From: "Achanta, Chandana L." <Ch andana_L._Achanta@ omb.eop.gov>
To: William Charmley/AA/USEPA/US@EPA, <rebecca.yoon@dot.gov>, Maureen Delaney/DC/USEPA/US@EPA, <james.tamm@dot.gov>, <Neil.Eisner@dot.gov>, Robin Moran/AA/USEPA/US@EPA
Date: 03/29/2010 06:27 PM Subjec

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



### Please find attached a summary of interagency working comments received on the draft final

rule under EO 12866 review. They are for your consideration and subject to further policy

review.

Thanks. [attachment "Summary of Interagency working comments on draft final rule under EO 1286603.29.pdf" deleted by Tad Wysor/AA/USEPA/US]Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to further policy review.

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

General Comments

 Please add discussion and caveats of 41 sq ft curve in both agencies’ RIA discussion of safety as well as the Preamble discussion.

 Rebound effect: “In summary, the 10 percent value was not derived from a single point estimate from a particular study, but instead represents a reasonable compromise between the historical estimate s and the projected future estimates. The Agencies will continue to review this assumption in the estimate of rebound
effect for future rulemakings.”

 TSD ch 4: The value of increased driving range

“Should manufacturers choose to downsize fuel tanks, and all other factors have been estimated with no error, the current estimate s of refueling benefits would be overstated
and could even out to zero.

. Should manufacturers downsize tanks to fully offset any increase in vehicle range, there would be no extension in driving range and no resultant
benefit to consumers. However, should fuel tank sizes be reduced, vehicle space, utility and value would increase and vehicle weight and production costs would decrease, improving fuel economy and CO 2 emissions.”

Revised Preamble Sections I-III:

 Page 9 of the revised:

“Improving energy security by reducing our dependence on foreign oil has been a national objective since the first oil price shocks in the 1970s.”

 Page 13:

“The agencies project that the benefits of the National Program will total more than $240 billion at a 3% discount rate, or more than $190 billion at a 7% discount rate.

In the discussion that follows in Sections III and IV, each agency explains the related
benefits for their individual standards. “ Comment [A1]: Some manufacturers are planning to comply with increased hybrid sales, some of which have smaller (and none have larger) tanks than their non-hybrid counterparts. Thus any claim that there would be an offsetting savings in fuel tank size/space in all cases necessarily implies the agencies did not accurately estimate the cost of hybrids.
We recommend this discussion on tank size reduction clearly acknowledge that some will occur and is already accounted for in other calculations.

Comment [A2]: We try to eliminate this descriptor whenever possible since oil is a world market for a homogenous product, you can only choose to reduce oil use, much of it is imported.

Comment [A3]: Are these net benefits?Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to further policy review.

2  Page 40:

1. Summary of Costs and Benefits of NHTSA's CAFE

Standards

“Without accounting for the complia nce flexibilities that NHTSA is prohibited from considering when determining the level of new CAFE standards, since manufacturers’ deci sions to use those flexibilities are voluntary, NHTSA estimates that these fuel economy increases would lead to fuel savings totaling 61 billion gallons throughout the useful lives of vehicles sold in MYs 2012-2016. At a 3% discount rate, the present value of the economic benefits resulting from thos e fuel savings is $143 billion. “

 Page 105:

“Consumer valuation of fuel economy and payback period – In estimating the impacts on vehicle sales, the agencies assume that potential vehicle buyers value the fuel savings improvements that would result from alternative CAFE and GHG standards over only part of the expected lifetime of the vehicles they purchase. Specifically, we assume that buyers value fuel savings over the first five years of a new vehicle’s lifetime, and that buyers discount the value of these future fuel savings using rates of 3% and 7%. The five-year figure represents the current average term of consumer loans to finance the purchase of new vehicles. One commenter argued that higher-fuel-economy vehicles should have higher resale prices than vehicles with lower fuel economy, but did not provide supporting data. This revision, if made, would increase the net benefits of the rule. Another commenter supported the use of a five-year payback period for this analysis. In the absence of data to support changes, EPA and NHTSA have kept the same assumptions. In the analysis of net benefits, EPA and NHTSA assume that vehicle buyers benefit from 100 percent of the fuel savings over the vehicle
lifetime.”

 Page 383:

“If so, then no net private benefits would result from the program, because consumers would already buy vehicles with the amount of fuel economy that is optimal for them; requiring additional fuel economy wo uld alter both the purchase prices of new cars and their lifetime streams of operating costs in ways that will inevitably reduce consumers’ well-being. If these conditions do not hold, then the private benefits and costs would both count toward the program’s net benefits. Section III.H.1 discusses this issue more fully.” Comment [A4]: This is a place where 7 percent npv should also be added.

Comment [A5]: Suggested edits in accordance with understanding of how the 5-year payback period was used.

Comment [A6]: We suggest removing some of EPA/NHTSA’s language changes along the following lines. In general, it is not accurate to say that if there are private benefits due to fuel savings, it is likely that they outweigh any welfare and upfront costs. While that is true in the case of this rule, we
wouldn’t know which effect would dominate without doing the analysis.Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to further policy review.

3  Page 485:

EPA presumes a car has a defeat device that disables the emissions systems if CO emissions are greater than X. We recommend that EPA not include this presumption of the existence of a device based on a test, which is easy to check by the model. Perhaps this would be better if the test result triggered a mandatory design report from the
manufacturer that would indicat e whether such a device exists.

EPA and DOT RIA Executive Summaries:

 Please note in the Executive Summary that the SCC estimates center around the 3% average. Please use language from SCC document which explains this central value (“The central value is the average SCC across models at the 3 percent discount rate. For purposes of capturing the uncertainties involved in regulatory impact analysis, we emphasize the importance and value of co nsidering the full range.”)

EPA’s Summary Table:

 Please include this table in Section I and also in the RIA executive summary. For the RIA executive summary, please delete the current table 1 and replace it with this table below.

2. Summary of Costs and Benefits of EPA's GHG Standards

EPA has analyzed in detail the costs and benefits of the final GHG standards. Table I.C.2-1 shows EPA’s estimated lifetime discounted cost, benefits and net benefits for all vehicles projected to be sold in model years 2012-2016. It is important to note that there is significant overlap in costs and benefits for NHTSA’s CAFE program and EPA’s GHG program and therefore combined program costs and benefits are not a simple sum of the individual programs.

Table I.C.2-1 EPA’s Estimated 2012-2016 Model Year Lifetime Discounted Costs,

Benefits, and Net Benefits a ssuming the $21/ton SCC Value a,b,c (2007 dollars) 3% Discount Rate $billions

Costs $51.5 Benefits $240 Net Benefits $189

7% Discount Rate

Costs $51.5 Benefits $192 Net Benefits $140

a Although EPA estimated the benefits associated with four different values of a Comment [A7]: Please include clarifications. At a minimum we recommend you delete “simple”.Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to further policy review.

4 one ton GHG reduction ($5, $21, $35, $65), for the purposes of this overview presentation of estimated costs and benefits, EPA is showing the benefits associated with the marginal value deem ed to be central by the interagency working group on this topic: $21 per ton of CO 2 , in 2007 dollars and 2010 emissions. The $21/ton value applies to 2010 CO 2 emissions and grows larger
over time.

b Note that net present value of reduced GHG emissions is calculated differently
from other benefits. The same discount ra te used to discount the value of damages from future emissions (SCC at 5, 3, and 2.5 percent) is used to calculate net present value of SCC for internal consistency. Refer to Section III.H for more detail.

DOT’s Summary Table

 Please include this table in the Preamble and also in the RIA executive Summary. It should be the first table in the Executive summary. Please note suggested text changes which are highlighted in yellow.

Summary of Costs and Benefits of NHTSA's CAFE
Standards

NHTSA has analyzed in detail the costs and benefits of the final CAFE standards. Table I.C.2-1 presents the total costs, benefits,
and net benefits for NHTSA’s final CAFE standards. The values in Table I.C.2-1 display the total costs for all MY2012-2016 vehicles; the benefits and net benefits represent the impacts of the standards
over the full lifetime of the vehi cles projected to be sold during model years 2012 – 2016. It is important to note that there is significant overlap in costs and benefits for NHTSA’s CAFE program and EPA’s GHG program and therefore combined program costs and benefits are not a sum of the individual programs.

Table I.C.2-1 NHTSA’s Estimated 2012-2016 Model Year Costs, Benefits, and Net Benefits under the CAFE Standards before FFV Credits ($billion)

3% Discount Rate Costs $51.8 Benefits $182.5 Net Benefits $130.7

7% Discount Rate Costs $51.8 Benefits $146.3 Net Benefits $94.5 Comment [A8]: We recommend you delete this but if you strongly feel it must be included please

include this revised sentence.

Comment [A9]: We recommend you delete this because it is a little confusing.Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to further policy review.

5 NHTSA estimates that these fuel economy increases would lead to fuel savings totaling 61 billion gallons throughout the useful lives of vehicles sold in MYs 2012-2016. At a 3% discount rate, the present value of the economic benefits resulting from those fuel savings is $158 billion. At a 7% discount rate, the present value of the economic benefits resulting from those fuel savings is $125 billion. 1

The agency further estimates that these new CAFE standards will lead to corresponding reductions in CO 2 emissions totaling 655 million metric tons (mmt) during the useful lives of vehicles sold in MYs 2012-2016. The present value of the economic benefits from avoiding those emissions is $14.5 billion, based on a global social cost of carbon value of approximately $21 per metric ton (in 2010, and growing thereafter). 2 It is important to note that NHTSA’s
CAFE standards and EPA’s GHG st andards will both be in effect, and each will lead to increases in average fuel economy and CO 2 emissions reductions. The two agencies’ standards together comprise the National Program, and this discussion of costs and benefits of NHTSA’s CAFE standards does not change the fact that both the CAFE and GHG standards, jointly, are the source of the benefits and costs of the National Program.

1 These figures do not account for th e compliance flexibilities that NHTSA is prohibited from considering when determining the level of new CAFE standard s, because manufacturers’ decisions to use those flexibilities are voluntary.

2 NHTSA also estimated the benefits associated with three more estimates of a one ton GHG reduction in 2010 ($5, $35, and $65), which will likewise grow ther eafter. See Section II for a more detailed discussion
of the social cost of carbon. Comment [A10]: Please note deletion of preceding text.

Comment [A11]: Please clarify. This is a bit confusing. They are not additive.

Comment [A12]: This is a bit confusing. Aren’t’ the CAFÉ standards enough to produce benefits and
costs as above? Would it be better just to say: “it is important to note that NHTSA’s CAFÉ standards
and EPA’s GHG standards will both be in effect, and that together, they comprise the National Program”Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to further policy review.

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

General Comments

 Please add discussion and caveats of 41 sq ft curve in both agencies’ RIA discussion of safety as well as the Preamble discussion.

 Rebound effect: “In summary, the 10 percent value was not derived from a single point estimate from a particular study, but instead represents a reasonable compromise between the historical estimate s and the projected future estimates. The Agencies will continue to review this assumption in the estimate of rebound
effect for future rulemakings.”

 TSD ch 4: The value of increased driving range

“Should manufacturers choose to downsize fuel tanks, and all other factors have been estimated with no error, the current estimate s of refueling benefits would be overstated
and could even out to zero.

. Should manufacturers downsize tanks to fully offset any increase in vehicle range, there would be no extension in driving range and no resultant
benefit to consumers. However, should fuel tank sizes be reduced, vehicle space, utility and value would increase and vehicle weight and production costs would decrease, improving fuel economy and CO 2 emissions.”

Revised Preamble Sections I-III:

 Page 9 of the revised:

“Improving energy security by reducing our dependence on foreign oil has been a national objective since the first oil price shocks in the 1970s.”

 Page 13:

“The agencies project that the benefits of the National Program will total more than $240 billion at a 3% discount rate, or more than $190 billion at a 7% discount rate.

In the discussion that follows in Sections III and IV, each agency explains the related
benefits for their individual standards. “ Comment [A1]: Some manufacturers are planning to comply with increased hybrid sales, some of which have smaller (and none have larger) tanks than their non-hybrid counterparts. Thus any claim that there would be an offsetting savings in fuel tank size/space in all cases necessarily implies the agencies did not accurately estimate the cost of hybrids.
We recommend this discussion on tank size reduction clearly acknowledge that some will occur and is already accounted for in other calculations.

Comment [A2]: We try to eliminate this descriptor whenever possible since oil is a world market for a homogenous product, you can only choose to reduce oil use, much of it is imported.

Comment [A3]: Are these net benefits?Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to further policy review.

2  Page 40:

1. Summary of Costs and Benefits of NHTSA's CAFE

Standards

“Without accounting for the complia nce flexibilities that NHTSA is prohibited from considering when determining the level of new CAFE standards, since manufacturers’ deci sions to use those flexibilities are voluntary, NHTSA estimates that these fuel economy increases would lead to fuel savings totaling 61 billion gallons throughout the useful lives of vehicles sold in MYs 2012-2016. At a 3% discount rate, the present value of the economic benefits resulting from thos e fuel savings is $143 billion. “

 Page 105:

“Consumer valuation of fuel economy and payback period – In estimating the impacts on vehicle sales, the agencies assume that potential vehicle buyers value the fuel savings improvements that would result from alternative CAFE and GHG standards over only part of the expected lifetime of the vehicles they purchase. Specifically, we assume that buyers value fuel savings over the first five years of a new vehicle’s lifetime, and that buyers discount the value of these future fuel savings using rates of 3% and 7%. The five-year figure represents the current average term of consumer loans to finance the purchase of new vehicles. One commenter argued that higher-fuel-economy vehicles should have higher resale prices than vehicles with lower fuel economy, but did not provide supporting data. This revision, if made, would increase the net benefits of the rule. Another commenter supported the use of a five-year payback period for this analysis. In the absence of data to support changes, EPA and NHTSA have kept the same assumptions. In the analysis of net benefits, EPA and NHTSA assume that vehicle buyers benefit from 100 percent of the fuel savings over the vehicle
lifetime.”

 Page 383:

“If so, then no net private benefits would result from the program, because consumers would already buy vehicles with the amount of fuel economy that is optimal for them; requiring additional fuel economy wo uld alter both the purchase prices of new cars and their lifetime streams of operating costs in ways that will inevitably reduce consumers’ well-being. If these conditions do not hold, then the private benefits and costs would both count toward the program’s net benefits. Section III.H.1 discusses this issue more fully.” Comment [A4]: This is a place where 7 percent npv should also be added.

Comment [A5]: Suggested edits in accordance with understanding of how the 5-year payback period was used.

Comment [A6]: We suggest removing some of EPA/NHTSA’s language changes along the following lines. In general, it is not accurate to say that if there are private benefits due to fuel savings, it is likely that they outweigh any welfare and upfront costs. While that is true in the case of this rule, we
wouldn’t know which effect would dominate without doing the analysis.Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to further policy review.

3  Page 485:

EPA presumes a car has a defeat device that disables the emissions systems if CO emissions are greater than X. We recommend that EPA not include this presumption of the existence of a device based on a test, which is easy to check by the model. Perhaps this would be better if the test result triggered a mandatory design report from the
manufacturer that would indicat e whether such a device exists.

EPA and DOT RIA Executive Summaries:

 Please note in the Executive Summary that the SCC estimates center around the 3% average. Please use language from SCC document which explains this central value (“The central value is the average SCC across models at the 3 percent discount rate. For purposes of capturing the uncertainties involved in regulatory impact analysis, we emphasize the importance and value of co nsidering the full range.”)

EPA’s Summary Table:

 Please include this table in Section I and also in the RIA executive summary. For the RIA executive summary, please delete the current table 1 and replace it with this table below.

2. Summary of Costs and Benefits of EPA's GHG Standards

EPA has analyzed in detail the costs and benefits of the final GHG standards. Table I.C.2-1 shows EPA’s estimated lifetime discounted cost, benefits and net benefits for all vehicles projected to be sold in model years 2012-2016. It is important to note that there is significant overlap in costs and benefits for NHTSA’s CAFE program and EPA’s GHG program and therefore combined program costs and benefits are not a simple sum of the individual programs.

Table I.C.2-1 EPA’s Estimated 2012-2016 Model Year Lifetime Discounted Costs,

Benefits, and Net Benefits a ssuming the $21/ton SCC Value a,b,c (2007 dollars) 3% Discount Rate $billions

Costs $51.5 Benefits $240 Net Benefits $189

7% Discount Rate

Costs $51.5 Benefits $192 Net Benefits $140

a Although EPA estimated the benefits associated with four different values of a Comment [A7]: Please include clarifications. At a minimum we recommend you delete “simple”.Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to further policy review.

4 one ton GHG reduction ($5, $21, $35, $65), for the purposes of this overview presentation of estimated costs and benefits, EPA is showing the benefits associated with the marginal value deem ed to be central by the interagency working group on this topic: $21 per ton of CO 2 , in 2007 dollars and 2010 emissions. The $21/ton value applies to 2010 CO 2 emissions and grows larger
over time.

b Note that net present value of reduced GHG emissions is calculated differently
from other benefits. The same discount ra te used to discount the value of damages from future emissions (SCC at 5, 3, and 2.5 percent) is used to calculate net present value of SCC for internal consistency. Refer to Section III.H for more detail.

DOT’s Summary Table

 Please include this table in the Preamble and also in the RIA executive Summary. It should be the first table in the Executive summary. Please note suggested text changes which are highlighted in yellow.

Summary of Costs and Benefits of NHTSA's CAFE
Standards

NHTSA has analyzed in detail the costs and benefits of the final CAFE standards. Table I.C.2-1 presents the total costs, benefits,
and net benefits for NHTSA’s final CAFE standards. The values in Table I.C.2-1 display the total costs for all MY2012-2016 vehicles; the benefits and net benefits represent the impacts of the standards
over the full lifetime of the vehi cles projected to be sold during model years 2012 – 2016. It is important to note that there is significant overlap in costs and benefits for NHTSA’s CAFE program and EPA’s GHG program and therefore combined program costs and benefits are not a sum of the individual programs.

Table I.C.2-1 NHTSA’s Estimated 2012-2016 Model Year Costs, Benefits, and Net Benefits under the CAFE Standards before FFV Credits ($billion)

3% Discount Rate Costs $51.8 Benefits $182.5 Net Benefits $130.7

7% Discount Rate Costs $51.8 Benefits $146.3 Net Benefits $94.5 Comment [A8]: We recommend you delete this but if you strongly feel it must be included please

include this revised sentence.

Comment [A9]: We recommend you delete this because it is a little confusing.Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to further policy review.

5 NHTSA estimates that these fuel economy increases would lead to fuel savings totaling 61 billion gallons throughout the useful lives of vehicles sold in MYs 2012-2016. At a 3% discount rate, the present value of the economic benefits resulting from those fuel savings is $158 billion. At a 7% discount rate, the present value of the economic benefits resulting from those fuel savings is $125 billion. 1

The agency further estimates that these new CAFE standards will lead to corresponding reductions in CO 2 emissions totaling 655 million metric tons (mmt) during the useful lives of vehicles sold in MYs 2012-2016. The present value of the economic benefits from avoiding those emissions is $14.5 billion, based on a global social cost of carbon value of approximately $21 per metric ton (in 2010, and growing thereafter). 2 It is important to note that NHTSA’s
CAFE standards and EPA’s GHG st andards will both be in effect, and each will lead to increases in average fuel economy and CO 2 emissions reductions. The two agencies’ standards together comprise the National Program, and this discussion of costs and benefits of NHTSA’s CAFE standards does not change the fact that both the CAFE and GHG standards, jointly, are the source of the benefits and costs of the National Program.

1 These figures do not account for th e compliance flexibilities that NHTSA is prohibited from considering when determining the level of new CAFE standard s, because manufacturers’ decisions to use those flexibilities are voluntary.

2 NHTSA also estimated the benefits associated with three more estimates of a one ton GHG reduction in 2010 ($5, $35, and $65), which will likewise grow ther eafter. See Section II for a more detailed discussion
of the social cost of carbon. Comment [A10]: Please note deletion of preceding text.

Comment [A11]: Please clarify. This is a bit confusing. They are not additive.

Comment [A12]: This is a bit confusing. Aren’t’ the CAFÉ standards enough to produce benefits and
costs as above? Would it be better just to say: “it is important to note that NHTSA’s CAFÉ standards
and EPA’s GHG standards will both be in effect, and that together, they comprise the National Program”