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

Subject to Further Policy Review 

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Below is a summary of interagency comments received during EO 12866 review of the draft 

proposed rule establishing GHG emissions standards and fuel efficiency standards for medium 

and heavy duty trucks. They are for your consideration and subject to further policy review. 

A. Conceptual Framework for Evaluating Impacts 

This regulation is motivated primarily by the goals of reducing emissions of greenhouse 

gases and promoting U.S. energy security by reducing consumption and imports of petroleumbased fuels. These motivations involve classic externalities, meaning that private decisions do 

not incorporate all the costs associated with these problems; these costs are not borne completely 

by the households or businesses whose actions are responsible for them. In the absence of some 

mechanism to “internalize” these costs – that is, to transfer their burden to individuals or firms 

whose decisions impose them – individuals and firms will consume more petroleum-based fuels 

than is socially optimal. Externalities are a classic motivation for government intervention in 

markets. These externalities, as well as effects due to changes in emissions of other pollutants 

and other impacts, are discussed in Sections VIII.H – VIII.J. 

These classic externalities are not by themselves enough to justify the costs of these fuelsaving technologies under all of the scenarios. I.e. for some discount rates, and some projected 

social costs of carbon, the reductions in these external costs are less than the costs of the new 

fuel saving technologies. (See table 9-10 and 9-11 in the RIA.) However, by their very nature, 

the regulation reduces truck companies fuel costs, and according to our estimates, these fuel cost 

savings by themselves pay for the technologies over short periods of time under the assumptions 

used for this analysis (e.g. AEO 2010 projected fuel prices). 

The fact that we can identify cost-effective fuel-saving technologies that truck companies 

are not taking advantage of is a puzzle – commonly known as the “energy paradox.” Standard 

economic theory suggests that in normally functioning competitive markets, interactions between 

vehicle buyers and producers would lead producers to incorporate all cost-effective technology 

into the vehicles that they offer, without government intervention. Unlike in the light-duty 

vehicle market, the vast majority of vehicles in the medium- and heavy-duty truck market are 

purchased and operated by businesses operating on thin profit margins, and for which fuel costs 

represent a substantial operating expense. 

Even in the presence of uncertainty and imperfect information – conditions that hold to 

some degree in every market – we generally expect firms to attempt to minimize their costs in an 

effort to survive in a competitive marketplace, and therefore to make decisions that are in the 

best interest of the company and its owners and/or shareholders. In this case, the rules would 

produce external benefits. However, as discussed below in Section VIII.E, the agencies have 
Summary of Interagency Working Comments Received on Draft Rule under EO 12866 Review. 

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estimated that the application of fuel-saving technologies in response to the proposed standards 

would yield private returns to truck owners of 140% to 420% (see Table VIII-21 below). The 

agencies have also estimated that the application of these technologies would be significantly 

lower in the absence of the proposed standards (i.e., under the “no action” regulatory alternative), 

meaning that truck buyers and operators ignore opportunities to make investments in higher fuel 

economy that appear to offer significant cost savings. 

There are three possible explanations for why trucking companies do not adopt 

technologies forecast to increase their profits: (1) There is a market failure in the trucking 

industry – market power, externalities, or asymmetric information; (2) There are institutional 

rigidities in the industry (union rules, standard operating procedures, statutory requirements, 

etc.), whereby participants collectively do not minimize costs; or (3) the engineering estimates of 

fuel savings from these technologies overstate their benefits or understate their costs in realworld application. 

To try to understand why trucking companies have not adopted these seemingly costeffective fuel-saving technologies, the agencies have surveyed the academic and policy literature 

about the energy paradox, and held discussions with numerous truck market participants. Below, 

we have listed five categories of explanations we have heard. These five hypotheses may 

explain the disconnect between the engineering analysis, which finds a number of cost-effective 

methods of improving fuel economy, and the observation that many of these technologies are not 

widely adopted. These include imperfect information in the original and resale markets, split 

incentives, uncertainty about future fuel prices, and adjustment and transactions costs. As the 

discussion will indicate, some of these explanations suggest failures in the private market for 

fuel-saving technology in addition to the external failures that are the motivation for the rules. 

Other explanations suggest market-based behaviors that may imply additional costs not 

accounted for in this analysis. Anecdotal evidence from various segments of the trucking 

industry suggests that many of these hypotheses may play a role in explaining the puzzle of why 

truck purchasers appear to under-invest in fuel economy, although different explanations may 

apply to different segments, or even different companies. The published literature does not 

appear to include analysis or data related to this question. 

The agencies invite comment on these hypotheses, and on any data or information to that 

could be used to investigate the role of any or all of these five hypotheses in explaining this 

energy paradox as it applies to trucks. . The agencies also request comment and information 

regarding any other hypotheses that could explain the appearance that cost-effective fuel-saving 

technologies have not been incorporated into trucks. 

(1) Information Issues in the Original Sale Markets

One potential hypothesis for why the trucking industry does not adopt what appear to be 

inexpensive fuel saving technologies is that there is inadequate or unreliable information 
Summary of Interagency Working Comments Received on Draft Rule under EO 12866 Review. 

Subject to Further Policy Review 

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available about the effectiveness of many fuel-saving technologies for new vehicles. As the 

NAS report notes, “Reliable, peer-reviewed data on fuel saving performance is available only for 

a few technologies in a few applications. As a result, the committee had to rely on information 

from a wide range of sources, ... including many results that have not been duplicated by other 

researchers or verified over a range of duty cycles.” If reliable information on the effectiveness 

of many new technologies is absent, truck buyers will understandably be reluctant to spend 

additional money to purchase vehicles equipped with unproven technologies. This lack of 

information can manifest itself in multiple ways. For instance, the problem may arise purely 

because collecting reliable information on technologies is costly (also see section 5 on 

transaction costs). Moreover, information has aspects of a public good: no single firm has the 

incentive to do the costly experimentation to determine whether or not particular technologies 

are cost-effective, while all firms benefit from the knowledge gained from that experimentation. 

Similarly, if multiple firms must conduct the same tests to get the same information, costs could 

be reduced by some form of coordination of information gathering. 

There are several possible reasons why trucking firms may experience difficulty 

gathering or interpreting information about fuel saving technologies. It may be difficult for truck 

drivers and fleet operators to separate the individual effects of various technologies and 

operating strategies from one another, particularly when they tend to be used in conjunction. It 

may also be difficult for truck operators to assess the applicability of even objective and reliable 

test results to their own specific vehicle configurations and operating practices; at the same time, 

the effects of specific technologies or operating practices may vary with geography, season of 

the year, or other factors. Boat tails, roof fairings, and other aerodynamic features may provide 

substantial fuel savings to trucks traveling at high speeds over long distances, but may not be 

cost ef fective for trucks operating at lower speeds in stop-and-go traffic. If so, then costeffective technological improvements may not be adopted because they cannot be reliably 

distinguished from inefficient technologies. 

To some extent, information about the effectiveness of some selected technologies does 

exist, and some appear to be very cost-effective. The SmartWay Transport Partnership is a 

complementary partnership between EPA and the freight goods industry (shippers, truck and rail 

carriers, and logistics companies) whose aim is to provide better information on fuel-efficient, 

low-carbon technologies and operational practices to help accelerate their deployment. 

SmartWay initially focused on evaluating and testing technologies for use in over-the-road class 

8 tractor-trailers, commonly operated by the large, national trucking fleets. For this reason, more 

information is available about the configuration and operation of these types of trucks. Many of 

the technologies that SmartWay selected for evaluation can also save fuel and reduce greenhouse 

gas emissions in other types of trucks and trucking operations. However, due to the wide 

diversity among other types of trucks and truck operations, and lack of precise information about 

the effectiveness of technologies in each one of these types of truck and trucking operations, it is 

difficult for the program to provide good information that is specific to each company. This 

makes it much more challenging to improve market confidence in fuel-saving technologies in the 

Comment [A1]: Recommend citing the whole 

two sentence quote to make clear that NAS doesn’t 

have info either. 
Summary of Interagency Working Comments Received on Draft Rule under EO 12866 Review. 

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same way that SmartWay has done with its existing partners. SmartWay will continue to serve 

as a test bed for emerging technologies and as a conduit for technical information by developing 

and sharing information on other types of medium and heavy duty vehicles, helping to build 

market confidence in innovative financial, technical and operational solutions for medium- and 

heavy-duty vehicles across the freight goods industry, and promoting retrofit fuel-saving 

technologies within the existing legacy fleet. Information provision, such as the efforts of the 

SmartWay program, is a direct, non-regulatory approach to addressing the problem of the 

availability of information, as long as truck purchasers are able and willing to act on the 

information. 

(2) While its effect on information is indirect, we expect the requirement

for the use of new technologies included in this proposal could

encourage their adoption, thus providing more readily available

information about their benefits.  The agencies appreciate, however,

that the diversity of truck uses, driving situations, and driver

behavior may still lead to variation in the fuel savings that individual

trucks or fleets experience.    Information Issues in the Resale

Market

In addition to issues in the new vehicle market, a second hypothesis for why trucking 

companies may not adopt what appear to be cost-effective technologies to save fuel is that the 

resale market may not reward the addition of fuel-saving technology to vehicles adequately to 

ensure their original purchase by new truck buyers. This lack of payback for users beyond the 

original owner may contribute to the short payback period that new purchasers appear to expect. 

The agencies seek data and information on the extent to which costs of fuel saving equipment 

can be recovered in the resale truck market. 

Some of this unwillingness to pay for fuel-saving technology may be due to the extension 

of the information problems in the new vehicle market into resale markets. Buyers in the resale 

market have no more reason to trust information on fuel-saving technologies than buyers in the 

original market. Because actual fuel economy of trucks on the road depends on many factors, 

including geography and driving styles or habits, even objective sources such as logs of truck 

performance for used vehicles may not provide reliable information about the fuel economy that 

potential purchasers of used trucks will experience. 

A related possibility is that vehicles will be used for different purposes by their second 

owners than those for which they were originally designed. For instance, a vehicle originally 

purchased for long hauls might be used by its second owner instead for regional or intrastate 

trips, in which case some of the fuel-saving measures that proved effective in its original use 

may not be equally effective in these new uses. If information were more widely available and 

reliable, then purchasers in the resale market would seek vehicles with technologies that best 

Comment [A2]: This discussion appears to 

contradicts baseline assumption of zero tech 

progress. Could EPA provide more explanation of 

the relationship between this assumption and the tech 

progress assumptions? 

Comment [A3]: Why change “will” to “could”? 

Doesn’t the reg require adoption? Commenter 

recommends retaining “will” 

Comment [A4]: Again, “speed” implies adoption 

would take place anyway, albeit more slowly, in 

apparent contrast to the baseline assumption. 

Comment [A5]: Same as above. Commenter is 

unsure what “well documented’ means. 

Comment [A6]: Commenter suggests deleting 

this section because it suggests nobody knows 

whether these technologies work, or not 

Comment [A7]: Are there data or studies 

available on this point? If so, pleasinclude citations. 

If not, recommend including the suggested language 

highlighted here. 
Summary of Interagency Working Comments Received on Draft Rule under EO 12866 Review. 

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suited their purposes, and buyers would be matched with sellers so that used vehicles would be 

used in primarily for purposes in which their fuel-saving technologies were most valuable. 

It is also possible, though, that the fuel savings experienced by the secondary purchasers 

may not match those experienced by their original owners if the optimal secondary use of the 

vehicle does not earn as many benefits from the technologies. In that case, the premium for fuelsaving technology in the secondary market should accurately reflect its value in that market, 

even if it is lower than its value in the original market, and the market has not failed. Because 

the information necessary to optimize use in the secondary market may not be readily available 

or reliable, however, buyers in the resale market may have less ability than purchasers of new 

vehicles to identify and gain the advantages of new fuel-saving technologies, and may thus be 

even less likely to pay a premium for them. 

For these reasons, technology adoption may be even lower in the resale market than in 

the original market. Even when fuel-saving technologies will provide benefits in the resale 

markets, purchasers of used vehicles may not be willing to compensate their original owners 

fully for their remaining value. As a result, the purchasers of original equipment may expect the 

resale market to provide inadequate compensation for the new technologies, even when those 

technologies would reduce costs for the new buyers. This information issue may explain what 

appear to be very short payback period required for new technologies in the new vehicle market. 

(3) Split incentives in the medium­ and heavy­duty truck industry

A third hypothesis explaining the energy paradox as applied to trucking involves split 

incentives. When markets work effectively, signals provided by transactions in one market are 

quickly transmitted to related markets and influence the decisions of buyers and sellers in those 

related markets. For instance, in a well-functioning market system, changes in the expected 

future price of fuel should be transmitted rapidly to those who purchase trucks, who will then reevaluate the amount of fuel-saving technology to purchase for new vehicles. If for some reason 

a truck purchaser will not be responsible for future fuel costs, or the individual who will be 

responsible for fuel costs does not get to decide which truck characteristics to purchase, then 

those price signals may not be transmitted effectively, and incentives can described as “split.” 

One place where such a split may occur is between the owners and operators of trucks. 

Because they are generally responsible for purchasing fuel, truck operators have strong 

incentives to economize on its use, and are thus likely to support the use of fuel-saving 

technology. However, the owners of trucks or trailers are often different from their operators, 

and, when purchasing vehicles, may be more concerned about their longevity or maintenance 

costs than about their fuel efficiency. As a result, capital investments by truck owners may be 

channeled into equipment that improves vehicles’ durability or reduces their maintenance costs, 

rather than into fuel-saving technology. If operators can choose freely among the trucks they 

drive, competition among truck owners to employ operators would encourage owners to invest in 

Comment [A8]: This sentence says “slow” 

adoption, in contrast to baseline, and “is likely to” 

without evidence. Therefore the reviewers 

recommend a change to “low” and “may”. 
Summary of Interagency Working Comments Received on Draft Rule under EO 12866 Review. 

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fuel-saving technology. However, if truck owners have more ability to choose among operators, 

then market signals for improved fuel savings that would normally be transmitted to truck 

owners may instead be muted. 

Anecdotal information about large truck fleets suggests that, even within a company, the 

office or department responsible for truck purchases is often different from that responsible for 

purchasing fuel. Therefore, the employees who purchase trucks may have strong incentives to 

lower their initial capital cost, but not equally strong incentives to lower operating costs. 

Single-wide tires, which save fuel and allow more payload (thus increasing revenue), 

offer another example of split incentives. They require a different driving style; those concerned 

about retaining drivers may resist their purchase, because drivers may not like the slightly 

different "feel" of wheel torque needed. Maintenance and repair staff may resist them because 

the tires may not be as available as they would like on the road, or they may need to change road 

service providers. Finally, those who resell the trucks may believe that the resale market will not 

value the tires. While financial pressures should provide incentives for greater coordination, 

especially when fuel costs are a large share of operating costs, it may be difficult institutionally 

to change budgeting procedures and to coordinate across offices. Thus, even within a company 

incentives for fuel savings may not be fully transmitted to those responsible for purchasing 

decisions. 

In addition, the NAS report notes that split incentives can arise between tractor and trailer 

operators, Trailers affect the fuel efficiency of shipping, but trailer owners do not face strong 

incentives (which may provide a possible explanation for fuel-saving measures) to coordinate 

with truck owners. Although some trucking fleets own or lease their own trailers, a significant 

part of the trucking business is “drop and hook” service, in which trucking fleets pick up and 

drop off trailers and containers. These trailers and containers can belong to shippers, other 

trucking companies, leasing companies, or ocean-going vessel lines, in which cases their owners 

may not face strong incentives to economize on fuel consumption by tractor operators. Though 

tractor operators should, in principle, have some ability to arrange tractor-trailer combinations 

that provide increased fuel efficiency, the value of the resulting fuel savings may be small 

relative to the complexity and cost involved. EPA and NHTSA are not proposing to regulate 

trailers in this proposal. 

By itself, information provision may be inadequate to address the potential 

underinvestment in fuel economy resulting from such split incentives. In this setting, regulation 

may contribute to fuel savings that otherwise may be difficult to achieve. 

The agencies seek evidence and data on the extent to which split incentives effect 

purchasing choices in truck markets. For example, do trailer buyers that do not own their own 

tractors less likely to purchase aerodynamic trailers than those that purchase and drive both 

tractors and trailers. 
Summary of Interagency Working Comments Received on Draft Rule under EO 12866 Review. 

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(4) Uncertainty about Future Cost Savings

Another hypothesis for the failure to adopt seemingly fuel saving technologies may be 

uncertainty about future fuel prices or truck maintenance costs. When purchasers have less than 

perfect foresight about future operating expenses, they may implicitly discount future savings in 

those costs due to uncertainty about potential returns from investments that reduce future costs. 

In contrast, the immediate costs of the fuel-saving or maintenance-reducing technologies are 

certain and immediate, and thus not subject to discounting. In this situation, both the expected 

return on capital investments in higher fuel economy and potential variance about its expected 

rate may play a role in a firm’s calculation of its payback period on such investments. 

In the context of energy efficiency investments for the home, Metcalf and Rosenthal 

(1995) and Metcalf and Hassett (1995) observe that households weigh known, up-front costs that 

are essentially irreversible against an unknown stream of future fuel savings.1

 Uncertainty about 

the value of future energy savings may make risk-averse households reluctant to invest in 

energy-saving technologies that appear to offer attractive economic returns. These authors find 

that it is possible to replicate the observed adoption rates for household energy efficiency 

improvements by incorporating the effect of uncertainty about the value of future energy savings 

into an empirical model. Notably, in this situation, households’ slow adoption can be optimal. 

Requiring them to adopt technologies more quickly may make them worse off. 

Greene et al. (2009) also find support for this explanation in the context of light-duty fuel 

economy decisions: a loss-averse consumer's expected net present value of increasing the fuel 

economy of a passenger car can be very close to zero, even if a risk-neutral expected value 

calculation shows that its buyer can expect significant net benefits from purchasing a more fuelefficient car.2

 These authors note that uncertainty regarding the future price of gasoline is a less 

important source of this result than is uncertainty about the lifetime, expected use, and reliability 

of the vehicle. Supporting this hypothesis is a finding by Dasgupta et. al (2007) that consumers 

are more likely to lease than buy a vehicle with higher maintenance costs because it provides 

them with the option to return it before those costs become too high.3

 However, the agencies 

know of no studies that have estimated the impact of uncertainty on perceived future savings in 

fuel costs for medium and heavy-duty vehicles. 

 1

 Metcalf, G., and D. Rosenthal (1995). “The ‘New’ View of Investment Decisions and Public Policy Analysis: An 

Application to Green Lights and Cold Refrigerators,” Journal of Policy Analysis and Management 14: 517–531. 

Hassett and Metcalf (1995). “Energy Tax Credits and Residential Conservation Investment: Evidence from Panel 

Data” Journal of Public Economics 57 (1995): 201-217. Metcalf, G., and K. Hassett (1999). “Measuring the Energy 

Savings from Home Improvement Investments: Evidence from Monthly Billing Data.” The Review of Economics 

and Statistics 81(3): 516-528. 

2

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

Climate Impacts in the Transportation Sector, Sperling, D., and J. Cannon, eds. Springer Science. 3

 Dasgupta, S., S. Siddarth, and J. Silva-Risso (2007). “To Lease or to Buy? A Structural Model of a Consumer’s 

Vehicle and Contract Choice Decisions.” Journal of Marketing Research 44: 490 – 502. 

Comment [A9]: Same comment – “slow” appears 

to contradicts the baseline. 
Summary of Interagency Working Comments Received on Draft Rule under EO 12866 Review. 

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Purchasers' uncertainty about future fuel prices implies that mandating improvements in 

fuel efficiency can reduce the expected utility associated with truck purchases. This is because 

adopting such regulation requires purchasers to assume a greater level of risk than they would in 

its absence, even if the future fuel savings predicted by a risk-neutral calculation actually 

materialize. Thus the mere existence of uncertainty about future savings in fuel costs does not 

by itself assure that regulations requiring improved fuel efficiency will necessarily provide 

economic benefits for truck purchasers and operators. On the other hand, because risk aversion 

reduces expected returns for businesses, competitive pressures can reduce risk aversion: riskneutral companies can make higher average profits over time. Thus, significant risk aversion is 

unlikely to survive competitive pressures. 

(5) Adjustment and Transactions Costs

Another hypothesis is that transactions costs of changing to new technologies (how easily 

drivers will adapt to the changes, e.g.) may prevent their adoption. Because of the diversity in 

the trucking industry, truck owners and fleets may like to see how a new technology works in the 

field, when applied to their specific operations, before they adopt it. If a conservative approach 

to new technologies leads truck buyers to fail to adopt new technologies, then the industry will 

fail to achieve their associated fuel saving, environmental, and energy security benefits. 

In addition, there may be costs associated with training drivers to realize the potential 

fuel savings enabled by new technologies, or with accelerating fleet operators’ scheduled fleet 

turnover and replacement to hasten their acquisition of vehicles equipped with new fuel-saving 

technologies. Here, again, requiring the widespread use of these technologies may impose 

adjustment and transactions costs not included in this analysis. As in the discussion of the role of 

risk, these adjustment and transaction costs are typically immediate and undiscounted, while 

their benefits are future and uncertain; risk or loss aversion may further discourage companies 

from adopting new technologies. 

To the extent that there may be transactions costs associated with the new technologies, 

then regulation gives all new truck purchasers a level playing field, because it will require them 

to adjust on approximately the same time schedule. If experience with the new technologies 

serves to reduce uncertainty and risk, the industry as a whole may become more accepting of 

new technologies. This could increase demand for future new technologies and induce 

additional benefits in the legacy fleet through complementary efforts such as SmartWay. 

(6) Summary

On the one hand, commercial vehicle operators are under competitive pressure to reduce 

operating costs, and thus their purchasers would normally be expected to pursue and rapidly 

adopt cost-effective fuel-saving technologies. On the other hand, the short payback period 

required by buyers of new trucks is a symptom that suggests some combination of uncertainty 

Comment [A10]: This entire reason appears to 

contradicts the baseline assumption of zero 

technology growth. 
Summary of Interagency Working Comments Received on Draft Rule under EO 12866 Review. 

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about future cost savings, transactions costs, and imperfectly informed markets. In addition, 

widespread use of tractor-trailer combinations introduces the possibility that owners of trailers 

may have weaker incentives than truck owners or operators to adopt fuel-saving technology for 

their trailers. The market for medium- and heavy-duty trucks may face these problems, both in 

the new vehicle market and in the resale market. 

Provision of information about fuel-saving technologies through voluntary programs such 

as SmartWay will assist in the adoption of new cost-saving technologies, but diffusion of new 

technologies can still be obstructed. Those who are willing to experiment with new technologies 

expect to find cost savings, but those may be difficult to prove. As noted above, because 

individual results of new technologies vary, new truck purchasers may find it difficult to identify 

or verify the effects of fuel-saving technologies. Those who are risk-averse are likely to avoid 

new technologies out of concerns over the possibility of inadequate returns on the investment, or 

with other adverse impacts. Competitive pressures in the freight transport industry can provide a 

strong incentive to reduce fuel consumption and improve environmental performance. However, 

not every driver or trucking fleet operating today has the requisite ability or interest to access the 

technical information, some of which is already provided by SmartWay, nor the resources 

necessary to evaluate this information within the context of his or her own freight operation. 

As noted at the beginning of this section, the agencies seek comments on all these 

hypotheses as well as any data that could inform our understanding of what appears to be slow 

adoption of cost-effective fuel-saving technologies in these industries. 

B. Averaging, Banking, and Trading (ABT) Program 

Averaging, Banking, and Trading (ABT) of emissions credits have been an important part 

of many EPA mobile source programs under CAA Title II, including engine and vehicle 

programs. ABT programs can be important because they can help to address many issues of 

technological feasibility and lead-time, as well as considerations of cost. ABT programs are not 

just add-on provisions included to help reduce costs, but are usually an integral part of the 

standard setting itself. An ABT program is important because it provides manufacturers 

flexibilities that assist the development and implementation of new technologies efficiently and 

therefore enables new technologies to be implemented at a more progressive pace than without 

ABT. A well-designed ABT program can provide important environmental benefits and at the 

same time increase flexibility for and reduce costs to the regulated industry. 

Section II above describes EPA’s proposed GHG emission standards and NHTSA’s 

proposed fuel consumption standards. For each of these respective sets of standards, the 

agencies are also proposing ABT provisions consistent with each agency’s statutory authority. 

The agencies have worked closely together to design these proposed provisions to be essentially 
Summary of Interagency Working Comments Received on Draft Rule under EO 12866 Review. 

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identical to each other in form and function. Because of this fundamental similarity, the 

remainder of this section refers to these provisions collectively as “the ABT program” except 

where agency-specific distinctions are required. 

As discussed in detail below, the structure of this proposed GHG ABT program for HD 

engines is based closely on earlier ABT programs for HD engines; the proposed program for HD 

pickups and vans is built on the existing light-duty GHG program flexibility provisions; and we 

propose first-time ABT provisions for combination tractors and vocational vehicles that are as 

consistent as possible with our other HD vehicle regulations. The flexibility provisions 

associated with this new regulatory category are intended to systematically build upon the 

structure of the existing programs. 

As an overview, “averaging” means the exchange of emission credits between engine 

families or truck families within a given manufacturer’s regulatory subcategory. For example 

within each regulatory subcategory, engine manufacturers divide their product line into “engine 

families” that are comprised of engines expected to have similar emission characteristics 

throughout their useful life. Averaging allows a manufacturer to certify one or more engine 

families within the same regulatory subcategory at levels above the applicable emission standard. 

The increased emissions over the standard would need to be offset by one or more engine 

families within that manufacturer’s regulatory subcategory that are certified below the same 

emission standard, such that the average emissions from all the manufacturer’s engine families, 

weighted by engine power, regulatory useful life, and production volume, are at or below the 

level of the emission standard. (The inclusion of engine power, useful life, and production 

volume in the averaging calculations allows the emissions credits or debits to be expressed in 

total emissions over the useful life of the credit-using or generating engine sales.) Total credits 

for each regulatory category within each model year are determined by summing together the 

credits calculated for every engine family within that specific regulatory category. 

“Banking” means the retention of emission credits by the manufacturer for use in future 

model year averaging or trading. “Trading” means the exchange of emission credits between 

manufacturers, which can then be used for averaging purposes, banked for future use, or traded 

to another manufacturer. 

In the current program, the agencies are proposing to restrict manufacturers are restricted 

to only averaging, banking and trading credits generated within a regulatory class. . However, 

the agencies are evaluating — and therefore request comment on — potential alternative 

approaches in which fewer restrictions are placed on the use of credits for averaging, banking, 

and trading. Particularly, the agencies request comment on removing prohibitions on averaging 

and trading between some or all regulatory classes in this rule, and on removing restrictions 

between some or all regulatory subcategories that are within the same regulatory category (e.g., 

allowing trading of credits between class 7 day cabs and class 8 sleeper cabs). 

Comment [A11]: Is there a difference between 

the regulatory “subcategory” mentioned previously 

in this paragraph and the category mentioned here? 

If so, can this difference be defined for clarity? If 

not, please use consistent terminology to reduce 

confusion. 

Comment [A12]: What is the relationship 

between a regulatory “category”, “subcategory”, and 

“class”? Any differences need to be clearly defined, 

and consistent terms need to be employed 

throughout. 
Summary of Interagency Working Comments Received on Draft Rule under EO 12866 Review. 

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In the past, we have followed this the practice of allowing averaging and trading between 

like products for two primary reasons. First by only allowingbecause we have recognized that 

the estimation of emission credits is not an absolutely precise process, and actual emission 

reductions or increases “in-use” would vary due to differences in vehicle duty cycles, 

maintenance practices and any number of other factors. By restricting credit averaging, banking

and trading to only allow averaging and trading between similarlike products we can help ensure 

that the regulations do not, the agencies gain some degree of assurance that the operation and use 

of the vehicles generating credits and consuming credits would be similar. The agencies also 

note that some industry participants have expressed concern that, allowing credit averaging, 

banking and trading across different products may create an unlevel playing field for the 

regulated industry. Engine Specifically. engine and truck manufacturers have commonly 

expressed to us a concern that some manufacturers with a wide range of product offerings 

spanning a number of regulatory categories would be able to use the ABT program provisions to 

generate credits in regulatory class markets where they face less competition and then use those 

credits to compete unfairly in other regulatory categories where they face greater competition. 

Second, we have recognized that the estimation of emission credits is not an absolutely precise 

process and actual emission reductions or increases “in-use” would vary due to differences in 

vehicle duty cycles, maintenance practices and any number of other factors. By restricting credit 

trading between like products, the agencies gain some degree of assurance that the operation and 

use of the vehicles generating credits and consuming credits would be similar. However, the 

agencies request comment on the need to restrict credit use in this way, on whether averaging 

should be allowed across a broader set of products, and on how the above issues could be 

addressed if a program with reduced restrictions were pursued, such as through discounting of 

credits.

The agencies are evaluating the possibility of placing fewer restrictions on averaging and 

trading because increasing the flexibility offered to manufacturers to average, bank, and trade 

credits across regulatory subcategories and categories could potentially significantly reduce the 

overall cost of the program. Specifically, to the extent that the marginal costs of compliance per 

gallon of fuel saved or ton of GHG reduced are expected to differ—or unexpectedly differ—

across categories or subcategories, averaging and trading across categories and subcategories can 

allow manufacturers to achieve the same overall reduction in fuel use and emissions at lower 

cost. While trading restrictions in the context of past EPA rulemakings have been motivated in 

part by the local or regional nature of the pollutant being regulated, in this instance, opportunities 

for greater flexibility may exist in light of the fact that greenhouse gases are a global pollutant 

whose local consequences are related to global, not local or regional atmospheric concentrations. 

However, trading ratios may need to be established for averaging and trading across categories, 

and potentially subcategories, to ensure that averaging and trading across categories and 

subcategories does not lead to a net increase in emissions or fuel use in light of differences in 

vehicle use patterns across categories and subcategories. Further, it is possible to design trading 

ratios that assure a net reduction in emissions and fuel use as a result of averaging and trading. 

The agencies also request comment on how the potential cost savings from increasing flexibility 
Summary of Interagency Working Comments Received on Draft Rule under EO 12866 Review. 

Subject to Further Policy Review 

12 

in averaging and trading provisions, how such averaging and trading flexibilities could be 

designed to ensure environmental neutrality, and whether trading ratios should be designed to 

achieve a net reduction in emissions and fuel use as a result of trading.