles

that can run both on an alternative fuel and conven tional fuel. Most FFVs are E-85 vehicles, which can run on a mixture of up to 85 pe rcent ethanol and gasoline. Dedicated

alternative fuel vehicles are vehicles that run exc lusively on an alternative fuel (e.g., compressed natural gas). EPCA includes an incentiv e under the CAFE program for production of dual-fueled vehicles or FFVs, and ded icated alternative fuel vehicles. 43
EPCA’s provisions were amended by the EISA to exten d the period of availability of the FFV credits, but to begin phasing them out by annua lly reducing the amount of FFV credits that can be used in demonstrating complianc e with the CAFE standards. 44 EPCA does not premise the availability of the FFV credit s on actual use of alternative fuel. Under EPCA, after MY 2019 no FFV credits will be av ailable for CAFE compliance. 45

Under EPCA, for dedicated alternative fuel vehicles , there are no limits or phase-out. EPA is proposing that FFV and Alternative Fuel Vehi cle Credits be calculated as a part

of the calculation of a manufacturer’s overall flee t average fuel economy and fleet average carbon-related exhaust emissions (§ 600.510 -12).

43 49 U.S.C 32905

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

45 49 U.S.C 32906Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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

a. Model Year 2012 – 2015 Credits

i. FFVs

For the GHG program, EPA is proposing to allow FFV credits corresponding to the amounts allowed by the amended EPCA only during the period from MYs 2012 to 2015. (As discussed below in Section III.E., EPA is proposing that CAFE-based FFV credits would not be permitted as part of the early credits program.) Several manufacturers have already taken the availability o f FFV credits into account in their near-term future planning for CAFE and this relianc e indicates that these credits need to be considered in considering adequacy of lead time for the CO 2 standards. EPA thus believes that allowing these credits, in the near t erm, would help provide adequate lead time for manufacturers to implement the new multi-y ear standards, but that for the longer term there is adequate lead time without the use of such credits. This will also tend to harmonize the GHG and the CAFE program during these interim years. As discussed below, EPA is proposing for MY 2016 and later that manufacturers would not receive FFV credits unless they reliably estimate the exten t the alternative fuel is actually being used by vehicles in order to count the alternative fuel use in the vehicle’s CO 2 emissions

level determination. As with the CAFE program, EPA proposes to base c redits on the assumption that the vehicles would operate 50% of t he 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 conventi onal fuel CO 2 emissions. 46 The

measured CO 2 emissions on the alternative fuel would be multipl ied by a 0.15 volumetric

conversion factor which is included in the CAFE cal culation as provided by EPCA. Through this mechanism a gallon of alternative fuel is deemed to contain 0.15 gallons of fuel. EPA is proposing to take the same approach f or 2012-2015 model years. For example, for a flexible-fuel vehicle that emitted 3 30 g/mi CO 2 operating on E-85 and 350 g/mi CO 2 operating on gasoline, the resulting CO 2 level to be used in the manufacturer’s fleet average calculation would be:



## ( ) 

## [ ] mi g CO / 8. 199 2 350 15.0 330

2 =

+ ×

=

EPA understands that by using the CAFE approach -- including the 0.15 factor --

the CO 2 emissions value for the vehicle is calculated to b e significantly lower than it actually would be otherwise, even if the vehicle we re assumed to operate on the alternative fuel at all times. This represents a “ credit” being provided to FFVs.

46 49 U.S.C 32905 (b)Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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EPA notes also that the above equation and example are based on an FFV that is an E-85 vehicle. EPCA, as amended by EISA, also es tablishes the use of this approach, including the 0.15 factor, for all alternative fuel s, not just E-85. 47 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-fu eled FFVs such as a vehicle able to operate on gasoline and CNG. 48 (For natural gas FFVs, EPCA establishes a factor of 0.823 gallons of fuel for every 100 cubic feet a na tural gas used to calculate a gallons equivalent. 49 ) The EISA statute’s use of the 0.15 factor in thi s way provides a similar regulatory treatment across the various types of al ternative fuel vehicles. EPA also proposes to use the 0.15 factor for all FFVs in kee ping with the goal of not disrupting manufacturers’ near-term compliance planning. EPA, in any case, expects the vast majority of FFVs to be E-85 vehicles, as is the cas e today.

The FFV credit limits for CAFE are 1.2 mpg for mod el years 2012-2014 and 1.0 mpg for model year 2015. 50 In CO 2 terms, these CAFE limits translate to declining CO 2 credit limits over the four model years, as the CAF E standards increase in stringency (as the CAFE standard increases numerically, the limit becomes a smaller fraction of the standard). EPA proposes credit limits shown in Tab le III.C.2-1 based on the proposed average CO 2 standards for cars and trucks. These have been ca lculated by comparing the average proposed CAFE standards with and without th e FFV credits, converted to CO 2

. EPA requests comments on this proposed approach.

Table III.C.2-1 FFV CO 2 Standard Credit Limits (g/mile)

Model Year Cars Trucks

2012 9.8 17.9

2013 9.3 17.1

2014 8.9 16.3

2015 6.9 12.6

EPA also requests comments on basing the calculated CO 2 credit limit on the

individual manufacturer standards calculated from t he footprint curves. For example, if a manufacturer’s 2012 car standard was 260 g/mile, th e credit limit in CO 2 terms would be 9.5 g/mile and if it were 270 g/mile the limit woul d be 10.2 g/mile. This approach would be somewhat more complex and would mean that the FF V CO 2 credit limits would vary by manufacturer as their footprint based standards vary. However, it would more closely

track CAFE FFV credit limits.

ii. Dedicated Alternative Fuel Vehicles

EPA proposes to calculate CO 2 emissions from dedicated alternative fuel vehicles for MY 2012 – 2015 by measuring the CO 2 emissions over the test procedure and multiplying the results by the 0.15 conversion fact or described above. For example, for a

47 49 U.S.C 32905 (c)

48 49 U.S.C 32905 (d).

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

50 49 U.S.C section 32906 (a).Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

53

dedicated alternative fuel vehicle that would achie ve 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

For 2016 and later model years, EPA proposes to tre at FFVs similarly to

conventional fueled vehicles in that FFV emissions would be based on actual CO 2 results from emission testing on the alternative fuel. The manufacturer would also be required to demonstrate that the alternative fuel is actually b eing used in the vehicles. The

manufacturer would need to establish the ratio of o peration that is on the alternative fuel compared to the conventional fuel. The ratio would be used to weight the CO 2 emissions performance over the 2-cycle test on the two fuels. The 0.15 conversion factor would no longer be included in the CO 2 emissions calculation. For example, for a flexibl e-fuel vehicle that emitted 300 g/mi CO 2 operating on E-85 ten percent of the time and 350 g/mi

CO 2 operating on gasoline ninety percent of the time, the CO 2 emissions for the vehicles to be used in the manufacturer’s fleet average woul d be calculated as follows:

g/mi 345 ) 90.0 350 ( ) 10.0 300 ( 2 =

× + × = CO

The most complex part of this approach is to estab lish what data are needed for a manufacturer to accurately demonstrate use of the a lternative fuel. One option EPA is considering is establishing a rebuttable presumptio n using a “top-down” approach based on national E-85 fuel use to assign credits to FFVs sold by manufacturers under this program. For example, national E-85 volumes and na tional FFV sales could be used to prorate E-85 use by manufacturer sales volumes and FFVs already in-use. EPA would conduct an analysis of vehicle miles travelled (VMT ) by year for all FFVs using its emissions inventory MOVES model. Using the VMT rat ios and the overall E-85 sales, E-85 usage could be assigned to each vehicle. This method would account for the VMT of new FFVs and FFVs already in the existing fleet using VMT data in the model. The

model could then be used to determine the ratio of E-85 and gasoline for new vehicles being sold. Fluctuations in E-85 sales and FFV sal es would be taken into account to adjust the credits annually. EPA believes this is a reasonable way to apportion E-85 use

across the fleet.

If manufacturers decided not to use EPA’s assigned credits based on the top-down analysis, they would have a second option of presen ting their own data for consideration as the basis for credits. Manufacturers have sugges ted demonstrations using vehicle onboard data gathering through the use of on-board se nsors and computers. California’s program allows FFV credits based on FFV use and env isioned manufacturers collecting

fuel use data from vehicles in fleets with on-site refueling. Any approach mustDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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reasonably ensure that no CO 2 emissions reductions anticipated under the program are lost.

EPA proposes that manufacturers would need to prese nt a statistical analysis of alternative fuel usage data collected on actual veh icle 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. Un certainty in the analysis must be accounted for in a way that provides reasonable cer tainty that the program does not result in loss of emissions reductions. EPA requests comm ent on how this demonstration could reasonably be made.

EPA recognizes that under EPCA FFV credits are ent irely phased-out of the CAFE program by MY 2020, and apply in the prior yea rs with certain limitations, but without a requirement that the manufacturers demons trate actual use of the alternative fuel. Under this proposal EPA would treat FFV cred its the same as under EPCA for model years 2012-2015, but would apply a different approach starting with model year 2016. Unlike EPCA, CAA section 202(a) does not man date 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 o f this CAA section. Under these circumstances, EPA proposes to treat FFVs for model years 2012-2015 the same as under EPCA, for the lead time reasons described abo ve. Starting with model year 2016, EPA believes the appropriate approach is to ensure that emissions reduction credits are based upon a demonstration that emissions reduction s have been achieved, to ensure the

credits are for real reductions instead of reductio ns that have not likely occurred. This will promote the environmental goals of this propos al. At the same time, the ability to generate credits upon a demonstration of usage of t he alternative fuel will provide an

actual incentive to see that such fuels are used. Under the EPCA credit provision, there is an incentive to produce FFVs but no actual incentiv e to ensure that the alternative fuels are used. GHG and energy security benefits are onl y achieved if the alternative fuel is actually used, and EPA’s approach will now provide such an incentive. This approach will promote greater use of renewable fuels, as com pared to a situation where there is a credit but no usage requirement. This is also cons istent with the agency’s overall commitment to the expanded use of renewable fuels. Therefore EPA is not proposing to phase-out the FFV program for MYs 2016 and later bu t instead to base the program on real-world reductions (i.e., actual vehicle CO 2 emissions levels based on actual use of the two fuels, without the 0.15 conversion factor speci fied under EISA). Based on existing certification data, E-85 FFV CO 2 emissions are typically about 5 percent lower on E -85

than CO 2 emissions on 100 percent gasoline. However, curre ntly there is little incentive to optimize CO 2 performance for vehicles when running on E-85. EP A believes the above approach would provide such an incentive to m anufacturers and that E-85 vehicles could be optimized through engine redesign and cali bration to provide additional CO 2 reductions. EPA requests comments on the above.

ii. Dedicated Alternative Fuel VehiclesDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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EPA proposes that for model years 2016 and later d edicated alternative fuel vehicles, CO 2 would be measured over the 2-cycle test in order t o be included in a manufacturer’s fleet average CO 2 calculations. As noted above, this is different t han CAFE methodology which provides a methodology for c alculating a petroleum-based mpg equivalent for alternative fuel vehicles so the y can be included in CAFE. However,

because CO 2 can be measured directly from alternative fuel veh icles over the test procedure, EPA believes this is the simplest and be st approach since it is consistent with all other vehicle testing under the proposed CO 2 program.

3. Advanced Technology Vehicle Credits for Electric Vehicles, Plug-in Hybrids, and Fuel Cells

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

EPA proposes that these advanced technology credits would take the form of a multiplier that would be applied to the number of v ehicles sold such that they would

count as more than one vehicle in the manufacturer’ s fleet average. These advanced technology vehicles would then count more heavily w hen calculating fleet average CO 2 levels. The multiplier would not be applied when calculating the manufacturer’s footprint-based standard is calculated , only when calculating the manufacturer’s fleet av erage levels . EPA proposes to use a multiplier in the range of 1.2 to of 2.0 for all EVs, PHEVs, and fuel cell vehicles produced from MY2012 through MY2016. EPA proposes that starting in MY 2017, the multiplier would no longer be used. As described in Section III.C.5, EPA is also proposing to allow early advan ced technology vehicle credits to be generated for model years 2009-2011. EPA requests comment on the level of the multiplier and

, whether it should be the same value for each of th ese three technologies

. , Further, and whether it should be phased

- down over time. if EPA determines that a multiplier of 2.0, or another level near the higher end of this range, is appropriate for the final rule, EPA requests comment on whether the mul tiplier should be phased down over time, such as: 2.0 for MY 2009 through MY 2012, 1. 8 in MY 2013, 1.6 in MY 2014, 1.4 in MY 2015, and 1.2 in MY 2016 (i.e., the multiplie r could phase-down by 0.2 per year). As described in Section III.C.5, EPA is also propos ing to allow early advanced technology vehicle credits to be generated for model years 2009

- 2011. In addition, EPA requests comment on whether or not it would be appr opriate to differentiate between EVs and PHEVs for advanced technology credits. Under s uch an approach, PHEVs could be provided a lesser multiplier compare to EVs. Also, the PHEV multiplier could be prorated based on the equivalent electric range (i. e., the extent to which the PHEV operates on average as an EV) of the vehicle in ord er to incentivize battery technology development. This approach would give more credits to “stronger” PHEV technology.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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

1.5 or 2.0. 51 The multiplier range of 1.2 to of 2.0 being proposed for GHGs is consistent with the Tier 2 approach. EPA believes it is appro priate to provide incentives to manufacturers to produce vehicles with very low emi ssions levels and that these incentives may help pave the way for greater and/or more cost effective emission

reductions from future vehicles. EPA also requests comment on alternative multiplier approaches, such as a phase

- down of the multiplier which would be set at 2.0 fo r MY2012, and then step

- down by 0.2 per y ear, that is, 2 in 2012, 1.8 in 2013, 1.6 in 2014, 1.4 in 2015, and 1.2 in 2016. EPA would like to finalize an approach which appropriately balances the benefits of encouraging advanced technologies with the overall environmental reductions of the proposed st andards as a whole.

EPA requests comment on whether or not it would be appropriate to differentiate between EVs and PHEVs for advanced technology credi ts. Under such an approach PHEVs could be provided a lesser multiplier compare to EVs. Also, th e PHEV multiplier could be prorated based on the equivalent electric range (i.e., the extent to which the PHEV operates on average as an EV) of the vehicle i n order to incentivize battery technology development. This approach would give m ore credits to “s tronger” PHEV technology.

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

For electric vehicles, EPA proposes that manufactu rers would include them in the average with CO 2 emissions of zero g rams /mile both for early credits, and for the

MY2012-2016 time frame. Similarly, EPA proposes to include as zero grams/ mile of

CO 2 the electric portion of PHEVs (i.e., when PHEVs ar e operating as electric vehicles)

and fuel cell vehicles. EPA recognizes that for each EV which that is sold, in reality the total emissions off-set relative to the typical gas oline or diesel powered vehicle is not zero, as there is a corresponding increase in upstr eam CO 2 emissions due to an increase in the requirements for electric utility generation. However, for the time frame of this proposed rule, EPA is also interested in promoting very advanced technologies such as EVs which offer the future promise of significant r eductions in GHG emissions, in particular when coupled with a broader context whic h would include reductions from the electricity generation. For the California Paley 1 program, California assigned EVs a

CO 2 performance value of 130 g/mile, which was intende d to represent the average CO 2 emissions required to charge an EV using representa tive CO 2 values for the California electric utility grid. For this proposal, EPA is a ssigning an EV a value of zero g/mile,

which should be viewed as an interim solution for h ow to account for the emission

51 See 65 FR 6746, February 10, 2000. Formatted: SubscriptDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

57

reduction potential of this type of vehicle, and may not be the appropriate long-term approach. EPA requests comment on this proposal and whether alternative approaches to address EV emissions should be considered, includin g approaches for considering the lifecycle emissions from such advanced vehicle tech nologies

.

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

EPA requests comments on the proposed approach for advanced technology

vehicle credits.

4. Off-cycle Technology Credits

EPA is proposing an optional credit opportunity in tended 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-cycl e test procedure used to determine compliance with the fleet average standards (i.e., “off-cycle”). Eligible innovative technologies would be those that are relatively new ly introduced in one or more vehicle models, but that are not yet implemented in widespr ead use in the light-duty fleet. EPA will not approve credits for technologies that are not innovative or novel approaches to reducing greenhouse gas emissions. Further, any cr edits for these off-cycle technologies must be based on real-world GHG reductions not capt ured 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 syst em indirect CO 2 emissions such as compressor efficiency improvements, eligibl e technologies would not be active during the 2-cycle test and therefore the associate d improvements in CO 2 emissions would not be captured. EPA will not consider techno logies to be eligible for these credits if the technology has a significant impact on CO 2 emissions over the FTP and HFET tests. Because these technologies are not nearly so well developed and understood, EPA is not prepared to require their utilization to mee t the CO 2 standards. However, EPA is aware of some emerging and innovative technologies and concepts in various stages of development with CO 2 reduction potential that might not be adequately c aptured on the FTP or HFET, and that some of these technologies mi ght merit some additional CO 2 credit for the manufacturer. Examples include sol ar panels on hybrids or electric vehicles, adaptive cruise control, and active aerod ynamics. EPA believes it would be appropriate to provide an incentive to encourage th e introduction of these types of technologies and that a credit mechanism is an effe ctive way to do this. This optional credit opportunity would be available through the 2 016 model year.

EPA is proposing that manufacturers quantify CO 2 reductions associated with the use of the off-cycle technologies such that the cre dits could be applied on a g/mile equivalent basis, as is proposed for A/C system imp rovements. Credits would have to be

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and verifiable with a repeatable methodology. Such submissions of data should be submitted to EPA subject to public scrutiny. EPA p roposes that the technologies upon which the credits are based would be subject to ful l useful life compliance provisions, as

with other emissions controls. Unless the manufact urer can demonstrate that the technology would not be subject to in-use deteriora tion over the useful life of the vehicle,

the manufacturer would have to account for deterior ation in the estimation of the credits

in order to ensure that the credits are based on re al in-use emissions reductions over the

life of the vehicle.

As discussed below, EPA is proposing a two-tiered process for demonstrating the

CO 2 reductions of an innovative and novel technology w ith benefits not captured by the FTP and HFET test procedures. First, a manufacture r would determine whether the benefit of the technology could be captured using t he 5-cycle methodology currently used to determine fuel economy label values. EPA establ ished the 5-cycle test methods to better represent real-world factors impacting fuel economy, including higher speeds and more aggressive driving, colder temperature operati on, and the use of air conditioning. If this determination is affirmative, the manufactu re would follow the protocol laid out below and in the proposed regulations. If the manu facturer finds that the technology is such that the benefit is not adequately captured us ing the 5-cycle approach, then the manufacturer would have to develop a robust methodo logy, subject to EPA approval, to demonstrate the benefit and determine the appropria te CO 2 gram per mile credit.

a. Technology Demonstration Using EPA 5-Cycle Metho dology

As noted above, the CO 2 reduction benefit of some innovative technologies could be demonstrated using the 5-cycle approach currentl y used for EPA’s fuel economy labeling program. The 5-cycle methodology was final ized in EPA’s 2006 fuel economy labeling rule, 52 which provides a more accurate fuel economy label estimate to consumers starting with 2008 model year vehicles. In addition to the FTP and HFET test procedures, the 5-cycle approach folds in the test results from three additional test procedures to determine fuel economy. The additional test cycles include cold temperature operation, high temperature, high humidity and solar loading, and aggressive and high-speed driving; thus these tests could be used to demonstr ate the benefit of a technology that

reduces CO 2 over these types of driving and environmental cond itions. Using the test results from these additional test cycles collectiv ely 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 benef it of using the 5-cycle methodology to measure and quantify the CO 2 reductions is that the test cycles are properly we ighted for the expected average U.S. operation, meaning th at the test results could be used without further adjustments.

The use of these supplemental cycles may provide a method by which technologies not demonstrated on the baseline 2-cyc les can be quantified. The cold temperature FTP can capture new technologies that i mprove the CO 2 performance of

52 Fuel Economy Labeling of Motor Vehicles: Revisions to Improve Calculation of Fuel Economy Estimates; Final Rule (71 FR 77872, December 27, 20 06).Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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vehicles during colder weather operation. These im provements may be related to warmup of the engine or other operation during the cold er 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 real ized without the heat capture technology.

While A/C credits for efficiency improvements will largely be captured in the A/C credits proposal through the credit menu of kno wn 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 st orage device that accumulates pressurized refrigerant during driving operation or uses recovered vehicle kinetic energy during deceleration to pressurize the refrigerant. Much like the waste heat capture device used in cold weather, this device would also allow additional engine-off operation while maintaining appropriate vehicle interior occupant c omfort levels. SC03 test data measuring the relative impact of innovative A/C-rel ated technologies could be applied to the 5-cycle equation to quantify the CO 2 reductions of the technology. Another example is glazed windows. This reflects sunlight away fro m the cabin so that the energy required

to stabilize the cabin air to a comfortable level i s decreased. The impact of these windows may be measureable on an SC03 test (with an d without the window option).

The US06 cycle may be used to capture innovative te chnologies designed to

reduce CO 2 emissions during higher speed and more aggressive acceleration conditions, but not reflected on the 2-cycle tests. An example of this is an active aerodynamic technology. This technology recognizes the benefit s of reduced aerodynamic drag at higher speeds and makes changes to the vehicle at t hose speeds. The changes may include active front or grill air deflection device s designed to redirect frontal airflow. Certain active suspension devices designed primaril y to reduce aerodynamic drag by lowering the vehicle at higher speeds may also be m easured on the US06 cycle. To properly measure these technologies on the US06, th e vehicle would require unique load coefficients with and without the technologies. Th e different load coefficient (properly weighted for the US06 cycle) could effectively resu lt in reduced vehicle loads at the higher speeds when the technologies are active. Si milar to the previously discussed cycles, the results from the US06 test with and wit hout the technology could then use the 5-cycle methodology to quantify CO 2 reductions.

If the 5-cycle procedures can be used to demonstrat e the innovative technology, then the process would be relatively simple. The m anufacturer would simply test vehicles with and without the technology installed or operating and compare results. All 5-cycles would be tested with the technology enable d and disabled, and the test results would be used to calculate a combined city/highway CO 2 value with the technology and without the technology. These values would be comp ared to determine the amount of the credit; the combined city/highway CO 2 value with the technology operating would be subtracted from the combined city/highway CO 2 value without the technology operatingDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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to determine the gram per mile CO 2 credit. It is likely that multiple tests of each of the five test procedures would need to be performed in order to achieve the necessary strong degree of statistical significance of the credit de termination results. This would have to be done for each model type for which a credit was being sought, unless the manufacturer could demonstrate that the impact of the technology was independent of the vehicle configuration on which it was installed. In this c ase, EPA may consider allowing the test to be performed on an engine family basis or other grouping. At the end of the model year, the manufacturer would determine the number o f vehicles produced subject to each credit amount and report that to EPA in the final m odel year report. The gram per mile credit value determined with the 5-cycle comparison testing would be multiplied by the total production of vehicles subject to that value to determine the total number of credits.

b. Alternative Off-Cycle Credit Methodologies

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

The CO 2 benefit of some technologies may be able to be dem onstrated with a modeling approach, using engineering principles. A n example would be where a roof solar panel is used to charge the on-board vehicle battery. The amount of potential electrical power that the panel could supply could be modeled for average U.S. conditions and the units of electrical power transl ated to equivalent fuel energy or

annualized CO 2 emission rate reduction from the captured solar en ergy. The CO 2 reductions from other technologies may be more chal lenging to quantify, especially if they are interactive with the driver, geographic lo cation, environmental condition, or other aspect related to operation on actual roads. In these cases, manufacturers might have to design extensive on-road test programs. An y 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, mode ling, or some other analytical approach, the manufacturer would be requ ired to present a proposed methodology to EPA. EPA would approve the methodol ogy and credits only if certain

criteria were met. Baseline emissions and control emissions would need to be clearly demonstrated over a wide range of real world drivin g conditions and over a sufficient number of vehicles to address issues of uncertainty with the data. Data would need to be on a vehicle model-specific basis unless a manufact urer demonstrated model specific data was not necessary. Approval of the approach to det ermining a CO 2 benefit would notDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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imply approval of the results of the program or met hodology; when the testing, modeling, or analyses are complete the results would likewise be subject to EPA review and approval. EPA believes that manufacturers could w ork together to develop testing, modeling, or analytical methods for certain technol ogies, similar to the SAE approach used for A/C refrigerant leakage credits.

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

5. Early Credit Options

EPA is proposing to allow manufacturers to generat e early credits in model years 2009-2011. As described below, credits could be ge nerated through early additional fleet average CO 2 reductions, early A/C system improvements, early a dvanced technology vehicle credits, and early off-cycle credits. As w ith other credits, early credits would be subject to a five year carry-forward limit based on the model year in which they are generated. Early credits could also be transferred between vehicle categories (e.g., between the car and truck fleet) or traded among ma nufacturers 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 acc ordance with applicable regulations.

EPA is not proposing certification, compliance, or in-use requirements for vehicles generating early credits. MY 2009 would b e complete and MY 2010 would be well underway by the time the rule is promulgated. This would make certification, compliance, and in-use requirements unworkable. As discussed below, manufacturers would be required to submit an early credits report to EPA for approval no later than the time they submit their final CAFE report for MY 201 1. This report would need to include details on all early credits the manufactur er generates, why the credits are bona fide, how they are quantified, and how they can be verified.

As a general principle, EPA believes these early cr edit programs must be designed in a way to ensure that they are capturing real-world reductions. In addition, EPA wants to ensure these credit programs do not pr ovide an opportunity for

manufacturers to earn “windfall” credits that do no t result in actual, surplus CO2

emission reductions. EPA seeks comments on how to best ensure these objectives are achieved in the design of the early credit program options.

a. Credits based on Early Fleet Average CO 2 Reductions

EPA is proposing opportunities for early credit ge neration in MYs 2009-2011 through over-compliance with a fleet average CO 2 baseline established by EPA. EPA is proposing four pathways for doing so. Manufacturer s would select one of the four pathsDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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for credit generation for the entire three year per iod and could not switch between pathways for different model years. For two pathwa ys, the baseline would be set by EPA to be equivalent to the California standards for th e relevant model year. Generally, manufacturers that over-comply with those CARB stan dards would earn credits. Two additional pathways, described below, would include credits based on over-compliance with CAFE standards in states that have not adopted the California standards.

Pathway 1 would be to earn credits by over- complyi ng with the California equivalent baseline over the manufacturer’s fleet o f vehicles sold nationwide. Pathway 2 would be for manufacturers to generate credits agai nst the baseline only for the fleet of

vehicles sold in California and the CAA section 177 states. 53 This approach would include any CAA 177 states as of the date of promul gation of the Final Rule in this proceeding. Manufacturers would be required to inc lude both cars and trucks in the program. Under Pathways 1 and 2, EPA proposes that manufacturers would be required to cover any deficits incurred against the baseline levels established by EPA during the three year period 2009-2011 before credits could be carried forward into the 2012 model year. For example, a deficit in 2011 would have to be subtracted from the sum of credits earned in 2009 and 2010 before any credits could be applied to 2012 (or later) model year fleets. EPA is proposing this provision to help en sure the early credits generated under this program are consistent with the credits availa ble under the California program during these model years.

Table III.C.5-1 provides the California equivalent baselines EPA proposes to use

as the basis for CO 2 credit generation under the California-based pathw ays. These are the California GHG standards for the model years shown, with a 2.0 g/mile adjustment to

account for the exclusion of N 2 O and CH 4 , which are included in the California GHG standards, but not included in the credits program. Manufacturers would generate CO 2 credits by achieving fleet average CO 2 levels below these baselines. As shown in the table, the California-based early credit pathways a re based on the California vehicle categories. Also, the California-based baseline le vels are not footprint-based, but

universal levels that all manufacturers would use. Manufacturers would need to achieve

fleet levels below those shown in the table in orde r to earn credits.

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 321 437

2010 299 418

2011 265 388

53 CAA 177 states refers to states that have adopted the California GHG standards. At present, there ar e thirteen CAA 177 states including New York, Massach usetts, Maryland, Vermont, Maine, Connecticut, Arizona, New Jersey, New Mexico, Oregon, Pennsylvan ia, Rhode Island, Washington, and Washington,

DC.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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EPA proposes that manufacturers using Pathways 1 o r 2 above would use year end car and truck sales in each category. Although production data is used for the program starting in 2012, EPA is proposing to use s ales data for the early credits program in order to apportion vehicles by state. This is d escribed further below. Manufacturers would calculate actual fleet average emissions over the appropriate vehicle fleet, either for vehicles sold nationwide for Pathway 1, or Cali fornia plus 177 states sales for Pathway 2. Early CO 2 credits would be based on the difference between t he baseline

shown in the table above and the actual fleet avera ge emissions level achieved. Any early A/C credits generated by the manufacturer, de scribed below in Section III.C.5.b, would be included in the fleet average level determ ination. In model year 2009, the California CO2 standards for cars (321 g/mi CO2) ar e only slightly more stringent than the 2009 CAFE car standard of 27.5 mpg, which is ap proximately equivalent to 323 g/mi CO2, and the California light-truck standard (437 g /mi CO2) is less stringent than the equivalent CAFE standard, recognizing that there ar e some differences between the way the California program and the CAFE program categor ize vehicles. Under the proposed option, manufacturers would have to show that they over comply over the entire three model year time period, not just the 2009 model yea r, to generate early credits under either Pathways 1, 2 or 3. A manufacturer cannot use credits generated in model year 2009 unless they offset any debits from model years 2010 and 2011. EPA expects that the requirement to over comply over the entire time period covering these three model years should mean that the credits that are generat ed 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 s ignificant 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 C AFE in recent model years. EPA wants to avoid a situation where, contrary to expec tation, 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 CO2 standa rds. For this reason, EPA requests comment on the merits of prohibiting the trading of model year 2009 generated early

credits between firms.

In addition, for Pathways 1 and 2, EPA proposes tha t manufacturers may also include alternative compliance credits earned per t he California alternative compliance

program. 54 These alternative compliance credits are based on the demonstrated use of

alternative fuels in flex fuel vehicles. As with t he California program, the credits would be available beginning in MY 2010. Therefore, thes e early alternative compliance credits would be available under EPA’s program for the 2010 and 2011 model years. FFVs would otherwise be included in the early credit fle et average based on their emissions on the conventional fuel. This would not apply to EVs and PHEVs. The emissions of EVs

and PHEVs would be determined as described in Secti on III.E. Manufacturers could

54 See Section 6.6.E, California Environmental Protec tion Agency Air Resources Board, Staff Report: Initial Statement of Reasons For Proposed Rulemakin g, Public Hearing to Consider Adoption of Regulations to Control Greenhouse Gas Emissions Fro m Motor Vehicles, August 6, 2004.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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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 countin g.

EPA is also proposing 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 a nd CAA 177 states in MY 2009-2011. Pathway 3 would allow manufacturers to earn credits as under Pathway 2, plus earn

CAFE-based credits in other states. Credits would not be generated for cars sold in

California and CAA 177 states unless vehicle fleets in those states are performing better than the standards which otherwise would apply in t hose states, i.e. the baselines shown

in Table III.C.5-1 above.

Pathway 4 would be for manufacturers choosing to fo rego California-based early credits entirely and earn only CAFE-based credits o utside of California and CAA 177 states. EPA proposes that manufacturers would not be able to include FFV credits under the CAFE-based early credit pathways since those cr edits do not automatically reflect

actual reductions in CO 2 emissions.

The proposed baselines for CAFE-based early pathway s are provided in Table III.C.5-2 below. They are based on the CAFE standa rds for the 2009-2011 model years. For CAFE standards in 2009-2011 model years that ar e footprint-based, the baseline would vary by manufacturer. Footprint-based standa rds are in effect for the 2011 model year CAFE standards. 55 Additionally, for Reform CAFE truck standards, fo otprint standards are optional for the 2009-2010 model year s. Where CAFE footprint-based standards are in effect, manufacturers would calcul ate a baseline using the footprints and

sales of vehicles outside of California and CAA 177 states. The actual fleet CO 2 performance calculation would also only include the vehicles sold outside of California and CAA 177 states, and as mentioned above, may not include FFV credits.

Table III.C.5-2 CAFE 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 stand ard * Would be footprint-based standard for manufacture rs selecting footprint option under

CAFE

For the CAFE-based pathways, EPA proposes to use the NHTSA car and truck definitions that are in place for the model year in which credits are being generated. EPA understands that the NHTSA definitions change start ing in the 2011 model year, and would therefore change part way through the early c redits program. EPA further recognizes that MDPVs are not part of the CAFE prog ram until the 2011 model year, and

55 74 FR 14196, March 30, 2009.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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therefore would not be part of the early credits ca lculations for 2009 – 2010 under the CAFE-based pathways.

Pathways 2 through 4 involve splitting the vehicle fleet into two groups, vehicles

sold in California and CAA 177 states and vehicles sold outside of these states. This approach would require a clear accounting of locati on of vehicle sales by the

manufacturer. EPA believes it will be reasonable f or manufacturers to accurately track sales by state, based on its experience with the Na tional Low Emissions Vehicle (NLEV) Program. NLEV required manufacturers to meet separ ate fleet average standards for vehicles sold in two different regions of the count ry. 56 As with NLEV, the determination would be based on where the completed vehicles are delivered as a point of first sale,

which in most cases would be the dealer. 57

As noted above, EPA proposes that manufacturers ch oosing to generate early credits would select one of the four pathways for t he entire early credits program and would not be able to switch among them. EPA propos es that manufacturers would submit their early credits report when they submit their final CAFE report for MY 2011 (which is required to be submitted no later than 90 days after the end of the model year).

Manufacturers would have until then to decide which pathway to select. This would give manufacturers enough time to determine which pathwa y 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 submitt al for final EPA approval.

The table below provides a summary of the four fle et average-based CO 2 early credit pathways EPA is proposing. As noted above, EPA is concerned with potential “windfall” credits and is seeking comments on how t o best ensure the objective of achieving surplus, real-world reductions is achieve d in the design of the credit programs

. In addition, EPA requests comments on the merits of each of these pathways. Specifically, EPA requests comment on whether or no t any of the pathways could be eliminated to simplify the program without diminish ing its overall flexibility. For example, Pathway 2 may not be particularly useful t o manufacturers if the California/177 state and overall national fleets are projected to be similar during these model years. EPA also requests comment on proposed program imple mentation structure and provisions.

Table III.C.5-3: Summary of Proposed Early Fleet Av erage CO 2 Credit Pathways

Common Elements - Manufacturers would select a path way. 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 - Manufacturers earn cr edits based on fleet average

56 62 FR 31211, June 6, 1997.

57 62 FR 31212, June 6, 1997Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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Credits for National Fleet emissions compared with California equivalent baseline set by EPA

- Based on nationwide CO 2 sales-weighted fleet

average - Based on use of California vehicle categories - FFV alternative compliance credits per California program may be included - Once in the program, manufacturers must make up any deficits that are incurred prior to 2012 in ord er 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 credits for vehicles sold in California plus CAA 177 States, plus:

- CAFE-based credits allowed for vehicles sold

outside of California and CAA 177 states - For CAFE-based credits, manufacturers earn credits based on fleet average emissions compared with baseline set by EPA

- CAFE-based credits based on NHTSA car and

truck definitions

- FFV credits not allowed to be included for 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

EPA proposes that manufacturers could earn early A /C credits in MYs 2009-2011 using the same A/C system design-based EPA provisio ns being proposed for MYs commencing in 2012, as described in Section III.C.1 , above. Manufacturers would be able to earn early A/C CO 2 -equivalent credits by demonstrating improved A/C s ystem performance, for both direct and indirect emissions . To earn credits for vehicles sold in California and CAA 177 states, the vehicles would n eed to be included in one of theDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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California-based early credit pathways described ab ove in III.C.5.a. EPA is proposing

this constraint in order to avoid credit double cou nting with the California program in place in those states, which also allows A/C system credits in this time frame.

Manufacturers would fold the A/C credits into the f leet average CO 2 calculations under the California-based pathway. For example, the MY 2009 California-based program car baseline would be 321 g/mile (see Table III.C.5-1). If a manufacturer under Pathway 1 had a MY 2009 car fleet average CO 2 level of 320 g/mile and then earned an additional 9 g/mile CO 2 -equivalent A/C credit, the manufacturers would ear n a total of 10 g/mile of

credit. Vehicles sold outside of California and 17 7 states would be eligible for the early A/C credits whether or not the manufacturers partic ipate in other aspects of the early credits program.

c. Early Advanced Technology Vehicle Credits

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

above. EPA proposes to would use a multiplier in the range of 1.2 to of 2.0 for all eligible vehicles (i.e., EVs, PHEVs, and fuel cells ). Manufacturers, however, would track the number of these vehicles sold in the model year s 2009 - 2011, and the emissions level of the vehicles, rather than a CO 2 credit. When a manufacturer chooses to use the ve hicle credits to comply with 2012 or later standards, the vehicle counts including the multiplier

would be folded into the CO 2 fleet average. For example, if a manufacturer sel ls 1,000 EVs in MY 2011, and if the final multiplier level were 2.0, the manufacturer would apply the multiplier of 2.0 and then be able to include 2 ,000 vehicles at 0 g/mile in their MY 2012 fleet to decrease the fleet average for that m odel year. As with other early credits, these early advanced technology vehicle credits wou ld be tracked by model year (2009, 2010, or 2011) and would be subject to 5 year carry -forward restrictions. Again,

manufacturers would not be allowed to include the E Vs, PHEVs, or fuel cell vehicles in the early credit pathways discussed above in Sectio n III.C.5.a, otherwise the vehicles

would be double counted. As discussed in Section I II.C.3, EPA is requesting comment

on a multiplier in the range of 1.2 to 2.0 multiplier , including values less than 2.0 as well

as a potential phase-down in the multiplier by model y ear 2016 , if a multiplier near the higher end of this range is determined for the fina l rule . This request for comment also extends to the potential for early advance technolo gy vehicle credits. EPA is also requesting comment on the appropriate gram/mile met ric for EVs and fuel cell ed vehicles, as well as for the EV-only contribution f or a PHEV.

d. Early Off-Cycle Credits

EPA’s proposed off-cycle innovative technology cre dit provisions are provided in Section III.C.4. EPA requests comment on beginning these credits in the 2009-2011 time frame, provided manufacturers are able to make the necessary demonstrations outlined in Section III.C.4, above.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

68 D. Feasibility of the Proposed CO 2 Standards

This proposal is based on the need to obtain signif icant GHG emissions reductions from the transportation sector, and the recognition that there are cost-effective technologies to achieve such reductions in the 2012 -2016 time frame. As in many prior mobile source rulemakings, the decision on what sta ndard to set is largely based on the effectiveness of the emissions control technology, the cost and other impacts of implementing the technology, and the lead time need ed for manufacturers to employ the control technology. The standards derived from ass essing these issues are also evaluated in terms of the need for reductions of greenhouse g ases, the degree of reductions achieved by the standards, and the impacts of the s tandards 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 t echnology are therefore a central focus of this rulemaking.

EPA is taking the same basic approach in this rulem aking, although the technological problems and solutions involved in th is rulemaking differ in some ways from prior mobile source rulemakings. Here, the fo cus of the emissions control technology is on reducing CO 2 and other greenhouse gases. Vehicles combust fuel to perform two basic functions: 1) transport the vehic le, its passengers and its contents, and 2) operate various accessories during the operation of the vehicle such as the air conditioner. Technology can reduce CO 2 emissions by either making more efficient use of the energy that is produced through combustion o f the fuel or reducing the energy needed to perform either of these functions.

This focus on efficiency calls for looking at the v ehicle as an entire system. In addition to fuel delivery, combustion, and aftertre atment technology, any aspect of the vehicle that affects the need to produce energy mus t also be considered. For example, the efficiency of the transmission system, which takes the energy produced by the engine and transmits it to the wheels, and the resistance of t he tires to rolling both have major impacts on the amount of fuel that is combusted whi le operating the vehicle. The braking system, the aerodynamics of the vehicle, and the ef ficiency of accessories, such as the air conditioner, all affect how much fuel is combusted.

In evaluating vehicle efficiency, we have excluded fundamental changes in vehicles’ size and utility. For example, we did no t evaluate converting minivans and SUVs to station wagons, converting vehicles with fo ur wheel drive to two wheel drive, or reducing headroom in order to lower the roofline an d reduce aerodynamic drag. We have limited our assessment of technical feasibility and resultant vehicle cost to technologies which maintain vehicle utility as much as possible. Manufacturers may decide to alter the utility of the vehicles which they sell in resp onse to this rule. Assessing the societal cost of such changes is very difficult as it involv es assessing consumer preference for a wide range of vehicle features.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

69 This need to focus on the efficient use of energy b y 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 already being commercially utilized to a limited degree in the current light-duty fleet. These technologies include hybrid technologies that use h igher efficiency electric motors as the power source in combination with or instead of inte rnal combustion engines. While already commercialized, hybrid technology continues to be developed and offers the potential for even greater efficiency improvements. Finally, there are other advanced technologies under development, such as lean burn g asoline engines, which offer the potential of improved energy generation through imp rovements in the basic combustion process. In addition, the available technologies a re not limited to powertrain improvements but also include mass reduction, elect rical system efficiencies, and aerodynamic improvements.

The large number of possible technologies to consi der and the breadth of vehicle systems that are affected mean that consideration o f the manufacturer’s design and production process plays a major role in developing the proposed standards. Vehicle manufacturers typically develop many different mode ls by basing them on a limited number of vehicle platforms. The platform typicall y consists of a common vehicle architecture and structural components. This allows for efficient use of design and manufacturing resources. Given the very large inve stment put into designing and producing each vehicle model, manufacturers typical ly plan on a major redesign for the models approximately every 5 years. At the redesig n 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, in cluding plans related to emissions, fuel economy, and safety regulations.

This redesign often involves a package of changes d esigned to work together to meet the various requirements and plans for the mod el for several model years after the redesign. This often involves significant engineer ing, development, manufacturing, and marketing resources to create a new product with mu ltiple new features. In order to leverage this significant upfront investment, manuf acturers plan vehicle redesigns with several model years’ of production in mind. Vehicle models are not completely static between redesigns as limited changes are often inco rporated 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). Mor e major technology upgrades that affect multiple systems of the vehicle thus occur a t the vehicle redesign stage and not in the time period between redesigns.

As discussed below, there are a wide variety of CO 2 reducing technologies involving several different systems in the vehicle that are available for consideration. Many can involve major changes to the vehicle, such as changes to the engine block and cylinder heads, redesign of the transmission and it s packaging in the vehicle, changes in vehicle shape to improve aerodynamic efficiency and the application of aluminum inDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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body panels to reduce mass. Logically, the incorpo ration of emissions control technologies would be during the periodic redesign process. This approach would allow manufacturers to develop appropriate packages of te chnology upgrades that combine technologies in ways that work together and fit wit h 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 adde d outside of the redesign process.

This proposed rule affects five years of vehicle p roduction, model years 2012- 2016. Given the now-typical five year redesign cyc le, nearly all of a manufacturer’s vehicles will be redesigned over this period. Howe ver, this assumes that a manufacturer has sufficient lead time to redesign the first mode l year affected by this proposed rule with the requirements of this proposed rule in mind . In fact, the lead time available for model year 2012 is relatively short. The time betw een a likely final rule and the start of 2013 model year production is likely to be just ove r two years. At the same time, manufacturer product plans indicate that they are p lanning on introducing many of the technologies EPA projects could be used to show co mpliance with the proposed CO 2 standards in both 2012 and 2013. In order to acco unt for the relatively short lead time available prior to the 2012 and 2013 model years, a lbeit mitigated by their existing plans, EPA has factored this reality into how the availabi lity is modeled for much of the technology being considered for model years 2012-20 16 as a whole. If the technology to control greenhouse gas emissions is efficiently fol ded 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 y ear, and as discussed below, to reduce emissions of HFCs from t he air conditioner.

In determining the level of this first ever GHG em issions standard under the CAA for light-duty vehicles, EPA proposes to use an app roach that accounts for and builds on this redesign process. This provides the opportuni ty for several control technologies to be incorporated into the vehicle during redesign, a chieving significant emissions

reductions from the model at one time. This is in contrast to what would be a much more costly approach of trying to achieve small incremen ts of reductions over multiple years by adding technology to the vehicle piece by piece outside of the redesign process.

As described below, the vast majority of technology required by this proposal is commercially available and already being employed t o a limited extent across the fleet. The vast majority of the emission reductions which would result from this proposed rule

would result from the increased use of these techno logies. EPA also believes that this proposed rule would encourage the development and l imited use of more advanced technologies, such as PHEVs and EVs.

In developing the proposed standard, EPA built on t he technical work performed by the State of California during its development o f its statewide GHG program. EPA began by evaluating a nationwide CAA standard for M Y 2016 that would require the levels of technology upgrade, across the country, w hich California standards would require for the subset of vehicles sold in Californ ia under Pavley 1. In essence, EPADraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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evaluated the stringency of the California Pavley 1 program but for a national standard. As mentioned above, and as described in detail in S ection II.C of this preamble and Chapter 3 of the Joint TSD, one of the important te chnical documents included in EPA and NHTSA’s assessment of vehicle technology effect iveness and costs was the 2004 NESCCAF report which was the technical foundation f or California’s Pavley 1 standard. However, in order to evaluate the impact of standar ds with similar stringency on a national basis to the California program EPA chose not to evaluate the specific California standards for several reasons. First, California’s standards are universal standards (one for cars and one for trucks), while EPA is proposin g attribute-based standards using vehicle footprint. Second, California’s definition s of what vehicles are classified as cars

and which are classified as trucks are different fr om those used by NHTSA for CAFE purposes and different from EPA’s proposed classifi cations in this notice (which harmonizes with the CAFE definitions). In addition , there has been progress in the

refinement of the estimation of the effectiveness a nd cost estimation for technologies which can be applied to cars and trucks since the C alifornia analysis in 2004 which could lead to different relative stringencies between car s and trucks than what California determined for its Pavley 1 program. There have al so been improvements in the fuel economy and CO 2 performance of the actual new vehicle fleet since California’s 2004 analysis which EPA wanted to reflect in our current assessment. For these reasons, EPA developed an assessment of an equivalent national n ew vehicle fleet-wide CO 2 performance standards for model year 2016 which wou ld result in the new vehicle fleet in the State of California having CO 2 performance equal to the performance from the California Pavley 1 standards. This assessment is documented in Chapter 3.1 of the DRIA. The results of this assessment predicts tha t a national light-duty vehicle fleet which adopts technology that achieves performance o f 250 g/mile CO 2 for model year

2016 would result in vehicles sold in California th at would achieve the CO 2 performance equivalent to the Pavley 1 standards.

EPA then analyzed a level of 250 g/mi CO 2 in 2016 using the OMEGA model, and the car and truck footprint curves relative str ingency discussed in Section II to determine what technology would be needed to achiev e a fleet wide average of 250 g/mi

CO 2 . As discussed later in this section we believe th is level of technology application to the light-duty vehicle fleet can be achieved in thi s time frame, that such standards will produce significant reductions in GHG emissions, an d 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 2 016 level.

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

standards is discussed at the end of this section.

Evaluating the feasibility of these standards prima rily includes identifying available technologies and assessing their effectiv eness, cost, and impact on relevant aspects of vehicle performance and utility. The wi de number of technologies which areDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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available and likely to be used in combination requ ires a more sophisticated assessment of their combined cost and effectiveness. An impor tant factor is also the degree that these technologies are already being used in the cu rrent vehicle fleet and thus, unavailable for use to improve energy efficiency be yond current levels. Finally, the challenge for manufacturers to design the technolog y into their products, and the appropriate lead time needed to employ the technolo gy 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 or der to assist in this task, EPA has developed a computerized model called the Optimizat ion Model for reducing Emissions of Greenhouse gases from Automobiles (OMEGA) model. Broadly, the model starts with a description of the future vehicle fleet, inc luding manufacturer, sales, base CO 2 emissions, footprint and the extent to which emissi on control technologies are already employed. For the purpose of this analysis, over 2 00 vehicle platforms were used to capture the important differences in vehicle and en gine design and utility of future vehicle sales of roughly 16 million units in the 20 16 timeframe. The model is then provided with a list of technologies which are appl icable to various types of vehicles, along with their cost and effectiveness and the per centage of vehicle sales which can receive each technology during the redesign cycle o f interest. The model combines this information with economic parameters, such as fuel prices and a discount rate, to project how various manufacturers would apply the available technology in order to meet various

levels of emission control. The result is a descri ption of which technologies are added to each vehicle platform, along with the resulting cos t. While OMEGA can apply technologies which reduce CO 2 emissions and HFC refrigerant emissions associated with air conditioner use, this task is currently handled outside of the OMEGA model. The model can be set to account for various types of co mpliance flexibilities, such as FFV

credits.

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

available for review.

The remainder of this section describes the technic al feasibility analysis in greater detail. Section III.D.1 describes the developmen t of our projection of the MY 2012- 2016 fleet in the absence of this proposed rule. S ection III.D.2 describes our estimates of the effectiveness and cost of the control technolog ies available for application in the

2012-2016 timeframe. Section III.D.3 combines thes e technologies into packages likely to be applied at the same time by a manufacturer. In this section, the overall effectiveness of the technology packages vis-à-vis their effectiveness when combined individually is described. Section III.D.4 describ es 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 manu facturers would add technology to their vehicles in order to comply with CO 2 emission standards. Section III.D.6 presents the results of the OMEGA modeling, namely the level of technology added to

manufacturers’ vehicles and its cost. Section III. D.7 discusses the feasibility of theDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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alternative 4-percent-per-year and 6-percent-per-ye ar standards. Further detail on all of

these issues can be found in EPA and NHTSA’s draft Joint Technical Support Document as well as EPA’s draft Regulatory Impact Analysis.

1. How Did EPA Develop a Reference Vehicle Fleet fo r Evaluating Further

CO 2 Reductions?

In order to calculate the impacts of this proposed regulation, it is necessary to project the GHG emissions characteristics of the fu ture vehicle fleet absent this proposed regulation. This is called the “reference” fleet. EPA developed this reference fleet by determining the characteristics of a specific model year (in this case, 2008) of vehicles

for the creation of the reference fleet , called the baseline fleet, and then projecting wh at changes if any would be made to these vehicles to c omply with the MY2011 CAFE standards. Thus, the MY 2008 fleet is our “baselin e fleet,” and the projection of the

baseline to MY 2011-2016 is called the “reference f leet.”

EPA used 2008 model year vehicles as the basis for its baseline fleet. 2008 model year is the most recent model year for which data i s publicly available. Sources of data

for the baseline include the EPA vehicle certificat ion data, Ward ’ s Automotive Group data, Motortrend.com, Edmunds.com, manufacturer pro duct plans, and other sources to a lesser extent (such as articles about specific vehi cles) revealed from internet search engine research. EPA then projects this fleet out to the 2016 MY, taking into account factors such as changes in overall sales volume. S ection II.B describes the development of the EPA reference fleet, and further details can be found in Section II.B of this preamble and Chapter 1 of the Draft Joint TSD.

The light-duty vehicle market is currently in a sta te of flux due to the volatility in fuel prices over the past several years and the cur rent economic downturn. These factors have changed the relative sales of the various type s of light-duty vehicles marketed, as

well as total sales volumes. EPA and NHTSA desire to account for these changes to the degree possible in our forecast of the make-up of t he future vehicle fleet. EPA wants to include improvements in fuel economy associated wit h the existing CAFE program. It is possible that manufacturers could increase fuel eco nomy beyond the level of the 2011 MY CAFE standards for marketing purposes. However, it is difficult to separate fuel economy improvements in those years for marketing p urposes from those designed to facilitate compliance with anticipated CAFE or CO 2 emission standards. Thus, EPA limits fuel economy improvements in the reference f leet to those projected to result from the existing CAFE standards. The addition of technology to The process used to develo p the characteristics of this reference fleet is desc ribed in Section III.A.1. Incorporating any fuel economy improvements into the reference the baseline fleet so that it are needed

to compl ies y with the MY 2011 CAFE standards is described later in Section III.D.4, as

this involves the addition of technology to vehicles us es ing the same methodology as used to project compliance with the proposed CO 2 emission standards. In summary, the reference fleet represents vehicle characteristics and sales in the 2012 and later model years absent this proposed rule. Technology is the n added to these vehicles in order to

reduce CO 2 emissions to achieve compliance with the proposed CO 2 standards. EPADraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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did does not factor in project any changes to vehicle characteristics or sales in projecting manufacturers’ compliance with due to this proposal except for the addition of CO 2 reducing technology

.

After the reference fleet is created, the next step aggregates vehicle sales by a combination of manufacturer, vehicle platform, market segment and engine design. As

discussed in Section III.D. 4 below 1 , manufacturers implement major design changes at vehicle redesign and tend to implement these change s across a vehicle platform. Because the cost of modifying the engine depends on the val ve train design (such as SOHC, DOHC, etc.), the number of cylinders and in some ca ses head design, the vehicle sales are broken down beyond the platform level to reflec t relevant engine differences. The vehicle groupings are shown in Table III.D.1-1.

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 1 0 Midsize SUV (Car) V6 2v SOHC 8 Large Pickup V6 DOHC 18 Midsize SUV (Car) V6 S/DOHC 4v 5 Large Pickup V6 OH V 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 3 v 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 13Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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Subcompact Auto V8+ S/DOHC 6 Cargo Van V8+ SOHC 10 Subcompact Auto V6 2v SOHC 8 Cargo Van V6 OHV 12 Subcompact Auto I5/V6 S/DOHC 4v 4

a I4 = 4 cylinder engine, I5 = 5 cylinder engine, V6, V7, and V8 = 6, 7, and 8 cylinder engines, respect ively, 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 t o be considered in developing a reference fleet against which to evalu ate the impacts of this proposed rule is the impact of the 2011 MY CAFE standards, which wer e published earlier this year. Since the vehicles which comprise the above referen ce fleet are those sold in the 2008 MY, when coupled with our sales projections, they d o not necessarily meet the 2011 MY

CAFE standards.

The levels of the 2011 MY CAFE standards are straig htforward to apply to future sales fleets, as is the potential fine-paying flexi bility afforded by the CAFE program (i.e., $55 per mpg of shortfall). However, projecting som e of the compliance flexibilities afforded by EISA and the CAFE program are less clea r. Two of these compliance flexibilities are relevant to EPA’s analysis: 1) th e credit for FFVs, and 2) the limit on the transferring of credits between car and truck fleet s. 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 trans fer is limited to 1.0 mpg in 2011, and EISA increases this to 1.5 mpg beginning in 2015 an d then to 2.0 mpg beginning in 2020. The question here is whether to hold the 2011 MY CA FE provisions constant in the future or incorporate the changes in the FFV credit and car-truck credit trading limits

contained in EISA.

EPA decided to hold the 2011 MY limits on FFV credi t 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 chang es in the FFV credit and car-truck credit trading provisions consistently with the oth er EISA-mandated changes in the CAFE standards themselves. All EISA provisions rel evant to 2011 MY vehicles are reflected in our reference case fleet, while all po st-2011 MY provisions are not. Practically, relative to the alternative, this incr eases both the cost and benefit of the proposed standards. In our analysis of this propos ed rule, any quantified benefits from the presence of FFVs in the fleet are not considere d. Thus, the only impact of the FFV credit is to reduce onroad fuel economy. By assumi ng that the FFV credit stays at 1.2 mpg in the future absent this rule, the assumed lev el of onroad fuel economy that would occur absent this proposal is reduced. As this pro posal eliminates the FFV credit starting in 2016, the net result is to increase the projecte d level of fuel savings from our proposed standards. Similarly, the higher level of FFV cred it reduces projected compliance cost

for manufacturers to meet the 2011 MY standards in our reference case. This increases the projected cost of meeting the proposed 2012 and later standards.

As just implied, EPA needs to project the technolog y (and resultant costs) required for the 2008 MY vehicles to comply with th e 2011 MY CAFE standards in thoseDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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cases where they do not automatically do so. The t echnology and costs are projected using the same methodology that projects compliance with the proposed 2012 and later

CO 2 standards. The description of this process is des cribed in the following four

sections.

A more detailed description of the methodology used to develop these sales projections can be found in the Draft Joint TSD. D etailed sales projections by model year and manufacturer can also be found in the TSD. EPA requests comments on both the methodology used to develop the reference fleet , as well as the characteristics of the

reference fleet.

2. What are the Effectiveness and Costs of CO 2 -reducing Technologies?

EPA and NHTSA worked together to jointly develop in formation on the

effectiveness and cost of the CO 2 -reducing technologies, and fuel economy-improving technologies, other than A/C related control techno logies. This joint work is reflected in Chapter 3 of the Draft Joint TSD and in Section II of this preamble. A summary of the effectiveness and cost of A/C related technology is contained here. For more detailed

information on the effectiveness and cost of A/C re lated technology, please refer to Section III.C of this preamble and Chapter 2 of EPA ’s DRIA.

A/C improvements are an integral part of EPA’s tech nology 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 conditio ning-related improvements are included in Table III.D.2-1.because A/C improvements are a v ery cost-effective technology at reducing CO 2 (or CO 2 -equivalent) emissions. EPA expects most manufactur ers will choose to use AC improvement credit opportunities a s 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 presented in Section III.H. EPA discusses the like ly maintenance savings in Chapter 2 of the DRIA and requests comment on that discussion be cause we may include maintenance savings in the final rule and would like to have th e best information available in order to do so. The EPA approximates that the level of the credits earned will increase from 2012 to 2016 as more vehicles in the fleet are redesigne d. 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 describe d in the DRIA. As demonstrated in the IMAC study (and described in Section III.C as well as the DRIA), these levels are feasible and achievable with technologies that are available and cost-effective today.

These improvements are categorized as either leakag e reduction, including use of alternative refrigerants, or system efficiency impr ovements. Unlike the majority of the technologies described in this section, A/C improve ments will not be demonstrated in the test cycles used to quantify CO 2 reductions in this proposal. As described earlier , for this analysis A/C-related CO 2 reductions are handled outside of OMEGA model and therefore

their CO 2 reduction potential is expressed in grams per mile rather than a percentage usedDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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by the OMEGA model. See Section III.C for the meth od by which potential reductions

are calculated or measured. Further discussion of the technological basis for these improvements is included in Chapter 2 of the DRIA.

Table III.D.2-1 Total CO 2 Reduction Potential and 2016 Cost for A/C Related Technologies for all Vehicle Classes (Costs in 2007 dollars)

CO 2 Reduction

Potential Incremental Compliance

Costs A/C refrigerant leakage

reduction 7.5 g/mi 58 $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

2012 25% 3.1

2013 40% 5.0

2014 60% 7.5

2015 80% 10.0

2016 85% 10.6

3. How can Technologies be Combined into “Packages ” and What is the Cost and Effectiveness of Packages?

Individual technologies can be used by manufacturer s to achieve incremental CO 2 reductions. However, as mentioned in Section III.D .1, EPA believes that manufacturers are more likely to bundle technologies into “packag es” to capture synergistic aspects and reflect progressively larger CO 2 reductions with additions or changes to any given package. In addition, manufacturers would typicall y apply new technologies in packages during model redesigns—which occur once roughly eve ry five years—rather than adding new technologies one at a time on an annual or bien nial basis. This way, manufacturers can more efficiently make use of their redesign res ources and more effectively plan for changes necessary to meet future standards.

Therefore, the approach taken here is to group tech nologies into packages of increasing cost and effectiveness. EPA determined that 19 different vehicle types provided adequate representation to accurately mode l the entire fleet. This was the result of analyzing the existing light duty fleet with res pect to vehicle size and powertrain

58 This represents 50% improvement in leakage and thu s 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. Formatted TableDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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configurations. All vehicles, including cars and t rucks, were first distributed based on their relative size, starting from compact cars and working upward to large trucks. Next, each vehicle was evaluated for powertrain, specific ally 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 fo r the cost basis associated with most technology application, they do not adequately acco unt for all existing vehicle attributes such as base vehicle powertrain configuration and m ass reduction. As an example, costs and effectiveness estimates for engine friction red uction for the small car class were used to represent cost and effectiveness for three vehic le types: subcompact cars, compact cars, and small multi-purpose vehicles (MPV) equipp ed with a 4-cylinder engine,

however the mass reduction associated for each of t hese vehicle types was based on the vehicle type sales-weighted average. In another ex ample, a vehicle type for V8 single overhead cam 3-valve engines was created to properl y account for the incremental cost in moving to a dual overhead cam 4-valve configuration . Note also that these 19 vehicle types span the range of vehicle footprints—smaller footprints for smaller vehicles and larger footprints for larger vehicles—which serve a s the basis for the standards proposed

in this rule. A complete list of vehicles and their associated ve hicle types is shown above

in Table III.D.1-1.

Within each of the 19 vehicle types multiple techno logy packages were created in increasing technology content and, hence, increasin g effectiveness. Important to note is that the effort in creating the packages attempted to maintain a constant utility for each package as compared to the baseline package. As su ch, each package is meant to provide equivalent driver-perceived performance to the base line package. The initial packages represent what a manufacturer will most likely impl ement on all vehicles, including low rolling resistance tires, low friction lubricants, engine friction reduction, aggressive shift logic, early torque converter lock-up, improved ele ctrical accessories, and low drag

brakes. 59 Subsequent packages include advanced gasoline eng ine and transmission technologies such as turbo/downsizing, GDI, and dua l-clutch transmission. The most technologically advanced packages within a segment included HEV, PHEV and EV designs. The end result being a list of several pa ckages for each of 19 different vehicle types from which a manufacturer could choose in ord er to modify its fleet such that compliance could be achieved.

Before using these technology packages as inputs to the OMEGA model, the cost and effectiveness for the package was calculated. The first step—mentioned briefly above—was to apply the scaling class for each techn ology 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 Larg e Car class was provided as an example

in Section III.D.2. Additional classes include Sma ll Car, Minivan, Small Truck, and Large Truck and each of the 19 vehicle types was ma pped into one of those five classes. In the next step, the cost for a particular technol ogy package, was determined as the sum

59 When making reference to low friction lubricants, the technology being referred to is the engine chan ges and possible durability testing that would be done to accommodate the low friction lubricants, not the

lubricants themselves.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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of the costs of the applied technologies. The fina l 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 transmissio n technologies can be combined multiplicatively. For example, if an engi ne technology reduces CO 2 emissions by five percent and a transmission technology reduc es CO 2 emissions by four percent, the benefit of applying both technologies is 8.8 percen t (100% - (100% – 4%) * (100% - 5%)). In some cases, however, the benefit of the t ransmission-related technologies overlaps with many of the engine technologies. Thi s occurs because the primary goal of most of the transmission technologies is to shift o peration of the engine to more efficient locations on the engine map. Some of the engine te chnologies have the same goal, such as cylinder deactivation. In order to account for this overlap and avoid over-estimating emissions reduction effectiveness, EPA has develope d a set of adjustment factors associated with specific pairs of engine and transm ission technologies.

The various transmission technologies are generally mutually exclusive. As such, the effectiveness of each transmission technology g enerally 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 be nefit of a 6-speed automatic transmission. Exceptions are aggressive shift logi c and early torque converter lock-up. The former can be applied to any vehicle and the la tter can be applied to any vehicle with

an automatic transmission.

EPA has chosen to use an engineering approach known as the lumped-parameter technique to determine these adjustment factors. T he 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 appr oach developed by EPA is detailed in Chapter 3 of the Draft Joint TSD.

Table III.D.3-1 presents several examples of the re duction in the effectiveness of technology pairs. A complete list and detailed dis cussion of these synergies is presented in Chapter 3 of the Draft Joint TSD.

Table III.D.3-1 Reduction in Effectiveness for Sele cted 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 C O 2 -reducing technology vehicle packages used in the OMEGA model for the la rge car class. Similar packagesDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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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 Draft Joint TSD.

Table III.D.3-2 CO 2 Reducing Technology Vehicle Packages for a Large C ar

Effectiveness and Costs in 2016 (Costs in 2007 doll ars) 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% $1,022

3.0L V6 + GDI

+ CCP + Deac 6 speed automatic 5% Mass Reduction 20.6% $1,280

3.0L V6 + GDI

+ CCP + Deac 6 Speed DCT 10% Mass Reduction Start-Stop 34.2% $2,108

2.2L I4 + GDI +

Turbo + DCP 6 speed DCT 10% Mass Reduction Start-Stop 34.3% $2,245

4. Manufacturer’s Application of Technology

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

EPA has historically allowed manufacturers of new v ehicles or nonroad equipment to phase in available emission control te chnology 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 bo th of these rules, the major modifications expected from the rules were th e addition of exhaust aftertreatment control technologies. Some changes to the engine w ere expected as well, but these were not expected to affect engine size, packaging or pe rformance. The CO 2 reduction technologies described above potentially involve mu ch more significant changes to car and light truck designs. Many of the engine techno logies involve changes to the engine block and heads. The transmission technologies cou ld 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.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

81 At the same time, vehicle designs are not static, b ut change in major ways periodically. The manufacturers’ product plans ind icate that vehicles are usually redesigned every 5 years on average. Vehicles also tend to receive a more modest “refresh” between major redesigns, as discussed abo ve. Because manufacturers are already changing their tooling, equipment and desig ns 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 pr ojected to coincide with changes that manufacturers would already tend to be making to th eir vehicles. This approach effectively avoids the need to quantify any costs a ssociated with discarding equipment, tooling, emission and safety certification, etc. wh en CO 2 -reducing equipment is incorporated into a vehicle.

This proposed rule affects five years of vehicle pr oduction, model years 2012- 2016. Given the now-typical five year redesign cyc le, nearly all of a manufacturer’s vehicles will be redesigned over this period. Howe ver, this assumes that a manufacturer has sufficient lead time to redesign the first mode l year affected by this proposed rule with the requirements of this proposed rule in mind . In fact, the lead time available for model year 2012 is relatively short. The time betw een a likely final rule and the start of 2013 model year production is likely to be just ove r two years. At the same time, the manufacturer product plans indicate that they are p lanning on introducing many of the technologies projected to be required by this propo sed 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 pla ns, EPA projects that only 85 percent of

each manufacturer’s sales will be able to be redesi gned with major CO 2 emissionreducing technologies by the 2016 model year. Less intrusive technologies can be introduced into essentially all a manufacturer’s sa les. This resulted in three levels of technology penetration caps, by manufacturer. Comm on technologies (e.g., low friction lubes, aerodynamic improvements) had a penetration cap of 100%. More advanced powertrain technologies (e.g., stoichiometric GDI, turbocharging) had a penetration cap of 85%. The most advanced technologies considered in this analysis (e.g., diesel engines, as well as IMA, powersplit and 2-mode hybr ids) had a 15% penetration cap.

5. How is EPA Projecting that a Manufacturer Would Decide Between Options to Improve CO 2 Performance to Meet a Fleet Average Standard?

There are many ways for a manufacturer to reduce C O 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 num ber of technology combinations which produce the desired C O 2 reduction. EPA has created a new vehicle model, the Optimization Model for Emiss ions of Greenhouse gases from Automobiles (OMEGA) in order to make a reasonable e stimate 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 al gorithms in a memo to the docket for this rulemaking (Docket EPA-HQ-OAR-2009-0472).Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

82 The OMEGA model utilizes four basic sets of input d ata. The first is a description of the vehicle fleet. The key pieces o f data required for each vehicle are its manufacturer, CO 2 emission level, fuel type, projected sales and foo tprint. 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 t hat vehicle. (For a description of how the 19 vehicle types were created, reference Sectio n III.D.3.) In addition, the degree to which each vehicle already reflects the effectivene ss and cost of each available technology must also be input. This avoids the sit uation, for example, where the model might try to add a basic engine improvement to a cu rrent hybrid vehicle. Except for this type of information, the development of the require d data regarding the reference fleet was described in Section III.D.1 above and in Chapt er 1 of the Draft Joint TSD.

The second type of input data used by the model is a description of the technologies available to manufacturers, primarily their cost and effectiveness. Note that the five vehicle classes are not explicitly used by the model, rather the costs and effectiveness associated with each vehicle package is based on the associated class. This

information was described in Sections III.D.2 and I II.D.3 above as well as Chapter 3 of the Draft Joint TSD. In all cases, the order of th e technologies or technology packages for a particular vehicle type is determined by the model user prior to running the model. Several criteria can be used to develop a reasonabl e ordering of technologies or packages.

These are described in the Draft Joint TSD.

The third type of input data describes vehicle oper ational data, such as annual scrap rates and mileage accumulation rates, and eco nomic data, such as fuel prices and

discount rates. These estimates are described in Section II.F above, Section III.H below and Chapter 4 of the Draft Joint TSD.

The fourth type of data describes the CO 2 emission standards being modeled.

These include the CO 2 emission equivalents of the 2011 MY CAFE standards and the proposed CO 2 standards for 2016. As described in more detail b elow, the application of A/C technology is evaluated in a separate analysis from those technologies which impact

CO 2 emissions over the 2-cycle test procedure. Thus, for the percent of vehicles that are projected to achieve A/C related reductions, the CO 2 credit associated with the projected use of improved A/C systems is used to adjust the p roposed CO 2 standard which would be applicable to each manufacturer to develop a tar get 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 u tilized 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 m ore of the technologies discussed

in Section III.D.2 above. Because of the choice to apply technologie s in packages, and 2008 vehicles are equipped with individual technolo gies in a wide variety of combinations, accounting for the presence of specif ic 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 eitherDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

83

contained in each technology package, or would supp lant the addition of the relevant portion of each technology package. An example wou ld 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 con sidered 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 engin e related CO 2 control efficiency. An example of a technology which supplants several tec hnologies would be a 2008 MY vehicle which was equipped with a diesel engine. T he effectiveness of this technology would be considered to be present for technology pa ckages which included improvements to a gasoline engine, since the result ant gasoline engines have a lower CO 2 control efficiency than the diesel engine. However , if these packages which included improvements also included improvements unrelated t o the engine, like transmission improvements, only the engine related portion of th e package already present on the

vehicle would be considered. The transmission rela ted portion of the package’s cost and effectiveness would be allowed to be applied in ord er 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 a nd 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 to tal effectiveness of the technologies already present on each vehicle, the lumped paramet er model described above is used. Because the specific technologies present on each 2 008 vehicle are known, the applicable synergies and dis-synergies can be fully accounted for.

The third step in this process is to divide the tot al cost and CO 2 effectiveness values determined in step 2 by the total cost and C O 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 1 above, technology packages are applied to groups of vehicles which generally represent a sing le vehicle platform and which are equipped with a single engine size (e.g., compact c ars with four cylinder engine produced by Ford). These grouping are described in Table II I.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 com bined using a simple sales-weighting procedure, since the cost of each package is the sa me for each vehicle in a grouping. For effectiveness, the individual percentages are combi ned by weighting them by both sales

and base CO 2 emission level. This appropriately weights vehicl e models with either higher sales or CO 2 emissions within a grouping. Once again, this pro cess prevents the model from adding technology which is already prese nt on vehicles, and thus ensures that the model does not double count technology effectiv eness and cost associated with complying with the 2011 MY CAFE standards and the p roposed CO 2 standards.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

84 Conceptually, the OMEGA model begins by determining the specific CO 2 emission standard applicable for each manufacturer and its vehicle class (i.e., car or truck). Since the proposed rule allows for averagi ng 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 set s of coefficients describing the piecewise linear standard functions for cars and tr ucks in the inputs, and creates a

combined car-truck standard. This combined standar d considers the difference in lifetime VMT of cars and trucks, as indicated in the propose d regulations which would govern credit trading between these two vehicle classes. For both the 2011 CAFE and 2016 CO 2 standards, these standards are a function of each m anufacturer’s sales of cars and trucks and their footprint values. When evaluating the 20 11 MY CAFE standards, the car-truck trading was limited to 1.2 mpg. When evaluating th e proposed CO 2 standards, the OMEGA model was run only for MY 2016. OMEGA is des igned to evaluate technology addition over a complete redesign cycle and 2016 re presents the final year of a redesign cycle starting with the first year of the proposed CO 2 standards, 2012. Estimates of the technology and cost for the interim model years are developed from the model projections made for 2016. This process is discusse d in Chapter 6 of EPA’s DRIA to this proposed rule. When evaluating the 2016 standards using the OMEGA model , the , the proposed CO 2 standard which manufacturers would otherwise have to meet to account for the anticipated level of A/C credits generated was adjusted. On an industry wide basis, the projection shows that manufacturers would gener ate 11 g/mi of A/C credit in 2016. Thus, the 2016 CO 2 target for the fleet evaluated using OMEGA was 261 g/mi instead of 250 g/mi.

The cost of the improved A/C systems required to ge nerate the 11 g/mi credit was estimated separately. This is consistent with our proposed A/C credit procedures, which would grant manufacturers A/C credits based on thei r total use of improved A/C systems, and not on the increased use of such systems relati ve to some base model year fleet. Some manufacturers may already be using improved A/ C technology. However, this represents a small fraction of current vehicle sale s. To the degree that such systems are already being used, EPA is over-estimating both the cost and benefit of the addition of improved A/C technology relative to the true refere nce fleet to a small degree.

The model then works with one manufacturer at a tim e to add technologies until that manufacturer meets its applicable standard. T he OMEGA model can utilize several approaches to determining the order in which vehicl es receive technologies. For this analysis, EPA used a “manufacturer-based net cost-e ffectiveness factor” to rank the technology packages in the order in which a manufac turer would likely apply them. Conceptually, this approach estimates the cost of a dding the technology from the manufacturer’s perspective and divides it by the ma ss of CO 2 the technology will reduce. One component of the cost of adding a technology is its production cost, as discussed above. However, it is expected that new vehicle pu rchasers 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 f ive years. It is also assumed that consumers discount these savings at the same rate a s that used in the rest of the analysisDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

85

(3 or 7 percent). Any residual value of the additi onal 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, ag ain discounted to the year of vehicle purchase.

Given this definition, the higher priority technolo gies are those with the lowest manufacturer-based net cost-effectiveness value (re latively low technology cost or high fuel savings leads to lower values). Because the o rder 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 a ddition. Initially, technology package #1 is the only one available to any particu lar vehicle. However, as soon as a vehicle receives technology package #1, the model c onsiders the manufacturer-based net cost-effectiveness of technology package #2 for tha t vehicle and so on. In general terms, the equation describing the calculation of manufact urer-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 Effectivenes s (in dollars per kilogram

CO 2 ), TechCost = Marked up cost of the technology (dollar s), PP = Payback period, or the number of years of vehi cle use over which consumers value fuel savings when evaluating the value of a n ew vehicle at time of purchase,

dFS i = Difference in fuel consumption due to the additi on of technology times fuel price in year i,

dCO 2 = Difference in CO 2 emissions due to the addition of technology VMTi = product of annual VMT for a vehicle of age i and the percentage of vehicles of age i still on the road, 1- Gap = Ratio of onroad fuel economy to two-cycle (FTP/HFET) fuel economy

EPA describes the technology ranking methodology an d manufacturer-based cost effectiveness metric in greater detail in a technic al memo to the Docket for this proposed rule (Docket EPA-HQ-OAR-2009-0472).

When calculating the fuel savings, the full retail price of fuel, including taxes is used. While taxes are not generally included when calculating the cost or benefits of a regulation, the net cost component of the manufactu rer-based net cost-effectiveness equation is not a measure of the social cost of thi s proposal, but a measure of the private cost, (i.e., a measure of the vehicle purchaser’s w illingness to pay more for a vehicle with higher fuel efficiency). Since vehicle operators pay the full price of fuel, includingDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

86

taxes, they value fuel costs or savings at this lev el, and the manufacturers will consider this when choosing among the technology options.

This definition of manufacturer-based net cost-effe ctiveness ignores any change

in the residual value of the vehicle due to the add itional technology when the vehicle is five years old. As discussed in Chapter 1of the DR IA, based on historic used car pricing, applicable sales taxes, and insurance, vehicles are worth roughly 12 23% of their original cost after five years, discounted to year of vehicl e purchase at 7% per annum. It is reasonable to estimate that the added technology to improve CO 2 level and fuel economy would retain this same percentage of value when the vehicle is five years old. However, it is less clear whether first purchasers, and thus , manufacturers would consider this residual value when ranking technologies and making vehicle purchases, respectively. For this proposal, this factor was not included in our determination of manufacturerbased net cost-effectiveness in the analyses perfor med in support of this proposed rule. Comments are requested on the benefit of including an increase in the vehicle’s residual value after five years in the calculation of effect ive cost.

The values of manufacturer-based net cost-effective ness for specific technologies will vary from vehicle to vehicle, often substantia lly. 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 l arge truck, or 4-cylinder versus 8- cylinder engine). Second, the effectiveness of a s pecific technology often depends on the presence of other technologies already being used o n the vehicle (i.e., the dis-synergies. Third, the absolute fuel savings and CO 2 reduction of a percentage an incremental reduction in fuel consumption depends on the CO 2 level of the vehicle prior to adding the technology. Chapter 1 of the DRIA of this proposed rule contains further detail on the

values of manufacturer-based net cost-effectiveness for the various technology packages.

EPA requests comment on the use of manufacturer-bas ed net cost-effectiveness to

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

6. Why are the Proposed CO 2 Standards Feasible?

The finding that the proposed standards would be t echnically feasible is based primarily on two factors. One is the level of tech nology needed to meet the proposed standards. The other is the cost of this technolog y. The focus is on the proposed standards for 2016, as this is the most stringent s tandard and requires the most extensive use of technology.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

87

With respect to the level of technology required t o meet the standards, EPA established technology penetration caps. As describ ed in Section III.D.4, EPA used two constraints to limit the model’s application of tec hnology by manufacturer. The first was the application of common fuel economy enablers suc h 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 appl ied to most other technologies and limited their application to 85% with the exception of the most advanced technologies (e.g., powersplit and 2-mode hybrids) whose applica tion was limited to 15%

EPA used the OMEGA model to project the technology (and resultant cost) required for manufacturers to meet the current 2011 MY CAFE standards and the proposed 2016 MY CO 2 emission standards. Both sets of standards were e valuated using

the OMEGA model. The 2011 MY CAFE standards were a pplied to cars and trucks separately with the transfer of credits from one ca tegory to the other allowed up to an increase in fuel economy of 1.0 mpg. Chrysler, For d 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 pr evious model years was not

considered. The modification of the reference flee t 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 ref erence 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 projectin g their compliance with the 2011 MY CAFE standards. These technologies include convert ing port fuel-injected gasoline engines to direct injection (GDI), adding the abili ty to deactivate certain engine cylinders during low load operation (Deac), adding a turbocha rger and downsizing the engine (Turbo), increasing the number of transmission spee ds to 6 or, converting automatic

transmissions to dual-clutch automated manual trans missions (Dual-Clutch Trans), adding 42 volt start-stop capability (Start-Stop), and converting a vehicle to a intermediate or strong hybrid design. This last ca tegory includes three current hybrid designs: integrated motor assist (IMA), power-split (PS) and 2-mode hybrids.

Table III.D.6-1 Penetration of Technology in 2008 V ehicles with 2016 Sales: Cars and

Trucks

GDI GDI+

Deac GDI+

Turbo Diesel 6 Speed

or CV

Trans Dual

Clutch

Trans StartStop Hybrid

BMW 6.7% 0.0% 0.0% 0.0% 98.8% 0.8% 0.0% 0.1%
Chrysler 0.0% 0.0% 0.0% 0.0% 27.9% 0.0% 0.0% 0.0%

Daimler 6.2% 0.0% 0.0% 6.2% 74.7% 11.4% 0.0% 0.0%

Ford 0.6% 0.0% 0.0% 0.0% 28.1% 0.0% 0.0% 0.0%

General Motors 3.3% 0.0% 0.0% 0.0% 13.7% 0.0% 0.1% 0.1%

Honda 1.2% 0.0% 0.0% 0.0% 4.2% 0.0% 0.0% 2.1%Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

88

Hyundai 0.0% 0.0% 0.0% 0.0% 4.9% 0.0% 0.0% 0.0%

Kia 0.0% 0.0% 0.0% 0.0% 0.9% 0.0% 0.0% 0.0%

Mazda 11.8% 0.0% 0.0% 0.0% 37.1% 0.0% 0.0% 0.0%

Mitsubishi 0.0% 0.0% 0.0% 0.0% 76.1% 0.0% 0.0% 0.1%

Nissan 17.7% 0.0% 0.0% 0.0% 33.3% 0.0% 0.0% 0.0%

Porsche 0.0% 0.0% 0.0% 0.0% 3.9% 0.0% 0.0% 0.0%

Subaru 0.0% 0.0% 0.0% 0.0% 29.0% 0.0% 0.0% 0.0%

Suzuki 0.0% 0.0% 0.0% 0.0% 100.0% 0.0% 0.0% 0.0%

Tata 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Toyota 7.5% 0.0% 0.0% 0.0% 30.6% 0.0% 0.0% 12.8%
Volkswagen 52.2% 0.0% 0.0% 0.1% 82.8% 10.9% 0.0% 0.0%

Overall 6.4% 0.0% 0.0% 0.1% 27.1% 0.6% 0.0% 2.8%

As can be seen, all of these technologies except fo r the direct injection gasoline engines with either cylinder deactivation or turboc harging and downsizing, were already being used on some 2008 MY vehicles. High speed tr ansmissions were the most prevalent, with some manufacturers (e.g., BMW, Suzu ki) using them on essentially all of their vehicles. Both Daimler and VW equip many of their vehicles with automated manual transmissions, while VW makes extensive use of direct injection gasoline engine technology. Toyota has converted a significant per centage 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 t he 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 i ndicated technology. For mass reduction, the overall mass reduction projected for that manufacturer’s sales is shown.

The last row in Table III.D.6-2 shows the increase in projected technology penetration due to compliance with the 2011 MY CAFE standards. The results of DOT’s Volpe Modeling were used to project that all manufacturer s would comply with the 2011 MY standards in 2016 without the need to pay fines, wi th one exception. This exception was Porsche in the case of their car fleet. When proje cting Porsche’s compliance with the 2011 MY CAFE standard for cars, the car fleet was a ssumed to achieve a CO 2 emission level of 293.2 g/mi instead of the required 285.2 g /mi level (30.3 mpg instead of 31.2 mpg).

Table III.D.6-2 Penetration of Technology Under 201 1 MY CAFE Standards in 2016

Sales: Cars and Trucks (Percent of Sales)

GDI GDI+

Deac GDI+

Turbo 6

Speed

or CV

Trans Dual

Clutch

Trans StartStop Hybrid Mass

Reduction (%)

BMW 7.3% 11.1% 0.0% 86.3% 11.1% 11.1% 0.1% 0.5%
Chrysler 0.0% 0.0% 0.0% 27.9% 0.0% 0.0% 0.0% 0.0%Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

89

Daimler 16.4% 10.3% 14.3% 45.8% 36.0% 24.6% 0.0% 0.9%

Ford 0.6% 0.0% 0.0% 28.1% 0.0% 0.0% 0.0% 0.0%

General Motors 3.3% 0.0% 0.0% 13.7% 0.0% 0.1% 0.1% 0.0%

Honda 1.2% 0.0% 0.0% 4.2% 0.0% 0.0% 2.1% 0.0%
Hyundai 0.0% 0.0% 0.0% 4.9% 0.0% 0.0% 0.0% 0.0%

Kia 0.0% 0.0% 0.0% 0.9% 0.0% 0.0% 0.0% 0.0%

Mazda 11.8% 0.0% 0.0% 37.1% 0.0% 0.0% 0.0% 0.0%

Mitsubishi 0.0% 2.2% 0.0% 76.0% 2.2% 2.2% 0.1% 0.0%

Nissan 17.7% 0.0% 0.0% 33.3% 0.0% 0.0% 0.0% 0.0%

Porsche 0.0% 25.0% 23.2% 0.0% 48.2% 37.1% 0.0% 1.2%

Subaru 0.0% 0.0% 0.0% 29.0% 0.0% 0.0% 0.0% 0.0%

Suzuki 4.5% 0.0% 0.0% 100.0% 0.0% 0.0% 0.0% 0.0%

Tata 14.5% 60.9% 0.0% 14.5% 60.9% 60.9% 0.0% 2.6%
Toyota 7.5% 0.0% 0.0% 30.6% 0.0% 0.0% 12.8% 0.0%
Volkswagen 51.2% 6.9% 11.8% 60.8% 29.6% 18.7% 0.0% 0.3%

Overall 6.7% 1.2% 0.8% 25.4% 2.6% 2.0% 2.8% 0.1%

Increase over 2008

MY 0.3% 1.2% 0.8% -1.7% 2.0% 2.0% 0.0% 0.0%

As can be seen, the 2011 MY CAFE standards, when ev aluated on an industry wide basis, require only a modest increase in the u se of these technologies. Higher speed automatic transmission use actually decreases due t o conversion of these units to more efficient designs such as automated manual transmis sions and hybrids. However, the impact of the 2011 MY CAFE standards is much greate r on selected manufacturers, particularly BMW, Daimler, Porsche, Tata (Jaguar/La nd Rover) and VW. All of these manufacturers are projected to increase their use o f advanced direct injection gasoline engine technology, advanced transmission technology , and start-stop technology. It

should be noted that these manufacturers have tradi tionally paid fines under the CAFE program. However, with higher fuel prices and the lead-time available by 2016, these manufacturers would likely find it in their best in terest to improve their fuel economy levels instead of continuing to pay fines (again wi th the exception of Porsche cars). While not shown, no gasoline engines were projected to be converted to diesel technology.

This 2008 baseline fleet, modified to meet 2011 st andards, becomes our “reference” case. This is the fleet by which the c ontrol program (or 2016 rule) will be compared. Thus, it is also the fleet that would be assumed to exist in the absence of this rule. No air conditioning improvements are assumed for model year 2011 vehicles. The average CO2 emission levels of this reference fleet vary slightly from 2012-2016 due to small changes in the vehicle sales by market segmen ts and manufacturer. CO2 emissions from cars range from 282-284 g/mi, while those from trucks range from 382-384 g/mi. CO2 emissions from the combined fleet range from 31 6-320. These estimates are described in greater detail in Section 5.3.2.2 of t he DRIA.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

90 Conceptually, both EPA and NHTSA perform the same p rojection in order to develop their respective reference fleets. However , because the two agencies use two different models to modify the baseline fleet to me et the 2011 CAFE standards, the technology added will be slightly different. The d ifferences, however, are small since most manufacturers do not require a lot of addition al technology to meet the 2011

standards.

EPA then used the OMEGA model once again to projec t the level of technology needed to meet the proposed 2016 CO 2 emission standards. Using the results of the OMEGA model, every manufacturer was projected to be able to meet the proposed 2016 standards with the technology described above excep t for four: BMW, VW, Porsche and Tata due to the OMEGA cap on technology penetration by manufacturer. For these manufacturers, the results presented below are thos e with the fully allowable application of technology and not for the technology projected to enable compliance with the proposed standards. Described below are a number o f potential feasible solutions for how these companies can achieve compliance. The ov erall level of technology needed to meet the proposed 2016 standards is shown in Table III.D.6-3. As discussed above, all manufacturers are projected to improve the air cond itioning systems on 85% of their

2016 sales.

Table III.D.6-3 Penetration of Technology for Propo sed 2016 CO 2 Standards: Cars and

Trucks

GDI GDI+

Deac GDI+

Turbo 6

Speed

Auto

Trans Dual

Clutch

Trans StartStop Hybrid Mass

Reduction (%)

BMW 4% 35% 47% 15% 71% 71% 14% 5%
Chrysler 51% 28% 3% 37% 51% 51% 0% 6%

Daimler 3% 44% 39% 11% 73% 72% 13% 5%

Ford 29% 39% 13% 19% 67% 67% 0% 6%

General Motors 34% 26% 7% 13% 55% 55% 0% 5%

Honda 24% 1% 2% 10% 22% 22% 2% 2%
Hyundai 28% 3% 14% 3% 43% 43% 0% 3%

Kia 37% 0% 5% 7% 35% 35% 0% 3%

Mazda 54% 2% 16% 31% 43% 43% 0% 4%

Mitsubishi 65% 2% 7% 22% 66% 66% 0% 6%

Nissan 29% 26% 5% 34% 57% 56% 1% 5%

Porsche 7% 36% 49% 10% 70% 70% 15% 4%

Subaru 46% 4% 14% 0% 64% 51% 0% 4%

Suzuki 66% 5% 8% 9% 69% 69% 0% 4%

Tata 4% 81% 0% 14% 70% 70% 15% 6%
Toyota 37% 2% 0% 30% 33% 16% 13% 2%
Volkswagen 9% 26% 58% 12% 72% 70% 15% 4%Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

91

Overall 30% 18% 10% 19% 49% 45% 4% 4%

Increase over

2011 CAFE 24% 17% 9% -7% 46% 43% 1% 4%

As can be seen, the overall average reduction in vehicle weight is projected to be

4%. This reduction varies across the two vehicle c lasses and vehicle base weight. For

cars below 2

, 950 pounds curb weight, the average reduction is 2.3% (62 pounds), while the average was 4.4% (154 pounds) for cars above 2

, 950 curb weight. For trucks below

3

, 850 pounds curb weight, the average reduction is 3.5% (119 pounds), while it was 4.5% (215 pounds) for trucks above 3

, 850 curb weight. Splitting trucks at a higher weig ht, for

trucks below 5

, 000 pounds curb weight, the average reduction is 3.3% (140 pounds), while it was 6.7% (352 pounds) for trucks above 5

, 000 curb weight.

The levels of requisite technologies differ signif icantly across the various manufacturers. Therefore, several analyses were pe rformed 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 the ir CO 2 emission levels.

Comparing CO 2 emissions across manufacturers is not a simple tas k. In addition to widely varying vehicle styles, designs, and size s, manufacturers have implemented fuel efficient technologies to varying degrees, as indic ated in Table III.D.6-1. The projected levels of requisite technology to enable compliance with the proposed 2016 standards shown in Table III.D.6-3 account for two of the maj or factors which can affect CO 2 emissions:1) level of technology already being util ized 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 tech nology. This is the case with Toyota’s high sales of their Prius hybrid. However, the pre sence of this technology in a 2008 vehicle eliminates the ability to significantly red uce CO 2 further through the use of this technology. In the extreme, if a manufacturer were to hybridize a high level of its sales in 2016, it doesn’t matter whether this technology was present in 2008 or whether it would be added in order to comply with the standard s. The final level of hybrid technology would be the same. Thus, the level at w hich technology is present in 2008 vehicles does not explain the difference in requisi te technology levels shown in Table

III.D.6-3.

Similarly, the proposed CO 2 emission standards adjust the required CO 2 level according to a vehicle’s footprint, requiring lower absolute emission levels from smaller vehicles. Thus, just because a manufacturer produc es 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 comp arison, the EPA lumped parameter model described above was used to estimat e the degree to which technology present on each 2008 MY vehicle in our reference fl eet was improving fuel efficiency.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

92

The effect of this technology was removed and each vehicle’s CO 2 emissions were

estimated as if it utilized no additional fuel effi ciency technology beyond the baseline.

The differences in vehicle size were accounted for by determining the difference between the sales-weighted average of each manufacturer’s “ no technology” CO 2 levels to their required CO 2 emission level under the proposed 2016 standards. The industry-wide

difference was subtracted from each manufacturer’s value to highlight which manufacturers had lower and higher than average “no technology” emissions. The results are shown in Figure III.D.6-1.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

93-60-40-20020406080100120 BMW Chrysler D a i ml er Fo r d GeneralMotors H o nda H y un dai K i a M az da Mitsubishi N i s s an Porsc he Subaru Suzu ki Tata To yot a V o l ks w a ge n

CO2 Emissions (g/mi)CarTruckFigure III.D.6-1 CO2Emissions Relative to Fleet Adjusted for Technology and FootprintDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

94 As can be seen in Table III.D.6-3 the manufacutrers 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 great er CO 2 emissions than the average 2008 MY truck after accounting for differences in t he use of fuel saving technology and footprint. The lowest adjustment is for Subaru’s t rucks, which have 50 g/mi CO 2 lower emissions than the average truck.

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

The impact of these two factors on each manufactur er’s “no technology” CO 2 emissions was estimated. First, the “no technology ” CO 2 emissions levels were statistically analyzed to determine the average imp act of weight and the ratio of horsepower to weight on CO 2 emissions. Both factors were found to be statisti cally significant at the 95 percent confidence level. To gether, they explained over 80 percent of the variability in vehicles’ CO 2 emissions for cars and over 70 percent for trucks. These relationships were then used to adjust each v ehicle’s “no technology” CO 2 emissions to the average weight for its footprint v alue and to the average horsepower to weight ratio of either the car or truck fleet. The comparison was repeated as shown in Figure III.D.6-1. The results are shown in Figure III.D.6-2.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

95-40-30-20-10010203040 BM W C h ry sl e r Dai ml e r Ford GeneralMot o rs Honda Hyund a i Kia M a zd a Mit s ubishi Nissan Pors c he Su b a r u Su z u k i Tata T oyo t a V o l k swagen

CO2 Emissions (g/mi)CarTruckFigure III.D.6-2 CO2Emissions Relative to Fleet Adjusted for Technology, Footprint, Weight atFootprint, and PerformanceDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

96 First, note that the scale in Figure III.D.6-2 is m uch smaller by a factor of 3 than that in Figure III.D.6-1. In other words, accounti ng for differences in vehicle weight (at constant footprint) and performance dramatically re duces the differences in various

manufacturers’ CO 2 emissions. Most of the manufacturers with high of fsets in Figure III.D.6-1 now show low or negative offsets. For ex ample, 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 t he average for the industry. This analysis indicates that the primary reasons for the differences in technology penetrations

shown for the various manufacturers in Table III.D. 6-3 are weight and performance. EPA has not determined why some manufacturers’ vehi cle weight is relatively high for its footprint value, or whether this weight provide s additional utility for the consumer. Performance is more straightforward. Some consumer s desire high performance and

some manufacturers orient their sales towards these consumers. However, the cost in

terms of CO 2 emissions is clear. Producing relatively heavy or high performance

vehicles increases CO 2 emissions and will require greater levels of techn ology in order to meet the proposed CO 2 standards.

As can be seen from Table III.D.6-3 above, widespr ead use of several technologies is projected due to the proposed stand ards. The vast majority of engines are projected to be converted to direct injection, with some of these engines including cylinder deactivation or turbocharging and downsizi ng. More than 60 percent of all transmissions are projected to be either high speed automatic transmissions or dual-clutch

automated manual transmissions. More than one thir d of the fleet is projected to be equipped with 42 volt start-stop capability. This technology was not utilized in 2008 vehicles, but as discussed above, promises signific ant fuel efficiency improvement at a

moderate cost.

EPA foresees no significant technical or engineeri ng issues with the projected deployment of these technologies across the fleet, with their incorporation being folded into the vehicle redesign process. All of these te chnologies 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 Ta ble III.D.6-1, high speed transmissions are already widely used. However, wh ile more common in Europe, automated manual transmissions are not currently us ed extensively in the U.S. Widespread use of this technology would require sig nificant capital investment but does not present any significant technical or engineerin g issues. Start-stop systems also represent a significant challenge because of the co mplications involved in a changeover to a higher voltage electrical architecture. Howev er, with appropriate capital investments (which are captured in the costs), these technology penetration rates are achievable within

the timeframe of this rule. While most manufacture rs have some plans for these systems, our projections indicate that their use may exceed 35% of sales, with some manufacturers requiring higher levels.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

97

Most manufacturers would not have to hybridize an y vehicles due to the proposed standards. The hybrids shown for Toyota are projec ted to be sold even in the absence of the proposed standards. However the relatively hig h hybrid penetrations (15%) projected for BMW, Daimler, Porsche, Tata and Volkswagen dese rve 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 DRIA, a 2016 technology pe netration rate of 85% is projected for the vast majority of available techno logies, 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.

While the hybridization levels of BMW, Daimler, Por sche, Tata and Volkswagen are relatively high, the sales levels of these five manufacturers are relatively low. Thus, industry-wide, hybridization reaches only 8 percent , compared with 3 percent in the reference case. This 8 percent level is believed t o be well within the capability of the hybrid component industry by 2016. Thus, the prima ry challenge for these five companies would be at the manufacturer level, redes igning a relatively large percentage of sales to include hybrid technology. The propose d TLAAS provisions will provide significant aid to these manufacturers in pre-2016 compliance, since all qualified companies are expected to be able to take advantage of these provisions. 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 lightweighting, downpowering, electric and/ or plug-in hybrid vehicles, or downsizing (our current baseline fleet assumes very little change in footprint from 2012- 2016), as well as technologies that may not be incl uded in our packages. Also, companies may have technology penetration rates of less costly technologies (listed in the above tables) greater than 85%, and they may also b e able to apply hybrid technology to more than 15 percent of their fleet (as the 15% for hybrid technology is an industry average). For example, a switch to a low GWP alter native 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 manuf acturers can also take advantage of flexibilities, such as early credits for air condit ioning and trading with other manufacturers. The EPA expects that there will be certain high volume manufacturers that will earn a significant amount of early GHG cr edits starting in 2009 and 2010 that will expire 5 years later, by 2014 and 2015, unused . The EPA believes that these manufacturers will be willing to sell these expirin g credits to manufacturers with whom there is no direct competition. Furthermore, some of these manufacturers have also stated either publicly or in confidential discussio ns with EPA that they will be able to comply with 2016 standards. Because of the confide ntial nature of this information sharing, EPA is unable to capture these packages sp ecifically in our modeling. The following companies have all submitted letters in s upport of the national program, including the 2016 MY levels discussed above: BMW, Chrysler, Daimler, Ford, GM, Honda, Mazda, Toyota, and Volkswagen. This support s the view that the emissionsDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

98

reductions needed to achieve the standards are tech nically and economically feasible for all these companies, and that EPA’s projection of n on-compliance for four of the companies is based on an inability of our model to fully account for the full flexibilities of the EPA program as well as the potentially uniqu e technology approaches or new product offerings which these manufactures are like ly to employ.

In addition, manufacturers do not need to apply te chnology exactly according to our projections. Our projections simply indicate o ne path which would achieve compliance. Those manufacturers whose vehicles are heavier and higher performing than average in particular have additional options to fa cilitate 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 ou tput of the engines. Finally, EPA allows compliance to be shown through the use of em ission credits obtained from other manufacturers. Especially for the lower volume sal es of some manufacturers that could be one component of an effective compliance strateg y, reducing the technology that needs to be employed on their vehicles.

For the vast majority of light-duty cars and truck s, manufacturers have available to them a range of technologies that are currently commercially available and can feasibly be employed in their vehicles by MY 2016. Our modeling projects widespread use of these technologies as a technologically feas ible approach to complying with the proposed standards.

In sum, EPA believes that the emissions reductions called for by the proposed standards are technologically feasible, based on pr ojections of widespread use of commercially available technology, as well as use b y 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 tec hnology in order for manufacturers to comply with the 2011 MY CAFE standards, as well as those associated with the proposed

2016 CO 2 emission standards. The latter costs are incremen tal to those associated with the 2011 MY standards and also include $60 per vehi cle, on average, for the cost of projected use of improved air-conditioning systems. 60

Table III.D.6-4 Cost of Technology per Vehicle in 2016 ($2007)
2011 MY CAFE Standards Proposed 2016 CO 2 Standards

Cars Trucks All Cars Trucks All

BMW $319 $479 $361 $1,701 $1,665 $1,691
Chrysler $7 $125 $59 $1,331 $1,505 $1,408

Daimler $431 $632 $495 $1,631 $1,357 $1,543

Ford $28 $211 $109 $1,435 $1,485 $1,457

60 Note that the actual cost of the A/C technology is estimated at $78 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 th e technology when spread across the entire fleet is $ 66 per vehicle ($78 x 85% = $66).Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

99

General Motors $28 $136 $73 $969 $1,782 $1,311

Honda $0 $0 $0 $606 $695 $633
Hyundai $0 $76 $14 $739 $1,680 $907

Kia $0 $48 $8 $741 $1,177 $812

Mazda $0 $0 $0 $946 $1,030 $958

Mitsubishi $96 $322 $123 $1,067 $1,263 $1,090

Nissan $0 $19 $6 $1,013 $1,194 $1,064

Porsche $535 $1,074 $706 $1,549 $666 $1,268

Subaru $64 $100 $77 $903 $1,329 $1,057

Suzuki $99 $231 $133 $1,093 $1,263 $1,137

Tata $691 $1,574 $1,161 $1,270 $674 $952 Toyota $0 $0 $0 $600 $436 $546
Volkswagen $269 $758 $354 $1,626 $949 $1,509

Overall $47 $141 $78 $968 $1,214 $1,051

As can be seen, the industry average cost of comply ing with the 2011 MY CAFE standards is quite low, $78 per vehicle. The range of costs across manufacturers is quite large, however. Honda, Mazda and Toyota are projec ted to face no cost, while Daimler, Porsche and Tata face costs of at least $495 per ve hicle. As described above, these last three manufacturers face such high costs to meet ev en the 2011 MY CAFE standards due to both their vehicles’ weight per unit footprint a nd performance. Also, these cost estimates apply to sales in the 2016 MY. These thr ee manufacturers, as well as others like Volkswagen, may choose to pay CAFE fines prior to this or even in 2016.

As shown in the last row of Table III.D.6-4, the a verage cost of technology to meet the proposed 2016 standards for cars and truck s combined relative to the 2011 MY CAFE standards is $1051 per vehicle. The projectio n shows that the average cost for cars would be slightly lower than that for trucks. Toyo ta and Honda show projected costs significantly below the average, while BMW, Porsche , Tata and Volkswagen show significantly higher costs. On average, the $1051 per vehicle cost is significant, representing roughly 5% of the total cost of a new vehicle. However, as discussed below, the fuel savings associated with the proposed stand ards exceeds this cost significantly. Thus, the total cost of vehicle ownership would act ually decline due to this proposed rule.

While the CO 2 emission compliance modeling using the OMEGA model focused on the proposed 2016 MY standards, EPA believes tha t the proposed standards for 2012- 2015 would also be feasible. As discussed above, E PA believes that manufacturers develop their vehicle designs with several model ye ars in view. Generally, the technology estimated above for 2016 MY vehicles rep resents the technology which would be added to those vehicles which are being re designed in 2012-2015. The proposed CO 2 standards for 2012-2016 reduce CO 2 emissions at a fairly steady rate. Thus, manufacturers which redesign their vehicles a t a fairly steady rate will automatically comply with the interim standard as t hey plan for compliance in 2016.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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Manufacturers which redesign much fewer than 20% o f their sales in the early years of the proposed program would face a more dif ficult challenge, as simply implementing the “2016 MY” technology as vehicles a re redesigned may not enable compliance in the early years. However, even in th is case, manufacturers would have several options to enable compliance. One, they co uld utilize the proposed debit carryforward provisions described above. This may be su fficient alone to enable compliance through the 2012-2016 MY time period, if their rede sign schedule exceeds 20% per year prior to 2016. If not, at some point, the manufact urer 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 sa me technology 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 manufacturer could buy credits from another manufacturer. As indicated above, sev eral manufacturers are projected to require less stringent technology than the average. These manufacturers would be in a position to provide credits at a reasonable technol ogy cost. Thus, EPA believes the proposed standards for 2012-2016 would be feasible.

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 se cond set would reduce CO 2 emissions at a rate of 6 percent per year. The ana lysis of these standards followed the exact same process as described above for the propo sed 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 cont rol scenarios were discussed above.

The resultant CO 2 standards in 2016 for each manufacturer under thes e two alternative scenarios and under the proposal 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 Proposed 6% per Year

BMW 245 241 222 Chrysler 266 262 241

Daimler 257 253 233

Ford 270 266 245

General Motors 272 268 247

Honda 243 239 219 Hyundai 235 231 212

Kia 237 234 215

Mazda 231 227 208

Mitsubishi 226 223 204

Nissan 251 247 227

Porsche 234 230 210

Subaru 237 233 213

Suzuki 227 223 203 Formatted TableDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

101

Tata 267 263 241 Toyota 247 243 223 Volkswagen 233 230 211

Overall 254 250 230

Tables III.D.7-2 and III.D.7-3 show the technology penetration levels for the 4 percent per year and 6 percent per year standards i n 2016.

Table III.D.7-2 Technology Penetration - 4% per Yea r CO 2 Standards in 2016: Cars and

Trucks Combined

GDI GDI+

Deac GDI+

Turbo 6

Speed

Auto

Trans Dual

Clutch

Trans StartStop Hybrid Mass

Reduction (%)

BMW 4% 35% 47% 15% 71% 71% 14% 5%
Chrysler 47% 25% 3% 33% 48% 48% 0% 5%

Daimler 3% 44% 39% 11% 73% 72% 13% 5%

Ford 33% 32% 13% 23% 61% 61% 0% 5%

General Motors 33% 25% 7% 19% 48% 48% 0% 5%

Honda 20% 1% 0% 6% 19% 19% 2% 2%
Hyundai 27% 2% 12% 2% 39% 39% 0% 3%

Kia 31% 0% 4% 1% 34% 34% 0% 2%

Mazda 34% 2% 16% 10% 43% 43% 0% 3%

Mitsubishi 65% 2% 7% 28% 60% 60% 0% 6%

Nissan 34% 22% 2% 40% 51% 51% 1% 5%

Porsche 7% 36% 49% 10% 70% 70% 15% 4%

Subaru 46% 4% 14% 10% 54% 46% 0% 3%

Suzuki 72% 5% 2% 15% 63% 63% 0% 4%

Tata 4% 81% 0% 14% 70% 70% 15% 6%
Toyota 25% 2% 0% 30% 33% 5% 13% 1%
Volkswagen 9% 26% 58% 12% 72% 70% 15% 4%

Overall 28% 17% 9% 20% 45% 40% 4% 4%

Increase over

2011 CAFE 21% 15% 9% -5% 42% 38% 1% 4%

Table III.D.7-3 Technology Penetration - 6% per Yea r Alternative Standards in 2016:

Cars and Trucks Combined

GDI GDI+

Deac GDI+

Turbo 6

Speed

Auto

Trans Dual

Clutch

Trans StartStop Hybrid Weight

Reduction (%)

BMW 4% 35% 47% 15% 71% 71% 14% 5%
Chrysler 29% 50% 6% 4% 85% 85% 0% 8%Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

102

Daimler 3% 44% 39% 11% 73% 72% 13% 5%

Ford 8% 37% 40% 4% 74% 74% 11% 7%

General Motors 24% 54% 8% 6% 81% 81% 0% 8%

Honda 38% 1% 15% 8% 50% 50% 2% 4%
Hyundai 36% 9% 28% 7% 66% 66% 0% 5%

Kia 48% 0% 25% 18% 55% 55% 0% 4%

Mazda 65% 2% 16% 4% 81% 76% 0% 6%

Mitsubishi 59% 7% 19% 7% 80% 80% 5% 8%

Nissan 34% 17% 35% 9% 76% 76% 10% 7%

Porsche 7% 36% 49% 10% 70% 70% 15% 4%

Subaru 66% 4% 14% 0% 85% 80% 0% 6%

Suzuki 2% 12% 71% 0% 80% 80% 5% 7%

Tata 4% 81% 0% 14% 70% 70% 15% 6%
Toyota 40% 7% 11% 25% 50% 50% 13% 3%
Volkswagen 9% 26% 58% 12% 72% 70% 15% 4%

Overall 28% 24% 23% 11% 67% 67% 7% 6%

Increase over

2011 CAFE 22% 23% 22% -15% 65% 65% 4% 6%

With respect to the 4 percent per year standards, t he levels of requisite control technology decreased relative to those under the pr oposed standards, as would be expected. Industry-wide, the largest decrease was a 2 percent decrease in the application of start-stop technology. On a manufacturer specif ic basis, the most significant decreases were a 6 percent decrease in hybrid penetration for BMW and a 2 percent drop for Daimler. These are relatively small changes and ar e due to the fact that the 4 percent per year standards only require 4 g/mi CO 2 less control than the proposed standards in 2016. Porsche, Tata and Volkswagen continue to be unable to comply with the CO 2 standards

in 2016.

With respect to the 6 percent per year standards, t he levels of requisite control technology increased relative to those under the pr oposed standards, as again would be expected. Industry-wide, the largest increase was an 8 percent increase in the application of start-stop technology. On a manufacturer specif ic basis, the most significant increases were a 42 percent increase in hybrid penetration fo r BMW and a 38 percent increase for Daimler. These are more significant changes and ar e due to the fact that the 6 percent per year standards require 20 g/mi CO 2 more control than the proposed standards in 2016. Porsche, Tata and Volkswagen continue to be unable to comply with the CO 2 standards in 2016. However, BMW joins this list, as well, tho ugh just by 1 g/mi. Most manufacturers experience the increase in start-stop technology application, with the increase ranging from 5 to 17 percent.

Table III.D.7-4 shows the projected cost of the two alternative sets of standards.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

103

Table III.D.7-4 Technology Cost per Vehicle in 2016 – Alternative Standards ($2007)
4 Percent per Year Standards 6 Percent per Year St andards

Cars Trucks All Cars Trucks All
BMW $1,701 $1,665 $1,691 $1,701 $1,665 $1,691
Chrysler $1,340 $1,211 $1,283 $1,642 $2,211 $1,893
Daimler $1,631 $1,357 $1,543 $1,631 $1,357 $1,543

Ford $1,429 $1,305 $1,374 $2,175 $2,396 $2,273

General Motors $969 $1,567 $1,221 $1,722 $2,154 $1,904

Honda $633 $402 $564 $777 $1,580 $1,016
Hyundai $685 $1,505 $832 $1,275 $1,680 $1,347

Kia $741 $738 $741 $1,104 $1,772 $1,213

Mazda $851 $914 $860 $1,369 $1,030 $1,320
Mitsubishi $1,132 $247 $1,028 $1,495 $2,065 $1,563

Nissan $910 $1,194 $991 $1,654 $2,274 $1,830

Porsche $1,549 $666 $1,268 $1,549 $666 $1,268

Subaru $903 $1,131 $985 $1,440 $1,615 $1,503

Suzuki $1,093 $1,026 $1,076 $1,718 $2,219 $1,846
Tata $1,270 $674 $952 $1,270 $674 $952
Toyota $518 $366 $468 $762 $1,165 $895
Volkswagen $1,626 $949 $1,509 $1,626 $949 $1,509

Overall $940 $1,054 $978 $1,385 $1,859 $1,544

As can be seen, the average cost of the 4 percent p er year standards is only $73 per vehicle less than that for the proposed standar ds. In contrast, the average cost of the 6 percent per year standards is nearly $500 per vehic le more than that for the proposed standards. Compliance costs are entering the regio n of non-linearity. The $73 cost savings of the 4 percent per year standards relativ e to the proposal represents $18 per g/mi CO 2 increase. The $493 cost increase of the 6 percent per year standards relative to the proposal represents $25 per g/mi CO 2 increase.

EPA does not believe the 4% per year alternative i s an appropriate standard for the MY2012-2016 time frame. As discussed above, th e 250 g/mi proposal is technologically feasible in this time frame at reas onable 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 al ternative 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 compl iance 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 California standard for

sale in California and the section 177 states. Thi s further increases the costs of the 4%Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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per year standard and could lead to additional diff iculties for the already stressed automotive industry.

EPA also does not believe the 6% per year alternati ve is an appropriate standard

for the MY 2012-2016 time frame. As shown in Table s III.D.7-3 and III.D.7-4, the 6% per year alternative represents a significant incre ase in both the technology required and the overall costs compared to the proposed standard s. In absolute percent increases in the technology penetration, compared to the proposed st andards the 6% per year alternative requires for the industry as a whole: an 18% increa se in GDI fuel systems, an 11% increase in turbo-downsize systems, a 6% increase i n dual-clutch automated manual transmissions (DCT), and a 9% increase in start-sto p systems. For a number of manufacturers the expected increase in technology i s greater: for GM, a 15% increase in both DCTs and start-stop systems, for Nissan a 9% i ncrease in full hybrid systems, for Ford an 11% increase in full hybrid systems, for Ch rysler a 34% increase in both DCT and start-stop systems and for Hyundai a 23% increa se in the overall penetration of DCT and start-stop systems. For the industry as a whol e, 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 proposed standards. At the same t ime, CO 2 emissions would be reduced by about 8%, compared to the 250 g/mi target level.

These technology and cost increases are significant , given the amount of leadtime between now and model years 2012-2016. In ord er to achieve the levels of technology penetration for the proposed standards, the industry needs to invest significant capital and product development resources right awa y, 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 investm ents will need to occur over the next 2-3 year in order to be ready for launching these n ew products for those model years. Thus a major part of the required capital and resou rce investment will need to occur in the next few years, under the proposed standards. EPA believes that the proposal (a target of 250 gram/mile in 2016) already requires s ignificant 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 draft Joint Technical Support Document and the draf t EPA Regulatory Impact Analysis document, the average model year 2016 per-vehicle c ost increase of nearly $500 includes an estimate of both the increase in capital investm ents by the auto companies and the suppliers as well as the increase in product develo pment 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 domestic and world-wide automotive supplier base, is experiencing one of the most difficult markets in t he U.S. and internationally that has been seen in the past 30 years. One major impact o f the global downturn in the automotive industry and certainly in the U.S. is th e significant reductions in product development engineers and staffs, as well as a tigh tening of the credit markets which allow auto firms and suppliers to make the near-ter m capital investments necessary to bring new technology into production. EPA is conce rned that the significantly increased pressure on capital and other resources from the 6% per year alternative may be tooDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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stringent for this time frame, given both the relat ively 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 r elated circumstances of the automotive industry. EPA is not concluding that the 6% per ye ar alternative standards are technologically infeasible, but EPA believes such s tandards for this time frame would be overly stringent given the significant strain it wo uld place on the resources of the industry under current conditions. EPA believes this degre e of stringency is not warranted at this time. Therefore EPA does not believe the 6% per ye ar alternative would be an appropriate balance of various relevant factors for model years 2012-1016.

These alternative standards represent two possibili ties out of many. The EPA believes that the current proposed standards repres ent an appropriate balance of the factors relevant under section 202(a). For further discussion of this issue, see Chapter 4

of the DRIA Section II.B

.

E. Certification, Compliance, and Enforcement

1. Compliance Program Overview

This section of the preamble describes EPA's proposal fo r a comprehensive program to ensure compliance with EPA’s proposed em ission standards for carbon dioxide (CO 2 ), nitrous oxide (N 2 O), and methane (CH 4 ), as described in Section III.B. An effective compliance program is essential to ach ieving the environmental and public health benefits promised by these mobile source GHG standards. EPA's proposal for a GHG compliance program is designed around two overa rching priorities: 1) to address Clean Air Act (CAA) requirements and policy objecti ves; and 2) to streamline the compliance process for both manufacturers and EPA b y building on existing practice wherever possible, and by structuring the program s uch that manufacturers can use a single data set to satisfy both the new GHG and Cor porate Average Fuel Economy (CAFE) testing and reporting requirements. The pro gram proposed by EPA and NHTSA recognizes, and replicates as closely as possible, the compliance protocols associated with the existing CAA Tier 2 vehicle emission stand ards, and with CAFE standards. The certification, testing, reporting, and associated c ompliance activities closely track current practices and are thus familiar to manufacturers. E PA already oversees testing, collects and processes test data, and performs calculations to determine compliance with both CAFE and CAA standards. Under this proposed coordi nated approach, the compliance mechanisms for both programs are consistent and non -duplicative.

Vehicle emission standards established under the C AA apply throughout a vehicle's full useful life. In this case EPA is pr oposing fleet average standards where compliance with the fleet average is determined bas ed on the testing performed at time of production, as with the current CAFE fleet average. EPA is also proposing in-use standards that apply throughout a vehicle’s useful life, with the standard determined by adding a 10% adjustment factor to the model-level e mission results used to calculate the fleet average. Therefore, EPA’s proposed program m ust not only assess compliance with the fleet average standards described in Section II I.B, but must also assess compliance with the in-use standards. As it does now, EPA wou ld use a variety of complianceDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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mechanisms to conduct these assessments, including pre-production certification and post-production, in-use monitoring once vehicles en ter customer service. Specifically, EPA is proposing a compliance program for the flee t average that utilizes CAFE program protocols with respect to testing, a certif ication procedure that operates in conjunction with the existing CAA Tier 2 certificat ion procedures, and assessment of compliance with the in-use standards concurrent wi th existing EPA and manufacturer Tier 2 emission compliance testing programs. Under the proposed compliance program

manufacturers would also be afforded numerous flexi bilities 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 credi t banking and trading opportunities, as described in Section III.C. EPA's proposed complia nce program is outlined in further detail below. EPA requests comment on all aspects of the compliance program design including comments about whether differences betwee n the proposed compliance scheme for GHG and the existing compliance scheme for othe r regulated pollutants are appropriate.

2. Compliance With Fleet-Average CO 2 Standards

Fleet average emission levels can only be determin ed when a complete fleet profile becomes available at the close of the model year. Therefore, EPA is proposing to 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 would 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 would submit this information to EPA in an end-of-year report which is discussed 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 engineering r esources. Manufacturers submit their

CAFE test results to EPA and EPA conducts confirmat ory fuel economy testing at its laboratory on a subset of these vehicles under EPA' s Part 600 regulations. EPA is proposing that manufacturers continue to perform th e model level testing currently required for CAFE fuel economy performance and meas ure and report the CO 2 values for all tests conducted. Thus, manufacturers will subm it one data set in satisfaction of both CAFE and GHG requirements such that EPA’s proposed program would not impose additional timing or testing requirements on manufa cturers beyond that required by the CAFE program. For example, manufacturers currently submit fuel economy test results at the subconfiguration and configuration levels to sa tisfy CAFE requirements. Under this proposal manufacturers would also submit CO 2 values for the same vehicles. Section III.E.3 discusses how this will be implemented in t he certification process.

a. Compliance Determinations

As described in Section III.B above, the fleet ave rage standards would be determined on a manufacturer by manufacturer basis, separately for cars and trucks, using the proposed footprint attribute curves. Under thi s proposal, EPA would calculate theDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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fleet average emission level using actual productio n figures and, for each model type,

CO 2 emission test values generated at the time of a ma nufacturer's CAFE testing. EPA would then compare the actual fleet average to the manufacturer's footprint standard to determine compliance, taking into consideration use of averaging and/or other types of

credits.

Final determination of compliance with fleet avera ge CO 2 standards may not occur until several years after the close of the mo del year due to the flexibilities of carryforward and carry-back credits and the remediation of deficits (see Section III.C). A failure to meet the fleet average standard after cr edit opportunities have been exhausted could ultimately result in penalties and injunctive orders under the CAA as described in

Section III.E.6 below.

EPA periodically provides mobile source emissions and fuel economy information to the public, for example through the annual Compliance Report 61 and Fuel Economy Trends Report. 62 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 versus projected fleet average emission levels, and final compliance status for a model yea r after credit reconciliation occurs. We seek comment on all aspects of public dissemination of GHG compliance information

b. Required Minimum Testing For Fleet Average CO 2

As noted, EPA is proposing that the same test data required for determining a manufacturer’s compliance with the CAFE standard al so be used to determine the manufacturer’s compliance with the fleet average CO 2 emissions standard. CAFE requires manufacturers to submit test data represen ting at least 90% of the manufacturer's model year production, by configuration. 63 The CAFE testing covers the vast majority of

models in a manufacturer’s fleet. Manufacturers in dustry-wide currently test more than 1,000 vehicles each year to meet this requirement. EPA believes this minimum testing requirement is necessary and applicable for calcula ting accurate CO 2 fleet average emissions. Manufacturers may test additional vehic les, at their option. As described above, EPA would 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 standard.

EPA is proposing to continue to allow certain test ing flexibilities that exist under the CAFE program. EPA has always permitted manufac turers some ability to reduce

their test burden in tradeoff for lower fuel econom y 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. The substituted

61 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

62 Light-Duty Automotive Technology and Fuel-Economy Trends: 1975 Through 2008; EPA-420-S-08- 003; September 2008 . This document is available electronically at http://www.epa.gov/otaq/fetrends.htm

63 See 40 CFR 600.010-08(d).Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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values may only be applied to configurations that w ould be expected to have better fuel economy and for which no actual test data exist. S ubstituted data would only be accepted for the GHG program if it is also used for CAFE pur poses.

EPA's regulations for CAFE fuel economy testing pe rmit the use of analytically derived fuel economy data in lieu of an actual fuel economy test in certain situations. 64
Analytically derived data is generated mathematical ly using expressions determined by

EPA and is allowed on a limited basis when a manufa cturer has not tested a specific vehicle configuration. This has been done as a mea ns to reduce some of the testing burden on manufacturers without sacrificing accurac y in fuel economy measurement. EPA has issued guidance that provides details on an alytically derived data and that specifies the conditions when analytically derived fuel economy may be used. EPA would also apply the same guidance to the GHG progr am and would allow any analytically derived data used for CAFE to also sat isfy the GHG data reporting requirements. EPA would, however, need to revise t he terms in the current equations for analytically derived fuel economy to specify them i n terms of CO 2 . Analytically derived

CO 2 data would not be permitted for the Emission Data Vehicle representing a test group for pre-production certification, only for the dete rmination of the model level test results used to determine actual fleet-average CO 2 levels.

EPA is retaining the definitions needed to determi ne 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 for EPA issuance of a certificate of conformity, based on a demonstr ation of compliance with the emission standards established by EPA under section 202 of t he Act. The certification demonstration requires emission testing, and must b e done for each model year. 65

Under Tier 2 and other EPA emission standard progra ms, vehicle manufacturers certify a group of vehicles called a test group. A test group typically includes multiple vehicle car lines and model types that share critic al emissions-related features. 66 The manufacturer generally selects and tests one vehicl e to represent the entire test group for certification purposes. The test vehicle is the on e expected to be the worst case for the

emission standard at issue. Emission results from the test vehicle are used to assign the

64 40 CFR 86.600.106 600.006 -08(e)

65 CAA section 206(a)(1).

66 The specific test group criteria are described in 40 CFR 86.1827-01, car lines and model types have t he meaning given in 40 CFR 86.1803-01.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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test group to one of several specified bins of emis sions levels, identified in the Tier 2 rule, and this bin level becomes the in-use emissio ns standard for that test group. 67

Since compliance with the Tier 2 fleet average depe nds on actual test group sales volumes and bin levels, it is not possible to deter mine compliance 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 bo th 1) comply throughout their useful life with the emissions bin assigned, and 2) contribute to fleetwide compliance with the Tier 2 average when the year is over. EPA issues a cert ificate for the vehicles included in the test group based on this demonstration, and include s a condition in the certificate that if the manufacturer does not comply with the fleet ave rage, then production vehicles from that test group will be treated as not covered by t he certificate to the extent needed to bring the manufacturer’s fleet average into complia nce with Tier 2.

The certification process often occurs several mont hs prior to production and manufacturer testing may occur months before the ce rtificate 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, an d to receive the needed 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 ens ure compliance with the Tier 2 fleet

average.

EPA is proposing to similarly condition each certi ficate of conformity for the GHG program upon a manufacturer's good faith demons tration of compliance with the manufacturer’s fleetwide average CO 2 standard. The following discussion explains how EPA proposes to integrate the proposed vehicle cert ification program into the existing certification program.

a. Compliance Plans

EPA is proposing that manufacturers submit a compli ance plan to EPA prior to the beginning of the model year and prior to the ce rtification of any test group. This plan

would include the manufacturer's estimate of its fo otprint-based standard (Section III.B), along with a demonstration of compliance with the s tandard based on projected modellevel CO 2 emissions, and production estimates. Manufacturer s would submit the same information to NHTSA in the pre-model year report r equired for CAFE compliance. However, the GHG compliance plan could also include additional information relevant only to the EPA program. For example, manufacturer s seeking to take advantage of air conditioning or other credit flexibilities (Section III.C) would include these in their compliance demonstration. Similarly, the complianc e demonstration would need to include a credible plan for addressing deficits acc rued in prior model years. EPA would review the compliance plan for technical viability and conduct a certification preview

67 Initially in-use standards were different from th e bin level determined at certification as the usef ul life level. The current in-use standards, however, are the same as the bin levels. In all cases, the bin level, reflecting useful life levels, has been used for de termining compliance with the fleet average.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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discussion with the manufacturer. EPA would view t he compliance plan as part of the manufacturer's good faith demonstration, but unders tands that initial projections can vary considerably from the reality of final production a nd emission results. EPA requests comment on the proposal to evaluate manufacturer co mpliance plans prior to the beginning of model year certification. EPA also re quests comment on what criteria the agency should use to evaluate the sufficiency of th e plan and on what steps EPA should take if it determines that a plan is unlikely to of fset a deficit.

b. Certification Test Groups and Test Vehicle Selec tion

Manufacturers currently divide their fleet into "te st groups" for certification purposes. The test group is EPA's unit of certific ation; one certificate is issued per test group. These groupings cover vehicles with similar emission control system designs expected to have similar emissions performance. 68 The factors considered for determining test groups include combustion cycle, e ngine 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. 69 Cars and trucks may be included in the same test group as long as they hav e similar emissions performance (manufacturers frequently produce cars and trucks t hat have identical engine designs and emission controls).

EPA is proposing to retain the current Tier 2 test group structure for cars and light trucks in the certification requirements for CO 2 . At the time of certification,

manufacturers would use the CO 2 emission level from the Tier 2 Emission Data Vehic le as a surrogate to represent all of the models in th e test group. However, following certification further testing would generally be re quired for compliance with the fleet average CO 2 standard as described below. EPA's issuance of a certificate would be conditioned upon the manufacturer's subsequent mode l level testing and attainment of the actual fleet average. Further discussion of these requirements is presented in Section

III.E.6.

EPA recognizes that the Tier 2 test group criteria do not necessarily relate to CO 2 emission levels. For instance, while some of the c riteria, such as combustion cycle, engine type and displacement, and fuel metering, ma y have a relationship to CO 2 emissions, others, such as those pertaining to the catalyst, may not. In fact, there are many vehicle design factors that impact CO 2 generation and emission but are not included in EPA's test group criteria. 70 Most important among these may be vehicle weight, horsepower, aerodynamics, vehicle size, and performance features.

68 40 CFR 86.1827-01.

69 EPA provides for other groupings in certain circum stances, and can establish its own test groups in c ases where the criteria do not apply. 40 CFR 86.1827-01 (b), (c) and (d).

70 EPA noted this potential lack of connection betwee n fuel economy testing and testing for emissions standard purposes when it first adopted fuel econom y test procedures. See 41 FR at 38677 (Sept. 10, 1976).Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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EPA considered, but is not proposing, a requiremen t for separate CO 2 test groups established around criteria more directly related t o CO 2 emissions. Although CO 2 - specific test groups might more consistently predic t 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 manufactur ers and EPA. For example, a current Tier 2 test group would need to be split into two g roups if automatic and manual

transmissions models had been included in the same group. Two- and four-wheel drive vehicles in a current test group would similarly re quire separation, as would weight differences among vehicles. This would at least tr iple 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 cer tification program because the test group data are later replaced by model specific dat a which are used as the basis for determining compliance with a manufacturer’s fleet average standard.

EPA believes that the current test group concept is appropriate for N 2 0 and CH 4 because the technologies that would be employed to control N 2 O and CH 4 emissions would generally be the same as those used to contro l the criteria pollutants.

As just discussed, the “worst case” vehicle a manuf acturer selects as the Emissions Data Vehicle to represent a test group un der 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 heavi er, more powerful configuration that would have higher CO 2 , but may, due to the way the catalytic converter has been 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 tha t would be expected, based on good engineering judgment, to ha ve 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 require ment for a separate, worst

case CO 2 vehicle would provide EPA with some assurance that all 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 (such 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 f or criteria pollutants. Thus, manufacturers might be required to test two vehicle s in each test group, rather than a single vehicle. This would represent an added timi ng burden to manufacturers because they might need to build additional test vehicles a t the time of certification that previously weren't required to be tested.

Instead, EPA is proposing to require a single Emis sion Data Vehicle that would represent the test group for both Tier 2 and CO 2 certification. The manufacturer would be allowed to initially apply the Emission Data Vehicl e’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 certifica te, this surrogate CO 2 emissions value would generally be replaced with actual, model-leve l CO 2 values based on results fromDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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CAFE testing that occurs later in the model year. T his model level data would become the official certification test results (as per the conditioned certificate) and would be used to determine compliance with the fleet average. On ly 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 Vehicle 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 CAFE and labeling purposes, so it would be an unusual situation that would cause a manufacturer to ignore these data and choos e to accept a higher CO 2 fleet

average.

EPA requests comment regarding whether the Tier 2 test group can adequately represent CO 2 emissions for certification purposes, and whether the Emission Data

Vehicle's CO 2 emission level is an appropriate surrogate for all vehicles in a test group at the time of certification, given that the certific ate would be conditioned upon additional model level testing occurring during the year (see Section III.E.6) and that the surrogate

CO 2 emission values would be replaced with model-level emissions data from those tests.

Comments should also address EPA's desire to minimi ze the up-front pre-production testing burden and whether the proposed efficiencie s would be balanced by the requirement to test all model types in the fleet by the conclusion of the model year in order to establish the fleet average CO 2 levels.

There are two standards that the manufacturer woul d be subject to, the fleet average standard and the in-use standard for the us eful life of the vehicle. Compliance with the fleet average standard is based on product ion-weighted averaging of the test data that applies for each model. For each model, the in -use standard is set at 10% higher than the level used for that model in calculating the fl eet average. The certificate would cover both of these standards, and the manufacturer would have to demonstrate compliance with both of these standards for purposes of receiv ing a certificate of conformity. The certification process for the in-use standard is di scussed below in Section III.E.4.

c. Certification Testing Protocols and Procedures

To be consistent with CAFE, EPA proposes to combine the CO 2 emissions results from the FTP and HFET tests using the same calculat ion method used to determine fuel economy for CAFE purposes. This approach is approp riate for CO 2 because CO 2 and fuel economy are so closely related. Other than th e 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 co mbined

number. See Section III.B.1 for more detailed info rmation on CO 2 test procedures, Section III.C.1on Air Conditioning Emissions, and S ection III.B.6 for N 2 O and CH 4 test procedures.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

113 For the purposes of compliance with the fleet avera ge and in-use standards, the

emissions measured from each test vehicle will incl ude hydrocarbons (HC) and carbon monoxide (CO), in addition to CO 2 . All three of these exhaust constituents are curr ently

measured and used to determine the amount of fuel b urned over a given test cycle using a “carbon balance equation” defined in the regulation s, 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 o f the fuel. Therefore the carbon-related combustion products HC and CO must be included in t he calculations along with CO 2

. CO emissions are adjusted by a coefficient that ref lects the carbon weight fraction (CWF) of the CO molecule, and HC emissions are adjusted b y a coefficient that reflects the CWF of the fuel being burned (the molecular weight appr oach doesn’t work since there are many different hydrocarbons being accounted for). Thus, EPA is proposing that the

carbon-related exhaust emissions of each test vehic le be calculated 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

As part of the current CAFE and Tier 2 compliance p rograms, EPA selects a subset of vehicles for confirmatory testing at its National Vehicle and Fuel Emissions Laboratory. The purpose of confirmatory testing is to validate the manufacturer’s emissions and/or fuel economy data. Under this pro posal, EPA would add CO 2 , N 2 O,

and CH 4 to the emissions measured in the course of Tier 2 and CAFE confirmatory testing. The emission values measured at the EPA l aboratory would continue to stand as official, as under existing regulatory programs.

As is the current practice with fuel economy testin g, if during EPA’s confirmatory testing the EPA CO 2 value differs from the manufacturer's value by mor e than 3%, manufacturers could request a re-test. Also as wi th current practice, the results of the retest would stand as official, even if they differ f rom the manufacturer value by more than 3%. EPA is proposing to allow a re-test request bas ed on a 3% or greater disparity 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 structure provides the opportunity for a compliance buffer). EPA requests comment on whether the 3% value currently used during CAFE confirmatory testing is appropriate and should be retained under the proposed GHG program.

4. Useful Life Compliance

Section 202(a)(1) of the CAA requires emission stan dards 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 and the proposed CO 2 standards, the useful life requirement applies to i ndividual vehicles rather than to the fleet average standard. For example, in Tier 2 the usefu l life requirements 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 lif e requirement is 10 years or 120,000 miles with an optional 15 year or 150,000 mile prov ision. For each model, the proposedDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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CO 2 standards in-use are the model specific levels use d in calculating the fleet average, adjusted to be 10% higher. EPA is proposing the 10 % adjustment factor to provide some margin for production and test-to-test variability that could result in differences between

initial model-level emission results used in calcul ating the fleet average and any subsequent in-use testing. EPA requests comment on whether a separate in-use standard is an appropriate means of addressing issues of var iability and whether 10% is an appropriate adjustment.

This in-use standard would apply for the same usefu l life period as in Tier 2. Section 202 (i) (3) (D) of the CAA allows EPA to ad opt useful life periods for light duty vehicles and light-duty trucks which differ from th ose in section 202(d). Similar to Tier 2, the useful life requirements would be applicable to the model-level CO 2 certification values (similar to the Tier 2 bins), not to the fle et average standard.

EPA believes that the useful life period establis hed 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 increas e very little with age and in some cases may actually improve sli ghtly. 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 veh icle design characteristics that do not change over time. Therefore, vehicles designed for a given CO 2 emissions level would be expected to sustain the same emissions pro file over their full useful life.

The CAA requires emission standards to be applicabl e for the vehicle’s full useful

life. Under Tier 2 and other vehicle emission stand ard programs, EPA requires

manufacturers to demonstrate at the time of certifi cation 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 vehicle testing, bench-aging specific components, a nd 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 is therefore proposing that an as signed deterioration factor be applied at the time of certification. EPA is further proposing an additive assigned deterioration factor of zero, or a multiplicative factor of one. EPA anticipates that the deterioration factor would be updated from time to time, as new d ata regarding emissions deterioration

for CO 2 are obtained and analyzed. Additionally, EPA may consider technology-specific deterioration factors, should data indicate that ce rtain CO 2 control technologies deteriorate differently than others.

During compliance plan discussions prior to the beg inning of the certification process, EPA would explore with each manufacturer a ny new technologies that could

warrant use of a different deterioration factor. M anufacturers would not be allowed to use the assigned deterioration factor but rather wo uld be required to establish an appropriate factor for any vehicle model determined likely to experience increases in CO 2Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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emissions over the vehicle’s useful life. If such an instance were to occur, EPA is also proposing to allow manufacturers to use the whole-v ehicle mileage accumulation method currently offered in EPA's regulations.

EPA requests comments on the proposal to allow man ufacturers to use an EPAassigned deterioration factor for CO 2 useful life compliance, and to set that factor at zero (additive) or one (multiplicative). Particularly h elpful would be data from in-use vehicles that demonstrate the rate of change in CO 2 emissions over a vehicle's useful life, separated according to vehicle technology.

N 2 O and CH 4 emissions are directly affected by vehicle emissio n control systems. Any of the durability options offered under EPA's c urrent compliance program can be

used to determine how emissions of N 2 O and CH 4 change over time.

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 manufacture r to remedy any noncompliance issues. The remedy can range from the voluntary or mandatory recall of any noncompliant vehicles to the recalculation of a man ufacturers fleet average emissions level. . This provides manufacturers with a strong incentive to design and build complying vehicles.

Currently, EPA regulations require manufacturers to conduct in-use testing as a condition of certification. Specifically, manufact urers must commit to later procure and test privately-owned vehicles that have been normal ly used and maintained. The vehicles

are tested to determine the in-use levels of criter ia pollutants when they are in their first and third years of service. This testing is referr ed to as the In-Use Verification Program (IUVP) testing, which was first implemented as part of EPA’s CAP 2000 certification

program. 71 The emissions data collected from IUVP serves se veral purposes. It provides EPA with annual real-world in-use data rep resenting the majority of certified vehicles. EPA uses IUVP data to identify in-use pr oblems, validate the accuracy of the certification program, verify the manufacturer’s du rability processes, and support emission modeling efforts. Manufacturers are requi red to test low mileage and high mileage vehicles over the FTP and US06 test cycles. They are also required to provide evaporative emissions and on-board diagnostics (OBD ) data.

Manufacturers are required to provide data for all regulated criteria pollutants. Some manufacturers voluntarily submit CO 2 data as part of IUVP. EPA is proposing that for IUVP testing, all manufacturers will provide em ission data for CO 2 and also for N 2 O

and CH 4 . EPA is also proposing that manufacturers perform the highway test cycle as part of IUVP. Since the proposed CO 2 standard reflects a combined value of FTP and highway results, it is necessary to include the hig hway emission test in IUVP to enable

71 64 FR 23906, May 4, 1999.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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EPA to compare an in-use CO 2 level with a vehicle’s in-use standard. EPA reque sts comments on adding the highway test cycle as part o f the IUVP requirements.

Another component of the CAP 2000 certification pro gram is the In-Use Confirmatory Program (IUCP). This is a manufacture r-conducted recall quality in-use test program that can be used as the basis for EPA to order an emission recall. In order to qualify for IUCP, there is a threshold of 1.30 time s 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 is proposing to exclud e IUVP data for CO 2 , N20, and CH 4 emissions from the IUCP thresholds. At this time, EPA does not have sufficient data to determine if the existing thresholds are appropriat e or even applicable to those emissions. Once EPA can gather more data from the IUVP program and from EPA’s internal surveillance program described below, EPA will reas sess the need to exclude IUCP thresholds, and if warranted, propose a separate ru lemaking establishing IUCP threshold criteria which may include CO 2 , N 2 O, and CH 4 emissions. EPA requests comment on the proposal to exclude CO 2 , N 2 O, and CH 4 from the IUCP threshold.

EPA has also administered its own in-use testing p rogram for light-duty vehicles under authority of section 207(c) of the CAA for mo re than 30 years. In this program, EPA procures and tests representative privately own ed vehicles to determine whether they are complying with emission standards. When t esting indicates noncompliance,

EPA works with the manufacturer to determine the ca use of the problem and to conduct appropriate additional testing to determine its ext ent or the effectiveness of identified remedies. This program operates in conjunction with the IUVP program and other sources of information to provide a comprehensive p icture of the compliance profile for the entire fleet and address compliance problems th at are identified. EPA proposes to

add CO 2 , N 2 O, and CH 4 to the emissions measurements it collects during s urveillance testing.

b. In-Use Compliance Standard

For Tier 2, the in-use standard and the certificati on standard are the same. In-use compliance for an individual vehicle is determined by comparing the vehicle’s in-use

emission results with the emission standard levels or “bin” to which the vehicle is certified rather than to the Tier 2 fleet average s tandard for the manufacturer. This is because as part of a fleet average standard, indivi dual vehicles can be certified to various emission standard levels, which could be higher or lower than the fleet average standard. Thus, comparing an individual vehicle to the fleet average, where that vehicle was

certified to an emission level that could be differ ent than the fleet average level, would be inappropriate.

This would also be true for the proposed CO 2 fleet average standard. Therefore, to ensure that an individual vehicle complies with the proposed 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 manufacturer’s fleet average result.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

117 There is a fundamental difference between the propo sed CO 2 standards and Tier 2 standards. For Tier 2, the certification standard is one of eight different emission levels, or “bins,” whereas for the proposed CO 2 fleet average standard, the certification standard

is the model-level certification CO 2 result. The Tier 2 fleet average standard is calc ulated using the “bin” emission level or standard, not the actual certification emission level of

the certification test vehicle. So no matter how l ow 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. In contrast, E PA is proposing that the CO 2 fleet average standard would be calculated using the actu al vehicle model-level CO 2 values

from the certification test vehicles. With a known certification emission standard, such as the Tier 2 “bins,” manufacturers typically attem pt to over-comply with the standard to give themselves some cushion for potentially higher in-use testing results due to emissions performance deterioration and/or variabil ity that could result in higher emission levels during subsequent in-use testing. For our proposed CO 2 standards, the

certification standard is the actual certification vehicle test result, thus manufacturers cannot over comply since the certification test veh icle result will always be the value used in determining the CO 2 fleet average. If the manufacturer attempted to d esign 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 certification st andard.

The CO 2 fleet average standard is based on the performance of pre-production technology that is representative of the point of p roduction, and while there is expected to be limited if any deterioration in effectiveness fo r any vehicle during the useful life, the fleet average standard does not take into account t he test to test variability or production variability that can affect in-use levels. Therefo re, EPA believes that unlike Tier 2, it is necessary to have a different in-use standard for C O 2 to account for these variabilities. EPA is proposing to set the in-use standard at 10% higher than the appropriate modellevel 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 standards. This intentional difference between

the actual emission level and the emission standard is referred to as “certification margin,” since it is typically the difference betwe en the certification emission level and the emission standard. The certification margin ca n provide manufacturers with some protection from exceeding emission standards in-use , since the in-use standards are typically the same as the certification standards. For Tier 2, the certification margin is the delta between the specific emission standard le vel, 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 manufacturers with an in-use compliance factor of 1 0% that will act as a surrogate for a certification margin. The factor would only be app licable to CO 2 emissions, and would be applied to the model-level test results that are used to establish the model-level in-use

standard.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

118 If the in-use emission result for the vehicle excee ds the model-level CO 2 certification result multiplied by the in-use compl iance factor of 10%, then the vehicle

would have exceeded the in-use emission standard. The in-use compliance factor would apply to all in-use compliance testing including IU VP, selective enforcement audits, and EPA’s internal test program.

The intent of the separate in-use standard, based o n a 10% compliance factor adjustment, is to provide a reasonable margin such that vehicles are not automatically deemed as exceeding standards simply because of nor mal variability in test results. EPA has some concerns however that this in-use complian ce factor could be perceived 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 average value that determines compliance with the fleet average standard. This concern provides additional rationale for requiring FTP and HFET IUVP data for CO 2 emissions to ensure that in-use values are not regu larly 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 certification, EPA would discuss th e matter with the manufacturer and consider possible resolutions such as changes to en sure that the emissions test data more accurately reflects the emissions level of vehicles at the time of production, increased EPA confirmatory testing, and other similar measure s.

EPA selected a value of 10% for the in-use standar d based on a review of EPA’s fuel economy labeling and CAFE confirmatory test re sults for the past several vehicle model years. The EPA data indicate that it is comm on for test variability to range between three to six percent and only on rare occas ions to exceed 10%. EPA believes

that a value of 10% should be sufficient to account for testing variability and any production variability that a manufacturer may enco unter. EPA considered both higher and lower values. The Tier 2 fleet as a whole, for example, has a certification margin approaching 50%. 72 However, there are some fundamental differences b etween CO 2 emissions and other criteria pollutants in the magn itude of the pollutants. Tier 2 NMOG

and NO X emission standards are hundredths of a gram per mi le (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 approp riate to consider a value on the order of 50 percent. In addition, little deterioration i n emissions control is expected in-use. The adjustment factor addresses only one element of what is usually built into a compliance margin.

EPA requests comments regarding a proposed in-use s tandard that uses an in-use compliance factor. Specifically, is a factor the b est way to address the technical and other feasibility of the in-use standard ; is 10% the appropriate factor; can EPA expect variability to decrease as manufacturing experience increases, in which case would it be

72 See pages 39-41 of EPA’s Vehicle and Engine Compli ance 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.pdfDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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appropriate for the in-use compliance factor of 10% to decrease over time? EPA especially requests any data to support such commen ts.

5. Credit Program Implementation

As described in Section III.E.2 above, for each man ufacturer’s model year production, EPA is proposing that the manufacturer would average the CO 2 emissions within each of the two averaging sets (passenger ca rs and trucks) and compare that with its respective fleet average CO 2 standards (which in turn would have been determine d from the appropriate footprint curve applicable to that model year). In addition to this within-company averaging, EPA is proposing that whe n a manufacturer’s fleet average

CO 2 emissions 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 transfer to a nother manufacturer (trading). Section III.C discusses opportunities that EPA is proposing for manufacturers to earn additional credits, beyond those simply calculated by “over-ac hieving” their applicable standard. Implementation of the credit program generally invo lves two steps: calculation of the credit amount and reporting the amount and the asso ciated data and calculations to EPA.

Of the various credit programs being proposed by EP A, there are two broad types. One type of credit directly lowers a manufacturer’s actual fleet average by virtue of being applied to the methodology for calculating the flee t average emissions. Examples of this type of credit include the credits available for al ternative fuel vehicles and for advanced technology vehicles. The second type of credit is independent of the calculation of a manufacturer’s fleet average. Rather than giving c redit by lowering a manufacturer’s fleet average via a credit mechanism, these credits (in 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 will step through the different types of credits and show where and how t hey are calculated and how they impact a manufacturer’s available credits.

a. Basic Credits for a Fleet with Average CO 2 Emissions Below the Standard

Basic credits are earned by doing better than the a pplicable standard. Manufacturers calculate their standards (separate s tandards are calculated for cars and trucks) using the footprint-based equations describ ed in Section III.B. A manufacturer’s actual end-of-year fleet average CO 2 is calculated similarly to the way in which CAFE values are currently calculated; in fact, the regul ations are essentially identical. The

current CAFE calculation methods are in 40 CFR Part 600. EPA is proposing to amend key subparts and sections of Part 600 to require th at fleet average CO 2 be calculated in a manner parallel to the way CAFE values are calculat ed. First manufacturers would

determine a CO 2 -equivalent value for each model type. The CO 2 -equivalent value is a summation of the carbon-containing constituents of the exhaust emissions, with each weighted by a coefficient that reflects the carbon weight fraction of that constituent. For gasoline and diesel vehicles this simply involves m easurement of total hydrocarbons and

carbon monoxide in addition to CO 2 , but becomes somewhat more complex forDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

120

alternative fuel vehicles due to the different natu re of their exhaust emissions. For example, for ethanol-fueled vehicles, the emission tests must measure ethanol, methanol, formaldehyde, and acetaldehyde in addition to CO 2 . However, all these measurements are necessary to determine fuel economy and thus no new testing or data collection would be required. Second, manufacturers would calculate a fleet average by weighting the

CO 2 -equivalent value for each model type by the produc tion of that model type, as they currently do for the CAFE program. Again, this woul d be done separately for cars and trucks. Finally, the manufacturer would compare th e calculated standard with the average that is actually achieved to determine the credits (or debits). Both the determination of the applicable standard and the ac tual fleet average would be done after the model year is complete and using final model ye ar production data.

Consider a basic example where Manufacturer “A” has calculated a car standard of 300 grams/mile and a fleet average of 290 grams/ mile (Figure 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 a verage (300-290=10) and multiplying it by the production of 500,000. This result is then multiplied by the lifetime vehicle miles travelled (for cars this is 190,971 miles), then fi nally divided by 1,000,000 to convert from grams to total megagrams. The result is the n umber of CO 2 megagrams of credit (or deficit, if the manufacturer was not able to comply with the fleet average standard) generated by the manufacturer’s car fleet. In this example, the result is 954,855

megagrams.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

121

Summary for Manufacturer A: Earning Basic Credits

CO 2 Totals Total production Conventional: 500,000 290 g/mi 50 0,000 Fleet average

standard 300 g/mi

Fleet average 290 g/mi Credits [(300-290) × 500,000 × 190,971] ÷
1,000,000 = 954,855 Mg

Figure III.E.5-1 Summary for Manufacturer A: Earnin g Basic CreditsDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

122 b. Advanced Technology Credits

Advanced technology credits directly impact a manu facturer’s fleet average, thus increasing the amount of credits they earn (or redu cing the amount of debits that would otherwise accrue). To earn these credits, manufact urers that produce electric vehicles, plug-in hybrid electric vehicles, or fuel cell elec tric vehicles would include these vehicles in the fleet average calculation with their model t ype emission values (0 g/m for electric vehicles and fuel cell electric vehicles, and a mea sured CO 2 value for plug-in hybrid electric vehicles), but would apply the proposed mu ltiplier of 2.0 to the production volume of each of these vehicles. This approach wo uld thus enhance the impact that each

of these low-CO 2 advanced technology vehicles has on the manufactur er’s fleet average.

EPA is proposing to limit availability of advanced technology credits to the technologies noted above, with the additional limit ation that the vehicles must be

certified to Tier 2 Bin 5 emission standards or cle aner (this obviously applies primarily to plug-in hybrid electric vehicles). EPA is proposin g to use the following definitions to determine which vehicles are eligible for the advan ced technology credits:

• 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 energy stora ge devices, including hydrogen fuel cells, provided that:

o (1) Recharge energy must be drawn from a source off the vehicle, such as residential electric service; and

o (2) The vehicle must be certified to the emission s tandards of Bin #1 of Table S04-1 in paragraph (c)(6) of §86.1811.

• Fuel cell electric vehicle means a motor vehicle propelled solely by an elect ric motor where energy for the motor is supplied by a f uel cell.

• Fuel cell means an electrochemical cell that produced electr icity via the reaction

of a consumable fuel on the anode with an oxidant o n the cathode in the presence of an electrolyte.

• Plug-in hybrid electric vehicle (PHEV) means a hybrid electric vehicle that: (1) has the capability to charge the battery from an of f-vehicle electric source, such

that the off-vehicle source cannot be connected to the vehicle while the vehicle is in motion, and (2) has an equivalent all-electric r ange of no less than 10 miles.

With some simplifying assumptions, assume that 25,0 00 of Manufacturer A’s fleet are now plug-in hybrid electric vehicles with CO 2 emissions of 100 g/mi, and the remaining 475,000 are conventional technology vehic les with average CO 2 emissions of 290 grams/mile. By applying the factor of 2.0 to th e electric vehicle production numbers in the appropriate places in the fleet average calc ulation formula Manufacturer A now has more than 2.6 million credits (Figure III.E.5-2). Without the use of the multiplier Manufacturer A’s fleet average would be 281 instead of 272, which would generate about

1.8 million credits.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

123

Summary for Manufacturer A: Earning Basic and Advanced Technology Credits

CO 2 Totals Total production Conventional: 475,000 290 g/mi 500,000 PHEV: 25,000 100 g/mi Fleet average

standard 300 g/mi

Fleet average [(475,000 × 290) + ((2x25,000) × 100) ] ÷ [475,000+(2×25,000)] 272 g/mi

Credits [(300-272) × 500,000 × 190,971]
÷ 1,000,000 = 2,673,594 Mg

Figure III.E.5-2 Summary for Manufacturer A: Earnin g Basic and Advanced Technology

CreditsDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

124 c. Flexible-Fuel Vehicle Credits

As noted in Section III.C, treatment of flexible-fu el vehicle (FFV) credits differs

between 2012 to 2015 and 2016 and later. For the 2 012 through 2015 model years the FFV credits will be calculated as they are in the C AFE program for the same model years, except that formulae in the regulations woul d be modified as needed to do the calculations in terms of grams per mile of CO 2 rather than miles per gallon. Like the advanced technology vehicle credits, these credits are integral to the fleet average calculation, but rather than crediting the vehicles with an artificially inflated quantity as in the advanced technology credit program described above, the FFV credit program allows the vehicles to be represented by artificial ly reduced emissions. To use this credit program, the CO 2 emissions of FFVs will be represented by the avera ge of two things:

the CO 2 emissions while operating on gasoline, and the CO 2 emissions operating on the alternative fuel multiplied by 0.15.

For example, Manufacturer A now makes 30,000 FFVs w ith CO 2 emissions of 280 g/mi using gasoline and 260 g/mi using ethanol. The CO 2 emissions that would represent the FFVs in the fleet average calculation would be calculated as follows:

FFV emissions = (280 + 260×0.15) ÷ 2 = 160 g/mi

Including these FFVs with the applicable credit in Manufacturer A’s fleet average, as shown below in Figure III.E.5-3, further reduces th e fleet average to 256 grams/mile and

increases the manufacturer’s credits to about 4.2 m illion megagrams.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

125

Summary for Manufacturer A: Earning Basic, Advanced Technology, and Flexible Fu el Vehicle Credits

CO 2 Totals Total production Conventional: 445,000 290 g/mi 500,000 PHEV: 25,000 100 g/mi FFV: 30,000 160 g/mi Fleet average

standard 300 g/mi

Fleet average [(445,000 × 290) + ((2x25,000) × 100) + 30,000 x 160] ÷ [475,000+(2×25,000)] 256 g/mi

Credits [(300-256) × 500,000 × 190,971]
÷ 1,000,000 = 4,201,362 Mg

Figure III.E.5-3 Summary for Manufacturer A: Earnin g Basic and Advanced Technology,

and Flexible Fuel Vehicle CreditsDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

126

In the 2016 and later model years the calculation of FFV emissions would be much the same except that the determination of the CO 2 value to represent an FFV model type would be based upon the actual use of the alte rnative fuel and on actual CO 2 emissions while operating on that fuel. EPA’s defa ult assumption in the regulations is that the alternative fuel is used negligibly, and t he CO 2 value that would apply to an FFV by default would be the value determined for operat ion on conventional fuel. However,

if the manufacturer believes that the alternative f uel is used in real-world driving and that accounting for this use could improve the fleet ave rage, the manufacturer would have two options. First, the regulations would allow a manu facturer to request that EPA determine an appropriate weighting value for an alternative f uel to reflect the degree of use of that

fuel in FFVs relative to real-world use of the conv entional fuel. Section III.C describes how EPA might make this determination. Any value d etermined by EPA would be published via guidance letter to manufacturers, and that weighting value would be

available for all manufacturers to use for that fue l. A second option proposed in the regulations would allow a manufacturer 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 would have to be approved by E PA before their use would be allowed. In either case, whether EPA supplies the weighting factors or the manufacturer determines them, the CO 2 emissions of an FFV in 2016 and later would be as follows (assuming non-zero use of the alternative fuel):

(W1×CO 2 conv)+(W2×CO 2 alt),

where W1 and W2 are the proportion of miles driven using conventional fuel and alternative fuel, respectively, CO 2 conv is the CO 2 value while using conventional fuel,

and CO 2 alt is the CO 2 value while using the alternative fuel.

d. Dedicated Alternative Fuel Vehicle Credits

Like the FFV credit program described above, these credits would 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 th e FFV credits except for 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 the y 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, ass ume 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 (Fig ure III.E.5-4). Prior to the 2016 model year the CO 2 emissions representing these CNG vehicles would be 33 grams/mile (220 × 0.15).Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

127

Summary for Manufacturer A: Earning Basic, Advanced Technology, and Flexible Fu el Vehicle Credits

CO 2 Totals Total production Conventional: 425,000 290 g/mi 500,000 PHEV: 25,000 100 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) + ((2x25,000) × 100) + (30,000 × 160) + (20,000 × 33)] ÷ [475,000+(2×25,000)] 247 g/mi

Credits [(300-247) × 500,000 × 190,971]
÷ 1,000,000 = 5,060,732 Mg

Figure III.E.5-4 Summary for Manufacturer A: Earning Basic, Advanced Technology, and Flexible Fu el Vehicle CreditsDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

128 The calculation for 2016 and later would be exactly the same except the 0.15 credit adjustment factor would be removed from the equation, and the CNG vehicles would simply be production-weighted in the equation using their actual emissions value of 220 grams/mile instead of the “credited” value o f 33 grams/mile.

e. Air Conditioning Leakage Credits

Unlike the credit programs described above, air con ditioning-related credits do

not affect the overall calculation of the fleet ave rage. Whether a manufacturer generates zero air conditioning credits or many, the calculat ed fleet average remains the same. Air conditioning credits are calculated and added to an y credits (or deficit) that results from the fleet average calculation. 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 could gene rate credits for reducing the leakage of refrigerant from their air conditioning systems. To do this the manufacturer would identify an air conditioning system improvement, in dicate that they intend to use the improvement to generate credits, and then calculate an annual leakage rate (grams/year) for that system based on the method defined by the proposed regulations. Air conditioning credits would be determined separately for cars and trucks using the car and truck-specific equations 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 credit s would need to be calculated separately for cars and trucks. Thus, the resultin g grams per mile credit determined from the appropriate car or truck equation would be mult iplied by the lifetime VMT (190,971 for cars; 221,199 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 truck s, the total megagrams would be

summed and then added to the overall credit balance maintained by the manufacturer.

For example, assume that Manufacturer A has improve d an air conditioning system that is installed in 250,000 cars and that t he 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 × 190971 ] ÷ 1,000,000 = 377,168 Mg

.

These credits would be added directly to a manufact urer’s total balance; thus in this example Manufacturer A would now have, after c onsideration of all the above credits, a total of 5,437,900 Megagrams of credits.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

129 f. Air Conditioning Efficiency Credits

As noted in Section III.C.1.b, manufacturers could earn credits for improvements in air conditioning efficiency that reduce the impa ct of the air conditioning system on fuel consumption. These credits are similar to the air c onditioning leakage credits described above, in that these credits are determined indepen dently from the manufacturer’s fleet average calculation, and the resulting credits are added to the manufacturer’s overall balance for the respective model year. Like the ai r conditioning leakage credits, these

credits can increase a manufacturer’s credit balanc e or offset a deficit, but their calculation is external to the fleet average calcul ation.

In order to put these credits on the same basis as the basic and other credits describe above, the air conditioning leakage credit s would need to be calculated separately for cars and trucks. Thus, the resultin g grams per mile credit determined in the above equation would be multiplied by the lifetime VMT (190,971 for cars; 221,199 for trucks), and then divided by 1,000,000 to get the t otal 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 can be summed and then added to the overall credit balance maintained by the manufactur er.

As described in Section III.C, manufacturers would determine their credit based on selections from a menu of technologies, each of which provides a gram per mile credit

amount. The credits would be summed for all the te chnologies implemented by the manufacturer, but could not exceed 5.7 grams per mi le. Once this is done, the calculation is a straightforward translation of a gram per mile credit to total car or truck megagrams, using the same methodology described above. For ex ample, 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 car s, the calculation of total credits would

be as follows:

[ 5.7 × 250,000 × 190971 ] ÷ 1,000,000 = 272,134 Mg

.

These credits would be added directly to a manufact urer’s total balance; thus in this example Manufacturer A would now have, after c onsideration of all the above credits, a total of 5,710,034 Megagrams of credits.

g. Off-Cycle Technology Credits

As described in Section III.C, these credits would be available for certain technologies that achieve real-world CO 2 reductions that aren’t adequately captured on the city or highway test cycles used to determine c ompliance with the fleet average standards. Like the air conditioning credits, thes e credits are independent of the fleet average calculation. Section III.C.4 describes two options for generating these credits: either using EPA’s 5-cycle fuel economy labeling me thodology, or if that method fails to capture the CO 2 -reducing impact of the technology, the manufacture r could propose andDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

130

use, with EPA approval, a different analytical appr oach to determining the credit amount. Like the air conditioning credits above, these cred its would have to be determined separately for cars and trucks because of the diffe ring lifetime mileage assumptions

between cars and trucks.

Using the 5-cycle approach would be relatively stra ightforward, and because the 5-cycle formulae account for nationwide variations in driving 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-cy cle fuel economy values, and the proposed regulations contain provisions that descri be how to calculate 5-cycle CO 2 values. The manufacturer would have to design a te st program that accounts for vehicle differences if the technology is installed in diffe rent vehicle types, and enough data

would have to be collected to address data uncertai nty issues. A description of such a test program and the results would be submitted to EPA f or approval.

As noted in Section III.C.4, a manufacturer-develop ed testing, data collection and analysis program would require some additional EPA approval and oversight. Once the

demonstration of the CO 2 reduction of an off-cycle technology is complete, however, and the resulting value accounts for variations in driv ing, climate and other conditions across the country, the two approaches are treated fundame ntally the same way and in a way that parallels the approach for determining the air cond itioning credits described above. Once a gram per mile value is approved by the EPA, the m anufacturer would determine the total credit value by multiplying the gram per mile per vehicle credit by the 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 o r 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 g iven model year. Just like the above air conditioning case, an off-cycle technology that is demonstrated to achieve an average

CO 2 reduction of 4 grams/mile and that is installed in 175,000 cars would generate

credits as follows:

[ 4 × 175,000 × 190971 ] ÷ 1,000,000 = 133,680 Mg.

h. End-of-Year Reporting

In general, implementation of the averaging, bankin g, and trading (ABT) program, including the calculation of credits and d eficits, would be accomplished via existing reporting mechanisms. EPA’s existing regu lations define define how manufacturers calculate fleet average miles per gal lon for CAFE compliance purposes, and EPA is proposing to modify these regulations to also require the parallel calculation of fleet average CO 2 levels for car and light truck compliance categori es. These regulations already require an end-of-year report f or each model year, submitted to EPA,

which details the test results and calculations tha t determine each manufacturer’s CAFE levels. EPA is proposing to require that this repo rt also include fleet average CO 2 levels.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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In addition to requiring reporting of the actual fl eet average achieved, this end-of-year report would also contain the calculations and data determining the manufacturer’s applicable fleet average standard for that model ye ar. As under the existing Tier 2 program, the report would be required to contain th e fleet average standard, all values required to calculate the fleet average standard, t he actual fleet average CO 2 that was achieved, all values required to calculate the actu al fleet average, the number of credits generated or debits incurred, all the values requir ed to calculate the credits or debits, and the resulting balance of credits or debits.

Because of the multitude of credit programs that ar e available, the end-of-year report will be required to have more data and a mor e defined and specific structure than the CAFE end–of-year report does today. Although r equiring “all the data required” to calculate a given value should be inclusive, the pr oposed report would contain some requirements specific to certain types of credits.

For advanced technology credits that apply to vehic les like electric vehicles and plug-in hybrid electric vehicles, manufacturers wou ld be required to identify the number and type of these vehicles and the effect of these credits on their fleet average. The same

would be true for credits due to flexible-fuel and alternative-fuel vehicles, although for

2016 and later flexible-fuel credits manufacturers would also have to provide a

demonstration of the actual use of the alternative fuel in-use and the resulting calculations

of CO 2 values for such vehicles. For air conditioning le akage credits manufacturers would have to include a summary of their use of suc h credits that would include which air conditioning systems were subject to such credi ts, information regarding the vehicle models which were equipped with credit-earning air conditioning systems, the production volume of these air conditioning systems, the leaka ge score of each air conditioning system generating credits, and the resulting calcul ation of leakage credits. Air conditioning efficiency reporting will be somewhat more complicated given the phase-in of the efficiency test, and reporting would have to detail compliance with the phase-in as well as the test results and the resulting efficien cy credits generated. Similar reporting requirements would also apply to the variety of pos sible off-cycle credit options, where manufacturers would have to report the applicable t echnology, 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 f inal production numbers are known, that will determine the degree of compliance and the actual values of any credits being generated by manufacturers, EPA is also propo sing that manufacturers be prepared to discuss their compliance approach and their pote ntial use of the variety of credit options in pre-certification meetings that EPA rout inely has with manufacturers. In addition, and in conjunction with a pre-model year report required under the CAFE program, the manufacturer would be required to subm it projections of all of the elements

described above.

Finally, to the extent that there are any credit tr ansactions, the manufacturer would have to detail in the end-of-year report docu mentation on all credit transactions that the manufacturer has engaged in. Information for each transaction would include:Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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the name of the credit provider, the name of the cr edit recipient, the date the transfer occurred, the quantity of credits transferred, and the model year in which the credits were earned. Failure by the manufacturer to submit the a nnual report in the specified time period would be considered to be a violation of sec tion 203(a)(1) of the Clean Air Act.

6. Enforcement

As discussed above in Section III.E.5 under the pro posed program, manufacturers would report to EPA their fleet average standard fo r 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 II I.E.5), and whether they were in compliance with the fleet average standard under th e terms of the regulations. EPA would review the annual reports, figures, and calcu lations submitted by the manufacturer to determine any nonconformance. EPA requests comm ents on the above approach for monitoring and enforcement of the fleet average sta ndard.

Each certificate, required prior to introduction in to commerce, would be conditioned upon the manufacturer attaining the CO 2 fleet average standard. If a

manufacturer failed to meet this condition and had not generated or purchased enough credits to cover the fleet average exceedance follo wing the three year deficit carryforward (Section III.B.4, then EPA would review the manufacturer's sales for the most recent model year and designate which vehicles caus ed the fleet average standard to be exceeded. EPA would designate as nonconforming tho se vehicles with the highest emission values first, continuing until a number of vehicles equal to the calculated number of non-complying vehicles as determined abov e is reached and those vehicles would be considered to be not covered by the certif icates of conformity covering those model types. In a test group where only a portion of vehicles would be deemed nonconforming, EPA would determine the actual nonco nforming vehicles by counting

backwards from the last vehicle sold in that model type. A manufacturer would be subject to penalties and injunctive orders on an in dividual 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 , except that these programs operate slightly differently in that the non-compliant vehi cles would be designated not in the most recent model year, but in the model year in wh ich the deficit originated. EPA requests comment on which approach is most appropri ate; the Tier 2 approach of penalizing vehicles from the year in which the defi cit was generated, or the proposed approach that would penalize vehicles from the year in which the manufacturer failed to make up the deficit as required.

Section 205 of the CAA authorizes EPA to assess pe nalties of up to $37,500 per vehicle for violations of the requirements or prohi bitions of this proposed rule. 73 This section of the CAA provides that the agency shall t ake the following penalty factors into consideration in determining the appropriate penalt y for any specific case:

73 42 U.S.C. 7524(a), Civil Monetary Penalty Inflatio n Adjustment, 69 Fed. Reg. 7121 (Feb. 13, 2004) and Civil Monetary Penalty Inflation Adjustment Rule, 7 3 Fed. Reg. 75340 (Dec. 11,2008).Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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the gravity of the violation, the economic benefit or savings (if any) resulting from 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 ef fect of the penalty on the violator's ability to continue in business, and such other matters as justice may require.

EPA recognizes that it may be appropriate, should a manufacturer fail to comply with the NHTSA fuel economy standards as well as th e CO 2 standard proposed today in a case arising out of the same facts and circumstance s, to take into account the civil penalties that NHTSA has assessed for violations of the CAFE standards when determining the appropriate penalty amount for viol ations of the CO 2 emissions standards. This approach is consistent with EPA’s b road discretion to consider “such other matters as justice may require,” and will all ow EPA to exercise its discretion to prevent injustice and ensure that penalties for vio lations of the CO 2 rule are assessed in a

fair and reasonable manner.

The statutory penalty factor that allows EPA to con sider “such other matters as justice may require” vests EPA with broad discretio n to reduce the penalty when other adjustment factors prove insufficient or inappropri ate to achieve justice. 74 . The underlying principle of this penalty factor is to o perate as a safety mechanism when necessary to prevent injustice. 75

In other environmental statutes, Congress has speci fically required EPA to consider penalties assessed by other government age ncies 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 pen alty 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 viol ator of penalties previously assessed for the same violation" when assessing pen alties for certain violations of Title I

of the Act.

7. Prohibited Acts In The CAA

Section 203 of the Clean Air Act describes acts tha t are prohibited by law. This section and associated regulations apply equally to the greenhouse standards proposed today as to any other regulated pollutant.

8. Other Certification Issues

a. Carryover/Carry Across Certification Test Data

EPA's certification program for vehicles allows man ufacturers to carry

certification test data over and across certificati on testing from one model year to the next, when no significant changes to models are mad e. EPA expects that this policy

74 In re Spang & Co. , 6 E.A.D. 226, 249 (EAB 1995)

75 B.J. Carney Industries , 7 E.A.D. 171, 232, n. 82 (EAB 1997).Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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could also apply to CO 2 , N20 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 had done so for CAFE purposes.

b. Compliance Fees

The CAA allows EPA to collect fees to cover the co sts of issuing certificates of conformity for the classes of vehicles and engines covered by this proposal. On May 11, 2004, EPA updated its fees regulation based on a st udy of the 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 a s a result of this proposal is not known. EPA will assess its compliance testing and other activities associated with the proposed rule and may amend its fees regulations in the future to include any warranted

new costs.

c. Small Entity Deferment

EPA is proposing to defer CO 2 standards for certain small entities, and these entities (necessarily) would not be subject to the certification requirements of this proposal.

As discussed in Section III.B.7, businesses meeting the Small Business Administration (SBA) criterion of a small business as described in 13 CFR 121.201 would not be subject to the proposed GHG requiremen ts, pending future regulatory action. EPA is proposing that such entities submit a declaration to EPA containing a detailed written description of how that manufactur er qualifies as a small entity under the provisions of 13 CFR 121.201 in order to ensure EPA is aware of the deferred companies. This declaration would have to be signe d 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 smal l entity status is requested, but not later than December of the calendar year prior to t he 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 declarati on would be due in September of 2011. If 2012 model year vehicles are not planned for int roduction until March of 2012, then

the declaration would have to be submitted in Decem ber of 2011. Such entities are not automatically exempted from other EPA regulations f or light-duty vehicles and light-duty trucks; therefore, absent this annual declaration E PA would assume that each entity was not deferred from compliance with the proposed gree nhouse gas standards.

d. Onboard Diagnostics (OBD) And CO 2 Regulations

The light-duty on-board diagnostics (OBD) regulati ons require manufacturers to detect and identify malfunctions in all monitored e mission-related powertrain systems orDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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components. 76 Specifically, the OBD system is required to monit or catalysts, oxygen sensors, engine misfire, evaporative system leaks, and any other emission control systems directly intended to control emissions, such as exh aust gas recirculation (EGR), secondary air, and fuel control systems. The monit oring threshold for all of these systems or components is 1.5 times the applicable s tandards, which typically include NMHC, CO, NO X , and PM. EPA is confident that many of the emissi on-related systems and components currently monitored would effectivel y catch any malfunctions related to

CO 2 emissions. For example, malfunctions resulting fr om 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 sys tems or components should also result in an improvement in CO 2 emissions. In addition, EPA does not have data on the feasibility or effectiven ess of monitoring various emission systems and components for CO 2 emissions and does not believe it would be prudent to
include CO 2 emissions without such information. Therefore, at this time, EPA does not plan to require CO 2 emissions as one of the applicable standards requi red for the OBD monitoring threshold. EPA plans to evaluate OBD mo nitoring technology, with regard to monitoring CO 2 emissions-related systems and components, and may choose to propose

to include CO 2 emissions as part of the OBD requirements in a fut ure regulatory action. EPA requests comment as to whether this is appropri ate at this time, and specifically requests any data that would support the need for C O 2 -related components that could or should be monitored via an OBD system.

e. Applicability of Current High Altitude Provision s to Greenhouse Gases

EPA is proposing that vehicles covered by this prop osal meet the CO 2 , N 2 O and

CH 4 standard at altitude. The CAA requires emission s tandards under section 202 to apply at all altitudes. 77 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 is proposing to retain its current h igh altitude regulations so manufacturers would not normally be required to sub mit vehicle CO 2 test data for high

altitude. Instead, they would submit an engineering evaluatio n indicating that common calibration approaches will be utilized at high alt itude. Any deviation in emission control practices employed only at altitude would need to b e included in the auxiliary emission control device (AECD) descriptions submitted by man ufacturers at certification. In addition, any AECD specific to high altitude would be required to include emissions data to allow EPA evaluate and quantify any emission imp act and validity of the AECD. EPA requests comment on this approach, and specifically requests data on impact of altitude

on FTP and HFET CO 2 emissions.

f. Applicability of Standards to Aftermarket Conve rsions

With the exception of the small entity deferment o ption EPA is proposing, EPA’s emission standards, including the proposed greenhou se gas standards, would continue to apply as stated in the applicability sections of th e relevant regulations. The proposed

76 40 CFR 86.1806-04

77 See CAA 206(f).Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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greenhouse gas standards are being incorporated int o 40 CFR part 86, subpart S, the provisions of which include exhaust and evaporative emission standards for criteria pollutants. Subpart S includes requirements for ne w light-duty vehicles, light-duty trucks, medium-duty passenger vehicles, Otto-cycle complete heavy-duty vehicles, and some incomplete light-duty trucks. Subpart S is c urrently specifically applicable to aftermarket conversion systems, aftermarket convers ion installers, and aftermarket conversion certifiers, as those terms are defined i n 40 CFR 85.502. EPA expects that some aftermarket conversion companies would qualify for and seek the small entity deferment, but those that do not qualify would be r equired to meet the applicable emission standards, including the proposed greenhou se gas standards.

9. Miscellaneous Revisions to Existing Regulations

a. Revisions and Additions to Definitions

EPA is proposing to amend its definitions of "engin e code," "transmission class," and "transmission configuration" in its vehicle cer tification regulations (Part 86) to

conform with the definitions for those terms in its fuel economy regulations (Part 600). The exact terms in Part 86 are used for reporting p urposes and are not used for any compliance purpose (e.g., an engine code would not determine which vehicle was selected for emission testing). However, the terms are used for this purpose in Part 600 (e.g., engine codes, transmission class, and transm ission configurations are all criteria

used to determine which vehicles are to be tested f or the purposes of establishing corporate average fuel economy). Here, EPA is prop osing that the same vehicles tested to determine corporate average fuel economy also be tested to determine fleet average

CO 2 , so the same definitions should apply. Thus EPA i s proposing to amend its Part 86

definitions of the above terms to conform to the de finitions in Part 600.

To bring EPA's fuel economy regulations in Part 60 0 into conformity with this proposal for fleet average CO 2 and NHTSA's reform truck regulations two amendment s are proposed. First, the definition of "footprint" that is proposed in this rule is also being proposed for addition to EPA's Part 86 and 600 regu lations. This definition is based on the definition promulgated by NHTSA at 49 CFR 523.2 . Second, EPA is proposing to amend its model year CAFE reporting regulations to include the footprint information necessary for EPA to determine the reformed truck s tandards and the corporate average fuel economy. This same information is proposed to be included in this proposal for fleet average CO 2 and fuel economy compliance.

b. Addition of Ethanol Fuel Economy Calculation Pr ocedures

EPA is proposing to add calculation procedures to part 600 for determining the carbon-related exhaust emissions and calculating th e fuel economy of vehicles operating on ethanol fuel. Manufacturers have been using the se procedures as needed, but the regulatory language – which specifies how to determ ine the fuel economy of gasoline, diesel, compressed natural gas, and methanol fueled vehicles – has not previously been brought up-to-date to provide procedures for vehicl es operating on ethanol. Thus EPA isDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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proposing a carbon balance approach similar to othe r fuels for the determination of carbon-related exhaust emissions for the purpose of determining fuel economy and for compliance with the proposed fleet average CO 2 standards. The carbon balance formula is similar to that for methanol, except that ethano l-fueled vehicles must also measure the emissions of ethanol and acetaldehyde. The propose d carbon balance equation for determining fuel economy is as follows, where CWF i s the carbon weight fraction of the

fuel and CWF exHC is the carbon weight fraction of the exhaust hydro carbons:

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))

The proposed equation for determining the total car bon-related exhaust emissions for compliance with the CO 2 fleet average standards is the following, where CW F 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

.

EPA requests comment on the use of these formulae t o determine fuel economy and

carbon emissions.

c. Revision of Electric Vehicle Applicability Provi sions

In 1980 EPA issued a rule that provided for the inc lusion of electric vehicles in the CAFE program. 78 EPA now believes that certain provisions of the r egulations should be updated to reflect the current state of motor ve hicle emission and fuel economy regulations. In particular, EPA believes that the exemption of electric vehicles in certain cases from fuel economy labeling and CAFE requireme nts should be reevaluated and

revised.

The rule created an exemption for electric vehicles from fuel economy labeling in the following cases: (1) if the electric vehicles a re produced by a company that produces only electric vehicles; and (2) if the electric veh icles are produced by a company that produces fewer than 10,000 vehicles of all kinds wo rldwide. EPA believes that this exemption language is no longer appropriate and pro poses to delete it from the affected regulations. First, since 1980 many regulatory pro visions have been put in place to

address the concerns of small manufacturers and ena ble 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 l evel regulatory playing field and that there is no longer a need to treat small volum e electric vehicles any differently than small volume manufacturers of other types of vehicl es. Current regulations contain streamlined certification procedures for small comp anies, and because electric vehicles emit no direct pollution there is effectively no ce rtification emission testing burden. For example, the proposed greenhouse gas regulations co ntain a provision allowing the exemption of certain small entities. Meeting the r equirements for fuel economy labeling

78 45 FR 49256, July 24, 1980.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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and CAFE will entail a testing, reporting, and labe ling burden, but these burdens are not extraordinary and should be applied equally to all small volume manufacturers, regardless of the fuel that moves their vehicles. EPA has been working with existing electric vehicle manufacturers on fuel economy labe ling, and EPA believes it is important for the consumer to have impartial, accurate, and u seful label information regarding the energy consumption of these vehicles. Second, EP CA does not provide for an exemption of electric vehicles from NHTSA’s CAFE pr ogram, and NHTSA regulations regarding the applicability of the CAFE program do not provide an exemption for electric vehicles. Third, the blanket exemption for any man ufacturer 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 expecte d in the electric vehicle market in the future, EPA believes that the labeling and CAFE reg ulations need to be designed to more specifically accommodate electric vehicles and to r equire that consumers be provided with appropriate information regarding these vehicl es. For these reasons EPA is proposing revisions to 40 CFR Part 600 applicabilit y regulations such that these electric vehicle exemptions are deleted starting with the 20 12 model year.

d. Miscellaneous Conforming Regulatory Amendments

Throughout the regulations EPA has made a number of minor amendments to update the regulations as needed or to conform with amendments discussed in this preamble. For example, for consistency with the et hanol fuel economy calculation procedures discussed above, EPA has amended regulat ions where necessary to require

the collection of emissions of ethanol and acetalde hyde. Other changes are made to applicability sections to remove obsolete regulator y 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 emissio n control regulations. Not all of these minor amendments are noted in this preamble, thus the reader should carefully evaluate the proposed regulatory text to ensure a c omplete understanding of the regulatory changes being proposed by EPA.

10. Warranty, Defect Reporting, and Other Emission -related Components

Provisions

Under section 207(a) of the CAA, manufacturers mus t warrant that a vehicle is designed to comply with the standards and will be f ree from defects that may cause it to not comply over the specified period which is 2 yea rs/24,000 miles (whichever is first) or, for major emission control components, 8 years/ 80,000 miles. Under certain conditions, manufacturers may be liable to replace failed emission components at no expense to the owner. EPA regulations define "emi ssion related parts" for the purpose of warranty. This definition includes parts which mus t function properly to assure continued compliance with the emission standards. 79

79 40 CFR 85

. 2102(14).Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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The air conditioning system and its components ha ve not previously been covered under the CAA warranty provisions. However , the proposed A/C leakage and

A/C-related CO 2 emission standards are dependent upon the proper f unctioning of a number of components on the A/C system, such as rin gs, fittings, compressors, and hoses. Therefore, EPA is proposing that these comp onents be included under the CAA section 207(a) emission warranty provisions, with a warranty of 2 years/24,000 miles.

EPA requests comment as to whether any other parts or components should be designated as “emission related parts” subject to w arranty and defect reporting provisions under this proposal.

11. Light Duty Vehicles and Fuel Economy Labeling

American consumers need accurate and meaning ful information about regarding the environmental and fuel economy performance of n ew light vehicles. EPA believes it is important to insure that the fuel-economy label affixed to the new vehicles provide consumers with the critical information they need t o make smart purchase decisions

. This is a special challenge in , particularly in light of the expected increase in market share of electric and other advanced technology veh icles. C American c onsumer ’ s may need new and different

information than today’s vehicle label s provide in order to help

them information that helps them understand the energy use and associated cost of owning these electric and advanced technology vehic les. As discussed below, these two issues are key to determining whether the current M PG-based fuel-economy label is adequate.

Therefore, as part of this action, EPA seeks commen ts on issues surrounding consumer vehicle labeling in general, and labeling of advanced technology vehicles in particular. EPA also plans to initiate a separate r ulemaking to explore in detail the information displayed on the fuel economy label and the methodology for deriving that information. The purpose s of this new rulemaking would be to ensure that Ame rican consumers continue to have the most accurate, meani ngful, and useful information available to them when purchasing new vehicles, and that the information is presented to

them in clear and understandable terms.

a. Background

EPA has considerable experience in providin g consumer vehicle information to

consumers through its related fuel-economy labeling activities and related and web-based programs. Under 49 U.S.C. 3290 8 (b) EPA is responsible for developing the fuel economy labels that are posted on window stickers o f all new light duty cars and trucks sold in the U.S. and, beginning with the 2011 model year, on all new medium-duty passenger vehicles (a category that includes large sport-utility vehicles and passenger vans). The statutory requirements established by E PCA require that the label contain the following:Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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• The estimated annual fuel cost of operating the veh icle;

• The range of fuel economy of comparable vehicles am ong all manufacturers;

• A statement that a fuel economy booklet is availabl e from the dealer; 81 and

• The amount of the “gas guzzler” tax imposed on the vehicle by the Internal

Revenue Service.

• Other information required or authorized by EPA tha t is related to the information required above.

Fuel economy is defined as the number of miles trav eled by an automobile for each gallon of gasoline (or equivalent amount of other f uel). It is relatively easy to determine the miles per gallon (MPG) for vehicles that use li quid fuels (e.g., gasoline or diesel), but an expression that uses gallons – whether miles per gallon or gallons per mile – may not

be a useful metric for vehicles that have limited t o no operation on liquid fuel such as electric or compressed natural gas vehicles. The m pg metric is the one generally used today to provide comparative fuel economy informati on to consumers.

As part of its vehicle general certification , CAFE, and fuel economy labeling

authorities efforts , EPA works with stakeholders on the testing and ot her regulatory requirements necessary to bring advanced technology vehicles to market. With As an increasing number s of advanced technology vehicles begin ning to be sold, EPA believes it is now appropriate to address potential regulato ry or and certification issues associated with these technologies including , especially how best to provide relevant consumer

information about their environmental impact, energy consumpti on, and cost

.

b. Test Procedures

As discussed in this notice, there are explicit an d very long-standing test procedures and calculation methodologies associated with CAF E É that EPA uses to test conventionally-fueled vehicles and to calculate their fuel economy . These test procedures and calculations also generally apply for to advanced technology vehicle s (e.g., an electric (EV) or plug-in hybrid vehicle ( PHEV) , which could be considered a

dual

- fueled vehicle under CAF E ).

The basic test procedure for an electric vehicle fo llows a standardized practice -- an EV is fully charged and then driven over the cit y cycle (Urban Dynamometer Drive Schedule) until the vehicle can no longer maintain the required drive cycle vehicle speed. For some vehicles, this could require operation ove r multiple drive cycles. The EV is then fully recharged and the AC energy to the charger is recorded

. .

To derive the CAFE value for electric vehicles, the amount of Th is AC energy needed to recharge the battery is then divided by the range the vehicle reached in the repeated city drive cycle . This calculation provides a raw CAFE energy s to obtain a

80 “Fuel economy” per the statute is miles per gallon of gasoline (or equivalent amount of other fuel).

81 EPA and DOE jointly publish the annual Fuel Econom y Guide and distribute it to dealers.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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consumption value expressed in kilowatt hours per 1 00 miles . The raw CAFE number and is the raw CAFÉ value . This consumption value is then converted to miles per gallon of equivalent gasoline using a Department of Energy (DOE) conversion factor of 82,700 Kwhr/gallon of gasoline. 82 The DOE conversion factor combines several adjustme nts including: an adjustment similar to the statutory 6 .67 multiplier credit 83 used in deriving

the final CAFE value for all alternative fueled vehicles; a factor representing the gasoline-equivalent energy content of electricity; and various adjustments discounts to account for the relative efficiency of petroleum us ed in producing and transporting the electricity. The resulting value after the DOE conversion factor is applied becomes includes various adjustment factors, including an E V statutory credit of a 6.67 multiplier, to come up with the final CAF E É city value.

The label value calculation for an EV uses a differ ent conversion factor than the

CAFE value calculation. To come up with the final city fuel economy label value for an EV, a conversion factor of 33,705 Kwhr/ 100 miles per gallon of gasoline equivalent is applied to the raw consumption number instead of th e 82,700 Kwhr/gallon used for

CAFE. The conversion factor used for labeling purposes re presents only the gasolineequivalent energy content of electricity, without t he multiplier credit and other adjustments used in the CAFE calculation. The consumption, now expressed as a fuel economy in miles per gallon equivalent, is then app lied to the derived 5-cycle equation required under EPA’s fuel economy labeling regulati ons. The above process is then repeated for the EV highway fuel economy label numb er. Finally, the combined city/ highway numbers for the EV use the same 55/45 weigh ting as conventional vehicles to determine the final fuel economy label values. CAF E É numbers end up being significantly higher for EVs than the associated fu el economy label values , both because

both a higher adjustment factor s applies under CAF E É regulations and also because other real-world adjustments such as the 5-cycle test are not applied to the CAF É E values.

For PHEVs, a similar process would be followed, exc ept that PHEVs require testing in both charge sustain (CS) and charge depl eting (CD) modes to capture how these vehicles operate. For charge sustain modes, PHEVs essentially operate as conventional Hybrid Electric Vehicles (HEVs). PHEV s therefore test in all 5-cycles (for further information on these test cycles, see Secti on III.C.4) just as HEVs do for CS fuel economy. For CD fuel economy, PHEVs are only requi red to test on the Urban Dynamometer Drive Schedule and Highway Fuel Econom y cycles just like other alternative fueled vehicles-- the 5-cycle fuel eco nomy testing is optional in the CD mode. There are additional processes that address different PHEV modes, such as for

PHEVs that operate solely on electricity throughout the CD mod e.

As this discussion shows shown , the CAF E É and fuel economy labeling test procedures and calculations for advanced technology vehicles such as EVs and PH EVs can be very complicated. EPA is interested in comm ents on these processes, including views on the appropriate use of adjustment factors. Currently in guidance, EPA references SAE J1634 for EV range and consumption t est procedures. EPA currently

82 49 USC 32904 and 1 0 CFR 474.3

83 49 USC 32905Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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includes the “California Exhaust Emission Standards and Test Procedures for 2003 and Subsequent Model Zero-Emission Vehicles, in the Pas senger Car, Light Truck, and Medium-duty Vehicle Classes” by reference in 40 CFR 86.1. As California requirements and SAE test procedures are updated these may be in cluded by reference in the future

.

c. Current Fuel Economy Label

In 2006 EPA redesigned the window stickers to make them more informative for consumers. More particular, the redesigned sticker s to more prominently feature annual fuel cost information, to provide contemporary and easy-to-use graphics for comparing the fuel economy of different vehicles, to use clea rer text, and to include a web site reference to www.fueleconomy.gov which provides additional information. In additio n, EPA updated how the city and highway fuel economy v alues were calculated, to better reflect typical real-world driving patterns. 84 This rulemaking involved significant stakeholder outreach in determining how best to cal culate and display this new

information. EPA’s The feedback EPA has received to date on the new label design and values has been generally very positive

During the 2006 label rulemaking process EPA reque sted comments on how a fuel consumption metric (such as gallons per 100 mi les) could be used and represented to the public, including presentation in the annual Fu el Economy Guide. EPA received a

number of comments from both vehicle manufacturers and consumer organizations

, suggesting that

the MPG measures can be misleading and that a fuel consumption metric might be more meaningful to consumers than the esta blished MPG metric found on fuel economy labels

. , The reason is that fuel consumption metric, since it directly measures the amount of fuel used and is thus directly relate d to cost that consumers incur when filling up.

Unlike a fuel consumption metric, The problem with the an MPG metric is that it

is inversely related to fuel consumption and cost

. – meaning that a A s higher MPG values are reached, the relative impact of these higher va lues on fuel consumption and fuel costs decreases. For example, a 25 percent increase in ga llons per 100 miles will always lead to a 25 percent increase in the fuel cost, but a simil ar 25 percent increase in MPG will have varying impacts on actual fuel cost depending on wh ether the percent increase occurs to a low or high MPG value. It is unclear whether Many consumers do not understand this nonlinear relationship between MPG and fuel costs. Many consumers may tend to treat Evidence suggest that people tend to see the MPG as being linear with fuel cost, which could potentially will lead to erroneous decisions regarding vehicle purch ases. Figure III.E.11-1 below illustrates the issue; one can see that changes in MPG at low MPG levels can result in large changes in the fuel cost , while changes in MPG values at high MPG levels result in small changes in the fuel cost . For example, a change from 10 to 15 MPG will reduce the 10-mile fuel cost from $2.50 to $1.60, but a similar increase in MPG from 20 to 25 MPG will only reduce the 10-mile fuel cost by less than $0.30.

84 71 FR 77872 (December 27, 2006). Fuel Economy Lab eling of Motor Vehicles: Revisions to Improve Calculations of Fuel Economy Estimates. U.S. EPA.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

143Fuel Economy vs. Fuel Cost of Driving(at fuel price of $2.50/gallon)$0.00$0.50$1.00$1.50$2.00$2.50$3.0010 15 20 25 30 35 40Miles per Gallon

Cost of Driving 10 MilesFigure III.E.11-1 Fuel Economy vs. Fuel Cost of DrivingDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

144

Because of the potential for consumers to misunders tand this MPG/cost relationship, commenters on the 2006 labeling rule universally ag reed that any change to the label metric should involve a significant public educatio n campaign directed toward both

dealers and consumers.

In 2006, EPA did not include a consumption-based metric on t he redesigned fuel economy label in 2006

, due to It was concern ed s about potential confusion associated with introducing a second metric on the label (MPG is a required element, as noted above). EPA has developed an interactive feature o n www.fueleconomy.gov which allows consumers, while viewing data on a specific vehicle, to switch units between the MPG and gallons per 100 miles metrics. The tool al so displays the cost and the amount

of fuel needed to drive 25 miles. As indicated abov e, however, EPA is alert to the problems with the MPG measure and the importance of providing consumers with a clear sense of the consequences of their purchasing decis ions; a gallon-per mile measure would have significant advantages. EPA plans to seek comment and engage in extensive publi c debate about fuel consumption and other appropriate consumer information metrics as part of a new labeling rule initiative. EPA also we lcomes comments on this topic in response to this GHG proposal.

d. Labeling for Advanced Technology Vehicles

Even though a fuel consumption metric may more dir ectly represent likely fuel costs than a fuel economy metric, any expression th at uses gallons – whether miles per gallon or gallons per mile – is not a useful metric for vehicles that have limited to no operation on liquid fuel (e.g., electricity or comp ressed natural gas). For example, PHEVs and extended range electric vehicles (EREVs) can use two types of energy sources: (1) an onboard battery, charged by pluggin g the vehicle into the electrical grid via a conventional wall outlet, to power an electri c motor, as well as (2) a gas or dieselpowered engine to propel the vehicle or power a gen erator used to provide electricity to the electric motor. Depending on how these vehicle s are operated, they can use electricity exclusively, never use electricity and operate like a conventional hybrid, or operate in some combination of these two modes. Th e use of a MPG figure alone would not account for the electricity used to propel the vehicle.

EPA has worked closely with numerous stakeholders i ncluding vehicle manufacturers, the Society of Automotive Engineers (SAE), the State of California, the Department of Energy (DOE) and others to develop po ssible approaches for both estimating fuel economy and labeling vehicles that can operate using more than one

energy source. At the present time, EPA believes the appropriate method for estimating fuel economy of PHEVs and EREVs would be a weighted average of fuel economy for the two modes of operation. A methodology develope d by SAE and DOE to predict the

fractions of total distance driven in each mode of operation (electricity and gas) uses a term known as a utility factor (UF). By using a ut ility factor, it is possible to determine a weighted average for fuel economy of the electric a nd gasoline modes. For example, aDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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UF of 0.8 would indicate that a PHEV or EREV operat es in an all electric mode 80% of the time and uses the gasoline engine the other 20% of the time. In this example, the weighted average fuel economy value would be influe nced more by the electrical operation than the gasoline operation.

Under this approach, a UF could be assigned to each successive fuel economy test until the battery charge was depleted and the PHEV or EREV needed power from the gasoline engine to propel the vehicle or to recharg e the battery. One minus the sum of all the utility factors would then represent the fracti on of driving performed in this “gasoline mode.” Fuel economy could then be expressed as:

Likewise, the electrical consumption would be expre ssed by adding the fuel consumption from each mode. Since there is no elec trical consumption in hybrid mode, the equation for electricity consumption would be a s follows:

Utility factors could be cycle specific not only du e to different battery ranges on different test cycles but also due to the fact that “highway” type driving may imply longer trips than urban driving. That is to say that the averag e city trip could be shorter than the average highway trip.

e. Request for Comments

EPA is interested in comments on both topics raised in this section. For the methodology, we are interested in comments addressi ng how the utility factor is

calculated and which data should be used in establi shing the UF. Additionally, commenters should address: the appropriateness of t his approach for estimating fuel economy for PHEVs and EREVs, including the concept of using a UF to determine the fuel economy for vehicles operated in multiple mode s; the appropriate form and value of the factor, including the type of data that would b e necessary to confidently develop it accurately; and availability of other potential met hodologies for determining fuel economy for vehicles that can operate in multiple m odes, such as “all electric” and “hybrid,” including the use of fuel consumption, co st, or other metrics in addition to miles per gallons.

EPA is also requesting comment on how the agency ca n satisfy statutory labeling requirements while providing relevant information t o consumers. For example, the statute indicates that EPA may provide other relate d items on the label beyond those that are required. 85 EPA is interested in receiving comments on the po tential approaches and

85 49 USC3290(b) (F) gasoline i

i i MPG



### FE UF

FE UF FE 

# ∑ ∑ − + = 1

1



# ∑ × = i

i miles Kwhr 

### FC

UF FC 100

/Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

146

supporting data we might consider for adding additi onal information regarding fuel economics while maintaining our statutory obligatio n to report MPG on the label.

There are a number of

two different metrics that are available that could be useful in this regard . Two possible options would be to show , namely sh owing consumption in fuel use per distance (e.g., gallons/100 mile s) or or in cost per / distance (e.g., $/100 miles). As discussed above, these two metrics have benefits over a straight mpg value in showing a more direct relationship between fuel con sumption and cost. The cost/distance metric has an added potential benefit of providing a common basis for compari ng son between differently-fueled or powered vehicles, for exampl e being able to show the cost of gasoline used over a specified distance or time for a conventional gasoline-powered vehicle in comparison to the gasoline and electrici ty used over the same period for a plug-in hybrid vehicle. A total annual energy cost would be another way to look at this

data information, and is currently used on the fuel econ omy label. . As is currently done,

EPA would need to determine and show a common set o f fuel costs used to calculate such values, recognizing that energy costs vary acr oss the country.

The Agency is also interested in comments on the us efulness of adding other types of information, such as an estimated driving range for electric vehicles. The label design is also an important issue to consider and a ny changes to the existing label would need to show information in a technologically accur ate, meaningful and understandable manner, while ensuring that the label does not beco me overcrowded and difficult for consumers to comprehend. EPA is also interested in what and how other information paths, such as web-based programs, could be used to enhance the consumer education

process.

12. Fuel Economy Labeling for Advanced Technologies

In February, 2009, EPA developed and disseminated a n issue paper addressing a potential approach to the labeling methodology for advanced technology vehicles. The

paper, titled “Fuel Economy Labeling for Advanced Technolo gies,” 86 included significant input from various stakeholders and hig hlighted some of the challenges of applying the statutory and regulatory requirements of fuel economy labeling to advanced technology vehicles that no longer rely exclusively on interna l combustion engines for the purposes of propulsion.. Since sharing this pa per, EPA has continued to develop methodologies discussed in the paper through close collaboration with numerous

stakeholders inc luding vehicle manufacturers, the Society of Automo tive Engineers (SAE), the State of California, the Department of E nergy (DOE) and others.

The issue paper discusses methods for expressing fu el economy for various modes of operation, such as “all elec tric,” “hybrid,” and a combination of these modes. A detailed presentation of the issue paper methodolog y discussion can be found in the Technical Support Document Section XXXX . As mentioned above, EPA has worked closely with numerous stakeholders in deve loping the methods discussed in the paper.

86 See Docket number EPA-HQ-OAR-2009-0472.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

147

For the case of a combination of modes of operation , the method discussed in the paper is very similar to the methodology developed by SAE as part of the SAE J1711 protocol. The J1711 methodology averages the fu el economy from the “all electric” and “hybrid” modes using a utility factor as a means for weighti ng the percentage of operation in the two modes for the typical driver.

EPA requests comments on the “Fuel Economy Labeling for Advanced Technologies” issue paper. EPA would like comments on the methodologie s discussed for the various modes of operation, including the u se of the SAE J1711 methodology that incorporates a utility factor to determine the fuel economy for vehicles operated in multiple modes. EP A also seeks comments on the concept of using a uti lity factor, including what the appropriate form and value of th e factor should be. Finally, EPA requests comments on other potential methodologies for determining fuel economy for vehicles that can opera te in multiple modes, such as “all electric” and “h ybrid,” including the use of fuel consumption, cost, or other metrics in addition to miles per gallons.

F. How Would This Proposal Reduce GHG Emissions and Their

Associated Effects?

This action is an important step towards curbing st eady growth of GHG emissions from cars and light trucks. In the absence of cont rol, GHG emissions worldwide and in the U.S. are projected to continue steady growth; T able III.F-1 shows emissions of CO 2 , methane, nitrous oxide and air conditioning refrige rants on a CO 2 -equivalent basis for calendar years 2010, 2020, 2030, 2040 and 2050. U. S. GHGs are estimated to make up roughly 15 percent of total worldwide emissions, an d the contribution of direct emissions from cars and light-trucks to this U.S. share is gr owing over time, reaching an estimated 20 percent of U.S. emissions by 2030 in the absence of control. As discussed later in this section, this steady rise in GHG emissions is assoc iated 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 Calen dar 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 1,359 1,332 1,516 1,828 2,261

a ADAGE model projections, U.S. EPA 87

b MOVES(2010), OMEGA Model (2020-50) U.S. EPA. See DRIA Chapter 5.3 for modeling details.

EPA’s proposed GHG rule, if finalized, will result in significant reductions as newer, cleaner vehicles come into the fleet, and th e rule is estimated to have a measurable

87 U.S. EPA (2009). “EPA Analysis of the American Cle an 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/economicanalys es.html)Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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impact on world global temperatures. As discussed in Section I, this GHG proposal is part of a joint National Program such that a large majority of the projected benefits would be achieved jointly with NHTSA’s proposed CAFE stan dards which are described in detail in Section IV of this preamble. EPA estimate s the reductions attributable to the GHG program over time assuming the proposed 2016 st andards continue indefinitely post-2016, 88 compared to a baseline scenario in which the 2011 model year fuel economy standards continue beyond 2011.

Using this approach EPA estimates these standards w ould cut annual fleetwide car and light truck tailpipe CO 2 emissions 21 percent by 2030, when 90 percent of c ar and light truck miles will be travelled by vehicles meeting the new standards. Roughly 20 percent of these reductions are due to emission reductions from gasoline extraction, production and distribution processes as a result o f reduced gasoline demand associated with this proposal. Some of the overall emission r eductions also come from projected improvements in the efficiency of vehicle air condi tioning systems, which will substantially 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 conditioning. In total, EPA estimate s that compared to a baseline of indefinite 2011 model year standards, net GHG emiss ion reductions from the proposed program would be 325 million metric tons CO 2 -equivalent (MMTCO 2 eq) annually by 2030, 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 e mission reductions, vehicle tailpipe emission reductions including air conditioning bene fits, as well as increased vehicle miles travelled (VMT) due to the "rebound" effect discuss ed in Section III.H. EPA estimates this would be the equivalent of removing nearly 60 million cars and light trucks from the

road in this timeframe.

EPA projects the total reduction of the program ove r the full life of model year

2012-2016 vehicles is about 950 MMTCO 2 eq, with fuel savings of 76 billion gallons (1.8 billion barrels) of gasoline over the life of these vehicles, assuming that some manufacturers take advantage of low-cost HFC reduct ion strategies to help meet these proposed standards.

These reductions are projected to reduce global mea n temperature by approximately 0.007-0.016 ° C by 2100 and global mean sea

- level sea level rise is projected to be reduced by approximately 0.06-0.15 cm by 2100.

1. Impact on GHG Emissions

a. Calendar Year Reductions Due to GHG Standards

88 This analysis does not include the EISA requiremen t for 35 MPG through 2020 or California’s Pavley 1 GHG standards. The proposed standards are intended to supersede these requirements, and the baseline case for comparison are the emissions that would re sult without further action above the currently promulgated fuel economy standards.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

149

This action, if finalized, will reduce GHG emissio ns emitted 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 reductions in the emissions associated with the pro cesses involved in getting petroleum to the pump, including the extraction and transportati on of crude oil, and the production and distribution of finished gasoline (termed “upstream ” emissions). Reductions from tailpipe GHG standards grow over time as the fleet turns over to vehicles affected by 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 these proposed emission caps, which are meant to prevent emission backsliding and to bring diesel vehicles equipped with advanced techno logy aftertreatment into alignment with current gasoline vehicle emissions.

As detailed in the DRIA, EPA estimated calendar ye ar tailpipe CO 2 reductions based on pre- and post-control CO 2 gram per mile levels from EPA’s OMEGA model and assumed to continue indefinitely into the future, c oupled with VMT projections from

AEO2009. These estimates reflect the real-world C O 2 emissions reductions projected for the entire U.S. vehicle fleet in a specified ca lendar year, including the projected effect of air conditioning credits, TLAASP credits 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 projecte d vehicle sales and lifetime mileage estimates. These estimates reflect the re al-world CO 2 emissions reductions projected for model years 2012 through 2016 vehicle s over their entire life.

This proposal would allow manufacturers to earn cre dits for improved vehicle air conditioning efficiency. Since these improvements are relatively low cost, EPA projects that manufacturers will take advantage of this flex ibility, leading to reductions from emissions associated with vehicle air conditioning systems. As explained above, these

reductions will come from both direct emissions of air conditioning refrigerant 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 40 percent from light-duty vehicles

when the fleet has turned over to more efficient ve hicles. The fuel savings derived from lower tailpipe CO 2 would also lead to reductions in upstream emission s. Our estimated reductions from the A/C credits program are based o n our analysis of how manufacturers are expected to take advantage of this credit oppor tunity in complying with the CO 2 fleetwide average tailpipe standards.

Upstream emission reductions associated with the pr oduction and distribution of fuel were estimated using emission factors from DOE ’s GREET1.8 model, with some

modifications as detailed in the DRIA. These estim ates include both international and domestic emission reductions, since reductions in f oreign exports of finished gasoline and/or crude would make up a significant share of t he fuel savings resulting from the proposed GHG standards. Thus, significant portions of the upstream GHG emissionDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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reductions will occur outside of the U.S.; a breakd own of projected international versus

domestic reductions is included in the DRIA.

Table III.F.1-1 shows reductions estimated from th ese proposed GHG standards assuming a pre-control case of 2011 MY standards co ntinuing indefinitely beyond 2011, and a post-control case in which 2016 MY standards continue indefinitely beyond 2016. These reductions are broken down by upstream and do wnstream components, including air conditioning improvements, and also account for the offset from a 10 percent VMT

“rebound” effect as discussed in Section III.H. In cluding the reductions from upstream emissions, total reductions are estimated to reach 325 MMTCO 2 eq annually by 2030 (a 21 percent reduction in U.S. car and light truck em issions), and grow to over 500

MMTCO 2 eq in 2050 as cleaner vehicles continue to come int o the fleet (a 23 percent reduction in U.S. car and light truck emissions).

Table III.F.1-1 Projected Net GHG Reductions ( MMTCO 2 Eq per year )

Calendar Year: 2020 2030 2040 2050

Net Reduction Due to Tailpipe Standards * 165.2 324.6 417.5 518.5

Tailpipe Standards 107.7 211.4 274.1 344.0

A/C – indirect CO 2 11.0 21.1 27.3 34.2

A/C – direct HFCs 13.5 27.2 32.1 34.9

Upstream 33.1 64.9 84.1 105.5

Percent reduction relative to U.S. reference (cars + light

trucks) 12.4% 21.4% 22.8% 22.9%

Percent reduction relative to U.S. reference (all sectors) 2.2% 4.2% 5.2% 6.2%

Percent reduction relative to

worldwide reference 0.3% 0.6% 0.7% 0.9%

* includes impacts of 10% VMT rebound rate presente d 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 proposal. 89 These results, including both upstream and downstream GHG contributions, are presented in Table III.F.1-2, showing lifetime reductions of nearly 950 MMTCO 2 eq, with fuel savings of 76 billion gallons (1.8 bi llion barrels) of gasoline.

Table III.F.1-2 Projected Net GHG Reductions ( MMTCO 2 Eq per year )

Model Year Lifetime GHG Lifetime Fuel

89 As detailed in the DRIA, for this analysis the ful l life of the vehicle is represented by average lif etime mileages for cars (190,000 miles) and trucks (221,0 00 miles) averaged over calendar years 2012 through 2030, a function of how far vehicles drive per year and scrappage rates. Formatted TableDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

151 Reduction (MMT CO 2 EQ) Savings (Billion Gallons)

2012 81.4 6.6

2013 125.0 10.0

2014 174.1 13.9

2015 243.2 19.5

2016 323.6 26.3 Total Program Benefit 947.4 76.2

c. Impacts of VMT Rebound Effect

As noted above and discussed more fully in Section III.H., the effect of fuel cost on VMT (“rebound”) was accounted for in our assessm ent of economic and environmental impacts of this proposed 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 26.4

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 proposed vehicle GHG standards are attributed solely to this rebound

effect.

As discussed in Section III.H, EPA will be reassess ing the appropriate rate of VMT rebound for the final rule. Although EPA has n ot directly quantified the GHG emissions effect of using a lower rebound rate for this analysis, lowering the rebound rate

would reduce the emission increases in Tables III.F .1-1 and III.F.1-2 in proportion (i.e., zero rebound equals zero emissions effect), and, th us, would increase our estimates of emission reductions due to these proposed standards

.

Table III.F.1-3 GHG Impact Of 10% VMT Rebound a

( MMTCO 2 Eq per year )

2020 2030 2040 2050

Total GHG Increase 13.6 26.4 34.2 42.9

Tailpipe & Indirect A/C CO 2 10.6 20.6 26.6 33.4

Upstream GHGs b 2.95 5.74 7.43 9.32

Tailpipe N

2 O 0.040 0.085 0.113 0.142

Tailpipe CH

4 0.008 0.016 0.021 0.027

a These impacts are included in the reductions show n in Table III.F.1-1 and III.F.1-2.

b Upstream rebound impact calculated as upstream to tal CO 2 effect times ratio of downstream tailpipe

rebound CO 2 effect to downstream tailpipe total CO 2 effect.

d. Analysis of AlternativesDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

152 EPA analyzed two alternative scenarios, including 4 % and 6% annual increases in 2 cycle (CAFE) fuel economy. In addition to this a nnual increase, EPA assumed that manufacturers would use air conditioning improvemen ts in identical penetrations as in the primary scenario. Under these assumptions, EPA expects achieved fleetwide average emission levels of 254 g/mile CO 2 EQ (4%), and 230 g/mile CO 2 EQ (6%) in 2016.

As in the primary scenario, EPA assumed that the fl eet complied with the standards. For full details on modeling assumption s, please refer to DRIA Chapter 5.

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 165.2 324.6 417.5 518.5

4% 152.8 305.9 394.1 489.3

6% 213.8 423.3 545.6 679.3
Fuel Savings (Billion Gallons

Gasoline Equivalent) Primary 13.4 26.2 33.9 42.6

4% 12.2 24.5 31.8 39.9

6% 17.8 35.1 45.5 57.1

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 81.4 125.0 174.1 243.2 323.6 947.4

4% 41.8 93.5 160.8 231.0 305.2 832.3

6% 60.2 146.4 239.9 333.3 424.9 1,204.7
Fuel Savings (Billion Gallons

Gasoline Equivalent) Primary 6.6 10.0 13.9 19.5 26.3 76.2

4% 3.1 7.2 12.7 18.4 24.7 66.1

6% 4.7 11.9 19.7 27.4 35.2 99.0

2. Overview of Climate Change Impacts from GHG Emi ssions

Once emitted, greenhouse gases (GHG) can remain 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 climate are long lasting. Greenhouse gas emissions come mainly from the combustion of fossil fuels (coal, oil, and gas), with additional contributions from the clearing of forests and agricultural activities.

This section, a summary of key findings from the Technical Support Document (TSD) for EPA’s Proposed Endangerment and Cause or Contribute Findings Under the

Clean Air Act 90

, reviews observed and projected changes in climate based on current and projected atmospheric GHG concentrations and emissi ons, as well as the related impacts and risks from climate change that are projected in the absence of GHG mitigation

90 See Federal Register /Vol.74, No.78/Friday, April 24, 2009/Proposed Rules; also Docket Number EPAHQ-OAR-2009-0171; FRL-8895-5Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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actions, including this proposal and other U.S. and global actions. As this section only presents summary information, please refer to the T SD itself for a fuller discussion.

The proposed Endangerment TSD – the source document for this section – synthesizes major findings from the best available scientific a ssessments that have gone through rigorous and transparent peer review. The proposed Endangerment TSD therefore relies most heavily on the major assessment reports of bot h the Intergovernmental Panel on Climate Change (IPCC) and the U.S. Global Change Re search Program (USGCRP, formerly referred to as the U.S. Climate Change Sci ence Program). The IPCC and USGCRP assessments base their findings on the large body of many individual, peer reviewed studies in the literature, and then the IP CC and USGCRP assessments themselves go through a transparent peer-reviewed p rocess. The proposed Endangerment TSD was in turn reviewed by a dozen federal governm ent scientists who have contributed significantly to the body of climate change literat ure. The information in the proposed Endangerment TSD has therefore been developed and p repared in a manner that is

consistent with EPA’s Guidelines for Ensuring and Maximizing the Quality, Objectivity, Utility and Integrity of Information Disseminated b y the Environmental Protection

This sectio n is a summary of observed and projected changes in climate based on current and projected atmospheric GHG concentration s and emissions as well as the related impacts and risks from climate change that are projected in the absence of GHG mitigation actions , including this proposal and other U.S. and global actions. These highlights are condensed from a longer and broader discussion in EPA’s proposed Endangerment and Cause or Contribute Findings for G reenhouse Gases under Section 202(a) of the Clean Air Act and the accompanying Technical Support Document (TSD). 91 The TSD synthesizes major findings from the best av ailable scientific

assessments of the scientific literature that have gone through rigorous and transparent peer review, including the major assessm ent reports of both the Intergovernmental Panel on Climate Change (IPCC) and the U.S. Climate Chang e Science Program (CCSP). In addition, this section includes information from th e recent report by the Global Change Research Program (formerly CCSP), Globa l Climate Change Impacts in the United States (2009).

a. Changes in Atmospheric Concentrations of GHGs f rom Global and U.S.

Emissions

Concentrations of six key GHGs (carbon dioxide, met hane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hex afluoride) are at unprecedented levels compared to the recent and distant past. Th e global atmospheric CO 2 concentration has increased about 38% from pre-indu strial levels to 2009, and almost all of the increase is due to anthropogenic emissions.

91 See Federal Register /Vol.74, No.78/Friday, April 24, 2009/Proposed Rules; also Docket Number EPAHQ-OAR-2009-0171; FRL-8895-5Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

154 Based on data from the most recent Inventory of U.S . Greenhouse Gas Emissions and Sinks (2008) 92 , total U.S. GHG emissions increased by 905.9 terag rams of CO 2 - equivalent (Tg CO 2 Eq), or 14.7%, between 1990 and 2006. U.S. transpo rtation sources subject to control under section 202(a) of the Clea n Air Act (passenger cars, light duty trucks, other trucks and buses, motorcycles, and co oling 93 ) emitted 1665 Tg CO 2 Eq in 2006, representing almost 24% of the total U.S. GHG emissions. Total global emissions, calculated by summing emissions of the six greenhou se gases by country, for 2005 was 38,725.9 Tg CO 2 Eq. This represents an increase of 26% from the 19 90 level. See Section 2 of the proposed Endangerment TSD for a mo re complete discussion of GHG

emissions and concentrations.

b. Observed Changes in Climate

i. Temperature

The warming of the climate system is unequivocal, a s is now evident from observations of increases in global air and ocean t emperatures, widespread melting of snow and ice, and rising global average sea level. The global average net effect of the increase in atmospheric GHG concentrations, plus ot her human activities (e.g., land use change and aerosol emissions), on the global energy balance since 1750 has been one of warming. The global mean surface temperature 94 over the last 100 years (1906-2005) has risen by about 0.74oC (1.5oF) +/- 0.18oC, and c limate model simulations suggest that natural variation alone (e.g., changes in solar irr adiance) cannot explain the observed warming. The rate of warming over the last 50 year s is almost double that over the last 100 years. Most of the observed increase in global mean surface temperature since the

mid-20 th century is very likely due to the observed increas e in anthropogenic GHG

concentrations.

It can be stated with confidence that global mean s urface temperature was higher during the last few decades of the 20 th century than during any comparable period during the preceding four centuries. Like global mean sur face temperatures, U.S. surface temperatures also warmed during the 20 th and into the 21 st century. U.S. average annual temperatures are now approximately 0.69oC (1.25oF) warmer than at the start of the 20 th
century, with an increased rate of warming over the past 30 years. Temperatures in winter have risen more than any other season, with winters in the Midwest and northern Great Plains increasing more than 7oF 95 . Some of these changes have been faster than previous assessments had suggested.

ii. Precipitation

92 U.S. EPA (2008) Inventory of U.S. Greenhouse Gas E missions and Sinks: 1990-2006. EPA-430-R-08- 005, Washington, DC.

93 Cooling refers to refrigerants/air conditioning fr om all transportation sources and is related to HFC s.

94 Surface temperature is calculated by processing da ta from thousands of world-wide observation sites o n land and sea.

95 Global Climate Change Impacts in the United States , Thomas R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.) Cambridge University Press, 2009Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

155 Observations show that changes are occurring in the amount, intensity, frequency and type of precipitation. Global, long-term trend s from 1900 to 2005 have been observed in the amount of precipitation over many l arge regions. Patterns in precipitation change are more spatially and seasonally variable t han temperature change, but where significant precipitation changes do occur they are consistent with measured changes in stream flow. Significantly increased precipitation has been observed in eastern parts of North and South America, northern Europe and northe rn and central Asia 9594 93 . More intense and longer droughts have been observed over wider areas since the 1970s, particularly in the tropics and subtropics. It is likely there has been an increase in heavy precipitation events (e.g., 95 th percentile) within many land regions, even in thos e where there has been a reduction in total precipitation a mount, consistent with a warming climate and observed significant increasing amounts of water vapor in the atmosphere. Rising temperatures have generally resulted in rain rather than snow in locations and seasons such as in northern and mountainous regions where the average (1961-1990) temperatures were close to 0oC. Over the contiguou s U.S., total annual precipitation increased at an average rate of 6.5% from 1901-2006 , with the greatest increases in precipitation in the East and Northcentral climate regions (11.2% per century).

iii. Extreme Events

Changes in climate extremes have been observed rela ted to temperature, precipitation, tropical cyclones, and sea level. I n the last 50 years, there have been widespread changes in extreme temperatures observed across the globe. For example, cold days, cold nights, and frost have become less frequent, while hot days, hot nights, and heat waves have become more frequent. Globally , a reduction in the number of daily

cold extremes has been observed in 70 to 75% of the land regions where data is available. Cold nights (lowest or coldest 10% of nights, based on the period 1961-1990) have become rarer over the last 50 years.

Observational evidence indicates an increase in int ense tropical cyclone (i.e., tropical storms and/or hurricanes) activity in the North Atlantic. Since about 1970, increases in cyclone developments that affect the U .S. East and Gulf Coasts have been correlated with increases of tropical sea surface t emperatures In the contiguous U.S., studies find statistically significant increases in heavy precipitation (the heaviest 5%) and very heavy precipitation (the heaviest 1%) of 14 an d 20%, respectively. Much of this increase occurred during the last three decades of the 20 th century and is most apparent over the eastern parts of the country. Trends in d rought also have strong regional variations. In much of the Southeast and large par ts of the western U.S., the frequency of drought has increased coincident with rising temper atures over the past 50 years. Although there has been an overall increase in prec ipitation and no clear trend in drought for the nation as a whole, increasing temperatures have made droughts more severe and widespread than they would have otherwise been.

iv. Physical and Biological Changes Field Code ChangedDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

156 Observations show that climate change is currently affecting U.S. physical and biological systems in significant ways. Observation s of the cryosphere (the “frozen” component of the climate system) have revealed chan ges in sea ice, glaciers and snow cover, freezing and thawing, and permafrost. Satel lite data since 1978 show that annual average Arctic sea ice extent has shrunk by 2.7% (+ /- 0.6%) per decade, with larger decreases in summer. Subtropical and tropical cora ls in shallow waters have already suffered major bleaching events that are primarily driven by increases in sea surface temperatures. Heat stress from warmer ocean water can cause corals to expel the microscopic algae that live inside them which are e ssential to their survival. Another stressor on coral populations is ocean acidificatio n which occurs as CO 2 is absorbed from the atmosphere by the oceans. About one-third of t he carbon dioxide emitted by human activities has been absorbed by the ocean, resultin g in a decrease in the ocean’s pH. A lower pH affects the ability of living things to cr eate and maintain shells or skeletons of calcium carbonate. Other documented bio-physical i mpacts include a significant lengthening of the growing season and increase in n et primary productivity 96 in higher latitudes of North America. Over the last 19 years , global satellite data indicate an earlier onset of spring across the temperate latitudes by 1 0 to 14 days. See Section 4 of the proposed Endangerment TSD for a more complete discu ssion and list of citations on observed changes in climate.

c. Projected Changes in Climate

Most future scenarios that assume no explicit GHG m itigation actions (beyond those already enacted) project increasing global GH G emissions over the century, with corresponding climbing GHG concentrations. Carbon dioxide is expected to remain the dominant anthropogenic GHG over the course of the 2 1 st century. The radiative forcing 97

associated with the non-CO 2 GHGs is still significant and increasing over time . As a result, warming over this century is projected to b e considerably greater than over the last century and climate related changes are expected to continue while new ones develop. Described below are projected changes in climate fo r the U.S.

i. Temperature

Future warming over the course of the 21 st century, even under scenarios of low emissions growth, is very likely to be greater than observed warming over the past century. The range of IPCC SRES scenarios provides a global warming range of 1.8oC to 4.0oC (3.2oF to 7.2oF) with an uncertainty range of 1.1oC to 6.4oC (2.0oF to 11.5oF). All of the U.S. is very likely to warm during this century , and most areas of the U.S. are expected to warm by more than the global average. The average warming in the U.S. through 2100 is projected by nearly all the models used in the IPCC assessment to exceed 2oC (3.6oF) for all scenarios, with 5 out of 21 mod els projecting average warming in

96 Net primary productivity is the rate at which an e cosystem accumulates energy or biomass, excluding t he energy it uses for the process of respiration

97 Radiative forcing is a measure of the change that a factor causes in altering the balance of incoming (solar) and outgoing (infrared and reflected shortw ave) energy in the Earth-atmosphere system and thus shows the relative importance of different factors in terms of their contribution to climate change.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

157

excess of 4oC (7.2oF) for the mid-range emissions s cenario. The number of days with high temperatures above 90oF is projected to increa se throughout the U.S. Temperature increases in the next couple of decades will be pri marily determined by past emissions of heat-trapping gases. As a result, there is less di fference in projected temperature scenarios in the near-term (around 2020) than in th e middle (2050) and end of the century, which will be determined more by future em issions.

ii. Precipitation

Increases in the amount of precipitation are very l ikely in higher latitudes, while decreases are likely in most subtropical latitudes and the southwestern U.S., continuing observed patterns. The mid-continental area is exp ected to experience drying during the summer, indicating a greater risk of drought. Clim ate models project continued increases in the heaviest downpours during this century, whil e the lightest precipitation is projected to decrease. With more intense precipitation expec ted to increase, the risk of flooding and greater runoff and erosion will also increase. In contrast, droughts are likely to become more frequent and severe in some regions. T he Southwest, in particular, is expected to experience increasing drought as change s in atmospheric circulation patterns cause the dry zone just outside the tropics to expa nd farther northward into the United

States.

iii. Extreme Events

It is likely that hurricanes will become more inten se, especially along the Gulf and Atlantic coasts, with stronger peak winds and more heavy precipitation associated with ongoing increases of tropical sea surface temperatu res. Heavy rainfall events are expected to increase, increasing the risk of floodi ng, greater runoff and erosion, and thus the potential for adverse water quality effects. T hese projected trends can increase the number of people at risk from suffering disease and injury due to floods, storms, droughts, and fires. Severe heat waves are projec ted to intensify, which can increase heat-related mortality and sickness.

iv. Physical and Biological Changes

IPCC projects a six-inch to two-foot rise in sea le vel during the 21 st century from processes such as thermal expansion of sea water an d the melting of land-based polar ice sheets. Ocean acidification is projected to continu e, resulting in the reduced biological production of marine calcifiers, including corals. In addition to ocean acidification, coastal waters are very likely to continue to warm by as much as 4 to 8oF in this century,

both in summer and winter. This will result in a n orthward shift in the geographic distribution of marine life along the coasts. Warm er ocean temperatures will also contribute to increased coral bleaching. See Section 6 of the proposed Endangerment TSD for a more complete discussion and list of cita tions on observed changes in climate.

d. Key Climate Change Impacts and RisksDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

158 The effects of climate changes observed to date and /or projected to occur in the future include: more frequent and intense heat wave s, more wildfires, degraded air quality, more heavy downpours and flooding, increas ed drought, greater sea level rise, more intense storms, water quantity and quality pro blems, and negative impacts to human health, water supply, agriculture, forestry, coasta l areas, wildlife and ecosystems, and many other aspects of society and the natural envir onment.

i. Human Health

Warm temperatures and extreme weather already cause and contribute to adverse human health outcomes through heat-related mortalit y and morbidity, storm-related fatalities and injuries, and disease. In the absen ce of effective adaptation, these effects are likely to increase with climate change. Health effects related to climate change include increased deaths, injuries, infectious dise ases, and stress-related disorders and other adverse effects associated with social disrup tion and migration from more frequent extreme weather. Severe heat waves are projected t o intensify in magnitude and duration over the portions of the U.S. where these events al ready occur, with potential increases in mortality and morbidity, especially among the elder ly, young and other sensitive populations. However, reduced human mortality from cold exposure is projected through 2100. It is not clear whether reduced mortality fr om cold will be greater or less than increased heat-related mortality, especially among the elderly, young and frail. Public health effects from climate change will likely disp roportionately impact the health of certain segments of the population, such as the poo r, the very young, the elderly, those already in poor health, the disabled, those living alone and/or indigenous populations dependent on one or a few resources. Increases are expected in potential ranges and exposure of certain diseases affected by temperatur e and precipitation changes, including vector and waterborne diseases (i.e., malaria, deng ue fever, West Nile virus). See Section 7 of the proposed Endangerment TSD for a mo re complete discussion and list of citations regarding climate science and impacts to human health.

ii. Air Quality

Climate change can be expected to influence the con centration and distribution of air pollutants through a variety of direct and indi rect processes, including the modification of biogenic emissions, the change of c hemical reaction rates, wash-out of pollutants by precipitation, and modification of we ather patterns that influence pollutant build-up. Higher temperatures and weaker circulati on patterns associated with climate change are expected to worsen regional ozone pollut ion in the U.S., with associated risks in respiratory infection, aggravation of asthma, an d premature death. In addition to human health effects, elevated levels of tropospher ic ozone have significant adverse effects on crop yields, pasture and forest growth, and species composition. See Section 8 of the proposed Endangerment TSD for a more complet e discussion and list of citations regarding human health impacts resulting from clima te change effects on air quality.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

159 iii. Food and Agriculture

The Climate Change Science Program (CCSP) concluded that, with increased

CO 2 and temperature, the life cycle of grain and oilse ed crops will likely progress more rapidly. But, as temperature rises, these crops wi ll increasingly begin to experience failure, especially if climate variability increase s and precipitation lessens or becomes more variable. Furthermore, the marketable yield o f many horticultural crops (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 liv estock production during the summer season, but these losses will ver y likely be partially offset by warmer temperatures during the winter season. Cold water fisheries will likely be negatively affected; warm-water fisheries will generally benef it; and the results for cool-water fisheries will be mixed, with gains in the northern and losses in the southern portions of ranges. See Section 9 of the proposed Endangerment TSD for a more complete discussion and list of citations regarding climate science and impacts to food production and agriculture.

iv. Forestry

Climate change has very likely increased the size a nd number of forest fires, insect outbreaks, and tree mortality in the interio r west, the Southwest, and Alaska, and

will continue to do so. Disturbances like wildfire and insect outbreaks are increasing and are likely to intensify in a warmer future with dri er soils and longer growing seasons. Although recent climate trends have increased veget ation growth, continuing increases in disturbances are likely to limit carbon storage, fa cilitate invasive species, and disrupt ecosystem services Overall forest growth for North America as a whole will likely increase modestly (10-20%) as a result of extended growing seasons and elevated CO 2 over the next century, but with important spatial a nd temporal variation. Forest G g rowth is slowing in areas subject to drought and has been subject to significant loss due insect infestations such as the spruce bark beetle in Alas ka. See Section 10 of the proposed Endangerment TSD for a more complete discussion and list of citations regarding climate science and impacts to forestry.

v. Water Resources

The vulnerability of freshwater resources in the Un ited States to climate change varies from region to region. Climate change will likely further constrain already overallocated water resources in some sections of the U .S., increasing competition among agricultural, municipal, industrial, and ecological uses. Although water management practices in the U.S. are generally advanced, parti cularly in the western U.S climate change may increasingly create conditions well outs ide of historic observations impacting managed water systems. Rising temperatures will di minish snowpack and increase evaporation, affecting seasonal availability of wat er. Groundwater systems generally respond more slowly to climate change than surface water systems. In semi-arid and aridDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

160

areas, groundwater resources are particularly vulne rable because of precipitation and stream flow are concentrated over a few months, yea r-to-year variability is high, and deep groundwater wells or reservoirs generally do n ot exist. Availability of groundwater is likely to be influenced by changes in withdrawal s (reflecting development, demand, and availability of other sources).

In the Great Lakes and major river systems, lower l evels are likely to exacerbate challenges relating to water quality, navigation, r ecreation, hydropower generation, water transfers, and bi-national relationships. Decrease d water supply and lower water levels are likely to exacerbate challenges relating to aqu atic navigation. Higher water temperatures, increased precipitation intensity, an d longer periods of low flows will exacerbate many forms of water pollution, potential ly 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. See Section 11 of the proposed Endangerment TSD for a more comp lete discussion and list of citations regarding climate science and impacts to water resources.

vi. Sea Level Rise and Coastal Areas

Warmer temperatures raise sea level by expanding oc ean water, melting glaciers, and possibly increasing the rate at which ice sheet s discharge ice and water into the oceans. Rising sea level and the potential for str onger storms pose an increasing threat to coastal cities, residential communities, infrastruc ture, beaches, wetlands, and ecosystems. Coastal communities and habitats will be increasing ly stressed by climate change effects interacting with development and pollution. Sea le vel is rising along much of the U.S. coast, and the rate of change will increase in the future, exacerbating the impacts of progressive inundation, storm-surge flooding, and s horeline erosion. Studies find 75% of the shoreline removed from the influence of spits, tidal inlets and engineering structures is eroding along the U.S. East Coast probably due t o sea level rise. Storm impacts are likely to be more severe, especially along the Gulf and Atlantic coasts. Salt marshes, estuaries, other coastal habitats, and dependent sp ecies will be further threatened by sea

level sea level rise. The interaction with coastal zone developme nt and climate change

effects such as sea

- level sea level rise will further stress coastal communities and h abitats. Population growth and rising value of infrastructur e in coastal areas increases vulnerability and risk of climate variability and f uture climate change. Sea level rise and high rates of water withdrawal promote the intrusio n of saline water in to groundwater supplies, which adversely affects water quality. See Section 12 of the proposed Endangerment TSD for a more complete discussion and list of citations regarding climate science and impacts to sea level rise and coastal a reas.

vii. Energy, Infrastructure and SettlementsDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

161 Most of the effects of climate change on the U.S. e nergy sector will be related to energy use and production. The research evidence is relatively clear that climate warming will mean reductions in total U.S. heating requirem ents and increases in total cooling requirements for building. These changes will vary by region and by season and will affect household and business energy costs. Studie s project that temperature increases due to global warming are very likely to increase p eak demand for electricity in most regions of the country as rising temperatures are e xpected to increase energy requirements for cooling residential and commercial buildings. An increase in peak demand for electricity can lead to a disproportiona te increase in energy infrastructure

investment. Extreme weather events can threaten co astal energy infrastructures and electricity transmission and distribution in the U. S. Increases in hurricane intensity are likely to cause further disruptions to oil and gas operations in the Gulf, like those experienced in 2005 with Hurricane Katrina. Climat e change is likely to affect some renewable energy sources across the nation, such as hydropower production in regions subject to changing patterns of precipitation or sn owmelt. The U.S. energy sector, which relies heavily on water for both hydropower and coo ling capacity, may be adversely impacted by changes to water supply and quality in reservoirs and other water bodies.

Water infrastructure, including drinking water and wastewater treatment plants, and sewer and storm water management systems, will be at greater risk of flooding, sea

level sea level rise and storm surge, low flows, and other factors that could impair performance. In addition, as water supply is const rained and demand increases it will become more likely that water will have to be trans ported and moved which will require additional energy capacity. See Section 13 of the proposed Endangerment TSD for a more complete discussion and list of citations rega rding climate science and impacts to energy, infrastructure and settlements.

viii. Ecosystems and Wildlife

Disturbances such as wildfires and insect outbreaks are increasing in the U.S. and are likely to intensify in a warmer future with dri er soils and longer growing seasons. Although recent climate trends have increased veget ation growth, continuing increases in disturbances are likely to limit carbon storage, fa cilitate 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 re arrange U.S. ecosystems. Differential capacities for range shifts are constrained by deve lopment, habitat fragmentation, invasive species, and broken ecological connections . IPCC consequently predicts significant disruption of ecosystem structure, func tion, and services. See Section 14 of the proposed Endangerment TSD for a more complete d iscussion and list of citations regarding climate science and impacts to ecosystems and wildlife.

3. Changes in Global Mean Temperature and Sea Leve l Rise Associated with the Proposal’s GHG Emissions ReductionsDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

162 EPA examined the reductions in CO 2 and other GHGs associated with the proposal and analyzed the projected effects on glob al mean surface temperature and sea level, two common indicators of climate change. Th e analysis projects that the proposal will reduce climate warming and sea level rise. Al though the projected reductions are small in overall magnitude by themselves, they are quantifiable and would contribute to reducing climate change risks.

a. Estimated Projected Reductions in Global Mean Surface Temperatures

and Sea Level Rise

EPA estimated changes in the atmospheric CO 2 concentration, projected global mean surface temperature and sea

- level sea level rise to 2100 resulting from the emissions reductions in this proposal using the Model for the Assessment of Greenhouse Gas Induced Climate Change (MAGICC, version 5.3). This widely-used, peer reviewed modeling tool was also used to project temperature and sea

- level sea level rise under

different emissions scenarios in the Third and Four th Assessments of the Intergovernmental Panel on Climate Change (IPCC).

GHG emissions reductions from Section III.F.1a were applied as net reductions to a peer reviewed global reference case (or baseline) emissions scenario to generate an emissions scenario specific to this proposal. For the proposal scenario, all emissions reductions were assumed to begin in 2012, with zero emissions change in 2011 (from the reference case) followed by emissions linearly incr easing to equal the value supplied in Section III.F.1.a for 2020 and then continuing to 2 100. Details about the reference case scenario and how the emissions reductions were appl ied to generate the proposal scenario can be found in the DRIA Chapter 7.

The atmospheric CO 2 concentration, temperature

, incr ease and sea

- level rise

increases for both the reference case and the proposal emissi ons scenarios were computed using MAGICC. To compute the reductions in the atmospheric CO 2 concentrations as

well as in temperature and sea

- level sea level rise resulting from the proposal, the output from the proposal scenario was subtracted from an e xisting MiniCAM emission scenario. To capture some key uncertainties in the climate sy stem with the MAGICC model, changes in temperature and sea

- level rise were projected across the most current I PCC range for climate sensitivities which ranges from 1 .5°C to 6.0°C (representing the 90% confidence interval) 98 . 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 m odeling analysis can be found in the DRIA Chapter 7.4.

98 In IPCC reports, equilibrium climate sensitivity r efers to the equilibrium change in the annual mean global surface temperature following a doubling of the atmospheric equivalent carbon dioxide

concentration. The IPCC states that climate sensiti vity 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 substa ntially 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.ip cc.ch/Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

163 The results of this modeling show a small, but quantifiable, reduction s in the atmospheric CO 2 concentration, the projected global mean surface temperature and s ea level respectively as a result of resulting from this proposal (assuming it is finalized),

across all climate sensitivities. The atmospheric CO 2 concentration is projected to be reduced by approximately 2.9-3.2 parts per million (ppm), global mean temperature is projected to be reduced by approximately 0.007-0.01 6°C by 2100

, and global mean sea

level sea level rise is projected to be reduced by approximately 0 .06-0.15cm by 2100.

The reductions are small relative to the IPCC’s 210 0 “best estimates” for global mean temperature increases (1.8 – 4.0oC) and sea

- level sea level rise (0.20-0.59m) for all global GHG emissions sources for a range of emissions scen arios.

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 sma ll, these reductions would represent a

reduction in the adverse risks associated with clim ate change (though these risks were not formally estimated for this proposal) across all cl imate sensitivities.

4. Weight Reduction and Potential Safety Impacts

[NOTE – THIS SECTION DOES NOT YET REFLECT EDITS EPA WILL MAKE IN RESPONSE TO OMB COMMENT #1 FROM THE SEPTEMBER 4, 20 09 INTERAGENCY COMMENTS FROM OMB]

In this section, EPA will discuss the potential saf ety impacts of the proposed CO 2 standard. In the joint technology analysis, EPA an d NHTSA agree that automakers will reduce weight as one part of the industries’ strate gy for meeting the proposed standards. As shown in table III.D.6-3, of this Preamble, EPA is expecting that vehicle manufacturers will reduce the weight of their vehic les by 4% on average between 2011 and 2016 (NHTSA’s results are similar using the Vol pe model). The penetration and magnitude of these changes are consistent with the public announcements made by many manufacturers since early 2008 and are consistent w ith meetings that EPA has had with senior engineers and technical leadership at many o f the automotive companies during

2008 and 2009. This could be an underestimation o f what will actually occur in the industry as a number of automotive companies have a nnounced product plans for vehicle weight reduction exceeding this 4%.

EPA and NHTSA also project that automakers will no t reduce footprint in order to meet the proposed CO2 and CAFE standards. NHTSA and EPA have taken two measures to help ensure that the proposed rules pro vide no incentive for mass reduction to be accompanied by a corresponding decrease in th e size of the vehicle (with its concomitant decrease in crush and crumple zones). The first design feature of the proposed rule is that the CO 2 or fuel economy targets are based on the attribute of footprint (which is a surrogate for vehicle size). The second design feature is that the shape of the attribute footprint standard curve (or function) has been carefully chosen such that it neither encourages manufacturers to in crease, nor decrease the footprint ofDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

164

their fleet. Thus the standard curves are designed to be approximately “size neutral” within the sloped portion of the function. For fur ther discussion on this, refer to Section II.C of the preamble, or Chapter 2 of the joint TSD . Thus the agencies are assuming that the manufacturers are projected to decrease the ave rage mass of the vehicle fleet with no change in the average footprint in response to the proposed rule. 99

In Section IV of this preamble NHTSA presents a sa fety analysis of the proposed CAFE standards based on a 2003 NHTSA Study. As dis cussed in Section IV, the underlying data used for that analysis does not all ow NHTSA to analyze the specific impact of weight reduction at constant footprint, b ut rather that data set also includes weight reduction accomplished through vehicle downs izing. Therefore, the agencies are not able to definitively estimate the impact of the projected type of weight reduction we anticipate will occur do to the proposed standards. Thus, EPA will not attempt to quantify this relationship but rather will provide a qualitative discussion of the possible safety impacts that could be associated with the pr oposed standards.

In Section IV of this Preamble, NHTSA has quantifi ed the “worst case” scenario

that would occur if all of the weight reduction is due to vehicle do wnsizing (where downsizing includes the effects of size reduction, mass reduction and changes in structural integrity)

. The numbers in the NHTSA analyses predict the safet y consequences that would occur in the unlikely event that weight reduction for MYs 2012- 2016 is accomplished entirely by making the vehicle s smaller—that is, by reducing mass

and reducing footprint. EPA concurs with NHTSA that t he safety analysis conducted by NHTSA and presented in Section IV is a worst case a nalysis and we both agencies expect the actual impacts on vehicle safety will be much l ess. EPA and NHTSA are not able to quantify the lower-bound of the potential impacts a t this time.

Reducing vehicle mass without reducing the size of the vehicle or the structural integrity is technically feasible. Many of the technical opt ions for doing so are outlined in Chapter 3 of the joint TSD and in EPA’s DRIA. Weight reduc tion can be accomplished by the proven methods described below. Every manufacturer will employ a ll of these methodologies to some degree, the magnitude to whic h each will be used is dependent on opportunities within individual vehicle design such as:

.

• Material Substitution: Substitution of lower densi ty and/or higher strength materials in a manner that preserves or improves th e function of the component. This includes substitution of high-strength steels, aluminum, magnesium or composite materials for components currently fabric ated from mild steel (e.g., the magnesium-alloy front structure used on the 2009 Fo rd F150 pickups). Lightweight materials with acceptable energy absorption properties can maintain structural integrity and absorption of crash energy relative to previous designs while providing a net decrease in component weight.

• Smart Design: Computer aided engineering (CAE) too ls can be used to better optimize load paths within structures by reducing s tresses and bending moments without adversely affecting structural integrity. This allows better optimization of

99 See Chapter 1 of the joint TSD for a description o f potential footprint changes in the 2016 reference fleetDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

165 the sectional thicknesses of structural components to reduce mass while maintaining or improving the function of the compon ent. Smart designs also integrate separate parts in a manner that reduces m ass by combining functions or the reduced use of separate fasteners. In addition, some “body on frame” vehicles are redesigned with a lighter “unibody” constructio n with no compromise in vehicle functionality.

• Reduced Powertrain Requirements: Reducing vehicle w eight sufficiently allows for the use of a smaller, lighter and more efficien t engine while maintaining or increasing performance. Approximately half of the r eduction is due to these reduced powertrain output requirements from reduced engine power output and/or displacement, lighter weight transmission and final drive gear ratios. The subsequent reduced rotating mass (e.g. transmission , driveshafts/halfshafts, wheels and tires) via weight and/or size reduction of components are made possible by reduced torque output requirements.

• Mass Compounding: The compounded weight reductions of the body, engine and drivetrain reduce stresses on the suspension compon ents, steering components, brakes, allows further reductions in the weight of these subsystems. The reductions in weight for unsprung masses such as br akes, control arms, wheels and tires further reduce stresses in the suspension mounting points allowing still further reductions in weight. For example lightwei ghting allows for the reduction in the size of the vehicle brake system, while main taining the same stopping

distance.

Therefore, EPA believes i I t is both technically feasible to reduce weight wit hout reducing vehicle size, and we the EPA project s that manufacturers will use these approaches to do just that. We request comment on this assessment.

For this proposed rule, EPA ’s modeling analysis projects that weight reduction by model year 2016 on the order of 4% will occur, and that this weight reduction will be accomplished through efficient design and the use o f high-strength, light-weight materials. EPA believes that these changes in the fleet may have minimal to no adverse safety effects, but as discussed by NHTSA in Sectio n IV the agencies are not able to quantify a “best estimate” of the potential impacts . In addition, EPA is conducting a full scale air quality modeling and health impacts analy sis for the final rule. It is expected that the health benefits due to improved air qualit y will offset the “worst case” scenario analyzed by NHTSA in Section IV of this Preamble. EPA The agencies commit s to continue to analyze vehicle safety issues so a more informed evaluation can be made. We request comment on this issue, including data an d analysis which can allow EPA the agencies to more accurately quantify any potential safety co ncerns with the proposed standards. In summary, EPA believes that it is much more likely that the net safety impacts of the proposal will be much smaller than t he worse case scenario presented in Section IV by NHTSA, though we are not able to quan tify how low at this time.

G. How Would the Proposal Impact Non-GHG Emissions and Their

Associated Effects?Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

166 In addition to reducing the emissions of greenhouse gases, this proposal would influence the emissions of “criteria” air pollutant s and air toxics (i.e., hazardous air pollutants). The criteria air pollutants include c arbon 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, f ormaldehyde, acetaldehyde, and acrolein. Our estimates of these non-GHG emission impacts from the proposed program are shown by pollutant in Table II I.G-1 and Table III.G-2 in total, and broken down by the two drivers of these changes: a) “upstream” emission reductions due to decreased extraction, production and distributio n of motor gasoline; and b) “downstream” emission increases, reflecting the eff ects of VMT rebound (discussed in Sections III.F and III.H). Total program impacts o n 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 discussed in Chapter 5 of the DRIA, the impacts presented here are only from petroleum (i.e., EPA assumes that total volumes of ethanol and other renewable fuels will remain unchanged due to this program). Ethanol use was modeled at the volumes projected in AEO2007 for the reference and control case; thus no changes are projected in upstream emissions related to ethanol production and distribution. However, due to the decreased gasoline volume associated with this proposal, a greater market share of E10 is expected relative to E0, which would be expe cted to have some effect on fleetwide average non-GHG emission rates. This effect, which is likely small relative to the other effects considered here, has not been accounted for in the downstream emission modeling conducted for this proposal, but EPA does plan to a ddress it in the final rule air quality analysis, for which localized impacts could be more significant. A more comprehensive analysis of the impacts of different ethanol and ga soline volume scenarios is being prepared as part of EPA's RFS2 rulemaking package. 100

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, PM and SO

x , we estimate net reductions in criteria pollutant emissions because the emissions reductions from upstream sources are larg er than the emission increases due to additional driving (i.e., the "rebound effect). In the case of CO, we estimate slight emission increases, because there are relatively sm all reductions in upstream emissions, and thus the projected emission increases due to ad ditional driving are greater than the projected emission decreases due to reduced fuel pr oduction. EPA estimates that the proposed program would result in small changes for toxic emissions compared to total

U.S. inventories across all sectors. The CO increase is because gasoline fueled passenge r cars and light trucks contribute over 50 percent o f the total CO emissions in the U.S., whereas for other pollutants the contribution is le ss than 40 percent. Thus, for CO the increase from VMT rebound outweighs the upstream CO reductions. For all pollutants the overall impact of the program would be relative ly small compared to total U.S.

inventories across all sectors. In 2030 EPA estima tes the proposed program would

reduce these total NO X , PM and SO X inventories by 0.2 to 0.3 percent and reduce the

100 74 FR 24904. See also Docket EPA-HQ-OAR-2005-016 1.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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VOC inventory by 1.2 percent, while increasing the total national CO inventory by 0.4

percent.

As shown in Table III.G-2, EPA estimates that the p roposed program would result in small changes for toxic emissions compared to to tal U.S. inventories across all sectors. In 2030 EPA estimates the program would reduce tota l benzene and formaldehyde by 0.04 percent. Total acrolein, acetaldehyde, and 1, 3-butadiene would increase by 0.03 to 0.2 percent.

Other factors which may impact non-GHG emissions, 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 primary driver for these emissions, EPA expects the impact of this program t o be negligible on non-GHG emission rates per mile.

• The potential for increased market penetration of d iesel vehicles; because these

vehicles would be held to the same certification an d in-use standards for criteria pollutants as their gasoline counterparts, EPA expe cts their impact to be negligible on criteria pollutants and other non-GHG emissions.

• Early introduction of electric vehicles and plug-in hybrid electric vehicles, which would reduce criteria emissions in cases where they are able to certify to lower certification standards. It would also likely redu ce gaseous air toxics.

• Reduced refueling emissions due to less frequent re fueling events and reduced annual refueling volumes resulting from the GHG sta ndards.

• Increased hot soak evaporative emissions due to the likely increase in number of trips associated with VMT rebound modeled in this p roposal.

• Increased market share of E10 relative to E0 due to the decreased overall gasoline consumption of this proposal combined with an uncha nged fuel ethanol volume.

EPA invites comments on the possible contribution o f these factors to non-GHG

emissions.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

168 Table III.G-1 Annual Criteria Emission Impacts of P rogram (short tons)

Total Impacts Upstream Impacts Downstream Impacts

2020 2030 2020 2030 2020 2030

VOC -73,739 -142,347 -75,437 -147,841 1,698 5,494

% of total inventory -0.60% -1.2% -0.61% -1.2% 0.01% 0.05%

CO 70,614 227,832 -7,209 -14,107 77,823 241,939

% of total inventory 0.13% 0.38% -0.01% -0.02% 0.14% 0.40%

NO X -17,206 -27,726 -22,560 -43,286 5,354 15,560

% of total inventory -0.14% -0.2% -0.18% -0.36% 0.04% 0.13%

PM2.5 -2,856 -5,431 -3,075 -6,003 218 572

% of total inventory -0.08% -0.16% -0.09% -0.18% 0.01% 0.02%

SO X -16,307 -31,965 -13,804 -27,060 -2,503 -4,906

% of total inventory -0.18% -0.34%

- 0.16%

- 0.29% -0.03% -0.05%

Table III.G-2 Annual Air Toxic Emission Impacts of Program (short tons)

Total Impacts Upstream Impacts Downstream Impacts

2020 2030 2020 2030 2020 2030

1,3-Butadiene 11 37 -1.8 -3.4 13.2 40.2

% of total inventory 0.07% 0.22% -0.01% -0.02% 0.08% 0.24%

Acetaldehyde 17 61 -8 -15 24.8 75.5

% of total inventory 0.04% 0.13% -0.02% -0.03% 0.05% 0.17%

Acrolein 0 2 -1.1 -2.0 1.3 3.9

% of total inventory 0.00% 0.03% 0.0% 0.0% 0.02% 0.06%

Benzene -84 -77 -163 -320 79.6 242.2

% of total inventory -0.04% -0.04% -0.08% -0.15% 0.04% 0.11%

Formaldehyde -28 -16 -60 -112 31.8 96.3

% of total inventory -0.03% -0.02% -0.07% -0.1% 0.04% 0.11%

1. Upstream Impacts of Program

Reducing tailpipe CO 2 emissions from light-duty cars and trucks through tailpipe standards and improved A/C efficiency will result i n reduced fuel demand and reductions in the emissions associated with all of the process es involved in getting petroleum to the pump. These upstream emission impacts on criteria pollutants are 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 148 ,000 tons, NO X by 43,000 tons, and PM2.5 by 6,000 tons. Table III.G-2 shows the corre sponding impacts on upstream air toxic emissions in 2030. Formaldehyde decreases by 112 tons, benzene by 320 tons, acetaldehyde by 15 tons, acrolein by 2 tons, and 1, 3-butadiene by 3 tons.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

169 To determine these impacts, EPA estimated the impac t of reduced petroleum volumes on the extraction and transportation of cru de 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 fractio n of fuel savings attributable to domestic finished gasoline, and of this gasoline wh at fraction is produced from domestic crude. For this analysis EPA estimated that 50 per cent of fuel savings is attributable to domestic finished gasoline and that 90 percent of t his 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 Laborato ry, 101 but in some cases the GREET values were modified or updated by EPA to be consistent with the National Emission Inventory (NEI). 102 The primary updates for this analysis were to inc orporate newer information on gasoline distribution emission s for VOC from the NEI, which were significantly higher than GREET estimates; and the incorporation of upstream emission factors for the air toxics estimated in this analys is: benzene, 1,3-butadiene, acetaldehyde, acrolein, and formaldehyde. The development of the se emission factors is detailed in DRIA Chapter 5.

2. Downstream Impacts of Program

As discussed in more detail in Section III.H, the e ffect of fuel cost on VMT (“rebound”) was accounted for in our assessment of economic and environmental impacts of this proposed rule. A 10 percent rebound case was used for this analysis, meaning that VMT for affected model years is modeled as inc reasing by 10 percent as much as the increase in fuel economy; i.e., a 10 percent increa se in fuel economy would yield a 1.0 percent increase in VMT.

Downstream emission impacts of the rebound effect a re summarized in Table III.G-1 for criteria pollutants and precursors and Table III.G-2 for air toxics. The emission increases from the rebound effect grow ove r time as the fleet turns over to

cleaner CO 2 vehicles, so that by 2030 VOC would increase by 5, 500 tons, NO X by 16,000 tons, and PM2.5 by 570 tons. Table III.G-2 shows the corresponding impacts on air toxic emissions. The most noteworthy of these impacts in 2030 are 40 additional tons of 1,3-butadiene, 75 tons of acetaldehyde, 240 tons of benzene, 96 tons of formaldehyde,

and 4 tons of acrolein.

For this analysis the reference case non-GHG emissi ons for light duty vehicles and trucks were derived using EPA’s MOtor Vehicle E mission Simulator (MOVES) model for VOC, CO, NO X , PM and air toxics. PM2.5 emission estimates incl ude additional adjustments for low temperatures, discus sed in detail in the DRIA. Because this modeling was based on calendar year estimates, estimating the rebound effect

101 Greenhouse Gas, Regulated Emissions, and Energy U se in Transportation model (GREET), U.S. Department of Energy, Argonne National Laboratory, http://www.transportation.anl.gov/modeling_simulati on/GREET/ .

102 EPA. 2002 National Emissions Inventory (NEI) Dat a and Documentation, http://www.epa.gov/ttn/chief/net/2002inventory.html

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required a fleet-weighted rebound factor to be calc ulated for calendar years 2020 and 2030; these factors are presented in DRIA Chapter 5

.

As discussed in Section III.H, EPA will be taking c omment on the appropriate level of rebound rate for this analysis. The sensi tivity of the downstream emission

increases shown in Tables III.G-1 and III.G-2 to th e level of rebound would be in direct proportion to the rebound rate itself; since zero r ebound would result in zero emission increase, the downstream results presented in Table III.G-1 and Table III.G-2 can be directly scaled to estimate the effect of lower reb ound rates.

3. Health Effects of Non-GHG Pollutants

a. Particulate Matter

i. Background

Particulate matter is a generic term for a broad cl ass of chemically and physically diverse substances. It can be principally character ized 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 p articles small enough to penetrate to the thoracic region (including the tracheobronchial and alveolar regions) of the respiratory tract (referred to as thoracic particle s). Current NAAQS use PM 2.5 as the indicator for fine particles (with PM 2.5 referring to particles with a nominal mean aerodynamic 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 p articles with a nominal mean aerodynamic diameter greater than 2.5 μm and less t han 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 combustion 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 pollutants 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 wi th a series of adverse health

effects. These health effects are discussed in det ail in EPA’s 2004 Particulate Matter Air Quality Criteria Document (PM AQCD) and the 2005 PM Staff Paper. 103,104,105 Further

103 U.S. EPA (2004). Air Quality Criteria for Particulate Matter. Volume I EPA600/P-99/002aF and

Volume II EPA600/P-99/002bF. Retrieved on March 19 , 2009 from Docket EPA-HQ-OAR-2003-0190 at http://www.regulations.gov/.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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discussion of health effects associated with PM can also be found in the DRIA for this

rule.

Health effects associated with short-term exposures (hours to days) to ambient PM include premature mortality, aggravation of card iovascular and lung disease (as indicated by increased hospital admissions and emer gency department visits), increased respiratory symptoms including cough and difficulty breathing, decrements in lung function, altered heart rate rhythm, and other more subtle changes in blood markers

related to cardiovascular health. 106 Long-term exposure to PM 2.5 and sulfates has also been associated with mortality from cardiopulmonary disease and lung cancer, and effects on the respiratory system such as reduced l ung function growth or development of respiratory disease. A new analysis shows an assoc iation between long-term PM 2.5 exposure and a measure of atherosclerosis developme nt. 107,108

Studies examining populations exposed over the long term (one or more years) to different levels of air pollution, including the Ha rvard Six Cities Study and the American Cancer Society Study, show associations between lon g-term exposure to ambient PM 2.5 and both total and cardiopulmonary premature mortal ity. 109,110,111 In addition, an

104 U.S. EPA. (2005). Review of the National Ambient Air Quality Standard for Particulate Matter: Policy Assessment of Scientific and Technical Information, OAQPS Staff Paper. EPA-452/R-05-005a. Retrieved March 19, 2009 from http://www.epa.gov/ttn/naaqs/st andards/pm/data/pmstaffpaper_20051221.pdf.

105 The PM NAAQS is currently under review and the EPA is considering all available science on PM health effects, including information which has bee n published since 2004, in the development of the upcoming PM Integrated Science Assessment Document (ISA). A second draft of the PM ISA was completed in July 2009 and was submitted for review by the Clean Air Scientific Advisory Committee (CASAC) of EPA’s Science Advisory Board. Comments from the general public have also been requested. For more information, see http://cfpub.epa.gov/ncea /cfm/recordisplay.cfm?deid=210586.

106 U.S. EPA. (2006). National Ambient Air Quality Standards for Particul ate Matter; Proposed Rule . 71 FR 2620, January 17, 2006.

107 Künzli, N., Jerrett, M., Mack, W.J., et al. (2004) . Ambient air pollution and atherosclerosis in Los Angeles . Environ Health Perspect.,113 , 201-206

108 This study is included in the 2006 Provisional Ass essment of Recent Studies on Health Effects of Particulate Matter Exposure. The provisional asses sment did not and could not (given a very short timeframe) undergo the extensive critical review by CASAC and the public, as did the PM AQCD. The provisional assessment found that the “new” studies expand the scientific information and provide important insights on the relationship between PM e xposure and health effects of PM. The provisional assessment also found that “new” studies generally strengthen the evidence that acute and chronic expo sure to fine particles and acute exposure to thoracic co arse particles are associated with health effects. Further, the provisional science assessment found that the r esults reported in the studies did not dramatically diverge from previous findings, and taken in context with t he findings of the AQCD, the new information and findings did not materially change any of the broad scientific conclusions regarding the health effect s of PM exposure made in the AQCD. However, it is import ant to note that this assessment was limited to screening, surveying, and preparing a provisional a ssessment of these studies. For reasons outlined i n Section I.C of the preamble for the final PM NAAQS rulemaking in 2006 (see 71 FR 61148-49, October 17, 2006), EPA based its NAAQS decision on the scie nce presented in the 2004 AQCD.

109 Dockery, D.W., Pope, C.A. III, Xu, X, et al. (1993 ). An association between air pollution and mortali ty
in six U.S. cities. N Engl J Med, 329, 1753-1759. Retrieved on March 19, 2009 from http://content.nejm.org/cgi/content/full/329/24/175 3.

110 Pope, C.A., III, Thun, M.J., Namboodiri, M.M., Doc kery, D.W., Evans, J.S., Speizer, F.E., and Heath, C.W., Jr. (1995). Particulate air pollution as a pr edictor of mortality in a prospective study of U.S. adults. Am. J. Respir. Crit. Care Med, 151 , 669-674.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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extension of the American Cancer Society Study show s an association between PM 2.5 and sulfate concentrations and lung cancer mortality. 112

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 an d 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 engi nes, power plants, chemical plants, refineries, makers of consumer and commercial produ cts, industrial facilities, and smaller

area sources.

The science of ozone formation, transport, and accu mulation is complex. 113
Ground-level ozone is produced and destroyed in a c yclical set of chemical reactions, many of which are sensitive to temperature and sunl ight. When ambient temperatures and sunlight levels remain high for several days an d 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 hun dreds of miles downwind of precursor emissions, resulting in elevated ozone le vels 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 do cumented and are assessed in EPA’s 2006 Air Quality Criteria Document (ozone AQC D) and 2007 Staff Paper. 114, 115
Ozone can irritate the respiratory system, causing coughing, throat irritation, and/or

uncomfortable sensation in the chest. Ozone can re duce lung function and make it more difficult to breathe deeply; breathing may also bec ome more rapid and shallow than normal, thereby limiting a person’s activity. Ozon e can also aggravate asthma, leading to

111 Krewski, D., Burnett, R.T., Goldberg, M.S., et al. (2000). Reanalysis of the Harvard Six Cities study and the American Cancer Society study of particulate ai r pollution and mortality. A special report of the Institute's Particle Epidemiology Reanalysis Projec t. Cambridge, MA: Health Effects Institute. Retrie ved on March 19, 2009 from http://es.epa.gov/ncer/scien ce/pm/hei/Rean-ExecSumm.pdf.

112 Pope, C. A., III, Burnett, R.T., Thun, M. J., Call e, E.E., Krewski, D., Ito, K., Thurston, G.D., (200 2). Lung cancer, cardiopulmonary mortality, and long-te rm exposure to fine particulate air pollution. J. Am. Med. Assoc., 287 , 1132-1141.

113 U.S. EPA. (2006). Air Quality Criteria for Ozone a nd Related Photochemical Oxidants (Final). EPA/600/R-05/004aF-cF. Washington, DC: U.S. EPA. Retrieved on March 19, 2009 from Docket EPAHQ-OAR-2003-0190 at http://www.regulations.gov/.

114 U.S. EPA. (2006). Air Quality Criteria for Ozone a nd Related Photochemical Oxidants (Final). EPA/600/R-05/004aF-cF. Washington, DC: U.S. EPA. Retrieved on March 19, 2009 from Docket EPAHQ-OAR-2003-0190 at http://www.regulations.gov/.

115 U.S. EPA. (2007). Review of the National Ambient A ir Quality Standards for Ozone: Policy Assessment of Scientific and Technical Information, OAQPS Staff Paper. EPA-452/R-07-003. Washington, DC, U.S. EPA. Retrieved on March 19, 20 09 from Docket EPA-HQ-OAR-2003-0190 at http://www.regulations.gov/.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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more asthma attacks that require medical attention and/or the use of additional medication. In addition, there is suggestive evide nce of a contribution of ozone to cardiovascular-related morbidity and highly suggest ive evidence that short-term ozone exposure directly or indirectly contributes to non- accidental and cardiopulmonary-related mortality, but additional research is needed to cla rify the underlying mechanisms causing these effects. In a recent report on the estimatio n 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 i ncluded in estimates of the health benefits of reducing ozone exposure. 116 Animal toxicological evidence indicates that with repeated exposure, ozone can inflame and damag e the lining of the lungs, which may lead to permanent changes in lung tissue and ir reversible reductions in lung function. People who are more susceptible to effects associat ed with exposure to ozone can include children, the elderly, and individuals with respira tory disease such as asthma. Those with greater exposures to ozone, for instance due to tim e spent outdoors (e.g., children and outdoor workers), are of particular concern.

The 2006 ozone AQCD also examined relevant new scie ntific information that has emerged in the past decade, including the impac t of ozone exposure on such health effects as changes in lung structure and biochemist ry, inflammation of the lungs, exacerbation and causation of asthma, respiratory i llness-related school absence, hospital admissions and premature mortality. Animal toxicol ogical studies have suggested potential interactions between ozone and PM with in creased responses observed to mixtures of the two pollutants compared to either o zone or PM alone. The respiratory morbidity observed in animal studies along with the evidence from epidemiologic studies supports a causal relationship between acute ambien t ozone exposures and increased respiratory-related emergency room visits and hospi talizations in the warm season. In addition, there is suggestive evidence of a contrib ution of ozone to cardiovascular-related morbidity and non-accidental and cardiopulmonary mo rtality.

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 o xide (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 derived), 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 eff ects of ambient PM are discussed in Section III.G.3.a of this preamble. NO X along with non-methane hydrocarbon (NMHC)

116 National Research Council (NRC), 2008. Estimating Mortality Risk Reduction and Economic Be nefits from Controlling Ozone Air Pollution . The National Academies Press: Washington, D.C.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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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 U.S. Environmental Protection Agency Integrated Science Assessment (IS A) for Nitrogen Oxides. 117 The U.S. EPA has concluded that the findings of epidemi ologic, controlled human exposure, and animal toxicological studies provide evidence t hat is sufficient to infer a likely causal relationship between respiratory effects and short- term NO 2 exposure. The ISA concludes that the strongest evidence for such a re lationship comes from epidemiologic studies of respiratory effects including 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 dec rements in lung function and increase the allergen-induced airway inflammatory response a t exposures as low as 0.26 ppm NO 2 for 30 minutes. Second, exposure to NO 2 has been found to enhance the inherent responsiveness of the airway to subsequent nonspeci fic challenges in controlled human exposure studies of asthmatic subjects. Enhanced airway responsiveness could have important clinical implications for asthmatics sinc e transient increases in airway responsiveness following NO 2 exposure have the potential to increase symptoms a nd worsen asthma control. Together, the epidemiologic and experimental data sets form a plausible, consistent, and coherent description of a relationship between NO 2 exposures and an array of adverse health effects that range f rom 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 (n onaccidental) mortality, hospital admissions or emergency department visits for cardi ovascular disease, and decrements in lung function growth associated with chronic exposu re.

iii. Health Effects of SO 2

Information on the health effects of SO 2 can be found in the U.S. Environmental Protection Agency Integrated Science Assessment for Sulfur Oxides. 118 SO 2 has long been known to cause adverse respiratory health effe cts, particularly among individuals with asthma. Other potentially sensitive groups in clude children and the elderly. During periods of elevated ventilation, asthmatics may exp erience symptomatic bronchoconstriction within minutes of exposure. Fo llowing an extensive evaluation of

117 U.S. EPA (2008). Integrated Science Assessment for Oxides of Nitroge n – Health Criteria (Final Report). EPA/600/R-08/071. Washington, DC,: U.S.EPA. Retrie ved on March 19, 2009 from http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid =194645.

118 U.S. EPA. (2008). Integrated Science Assessment (ISA) for Sulfur Oxid es – Health Criteria (Final Report) . EPA/600/R-08/047F. Washington, DC: U.S. Environme ntal Protection Agency. Retrieved on March 18, 2009 from http://cfpub.epa.gov/ncea/cfm/r ecordisplay.cfm?deid=198843Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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health evidence from epidemiologic and laboratory s tudies, the EPA has concluded that there is a causal relationship between respiratory health effects and short-term exposure

to SO 2 . Separately, based on an evaluation of the epidem iologic 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 relation ship between short-term exposure to

SO 2 and mortality.

d. Carbon Monoxide

Carbon monoxide (CO) forms as a result of incomplet e fuel combustion. CO enters the bloodstream through the lungs, forming c arboxyhemoglobin and reducing the delivery of oxygen to the body’s organs and tissues . The health threat from CO is most

serious for those who suffer from cardiovascular di sease, particularly those with angina or peripheral vascular disease. Healthy individual s also are affected, but only at higher CO levels. Exposure to elevated CO levels is assoc iated with impairment of visual perception, work capacity, manual dexterity, learni ng ability and performance of complex

tasks. Carbon monoxide also contributes to ozone n onattainment since carbon monoxide reacts photochemically in the atmosphere to form oz one. 119 Additional information on

CO related health effects can be found in the Carbo n Monoxide Air Quality Criteria Document (CO AQCD). 120,121

e. Air Toxics

Motor vehicle emissions contribute to ambient level s of air toxics known or suspected as human or animal carcinogens, or that h ave noncancer health effects. The population experiences an elevated risk of cancer a nd other noncancer health effects from exposure to air toxics. 122 These compounds include, but are not limited to, benzene, 1,3- butadiene, formaldehyde, acetaldehyde, acrolein, po lycyclic organic matter (POM), and naphthalene. These compounds, except acetaldehyde, were identified as national or regional risk drivers in the 2002 National-scale Ai r Toxics Assessment (NATA) and have significant inventory contributions from mobile sou rces. 123 Emissions and ambient concentrations of compounds are discussed in the DR IA chapter on emission inventories and air quality (Chapters 5 and 7, respectively).

i. Benzene

119 U.S. EPA (2000). Air Quality Criteria for Carbon M onoxide, EPA/600/P-99/001F. This document is available in Docket EPA-HQ-OAR-2004-0008.

120 U.S. EPA (2000). Air Quality Criteria for Carbon M onoxide, EPA/600/P-99/001F. This document is available in Docket EPA-HQ-OAR-2004-0008.

121 The CO NAAQS is currently under review and the EPA is considering all available science on CO health effects, including information which has bee n published since 2000, in the development of the upcoming CO Integrated Science Assessment Document (ISA). A first draft of the CO ISA was completed in March 2009 and was submitted for review by the C lean Air Scientific Advisory Committee (CASAC) of EPA’s Science Advisory Board. For more information , see http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid =203935.

122 U. S. EPA. 2002 National-Scale Air Toxics Assessm ent. http://www.epa.gov/ttn/atw/nata12002/risksum.html

123 U.S. EPA .2009. National-Scale Air Toxics Assessme nt for 2002. http://www.epa.gov/ttn/atw/nata2002/Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

176 The EPA’s IRIS database lists benzene as a known hu man carcinogen (causing leukemia) by all routes of exposure, and concludes that exposure is associated with additional health effects, including genetic change s in both humans and animals and increased proliferation of bone marrow cells in mic e. 124,125,126 EPA states in its IRIS database that data indicate a causal relationship b etween benzene exposure and acute lymphocytic leukemia and suggest a relationship bet ween benzene exposure and chronic non-lymphocytic leukemia and chronic lymphocytic le ukemia. The International Agency for Research on Carcinogens (IARC) has determined t hat benzene is a human carcinogen and the U.S. Department of Health and Human Service s (DHHS) has characterized benzene as a known human carcinogen. 127,128

A number of adverse noncancer health effects includ ing blood disorders, such as preleukemia and aplastic anemia, have also been ass ociated with long-term exposure to

benzene. 129,130 The most sensitive noncancer effect observed in h umans, based on current data, is the depression of the absolute lymphocyte count in blood. 131, 132 In addition, recent work, including studies sponsored by the Hea lth Effects Institute (HEI), provides evidence that biochemical responses are occurring a t lower levels of benzene exposure than previously known. 133,134,135,136 EPA’s IRIS program has not yet evaluated these new

data.

124 U.S. EPA. 2000. Integrated Risk Information System File for Benzene. This material is available electronically at http://www.epa.gov/iris/subst/027 6.htm.

125 International Agency for Research on Cancer (IARC). 1982. Monographs on the evaluation of carcinogenic risk of chemicals to humans, Volume 29 , Some industrial chemicals and dyestuffs, World Health Organization, Lyon, France, p. 345-389.

126 Irons, R.D.; Stillman, W.S.; Colagiovanni, D.B.; He nry, V.A. 1992. Synergistic action of the benzene metabolite hydroquinone on myelopoietic stimulating activity of granulocyte/macrophage colonystimulating factor in vitro, Proc. Natl. Acad. Sci. 89:3691-3695.

127 International Agency for Research on Cancer (IARC) . 1987. Monographs on the evaluation of carcinogenic risk of chemicals to humans, Volume 29 , Supplement 7, Some industrial chemicals and dyestuffs, World Health Organization, Lyon, France.

128 U.S. Department of Health and Human Services Natio nal Toxicology Program 11th Report on Carcinogens available at: http://ntp.niehs.nih.gov/ go/16183.

129 Aksoy, M. (1989). Hematotoxicity and carcinogenici ty of benzene. Environ. Health Perspect. 82: 193-

197.

130 Goldstein, B.D. (1988). Benzene toxicity. Occupati onal medicine. State of the Art Reviews. 3: 541-554

. 131 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. A m. J. Ind. Med. 29: 236-246.

132 U.S. EPA (2002) Toxicological Review of Benzene (N oncancer Effects). Environmental Protection Agency, Integrated Risk Information System (IRIS), Research and Development, National Center for Environmental Assessment, Washington DC. This mater ial is available electronically at http://www.epa.gov/iris/subst/0276.htm.

133 Qu, O.; Shore, R.; Li, G.; Jin, X.; Chen, C.L.; Co hen, 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 & Evaluation of Biomarkers in Workers Exposed to Benzene in China.

134 Qu, Q., R. Shore, G. Li, X. Jin, L.C. Chen, B. Coh en, et al. (2002) Hematological changes among Chinese workers with a broad range of benzene expos ures. Am. J. Industr. Med. 42: 275-285.

135 Lan, Qing, Zhang, L., Li, G., Vermeulen, R., et al . (2004) Hematotoxically in Workers Exposed to Low

Levels of Benzene. Science 306: 1774-1776.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

177 ii. 1,3-Butadiene

EPA has characterized 1,3-butadiene as carcinogenic to humans by

inhalation. 137,138 The IARC has determined that 1,3-butadiene is a h uman carcinogen and the U.S. DHHS has characterized 1,3-butadiene as a known human carcinogen. 139,140
There are numerous studies consistently demonstrati ng 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 carc inogenic effects are mediated by genotoxic metabolites. Animal data suggest that fe males may be more sensitive than males for cancer effects associated with 1,3-butadi ene 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 available. The mos t sensitive effect was ovarian atrophy observed in a lifetime bioassay of female mice. 141

iii. Formaldehyde

Since 1987, EPA has classified formaldehyde as a pr obable human carcinogen based on evidence in humans and in rats, mice, hams ters, and monkeys. 142 EPA is currently reviewing recently published epidemiologi cal data. For instance, research conducted by the National Cancer Institute (NCI) fo und an increased risk of nasopharyngeal cancer and lymphohematopoietic malig nancies such as leukemia among workers exposed to formaldehyde. 143, 144 In an analysis of the lymphohematopoietic cancer mortality from an extended follow-up of thes e workers, NCI confirmed an

136 Turtletaub, K.W. and Mani, C. (2003) Benzene metab olism in rodents at doses relevant to human exposure from Urban Air. Research Reports Health E ffect Inst. Report No.113.

137 U.S. EPA (2002) Health Assessment of 1,3-Butadiene . Office of Research and Development, National Center for Environmental Assessment, Washington Off ice, Washington, DC. Report No. EPA600-P-98- 001F. This document is available electronically at http://www.epa.gov/iris/supdocs/buta-sup.pdf.

138 U.S. EPA (2002) Full IRIS Summary for 1,3-butadien e (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

. 139 International Agency for Research on Cancer (IARC) (1999) Monographs on the evaluation of carcinogenic risk of chemicals to humans, Volume 71 , Re-evaluation of some organic chemicals, hydrazin e and hydrogen peroxide and Volume 97 (in preparation ), World Health Organization, Lyon, France.

140 U.S. Department of Health and Human Services (2005 ) National Toxicology Program 11th Report on Carcinogens available at: ntp.niehs.nih.gov/index.c fm?objectid=32BA9724-F1F6-975E7FCE50709CB4C932.

141 Bevan, C.; Stadler, J.C.; Elliot, G.S.; et al. (199 6) Subchronic toxicity of 4-vinylcyclohexene in rat s and mice by inhalation. Fundam. Appl. Toxicol. 32:1-10.

142 U.S. EPA (1987) Assessment of Health Risks to Garme nt Workers and Certain Home Residents from Exposure to Formaldehyde, Office of Pesticides and Toxic Substances, April 1987.

143 Hauptmann, M..; Lubin, J. H.; Stewart, P. A.; Hayes , R. B.; Blair, A. 2003. Mortality from lymphohematopoetic malignancies among workers in fo rmaldehyde industries. Journal of the National

Cancer Institute 95: 1615-1623.

144 Hauptmann, M..; Lubin, J. H.; Stewart, P. A.; Hayes , R. B.; Blair, A. 2004. Mortality from solid cancers among workers in formaldehyde industries. American Journal of Epidemiology 159: 1117-1130.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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association between lymphohematopoietic cancer risk and peak exposures. 145 A recent National Institute of Occupational Safety and Healt h (NIOSH) study of garment workers

also found increased risk of death due to leukemia among workers exposed to formaldehyde. 146 Extended follow-up of a cohort of British chemica l workers did not find evidence of an increase in nasopharyngeal or l ymphohematopoietic cancers, but a continuing statistically significant excess in lung cancers was reported. 147 Recently, the IARC re-classified formaldehyde as a human carcinog en (Group 1). 148

Formaldehyde exposure also causes a range of noncan cer health effects, including irritation of the eyes (burning and watering of the eyes), nose and throat. Effects from repeated exposure in humans include respiratory tra ct irritation, chronic bronchitis and nasal epithelial lesions such as metaplasia and los s of cilia. Animal studies suggest that formaldehyde may also cause airway inflammation – i ncluding eosinophil infiltration into the airways. There are several studies that sugges t that formaldehyde may increase the risk of asthma – particularly in the young. 149,150

iv. Acetaldehyde

Acetaldehyde is classified in EPA’s IRIS database a s a probable human carcinogen, based on nasal tumors in rats, and is c onsidered toxic by the inhalation, oral,

and intravenous routes. 151 Acetaldehyde is reasonably anticipated to be a hu man 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 I ARC. 152,153 EPA is currently conducting a reassessment of cancer risk from inhal ation exposure to acetaldehyde.

145 Beane Freeman, L. E.; Blair, A.; Lubin, J. H.; Ste wart, P. A.; Hayes, R. B.; Hoover, R. N.; Hauptmann

, M. 2009. Mortality from lymphohematopoietic maligna ncies among workers in formaldehyde industries:

The National Cancer Institute cohort. J. National C ancer Inst. 101: 751-761.

146 Pinkerton, L. E. 2004. Mortality among a cohort o f garment workers exposed to formaldehyde: an update. Occup. Environ. Med. 61: 193-200.

147 Coggon, D, EC Harris, J Poole, KT Palmer. 2003. Ex tended follow-up of a cohort of British chemical workers exposed to formaldehyde. J National Cancer Inst. 95:1608-1615.

148 International Agency for Research on Cancer (IARC) . 2006. Formaldehyde, 2-Butoxyethanol and 1-tertButoxypropan-2-ol. Volume 88. (in preparation), Wor ld Health Organization, Lyon, France.

149 Agency for Toxic Substances and Disease Registry ( ATSDR). 1999. Toxicological profile for Formaldehyde. Atlanta, GA: U.S. Department of Healt h and Human Services, Public Health Service. http://www.atsdr.cdc.gov/toxprofiles/tp111.html

150 WHO (2002) Concise International Chemical Assessme nt Document 40: Formaldehyde. Published under the joint sponsorship of the United Nations E nvironment Programme, the International Labour Organization, and the World Health Organization, an d produced within the framework of the InterOrganization Programme for the Sound Management of Chemicals. Geneva.

151 U.S. EPA. 1991. Integrated Risk Information System File of Acetaldehyde. Research and Development, National Center for Environmental Assessment, Washi ngton, DC. This material is available electronicall y at http://www.epa.gov/iris/subst/0290.htm.

152 U.S. Department of Health and Human Services Natio nal Toxicology Program 11th Report on Carcinogens available at: ntp.niehs.nih.gov/index.c fm?objectid=32BA9724-F1F6-975E7FCE50709CB4C932.

153 International Agency for Research on Cancer (IARC) . 1999. Re-evaluation of some organic chemicals, hydrazine, and hydrogen peroxide. IARC Monographs on the Evaluation of Carcinogenic Risk of Chemical to Humans, Vol 71. Lyon, France.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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The primary noncancer effects of exposure to acetal dehyde vapors include irritation of the eyes, skin, and respiratory tract. 154 In short-term (4 week) rat studies, degeneration of olfactory epithelium was observed at various concen tration levels of acetaldehyde

exposure. 155, 156 Data from these studies were used by EPA to devel op an inhalation

reference concentration. Some asthmatics have been shown to be a sensitive subpopulation to decrements in functional expirator y volume (FEV1 test) and bronchoconstriction upon acetaldehyde inhalation. 157 The agency is currently conducting

a reassessment of the health hazards from inhalatio n exposure to acetaldehyde.

v. Acrolein

Acrolein is extremely acrid and irritating to human s when inhaled, with acute exposure resulting in upper respiratory tract irrit ation, mucus hypersecretion and congestion. Levels considerably lower than 1 ppm ( 2.3 mg/m 3 ) elicit subjective complaints of eye and nasal irritation and a decrea se in the respiratory rate. 158,159 Lesions to the lungs and upper respiratory tract of rats, r abbits, and hamsters have been observed after subchronic exposure to acrolein. Based on an imal data, individuals with compromised respiratory function (e.g., emphysema, asthma) are expected to be at increased risk of developing adverse responses to s trong respiratory irritants such as

acrolein. This was demonstrated in mice with aller gic airway-disease by comparison to non-diseased mice in a study of the acute respirato ry irritant effects of acrolein. 160
The intense irritancy of this carbonyl has been dem onstrated during controlled tests in human subjects, who suffer intolerable eye and nasa l mucosal sensory reactions within minutes of exposure. 161

EPA determined in 2003 that the human carcinogenic potential of acrolein could

not be determined because the available data were i nadequate. No information was available on the carcinogenic effects of acrolein i n humans and the animal data provided

154 U.S. EPA. 1991. Integrated Risk Information Syste m File of Acetaldehyde. This material is available electronically at http://www.epa.gov/iris/subst/029 0.htm.

155 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.

156 Appleman, L.M., R.A. Woutersen, and V.J. Feron. 19 82. Inhalation toxicity of acetaldehyde in rats. I.

Acute and subacute studies. Toxicology. 23: 293-297.

157 Myou, S.; Fujimura, M.; Nishi K.; Ohka, T.; and Ma tsuda, T. 1993. Aerosolized acetaldehyde induces

histamine-mediated bronchoconstriction in asthmatic s. Am. Rev. Respir.Dis. 148(4 Pt 1): 940-3.

158 Weber-Tschopp, A; Fischer, T; Gierer, R; et al. (1 977) Experimentelle reizwirkungen von Acrolein auf den Menschen. Int Arch Occup Environ Hlth 40(2):117 -130. In German

159 Sim, VM; Pattle, RE. (1957) Effect of possible smo g irritants on human subjects. J Am Med Assoc 165(15):1908-1913.

160 Morris JB, Symanowicz PT, Olsen JE, et al. 2003. I mmediate sensory nerve-mediated respiratory responses to irritants in healthy and allergic airw ay-diseased mice. J Appl Physiol 94(4):1563-1571.

161 Sim VM, Pattle RE. Effect of possible smog irritan ts on human subjects JAMA165: 1980-2010, 1957.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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inadequate evidence of carcinogenicity. 162 The IARC determined in 1995 that acrolein was not classifiable as to its carcinogenicity in h umans .163

vi. Polycyclic Organic Matter (POM)

POM is generally defined as a large class of organi c 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. O ne of these compounds, naphthalene, is discussed separately below. Polycy clic 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 preg nant women were associated with several adverse birth outcomes, including low birth weight and reduced length at birth, as well as impaired cognitive development at age three

. 164,165 EPA has not yet evaluated

these recent studies.

vii. Naphthalene

Naphthalene is found in small quantities in gasolin e and diesel fuels. Naphthalene emissions have been measured in larger quantities in both gasoline and diesel exhaust compared with evaporative emissions from mobile sources, indicating it is primarily a product of combustion. EPA released an external review draft of a reassessment of the inhalation carcinogenicity of n aphthalene based on a number of recent animal carcinogenicity studies. 166 The draft reassessment completed external peer

review. 167 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 externa l peer review and public comment. Once EPA evaluates public and peer reviewer comment s, the document will be revised. The National Toxicology Program listed naphthalene as "reasonably anticipated to be a

162 U.S. EPA. 2003. Integrated Risk Information System File of Acrolein. Research and Development, National Center for Environmental Assessment, Washi ngton, DC. This material is available at http://www.epa.gov/iris/subst/0364.htm

163 International Agency for Research on Cancer (IARC). 1995. Monographs on the evaluation of carcinogenic risk of chemicals to humans, Volume 63 , Dry cleaning, some chlorinated solvents and other industrial chemicals , World Health Organization, L yon, France.

164 Perera, F.P.; Rauh, V.; Tsai, W-Y.; et al. (2002) Effect of transplacental exposure to environmental pollutants on birth outcomes in a multiethnic popul ation. Environ Health Perspect. 111: 201-205.

165 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 ex posure to airborne polycyclic aromatic hydrocarbons on neurodevelopment in the first 3 years of life am ong inner-city children. Environ Health Perspect 1 14:

1287-1292.

166 U. S. EPA. 2004. Toxicological Review of Naphthalene (Reassessment o f the Inhalation Cancer Risk), Environmental Protection Agency, Integrated Risk In formation System, Research and Development, National Center for Environmental Assessment, Washi ngton, DC. This material is available electronical ly at http://www.epa.gov/iris/subst/0436.htm.

167 Oak Ridge Institute for Science and Education. (20 04). External Peer Review for the IRIS Reassessment of the Inhalation Carcinogenicity of N aphthalene. August 2004. http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid =84403Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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human carcinogen" in 2004 on the basis of bioassays reporting clear evidence of carcinogenicity in rats and some evidence of carcin ogenicity in mice. 168 California EPA has released a new risk assessment for naphthalene, and the IARC has reevaluated naphthalene and re-classified it as Group 2B: possi bly carcinogenic to humans. 169
Naphthalene also causes a number of chronic non-can cer effects in animals, including abnormal cell changes and growth in respiratory and nasal tissues. 170

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 proposed action. Mobile source air toxic compounds that would potent ially be impacted include ethylbenzene, polycyclic organic matter, propionald ehyde, toluene, and xylene. Information regarding the health effects of these c ompounds can be found in EPA’s IRIS

database. 171

4. Environmental Effects of Non-GHG Pollutants

a. Visibility

Visibility can be defined as the degree to which th e atmosphere is transparent to visible light. Airborne particles degrade visibili ty by scattering and absorbing light. Visibility is important because it has direct signi ficance to people’s enjoyment of daily activities in all parts of the country. Individual s value good visibility for the well-being it provides them directly, where they live and work an d in places where they enjoy recreational opportunities. Visibility is also hig hly valued in significant natural areas such as national parks and wilderness areas and spe cial emphasis is given to protecting visibility in these areas. For more information on visibility, see the final 2004 PM AQCD as well as the 2005 PM Staff Paper. 172,173

EPA is pursuing a two-part strategy to address visi bility. First, to address the welfare effects of PM on visibility, EPA has set se condary PM 2.5 standards which act in

168 National Toxicology Program (NTP). (2004). 11th Re port on Carcinogens. Public Health Service, U.S. Department of Health and Human Services, Research T riangle Park, NC. Available from: http://ntpserver.niehs.nih.gov.

169 International Agency for Research on Cancer (IARC). (2002). Monographs on the Evaluation of the Carcinogenic Risk of Chemicals for Humans. Vol. 82 . Lyon, France.

170 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 electro nically at http://www.epa.gov/iris/subst/0436.htm

171 U.S. EPA Integrated Risk Information System (IRIS) database is available at: www.epa.gov/iris

172 U.S. EPA. (2004). Air Quality Criteria for Particulate Matter (AQCD). Volume I Document No.

EPA600/P-99/002aF and Volume II Document No. EPA600 /P-99/002bF. Washington, DC: U.S. Environmental Protection Agency. Retrieved on March 18, 2009 from http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid =87903

173 U.S. EPA. (2005). Review of the National Ambient Air Quality Standard for Particulate Matter: Policy Assessment of Scientific and Technical Information, OAQPS Staff Paper . EPA-452/R-05-005. Washington, DC: U.S. Environmental Protection Agency.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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conjunction with the establishment of a regional ha ze program. In setting this secondary standard, EPA has concluded that PM 2.5 causes adverse effects on visibility in various locations, depending on PM concentrations and facto rs such as chemical composition and average relative humidity. Second, section 169 of the Clean Air Act provides additional authority to address existing visibility impairment and prevent future visibility impairment in the 156 national parks, forests and w ilderness areas categorized as mandatory class I federal areas (62 FR 38680-81, Ju ly 18, 1997). 174 In July 1999, the regional haze rule (64 FR 35714) was put in place t o protect the visibility in mandatory class I federal areas. Visibility can be said to b e 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 e ffects, with impacts to plants and ecosystems being of most concern. Ozone can pr oduce 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 ov er the growing season of the plant, so that even low concentrations experienced for a long er duration have the potential to create chronic stress on vegetation. Ozone damage to plants includes visible injury to leaves and impaired photosynthesis, both of which c an lead to reduced plant growth and reproduction, resulting in reduced crop yields, for estry production, and use of sensitive ornamentals in landscaping. In addition, the impai rment 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 carbohydrat e storage below ground, resulting in other, more subtle plant and ecosystems impacts.

These latter impacts include increased susceptibili ty of plants to insect attack, disease, harsh weather, interspecies competition an d overall decreased plant vigor. The

adverse effects of ozone on forest and other natura l vegetation can potentially lead to species shifts and loss from the affected ecosystem s, resulting in a loss or reduction in associated ecosystem goods and services. Lastly, v isible ozone injury to leaves can result in a loss of aesthetic value in areas of special sc enic significance like national parks and wilderness areas. The final 2006 ozone AQCD presen ts more detailed information on ozone effects on vegetation and ecosystems.

c. Atmospheric Deposition

Wet and dry deposition of ambient particulate matte r delivers a complex mixture of metals (e.g., mercury, zinc, lead, nickel, alumi num, cadmium), organic compounds (e.g., POM, dioxins, furans) and inorganic compound s (e.g., nitrate, sulfate) to terrestrial and aquatic ecosystems. The chemical form of the c ompounds deposited depends on a variety of factors including ambient conditions (e. g., temperature, humidity, oxidant levels) and the sources of the material. Chemical and physical transformations of the

174 These areas are defined in section 162 of the Act as those national parks exceeding 6,000 acres, wilderness areas and memorial parks exceeding 5,000 acres, and all international parks which were in existence on August 7, 1977.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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compounds occur in the atmosphere as well as the me dia onto which they deposit. These transformations in turn influence the fate, bioavai lability and potential toxicity of these compounds. Atmospheric deposition has been identif ied as a key component of the environmental and human health hazard posed by seve ral pollutants including mercury,

dioxin and PCBs. 175

Adverse impacts on water quality can occur when atm ospheric contaminants deposit to the water surface or when material depos ited on the land enters a water body through runoff. Potential impacts of atmospheric d eposition to water bodies include those related to both nutrient and toxic inputs. A dverse effects to human health and

welfare can occur from the addition of excess nitro gen via atmospheric deposition. The nitrogen-nutrient enrichment contributes to toxic a lgae blooms and zones of depleted oxygen, which can lead to fish kills, frequently in coastal waters. Deposition of heavy metals or other toxins may lead to the human ingest ion of contaminated fish, human ingestion of contaminated water, damage to the mari ne ecology, and limits to recreational

uses. Several studies have been conducted in U.S. coastal waters and in the Great Lakes Region in which the role of ambient PM deposition a nd runoff is investigated. 176,177,178,179,180

Atmospheric deposition of nitrogen and sulfur contr ibutes to acidification, altering biogeochemistry and affecting animal and p lant life in terrestrial and aquatic ecosystems across the U.S. The sensitivity of terr estrial and aquatic ecosystems to acidification from nitrogen and sulfur deposition i s predominantly governed by geology. Prolonged exposure to excess nitrogen and sulfur de position in sensitive areas acidifies lakes, rivers and soils. Increased acidity in surf ace waters creates inhospitable conditions

for biota and affects the abundance and nutritional value of preferred prey species, threatening biodiversity and ecosystem function. O ver time, acidifying deposition also removes essential nutrients from forest soils, depl eting the capacity of soils to neutralize future acid loadings and negatively affecting fores t sustainability. Major effects include a decline in sensitive forest tree species, such as r ed spruce ( Picea rubens ) and sugar maple ( Acer saccharum ), and a loss of biodiversity of fishes, zooplankto n, and macro

invertebrates.

In addition to the role nitrogen deposition plays i n acidification, nitrogen deposition also causes ecosystem nutrient enrichmen t leading to eutrophication that alters

175 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-00-00 05. This document is available in Docket EPA-HQOAR-2003-0190.

176 U.S. EPA (2004) National Coastal Condition Report I I. Office of Research and Development/ Office of

Water. EPA-620/R-03/002. This document is availabl e in Docket EPA-HQ-OAR-2003-0190.

177 Gao, Y., E.D. Nelson, M.P. Field, et al. 2002. Ch aracterization of atmospheric trace elements on PM2 .5 particulate matter over the New York-New Jersey har bor estuary. Atmos. Environ. 36: 1077-1086.

178 Kim, G., N. Hussain, J.R. Scudlark, and T.M. Church . 2000. Factors influencing the atmospheric depositional fluxes of stable Pb, 210Pb, and 7Be in to Chesapeake Bay. J. Atmos. Chem. 36: 65-79.

179 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.

180 Marvin, C.H., M.N. Charlton, E.J. Reiner, et al. 2 002. Surficial sediment contamination in Lakes Eri e and Ontario: A comparative analysis. J. Great Lakes Res. 28(3): 437-450.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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biogeochemical cycles. Excess nitrogen also leads to the loss of nitrogen sensitive lichen species as they are outcompeted by invasive grasses as well as altering the biodiversity of terrestrial ecosystems, such as grasslands and mead ows. For a broader explanation of the topics treated here, refer to the description in Ch apter 7 of the DRIA.

Adverse impacts on soil chemistry and plant life ha ve been observed for areas heavily influenced by atmospheric deposition of nut rients, metals and acid species, resulting in species shifts, loss of biodiversity, forest decline and damage to forest productivity. Potential impacts also include adver se effects to human health through ingestion of contaminated vegetation or livestock ( as in the case for dioxin deposition), reduction in crop yield, and limited use of land du e to contamination.

Atmospheric deposition of pollutants can reduce the aesthetic appeal of buildings and culturally important articles through soiling, and can contribute directly (or in conjunction with other pollutants) to structural da mage by means of corrosion or erosion. Atmospheric deposition may affect materials princip ally by promoting and accelerating the corrosion of metals, by degrading paints, and b y deteriorating building materials such

as concrete and limestone. Particles contribute to these effects because of their electrolytic, hygroscopic, and acidic properties, a nd their ability to adsorb corrosive gases (principally sulfur dioxide). The rate of metal co rrosion depends on a number of factors, including the deposition rate and nature of the pol lutant; the influence of the metal protective corrosion film; the amount of moisture p resent; variability in the electrochemical reactions; the presence and concent ration of other surface electrolytes;

and the orientation of the metal surface.

d. Environmental Effects of Air Toxics

Fuel combustion emissions contribute to ambient lev els of pollutants that contribute to adverse effects on vegetation. Volat ile organic compounds (VOCs), some of which are considered air toxics, have long been suspected to play a role in vegetation damage. 181 In laboratory experiments, a wide range of tolera nce to VOCs has been

observed. 182 Decreases in harvested seed pod weight have been reported for the more sensitive plants, and some studies have reported ef fects on seed germination, flowering and fruit ripening. Effects of individual VOCs or their role in conjunction with other stressors (e.g., acidification, drought, temperatur e extremes) have not been well studied. In a recent study of a mixture of VOCs including et hanol and toluene on herbaceous plants, significant effects on seed production, lea f water content and photosynthetic efficiency were reported for some plant species. 183

Research suggests an adverse impact of vehicle exha ust on plants, which has in some cases been attributed to aromatic compounds an d in other cases to nitrogen

181 U.S. EPA. 1991. Effects of organic chemicals in the atmosphere on terrestrial plants. EPA/600/3-91/001

. 182 C ape 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 experiment. Environ. Pollut. 124:341-343.

183 C ape 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 experiment. Environ. Pollut. 124:341-343.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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oxides. 184, 185, 186 The impacts of VOCs on plant reproduction may hav e long-term implications for biodiversity and survival of nativ e species near major roadways. Most of the studies of the impacts of VOCs on vegetation ha ve focused on short-term exposure and few studies have focused on long-term effects o f VOCs on vegetation and the potential for metabolites of these compounds to aff ect herbivores or insects.

5. Air Quality Impacts of Non-GHG Pollutants

a. Current Levels of PM 2.5 , Ozone, CO and Air Toxics

This proposal may have impacts on levels of PM 2.5 , ozone, CO and air toxics. Nationally, levels of PM 2.5 , ozone, CO and air toxics are declining. 187,188 However, in 2005 EPA designated 39 nonattainment areas for the 1997 PM 2.5 National Ambient Air Quality Standard (NAAQS) (70 FR 943, January 5, 200 5). These areas are composed of 208 full or partial counties with a total populatio n exceeding 88 million. The 1997 PM 2.5 NAAQS was recently revised and the 2006 24-hour PM 2.5 NAAQS became effective on December 18, 2006. The numbers above likely undere stimate the number of counties that are not meeting the PM 2.5 NAAQS because the nonattainment areas associated w ith the more stringent 2006 24-hour PM 2.5 NAAQS have not yet been designated. Area designations for the 2006 24-hour PM 2.5 NAAQS are expected to be promulgated in 2009 and become effective 90 days after publication in t he Federal Register.

In addition, the U.S. EPA has recently amended the ozone NAAQS (73 FR 16436, March 27, 2008). That final 2008 ozone NAAQ S rule set forth revisions to the previous 1997 NAAQS for ozone to provide increased protection of public health and welfare. As of June 5, 2009, there are 55 areas de signated as nonattainment for the 1997 8-hour ozone NAAQS, comprising 290 full or partial counties with a total population of approximately 132 million people. These numbers do not include the people living in areas where there is a future risk of failing to ma intain 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 a reas associated with the more stringent 2008 8-hour ozone NAAQS have not yet been designated.

The proposed vehicle standards may also impact leve ls of ambient CO, a criteria pollutant (see Table III.G-1 above for co-pollutant emission impacts). As of June 5, 2009

184 Viskari E-L. 2000. Epicuticular wax of Norway spruc e needles as indicator of traffic pollutant deposition. Water, Air, and Soil Pollut. 121:327-33 7.

185 Ugrekhelidze D, F Korte, G Kvesitadze. 1997. Uptake and transformation of benzene and toluene by plant leaves. Ecotox. Environ. Safety 37:24-29.

186 Kammerbauer H, H Selinger, R Rommelt, A Ziegler-Jon s, D Knoppik, B Hock. 1987. Toxic components of motor vehicle emissions for the spruc e Pciea abies. Environ. Pollut. 48:235-243.

187 U. S. EPA (2008) National Air Quality Status and Tr ends through 2007. Office of Air Quality Planning and Standards, Research Triangle Park, NC. Publicat ion No. EPA 454/R-08-006. http://epa.gov/airtrends/2008/index.html.

188 U. S. EPA (2007) Final Regulatory Impact Analysis: Control of Hazardous Air Pollutants from Mobile Sources, Office of Transportation and Air Quality, Ann Arbor, MI, Publication No. EPA420-R-07-002. http://www.epa.gov/otaq/toxics.htmDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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there are approximately 479,000 people living in a portion of Clark Co., NV which is currently the only area in the country that is desi gnated as nonattainment for CO. 189

Further, the majority of Americans continue to be e xposed to ambient

concentrations of air toxics at levels which have t he potential to cause adverse health

effects. 190 The levels of air toxics to which people are expo sed 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 recent mobile source air toxic s rule. 191

b. Impacts of Proposed Standards on Future Ambient PM 2.5 , Ozone, CO and

Air Toxics

Full-scale photochemical air quality modeling is ne cessary to accurately project

levels of PM 2.5 , ozone, CO and air toxics. For the final rule, a national-scale air quality modeling analysis will be performed to analyze the impacts of the vehicle standards on

PM 2.5 , ozone, and selected air toxics (i.e., benzene, fo rmaldehyde, acetaldehyde, acrolein and 1,3-butadiene). The length of time needed to p repare the necessary emissions inventories, in addition to the processing time ass ociated with the modeling itself, has precluded us from performing air quality modeling f or this proposal.

Section III.G.1 of the preamble presents projection s of the changes in criteria pollutant and air toxics emissions due to the propo sed vehicle standards; the basis for those estimates is set out in Chapter 5 of the DRIA . The atmospheric chemistry related to

ambient concentrations of PM 2.5 , ozone and air toxics is very complex, and making predictions based solely on emissions changes is ex tremely difficult. However, based on the magnitude of the emissions changes predicted to result from the proposed vehicle standards, EPA expects that there will be an improv ement in ambient air quality, pending a more comprehensive analysis for the final rule.

For the final rule, EPA intends to use a 2005-based Community Multi-scale Air Quality (CMAQ) modeling platform as the tool for th e air quality modeling. The CMAQ modeling system is a comprehensive three-dimensiona l grid-based Eulerian air quality model designed to estimate the formation and fate o f oxidant precursors, primary and secondary PM concentrations and deposition, and air toxics, over regional and urban spatial scales (e.g., over the contiguous U.S.). 192,193,194 The CMAQ model is a well-

189 Carbon Mono

x ide Nonattainment Area Summary: http://www.epa.gov /air/oaqps/greenbk/cnsum.html

190 U. S. Environmental Protection Agency (2007). Cont rol of Hazardous Air Pollutants from Mobile Sources; Final Rule. 72 FR 8434, February 26, 2007

. 191 U. S. Environmental Protection Agency (2007). Cont rol of Hazardous Air Pollutants from Mobile Sources; Final Rule. 72 FR 8434, February 26, 2007

. 192 U.S. Environmental Protection Agency, Byun, D.W., a nd Ching, J.K.S., Eds, 1999. Science algorithms of EPA Models-3 Community Multiscale Air Quality (C MAQ modeling system, EPA/600/R-99/030, Office of Research and Development).

193 Byun, D.W., and Schere, K.L., 2006. Review of the G overning Equations, Computational Algorithms, and Other Components of the Models-3 Community Mult iscale Air Quality (CMAQ) Modeling System, J. Applied Mechanics Reviews, 59 (2), 51-77.

194 Dennis, R.L., Byun, D.W., Novak, J.H., Galluppi, K. J., Coats, C.J., and Vouk, M.A., 1996. The next generation of integrated air quality modeling: EPA’ s Models-3, Atmospheric Environment, 30, 1925-1938.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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known and well-established tool and is commonly use d by EPA for regulatory analyses, for instance the recent ozone NAAQS proposal, and b y States in developing attainment demonstrations for their State Implementation Plans

. 195 The CMAQ model (version 4.6) was peer-reviewed in February of 2007 for EPA as re ported in “Third Peer Review of CMAQ Model,” and the EPA Office of Research and Dev elopment (ORD) peer review report which includes version 4.7 is currently bein g finalized. 196

CMAQ includes many science modules that simulate the emission, production, decay, deposition and transport of organic and inor ganic gas-phase and particle-phase pollutants in the atmosphere. EPA intends to use t he most recent CMAQ version (version 4.7), which was officially released by EPA’s Office of Research and Development (ORD) in December 2008 and reflects updates to earl ier versions in a number of areas to improve the underlying science. These include (1) enhanced secondary organic aerosol (SOA) mechanism to include chemistry of isoprene, s esquiterpene, and aged in-cloud biogenic SOA in addition to terpene; (2) improved v ertical convective mixing; (3) improved heterogeneous reaction involving nitrate formation; and (4) an updated gasphase chemistry mechanism, Carbon Bond 05 (CB05), w ith extensions to model explicit concentrations of air toxic species as well as chlo rine and mercury. This mechanism, CB05-toxics, also computes concentrations of specie s that are involved in aqueous chemistry and that are precursors to aerosols.

H. What are the Estimated Cost, Economic, and Other Impacts of the Proposal?

In this section, EPA presents the costs and impacts of EPA’s proposed GHG program. It is important to note that NHTSA’s CAFE standards and EPA’s GHG standards will both be in effect, and each will lea d to increases in average fuel economy

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 standard s, jointly, are the source of the benefits and costs of the National Program.

EPA’s proposed 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 lead-time alternative allowance stand ard program (TLAASP), full car/truck trading, and the A/C credit program), alo ng with the fuel savings associated with reduced fuel usage resulting from the proposed program. These proposed program

costs also include external costs associated with n oise, congestion, accidents, time spent refueling vehicles, and energy security impacts. E PA also presents the cost-effectiveness of the proposed standards and our analysis of the e xpected economy-wide impacts. The projected monetized benefits of reducing GHG emissi ons and co-pollutant health and environmental impacts are also presented. EPA also presents our estimates of the impact

195 U.S. EPA (2007). Regulatory Impact Analysis of the Proposed Revisions to the National Ambient Air Quality Standards for Ground-Level Ozone. EPA docu ment number 442/R-07-008, July 2007.

196 Aiyyer, A, Cohan, D., Russell, A., Stockwell, W., Tanrikulu, S., Vizuete, W., Wilczak, J., 2007. Fina l Report: Third Peer Review of the CMAQ Model. p. 23

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on vehicle miles traveled and the impacts associate d with those miles as well as other societal impacts of the proposed program, including energy security impacts.

The total monetized benefits (excluding fuel saving s) under the proposed program are projected to be $21 to $54 billion in 2030, ass uming a 3 percent discount rate and depending on the value used for the social cost of carbon. The costs of the proposed program in 2030 are estimated to be approximately $ 18 billion for new vehicle technology less $90 billion in savings realized by consumers through fewer fuel expenditures (calculated using pre-tax fuel prices)

.

Further information on these and other aspects of t he economic impacts of our proposed rule are summarized in the following secti ons and are presented in more detail in the DRIA for this rulemaking. EPA requests comm ent on all aspects of the cost, savings, and benefits analysis presented here and i n the DRIA. EPA also requests comment on the inputs used in these analyses as des cribed in the Draft Joint TSD.

1. Costs Associated with the Vehicle Program

In this section EPA presents our estimate of the c osts associated with the proposed vehicle program. The presentation here su mmarizes the costs associated with the new vehicle technology expected to be added to meet the proposed GHG standards, including hardware costs to comply with the propose d A/C credit program. The analysis summarized here provides our estimate of incrementa l costs on a per vehicle basis and on

an annual total basis.

The presentation here summarizes the outputs of th e OMEGA model that was discussed in some detail in Section III.D of this p reamble. For details behind the analysis such as the OMEGA model inputs and the estimates of costs associated with individual technologies, the reader is directed to Chapters 1 and 2 of the DRIA, and Chapter 3 of the Draft Joint TSD. For more detail on the outputs of the OMEGA model and the overall vehicle program costs summarized here, the reader i s directed to Chapters 4 and 7 of the

DRIA.

With respect to the cost estimates for vehicle tech nologies, EPA notes that, because these estimates relate to technologies whic h are in most cases already available, these cost estimates are technically robust. EPA n otes further that, in all instances, its estimates are within the range of estimates in the most widely-utilized sources and studies. In that way, EPA believes that we have be en conservative in estimating the vehicle hardware costs associated with this proposa l.

With respect to the aggregate cost estimations pres ented in Section III.H.1.b, EPA

notes that there are a number of areas where the re sults of our analysis may be conservative and, in general, EPA believes we have directionally overestimated the costs of compliance with these proposed standards, especi ally in not accounting for the full range of credit opportunities available to manufact urers. For example, some cost savingDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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programs are considered in our analysis, such as fu ll car/truck trading, while others are not, such as cross-manufacturer trading and advance d technology credits.

a. Vehicle Compliance Costs Associated with CO 2 Efficiency

For the technology and vehicle package costs assoc iated with adding new CO 2 - reducing technology to vehicles, EPA began with EPA ’s 2008 Staff Report and NHTSA’s 2011 CAFE FRM both of which presented costs generated using existing literature, meetings with manufacturers and parts s uppliers, and meetings with other experts in the field of automotive cost estimation. 197 EPA has updated some of those technology costs with new information from our cont ract with FEV, through further discussion with NHTSA, and by converting from 2006 dollars to 2007 dollars using the GDP price deflator. The estimated costs presented here represent the incremental costs associated with this proposal relative to what the future vehicle fleet would be expected to look like absent this proposed rule. A more deta iled description of the factors considered in our reference case is presented in Se ction III.D.

The estimates of vehicle compliance costs cover the years of implementation of the program – 2012 through 2016. EPA has also esti mated compliance costs for the years following implementation so that we can shed light on the long term – 2022 and later – cost impacts of the proposal. 198 EPA used the year 2022 here because our short-ter m and long-term markup factors described shortly below ar e 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 individua l technology cost estimates are presented in brief in Section III.D, and account fo r both the direct and indirect costs incurred in the automobile manufacturing and dealer industries (for a complete presentation of technology costs, please refer to C hapter 3 of the Draft 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. 199 The ICM factors used range from 1.11 to 1.64 in the short-term (2012 thr ough 2021), depending on the complexity of the given technology, to account for differences in the levels of R&D, tooling, and other indirect costs that would be inc urred. Once the program has been fully implemented, some of the indirect costs would no lo nger be attributable to these proposed standards and, as such, a lower ICM factor is appli ed to direct costs in years following full implementation. The ICM factors used range fr om 1.07 to 1.39 in the long-term

197 “EPA Staff Technical Report: Cost and Effectiven ess Estimates of Technologies Used to Reduce Light-duty Vehicle Carbon Dioxide Emissions,” EPA 4 20-R-08-008; NHTSA 2011 CAFE FRM is at 74

FR 14196 ; both documents are contained in Docket EPA-HQ-OAR -2009-0472

. 198 Note that the assumption made here is that the st andards proposed would continue to apply for years beyond 2016 so that new vehicles sold in model year s 2017 and 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 indirect cost s attributable to this proposal in the years prior to 2022 would be eliminated in 2022 and later.

199 Alex Rogozhin et al., Automobile Industry Regail Price Equivalent and Indirect Cost Multipliers

. Prepared for EPA by RTI International and Transport ation Research Institute, University of Michigan. EPA-420-R-09-003, February 2009 (Docket EPA-HQ-OAR-2009-0472)

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(2022 and later) depending on the complexity of the given technology. 200 Note that the short-term ICMs are used in the 2012 through 2016 y ears of implementation and continue through 2021. EPA does this since the proposed sta ndards are still being implemented during the 2012 through 2016 model years. Therefor e, EPA considers the five year period following full implementation also to be sho rt-term.

The argument has been made that the ICM approach ma y be more appropriate for regulatory cost estimation than the more traditiona l retail price equivalent, or RPE, markup. The RPE is based on the historical relatio nship between direct costs and consumer prices; it is intended to reflect the aver age 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 including costs such as the retirement benefits of retired employees. However, the retirement benefits for retired employees are not e xpected to change as a result of a new GHG regulation and, therefore, those indirect costs should not increase in relation to newly added hardware in response to a regulation. So, under the ICM approach, if a newly added piece of technology has an incremental direct cost of $1, its direct plus indirect costs should not be $1 multiplied by an RP E markup of say 1.5, or $1.50, but rather something less since the manufacturer is not paying more for retired-employee retirement benefits as a direct result of adding th e new piece of technology. Further, as noted above, the indirect cost multiplier can be ad justed for different levels of technological complexity. For example, a move to l ow rolling resistance tires is less complex than converting a gasoline vehicle to a plu g-in hybrid. Therefore, the

incremental indirect costs for the tires should be lower in magnitude than those for the plug-in hybrid. For the analysis underlying these proposed standards, the agencies have based our estimates on the ICM approach, but EPA no tes that discussion continues about the use of the RPE approach and the ICM approach fo r safety and environmental regulations. We discuss our ICM factors and the co mplexity levels used in our analysis in more detail in Chapter 3 of the Draft Joint TSD and EPA requests comment on the approach described there as well as the general con cepts of both the ICM and RPE approaches.

EPA has also considered the impacts of manufacturer learning on the technology cost estimates. Consistent with past EPA rulemakin gs, 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. T hese 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 manu facturing 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 manufacturing techniques and effici encies remain to be had. By then,

200 Gloria Helfand and Todd Sherwood, “Documentation of the Development of Indirect Cost Multipliers for Three Automotive Technologies,” Office of Trans portation and Air Quality, USEPA, August 2009 (Docket EPA-HQ-OAR-2009-0472)

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costs decline roughly three percent per year as man ufacturers and suppliers continually

strive to reduce costs. These time-based cost decl ines—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 exp ected to be used because some of the expected technologies are already used rather widel y in the industry and, presumably, learning impacts have already occurred. EPA has co nsidered volume-based learning for only a handful of technologies that EPA considers t o be new or emerging technologies such as the hybrids and electric vehicles. For mos t 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 mor e discussion of our learning approach and the technologies to which we have appl ied which type of learning in the

Draft Joint TSD.

The technology cost estimates discussed in Section III.D and detailed in Chapter 3 of the Draft Joint TSD are used to build up package cost estimates which are then used as inputs to the OMEGA model. EPA discusses our packa ges and package costs in Chapter

1 of the DRIA. The model determines what level of CO 2 improvement is required considering the reference case for each manufacture r’s fleet. The vehicle compliance costs are the outputs of the model and take into ac count FFV credits through 2015, TLAASP, full car/truck trading, and the A/C credit program. Table III.H.1-1 presents the fleet average incremental vehicle compliance costs for this proposal. As the table indicates, 2012-2016 costs increase every year as t he standards become more stringent. Costs per car and per truck then remain stable thro ugh 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 declin e as the long-term ICM kicks in because some indirect costs are no longer considered attrib utable to the proposed program. Costs per car and per truck remain constant thereafter wh ile the cost per vehicle declines slightly as the fleet continues to trend toward car s. By 2030, projections of fleet mix changes become static and the cost per vehicle rema ins constant. EPA has a more detailed presentation of vehicle compliance costs o n a manufacturer by manufacturer

basis in the DRIA.

Table III.H.1-1 Industry Average Vehicle Compliance Costs Associated with the

Proposed Tailpipe CO 2 Standards ($/vehicle in 2007 dollars)

Calendar Year $/car $/truck $/vehicle (car & truck combined)

2012 $374 $358 $368

2013 $531 $539 $534

2014 $663 $682 $670

2015 $813 $886 $838

2016 $968 $1,213 $1,050 Formatted TableDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

192 2017 $968 $1,213 $1,047

2018 $968 $1,213 $1,044

2019 $968 $1,213 $1,042

2020 $968 $1,213 $1,040

2021 $968 $1,213 $1,039

2022 $890 $1,116 $955

2030 $890 $1,116 $953

2040 $890 $1,116 $953

2050 $890 $1,116 $953

b. Annual Costs of the Proposed Vehicle Program

The costs presented here represent the incremental costs for newly added technology to comply with the proposed program. To gether with the projected increases in car and light-truck sales, the increases in per- vehicle average costs shown in Table

III.H.1-1 above result in the total annual costs re ported in Table III.H.1-2 below. Note that the costs presented in Table III.H.1-2 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.3.

Table III.H.1-2 Quantified Annual Costs Associated with the Proposed Vehicle Program ($Millions of 2007 dollars)

Year Quantified

Annual Costs

2012 $5,400

2013 $8,400

2014 $10,900

2015 $13,900

2016 $17,500

2020 $18,000

2030 $17,900

2040 $19,300

2050 $20,900
NPV, 3% $390,000
NPV, 7% $216,600

2. 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 proposal using the above costs and the emissions reductions

described in Section III.F. More detail on the cost s, emission reductions, and the cost per

ton can be found in the DRIA and Draft 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 re ductions for each of those years. The value in 2050 represents the long-term cost per ton of the emissions reduced. Note that EPA has not included the savings associated with re duced fuel consumption, nor any of Formatted TableDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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the other benefits of this proposal in the cost per ton calculations. If EPA were to include fuel savings in the cost estimates, the cost per to n would be less than $0, since the estimated value of fuel savings outweighs these cos ts. With regard to the proposed CH 4 and N 2 O standards, since these standards would be emissio ns caps designed to ensure manufacturers do not backslide from current levels, EPA has not estimated costs associated with the standards (since the standards would not require any change from current practices nor does EPA estimate they would result in emissions reductions.

The results for CO 2 e costs per ton under the proposed vehicle program are shown

in Table III.H.2-1.

Table III.H.2-1 Annual Cost Per Metric Ton of CO 2 e Reduced, in $2007 dollars

Year Cost a ($Millions) CO 2 e Reduced

(Million Metric Tons) Cost per Ton

2020 $18,000 170 $110

2030 $17,900 320 $60

2040 $19,300 420 $50

2050 $20,900 520 $40

a Costs here include vehicle compliance costs and do not include any fuel savings (discussed in Section III.H.3) or other benefits of this proposal (discussed in Sections III.H.5 throug h III.H 10).

3. Reduction in Fuel Consumption and its Impacts

a. What Are the Projected Changes in Fuel Consumpti on?

The proposed CO 2 standards would result in significant improvements in the fuel efficiency of affected vehicles. Drivers of those vehicles would see corresponding savings associated with reduced fuel expenditures. EPA has estimated the impacts on fuel consumption for both the proposed tailpipe CO 2 standards and the proposed A/C credit program. To do this, fuel consumption is ca lculated using both current CO 2 emission levels and the proposed CO 2 standards. The difference between these estimates represents the net savings from the proposed CO 2 standards. Note that the total number of miles that vehicles are driven each year is diff erent under each of the control case

scenarios than in the reference case due to the “re bound effect,” which is discussed in

Section III.H.3.c.

The expected impacts on fuel consumption are shown in Table III.H.3-1. The gallons shown in the tables reflect impacts from th e proposed CO 2 standards, including the proposed A/C credit program, and include increa sed consumption resulting from the

rebound effect. Formatted TableDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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Table III.H.3-1 Fuel Consumption Impacts of the Pro posed Vehicle Standards and A/C Credit Programs (Million gallons)

Year Total

2012 530

2013 1,320

2014 2,410

2015 3,910

2016 5,930

2020 13,350

2030 26,180

2040 33,930

2050 42,570

b. What are the Fuel Savings to the Consumer?

Using the fuel consumption estimates presented in Section III.H.3.a, EPA can calculate the monetized fuel savings associated wit h the proposed CO 2 standards. To do this, we multiply reduced fuel consumption in each year by the corresponding estimated average fuel price in that year, using the referenc e case taken from the AEO 2009. 201
AEO is the government consensus estimate used by NH TSA and many other government agencies to estimate the projected price of fuel. E PA has included all fuel taxes in these estimates since these are the prices paid by consum ers. As such, the savings shown reflect savings to the consumer. These results are shown in Table III.H.3-2. Note that EPA presents the monetized fuel savings using pre-t ax fuel prices in Section III.H.10. The fuel savings based on pre-tax fuel prices refle ct the societal savings in contrast to the consumer savings presented in Table III.H.3-2. Als o in Section III.H.10, EPA presents the benefit-cost of the proposal and, for that reas on, present the fuel impacts as negative costs of the program while here EPA presents them a s positive savings.

Table III.H.3-2 Estimated Fuel Consumption Savings to the Consumer a

(Millions of 2007 dollars)

201 Energy Information Administration, Supplemental ta bles to the Annual Energy Outlook 2009, Updated Reference Case with American Recovery and Reinvestm ent Act. Available http://www.eia.doe.gov/oiaf/aeo/supplement/stimulus /regionalarra.html. April 2009. Formatted TableDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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Calendar Year Total

2012 $1,400

2013 $3,800

2014 $7,200

2015 $12,400

2016 $19,400

2020 $48,400

2030 $100,000

2040 $136,800

2050 $181,000
NPV, 3% $1,850,200
NPV, 7% $826,900

a Fuel consumption savings calculated using taxed fuel prices. Fuel consumption impacts using pre-tax fuel prices are presented in Section III.H.10 as negative costs of the vehicle program

As shown in Table III.H.3-2, EPA is projecting that consumers would realize very large fuel savings as a result of the standards con tained in this proposal. There are several ways to view this value. Some, as demonstr ated below in Section III.H.4, view these fuel savings as a reduction in the cost of ow ning a vehicle, whose full benefits consumers realize. This approach assumes that, reg ardless how consumers in fact make their decisions on how much fuel economy to purchas e, they will gain these fuel savings. Another view says that consumers do not necessarily value fuel savings as equal to the results of this calculation. Instead, consumers ma y either undervalue or overvalue fuel economy relative to these savings, based on their p ersonal preferences. This issue is discussed further in Section III.H.4 and in Chapter 8 of the DRIA.

c. VMT Rebound Effect

The fuel economy rebound effect refers to the fract ion of fuel savings expected to result from an increase in vehicle fuel economy – p articularly 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 o f operating a vehicle, and vehicle owners respond to this reduction in operating costs by driving slightly more.

For this proposal, EPA is using an estimate of 10% for the rebound effect. This value is based on the most recent time period analy zed in the Small and Van Dender 2007

paper, 202 and which is further supported by the new research cond ucted by David

Green e. 203 It also falls within the range of the larger body of histo rical work on the

202 Small, K. and K. Van Dender, 2007a. “Fuel Efficien cy and Motor Vehicle Travel: The Declining Rebound Effect”, The Energy Journal, vol. 28, no. 1 , pp. 25-51 (Docket EPA-HQ-OAR-2009-0472 ).

203 Report by Kenneth A. Small of University of Califor nia at Irvine, “The Rebound Effect from Fuel Efficiency Standards: Measurement and Projection to 2030”, June 12, 2009 (Docket EPA-HQ-OAR-2009-

0472 ). Formatted TableDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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rebound effect. 204 Recent work by David Greene on the rebound effect for light-duty

vehicles in the U.S. further supports the hypothesis suggests that the rebound effect is decreasing over time. 205 If we were to use a dynamic estimate of the futur e rebound effect, our analysis shows that the rebound effect could be in the range of 5% or lower. 206

The rebound effect is also discussed in Section II. F of the preamble; the TSD, Section 4.2.5, reviews the relevant literature and discusse s in more depth the reasoning for the

rebound values used here. EPA invites comment on the most appropriate methodo logy for estimating the rebound effect for this rulemaki ng.

EPA also invites comments on other alternatives for estimating the rebound effect. As one illustration, variation in the pric e per gallon of gasoline directly affects the per-mile cost of driving, and drivers may respond j ust as they would to a change in the cost of driving resulting from a change in fuel eco nomy, by varying the number of miles they drive. Because vehicles’ fuel economy is fixe d in the short run, variation in the number of miles driven in response to changes in fu el prices will be reflected in changes in gasoline consumption. Under the assumption that drivers respond similarly to changes in the cost of driving whether they are caused by v ariation in fuel prices or fuel economy, the short-run price elasticity of demand for gasoli ne – which measures the sensitivity of gasoline consumption to changes in its price per ga llon – may provide some indication about the magnitude of the rebound effect itself. EPA invites comment on the extent to which the short run elasticity of demand for gasoli ne with respect to its price can provide

useful information about the size of the rebound ef fect. Specifically, we seek comment on whether it would be appropriate to use the price elasticity of demand for gasoline, or other alternative approaches, to guide the choice o f a value for the rebound effect.

4. Impacts on U.S. Vehicle Sales and Consumer Vehic le Choice Modeling

a. Vehicle Sales Impacts

The methodology EPA used for estimating the impact on vehicle sales is relatively straightforward, but makes a number of s implifying assumptions. According to the literature, the price elasticity of demand for vehicles is commonly estimated to be -

1.0. 207 In other words, a one percent increase in the pri ce of a vehicle would be expected

204 Sorrell, S. and J. Dimitropoulos, 2007. “UKERC Rev iew of Evidence for the Rebound Effect, Technical Report 2: Econometric Studies”, UKERC/WP/TPA/2007/0 10, UK Energy Research Centre, London,

October (Docket EPA-HQ-OAR-2009-0472)

. 205 Report by Kenneth A. Small of University of Califo rnia at Irvine to EPA , “The Rebound Effect from Fuel Efficiency Standards: Measurement and Projecti on to 2030”, June 12, 2009 (Docket EPA-HQ-OAR2009-0472).

206 Report by David Greene of Oak Ridge National Labor atory to EPA, “Rebound 2007: Analysis of National Light-Duty Vehicle Travel Statistics,” Mar ch 24, 2009 (Docket EPA-HQ-OAR-2009-0472). Note, this report has been submitted for peer revie w. Completion of the peer review process is expect ed prior to the final rule.

207 Kleit A.N., 1990. “The Effect of Annual Changes in Automobile Fuel Economy Standards.” Journal of Regulatory Economics 2: 151-172 (Docket EPA-HQ-OAR-2009-0472) ; McCarthy, Patrick S.,

1996. “Market Price and Income Elasticities of New Vehicle Demands.” Review of Economics and

Statistics 78: 543-547 (Docket EPA-HQ-OAR-2009-0472) ; Goldberg, Pinelopi K., 1998. “The Effects ofDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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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 proposed standards

and assume that consumers will face the full increa se in costs, not an actual (estimated) change in vehicle price. (The estimated increases in vehicle cost due to the rule are discussed in Section III.H.1) This is a conservati ve 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. 208 EPA also notes that we have not used these estima ted 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 as sumed that the consumer would take into account both the higher vehicle purchasing cos ts as well as the fuel savings benefits when deciding whether to purchase a new vehicle. T herefore, the incremental cost increase of a new vehicle would be offset by reduce d fuel expenditures over a certain period of time (i.e., the “payback period”). For t he purposes of this rulemaking, EPA used a five-year payback period, which is consisten t with the length of a typical new light-duty vehicle loan. 209

This increase in costs has other effects on consume rs as well: if vehicle prices increase, consumers will face higher insurance cost s and sales tax , and additional finance costs if the vehicle is bought on credit . In addition, the resale value of the vehicles wi ll increase. EPA estimates that, with corrections for these factors, the effect on consumer expenditures of the cost of the new technology shou ld be 0. 841 932 times the cost of the technology at a 3% discount rate, and 0.8 84 92 times the cost of the technology at a 7%

discount rate. The details of this calculation are in the DRIA, Chapter 8.l.

Once the cost estimates are adjusted for these addi tional factors, the fuel cost savings associated with the rule, discussed in Sect ion III.H.3, are subtracted to get the net effect on consumer expenditures for a new vehicle. With the assumed elasticity of demand of -1, the percent change in this “effective price,” estimated as the adjusted increase in cost, is equal to the negative of the p ercent change in vehicle purchases. The

net effect of this calculation is in Table III.H.4- 1 and Table III.H.4-2.

The estimates provided in Table III.H.4-1 and Table III.H.4-2 are meant to be illustrative rather than a definitive prediction. When viewed at the industry-wide level, they give a general indication of the potential imp act on vehicle sales. As shown below,

the Corporate Average Fuel Efficiency Standards in the U.S.,” Journal of Industrial Economics 46(1): 1-33 (Docket EPA-HQ-OAR-2009-0472)

. 208 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)

. 209 There is not a consensus in the literature on how consumers consider fuel economy in their vehicle purchases. Results are inconsistent, possibly due to fuel economy not being a major focus of many of the studies. Espey, Molly, and Santosh Nair (1995, “Au tomobile Fuel Economy: What Is It Worth?” Contemporary Economic Policy 23: 317-323 , (Docket EPA-HQ-OAR-2009-0472 ) find that their results are consistent with consumers using the lifetime of the vehicle, not just the first five years, in the ir fuel economy purchase decisions. This result suggests t hat the five-year time horizon used here may be an

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the overall impact is positive and growing over tim e for both cars and trucks, because the estimated value of fuel savings exceeds the costs o f meeting the higher standards.

Table III.H.4-1 Vehicle Sales Impacts Using a 3% Di scount Rate Change in Car

Sales % Change Change in

Truck Sales % Change

2012 66,600 75,700 0.7 0.8 27,300 35,000 0.5 0.6

2013 93,300 109,900 0.9 1.1 161,300 76,800 2.8 1.3

2014 134,400 161,700 1.3 1.5 254,400 149,700 4.4 2.6

2015 236,300 272, 900 2.2 2.5 368,400 233,200 6.5 4.1

2016 375,400 410,200 3.4 3.7 519,000 328,200 9.4 5.9

Table III.H.4-1 shows the impacts on new vehicle sa les using a 3% discount rate. The fuel savings are always higher than the technol ogy costs. Although both cars and trucks show very small effects initially, over time vehicle sales become increasingly positive, as increased fuel prices make improved fu el economy more desirable. The increases in sales for cars are always larger than the increases for trucks, though trucks show a greater percentage increase.

Table III.H.4-2 New Vehicle Sales Impacts Using a 7 % Discount Rate Change in Car

Sales % Change Change in

Truck Sales % Change

2012 61,900 59,700 0.7 0.6 25,300 27,600 0.5 0.5

2013 86,600 86,400 0.9 0.9 60,000 64,100 1 1.1

2014 125,200 130,800 1.2 1.3 122,900 131,300 2.1 2.3

2015 221,400 230,400 2 2.1 198,100 207,600 3.5 3.6

2016 353,100 353,900 3.2 3.2 291,500 292,300 5.3 5.3

Table III.H.4-2 shows the impacts on new vehicle sa les using a 7% interest rate. While a 7% interest rate shows slightly lower impac ts 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.

In general, changes in prices or other characterist ics of the new vehicles market will also have consequences for the used vehicle ma rket. Specifically, any action that raises prices for new vehicles will also tend to in crease prices of used vehicles, and in turn cause owners of existing vehicles to keep them in service for slightly longer. In the case of the proposed rule, however, the agency esti mates that the value of fuel savings

over the lifetimes of the new vehicles will exceed the increase in their prices, prompting an increase in sales of new vehicles during most mo del years that the rule affects. As a consequence, prices for used vehicles are also like ly to decline, leading to slight increases

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new models. In turn, this will accentuate the effe cts of the proposed standards on fuel consumption and GHG emissions; at the same time, to tal criteria pollutant emissions from the entire vehicle fleet may also decrease, as newer, lower-polluting vehicles replace used vehicles.

EPA believes these secondary effects of the propose d standards are de minimus, because the primary effect on new vehicle prices is likely to be small, and consequently the impact on used vehicle markets would be similar ly modest.

A detailed discussion of the vehicle sales impacts methodology is provided in the DRIA. EPA invites comments on this approach to est imating the vehicle sales impacts of this proposal.

b. Consumer Vehicle Choice Modeling

In this section EPA describes some of the consumer vehicle choice models EPA has reviewed in the literature, and we describe the models’ results and limitations that we

have identified. The evidence from consumer vehicl e choice models indicates a huge range of estimates for consumers’ willingness to pa y for additional fuel economy. Because consumer surplus estimates from consumer ve hicle choice models depend critically on this value, EPA would consider any co nsumer surplus estimates of the effect

of our rule from such models to be unreliable. In addition, the predictive ability of consumer vehicle choice models may be limited. Whi le vehicle choice models are based on sales of existing vehicles, vehicle models are l ikely to change, both independently and in response to this proposed rule; the models may n ot predict well in response to these changes. Instead, EPA compares the value of the fu el savings associated with this rule with the increase in technology costs. EPA will con tinue its efforts to review the literature, but, given the known difficulties, EPA has not conducted an analysis using these models for this proposal.

Consumer vehicle choice models (referred to as “mar ket shift” models by NHTSA in Section IV.C.4.c) are a tool that attempts to estimate how consumers decide what vehicles they buy. The models typically take into consideration both household characteristics (such as income, family size, and a ge) and vehicle characteristics (including a vehicle’s power, price, and fuel econo my). These models are often used to examine how a consumer’s vehicle purchase decision is affected by a change in vehicle or personal characteristics. Although these models focus on the consumer, some have

also linked consumer choice models with information on vehicle technologies and costs, to estimate an integrated system of consumer and au to maker response.

The outputs from consumer vehicle choice models typ ically include the market shares of each category of vehicle in the model. I n addition, consumer vehicle choice

models are often used to estimate the effect of mar ket or regulatory changes on consumer surplus. Consumer surplus is the benefit that a co nsumer gets over and above the market price paid for the good. For instance, if a consum er is willing to pay up to $30,000 for a car but is able to negotiate a price of $25,000, th e $5000 difference is consumer surplus.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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Information on consumer surplus can be used in bene fit-cost analysis to measure whether consumers are likely to consider themselves better or worse off due to the changes.

Consumer vehicle choice modeling has not previously been applied in federal regulatory analysis of fuel economy, and EPA has no t used a consumer vehicle choice model in its analysis of the effects of this propos ed rule. EPA has not done so, to this point, due to concern over the wide variation in th e methods and results of existing models, as well as some of the limitations of exist ing applications of consumer choice modeling. Our preliminary review of the literature indicates that these models vary in a number of dimensions, including data sources used, modeling methods, vehicle characteristics included in the analysis, and the r esearch questions for which they were designed. These dimensions are likely to affect th e models’ results and their interpretation. In addition, their ability to inco rporate major changes in the vehicle fleet

appears unproven.

One problem for this rule is the variation in the v alue that consumers place on fuel economy in their vehicle purchase decisions. A num ber of consumer vehicle choice models make the assumption that auto producers prov ide as much fuel economy in their vehicles as consumers are willing to purchase, and consumers are satisfied with the current combinations of vehicle fuel economy and pr ice in the marketplace. 210 If this assumption is true, then consumers will not benefit from required improvements in fuel economy, even if the fuel savings that they receive exceed the additional costs from the fuel-saving technology. Other vehicle choice model s, in contrast, find that consumers are willing to pay more for additional fuel economy tha n the costs to auto producers of installing that technology. 211 If this result is true, then both consumers and p roducers would benefit from increased fuel economy. This re sult leaves open the question why auto producers do not follow the market incentive t o provide more fuel economy, and why consumers do not seek out more fuel-efficient v ehicles.

Whether consumers and producers will benefit from i mproved fuel economy depends on the value of improved fuel economy to co nsumers. There may be a

210 E.g., Kleit, Andrew N. (2004). “Impacts of Long-Ran ge Increases in the Fuel Economy (CAFE) Standard.” Economic Inquiry 42(2): 279-294 (Docket EPA-HQ-OAR-2009-0472) ; Austin, David, and Terry Dinan (2005). “Clearing the Air: The Costs and Consequences of Higher CAFE Standards and

Increased Gasoline Taxes.” Journal of Environmenta l Economics and Management 50: 562-582 (Docket EPA-HQ-OAR-2009-0472) ; Klier, Thomas, and Joshua Linn (2008). “New Vehic le Characteristics and the Cost of the Corporate Average Fuel Economy Standard ,” working paper. http://www.chicagofed.org/publications/workingpaper s/wp2008_13.pdf (Docket EPA-HQ-OAR-2009- 0472) ; Jacobsen, Mark. “Evaluating U.S. Fuel Economy St andards In a Model with Producer and Household Heterogeneity,” http://www.econ.ucsd.edu/ ~m3jacobs/Jacobsen_CAFE.pdf, accessed 5/11/09 (Docket EPA-HQ-OAR-2009-0472)

. 211 E.g., Gramlich, Jacob (2008). “Gas Prices and Endo genous Product Selection in the U.S. Automobile Industry,” http://www.econ.yale.edu/seminars/apmicr o/am08/gramlich-081216.pdf , accessed 5/11/09 (Docket EPA-HQ-OAR-2009-0472) ; McManus, Walter M. (2007). “The Impact of Attribu te-Based Corporate Average Fuel Economy (CAFE) Standards: P reliminary Findings.” University of Michigan Transportation Research Institute paper UMTRI-2007- 31 (Docket EPA-HQ-OAR-2009-0472) ; McManus, W. and R. Kleinbaum (2009). “Fixing Detroit: How Fa r, How Fast, How Fuel Efficient.“ Working Paper, Transportation Research Institute, University of Mi chigan (Docket EPA-HQ-OAR-2009-0472)

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difference between the fuel savings that consumers would receive from improved fuel economy, and the amount that consumers would be wil ling to spend on a vehicle to get improved fuel economy. A 1988 review of consumers’ willingness to pay for improved fuel economy found estimates that varied by more th an an order of magnitude: for a $1 per year reduction in vehicle operating costs, cons umers would be willing to spend between $0.74 and $25.97 in increased vehicle price

. 212 For comparison, the present value of saving $1 per year on fuel for 15 years at a 3% discount rate is $11.94, while a 7% discount rate produces a present value of $8.78. Thus, this study finds that consumers may be willing to pay either far too much or far too little for the fuel savings they will receive.

Although EPA has not found an updated survey of the se values, a few examples suggest that the existing consumer vehicle choice m odels still demonstrate wide variation in estimates of how much people are willing to pay for fuel savings. For instance, Espey and Nair (2005) and McManus (2006) find that consum ers are willing to pay around $600 for one additional mile per gallon. 213 In contrast, Gramlich (2008) finds that consumers ’ willingness to pay for an increase from 25 mpg to 3 0 mpg varies between $4100 (for luxury cars when gasoline costs $2/gallon) to $20,5 60 (for SUVs when gasoline costs $3.50/gallon). 214

Lack of information is one possible reason for the variation. Consumers 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 o f fuel savings is complex, and consumers may not make it correctly. 215 In addition, future fuel price (a major component of fuel savings) is highly uncertain. Co nsumer fuel savings also vary across individuals, who travel different amounts and have different driving styles. Studies regularly show that fuel economy plays a role in co nsumers’ vehicle purchases, but modeling that role may still be in development. 216

212 Greene, David L., and Jin-Tan Liu (1988). “Automo tive Fuel Economy Improvements and Consumers’ Surplus.” Transportation Research Part A 22A(3): 2 03-218 (Docket EPA-HQ-OAR-2009-0472) . The study actually calculated the willingness to pay fo r reduced vehicle operating costs, of which vehicle fuel economy is a major component.

213 Espey, Molly, and Santosh Nair (2005). “Automobil e Fuel Economy: What is it Worth?” Contemporary Economic Policy 23(3): 317-323 (Docket EPA-HQ-OAR-2009-0472) ; McManus, Walter M. (2006). “Can Proactive Fuel Economy Strategies H elp Automakers Mitigate Fuel-Price Risks?” University of Michigan Transportation Research Inst itute (Docket EPA-HQ-OAR-2009-0472)

. 214 Gramlich, Jacob (2008). “Gas Prices and Endogenous Product Selection in the U.S. Automobile Industry,” http://www.econ.yale.edu/seminars/apmicr o/am08/gramlich-081216.pdf , accessed 5/11/09 (Docket EPA-HQ-OAR-2009-0472)

. 215 Turrentine, T. and K. Kurani (2007). “Car Buyers a nd Fuel Economy?” Energy Policy 35: 1213-1223 (Docket EPA-HQ-OAR-2009-0472) ; Larrick, R. P., and J.B. Soll (2008). “The MPG i llusion

. ” Science

320: 1593-1594 (Docket EPA-HQ-OAR-2009-0472)

. 216 Busse, Meghan R., Christopher R. Knittel, and Flor ian Zettelmeyer (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 /gaspaper_latest.pdf (Docket EPA-HQ-OAR-2009- 0472)

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202 If there is a difference between fuel savings and c onsumers’ willingness to pay for fuel savings, the next question is, which is the ap propriate measure of consumer benefit? Fuel savings measure the actual monetary value that consumers will receive after purchasing a vehicle; the willingness to pay for fu el economy measures the value that, before a purchase, consumers place on additional fu el economy. 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, poor ability to estimate savings, and personal variation in benefits.

A second problem with use of consumer vehicle choic e models, as they now stand, is that they are even less reliable in the f ace of significant changes otherwise occurring in fleet composition. One attempt to ana lyze the effect of the oil shock of 1973 on consumer vehicle choice found that, after two ye ars, the particular model did not predict well due to changes in the vehicle fleet. 217 It is likely that, in the next few years, many of the vehicles that will be offered for sale will change. In coming years, new vehicles will be developed, and existing vehicles w ill be redesigned. For instance, over the next few years, new vehicles that have both hig h fuel economy and high safety factors, in combinations that consumers have not pr eviously been offered, are likely to appear in the market. Models based on the existing vehicle fleet may not do well in predicting consumers’ choices among the new vehicle s offered. Given that consumer vehicle choice models appear to be less effective i n predicting vehicle choices when the vehicles are likely to change, EPA is reluctant to use the models for this proposed rulemaking.

In sum, the estimates of consumer surplus from cons umer vehicle choice models depend heavily on the value to consumers of improve d fuel economy, a value for which estimates are highly varied. In addition, the pred ictive ability of consumer vehicle choice models may be limited as consumers face new vehicle choices that they previously did

not have.

Nonetheless, because there are potential advantages to using consumer vehicle

choice models if these difficulties can be addresse d, EPA plans to continue our investigation and evaluation of consumer vehicle ch oice models. This effort includes further review of existing consumer vehicle choice models and the estimates of consumers’ willingness to pay for increased fuel ec onomy. In addition, EPA is developing capacity to examine the factors that may affect the results of consumer vehicle choice models, and to explore their impact on analysis of regulatory scenarios.

A detailed discussion of the state of the art of co nsumer choice modeling is provided in the DRIA. EPA invites comments on this review and on the state of the art of consumer vehicle choice modeling.

c. Consumer Payback Period and Lifetime Savings on New Vehicle

Purchases

217 Berry, Steven, James Levinsohn, and Ariel Pakes (J uly 1995). “Automobile Prices in Market Equilibrium,” Econometrica 63(4): 841-940 (Docket EPA-HQ-OAR-2009-0472)

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203 Another factor of interest is the payback period on the purchase of a new vehicle that complies with the proposed standards. In othe r words, how long would it take for the expected fuel savings to outweigh the increased cos t of a new vehicle? For example, a new 2016 MY vehicle is estimated to cost $1,050 mor e ( 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 n ew technology will result in lower fuel consumption and, therefore, savings in fuel expendi tures (see Section III.F.1 for details on fuel savings). But how many months or years wou ld pass before the fuel savings exceed the upfront cost of $1,050?

Table III.H.4-3 provides the answer to this questio n for a vehicle purchaser who pays for the new vehicle upfront in cash (we discus s later in this section the payback period for consumers who finance the new vehicle pu rchase with a loan). The table uses annual miles driven (vehicle miles traveled, or VMT ) and survival rates consistent with the emission and benefits analyses presented in Cha pter 4 of the draft 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 savi ngs associated with A/C controls (in the control case only), but the expected A/C-related ma intenance savings are not included

. The likely A/C-related maintenance savings are disc ussed in Chapter 2 of EPA’s draft RIA. Further, this analysis does not include other societal impacts such as the value of increased driving, or noise, congestion and acciden ts since the focus is meant to be on

those factors consumers consider most while in the showroom considering a new car purchase. Car/truck fleet weighting is handled as described in Chapter 1 of the draft joint TSD. As can be seen in the table, it will take unde r 3 years (2 years and 8 months at a 3% discount rate, 2 years and 10 months at a 7% discou nt rate) for the cumulative discounted fuel savings to exceed the upfront increase in vehi cle cost. More detail on this analysis can be found in Chapter 8 of EPA’s draft RIA.

Table III.H.4-3 Payback Period on a 2016 MY New Ve hicle 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 $1,128 $443 $436 $428

2 $444 $860 $829

3 $443 $1,272 $1,203

4 $434 $1,663 $1,546

a Increased cost of the proposed rule is $1,050; the value here includes nationwide average sales tax o f 5.3% and increased insurance premiums of 1.98%; bot h of these percentages are discussed in Section 8.1 .1

of EPA’s draft RIA.

b Calculated using AEO 2009 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 fiv e year, 60 month loan. As of August 24, 2009, the national average interest rate for a 5 ye ar new car loan was 7.41 percent. If the increased vehicle cost is spread out over 5 years a t 7.41 percent, the analysis would lookDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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like that shown in Table III.H.4-4. As can be seen in this table, the fuel savings immediately outweigh the increased payments on the car loan, amounting to $ 162165 in discounted net savings (3% discount rate) saved in the first year and similar savings for the next two years before reduced VMT starts to cau se 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 $ 912 to $14 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 ow nership).

Table III.H.4-4 Payback Period on a 2016 MY New Ve hicle 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 $278 $443 $162 $159

2 $278 $444 $158 $150

3 $278 $443 $153 $139

4 $278 $434 $141 $123

5 $278 $423 $127 $107

6 $0 $403 $343 $278

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 7.41 percent.

b Calculated using AEO 2009 reference case fuel pric e 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 p urchase the vehicle with credit. This calculation applies to the vehicle owner who retain s the vehicle for its entire life and drives the vehicle each year at the rate equal to t he national projected average. The

results are shown in Table III.H.4-5. In either ca se, the present value of the lifetime net savings is greater than $ 3,300 3,200 at a 3% discount rate, or $2,400 at a 7% disc ount

rate

.

Table III.H.4-5 Lifetime Discounted Net Savings on a 2016 MY New Vehicle Purchase

,

Net Present Values at a 3% Discount Rate (2007 dollars)

PURCHASE

OPTION INCREASED

DISCOUNTED

VEHICLE COST LIFETIME

DISCOUNTED

FUEL SAVINGS B LIFETIME

DISCOUNTED

NET SAVINGS

3% discount rate

Cash $1,128 $4,558 $3,446

Credit a $1,293 $4,558 $3,265

7% discount rate

Cash $1,128 $3,586 $2,495

Credit a $1,180 $3,586 $2,406

a Assumes a 5 year loan at 7.41 percent.

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Note that throughout this consumer payback discuss ion, the average number of vehicle miles traveled per year has been used. Dri vers who drive more miles than the average would incur fuel related savings more quick ly and, therefore, the payback would

come sooner. Drivers who drive fewer miles than th e average would incur fuel related savings more slowly and, therefore, the payback wou ld come later.

5. Economy-Wide Impacts of the Rule

It is anticipated that this proposal would have imp acts on the U.S. economy that extend beyond the transportation sector. The price of light-duty vehicles would increase with the proposed GHG vehicle emissions standards. This proposal would also lower the demand for transportation fuels, resulting in fuel savings to vehicle users and a lower overall price for transportation fuels. This combin ation of effects—price increases for vehicles and lower demand and prices for transporta tion fuels—would impact all sectors of the economy that use light-duty vehicles and fue ls as intermediate inputs (e.g., delivery vehicles) to produce final goods. Households would also be impacted indirectly as consumers of final goods, and directly as consumers of fuels and light-duty vehicles.

It is important to note, however, that these potent ial impacts do not represent additional benefits or costs from the proposed regu lation. Instead, they represent the effects on the U.S. economy as its direct benefits and costs are transmitted through changes in prices in the affected markets, includin g those for vehicles and their components, fuel, and the various resources used to supply them. To estimate the impacts of this proposal on U.S. Gross Domestic Product (GD P) and personal consumption, EPA has used an economy-wide, computable general equili brium (CGE) model. This model uses outputs of the vehicle sector model (e.g., inc remental costs of vehicle technologies, reduction in fuel consumption, impacts on transport ation fuel prices) as inputs to determine the economy-wide impacts of the proposal. The economy-wide model used in this analysis is the Intertemporal General Equilibr ium Model (IGEM). 218 IGEM is a model of the U.S. economy with an emphasis on the e conomy’s energy and environmental aspects. IGEM is a dynamic model whi ch depicts growth of the economy due to capital accumulation, technical change and p opulation change. It is a detailed multi-sector model covering thirty-five industries. It also depicts changes in consumption patterns due to demographic changes, price, and inc ome effects. The substitution possibilities for both producers and consumers in I GEM are driven by model parameters

that are based on observed market behavior revealed over the past forty to fifty years. See the Chapter 8.2 in the DRIA for more informatio n on the approach taken to analyze the economy-wide impacts of the proposed rule.

a. Impacts on U.S. GDP

218 The model is developed and run by Dale W. Jorgenson Associates for EPA. Model Homepage: http://www.dja.insightworks.com/Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

206

In order to use IGEM to estimate the real U.S. GDP impacts of the vehicles proposal, EPA analyzed the impact of changes in the costs of light-duty vehicles, changes in fuel consumption from the shift to a lower GHG-e mitting vehicle stock, and the impacts of changes in the demand for motor fuels on fuel prices (see Section III.H.1 for details on changes in vehicle technology costs, Sec tion III.H.3 for details on the changes in transportation fuel demand, and Section III.H.8 for details on changes in the world oil price the monopsony effect ) as a result of this proposal. It is important to note that the economy-wide analysis does not include a representa tion of the benefits associated with reducing greenhouse gas emissions, and thus the GDP impacts presented here do not incorporate the results of a complete cost benefit analysis. Table III.H.5-1 shows the Reference Case GDP, GDP with this proposal and the percentage change in GDP as a result of this proposal from 2016 through 2050. It is important to note that the Reference Case used for the economy-wide analysis is based on the AEO 2009 projections, which differs slightly from baseline used in other sectio ns of this analysis. In addition, the impacts of the proposal were based on preliminary c ost data that are slightly different than the costs reported in Section III.H.1. Detail s on these assumptions are included in Chapter 8.2 of the RIA.

Table III.H.5-1 Annual GDP Impacts Associated with this Proposal (billions of 2007$)

Year Reference Case GDP GDP with this Proposal % Change from

Reference Case 2016 $17,214 $17,253 0.23%

2020 $18,920 $18,919 $19,00 4 3 0.44% 2030 $24,315 $24,502 0.77% 2040 $30,459 $30,716 0.84% 2050 $37,904 $38,241 0.89%

In the Reference Case, GDP rises from approximately $17.2 trillion in 2016 to $18.9 trillion in 2020, $24.3 trillion in 2030, $30 .5 trillion in 2040, and $37.9 trillion in 2050. With this proposal, GDP rises from approxima tely $17.2 trillion in 2016 to $19.0 trillion in 2020, $24.5 trillion in 2030, $30.7 tri llion in 2040, and $38.2 trillion in 2050.

b. Impacts on U.S. Consumption

In addition to showing the impacts of the GHG vehic le proposal on U.S. GDP, EPA also shows the impacts on real U.S. personal co nsumption expenditures. Table III.H.5.a-2 shows the Reference Case Consumption, C onsumption with this proposal and the percentage change in Consumption as a result of this proposal from 2020 2016 through 2040 2050 . In the Reference Case, Consumption rises from ap proximately $10.7 trillion in 2016 to $11.8 trillion in 2020, $14.9 t rillion in 2030, $18.8 trillion in 2040, and $23.2 trillion in 2050. With this proposal, Consum ption rises from approximately $10.7 trillion in 2016 to approximately $11.8 trillion in 2020, $15.1 trillion in 2030, $19.0 trillion in 2040, and $23.5 trillion in 2050.

Table III.H.52 Consumption Impacts of this Proposal (billions of 2007$)Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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Year Reference Case

Consumption Consumption with

GHG Vehicle Proposal % Change from

Reference Case

2016 $10,66 9 8 $10,68 9 8 0.19%

2020 $11,763 $11,764 $11,80 8 7 0.37% 2030 $14,945 $15,083 0.93% 2040 $18,80 4 3 $19,04 2 1 1.27%

2050 $23,165 $23,504 1.46%

Additional details on the economy-wide analysis can be found in Chapter 8.2 of the DRIA. EPA invites comment on this economy-wide analysis.

6. Benefits of Reducing GHG Emissions

a. Introduction

This proposal is designed to reduce greenhouse gas (GHG) emissions from lightduty vehicles. This section provides monetized est imates of some of the economic benefits of this proposal’s projected GHG emissions reductions. 219 The total benefit estimates were calculated by multiplying a marginal dollar value (i.e., cost per ton) of carbon emissions, also referred to as “social cost of carbon” (SCC), by the anticipated level of emissions reductions in tons. We request comment on the approach used to

estimate the set of SCC values used for this coordi nated proposal as well as the other options considered.

The estimates presented here are interim values. EPA and other agencies will continue to explore the underlying assumptions and issues.

As discussed below, the interim dollar estimates of the SCC represent a partial accounting of climate change impacts. The quantita tive account presented here is accompanied by a qualitative appraisal of climate-r elated impacts presented elsewhere in this proposal. For example, Section III.F.2 of the preamble presents a summary of the impacts and risks of climate change projected in th e absence of actions to mitigate GHG

emissions. Section III.F.2 is based on EPA documents that The TSD synthesize s major findings from the best available scientific assessm ents of the scientific literature that have gone through rigorous and transparent peer review, including the major assessment reports of both the Intergovernmental Panel on Clim ate Change (IPCC) and the U.S. Climate Change Science Program (CCSP)

. 220

219 The marginal and total benefit estimates presented in this section are limited to the impacts that ca n be monetized. Section III.F.2 of this preamble discus ses the physical impacts of climate change, some of

which are not monetized and are therefore omitted f rom the monetized benefits discussed here.

220 U.S. Environmental Protection Agency, “Advance Not ice of Proposed Rulemaking for Greenhouse Gases Under the Clean Air Act, Technical Support Do cument on Benefits of Reducing GHG Emissions,” June 2008. See www.regulations.gov and search for ID “EPA-HQ-OAR-2008-0138-0078.” Formatted Table

Formatted TableDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

208 The rest of this Preamble section will provide the basis for the interim SCC values, and the estimates of the total climate-rela ted benefits of the proposed rule that

follow from these interim values.

b. Derivation of Interim Social Cost of Carbon Valu es

The “social cost of carbon” (SCC) is intended to be a monetary measure of the incremental damage resulting from carbon dioxide (C O 2 ) emissions, including (but not limited to) net agricultural productivity loss, hum an health effects, property damages from sea level rise, and changes in ecosystem servi ces. Any effort to quantify and to monetize the consequences associated with climate c hange will raise serious questions of science, economics, and ethics. But with full regar d for the limits of both quantification and monetization, the SCC can be used to provide an estimate of the social benefits of

reductions in GHG emissions.

For at least three reasons, any particular figure w ill be contestable. First, scientific and economic knowledge about the impacts of climate change continues to grow. With new and better information about relevant questions , including the cost, burdens, and possibility of adaptation, current estimates will i nevitably change over time. Second, some of the likely and potential damages from clima te change—for example, the loss of endangered species—are generally not included in cu rrent SCC estimates. These omissions may turn out to be significant; in the se nse that they may mean that the best current estimates are too low. As noted by the IPC C Fourth Assessment Report, “It is very likely that globally aggregated figures underestimate the damage costs because they cannot include many non-quantifiable impacts.” 221 Third, when economic efficiency criteria, under specific assumptions, are juxtapose d with ethical considerations, the outcome may be controversial. These ethical conside rations, including those involving the treatment of future generations, should and wil l also play a role in judgments about the SCC (see in particular the discussion of the di scount rate, below).

To date, SCC estimates presented in recent regulato ry documents have varied within and among agencies, including DOT, DOE, and EPA. For example, a regulation proposed by DOT in 2008 assumed a value of $7 per m etric ton CO 2 (2006$) for 2011 emission reductions (with a range of $0-14 for sens itivity analysis ; see EPA Docket, EPA-HQ-OAR-2009-0472 ). 222 A regulation proposed by DOE in 2009 used a range of $0-$20 (2007$). Both of these ranges were designed to reflect the value of damages to the United States resulting from carbon emissions, or the “domestic” SCC. In the final MY2011 CAFE EIS, DOT used both a domestic SCC value of $2/tCO 2 and a global SCC value of $33/tCO 2 (with sensitivity analysis at $80/tCO 2 ) (in 2006 dollars for 2007

221 IPCC WGII. 2007. Climate Change 2007 - Impacts, Adaptation and Vulne rability Contribution of Working Group II to the Fourth Assessment Report of the IPCC . See EPA Docket, EPA-HQ-OAR-2009-

0472.

222 For the purposes of this discussion, we present al l values of the SCC as the cost per metric ton of C O 2 emissions. Some discussions of the SCC in the lite rature use an alternative presentation of a dollar per metric ton of Carbon. The standard adjustment fact or is 3.67, which means, for example, that a SCC of $10 per ton of CO 2 would be equivalent to a cost of $36.70 for a ton of carbon emitted. Unless otherwise indicated, a “ton” refers to a metric ton.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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emissions), increasing at 2.4% per year thereafter. The final MY2011 CAFE rule also presented a range from $2 to $80/tCO 2

. (see EPA Docket, EPA-HQ-OAR-2009-0472, for the MY2011 EIS and final rule). EPA’s Advance Notice of Proposed Rulemaking for Greenhouse Gases discussed the benefits of reducing GHG emissions and identified what it described as “very preliminary” SCC estimates “s ubject to revision” that spanned three orders of magnitude. EPA’s global mean values were $68 and $40/tCO 2 for discount rates of 2% and 3% respectively (in 2006 real dolla rs for 2007 emissions). 223

The current Administration has worked to develop a transparent methodology for selecting a set of interim SCC estimates to use in regulatory analyses until a more comprehensive characterization of the distribution of SCC is developed. This discussion proposes a set of values for the interim social cos t of carbon resulting from this methodology . It should be emphasized that the analysis here is preliminary. This proposed joint rulemaking presents SCC estimates th at reflect the Administration’s current understanding of the relevant literature and will be . The se interim estimates are being used for the short-term while an interagency group develops a more comprehensive

characterization of the distribution of SCC values for future economic and regulatory analyses. The interim values should not be viewed as an expectation about the results of the longer-term process. The Administration is seeking comment in this prop osed rule on all of the scientific, economic, and ethical issues before establishing improved estimates for use in future rulemakings.

The outcomes of the Administration’s process to dev elop interim values are judgments in favor of a) global rather than domesti c values, b) an annual growth rate of 3%, and c) interim global SCC estimates for 2007 (i n 2007 dollars) of $56, $34, $20, $10, and $5 per ton of CO 2 . The proposed figures are based on the following j udgments.

i

. Global and Domestic Measures

Because of the distinctive nature of the climate c hange problem, we present both a global SCC and a fraction of that value that repres ents impacts that may occur within the borders of the U.S. alone, or a “domestic” SCC, but fix our attention on the global measure. This approach represents a departure from past practices, which relied, for the most part, on domestic measures. As a matter of law , both global and domestic values are permissible; the relevant statutory provisions are ambiguous and allow selection of either

measure. 224

It is true that under OMB guidance, ana lysis from the domestic perspective is required, while analysis from the international per spective is optional. The domestic decisions of one nation are not typically based on a judgment about the effects of those

223 73 FR 44416 (July 30, 2008). EPA, “Advance Notice of Proposed Rulemaking for Greenhouse Gases Under the Clean Air Act, Technical Support Document on Benefits of Reducing GHG Emissions,” June 2008. www.regulations.gov. Search for ID “EPA-HQ-OA R-2008-0318-0078.

224 It is true that federal statutes are presumed not to have extraterritorial effect, in part to ensure that the laws of the United States respect the interests of foreign sovereigns. But use of a global measure for the SCC does not give extraterritorial effect to federa l law and hence does not intrude on such interests.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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decisions on other nations. But the climate change problem is highly unusual in the sense that it involves (a) a global public good in which (b) the emissions of one nation may inflict significant damages on other nations and (c ) the United States is actively engaged in promoting an international agreement to reduce w orldwide emissions.

In these circumstances, we believe the global meas ure is preferred. Use of a global measure reflects the reality of the problem and is consistent with the continuing

efforts of the United States to ensure that emissio ns reductions occur in many nations.

Domestic SCC values are also presented. The develo pment of a domestic SCC is greatly complicated by the relatively few region- o r country-specific estimates of the SCC in the literature. One potential domestic estim ate comes from the Dynamic Integrated Model of Climate and the Economy ( DICE ) models. In an unpublished paper, Nordhaus produced disaggregated SCC estimates using a regional version of the DICE model. He reported a U.S. estimate of $1/tCO2 (200 7 value, 2007$), which is roughly 11% of the global value. 225

An alternative source of estimates comes from EPA’ s ANPR Benefits TSD, using

the Climate Framework for Uncertainty, Negotiation and Distribution ( FUND ) model. 226
The resulting estimates suggest that the ratio of domestic to global benefits varies with key parameter assumptions. With a 3% discount rate , for example, the U.S. benefit is about 6% of the global benefit of GHG reductions fo r the “central” (mean) FUND results, while, for the corresponding “high” estimates assoc iated with a higher climate sensitivity and lower global economic growth, the U.S. benefit is less than 4% of the global benefit. With a 2% discount rate, the U.S. share is about 2- 5% of the global estimate Comments are requested on whether the share of U.S. SCC is c orrelated with the discount rate.

Based on this available evidence, an interim domes tic SCC value equal to 6% of the global damages is proposed. This figure is arou nd the middle of the range of available estimates cited above. It is recognized that the 6 % figure is approximate and highly speculative and alternative approaches will be expl ored before establishing improved values for future rulemakings. However, it should b e noted that it is difficult to properly apportion global benefits to different regions, bec ause not all the damages citizens of one country would be willing to pay to avoid will occur only within their own borders. For example, impacts outside U.S. border can have signi ficant welfare implications for U.S. populations (e.g. tourism, disaster relief) and if not included, these omissions will lead to an underestimation of the “domestic” SCC. We reques t comment on this issue.

ii. Filtering Existing Analyses

There are numerous SCC estimates in the existing l iterature, and it is reasonable to make use of those estimates in order to produce a figure for current use. A starting

225 William Nordhaus, personal communication, 2007. See EPA Docket, EPA-HQ-OAR-2009-0472.

226 73 FR 44416 (July 30, 2008). EPA, “Advance Notice of Proposed Rulemaking for Greenhouse Gases Under the Clean Air Act, Technical Support Document on Benefits of Reducing GHG Emissions,” June 2008. www.regulations.gov. Search for ID “EPA-HQ-OA R-2008-0318-0078.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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point is provided by the meta-analysis in Richard T ol, 2008. 227 With that starting point, the Administration proposes to “filter” existing SC C estimates by using those that (1) are derived from peer-reviewed studies; (2) do not weig ht the monetized damages to one country more than those in other countries; (3) use a “business as usual” climate scenario; and (4) are based on the most recent published vers ion of each of the three major integrated assessment models (IAMs): FUND, Policy Analysis for the Greenhouse Effect ( PAGE ) , and DICE.

Proposal (1) is based on the view that those studi es that have been subject to peer review are more likely to be reliable than those th at have not. Proposal (2) avoids treating the citizens of one nation (or different citizens w ithin the U.S.) differently on the basis of income considerations, which some may find controve rsial and in any event would complicate that analysis. Further it is consistent with the potential compensation tests of Kaldor (1939) and Hicks (1940), which form the conc eptual foundations of benefit-cost analysis and use unweighted sums of willingness to pay. Finally, this is the approach used in rulemakings across a variety of settings an d consequently keeps USG policy

consistent across contexts.

Proposal (3) stems from the judgment that as a gen eral rule, the proper way to assess a policy decision is by comparing the implem entation of the policy against a counterfactual state where the policy is not implem ented. In addition, our expectation is that most policies to be evaluated using these inte rim SCC estimates will constitute small enough changes to the larger economy to safely assu me that the marginal benefits of emissions reductions will not change between the ba seline and policy scenarios.

Proposal (4) is based on four complementary judgme nts. First, the FUND, PAGE, and DICE models now stand as the most comprehensive and reliable efforts to measure the economic damages from climate change. Second, t he latest versions of the three IAMs are likely to reflect the most recent evidence and learning, and hence they are presumed to be superior to those that preceded them . However, it is acknowledged that the most recently published results do not necessar ily repeat prior modeling exercises with an updated model, so valuable information may be lost, for instance, estimates of the SCC using specific climate sensitivities or economi c scenarios. In addition, although some older model versions were used to produce esti mates between 1996 and 2001, there have been no significant modeling paradigm changes since 1996.

Third, any effort to choose among them, or to reje ct one in favor of the others, would be difficult to defend at the present time. I n the absence of a clear reason to choose among them, it is reasonable to base the SCC on all of them. Fourth, in light of the uncertainties associated with the SCC, a range of v alues is more representative and the additional information offered by different models is important.

227 Richard Tol, The Social Cost of Carbon: Trends, Ou tliers, and Catastrophes, Economics: The OpenAccess, Open-Assessment E-Journal, Vol. 2, 2008-25. http://www.economicsejournal.org/economics/journalarticles/2008-25 (20 08). See also EPA Docket, EPA-HQ-OAR-2009-0472.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

212 iii. Use a Model-Weighted Average of the Estimates at Each Discount

Rate

At this time, a strong reason to prefer any of the three major IAMs (FUND, PAGE, and DICE) over the others has not been identi fied. Accordingly, to address the concern that certain models not be given unequal we ight relative to the other models, the estimates are based on an equal weighting of the me ans of the estimates from each of the models. Among estimates that remain after applying the filter, we begin by taking the average of all estimates within a model. The estim ated SCC is then calculated as the average of the three model-specific averages. This approach is used to ensure that models with a greater number of published results d o not exert unequal weight on the interim SCC estimates. However, note that the resu lting set of SCC estimates does not provide information about variability among or with in models except in so far as they have different discounting assumptions. Comment is sought on whether modelweighting averaging of published estimates is appro priate for developing interim SCC estimates. In the future interagency process to gen erate a more comprehensive distribution of SCC, we expect to exercise the avai lable SCC models in a systematic manner such that the resulting distributions of SCC values may incorporate a wider range of uncertainties including discount rates, growth r ates, climate sensitivities, and other important parameters. This may lead to changes in t he span of SCC estimates that are relevant for policy analyses. .

iv. Apply a 3% Annual Growth Rate to the Chosen SC C Values

SCC is expected to increase over time, because fut ure emissions are expected to produce larger incremental damages as physical and economic systems become more stressed as the magnitude of climate change increas es. Indeed, an implied growth rate in the SCC can be produced by most of the models that estimate economic damages caused by increased GHG emissions in future years. But nei ther the rate itself nor the information necessary to derive its implied value i s commonly reported. In light of the limited amount of debate thus far about the appropr iate growth rate of the SCC, applying a rate of 3% per year seems appropriate at this sta ge. This value is consistent with the range recommended by IPCC (2007) and close to the l atest published estimate (Hope 2008)

. (see EPA Docket, EPA-HQ-OAR-2009-0472, for both cit ations).

(1) Discount rates

For estimation of the benefits associated with the mitigation of climate change, one of the most complex issues involves the appropr iate discount rate. OMB’s current guidance offers a detailed discussion of the releva nt issues and calls for discount rates of 3% and 7%. It also permits a sensitivity analysis w ith low rates (1 – 3%) for intergenerational problems: “If your rule will have important intergenerational benefits orDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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costs you might consider a further sensitivity anal ysis using a lower but positive discount rate in addition to calculating net benefits using discount rates of 3 and 7 percent.” 228

The choice of a discount rate, especially over long periods of time, raises highly contested and exceedingly difficult questions of sc ience, economics, philosophy, and law. See, e.g., William Nordhaus, The Challenge of Globa l Warming (2008); Nicholas Stern, The Economics of Climate Change (2008); Discounting and Intergenerational Equity (Paul Portney and John Weyant eds. 1999) , in the EPA Docket, EPA-HQ-OAR-2009-

0472 . It is not clear that future generations would be willing to trade environmental quality for consumption at the same rate as the cur rent generations. Under imaginable assumptions, decisions based on cost-benefit analys is with high discount rates might harm future generations – at least if investments a re not made for the benefit of those generations. See Robert Lind, Analysis for Intergen erational Discounting, id. at 173, 176-

177 (1999), in the EPA Docket, EPA-HQ-OAR-2009-0472 . It is also possible that the use of low discount rates for particular projects might itself harm future generations, by diverting resources from private or public sector i nvestments with higher rates of return for future generations. In the context of climate c hange, questions of intergenerational equity are especially important.

Because of the substantial length of time in which CO 2 and other GHG emissions reside in the atmosphere, choosing a discount rate which is higher than the actual discount rate could result in irreversible changes in CO 2 concentrations, and possibly irreversible climate changes (unless substantial re ductions in short-lived climate forcing emissions are achieved). Even if these changes are reversible, delaying mitigation efforts could result in substantially higher costs of stabi lizing CO 2 concentrations. On the other hand, using too low a discount rate in benefit-cost analysis may recommend some potentially economically unwarranted investments in mitigation. In many cases these investments could be discontinued with little long term economic disruptions. However, it is also possible that the use of low discount ra tes for particular projects might itself harm future generations, by ensuring that resources are not used in a way that would greatly benefit them. We invite comment on the met hods used to select discount rates for application in deriving SCC values, and in particul ar, application of the Newell and Pizer work on uncertainty in discount rates in developing the SCC used in evaluating the climate-related benefits of this proposal. Comments are requested on the use of the rates discussed in this preamble and on alternative rates . We also invite comment on how to best address the ethical and policy concerns in the context of selecting the appropriate

discount rate.

Reasonable arguments support the use of a 3% discou nt rate. First, that rate is among the two figures suggested by OMB guidance, an d hence it fits with existing national policy. Second, it is standard to base the discount rate on the compensation that people receive for delaying consumption, and the 3% is close to the risk-free rate of return, proxied by the return on long term inflatio n-adjusted U.S. Treasury Bonds, as of

228 See OMB Circular A-4, pp. 35-36, citing Portney a nd Weyant, eds. (1999), Discounting and Intergenerational Equity, Resources for the Future, Washington, DC. See EPA Docket, EPA-HQ-OAR2009-0472.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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this writing. Although these rates are currently c loser to 2.5%, the use of 3% provides an adjustment for the liquidity premium that is reflec ted in these bonds’ returns. However, this approach does not adjust for the significantly longer time horizon associated with climate change impacts. It also could be argued tha t the appropriate interest rate should be lower than 3% if the benefits of climate mitigat ion policies tend to be higher than expected in time periods when the returns to invest ments in rest of the economy are lower

than normal.

At the same time, others would argue that a 5% disc ount rate can be supported. The argument relies on several assumptions. First, this rate can be justified by reference to the level of compensation for delaying consumpti on, because it fits with market behavior with respect to individuals’ willingness to trade-off consumption across period s as measured by the estimated post-tax average real returns to risky private investments (e.g., the S&P 500). In the climate setting, the 5 % discount rate may be preferable to the riskless rate because the benefits to mitigation ar e not known with certainty. In principal,

the correct discount rate would reflect the varianc e in payoff from climate mitigation policy and the correlation between the payoffs of t he policy and the broader economy. 229

Second, 5%, and not 3%, is roughly consistent with estimates implied by inputs to the theoretically derived Ramsey equation presented below, which specifies the optimal time path for consumption. That equation specifies the optimal discount rate as the sum of two components. The first term (the product of the elasticity of the marginal utility of consumption and the growth rate of consumption) ref lects the fact that consumption in the future is likely to be higher than consumption today, so diminishing marginal utility implies that the same monetary damage will cause a smaller reduction of utility in the

future. Standard estimates of this term from the e conomics literature are in the range of

3%-5%. 230 The second component reflects the possibility tha t a lower weight should be placed on utility in the future, to account for soc ial impatience or extinction risk, which is specified by a pure rate of time preference (PRTP). A common estimate of the PRTP is 2%, though some observers believe that a principle of intergenerational equity suggests

that the PRTP should be close to zero. It follows that discount rate of 5% is near the middle of the range of values that are able to be d erived from the Ramsey equation. 231

229 Specifically, if the benefits of the policy are hi ghly correlated with the returns from the broader economy, then the market rate should be used to dis count the benefits. If the benefits are uncorrelat ed with the broader economy the long term government bond r ate should be applied. Furthermore, if the benefit s are negatively correlated with the broader economy, a rate less than that on long term government bond s should be used (Lind, 1982 pp. 89-90).

230 For example, see: Arrow KJ, Cline WR, Maler K-G, M unasinghe M, Squitieri R, Stiglitz JE. 1996. Intertemporal equity, discounting, and economic eff iciency. Chapter 4 in Economic and Social Dimensio ns of Climate Change: Contribution of Working Group II I to the Second Assessment Report, Summary for Policy Makers. Cambridge: Cambridge University Pres s; Dasgupta P. 2008. Discounting climate change. Journal of Risk and Uncertainty 37:141-169; Hoel M, Sterner T. 2007. Discounting and relative prices. Climatic Change 84:265-280; Nordhaus WD. 2008. A Qu estion of Balance: Weighing the Options on Global Warming Policies. New Haven, CT: Yale Univer sity Press; Stern N. 2008. The economics of climate change. The American Economic Review 98(2): 1-37. See EPA Docket, EPA-HQ-OAR-2009-

0472. Fill in citation.

231 Sterner and Persson (2008) note that a consistent t reatment of the marginal utility of consumption wou ld require that if higher discount rates are justified by the diminishing marginal utility of consumption , e.g., aDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

215 It is recognized that the arguments above – for use of market behavior and the Ramsey equation – face objections in the context of climate change, and of course there are alternative approaches. In light of climate cha nge, it is possible that consumption in the future will not be higher than consumption toda y, and if so, the Ramsey equation will suggest a lower figure. The historical evidence is consistent with rising consumption over

time. 232

Some critics note that using observed interest rate s for inter-generational decisions imposes current preferences on future gen erations, which some economists say may not be appropriate. For generational equity, t hey argue that the discount rate should

be below market rates to correct for market distort ions and inefficiencies in intergenerational transfers of wealth (which are pr esumed to compensate future generations for damage), and to treat generations e quitably based on ethical principles (see Broome 2008 in the EPA Docket, EPA-HQ-OAR-2009-0472 ). 233

Additionally, some analyses attempt to deal with un certainty with respect to interest rates over time. We explore below how this might be done. 234

(2) Proposed interim estimates

The application of the methodology outlined above y ields interim estimates of the SCC that are reported in Table III.H.6-1. These es timates are reported separately using 3% and 5% discount rates. The cells are empty in r ows 10 and 11, because these studies did not report estimates of the SCC at a 3% discoun t rate. The model-weighted means are reported in the final or summary row; they are $34 per tCO 2 at a 3% discount rate and $5 per tCO 2 with a 5% discount rate.

Table III.H.6-1 Global Social Cost of Carbon (SCC) Estimates ($/tCO2 in 2007 (2007$)),

Based on 3% and 5% Discount Rates a
Model Study b Climate Scenario 3% 5%

dollar of damages is worth less to future generatio ns because they have greater income, then so-called equity weights should be used to account for the hi gher value that countries with lower income would p lace on a dollar of damages relative to the U.S. This i s a consistent and logical outcome of application o f the Ramsey framework. Because the distribution of clim ate change related damages is expected to be skewed towards developing nations with lower incomes, this can have significant implications for estimates of total global SCC if the Ramsey framework is used to deriv e discount rates. See EPA Docket, EPA-HQ-OAR2009-0472 for Sterner and Persson (2008).

232 However, because climate change impacts may be outs ide the bounds of historical evidence, predictions about future growth in consumption based on past ex perience may be inaccurate.

233 See Arrow, K.J., W.R. Cline, K-G Maler, M. Munasin ghe, R. Squiteri, J.E.Stiglitz, 1996. "Intertemporal equity, discounting and economic eff iciency," in Climate Change 1995: Economic and Social Dimensions of Climate Change, Contribution o f Working Group III to the Second Assessment Report of the Intergovernmental Panel on Climate Ch ange. See also Weitzman, M.L., 1999, in Portney P.R

. and Weyant J.P. (eds.), Discounting and Intergenera tional Equity, Resources for the Future, Washington

, D.C. See EPA Docket, EPA-HQ-OAR-2009-0472.

234 Richard Newell and William Pizer, Discounting the distant future: how much do uncertain rates increas e valuations? J. Environ. Econ. Manage. 46 ( 2003 ) 52-71. See EPA Docket, EPA-HQ-OAR-2009-0472.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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1 FUND Anthoff et al. 2009 FUND default 6 -1

2 FUND Anthoff et al. 2009 SRES A1b 1 -1

3 FUND Anthoff et al. 2009 SRES A2 9 -1

4 FUND Link and Tol 2004 No THC 12 3

5 FUND Link and Tol 2004 THC continues 12 2

6 FUND Guo et al. 2006 Constant PRTP 5 -1

7 FUND Guo et al. 2006 Gollier discount 1 14 0

8 FUND Guo et al. 2006 Gollier discount 2 7 -1

FUND Mean 8.47 0 9 PAGE Wahba & Hope 2006 A2-scen 59 7 10 PAGE Hope 2006 7

11 DICE Nordhaus 2008 8
Summary Model-weighted Mean 34 5

a The sample includes all peer reviewed, non-equity- weighted estimates included in Tol (2008), Nordhaus (2008), Hope (2008), and Anthoff et al. (2009), tha t are based on the most recent published version of FUND, PAGE, or DICE and use business-as-usual clima te scenarios. 235

, 236 All values are based on the best available information from the underlying studies a bout the base year and year dollars, rather than th e Tol (2008) assumption that all estimates included in hi s review are 1995 values in 1995$. All values were updated to 2007 using a 3% annual growth rate in th e SCC, and adjusted for inflation using GDP deflato r.

b See EPA Docket, EPA-HQ-OAR-2009-0472, for each stud y

.

In this proposal, benefits of reducing GHG emission s have been estimated using global SCC values of $34 and $5 as these represent the estimates associated with the 3% and 5% discount rates, respectively. 237 The 3% and 5% estimates have independent appeal and at this time a clear preference for one over the other is not warranted. Thus,

235 Most of the estimates in Table 1 rely on climate s cenarios developed by the Intergovernmental Panel o n Climate Change (IPCC). The IPCC published a new se t of scenarios in 2000 for use in the Third Assessment Report (Special Report on Emissions Scen arios - SRES). The SRES scenarios define four narrative storylines: A1, A2, B1 and B2, describin g the relationships between the forces driving greenhouse gas and aerosol emissions and their evol ution during the 21st century for large world regio ns and globally. Each storyline represents different d emographic, social, economic, technological, and environmental developments that diverge in increasi ngly irreversible ways. The storylines are summariz ed

in the SRES report ( Nakicenovic et al., 2000 ; ( see also http://sedac.ciesin.columbia.edu/ddc/sres/ ) (see EPA Docket, EPA-HQ-OAR-2009-0472) . Although they were intended to represent BAU scen arios, at this point in time the B1 and B2 storylines are widely v iewed as representing policy cases rather than busi nessas-usual projections, estimates derived from these scenarios to be less appropriate for use in benefit -cost analysis. They are therefore excluded.

236 Guo et al. (2006) report estimates based on two Go llier discounting schemes. The Gollier discounting assumes complex specifications about individual uti lity functions and risk preferences. After various conditions are satisfied, declining social discount rates emerge. Gollier Discounting Scheme 1 employs a certainty-equivalent social rate of time preference (SRTP) derived by assuming the regional growth rat e is equally likely to be 1% above or below the original forecast growth rate. Gollier Discounting Scheme 2 calculates a certainty-equivalent social rate of ti me preference (SRTP) using five possible growth rat es, and applies the new SRTP instead of the original. Hope (2008) conducts Monte Carlo analysis on the PRTP component of the discount rate. The PRTP is modele d as a triangular distribution with a min value of 1%/yr, a most likely value of 2 %/yr, and a max val ue of 3 %/yr. See EPA Docket, EPA-HQ-OAR-2009-

0472 for the studies.

237 It should be noted that reported discount rates ma y not be consistently derived across models or spec ific applications of models: while the discount rate may be identical, it may reflect different assumptions about the individual components of the Ramsey equation id entified earlier.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

217

we have also included – and centered our current at tention on – the average of the estimates associated with these discount rates, whi ch is $20. (Based on the $20 global value, the approximate domestic fraction of these b enefits would be $1.20 per ton of CO 2 assuming that domestic benefits are 6% of the globa l benefits.

The distinctions between sets of estimates generate d using different discount rates are due only in part to discount rate differences, because the models and parameters used to generate the estimates in the sets associated wi th different discount rates also vary.

It is true that there is uncertainty about interest rates over long time horizons. Recognizing that point, Newell and Pizer (2003) hav e made a careful effort to adjust for that uncertainty (see EPA Docket, EPA-HQ-OAR-2009-0472) . The Newell-Pizer approach models discount rate uncertainty as someth ing that evolves over time. 238 This is a different way to model discount rate uncertainty than the approach outlined above, which assumes there is a single discount rate with equal probability of 3% and 5%. Since Newell and Pizer (2003) is a relatively recent cont ribution to the literature, estimates

based on this method are included with the aim of s oliciting comment.

Table III.H.6-2 reports on the application of the N ewell-Pizer adjustments. The precise numbers depend on the assumptions about the data generating process that governs interest rates. Columns (1a) and (1b) assu me that “random walk” model best

describes the data and uses 3% and 5% discount rate s, respectively. Columns (2a) and (2b) repeat this, except that it assumes a “mean-re verting” process. While the empirical evidence does not rule out a mean-reverting model, Newell and Pizer find stronger empirical support for the random walk model. EPA s olicits comment on these and other models for representing the variation in interest r ates over time.

Table III.H.6-2 Global Social Cost of Carbon (SCC) Estimates ($ per metric ton CO 2 in 2007 (2007$)) a , Using Newell & Pizer (2003) Adjustment for Future Discount Rate Uncertainty b

Random- walk

model Meanreverting

model

Model Study c Climate

Scenario 3% 5% 3% 5% (1a) (1b) (2a) (2b)

1 FUND Anthoff et al. 2009 FUND default 10 0 7 -1

2 FUND Anthoff et al. 2009 SRES A1b 2 0 1 -1

3 FUND Anthoff et al. 2009 SRES A2 15 0 10 -1

4 FUND Link and Tol 2004 No THC 21 6 13 4

5 FUND Link and Tol 2004 THC continues 21 4 13 2

238 In contrast, an alternative approach based on Weit zman (2001) would assume that there is a constant discount rate that is uncertain and represented by a probability distribution. The Newell and Pizer, and Weitzman approaches are relatively recent contribut ions and we invite comment on the advantages and disadvantages of each. See EPA Docket, EPA-HQ-OAR-2009-0472.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

218

6 FUND Guo et al. 2006 Constant PRTP 9 0 6 -1

7 FUND Guo et al. 2006 Gollier discount 1 14 0 14 0

8 FUND Guo et al. 2006 Gollier discount 2 7 -1 7 -1

FUND Mean 12 1 9 0

9

PAGE Wahba & Hope

2006 A2-scen 100 13 65 8

10 PAGE Hope 2006 13 8

11 DICE Nordhaus 2008 15 9

Summary Model-weighted

Mean 56 10 37 6

a The sample includes all peer reviewed, non-equity- weighted estimates included in Tol (2008), Nordhaus (2008), Hope (2008), and Anthoff et al. (2009), tha t are based on the most recent published version of FUND, PAGE, or DICE and use business-as-usual clima te scenarios. All values are based on the best available information from the underlying studies a bout the base year and year dollars, rather than th e Tol (2008) assumption that all estimates included in hi s review are 1995 values in 1995$. All values were updated to 2007 using a 3% annual growth rate in th e SCC, and adjusted for inflation using GDP deflato r. See the Notes to Table III.H.6-1 for further detail s.

b Assumes a starting discount rate of 3% or 5%. Newe ll and Pizer (2003) based adjustment factors are no t applied to estimates from Guo et al. (2006) that us e a different approach to account for discount rate uncertainty (rows 7-8).

Note that the correction factor from Newell and Piz er is based on the DICE model. The proper adjustme nt may differ for other integrated assessment models t hat produce different time schedules of marginal damages. We would expect this difference to be min or.

c See EPA Docket, EPA-HQ-OAR-2009-0472, for each stud y.

The resulting estimates of the social cost of carbo n are necessarily greater. When the adjustments from the random walk model are appl ied, the estimates of the social cost of carbon are $10 and $56 per ton of CO 2 , with the 5% and 3% discount rates, respectively. The application of the mean-revertin g adjustment yields estimates of $6 and $37. Relying on the random walk model, analyse s are also conducted with the value of the SCC set at $10 and $56.

(3) Caveats

There are at least four caveats to the approach out lined above.

First, the impacts of climate change are expected t o be widespread, diverse, and heterogeneous. In addition, the exact magnitude of these impacts is uncertain, because of the inherent randomness in the Earth’s atmospheric processes, the U.S. and global economies, and the behaviors of current and future populations. The existing IAMs do not currently individually account for and assign v alue to all of the important physical and other impacts of climate change that are recogn ized in the climate change literature.

239 Therefore, as noted by the IPCC, SCC estimates ar e “very likely” underestimated. 240

239 Examples of impacts that are difficult to monetize, and have generally not been included in SCC estimates, include risks from extreme weather (deat h, disease, agricultural damage, and other economicDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

219

In addition, the SCC approach also likely underesti mates the value of GHG reductions because the marginal values apply only to CO 2 emissions, which have different impacts

than non-CO 2 emissions because of variances in atmospheric life times and radiative forcing. 241 Although it is likely that our capability to quan tify and monetize impacts will improve with time, it is also likely that even in f uture applications, a number of potentially significant benefits categories will re main unmonetized. In order to more fully characterize of benefits of mitigation these non-mo netized benefits should be discussed along with monetized benefits based on the SCC.

Second, in the opposite direction, it is unlikely t hat the damage estimates adequately account for the directed technological c hange that climate change will cause. In particular, climate change will increase the ret urn on investment to develop technologies that allow individuals to better cope with climate change. For example, it is likely that scientists will develop crops that are better able to withstand high temperatures. In this respect, the current estimat es may overstate the likely quantified damages, though the costs associated with the inve stments in adaptive technologies must also be considered (technologies must also be inclu ded in the calculations, as the benefits should reflect net welfare changes to society).

Third, there has been considerable recent discussio n of the risk of catastrophic impacts and of how best to account for worst-case s cenarios. Recent research by Weitzman (2009) specifies some conditions under whi ch the possibility of catastrophe

would undermine the use of IAMs and conventional co st-benefit analysis. 242 This research requires further exploration before its ge nerality is known and the proper way to incorporate it into regulatory reviews is understoo d. We also request comments on approaches for measuring the premium associated wit h reductions in climate-related risks such as catastrophic events.

Fourth, it is also worth noting that the SCC estima tes are only relevant for incremental policies relative to the projected base lines, which capture business-as-usual scenarios. To evaluate non-marginal changes, such as might occur if the U.S. acts in tandem with other nations, then it might be necessa ry to go beyond the simple expedient of using the SCC along the BAU path. This would re quire explicitly calculating the total benefits in a move from the BAU scenario to the pol icy scenario, without imposing the restriction that the marginal benefit remains const ant over this range.

damage from droughts, floods and wildfires) and pos sible long-term catastrophic events, such as collap se of the West Antarctic ice sheet or the release of l arge amounts of methane from melting permafrost.

240 IPCC WGII. 2007. Climate Change 2007 - Impacts, Adaptation and Vulne rability Contribution of Working Group II to the Fourth Assessment Report of the IPCC

. See EPA Docket, EPA-HQ-OAR-2009-

0472.

241 Radiative forcing is the change in the balance betw een solar radiation entering the atmosphere and the Earth's radiation going out. On average, a positive radiative forcing tends to warm the surface of the Earth while negative forcing tends to cool the surface. Greenhouse gases have a positive radiative forcing because they absorb and emit heat. See http://www.e pa.gov/climatechange/science/recentac.html for more general information about GHGs and climate science. See EPA Docket, EPA-HQ-OAR-2009-0472.

242 Weitzman, Martin, 2009. On Modeling and Interpretin g the Economics of Catastrophic Climate Change. Review of Economics and Statistics 9(1): 1-19. See EPA Docket, EPA-HQ-OAR-2009-0472.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

220 (4) Other options

The Administration considered other interim SCC opt ions in addition to the approach described above; we request comment on eac h of them. One alternative option was to bring in SCC estimates in studies published after 1995, rather than limiting the estimates to those in studies relying on the most r ecent published version of each of the three major integrated assessment models: PAGE, FUN D, and DICE. Although some older model versions (and old versions of other mod els) were used to produce estimates between 1996 and 2001, there have been no significa nt modeling paradigm changes since 1996. Rather, improvements to PAGE, FUND, and DICE since 1996 have reflected

incremental technical enhancements.

Another option was to select a range of SCC values for separate discount rates. For example, sensitivity analysis could be conducte d at the lowest and highest SCC values reported in the filtered set of estimates fo r each discount rate considered. If considering SCC estimates from studies published af ter 1995 and a discount rate of 2 percent, this option would result in a range of SCC values of $5/t-CO 2 to $260/t-CO 2 (2007 emissions in 2007 dollars); at a 3 percent di scount rate, the range would be $0 to $58/ t-CO 2

.

Finally, we considered that the use of certain key assumptions under the Ramsey framework, such as placing approximately equal weig ht on the welfare of current and future generations, would imply use of a 2% discoun t rate. The Newell and Pizer (2003) method applied to recent long-term risk free rates would likewise be approximately

consistent with a rate of 2%. 243

(5) Ongoing SCC development

As noted, this is an emphatically interim SCC value . The judgments herein will be subject to further scrutiny and exploration.

c. Application of Interim SCC Estimates to GHG Em issions Reductions From this Proposed Rule

The strategy underlying these joint proposals—to co ordinate federal efforts to reduce GHGs—warrants consideration when assessing t he benefits. While no single rule or action can independently achieve the deep worldw ide emissions reductions necessary to halt and reverse the growth of GHGs, the combine d effects of multiple strategies to reduce GHG emissions domestically and abroad could make a major difference in the climate change impacts experienced by future genera tions. 244

243 Specifically, Newell and Pizer (2003) found that m odeling of uncertainty in economic growth causes th e effective discount rate to decline over time. When starting at a 4% discount rate, the effective disc ount rate is 2% at 100 years and 1% at 200 years. See EPA Docket, EPA-HQ-OAR-2009-0472.

244 The Supreme Court recognized in Massachusetts v. EPA that a single action will not on its own achieve all needed GHG reductions, noting that “[a]gencies , like legislatures, do not generally resolve massi veDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

221 The projected net GHG emissions reductions associat ed with the proposal reflect an incremental change to projected total global emi ssions. Therefore, as shown in Section III.F.3, the projected global climate signal will b e small but discernible—an incrementally lower projected distribution of globa l mean surface temperatures.

Given that the climate response is projected to be a marginal change relative to the baseline climate, we estimate the marginal valu e of changes in climate change impacts over time and use this value to measure the monetized marginal benefits of the GHG emissions reductions projected for this proposa l.

Accordingly, EPA and NHTSA have used the set of int erim, global SCC values

described above to estimate the benefits of these c oordinated proposals. The interim SCC values, which reflect the Administration’s interim interpretation of the current literature, are $5, $10, $20, $34, and $56, in 2007 dollars, an d are based on a CO 2 emissions change of 1 metric ton in 2007. Table III.H.6-3 presents the interim SCC values in other years in 2007 dollars. These values are presented as one of many considerations that will inform the Administration’s action on this proposed rule. In particular, the Administration’s decision regarding the stringency of this proposal is based on factors other than the

interim set of SCC values.

Table III.H.6-3 Interim SCC Schedule Interim SCC Schedule (2007$) a

Discount rate assumption 2007 2015 2 020 2030 2040 2050

5% $5 $7 $8 $10 $14 $18

5%(NewellPizer) b $10 $13 $15 $20 $27 $37

Average
SCC Values
from 3% and

5% $20 $25 $29 $39 $52 $70

3% $34 $43 $50 $67 $90 $120

3%(NewellPizer) b $56 $72 $83 $110 $150 $200

a The SCC values are dollar-year and emissions-year s pecific. These values are presented in 2007$, for individual year of emissions. To determ ine values for years not presented in the table, use a 3% growth rate. SCC values represent only a p artial accounting for climate impacts. Se e Section VIII.F.3c for examples of the uncertainties and omission of non

- monetized impacts.

b SCC values are adjusted based on Newell and Pizer ( 2003) to account to future uncertainty in

discount rates. See EPA Docket, EPA-HQ-OAR-2009-0472.

problems in one fell regulatory swoop.’’ See Massachusetts v. EPA, 549 U.S. at 524 (2007). See EPA Docket, EPA-HQ-OAR-2009-0472.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

222 Tables III.H.6-4 to III.H.6- 6 5 provide the annual benefits for each year impacted by the proposed rule. As discussed above, marginal benefits of GHG reductions are projected to grow over time. T he t ables below summarize the total benefits for the lifetime of the rule, which are calculated by using the five interim SCC values.

Total monetized benefits in each specific year are calculated by multiplying the marginal benefits estimates per metric ton of CO 2 (the SCC) from Table III.H.6-3 by the

reductions in CO 2 for that year. Table III.H.6- 5 6 approximates the total monetized

benefits for non-CO 2 GHGs by multiplying the SCC value by the reduction s in non- CO 2 GHGs for that year. Marginal benefit estimates per metric ton of non- CO 2 GHGs are currently unavailable, but work is on-going to mone tize benefits related to the mitigation

of other non-CO 2 GHGs. Inclusion of these benefits is planned for the final rule.

Table III.H.6-4 Monetized GHG Benefits of Vehicle P rogram, CO 2 Emissions (Million 2007$)

Discount rate

Year Emissions
Reduction (Million
Metric Tons) 3% 3% (Newell

Pizer) Average

SCC from
3% and 5% 5% 5%(NewellPizer)

2015 43.2 $1,900 $3,100 $1,100 $280 $560

2020 146 $7,300 $12,000 $4,200 $1,100 $2,200

2030 289 $19,000 $32,000 $11,000 $2,900 $5,900

2 040 375 $34,000 $56,000 $19,000 $5,100 $10,000

2050 470 $57,000 $95,000 $33,000 $8,600 $17,000

Table III.H.6-5 Monetized GHG Benefits of Vehicle P rogram, Non-CO 2 Emissions in

CO 2 -equivalents (Million 2007$)

Discount rate

Year Emissions
Reduction (Million Metric Tons) 3% 3%(NewellPizer) Average

SCC from
3% and 5% 5% 5%(NewellPizer)

2015 5.86 $250 $400 $150 $38 $76

2020 17.7 $880 $1,500 $510 $130 $270

2030 35.3 $2,400 $3,900 $1,400 $360 $700

2040 42.7 $3,800 $6,400 $2,200 $580 $1,200

2050 48.2 $5,800 $9,700 $3,400 $880 $1,800

Table III.H.6-6 Monetized GHG Benefits of Vehicle P rogram, Total CO 2 and Non-CO 2

Emissions in CO 2 -equivalents (Million 2007$) a *

Discount rate

Year Emissions 3% 3% Aver age 5% 5% (Newell

-Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

223 Reduction (Million Metric Tons) (Newell

Pizer) SCC from

3% and 5% Pizer)

2015 49.1 $2,100 $3,500 $1,200 $320 $640

2020 165 $8,200 $14,000 $4,700 $1,200 $2,500

2030 325 $22,000 $36,000 $12,000 $3,300 $6,600

2040 417 $38,000 $63,000 $22,000 $5,700 $11,000

2050 518 $63,000 $100,000 $36,000 $9,500 $19,000

* a Numbers may not add exactly from Tables III.H.6-4 a nd III.H .6 -5 due to rounding.

7. Non-GHG 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 o f the proposed light-duty vehicle GHG rule. GHG emissions are predominantly the byproduc t of fossil fuel combustion processes that also produce criteria and hazardous air pollutants. The vehicles that are subject to the proposed standards are also signific ant sources of mobile source air pollution such as direct PM, NO X , VOCs and air toxics. The proposed standards woul d affect exhaust emissions of these pollutants from v ehicles. They would also affect emissions from upstream sources related to changes in fuel consumption. Changes in ambient ozone, PM 2.5 , and air toxics that would result from the propose d standards are expected to affect human health in the form of prem ature deaths and other serious human health effects, as well as other important public h ealth and welfare effects.

It is important to quantify the health and environm ental impacts associated with the proposed standard because a failure to adequate ly consider these ancillary copollutant impacts could lead to an incorrect assessment of th eir net costs and benefits. Moreover, co-pollutant impacts tend to accrue in th e near term, while any effects from reduced climate change mostly accrue over a time fr ame of several decades or longer.

EPA typically quantifies and monetizes the health a nd environmental impacts related to both PM and ozone in its regulatory impa ct analyses (RIAs), when possible. However, EPA was unable to do so in time for this p roposal. EPA attempts to make emissions and air quality modeling decisions early in the analytical process so that we can complete the photochemical air quality modeling and use that data to inform the health and environmental impacts analysis. Resourc e and time constraints precluded the Agency from completing this work in time for the pr oposal. Instead, EPA is using PMrelated benefits-per-ton values as an interim appro ach to estimating the PM-related benefits of the proposal. EPA also provides a comp lete characterization of the health and environmental impacts that will be quantified and m onetized for the final rulemaking.

This section is split into two sub-sections: the fi rst presents the PM-related benefits-per-ton values used to monetize the PM-rel ated co- benefits associated with the proposal; the second explains what PM- and ozone-re lated health and environmental impacts EPA will quantify and monetize in the analy sis for the final rule. EPA bases its analyses on peer-reviewed studies of air quality an d health and welfare effects and peerreviewed studies of the monetary values of public h ealth and welfare improvements, andDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

224

is generally consistent with benefits analyses perf ormed for the analysis of the final Ozone National Ambient Air Quality Standard (NAAQS) and the final PM NAAQS analysis, as well as the recent Portland Cement Nat ional Emissions Standards for Hazardous Air Pollutants (NESHAP) RIA (U.S. EPA, 20 09a), and NO 2 NAAQS (U.S. EPA, 2009b). 245,246, 247,248

Though EPA is characterizing the changes in emissio ns associated with toxic pollutants, we will not be able to quantify or mone tize the human health effects associated with air toxic pollutants for either the proposal or the final rule analyses.

Please refer to Section III.G for more information about the air toxics emissions impacts associated with the proposed standards.

a. Economic Value of Reductions in Criteria Polluta nts

As described in Section III.G, the proposed standar ds would reduce emissions of several criteria and toxic pollutants and precursor s. In this analysis, EPA estimates the

economic value of the human health benefits associa ted with reducing PM 2.5 exposure. Due to analytical limitations, this analysis does n ot estimate benefits 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 ass ociated with PM 2.5

.

This analysis uses a “benefit-per-ton” method to es timate 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 directl y emitted PM 2.5 , or its precursors (such as NO X , SO X , and VOCs), from a specified source. Ideally, the human health benefits would be estimated based on changes in amb ient PM 2.5 as determined by fullscale air quality modeling. However, this modeling was not possible in the timeframe for this proposal.

The dollar-per-ton estimates used in this analysis are provided in Table III.H.7-1. In the summary of costs and benefits, Section III.H .10 of this preamble, EPA presents the monetized value of PM-related improvements associat ed with the proposal.

245 U.S. Environmental Protection Agency. (2008). Fi nal Ozone NAAQS Regulatory Impact Analysis. Prepared by: Office of Air and Radiation, Office of Air Quality Planning and Standards. March.

246 U.S. Environmental Protection Agency. October 200 6. Final Regulatory Impact Analysis (RIA) for the Proposed National Ambient Air Quality Standards for Particulate Matter. Prepared by: Office of Air an d

Radiation.

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

Emission Standards for Hazardous Air Pollutants fro m the Portland Cement Manufacturing Industry. Office of Air Quality Planning and Standards, Resea rch Triangle Park, NC. April. Available on the Internet at <http://www.epa.gov/ttn/ecas/regdata/RI As/portlandcementria_4-20-09.pdf>.

248 U.S. Environmental Protection Agency (U.S. EPA). 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.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

225

Table III.H.7-1 Benefits-per-ton Values (2007$) Derived Using the A CS Cohort Study for PM-related Premature Mortality (Pope et al., 20 02) 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 t able are based on an estimate of premature mortalit y derived from the ACS study (Pope et al., 2002). If the benefit-per-ton estimates were based on the Si x 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 t able assume a 3% discount rate in the valuation of premature mortality to account for a twenty-year se gmented cessation lag. If a 7% discount rate had b een used, the values would be approximately 9% lower. c Benefit-per-ton values were estimated for the yea rs 2015, 2020, and 2030. For 2040, EPA and NHTSA extrapolated exponentially based on the growth betw een 2020 and 2030. d Note that the benefit-per-ton value for SO X is based on the value for Stationary (Non-EGU) sou rces; no SO X value was estimated for mobile sources. The benef it-per-ton value for VOCs was estimated across all

sources.

The benefit per-ton technique has been used in prev ious analyses, including EPA’s recent Ozone National Ambient Air Quality Sta ndards (NAAQS) RIA (U.S. EPA, 2008a), 249 Portland Cement National Emissions Standards for H azardous Air Pollutants (NESHAP) RIA (U.S. EPA, 2009a), 250 and NO 2 NAAQS (U.S. EPA, 2009b). 251 Table III.H.7 -2 shows the quantified and unquantified PM 2.5 -related co- benefits captured in those benefit-per-ton estimates.

TableIII.H.7-2Human Health and Welfare Effects of P M 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 Subchronic bronchitis cases Low birth weight Pulmonary function Chronic respiratory diseases other than chronic

bronchitis Non-asthma respiratory emergency room visits Visibility Household soiling

249 U.S. Environmental Protection Agency (U.S. EPA). 2008a. Regulatory Impact Analysis, 2008 National Ambient Air Quality Standards for Ground-level Ozon e, Chapter 6. Office of Air Quality Planning and Standards, Research Triangle Park, NC. March. Ava ilable at <http://www.epa.gov/ttn/ecas/regdata/RIAs/6-ozoneri achapter6.pdf>.

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

Emission Standards for Hazardous Air Pollutants fro m the Portland Cement Manufacturing Industry. Office of Air Quality Planning and Standards, Resea rch Triangle Park, NC. April. Available on the Internet at <http://www.epa.gov/ttn/ecas/regdata/RI As/portlandcementria_4-20-09.pdf>.

251 U.S. Environmental Protection Agency (U.S. EPA). 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.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

226

Pollutant /

Effect Quantified and Monetized in Primary Estimates Unquantified Effects Changes in: Work loss days Asthma exacerbations (asthmatic population) Infant mortality

Consistent with the NO 2 NAAQS, 252 the benefits estimates utilize the concentration-response functions as reported in the epidemiology literature. To calculate the total monetized impacts associated with quantif ied health impacts, EPA applies values derived from a number of sources. For prema ture mortality, EPA applies a value of a statistical life (VSL) derived from the mortal ity valuation literature. For certain health impacts, such as chronic bronchitis and a nu mber of respiratory-related ailments, EPA applies willingness-to-pay estimates derived fr om the valuation literature. For the remaining health impacts, EPA applies values derive d from current cost-of-illness and/or wage estimates.

Readers interested in reviewing the complete method ology for creating the benefit-per-ton estimates used in this analysis can consult the Technical Support Document (TSD) 253 accompanying the recent final ozone NAAQS RIA (U.S . EPA, 2008a). Readers can also refer to Fann et al. (20 09) 254 for a detailed description of the benefit-per-ton methodology. 255 A more detailed description of the benefit-per-to n estimates is also provided in the Draft Joint TSD t hat accompanies this rulemaking.

As described in the documentation for the benefit p er-ton estimates cited above, national per-ton estimates were developed for selec ted pollutant/source category combinations. The per-ton values calculated theref ore apply only to tons reduced from those specific pollutant/source combinations (e.g., NO 2 emitted from mobile sources; direct PM emitted from stationary sources). Our es timate of PM 2.5 benefits is therefore

based on the total direct PM 2.5 and PM-related precursor emissions controlled by se ctor and multiplied by each per-ton value.

The benefit-per-ton estimates are subject to a numb er of assumptions and

uncertainties.

252 Although we summarize the main issues in this chap ter, we encourage interested readers to see benefit s chapter of the NO2 NAAQS for a more detailed descri ption of recent changes to the PM benefits presentation and preference for the no-threshold mo del.

253 U.S. Environmental Protection Agency (U.S. EPA). 2008b. Technical Support Document: Calculating Benefit Per-Ton estimates, Ozone NAAQS Docket #EPA- HQ-OAR-2007-0225-0284. Office of Air Quality Planning and Standards, Research Triangle P ark, NC. March. Available on the Internet at <http://www.regulations.gov>.

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

255 The values included in this report are different f rom those presented in the article cited above. Be nefits methods change to reflect new information and evalu ation of the science. Since publication of the Jun e 2009 article, EPA has made two significant changes to its benefits methods: (1) We no longer assume th at a threshold exists in PM-related models of health imp acts; and (2) We have revised the Value of a Statis tical 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.htmlDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

227 • They do not reflect local variability in population density, meteorology, exposure, baseline health incidence rates, or other local factors that might

lead to an overestimate or underestimate of the act ual benefits of controlling fine particulates. EPA will conduct fu ll-scale air quality modeling for the final rulemaking in an effort to c apture this variability.

• This analysis assumes that all fine particles, rega rdless of their chemical composition, are equally potent in causing prematur e mortality. This is an important assumption, because PM 2.5 produced via transported precursors emitted from stationary sources may differ signific antly from direct PM 2.5 released from diesel engines and other industrial s ources, but no clear scientific grounds exist for supporting differentia l effects estimates by particle type.

• This analysis assumes that the health impact functi on for fine particles is linear within the range of ambient concentrations u nder consideration. Thus, the estimates include health benefits from re ducing fine particles in

areas with varied 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.

• There are several health benefits categories that E PA was unable to quantify due to limitations associated with using b enefits-per-ton estimates, several of which could be substantial. Because the NO X and VOC emission reductions associated with this propos al are also precursors to ozone, reductions in NO X and VOC would also reduce ozone formation and the health effects associated with ozone exposu re. Unfortunately, benefits-per-ton estimates do not exist due to issu es associated with the complexity of the atmospheric air chemistry and non linearities associated with ozone formation. The PM-related benefits-per- ton estimates also do not include any human welfare or ecological benefit s. Please refer to Chapter 7.3 of the RIA that accompanies this propos al for a description of the quantification and monetization of health impac t for the FRM and a description of the unquantified co-pollutant benefi ts 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 qual ity and health impacts, as there may be localized impacts associated with the proposed rule making. Additionally, the atmospheric chemistry related to ambient concentrat ions 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 complete ly and accurately estimate the changes in ambient levels of these pollutants and t heir associated health and welfare impacts. As discussed above, timing and resource c onstraints precluded from conducting a full-scale photochemical air quality modeling ana lysis in time for the NPRM. For the final rule, however, a national-scale air quality m odeling analysis will be performed to analyze the impacts of the standards on PM 2.5 , ozone, and selected air toxics. The benefits analysis plan for the final rulemaking is discussed in the next section.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

228 b. Human Health and Environmental Benefits for the Final Rule

i. Human Health and Environmental Impacts

To model the ozone and PM air quality benefits of t he final rule, EPA will use the Community Multiscale Air Quality (CMAQ) model (see Section III.G.5.b for a description of the CMAQ model). The modeled ambien t air quality data will serve as an input to the Environmental Benefits Mapping and Ana lysis Program (BenMAP). 256
BenMAP is a computer program developed by EPA that integrates a number of the modeling elements used in previous RIAs (e.g., inte rpolation functions, population projections, health impact functions, valuation fun ctions, analysis and pooling methods)

to translate modeled air concentration estimates in to health effects incidence estimates

and monetized benefits estimates.

Chapter 7.3 in the DRIA that accompanies this propo sal lists the co-pollutant health effect exposure-response functions EPA will use to quantify the co-pollutant incidence impacts associated with the final light-d uty vehicles standard. These include PM- and ozone-related premature mortality, chronic bronchitis, nonfatal heart attacks, hospital admissions (respiratory and cardiovascular ), emergency room visits, acute bronchitis, minor restricted activity days, and day s of work and school lost.

ii. Monetized Impacts

To calculate the total monetized impacts associated with quantified health impacts, EPA applies values derived from a number o f sources. For premature mortality, EPA applies a value of a statistical life (VSL) der ived from the mortality valuation literature. For certain health impacts, such as ch ronic bronchitis and a number of respiratory-related ailments, EPA applies willingne ss-to-pay estimates derived from the valuation literature. For the remaining health imp acts, EPA applies values derived from current cost-of-illness and/or wage estimates. Cha pter 7.3 in the DRIA that accompanies this proposal presents the monetary values EPA will apply to changes in the incidence of

health and welfare effects associated with the fina l standard.

iii. Other Unquantified Health and Environmental Im pacts

In addition to the co-pollutant health and environm ental impacts EPA will quantify for the analysis of the final standard, th ere are a number of other health and human welfare endpoints that EPA will not be able t o quantify or monetize because of

current limitations in the methods or available dat a. These impacts are associated with emissions of air toxics (including benzene, 1,3-but adiene, formaldehyde, acetaldehyde, acrolein, and ethanol), ambient ozone, and ambient PM 2.5 exposures. Chapter 7.3 of the DRIA lists these unquantified health and environmen tal impacts.

256 Information on BenMAP, including downloads of the software, can be found at http://www.epa.gov/ttn/ecas/ benmodels.html.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

229 While there will be impacts associated with air tox ic pollutant emission changes that result from the final standard, EPA will not a ttempt to monetize those impacts. This is primarily because currently available tools and methods to assess air toxics risk from mobile sources at the national scale are not adequa te for extrapolation to incidence

estimations or benefits assessment. The best suite of tools and methods currently

available for assessment at the national scale are those used in the National-Scale Air Toxics Assessment (NATA). The EPA Science Advisory Board specifically commented

in their review of the 1996 NATA that these tools w ere not yet ready for use in a national-scale benefits analysis, because they did not consider the full distribution of exposure and risk, or address sub-chronic health ef fects. 257 While EPA has since improved the tools, there remain critical limitatio ns for estimating incidence and assessing benefits of reducing mobile source air to xics. EPA continues to work to address these limitations; however, EPA does not an ticipate having methods and tools available for national-scale application in time fo r the analysis of the final rules. 258

8. Energy Security Impacts

This proposal to reduce GHG emissions in light-dut y 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 s trategic risks associated with a potential disruption in supply or a spike in cost o f a particular energy source. This reduction in risk is a measure of improved U.S. ene rgy security. This section summarizes our estimate of the monetary value of the energy se curity benefits of the proposed GHG vehicle standards against the reference case by est imating the impact of the expanded use of lower-GHG vehicle technologies on U.S. oil impor ts and avoided U.S. oil import expenditures. Additional discussion of this issue can be found in Chapter 5.1 of EPA’s

RIA Section II I. 5 of th e preamble and Section 4.2.8 of the TSD.

a. Implications of Reduced Petroleum Use on U.S. I mports

In 2008, U.S. petroleum import expenditures represe nted 21% of total U.S. imports of all goods and services. 259 In 2008, the U.S. imported 66% of the petroleum i t consumed, and the transportation sector accounted f or 70% of total U.S. petroleum consumption. This compares to approximately 37% of petroleum from imports and 55% consumption of petroleum in the transportation sect or in 1975. 260 It is clear that

257 Science Advisory Board. 2001. NATA – Evaluating the National-Scale Air Toxics Assessment for 1996 – an SAB Advisory. http://www.epa.gov/ttn/atw /sab/sabrev.html.

258 In April, 2009, EPA hosted a workshop on estimatin g the benefits of reducing hazardous air pollutants

. This workshop built upon the work accomplished in t he June 2000 Science Advisory Board/EPA Workshop on the Benefits of Reductions in Exposure to Hazardous Air Pollutants, which generated thoughtful discussion on approaches to estimating h uman health benefits from reductions in air toxics exposure, but no consensus was reached on methods t hat could be implemented in the near term for a bro ad selection of air toxics. Please visit http://epa.g ov/air/toxicair/2009workshop.html for more informat ion about the workshop and its associated materials.

259 Source: U.S. Bureau of Economic Analysis, U.S. Int ernational Transactions Accounts Data, as shown on
June 24, 2009.

260 Source: U.S. Department of Energy, Annual Energy R eview 2008, Report No. DOE/EIA-0384(2008), Tables 5.1 and 5.13c, June 26, 2009.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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petroleum imports have a significant impact on the U.S. economy. Requiring lowerGHG vehicle technology in the U.S. is expected to l ower U.S. petroleum imports.

b. Energy Security Implications

In order to understand the energy security implica tions of reducing U.S. petroleum imports, EPA has worked with Oak Ridge Na tional Laboratory (ORNL), which has developed approaches for evaluating the e conomic costs and energy security implications of oil use. The energy security estim ates provide below are based upon a methodology developed in a peer-reviewed study enti tled, " 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. 261,262

When conducting this recent analysis, ORNL conside red the full economic cost of importing petroleum into the U.S. The full economic cost of importing petroleum into the U.S. is defined to include two components in ad dition 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 p rice and on OPEC market power (i.e., the "demand" or "monopsony" costs); and (2) the ris k 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 costs). Maintaining 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 particular missions or activities is difficult.

For this proposal, ORNL further updated the energy security premium by incorporating the most recent oil price forecast in the in the Energy Information Administration’s 2009 Annual Energy Outlook into it s model. In order for the energy security premium estimated to be used in EPA’s OMEG A model, ORNL developed energy security estimates for a number of different years; please refer to Table III.H.8-1 for this information for years 2015, 2020, 2030 and 2040, 263 as well as a breakdown of the components of the energy security premium for e ach of these years. The components of the energy security premium and their values are discussed in detail in the TSD,

Section 4.2.8.

Table III.H.8-1 Energy Security Premium in 2015, 20 20, 2030 and 2040 (2007$/Barrel)

261 Leiby, Paul N. "Estimating the Energy Security Ben efits of Reduced U.S. Oil Imports," Oak Ridge National Laboratory, ORNL/TM-2007/028, Final Report , 2008. (Docket EPA-HQ-OAR-2009-0472)

262 The ORNL study “ The Energy Security Benefits of Reduced Oil Use, 2006-2 015 ," completed in March 2008, is an update version of the approach used for estimating the energy security benefits of U.S. oi l 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. " (Docket EPA-HQOAR-2009-0472)

263 AEO 2009 forecasts energy market trends and values only to 2030. The energy security premium estimates post-2030 were assumed to be the 2030 est imate. Field Code ChangedDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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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 disrup tion components when calculating the total value of the energy security premium. However, in the context of using a global value for the Social Cost of Carbon (SCC) the question arises: how should the energy security premium be used when some benef its from the proposed rule, such as the benefits of reducing greenhouse gas emissions, are calculated at a global level? Monopsony benefits represent avoided payments by th e 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 cle arly a benefit to the U.S. when considered from the domestic perspective, the decre ase in price due to decreased demand in the U.S. also represents a loss of income to oil -producing countries. Given the redistributive nature of this effect, do the negati ve 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.

Based on this reasoning, EPA's estimates of net ben efits for this proposal exclude the portion of energy security benefits stemming fr om the U.S. exercising its monopsony power in oil markets. Thus, EPA only includes the macroeconomic disruption/adjustment cost portion of the energy se curity premium. Although excluded from the net benefits calculations, the monopsony b enefits, a benefit to the U.S. when oil imports are reduced, are presented below in

. Table III.H.8-2.

Table III.H.8-2 Total Annual Monopsony Benefits in 2015, 2020, 2030 and 2040 (billions of 2007$)

Year Benefits

2015 $1.04

2020 $3.72

2030 $6.26

2040 $8.11

However, EPA invites comments on whether, when the global value for greenhouse gas reduction benefits is used, it may s till be appropriate to include the monopsony benefits in net benefits calculation for the proposed rule. From oneDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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perspective, the global SCC is used in these calcul ations, not because the global net benefits of the rule are being computed (they are n ot), but rather because in the context of a global public good, the global marginal benefit i s the correct domestic benefit against which domestic costs are to be compared. Similarly, energy security is inherently a domestic benefit. Thus, should the two benefits, i f they are both viewed from this domestic perspective, be counted in the net benefit s estimates for this rulemaking and more generally what are the overall implications of this approach to justifying regulation? However, even when the global value for greenhouse gas reduction benefits is used, a strong argument ca n be made that the monopsony benefits should be inc luded in net benefits calculation for the proposed rule. Ma intaining the earth’s climate is a global public good and as such requires that a global pers pective be taken on the benefits of GHG mitigation b y all nations, including the U.S. The global SCC i s used in these calculations, not because the global net benefits o f the rule are being computed (they are not), but rather because in the context of a global public good, the global marginal benefit

is th e correct benefit against which domestic costs are to be compared. In other words, using the global SCC does not transform the calcula tion from a domestic (i.e., U.S.) to a global one. Rather, the domestic perspective is ma intained while recognizing that the impacts from domestic GHG emissions are truly globa l in nature.

Energy security, on the other hand, is broadly defined as protecting the U.S. economy against circumstances that threaten signifi cant short

- and long

- term increases in energy costs. E nergy security is inherently a domestic benefit. H owever, the use of the domestic monopsony benefit is not in conflict with the use of the global SCC, because the global SCC represents the benefits against which th e costs associated with our (i.e., the

U. S.’s) domestic mitigation efforts should be judged. In addition, the U.S. values both maintaining the earth’s climate and providing for i ts own energy security. If this reasoning holds, the two benefits

— the global benefits of reducing greenhouse gas

emis sions and the full energy security premium, includi ng the monopsony benefits

— should be counted in the net benefits estimates of the proposed rule. EPA is taking comments on whether the monopsony portion of the en ergy security should be included

in net ben efits calculations for this rulemaking.

Total annual energy security benefits are derived from the estimated reductions in U.S. imports of finished petroleum products and cru de oil using only the macroeconomic disruption/adjustment portion of the energy securit y premium. These values are shown in

Table III.H.8- 3 2

. 264 The total energy security monopsony benefits of r educed U.S. oil imports are shown in Table III.H.8- 2 3 . The reduced oil estimates were derived from the OMEGA model, as explained in Section VI of this pre amble. EPA used the same assumption that NHTSA used in its Corporate Average Fuel Economy and CAFE Reform for MY 2008-2011 Light Trucks proposal, which assum ed each gallon of fuel saved reduces total U.S. imports of crude oil or refined products by 0.95 gallons. 265

264 Estimated reductions in U.S. imports of finished p etroleum products and crude oil are 95% of 88 milli on barrels (MMB) in 2015, 302 MMB in 2020, 592 MMB in 2030, and 767 MMB in 2040.

265 Preliminary Regulatory Impacts Analysis, April 200 8. Based on a detailed analysis of differences in fuel consumption, petroleum imports, and imports of refined petroleum products among the ReferenceDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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Table III.H.8- 3 2 Total Annual Energy Security Benefits Using Only t he Macroeconomic Disruption/Adjustment Component of the Energy Secur ity Premium in 2015, 2020, 2030 and 2040 (billions of 2007$)

Year Benefits 2015 $0.59
2020 $2.30
2030 $4.81
2040 $6.23

Table III.H.8

- 3 Total Annual Monopsony Benefits in 2015, 2020, 20 30 and 2040 (billions of 2007$)

Year Benefits

2015 $1.04

2020 $3.72

2030 $6.26

2040 $8.11

9. Other Impacts

There are other impacts associated with the propose d CO 2 emissions standards and associated reduced fuel consumption. Lower fue l consumption would, presumably, result in fewer trips to the filling station to ref uel and, thus, time saved. The rebound effect, discussed in detail in Section III.H.3.c, p roduces additional benefits to vehicle owners in the form of consumer surplus from the inc rease in vehicle-miles driven, but may also increase the societal costs associated wit h traffic 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 proposed sta ndards, but they are nevertheless important to include. Table III.H.9-1 summarizes t he other economic impacts. Please

refer to Preamble Section II.F and the Draft Joint TSD that accompanies this proposal for more information about these impacts and how EPA an d NHTSA use them in their analyses.

Table III.H.9-1 Estimated Economic Externalities As sociated with the Proposed LightDuty Vehicle GHG Program ($Millions of 2007 dollars)

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 refle cted in reduced U.S. imports of refined fuel, while the remaining 50 percent would be expected to be reflec ted in reduced domestic fuel refining. Of this latt er figure, 90 percent is anticipated to reduce U.S. im ports of crude petroleum for use as a refinery feed stock, while the remaining 10 percent is expected to reduc e U.S. domestic production of crude petroleum. Thus on balance, each gallon of fuel saved is anticipated t o reduce total U.S. imports of crude petroleum or r efined fuel by 0.95 gallons.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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Economic

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

Value of

Less Frequent Refueling $2,500 $4,900 $6,400 $8,000 $89,600 $41,000

Value of

Increased Driving a $4,900 $10,000 $13,600 $18,000 $184,700 $82,700

Accidents, Noise, Congestion -$2,400 -$4,900 -$6,300 -$7,900 -$88,200 -$40,200

Annual Quantified

Benefits $5,000 $10,000 $13,700 $18,100 $186,100 $83,500

a Calculated using post-tax fuel prices.

10. Summary of Costs and Benefits

In this section EPA presents a summary of costs, b enefits, and net benefits of the proposal. EPA presents fuel consumption impacts as negative costs of the vehicle

program.

Table III.H.10-1 shows the estimated annual societ al costs of the vehicle program for the indicated calendar years. The table also s hows the net present values of those costs for the calendar years 2012-2050 using both a 3 percent and a seven percent discount rate. In this table, fuel savings are cal culated using pre-tax fuel prices and are presented as negative costs associated with the veh icle program (rather than positive savings).

Consumers are expected to receive the fuel savings presented here. The cost estimates for the fuel-saving technology are based on the assumptions that, to comply with the rule, no vehicle attributes will change ex cept fuel economy and technology cost;

that consumers will consider reduced fuel costs as a substitute for increased purchase price; and that consumers will not change the vehic les that they purchase. Instead, it is possible that automakers may redesign vehicles as p art of their compliance strategies. If so, the redesigns may make the vehicles either less or more attractive to consumers. In addition, consumers may choose to purchase differen t vehicles than they would in the absence of this rule. These changes may affect the satisfaction that consumers receive

from their vehicles. Because of the unsettled stat e of the modeling of consumer choices (discussed in Section III.H.4.b and in DRIA Section 8.1.2), this analysis does not

measure these effects. To the extent that consumer satisfaction with vehicles may decline due to changes in vehicles other than fuel economy, the fuel savings may overstate the benefits of improved fuel economy to consumers.

Table III.H.10-1 Estimated Societal Costs of the Li ght-Duty Vehicle GHG ProgramDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

235 (Millions of 2007 dollars)

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

Vehicle Compliance

Costs $18,000 $17,900 $19,300 $20,900 $390,000 $216,600

Fuel Savings a -$43,100 -$90,400 -$125,000 -$167,000 -$1,677,600 -$746,100 Quantified

Annual Costs -$25,100 -$72,500 -$105,700 -$146,100 -$1,287,600 -$529,500

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 prese nt 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 GHG emissions—and con sequently the annual quantified benefits (i.e., total benefits)—for each of five in terim SCC values considered by EPA. As discussed in Section III.H.6, there is a very hi gh probability ( very likely according to the IPCC) that the benefit estimates from GHG reduc tions are underestimates. One of the primary reasons is that models used to calculate SC C values do not include information about impacts that have not been quantified.

In addition, the total GHG reduction benefits prese nted below likely

underestimate the value of GHG reductions because t hey were calculated using the marginal values for CO 2 emissions. The impacts of non-CO 2 emissions vary from those

of CO 2 emissions because of differences in atmospheric li fetimes and radiative forcing. 266
As a result, the marginal benefit values of non-CO 2 GHG reductions and their growth rates over time will not be the same as the margina l benefits measured on a CO 2

– equivalent scale. 267 Marginal benefit estimates per metric ton of non- CO 2 GHGs are currently unavailable, but work is on-going to mone tize benefits related to the mitigation

of other non-CO 2 GHGs.

266 Radiative forcing is the change in the balance bet ween solar radiation entering the atmosphere and th e Earth's radiation going out. On average, a positive radiative forcing tends to warm the surface of the Earth while negative forcing tends to cool the surface. Greenhouse gases have a positive radiative forcing because they absorb and emit heat. See http://www.e pa.gov/climatechange/science/recentac.html for more general information about GHGs and climate science.

267 See IPCC WGII, 2007 for discussion about implicati ons of different marginal impacts among the GHGs. Formatted TableDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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Table III.H.10-2 Estimated Societal Benefits Associ ated with the Proposed Light-Duty

Vehicle GHG Program (Millions of 2007 dollars)

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

Reduced GHG Emissions at each assumed SCC value

SCC 5% $1,200 $3,300 $5,700 $9,500 $69,200 $28,600

SCC 5% Newell

- Pizer $2,500 $6,600 $11,000 $19,000 $138,400 $57,100

SCC from 3% and 5% $4,700 $12,000 $22,000 $36,000 $263,000 $108,500

SCC 3% $8,200 $22,000 $38,000 $63,000 $456,900 $188,500

SCC 3% Newell-Pizer $14,000 $36,000 $63,000 $100,000 $761,400 $314,200

PM 2.5 Related

Benefits a,b,c $1,400 $3,000 $4,600 $6,700 $59,800 $26,300

Energy Security Impacts (price shock) $2,300 $4,800 $6,200 $7,800 $85,800 $38,800

Reduced Refueling $2,500 $4,900 $6,400 $8,000 $89,600 $41,000

Value of Increased Driving d $4,900 $10,000 $13,600 $18,000 $184,700 $82,700

Accidents, Noise, Congestion -$2,400 -$4,900 -$6,300 -$7,900 -$88,200 -$40,200

Quantified Annual Benefits at each assumed SCC valu e
SCC 5% $9,900 $21,100 $30,200 $42,100 $400,900 $177,200

SCC 5% Newell-Pizer $11,200 $24,400 $35,500 $51,600 $470,100 $205,700

SCC from 3% and 5% $13,400 $29,800 $46,500 $68,600 $594,700 $257,100

SCC 3% $16,900 $39,800 $62,500 $95,600 $788,600 $337,1 00

SCC 3% Newell-Pizer $22,700 $53,800 $87,500 $132,600 $1,093,100 $462,800

a Note that the co-pollutant impacts associated with the standards presented here do not include the fu ll complement of endpoints that, if quantified and mon etized, would change the total monetized estimate o f rule-related impacts. Instead, the co-pollutant be nefits are based on benefit-per-ton values that ref lect only human health impacts associated with reductions in PM2.5 exposure. Ideally, human health and environmental benefits would be based on changes in ambient PM2.5 and ozone as determined by fullscale air quality modeling. However, EPA was unabl e to conduct a full-scale air quality modeling anal ysis in time for the proposal. We intend to more fully capture the co-pollutant benefits for the analysis of the

final standards.

b The PM2.5-related benefits (derived from benefit-p er-ton values) presented in this table are based on an estimate of premature mortality derived from the AC S study (Pope et al., 2002). If the benefit-per-to n estimates were based on the Six Cities study (Laden et al., 2006), the values would be approximately 1 45% (nearly two-and-a-half times) larger.

c The PM2.5-related benefits (derived from benefit-p er-ton values) presented in this table assume a 3% discount rate in the valuation of premature mortali ty to account for a twenty-year segmented cessation lag. If a 7% discount rate had been used, the values wou ld be approximately 9% lower.

d Calculated using pre-tax fuel prices.

Table III.H.10-3 presents estimated annual net ben efits 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 perc ent discount rate. The table includes the benefits of reduced GHG emissions—and consequen tly the annual net benefits—for each of five interim SCC values considered by EPA. As noted above, there is a very high probability ( very likely according to the IPCC) that the benefit estimates from GHG Formatted TableDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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reductions are underestimates because, in part, mod els used to calculate SCC values do not include information about impacts that have not been quantified.

Table III.H.10-3 Quantified Net Benefits Associated with the Proposed Light-Duty

Vehicle GHG Program a, b (Millions of 2007 dollars)

2020 2030 2040 2050 NPV, 3% NPV, 7% Quantified Annual Costs -$25,100 -$72,500 -$105,700 -$146,100 -$1,287,600 -$529,500 Quantified Annual Benefits at each assumed SCC valu e
SCC 5% $9,900 $21,100 $30,200 $42,100 $400,900 $177,200

SCC 5% Newell-Pizer $11,200 $24,400 $35,500 $51,600 $470,100 $205,700

SCC from 3% and 5% $13,400 $29,800 $46,500 $68,600 $594,700 $257,100

SCC 3% $16,900 $39,800 $62,500 $95,600 $788,600 $337,100

SCC 3% Newell-Pizer $22,700 $53,800 $87,500 $132,600 $1,093,100 $462,800 Quantified Net Benefits at each assumed SCC value

SCC 5% $35,000 $93,600 $135,900 $188,200 $1,688,500 $706,700

SCC 5% Newell

- Pizer $36,300 $96,900 $141,200 $197,700 $1,757,700 $735,200

SCC from 3% and 5% $38,500 $102,300 $152,200 $214,700 $1,882,300 $786,600

SCC 3% $42,000 $112,300 $168,200 $241,700 $2,076,200 $866,600

SCC 3% Newell-Pizer $47,800 $126,300 $193,200 $278,700 $2,380,700 $992,300

a Note that the co-pollutant impacts associated with the standards presented here do not include the fu ll complement of endpoints that, if quantified and mon etized, would change the total monetized estimate o f rule-related impacts. Instead, the co-pollutant be nefits are based on benefit-per-ton values that ref lect only human health impacts associated with reductions in PM2.5 exposure. Ideally, human health and environmental benefits would be based on changes in ambient PM2.5 and ozone as determined by fullscale air quality modeling. However, EPA was unabl e to conduct a full-scale air quality modeling anal ysis in time for the proposal. We intend to more fully capture the co-pollutant benefits for the analysis of the

final standards.

b Fuel impacts were calculated using pre-tax fuel prices.

EPA also conducted a separate analysis of the total benefits over the model year lifetimes of the 2012 through 2016 model year vehic les. In contrast to the calendar year analysis, the model year lifetime analysis shows th e lifetime impacts of the program on

each of these MY fleets over the course of its life time. Full details of the inputs to this analysis can be found in DRIA Chapter 5. The socie tal benefits of the full life of each of the five model years from 2012 through 2016 are sho wn in Tables III.H.10-4 and III.H.10-5 at both a 3 percent and a 7 percent disc ount rate, respectively. The net benefits

are shown in Tables III.H.10-6 and III.H.10-7 for b oth a 3 percent and a 7 percent discount rate. Note that the quantified annual ben efits shown in Table III.H.10-4 and Table III.H.10-5 include fuel savings as a positive benefit. As such, the quantified annual

costs as 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 eac h of the Tables III.H.10-4 through Table

III.H.10-7 include the benefits of reduced CO 2 emissions—and consequently the total

benefits—for each of five interim SCC values consid ered by EPA. As noted above, there is a very high probability ( very likely according to the IPCC) that the benefit estimates from GHG reductions are underestimates because, in part, models used to calculate SCC values do not include information about impacts tha t have not been quantified. Formatted TableDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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Table III.H.10-4 Estimated Societal Benefits Associ ated with the Proposed Light-Duty Vehicle GHG Program, Model Year Analysis (Millions of 2007 dollars; 3% Discount Rate)

Monetized Values (millions) 2012MY 2013MY 2014MY 20 15MY 2016MY Sum Cost of Noise, Accident, Congestion ($) -$900 -$1,400 -$1,900 -$2,800 -$3,900 -$11,000
Pretax Fuel Savings ($) $15,600 $24,400 $34,800 $49,800 $68,500 $193,300
Energy Security (price shock) ($) $400 $600 $900 $1,200 $1,600 $4,700

Change in no. of Refuelings (#) 500 700 1,000 1,300 1,800 5,300

Change in Refueling Time (hours) 0 100 100 100 200 400
Value of Reduced Refueling time ($) $900 $1,400 $1,900 $2,700 $3,700 $10,500
Value of Additional Driving ($) $2,000 $3,000 $4,100 $5,700 $7,900 $22,700

Value of PM 2.5 -related Health Impacts ($) a,b,c $600 $900 $1,200 $1,700 $2,200 $6,600

Social Cost of Carbon (SCC) at each assumed SCC val ue
SCC 5% $500 $700 $1,000 $1,400 $1,900 $5,600

SCC 5% Newell-Pizer $1,000 $1,500 $2,000 $2,900 $3,800 $11,000

SCC from 3% and 5% $1,800 $2,800 $3,900 $5,400 $7,200 $21,000

SCC 3% $3,200 $4,800 $6,700 $9,400 $13,000 $37,000

SCC 3% Newell-Pizer $5,300 $8,100 $11,000 $16,000 $21,000 $61,000

Total Benefits at each assumed SCC value

SCC 5% $19,100 $29,600 $42,000 $59,700 $81,900 $232,400

SCC 5% Newell-Pizer $19,600 $30,400 $43,000 $61,200 $83,800 $237,800

SCC from 3% and 5% $20,400 $31,700 $44,900 $63,700 $87,200 $247,800

SCC 3% $21,800 $33,700 $47,700 $67,700 $93,000 $263,800

SCC 3% Newell-Pizer $23,900 $37,000 $52,000 $74,300 $101,000 $287,800

a Note that the co-pollutant impacts associated with the standards presented here do not include the fu ll complement of endpoints that, if quantified and mon etized, would change the total monetized estimate o f rule-related impacts. Instead, the co-pollutant be nefits are based on benefit-per-ton values that ref lect only human health impacts associated with reductions in PM2.5 exposure. Ideally, human health and environmental benefits would be based on changes in ambient PM2.5 and ozone as determined by fullscale air quality modeling. However, EPA was unabl e to conduct a full-scale air quality modeling anal ysis in time for the proposal. We intend to more fully capture the co-pollutant benefits for the analysis of the

final standards.

b The PM2.5-related benefits (derived from benefit-p er-ton values) presented in this table are based on an estimate of premature mortality derived from the AC S study (Pope et al., 2002). If the benefit-per-to n estimates were based on the Six Cities study (Laden et al., 2006), the values would be approximately 1 45% (nearly two-and-a-half times) larger.

c The PM2.5-related benefits (derived from benefit-p er-ton values) presented in this table assume a 3% discount rate in the valuation of premature mortali ty to account for a twenty-year segmented cessation lag. If a 7% discount rate had been used, the values wou ld be approximately 9% lower.

Table III.H.10-5 Estimated Societal Benefits Assoc iated with the Proposed Light-Duty Vehicle GHG Program, Model Year Analysis (Millions of 2007 dollars; 7% Discount Rate)

Monetized Values (millions) 2012MY 2013MY 2014MY 20 15MY 2016MY Sum Cost of Noise, Accident, Congestion ($) -$700 -$1,100 -$1,500 -$2,200 -$3,100 -$8,700
Pretax Fuel Savings ($) $12,100 $19,000 $27,200 $39,000 $53,700 $150,900
Energy Security (price shock) ($) $300 $500 $700 $900 $1,300 $3,700

Change in no. of Refuelings (#) 400 500 800 1,100 1,500 4,200
Change in Refueling Time (hours) 0 0 100 100 100 300Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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Value of Reduced Refueling time ($) $700 $1,100 $1,500 $2,100 $2,900 $8,300
Value of Additional Driving ($) $1,500 $2,400 $3,200 $4,500 $6,300 $18,000

Value of PM 2.5 -related Health Impacts ($) a,b,c $500 $700 $1,000 $1,300 $1,800 $5,300

Social Cost of Carbon (SCC) at each assumed SCC val ue
SCC 5% $400 $500 $700 $1,000 $1,300 $3,900

SCC 5% Newell-Pizer $700 $1,100 $1,500 $2,000 $2,500 $7,700

SCC from 3% and 5% $1,400 $2,100 $2,800 $3,700 $4,800 $15,000

SCC 3% $2,400 $3,600 $4,800 $6,500 $8,300 $26,000

SCC 3% Newell-Pizer $4,000 $6,000 $8,000 $11,000 $14,000 $43,000

Total Benefits at each assumed SCC value

SCC 5% $14,800 $23,100 $32,800 $46,600 $64,200 $181,400

SCC 5% Newell-Pizer $15,100 $23,700 $33,600 $47,600 $65,400 $185,200

SCC from 3% and 5% $15,800 $24,700 $34,900 $49,300 $67,700 $192,500

SCC 3% $16,800 $26,200 $36,900 $52,100 $71,200 $203,500

SCC 3% Newell-Pizer $18,400 $28,600 $40,100 $56,600 $76,900 $220,500

a Note that the co-pollutant impacts associated with the standards presented here do not include the fu ll complement of endpoints that, if quantified and mon etized, would change the total monetized estimate o f rule-related impacts. Instead, the co-pollutant be nefits are based on benefit-per-ton values that ref lect only human health impacts associated with reductions in PM2.5 exposure. Ideally, human health and environmental benefits would be based on changes in ambient PM2.5 and ozone as determined by fullscale air quality modeling. However, EPA was unabl e to conduct a full-scale air quality modeling anal ysis in time for the proposal. We intend to more fully capture the co-pollutant benefits for the analysis of the

final standards.

b The PM2.5-related benefits (derived from benefit-p er-ton values) presented in this table are based on an estimate of premature mortality derived from the AC S study (Pope et al., 2002). If the benefit-per-to n estimates were based on the Six Cities study (Laden et al., 2006), the values would be approximately 1 45% (nearly two-and-a-half times) larger.

c The PM2.5-related benefits (derived from benefit-p er-ton values) presented in this table assume a 3% discount rate in the valuation of premature mortali ty to account for a twenty-year segmented cessation lag. If a 7% discount rate had been used, the values wou ld be approximately 9% lower.

Table III.H.10-6 Quantified Net Benefits Associate d with the Proposed Light-Duty Vehicle GHG Program, Model Year Analysis a (Millions of 2007 dollars; 3% Discount Rate)

Monetized Values (millions) 2012MY 2013MY 2014MY 20 15MY 2016MY Sum Quantified Annual Costs (excluding fuel savings) b $5,400 $8,400 $10,900 $13,900 $17,500 $56,100

Quantified Annual Benefits at each assumed SCC valu e
SCC 5% $19,100 $29,600 $42,000 $59,700 $81,900 $232,400

SCC 5% Newell-Pizer $19,600 $30,400 $43,000 $61,200 $83,800 $237,800

SCC from 3% and 5% $20,400 $31,700 $44,900 $63,700 $87,200 $247,800

SCC 3% $21,800 $33,700 $47,700 $67,700 $93,000 $263,800

SCC 3% Newell-Pizer $23,900 $37,000 $52,000 $74,300 $101,000 $287,800

Quantified Net Benefits at each assumed SCC valueDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

240 SCC 5% $13,700 $21,200 $31,100 $45,800 $64,400 $176,300

SCC 5% Newell-Pizer $14,200 $22,000 $32,100 $47,300 $66,300 $181,700

SCC from 3% and 5% $15,000 $23,300 $34,000 $49,800 $69,700 $191,700

SCC 3% $16,400 $25,300 $36,800 $53,800 $75,500 $207,700

SCC 3% Newell-Pizer $18,500 $28,600 $41,100 $60,400 $83,500 $231,700

a Note that the co-pollutant impacts associated with the standards presented here do not include the fu ll complement of endpoints that, if quantified and mon etized, would change the total monetized estimate o f rule-related impacts. Instead, the co-pollutant be nefits are based on benefit-per-ton values that ref lect only human health impacts associated with reductions in PM2.5 exposure. Ideally, human health and environmental benefits would be based on changes in ambient PM2.5 and ozone as determined by fullscale air quality modeling. However, EPA was unabl e to conduct a full-scale air quality modeling anal ysis in time for the proposal. We intend to more fully capture the co-pollutant benefits for the analysis of the

final standards.

b Quantified annual costs as shown here are the incr eased costs for new vehicles in each given model ye ar. Since those costs are assumed to occur in the given model year (i.e., not over a several year time spa n), the

discount rate does not affect the costs.

Table III.H.10-7 Quantified Net Benefits Associate d with the Proposed Light-Duty Vehicle GHG Program, Model Year Analysis a (Millions of 2007 dollars; 7% Discount Rate)

Monetized Values (millions) 2012MY 2013MY 2014MY 20 15MY 2016MY Sum Quantified Annual Costs (excluding fuel savings) b $5,400 $8,400 $10,900 $13,900 $17,500 $56,100

Quantified Annual Benefits at each assumed SCC valu e
SCC 5% $14,800 $23,100 $32,800 $46,600 $64,200 $181,400

SCC 5% Newell-Pizer $15,100 $23,700 $33,600 $47,600 $65,400 $185,200

SCC from 3% and 5% $15,800 $24,700 $34,900 $49,300 $67,700 $192,500

SCC 3% $16,800 $26,200 $36,900 $52,100 $71,200 $203,500

SCC 3% Newell-Pizer $18,400 $28,600 $40,100 $56,600 $76,900 $220,500

Quantified Net Benefits at each assumed SCC value

SCC 5% $9,400 $14,700 $21,900 $32,700 $46,700 $125,300

SCC 5% Newell-Pizer $9,700 $15,300 $22,700 $33,700 $47,900 $129,100

SCC from 3% and 5% $10,400 $16,300 $24,000 $35,400 $50,200 $136,400

SCC 3% $11,400 $17,800 $26,000 $38,200 $53,700 $147,400

SCC 3% Newell-Pizer $13,000 $20,200 $29,200 $42,700 $59,400 $164,400

a Note that the co-pollutant impacts associated with the standards presented here do not include the fu ll complement of endpoints that, if quantified and mon etized, would change the total monetized estimate o f rule-related impacts. Instead, the co-pollutant be nefits are based on benefit-per-ton values that ref lect only human health impacts associated with reductions in PM2.5 exposure. Ideally, human health and environmental benefits would be based on changes in ambient PM2.5 and ozone as determined by fullscale air quality modeling. However, EPA was unabl e to conduct a full-scale air quality modeling anal ysis in time for the proposal. We intend to more fully capture the co-pollutant benefits for the analysis of the

final standards.

b Quantified annual costs as shown here are the incr eased costs for new vehicles in each given model ye ar. Since those costs are assumed to occur in the given model year (i.e., not over a several year time spa n), the

discount rate does not affect the costs.

I. Statutory and Executive Order Reviews

1. Executive Order 12866: Regulatory Planning and R eviewDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

241

Under section 3(f)(1) of Executive Order (EO) 1286 6 (58 FR 51735, October 4, 1993), this action is an "economically significant regulatory action” because it is likely to have an annual effect on the economy of $100 millio n or more. Accordingly, EPA submitted this action to the Office of Management a nd Budget (OMB) for review under EO 12866 and any changes made in response to OMB re commendations have been

documented in the docket for this action.

In addition, EPA prepared an analysis of the poten tial costs and benefits associated with this action. This analysis is cont ained in the Draft Regulatory Impact Analysis, which is available in the docket for this rulemaking and at the docket internet

address listed under ADDRESSES above.

2. Paperwork Reduction Act

The information collection requirements in this pro posed 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 . The Information Collection Request (ICR) document prepared by EPA has been assigned EP A ICR number 0783.56.

The Agency proposes to collect information to ensur e compliance with the provisions in this rule. This includes a variety o f requirements for vehicle manufacturers. Section 208(a) of the Clean Air Act requires that v ehicle manufacturers provide information the Administrator may reasonably requir e to determine compliance with the regulations; submission of the information is there fore mandatory. We will consider confidential all information meeting the requiremen ts of section 208(c) of the Clean Air

Act.

As shown in Table III.J.2-1, the total annual burde n associated with this proposal is about 39,900 hours and $5 million, based on a pr ojection of 33 respondents. The

estimated burden for vehicle manufacturers is a tot al estimate for both new and existing reporting requirements. Burden means the total tim e, effort, or financial resources expended by persons to generate, maintain, retain, or disclose or provide information to or for a Federal agency. This includes the time ne eded to review instructions; develop, acquire, install, and utilize technology and system s for the purposes of collecting, validating, and verifying information, processing a nd maintaining information, and disclosing and providing information; adjust the ex isting 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 and review the collection of information; and transmit or otherwise disclose the information.

Table III.J.2-1 Estimated Burden for Reporting and Recordkeeping Requirements

Number of respondents Annual burden

hours Annual

costs
33 39,940 $5,001,000 Field Code Changed

Field Code Changed

Field Code Changed

Formatted TableDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a cu rrently valid OMB control number. The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9.

To comment on the Agency's need for this informati on, the accuracy of the provided burden estimates, and any suggested method s for minimizing respondent burden, including the use of automated collection t echniques, EPA has established a public docket for this rule, which includes this IC R, under Docket ID number EPA-HQOAR-2007-0491. Submit any comments related to the ICR for this proposed rule to EPA and OMB. See ‘Addresses’ section at the beginn ing of this notice for where to

submit comments to EPA. Send comments to OMB at th e Office of Information and Regulatory Affairs, Office of Management and Budget , 725 17th Street, NW, Washington, DC 20503, Attention: Desk Office for EP A. Since OMB is required to make a decision concerning the ICR between 30 and 6 0 days after [Insert date of publication in the FEDERAL REGISTER], a comment to OMB is best assured of having its full effect if OMB receives it by [Insert date 30 days after publication in the FEDERAL REGISTER]. The final rule will respond to any OMB or public comments on the information collection requirements contained i n this proposal.

3. Regulatory Flexibility Act

a. Overview

The Regulatory Flexibility Act (RFA) generally req uires 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 sign ificant economic impact on a substantial

number of small entities. Small entities include s mall businesses, small organizations, and small governmental jurisdictions.

For purposes of assessing the impacts of this rule on small entities, small entity is defined as: (1) a small business as defined by the Small Business Administration’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, schoo l district or special district with a population of less than 50,000; and (3) a small org anization that is any not-for-profit enterprise which is independently owned and operate d and is not dominant in its field.

Table III.J.3-1 provides an overview of the primary SBA small business categories included in the light-duty vehicle secto r:

Table III.J.3-1 Primary SBA Small Business Categori es in the Light-Duty Vehicle

SectorDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

243 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

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 b usinesses would not be subject to this proposed rul e. We are deferring action on small vehicle entities, and we intend to address these entities in a future ru le.

b North American Industrial Classification System

b. Summary of Potentially Affected Small Entities

EPA has not conducted a Regulatory Flexibility Ana lysis or a SBREFA SBAR Panel for the proposed rule because we are proposin g to certify that the rule would not have a significant economic impact on a substantial number of small entities. EPA is proposing to defer standards for manufacturers meet ing SBA’s definition of small

business as described in 13 CFR 121.201 due to the short lead time to develop this proposed rule, the extremely small emissions contri bution of these entities, and the potential need to develop a program that would be s tructured differently for them (which would require more time). EPA would instead consid er appropriate GHG standards for these entities as part of a future regulatory actio n. This includes small entities in three distinct categories of businesses for light-duty ve hicles: small volume manufacturers (SVMs), independent commercial importers (ICIs), an d alternative fuel vehicle converters. Based on preliminary assessment, EPA h as identified a total of about 47 vehicle businesses, about 13 entities (or 28 percen t) that fit the Small Business Administration (SBA) criterion of a small business. There are about 2 SVMs, 8 ICIs, and 3 alternative fuel vehicle converters in the light- duty vehicle market which are small businesses (no major vehicle manufacturers meet the small-entity criteria as defined by SBA). EPA estimates that these small entities comp rise about 0.03 percent of the total light-duty vehicle sales in the U.S. for the year 2 007, and therefore the proposed deferment will have a negligible impact on the GHG emissions reductions from the proposed standards.

To ensure that EPA is aware of which companies woul d be deferred, EPA is proposing that such entities submit a declaration t o EPA containing a detailed written description of how that manufacturer qualifies as a small entity under the provisions of 13 CFR 121.201. Small entities are currently covered by a number of EPA motor vehicle emission regulations, and they routinely submit inf ormation and data on an annual basis Formatted TableDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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as part of their compliance responsibilities. Beca use such entities are not automatically exempted from other EPA regulations for light-duty vehicles and light-duty trucks, absent such a declaration, EPA would assume that the entit y was subject to the greenhouse gas control requirements in this GHG proposal. The dec laration would need to be submitted

at time of vehicle emissions certification under th e EPA Tier 2 program. EPA expects that the additional paperwork burden associated wit h completing and submitting a small entity declaration to gain deferral from the propos ed GHG standards would be negligible and easily done in the context of other routine sub mittals to EPA. However, EPA has

accounted for this cost with a nominal estimate inc luded 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 proposing to certify that the rule would not hav e a significant economic impact on a

substantial number of small entities.

c. Conclusions

I therefore certify that this proposed rule will no t have a significant economic impact on a substantial number of small entities. However, EPA recognizes that some small entities continue to be concerned about the p otential 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 [cite FR for phase

- in rule, if possible]

, EPA is using the discretion afforded to it under se ction 609(c) of the RFA to consult with OMB and SBA, with input from outreach to small enti ties, regarding the potential impacts of PSD regulatory requirements as that migh t occur as EPA considers regulations of GHGs. Concerns about the potential impacts of s tatutorily imposed PSD requirements on small entities will be the subject of deliberati ons in that consultation and outreach. Concerned small entities should direct any comments relating to potential adverse economic impacts on small entities from PSD require ments for GHG emissions to the docket for the PSD tailoring rule.

EPA continues to be interested in the potential im pacts of the proposed rule on

small entities and welcome comments on issues relat ed to such impacts.

4. Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 19 95 (UMRA), P.L. 104-4, establishes requirements for Federal agencies to as sess 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 s tatement, including a cost-benefit analysis, for proposed and final rules with "Federa l mandates" that may result in expenditures to State, local, and tribal government s, in the aggregate, or to the private sector, of $100 million or more in any one year. B efore promulgating an EPA rule for which a written statement is needed, section 205 of the UMRA generally requires EPA to identify and consider a reasonable number of regula tory alternatives and adopt the least costly, most cost-effective or least burdensome alt ernative that achieves the objectives ofDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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the rule. The provisions of section 205 do not appl y when they are inconsistent with applicable law. Moreover, section 205 allows EPA to adopt an alternative other than the least costly, most cost-effective or least burdenso me alternative if the Administrator publishes with the final rule an explanation why th at alternative was not adopted.

Before EPA establishes any regulatory requirements that may significantly or uniquely affect small governments, including tribal governments, it must have developed under section 203 of the UMRA a small government ag ency plan. The plan must provide for notifying potentially affected small government s, enabling officials of affected small governments to have meaningful and timely input in the development of EPA regulatory proposals with significant Federal intergovernmenta l mandates, and informing, educating, and advising small governments on compli ance with the regulatory requirements.

This proposal contains no Federal mandates (under t he regulatory provisions of Title II of the UMRA) for State, local, or tribal g overnments. The rule imposes no enforceable duty on any State, local or tribal gove rnments. EPA has determined that this rule contains no regulatory requirements that might significantly or uniquely affect small governments. EPA has determined that this proposal contains a Federal mandate that may result in expenditures of $100 million or more for the private sector in any one year. EPA believes that the proposal represents the least costly, most cost-effective approach to achieve the statutory requirements of the rule. Th e costs and benefits associated with the proposal are discussed above and in the Draft Regul atory Impact Analysis, as required by

the UMRA.

5. Executive Order 13132 (Federalism)

This action does not have federalism implications. It will not have substantial direct effects on the States, on the relationship b etween the national government and the States, or on the distribution of power and respons ibilities among the various levels of government, as specified in Executive Order 13132. This rulemaking would apply 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 consist ent with EPA policy to promote communications between EPA and State and local gove rnments, EPA specifically solicits comment on this proposed action from State and loca l officials.

6. Executive Order 13175 (Consultation and Coordina tion with Indian Tribal Governments)

This proposed rule does not have tribal implications, as specifie d 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 v ehicle manufacturers. TribalDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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governments would be affected only to the extent th ey purchase and use regulated vehicles. Thus, Executive Order 13175 does not app ly to this rule. EPA specifically solicits additional comment on this proposed rule f rom tribal officials.

7. Executive Order 13045: “Protection of Children f rom Environmental Health Risks and Safety Risks”

This action is subject to EO 13045 (62 FR 19885, A pril 23, 1997) because it is an economically significant regulatory action as defin ed by EO 12866, and EPA believes that the environmental health or safety risk addres sed by this action may have a disproportionate effect on children. A synthesis o f the science and research regarding how climate change may affect children and other vu lnerable subpopulations is contained in the Technical Support Document for Endangerment or Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Cl ean Air Act, which can be found in the public docket for this proposed rule. 268 A summary of the analysis is presented

below.

With respect to GHG emissions, the effects of clima te change 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 ha s 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 potenti al 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 proposed in this acti on (Section III.F). Children may

receive benefits from reductions in GHG emissions b ecause they are included in the segment of the population that is most vulnerable t o hot temperatures.

For non-GHG pollutants, EPA has determined that cli mate change is expected to increase regional ozone pollution, with associated risks in respiratory infection, aggravation of asthma, and premature death. The dir ectional effect of climate change on ambient PM levels remains uncertain. However, dist urbances 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 fi res can contribute to acute and chronic illnesses of the respiratory system, partic ularly in children, including pneumonia, upper respiratory diseases, asthma and chronic obst ructive pulmonary diseases.

The public is invited to submit comments or identif y peer-reviewed studies and data that assess effects of early life exposure to the pollutants addressed by this proposed

rule.

268 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. Retrieved on April 21, 2009 from http://epa.gov/climatechange/en dangerment/downloads/TSD_Endangerment.pdf.Draft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

247 8. Executive Order 13211 (Energy Effects)

This rule is not a “significant energy action” as defined in Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355 (May 22, 2001)) because it is not likely 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 proposed today result in significant fuel savings, this rule encourages more efficient use of fuels. Therefore, 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 act ivities unless to do so would be inconsistent with applicable law or otherwise impra ctical. Voluntary consensus standards are technical standards (e.g., materials, specifica tions, test methods, sampling procedures, and business practices) that are developed or adopt ed by voluntary consensus standards bodies. NTTAA directs EPA to provide Congress, thr ough OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards.

For CO 2 , N 2 O, and CH 4 emissions, EPA is proposing to collect data over t he same tests that are used for the CAFE program. This wil l minimize the amount of testing done by manufacturers, since manufacturers are already r equired to run these tests. For A/C credits, EPA is proposing to use a consensus method ology developed by the Society of Automotive Engineers (SAE) and also a new A/C idle test. EPA knows of no consensus

standard available for the A/C idle test.

10. Executive Order 12898: Federal Actions to Addr ess Environmental Justice in Minority Populations and Low-Income Popu lations

Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 19 94)) establishes federal executive policy on environmental justice. Its mai n provision directs federal agencies, to the greatest extent practicable and permitted by la w, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high

and adverse human health or environmental effects o f their programs, policies, and activities on minority populations and low-income p opulations in the United States.

With respect to GHG emissions, EPA has determined t hat this proposed rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it incre ases the level of environmental protection for all affected populations without hav ing any disproportionately high and

adverse human health or environmental effects on an y population, including any minority or low-income population. The reductions in CO 2 and other GHGs associated with the proposed standards will affect climate change proje ctions, and EPA has estimatedDraft Joint EPA/NHTSA Preamble LD GHG/CAFE Standa rds 9/3/09

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reductions in projected global mean surface tempera tures (Section III.F.3). Within settlements experiencing climate change, certain pa rts 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 pop ulations dependent on one or a few

resources. 269 Therefore, these 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 the re would be disproportionately high and

adverse human health or environmental effects on mi nority and/or low income populations from this proposed rule.

J. Statutory Provisions and Legal Authority

Statutory authority for the vehicle controls propos ed 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 pollutio n 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.

269 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. Retrieved on April 21, 2009 from http://epa.gov/climatechange/en dangerment/downloads/TSD_Endangerment.pdf.