*** E.O. 12866 Review

– Do Not Cite, Quote or Release During Review ***



## NHTSA and EPA **Responses to Interagency Line Item Comments on**  **H DV Phase 2 NPRM Preamble**  **Received on**

**June 5 , 2015**  **NHTSA and EPA Reponse :**  The agencies will incorporat e all suggested edits, except as noted for the two items below. **Preamble pages 46 and 47 with OIRA comment and NHTSA and EPA Response**  **:** Another important consideration is the possibility of disrupting the market, such as might happen if we were to adopt standards that manufacturers respond to b y applying a new technology

too suddenl y. Several of the heav y - duty vehicle manufacturers, fleets, and commercial truck dealerships informed EPA that for fleet purchases that are planned more than a ye ar in advance, expectations of reduced reliability, increased operat ing costs, reduced residual value, or of large increases in purchase prices can lead the fleets to pull

- ahead by several months planned future vehicle purchases b y pre - buying vehicles without the newer technology . In the context of the Class 8 tractor market, where a relatively small number of large fleets ty pically purchase very

large volumes of tractors, such actions by a small number of firms can result in large swings in sales volumes. Such market impacts would be followed b y some period of reduced purchases that can lead to temporary layoffs at the factories producing the engines and vehicles, as well as at supplier factories, and disruptions at dealerships. Such market impacts also can reduce the overall environmental and fuel consumption benefits of the standards by delaying the rate at which the fleet turns over. See International Harvester v. EPA, 478 F. 2d 615, 634 (D.C. Cir. 1973). A number of industry stakeholders have informed EPA that the 2007 EPA heav y - dut y engine criteria pollutant standard resulted in this pull

- ahead phenomenon for the Class 8 tractor market. The agencies understand the potential impact that a pul l

- ahead can have on American manufacturing and labor, dealerships, truck purchasers, and on the program’s environmental and fuel savings goals , and have taken steps in the design of the propo sed program to avoid such disruption. These steps include the following :

 Providing considerable lead time  The standards will result in significantl y lower operating costs for vehicle owners (unlike the 2007 standard , which increased operating costs)  Phasing in the standards  Structuring the program so the industry will have a significant rang e of technology

choices to be considered for compliance, rather than the one or two new technologies the OEMs pursued in 2007  Allowing manufacturers to use emissions averaging, banking and trading to phase in the technology

even further*** E.O. 12866 Review

– Do Not Cite, Quote or Release During Review ***

**Preamble pages**  **213 and**  **21 4 with OIRA comment and NHTSA and EPA Response**  **:**

e. Consistency of the Proposed Tractor Standards with the Agencies’ Legal Authority The proposed HD Phase 2 standards are based on adoption rates for technologies that the agencies regard, subject to consideration of public comment, as the maximum feasible for purposes of EISA Section 32902 (k) and appropriate under CAA Section 202 (a) f or the reasons given in Section III.D.2(b) through (d) above; see also draft RIA Chapter 2.4. The agencies believe these technologies can be adopted at the estimated rates for these standards within the lead time provided, as discussed in draft RIA Chapte r 2. The 2021 and 2024 MY standards are phase

- in standards on the path to the 2027 MY standards and were developed using less aggressive application rates and therefore have lower technology package costs than the 2027 MY standards. Moreover, we project the cost of these technologies would be rapidl y recovered by operators due to the associated fuel savings, as shown in the pay back analy sis included in Section IX below. The cost per tractor to meet the proposed 2027 MY standards is projected to range between $10,000 and $13,000 (much or all of this would be mitigated by the fuel savings during the first two y ears of ownership). The agencies note that while the projected costs are significantl y greater than the costs projected for Phase 1, we still consid er that cost to be reasonable, especially

given the relativel y short payback period. In this regard the agencies note that the estimated pay

back period for tractors of less than two y ears 1 is itself shorter than the estimated pay

back period for light dut y trucks in the 2017

- 2025 light dut y greenhouse gas standards. That period was slightly over three y ears, see 77 FR 62926
- 27, which EPA found to be a highly

reasonable given the usual period of ownership of light trucks is ty picall y five ye ars. 2 The same is true here. Ownership of new tractors is customarily four to six y ears, meaning that the greenhouse gas and fuel consumption technologies pay for themselves earl y on and the purchaser sees overall savings in succeeding ye ars
– while still owning the veh icle. 3 The agencies note further that the costs for each subcategory are relatively

proportionate; that is, costs of an y single tractor subcategory are not disproportionatel y higher (or lower) than an y other. Although the proposal is technology

- forcing ( especially with respect to aerody

namic and tire rolling resistance improvements), the agencies believe that manufacturers retain leeway to develop alternative compliance paths, increasing the likelihood of the standards’ successful implementation. The age ncies also regard these reductions as cost

- effective, even without considering pay

back period. The agencies estimate the cost per metric ton of CO 2 eq reduction without considering fuel savings to be $20 in 2030, which compares favorably with the cost per

1 See Draft RIA Chapter 7.1.3. 2 Auto Remarketing. Length of Ownership Returning to More Normal Levels; New Registrations Continue Slow Climb. April 1, 2013. Last accessed on February 26, 2015 at http://www.autoremarketing.com/trends/length

ownership - returning

- more - normal

- levels

- new - registrations

- continue

- slow

- climb 3 North American Council for Freight Efficiency. Barriers to Increased Adoption of Fuel Efficiency Technologies in Freight Trucking. July 2013. Page 24.*** E.O. 12866 Review

– Do Not Cite, Quote or Release During Review ***

ton of $142 per ton (in 2030) the agencies found to be reasonable for light duty trucks. 4 See 77 FR 62922. The proposed phase

- in 2021 and 2024 MY standards are less stringent and less costly than the proposed 2027 MY standards. For these reasons , and because the agencies have carefully considered lead time, EPA believes they are also reasonable under Section 202(a) of the CAA. Given that the agencies believe the proposed standards are technically feasible, are highl y cost effective, and highl y c ost effective when accounting for the fuel savings, and have no apparent adverse potential impacts ( e.g. , there are no projected negative impacts on safety or vehicle utility), the proposed standards appear to represent a reasonable choice under Section 2 02(a) of the CAA and the maximum feasible under NHTSA’s EI SA authority at 49 U.S.C. 32902(k)(2).

4 See Draft RIA Chapter 7.1.4.