From: William Charmley/AA/USEPA/US To: "Achanta, Chandana L." <Ch andana_L._Achanta@ omb.eop.gov> Cc: james.tamm@dot.gov, Kathryn Sa rgeant/AA/USEPA/US@EPA, Ken Davidson/DC/USEPA/US@EPA, Maureen Delaney/DC/USEPA/US@EPA, rebecca.yoon@dot.gov, Robin Moran/ AA/USEPA/US@EPA, Steve.Wood@dot.gov Date: 03/31/2010 12:27 PM Subjec t: RE: Summary of interagency working comments on draft rule under EO 12866

Chandana -
Attached is the preamble.
With respect to the Joint TSD and the EPA RIA, there have been no substantive changes since the email Robin Moran sent to you yesterday at 4:42pm. We corrected the typo on page 8 of the RIA, and we have included a few references which were previously place holders.

Please let us know ASAP when EPA can load th ese documents into ROCIS for clearance. Thanks Bill1 ENVIRONMENTAL PRO TECTION AGENCY 40 CFR Parts 85, 86, and 600

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

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

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

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

ACTION: Final Rule.

_______________________________________________________________________ SUMMARY: EPA and NHTSA are issuing this joint Final Rule to establish a National Program consisting of new standards for light -duty vehicles that will reduce greenhouse gas emissions and improve fuel economy. This joint Final Rule is consistent with the National Fuel Efficiency Policy ann ounced by President Obama on May 19, 2009, responding to the country ’s critical need to address global climate change and to reduce2 oil consumption. EPA is finalizing greenhouse gas emi ssions standards under the Clean Air Act, and NHTSA is finalizing Corporat e Average Fuel Economy standards under the Energy Policy and Conservation Act, as ame nded. These standards apply to passenger cars, light-duty trucks, and medium-duty pa ssenger vehicles, covering model years 2012 through 2016, and represent a harmonized and consistent National Program. Under the National Program, automobile manufacturers wi ll be able to build a single light-duty national fleet that satisfie s all requirements under both pr ograms while ensuring that consumers still have a full range of vehicle c hoices. NHTSA’s final rule also constitutes the agency’s Record of Decision for purposes of its National Environmental Policy Act (NEPA) analysis.

DATES: This final rule is effective on [Insert date 60 days a fter publication in the Federal Register], sixty days after date of publication in the Federal Register . The incorporation by reference of cer tain publications listed in this regulation is approved by the Director of the Fe deral Register as of [Insert date 60 days after publication in the Federal Register]

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ADDRESSES: EPA and NHTSA have established dockets for this action under Docket ID No. EPA-HQ-OAR-2009-0472 and NHTSA-2009-0059, respectively. All documents in the docket are listed on the www.regulat ions.gov web site. Although listed in the index, some information is not publicly avai lable, e.g., CBI or other information whose disclosure is restricted by stat ute. Certain other material, su ch as copyrighted material, is not placed on the Internet and will be publicly available only in hard copy form. Publicly3 available docket materials are avai lable either electronically through www.regulations.gov or in hard copy at the following locations: EPA: EPA Docket Center, EPA/DC, EPA West, Room 3334, 1301 Constitution Ave., NW., Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566–1744 . NHTSA: Docket Management Facilit y, M-30, U.S. Department of Transportation, West Building, Ground Floor , Rm. W12-140, 1200 New Jersey Avenue, SE, Washington, DC 20590. The Docket Management Facility is open between 9 a.m. and 5 p.m. Eastern Time, Monday thr ough Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT: EPA: Tad Wysor, Office of Transportation and Air Quality, Assessmen t and Standards Division, Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor MI 48105; telephone number: 734-214-4332; fax number: 734-214-4816; email address: wysor.tad@epa.gov , or Assessment and Standards Division Hotline; telephone number (734) 214-4636; e-mail address asdinfo@epa.gov . NHTSA: Rebecca Yoon, Office of Chief Counsel, National Highway Traffic Safety Administration, 1200 New Jersey Avenue, SE, Washington, DC 20590. Telephone: (202) 366-2992.4 SUPPLEMENTARY INFORMATION:

Does this Action Apply to Me?

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

Category NAICS Codes A Examples of Potentially Regulated Entities Industry 336111 336112 Motor vehicle manufacturers. Industry 811112 811198 541514 Commercial Importers of Vehicles and Vehicle Components.

A North American Industry Clas sification System (NAICS)

This list is not intended to be exhausti ve, but rather provide s a guide regarding entities likely to be regulated by this action. To determine whether particular activities may be regulated by this action, you should car efully examine the regulations. You may

1 “Light-duty vehicle,” “light-duty truck,” and “medium-duty passenger vehicle” are defined in 40 CFR 86.1803-01. Generally, the term “light-duty vehicle” means a passenger car, the term “light-duty truck” means a pick-up truck, sport-utility vehicle, or miniva n of up to 8,500 lbs gross vehicle weight rating, and “medium-duty passenger vehicle” means a sport-utility vehicle or passenger van from 8,500 to 10,000 lbs gross vehicle weight rating. Medium-duty passenger vehicles do not include pick-up trucks. 2 “Passenger car” and “light truck” are defined in 49 CFR Part 523.5 direct questions regarding the applicability of this action to the person listed in FOR FURTHER INFORMATION CONTACT

. Table of Contents I. Overview of Joint EPA/NHTSA National Program A. Introduction 1. Building Blocks of the National Program 2. Public Participation B. Summary of the Joint Final Rule and Differences from the Proposal 1. Joint Analytical Approach 2. Level of the Standards 3. Form of the Standards 4. Program Flexibilities 5. Coordinated Compliance C. Summary of Costs and Bene fits of the National Program 1. Summary of Costs and Benefits of NHTSA's CAFE Standards 2. Summary of Costs and Benefits of EPA's GHG Standards D. Background and Comparison of NHT SA and EPA Statutory Authority II. Joint Technical Work Completed for This Final Rule A. Introduction B. Developing the Future Fleet for A ssessing Costs, Benefits, and Effects 1. Why Did the Agencies Establish a Baseline and Reference Vehicle Fleet? 2. How Did the Agencies Devel op the Baseline Vehicle Fleet? 3. How Did the Agencies Develop the Projected MY 2011-2016 Vehicle Fleet? 4. How Was the Development of the Base line and Reference Fleets for this Final Rule Different from NH TSA’s Historical Approach? 5. How Does Manufacturer Product Plan Da ta Factor into the Baseline Used in this Final Rule? C. Development of Attribute-Based Curve Shapes D. Relative Car-Truck Stringency E. Joint Vehicle Technology Assumptions 1. What Technologies Did the Agencies Consider? 2. How Did the Agencies Determine the Costs and Effectiveness of Each of These Technologies? F. Joint Economic Assumptions G. What are the Estimated Safety Effects of the Final MYs 2012-2016 CAFE and GHG Standards? 1. What did the Agencies Say in the NP RM with regard to Potential Safety Effects? 2. What Public Comments did the Agen cies Receive on the Safety Analysis and Discussions in the NPRM?6 3. How has NHTSA Refined its Analysis for Purposes of Estimating the Potential Safety Effects of this Final Rule? 4. What are the Estimated Safety Effects of this Final Rule? 5. How do the Agencies Plan to Address this Issue Going Forward? III. EPA Greenhouse Gas Vehicle Standards A. Executive Overview of EPA Rule 1. Introduction 2. Why is EPA Establishing this Rule? 3. What is EPA Adopting? 4. Basis for the GHG Standards under Section 202(a) B. GHG Standards for Light-duty Vehicles , Light-duty Trucks, and Medium-duty Passenger Vehicles 1. What Fleet-wide Emissions Levels Correspond to the CO 2 Standards? 2. What are the CO 2 Attribute-based Standards? 3. Overview of How EPA’s CO 2 Standards Will Be Implemented for Individual Manufacturers 4. Averaging, Banking, and Tr ading Provisions for CO 2 Standards 5. CO 2 Temporary Lead-Time Allowance Alternative Standards 6. Deferment of CO 2 Standards for Small Volume Manufacturers with Annual Sales Less than 5,000 Vehicles 7. Nitrous Oxide and Methane Standards 8. Small Entity Exemption C. Additional Cred it Opportunities for CO 2 Fleet Average Program 1. Air Conditioning Related Credits 2. Flexible Fuel and Alternative Fuel Vehicle Credits 3. Advanced Technology Vehicle Incentiv es for Electric Vehicles, Plug-in Hybrids, and Fuel Cell Vehicles 4. Off-cycle Technology Credits 5. Early Credit Options D. Feasibility of the Final CO 2 Standards 1. How Did EPA Develop a Reference Ve hicle Fleet for Evaluating Further CO 2 Reductions? 2. What Are the Effectiveness and Costs of CO 2 -reducing Technologies? 3. How Can Technologies be Combined into “Packages” and What is the Cost and Effectiveness of Packages? 4. Manufacturer’s Application of Technology 5. How Is EPA Projecting that a Manuf acturer Decides Between Options to Improve CO 2 Performance to Meet a Fleet Average Standard? 6. Why Are the Final CO 2 Standards Feasible? 7. What Other Fleet-Wide CO 2 Levels Were Considered? E. Certification, Compliance, and Enforcement 1. Compliance Program Overview 2. Compliance with Fleet-Average CO 2 Standards 3. Vehicle Certification 4. Useful Life Compliance7 5. Credit Program Implementation 6. Enforcement 7. Prohibited Acts in the CAA 8. Other Certification Issues 9. Miscellaneous Revisions to Existing Regulations 10. Warranty, Defect Reporting, and Other Emission-related Components Provisions 11. Light Duty Vehicles an d Fuel Economy Labeling F. How Will This Final Rule Reduce GHG Em issions and Their Associated Effects? 1. Impact on GHG Emissions 2. Overview of Climate Change Impacts from GHG Emissions 3. Changes in Global Climate Indicato rs Associated with the Rule’s GHG Emissions Reductions G. How Will the Standards Impact N on-GHG Emissions and Their Associated Effects? 1. Upstream Impacts of Program 2. Downstream Impacts of Program 3. Health Effects of Non-GHG Pollutants 4. Environmental Effects of Non-GHG Pollutants 5. Air Quality Impacts of Non-GHG Pollutants H. What Are the Estimated Cost, Economic, and Other Impacts of the Program? 1. Conceptual Framework for Evaluating Consumer Impacts 2. Costs Associated with the Vehicle Program 3. Cost per Ton of Emissions Reduced 4. Reduction in Fuel Consumption and its Impacts 5. Impacts on U.S. Vehicle Sales and Payback Period 6. Benefits of Reducing GHG Emissions 7. Non-Greenhouse Gas Health and Environmental Impacts 8. Energy Security Impacts 9. Other Impacts 10. Summary of Costs and Benefits I. Statutory and Executive Order Reviews 1. Executive Order 12866: Regulat ory Planning and Review 2. Paperwork Reduction Act 3. Regulatory Flexibility Act 4. Unfunded Mandates Reform Act 5. Executive Order 13132 (Federalism) 6. Executive Order 13175 (Consultation and Coordination with Indian Tribal Governments) 7. Executive Order 13045: “Protection of Children from Environmental Health Risks and Safety Risks” 8. Executive Order 13211 (Energy Effects) 9. National Technology Transfer Advancement Act 10. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations J. Statutory Provisions and Legal Authority8 IV. NHTSA Final Rule and Record of Decision for Passenger Car and Light Truck CAFE Standards for MYs 2012-2016 A. Executive Overview of NHTSA Final Rule 1. Introduction 2. Role of Fuel Economy Improvements in Promoting Energy Independence, Energy Security, and a Low Carbon Economy 3. The National Program 4. Review of CAFE Standard Sett ing Methodology per the President’s January 26, 2009 Memorandum on CAFE Standards for MYs 2011 and Beyond 5. Summary of the Final MY 2012-2016 CAFE Standards B. Background 1. Chronology of Events since the Nationa l Academy of Sciences Called for Reforming and Increasing CAFE Standards 2. Energy Policy and Conservation Act, as Amended by the Energy Independence and Security Act C. Development and Feasibility of the Final Standards 1. How Was the Baseline and Refere nce Vehicle Fleet Developed? 2. How Were the Technology Inputs Developed? 3. How Did NHTSA Develop the Economic Assumptions? 4. How Does NHTSA Use the Assumpti ons in its Modeling Analysis? 5. How Did NHTSA Develop the Shape of the Target Curves for the Final Standards? D. Statutory Requirements 1. EPCA, as Amended by EISA 2. Administrative Procedure Act 3. National Environmental Policy Act E. What Are the Final CAFE Standards? 1. Form of the Standards 2. Passenger Car Standards for MYs 2012-2016 3. Minimum Domestic Passenger Car Standards 4. Light Truck Standards F. How Do the Final Standards Fulf ill NHTSA’s Statutory Obligations? G. Impacts of the Final CAFE Standards 1. How Will these Standards Improve Fuel Economy and Reduce GHG Emissions for MY 2012-2016 Vehicles? 2. How Will these Standards Improve Fleet-Wide Fuel Economy and Reduce GHG Emissions Beyond MY 2016? 3. How Will these Final Standards Im pact Non-GHG Emissions and their Associated Effects? 4. What are the Estimated Costs and Benefits of these Final Standards? 5. How Would these Standard s Impact Vehicle Sales? 6. Potential Unquantified Consumer We lfare Impacts of the Final Standards 7. What Other Impacts (Quantitative and Unquantifiable) will These Final Standards Have?9 H. Vehicle Classification I. Compliance and Enforcement 1. Overview 2. How Does NHTSA Determine Compliance? 3. What Compliance Flexibilities Are Available under the CAFE Program and How Do Manufacturers Use Them? 4. Other CAFE Enforcement Issu es—Variations in Footprint 5. Other CAFE Enforcement Issues – Miscellaneous J. Other Near-Term Rulemakings Mandated by EISA 1. Commercial Medium- and Heavy-Duty On-Highway Vehicles and Work Trucks 2. Consumer Information on Fuel Efficiency and Emissions K. NHTSA’s Record of Decision L. Regulatory Notices and Analyses 1. Executive Order 12866 and DOT Regulatory Policies and Procedures 2. National Environmental Policy Act 3. Clean Air Act (CAA) 4. National Historic Pr eservation Act (NHPA) 5. Executive Order 12898 (Environmental Justice) 6. Fish and Wildlife Conservation Act (FWCA) 7. Coastal Zone Management Act (CZMA) 8. Endangered Species Act (ESA) 9. Floodplain Management (Executiv e Order 11988 & DOT Order 5650.2) 10. Preservation of the Nation’s Wetla nds (Executive Order 11990 & DOT Order 5660.1a) 11. Migratory Bird Treaty Act (MBTA) , Bald and Golden Eagle Protection Act (BGEPA), Executive Order 13186. 12. Department of Transportation Act (Section 4(f)) 13. Regulatory Flexibility Act 14. Executive Order 13132 (Federalism) 15. Executive Order 12988 (Civil Justice Reform) 16. Unfunded Mandates Reform Act 17. Regulation Identifier Number 18. Executive Order 13045 19. National Technology Transfer and Advancement Act 20. Executive Order 13211 21. Department of Energy Review 22. Privacy Act10 I. Overview of Joint EPA/NHTSA National Program

A. Introduction

The National Highway Traffic Safe ty Administration (NHTSA) and the Environmental Protection Agency (EPA) are each announcing final rules whose benefits will address the urgent and closely intertwined challenges of energy independence and security and global warming. These rules will implement a strong and coordinated federal greenhouse gas (GHG) and fuel economy program for passenger cars, light-dutytrucks, and medium-duty passenger vehicles (her eafter light-duty vehicles), referred to as the National Program. The rules will achieve substantial reductions of GHG emissions and improvements in fuel economy from the li ght-duty vehicle part of the transportation sector, based on technology that is already being commercially applied in most cases and that can be incorporated at a reasonable co st. NHTSA’s final rule also constitutes the agency’s Record of Decision for purposes of its NEPA analysis.

This joint rulemaking is consistent w ith the President’s announcement on May 19, 2009 of a National Fuel Efficiency Policy of establishing consistent, harmonized, and streamlined requirements that would redu ce GHG emissions and improve fuel economy for all new cars and light-duty tr ucks sold in the United States. 3 The National Program

3 President Obama Announces National Fuel Effici ency Policy, The White House, May 19, 2009. Available at: http://www.whitehouse.gov/the_press_ office/President-Obama-Announces-National-FuelEfficiency-Policy/. Remarks by the President on Na tional Fuel Efficiency Standards, The White House,11 will deliver additional environmental and energy benefits, cost savings, and administrative efficiencies on a nationwide basi s that would likely not be available under a less coordinated approach. The Nationa l Program also represents regulatory convergence by making it possible for the standa rds of two different federal agencies and the standards of California and other states to act in a unifi ed fashion in providing these benefits. The National Program will allow automakers to produce and sell a single fleet nationally, mitigating the additional costs th at manufacturers would otherwise face in having to comply with multiple sets of federal and state standards. This joint notice is also consistent with the No tice of Upcoming Joint Rulemaking issued by DOT and EPA on May 19, 2009 4 and responds to the Presiden t’s January 26, 2009 memorandum on CAFE standards for model years 2011 and beyond, 5 the details of which can be found in Section IV of this joint notice.

Climate change is widely viewed as a significant long-term threat to the global environment. As summarized in th e Technical Support Document for EPA's Endangerment and Cause or Contribute Findi ngs under Section 202(a) of the Clear Air Act, anthropogenic emissions of GHGs are very likely (90 to 99 percent probability) the cause of most of the observed global warming over the last 50 years. 6 The primary GHGs of concern are carbon dioxide (CO 2 ), methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. Mo bile sources emitted 31 percent of all U.S.

May 19, 2009. Available at: http://www.whitehouse.gov /the_press_office/Remarks-by-the-President-onnational-fuel-efficiency-standards/. 4 74 FR 24007 (May 22, 2009). 5 Available at: http://www.whitehouse.gov/the_press_office/Presidential_Memorandum_Fuel_Economy/. 6 “Technical Support Document for Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act” Docket: EPA-HQ-OAR-2009-0472-11292, http://epa.gov/climatechange/endangerment.html.12 GHGs in 2007 (transportation sources, which do not include certain off-highway sources, account for 28 percent) and have been the fastest-growing source of U.S. GHGs since
1990. 7 Mobile sources addressed in the r ecent endangerment and contribution findings under CAA section 202(a)--light-duty vehi cles, heavy-duty trucks, buses, and motorcycles--accounted for 23 percent of all U.S. GHG in 2007. 8 Light-duty vehicles emit CO 2 , methane, nitrous oxide, and hydrofluoro carbons and are responsible for nearly 60 percent of all mobile source GHGs and ove r 70 percent of Section 202(a) mobile source GHGs. For light-duty vehicles in 2007, CO 2 emissions represent about 94 percent of all greenhouse emissions (including HFCs), and the CO 2 emissions measured over the EPA tests used for fuel economy compliance represent about 90 perc ent of total lightduty vehicle GHG emissions. 9, 10

Improving energy security by reducing our dependence on foreign oil has been a national objective since the first oil price shocks in th e 1970s. Net petroleum imports now account for approximately 60 percent of U.S. petroleum consumption. World crude oil production is highly concentrated, exacerbating the risks of supply disruptions and price shocks. Tight global oil markets led to prices over $100 per barrel in 2008, with gasoline reaching as high as $4 per gallon in many parts of the U.S., causing financial

7 U.S. Environmental Protection Agency. 2009. Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007. EPA 430-R-09-004. Available at http://epa.gov/climatechange/emissions/downloads09/GHG2007entire_report-508.pdf 8 U.S. EPA. 2009 Technical Support Document for Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act. Washington, DC. pp. 180-194. Available at http://epa.gov/climatechange/endangerment/downloads/Endangerment%20TSD.pdf 9 U.S. Environmental Protection Agency. 2009. Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007. EPA 430-R-09-004. Available at http://epa.gov/climatechange/emi ssions/downloads09/GHG2007entire_report-508.pdf 10 U.S. Environmental Protection Agency. RIA, Chapter 213 hardship for many families. The export of U.S. assets for oil imports continues to be an important component of the historically unprecedented U.S. trade deficits. Transportation accounts for about two-thirds of U.S. petroleum consumption. Light-duty vehicles account for about 60 pe rcent of transportation oil us e, which means that they alone account for about 40 percen t of all U.S. oil consumption.

1. Building Blocks of the National Program

The National Program is both needed and possible because the relationship between improving fuel economy and reducing CO 2 tailpipe emissions is a very direct and close one. The amount of those CO 2 emissions is essentially constant per gallon combusted of a given type of fuel. Thus, the more fuel efficient a vehicle is, the less fuel it burns to travel a given distance. The less fuel it burns, the less CO 2 it emits in traveling that distance. 11 While there are emission control te chnologies that reduce the pollutants (e.g

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

11 Panel on Policy Implications of Greenhouse Warming, National Academy of Sciences, National Academy of Engineering, Institute of Medicine, “Po licy Implications of Greenhouse Warming: Mitigation, Adaptation, and the Science Base,” Natio nal Academies Press, 1992. p. 287.14 a. DOT’s CAFE Program

In 1975, Congress enacted the Energy Policy and Conservation Act (EPCA), mandating that NHTSA establish and implemen t a regulatory program for motor vehicle fuel economy to meet the various facets of the need to conserve energy, including ones having energy independence and security, enviro nmental and foreign policy implications. Fuel economy gains since 1975, due both to th e standards and market factors, have resulted in saving billions of barrels of oil and avoiding billions of metric tons of CO 2 emissions. In December 2007, Congress enacte d the Energy Independence and Securities Act (EISA), amending EPCA to require substant ial, continuing increa ses in fuel economy standards.

The CAFE standards address most, but not all, of the real world CO 2 emissions because a provision in EPCA as originally enacted in 1975 require s the use of the 1975 passenger car test procedures under which vehicle air condi tioners are not turned on during fuel economy testing. 12 Fuel economy is determined by measuring the amount of
CO 2 and other carbon compounds emitted from th e tailpipe, not by attempting to measure directly the amount of fuel consumed during a vehicle test, a difficult task to accomplish with precision. The carbon content of the test fuel 13 is then used to calculate the amount of fuel that had to be consumed per m ile in order to produce that amount of CO 2 . Finally, that fuel consumption figure is converted in to a miles-per-gallon figure. CAFE standards also do not address the 5-8 percen t of GHG emissions that are not CO 2 , i.e., nitrous oxide

12 Although EPCA does not require the use of 1975 test procedures for light trucks, those procedures are used for light truck CAFE standard testing purposes. 13 This is the method that EPA uses to dete rmine compliance with NH TSA’s CAFE standards.15 (N 2 O), and methane (CH 4 ) as well as emissions of CO 2 and hydrofluorocarbons (HFCs) related to operation of th e air conditioning system.

b. EPA’s GHG Standards for Light-duty Vehicles

Under the Clean Air Act EPA is responsib le for addressing ai r pollutants from motor vehicles. On April 2, 2007, the U.S. Supreme Court issued its opinion in
Massachusetts v. EPA , 14 a case involving EPA's a 2003 denial of a petition for rulemaking to regulate GHG emissions from mo tor vehicles under se ction 202(a) of the Clean Air Act (CAA). 15 The Court held that GHGs f it within the de finition of air pollutant in the Clean Air Act and further he ld that the Administrator must determine whether or not emissions from new motor vehi cles cause or contribu te to air pollution which may reasonably be anticipated to endange r public health or welfare, or whether the science is too uncertain to make a reasoned decision. The Court further ruled that, in making these decisions, the EPA Administrato r is required to follow the language of section 202(a) of the CAA. The Court reje cted the argument that EPA cannot regulate
CO 2 from motor vehicles because to do so would de facto tighten fuel economy standards, authority over which has been assi gned by Congress to DOT. The Court stated that “[b]ut that DOT sets mileage standards in no way licenses EPA to shirk its environmental responsibilities. EPA has been charged with protecting the public‘s ‘health’ and ‘welfare’, a stat utory obligation wholly independent of DOT’s mandate to promote energy efficiency.” The Court c oncluded that “[t]he two obligations may

14 549 U.S. 497 (2007). 15 68 FR 52922 (Sept. 8, 2003).16 overlap, but there is no reason to think the two agencies cannot both administer their obligations and yet avoid inconsistency.” 16 The case was remanded back to the Agency for reconsideration in light of the Court’s decision. 17

On December 15, 2009, EPA publishe d two findings (74 FR 66496): that emissions of GHGs from new motor vehicles an d motor vehicle engine s contribute to air pollution, and that the air pollution may reason ably be anticipated to endanger public health and welfare.

c. California Air Resources Board Greenhouse Gas Program

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

16 549 U.S. at 531-32. 17 For further information on Massachusetts v. EPA see the July 30, 2008 Advance Notice of Proposed Rulemaking, “Regulating Greenhouse Gas Emissions under the Clean Air Act”, 73 FR 44354 at 44397. There is a comprehensive discussion of the litigation’s history, the Supreme Court’s findings, and subsequent actions undertaken by the Bush Administration and the EPA from 2007-2008 in response to the Supreme Court remand. Also see 74 FR 18886, at 1888-90 (April 24, 2009). 18 74 FR 32744 (July 8, 2009).17 granting of the waiver permits California and the other states to proceed with implementing the California emission standards.

In addition, to promote the National Program, in May 2009, California announced its commitment to take several actions in support of the National Program, including revising its program for MYs 2009-2011 to faci litate compliance by the automakers, and revising its program for MYs 2012-2016 such that compliance with the federal GHG standards will be deemed to be compliance wi th California's GHG standards. This will allow the single national fleet produced by automakers to meet the two Federal requirements and to meet California requirement s as well. California is proceeding with a rulemaking intended to revise its 2004 regulat ions to meet its commitments. Several automakers and their trade associations also announced their commitment to take several actions in support of the National Program, including not contesting the final GHG and CAFE standards for MYs 2012-2016, not contesti ng any grant of a waiver of preemption under the CAA for California’s GHG standards fo r certain model years, and to stay and then dismiss all pending litig ation challenging Ca lifornia's regulation of GHG emissions, including litigation concerning preemption unde r EPCA of California’s and other states’ GHG standards.

2. Public Participation

The agencies proposed their respective rules on September 28, 2009 (74 FR 49454), and received a large number of commen ts representing many perspectives on the18 proposed rule. The agencies r eceived oral testimony at three public hearings in different parts of the country, and received written comments from more than 130 organizations, including auto manufacturer s and suppliers, states, e nvironmental and other nongovernmental organizations (NGOs), and over 129,000 comments from private citizens.

The vast majority of commenters supporte d the central tenets of the proposed CAFE and GHG programs. That is, there was broad support from most organizations for a National Program that achieves a le vel of 250 gram/mile fleet average CO 2 , which would be 35.5 miles per gallon if the automakers were to meet this CO 2 level solely through fuel economy improvements. The standa rds will be phased in over model years 2012 through 2016 which will allow manufacturer s to build a common fleet of vehicles for the domestic market. In general, comment ers from the automobile industry supported the proposed standards as well as the credit opportunities an d other compliance provisions providing flexibility, while also ma king some recommendations for changes. Environmental and public interest non-govern mental organizations (NGOs), as well as most states that commented, were also generally supportive of the National Program standards. Many of these organizations also expressed concern about the possible impact on program benefits, depending on how the cr edit provisions and flexibilities are designed. The agencies also received specific comments on many aspects of the proposal.

Throughout this notice, the agencies discu ss many of the key issues arising from the public comments and the agencies' responses. In addition, the agencies have19 addressed all of the public comments in th e Response to Comments document associated with this final rule.

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

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

NHTSA and EPA have coordinated closely and worked jointly in developing their respective final rules. This is reflected in many aspects of this joint rule. For example, the agencies have developed a comprehens ive Joint Technical Support Document (TSD) that provides a solid technical underpinning for each agency’s modeling and analysis used to support their standards. Also, to the extent allowed by law, the agencies have harmonized many elements of program design, such as the form of the standard (the footprint-based attribute curves), and the defini tions used for cars and trucks. They have developed the same or similar compliance flexibilities, to the extent allowed and appropriate under their respect ive statutes, such as aver aging, banking, an d trading of credits, and have harmonized the compliance te sting and test protocols used for purposes20 of the fleet average standards each agency is finalizing. Finally, under their respective statutes, each agency is called upon to exerci se its judgment and determine standards that are an appropriate balance of various rele vant statutory factors. Given the common technical issues before each agency, the si milarity of the factors each agency is to consider and balance, and the authority of each agency to take into consideration the standards of the other agency, both EPA a nd NHTSA are establishing standards that result in a harmonized National Program.

This joint final rule covers passenge r cars, light-duty trucks, and medium-duty passenger vehicles built in model years 2012 through 2016. These vehicle categories are responsible for almost 60 percent of all U. S. transportatio n-related GHG emissions. EPA and NHTSA expect that automobile manufact urers will meet these standards by utilizing technologies that will redu ce vehicle GHG emissions and improve fuel economy. Although many of these technologies are ava ilable today, the emissions reductions and fuel economy improvements finalized in this notice will involve more widespread use of these technologies across the light-duty vehicle fleet. Th ese include improvements to engines, transmissions, and tires, increased use of start-stop technology, improvements in air conditioning systems, increased use of hybrid and ot her advanced te chnologies, and the initial commercialization of electric ve hicles and plug-in hybrids. NHTSA’s and EPA’s assessments of likely vehicle technologie s that manufacturers will employ to meet the standards are discussed in deta il below and in the Joint TSD.21 The National Program is estimated to re sult in approximately 960 million metric tons of total carbon dioxide equivalent emissions reductions and approximately 1.8 billion barrels of oil savings over the lifetim e of vehicles sold in model years (MYs) 2012 through 2016. In total, the combined EP A and NHTSA 2012-2016 st andards will reduce GHG emissions from the U.S. light-duty fl eet by approximately 21 percent by 2030 over the level that would occur in the absence of the National Program. These actions also will provide important energy secu rity benefits, as light-duty vehicles are about 95 percent dependent on oil-based fuels. The agencies pr oject that the total benefits of the National Program will be 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.

Together, EPA and NHTSA estimate that the average cost increase for a model year 2016 vehicle due to the National Program will be less than $1,000. The average U.S. consumer who purchases a vehicle outright is estimated to save enough in lower fuel costs over the first three years to offset these higher vehicle costs. However, most U.S. consumers purchase a new vehicle using credit rather than paying cash and the typical car loan today is a five year, 60 month loan. These consumers will see immediate savings due to their vehicle’s lower fuel consumpti on in the form of a net reduction in annual costs of $130-$180 throughout the duration of the loan (that is, the fuel savings will outweigh the increase in loan payments by $130-$180 per year). Whether a consumer takes out a loan or purchases a new vehicle outright, over the lifetime of a model year 2016 vehicle, the consumer's net savings c ould be more than $3,000. The average 201622 MY vehicle will emit 16 fewer metric tons of CO 2 -equivalent emissions (that is, CO 2 emissions plus HFC air conditioning leakage emissions) emissions during its lifetime. Assumptions that underlie these conclusions are discussed in great er detail in the agencies’ respective regulatory impact anal yses and in Section III.H.5 and Section IV.

This joint rule also result s in important regulatory c onvergence and certainty to automobile companies. Absent this rule, th ere would be three separate federal and state regimes independently regulating light-duty vehicles to reduce fuel consumption and GHG emissions: NHTSA’s CAFE standards, EPA’s GHG standards, and the GHG standards applicable in Calif ornia and other states adopti ng the California standards. This joint rule will allow automakers to meet both the NHTSA and EPA requirements with a single national fleet, greatly simp lifying the industry's technology, investment and compliance strategies. In addition, to promote the National Program, California announced its commitment to take several actions, including revising its program for MYs 2012-2016 such that compliance with the federal GHG standards will be deemed to be compliance with California's GHG standards. This will allow the single national fleet used by automakers to meet the two Federal requiremen ts and to meet California requirements as well. California is proceedi ng with a rulemaking intended to revise its 2004 regulations to meet its commitments. EPA and NHTSA are confident that these GHG and CAFE standards will successfully harmonize both the federal and state programs for MYs 2012-2016 and will allow our country to achieve the increased benefits of a single, nationwide program to reduce light-duty vehicle GHG emissions and23 reduce the country’s dependence on fossil fu els by improving these vehicles’ fuel
economy.

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

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

Key elements of the National Program fina lized today are the level and form of the GHG and CAFE standards, the availa ble compliance mechanisms, and general implementation elements. These elements ar e summarized in the following section, with more detailed discussions about EPA’s GHG program following in Se ction III, and about NHTSA’s CAFE program in Section IV. This joint final rule responds to the wide array of comments that the agencies received on the proposed rule. This section summarizes many of the major comments on the primary elements of the proposal and describes whether and how the final rule has cha nged, based on the comments and additional24 analyses. Major comments and the agencies’ responses to them ar e also discussed in more detail in later sections of this pr eamble. For a full summary of public comments and EPA’s and NHTSA’s responses to them, please see the Response to Comments document associated with this final rule.

1. Joint Analytical Approach

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

EPA and NHTSA have jointly developed at tribute curve shapes that each agency is using for its final standards. Further deta ils of these functions can be found in Sections III and IV of this preamble as well as Chapter 2 of the Joint TSD. A critical technical underpinning of each agency’s analysis is the cost and effectiveness of the various25 control technologies. These are used to anal yze the feasibility a nd cost of potential GHG and CAFE standards. A detailed descri ption of all of the technology information considered can be found in Chapter 3 of th e Joint TSD (and for A/C, Chapter 2 of the EPA RIA). This detailed technology data forms the inputs to computer models that each agency uses to project how vehicle manufactur ers may add those techno logies in order to comply with the new standards. These are the OMEGA and Volpe models for EPA and NHTSA, respectively. The models and their i nputs can also be found in the docket. Further description of the model and outputs ca n be found in Sections III and IV of this preamble, and Chapter 3 of the Joint TSD. Th is comprehensive joint analytical approach has provided a sound and consistent technical basis for each agency in developing its final standards, which are summarized in the sections below.

The vast majority of public comments expressed strong support for the joint analytical work performed for the proposal . Commenters generally agreed with the analytical work and its results, and supported the transparency of the analysis and its underlying data. Where commenter s raised specific points, th e agencies have considered them and made changes where appropriate. The agencies' further evaluation of various technical issues also led to a limited number of changes. A detailed discussion of these issues can be found in Section II of this preamble, and the Joint TSD.26 2. Level of the Standards

In this notice, EPA and NHTSA are estab lishing two separate se ts of standards, each under its respective statutory author ities. EPA is setting national CO 2 emissions standards for light-duty vehicles under sec tion 202 (a) of the Clean Air Act. These standards will require these vehicles to meet an estimated combined average emissions level of 250 grams/mile of CO 2 in model year 2016. NHTSA is setting CAFE standards for passenger cars and light trucks under 49 U.S.C. 32902. These standards will require manufacturers of those vehicles to meet an estimated combined average fuel economy level of 34.1 mpg in model ye ar 2016. The standards for bot h agencies begin with the 2012 model year, with standards increasing in stringency through model year 2016. They represent a harmonized approach that will allow industry to build a single national fleet that will satisfy both the GHG require ments under the CAA and CAFE requirements under EPCA/EISA.

Given differences in their re spective statutory authoritie s, however, the agencies’ standards include some important differences. Under the CO 2 fleet average standards adopted under CAA section 202(a), EPA expects manufacturers to take advantage of the option to generate CO 2 -equivalent credits by reducing em issions of hydrofluorocarbons (HFCs) and CO 2 through improvements in their air conditioner systems. EPA accounted for these reductions in developing its final CO 2 standards. NHTSA did not do so because EPCA does not allow vehicle manufacturers to use air conditioning credits in complying27 with CAFE standard s for passenger cars. 19 CO 2 emissions due to air conditioning operation are not measured by the test pr ocedure mandated by statute for use in establishing and enforcing CAFE standards fo r passenger cars. As a result, improvement in the efficiency of passenger car air conditione rs is not considered as a possible control technology for purposes of CAFE.

These differences regarding the treatment of air conditioning improvements (related to CO 2 and HFC reductions ) affect the relati ve stringency of the EPA standard and NHTSA standard for MY 2016. The 250 grams per mile of CO 2 equivalent emissions limit is equivalent to 35.5 mpg 20 if the automotive industry were to meet this
CO 2 level all through fuel economy improvements. As a consequence of the prohibition against NHTSA’s allowing credits for air conditioning improvements for purposes of passenger car CAFE compliance, NHTSA is se tting fuel economy standards that are estimated to require a combined (passenger car and light truck) average fuel economy level of 34.1 mpg by MY 2016.

The vast majority of public comments expressed strong support for the National Program standards, including the stringency of the agencies’ respective standards and the phase-in from model year 2012 through 2016. There were a number of comments supporting standards more stringent than proposed, and a few others supporting less stringent standards, in particular for the 2012-2015 model years. The agencies'

19 There is no such statutory limitation with respect to light trucks. 20 The agencies are using a common co nversion factor between fuel economy in units of miles per gallon and CO 2 emissions in units of grams per mile. This conversion factor is 8,887 grams CO 2 per gallon gasoline fuel. Diesel fuel has a c onversion factor of 10,180 grams CO 2 per gallon diesel fuel though for the purposes of this calculation, we are assuming 100% gasoline fuel.28 consideration of comments and their updated te chnical analyses led to only very limited changes in the footprint curves and did not change the agencies’ projections that the nationwide fleet will achieve a level of 250 grams/mile by 2016 (equivalent to 35.5 mpg). The responses to these comments are discusse d in more detail in Sections III and IV, respectively, and in the Response to Comments document.

As proposed, NHTSA and EPA’s final st andards, like the standards NHTSA promulgated in March 2009 for MY 2011, are expressed as mathematical functions depending on vehicle footprint. Footprint is one measure of vehicle size, and is determined by multiplying the vehicle’s wheelbase by the vehicle’s average track width. 21 The standards that must be met by each manufacturer's fleet will be determined by computing the sales-weighted average (h armonic average for CAFE) of the targets applicable to each of the manufacturer’s pa ssenger cars and light trucks. Under these footprint-based standards, the levels require d of individual manufacturers will depend, as noted above, on the mix of vehicles sold. NHTSA's and EPA’s resp ective sta ndards are shown in the tables below. It is important to note that the standards are the attributebased curves established by each agency. Th e values in the tables below reflect the agencies’ projection of the corr esponding fleet levels that will result from these attributebased curves.

As a result of public comments and updated economic and future fleet projections, EPA and NHTSA have updated the attribute based curves for this final rule, as discussed in detail in Section II.B of this preamble and Chapter 2 of the Joint TSD.

21 See 49 CFR 523.2 for the exact definition of “footprint.”29 This update in turn affects costs, benefits, a nd other impacts of the final standards. Thus, the agencies have updated their overall projec tions of the impacts of the final rule standards, and these results are only slight ly different from those presented in the proposed rule.

As shown in Table I.B.2-1, NHTSA’s fleet-wide CAFE-required levels for passenger cars under the final standards are projected to increase from 33.3 to 37.8 mpg between MY 2012 and MY 2016. Similarly, fleet-w ide CAFE levels for light trucks are projected to increase from 25.4 to 28.8 mpg. NHTSA has also estimated the average fleet-wide required levels for the combined car and truck fleets. As shown, the overall fleet average CAFE level is expected to be 34.1 mpg in MY 2016. These numbers do not include the effects of other fl exibilities and credits in the program. These standards represent a 4.3 percent aver age annual rate of incr ease relative to the MY 2011 standards. 22

Table I.B.2-1 Average Required Fuel Economy (mpg) under Final CAFE Standards 2011-base 2012 2013 2014 2015 2016 Passenger Cars 30.4 33.3 34.2 34.9 36.2 37.8 Light Trucks 24.4 25.4 26.0 26.6 27.5 28.8 Combined Cars & Trucks 27.6 29.7 30.5 31.3 32.6 34.1

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

22 Because required CAFE levels depend on the mix of vehicles sold by manufacturers in a model year, NHTSA’s estimate of future required CAFE levels depe nds on its estimate of the mix of vehicles that will be sold in that model year. NHTSA currently esti mates that the MY 2011 standards will require average fuel economy levels of 30.4 mpg for passenger cars, 24.4 mpg for light trucks, and 27.6 mpg for the combined fleet.30 credits, 23 NHTSA estimates that the CAFE standa rds will lead to the following average achieved fuel economy levels, based on the proj ections of what each manufacturer’s fleet will comprise in each year of the program: 24

Table I.B.2-2 Projected Fleet-Wide Ac hieved CAFE Levels under the Final Footprint-Based CAFE Standards (mpg) 2012 2013 2014 2015 2016 Passenger Cars 32.3 33.5 34.2 35.0 36.2 Light Trucks 24.5 25.1 25.9 26.7 27.5 Combined Cars & Trucks 28.7 29.7 30.6 31.5 32.7

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

Based on NHTSA’s current market forecas t, the agency’s estimates of these minimum standards under the MY 2012-2016 CAFE standards (and, for comparison, the final MY 2011 standard) are summarized below in Table I.B.2-3. 26 For eventual

23 The penalties are similar in function to e ssentially unlimited, fixed-price allowances. 24 NHTSA’s estimates account for availab ility of CAFE credits for the sale of flexible-fuel vehicles (FFVs), and for the potential that some manufacturers will pay civil penalties rather than comply with the CAFE standards. This yields NHTSA’s estimates of the r eal-world fuel economy that will likely be achieved under the final CAFE standards. NHTSA has not incl uded any potential impact of car-truck credit transfer in its estimate of the achieved CAFE levels. 25 49 U.S.C. 32902(b)(4). 26 In the March 2009 final rule establishing MY 2011 standards for passenger cars and light trucks, NHTSA estimated that the minimum required CAFE standard for domestically manufactured passenger cars would31 compliance calculations, the final calculated minimum standards will be updated to reflect the average fuel economy level required under the final standards.

Table I.B.2-3 Estimated Minimum Standard for Domestically Manufactured Passenger Cars under MY 2011 and MY 2012-2016 CAFE Standards for Passenger Cars (mpg) 2011 2012 2013 2014 2015 2016 28.0 30.7 31.4 32.1 33.3 34.7

EPA is establishing GHG emissions standa rds, and Table I.B.2-4 provides EPA’s estimates of their proj ected overall fleet-wide CO 2 equivalent emission levels. 27 The g/mi values are CO 2 equivalent values because they include the projected use of air conditioning (A/C) credits by manufactur ers, which include both HFC and CO 2 reductions.

Table I.B.2-4 Projected Fleet -Wide Emissions Compliance Levels under the FootprintBased CO 2 Standards (g/mi) 2012 2013 2014 2015 2016 Passenger Cars 263 256 247 236 225 Light Trucks 346 337 326 312 298 Combined Cars & Trucks 295 286 276 263 250

As shown in Table I.B.2-4, fleet-wide CO 2 emission level requirements for cars are projected to increase in stringency fr om 263 to 225 g/mi between MY 2012 and MY 2016. Similarly, fleet-wide CO 2 equivalent emission level requirements for trucks are projected to increase in st ringency from 346 to 298 g/mi. As shown, the overall fleet
be 27.8 mpg under the MY 2011 passe nger car standard. Based on the ag ency’s current forecast of the MY 2011 passenger car market, NHTSA now estimates that the minimum required CAFE standard will be 28.0 mpg in MY 2011. 27 These levels do not include the effect of flexible fu el credits, transfer of cred its between cars and trucks, temporary lead time allowance, or any other cr edits with the exception of air conditioning.32 average CO 2 level requirements are projected to in crease in stringency from 295 g/mi in MY 2012 to 250 g/mi in MY 2016.

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

Table I.B.2-5 Projected Fleet-Wide Ac hieved Emission Levels under the Footprint-Based CO 2 Standards (g/mi) 2012 2013 2014 2015 2016 Passenger Cars 267 256 245 234 223 Light Trucks 365 353 340 324 303 Combined Cars & Trucks 305 293 280 266 25033 Several auto manufacturers stated that th e increasingly stringent requirements for fuel economy and GHG emissions in the early years of the program should follow a more linear phase-in. The agencies’ consideration of comments and of their updated technical analyses did not lead to cha nges to the phase-in of the sta ndards discussed above. This issue is discussed in more detail in Sections II.D, and in Sections III and IV.

NHTSA’s and EPA’s technology assessment i ndicates there is a wide range of technologies available for manu facturers to consider in upgrading vehicles to reduce GHG emissions and improve fuel economy. Commenters were in general agreement with this assessment. 28 As noted, these include improvements to the engines such as use of gasoline direct injection and downsized engines that use turbochargers to provide performance similar to that of larger e ngines, the use of advanced transmissions, increased use of start-stop technology, improve ments in tire rolling resistance, reductions in vehicle weight, increased use of hybrid and other advanced technologies, and the initial commercialization of elect ric vehicles and plug-in hybri ds. EPA is also projecting improvements in vehicle air conditioners incl uding more efficient as well as low leak systems. All of these technologies are al ready available today, and EPA’s and NHTSA’s assessments are that manufacturers will be able to meet the standards through more widespread use of these t echnologies across the fleet.

With respect to the practicability of th e standards in terms of lead time, during MYs 2012-2016 manufacturers are expected to go through the normal automotive

28 The close relationship between emissions of CO 2 – the most prevalent greenhouse gas emitted by motor vehicles--and fuel consumption, means that the technologies to control CO 2 emissions and to improve fuel economy overlap to a great degree.34 business cycle of redesigning and upgrading their light-duty vehicle products, and in some cases introducing entirely new vehicles not on the market today. This rule allows manufacturers the time needed to incorpor ate technology to achieve GHG reductions and improve fuel economy during the vehicle redesign process. This is an important aspect of the rule, as it avoids the much higher co sts that would occur if manufacturers needed to add or change technology at times other than their scheduled redesigns. This time period also provides manufactur ers the opportunity to plan for compliance using a multiyear time frame, again consistent with norma l business practice. Over these five model years, there will be an opportunity for manufact urers to evaluate almost every one of their vehicle model platforms and add technology in a cost effective way to control GHG emissions and improve fuel economy. This includes redesign of the air conditioner systems in ways that will further reduce GHG emissions. Various commenters stated that the proposed phase-in of the standards shoul d be introduced more aggressively, less aggressively, or in a more linear manner. Ho wever, our consideration of these comments about the phase-in, as well as our revised anal yses, leads us to conclude that the general rate of introduction of the standards as proposed remains appropriate. This conclusion is also not affected by the slight difference from the proposal in the final footprint-based curves. These issues are addressed further in Sections III and IV.

Both agencies considered other standards as part of the rulemaking analyses, both more and less stringent than those pr oposed. EPA’s and NHTSA’s analyses of alternative standards are contained in Sections III and IV of this preamble, respectively, as well as the agencies' respective RIAs.35 The CAFE and GHG standards describe d above are based on determining emissions and fuel economy using the city and highway test procedures that are currently used in the CAFE program. Some envir onmental and other organizations commented that the test procedures shoul d be improved to reflect more real-world driving conditions; auto manufacturers in general do not support such changes to th e test procedures at this time. Both agencies recognize that these test procedures are not fu lly representative of real world driving conditions. For example, EPA has adopted more representative test procedures that are used in determini ng compliance with emissions standards for pollutants other than GHGs. These test proce dures are also used in EPA’s fuel economy labeling program. However, as discussed in Section III, the current information on effectiveness of the individual emissions c ontrol technologies is based on performance over the CAFE test procedures. For that reason, EPA is using the current CAFE test procedures for the CO 2 standards and is not changing those test procures in this rulemaking. NHTSA, as discussed above, is li mited by statute in what test procedures can be used for purposes of passenger car te sting, although there is no such statutory limitation with respect to test procedures for trucks. However, the same reasons for not changing the truck test procedures apply for CAFE as well.

Both EPA and NHTSA are interested in developing programs that employ test procedures that are more repr esentative of real world driv ing conditions, to the extent authorized under their respectiv e statutes. This is an impor tant issue, and the agencies intend to continue to evaluate it in the context of a future rulemaking to address standards36 for model year 2017 and thereafter. This coul d include consideration of a range of test procedure changes to better represent real-w orld driving conditions in terms of speed, acceleration, deceleration, ambient temperatures , use of air conditioners, and the like. With respect to air conditioner operation, EP A discusses the public comments on these issues and the final procedures for determ ining emissions credit s for controls on air conditioners in Section III.

Finally, based on the information EPA deve loped in its recent rulemaking that updated its fuel economy labeling program to better reflect average real-world fuel economy, the calculation of fuel savings and CO 2 emissions reductions that will be achieved by the CAFE and GHG standards in cludes adjustments to account for the difference between the fuel economy level meas ured in the CAFE test procedure and the fuel economy actually achieved on average unde r real world drivi ng conditions. These adjustments are industry averages for the vehi cles’ performance as a whole, however, and are not a substitute for the information on effectiveness of individual control technologies that will be explored for purposes of a futu re GHG and CAFE rulemaking.

3. Form of the Standards

NHTSA and EPA proposed attribute-based standards for passenger cars and light trucks. NHTSA adopted an attribute approach based on vehicle footprint in its Reformed CAFE program for light truc ks for model years 2008-2011, 29 and recently extended this

29 71 FR 17566 (Apr. 6, 2006).37 approach to passenger cars in the CAFE rule for MY 2011 as required by EISA. 30 The agencies also proposed using vehicle footpr int as the attribute for the GHG and CAFE standards. Footprint is defined as a vehicle’ s wheelbase multiplied by its track width -- in other words, the area enclosed by the points at which the wheels meet the ground. Most commenters that expressed a view on this topic supported basing the standards on an attribute, and almost all of these supported the proposed choi ce of vehicle footprint as an appropriate attribute. The agencies conti nue to believe that th e standards are best expressed in terms of an attri bute, and that the f ootprint attribute is the most appropriate attribute on which to base the standards. Thes e issues are further discussed later in this notice and in Chapter 2 of the Joint TSD.

Under the footprint-based standards, each manufacturer will have a GHG and CAFE target unique to its fleet, depending on the footprints of the vehicle models produced by that manufacturer. A manufact urer will have separate footprint-based standards for cars and for trucks. Generally, la rger vehicles (i.e., ve hicles with larger footprints) will be subject to less stringent standards (i.e., higher CO 2 grams/mile standards and lower CAFE standa rds) than smaller vehicles. This is because, generally speaking, smaller vehicles are more capab le of achieving lower levels of CO 2 and higher levels of fuel economy than larger vehicl es. While a manufacturer’s fleet average standard could be estimated throughout th e model year based on projected production volume of its vehicle fleet, the standard to which the manufacturer must comply will be based on its final model year production figur es. A manufacturer’s calculation of fleet

30 74 FR 14196 (Mar. 30, 2009).38 average emissions at the end of the mode l year will thus be based on the productionweighted average emissions of each model in its fleet.

The final footprint-based st andards are very similar in shape to those proposed. NHTSA and EPA include more discussion of the development of the final curves in Section II below, with a full discussion in the Joint TSD. In additi on, a full discussion of the equations and coefficients that define th e curves is included in Section III for the CO 2 curves and Section IV for the mpg curves. Th e following figures illust rate the standards. First, Figure I.B.3-1 shows the fuel economy (mpg) car standard curve.

Under an attribute-based st andard, every vehicle model has a performance target (fuel economy for the CAFE standards, and CO 2 g/mile for the GHG emissions standards), the level of which depends on the vehi cle’s attribute (for th is rule, footprint). The manufacturers’ fleet average performance is determined by the productionweighted 31 average (for CAFE, harmonic average) of those targets. NHTSA and EPA are setting CAFE and CO 2 emissions standards defined by constrained linear functions and, equivalently, piecewise linear functions. 32 As a possible option for future rulemakings, the constrained linear form was introduced by NHTSA in the 2007 NPRM proposing CAFE standards for MY 2011-2015.

NHTSA is establishing the attribute curv es below for assigning a fuel economy level to an individual vehicle’s footpr int value, for model years 2012 through 2016.

31 Based on vehicles produced for sale in the United States. 32 The equations are equivalent but are specified differe ntly due to differences in the agencies’ respective models.39 These mpg values will be production weighted to determine each manufacturer’s fleet average standard for cars and trucks. Alt hough the general model of the equation is the same for each vehicle category and each year, the parameters of the equation differ for cars and trucks. Each paramete r also changes on an annual basi s, resulting in the yearly increases in stringency. Figur e I.B.3-1 below illustrates th e passenger car CAFE standard curves for model years 2012 through 2016 while Figure I.B.3-2 below illustrates the light truck standard curves for model years 2012-2016. The MY 2011 final standards for cars and trucks, which are specified by a constr ained logistic function rather than a constrained linear function, are shown for comparison.4020253035404535 40 45 50 55 60 65 70Target(mpg)Footprint (sf)2011201620152014201320124120253035404535 40 45 50 55 60 65 70Target(mpg)Footprint (sf)201120162015201420132012Figure I.B.3-2. MY 2011 and MY 2012-2016 Light Truck Fuel Economy Targets42 EPA is establishing the attribut e curves below for assigning a CO 2 level to an individual vehicle’s footprint value, for model years 2012 through 2016. These CO 2 values will be production weighted to de termine each manufacturer’s fleet average standard for cars and trucks. As with the CAFE curves above, the general form of the equation is the same for each vehicle categor y and each year, but the parameters of the equation differ for cars and trucks. Again, each parameter also changes on an annual basis, resulting in the yearly increases in stringency. Figure I.B.3-3 below illustrates the
CO 2 car standard curves for model year s 2012 through 2016 while Figure I.B.3-4 shows the CO 2 truck standard curves for model years 2012-2016.43Figure I.B.3-3 CO2(g/mi) Car Standard Curves44Figure I.B.3-4 CO2(g/mi) Truck Standard Curves45 NHTSA and EPA received a number of comments about the shape of the car and truck curves. We address these comments fu rther in Section II.C below as well as in Sections III and IV.

As proposed, NHTSA and EPA will use the same vehicle category definitions for determining which vehicles are subject to th e car curve standards ve rsus the truck curve standards. In other words, a vehicle clas sified as a car under the NHTSA CAFE program will also be classified as a car under the EPA GHG program, and likewise for trucks. Auto industry commenters generally agreed wi th this approach and believe it is an important aspect of harmoni zation across the two agencies ’ programs. Some other commenters expressed concern about potential conse quences, especially in how cars and trucks are distinguished. However, EPA and NHTSA are employing the same car and truck definitions for the MY 2012-2016 CAFE and GHG standards as those used in the CAFE program for the 2011 model year standards. 33 This issue is further discussed for the EPA standards in Section III, and for th e NHTSA standards in Section IV. This approach of using CAFE definitions allows EPA’s CO 2 standards and the CAFE standards to be harmonized across all vehicles for this program. However, EPA is not changing the car/truck definition for the purpos es of any other previous rules.

Generally speaking, a smaller footprint vehicle will have higher fuel economy and lower CO 2 emissions relative to a larger footpr int vehicle when both have the same degree of fuel efficiency improvement technolo gy. In this final ru le, the standards apply to a manufacturers overall fleet, not an indi vidual vehicle, thus a manufacturers fleet

33 49 CFR 523.46 which is dominated by small footprint ve hicles will have a higher fuel economy requirement (lower CO 2 requirement) than a manufacturer s whose fleet is dominated by large footprint vehicles . A footprint-based CO 2 or CAFE standard can be relatively neutral with respect to vehicl e size and consumer choice. All vehicles, whether smaller or larger, must make improvements to reduce CO 2 emissions or improve fuel economy, and therefore all vehicles will be relatively more expensive. With the footprint-based standard approach, EPA and NHTSA believe th ere should be no signifi cant effect on the relative distribution of different vehicle sizes in the fleet, which means that consumers will still be able to purchase the size of ve hicle that meets their needs. While targets are manufacturer specific, rather th an vehicle specific, Table I.B. 3-1 illustrates the fact that different vehicle sizes will have varying CO 2 emissions and fuel economy targets under the final standards.

Table I.B.3-1 Model Year 2016 CO 2 and Fuel Economy Targets for Various MY 2008 Vehicle Types Vehicle

Type Example Models Example Model Footprint (sq. ft.) CO 2 Emissions Target (g/mi) Fuel Economy Target (mpg) Example Passenger Cars

Compact car Honda Fit 40 206 41.1 Midsize car Ford Fusion 46 230 37.1 Fullsize car Chrysler 300 53 263 32.6 Example Light-duty Trucks Small SUV 4WD Ford Escape 44 259 32.9 Midsize crossover Nissan Murano 49 279 30.6 Minivan Toyota Sienna 55 303 28.2

Large pickup

truck Chevy Silverado 67 348 24.747 4. Program Flexibilities

EPA’s and NHTSA’s programs as establis hed in this rule provide compliance flexibility to manufacturers, especially in th e early years of the National Program. This flexibility is expected to provide sufficient lead time for manufactur ers to make necessary technological improvements and reduce the overall cost of the program, without compromising overall environmental and fuel economy objectives. The broad goal of harmonizing the two agencies’ standards include s preserving manufactur ers’ flexibilities in meeting the standards, to the extent a ppropriate and required by law. The following section provides an overview of this fina l rule’s flexibility provisions. Many auto manufacturers commented in support of thes e provisions as critical to meeting the standards in the lead time provided. Envi ronmental groups, some states, and others raised concerns about the possi bility for windfall credits a nd loss of program benefits. The provisions in the final rule are in most cases the same as those proposed. However consideration of the issues raised by commenters has led to modifications in certain provisions. These comments and the agencies ’ response are discussed in Sections III and IV below and in the Response to Comments document.

a. CO 2 /CAFE Credits Generated Based on Fleet Average Performance

Under this NHTSA and EPA final rule, th e fleet average standards that apply to a manufacturer’s car and truck fl eets are based on the applicable footprint-based curves. At the end of each model year, when produc tion of the model year is complete, a48 production-weighted fleet average will be cal culated for each averaging set (cars and trucks). Under this approach, a manufacturer’s car and/or tr uck fleet that achieves a fleet average CO 2 /CAFE level better than the standard can generate credits. Conversely, if the fleet average CO 2 /CAFE level does not meet the standa rd, the fleet would incur debits (also referred to as a shortfall).

Under the final program, a manufacturer whose fleet generates credits in a given model year would have several options for us ing those credits, in cluding credit carryback, credit carry-forwar d, credit transfers, and credit tr ading. These provisions exist in the MY 2011 CAFE program under EPCA and EI SA, and similar provisions are part of EPA’s Tier 2 program for light -duty vehicle criteria polluta nt emissions, as well as many other mobile source standards issued by EPA un der the CAA. The manufacturer will be able to carry back credits to offset a defi cit that had accrued in a prior model year and was subsequently carried over to the current model year. EPCA also provides for this. EPCA restricts the carry-back of CAFE credit s to three years, a nd as proposed EPA is establishing the same limitati on, in keeping with the goal of harmonizing both sets of standards.

After satisfying any need to offset pre- existing deficits, remaining credits can be saved (banked) for use in future years. Under the CAFE program, EISA allows manufacturers to apply credits earned in a m odel year to compliance in any of the five subsequent model years. 34 As proposed, under the GHG program, EPA is also allowing

34 49 U.S.C. 32903(a)(2).49 manufacturers to use these banked credits in th e five years after the year in which they were generated (i.e., five years carry-forward).

EISA required NHTSA to establish by regulation a CAFE credits transferring program, which NHTSA established in a March 2009 final rule codified at 49 CFR Part 536, to allow a manufacturer to transfer credits between it s vehicle fleets to achieve compliance with the standards. For example, credits earned by over-compliance with a manufacturer’s car flee t average standard could be used to offset debits incurred due to that manufacturer’s not meeting the truck flee t average standard in a given year. EPA’s Tier 2 program also provides for this type of credit transfer. As proposed for purposes of this rule, EPA allows unlimited credit transfer s across a manufacturer’s car-truck fleet to meet the GHG standard. This is based on the expectation that this flexibility will facilitate manufacturers' ability to co mply with the GHG standards in the lead time provided, and will allow the required GHG emissions reductions to be achieved in the most cost effective way. Under the CAA, unlike under EISA, there is no statutory limitation on car-truck credit transfers. Therefore, EPA is not constraining car-truck credit transfers, as doing so would reduce the flexibility for lead time, and would increase costs with no corresponding environmental benefit. For the CAFE program, however, EISA limits the amount of credits that may be transferred, wh ich has the effects of limiting the extent to which a manufacturer can rely upon cr edits in lieu of making fuel economy improvements to a particular portion of its vehi cle fleet, but also of potentially increasing the costs of improving the manufacturer’s overa ll fleet. EISA also prohibits the use of transferred credits to meet the statutory minimum level for the domestic car fleet50 standard. 35 These and other statutory limits will continue to apply to the determination of compliance with the CAFE standards.

EISA also allowed NHTSA to establis h by regulation a CAFE credit trading program, which NHTSA established in the Ma rch 2009 final rule at 40 CFR Part 536, to allow credits to be traded (sold) to othe r vehicle manufacturers. As proposed, EPA allows credit trading in the GHG program. These sorts of exchanges are typically allowed under EPA’s current mobile source emission credit programs, although manufacturers have seldom made such ex changes. Under the NHTSA CAFE program, EPCA also allows these types of credit tr ades, although, as with transferred credits, traded credits may not be used to meet the minimum domestic car standards specified by

statute. 36 Comments discussing these provisi ons supported the proposed approach. These final provisions are the same as proposed.

As further discussed in Section IV of th is preamble, NHTSA sought to find a way to provide credits for improving the efficiency of light truck air conditioners (A/Cs) and solicited public comments to that end. The ag ency did so because the power necessary to operate an A/C compressor places a significant additional load on the engine, thus reducing fuel economy and increasing CO 2 tailpipe emissions. See Section III.C.1 below. The agency would have made a similar e ffort regarding cars , but a 1975 statutory provision made it unfruitful even to explore th e possibility of admi nistratively proving

35 49 U.S.C. 32903(g)(4). 36 49 U.S.C. 32903(f)(2).51 such credits for cars. The agency did not identify a workable way of providing such credits for light trucks in th e context of this rulemaking.

b. Air Conditioning Credits Under the EPA Final Rule

Air conditioning (A/C) systems contri bute to GHG emissions in two ways. Hydrofluorocarbon (HFC) refrigerants, which are powerful GHGs, can leak from the A/C system (direct A/C emissions). As just note d, operation of the A/C system also places an additional load on the engine, which results in additional CO 2 tailpipe emissions (indirect A/C related emissions). EPA is allowing ma nufacturers to generate credits by reducing either or both types of GHG emissions rela ted to A/C systems. Specifically, EPA is establishing a method to calculate CO 2 equivalent reductions for the vehicle's full useful life on a grams/mile basis that can be used as credits in meeting the fleet average CO 2 standards. EPA’s analysis indicates that th is approach provides manufacturers with a highly cost-effective way to achieve a por tion of GHG emissions reductions under the EPA program. EPA is estimating that manuf acturers will on average generate 11 g/mi GHG credit toward meeting the 250 g/mi by 2016 (though some companies may generate more). EPA will also allow manufacturers to earn early A/C credits starting in MY 2009 through 2011, as discussed further in a later section. There were many comments on the proposed A/C provisions. Nearly every one of these was supportive of EPA including A/C control as part of this rule, though there was some disagreement on some of the details of the program. The HFC crediting scheme was widely supported. The comments mainly were concentrated on indirect A/C re lated credits. The auto manufacturers and52 suppliers had some technical comments on A/C technologies, and there were many concerns with the proposed idle test. EPA has made some minor adjustments in both of these areas that we believe are responsive to these concerns. EPA addresses A/C issues in greater detail in Section III of this preamble and in Chapter 2 of EPA’s RIA.

c. Flexible-fuel and Alternative Fuel Vehicle Credits

EPCA authorizes a complia nce flexibility incentive under the CAFE program for production of dual-fueled or flexible-fuel vehi cles (FFV) and dedicated alternative fuel vehicles. FFVs are vehicles that can run both on an alte rnative fuel and conventional fuel. Most FFVs are E85 capable vehicles, whic h can run on either gasoline or a mixture of up to 85 percent ethanol and 15 percent ga soline (E85). Dedicated alternative fuel vehicles are vehicles that run exclusively on an alternative fuel. EPCA was amended by EISA to extend the period of availability of the FFV incentive, but to begin phasing it out by annually reducing the amount of FFV incenti ve that can be used toward compliance with the CAFE standards. 37 Although NHTSA expressed concern about the non-use of alternative fuel by FFVs in a 2002 report to Congress (Effects of th e Alternative Motor Fuels Act CAFE Incentives Policy), EISA does not premise the availability of the FFV credits on actual use of alternative fuel by an FFV vehicle. Under NHTSA’s CAFE program, pursuant to EISA, no FFV credits will be availabl e for CAFE compliance after
MY 2019. 38 For dedicated alternative fuel vehicl es, there are no limits or phase-out of

37 EPCA provides a statutory incentive for production of FFVs by specifying that their fuel economy is determined using a special calculation procedure that results in those vehicles being assigned a higher fuel economy level than would otherwise occur. This is typically referred to as an FFV credit. 38 Id.53 the credits. As required by the statute, NHT SA will continue to allow the use of FFV credits for purposes of compliance with th e CAFE standards until the end of the EISA phase-out period.

For the GHG program, as proposed, EPA w ill allow FFV credits in line with EISA limits, but only during the period fr om MYs 2012 to 2015. After MY 2015, EPA will only allow FFV credits based on a manufact urer’s demonstration that the alternative fuel is actually being used in the vehicles and based on the vehicle’s actual performance. EPA discusses this in more detail in Secti on III.C of the preamble, including a summary of key comments. These provisions are be ing finalized as proposed, with further discussion in Section III.C of how manufacturers can demonstrat e that the alternative fuel is being used.

d. Temporary Lead-time Allowance Al ternative Standards Under the EPA Final Rule

Manufacturers with limited product lines ma y be especially challenged in the early years of the National Program, and need additional lead time. Manufacturers with narrow product offerings may not be able to take full advantage of averaging or other program flexibilities due to the limited scope of the types of vehicles they sell. For example, some smaller volume manufacturer flee ts consist entirely of vehicles with very high baseline CO 2 emissions. Their vehicles are above the CO 2 emissions target for that vehicle footprint, but do not have other types of vehicles in their production mix with54 which to average. Often, these manufactur ers pay fines under the CAFE program rather than meet the applicable CAFE standar d. EPA believes that these technological circumstances call for more lead time in th e form of a more gr adual phase-in of standards.

EPA is finalizing a temporary lead-time allowance for manufacturers that sell vehicles in the U.S. in MY 2009 and for which U.S. vehicle sales in that model year are below 400,000 vehicles. This allowance w ill be available only during the MY 2012-2015 phase-in years of the program. A manufacturer that satisfies th e threshold criteria will be able to treat a limited number of vehicles as a separate averaging fleet, which will be subject to a less stringent GHG standard. 39 Specifically, a standa rd of 25 percent above the vehicle’s otherwise appli cable foot-print target le vel will apply to up to 100,000 vehicles total, spread ov er the four year period of MY 2012 through 2015. Thus, the number of vehicles to which the flexibility could apply is limited. EPA also is setting appropriate restrictions on cred it use for these vehicles, as discussed further in Section III. By MY 2016, these allowance vehicles must be averaged into the manufacturer’s full fleet (i.e., they will no longer be eligible for a different standard). EPA discusses this in more detail in Section III.B of the preamble.

EPA received comments from several smaller manufacturers that the TLAAS program was insufficient to allow manufactur ers with very limited product lines to comply. These manufacturers commented that th ey need additional lead time to meet the

39 EPCA does not permit such an allowance. Consequently, manufacturers who may be able to take advantage of a lead-time allowanc e under the GHG standards would be required to comply with the applicable CAFE standard or be su bject to penalties for non-compliance.55 standards, because their CO 2 baselines are significantly hi gher and their vehicle product lines are even more limited, reducing their abi lity to average across their fleets compared even to other TLAAS manufacturers. EPA fully summarizes the public comments on the TLAAS program, including comments not suppor ting the program, in Section III.B. In summary, in response to the lead time issues raised by manufacturers, EPA is modifying the TLAAS program that applies to manu facturers with between 5,000 and 50,000 U.S. vehicle sales in MY 2009. EPA believes th ese provisions are necessary given that, compared with other TLAAS manufacturers, these manufacturers have even more limited product offerings across which to average and higher baseline CO 2 emissions, and thus need additional lead-time to meet the standa rds. These manufactures would have an increased allotment of vehicles, a tota l of 250,000, compared to 100,000 vehicles (for other TLAAS-eligible manufacturers). In addition, the TLAAS program for these manufacturers would be exte nded by one year, through MY2016 for these vehicles, for a total of five years of elig ibility. The other provisions of the TLAAS program would continue to apply, such as the restrictions on credit trading a nd the level of the standard. Additional restrictions would also apply to thes e vehicles, as discussed in Section III. In addition, for the smallest volume manufactur ers, those with below 5,000 U.S. vehicle sales, EPA is not setting sta ndards at this time but is in stead deferring standards until a future rulemaking. This is the essentially the same approach we are using for small businesses, which are exempted from this ru le. The unique issues involved with these manufacturers will be addressed in that fu ture rulemaking. Further discussion of the public comment on these issues and details on these changes from the proposed program are included in Section III.56 e. Additional Credit O pportunities under the Clean Air Act (CAA)

EPA is establishing additional opportun ities for early credits in MYs 2009-2011 through over-compliance with a ba seline standard. The baseline standard is set to be equivalent, on a national level, to the California standards. Credits can be generated by over-compliance with this baseline in one of two ways – over-compliance by the fleet of vehicles sold in California and the CAA sec tion 177 states (i.e., thos e states adopting the California program), or over-compliance with the fleet of vehicles sold in the 50 states. EPA is also providing for early credits ba sed on over-compliance with CAFE, but only for vehicles sold in states outside of California and the CAA section 177 states. Under the early credit provisions, no early FFV cred its would be allowed, except those achieved by over-compliance with the California program based on California’s provisions that manufacturers demonstrate actual use of th e alternative fuel. EPA’s early credits provisions are designed to ensure that there would be no double counting of early credits. NHTSA notes, however, that credits for ove rcompliance with CAFE standards during MYs 2009-2011 will still be available for manufacturers to use toward compliance in future model years, just as before.

EPA received comments from some envi ronmental organizations and states expressing concern that these early credits were inappropriate windfall credits because they provided credits for actions that were not surplus, that is above what would otherwise be required for compliance with either state or federal motor vehicle standards.57 This focused on the credits for over-complianc e with the California standards generated during model years 2009 and perhaps 2010, where according to commenters the CAFE requirements were in effect more stringent than the California standards. EPA believes that early credits provide a valuable incenti ve for manufacturers that have implemented fuel efficient technologies in excess of their CAFE compliance obligations prior to MY2012. With appropriate restrictions, thes e credits, reflecting ove r-compliance over a three model year time frame (MY2009-2011) a nd not just over one or two model years, will be surplus reductions and not otherwise required by law. Therefore, EPA is finalizing these provisions largely as propose d, but in response to comments, with an additional restriction on the tr ading of MY 2009 credits. Th e overall structure of this early credit program addresses concerns about the potential for windfall credits in the first one or two model years. This issu e is fully discussed in Section III.C.

EPA is providing an additional temporary incentive to encourage the commercialization of advanced GHG/fuel economy control technologies--including electric vehicles (EVs), plug- in hybrid electric vehicles (PHEVs), and fuel cell vehicles (FCVs)--for model years 2012-2016. EPA’s pr oposal included an emissions compliance value of zero grams/mile for EVs and FCVs , and the electric porti on of PHEVs, and a multiplier in the range of 1.2 to 2.0, so th at each advanced technology vehicle would count as greater than one vehicle in a manu facturer’s fleetwide compliance calculation. EPA received many comments on the proposed incentives. Many state and environmental organization commenters believed that the combination of these incentives could undermine the GHG benefits of the ru le, and believed the emissions compliance58 values should take into account the ne t upstream GHG emissions associated with electrified vehicles compared to vehicles powered by petroleum based fuel. Auto manufacturers generally supporte d the incentives, some believi ng the incentives to be a critical part of the National Program. Mo st auto makers supported both the zero grams/mile emissions compliance value and the higher multipliers.

Upon considering the public comments on this issue, EPA is finalizing an advanced technology vehicle in centive program that includes a zero gram/mile emissions compliance value for EVs and FCVs, and the electric portion of PH EVs, for up to the first 200,000 EV/PHEV/FCV vehicles produ ced by a given manufacturer during MY2012-2016 (for a manufacturer that produc es less than 25,000 EVs, PHEVs, and FCVs in MY2012), or for up to the firs t 300,000 EV/PHEV/FCV vehicles produced during MY2012-2016 (for a manufacturer that produces 25,000 or more EVs, PHEVs, and FCVs in MY2012). For any production greater than this amount, the compliance value for the vehicle will be greater than zer o gram/mile, set at a level that reflects the vehicle’s net increase in upstream GHG emi ssions in comparison to the gasoline vehicle it replaces. In addition, EPA is not finalizing a multiplier. EP A will also allow this early advanced technology incentive program be ginning in MYs 2009-2011. The purpose of these provisions is to provide a temporary incentive to promote technologies which have the potential to produce very large GHG reductions in the future. The tailpipe GHG emissions from EVs, FCVs, and PHEVs ope rated on grid electricity are zero, and traditionally the emissions of the vehicle itself are all that EPA takes into account for purposes of compliance with standards set unde r section 202(a). This has not raised any59 issues for criteria pollutants, as upstream emissions associated with production and distribution of the fuel are addressed by co mprehensive regulatory programs focused on the upstream sources of those emissions. At this time, however, there is no such comprehensive program addressing upstream emissions of GHGs, and the upstream GHG emissions associated with production and dist ribution of electricity are higher than the corresponding upstream GHG emissions of gasoline or other petroleum based fuels. In the future, vehicle fleet electrification comb ined with advances in low-carbon technology in the electricity sector have the potential to transform the transportation sector’s contribution to the country’s GHG emissions. EPA will reassess th e issue of how to address EVs, PHEVs, and FCVs in rule makings for model years 2017 and beyond, based on the status of advanced vehicle technology commercialization, the status of upstream GHG control programs, and other relevant fact ors. Further discussion of the temporary advanced technology vehicle incentives, incl uding more detail on the public comments and EPA’s response, is found in Section III.C.

EPA is also providing an option for ma nufacturers to generate credits for employing new and innovative technologies th at achieve GHG reductions that are not reflected on current test procedures, as proposed. Examples of such “off-cycle” technologies might include solar panels on hybr ids, adaptive cruise control, and active aerodynamics, among other technologies. These three credit provision s are discussed in more detail in Section III.60 5. Coordinated Compliance

Previous NHTSA and EPA regulations and statutory provisions establish ample examples on which to develop an effective compliance program that achieves the energy and environmental benefits from CAFE and motor vehicle GHG standards. NHTSA and EPA have developed a program that recognizes, and replicates as closely as possible, the compliance protocols associated with the existing CAA Tier 2 vehicle emission standards, and with CAFE standards. The cer tification, testing, repor ting, and associated compliance activities closely track current practices and are thus familiar to manufacturers. EPA already oversees test ing, collects and processes test data, and performs calculations to determine complia nce with both CAFE and CAA standards. Under this coordinated approach, the comp liance mechanisms for both programs are consistent and non-duplicative. EPA will also apply the CAA authoritie s applicable to its separate in-use require ments in this program.

The compliance approach allows manuf acturers to satisfy the new program requirements in the same general way they comply with existing applicable CAA and CAFE requirements. Manufacturers would de monstrate compliance on a fleet-average basis at the end of each model year, allowing model-level testing to continue throughout the year as is the current practice for CA FE determinations. The compliance program design establishes a single se t of manufacturer reporting re quirements and relies on a single set of underlying data. This approach still allo ws each agency to assess compliance with its respec tive program under its respec tive statutory authority.61 NHTSA and EPA do not anticipate any significant noncompliance under the National Program. However, failure to meet the fleet average standards (after credit opportunities are exhausted) would ultimately result in the potentia l for penalties under both EPCA and the CAA. The CAA allows EP A considerable discretion in assessment of penalties. Penalties under the CAA are typically determined on a vehicle-specific basis by determining the number of a manuf acturer’s highest emitting vehicles that caused the fleet average standa rd violation. This is the same mechanism used for EPA’s National Low Emission Vehicle a nd Tier 2 corporate average standards, and to date there have been no instances of noncompliance. CAFE penalties are specified by EPCA and would be assessed for the enti re noncomplying fleet at a rate of $5.50 times the number of vehicles in the fleet, times the number of tenths of mpg by which the fleet average falls below the standard. In the event of a complia nce action arising out of the same facts and circumstances, EPA could consider CAFE penalties when determining appropriate remedies for the EPA case.

Several stakeholders commented on the proposed coordinated compliance approach. The comments indicated broad support for the overall approach EPA proposed. In particular, both regulated i ndustry and the public interest community appreciated the attempt to streamline co mpliance by adopting current practice where possible and by coordinating EPA and NHTSA co mpliance requirements. Thus the final compliance program design is largely uncha nged from the proposal. Some commenters requested additional detail or clarification in certain areas and others suggested some62 relatively narrow technical changes, and EP A has responded to these suggestions. EPA and NHTSA summarize these comments and the ag encies’ responses in Sections III and IV, respectively, below. The Response to Comments document associated with this document includes all of the comments a nd responses received during the comment period.

C. Summary of Costs and Benefits of the National Program

This section summarizes the projected costs and benefits of the CAFE and GHG emissions standards. These projections he lped inform the agencies’ choices among the alternatives considered and provide further confirmation that the final standards are an appropriate choice within the spectrum of choices allowable under their respective statutory criteria. The costs and benefits projected by NHTSA to result from these CAFE standards are presented first, followed by those from EPA’s analysis of the GHG emissions standards.

For several reasons, the estimates for co sts and benefits presented by NHTSA and EPA, while consistent, are not directly compar able, and thus should not be expected to be identical. Most important, NHTSA and EPA’s standards would require slightly different fuel efficiency improvements. EPA’s GHG standa rd is more stringent in part due to its assumptions about manufacturers’ use of air conditioning credits, which result from reductions in air conditioning-re lated emissions of HFCs and CO 2 . NHTSA was unable to make assumptions about manufacturers’ im proving the efficiency of air conditioners63 due to statutory limitations. In addition, the CAFE and GHG standards offer different program flexibilities, and the agencies’ an alyses differ in their accounting for these flexibilities (for example, FFVs), primarily because NHTSA is statut orily prohibited from considering some flexibilities when establ ishing CAFE standards, while EPA is not. These differences contribute to differences in the agencies’ respective estimates of costs and benefits resulting from the new standards.

NHTSA performed two analyses: a primar y analysis that shows the estimates of costs, fuel savings, and related benefits th at the agency considered for purposes of establishing new CAFE standards, and a supplem ental analysis that re flects the agency’s best estimate of the potential real-world effects of the CAFE standards, including manufacturers’ potential use of FFV credits in accordance with the provisions of EISA concerning their availability. Because EPCA prohibits NHTSA from considering the ability of manufacturers to use of FFV cred its to increase their fleet average fuel economy when establishing CAFE standards, the agency ’s primary analysis does not include them. However, EPCA does not prohi bit NHTSA from considering the fact that manufacturers may pay civil penalties rather than complying with CAFE standards, and NHTSA’s primary analysis accounts for some manufacturers’ tendency to do so. In addition, NHTSA’s supplemental analysis of th e effect of FFV credits on benefits and costs from its CAFE standards, demonstrat es the real-world impacts of FFVs, and the summary estimates presented in Section IV in clude these effects. Including the use of FFV credits reduces estimated per-vehicle comp liance costs of the pr ogram. However, as shown below, including FFV credits does not significantly change the projected fuel64 savings and CO 2 reductions, because FFV credits re duce the fuel economy levels that manufacturers achieve not only under the sta ndards, but also under the baseline MY 2011 CAFE standards.

Also, EPCA, as amended by EISA, allows manufacturers to transfer credits between their passenger car a nd light truck fleets. Howe ver, EPCA also prohibits NHTSA from considering manufact urers’ ability to increase their average fuel economy through the use of CAFE credits when determining the stringency of the CAFE standards. Because of this prohibition, NHTSA’s primary an alysis does not account for the extent to which credit transfers might actually occur. For purposes of its supplemental analysis, NHTSA considered accounting for the possibility that some manufacturers might utilize the opportunity under EPCA to transfer some CAFE credits between the passenger car and light truck fleets, but determined th at in NHTSA’s year-by-year analysis, manufacturers’ credit transfers cannot be reasonably estimated at this time. 40

EPA made explicit assumptions about ma nufacturers’ use of FFV credits under both the baseline and control alte rnatives, and its estimates of costs and benefits from the GHG standards reflect these assumptions. However, under the GHG standards, FFV credits would be available through MY 2015; starting in MY 2016, EPA will only allow FFV credits based on a manufactur er’s demonstration that the alternative fuel is actually

40 NHTSA’s analysis estimates multi-year planning e ffects within a context in which each model year is represented explicitly, and technologies applied in one model year carry forward to future model years. NHTSA does not currently have a reasonable basis to estimate how a manufactur er might, for example, weigh the transfer of credits from the passenger car to the light truck fleet in MY 2013 against the potential to carry light truck technologies forward from MY 2013 through MY 2016.65 being used in the vehicles and the actual GHG performance for the vehicle run on that alternative fuel.

EPA’s analysis also assumes that manuf acturers would transf er credits between their car and truck fleets in the MY 2011 baseline subject to the maximum value allowed by EPCA, and that unlimited car-truck cr edit transfers would occur under the GHG standards. Including these assumptions in EPA’s analysis increases the resulting estimates of fuel savings and reductions in GHG emissions, while reducing EPA’s estimates of program compliance costs.

Finally, under the EPA GHG program, there is no ability for a manufacturer to intentionally pay fines in lie u of meeting the standard. Under EPCA, however, vehicle manufacturers are allowed to pay fines as an alternative to compliance with applicable CAFE standards. NHTSA’s analysis explicit ly estimates the level of voluntary fine payment by individual manufacturers, whic h reduces NHTSA’s estimates of both the costs and benefits of its CAFE standards. In contrast, the CAA does not allow for fine payment (civil penalties) in lieu of comp liance with emission standards, and EPA’s analysis of benefits from its standard t hus assumes full compliance. This assumption results in higher estimates of fuel savings , of reductions in GHG emissions, and of manufacturers’ compliance costs to sell fleets that comply with both NHTSA’s CAFE program and EPA’s GHG program.66 In summary, the projected costs and benefits presented by NHTSA and EPA are not directly comparable, because the GHG em ission levels establ ished by EPA include air conditioning-related improvements in equi valent fuel efficiency and HFC reductions, because of the assumptions incorporated in EPA’s analysis regarding car-truck credit transfers, and because of EPA's projec tion of complete compliance with the GHG standards. It should also be expected th at overall, EPA’s estimates of GHG reductions and fuel savings achieved by the GHG standard s will be slightly higher than those projected by NHTSA only for the CAFE sta ndards because of the reasons described above. For the same reasons, EPA’s estimates of manufacturers’ costs for complying with the passenger car and light trucks GHG standards are slightly higher than NHTSA’s estimates for complying with the CAFE standards.

A number of stakeholders commen ted on NHTSA’s and EPA’s analytical assumptions in estimating costs and benefits of the program. These comments and any changes from the proposed values are summarized in Section II.F, and further in Sections III (for EPA) and IV (for NHTSA); the Re sponse to Comments document presents the detailed responses to each of the comments.

1. 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.1-1 presents the total costs, benef its, and net benefits for NHTSA’s final CAFE67 standards. The values in Table I.C.1- 1 display the total costs for all MY2012-2016 vehicles and the benefits and net benefits re present the impacts of the standards over the full lifetime of the vehicles 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, which together comprise the Na tional Program, are not a sum of the two individual programs.

Table I.C.1-1 NHTSA’s Estimated 2012-2016 Model Year Costs, Benefits, and Net Benefits under the CAFE Standard s before FFV Credits (2007 dollars) 3% Discount Rate $billions Costs $51.8 Benefits $182.5 Net Benefits $130.7 7% Discount Rate Costs $51.8 Benefits $146.3 Net Benefits $94.5

NHTSA estimates that these new CAFE standards will lead to fuel savings totaling 61 billion gallons thr oughout 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 $143 billion. At a 7% discount rate, the present va lue of the economic benefits resulting from those fuel savings is $112 billion. 41

41 These figures do not account for the compliance flexibilities that NHTSA is prohibited from considering when determining the level of new CAFE standards, because manufacturers’ decisions to use those flexibilities are voluntary,68 The agency further estimates that th ese new CAFE standards will lead to corresponding reductions in CO 2 emissions totaling 655 million metric tons (mmt) during the useful lives of vehicles sold in MY s 2012-2016. The present value of the economic benefits from avoiding those emissions is $14.5 billion, based on a gl obal social cost of carbon value of approximately $21 per metr ic ton (in 2010, and growing thereafter). 42 It is important to note that NHTSA’s CA FE standards and EPA’s GHG standards will both be in effect, and each will lead to increases in average fuel economy and CO 2 emissions reductions. The two agencies’ st andards together comprise the National Program, and this discussion of costs and be nefits of NHTSA’s CAFE standards does not change the fact that both the CAFE and GHG standards, jointly, ar e the source of the benefits and costs of the National Program.

Table I.C.1-2 NHTSA Fuel Sa ved (billion gallons) and CO 2 Emissions Avoided (mmt) under CAFE Standards (without FFV Credits) 2012 2013 2014 2015 2016 Total Fuel (b. gal.) 4.2 8.9 12.5 16.0 19.5 61.0 CO 2 (mmt) 44 94 134 172 210 655

Considering manufacturers’ ability to earn credit toward compliance by selling FFVs, NHTSA estimates very little change in incremental fuel savings and avoided CO 2 emissions, assuming FFV credits would be us ed toward both the baseline and final standards:

42 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 thereaf ter. See Section II for a more detailed discussion of the social cost of carbon.69 Table I.C.1-3 NHTSA Fuel Sa ved (billion gallons) and CO 2 Emissions Avoided (million metric tons, mmt) under CAFE Standards (with FFV Credits) 2012 2013 2014 2015 2016 Total Fuel (b. gal.) 4.9 8.2 11.3 15.0 19.1 58.6 CO 2 (mmt) 53 89 123 163 208 636

NHTSA estimates that these fuel economy increases would pr oduce other benefits both to drivers (e.g., reduced time spent refueli ng) and to the U.S. (e.g., reductions in the costs of petroleum imports beyond the direct savings from re duced oil purchases, as well as some disbenefits (e.g., increase traffic congestion) caused by drivers’ tendency to travel more when the cost of driving declin es (as it does when fuel economy increases). NHTSA has estimated the total monetary va lue to society of these benefits and disbenefits, and estimates th at the standards will produce significant net benefits to society. Using a 3% discount rate, NHTSA es timates that the present value of these benefits would total more than $180 billion ove r the useful lives of vehicles sold during MYs 2012-2016. More discussion regarding mone tized benefits can be found in Section IV of this notice and in NHTSA’s Regulatory Impact Analysis. Note that the benefit calculation in Tables I.C.1-4 through 1- 7 includes the benefits of reducing CO 2 emissions, 43 but not the benefits of reducing other GHG emissions.

Table I.C.1-4 NHTSA Discounted Benefits ($billion) under the CAFE Standards (before FFV Cr edits, using 3 percent Discount Rate) 2012 2013 2014 2015 2016 Total Passenger Cars 6.8 15.2 21.6 28.7 35.2 107.5 Light Trucks 5.1 10.7 15.5 19.4 24.3 75.0

43 CO 2 benefits for purposes of these tables are calculated using the $21/ton SCC values. Note that net present value of reduced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, and 2.5 percent) is used to calculate net present value of SCC for internal consistency.70 Combined 11.9 25.8 37.1 48.0 59.5 182.5

Using a 7% discount rate, NHTSA estimat es that the presen t value of these benefits would total more than $145 billion over the same time period.

Table I.C.1-5 NHTSA Discounted Benefits ($billion) Under the CAFE Standards (before FFV Cr edits, using 7 percent Discount Rate) 2012 2013 2014 2015 2016 Total Passenger Cars 5.5 12.3 17.5 23.2 28.6 87.0 Light Trucks 4.0 8.4 12.2 15.3 19.2 59.2 Combined 9.5 20.7 29.7 38.5 47.8 146.2

NHTSA estimates that FFV credits coul d reduce achieved bene fits by about 3.8%:

Table I.C.1-6a NHTSA Discount ed Benefits ($billion) under the CAFE Standards (with FFV Credits, using a 3 percent Discount Rate) 2012 2013 2014 2015 2016 Total Passenger Cars 7.6 13.7 19.1 25.6 34.0 100.0 Light Trucks 6.4 10.4 14.6 19.8 24.4 75.6 Combined 14.0 24.1 33.7 45.4 58.4 175.6

Table I.C.1-6b NHTSA Discount ed Benefits ($billion) under the CAFE Standards (with FFV Credits, using a 7 percent Discount Rate) 2012 2013 2014 2015 2016 Total Passenger Cars 6.1 11.1 15.5 20.7 27.6 80.9 Light Trucks 5.0 8.2 11.5 15.6 19.3 59.7 Combined 11.2 19.3 27.0 36.4 46.9 140.7
NHTSA attributes most of these benefits—about $143 billion (at a 3% discount rate and excluding consideration of FFV credits ), as noted above—to reductions in fuel consumption, valuing fuel (for societal purposes ) at the future pre-ta x prices projected in the Energy Information Administration’s (A EO’s) reference case forecast from the71 Annual Energy Outlook (AEO) 2010 Early Release. NHTSA’s Final Regulatory Impact Analysis (FRIA) accompanying this rule presen ts a detailed analysis of specific benefits of the rule.

Table I.C.1-7 Summary of Be nefits Fuel Savings and CO 2 Emissions Reduction Due to the Rule (before FFV Credits) Monetized Value (Discounted) Amount 3% Discount Rate 7% Discount Rate Fuel savings 61.0 billion gallons $143.0 billion $112.0 billion CO 2 emissions reductions 655 mmt $14.5 billion $14.5 billion

NHTSA estimates that the increases in technology application necessary to achieve the projected improvements in fuel economy will entail considerable monetary outlays. The agency estimates that incrementa l costs for achieving its standards – that is, outlays by vehicle manufacturers over and above those required to comply with the MY 2011 CAFE standards – will total about $52 billion (i.e., during MYs 2012-2016).

Table I.C.1-8 NHTSA Incrementa l Technology Outlays ($billion) under the CAFE Standards (before FFV Credits) 2012 2013 2014 2015 2016 Total Passenger Cars 4.1 5.4 6.9 8.2 9.5 34.2 Light Trucks 1.8 2.5 3.7 4.3 5.4 17.6 Combined 5.9 7.9 10.5 12.5 14.9 51.7

NHTSA estimates that use of FFV cr edits could significantly reduce these outlays:

Table I.C.1-9 NHTSA Incrementa l Technology Outlays ($billion) under CAFE Standards (with FFV Credits) 2012 2013 2014 2015 2016 Total72 Passenger Cars 2.6 3.6 4.8 6.1 7.5 24.6 Light Trucks 1.1 1.5 2.5 3.4 4.4 12.9 Combined 3.7 5.1 7.3 9.5 11.9 37.5

The agency projects that manufacturers will recover most or all of these additional costs through higher selling pr ices for new cars and light tr ucks. To allow manufacturers to recover these increased outlays (and, to a much lesser extent, the civil penalties that some companies are expected to pay for nonc ompliance), the agency estimates that the standards would lead to increases in av erage new vehicle prices ranging from $457 per vehicle in MY 2012 to $985 per vehicle in MY 2016:

Table I.C.1-10 NHTSA Incremental Increa ses in Average New Vehicle Costs ($) under CAFE Standards (before FFV Credits) 2012 2013 2014 2015 2016 Passenger Cars 505 573 690 799 907 Light Trucks 322 416 621 752 961 Combined 434 513 665 782 926

NHTSA estimates that use of FFV credits could significantly reduce these costs, especially in earlier model years:

Table I.C.1-11 NHTSA Incremental Increa ses in Average New Vehicle Costs ($) under CAFE Standards (with FFV Credits) 2012 2013 2014 2015 2016 Passenger Cars 303 378 481 593 713 Light Trucks 194 260 419 581 784 Combined 261 333 458 589 737

NHTSA estimates, therefore, that the to tal benefits of these CAFE standards will be more than three times the magnitude of th e corresponding costs. As a consequence, its73 standards would produce net benefits of $130.7 b illion at a 3 percent discount rate (with FFV credits, $138.2 billion) or $94.5 billion at a 7 percent discount ra te over the useful lives of vehicles sold during MYs 2012-2016.

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

EPA has analyzed in detail the costs a nd 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 mode l years 2012-2016. It is important to note that there is significant overlap in costs and be nefits 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 EPA’s Estimated 2012-2016 M odel Year Lifetime Discounted Costs,

Benefits, and Net Benefits assuming the $21/ton SCC Value a,b,c,d (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 associ ated with four different values of a 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 deemed to be central by the interagency working group on this topic: $21 per ton of CO2e, in 2007 dollars and 2010 emissions. The $21/ton value applies to 2010 CO 2 emissions and grows over time. b As noted in Section III.H, SCC increases over time. The $21/ton value applies to 2010 CO 2 emissions and grows larger over time.
c Note that net present value of reduced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, and 2.5 percent) is used to calculate net present value of SCC for internal consistency. Re fer to Section III.H for more detail.74 d Monetized GHG benefits exclude the value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate be nefits, as explained in Section III.F.2. The SCC TSD notes the difference be tween the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value non-CO 2 emissions in future analyses.
Table I.C.2-2 shows EPA’s estimated lifetime fuel savings and CO 2 equivalent emission reductions for all vehicles sold in the model years 2012-2016. The values in Table I.C.2-2 are projected lifetime totals for each model year and are not discounted. As documented in EPA’s Final RIA, the potential credit transfer betw een cars and trucks may change the distribution of the fuel sa vings and GHG emission impacts between cars and trucks. As discussed above with re spect to NHTSA’s CAFE standards, it is important to note that NHTSA’s CAFE sta ndards and EPA’s GHG standards will both be in effect, and each will lead to increases in average fuel economy and reductions in CO 2 emissions. The two agencies’ standards togeth er comprise the National Program, and this discussion of costs and benefits of EPA’s GHG standards does not change the fact that both the CAFE and GHG standards, jointly, are the source of the benefits and costs of the National Program.

Table I.C.2-2 EPA’s Estimated 2012-2016 M odel Year Lifetime Fuel Saved and GHG Emissions Avoided 2012 2013 2014 2015 2016 Total Fuel (billion gallons) 4.0 5.5 7.3 10.5 14.3 41.6 Fuel (billion barrels) 0.10 0.13 0.17 0.25 0.34 0.99 Cars
CO 2 EQ (mmt) 49.3 68.5 92.7 134 177 521 Fuel (billion gallons) 3.3 5.0 6.6 9.0 12.2 36.1 Fuel (billion barrels) 0.08 0.12 0.16 0.21 0.29 0.86 Light Trucks
CO 2 EQ (mmt) 39.6 61.7 81.6 111 147 44175 Fuel (billion gallons) 7.3 10.5 13.9 19.5 26.5 77.7 Fuel (billion barrels) 0.17 0.25 0.33 0.46 0.63 1.85 Combined
CO 2 EQ (mmt) 88.8 130 174 244 325 962

Table I.C.2-3 shows EPA’s estimated lifetim e discounted benefits for all vehicles sold in model years 2012-2016. Although EPA es timated the benefits associated with four different values of a one ton GHG reduction ($5, $21, $35, $65), for the purposes of this overview presentation of estimated benefi ts EPA is showing the benefits associated with one of these marginal values, $21 per ton of CO 2 , in 2007 dollars and 2010 emissions. Table I.C.2-3 presents benefits ba sed on the $21 value. Section III.H presents the four marginal values used to estimate monetized benefits of GHG reductions and Section III.H presents the program benefits us ing each of the four marginal values, which represent only a partial accounting of total benefits due to omitted climate change impacts and other factors that are not readil y monetized. The values in the table are discounted values for each model year of ve hicles throughout their projected lifetimes. The benefits include all benefits cons idered by EPA such as fuel savings, GHG reductions, PM benefits, energy se curity and other externalitie s such as reduced refueling and accidents, congestion and noise. The life time discounted benefits are shown for one of four different social cost of carbon (SCC) values considered by EPA. The values in Table I.C.2-3 do not include costs associated with new technology required to meet the GHG standard.

Table I.C.2-3 EPA’s Estimated 2012-2016 Mode l Year Lifetime Discounted Benefits Assuming the $21/ton SCC Value a,b,c (billions of 2007 dollars) Discount Rate Model Year76 2012 2013 2014 2015 2016 Total 3% $21.8 $32.0 $42.8 $60.8 $83.3 $240 7% $17.4 $25.7 $34.2 $48.6 $66.4 $192

a The benefits include all benefits considered by EPA such as the economic value of reduced fuel co nsumption and accompanying savings in refueling time, climate-related economic benefits from reducing emissions of CO 2 (but not other GHGs), economic benefits from reducing emissions of PM and other air pollutants that contribute to its formation, and reductions in energy security externalities caused by U.S. petroleum consumption and imports. The analysis also includes disbenefits stemming from additional vehicle use, such as the economic damages caused by accidents, congestion and noise. b Note that net present value of reduced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, and 2.5 percent) is used to calculate net present valu e of SCC for internal consistency. Refer to Section III.H for more detail.
c Monetized GHG benefits exclude the value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the bene fits of reductions in these nonCO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benefits, as explaine d in Section III.F.2. The SCC TSD notes the difference between the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value non-CO 2 emissions in future analyses. Also, as noted in Section III.H, SCC increases over time. The $21/ton va lue applies to 2010 emissions and grows larger over time.
Table I.C.2-4 shows EPA’s estimated lifetime fuel savings, lifetime CO 2 emission reductions, and the monetized net present values of those fuel savings and CO 2 emission reductions. The gall ons of fuel and CO 2 emission reductions are projected lifetime values for all vehicles sold in the model years 2012-201 6. The estimated fuel savings in billions of barrels and the GHG reductions in million metric tons of CO 2 shown in Table I.C.2-4 are totals for the five model years thr oughout their projected lifetime and are not discounted. The monetized values shown in Ta ble I.C.2-4 are the summed values of the discounted monetized-fuel savings and monetized-CO 2 reductions for the five model years 2012-2016 throughout their lifetimes. Th e monetized values in Table I.C.2-4 reflect both a 3 percent and a 7 percent discount rate as noted.77 Table I.C.2-4 EPA’s Estimated 2012-2016 M odel Year Lifetime Fuel savings, CO 2

Emission Reductions, and Discounted Monetized Benefits at a 3% Discount Rate (monetized values in 2007 dollars) Amount $ value (billions) Fuel savings 1.8 billion barrels $182, 3% discount rate $142, 7% discount rate CO 2 e emission reductions (CO 2 portion valued assuming $21/ton CO 2 in 2010) 962 MMT CO 2 e $17 a,b

a $17 billion for 858 MMT of reduced CO 2 emissions. As noted in Section III.H, the $21/ton value applies to 2010 emissions and grows larger over time. Moneti zed GHG benefits exclude the value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benefits, as explained in Section III.F.2. The SCC TS D notes the difference between the social cost of nonCO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value non-CO 2 emissions in future analyses. b Note that net present value of reduced CO 2 emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, and 2.5 percent) is used to calculate net present value of SCC for internal consistency. Refer to Section III.H for more detail.

Table I.C.2-5 shows EPA’s estimated incr emental and total technology outlays for cars and trucks for each of the model y ears 2012-2016. The technology outlays shown in Table I.C.2-5 are for the industry as a whole and do not account for fuel savings associated with the program.

Table I.C.2-5 EPA’s Estimated Incremental Technology Outlays (billions of 2007 dollars) 2012 2013 2014 2015 2016 Total Cars $3.1 $5.0 $6.5 $8.0 $9.4 $31.9 Trucks $1.8 $3.0 $3.9 $4.8 $6.2 $19.7 Combined $4.9 $8.0 $10.3 $12.7 $15.6 $51.578 Table I.C.2-6 shows EPA’s estimated incremental cost increase of the average new vehicle for each model year 2012-2016. The values shown are incremental to a baseline vehicle and are not cumulative. In other words, the estimated increase for 2012 model year cars is $342 relativ e to a 2012 model year car ab sent the National Program. The estimated increase for a 2013 model year car is $507 relative to a 2013 model year car absent the National Program (not $342 plus $507).

Table I.C.2-6 EPA’s Estimated Incremental Increase in Average New Vehicle Cost (2007 dollars per unit) 2012 2013 2014 2015 2016 Cars $342 $507 $631 $749 $869 Trucks $314 $496 $652 $820 $1,098 Combined $331 $503 $639 $774 $948

D. Background and Comparison of NHTSA and EPA Statutory Authority

Section I.C of the proposal containe d a detailed overview discussion of the NHTSA and EPA statutory authorities. In a ddition to the discussion in the proposal, each agency discusses comments pertaining to its statutory authority and the agency’s responses in Sections III and IV of this notice, respectively.79 II. Joint Technical Work Completed for This Final Rule

A. Introduction

In this section NHTSA and EPA discuss several aspects of the joint technical analyses on which the two agencies collaborated. These analyses are common to the development of each agency’s final standards. Specifically we discuss: the development of the vehicle market forecast used by each agency for assessing costs, benefits, and effects, the development of the attribute-ba sed standard curve shapes, the determination of the relative stringency betw een the car and truck fleet st andards, the technologies the agencies evaluated and their costs and eff ectiveness, and the economic assumptions the agencies included in their analyses. Th e Joint Technical Support Document (TSD) discusses the agencies’ joint technical work in more detail.

B. Developing the Future Fleet for As sessing Costs, Benefits, and Effects

1. Why Did the Agencies Establish a Baseline and Reference Vehicle Fleet?

In order to calculate the impacts of the EPA and NHTSA regulations, it is necessary to estimate the composition of the futu re vehicle fleet absent these regulations, to provide a reference point relative to wh ich costs, benefits, and effects of the regulations are assessed. As in the pr oposal, EPA and NHTSA have developed this comparison fleet in two parts. The first st ep was to develop a ba seline fleet based on80 model year 2008 data. The second step was to project that fleet into model years 2011- 2016. This is called the reference fleet. The third step was to modify that MY 2011- 2016 reference fleet such that it had suffi cient technology to meet the MY 2011 CAFE standards. This final version of the reference fleet is the light-duty fleet estimated to exist in MY 2012-2016 in the absence of today’s standards, based on the assumption that manufacturers would continue to meet the MY 2011 CAFE standards (or pay civil penalties allowed under EPCA 44 ) in the absence of further in creases in the stringency of CAFE standards. Each agency used this appr oach to develop a final reference fleet to use in its modeling. All of the agencies’ es timates of emission reductions, fuel economy improvements, costs, and societal impacts are developed in relation to the respective reference fleets.

EPA and NHTSA proposed a transparent a pproach to developi ng the baseline and reference fleets, largely working from publicly available data. This proposed approach differed from previous CAFE rules, which relied on confidential manufacturers’ product plan information to develop the baseline. Most of the public comments to the NPRM addressing this issue supported this methodol ogy for developing the in puts to the rule's analysis. Because the input sh eets can be made public, stak eholders can verify and check EPA’s and NHTSA’s modeling, and perform their own analyses with these datasets. In this final rulemaking, EPA and NHTSA are us ing an approach very similar to that

44 That is, the manufacturers who have traditionally paid fines under EPCA instead of complying with the CAFE standards were “allowed,” for purposes of the re ference fleet, to reach only the CAFE level at which paying fines became more cost-effective than adding technology, even if that fell short of the MY 2011 standards.81 proposed, continuing to rely on publicly availabl e data as the basis for the baseline and reference fleets.

2. How Did the Agencies Develop the Baseline Vehicle Fleet?

At proposal, EPA and NHTSA developed a baseline fleet comprised of model year 2008 data gathered from EPA’s emission certification and fuel economy database. MY 2008 was used as the basis for the baseli ne vehicle fleet because it was the most recent model year for which a complete set of da ta is publicly available. This remains the case. Manufacturers are not required to submit final sale s and mpg figures for MY 2009 until April 2010, 45 after the CAFE standard’s mandated promulgation date. Consequently, in this final rule, EPA and NHTSA made no changes to the method or the results of the MY 2008 baseline fleet used at proposal, except for some specific corrections to engineering inputs for some vehi cle models reflected in the market forecast input to NHTSA’s CAFE model. More detail s about how the agencies constructed this baseline fleet can be found in Chapter 1.2 of the Joint TSD. Corrections to engineering inputs for some vehicle models in the mark et forecast input to NHTSA’s CAFE model are discussed in Chapter 2 of the Joint TSD.

45 40 CFR 600.512-08, Model Year Report82 3. How Did the Agencies Develop the Projected MY 2011-2016 Vehicle Fleet?

EPA and NHTSA have based the projection of total car and total light truck sales for MYs 2011-2016 on projections made by the Department of Energy’s Energy Information Administration (EIA). EIA pub lishes a mid-term projection of national energy use called the Annual Energy Outlook (AEO ). This projection utilizes a number of technical and econometric models which are designed to refl ect both economic and regulatory conditions expected to exist in the future. In suppo rt of its projection of fuel use by light-duty vehicles, EIA projects sale s of new cars and light trucks. In the proposal, the agencies used the three reports published by EIA as part of the AEO 2009. We also stated that updated versions of th ese reports could be used in the final rules should AEO timely issue a new version. EIA published an early version of its AEO 2010 in December 2009, and the agencies are making use of it in this final rulemaking. The differences in projected sales in the 2009 report (used in the NP RM) and the early 2010 report are very small, so NHTSA and EPA have decided to simply scale the NPRM volumes for cars and trucks (in the aggregate) to match those in the 2010 report. We thus employ the sales projections from the scaled updated 2009 Annual Energy Outlook, which is equivalent to AEO 2010 Early Release, for the final rule. The scaling factors for each model year are presented in Chapter 1 of the Joint TSD for this final rule.

The agencies recognize that AEO 2010 Earl y Release does include some impacts of future projected increases in CAFE st ringency. We have closely examined the83 difference between AEO 2009 and AEO 2010 Early Release and we believe the differences in total sales and the car/truck split attributed to considera tions of the standard in the final rule are small. 46

In the AEO 2010 Early Release, EIA project s that total light-duty vehicle sales will gradually recover from their currently depressed levels by around 2013. In 2016, car sales are projected to be 9.4 million (57 percen t) and truck sales are projected to be 7.1 million (43 percent). Although the total level of sales of 16.5 million units is similar to pre-2008 levels, the fraction of car sales is project ed to be higher than that existing in the 2000-2007 timeframe. This projection reflects the impact of higher fuel prices, as well as EISA’s requirement that the new vehicle fl eet average at least 35 mpg by MY 2020. The agencies note that AEO does not represent the fleet at a level of detail sufficient to explicitly account for the reclassification—prom ulgated as part of NHTSA’s final rule for MY 2011 CAFE standards—of a number of 2-wheel drive sport utility vehicles from the truck fleet to the car fleet fo r MYs 2011 and after. Sales projections of cars and trucks for future model years can be found in th e Joint TSD for these final rules.

In addition to a shift towards more car sale s, sales of segments within both the car and truck markets have been changing and are expected to continue to change. Manufacturers are introducing more crossover m odels which offer much of the utility of

46 The agencies have also looked at the impact of the rule in EIA’s projection, and concluded that the impact was small. EPA and NHTSA have evaluated th e differences between the AEO 2010 (early draft) and AEO 2009 and found little difference in the fleet proj ections (or fuel prices). This analysis can be found in the memo to the docket: Kahan, A. and Pickrell, D. Memo to Docket EPA-HQ-OAR-2009-0472 and Docket NHTSA-2009-0059. "Energy Information Administration’s Annual Energy Outlook 2009 and 2010." March 24, 2010.84 SUVs but use more car-like designs. The AEO 2010 report does not, however, distinguish such changes within the car and truck classes. In order to reflect these changes in fleet makeup, EPA and NHTSA consid ered several other available forecasts. EPA purchased and shared with NHTSA forecasts from two well-known industry analysts, CSM Worldwide (CSM), and J.D. Po wers. NHTSA and EPA decided to use the forecast from CSM, modified as described be low, for several reasons presented in the NPRM preamble 47 and draft Joint TSD. The cha nges between company market share and industry market segments were mo st significant from 2011-2014, while for 2014- 2015 the changes were relatively small. Noti ng this, and lacking a credible forecast of company and segment shares after 2015, th e agencies assumed 2016 market share and market segments to be the same as for 2015.

CSM Worldwide provides quarterly sales forecasts for the automotive industry. In the NPRM, the agencies identified a concern with the 2 nd quarter CSM forecast that was used as a basis for the projection. CSM projections at that time were based on an industry that was going through a significant financial transition, a nd as a result the market share forecasts for some companies were impacted in surprising ways. As the industry’s situation has settled somewhat over the past year, the 4 th quarter projection appears to address this issue – for example, it shows nearly a two-fold increase in sales for Chrysler compared to significant loss of market share shown for Chrysler in the 2 nd quarter projection. Additionally, some comme nters, such as GM, recognized that the

47 See, e.g., 74 FR 49484.85 fleet appeared to include an unusuall y high number of large pickup trucks. 48 In fact, the agencies discovered (independently of th e comments) that CSM’s standard forecast included all vehicles below 14,000 GVWR, incl uding class 2b and 3 heavy duty vehicles, which are not regulated by this final rule. 49 The commenters were t hus correct that light duty reference fleet projections at proposal had more full size trucks and vans due to the mistaken inclusion of the heavy duty versions of those vehicles. The agencies requested a separate data forecast from CSM that filtered their 4 th quarter projec tion to exclude these heavy duty vehicles. The agen cies then used this filtered 4 th quarter forecast for the final rule. A detailed comparison of the ma rket by manufacturer can be found in the final TSD. For the public’s reference, copies of the 2 nd , 3 rd , and 4 th quarter CSM forecasts have been placed in the docket for this rulemaking. 50

We then projected the CSM forecasts fo r relative sales of cars and trucks by manufacturer and by market segment onto the total sales estimates of AEO 2010. Tables II.B.3-1 and II.B.3-2 show the resulting proj ections for the refere nce 2016 model year and compare these to actual sa les that occurred in baseline 2008 model year. Both tables show sales using the traditional definition of cars and light trucks.

48 GM argued that the unusually large volume of large pickups led to higher overall requirements for those vehicles. As discussed below, the agencies’ analysis fo r the final rule corrects the number of large pickups. With this correction and other updates to the agenci es’ market forecast and other analytical inputs, the target functions defining the final standards (and achieving the average required performance levels defining the national program) are very similar to those from the NPRM, especially for light trucks, as illustrated below in Figur es II.C-7 and II.C-8. 49 These include the Ford F-250 & F-350, Econoline E-250, & E-350; Chevy Express, Silverado 2500, & 3500; GMC Savana, Dodge 2500, & 3500; among others. 50 The CSM Sales Forecast Excel file (“CSM North Am erica Sales Forecasts 2Q 09 3Q09 4Q09 for the Docket”) is available in the docket (Docket EPA-HQ-OAR-2009-0472).86 Table II.B.3-1 Annual Sales of Light-Duty Vehicles by Manufacturer in 2008 and Estimated for 2016 Cars Light Trucks Total 2008 MY 2016 MY 2008 MY 2016 MY 2008 MY 2016 MY
BMW 291,796 424,923 61,324 171,560 353,120 596,482 Chrysler 537,808 340,908 1,119,397 525,128 1,657,205 866,037
Daimler 208,052 272,252 79,135 126,880 287,187 399,133
Ford 709,583 1,118,727 1,158,805 1,363,256 1,868,388 2,481,983
General Motors 1,370,280 1,283,937 1,749,227 1,585,828 3,119,507 2,869,766
Honda 899,498 811,214 612,281 671,437 1,511,779 1,482,651 Hyundai 270,293 401,372 120,734 211,996 391,027 613,368
Kia 145,863 455,643 135,589 210,717 281,452 666,360
Mazda 191,326 350,055 111,220 144,992 302,546 495,047
Mitsubishi 76,701 49,914 24,028 88,754 100,729 138,668
Porsche 18,909 33,471 18,797 16,749 37,706 50,220
Nissan 653,121 876,677 370,294 457,114 1,023,415 1,333,790
Subaru 149,370 230,705 49,211 95,054 198,581 325,760
Suzuki 68,720 97,466 45,938 26,108 114,658 123,574
Tata 9,596 65,806 55,584 42,695 65,180 108,501 Toyota 1,143,696 2,069,283 1,067,804 1,249,719 2,211,500 3,319,002 Volkswagen 290,385 586,011 26,999 124,703 317,384 710,011
Total 7,034,997 9,468,365 6,806,367 7,112,689 13,841,364 16,580,35387 Table II.B.3-2 Annual Sales of Light-Duty Vehicles by Market Segment in 2008 and Estimated for 2016 Cars Light Trucks 2008 MY 2016 MY 2008 MY 2016 MY Full-Size Car 829,896 530,945 Full-Size Pickup 1,331,989 1,379,036 Luxury Car 1,048,341 1,548,242 Mid-Size Pickup 452,013 332,082 Mid-Size Car 2,166,849 2,550,561 Full-Size Van 33,384 65,650 Mini Car 617,902 1,565,373 Mid-Size Van 719,529 839,194 Small Car 1,912,736 2,503,566 Mid-Size MAV* 110,353 116,077 Specialty Car 459,273 769,679 Small MAV 231,265 62,514 Full-Size SUV* 559,160 232,619 Mid-Size SUV 436,080 162,502 Small SUV 196,424 108,858 Full-Size CUV* 264,717 260,662 Mid-Size CUV 923,165 1,372,200 Small CUV 1,548,288 2,181,296 Total Sales** 7,034,997 9,468,365 6,806,367 7,079,323 * MAV – Multi-Activity Vehicle, SUV – Sport U tility Vehicle, CUV – Crossover Utility Vehicle **Total Sales are based on the classic Car/Truck definition.
Determining which traditionally-defined trucks will be defined as cars for purposes of this final rule using the revi sed definition establis hed by NHTSA for MYs 2011 and beyond requires more detailed informa tion about each vehicle model. This is described in greater detail in Chapter 1 of the final TSD.

The forecasts obtained from CSM provided estimates of car and truck sales by segment and by manufacturer, but not by manuf acturer for each market segment. Therefore, NHTSA and EPA needed other in formation on which to base these more detailed projected market splits. For this ta sk, the agencies used as a starting point each88 manufacturer’s sales by market segment fr om model year 2008, which is the baseline fleet. Because of the larger number of segmen ts in the truck market, the agencies used slightly different methodologi es for cars and trucks.

The first step for both cars and trucks was to break down each manufacturer’s 2008 sales according to the market segment defi nitions used by CSM. For example, the agencies found that Ford’s 51 cars sales in 2008 were broken down as shown in Table
II.B.3-3:

Table II.B.3-3: Breakdown of Ford’s 2008 Car Sales Full-size cars 160,857 units Mid-size Cars 170,399 units Small/Compact Cars 180,249 units Subcompact/Mini Cars None Luxury cars 87,272 units Specialty cars 110,805 units

EPA and NHTSA then adjusted each manuf acturer’s sales of each of its car segments (and truck segments, separately) so that the manufacturer’s total sales of cars (and trucks) matched the total estimated for each future model year based on AEO and CSM forecasts. For example, as indicated in Table II.B.3-1, Ford’s total car sales in 2008 were 709,583 units, while the agencies projec t that they will in crease to 1,113,333 units by 2016. This represents an in crease of 56.9 percent. Thus, the agencies increased the 2008 sales of each Ford car segment by 56.9 percent. This produced estimates of future sales which matched total car and truck sale s per AEO and the manufacturer breakdowns

51 Note: In the NPRM, Ford’s 2008 sales per segment, and the total number of cars was different than shown here. The change in values is due to a correction of vehicle segments for some of Ford’s vehicles.89 per CSM. However, the sales splits by market segment would not necessarily match those of CSM (shown for 2016 in Table II.B.3-2).

In order to adjust the market segment mix for cars, the agencies first adjusted sales of luxury, specialty a nd other cars. Since the to tal sales of cars for each manufacturer were already set, any changes in the sales of one car segment had to be compensated by the opposite change in anothe r segment. For the luxury, specialty and other car segments, it is not clear how cha nges in sales would be compensated. For example, if luxury car sales decreased, would sales of full-size cars increase, mid-size cars, and so on? The agencies have assumed that any changes in the sales of cars within these three segments were compensated for by proportional changes in the sales of the other four car segments. For example, for 2016, the figures in Table II .B.3-2 indicate that luxury car sales in 2016 are 1,548,242 units. Luxury car sales are 1,048,341 units in 2008. However, after adjusting 2008 car sales by the change in total car sales for 2016 projected by EIA and a change in manufactur er market share per CSM, luxury car sales decreased to 1,523,171 units. Thus, overall fo r 2016, luxury car sales had to increase by 25,071 units or 6 percent. The agencies acco rdingly increased the luxury car sales by each manufacturer by this percentage. The absolute decrease in luxury car sales was spread across sales of full-size, mid-size, compact and subcompact cars in proportion to each manufacturer’s sales in th ese segments in 2008. The same adjustment process was used for specialty cars and the “other cars” segment defined by CSM.90 The agencies used a slightly different appr oach to adjust for changing sales of the remaining four car segments. Starting with fu ll-size cars, the agencies again determined the overall percentage change that needed to o ccur in future year full-size car sales after 1) adjusting for total sales per AEO 2010, 2) adjusting for manufacturer sales mix per CSM and 3) adjusting the luxury, specialty and other car segments, in order to meet the segment sales mix per CSM. Sales of each ma nufacturer’s large cars were adjusted by this percentage. However, instead of spr eading this change over the remaining three segments, the agencies assigned the entire chan ge to mid-size vehicl es. The agencies did so because the CSM data followed the trend of increasing volumes of smaller cars while reducing volumes of larger cars . If a consumer had previous ly purchased a full-size car, we thought it unlikely that their next purchase would d ecrease by two size categories, down to a subcompact. It seemed more reas onable to project that they would drop one vehicle size category smaller. Thus, the change in each manu facturer’s sales of full-size cars was matched by an opposite change (in abso lute units sold) in mid-size cars.

The same process was then applied to mid- size cars, with the change in mid-size car sales being matched by an opposite change in compact car sales. This process was repeated one more time for compact car sales, with changes in sales in this segment being matched by the opposite change in the sales of subcompacts. The overall result was a projection of car sales for model years 2012-2016--the reference fleet--which matched the total sales projections of the AEO forecas t and the manufacturer a nd segment splits of the CSM forecast. These sales splits can be found in Chapter 1 of the Joint TSD for this final rule.91 As mentioned above, the agencies applied a slightly different process to truck sales, because the agencies could not confid ently project how the change in sales from one segment preferentially went to or came fr om another particular segment. Some trend from larger vehicles to smaller vehicles w ould have been possible. However, the CSM forecasts indicated large changes in total sp ort utility vehicle, multi-activity vehicle and cross-over sales which could not be connected. Thus, the agen cies applied an iterative, but straightforward process for adjusting 2008 truck sales to match the AEO and CSM forecasts.

The first three steps were exactly the sa me as for cars. EPA and NHTSA broke down each manufacturer’s truck sales into th e truck segments as defined by CSM. The agencies then adjusted all manufacturers’ truc k segment sales by the same factor so that total truck sales in each mode l year matched AEO projections for truck sales by model year. The agencies then adjusted each manufacturer’s truck sales by segment proportionally so that each manu facturer’s percentage of to tal truck sales matched that forecast by CSM. This again left the need to adjust truck sales by segment to match the CSM forecast for each model year.

In the fourth step, the agencies adjust ed the sales of each truck segment by a common factor so that total sales for that segment matched the combination of the AEO and CSM forecasts. For example, project ed sales of large pickups across all manufacturers were 1,286,184 units in 2016 afte r adjusting total sales to match AEO’s92 forecast and adjusting each manufacturer’s tr uck sales to match CSM’s forecast for the breakdown of sales by manufacturer. Appl ying CSM’s forecast of the large pickup segment of truck sales to AEO’s total sales fo recast indicated total large pickup sales of 1,379,036 units. Thus, we increased each manuf acturer’s sales of large pickups by 7 percent. 52 The agencies applied the same type of adjustment to all the other truck segments at the same time. The result wa s a set of sales projections which matched AEO’s total truck sales projection and CSM’s market segment forecast. However, after this step, sales by manufacturer no longer met CSM’s forecast. Thus, we repeated step three and adjusted each manufacturer’s truck sa les so that they met CSM’s forecast. The sales of each truck segment (by manufacturer) were adjusted by the same factor. The resulting sales projection matched AEO’ s total truck sales projection and CSM’s manufacturer forecast, but sales by market segment no longer met CSM’s forecast. However, the difference between the sales projec tions after this fifth step was closer to CSM’s market segment forecast than it was afte r step three. In ot her words, the sales projection was converging to the desired result. The agencies repeated these adjustments, matching manufacturer sales mix in one step and then market segment in the next a total of 19 times. At this point, we were able to match the market segment splits exactly and the manufacturer splits were within 0.1 percen t of our goal, which is well within the needs of this analysis.

The next step in developing the referen ce fleets was to characterize the vehicles within each manufacturer-seg ment combination. In large part, this was based on the

52 Note: In the NPRM this example showed 29 percen t instead of 7 percent. The significant decrease was due to using the filtered 4th quarter CSM forecast. Commenters, such as GM, had commented that we had too many full-size trucks and vans, and this change addresses their comment.93 characterization of the specific vehicle m odels sold in 2008 -- i.e., the vehicles comprising the baseline fleet. EPA and NHTSA chose to base our estimates of detailed vehicle characteristics on 2008 sales for several reasons. One, these vehicle characteristics are not confidential and can t hus be published here for careful review by interested parties. Two, because it is constr ucted beginning with actual sales data, this vehicle fleet is limited to vehicle models know n to satisfy consumer demands in light of price, utility, performance, safety, and other vehicle attributes.

As noted above, the agencies gathered most of the information about the 2008 baseline vehicle fleet from EPA’s emission certification a nd fuel economy database. The data obtained from this source included ve hicle production volume, fuel economy, engine size, number of engine cylinders, transmission type, fuel type, etc. EPA’s certification database does not include a detailed description of th e types of fuel economyimproving/CO 2 -reducing technologies considered in th is final rule. Thus, the agencies augmented this description with publicly av ailable data which includes more complete technology descriptions from Ward’s Automotive Group. 53 In a few instances when required vehicle information (such as vehicle footprint) was not available from these two sources, the agencies obtained this informa tion from publicly accessible internet sites such as Motortrend.com and Edmunds.com. 54

The projections of future car and truc k sales described above apply to each manufacturer’s sales by market segment. Th e EPA emissions certifi cation sales data are

53 Note that WardsAuto.com is a fee-based service, but all information is public to subscribers. 54 Motortrend.com and Edmunds.com are free, no-fee internet sites.94 available at a much finer level of detail, esse ntially vehicle configur ation. As mentioned above, the agencies placed each vehicle in th e EPA certification database into one of the CSM market segments. The agencies then totaled the sales by each manufacturer for each market segment. If the combinati on of AEO and CSM forecasts indicated an increase in a given manufacturer ’s sales of a particular market segment, then the sales of all the individual vehicle confi gurations were adjusted by the same factor. For example, if the Prius represented 30 percent of Toyota’s sales of compact cars in 2008 and Toyota’s sales of compact cars in 2016 was projected to double by 2016, then the sales of the Prius were doubled, and the Prius sales in 2016 remained 30 percent of Toyota’s compact car sales.

The projection of average f ootprint for both cars and trucks remained virtually constant over the years covered by the final rulemaking. This occurrence is strictly a result of the CSM projections. There are a number of trends that occur in the CSM projections that caused the average footprint to remain constant. First, as the number of subcompacts increases, so do the number of 2-wheel drive crossover vehicles (that are regulated as cars). Seco nd, truck volumes have many segment changes during the rulemaking time frame. There is no specific f ootprint related trend in any segment that can be linked to the unchanging footprint, bu t there is a trend that non-pickups’ volumes will move from truck segments that are ladder frame to those that are unibody-type vehicles. A table of the footprint projections is available in the TSD as well as further discussion on this topic.95 4. How Was the Development of the Base line and Reference Fleets for this Final Rule Different from NH TSA’s Historical Approach?

NHTSA has historically based its anal ysis of potential new CAFE standards on detailed product plans the agency has reque sted from manufacturers planning to produce light vehicles for sale in the United States . Although the agency has not attempted to compel manufacturers to submit such info rmation, most major manufacturers and some smaller manufacturers have voluntar ily provided it when requested.

The proposal discusses many of the advant ages and disadvantages of the market forecast approach used by the agencies, including the agencies’ interest in examining product plans as a check on the reference fl eet developed by the agencies for this rulemaking. One of the primary reasons for the request for data in 2009 was to obtain permission from the manufactur ers to make public their pr oduct plan information for model years 2010 and 2011. There are a numbe r of reasons that this could be advantageous in the development of a refere nce fleet. First, some known changes to the fleet may not be captured by the approach of so lely using publicly available information. For example, the agencies’ current market forecast includes some vehicles for which manufacturers have announced plans for elim ination or drastic production cuts such as the Chevrolet Trailblazer, the Chrysler PT Cruiser, the Chrysler Pacifica, the Dodge Magnum, the Ford Crown Victoria, the Merc ury Sable, the Pontiac Grand Prix, the Pontiac G5 and the Saturn Vue. These vehicle models appear explicit ly in market inputs to NHTSA’s analysis, and are among those ve hicle models included in the aggregated96 vehicle types appearing in market inputs to EPA’s analysis. However, although the agencies recognize that these specific vehi cles will be discontinued, we continue to include them in the market forecast because th ey are useful as a surrogate for successor vehicles that may appear in the rulema king time frame to replace the discontinued vehicles in that market segment. 55

Second, the agencies’ market forecast doe s not include some forthcoming vehicle models, such as the Chevrolet Volt, the Ford Fiesta and several publicly announced electric vehicles, including the announcemen ts from Nissan regarding the Leaf. Nor does it include several MY 2009 or 2010 vehicles, such as the Honda Insight, the Hyundai Genesis and the Toyota Venza, as our starting point for defining specific vehicle models in the reference fleet was Model Year 2008. Additionally, the market forecast does not account for publicly announced technology introductions, su ch as Ford’s EcoBoost system, whose product plans specify which ve hicles and how many are planned to havethis technology. Chrysler Group LLC has announced plans to offer small- and mediumsized cars using Fiat powertrains. Were th e agencies to rely on manufacturers’ product plans (that were submitted), the market forecas t would account for not only these specific examples, but also for similar examples that have not yet be en announced publicly.

Some commenters, such as CBD and NESCAUM, suggest ed that the agencies’ omission of known future vehicles and t echnologies in the reference fleet causes inaccuracies, which CBD further suggested could lead the agencies to set lower

55 An example of this is in the GM Pontiac line, which is in the process of being phased out during the course of this rulemaking. GM has similar vehicles within their other brands (like Chevy) that will presumable pick up the loss in Pontiac share. We m odel this simply by leaving the Pontiac brand in.97 standards. On the other hand, CARB commente d that “the likely impact of this omission is minor.” Because the agencies’ analys is examines the costs and benefits of progressively adding technology to manufacturers’ fleets, the omission of future vehicles and technologies primarily affects how much additional technology (and, therefore, how much incremental cost and benefit) is ava ilable relative to the point at which the agencies’ examination of potential new standa rds begins. Thus, in fact, the omission only reflects the reference fleet, rather than the agencies’ conclusions re garding how stringent the standards should be. This is discussed further below. The agencies believe the above-mentioned comments by CBD, NESCAUM, and others are based on a misunderstanding of the agencies’ approach to analyzing potential incr eases in regulatory stringency. The agencies also note that manufacturers do not always use technology solely to increase fuel economy, and that use of technology to increase vehicles’ acceleration performance or utility would probably make that technology unavailable toward more stringent standards. Consider ing the incremental nature of the agencies’ analysis, and the counterbalancing aspects of potentially omitte d technology in the reference fleet, the agencies believe thei r determination of the stringency of new standards has not been impact ed by any such omissions.

Moreover, EPA and NHTSA believe that not including such ve hicles after MY 2008 does not significantly impact our estimate s of the technology required to comply with the standards. If included, these ve hicles could increase the extent to which manufacturers are, in the re ference case, expected to over-comply with the MY 2011 CAFE standards, and could thereby make the ne w standards appear to cost less and yield98 less benefit relative to the reference case . However, in the agencies’ judgment, production of the most advanced technology ve hicles, such as the Chevy Volt or the Nissan Leaf (for example), will most lik ely be too limited during MY 2011 through MY 2016 to significantly impact manufacture rs’ compliance positions. While we are projecting the characteri stics of the future fl eet by extrapolating fr om the MY 2008 fleet, the primary difference between the future fl eet and the 2008 fleet in the same vehicle segment is the use of additional CO 2 -reducing and fuel-saving technologies. Both the NHTSA and EPA models add such technologies to evaluate means of complying with the standards, and the costs of doing so. Thus, our future projections of the vehicle fleet generally shift vehicle designs towards those mo re likely to be typical of newer vehicles. Compared to using product plans that show continued fuel economy increases planned based on expectations that CAFE standards will continue to increase, this approach helps to clarify the costs and benefits of the new stan dards, as the costs and benefits of all fuel economy improvements beyond those required by the MY 2011 CAFE standards are being assigned to the final rules. In some cases, the “actual” (vs. projected or “modeled”) new vehicles being introduced into th e market by manufacturers are done so in anticipation of this rulemaking. On the othe r hand, manufacturers ma y plan to continue using technologies to improve vehicle performance and/or ut ility, not just fuel economy. Our approach prevents some of these act ual technological improvements and their associated cost and fuel economy improveme nts from being assumed in the reference fleet. Thus, the added technology will not be considered to be free (or having no benefits) for the purposes of this rule.99 In this regard, the agencies further note that manufacturer announcements regarding forward models (or future vehicl e models) need not be accepted automatically. Manufacturers tend to limit accurate production in tent information in these releases for reasons such as: (a) competitors will closely examine their information for data in their product planning decisions; (b) the press c overage of forward model announcements is not uniform, meaning highly anticipated models have more coverage and materials than models that may be less exciting to the pub lic and consistency and uniformity cannot be ensured with the usage of press information; and (c) these market projections are subject to change (sometimes significant), and manufacturers may not want to give the appearance of being indecisive , or under/over-confident to their shareholders and the public with premature rel ease of information.

NHTSA has evaluated the use of public manufacturer forward model press information to update the vehicle fleet inputs to the baseline and reference fleet. The challenges in this approach are evidenced by the continuous stream of manufacturer press releases throughout a defined rulemaking peri od. Manufacturers’ press releases suffer from the same types of inaccuracies that many commenters believe can affect product plans. Manufacturers can often be overly optimistic in their press releases, both on projected date of rele ase of new models and on sales volumes.

More generally and more critically, as discussed in the proposal and as endorsed by many of the public comments, there are seve ral advantages to the approach used by the agencies in this final rule. Most impor tantly, today’s market forecast is much more100 transparent. The information sources used to develop today’s market forecast are all either in the public domain or available comm ercially. Another sign ificant advantage of today’s market forecast is the agencies’ abilit y to assess more fully the incremental costs and benefits of the proposed standards. In addition, by de veloping baseline and reference fleets from common sources, the agencies have been able to avoid some errors—perhaps related to interpretation of requests—that have been observed in past responses to NHTSA’s requests. An additional advantage of the approach used for this rule is a consistent projection of the ch ange in fuel economy and CO 2 emissions across the various vehicles from the application of new technology. With the approach used for this final rule, the baseline market data comes from actua l vehicles (on the road today) which have actual fuel economy test data (in contrast to manufacturer estimates of future product fuel economy) – so there is no question what is the basis for the fuel economy or CO 2 performance of the baseline market data as it is.

5. How Does Manufacturer Product Plan Da ta Factor into the Baseline used in this Final Rule?

In the spring and fall of 2009, many manufacturers submitted product plans in response to NHTSA’s recent requests that they do so. NHTSA and EPA both have access to these plans, and both agencies have re viewed them in detail. A small amount of product plan data was used in the development of the baseline. The specific pieces of data are:101 • Wheelbase

• Track Width Front

• Track Width Rear

• EPS (Electric Power Steering)

• ROLL (Reduced Rolling Resistance)

• LUB (Advance Lubrication i.e. low weight oil)

• IACC (Improved Electrical Accessories)

• Curb Weight

• GVWR (Gross Vehicle Weight Rating)

The track widths, wheelbase, curb weight , and GVWR for vehicles could have been looked up on the internet (159 were), bu t were taken from the product plans when available for convenience. To ensure accur acy, a sample from each product plan was used as a check against the numbers available from Motortrend.com. These numbers will be published in the baseline file since they can be easily looked up on the internet. On the other hand, EPS, ROLL, LUB, and IACC are difficult to determine without using manufacturer’s product plans. These items w ill not be published in the baseline file, but the data has been aggregated into the agenci es’ baseline in the technology effectiveness and cost effectiveness for each vehicle in a way that allows the baseline for the model to be published without revealing the manufacturer’s data.

Also, some technical information that manufacturers have provided in product plans regarding specific vehicl e models is, at least insofar as NHTSA and EPA have been102 able to determine, not available from public or commercial sources. While such gaps do not bear significantly on the agencies’ anal ysis, the diversity of pickup configurations necessitated utilizing a sales-weighted average footprint value 56 for many manufacturers’ pickups. Since our modeling only utilizes footprint in order to estimate each manufacturer’s CO 2 or fuel economy standard and all th e other vehicle characteristics are available for each pickup configuration, this approximation has no practical impact on the projected technology or cost associated with compliance with the various standards evaluated. The only impact which could arise w ould be if the relative sales of the various pickup configurations changed, or if the ag encies were to explore standards with a different shape. This would necessitate recal culating the average foot print value in order to maintain accuracy.

Additionally, as discussed in the NPRM, in an effort to update the 2008 baseline to account for the expected changes in the fleet in the near-ter m model years 2009-2011 described above, NHTSA requested permission from the manufactur ers to make this limited product plan information public. Unfortunately, virtually no manufacturers agreed to allow the use of their data after 2009 model year. A few ma nufacturers, such as GM and Ford, stated we could use their 2009 product plan data after the end of

56 A full-size pickup might be offered with various combinations of cab style (e.g., regular, extended, crew) and box length (e.g., 51⁄2’, 61⁄2’, 8’) and, therefore, multiple footprint sizes. CAFE compliance data for MY 2008 data does not contain footprint information, and does not contain information that can be used to reliably identify which pickup entries correspond to fo otprint values estimable from public or commercial sources. Therefore, the agencies have used the known production levels of averag e values to represent all variants of a given pickup line (e.g., all variants of the F-150 and the Sierra/Silverado) in order to calculate the sales-weighted average footprint value for each pickup family. Again, this has no impact on the results of our modeling effort, although it would require re-estim ation if we were to examine light truck standards of a different shape. In the extreme, one single footprint value could be used for every vehicle sold by a single manufacturer as long as the fuel economy standa rd associated with this footprint value represented the sales-weighted, harmonic average of the fuel economy standards associat ed with each vehicle’s footprint values.103 production (December 31), but this would not have afforded us sufficient time to do the analysis for the final rule. Since the agenci es were unable to obtai n consistent updates, the baseline and reference fleets were not updated beyond 2008 model year for the final rule. The 2008 baseline fleet and projections were instead updated using the latest AEO and CSM data as discussed earlier.

NHTSA and EPA recognize that the appro ach applied for the current rule gives transparency and openness of the vehicl e market forecast high priority, and accommodates minor inaccuracies that may be introduced by not accounting for future product mix changes anticipated in manufacturer s’ confidential product plans. For any future fleet analysis that the agencies are required to perform, NHTSA and EPA plan to request that manufacturers submit product plans and allow some public release of information. In performing this analysis, the agencies plan to reexamine potential tradeoffs between transparency and technica l reasonableness, and to explain resultant choices.

C. Development of Attribute-Based Curve Shapes

In the NPRM, NHTSA and EPA proposed to set attribute-based CAFE and CO 2 standards that are defined by a mathema tical function for MYs 2012-2016 passenger cars and light trucks. EPCA, as amended by EISA , expressly requires that CAFE standards for passenger cars and light trucks be based on one or more vehicle at tributes related to104 fuel economy, and be expressed in th e form of a mathematical function. 57 The CAA has no such requirement, though in past rules, EPA has relied on both uni versal and attributebased standards (e.g., for nonroad engines, EP A uses the attribute of horsepower). However, given the advantages of using attr ibute-based standards and given the goal of coordinating and harmonizing CO 2 standards promulgated under the CAA and CAFE standards promulgated under EPCA, EPA also proposed to issue standards that are attribute-based and defined by mathematical functions. There was consensus in the public comments that EPA should develop attribute-based CO 2 standards.

Comments received in response to the ag encies’ decision to base standards on vehicle footprint were largely supportiv e. Several commenters (BMW, NADA, NESCAUM) expressed support for attribute-ba sed (as opposed to flat or universal) standards generally, and agreed with EPA’s decision to harmonize with NHTSA in this respect. Many commenters (Aluminum Association, BMW, ICCT, NESCAUM, NY DEC, Schade, Toyota) also supported the agen cies’ decision to con tinue setting CAFE standards, and begin setting GHG standards, on the basis of vehicle footprint, although one commenter (NJ DEP) opposed the use of foot print due to concern that it encourages manufacturers to upsize vehi cles and undercut the gains of the standard. Of the commenters supporting the use of footprint, several fo cused on the benefits of harmonization—both between EPA and NHTSA, and between the U.S. and the rest of the world. BMW commented, for example, that many other countries use weight-based standards rather than foot print-based. While BMW did not object to NHTSA’s and EPA’s use of footprint-based standards, it emphasized the impact of this non-

57 49 U.S.C. 32902(a)(3)(A).105 harmonization on manufacturers who sell vehicl es globally, and asked the agencies to consider these effects. NAD A supported the use of footpr int, but cautioned that the agencies must be careful in setting the foot print curve for light trucks to ensure that manufacturers can continue to provide functionality like 4WD and towing/hauling capacity.

Some commenters requested that the agencies consider othe r or more attributes in addition to footprint, largely reitera ting comments submitted to the MYs 2011-2015 CAFE NPRM. Cummins supported the agencies using a secondary at tribute to account for towing and hauling capacity in large tr ucks, for example, while Ferrari asked the agencies to consider a multi-attribute appr oach incorporating curb weight, maximum engine power or torque, and/or engine displ acement, as it had requested in the previous round of CAFE rulemaking. An individual, Mr. Kenneth Johnson, commented that weight-based standards would be preferable to footprint- based ones, because weight correlates better with fuel economy than footpr int, because the use of footprint does not necessarily guarantee safety th e way the agencies say it does, and because weight-based standards would be fairer to manufacturers.

In response, EPA and NHTSA continue to believe that the benefits of footprintattribute-based standards out weigh any potential drawback s raised by commenters, and that harmonization between the two agencies shou ld be the overriding goal on this issue. As discussed by NHTSA in the MY 2011 CAFE final rule, 58 the agencies believe that the possibility of gaming is lowest with footpr int-based standards, as opposed to weight-

58 See 74 FR 14359 (Mar. 30, 2009).106 based or multi-attribute-based standards. Sp ecifically, standards that incorporate weight, torque, power, towing capability, and/or off-ro ad capability in addition to footprint would not only be significantly more complex, but by providing degrees of freedom with respect to more easily-adjusted attributes, they woul d make it less certain that the future fleet would actually achieve the average fuel economy and CO 2 levels projected by the agencies. The agencies recognize that base d on economic and consumer demand factors that are external to this rule, the distribution of footprints in the fu ture may be different (either smaller or larger) than what is proj ected in this rule. However, the agencies continue to believe that there will not be signif icant shifts in this distribution as a direct consequence of this rule. The agencies are therefore finalizing MYs 2012-2016 CAFE and GHG standards based on footprint.

The agencies also recognize that th ere could be benefits for a number of manufacturers if there was greater interna tional harmonization of fuel economy and GHG standards, but this is largely a question of how stringent standards are and how they are enforced. It is entirely possible that footprint-based and weight-based systems can coexist internationally and not present an undue burden for manufact urers if they are carefully crafted. Different c ountries or regions may find diff erent attributes appropriate for basing standards, depending on the particular challenges they face – from fuel prices, to family size and land use, to safety c oncerns, to fleet composition and consumer preference, to other environmental challenges besides climate change. The agencies anticipate working more closely with other coun tries and regions in the future to consider107 how to mitigate these issues in a way that least burdens manufacturers while respecting each country’s need to meet its own particular challenges.

Under an attribute-based st andard, every vehicle model has a performance target (fuel economy and CO 2 emissions for CAFE and CO 2 emissions standards, respectively), the level of which depends on the vehicle’s a ttribute (for th e proposal, footprint). The manufacturers’ fleet average performan ce is determined by the production-weighted 59 average (for CAFE, harmonic average) of those targets. NHTSA and EPA are promulgating CAFE and CO 2 emissions standards defined by constrained linear functions and, equivalently, piecewise linear functions. 60 As a possible option for future rulemakings, the constrained linear form was introduced by NHTSA in the 2007 NPRM proposing CAFE standards for MY 2011-2015. Described mathematically, the proposed constrained linear function was define d according to the following formula: 61

1 1 1

, , TARGET MIN MAX c FOOTPRINT d a b = ⎡ ⎤ ⎛ ⎞ × + ⎜ ⎟ ⎢ ⎥ ⎝ ⎠ ⎣ ⎦

where

TARGET = the fuel economy target (in mpg) applicable to vehicles of a given footprint ( FOOTPRINT , in square feet),

59 Production for sale in the United States. 60 The equations are equivalent but are specified differe ntly due to differences in the agencies’ respective models. 61 This function is linear in fuel consumption but not in fuel economy.108 a = the function’s upper limit (in mpg),
b = the function’s lower limit (in mpg),

c = the slope (in gpm per square foot) of the sloped portion of the function,
d

= the intercept (in gpm) of the sloped portion of the function (that is, the value the sloped portion would take if extended to a footprint of 0 square feet, and the MIN and MAX functions take the minimum and maximum, respectively, of the included values; for example, MIN (1,2) = 1, MAX (1,2) = 2, and
MIN [ MAX (1,2),3)]=2.

Because the format is linear on a gallons-p er-mile basis, not on a miles-per-gallon basis, it is plotted as fuel consumption be low. Graphically, the constrained linear form appears as shown in Figure II.C-1.1090.0000.0050.0100.0150.0200.0250.0300.0350.0400.0450.05035 40 45 50 55 60 65 70Footprint (sf)

Fuel Consumption (gpm)1/LIMITUPPER1/LIMITLOWERINTERCEPTSLOPEFigure II.C-1 The Shape of the Constrained Linear Form110 The specific form and stringency for each fleet (passenger car and light trucks) and model year are defined through specific valu es for the four coefficients shown above.

EPA proposed the equivalent equation below for assigning CO 2 targets to an individual vehicle’s footprin t value. Although the general model of the e quation is the same for each vehicle category and each year, the parameters of the equation differ for cars and trucks and for each model year. Described mathematically, EPA’s proposed piecewise linear function was as follows:

Target = a, if x ≤ l Target = cx + d, if l < x ≤ h Target = b, if x > h

In the constrained linear form similar in fo rm to the fuel economy equation above, this equation takes the simplified form:

Target = MIN [ MAX ( c * x + d , a) , b]

where

Target = the CO 2 target value for a given footprint (in g/mi)111 a = the minimum target value (in g/mi CO 2 ) 62 b = the maximum target value (in g/mi CO 2 ) c = the slope of the linear function (in g/mi per sq ft CO 2 ) d = is the intercept or zero-offset for the line (in g/mi CO 2 ) x = footprint of the vehicle model (in s quare feet, rounded to the nearest tenth) l & h are the lower and higher footprint lim its or constraints or (“kinks”) or the boundary between the flat regions and th e intermediate sloped line (in sq ft)

Graphically, piecewise linear form, like th e constrained linear form, appears as shown in Figure II.C-2.

62 These a, b, d coefficients differ from the a, b, d coefficients in the constrained linear fuel economy equation primarily by a factor of 8887 (plus an additive factor for air conditioning).11230 35 40 45 50 55 60 65 70Footprint (sq feet)

CO2 (gram/mile) or Fuel Consumption (gallons/mile)lower limit = lIntercept = dupperlimit = hslope = cmin = amax = bFigure II.C-2 The Shape ofthe Piecewise Linear Form113 As for the constrained linear form, the specific form and stringency of the piecewise linear function for each fleet (passe nger car and light trucks) and model year are defined through specific values fo r the four coefficients shown above.

For purposes of the proposed rules, NHT SA and EPA developed the basic curve shapes using methods similar to those applie d by NHTSA in fitting the curves defining the MY 2011 standards. The first step involved defining the relevant vehicle characteristics in the form used by NHTSA’ s CAFE model (e.g., fuel economy, footprint, vehicle class, technology) descri bed in Section II.B of this pr eamble and in Chapter 1 of the Joint TSD. However, because the baseline fleet utilizes a wide ra nge of available fuel saving technologies, NHTSA used the CAFE mode l to develop a fleet to which all of the technologies discussed in Chapter 3 of the Joint TSD 63 were applied, exce pt dieselization and strong hybridization. This was accomplished by taki ng the following steps: (1) treating all manufacturers as unwilling to pay civil pena lties rather than applying technology, (2) applying any technology at a ny time, irrespective of scheduled vehicle redesigns or freshening, and (3) ignoring “phase-in caps” that constrain the overall amount of technology that can be applied by the model to a gi ven manufacturer’s fleet. These steps helped to increase technologi cal parity among vehicle models, thereby providing a better basis (than the baseline or reference fleets) for estimating the statistical relationship between vehicl e size and fuel economy.

63 The agencies excluded diesel engi nes and strong hybrid vehicle technologies from this exercise (and only this exercise) because the agencies expect that ma nufacturers would not need to rely heavily on these technologies in order to comply with the proposed standards. NHTSA and EPA did include diesel engines and strong hybrid vehicle t echnologies in all other portions of their analyses.114 In fitting the curves, NHTSA and EPA also continued to fit the sloped portion of the function to vehicle models between the footprint values at which the agencies continued to apply constraints to limit the function’s value for both the smallest and largest vehicles. Without a limit at the sma llest footprints, the f unction—whether logistic or linear—can reach values that would be unfairly burdensome for a manufacturer that elects to focus on the market for small vehicles; depending on the underlying data, an unconstrained form, could result in stringency levels that are tec hnologically infeasible and/or economically impracticab le for those manufacturers that may elect to focus on the smallest vehicles. On the other side of the function, without a limit at the largest footprints, the function may pr ovide no floor on required fuel economy. Also, the safety considerations that suppor t the provision of a disincentive for downsizing as a compliance strategy apply weakly, if at all, to the very largest vehicles. Limiting the function’s value for the largest vehicles lead s to a function with an inherent absolute minimum level of performance, while remaini ng consistent with safety considerations.

Before fitting the sloped portion of the constrained linear form, NHTSA and EPA selected footprints above and below whic h to apply constraints (i.e., minimum and maximum values) on the function. The agencies believe that the linear form performs well in describing the observed relationship between footprin t and fuel consumption or
CO 2 emissions for vehicle models within th e footprint ranges covering most vehicle models, but that the single (a s opposed to piecewise) linear form does not perform well in describing this relationship for the smallest and largest vehicle models. For passenger115 cars, the agency noted that several manufact urers offer small, sporty coupes below 41 square feet, such as the BMW Z4 and Mi ni, Honda S2000, Mazda MX-5 Miata, Porsche Carrera and 911, and Volkswagen New Beetle. Because such vehicles represent a small portion (less than 10 percent) of the passenge r car market, yet often have performance, utility, and/or structural ch aracteristics that could make it technologically infeasible and/or economically impract icable for manufacturers focusing on such vehicles to achieve the very challenging average requirements that coul d apply in the absence of a constraint, EPA and NHTSA proposed to “cut off” the linear portion of the passenger car function at 41 square feet. The agencies recognize that for manufacturers who make small vehicles in this size range, this cu t off creates some incentive to downsize (i.e., further reduce the size, and/or increase the production of models cu rrently smaller than 41 square feet) to make it easie r to meet the target. The cut off may also create the incentive for manufacturers who do not currently offer such models to do so in the future. However, at the same time, the agencies believe that there is a limit to the market for cars smaller than 41 square feet - most consum ers likely have some minimum expectation about interior volume, among other things. Th e agencies thus believe that the number of consumers who will want vehicles smaller than 41 square feet (regardless of how they are priced) is small, and that the incentive to downsize in response to this final rule, if present, will be minimal. For consistency, the agency proposed to “cut off” the light truck function at the same footprint, although no light trucks are cu rrently offered below 41 square feet. The agencies further noted that above 56 square feet, the only passenger car model present in the MY 2008 fleet were four luxury vehicles with extremely low sales volumes—the Bentley Arnage and three versions of the Rolls Royce Phantom.116 NHTSA and EPA therefore also proposed to “cut off” the linear portion of the passenger car function at 56 square f eet. Finally, the agencies noted that although public information is limited regarding the sales vo lumes of the many different configurations (cab designs and bed sizes) of pickup trucks , most of the largest pickups (e.g., the Ford F150, GM Sierra/Silverado, Nissan Titan, and Toyota Tundra) appear to fall just above 66 square feet in footprint. EPA and NHTSA therefore proposed to “cut off” the linear portion of the light truck f unction at 66 square feet.

Having developed a set of vehicle emissi ons and footprint data which represent the benefit of all non-diesel, non-hybrid technolog ies, we determined the initial values for parameters c and d were determined for cars and trucks separately. c and d were initially set at the values for which the average (equivalently, sum) of the absolute values of the differences was minimized between the “max imum technology” fleet fuel consumption (within the footprints between the upper and lower limits) and the straight line of the function defined above at the same corre sponding vehicle foot prints. That is, c and d were determined by minimizing the average absolute residual, commonly known as the MAD (Mean Absolute Deviation) approach, of the corresponding straight line.

Finally, NHTSA calculated the values of the upper and lower parameters ( a and
b ) based on the corresponding f ootprints discussed above (41 and 56 square feet for passenger cars, and 41 and 66 squa re feet for light trucks).117 The result of this methodology is shown below in Figures II.C-3 and II.C-4 for passenger cars and light trucks, respectivel y. The fitted curves are shown with the underlying “maximum technology” passenger car and light truck fleets. For passenger cars, the mean absolute deviat ion of the sloped portion of the function was 14 percent. For trucks, the corresponding MAD was 10 percent.1180.0000.0050.0100.0150.0200.0250.0300.0350.0400.0450.0500.0550.06035 40 45 50 55 60 65 70 75 80Footprint (sf)

Fuel Consumption (gpm)Figure II.C-3 “Maximum Technology” PassengerFleet with Fitted Constrained Linear Function1190.0000.0050.0100.0150.0200.0250.0300.0350.0400.0450.0500.0550.06035 40 45 50 55 60 65 70 75 80Footprint (sf)

Fuel Consumption (gpm)Figure II.C--4 “Maximum Technology” Light Truck with Fitted Constrained Linear Function120 The agencies used these functional fo rms as a starting point to develop mathematical functions defining the actual proposed standards as discussed above. The agencies then transposed these func tions vertically (i.e., on a gpm or CO 2 basis, uniformly downward) to produce the sa me fleetwide fuel economy (and CO 2 emission levels) for cars and light tr ucks described in the NPRM.

A number of public comments generally supported the agencies’ choice of attribute-based mathematical functions, as well as the methods applied to fit the function. Ferrari indicated support for the use of a constr ained linear form rather than a constrained logistic form, support for the application of limits on the functions’ values, support for a generally less steep passenger car curve compared to MY 2011, and support for the inclusion of all manufacturers in the analysis used to fit the curves. ICCT also supported the use of a constrained linear form. Toyot a expressed general support for the methods and outcome, including a less-s teep passenger car curve, and the application of limits on fuel economy targets applicable to the smallest vehicles. The UAW commented that the shapes and levels of the curves are reasonable.

Other commenters suggested that changes to the agencies’ methods and results would yield better outcomes. GM suggested that steeper cu rves would provide a greater incentive for limited-line manufacturers to apply technology to smaller vehicles. GM argued that steeper and, in their view, fairercurves could be obtained by using salesweighted least-squares regression rather than minimization of the unweighted mean121 absolute deviation. Conversely, students fr om UC Santa Barbara commented that the passenger car and light truck curves should be flatter and should converge over time in order to encourage the market to turn, as the agencies’ analysis assumes it will, away from light trucks and toward passenger cars.

NADA commented that there should be no “cut-off” points (i.e., lower limits or floors), because these de facto “backstops” might limit consumer choice, especially for light trucks—a possibility also suggested by the Alliance. The Alliance and several individual manufacturers also co mmented that the cut-off point for light trucks should be shifted to 72 square feet (from the pr oposed 66 square feet), arguing that the preponderance of high-volume light truck models with footprints greater than 66 square feet is such that a 72 square foot cu t-off point makes it unduly challenging for manufacturers serving the large pickup market and thereby constitutes a de facto backstop. Also, with respect to the smallest light truck models, Honda commented that the cut-off point should be set at the point defining the smallest 10 percent of the fleet, both for consistency with the passenger ca r cut-off point, and to provide a greater incentive for manufacturers to downsize the sm allest light truck m odels (which provide greater functionality than passenger cars).

Other commenters focused on whether the ag encies should have separate curves for different fleets or whether they should have a single curve that applied to both passenger cars and light trucks. This issue is related, to so me extent, to commenters who discussed whether car and truck definitions should change. CARB, Ford, and Toyota122 supported separate curves for cars and trucks, ge nerally stating that different fleets have different functional characteris tics and these characteristics are appropriately addressed by separate curves. Likewise, AIAM, Chry sler, and NADA supported leaving the current definitions of car and truck the same. CBD, ICCT, and NESCAUM supported a single curve, based on concerns about manufactur ers gaming the system and reclassifying passenger cars as light trucks in order to obtain the often-less stringent light truck standard, which could lead to lower bene fits than anticipated by the agencies.

In addition, the students from UC Sa nta Barbara reported being unable to reproduce the agencies’ an alysis to fit curves to the pa ssenger car and light truck fleets, even when using the model, inputs, and exte rnal analysis files posted to NHTSA’s web site when the NPRM was issued.

Having considered public comments, NHTSA and EPA have re-examined the development of curves underlying the st andards proposed in the NPRM, and are promulgating standards based on the same unde rlying curves. The agencies have made this decision considering that, while EISA ma ndates that CAFE sta ndards be defined by a mathematical function in terms of one or more attributes related to fuel economy, neither EISA nor the CAA require that the mathema tical function be limited to the observed or theoretical dependence of fuel economy on the selected attribute or attributes. As a means by which CAFE and GHG standards are specified, the mathematical function can and does properly play a normative role. Therefore, NHTSA and EPA have concluded that, as supported by comments, the mathemati cal function can reasonably be based on a123 blend of analytical and policy considerati ons, as discussed below and in the Joint Technical Support Document.

With respect to GM’s recommendation th at NHTSA and EPA use weighted leastsquares analysis, the agencies find that the market forecast used for analysis supporting both the NPRM and the final rule exhibits the two key characteristics that previously led NHTSA to use minimization of the unweighted Mean Absolute Deviation (MAD) rather than weighted least-squares analysis. First, projected model-specific sales volumes in the agencies’ market forecast cover an extremel y wide range, such that, as discussed in NHTSA’s rulemaking for MY 2011, while unw eighted regression gives low-selling vehicle models and high-selling vehicle models equal emphasis, sales-weighted regression would give some vehicle models considerably more emphasis than other vehicle models. 64 The agencies’ intention is to fi t a curve that describes a technical relationship between fuel economy and footprin t, given comparable levels of technology, and this supports weighting discrete vehicl e models equally. On the other hand, sales weighted regression would allow the differen ce between other vehicle attributes to be reflected in the analysis, and also would reflect consumer demand.

64 For example, the agencies’ market forecast shows MY 2016 sales of 187,00 0 units for Toyota’s 2WD Sienna, and shows 27 model configurations with MY 2 016 sales of fewer than 100 units. Similarly, the agencies’ market forecast shows MY 2016 sales of 268,000 for the Toyota Prius, and shows 29 model configurations with MY 2016 sales of fewer than 100 units. Sales-weighted analysis would give the Toyota Sienna and Prius more than a thousand times the consideration of many vehicle model configurations. Sales-weighted analysis would, therefore, cause a large number of vehicle model configurations to be virtually ignored. See discussion in NHTSA’s final rule for MY 2011 passenger car and light truck CAFE standards, 74 FR 14368 (Mar. 30, 2009), and in NHTSA’s NPRM for that rulemaking, 73 FR 24423-24429 (May 2, 2008).124 Second, even after NHTSA’s “maximum technology” analysis to increase technological parity of vehicle models before fitting curves, the agencies’ market forecast contains many significant out liers. As discussed in NHTSA’s rulemaking for MY 2011, MAD is a statistical procedur e that has been demonstrated to produce more efficient parameter estimates than least-squares analys is in the presence of significant outliers. 65 In addition, the agencies remain concerned that the steeper curves resulting from weighted least-squares analysis would in crease the risk that energy savings and environmental benefits would be lower than projected, because the steeper curves would provide a greater incentive to increase sales of larger vehicles with lower fuel economy levels. Based on these techni cal considerations and these concerns regarding potential outcomes, the agencies have decided not to re-fit curves using weighted least-squares analysis, but note that they may reconsider using least-squares regression in future analysis.

NHTSA and EPA have considered GM’s comment that steeper curves would provide a greater incentive for limited-line ma nufacturers to apply technology to smaller vehicles. While the agencies agree that a steeper curve would, absent any changes in fleet mix, tend to shift average compliance burdens away from GM and toward

65 Id. In the case of a dataset not drawn from a sample with a Gaussian, or normal, distribution, there is often a need to employ robust estimation methods rather than rely on least-squares approach to curve fitting. The least-squares approach has as an underlyi ng assumption that the data are drawn from a normal distribution, and hence fits a curve using a sum-of-squ ares method to minimize errors. This approach will, in a sample drawn from a non-normal distribution, give excessive weight to outliers by making their presence felt in proportion to the square of their dist ance from the fitted curve, and, hence, distort the resulting fit. With outliers in the sample, the typical solution is to use a robust method such as a minimum absolute deviation, rather than a squared term, to es timate the fit (see, e.g., ‘‘ AI Access: Your Access to Data Modeling,’’ at http://www.aiaccess.net/Englis h/Glossaries/GlosMod/e_gm _O_Pa.htm#Outlier). The effect on the estimation is to let the presence of each observation be felt more uniformly, resulting in a curve more representative of the data (see, e.g., Peter Kennedy, A Guide to Econometrics , 3 rd edition, 1992, MIT Press, Cambridge, MA).125 companies that make smaller vehicles, the ag encies are concerned, as stated above, that steeper curves would increase the risk that induced increases in vehicle size could erode projected energy and en vironmental benefits.

NHTSA and EPA have also considered the comments by the students from UC Santa Barbara indicating that the passenger ca r and light truck curves should be flatter and should converge over time. The agencies conclude that flatter curves would reduce the incentives intended in shifting from “flat” CAFE standards to attribute-based CAFE and GHG standards—those being the incentive to res pond to attribute-ba sed standards in ways that minimize compromises in vehicle safety, and the incentive for more manufacturers (than primarily t hose selling a wider range of vehicles) across the range of the attribute to have to increas e the application of fuel-savi ng technologies. With regard to whether the agencies should set separate cu rves or a single one, NHTSA also notes that EPCA requires NHTSA to establish standard s separately for passenger cars and light trucks, and thus concludes that the sta ndards for each fleet should be based on the characteristics of vehicles in each fleet. In other words, the passenger car curve should be based on the characteristics of passenge r cars, and the light truck curve should be based on the characteristics of light trucks—thus to the extent that those characteristics are different, an artificially-forced conve rgence would not accurately reflect those differences. However, such convergence coul d be appropriate depending on future trends in the light vehicle market, specifically further reduction in the differences between passenger car and light truck characteristics. While that trend was more apparent when car-like 2WD SUVs were classified as light trucks, it seems likely to diminish for the126 model year vehicles subject to these rules as the truck fleet will be more purely “trucklike” than has been the case in recent years.

NHTSA and EPA have also considered comments on the maxima and minima that the agencies have applied to “cut o ff” the linear function underlying the proposed curves for passenger cars and light trucks. Contrary to NADA’s suggestion that there should be no such cut-off points, the agenci es conclude that curves lacking maximum fuel economy targets (i.e., minimum CO 2 targets) would result in average fuel economy and GHG requirements that would not be te chnologically feasible or economically practicable for manufacturer s concentrating on those mark et segments. In addition, minimum fuel economy targets (i.e., maximum CO 2 targets) are important to mitigate the risk to energy and environmental benefits of potential market shifts toward large vehicles. The agencies also disagree with comments by the Alliance and several individual manufacturers that the cut-off point for light trucks should be shifted to 72 square feet (from the proposed 66 square feet) to eas e compliance burdens facing manufacturers serving the large pickup market. Such a sh ift would increase the risk that energy and environmental benefits of the standards w ould be compromised by induced increases in the sales of large pickups, in situations where the increased compliance burden is feasible and appropriate. Also, the agencies’ market fo recast suggests that most of the light trucks models with footprints larger than 66 square feet have curb weights near or above 5,000 pounds. This suggests, in turn, that in terms of highway safety, there is little or no need to discourage downsizing of light trucks with footprints larger than 66 square feet. Based on these energy, environmental, technol ogical feasibility, ec onomic practicability,127 and safety considerations, the agencies conclu de that the light truc k curve should be cut off at 66 square feet, as proposed, rather than at 72 square feet. The agencies also disagree with Honda’s suggesti on that the cut-off point for th e smallest trucks be shifted to a larger footprint value, because doing so could potentially increase the incentive to reclassify vehicles in that size range as light trucks, and coul d thereby increase the possibility that energy and environmental be nefits of the rule would be less than projected.

Finally, considering comments by the UC Santa Barbara students regarding difficulties reproducing NHTSA’s analysis, NHTSA reexamined its analysis, and discovered some erroneous en tries in model inputs underlyi ng the analysis used to develop the curves proposed in the NPRM. These errors ar e discussed in NHTSA’s final Regulatory Impact Analysis (F RIA) and have since been corrected. They include the following: incorrect valvetrain phasing and lift inputs for many BMW engines, incorrect indexing for some Daimler models, incorrectly enabled valvetrain technologies for rotary engines and Atkinson cycle engines, omitted baseline applications of cylinder deactivation in some Honda and GM engines, incorrect valve phasing codes for some 4- cylinder Chrysler engines, omitted baseline applications of advanced transmissions in some VW models, incorrectly enabled advanced electrificat ion technologies for several hybrid vehicle models, and incorrect DCT effectiveness estimates for subcompact passenger cars. These errors, while not signi ficant enough to impact the overall analysis of stringency, did affect the fitted slope for the passenger car curve and would have prevented precise replication of NHTSA’s NPRM analysis by outside parties.128 After correcting these errors and rep eating the curve development analysis presented in the NPRM, NHTSA obtained the cu rves shown below in Figures II.C-5 and II.C-6 for passenger cars and light trucks, resp ectively. The fitted curves are shown with the underlying “maximum technology” passe nger car and light truck fleets. For passenger cars, the mean absolute deviation of the sloped portion of the function was 14 percent. For trucks, the co rresponding MAD was 10 percent.1290.0000.0050.0100.0150.0200.0250.0300.0350.0400.0450.0500.0550.06035 40 45 50 55 60 65 70 75 80Footprint (sf)

Fuel Consumption (gpm)Figure II.C-5 Revised “Maximum Technology” PassengerFleet with Fitted Constrained Linear Function1300.0000.0050.0100.0150.0200.0250.0300.0350.0400.0450.0500.0550.06035 40 45 50 55 60 65 70 75 80FuelConsumption(gpm)Footprint (sf)Figure II.C-6 Revised “Maximum Technology” Light Truck with FittedConstrained Linear Function131 This refitted passenger car curve is simila r to that presented in the NPRM, and the refitted light truck curve is nearly identical the corres ponding curve in the NPRM. However, the slope of the refitted passenger car curve is about 27 percent steeper (on a gpm per sf basis) than the curve presented in the NPRM. For passenger cars and light trucks, respectively, Figures II.C-7 and II.C- 8 show the results of adjustment—discussed in the next section—of the above curves to yield the average required fuel economy levels corresponding to the final standards.13220253035404535 40 45 50 55 60 65 70 75 80Target(mpg)Footprint (sf)NPRMFinalRe-FittedFigure II.C-7 MY 2016 Passenger Car Targets: NPRM, Final Rule, and if Using Re-Fitted Curve13320253035404535 40 45 50 55 60 65 70 75 80Target(mpg)Footprint (sf)NPRMFinalRe-FittedFigure II.C-8 MY 2016 Light TruckTargets: NPRM, Final Rule,and if Using Re-Fitted Curve134 While the resultant light truck curves ar e visually indistinguishable from one another, the refitted curve fo r passenger cars would increase stringency for the smallest cars, decrease stringency for th e largest cars, and provide a greater incentive to increase vehicle size throughout the ra nge of footprints within which NHTSA and EPA project most passenger car models will be sold through MY 2016. The agencies are concerned that these changes would make it unduly di fficult for manufacturers to introduce new small passenger cars in the United States , and unduly risk losses in energy and environmental benefits by increasing incenti ves for the passenger car market to shift toward larger vehicles.

Also, the agencies note that the re fitted passenger car curve produces only a slightly closer fit to the corrected fleet than would the curve estimated in the NPRM; with respect to the corrected fleet (between th e “cut off” footprint values, and after the “maximum technology” analysis discussed above ), the mean absolute deviation for the refitted curve is 13.887 percent, a nd that of a refitted curve held to the original slope is 13.933 percent. In other words, the data support the original slope very nearly as well as they support the refitted slope.

Considering NHTSA’s and EPA’s concerns regarding the change in incentives that would result from a refitt ed curve for passenger cars, and considering that the data support the original curves about as well as they woul d support refitted curves, the135 agencies are finalizing CAFE and GHG standa rds based on the curves presented in the
NPRM.

Finally, regarding some commenters’ in ability to reproduce the agencies’ NPRM analysis, NHTSA believes that its correction of the errors discussed above and its release (on NHTSA’s web site) of the updated Vo lpe model and all accompanying inputs and external analysis files should enable outsi de parties to independently reproduce the agencies’ analysis. If outside parties conti nue to experience difficulty in doing so, we encourage them to contact NHTSA, and the agen cy will do its best to provide assistance.

Thus, in summary, the agencies’ appro ach to developing the attribute-based mathematical functions for MY 2012-2016 CAFE and CO 2 standards represents the agencies’ best technical judgment and consider ation of potential outcomes at this time, and we are confident that the conclusions have resulted in appropriate and reasonable standards. The agencies recognize, however, that aspects of thes e decisions may merit updating or revision in future an alysis to support CAFE and CO 2 standards or for other purposes. Consistent with best rulemaking pr actices, the agencies will take a fresh look at all assumptions and appr oaches to curve fitting, a ppropriate attributes, and mathematical functions in the c ontext of future rulemakings.

The agencies also recognized in the NPRM the possibility that lower fuel prices could lead to lower fleetwide fuel economy (and higher CO 2 emissions) than projected in this rule. One way of addressing that concern is through the use of a universal136 standard—that is, an average standard set at a (single) absolute le vel. This is often described as a “backstop standard.” Th e agencies explained that under the CAFE program, EISA requires such a minimum aver age fuel economy standard for domestic passenger cars, but is silent with regard to similar backstops for imported passenger cars and light trucks, while under the CAA, a back stop could be adopted under section 202(a) assuming it could be justified under the relevant statutory criteria. NHTSA and EPA also noted that the flattened portions of the curv es at the largest footprints directionally address the issue of a backstop (i.e., the m pg “floor” or gpm “ceiling” applied to the curves provides a universal and absolute value for that range of footpr ints). The agencies sought comment on whether backstop standa rds, or any other method within the agencies’ statutory authority, should and can be implemented in order to guarantee a level of CO 2 emissions reductions and fuel savings under the attribute-based standards.

The agencies received a number of co mments regarding the need for a backstop beyond NHTSA’s alternative minimum standard. Comments were divided fairly evenly between support for and opposition to additi onal backstop standards. The following organizations supported the need for EP A and NHTSA to have explicit backstop standards: American Council for an Ener gy Efficient Economy (ACEEE), American Lung Association, California Air Resources Board (CARB), Environment America, Environment Defense Fund, Massachusetts De partment of Environmental Protection, Natural Resources Defense Council (NRDC), No rtheast States for Coordinated Air Use Management (NESCAUM), Public Citizen a nd Safe Climate Campaign, Sierra Club, State of Washington Department of Ecol ogy, Union of Concerned Scientists, and a137 number of private citizens. Commenters in favor of additional backstop standards for all fleets for both NHTSA and EPA 66 generally stated that the em issions reductions and fuel savings expected to be achieved by MY 2016 depended on assumptions about fleet mix that might not come to pass, and that vari ous kinds of backstop standards or “ratchet mechanisms” 67 were necessary to ensure that those reductions were achieved in fact. In addition, some commenters 68 stated that manufacturers might build larger vehicles or more trucks during MYs 2012-2016 than the agen cies project, for example, because 1) any amount of slope in target curves encour ages manufacturers to upsize, and 2) lower targets for light trucks than for passenger ca rs encourage manufacturers to find ways to reclassify vehicles as light trucks, such as by dropping 2WD versions of SUVs and offering only 4WD versions, perhaps spu rred by NHTSA’s reclas sification of 2WD SUVs as passenger cars. Both of these mechanisms will be addressed further below. Some commenters also disc ussed EPA authority under the CAA to set backstops, 69 agreeing with EPA’s analysis that section 202 (a) allows su ch standards since EPA has wide discretion under that secti on to craft standards.

The following organizations opposed a backstop: Alliance of Automobile Manufacturers (AAM), Association of Intern ational Automobile Manufacturers (AIAM), Ford Motor Company, National Automobile Dealers Association (NADA), Toyota Motor Company, and the United Auto Workers Uni on. Commenters stating that additional

66 ACEEE, American Lung Associati on, CARB, Christopher Lish, Environment America, EDF, MA DEP, NRDC, NESCAUM, Public Citizen, Sierra Club et al. , SCAQMD, UCS, WA DE 67 Commenters generally defined a “ratchet mechanism” as an automatic re-calcu lation of stringency to ensure cumulative goals are reached by 2016, even if emissions reductions and fuel savings fall short in the earlier years covered by the rulemaking. 68 CBD, MA DEP, NJ DEP, Public Citizen, Sierra Club et al. , UCS 69 CARB, Public Citizen, Sierra Club et al.138 backstops would not be necessary disagreed that upsizing was likely, 70 and emphasized the anti-backsliding characteristics of the ta rget curves. Others argued that universal absolute standards as backstops could restrict consumer choice of vehicles. Commenters making legal arguments under EPCA/EISA 71 stated that Congre ss’ silence regarding backstops for imported passenger cars and light trucks should be construed as a lack of authority for NHTSA to create further back stops. Commenters making legal arguments under the CAA 72 focused on the lack of clear authority under the CAA to create multiple GHG emissions standards for the same fleets of vehicles based on the same statutory criteria, and opposed EPA taking steps that would reduce harmoniza tion with NHTSA in standard setting. Furthermor e, AIAM indicated that EI SA’s requirement that the combined (car and truck) fuel economy level reach at least 35 mpg by 2020 itself constitutes a backstop. 73 One individual 74 commented that while additional backstop standards might be necessary given optimism of fleet mix assumptions, both agencies’

70 For example, the Alliance and Toyota said that up sizing would not be likely because (1) it would not necessarily make compliance with applicable standards eas ier, since larger vehicles tend to be heavier and heavier vehicles tend to achieve worse fuel economy/emissions levels; (2) it may require expensive platform changes; (3) target curves become increasi ngly more stringent from year to year, which reduces the benefits of upsizing; and (4) the mpg floor and gpm ceiling for the largest vehicles (the point at which the curve is “cut off”) discourages manufacturers from continuing to upsize beyond a point because doing so makes it increasingly difficult to meet the flat standard at that part of the curve. 71 AIAM, Alliance, Ford, NADA, Toyota 72 Alliance, Ford, NADA, UAW 73 NHTSA and EPA agree with AIAM that the EISA 35 mpg requirement in MY 2020 has a backstop-like function, in that it requires a certain level of achieved fleetwide fuel economy by a certain date, although it is not literally a backstop standard. Considering that NHTSA’s MY 2011 CA FE standards increased projected average fuel economy requirements (relative to the MY 2010 standards) at a significantly faster rate than would be required to achieve the 35-in-2020 requirement, and considering that the standards being finalized today would increase projected average combin ed fuel economy requiremen ts to 34.1 mpg in MY 2016, four years before MY 2020, the agencies believe that the U.S. vehicle market would have to shift in highly unexpected ways in order to put the 35-in-2020 requirement at risk, even despite the fact that due to the attribute-based standards, average fuel econom y requirements will vary depending on the mix of vehicles produced for sale in the U.S. in each m odel year. The agencies further emphasize that both NHTSA and EPA plan to conduct and document retros pective analyses to evaluate how the market’s evolution during the rulemaking ti meframe compares with the agencies’ forecasts employed for this rulemaking. Additionally, we emphasize that both agenci es have the authority, given sufficient lead time, to revise their standards upwards if necessary to avoid missing the 35-in-2020 requirement. 74 Schade139 authorities would probably need to be revi sed by Congress to clarify that backstop standards (whether for indivi dual fleets or for the nationa l fleet as a whole) were permissible.

In response, EPA and NHTSA remain c onfident that their projections of the future fleet mix are reliable, and that future changes in the fleet mix of footprints and sales are not likely to lead to more than mode st changes in projected emissions reductions or fuel savings. 75 Both agencies thus remain confid ent in these fleet projections and the resulting emissions reductions and fuel savings from the st andards. As explained in Section II.B above, the agencies’ projections of the future fleet are based on the most transparent information currently available to the agencies. In addi tion, there are only a relatively few model years at issue. Moreover, market trends today are consistent with the agencies’ estimates, showing shifts from light trucks to passenger cars and increased emphasis on fuel economy from all vehicles.

Finally, the shapes of the curves, including the “flattening” at the largest footprint values, tend to avoid or minimize regulatory in centives for manufacturers to upsize their fleet to change their compliance burden. Give n the way the curves are fit to the data points (which represent vehicl e models’ fuel economy mapped against their footprint),

75 For reference, NHTSA’s March 2009 final rule establishing MY 2011 CAFE standards was based on a forecast that passenger cars would represent 57.6 percent of the MY 2011 fleet, and that MY 2011 passenger cars and light trucks would average 45.6 square feet (sf) and 55.1 sf, respectively, such that average required CAFE levels would be 30.2 mpg, 24.1 mpg, and 27.3 mpg, respectively, for passenger cars, light trucks, and the overall light -duty fleet. Based on the agencies’ current market fo recast, even as soon as MY 2011, passenger cars will comprise a larger share (59.2 percent) of the light vehicle market; passenger cars and light trucks will, on average, be sm aller by 0.5 sf and 1.3 sf, respectively; and average required CAFE levels will be higher by 0.2 mpg, 0. 3 mpg, and 0.3 mpg, respectively, for passenger cars, light trucks, and the overall light-duty fleet.140 the agencies believe that there is little re al benefit to be gained by a manufacturer upsizing their vehicles. As discussed above, the agencies’ analysis indica tes that, for passenger car models with footprints falling between the two flatte ned portions of the corresponding curve, the actual sl ope of fuel economy with resp ect to footprint, if fit to that data by itself, is about 27 percent steeper than the curve the agencies are promulgating today. This difference sugge sts that manufacturers would, if anything, have more to gain by reducing vehicle footprin t than by increasing vehicle footprint. For light trucks, the agencies’ analysis indicates that, for models with footprints falling between the two flatted portions of the co rresponding curve, the slope of fuel economy with respect to footprint is nearly identical to the curve the agencies are promulgating today. This suggests that, within this range , manufacturers would typically have little incentive to either incrementally increase or reduce vehicle footprint. The agencies recognize that based on economic and consumer demand factors that ar e external to this rule, the distribution of footprin ts in the future may be different (either smaller or larger) than what is projected in this rule. However, the agencies continue to believe that there will not be significant shifts in this distributi on as a direct consequence of this rule.

At the same time, adding another back stop standard would have virtually no effect if the standard was weak, but a more stringent backstop could compromise the objectives served by attribute-based standard s – that they distribute compliance burdens more equally among manufacturers, and at th e same time encourage manufacturers to apply fuel-saving technologies rather than si mply downsizing their vehicles, as they did in past decades under flat st andards. This is why Congr ess mandated attribute-based141 CAFE standards in EISA. This compromise in objectives could occur for any manufacturer whose fleet average was above the backstop, irrespective of why they were above the backstop and irrespective of whet her the industry as a whole was achieving the emissions and fuel economy benefits projecte d for the final standards, the problem the backstop is supposed to address. For exampl e, the projected industry wide level of 250 gm/mile for MY 2016 is based on a mix of manufacturer levels, ranging from approximately 205 to 315 gram/mile 76 but resulting in an indust ry wide basis in a fleet average of 250 gm/mile. Unless the backstop wa s at a very weak le vel, above the high end of this range, then some percentage of manufacturers would be above the backstop even if the performance of the entire industr y remains fully consistent with the emissions and fuel economy levels projected for the fi nal standards. For th ese manufacturers and any other manufacturers who were above the backstop, the objectives of an attribute based standard would be compromised and unnecessary costs would be imposed. This could directionally impose in creased costs for some manufac turers. It would be difficult if not impossible to establish th e level of a backstop standard such that costs are likely to be imposed on manufacturers only when ther e is a failure to achieve the projected reductions across the industry as a whole. An example of this kind of industry wide situation could be when there is a significant sh ift to larger vehicles across the industry as a whole, or if there is a general market shift from cars to trucks. The problem the agencies are concerned about in those circum stances is not with respect to any single manufacturer, but rather is ba sed on concerns over shifts ac ross the fleet as a whole, as compared to shifts in one manufacturer's fleet that may be more than offset by shifts the

76 Based on estimated standards presented in Tables III.B.1-1 and III.B.1-2.142 other way in another manufacturer's fleet. However, in this respect, a traditional backstop acts as a manufacturer specific standard.

The concept of a ratchet mechanism r ecognizes this problem, and would impose the new more stringent standard only when the problem arises acr oss the industry as a whole. While the new more stringent stan dards would enter into force automatically, any such standards would still need to provide adequate lead time fo r the manufacturers. Given the limited number of model years cove red by this rulemaking and the short leadtime already before the 2012 model year, a ra tchet mechanism in this rulemaking that would automatically tighten the standards at some point after model year 2012 is finished and apply the new more stringent standards fo r model years 2016 or ear lier, would fail to provide adequate lead time for any new, more stringent standards

Additionally, we do not believe that th e risk of vehicle upsizing or changing vehicle offerings to “game” the passenger car an d light truck definitions is as great as commenters imply for the model years in question. 77 The changes that commenters suggest manufacturers might make are neither so simple nor so likely to be accepted by consumers. For example, 4WD versions of vehicles tend to be more expensive and, other things being equal, have i nherently lower fuel economy than their 2WD equivalent models. Therefore, although th ere is a market for 4WD vehicles, and some consumers might shift from 2WD vehicles to 4WD vehicles if 4WD becomes available at little or no extra cost, many consumers still may not desire to purchase 4WD vehicles because of

77 We note that NHTSA’s recent clarification of th e light truck definitions has significantly reduced the potential for gaming, and resulted in the reclassification of over a million vehicles from the light truck to the passenger car fleet.143 concerns about cost premium and additio nal maintenance requirements; conversely, many manufacturers often require the 2WD op tion to satisfy demand for base vehicle models. Additionally, increasing the footprint of vehicles requires platform changes, which usually requires a product redesign phase (the agencies estimate that this occurs on average once every 5 years for most models ). Alternatively, turning many 2WD SUVs into 2WD light trucks would re quire manufacturers to squeeze a third row of seats in or significantly increase their GVWR, which al so requires a significant change in the vehicle. 78 The agencies are confident that the anticipated increases in average fuel economy and reductions in average CO 2 emission rates can be achieved without backstops under EISA or the CAA. As noted above, the agencies plan to conduct retrospective analysis to monitor progress. Both agencies have the authority to revise standards if warranted, as long as sufficient lead time is provided.

The agencies acknowledge that the MY 2016 fleet emissions and fuel economy goals of 250 g/mi and 34.1 mpg for EPA and NHTSA respectively are estimates and not standards (the MY 2012-2016 curves are the standards). Changes in fuel prices, consumer preferences, and/or vehicle surv ival and mileage accumulation rates could result in either smaller or larger oil and GHG savings. As explained above and elsewhere in the rule, the agencies believe that the possibility of not meeting (or, alternatively, exceeding) fuel economy and emissions goals exists, but is not likely Given this, and given the potential complexi ties in designing an appropria te backstop, the agencies

78 Increasing the GVWR of a light truck (assuming this was the only goal) can be accomplished in a number of ways, and must include consideration of: (1) redesign of wheel axles; (2) improving the vehicle suspension; (3) changes in tire specification (which w ill likely affect ride quality); (4) vehicle dynamics development (especially with vehicles equipped with electronic stability control); and (5) brake redesign. Depending on the vehicle, some of these changes may be easier or more difficult than others.144 believe the balance here points to not adopti ng additional backstops at this time for the MYs 2012-2016 standards other than NHTSA’s finalizing of the ones required by EPCA/EISA for domestic passenger cars. Neve rtheless, the agencies recognize there are many factors that are inherent ly uncertain which can affect projections in the future, including fuel price and other factors which are unrelated to the standards contained in this final rule. Such factors can affect consum er preferences and are difficult to predict. At this time and based on the available information, the agencies have not included a backstop for model years 2012–2016. However, if circumstances change in the future in unanticipated ways, the agencies may revisit the issue of a backstop in the context of a future rulemaking either for model years 2012- 2016 or as needed for standards for model years beyond 2016. This issue will be disc ussed further in Sections III and IV.

D. Relative Car-Truck Stringency

The agencies proposed fleetwide standards with the projected levels of stringency of 34.1 mpg or 250 g/mi in MY 2016 (as well as the corresponding intermediate year fleetwide standards) for NHTSA and EPA respectively. To determine the relative stringency of passenger car and light truck standards for thos e model years, the agencies were concerned that increasing the difference between the car and truck standards (either by raising the car standards or lowering the truck standards) could encourage manufacturers to build fewer cars and more trucks, likely to the detriment of fuel145 economy and CO 2 reductions. 79 In order to maintain consis tent car/truck standards, the agencies applied a constant ratio between the estimated average required performance under the passenger car and light truck standards, in order to mainta in a stable set of incentives regarding ve hicle classification.

To calculate relative car-truck stringency for the proposal, the agencies explored a number of possible alternatives, and for the reasons described in the proposal used the Volpe model in order to estimate stringencies at which net benefits would be maximized . The agencies have followed the same approach in calculating the relative car-truck stringency for the final standards promulgate d today. Further details of the development of this approach can be found in Section IV of this preamble as well as in NHTSA’s RIA and EIS. NHTSA examined passenger car a nd light truck standard s that would produce the proposed combined average fuel economy levels from Table I.B.2-2 above. NHTSA did so by shifting downward the curves that maximize net benefits, holding the relative stringency of passenger car and light truck standards constant at the level determined by maximizing net benefits, such that the aver age fuel economy required of passenger cars remained 31 percent higher than the average fuel economy required of light trucks. This methodology resulted in the average fuel ec onomy levels for passenger cars and light trucks during MYs 2012-2016 as shown in Tabl e I.B.1-1. The followi ng chart illustrates this methodology of shifting the standards from the levels maximizing net benefits to the levels consistent with the combined fuel economy standards in this final rule.

79 For example, since many 2WD S UVs are classified as passenger cars, manufacturers have already warned that high car standards rela tive to truck standards could create an incentive for them to drop the 2WD version and sell only the 4WD version.1462025303540452011 2012 2013 2014 2015 2016Ave.RequiredFE(mpg)Model YearCombined (National Policy)Cars (Maximizing Net Benefits)Trucks (Maximizing Net Benefits)Combined (Maximizing Net Benefits)Cars (Pending)Trucks (Pending)Combined (Pending)Light TrucksPassenger CarsCombined Ave.Figure II.D-1 Shifting the Standards from the Maximizing Net Benefit Levels to the Levels Consistent with the CombinedFuel Economy Standards in this Rule147 The final car and truck standards fo r EPA (Table I.B.1-4 above) were subsequently determined by first converting th e average required fuel economy levels to average required CO 2 emission rates, and then applyi ng the expected air conditioning credits for 2012-2016. These A/C credits are shown in the following table. Further details of the derivation of thes e factors can be found in Section III of this preamble or in the EPA RIA.

Table II.D-1 Expected Fleet A/C Credits (in CO 2 equivalent g/mi) from 2012-2016 Average Technology Penetration Average credit for cars Average credit for

trucks Average credit for combined fleet 2012 28% 80 3.4 3.8 3.5 2013 40% 4.8 5.4 5.0 2014 60% 7.2 8.1 7.5 2015 80% 9.6 10.8 10.0 2016 85% 10.2 11.5 10.6

The agencies sought comment on the use of this methodology for apportioning the fleet stringencies to relative car and tr uck standards for 2012-2016. General Motors commented that, compared to the passenger ca r standard, the light tr uck standard is too stringent because “the most fuel efficient cars and sma ll trucks already meet the 2016 MY requirements” but “the most fuel effici ent large trucks must increase fuel economy by 20 percent to meet the 2016 MY requirement s.” GM recommended that the agencies relax stringency specifically for large pickups, such as the Silverado.

80 We assume slightly higher A/C penetration in 2012 than was assumed in the proposal only to correct for rounding that occurred in the curve setting process.148 The agencies disagree with the premise of the comment that the standard is too stringent under the applicable statutory provi sions because some existing large trucks are not already meeting a later model year standa rd. Our analysis shows that the standards are not too stringent for manu facturers selling these vehicl es. The agencies’ analyses demonstrate a means by which manufacturers could apply cost-effec tive technologies in order to achieve the standards, and we ha ve provided adequate lead time for the technology to be applied. More important, th e agencies’ analysis demonstrate that the fleetwide emission standards for MY 2016 ar e technically feasible, for example by implementing technologies such as engine downsizing, turbochargi ng, direct injection, improving accessories and tire rolling resistance, etc.

GM did not comment on the use of the methodology applied by the agencies to develop the gap between th e passenger car and light truck standards—only on the outcome of the methodology. For the reasons discussed below, the agencies maintain that the methodology applied above provides an appropriate basis to determine the gap between the passenger car and light truck sta ndards, and disagree with GM’s arguments that the outcome is unfair.

First, GM’s argument incorrectly suggest s that every individual vehicle model must achieve its fuel economy and emissions targets. CAFE standards and new GHG emissions standards apply to fleetwide average performance, not model-specific performance, even though aver age required levels are base d on average model-specific149 targets, and the agencies’ analysis demonstr ates that GM and other manufacturers of large trucks can cost-effectively comply with the new standards.

Second, GM implies that every manufacturer must be challenged equally with respect to fuel economy and emissions. Although NHTSA and EPA maintain that attribute-based CAFE and GHG emissions standards can more evenly balance compliance challenges, attribute-based sta ndards are not intended to and cannot make these challenges equal, and while the agencies are mindful of the potential impacts of the standards on the relative competitiveness of different vehicle manufacturers, there is nothing in EPCA or the CAA 81 requiring that these challenges be equal.

We have also already addressed and reject ed GM’s suggestion of shifting the “cut off” point for light trucks from 66 square f eet to 72 square feet, thereby “dropping the floor” of the target function for light trucks. As discussed in the preceding section, this is so as not to forego the rules’ energy and e nvironmental benefits, and because there is little or no safety basis to discourage dow nsizing of the largest light trucks.

81 As NHTSA explained in the NPRM, the Conference Report for EPCA, as enact ed in 1975, makes clear, and the case law affirms, “a determination of maximum feasible average fuel economy should not be keyed to the single manufacturer which might have the most difficulty achieving a given level of average fuel economy.” CEI-I , 793 F.2d 1322, 1352 (D.C. Cir. 1986). Instead, NHTSA is compelled “to weigh the benefits to the nation of a higher fuel economy standa rd against the difficulties of individual automobile manufacturers.” Id . The law permits CAFE standards exceedin g the projected capability of any particular manufacturer as long as the standard is economically practicable for the industry as a whole. Similarly, EPA is afforded great discretion under section 202 (a) of the CAA to balance issues of technical feasibility, cost, adequacy of lead time, and safe ty, and certainly is not required to do so in a manner that imposes regulatory obligations uniformly on each manufacturer. See NRDC v. EPA , 655 F. 2d 318, 322, 328 (D.C. Cir. 1981) (wide discretion afforded by the statutory factors, and EPA predictions of technical feasibility afforded considerable discretion subject to constraints of reasonableness EPA predictions of technical feasibility afforded considerable discretion subject to constraints of reasonablene ss); and cf. International Harvester Co. v. Ruckelshaus , 479 F. 2d 615, 640 (D.C. Cir. 1973) ( “as long as feasible technology permits the demand for new passenger automobiles to be generally met, the basic requirements of the Act would be satisfied, even though this might occasion fewer models and a more limited choice of engine types”).150 Finally, NHTSA and EPA disagree with GM ’s claim that the outcome of the agencies’ approach is unfairly burdensome for light trucks as compared to passenger cars. Based on the agencies’ market forecast, NHTSA ’s analysis indicates that incremental technology outlays could, on average, be compar able for passenger cars and light trucks under the final CAFE standards, and further indicates that the ratio of total benefits to total costs could be greater under the final light truck standards than under the final passenger car standards.

E. Joint Vehicle Technology Assumptions

Vehicle technology assumptions, i.e., a ssumptions about technologies' cost, effectiveness, and the rate at which they can be incorporated into new vehicles, are often controversial as they have a significant impact on the levels of the standards. The agencies must, therefore, take great care in developing and justifying these estimates. In developing technology inputs for the anal ysis of the MY 2012-2016 standards, the agencies reviewed the technology assumptions that NHTSA used in setting the MY 2011 standards, the comments that NHTSA received in respons e to its May 2008 Notice of Proposed Rulemaking (NPRM), and the comments received in response to the NPRM for this rule. This review is consistent with the request by President Obama in his January 26 memorandum to DOT. In addition, the agencies reviewed the techno logy input estimates identified in EPA’s July 2008 Advance Noti ce of Proposed Rulemaking. The review of151 these documents was supplemented with updated information from more current literature, new product plans from manufactur ers, and from EPA cer tification testing.

As a general matter, EPA and NHTSA be lieve that the best way to derive technology cost estimates is to conduct real-world tear down studies. Most of the commenters on this issue agreed. The adva ntages not only lie in the rigor of the approach, but also in its transparency. Th ese studies break down each technology into its respective components, evaluate the costs of each component, and build up the costs of the entire technology based on the contribu tion of each component and the processes required to integrate them. As such, tear down studies re quire a significant amount of time and are very costly. EPA has been c onducting tear down studies to assess the costs of vehicle technologies under a contract with FEV. Further details for this methodology is described below and in the TSD.

Due to the complexity and time in curred in a tear down study, only a few technologies evaluated in this rulemaking have been costed in this manner thus far. The agencies prioritized the technologies to be costed first based on how prevalent the agencies believed they might be likely to be during the rulemaking time frame, and based on their anticipated cost-effectiveness. Th e agencies believe that the focus on these important technologies (listed below) is sufficien t for the analysis in this rule, but EPA is continuing to analyze more technologies beyond th is rule as part of studies both already underway and in the future. For most of the other technologies, because tear down studies were not yet available, the agencies d ecided to pursue, to the extent possible, the152 Bill of Materials (BOM) approach as ou tlined in NHTSA’s MY 2011 final rule. A similar approach was used by EPA in the EPA 2008 Staff Technical Report. This approach was recommended to NHTSA by Ricardo, an international engineering consulting firm retained by NHTSA to aid in the analysis of public comments on its proposed standards for MYs 2011-2015 because of its expertise in the area of fuel economy technologies. A BOM approach is on e element of the process used in tear down studies. The difference is that under a BOM approach, the build up of cost estimates is conducted based on a review of cost and effectiveness estimates for each component from available literature, while under a tear down study, the cost estimates which go into the BOM come from the tear down study itself. To the extent that the agencies departed from the MY 2011 CAFE fina l rule estimates, the agencies explained the reasons and provided supporting analyses in the Technical Support Document.

Similarly, the agencies followed a BOM approach for developing the technology effectiveness estimates, insofar as the BOM de veloped for the cost estimates helped to inform the appropriate effectiveness values derived from the literature review. The agencies supplemented the information with results from available simulation work and real world EPA certification testing.

The agencies would also like to note that per the Energy Independence and Security Act (EISA), the National Academies of Sciences has been conducting a study for NHTSA to update Chapter 3 of their 2002 NAS Report, wh ich presents technology effectiveness estimates for light-duty vehicles . The update takes a fresh look at that list153 of technologies and their associated cost and effectiveness values. The updated NAS report was expected to be available on September 30, 2009, but has not been completed and released to the public. The results from this study thus are unavailable for this rulemaking. The agencies look forward to cons idering the results from this study as part of the next round of rulemaking for CAFE/GHG standards.

1. What Technologies Did the Agencies Consider?

The agencies considered over 35 vehicle technologies that manufacturers could use to improve the fuel economy and reduce CO 2 emissions of their vehicles during MYs 2012-2016. The majority of the technologies described in this section are readily available, well known, and could be incorporat ed into vehicles once production decisions are made. Other technologies considered may not currently be in production, but are beyond the research phase and under developmen t, and are expected to be in production in the next few years. These are technologies which can, for the most part, be applied both to cars and trucks, and which are capab le of achieving significant improvements in fuel economy and reductions in CO 2 emissions, at reasonable co sts. The agencies did not consider technologies in the res earch stage because th e lead time available for this rule is not sufficient to move most of these technologies from research to production.

The technologies considered in the agencies ’ analysis are briefly described below. They fall into five broad cat egories: engine technologi es, transmission technologies, vehicle technologies, electrifi cation/accessory technologies, and hybrid technologies. For154 a more detailed description of each technology and their costs and effectiveness, we refer the reader to Chapter 3 of the Joint TSD, Chapter III of NHTSA’s FRIA, and Chapter 1 of EPA’s final RIA. Technologies to reduce CO 2 and HFC emissions from air conditioning systems are discussed in Secti on III of this preamble and in EPA’s final
RIA.

Types of engine technologies that improve fuel economy and reduce CO 2 emissions include the following:

• Low-friction lubricants – low viscosity and advanced low friction lubricants oils are now available with improved pe rformance and better lubrication. If manufacturers choose to make use of thes e lubricants, they would need to make engine changes and possibly conduct durab ility testing to accommodate the lowfriction lubricants.

• Reduction of engine friction losses – can be achieved th rough low-tension piston rings, roller cam followers, improved mate rial coatings, more optimal thermal management, piston surface treatments, a nd other improvements in the design of engine components and subsystems that improve engine operation.

• Conversion to dual overhead cam with dual cam phasing – as applied to overhead valves designed to increase the air flow with more than two valves per cylinder and reduce pumping losses.155 • Cylinder deactivation – deactivates the intake and exhaust valves and prevents fuel injection into some cylinders duri ng light-load operation. The engine runs temporarily as though it were a smalle r engine which substantially reduces pumping losses.

• Variable valve timing – alters the timing of the inta ke valve, exhaust valve, or both, primarily to reduce pumping losses, increase specific power, and control residual gases.

• Discrete variable valve lift – increases efficiency by optimizing air flow over a broader range of engine operation which reduces pumping losses. Accomplished by controlled switching between two or more cam profile lobe heights.

• Continuous variable valve lift – is an electromechanica lly controlled system in which valve timing is changed as lift hei ght is controlled. This yields a wide range of performance optimization and vol umetric efficiency, including enabling the engine to be valve throttled.

• Stoichiometric gasoline di rect-injection technology – injects fuel at high pressure directly into the combustion chamber to improve cooling of the air/fuel charge within the cylinder, which allows fo r higher compression ratios and increased thermodynamic efficiency.156 • Combustion restart – can be used in conjunction with gasoline direct-injection systems to enable idle-off or start-stop functionality. Similar to other start-stop technologies, additional enablers, such as electric power steering, accessory drive components, and auxiliary oil pump, might be required.

• Turbocharging and downsizing – increases the available airflow and specific power level, allowing a reduced engine si ze while maintaining performance. This reduces pumping losses at lighter loads in comparison to a larger engine.

• Exhaust-gas recirculation boost – increases the exhaust-ga s recirculation used in the combustion process to increase thermal efficiency and reduce pumping losses.

• Diesel engines – have several characteristics that give superior fuel efficiency, including reduced pumping losses due to la ck of (or greatly reduced) throttling, and a combustion cycle that operates at a higher compression ratio, with a very lean air/fuel mixture, relative to an eq uivalent-performance gasoline engine. This technology requires additiona l enablers, such as NO x trap catalyst after-treatment or selective catalytic reduction NO x after-treatment. The cost and effectiveness estimates for the diesel engine and aftertreatment system utilized in this final rule have been revised from the NHTSA MY 2011 CAFE final rule. Additionally, the diesel technology option has been made available to small cars in the Volpe and OMEGA models. Though this is not expect ed to make a significant difference in the modeling results, the agencies agreed with the commenters that supported such a revision.157 Types of transmission technol ogies considered include:

• Improved automatic tr ansmission controls – optimizes shift schedule to maximize fuel efficiency under wide ranging cond itions, and minimizes losses associated with torque converter slip through lock-up or modulation.

• Six-, seven-, and eight-speed automatic transmissions – the gear ratio spacing and transmission ratio are optimized to enable the engine to operate in a more efficient operating range over a broader range of vehicle operating conditions.

• Dual clutch or automated shift manual transmissions – are similar to manual transmissions, but the vehicle controls shifting and launch functions. A dualclutch automated shift manual transmissi on uses separate clutches for evennumbered and odd-numbered gears, so the next expected gear is pre-selected, which allows for faster and smoother shifting.

• Continuously variable transmission – commonly uses V-shaped pulleys connected by a metal belt rather than gears to provide ratios for operation. Unlike manual and automatic transmissions with fixed transmission ratios, continuously variable transmissions can provide fully variable and an infinite number of transmission ratios that enable the engine to operate in a more efficient operating range over a broader range of vehicle operating conditions.158 • Manual 6-speed transmission –offers an additional gear ratio, often with a higher overdrive gear ratio, than a 5-speed manual transmission.

Types of vehicle technologi es considered include:

• Low-rolling-resistance tires – have characteristics that reduce frictional losses associated with the energy dissipated in the deformation of the tires under load, thereby improving fuel economy and reducing CO 2 emissions.

• Low-drag brakes – reduce the sliding friction of disc brake pads on rotors when the brakes are not engaged because the brake pads are pulled away from the

rotors.

• Front or secondary axle disconnect for four-wheel drive systems – provides a torque distribution disconnect between fr ont and rear axles when torque is not required for the non-driving axle. This results in the reduction of associated parasitic energy losses.

• Aerodynamic drag reduction – is achieved by changing vehicle shape or reducing frontal area, including sk irts, air dams, underbody c overs, and more aerodynamic side view mirrors.

• Mass reduction and material substitution – Mass reduction encompasses a variety of techniques ranging from improved desi gn and better component integration to159 application of lighter and higher-strength materials. Mass reduction is further compounded by reductions in engine power and ancillary systems (transmission, steering, brakes, suspension, etc.). The agencies recognize th ere is a range of diversity and complexity for mass reduction and material substitution technologies and there are many techni ques that automotive suppliers and manufacturers are using to achieve the leve ls of this technology that the agencies have modeled in our analysis for the final standards.

Types of electrification/ accessory and hybrid technol ogies considered include:

• Electric power steering (EPS) – is an electrically-assist ed steering system that has advantages over traditio nal hydraulic power steeri ng because it replaces a continuously operated hydraulic pump, ther eby reducing parasitic losses from the accessory drive.

• Improved accessories (IACC) – may include high efficiency alternators, electrically driven (i.e., on-demand) wate r pumps and cooling fans. This excludes other electrical accessories such as elect ric oil pumps and electrically driven air conditioner compressors. The latter is c overed explicitly within the A/C credit
program.

• Air Conditioner Systems – These technologies include improved hoses, connectors and seals for leakage cont rol. They also include improved compressors, expansion valves, heat ex changers and the control of these160 components for the purposes of improving tailpipe CO 2 emissions as a result of A/C use. These technologies are discu ssed later in this pr eamble and covered separately in the EPA RIA.

• 12-volt micro-hybrid (MHEV) – also known as idle-stop or start-stop and commonly implemented as a 12-volt belt-dri ven integrated starter-generator, this is the most basic hybrid system that faci litates idle-stop capa bility. Along with other enablers, this system replaces a common alternator with a belt-driven enhanced power starter-alternator, an d a revised accessory drive system.

• Higher Voltage Stop-Start/Belt Integr ated Starter Generator (BISG) – provides idle-stop capability and uses a higher vol tage battery with increased energy capacity over typical automotive batteries. The higher system voltage allows the use of a smaller, more powerful electric mo tor. This system replaces a standard alternator with an enhanced power, hi gher voltage, higher efficiency starteralternator, that is belt driven and that can recover braking energy while the vehicle slows down (regenerative braking).

• Integrated Motor Assist (IMA)/Crank integrated starter generator (CISG) – provides idle-stop capability and uses a high voltage battery with increased energy capacity over typical automotive ba tteries. The higher system voltage allows the use of a smaller, more powerfu l electric motor and reduces the weight of the wiring harness. This system replaces a standard alternator with an enhanced power, higher voltage, higher e fficiency starter-alternator that is161 crankshaft mounted and can recover brak ing energy while the vehicle slows down (regenerative braking).

• 2-mode hybrid (2MHEV) – is a hybrid electric drive system that uses an adaptation of a conventional stepped-ra tio automatic transmission by replacing some of the transmission clutches with two electric motors that control the ratio of engine speed to vehicle speed, while clut ches allow the motors to be bypassed. This improves both the transmission torque capacity for heavy-duty applications and reduces fuel consumption and CO 2 emissions at highway speeds relative to other types of hybrid electric drive systems.

• Power-split hybrid (PSHEV) – a hybrid electric drive system that replaces the traditional transmission with a single planetary gearset and a motor/generator. This motor/generator uses the engine to either charge the battery or supply additional power to the drive motor. A second, more powerful motor/generator is permanently connected to the vehicle’s final drive and always turns with the wheels. The planetary gear splits engine power between the first motor/generator and the drive motor to eith er charge the battery or supply power to the wheels.

• Plug-in hybrid electric vehicles (PHEV) – are hybrid electric vehicles with the means to charge their battery packs from an outside source of electricity (usually the electric grid). These vehicles have larger battery packs with more energy storage and a greater capabil ity to be discharged than other hybrids. They also162 use a control system that allows the batte ry pack to be substantially depleted under electric-only or blended m echanical/elect ric operation.

• Electric vehicles (EV) – are vehicles with all-elec tric drive and with vehicle systems powered by energy-optimized batt eries charged primarily from grid electricity.

The cost estimates for the various hybrid systems have been revised from the estimates used in the MY 2011 CAFE final rule , in particular with respect to estimated battery costs.

2. How did the Agencies Determine the Costs and Effectiveness of Each of These Technologies?

As mentioned above, EPA and NHTSA belie ve that the best way to derive technology cost estimates is to conduct real-world tear down studies. To date, the costs of the following five technologies have been ev aluated with respect to their baseline (or replaced) technologies. For these technologies noted below, the agencies relied on the tear down data available and scaling me thodologies used in EPA’s ongoing study with FEV. Only the cost estimate for the first technology on the list below was used in the NPRM. The others were completed subse quent to the publication of the NPRM.163 1. Stoichiometric gasoline direct inje ction and turbo charging with engine downsizing (T-DS) for a large DOHC 4 cylinder engine to a small DOHC (dual overhead cam) 4 cylinder engine. 2. Stoichiometric gasoline direct inje ction and turbo charging with engine downsizing for a SOHC si ngle overhead cam) 3 valve/cylinder V8 engine to a SOHC V6 engine. 3. Stoichiometric gasoline direct inje ction and turbo charging with engine downsizing for a DOHC V6 engine to a DOHC 4 cylinder engine. 4. 6-speed automatic transmission replacing a 5-speed automatic transmission. 5. 6-speed wet dual clutch transmission (DCT) replacing a 6-speed automatic transmission.

This costing methodology has been pub lished and gone through a peer review. 82 Using this tear down costing methodology, FE V has developed costs for each of the above technologies. In addi tion, FEV and EPA extrapolated the engine downsizing costs for the following scenarios that were outside of the noted study cases: 83

1. Downsizing a SOHC 2 valve/cylinder V8 engine to a DOHC V6. 2. Downsizing a DOHC V8 to a DOHC V6. 3. Downsizing a SOHC V6 engine to a DOHC 4 cylinder engine. 4. Downsizing a DOHC 4 cylinder engine to a DOHC 3 cylinder engine.

82 EPA-420-R-09-020; EPA docket number EPA-HQ-OAR-2009-0472-11282 and 11285 83 “Binning of FEV Costs to GDI, Turbo-charging, and Engine Downsizing,” memorandum to Docket EPA-HQ-OAR-2009-0472, from Michael Olechiw, U.S. EPA, dated March 25, 2010.164 The agencies relied on the findings of FEV in part for estimating the cost of these technologies in this rulema king. However, for some of the technologies, NHTSA and EPA modified FEV’s estimated costs. FEV made the assumption that these technologies would be mature when produced in large vo lumes (450,000 units or more). The agencies believe that there is some uncertainty rega rding each manufacturer’s near-term ability to employ the technology at the volumes assumed in the FEV analysis. There is also the potential for near term (earli er than 2016) supplier-level Engineering, Design and Testing (ED&T) costs to be in excess of those c onsidered in the FEV analysis as existing equipment and facilities are converted to pr oduction of new technologies. The agencies have therefore decided to average the FEV resu lts with the NPRM values in an effort to account for these near-term factors. This methodology was done for the following technologies:

1. Converting a port-fuel injected (PFI) DOHC I4 to a turbocharged-downsizedstoichiometric GDI DOHC I3. 2. Converting a PFI DOHC V6 engine to a T-DS-stoichiometric GDI DOHC I4. 3. Converting a PFI SOHC V6 engine to a T-DS-stoichiometric GDI DOHC I4. 4. Converting a PFI DOHC V8 engine to a T-DS-stoichiometric GDI DOHC V6. 5. Converting a PFI SOHC 3V V8 engine to a T-DS-stoichiometric GDI DOHC
V6. 6. Converting a PFI SOHC 2V V8 engine to a T-DS-stoichiometric GDI DOHC
V6.165 7. Replacing a 4-speed automatic transmission with a 6-speed automatic transmission. 8. Replacing a 5-speed automatic transmission with a 6-speed automatic transmission. 9. Replacing a 6-speed automatic transmi ssion with a 6-speed wet dual clutch transmission.

For the I4 to Turbo GDI I4 study applie d in the NPRM, the agencies requested from FEV an adjusted cost estimate which accounted for these uncertainties as an adjustment to the base technology burden rate. 84 These new costs are used in the final rules. These details are also furthe r described in the memo to the docket. 85 The confidential information provided by manuf acturers as part of their product plan submissions to the agencies or discussed in meetings between the agencies and the manufacturers and suppliers served largel y as a check on publicly-available data.

For the other technologies, considering all sources of information (including public comments) and using the BOM approach, the agencies worked together intensively to determine component costs fo r each of the technologies and build up the costs accordingly. Where estimates diffe r between sources, we have used our

84 Burden costs include the following fixed and variable costs: rented and leased equipment; manufacturing equipment depreciation; plant office equipment depreciation; utilities expense; insurance (fire and general); municipal taxes; plant floor space (e quipment and plant offices); mainte nance of manufacturing equipment - non-labor; maintenance of manufacturing building - general, internal and external, parts, and labor; operating supplies; perishable and supplier-owned tooling; all other plant wages (excluding direct, indirect and MRO labor); returnable dunnage maintenance; an d intra-company shipping costs (see EPA-HQ-OAR2009-0472-0149). 85 “Binning of FEV Costs to GDI, Turbo-charging, and Engine Downsizing,” memorandum to Docket EPA-HQ-OAR-2009-0472, from Michael Olechiw, U.S. EPA, dated March 25, 2010.166 engineering judgment to arrive at what we believe to be the best available cost estimate, and explained the basis for that exercise of judgment in the TSD. Building on NHTSA’s estimates developed for the MY 2011 CAFE final rule and EPA’s Advance Notice of Proposed Rulemaking, which relied on the EPA 2008 Staff Technical Report, 86 the agencies took a fresh look at technology cost and effectiveness values for purposes of the joint rulemaking under the National Program. Fo r costs, the agencies reconsidered both the direct or “piece” costs and indirect cost s of individual component s of technologies. For the direct costs, the agencies followed a bill of materials (BOM) approach employed in NHTSA’s MY 2011 final rule based on recommendation from Ricardo, Inc., as described above. EPA used a similar appro ach in the EPA 2008 Staff Technical Report. A bill of materials, in a general sense, is a list of components or sub-systems that make up a system—in this case, an item of fuel economy-improving technology. In order to determine what a system costs, one of the fi rst steps is to determine its components and what they cost.

NHTSA and EPA estimated these component s and their costs based on a number of sources for cost-related information. The objective was to use those sources of information considered to be most credible for projecting the costs of individual vehicle technologies. For example, while NHTSA a nd Ricardo engineers had relied considerably in the MY 2011 final rule on the 2008 Mart ec Report for costing contents of some technologies, upon further joint review and for purposes of the MY 2012-2016 standards, the agencies decided that some of the cos ting information in that report was no longer

86 EPA Staff Technical Report: Cost and Effectiven ess Estimates of Technologies Used to Reduce LightDuty Vehicle Carbon Dioxide Emissions. EPA420-R-08-008, March 2008.167 accurate due to downward trends in commodity pr ices since the publicati on of that report. The agencies reviewed, then revalidated or updated cost estimates for individual components based on new information. Thus , while NHTSA and EPA found that much of the cost information used in NHTSA’s MY 2011 final rule and EPA’s staff report was consistent to a great extent, the agencies , in reconsidering information from many

sources, 87, 88, 89, 90, 91, 92, 93 revised several component costs of several major technologies: turbocharging with engine downsizing (as described above), mild and strong hybrids, diesels, stoichiometric gasoline direct injection fuel systems, and valve train lift technologies. These are discu ssed at length in the Joint TSD and in NHTSA’s final RIA.

Once costs were determined, they were ad justed to ensure that they were all expressed in 2007 dollars using a ratio of GD P values for the associated calendar years, 94
and indirect costs were accounted for usi ng the ICM (indirect cost multiplier) approach explained in Chapter 3 of the Joint TSD, rather than using the traditional Retail Price Equivalent (RPE) multiplier approach. A report explaining how EPA developed the ICM

87 National Research Council, “Effectiveness and Imp act of Corporate Averag e Fuel Economy (CAFE) Standards,” National Academy Press, Washington, DC (2002) (the “2002 NAS Report”), available at http://www.nap.edu/openb ook.php?isbn=0309076013 (last accesse d August 7, 20 09-update) 88 Northeast States Center for a Clean Air Future (NESCCAF), “Reducing Greenhouse Gas Emissions from Light-Duty Motor Vehicles,” 2004 (the “2004 NESCCAF Report”), available at http://www.nesccaf .org/documents/rpt04 0923ghglightduty.pdf (last accesse d August 7, 2009-update) 89 “Staff Report: Initial Statement of Reasons fo r Proposed Rulemaking, Public Hearing to Consider Adoption of Regulations to Control Greenhouse Gas Emissions from Motor Vehicles,” California Environmental Protection Agency, Air Resources Board, August 6, 2004. 90 Energy and Environmental Analysis, Inc., “Technology to Improve the Fuel Economy of Light Duty Trucks to 2015,” 2006 (the “2006 EEA Report”), Docket EPA-HQ-OAR-2009-0472 91 Martec, “Variable Costs of Fuel Economy Technologies,” June 1, 2008, (the “2008 Martec Report”) available at Docket No. NHTSA-2008-0089-0169.1 92 Vehicle fuel economy certification data 93 Confidential data submitted by manufacturers in response to the March 2009 and other requests for product plans. 94 NHTSA examined the use of the CPI multiplier instead of GDP for adjusting these dollar values, but found the difference to be exceedingly small – only $0.14 over $100.168 approach can be found in the docket for this rule. The comments addressing the ICM approach were generally positive and encourag ing. However, one commenter suggested that we had mischaracterized the complexity of a few of our technologies, which would result in higher or lower markups than pr esented in the NPRM. That commenter also suggested that we had used the ICMs as a means of placing a higher level of manufacturer learning on the cost estimates. The latter comment is not true and the methodology behind the ICM approach is explai ned in detail in the reports that are available in the docket for this rule. 95 The former is open to debate given the subjective nature of the engineering analysis behi nd it, but upon further thought both agencies believe that the complexities used in the NPRM were appropriate and have, therefore, carried those forward into the final rule. We discuss this in greater detail in the Response to Comments document.

Regarding estimates for technology e ffectiveness, NHTSA and EPA also reexamined the estimates from NHTSA’s MY 2011 final rule and EPA’s ANPRM and 2008 Staff Technical Report, which were la rgely consistent with NHTSA’s 2008 NPRM estimates. The agencies also reconsidered other sources such as the 2002 NAS Report, the 2004 NESCCAF report, recent CAFE compliance data (by comparing similar vehicles with different technol ogies against each other in fu el economy testing, such as a Honda Civic Hybrid versus a directly comp arable Honda Civic conventional drive), and confidential manufacturer estimates of t echnology effectiveness. NHTSA and EPA

95 Rogozhin, Alex, Michael Gallaher, and Walter McManus, “Automobile Industry Retail Price Equivalent and Indirect Cost Multipliers,” EPA 420-R-09-003 , Docket EPA Docket EP A-HQ-OAR-2009-0472-0142, February 2009, http://epa.gov/otaq/ld-hwy/420r09003.pdf ; A. Rogozhin et al., International Journal of Production Economics 124 (2010) 360–368, Volume 124, Issue 2, April 2010.169 engineers reviewed effectiveness information from the multiple sources for each technology and ensured that such effectiv eness estimates were based on technology hardware consistent with the BOM components us ed to estimate costs. The agencies also carefully examined the pertinent public comm ents. Together, they compared the multiple estimates and assessed their validity, taking ca re to ensure that common BOM definitions and other vehicle attributes such as performa nce, refinement, and drivability were taken into account. However, because the agen cies’ respective models employ different numbers of vehicle subclasses and use differe nt modeling techniques to arrive at the standards, direct comparison of BOMs was so mewhat more complicated. To address this and to confirm that the outputs from the di fferent modeling techniques produced the same result, NHTSA and EPA developed mapping t echniques, devising technology packages and mapping them to corresponding incremen tal technology estimates. This approach helped compare the outputs from the increm ental modeling technique to those produced by the technology packaging approach to ensure results that are cons istent and could be translated into the respectiv e models of the agencies.

In general, most effectiveness estimates used in both the MY 2011 final rule and the 2008 EPA staff report were determined to be accurate and were carried forward without significant chan ge first into the NPRM, and now into these final rules. When NHTSA and EPA’s estimates for effectiveness diverged slightly due to differences in how the agencies apply technologies to vehicl es in their respective models, we report the ranges for the effectiveness values used in each model. There were only a few comments on the technology effectiveness estimates used in the NPRM. Most of the technologies170 that were mentioned in the comments were the more advanced technologies that are not assumed to have large penetrations in the market within the timeframe of this rule, notably hybrid technologies. Even if the e ffectiveness figures for hybrid vehicles were adjusted, it would have made little difference in the NHTSA and EPA analysis of the impacts and costs of the rule. The respons e to comments document has more specific responses to these comments.

The agencies note that the effectivene ss values estimated for the technologies considered in the modeling analyses may repr esent average values, and do not reflect the enormous spectrum of possible values that could result from adding the technology to different vehicles. For exampl e, while the agencies have estimated an effectiveness of 0.5 percent for low friction lubricants, each vehicle could have a unique effectiveness estimate depending on the baseline vehicle’s o il viscosity rating. Similarly, the reduction in rolling resistance (and thus the improveme nt in fuel economy and the reduction in CO 2 emissions) due to the application of low ro lling resistance tires depends not only on the unique characteristics of the tires origin ally on the vehicle, but on the unique characteristics of the tires being applied, char acteristics which must be balanced between fuel efficiency, safety, and performance. Aerodynamic drag reduction is much the same—it can improve fuel economy and reduce CO 2 emissions, but it is also highly dependent on vehicle-specific functional objecti ves. For purposes of the final standards, NHTSA and EPA believe that employing av erage values for t echnology effectiveness estimates, as adjusted depending on vehicl e subclass, is an appropriate way of171 recognizing the potential va riation in the specific benefits that individual manufacturers (and individual vehicles) might obtain from adding a fuel-saving technology.

Chapter 3 of the Joint Technical S upport Document contains a detailed description of our assessment of vehicle technology cost and effectiveness estimates. The agencies note that the technology costs included in this final rule take into account only those associated with th e initial build of the vehicl e. Although comments were received to the NPRM that suggested there c ould be additional maintenance required with some new technologies (e.g., turbocharging, hybrids, etc.), and that additional maintenance costs could occur as a result, th e agencies do not believe that the amount of additional cost will be significant in the timeframe of this rulemaking, based on the relatively low application rate s for these technologies. Th e agencies will undertake a more detailed review of these potential costs in preparation for the next round of CAFE/GHG standards.

F. Joint Economic Assumptions

The agencies’ final analysis of alte rnative CAFE and GHG standards for the model years covered by this final rulemaking rely on a range of forecast information, economic estimates, and input parameters. Th is section briefly describes the agencies’ choices of specific parameter values. These economic values play a significant role in determining the benefits of bot h CAFE and GHG standards.172 In reviewing these variables and the ag ency’s estimates of their values for purposes of this final rule, NHTSA and EP A reconsidered previous comments that NHTSA had received, reviewed newly availa ble literature, and reviewed comments received in response to the proposed rule. For this final rule, we made three major changes to the economic assumptions. First, we revised the tec hnology costs to reflect more recently available data. Second, we updated fuel price and transportation demand assumptions to reflect the Annual Energy Outlo ok (AEO) 2010 Early Release. Third, we have updated our estimates of the social cost of carbon (SCC) based on a recent interagency process. The key economic a ssumptions are summarized below, and are discussed in greater detail in Section III (E PA) and Section IV (NHT SA), as well as in Chapter 4 of the Joint TSD, Chapter VIII of NHTSA’s RIA and Chapter 8 of EPA’s RIA.

• Costs of fuel economy-improving technologies – These estimates are presented in summary form above and in more detail in the agencies’ resp ective sections of this preamble, in Chapter 3 of the Join t TSD, and in the agencies’ respective RIAs. The technology cost estimates used in this analysis are intended to represent manufacturers’ direct costs fo r high-volume production of vehicles with these technologies and sufficient experience with their applicati on so that all cost reductions due to “learning curve” effects have been fully realized. Costs are then modified by applying near-term indirect cost multipliers ranging from 1.11 to 1.64 to the estimates of vehicle manufact urers’ direct cost s for producing or acquiring each technology to impr ove fuel economy, depending on the complexity of the technology and the tim e frame over which costs are estimated.173 This accounts for both the direct and indi rect costs associated with implementing new technologies in response to this final rule. The t echnology cost estimates for a select group of technologies have cha nged since the NPRM. These changes, as summarized in Section II.E and in Chapte r 3 of the Joint TSD, were made in response to updated cost estimates ava ilable to the agencies shortly after publication of the NPRM, not in response to comments. In general, commenters were supportive of the cost estimates used in the NPRM and the transparency of the methodology used to generate them.

• Potential opportunity costs of improved fuel economy – This estimate addresses the possibility that achieving the fuel economy improvements required by alternative CAFE or GHG st andards would require manuf acturers to compromise the performance, carrying capacity, safety, or comfort of their vehicle models. If it did so, the resulting sacrifice in the valu e of these attributes to consumers would represent an additional cost of achieving the required improvements, and thus of manufacturers’ compliance with stricter st andards. Currently the agencies assume that these vehicle attributes do not cha nge, and include the co st of maintaining these attributes as part of the cost es timates for technologies. However, it is possible that the technology co st estimates do not include adequate allowance for the necessary efforts by manufacturers to maintain vehicle performance, carrying capacity, and utility while improving fuel economy and reducing GHG emissions. While, in principle, consumer vehicle de mand models can measure these effects, these models do not appear to be robust across specifications, si nce authors derive174 a wide range of willingness-to-pay values for fuel economy from these models, and there is not clear guidance from the literature on whether one specification is clearly preferred over another. This i ssue is discussed in EPA’s RIA, Section 8.1.2 and NHTSA’s RIA Section VIII.H. The agencies requested comment on how to estimate explici tly the changes in vehicl e buyers’ welfare from the combination of higher prices for new ve hicle models, increases in their fuel economy, and any accompanying changes in vehicle attributes such as performance, passenger- and cargo-carry ing capacity, or other dimensions of utility. Commenters did not provide r ecommendations for how to evaluate the quality of different models or identify a model appropriate for the agencies’ purposes. Some commenters expressed vari ous concerns about the use of existing consumer vehicle choice models. Wh ile EPA and NHTSA are not using a consumer vehicle choice model to analyze th e effects of this rule, we continue to investigate these models.

• The on-road fuel economy “gap” – Actual fuel economy levels achieved by lightduty vehicles in on-road dr iving fall somewhat short of their levels measured under the laboratory-like test conditions used by NHTSA and EPA to establish compliance with the final CAFE and GHG standards. The agencies use an onroad fuel economy gap for light-duty vehi cles of 20 percent lower than published fuel economy levels. For example, if the measured CAFE fuel economy value of a light truck is 20 mpg, the on-road fuel economy actually achieved by a typical175 driver of that vehicle is expected to be 16 mpg (20*.80). 96 NHTSA previously used this estimate in its MY 2011 final rule, and the agencies confirmed it based on independent analysis for use in this FRM. No substantive comments were received on this input.

• Fuel prices and the value of saving fuel – Projected future fuel prices are a critical input into the preliminary economic analys is of alternative standards, because they determine the value of fuel savi ngs both to new vehicle buyers and to society. For the proposed rule, the agenci es had relied on the then most recent fuel price projections from the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook (AEO) 2009 (Revised Up dated). However, for this final rule, the agencies have updated the analyses based on AEO 2010 (December 2009 Early Release) Reference Case forecasts of inflation-adjusted (constant-dollar) retail gasoline and diesel fuel prices, which represent the EIA’s most up-to-date estimate of the most likely course of future prices for petroleum products. 97 AEO 2010 includes slightly lower petroleu m prices compared to AEO 2009.

The forecasts of fuel prices reported in EIA’s AEO 2010 Early Release Reference Case extends through 2035, compared to the AEO 2009 which only went through

96 U.S. Environmental Protection Agency, Final Technical Support Document, Fuel Economy Labeling of Motor Vehicle Revisions to Improve Calculation of Fuel Economy Estimates, EPA420-R-06-017, December 2006. 97 Energy Information Administration, Annual Energy Outlook 2010, Early Release Reference Case (December 2009), Table 12. Availa ble at http://www.eia.doe.gov/oiaf/ aeo/aeoref_tab.html (last accessed February 02, 2010).176 2030. As in the proposal, fuel prices beyond the time frame of AEO’s forecast were estimated using an average growth rate.

While EIA revised AEO 2010, the vehicle MPG standards are similar to those that were published in AEO 2009. No s ubstantive comments were received on the use of AEO as a source of fuel prices. 98

• Consumer valuation of fuel economy and payback period – In estimating the impacts on vehicle sales, the agencies assume that potential buyers value the resulting fuel savings improvements that would result from alternative CAFE and GHG standards over only part of the exp ected 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, a nd that buyers discount the value of these future fuel savings using rates of 3% a nd 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 lo wer 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

98 Kahan, A. and Pickrell, D. Memo to Docket EPA-HQ-OAR-2009-0472 and Docket NHTSA-2009-0059. "Energy Information Administration’s Annual Energy Outlook 2009 and 2010." March 24, 2010.177 that vehicle buyers benefit from the full fuel savings over the vehicles’ lifetime, discounted for present value calc ulations at 3 and 7 percent.

• Vehicle sales assumptions – The first step in estimating lifetime fuel consumption by vehicles produced during a model year is to calculate the nu mber of vehicles expected to be produced and sold. 99 The agencies relied on the AEO 2010 Early Release for forecasts of total vehicle sa les, while the baseline market forecast developed by the agencies (see Section II. B) divided total projected sales into sales of cars and light trucks.

• Vehicle survival assumptions -- We then applied updated values of age-specific survival rates for cars and light trucks to these adjusted for ecasts of passenger car and light truck sales to determine the numb er of these vehicles remaining in use during each year of their expected lif etimes. No substantive comments were received on vehicle su rvival assumptions.

• Total vehicle use – We then calculated the total number of miles that cars and light trucks produced in each model year wi ll be driven during each year of their lifetimes using estimates of annual vehicl e use by age tabulated from the Federal

99 Vehicles are defined to be of age 1 during the cal endar year corresponding to the model year in which they are produced; thus for example, model year 2000 vehicles are c onsidered to be of age 1 during calendar year 2000, age 2 during calen dar year 2001, and to reach their maximum age of 26 years during calendar year 2025. NHTSA considers the maximum lifetime of vehicles to be the age after which less than 2 percent of the vehicles orig inally produced during a model year remain in service. Applying these conventions to vehicle registration data indicates that passenger cars have a maximum age of 26 years, while light trucks have a maximum lifetime of 36 years

. See Lu, S., NHTSA, Regulatory Analysis and Evaluation Division, “Vehicle Survivability and Trav el Mileage Schedules,” DOT HS 809 952, 8-11 (January 2006). Available at h ttp://www-nrd.nhtsa.dot.g ov/Pubs/809952.pdf (last accessed Feb. 15, 2010)

.178 Highway Administration’s 2001 National Household Transportation Survey (NHTS), 100 adjusted to account for the effect on vehicle use of subsequent increases in fuel prices. Due to the lo wer fuel prices projected in AEO 2010, the average vehicle is estimated to be used s lightly more (~3 perc ent) over its lifetime than assumed in the proposal. In orde r to insure that the resulting mileage schedules imply reasonable estim ates of future growth in total car and light truck use, we calculated the rate of growth in annual car and light truck mileage at each age that is necessary for total car and li ght truck travel to increase at the rates forecast in the AEO 2010 Early Release Re ference Case. The growth rate in average annual car and light truck use produced by this calculation is approximately 1.1 percent per year. 101 This rate was applied to the mileage figures derived from the 2001 NHTS to es timate annual mileage during each year of the expected lifetimes of MY 2012-2016 cars and light trucks. 102 While commenters requested further detail on th e assumptions regarding total vehicle use, no specific issues were raised.

• Accounting for the rebound effe ct of higher fuel economy – The rebound effect refers to the fraction of fuel savings expected to result from an increase in vehicle fuel economy – particularly an increase re quired by the adoption of more stringent CAFE and GHG standards – that is offset by additional vehicle use. The increase

100 For a description of the Survey, see http://nhts.or nl.gov/quickStart.shtml (l ast accessed July 27, 2009). 101 It was not possible to estimate separate growth ra tes in average annual use for cars and light trucks, because of the significant reclassi fication of light truck models as passenger cars discussed previously. 102 While the adjustment for future fuel prices reduces average mileage at each age from the values derived from the 2001 NHTS, the adjustment for expected future growth in average vehicle use increases it. The net effect of these two adjustments is to increase expected lifetime mileage by about 18 percent for passenger cars and about 16 percent for light trucks.179 in vehicle use occurs because higher fu el economy reduces the fuel cost of driving, typically the largest single component of the monetary cost of operating a vehicle, and vehicle owners respond to th is reduction in operating costs by driving slightly more. We received comments supporting our proposed value of 10 percent, although we also received comments recommending higher and lower values. However, we did not receive a ny new data or comments that justify revising the 10 percent value for th e rebound effect at this time.

• Benefits from increased vehicle use – The increase in vehicle use from the rebound effect provides additional benefits to their owners, who may make more frequent trips or travel farther to r each more desirable destinations. This additional travel provides benefits to drivers and their passengers by improving their access to social and economic oppor tunities away from home. These benefits are measured by the net “consum er surplus” resulting from increased vehicle use, over and above the fuel expe nses associated with this additional travel. We estimate the economic value of the consumer surplus provided by added driving using the c onventional approximation, whic h is one half of the product of the decline in vehicle operating costs per vehicle-mile and the resulting increase in the annual number of miles driven. Because it depends on the extent of improvement in fuel economy, the value of benefits from increased vehicle use changes by model year and varies among alternative standards.180 • The value of increased driving range – By reducing the frequency with which drivers typically refuel their vehicles, and by extending the upper limit of the range they can travel before requir ing refueling, improving fuel economy and reducing GHG emissions thus provides some additional benefits to their owners. No direct estimates of the value of extende d vehicle range are readily available, so the agencies’ analysis calculates the re duction in the annual number of required refueling cycles that results from improved fuel economy, and applies DOTrecommended values of travel time savi ngs to convert the resulting time savings to their economic value. 103 Please see the Chapter 4 of the Joint TSD for details.

• Added costs from congestion, crashes and noise – Although it provides some benefits to drivers, increased vehicle us e associated with the rebound effect also contributes to increased tr affic congestion, motor vehicle accidents, and highway noise. Depending on how the additional trav el is distributed over the day and on where it takes place, additional vehicle us e can contribute to traffic congestion and delays by increasing tr affic volumes on facilities that are already heavily traveled during peak periods. These a dded delays impose higher costs on drivers and other vehicle occupants in the form of increased travel time and operating expenses, increased costs associated with traffic accidents, and increased traffic noise. The agencies rely on estimates of congestion, accident, and noise costs caused by automobiles and light trucks developed by the Federal Highway

103 Department of Transportation, Guidance Memorandum, “The Value of Saving Travel Time: Departmental Guidance for Conducting Economic Evaluations,” Apr. 9, 1997. http://ostpxweb.dot.gov/policy/Da ta/VOT97guid.pd f (last accessed Feb. 15, 2010); update available at http://ostpxweb.dot.gov/policy/Da ta/VOTrevision1_2-11- 03.pdf (last accessed Feb. 15, 2010).181 Administration to estimate the increase d external costs caused by added driving due to the rebound effect. 104

• Petroleum consumption and import externalities – U.S. consumption and imports of petroleum products also impose costs on the domestic economy that are not reflected in the market price for crude petroleum, or in the prices paid by consumers of petroleum products such as gasoline. In economics literature on this subject, these costs include (1) highe r prices for petroleum products resulting from the effect of U.S. oil import demand on the world oil price (“monopsony costs”); (2) the expected costs from the risk of disruptions to the U.S. economy caused by sudden reductions in the supply of imported oil to the U.S.; and (3) expenses for maintaining a U.S. military presence to secure imported oil supplies from unstable regions, and fo r maintaining the strategic petroleum reserve (SPR) to cushion against resulting price increases. 105 Reducing U.S. imports of crude petroleum or refined fuels can reduce the ma gnitude of these external costs. Any reduction in their total value that resu lts from lower fuel consumption and petroleum imports represents an econom ic benefit of setting more stringent standards over and above the dollar valu e of fuel savings itself. Since the agencies are taking a global perspective with respect to the estimate of the social cost of carbon for this rulemaking, the ag encies do not include the value of any

104 These estimates were developed by FHWA for use in its 1997 Federal Highway Cost Allocation Study ; http://www.fhwa.dot.gov/policy/ hcas/final/index.htm (last accessed Feb. 15, 2010). 105 See, e.g., Bohi, Douglas R. and W. David Montgomery (1982). Oil Prices, Energy Security, and Import Policy Washington, DC: Resources for the Future, Johns Hopkins University Press; Bohi, D. R., and M. A. Toman (1993). "Energy and Security: Externalities and Policies," Energy Policy 21:1093-1109; and Toman, M. A. (1993). "The Economics of Energy Se curity: Theory, Evidence, Policy," in A. V. Kneese and J. L. Sweeney, eds. (1993). Handbook of Natural Resource and Energy Economics, Vol. III. Amsterdam: North-Holland, pp. 1167-1218.182 reduction in monopsony payments as a be nefit from lower fuel consumption, because those payments from a global perspe ctive represent a tr ansfer of income from consumers of petroleum products to oil suppliers rather than a savings in real economic resources. Similarly, th e agencies do not include any savings in budgetary outlays to support U.S. militar y activities among the benefits of higher fuel economy and the resulting fuel savi ngs. Based on a recently-updated ORNL study, we estimate that each gallon of fuel saved that results in a reduction in U.S. petroleum imports (either crude petroleum or refined fuel) will reduce the expected costs of oil supply disruptio ns to the U.S. economy by $0.169 (2007$). Each gallon of fuel saved as a consequen ce of higher standards is anticipated to reduce total U.S. imports of crude pe troleum or refined fuel by 0.95 gallons. 106

The energy security analysis conducted for th is rule estimates that the world price of oil will fall modestly in response to lower U.S. demand for refined fuel. One potential result of this decline in the world price of oil would be an increase in the consumption of petroleum products outside the U.S., which woul d in turn lead to a modest increase in emissions of greenhouse gases, criteria air po llutants, and airborne toxics from their refining and use. While additional informati on would be needed to analyze this “leakage effect” in detail, NHTSA provides a sample estimate of its potential magnitude in its

106 Each gallon of fuel saved is assumed to reduce imports of refined fuel by 0.5 gallons, and the volume of fuel refined domestically by 0.5 gallons. Domestic fu el refining is assumed to utilize 90 percent imported crude petroleum and 10 percent dome stically-produced crude petroleum as feedstocks. Together, these assumptions imply that each gallon of fuel saved will reduce imports of refined fuel and crude petroleum by 0.50 gallons + 0.50 gallons*90 percent = 0.50 gallons + 0.45 gallons = 0.95 gallons.183 Final EIS. 107 This analysis indicates that the leak age effect is likely to offset only a modest fraction of the reductions in emi ssions projected to result from the rule.

EPA and NHTSA received comments about the treatment of the monopsony effect, macroeconomic disruption effect, and th e military costs associated with the energy security benefits of this rule. The agenci es did not receive any comments that justify changing the energy security analysis. As a re sult, the agencies continue to only use the macroeconomic disruption component of the energy security analys is under a global context when estimating the total energy security benefits associated with this rule. Further, the Agencies did not receive any info rmation that they could use to quantity that component of military costs dire ctly related to energy secur ity, and thus did not modify that part of its analysis. A more complete discussion of th e energy security analysis can be found in Chapter 4 of the Joint TSD, a nd Sections III and IV of this preamble.

• Air pollutant emissions

o Impacts on criteria air pollutant emissions – While reductions in domestic fuel refining and distribution that re sult from lower fuel consumption will reduce U.S. emissions of criteria pollutants, additional vehicle use associated with the rebound effect will increase emissions of these pollutants. Thus the net effect of stricter standards on emissions of each criteria pollutant depends on the relative magnitudes of reduced emissions

107 NHTSA Final Environmental Im pact Statement: Corporate Aver age Fuel Economy Standards, Passenger Cars and Light Trucks, Model Years 2012-2016, February 2010, page 3-14.184 from fuel refining and distribution, a nd increases in emissions resulting from added vehicle use. Criteria air pollutants emitted by vehicles and during fuel production include carbon monoxide (CO), hydrocarbon compounds (usually referred to as “volatile organic compounds,” or VOC), nitrogen oxides (NO X ), fine particulate matter (PM 2.5 ), and sulfur oxides (SO X ). It is assumed that the emission rates (per mile) stay constant for future year vehicles.

o Economic value of reductions in criteria air pollutants – For the purpose of the joint technical analysis, EPA and NHTSA estimate the economic value of the human health benefits associated with reducing exposure to
PM 2.5 using a “benefit -per-ton” method. These PM 2.5 -related benefit-perton estimates provide the total moneti zed benefits to human health (the sum of reductions in premature mort ality and premature morbidity) that result from eliminating one ton of directly emitted PM 2.5 , or one ton of a pollutant that contributes to secondarily-formed PM 2.5 (such as NO X , SO X , and VOCs), from a specified source. Chapter 4.2.9 of the Technical Support Document that accompanies th is rule includes a description of these values. Separately, EPA also conducted air quality modeling to estimate the change in ambient concen trations of criteria pollutants and used this as a basis for estimating the human health benefits and their economic value. Section III.H.7 presents these benefits estimates.185 o Reductions in GHG emissions – Emissions of carbon dioxide and other GHGs occur throughout the process of producing and distributing transportation fuels, as well as from fuel combustion itself. By reducing the volume of fuel consumed by passenger cars and light trucks, higher standards will thus reduce GHG emissions generated by fuel use, as well as throughout the fuel supply cycle. The agencies estimated the increases of GHGs other than CO 2 , including methane and nitrous oxide, from additional vehicle use by multiplying the increase in total miles driven by cars and light trucks of each model year and age by emission rates per vehicle-mile for these GHGs. These emission rates, which differ between cars and light trucks as well as betwee n gasoline and dies el vehicles, were estimated by EPA using its recently-developed Motor Vehicle Emission Simulator (Draft MOVES 2010). 108 Increases in emissions of non-CO 2 GHGs are converted to equi valent increases in CO 2 emissions using estimates of the Global Warming Pote ntial (GWP) of methane and nitrous oxide.

o Economic value of reductions in CO 2 emissions - EPA and NHTSA assigned a dollar value to reductions in CO 2 emissions using the marginal dollar value (i.e., cost) of climate -related damages resulting from carbon emissions, also referred to as “socia l cost of carbon” (SCC). The SCC is

108 The MOVES model assumes that the per-mile rates at which cars and light trucks emit these GHGs are determined by the efficiency of fu el combustion during engine operatio n and chemical reactions that occur during catalytic after-treatment of engine exhaust, and are thus independent of vehicles’ fuel consumption rates. Thus MOVES’ emission factors for these GHGs , which are expressed per mile of vehicle travel, are assumed to be unaffected by changes in fuel economy.186 intended to measure the monetary value society places on impacts resulting from increased GHGs, such as property damage from sea level rise, forced migration due to dry land loss, and mortality changes associated with vector-borne diseas es. Published estimates of the SCC vary widely as a result of uncertain ties about future economic growth, climate sensitivity to GHG emissions, procedures used to model the economic impacts of climate change, a nd the choice of discount rates.

EPA and NHTSA received extensive comments about how to improve the characterization of the SCC and ha ve since developed new estimates through an interagency modeling ex ercise. The comments addressed various issues, such as discount rate selection, tr eatment of uncertainty, and emissions and socioeconomic trajec tories, and justified the revision of SCC for the final rule. The modeling exercise involved running three integrated assessment models using inputs agreed upon by the interagency group for climate sensitivity, socioec onomic and emissions trajectories, and discount rates. A more complete discussion of SCC can be found in the Technical Support Document, Social Cost of Ca rbon for Regulatory Impact Analysis Under Executive Order 12866 (hereafter, "SCC TSD"); revised SCC estimates corresponding to assumed values of the discount rate are shown in Table II.F-1. 109

109 Interagency Working Group on Social Cost of Carbon, U.S. Government, with participation by Council of Economic Advisers, Council on Environmental Qua lity, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Council, Office of Energy and Climate Change, Office of Management and Budget,187 Table II.F-1 Social Cost of CO 2 , 2010 (in 2007 dollars)

Discount Rate 5% 3% 2.5% 3% Source of Estimate Mean of Estimates Values 95 th percentile estimate 2010 Estimate $5 $21 $35 $65

• Discounting future benefits and costs —Discounting future fuel savings and other benefits is intended to account for the reduction in their value to society when they are deferred until some future date, rather than received immediately. The discount rate expresses the percent dec line in the value of these benefits—as viewed from today’s perspective—for each ye ar they are deferred into the future. In evaluating the non-climate related benefits of the final standa rds, the agencies have employed discount rates of both 3 per cent and 7 percent. We received some comments on the discount rates used in the proposal, most of which were directed at the discount rates used to value future fuel savings and the rates used to value of the social cost of carbon. In genera l, commenters were supporting one of the discount rates over the other, although so me suggested that our rates were too high or too low. We have revised the discounting used when calculating the net present value of social cost of carbon as explained in Sections III.H. and VI but have not revised our discounting proce dures for other costs or benefits.

For the reader’s reference, Table II.F-2 below summarizes the values used to calculate the impacts of each final standard. The values presented in this table are

Office of Science and Technology Policy, and Department of Treasury, “ Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 ,” February 2010, available in docket EPA-HQOAR-2009-0472.188 summaries of the inputs used for the models ; specific values us ed in the agencies’ respective analyses may be aggregated, expande d, or have other relevant adjustments. See the respective RIAs for details.

The agencies recognize that each of these values has some degree of uncertainty, which the agencies further discuss in the Joint TSD. The agencies have conducted a range of sensitivities and present them in their respective RIAs. For example, NHTSA has conducted a sensitivity analysis on seve ral assumptions including (1) forecasts of future fuel prices, (2) the di scount rate applied to future benefits and costs, (3) the magnitude of the rebound effect, (4) the valu e to the U.S. economy of reducing carbon dioxide emissions, (5) inclusion of the m onopsony effect, and (6) the reduction in external economic costs resulting from lower U.S. oil imports. This information is provided in NHTSA’s RIA.189 Table II.F-2 Economic Values fo r Benefits Computations (2007$) Fuel Economy Rebound Effect 10% "Gap" between test and on-road MPG 20% Value of refueling time per ($ per vehicle-hour) $ 24.64 Average tank volume refilled during refueling stop 55% Annual growth in average vehicle use 1.15% Fuel Prices (2012-50 average, $/gallon) Retail gasoline price $3.66 Pre-tax gasoline price $3.29 Economic Benefits from Re ducing Oil Imports ($/gallon) "Monopsony" Component $ 0.00 Price Shock Component $ 0.17 Military Security Component $ 0.00 Total Economic Costs ($/gallon) $ 0.17 Emission Damage Costs (2020, $/ton or $/metric ton) Carbon monoxide $ 0 Volatile organic compounds (VOC) $ 1,300 Nitrogen oxides (NO X ) – vehicle use $ 5,100 Nitrogen oxides (NO X ) – fuel production and distribution $ 5,300 Particulate matter (PM 2.5 ) – vehicle use $ 240,000 Particulate matter (PM 2.5 ) – fuel production and distribution $ 290,000, Sulfur dioxide (SO 2 ) $ 31,000 Carbon dioxide (CO 2 ) emissions in 2010 $ 5 $ 21 $ 35 $ 65
Annual Increase in CO 2 Damage Cost variable, depending on estimate External Costs from Additional Automobile Use ($/vehicle-mile) Congestion $ 0.054 Accidents $ 0.023 Noise $ 0.001 Total External Costs $ 0.078 External Costs from Additional Light Truck Use ($/vehicle-mile) Congestion $0.048 Accidents $0.026 Noise $0.001 Total External Costs $0.075 Discount Rates Applied to Future Benefits 3%, 7%190 G. What are the Estimated Safety Effects of the Final MYs 2012-2016 CAFE and GHG Standards?

The primary goals of the final CAFE and GHG standards are to reduce fuel consumption and GHG emissions, but in addition to these intended effects, the agencies must consider the potential of the standards to affect vehicle safety 110 , which the agencies have assessed in evaluating the appropriate le vels at which to set the final standards. Safety trade-offs associated with fuel econom y increases have occurred in the past, and the agencies must be mindful ofthe possibility of future ones. These past safety tradeoffs occurred because manufacturers chose, at the time, to build smaller and lighter vehicles – partly in response to CAFE sta ndards - rather than adding more expensive fuel-saving technologies (and maintaining vehi cle size and safety), and the smaller and lighter vehicles did not fare as well in crashes as larger and heavier vehicles. Historically, as shown in FARS data analy zed by NHTSA, the safest vehicles have been heavy and large, while the vehi cles with the highest fatal-cr ash rates have been light and small, both because the crash rate is highe r for small/light vehicles and because the fatality rate per crash is higher for small/light vehicle crashes.

Changes in relative safety are related to sh ifts in the distributi on of vehicles on the road. A policy that induces a widening in the size distribution of vehicles on the road, could result in negative impacts on safety, Th e primary mechanism in this rulemaking for mitigating the potential negative effects on safe ty is the application of footprint-based

110 In this rulemaking document, vehicle safety is defined as societal fatality rates which include fatalities to occupants of all the vehicles involved in the collisions, plus any pedestrians.191 standards, which create a disi ncentive for manufacturers to produce smaller-footprint vehicles. . This is becaus e as footprint decreases, the corresponding fuel economy/GHG emission target becomes more stringent. 111 The shape of the footprint curves themselves have also been designed to be approximatel y “footprint neutral” w ithin the sloped portion of the functions – that is, to neither encour age manufacturers to increase the footprint of their fleets, nor to decrease it. Upsizing also is discouraged through a “cut-off” at larger footprints. For both cars and light trucks there is a “cut-off” that affects vehicles smaller than 41 square feet. The agencies recogni ze that for manufacturers who make small vehicles in this size range, this cut off cr eates some incentive to downsize (i.e. further reduce the size and/or increase the production of models curren tly smaller than 41 square feet) to make it easier to meet the target. The cut off may also create some incentive for manufacturers who do not currently offer such m odels to do so in the future. However, at the same time, the agencies believe that there is a limit to the market for cars smaller than 41 square feet - most consumers likely have some minimum expectation about interior volume, among other things. In addition, vehicl es in this market segment are the lowest price point for the light-duty automotive market, with a num ber of models in the $10,000 to $15,000 range. In order to justify selling mo re vehicles in this market in order to generate fuel economy or CO 2 credits (that is, for this final rule to be the incentive for selling more vehicles in this small car se gment), a manufacturer would need to add

111 We note, however, that vehicle footprint is not synonymous with vehicle size. Since the footprint is only that portion of the vehicle between the front and rear axles, footprint-based standards do not discourage downsizing the portions of a vehicle in front of the front axle and to the rear of the rear axle, or to other portions of the vehicle outs ide the wheels. The crush space provid ed by those portions of a vehicle can make important contributions to managing crash energy. At least one manufacturer has confidentially indicated plans to reduce overhang as a way of reducing mass on some vehicles during the rulemaking time frame. Additionally, simply because footprint-based standards create no incentive to downsize vehicles, does not mean that manufacturers may not choose to do so if doing so makes it easier to meet the overall standard (as, for example, if the sm aller vehicles are so much lighter th at they exceed their targets by much greater amounts).192 additional technology to the lowe st price segment vehicles, which could be challenging. Therefore, due to these two reasons (a likely limit in the market place for the smallest sized cars and the potential consumer accep tance difficulty in adding the necessary technologies in order to ge nerate fuel economy and CO 2 credits), the agencies believe that the incentive for manufacturers to increase the sale of vehicles smaller than 41 square feet due to this rulemaking, if present, is sm all. For further discu ssion on these aspects of the standards, please see Section II.C a bove and Chapter 2 of the Joint TSD.

Manufacturers have stated, however, that th ey will reduce vehicle weight as one of the cost-effective means of incr easing fuel economy and reducing CO 2 emissions, and the agencies have incorporat ed this expectation into our modeling analysis supporting today’s final standards. NHT SA’s previous analyses exam ining the relationship between vehicle mass and fatalities found fatality increases as vehicle weight and size were reduced, but these previous analyses did not differentiate between weight reductions and size (i.e., weight and footprint) reductions.

The question of the effect of changes in vehicle mass on safety in the context of fuel economy is a complex question that poses serious analytic chal lenges and has been a contentious issue for many years, as discusse d by a number of commenters to the NPRM. This contentiousness arises, at least in part, from the difficu lty of isolating vehicle mass from other confounding factors (e.g., driver beha vior, or vehicle factors such as engine size and wheelbase). In addi tion, several vehicle factors have been closely related historically, such as vehicle mass, wheelba se, and track width. The issue has been193 reviewed and analyzed in the literature for more than two decades. For the reader’s reference, much more information about safe ty in the CAFE context is available in Chapter IX of NHTSA’s FRIA. Chapter 7.6 of EPA’s final RIA also contained additional discussion on mass and safety.

Over the past several years, as also di scussed by a number of commenters to the NPRM, contention has arisen with regard to the applicability of analysis of historical crash data to future safety effects due to mass reduction. The agencies recognize that there are a host of factors that may make future mass reduction different than what is reflected in the historical data. For one, th e footprint-based standards have been carefully developed by the agencies so that they do not encourage vehicle foot print reductions as a way of meeting the standards, but so that they do encourage application of fuel-saving technologies, including mass reduction. This in turn encourages manufacturers to find ways to separate mass reduction from footprin t reduction, which will very likely result in a future relationship between mass and fatali ties that is safer than the historical relationship. However, as manufacturers pursue these methods of mass reduction, the fleet moves further away from the historical trends, which the agencies recognize.

NHTSA’s NPRM analysis of the safety effects of the proposed CAFE standards was based on NHTSA’s 2003 report concer ning mass and size reduction in MYs 1991- 1999 vehicles, and evaluated a “worst-case scen ario” in which the safety effects of the combined reductions of both mass and size for those vehicles were determined for the194 future passenger car and light truck fleets. 112 In the NPRM analysis, mass and size could not be separated from one another, resulti ng in what NHTSA rec ognized was a larger safety disbenefit than was likely under the MYs 2012-2016 foot print-based CAFE standards. NHTSA emphasized, however, that actual fatalities would likely be less than these “worst-case” estimates, and possibly si gnificantly less, based on the various factors discussed in the NPRM that could reduce th e estimates, such as careful mass reduction through material substitution, etc.

For the final rule, as discussed in the NP RM and in recognition of the importance of conducting analysis that bett er reflects, within the limits of our current knowledge, the potential safety effects of future mass reduc tion in response to the final CAFE and GHG standards that is highly unlikely to involve concurrent reductions in footprint, NHTSA has revised its analysis in consultation with EPA. Perhaps the most important change has been that NHTSA agreed with commenters that it was both possibl e and appropriate to separate the effect of mass reductions from the effect of footprint reductions. NHTSA thus performed a new statistical analysis, hereafter referred to as the 2010 Kahane analysis, of the MYs 1991-99 vehicle database from its 2003 report (now including rather than excluding 2-door cars in the passenger car fleet), assessing relationships between fatality risk, mass, and footprint for both passenger cars and LTV s (light trucks and

112 The analysis excluded 2-door cars.195 vans). 113 As part of its results, the new report presents an “upper-estimate scenario,” a “lower-estimate scenario,” as well as an “ac tual regression result scenario” representing potential safety effects of future mass reductions without corr esponding vehicle size reductions, that assume, by virtue of being a cr oss-sectional analysis of historical data, that historical relationships between vehicle mass and fatalities are maintained. The “upper-estimate scenario” and “lower-es timate scenario” are based on NHTSA’s judgment as a vehicle safety agency, and are not meant to convey any more or less likelihood in the result s, but more to convey a sense of bounding for potential safety effects of reducing mass while holding footprin t constant. The upper-estimate scenario reflects potential safety effect s given the report’s finding th at that, using the one-step regression method of the 2003 Kahane report, th e regression coefficients show that mass and footprint each accounted for about half the fatality increase associated with downsizing in a cross-secti onal analysis of MYs 1991-1999 cars. A similar effect was found for lighter LTVs. Applying the sa me regression method to heavier LTVs, however, the coefficients indicated a signifi cant societal fatality reduction when mass, but not footprint, is re duced in the heavier LTVs. 114 Fatalities are reduced primarily because mass reduction in the heavier LTVs w ill reduce risk to occupants of the other

113 “Relationships Between Fatality Risk, Mass, an d Footprint in Model Year 1991-1999 and Other Passenger Cars and LTVs,” Charles J. Kahane, NCSA, NHTSA, March 2010. The text of the report may be found in Chapter IX of NHTSA’s FRIA , where it constitutes a section of that chapter. We note that this report has not yet been externally peer-reviewed, and therefore may be changed or refined after it has been subjected to peer review. The results of the report have not been included in the tables summarizing the costs and benefits of this rulemaking and did not affect the stringency of the standards. NHTSA has begun the process for obtaining peer review in accordance with OMB guida nce. The agency will ensure that concerns raised during the peer review process are addressed before relying on the report for future rulemakings. The results of the peer review and an y subsequent revisions to the report will be made available in a public docket and on NHTSA’s website as they are completed. 114 Conversely, the coefficients indicate a signif icant increase if footprint is reduced.196 cars and lighter LTVs involved in collisions with these heavier LTVs. 115 Thus, even in the “upper-estimate scenario,” the potential fatality increases associated with mass reduction in the passenger cars would be to a large extent offset by the benefits of mass reduction in the heavier LTVs.

The lower-estimate scenario, in turn, reflects NHTSA’s estimate of potential safety effects if future mass reduction is accomplished entirely by through material substitution, smart design, 116 and component integration, among other things, that can reduce mass without perceptibly changing a vehicle’s shape, functionality, or safety performance, maintaining structural streng th without compromising other aspects of safety. If future mass reduction follows this path, it could limit the added risk close to only the effects of mass per se (the ability to transfer mome ntum to other vehicles or objects in a collision), resulting in estima ted effects in passenger cars that are substantially smaller than in the upper-estimate scenario based directly on the regression results. The lower-estimate scenario al so covers both passenger cars and LTVs.

115 We note that there may be some (currently non-qu antifiable) welfare losses for purchasers of these heavier LTVs, the mass of which is reduced in response to these final standards. This is due to the fact that in certain crashes, as discussed below and in greater detail in Chapter IX of the NHTSA FRIA, more mass will always be helpful (although cer tainly in other crashes, the amount of mass reduction modeled by the agency will not be enough to have any significant effect on driver/occupant safety). However, we believe the effects of this will likely be minor. Consumer welf are impacts of the final rule are discussed in more detail in Chapter VIII of the NHTSA FRIA. 116 Manufacturers may reduce mass through smart design using computer aided engineering (CAE) tools that can be used to better optimize load paths within structures by reducing stresses and bending moments applied to structures. This allows better optimization of the sectional thicknesses of structural components to reduce mass while maintaining or improving the function of the component. Smart designs also integrate separate parts in a manner that reduces mass by combining functions or the reduced use of separate fasteners. In addition, some “body on fram e” vehicles are redesigned with a lighter “unibody” construction.197 Overall, based on the new analyses, NHTSA estimated that fatality effects could be markedly less than those estimated in the “worst-case scenario” presented in the NPRM. The agencies believe that the overall effect of mass reduction in cars and LTVs may be close to zero, and may possibly be bene ficial in terms of the fleet as a whole if mass reduction is carefully applied in the futu re (as with careful material substitution and other methods of mass reduction that can reduce mass without pe rceptibly changing a car’s shape, functionality, or safety perfor mance, and maintain its structural strength without making it excessively rigi d). This is especially impor tant if the mass reduction in the heavier LTVs is greater (in absolute te rms) than in passenger cars, as discussed further below and in the 2010 Kahane report.

The following sections will address how th e agencies addressed potential safety effects in the NPRM for the proposed sta ndards, how commenters responded, and the work that NHTSA has done since the NPRM to revise its estimates of potential safety effects for the final rule. The final section discusses some of the agencies’ plans for the future with respect to potential analysis a nd studies to further e nhance our understanding of this important and complex issue.

1. What did the Agencies say in the NPRM with regard to Potential Safety Effects?

In the NPRM preceding these final standards, NHTSA’s safety assessment derived from the agency’s belief that some of these vehicle factors, namely vehicle mass198 and footprint, could not be accurately sepa rated. NHTSA relied on the 2003 study by Dr. Charles Kahane, which estimates the eff ect of 100-pound reductions in MYs 1991-1999 heavy light trucks and vans (LTVs), li ght LTVs, heavy passenger cars, and light
passenger cars. 117 The study compares the fatality rates of LTVs and cars to quantify differences between vehicle type s, given drivers of the same age/gender, etc. In that analysis, the effect of “weight reduction” is not limited to the effect of mass per se , but includes all the factors, such as length, width, structural strength, sa fety features, and size of the occupant compartment, that were natu rally or historically confounded with mass in MYs 1991-1999 vehicles. The rationale was that adding length, width, or strength to a vehicle historically also made it heavier.

NHTSA utilized the relati onships between mass and safety from Kahane (2003), expressed as percentage increases in fatalities per 100-pound mass reduction, and examined the mass effects assumed in the NPRM modeling analysis. While previous CAFE rulemakings had limited mass reduction as a “technology option” to vehicles over 5,000 pounds GVWR, both NHTSA’s and EPA’ s modeling analyses in the NPRM included mass reduction of up to 5-10 percen t of baseline curb weight, depending on vehicle subclass, in response to recently-submitted manufactur er product plans as well as public statements indicating that these leve ls were possible and likely. 5-10 percent represented a maximum bound; EPA’s modeling, for example, included average vehicle weight reductions of 4 percent betw een MYs 2011 and 2016, although the average pervehicle mass reduction was greater in absolute terms for light truc ks than for passenger

117 Kahane, Charles J., Ph.D., “Vehicle Weight, Fata lity Risk and Crash Compatibility of Model Year 1991- 99 Passenger Cars and Light Trucks,” DOT HS 809 662, October 2003, Executive Summary. Available at http://www.nhtsa.dot.gov /cars/rules/regrev/eva luate/809662.html (last accessed March 10, 2010).199 cars. NHTSA’s assumptions for mass reduction were also limited by lead time such that mass reductions of 1.5 percent were include d for redesigns occurring prior to MY 2014, and mass reductions of 5-10 percent were onl y “achievable” in redesigns occurring in MY 2014 or later. NHTSA further assumed that mass reductions would be limited to 5 percent for small vehicles (e.g., subcompact pa ssenger cars), and that reductions of 10 percent would only be applied to the larger vehicle types (e.g., large light trucks).

Based on these assumptions of how ma nufacturers might comply with the standards, NHTSA examined the effects of the identifiable safety trends over the lifetime of the vehicles produced in each model year. The effects were estimated on a year-byyear basis, assuming that certain known safety trends would result in a reduction in the target population of fatalities from which the mass effects are derived. 118 Using this method, NHTSA found a 12.6 percent reduction in fatality levels between 2007 and 2020. The estimates derived from applying Ka hane’s 2003 percentages to a baseline of 2007 fatalities were then multiplied by 0.874 to account for changes that the agency believed would take place in passenger ca r and light truck safety between the 2007 baseline on-road fleet used for that particular analysis and year 2020. 119

118 NHTSA explained that there are several identifiable safe ty trends that are already in place or expected to occur in the foreseeable future and that were not acco unted for in the study. For example, two important new safety standards that have already been issued and will be phasing in during the rulemaking time frame. Federal Motor Vehicle Safety Standard No. 126 (49 CFR 571.126) will require electronic stability control in all new vehicles by MY 2012, and the upgrade to Federal Motor Vehicle Safety Standard No. 214 (Side Impact Protection, 49 CFR 571.214) will likely result in all new vehicles being equipped with head-curtain air bags by MY 2014. 118 Additionally, the agency stated that it anticipates continued improvements in driver (and passenger) behavior, such as higher safety belt use rates. All of these will tend to reduce the absolute number of fatalities resulting from mass reductions. Thus, while the percentage increases in Kahane (2003) was applied, the reduced ba se resulted in smaller absolute increases than those that were predicted in the 2003 report. 119 Blincoe, L. and Shankar, U, “The Impact of Safety Standards and Behavioral Trends on Motor Vehicle Fatality Rates,” DOT HS 810 777, January 2007. Se e Table 4 comparing 2020 to 2007 (37,906/43,363 = 12.6% reduction (1-.126 = .874)200 NHTSA and EPA both emphasized that the sa fety effect estimates in the NPRM needed to be understood in the context of th e 2003 Kahane report, which is based upon a cross-sectional analysis of the actual on-road safety e xperience of 1991-1999 vehicles. For those vehicles, heavier usually also mean t larger-footprint. Hence, the numbers in those analyses were used to pr edict the safety-related fatalities that could occur in the unlikely event that weight reduction fo r MYs 2012-2016 is accomplished entirely by reducing mass and reducing footprint. Any estimat es derived from those analyses represented a “worst-case” estimate of safety effects, for several reasons.

First, manufacturers are far less likely to reduce mass by “downsizing” (making vehicles smaller overall) under the current attribute-based standards, because the standards are based on vehicle footprint. The selection of footprint as the attribute in setting CAFE and GHG standards helps to re duce the incentive to alter a vehicle’s physical dimensions. This is because as footprint decreases, the corresponding fuel economy/GHG emission target becomes more stringent. 120 The shape of the footprint curves themselves have also been designed to be approximately “foot print neutral” within the sloped portion of the functions – that is, to neither encourage manufacturers to increase the footprint of their fleets, nor to decrease it. For further discussion on these

120 We note, however, that vehicle footprint is not synonymous with vehicle size. Since the footprint is only that portion of the vehicle between the front and rear axles, footprint-based standards do not discourage downsizing the portions of a vehicle in front of the front axle and to the rear of the rear axle, or to other portions of the vehicle outs ide the wheels. The crush space provid ed by those portions of a vehicle can make important contributions to managing crash energy. NHTSA noted in the NPRM that at least one manufacturer has confidentially indicated plans to reduce overhang as a way of reducing mass on some vehicles during the rulemaking time frame. Additionally , simply because footprint-based standards create no incentive to downsize vehicles, do es not mean that manufacturers may no t choose to do so if doing so makes it easier to meet the overall standard (as, for exampl e, if the smaller vehicles are so much lighter that they exceed their targets by much greater amounts).201 aspects of the standards, pleas e see Section II.C above and Ch apter 2 of the Joint TSD. However, as discussed in Sections III.H.1 and IV.G.6 below, the agencies acknowledge some uncertainty regarding how consumer pur chases will change in response to the vehicles designed to meet the MYs 2012-2016 sta ndards. This could potentially affect the mix of vehicles sold in the future, in cluding the mass and footprint distribution.

As a result, the agencies found it likely that a significant portion of the mass reduction in the MY 2012-2016 vehicles would be accomplished by strategies, such as material substitution, smart design, reduced powertrain requirements 121 , and mass compounding, that have a lesser safety effect than the prev alent 1980s strategy of simply making the vehicles smaller. The agencies noted that to the extent that future mass reductions could be achieved by these met hods—without any accompanying reduction in the size or structural strength of the vehicle— then the fatality increases associated with the mass reductions anticipated by the model as a result of the proposed standards could be significantly smaller than those in the worst-case scenario.

However, even though the agencies rec ognized that these methods of mass reduction could be technologically feasible in the rulemaking time frame, and included them as such in our modeling analyses, the ag encies diverged as to how potential safety effects accompanying such methods of mass reduc tion could be evaluated, particularly in relation to the worst-case scenario presented by NHTSA. NHTSA stated that it could not

121 Reduced powertrain requirements do not include a reduction in performance. When vehicle mass is reduced, engine torque and transmission gearing can be altered so that acceleration performance is held constant instead of improving. A detailed discussion is included in Chapter 3 of the Technical Support Document.202 predict how much smaller those increases would be for any given mixture of mass reduction methods, since the data on the safe ty effects of mass re duction alone (without size reduction) was not available due to the low numbers of vehicl es in the current onroad fleet that have utilized these technologies exte nsively. Further, to the extent that mass reductions were accomplished through us e of light, high-strength materials, NHTSA emphasized that there would be signifi cant additional costs that would need to be determined and accounted for than were reflected in the agency’s proposal.

Additionally, NHTSA emphasized that wh ile it thought material substitution and other methods of mass reduction could consider ably lessen the potential safety effects compared to the historical trend, NHTSA also st ated that it did not believe the effects in passenger cars would be smalle r than zero. EPA disagreed wi th this, and stated in the NPRM that the safety effects could very well be smaller than zero. Even though footprint-based standards disc ourage downsizing as a way of “balancing out” sales of larger/heavier vehicles, they do not discour age manufacturers from reducing crush space in overhang areas or from reducing structural support as a way of taking out mass. 122 Moreover, NHTSA’s analysis had also found th at lighter cars have a higher involvement rate in fatal crashes, even after controlling for the driver’s age, gender, urbanization, and region of the country. Being unable to explai n this clear trend in the crash data, NHTSA stated that it must assume that mass reduction is likely to be associated with higher fatalcrash rates, no matter how the weight reduction is achieved.

122 However, we recognize that FMVSS and NCAP ratin gs may limit the manufacturer’s ability to reduce crush space or structural support.203 NHTSA also noted in the NPRM that se veral studies by Dynamic Research, Inc. (DRI) had been repeated ly cited to the agency in suppor t of the propositio n that reducing vehicle mass while maintaining track widt h and wheelbase would lead to significant safety benefits. In its 2005 studies, on e of which was published and peer-reviewed through the Society of Automotive Engineers as a technical paper, DRI attempted to assess the independent effects of vehicle weight and size (in terms of wheelbase and track width) on safety, and presente d results indicating that reduc ing vehicle weight tends to reduce fatalities, but that reducing vehicle wheelbase and track wi dth tends to increase fatalities. DRI’s analysis was based on FARS data for MYs 1985-1998 passenger cars and 1985-1997 light trucks, similar to the MY s 1991-1999 car and truck data used in the 2003 Kahane report. However, DRI include d 2-door passenger cars, while the 2003 Kahane report excluded those vehicles out of concern that their incl usion could bias the results of the regression analysis, beca use a significant proportion of MYs 1991-1999 2- door cars were sports and “muscle” cars, which have particularly high fatal crash rates for their relatively short wheelbases compared to the rest of the fleet. While in the NPRM NHTSA rejected the results of the DRI studies based in part on this concern, the agencies note that upon further consideration, NHTSA has agreed for this final rule that the inclusion of 2-door cars in regr ession analysis of historical da ta is appropriate, and indeed has no overly-biasing effects.

The 2005 DRI studies also differed from th e 2003 Kahane report in terms of their estimates of the effect of vehicle weight on rollover fatalities. The 2003 Kahane report analyzed a single variable, curb weight, as a surrogate for both ve hicle size and weight,204 and found that curb weight reductions would increase rollover fatal ities. The DRI study, in contrast, attempted to analyze curb wei ght, wheelbase, and track width separately, and found that curb weight reduction would decrease rollover fatalities, while wheelbase reduction and track width reduction would incr ease them. DRI suggested that heavier vehicles may have higher rollover fatalities for two reasons: first, because taller vehicles tend to be heavier, so the correlation betw een vehicle height a nd weight and vehicle center-of-gravity height may make heavier vehicles more rollover-prone; and second, because heavier vehicles may have been less rollover-crashworthy due to FMVSS No. 216’s constant (as opposed to proportional) requirements for MYs 1995-1999 vehicles weighing more than 3,333 lbs unloaded.

Overall, DRI’s 2005 studies found a reduction in fatalities for car s (580 in the first study, and 836 in the second study) and for tr ucks (219 in the fi rst study, 682 in the second study) for a 100 pound reduction in curb weight without accompanying wheelbase or track width reductions. In the NPRM, NHT SA disagreed with the results of the DRI studies, out of concern that DRI’s inclusion of 2-door cars in its analysis biased the results, and because NHTSA was unable to reproduce DRI’s results despite repeated attempts. NHTSA stated that it agreed intu itively with DRI’s conclusion that vehicle mass reductions without accompanying size re ductions (as through substitution of a heavier material for a lighter one) would be less harmful than dow nsizing, but without supporting real-world data and unable to verify DRI’s results, NHTSA stated that it could not conclude that mass reductions would result in safety benefits. EPA, in contrast, believed that DRI’s results contained some merit, in particular because the study205 separated the effects of mass and size and EPA stated that applying them using the curb weight reductions in EPA’s modeling analys is would show an overall reduction of fatalities for the proposed standards.

On balance, both agencies recognized th at mass reduction could be an important tool for achieving higher levels of fuel economy and reducing CO 2 emissions, and emphasized that NHTSA’s fatality estimates represented a worst-case scenario for the potential effects of the proposed standards, and th at actual fatalities wi ll be less than these estimates, possibly significantly less, based on the various factors discussed in the NPRM that could reduce the estimates. The agencies sought comment on the safety analysis and discussions presented in the NPRM.

2. What Public Comments did the Agen cies Receive on the Safety Analysis and Discussions in the NPRM?

Several dozen commenters addressed the safety issue. Claims and arguments made by commenters in response to the safety effects analysis and discussion in the NPRM tended to follow several general themes, as follows:

• NHTSA’s safety effects estimates are inaccu rate because they do not account for:

o While NHTSA’s study only consider s vehicles from MYs 1991-1999, more recently-built vehicles are safer than those, and future vehicles will be safer still;206 o Lighter vehicles are safer than heavie r cars in terms of crash-avoidance, because they handle and brake better;

o Fatalities are linked more to other factors than mass;

o The structure of the standards redu ces/contributes to potential safety effects from mass reduction;

o NHTSA could mitigate additional safety effects from mass reduction, if there are any, by simply regulating safety more;

o Casualty risks range widely for vehicles of the same wei ght or footprint, which skews regression analysis and makes computer simulation a better predictor of the safety effects of mass reduction;

• DRI’s analysis shows that lighter vehicles will save lives, and NHTSA reaches the opposite conclusion without disproving DRI’s analysis;

o Possible reasons that NHTSA a nd DRI have reached different conclusions:

 NHTSA’s study should distinguish be tween reductions in size and reductions in weight like DRI’s;

 NHTSA’s study should include two-door cars;

 NHTSA’s study should have used different assumptions;

 NHTSA’s study should include confidence intervals;

• NHTSA should include a “best-cas e” estimate in its study;

• NHTSA should not include a “worst -case” estimate in its study;207 The agencies recognize that the issue of the potential safety effects of mass reduction, which was one of the many factors co nsidered in the balancing that led to the agencies’ conclusion as to appropriate stringency levels for the MYs 2012-2016 standards, is of great interest to the public and could possibly be a more significant factor in regulators’ and manufacturer s’ decisions with regard to future standards beyond MY 2016. The agencies are committed to analyz ing this issue thoroughly and holistically going forward, based on the best available science, in order to further their closely related missions of safety, energy conservation, a nd environmental protection. We respond to the issues and claims raised by commenters in turn below.

NHTSA’s estimates are inaccurate because NHTSA’s study only considers vehicles from MYs 1991-1999, but more r ecently-built vehicles are safer than those, and future vehicles will be safer still

A number of commenters (CAS, Adcoc k, NACAA, NJ DEP, NY DEC, UCS, and Wenzel) argued that the 2003 Kahane report, on which the “worst-case scenario” in the NPRM was based, is outdated because it c onsiders the relationship between vehicle weight and safety in MYs 1991-1999 passenger ca rs. These commenters generally stated that data from MYs 1991-1999 vehicles prov ide an inaccurate basis for assessing the relationship between vehicle weight and safety in current or future vehicles, because the fleets of vehicles now and in the future ar e increasingly different from that 1990s fleet (more crossovers, fewer trucks, lighter trucks , etc.), with different vehicle shapes and characteristics, different materials, and more safety features. Several of these208 commenters argued that NHTSA should conduct an updated analysis for the final rule using more recent data – Wenzel, for example, stated that an updated regression analysis that accounted for the recent introduction of crossover S UVs would likely find reduced casualty risk, similar to DRI’s previous findi ng using fatality data. CEI, in contrast, argued that the “safety trade-off” would not be eliminated by new technologies and attribute-based standards, because additional weight inherently makes a vehicle safer to its own occupants, citing the 2003 Kahane repo rt, while AISI argued that Desapriya had found that passenger car drivers and occupants are two times more likely to be injured than drivers and occupants in larger pickup trucks and SUVs.

Several commenters (Adcock, CARB, Daimler, NESCAUM, NRDC, Public Citizen, UCS, Wenzel) suggested that NHTSA’s analysis was based on overly pessimistic assumptions about how manufact urers would choose to reduce mass in their vehicles, because manufacturers have a strong incentive in the market to build vehicles safely. Many of these commenters stated that several manufactu rers have already committed publicly to fairly ambitious mass reduction goals in the mid-term, but several stated further that NHTSA should not assume that manufacturers will reduce the same amount of mass in all vehicles , because it is likely that they will concentrate mass reduction in the heaviest vehicles, which will improve compatibility and decrease aggressivity in the heaviest vehicles. Daim ler emphasized that all vehicles will have to comply with the Federal Motor Vehicle Safety Standards, and will likely be designed to test well in NHTSA’s NCAP tests.209 Other commenters (Aluminu m Association, CARB, CAS, ICCT, MEMA, NRDC, U.S. Steel) also emphasized the need for NHTSA to account for the safe ty benefits to be expected in the future from use of advan ced materials for lightweighting purposes and other engineering advances. The Aluminum Association stated th at advanced vehicle design and construction techniques using alum inum can improve energy management and minimize adverse safety effects of their use, 123 but that NHTSA’s safety analysis could not account for those benefits if it were based on MYs 1991-1999 vehicles. CAS, ICCT, and U.S. Steel discussed similar benefits for more recent and future vehicles built with high strength steel (HSS), although U.S. Steel cautioned that gi ven the stringency of the proposed standards, manufacturers would lik ely be encouraged to build smaller and lighter vehicles in order to achieve compliance, which fare worse in head-on collisions than larger, heavier vehicles. AISI, in contrast to U.S. Steel, stated that in its research with the Auto/Steel Partnership and in pr ograms supported by DOE, it had found that the use of new Advanced HSS steel grades could enable mass of critical crash structures, such as front rails and bumper systems, to be reduced by 25 per cent without degrading performance in standard NHTSA frontal or IIHS offset instrumented crash tests compared to their “heavier counterparts.”

123 The Aluminum Association (NHTSA-2009-0059-0067.3) stated that its research on vehicle safety compatibility between an SUV and a mid-sized car, done jointly with DRI, shows that reducing the weight of a heavier SUV by 20% (a realistic value for an aluminum-intensive vehicle) could reduce the combined injury rate for both vehicles by 28% in moderately severe crashes. The commenter stated that it would keep NHTSA apprised of its results as its research progressed. Based on the information presented, NHTSA believes that this research appears to agree with NHTSA’s latest analysis, which finds that a reduction in weight for the heaviest vehicles may improve overall fleet safety.210 Agencies’ response:

NHTSA, in consultation with EPA and DOE, plans to begin updating the MYs 1991-1999 database on which NHTSA’s safety anal yses in the NPRM and final rule are based in the next several mont hs in order to analyze the differences in safety effects against vehicles built in more recent model years. As this task will take at least a year to complete, beginning it immediately after the NPRM would not have enabled the agency to complete it and then conduct a new analys is during the period between the NPRM and the final rule.

For purposes of this final rule, however, we believe that using the same MYs 1991-1999 database as that used in the 2003 Ka hane study provides a reasonable basis for attempting to estimate safety effects due to re ductions in mass. While commenters often stated that updating the database would help to reveal the effect of recently-introduced lightweight vehicles with extensive material substitution, there have in fact not yet been a significant number of vehicles with substantial mass reduction/material substitution to analyze, and they must also show up in the crash databases for NHTSA to be able to add them to its analysis. Based on NHTSA’s research, specifically, on three statistical analyses over a 12-year period (1991-2003) covering a range of 22 model years (1978- 1999), NHTSA believes that the relationships between mass, size, and safety has only changed slowly over time, alt hough we recognize that they may change somewhat more rapidly in the future. 124 As the on-road fleet gains incr easing numbers of vehicles with

124 NHTSA notes the CAS’ comments regarding changes in the vehicle fleets since the introduction of CAFE standards in the late 1970s, but believes they apply more to the differences between late 1970s211 increasing amounts of different methods of mass reduction applied to them, we may begin to discern changes in th e crash databases due to the presence of these vehicles, but any such changes are likely to be slow and evolutionary, part icularly in the context of MYs 2000-2009 vehicles. The agencies do expect th at further analysis of historical data files will continue to provide a robust and practicable basis for estimating the potential safety effects that might occur with future reductions in vehicle mass. However, we recognize that estimates derived from analysis of historical data, like estimates from any other type of analysis (inc luding simulation-based analysis , which cannot feasibly cover all relevant scenarios), will be uncertain in terms of predicting actual future outcomes with respect to a vehicle fl eet, driving population, and operating environment that does not yet exist.

The agencies also recognize that more re cent vehicles have more safety features than 1990s vehicles, which are likely to make them safer overall. To account for this, NHTSA did adjust the results of both its NPRM and final rule analysis to include known safety improvements, like ESC and increases in seat belt use, that have occurred since
MYs 1991-1999. 125 However, simply because newer vehicles have more safety countermeasures, does not mean that the weight /safety relationship necessarily changes. More likely, it would change the target populat ion (the number of fatalities) to which one would apply the weight/safety relationship. Thus, we still beli eve that some mass

through 1980s vehicles and 2010s vehicles than to the differences between 1990s and 2010s vehicles. NHTSA believes that the CAS commen ts regarding the phase-out of 1970 s vehicles and their replacement with safer, better fuel-economy-achieving 1980s vehicles paint with rather too large a brush to be relevant to the main discussion of whether the 2003 Kahane report database can reasonably be used to estimate safety effects of mass reduction for the MYs 2012-2016 fleet. 125 See NHTSA FRIA Chapter IX.212 reduction techniques for both passenger cars and light trucks can make them less safe, in certain crashes as discussed in NHTSA’s FRIA, than if mass had not been reduced. 126

As for NHTSA’s assumptions about ma ss reduction, in its analysis, NHTSA generally assumed that lighter vehicles coul d be reduced in weight by 5 percent while heavier light trucks could be reduced in we ight by 10 percent. NHTSA recognizes that manufacturers might choose a different mass reduction scheme than this, and that its quantification of the estimate d effect on safety would be different if they did. We emphasize that our estimates are based on th e assumptions we have employed and are intended to help the agency consider the poten tial effect of the final standards on vehicle safety. Thus, based on the 2010 Kahane analys is, reductions in weight for the heavier light trucks would have positive overall safety effects, 127 while mass reductions for passenger cars and smaller light trucks would have negative overall safety effects.

NHTSA’s estimates are inaccurate because they do not account for the fact that lighter vehicles are safer than heavier car s in terms of crash-avoidance, because they handle and brake better

ICCT stated that lighter vehicles are be tter able to avoid cr ashes because they “handle and brake slightly better,” arguing th at size-based standards encourage lighter-

126 If one has a vehicle (vehicle A), and both reduces the vehicle’s mass and adds new safety equipment to it, thus creating a variant (vehicle A 1 ), the variant might conceivably have a level of overall safety for its occupants is equal to that of the original vehicle (vehicle A). However, vehicle A 1 might not be as safe as second variant (vehicle A 2 ) of vehicle A, one that is produced by adding to vehicle A the same new safety equipment added to the first variant, but this time without any mass reduction. 127 This is due to the beneficial effect on the occupants of vehicles struck by the downweighted larger vehicles.213 weight car-based SUVs with “significantly better handling and crash protection” than 1996-1999 mid-size SUVs, which will reduce both fa talities and fuel consumption. ICCT stated that NHTSA did not include these safety benefits in its analys is. DRI also stated that its 2005 report found that crash avoidance improves with reduction in curb weight and/or with increases in wheelbase and track, because “Crash avoidance can depend, amongst other factors, on the vehicle directi onal control and rollove r characteri stics.” DRI argued that, therefore, “The se results indicate that vehi cle weight reduction tends to decrease fatalities, but vehicle wheelbase and track reduction tends to increase fatalities.”

Agencies’ response:

In fact, NHTSA’s regression analysis of crash fatalities per million registration years measures the effects of crash a voidance, if there are any, as well as crashworthiness. Given that the historical empirical data for passenger cars show a trend of higher crash rates for lighter cars, it is unc lear whether lighter cars have, in the net, superior crash avoidance, although the agencies recognize that they may have advantages in certain individual situa tions. EPA presents a discussion of improved accident avoidance as vehicle mass is reduced in Chapte r 7.6 of its final RIA. The important point to emphasize is that it depends on the situa tion – it would oversimplify drastically to point to one situation in whic h extra mass helps or hurts and then extrapolate effects for crash avoidance across the board based on only that.214 For example, the relationship of vehicle mass to rollover and directional stability is more complex than commenters imply. For rollover, it is true th at if heavy pickups were always more top-heavy than lighter pi ckups of the same f ootprint, their higher center of gravity could make them more roll over-prone, yet some mass can be placed so as to lower a vehicle’s center of gravit y and make it less rollover-prone. For mass reduction to be beneficial in rollover crashes, then, it must take center of gravity height into account along with other factors su ch as passenger compartment design and structure, suspension, the presence of vari ous safety equipment, and so forth.

Similarly, for directional stability, it is true that having more mass increases the “understeer gradient” of cars – i.e., it reinforc es their tendency to proceed in a straight line and slows their response to steering input, which would be harmful where prompt steering response is es sential, such as in a double-la ne-change maneuver to avoid an obstacle. Yet more mass and a higher understeer gradient could help when it is better to remain on a straight path, such as on a straight road with icy patches where wheel slip might impair directional stability. Thus, wh ile less vehicle mass can sometimes improve crash avoidance capability, there can also be situations when more vehicle mass can help in other kinds of crash avoidance.

Further, NHTSA’s research suggests that additional vehicle mass may be even more helpful, as discussed in Chapter IX of NHTSA’s FRIA, when the average driver’s response to a vehicle’s maneuverability is taken into account. Lighter cars have historically (1976-2009) had higher collision-invo lvement rates than heavier cars – even215 in multi-vehicle crashes where directional and rollover stability is not particularly an issue. 128 Based on our analyses using nationally -collected FARS and GES data, drivers of lighter cars are more likely to be the culp able party in a 2-vehicl e collision, even after controlling for footprint, the dr iver’s age, gender, urbanizatio n, and region of the country.

Thus, based on this data, it a ppears that lighter cars may not be driven as well as heavier cars, although it is unknown why this is so. If poor drivers intrinsically chose light cars (self-selection), it might be eviden ced by an increase in antisocial driving behavior (such as DWI, drug involvement, sp eeding, or driving wit hout a license) as car weight decreases, after controlli ng for driver age and gender – in addition to the increases in merely culpable driver behavior (such as failure to yield the right of way). But analyses in NHTSA’s 2003 report did not show an increase in antisocial driver behavior in the lighter cars paralleling their increase in culpable involvements.

NHTSA also hypothesizes that certain asp ects of lightness and/or smallness in a car may give a driver a perception of greater maneuverability that ultimately results in driving with less of a “safety margin,” e.g., en couraging them to weave in traffic. That may appear paradoxical at first glance, as ma neuverability is, in the abstract, a safety plus. Yet the situation is not unlike powerful engines that could theoretically enable a

128 See, e.g., NHTSA (2000). Traffic Safety Facts 1999. Report No. DOT HS 809 100. Washington, DC: National Highway Traffic Safety Administration, p. 71; Najm, W.G., Sen, B., Smith, J.D., and Campbell, B.N. (2003). Analysis of Light Vehicle Crashes and Pre-Crash Scenarios Based on the 2000 General Estimates System, Report No. DOT HS 809 573. Washington, DC: National Highway Traffic Safety Administration, p. 48.216 driver to escape some hazards, but in reality have long been associated with high crash and fatality rates. 129

NHTSA’s estimates are inaccurate because fatalities are linke d more to other factors than mass

Tom Wenzel stated that the safety record of recent model year crossover SUVs indicates that weight reduction in this class of vehicles (small to mid-size SUVs) resulted in a reduction in fatality risk. Wenzel ar gued that NHTSA should ac knowledge that other vehicle attributes may be as important, if not more important, than vehicle weight or footprint in terms of occupant safety, su ch as unibody construction as compared to ladder-frame, lower bumpers, and less rigi d frontal structures, all of which make crossover SUVs more compatible w ith cars than truck-based SUVs.

Marc Ross commented that fatalities are li nked more strongly to intrusion than to mass, and stated that research by safety expe rts in Japan and Europe suggests the main cause of serious injuries and deaths is in trusion due to the failure of load-bearing elements to properly protect occupants in a severe crash. Ross argued that the results from this project have “overturned the origin al views about compatibility,” which thought that mass and the mass ratio were the dominant factors. Since footprint-based standards will encourage the reduction of vehicle we ight through materials substitution while

129 Robertson, L.S. (1991), “How to Save Fuel and Reduce Injuries in Automobiles,” The Journal of Trauma , Vol. 31, pp. 107-109; Kahane, C.J. (1994). Corre lation of NCAP Performance with Fatality Risk in Actual Head-On Collisions, NHTSA Technical Report No. DOT HS 808 061. Washington, DC: National Highway Traffic Sa fety Administration, http://www-nrd. nhtsa.dot.gov/Pubs/808061.PDF, pp. 4- 7.217 maintaining size, Ross stated, they will he lp to reduce intrusion and consequently fatalities, as the lower weight reduces crash forces while maintaining size preserves crush space. Ross argued that this factor was not considered by NHTSA in its discussion of safety. ICCT agreed with Ross’ comments on this issue.

In previous comments on NHTSA rulemakings and in several studies, Wenzel and Ross have argued generally that vehicle desi gn and “quality” is a much more important determinant of vehicle safety than mass. In comments on the NPRM, CARB, NRDC, Sierra Club, and UCS echoed this theme.

ICCT commented as well that fatality rate s in the EU are much lower than rates in the U.S., even though the vehicles in the EU fleet tend to be smaller and lighter than those in the U.S. fleet. Thus, ICCT argued, “This strongly supports the idea that vehicle and highway design are far more important factors than size or weight in vehicle safety.” ICCT added that “It also suggest s that the rise in SUVs in th e U.S. has not helped reduce fatalities.” CAS also commented that Germany’s vehicle fleet is both smaller and lighter than the American fleet, and has lower fatality rates.

Agencies’ response:

NHTSA and EPA agree that there are many features that affect safety. While crossover SUVs have lower fatality rates th an truck-based SUVs, there are no analyses that attribute the improved safety to mass alone , and not to other factors such as the lower218 center of gravity or the unibody construction of these vehicles. While a number of improvements in safety can be made, they do not negate the pote ntial that another 100 lbs. could make a passenger car or crossover vehicle safer for its occupants, because of the effects of mass per se as discussed in NHTSA’s FRIA, albeit similar mass reductions could make heavier LTVs safer to other vehi cles without necessarily harming their own drivers and occupants. Moreover, in th e 2004 response to docket comments, NHTSA explained that the significant relationship betw een mass and fatality risk persisted even after controlling for vehicle pr ice or nameplate, suggesting th at vehicle “quality” as cited by Wenzel and Ross is not necessarily more important than vehicle mass.

As for reductions in intrusions due to material substitution, the agencies agree generally that the use of new and innovative ma terials may have the potential to reduce crash fatalities, but such vehicles have not been introduced in large numbers into the vehicle fleet. The agencies will continue to monitor the situati on, but ultimately the effects of different methods of mass reduction on overall safety in the real world (not just in simulations) will need to be analyzed when vehicles with these types of mass reduction are on the road in sufficient quantities to provide statisti cally significant results. For example, a vehicle that is designed to be much stiffer to reduce intrusion is likely to have a more severe crash pulse and thus impose gr eater forces on the occupants during a crash, and might not necessarily be good for elderly an d child occupant safety in certain types of crashes. Such trade-offs make it difficult to estimate overall results accurately without real world data. The agencies will continue to evaluate and analyze such real world data as it becomes available, and will keep th e public informed as to our progress.219 ICCT’s comment illustrates the fact that differe nt vehicle fleets in different countries can face different challenges. NHTSA does not belie ve that the fact that the EU vehicle fleet is generally lighter than the U.S. fleet is th e exclusive reason, or ev en the primary factor, for the EU’s lower fatality rates. The data ICCT cites do not account for significant differences between the U.S. and EU such as in belt usage, drunk driving, rural/urban roads, driving culture, etc.

The structure of the standards reduces/c ontributes to potential safety risks from mass reduction

Since switching in 2006 to setting attri bute-based light truc k CAFE standards, NHTSA has emphasized that one of the benefits of a footprint-based standard is that it discourages manufactur ers from building smaller, less safe vehicles to achieve CAFE compliance by “balancing out” their larger ve hicles, and thus avoids a negative safety consequence of increasing CAFE stringency. 130 Some commenters on the NPRM (Daimler, IIHS, NADA, NRDC, Sierra Club et al. ) agreed that footpr int-based standards would protect against downsizing and help to mitigate safety risks, while others stated that there would still be safety risks even with footprint-based standards – CEI, for example, argued that mass reduction inheren tly creates safety risks, while IIHS and Porsche expressed concern about footprint-ba sed standards encouraging manufacturers to

130 We note that commenters were divided on whethe r they believed there was a clear correlation between vehicle size/weight and safety (CEI, Congress of R acial Equality, Heritage Foundation, IIHS, Spurgeon, University of PA Environmental Law Project) or whether they believed that the correlation was less clear, for example because they believed that vehicle design was more important than vehicle mass (CARB, Public Citizen).220 manipulate wheelbase, which could reduce cr ush space and worsen vehicle handling. U.S. Steel and AISI both commented that the “aggressive schedule” for the proposed increases in stringency could encourage manufac turers to build smaller, lighter vehicles in order to comply.

Some commenters also focused on the shape and stringency of the target curves and their potential effect on ve hicle safety. IIHS agreed wi th the agencies’ tentative decision to cut off the target curves at the sm all-footprint end. Regarding the safety effect of the curves requiring less stringent targets for larger vehicles, while IIHS stated that increasing footprint is good for safety, CAS, Wenzel, and the UCSB st udents stated that decreasing footprint may be better for safety in terms of risk to occupants of other vehicles. Daimler, Wenzel, and the Univ ersity of PA Environmental Law Project commented generally that more similar passe nger car and light truck targets at identical footprints (as Wenzel put it, a single target curve) would improve fleet compatibility and thus, safety, by encouraging manufacturers to build more passenger ca rs instead of light trucks.

Agencies’ response:

The agencies continue to believe that f ootprint-based standards help to mitigate potential safety risks from downsizing if th e target curves maintain sufficient slope, because, based on NHTSA’s analysis, larger-f ootprint vehicles are safer than smaller-221 footprint vehicles. 131 The structure of the footprint-based curves will also discourage the upsizing of vehicles. Neverthele ss, we recognize that footpr int-based standards are not a panacea – NHTSA’s analysis continues to show that there was a historical relationship between lower vehicle mass and increased safety risk in passenger cars even if footprint is maintained, and there are ways that manuf acturers may increase footprint that either improve or reduce vehicle safety, as indicated by IIHS and Porsche.

With regard to whether the agencies should set separate curves or a single one, NHTSA also notes in Section II.C that EP CA requires NHTSA to establish standards separately for passenger cars and light trucks, and thus concludes that the standards for each fleet should be based on the characteristics of vehicles in each fleet. In other words, the passenger car curve should be based on th e characteristics of passenger cars, and the light truck curve should be base d on the characteristics of ligh t trucks—thus to the extent that those characteristics are different, an artificially-forced convergence would not accurately reflect those differences. Howeve r, such convergence could be appropriate depending on future trends in the light vehi cle market, specifically further reduction in the differences between passenger car and light truck characteristics. While that trend was more apparent when car-like 2WD SUVs were classified as light trucks, it seems likely to diminish for the model year vehicles subject to thes e rules as the truck fleet will be more purely “truck-like” than ha s been the case in recent years.

131 See Chapter IX of NHTSA’s FRIA.222 NHTSA’s estimates are inaccurate becau se NHTSA could mitigate additional safety risks from mass reduction, if ther e are any, by simply regulating safety

more

Since NHTSA began considering the potenti al safety risks from mass reduction in response to increased CAFE standards, so me commenters have suggested that NHTSA could mitigate those safety risks, if any, by simply regulating more. 132 In response to the safety analysis presented in the NPRM, se veral commenters stated that NHTSA should develop additional safety regulations to requ ire vehicles to be designed more safely, whether to improve compatibility (Adcock, NY DEC, Public Citizen, UCS), to require seat belt use (CAS, UCS), to improve rollover and roof crush resistance (UCS), or to improve crashworthiness generally by streng thening NCAP and the star rating system (Adcock). Wenzel commented further that “I mprovements in safety regulations will have a greater effect on occupant safety than FE st andards that are struct ured to maintain, but may actually increase, vehicle size.”

Agencies’ response:

NHTSA appreciates the commenters’ sugge stions and notes that the agency is continually striving to improve motor vehicle safety consistent with its mission. As noted above, improving safety in other areas a ffects the target pop ulation that the mass/footprint relationship could affect, but it does not necessarily change the relationship.

132 See , e.g., MY 2011 CAFE final rule, 74 FR 14403-05 (Mar. 30, 2009).223 The 2010 Kahane analysis discussed in this final rule evaluates the relative safety risk when vehicles are made lighter than th ey might otherwise be absent the final MYs 2012-2016 standards. It does cons ider the effect of known safe ty regulations as they are projected to affect the target population.

Casualty risks range widely for vehicles of the same weight or footprint, which skews regression analysis and makes comput er simulation a better predictor of the safety effects of mass reduction

Wenzel commented that he had found, in his most recent work, after accounting for drivers and crash location, that there is a wide range in casu alty risk for vehicles with the same weight or footprint. Wenzel stated that for drivers, casua lty risk does generally decrease as weight or footprin t increases, especially for passenger cars, but the degree of variation in the data for vehicles (particularl y light trucks) at a give n weight or footprint makes it difficult to say that a decrease in weight or footprint will necessarily result in increased casualty risk. In terms of risk im posed on the drivers of other vehicles, Wenzel stated that risk increases as light truck weight or f ootprint increases.

Wenzel further stated that because a re gression analysis can only consider the average trend in the relations hip between vehicle weight/siz e and risk, it must “ignore” vehicles that do not follow that trend. We nzel therefore recommended that the agency employ computer crash simulations for analyz ing the effect of vehicle weight reduction224 on safety, because they can “pinpoint the eff ect of specific vehicl e designs on safety,” and can model future vehicles which do not yet exist and are not bound to analyzing historical data. Wenzel cited, as an example, a DRI simulation study commissioned by the Aluminum Association (Kebschull 2004), wh ich used a computer model to simulate the effect of changing SUV mass or footprin t (without changing other attributes of the vehicle) on crash outcomes, and showed a 15 percent net decrease in injuries, while increasing wheelbase by 4.5 inches while main taining weight showed a 26 percent net decrease in serious injuries.

Agencies’ response:

The agencies have reviewed Mr. Wenzel’s draft report for DOE to which he referred in his comments, but based on NHTSA ’s work do not find such a wide range of safety risk for vehicles with the same wei ght, although we agree there is a range of risk for a given footprint. Wenzel found that for drivers, casualty risk does generally decrease as weight or footprint increas es, especially for passenger cars, and that in terms of risk imposed on the drivers of other vehicles, risk increases as light truc k weight or footprint increases, but concluded that the variation in the data precluded the possibility of drawing any conclusions. In the 2010 Kahane study presented in the FRIA, NHTSA undertook a similar analysis in which it correlated weight to fatality risk for vehicles of essentially the same footprint. 133 The “decile analysis,” provided as a check on the trend/direction of NHTSA’s regression analysis, s hows that societal fatality risk generally increases and rarely decreases for lighter relative to heavier cars of the same footpr int. Thus, while Mr.

133 Subsections 2.4 and 3.3 of new report.225 Wenzel was reluctant to draw a conclusion, NHTSA believes that bo th our research and Mr. Wenzel’s appear to point to the same conc lusion. We agree that there is a wide range in casualty risk among cars of th e same footprint, but we find that that casualty risk is correlated with weight. The correlation s hows that heavier car s have lower overall societal fatality rates than lighter cars of very similar footprint.

The agencies agree that simulation can be beneficial in certain circumstances. NHTSA cautions, however, that it is difficult fo r a simulation analysis to capture the full range of variations in crash s ituations in the way that a statistical regression analysis does. Vehicle crash dynamics are complex, a nd small changes in initial crash conditions (such as impact angle or closing speed) can have large effects on injury outcome. This condition is a consequence of variations in the deformation mode of individual components (e.g., buckling, bending, crushing, ma terial failure, etc.) and how those variations affect the creation and destruction of load paths between the impacting object and the occupant compartment during the crash ev ent. It is therefore difficult to predict and assess structural interact ions using computational methods when one does not have a detailed, as-built geometric and material model. Even when a complete model is available, prudent engineeri ng assessments require extensiv e physical testing to verify crash behavior and safety. Despite all this , the agencies recognize that detailed crash simulations can be useful in estimating the relative structural effects of design changes over a limited range of crash conditions, and w ill continue to evaluate the appropriate use of this tool in the future.226 Simplified crash simulations can also be valuable tools, but only when employed as part of a comprehensive analytical pr ogram. They are especially valuable in evaluating the relative effect and associated confidence intervals of feasible design alternatives. For example, the method employed by Nusholtz et al

. 134 could be used by a vehicle designer to estimate th e benefit of incremental changes in mass or wheelbase as well as the tradeoffs that might be made betw een them once that designer has settled on a preliminary design. A key difference between th e research by Nusholtz and the research by Kebschull that Mr. Wenzel cited 135 is in their suggested applications. The former is useful in evaluating proposed alternatives early in the design process – Nusholtz specifically warns that the model provides only “general insights into the overall risk ... and cannot be used to obtain specific res ponse characteristics.” Mr . Wenzel implies the latter can “isolate the effect of specific de sign changes, such as weight reduction” and thus quantify the fleet-wide effect of substa ntial vehicle redesigns. Yet while Kebschull reports injury reductions to three significant digits, there is no validation that vehicle structures of the proposed weight and stiffne ss are even feasible w ith current technology. Thus, while the agencies agree that computer simulations can be useful tools, we also

134 Nusholtz, G.S., G. Rabbiolo, and Y. Shi, “Estimat ion of the Effects of Vehi cle Size and Mass on CrashInjury Outcome Through Parameterized Probability Ma nifolds,” Society of Automotive Engineers (2003), Document No. 2003-01-0905. Available at http://www.sae.org/technical/papers/2003-01-0905 (last accessed Feb. 15, 2010). 135 Mr. Wenzel cites the report by Kebschull et al [ 2004, DRI-TR-04-04-02] as an example of what he regards as the effective use of computer crash simulation. NHTSA does not concur that this analysis represents a viable analytical method for evaluating the fleet-wide tradeoffs between vehicle mass and societal safety. The simulation me thod employed was not a full finite element representation of each major structural component in the vehicles in question. Instead, an Articulated Total Body (ATB) representation was constructed for each of two representative vehicles. In the ATB model, large structural subsystems were represented by a single ellipsoid. Consolidated lo ad-deflection properties of these subsystems and the joints that tie them together were “calibrated” for an ATB vehicle model by requiring that it reproduce the acceleration pulse of a physical NHTSA crash test. NH TSA notes that vehicle si mulation models that are calibrated to a single crash test configuration (e.g., a longitudinal NCAP test into a rigid wall) are often illequipped to analyze alternative crash scenarios (e.g., vehicle-to-vehicle crashes at arbitrary angles and lateral offsets).227 recognize the value of st atistical regression analysis for determining fleet-wide effects, because it inherently incorporat es real-world factors in historical safety assessments.

DRI’s analysis shows that lighter vehicles will save lives, and NHTSA reaches the opposite conclusion without disproving DRI’s analysis

The difference between NHTSA’s results and DRI’s results for the relationship between vehicle mass and vehicle safety has be en at the crux of th is issue for several years. While NHTSA offered some theories in the NPRM as to why DRI might have found a safety benefit for mass reduction, NHTSA ’s work since then has enabled it to identify what we believe is the most likely reason for DRI’s findings . The potential near multicollinearity of the variables of curb wei ght, track width, and wheelbase creates some degree of concern that any regression mode ls with those variables could inaccurately calibrate their effects. However, based on its own experience with statistical analysis, NHTSA believes that the specific two-step re gression model used by DRI increases this concern, because it weakens relationships be tween curb weight and dependent variables by splitting the effect of curb weight across the two regression steps.

The comments below are in response to NHTSA’s theories in the NPRM about the source of the differences between NHTSA’s and DRI’s results. The majority of them are answered more fully in the 2010 Kahane report included in NHT SA’s FRIA, but we respond to them in this document as well for purposes of completeness.228 NHTSA and DRI may have reached diffe rent conclusions because NHTSA’s study does not distinguish between reductions in size and reductions in weight like DRI’s

Several commenters (CARB, CBD, EDF, ICCT, NRDC, and UCS) stated that DRI had been able to separate the effect of si ze and weight in its anal ysis, and in so doing proved that there was a safety benefit to reducing weight without reducing size. The commenters suggested that if NHTSA properly distinguished between reductions in size and reductions in weight, it would find the same result as DRI.

Agencies’ response:

In the 2010 Kahane analysis presented in the FRIA, NHTSA did attempt to separate the effects of vehi cle size and weight by performi ng regression analyses with footprint (or alternatively track width and wheelbase) and curb we ight as separate independent variables. For passenger cars, NHTSA found that the regressi ons attribute the fatality increase due to dow nsizing about equally to mass and footprint – that is, the effect of reducing mass alone is abou t half the effect of reducing mass and reducing footprint. Unlike DRI’s results, NHTSA’s re gressions for passenger cars and for lighter LTVs did not find a safety benefit to reduc ing weight without reducing size; while NHTSA did find a safety benefit for reduc ing weight in the heaviest LTVs, the magnitude of the benefit as compared to DRI’s was significantly smaller. NHTSA229 believes that these differences in results may be an artifact of DRI’s two-step regression model, as explained above.

NHTSA and DRI may have reached diffe rent conclusions because NHTSA’s study does not include two-door cars like DRI’s

One of NHTSA’s primary theories in the NPRM as to why NHTSA and DRI’s results differed related to DRI’s inclusion in its analysis of 2-door cars. NHTSA had excluded those vehicles from its analys is on the grounds that 2-door cars had a disproportionate crash rate (perhaps due to their inclusion of musc le and sports cars) which appeared likely to skew the regre ssion. Several commenters argued that NHTSA should have included 2-door car s in its analysis. DRI and James Adcock stated that 2- door cars should not be excluded because they represent a signi ficant portion of the lightduty fleet, while CARB and ICCT stated that because DRI found safety benefits whether 2-door cars were included or not, NHTSA s hould include 2-door cars in its analysis. Wenzel also commented that NHTSA should in clude 2-door cars in s ubsequent analyses, stating that while his analysis of MY 2000-2004 crash data from 5 states indicates that, in general, 4-door cars tend to ha ve lower fatality risk than 2- door cars, the risk is even lower when he accounts for driv er age/gender and cr ash location. Wenzel suggested that the increased fatality risk in the 2-door car population seemed primar ily attributable to the sports cars, and that that was not suffi cient grounds to exclude all 2-door cars from NHTSA’s analysis.230 Agencies’ response:

The agencies agree that 2-door cars can be included in the analysis, and NHTSA retracts previous statements that DRI’s incl usion of them was incorrect. In its 2010 analysis, NHTSA finds that it makes little di fference to the results whether 2-door cars are included, partially included, or excluded from the analysis. Thus, analyses of 2-door and 4-door cars combined, as well as other combinations, have been included in the analysis. That said, no comb ination of 2-door and 4-door cars resulted in NHTSA’s finding a safety benefit for pa ssenger cars due to mass reduction.

NHTSA and DRI may have reached diffe rent conclusions due to different assumptions

DRI commented that the differences found between its study and NHTSA’s may be due to the different assumptions about th e linearity of the curb weight effect and control variable for driver age, vehicle age, road conditions, and ot her factors. NHTSA’s analysis was based on a two-piece linear model fo r curb weight with two different weight groups (less than 2,950 lbs., and greater than or equal to 2.950 lbs). The DRI analysis assumed a linear model for curb weight with a single weight group. Additionally, DRI stated that NHTSA’s use of eight control va riables (rather than three control variables like DRI used) for driver age introduces additional degrees of freedom into the regressions, which it suggested may be correlat ed with the curb weight, wheelbase, and231 track width, and/or other contro l variables. DRI suggested that this may also affect the results and cause or contribute to the diffe rences in outcomes between NHTSA and DRI.

Agencies’ response:

NHTSA’s FRIA documents that NHTSA anal yzed its database using both a single parameter for weight (a linear model) and tw o parameters for weight (a two-piece linear model). In both cases, the l ogistic regression responded iden tically, alloca ting the same way between weight, wheelbase , track width, or footprint. 136 Thus, NHTSA does not believe that the differences be tween its results and DRI’s results are due to whether the studies used a single weight group or two weight groups.

The FRIA also documents that NHTSA ex amined NHTSA’s use of eight control variables for driver age (age s 14-30, 30-50, 50-70, 70+ for male s and females separately , versus DRI’s use of three cont rol variables for age (FEMALE = 1 for females, 0 for males, YOUNGDRV = 35-AGE for drivers under 35, 0 for all others, OLDMAN = AGE-50 for males over 50, 0 for all others; OLDWOMAN = AGE-45 for females over 45, 0 for all others) to see if that affected the results. NHTSA ran its analysis using the eight control variables and ag ain using three control vari ables for age, and obtained similar results each time. 137 Thus, NHTSA does not believe that the differences between its results and DRI’s results are due to the number of control variab les used for driver
age.

136 Subsections 2.2 and 2.3 of new report 137 Id.232 NHTSA’s and DRI’s conclusions may be sim ilar if confidence intervals are taken into account

DRI commented that NHTSA has not reported confidence intervals, while DRI has reported them in its studies. Thus, DRI argued, it is not po ssible to determine whether the confidence intervals overlap a nd whether the differences between NHTSA’s and DRI’s analyses are statistically significant.

Agencies’ response:

NHTSA has included confidence interval s for the main results of the 2010 Kahane analysis, as shown in Chapter IX of NHTSA’s FRIA. For passenger cars, the NHTSA results are a statistically signifi cant increase in fata lities with a 100 pound reduction while maintaining track width and wh eelbase (or footprint); the DRI results are a statistically significant decrease in fatalities with a 100 pound reduction while maintaining track width and wheelbase. The DR I results are thus outside the confidence bounds of the NHTSA results and do not overlap.

NHTSA should include a “best- case” estimate in its study

Several commenters (Center for Auto Sa fety, NRDC, Public Citizen, Sierra Club
et al. , and Wenzel) urged NHTSA to include a “best-case” estimate in the final rule,233 showing scenarios in which lives were saved rath er than lost. Public Citizen stated that there would be safety benefits to reducing the weight of the heaviest vehicles while leaving the weight of the lig hter vehicles unchanged, and that increasing the number of smaller vehicles would provide safety be nefits to pedestrians, bicyclists, and motorcyclists. Sierra Club et al . stated that new materials, smart design, and lighter, more advanced engines can all improve fuel economy while maintaining or increasing vehicle safety. Both Center for Auto Safe ty and Sierra Club argued that the agency should have presented a “best-case” scenario to balance out the “worst-case” scenario presented in the NPRM, especially if NHTSA itself believed that the worst-case scenario was not inevitable. NRDC requested that NHTSA present both a “best-case” and a “most likely” scenario. Wenzel simply stated that NHTSA did not present a “best-case” scenario, despite DRI’s finding in 2005 that fatalities would be reduced if track width was held constant.

Agencies’ response:

NHTSA has included an “uppe r estimate” and a “lower estimate” in the new 2010 Kahane analysis. The lower estimate assumes that mass reduction will be accomplished entirely by material substitution or other techniques that do not perceptibly change a vehicle’s shape, structural stre ngth, or ride quality. The lower estimate examines specific crash modes and is meant to reflect the increas e in fatalities for the specific crash modes in which a reduction in mass per se in the case vehicle would result in a reduction in safety: namely, collisions with larger vehicles not covered by the regulations (e.g., trucks234 with a GVWR over 10,000 lbs), collisions w ith partially-movable objects (e.g., some trees, poles, parked cars, etc.), and collisions of cars or light LTVs with heavier LTVs – as well as the specific crash modes where a reduction in mass per se in the case vehicle would benefit safety: namely, collisions of heavy LTVs with cars or lighter LTVs. NHTSA believes that this is the effect of mass per se , i.e., the effects of reduced mass will generally persist in these crashes regardless of how the mass is reduced. The lower estimate attempts to quantify that scenario, although any such estimate is hypothetical and subject to considerable uncertainty. NHT SA believes that a “most likely” scenario cannot be determined with any certain ty, and would depend entirely upon agency assumptions about how manufacturers intend to reduce mass in their vehicles. While we can speculate upon the potential effects of different methods of mass reduction, we cannot predict with certainty what manufacturers will ultimately do.

NHTSA should not include a “wor st-case” estimate in its study

NRDC, Public Citizen and Sierra Club et al. commented that NHTSA should remove the “worst-case scenar io” estimate from the rulema king, generally because it was based on an analysis that evaluated histori cal vehicles, and future vehicles would be sufficiently different to render the “worst-case scenario” inapplicable.235 Agencies’ response:

NHTSA stated in the NPRM that the “worst -case scenario” addre ssed the effect of a kind of downsizing (i.e., mass reduction acco mpanied by footprint reduction) that was not likely to be a consequence of attribute-based CAFE sta ndards, and that the agency would refine its analys is of such a scenario for the fi nal rule. NHTSA has not used the “worst-case scenario” in the fina l rule. Instead, we present thr ee scenarios: the first is an estimate based directly on the regres sion coefficients of weight reduction while maintaining footprint in the statistical analyses of hi storical data. As discussed above, presenting this scenario is possible because NHTSA attempted to separate the effects of weight and footprint reduction in the new anal ysis. However, even the new analysis of LTVs produced some coefficients that NHTSA did not consider entirely plausible. NHTSA also presents an “upper estimate” in which those coefficients for the LTVs were adjusted based on additional analyses and expe rt opinion as a safety agency and a “lower estimate,” which estimates the effect if mass reduction is accomplished entirely by safety-conscious technologies such as material substitution.

3. How has NHTSA Refined its Analysis for Purposes of Estimating the Potential Safety Effects of this Final Rule?

During the past months, NHTSA has exte nsively reviewed the literature on vehicle mass, size, and fatality risk. NHTSA now agrees with DRI and other commenters that it is essential to analyze the effect of mass independently from the effects of size236 parameters such as wheelbase, track width, or footprint – and that the NPRM’s “worstcase” scenario based on downsizing (in which weight, wheelbase, and track width could all be changed) is not useful for that purpose. The agency should instead provide estimates that better reflect the more likely e ffect of the regulation - estimating the effect of mass reduction that maintains footprint.

Yet it is more difficult to analyze multiple, independent parameters than a single parameter (e.g., curb weight), because ther e is a potential concern that the near multicollinearity of the paramete rs – the strong, natural and historical correlation of mass and size – can lead to inaccurate stat istical estimates of their effects. 138 NHTSA has performed new statistical analyses of its hi storical database of passenger cars, light trucks, and vans (LTVs) from its 2003 report (now including also 2-door cars), assessing relationships between fatality risk, mass, and footprint. They are described in Subsections 2.2 (cars) and 3.2 (LTVs) of the 2010 Kahane report presented in Chapter IX of the FRIA. While the potential concerns associated with near multicollinearity are inherent in regression analyses with multiple size/mass parameters, NHTSA believes that the analysis approach in the 2010 Kahane report, namely a single-step regression analysis, generally re duces those concerns 139 and models the trends in the historical data. The results differ substantially from DRI’s, based on a two-step regression analysis.

138 Greene, W. H. (1993). Econometric Analysis , Second Edition. New York: Macmillan Publishing Company, pp. 266-268; Allison, P.D. (1999), Logistic Regression Using the SAS System . Cary, NC: SAS Institute Inc., pp. 48-51. The report shows variance in flation factor (VIF) scores in the 5-7 range for curb weight, wheelbase, and track width (or, alternatively, curb weight and footprint) in NHTSA’s database, exceeding the 2.5 level where near mu lticollinearity begins to become a concern in logistic regression analyses. 139 NHTSA believes that, given the near multicollinearity of the independent variables, the two-step regression augments the possibility of estimating in accurate coefficients fo r curb weight, because it weakens relationships between curb weight and dependent variables by splitting the effect of curb weight across the two regression steps as discussed further in Subsection 2.3 of NHTSA’s report.237 Subsections 2.3 and 2.4 of the 2010 Kahane repo rt attempt to account for the differences primarily by applying selected techniques fr om DRI’s analyses to NHTSA’s database.

The statistical analyses – logistic regressions – of trends in MYs 1991-1999 vehicles generate one set of estimates of the possible effects of reducing mass by 100 pounds while maintaining footprint. While thes e effects might concei vably carry over to future mass reductions, there are two reasons th at future safety effects of mass reduction could differ from projections from historical data:

• The statistical analyses are “cross-sectional” analyses that estimate the increase in fatality rates for vehicles weighing n- 100 pounds relative to vehicles weighing n pounds, across the spectrum of vehicles on the road, from th e lightest to the heaviest. They do not directly compare the fatality rates for a specific make and model before and after a 100–pound reduction fro m that model. Instead, they use the differences across makes and models as a surrogate for the effects of actual reductions within a specific model; those cross-sectional differences could include trends that are statis tically, but not causally related to mass.

• The manner in which mass changed across MY 1991-1999 vehicles might not be consistent with future mass reductions, due to the availability of newer materials and design methods.238 Therefore, Subsections 2.5 and 3.4 of the 2010 Kahane report supplement those estimates with one or more scenarios in which some of the logistic regression coefficients are replaced by numbers based on additional anal yses and NHTSA’s judgment of the likely effect of mass per se (the ability to transfer momentum to other vehicles or objects in a collision) and of what trends in the hist orical data could be avoided by current massreduction technologies such as materials su bstitution. The various scenarios may be viewed as a plausible range of point estimates for the e ffects of mass reduction while maintaining footprint, but they should not be construed as upper and lower bounds. Furthermore, being point estimates, they are th emselves subject to uncertainties, such as, for example, the sampling errors associated with statistical analyses.

The principal findings and conclusions of the 2010 Kahane report are as follows:

Passenger cars:

This database with the one-step re gression method of the 2003 Kahane report estimates an increase of 700-800 fatalities when curb weight is reduced by 100 pounds and footprint is reduced by 0.65 square feet (t he historic average footprint reduction per 100-pound mass reduction in cars). The regression attributes the fatality increase about equally to curb weight and to footprint . The results are approximately the same whether 2-door cars are fully included or partially included in the anal ysis or whether only 4-door cars are included (as in the 2003 report). Regressions by curb we ight, track width and wheelbase produce findings quite similar to the regressions by curb weight and footprint,239 but the results with the single “size” variable, footprint, rather than the two variables, track width and wheelbase vary even less with the inclusion or exclusion of 2-door cars.

In Subsection 2.3 of the new report, a tw o-step regression method that resembles (without exactly replicating) the approach by DRI, when applied to the same (NHTSA’s) crash and registration data , estimates a large benefit when mass is reduced, offset by even larger fatality increases when track width and wheelbase (or footprint) are reduced. NHTSA believes that the benefit estimated by this method is inaccurate, due to the potential concerns with the near multicollin earity of the parameters (curb weight, track width, and wheelbase) 140 even though the analysis is theoretically unbiased 141 . Almost any analysis incorporating those parameters has a possibility of in accurate coefficients due to near multicollinearity; however, based on our own experience with other regression analyses of crash data, NH TSA believes a DRI-type two-step method augments the possibility of estimating inaccura te coefficients for curb weight, because it weakens relationships between curb weight and dependent variables by splitting the effect of curb weight across the two regression steps.

In Subsection 2.4 of the new report, as a check on the results from the regression methods, NHTSA also performed what we refer to as “decile” analys es: simpler, tabular data analysis that compares fatality rates of cars of different mass but similar footprint.

140 As evidenced by VIF scores in the 5-7 range, exceeding the 2.5 level where near multicollinearity begins to become a concern in logistic regression analyses. 141 Subsection 2.3 of the 2010 Kahane report attempts to explain why the two-step method, when applied to NHTSA’s 2003 database, produces results a lot like DRI’s, but it does not claim that DRI obtained its results from its own database for exactly those reason s. NHTSA did not analyze DRI’s database. The twostep method is “theoretically unbiased” in the sense that it seeks to estimate the same parameters as the one-step analysis.240 Decile analysis is not a precise tool because it does not control for confounding factors such as driver age/gender or th e specific type of car, but it may be helpful in identifying the general directional trend in the data when footprint is held constant and curb weight varies. The decile analyses show that fatality risk in MY 1991-1999 cars generally increased and rarely decreased for lighter rela tive to heavier cars of the same footprint

. They suggest that the historical, cross-s ectional trend was gene rally in the lighter ↔ more fatalities direction and not in the opposite direction, as might be suggested by the regression coefficients from the met hod that resembles DRI’s approach.

The regression coefficients from NHTS A’s one-step method suggest that mass and footprint each accounted for about half the fatality increase associated with downsizing in a cross-sectiona l analysis of 1991-1999 cars. They estimate the historical difference in societal fatality rates (i.e., including fataliti es to occupants of all the vehicles involved in the collisions, plus any pedestrian s) of cars of different curb weights but the same footprint. They may be considered an “upper-estimate scenario ” of the effect of future mass reduction – if it were accomplished in a manner that resembled the historical cross-sectional trend – i.e., w ithout any particular regard fo r safety (other than not to reduce footprint).

However, NHTSA believes that future vehi cle design is likely to take advantage of safety-conscious technologies such as materials substitution that can reduce mass without perceptibly chan ging a car’s shape or ride and main tain its structural strength. This could avoid much of the risk associated with lighter and sma ller vehicles in the241 historical analyses, especially the historical trend toward higher crash-involvement rates for lighter and smaller vehicles. 142 It could thereby shrink the added risk close to just the effects of mass per se (the ability to transfer momentum to other vehicles or objects in a collision). Subsection 2.5 of the 2010 Kaha ne report attempts to quantify a “lowerestimate scenario” for the potential effect of mass reduction achieved by safety-conscious technologies; the estimated effects are substa ntially smaller than in the upper-estimate scenario based directly on the regression results.

We note, again, that the preceding paragra ph is conditional. Nothing in the CAFE standard requires manufacturers to use mate rial substitution or, more generally, take a safety-conscious approach to mass reduction. 143 Federal Motor Vehicle Safety Standards include performance tests that verify historic al improvements in stru ctural strength and crashworthiness, but few FMV SS provide test information th at sheds light about how a vehicle rides or otherwise helps explain the trend toward higher crash-involvement rates for lighter and smaller vehicles. It is possi ble that using material substitution and other current mass reduction methods could avoid the historical trend in this area, but that remains to be studied as manufacturers introdu ce more of these vehicles into the on-road fleet in coming years. A detailed discussi on of methods currently used for reducing the mass of passenger cars and light trucks is included in Chapter 3 of the Technical Support
Document.

142 This is discussed in greater depth in Subsections 2.1 and 2.5 of the 2010 Kahane report. The historic trend toward higher crash-involvement rates for light er and smaller vehicles is documented in IIHS Advisory No. 5, July 1988, h ttp://www.iihs.org/research/advisories /iihs_advisory_5.pdf; IIHS News Release, February 24, 1998, http ://www.iihs.org/news/1998 /iihs_news_022498.pdf; Au to Insurance Loss Facts, September 2009, http://www.iihs.org/re search/hldi/fact_sheets/CollisionLoss_0909.pdf. 143 Footprint-based standards do not specify how or where to remove mass while maintaining footprint, nor do they categorically forbid footprint re ductions, even if they discourage them.242 LTVs:

The principal difference between LTVs and passenger cars is that mass reduction in the heavier LTVs is estimated to have signific ant societal benefits, in that it reduces the fatality risk for the occupants of cars and lig ht LTVs that collide with the heavier LTVs. By contrast, footprint (size) reduction in LTVs has a harmful effect (for the LTVs’ own occupants), as in cars. The regression me thod of the 2003 Kahane re port applied to the database of that report estimat es a societal increase of 231 fa talities when curb weight is reduced by 100 pounds and footprint is reduced by 0.975 square feet (the hi storic average footprint reduction per 100- pound mass reduction in LTVs). But the regressions attribute an overall reduction of 266 fatalities to the 100-pound mass reducti on and an increase of 497 fatalities to the .975-square -foot footprint reduction. The regression results constitute one of the scenarios for the possible societal effects of future mass reduction in LTVs.

However, NHTSA cautions that some of the regression coefficients, even by NHTSA’s preferred method, might not accurately model the historical trend in the data, possibly due to near multicollin earity of curb weight and footprint or because of the interaction of both of thes e variables with LTV type. 144 Based on supplementary analyses and discussion in Subsections 3.3 and 3.4, the new report defines an additional upper-estimate scenario that NHTSA believes ma y more accurately reflect the historical

144 For example, mid-size SUVs of the 1990s typically had high mass relative to their short wheelbase and footprint (and exceptionally high rates of fatal rollovers); minivans typically have low mass relative to their footprint (and low fatality rates); heavy-duty pickup tr ucks used extensively for work tend to have more mass, for the same footprint, as basic full-sized pi ckup trucks that are more often used for personal transportation.243 trend in the data and a lower-estimate scenario that may come closer to the effects of

mass per se . All three scenarios, however, attribut e a societal fatality reduction to mass reduction in the heavier LTVs.

Overall effects of mass reduction while ma intaining footprint in cars and LTVs:

The immediate purpose of the new report’s anal yses of relationships between fatality risk, mass, and footprint is to develop the f our parameters that the Volpe model needs in order to predict the safety effects, if a ny, of the modeled mass reductions in MYs 2012- 2016 cars and LTVs over the lifetime of those ve hicles. The four numbers are the overall percentage increases or decreases, per 100-pound mass reduction wh ile holding footprint constant, in crash fatalities involving: (1 ) cars < 2,950 pounds (which was the median curb weight of cars in MY 1991-1999), (2) cars ≥ 2,950 pounds, (3) LTVs < 3,870 pounds (which was the median curb weight of LTVs in those model years), and (4) LTVs
≥ 3,870 pounds. Here are the percentage eff ects for each of the three alternative scenarios, again, the “upper-estimate scenario ” and the “lower-estimate scenario” have been developed based on NHTSA’s expert opinion as a vehicle safety agency:244 Fatality Increase pe r 100-Pound Reduction (%) 145 Actual Regression

Result Scenario NHTSA ExpertOpinion UpperEstimate Scenario 146 NHTSA ExpertOpinion LowerEstimate Scenario Cars < 2,950 pounds 2.21 2.21 1.02 Cars > 2,950 pounds 0.90 0.90 0.44 LTVs < 3,870 pounds 0.17 0.55 0.41 LTVs > 3,870 pounds -1.90 -0.62 -0.73

In all three scenarios, the estimated effects of a 100-pound mass reduction while maintaining footprint are an increase in fa talities in cars < 2,950 pounds, substantially smaller increases in cars ≥ 2,950 pounds and LTVs < 3,870 pounds, and a societal benefit for LTVs ≥ 3,870 pounds (because it reduces fatality risk to occupants of cars and lighter LTVs they collide with). These are the es timated effects of reducing each vehicle by exactly 100 pounds. However, the actual mass reduction will vary by make, model, and year. The aggregate effect on fatalities can only be estimated by attempting to forecast, as NHTSA has using inputs to the Volpe model, the mass reduc tions by make and model. It should be noted, however, that a 100-pound reduction would be 5 percent of the mass of a 2000-pound car but only 2 percent of a 5000-pound LTV. Thus, a forecast that mass

145 Reducing mass by 100 pounds in these vehicles is estimated to have the listed percentage effect on fatalities in crashes involving these vehicles. For exampl e, if these vehicles are involved in crashes that result in 10,000 fatalities, 2.21 means that if mass is reduced by 100 pounds, fatalities will increase to 10,221 and -0.73 means fatalities will decrease to 9,927. In the scenario based on actual regression results, the 1.96-sigma sampling errors in the above estimates are ±0.91 percentage points for cars < 2,950 pounds and also for cars ≥ 2,950 pounds, ±0.82 percentage points for LTVs < 3,870 pounds, and ±1.18 percentage points for LTVs ≥ 3,870 pounds. In other words, the fatality increase in the cars < 2,950 pounds and the societal fatality reduction attributed to mass reduction in the LTVs ≥ 3,870 pounds are statistically significant. The sampling errors asso ciated with the scenario based on actual regression results perhaps also indicate the general level of statistical noise in the other two scenarios. 146 For passenger cars, the up per-estimate scenario is the actual-regression-result scenario.245 will decrease by an equal or greater percentage in the heavier vehicles than in the lightest cars would be proportionately more influenced by the benefit for mass reduction in the heavy LTVs than by the fatality increases in th e other groups; it is lik ely to result in an estimated net benefit under one or more of the scenarios. It should also be noted, again, that the three scenarios are point estimates a nd are subject to uncertainties, such as the sampling errors associated with the regressi on results. In the scenario based on actual regression results, the 1.96-sigma sampling errors in the above estimates are + 0.91 percentage points for cars < 2,950 pounds and also for cars > 2,950 pounds, + 0.82 percentage points for LTVs < 3,870 pounds, and + 1.18 percentage points for LTVs > 3,870 pounds. In other words, the fatality in crease in the cars < 2,950 pounds and the societal fatality reduction attri buted to mass reduc tion in the LTVs > 3,870 pounds are statistically significant. The sampling errors associated with the scenario based on actual regression results perhaps also indicate the general level of statistical noise in the other two scenarios.

4. What are the Estimated Safety Effects of this Final Rule?

The table below shows the estimated safety effects of the modeled reduction in vehicle mass provided in the NPRM and in this final rule in order to meet the MYs 2012- 2016 standards, based on the analysis describe d briefly above and in much more detail in Chapter IX of the FRIA. Thes e are combined results for pass enger cars and light trucks. A positive number is an estimated increase in fatalities and a negative number (shown in246 parentheses) is an estimated reduction in fa talities over the lifetime of the model year vehicles compared to the MY 2011 baseline fleet.

MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 NPRM “Worst Case” 34 54 194 313 493 NHTSA Expert Opinion Final Rule Upper Estimate 9 14 26 24 22 NHTSA Expert Opinion Final Rule Lower Estimate 2 4 (17) (53) (80) Actual Regression Result Scenario 0 2 (94) (206) (301)

NHTSA emphasizes that the table above is based on the NHTSA’s assumptions about how manufacturers might choose to reduce the mass of their vehicles in response to the final rule, which are very similar to EP A’s assumptions. In general, as discussed above, the agencies assume that mass will be reduced by as much as 10 percent in the heaviest LTVs but only by as much as 5 percen t in other vehicles and that substantial mass reductions will take place only in the year that models are redesigned. The actual mass reduction that is likely to occur in res ponse to the standards will of course vary by make and model, depending on each manufact urer’s particular approach, with likely more opportunity for the largest LTVs that still use separate frame construction.
The “upper estimate” presented above, as discussed in the FRIA, assumes only that manufacturers will reduce vehicle mass w ithout reducing footprint. Thus, under such a scenario, safety effects could be somewh at adverse if, for example, manufacturers chose to reduce crush space associated with vehicle overhang as a way of reducing mass247 without changing footprint. The “lower es timate,” in turn, is based on the assumption that manufacturers will reduce vehicle ma ss solely through methods like material substitution, which (under th ese assumptions) fully maintain not only footprint but also all structural integrity, and othe r aspects of vehicle safety. Under these scenarios, safety effects could be worse if mass reduction wa s not undertaken thoughtfully to maintain existing safety levels, but could also be be tter if it was undertak en with a thorough and extensive vehicle redesign to maxi mize both mass reduction and safety.

And finally, while NHTSA does not belie ve that the “worst-case” scenario presented in the NPRM is likely to occur during the MYs 2012-2016 timeframe, we cannot guarantee that manufacturers will neve r choose to reduce vehicle footprint, particularly if market forces lead to increased sales of sma ll vehicles in response to sharp increases in the price of petroleum, though this situation would not be in direct response to the CAFE/GHG standards. Thus, we cannot completely reject th e worst-case scenario for all vehicles, although we can and do recogni ze that the footprin t-based standards will significantly limit the likelihood of its occurrence within the context of this rulemaking.

In summary, the agencies recognize the balancing inherent in achieving higher levels of fuel economy and lower levels of CO 2 emissions through reduction of vehicle mass. Based on the 2010 Kahane analysis that attempts to separate the effects of mass reductions and footprint reductions, and to acc ount better for the possibility that mass reduction will be accomplished entirely th rough methods that pr eserves structural strength and vehicle safety, the agencies now believe that the likely deleterious safety248 effects of the MYs 2012-2016 standards may be much lower than originally estimated. They may be close to zero, or possibly beneficial if mass reduction is carefully undertaken in the future and if the mass re duction in the heavier LTVs is greater (in absolute terms) than in passenger cars. In light of these findings, we believe that the balancing is reasonable.

5. How do the Agencies Plan to Address this Issue Going Forward?

NHTSA and EPA believe that it is importa nt for the agencies to conduct further study and research into the in teraction of mass, size and safety to assist future rulemakings. The agencies intend to begin working collaboratively and to explore with DOE, CARB, and perhaps other stakeholders an interagency/ intergovernmental working group to evaluate all aspects of mass, size and safety. It would also be the goal of this team to coordinate government supported studies and independent research, to the extent possible, to help ensure the work is comp lementary to previous and ongoing research and to guide further research in this area. DOE’s EERE office has long funded extensive research into component advanced vehicle materials and vehicle mass reduction. Other agencies may have additional expertise that will be helpful in establishing a coordinated work plan. The agencies are interested in looking at the weight-s afety relationship in a more holistic (complete vehicl e) way, and thanks to this CAFE rulemaking NHTSA has begun to bring together parts of the agen cy— crashworthiness, and crash avoidance rulemaking offices and the agency’s Re search & Development office—in an interdisciplinary way to better leverage the expe rtise of the agency. Extending this effort249 to other agencies will help to ensure that a ll aspects of the weight -safety relationship are considered completely and carefully with our fu ture research. The agencies also intend to carefully consider comments received in res ponse to the NPRM in developing plans for future studies and research and to solicit input from stakeholders.

The agencies also plan to watch for safety effects as the U.S. light-duty vehicle fleet evolves in response both to the CAFE/GHG standards a nd to consumer preferences over the next several years. Additionally, as new and advanced materials and component smart designs are developed and commercialized, and as manufacturers implement them in more vehicles, it will be useful for the agen cies to learn more about them and to try to track these vehicles in the fleet to unders tand the relationship betw een vehicle design and injury/fatality data. Sp ecifically, the agencies intend to follow up with study and research of the following:

First, NHTSA is in the process of contra cting with an independent institution to review the statistical methods that NHTSA and DRI have used to analyze historical data related to mass, size and safety, and to provide recommendation on whether the existing methods or other methods should be used for futu re statistical analysis of historical data. This study will include a consideration of potenti al near multicollinearity in the historical data and how best to address it in a regression analysis. This study is being initiated because, in response to the NPRM, NHTSA r eceived a number of comments related to the methodology NHTSA used for the NPRM to determine the relationship between mass and safety, as discussed in detail above.250 Second, NHTSA and EPA, in consultati on with DOE, intend to begin updating the MYs 1991-1999 database on which the safety analyses in the NPRM and final rule are based with newer vehicle data in the next several months. This task will take at least a year to complete. This study is being initiated in response to the NPRM comments related to the use of data from MYs 1991-1999 in the NHTSA analysis, as discussed in detail above.

Third, in order to assess if the design of recent model year vehicles that incorporate various mass reduction methods aff ect the relationships among vehicle mass, size and safety, NHTSA and EPA intend to c onduct collaborative statistical analysis, beginning in the next several months. The agen cies intend to work with DOE to identify vehicles that are using material substituti on and smart design. After these vehicles are identified, the agencies intend to assess if ther e are sufficient data for statistical analysis. If there are sufficient data, statistical an alysis would be cond ucted to compare the relationship among mass, size and safety of thes e smart design vehicles to vehicles of similar size and mass with more traditional design s. This study is being initiated because, in response to the NPRM, NHTSA received co mments related to the use of data from MYs 1991-1999 in the NHTSA analysis that di d not include new designs that might change the relationship among mass, size and safety, as discusse d in detail above.

NHTSA may initiate a two-year study of the safety of the fleet through an analysis of the trends in st ructural stiffness and whether any trends identified impact251 occupant injury response in crashes. Vehicle manufactur ers may employ stiffer light weight materials to limit occupant compartment intrusion while controlling for mass that may expose the occupants to higher accelerations resulting in a grea ter chance of injury in real-world crashes. This study would provide information that would increase the understanding of the effects on safe ty of newer vehicle designs.

In addition, NHTSA and EPA, possibly in collaboration with DOE, may conduct a longer-term computer modeling-based design and analysis study to help determine the maximum potential for mass reduction in the MYs 2017-2021 timeframe, through direct material substitution and smart design while meeting safety regulations and guidelines, and maintaining vehicle size and functionalit y. This study may build upon prior research completed on vehicle mass reduction. This study would further explore the comprehensive vehicle effects, including dissimilar material joining technologies, manufacturer feasibility of both supplier and OEM, tooling costs, and crash simulation and perhaps eventual crash testing.252 III. EPA Greenhouse Gas Vehicle Standards

A. Executive Overview of EPA Rule

1. Introduction

The Environmental Protection Agency (EPA) is establishing GHG emissions standards for the largest sour ces of transportation GHGs--lig ht-duty vehicles, light-duty trucks, and medium-duty passenger vehicles (hereafter light vehicles). These vehicle categories, which include cars, sport utility ve hicles, minivans, and pickup trucks used for personal transportation, are responsible for almo st 60% of all U.S. transportation related emissions of the six gases discussed above (S ection I.A). This action represents the firstever EPA rule to regulate vehicle GHG em issions under the Clean Air Act (CAA) and will establish standards for model years 2012-20 16 and later light vehicles sold in the United States.

EPA is adopting three separate standards. The first and most important is a set of fleet-wide average carbon dioxide (CO 2 ) emission standards for cars and trucks. These standards are CO 2 emissions-footprint curves, where each vehicle has a different CO 2 emissions compliance target depending on its footprint value. Vehicle CO 2 emissions will be measured over the EPA city and highway tests. The rule allows for credits based on demonstrated improvements in vehicl e air conditioner systems, including both efficiency and refrigerant leakage improvement , which are not captured by the EPA tests.253 The EPA projects that the average light vehicle tailpipe CO 2 level in model year 2011 will be 325 grams per mile while the average vehicle fleetwide average CO 2 emissions compliance level for the model year 2016 st andard will be 250 grams per mile, an average reduction of 23 percent from today’s CO 2 levels.

EPA is also finalizing standards th at will cap tailpipe nitrous oxide (N 2 O) and methane (CH 4 ) emissions at 0.010 and 0.030 grams per mile, respectively. Even after adjusting for the higher relative global warming potencies of these two compounds, nitrous oxide and methane emissions represen t less than one percen t of overall vehicle greenhouse gas emissions from new vehicles . Accordingly, the goal of these two standards is to limit any potential increases of tailpipe emissions of these compounds in the future but not to force reductions relative to today’s low levels.

This final rule responds to the Suprem e Court’s 2007 decision in Massachusetts v.
EPA 147 which found that greenhouse gases fit within the definition of air pollutant in the Clean Air Act. The Court held that the Ad ministrator must determine whether or not emissions from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public heal th or welfare, or whether the science is too uncertain to make a reasoned decision. Th e Court further ruled that, in making these decisions, the EPA Administrato r is required to follow the la nguage of section 202(a) of

147 549 U.S.C. 497 (2007). For further information on Massachusetts v. EPA see the Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) the Clean Air Act, published in the Federal Register on December 15, 2009 (74 FR 66496). 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. This information is also available at: http://www.epa.g ov/climatechange/endangerment.html.254 the CAA. The case was remanded back to the Agency for reconsideration in light of the court's decision.

The Administrator has responded to the remand by issuing two findings under section 202(a) of the Clean Air Act. 148 First, the Administra tor found that the science supports a positive endangerment finding that the mix of six greenhouse gases (carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2 O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), a nd sulfur hexafluoride (SF 6 )) in the atmosphere endangers the public health and welfare of current and future generations. This is referred to as the endangerment finding. Second, th e Administrator found that the combined emissions of the same six gases from new motor vehicles and new motor vehicle engines contribute to the atmospheric concentrations of these key greenhouse gases and henc e to the threat of climate change. This is referred to as th e cause and contribute fi nding. Motor vehicles and new motor vehicle engines emit carbon di oxide, methane, nitrous oxide, and hydrofluorocarbons. EPA provide s more details below on the legal and scientific bases for this final rule.

As discussed in Section I, this GHG rule is part of a joint National Program such that a large majority of the projected bene fits are achieved jointly with NHTSA’s CAFE rule which is described in detail in Secti on IV of this preamble. EPA projects total CO 2 equivalent emissions savings of approximately 960 million metric tons as a result of the rule, and oil savings of 1.8 billion barr els over the lifetimes of the MY 2012-2016

148 See 74 FR 66496 (Dec. 15, 2009), "Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act”255 vehicles subject to the rule. EPA project s that over the lifetimes of the MY 2012-2016 vehicles, the rule will cost $52 billion but w ill result in benefits of $240 billion at a 3 percent discount rate, or $192 bill ion at a 7 percent discount ra te (both values assume the average SCC value at 3%, i.e., the $21/ton S CC value in 2010). Accordingly, these light vehicle greenhouse gas emissions standards re present an important contribution under the Clean Air Act toward meeting long-term greenhouse gas emissions and import oil reduction goals, while providing important economi c benefits as well. The results of our analysis of 2012-2016 MY vehicles, which we re fer to as our “model year analysis,” are summarized in Tables II I.H.10-4 to III.H.10-7.

We have also looked beyond the lifetim es of 2012-2016 MY vehicles at annual costs and benefits of the program for the 2012 through 2050 timeframe. We refer to this as our “calendar year” analysis (as opposed to the costs and benefits mentioned above which we refer to as our “model year analysis ”). In our calendar year analysis, the new 2016 MY standards are assumed to apply to all vehicles sold in model years 2017 and later. The net present values of annua l costs for the 2012 through 2050 timeframe are $346 billion for new vehicle technology which will provide $1.5 billion in fuel savings, both values at a 3 percent di scount rate. At a 7 percent discount rate over the same period, the technology costs are estimated at $192 billion which will provide $673 billion in fuel savings. The social benefits during the 2012 through 2050 timeframe are estimated at $454 billion and $305 billion at a 3 and 7 percent discount rate, respectively. Both of these benefit estimates assume th e average SCC value at 3% (i.e., the $21/ton SCC value in 2010). The net benefits during this time period are th en $1.7 billion and256 $785 million at a 3 and 7 percent discount rate, respectively. The results of our “calendar year” analysis are summarized in Ta bles III.H 10-1 to III.H.10-3.

2. Why is EPA Establishing this Rule?

This rule addresses only light vehicles. EPA is addressing light vehicles as a first step in control of greenhouse gas emissions under the Clean Air Act for four reasons. First, light vehicles are responsible for al most 60% of all mobile source GHG emissions, a share three times larger than any other m obile source subsector, and represent about one-sixth of all U.S. greenhouse gas emissions . Second, technology exists that can be readily and cost-effectively applied to thes e vehicles to reduce their greenhouse gas emissions in the near term. Third, EPA al ready has an existing testing and compliance program for these vehicles, refined since the mid-1970s for emissions compliance and fuel economy determinations, which woul d require only minor modifications to accommodate greenhouse gas emissions regulations . Finally, this rule is an important step in responding to the Supreme Co urt’s ruling in Massachusetts vs. EPA , which applies to other emissions sources in additi on to light-duty vehicles. In fact, EPA is currently evaluating controls for motor vehicles other than those covered by this rule, and is also reviewing seven motor vehicle rela ted petitions submitted by various states and organizations requesting that EPA use its Cl ean 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)).257 a. Light Vehicle Emissions Contribut e to Greenhouse Gases and the Threat of Climate Change

Greenhouse gases are gases in the atmosphe re that effectively trap some of the Earth’s heat that would othe rwise escape to space. Gree nhouse gases are both naturally occurring and anthropogenic. The primary gree nhouse gases of concern that are directly emitted by human activities include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons , and sulfur hexafluoride.

These gases, once emitted, remain in the atmosphere for decades to centuries. Thus, they become well mixed globally in the atmosphere and th eir concentrations accumulate when emissions exceed the rate at which natural processes remove greenhouse gases from the atmosphere. The he ating effect caused by the human-induced buildup of greenhouse gases in the atmosphere is very likely the cause of most of the observed global warming over the last 50 years. 149 The key effects of climate change observed to date and projected to occur in th e future include, but are not limited to, more frequent and intense heat waves, more severe wildfires, degraded air quality, heavier and more frequent downpours and flooding, increase d drought, greater sea level rise, more intense storms, harm to water resources, continued ocean acidification, harm to agriculture, and harm to wildlife and ecosystem s. A detailed explanation of observed and projected changes in greenhouse gases and cl imate change and its impact on health,

149 “Technical Support Document for Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act” Docket: EPA-HQ-OAR-2009-0472-11292.258 society, and the environment is included in EPA’s technical support document for the recently promulgated Endangerment and Caus e or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act. 150

Mobile sources represent a large and growing share of United States greenhouse gases and include light-duty vehicles, light- duty trucks, medium-duty passenger vehicles, heavy duty trucks, airplanes, railroads, marine vessels and a variety of other sources. In 2007, all mobile sources emitted 31% of all U.S. GHGs, and were the fastest-growing source of U.S. GHGs in the U.S. sinc e 1990. Transportation sources, which do not include certain off-highway sources such as farm and construction equipment, account for 28% of U.S. GHG emissions, and Secti on 202(a) sources, which include light-duty vehicles, light-duty trucks, medium-duty pa ssenger vehicles, hea vy-duty trucks, buses, and motorcycles account for 23% of total U.S. GHGs. 151

Light vehicles emit carbon dioxi de, methane, nitrous oxide and hydrofluorocarbons. Carbon dioxide (CO 2 ) is the end product of fossil fuel combustion. During combustion, the carbon stored in the fuels is oxidized and emitted as CO 2 and smaller amounts of other carbon compounds. 152 Methane (CH 4 ) emissions are a function of the methane content of the motor fuel, the amount of hydrocarbons passing uncombusted through the engine, and any post-combustion control of hydrocarbon

150 74 FR 66496 (Dec. 15, 2009). Both the Federal Register Notice and the Technical Support Document for Endangerment and Cause or Contribute Findings are found in the public docket No. EPA-OAR-2009- 0171, in the public docket established for this rulemaking, and at http://epa.gov/climatechange/endangerment.html. 151 Inventory of U.S. Greenhouse Gases and Sinks: 1990-2007. 152 Mobile source carbon dioxide emissions in 2006 equaled 26 percent of total U.S. CO 2 emissions.259 emissions (such as catalytic converters). 153 Nitrous oxide (N 2 O) (and nitrogen oxide (NO X )) emissions from vehicles and their engine s are closely related to air-fuel ratios, combustion temperatures, and the use of pollutio n control equipment. For example, some types of catalytic converters inst alled to reduce motor vehicle NO X , carbon monoxide (CO) and hydrocarbon emissions can promote the formation of N 2 O. 154 Hydrofluorocarbons (HFC) emissions are pr ogressively replaci ng chlorofluorocarbons ( CFC) and hydrochlorofluorocarbons (HCFC) in these vehicles’ cooling and refrigeration systems as CFCs and HCFCs are being phased out under the Montreal Protocol and Title VI of the CAA. There are multiple emissions pathways for HFCs with emissions occurring during charging of cooling and re frigeration systems, during operations, and during decommissioning and disposal. 155

b. Basis for Action under the Clean Air Act

Section 202(a)(1) of the Clean Air Act (CAA) states that “the Administrator shall by regulation prescribe (and from time to ti me revise)...standards applicable to the emission of any air pollutant from any class or classes of new motor vehicles ..., which in his judgment cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare.” As noted above, the Administrator has found that the elevated concentrations of greenhouse ga ses in the atmosphere may reasonably be

153 In 2006, methane emissions equaled 0.32 percent of total U.S. methane emissions Nitrous oxide is a produce of the reaction that occurs between nitrogen and oxygen during fuel combustion. 154 In 2006, nitrous oxide emissions for these sources accounted for 8 percent of total U.S. nitrous oxide emissions. 155 In 2006, HFC from these source categories equaled 56 percent of total U.S. HFC emissions, making it the single largest source categ ory of U.S. HFC emissions.260 anticipated to endanger pub lic health and welfare. 156 The Administrator defined the “air pollution” referred to in CAA section 202(a) to be the combined mix of six long-lived and directly emitted GHGs: carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2 O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF 6 ). The Administrator has further found under CA A section 202(a) that emissions of the single air pollutant defined as the aggregat e group of these same six greenhouse gases from new motor vehicles and new motor vehicl e engines contribute to air pollution. As a result of these findings, section 202(a) requir es EPA to issue sta ndards applicable to emissions of that air pollutant. New motor vehicles and engines emit CO 2, methane, N 2 O and HFC. This preamble describes the pr ovisions that contro l emissions of CO 2 , HFCs, nitrous oxide, and methane. For further discussion of EPA’s au thority under section 202(a), see Section I.C.2 of the preamble to the proposed rule (74 FR at 49464-66).

There are a variety of other CAA Title II provisions that are relevant to standards established under section 202(a). The standards are applicable to motor vehicles for their useful life. EPA has the discretion in de termining what standard applies over the vehicles’ useful life and has ex ercised that discretion in this rule. See Section III.E.4 below.

The standards established under CAA s ection 202(a) are implemented and enforced through various mechanisms. Manu facturers are required to obtain an EPA certificate of conformity before they may se ll or introduce their new motor vehicle into commerce, according to CAA section 206(a) . The introduction into commerce of

156 74 FR 66496 (Dec. 15, 2009).261 vehicles without a certificat e of conformity is a prohibited act under CAA section 203 that may subject a manufacturer to civil penalties and injuncti ve actions (see CAA sections 204 and 205). Under CAA secti on 206(b), EPA may conduct testing of new production vehicles to determine compliance with the standards. For in-use vehicles, if EPA determines that a substantial number of vehicles do not conform to the applicable regulations then the manufacturer must submit and implement a remedial plan to address the problem (see CAA section 207(c)). There ar e also emissions-based warranties that the manufacturer must implement under CAA sec tion 207(a). Section III.E describes the rule’s certification, compliance, and enforcement mechanisms.

c. EPA’s Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act

On December 7, 2009 EPA’s Administrator signed an action w ith two distinct findings regarding greenhouse gases under sec tion 202(a) of the Clean Air Act. On December 15, 2009, the final findings were publ ished in the Federal Register. This action is called the Endangerment and Ca use or Contribute Findings for Greenhouse Gases under Section 202(a) of the Cl ean Air Act (Endangerment Finding). 157 Below are the two distinct findings:

• Endangerment Finding: The Administrator finds that the current and projected concentrations of the six key well- mixed greenhouse ga ses--carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2 O), hydrofluorocarbons (HFCs),

157 74 FR 66496 (Dec. 15, 2009)262 perfluorocarbons (PFCs), a nd sulfur hexafluoride (SF 6 )--in the atmosphere threaten the public health and welfare of current and future generations.

• Cause or Contribute Finding: The Ad ministrator finds that the combined emissions of these well-mixed greenhous e gases from new motor vehicles and new motor vehicle engines contribute to the greenhouse gas pollution which threatens public hea lth and welfare.

Specifically, the Administrator found, after a thorough examination of the scientific evidence on the causes and impact of current and future climate change, and careful review of public comments, that the science compellingly supports a positive finding that atmospheric concen trations of these greenhouse gases result in air pollution which may reasonably be anticipated to endange r both public health and welfare. In her finding, the Administrator relied heavily upon the major findings and conclusions from the recent assessments of the U.S. Climate Change Science Program and the U.N. Intergovernmental Panel on Climate Change. 158 The Administrator made a positive endangerment finding after considering both obs erved and projected future effects of climate change, key uncertainties, and the full range of risks and impacts to public health and welfare occurring within the United States. In addition, the finding focused on impacts within the U.S. but noted that the evidence concerning risks and impacts occurring outside the U.S. provided further support for the finding.

158 The U.S. Climate Change Scien ce Program (CCSP) is now called th e U.S. Global Change Research Program (GCRP).263 The key scientific findings supporting the endangerment finding are that:



### – Concentrations of greenhouse gases are at unprecedented levels compared to recent and distant past. These high c oncentrations 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 intens e heat waves, more severe wildfires, degraded air quality, heavier downp ours and flooding, increasing drought, greater sea level rise, more intense stor ms, harm to 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.

The Administrator found that emissions of the single air pollutant defined as the aggregate group of these same six greenhouse gases from new motor vehicles and new motor vehicle engines contribute to the air pollution and henc e to the threat of climate change. Key facts supporting this cause and contribute finding for on-highway 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 emissi ons, and more than 4% of total global greenhouse gas emissions. 159 As noted above, these findings require EPA to issue

159 This figure includes the greenhouse gas contributions of light vehicles, heavy duty vehicles, and remaining on-highway mobile sources. Light-duty vehicles are responsible for over 70 percent of Section 202(a) mobile source GHGs, or about 17% of total U.S. greenhouse gas emissions. U.S. EPA.2009 Technical Support Document for Endangerment and Cause or Contribute Findings for Greenhouse Gases264 standards under section 202 (a ) “applicable to emission” of the air pollutant that EPA found causes or contributes to the air pollution that endangers public he alth and welfare. The final emissions standards satisfy this requirement for greenhouse gases from lightduty vehicles. Under section 202(a) the Admi nistrator has significant discretion in how to structure the standards that apply to the em ission of the air polluta nt at issue here, the aggregate group of six greenhouse gases. EP A has the discretion under section 202(a) to adopt separate standards for each gas, a si ngle composite standard covering various gases, or any combination of these. In this rulemaking EPA is finalizing separate standards for nitrous oxide and methane, and a CO 2 standard that provides for credits based on reductions of HFCs, as the appropria te way to issue standards applicable to emission of the single air po llutant, the aggregate group of six greenhouse gases. EPA is not setting any standards for perfluorocar bons (PFCs) or sulfur hexafluoride (SF 6 ) as they are not emitted by motor vehicles.

3. What is EPA Adopting?

a. Light-Duty Vehicle, Light-Du ty Truck, and Medium-Duty Passenger Vehicle Greenhouse Gas Emission Sta ndards and Projected Compliance Levels

The following section provides an overview of EPA’s final rule. The key public comments are not discussed here, but are disc ussed in the sections that follow which

under Section 202(a) of the Clean Air Act. Washington, DC. pp. 180-194. Available at http://epa.gov/climatechange/endangerment/downloads/Endangerment%20TSD.pdf .265 provide the details of the pr ogram. Comments are also discussed in the Response to Comments document.

The CO 2 emissions standards are by far the mo st important of the three standards and are the primary focus of this summary. As proposed, EPA is adopting an attributebased approach for the CO 2 fleet-wide standard (one for cars and one for trucks), using vehicle footprint as the attribute. These curves establish different CO 2 emissions targets for each unique car and truck footprint. Gene rally, the larger the ve hicle footprint, the higher the corresponding vehicle CO 2 emissions target. Table III.A.3-1 shows the greenhouse gas standards for light vehicles th at EPA is finalizing for model years (MY) 2012 and later:266 Table III.A.3-1 Industry-Wide Greenhouse Gas Emissions Standards Standard/ Covered Compounds Form of Standard Level of Standard Credits Test Cycles

CO 2 Standard 160 : Tailpipe CO 2 Fleetwide average footprint CO 2 -curves for cars and trucks Projected Fleetwide CO 2 level of 250 g/mi (See footprint curves in Sec. III.B.2) CO 2 -e credits 161 EPA 2-cycle (FTP and HFET test cycles) 162

N 2 O Standard: Tailpipe N 2 O Cap per vehicle 0.010 g/mi None* EPA FTP test
CH 4 Standard: Tailpipe CH 4 Cap per vehicle 0.030 g/mi None* EPA FTP test
* For N 2 O and CH 4 , manufacturers may optionally demonstrate compliance with a CO 2 - equivalent standard equal to its footprint-based CO 2 target level, using the FTP and HFET tests.
One important flexibility associated with the CO 2 standard is the option for manufacturers to obtain credit s associated with improvement s in their air conditioning systems. EPA is adopting the air conditioni ng provisions with minor modifications. As will be discussed in greater detail in later s ections, EPA is establishing test procedures and design criteria by which manufacturers can demonstrate improvements in both air conditioner efficiency (which reduces vehicle tailpipe CO 2 by reducing the load on the engine) and air conditioner re frigerants (using lower global wa rming potency refrigerants and/or improving system design to reduce GHG emissions associated with leaks).

160 While over 99 percent of the carbon in automotive fuels is converted to CO 2 in a properly functioning engine, compliance with the CO 2 standard will also account for the very small levels of carbon associated with vehicle tailpipe hydrocarbon (HC) and carbon monoxide (CO) emissions, converted to CO 2 on a mass basis, as discussed further in Section III.B 161 CO 2 -e refers to CO 2 -equivalent, and is a metric that allows non-CO 2 greenhouse gases (such as hydrofluorocarbons used as automotive air conditioning refrigerants) to be expressed as an equivalent mass (i.e., corrected for relative global warming potency) of CO 2 emissions. 162 FTP is the Federal Test Procedure which uses wh at 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 th at fleet-wide in-use or real world CO 2 emissions are approximately 25 percent higher , on average, than 2-cycle CO 2 values. Separate mechanisms apply for A/C credits.267 Neither of these strategies to reduce GHG emissions from air conditioners will be reflected in the EPA FTP or HFET tests. These improvements will be translated to a g/mi CO 2 -equivalent credit that can be subtracted from the manufacturer’s tailpipe CO 2 compliance value. EPA expects a high percenta ge of manufacturers to use this flexibility to earn air conditioning-relate d credits for MY2012-2016 vehicles such that the average credit earned is about 11 grams per mile CO 2 –equivalent in 2016.

A second flexibility, being finalized essentially as proposed, is CO 2 credits for flexible and dual fuel vehicles, similar to th e CAFE credits for such vehicles which allow manufacturers to gain up to 1.2 mpg in their overall CAFE ratings. The Energy Independence and Security Act of 2007 (EISA) mandated a phase-out of these flexible fuel vehicle CAFE credits beginning in 2015, and ending after 2019. EPA is allowing comparable CO 2 credits for flexible fuel vehi cles through MY 2015, but for MY 2016 and beyond, the GHG rule treats flexible and dual fuel vehicles on a CO 2 -performance basis, calculating the overall CO 2 emissions for flexible and dual fuel vehicles based on a fuel use-weighted average of the CO 2 levels on gasoline and on the alternative fuel, and on a manufacturer’s demonstration of actual us age of the alternative fuel in its vehicle fleet.

Table III.A.3-2 summarizes EPA proj ections of industry-wide 2-cycle CO 2 emissions and fuel economy levels that wi ll be achieved by manufacturer compliance with the GHG standards for MY2012-2016.268 For MY2011, Table III.A.3-2 uses the NHTSA projections of the average fuel economy level that will be achieved by th e MY 2011 fleet of 30.8 mpg for cars and 23.3 mpg for trucks, converted to an equivalent combined car and truck CO 2 level of 326 grams per mile. 163 EPA believes this is a reasonable estimate with which to compare the
MY2012-2016 CO 2 emission standards. Identifying the proper MY2011 estimate is complicated for many reasons, among them being the turmoil in the current automotive market for consumers and manufacturers, uncer tain and volatile oil and gasoline prices, the ability of manufacturers to use flexible fuel vehicle credits to meet MY2011 CAFE standards, and the fact that most manufacturers have been surpassing CAFE standards (particularly the car standard) in recent years. Taking all of these considerations into account, EPA believes that the MY2011 projecte d CAFE achieved values, converted to
CO 2 emissions levels, repres ent a reasonable estimate.

Table III.A.3-2 shows projec ted industry-wide average CO 2 emissions values. The Projected CO 2 Emissions for the Footprint-Based Standard column shows the CO 2 g/mi level corresponding with the footprint standard that must be met. It is based on the promulgated CO 2 -footprint curves and projected footpr int values, and will decrease each year to 250 grams per mile (g/mi) in MY2016. For MY2012-2016, the emissions impact of the projected utilizat ion of flexible fuel vehicle (FFV ) credits and the temporary leadtime allowance alternative standard (TLAAS, di scussed below) are shown in the next two columns. The Projected CO 2 Emissions column gives the CO 2 emissions levels projected to be achieved given use of the flexible fu el credits and temporary lead-time allowance program. This column shows that, relative to the MY 2011 estimate, EPA projects that

163 As discussed in Section IV of this preamble.269 MY2016 CO 2 emissions will be reduced by 23 percent over five years. The Projected A/C Credit column represents the industry wide average air conditioner credit manufacturers are expected to earn on an equivalent CO 2 gram per mile basis in a given model year. In MY2016, the projected A/C cred it of 10.6 g/mi represents 14 percent of the 76 g/mi CO 2 emissions reductions associated with the final standards. The Projected 2-cycle CO 2 Emissions column shows the projected CO 2 emissions as measured over the EPA 2-cycle tests, which will allow compliance with the standard assuming projected utilization of the FFV, TL AAS, and A/C credits.

Table III.A.3-2 Proj ected Fleetwide CO 2 Emissions Values (grams per mile)

Model Year Projected CO 2 Emissions

for theFootprintBased Standard Projected FFV Credit Projected TLAAS

Credit Projected CO 2 Emissions Projected A/C Credit Projected 2-cycle

CO 2 Emissions

2011 - - - (326) - (326) 2012 295 6.5 1.2 303 3.5 307 2013 286 5.8 0.9 293 5.0 298 2014 276 5.0 0.6 282 7.5 290 2015 263 3.7 0.3 267 10.0 277 2016 250 0.0 0.1 250 10.6 261

EPA is also finalizing a series of flexibilities for compliance with the CO 2 standard which are not expected to signifi cantly affect the projected compliance and achieved values shown above, but which s hould reduce the costs of achieving those reductions. These flexibilities include the ability to earn: annual credits for a manufacturer’s over-compliance with its unique fleet-wide av erage standard, early credits270 from MY2009-2011, credit for “off-cycle” CO 2 reductions from new and innovative technologies that are not reflected in CO 2 /fuel economy tests, as well as the carry-forward and carry-backward of credits, and the ab ility to transfer credits between a manufacturer’s car and truck fl eets. These flexibilities are being adopted with only very minor changes from the proposal, as discussed in Section III.C.

EPA is finalizing an incentive to encour age the commercialization of advanced GHG/fuel economy control technologies, incl uding electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles (FCVs), for model years 2012- 2016. EPA’s proposal included an emissions compliance value of zero grams/mile for EVs and FCVs, and the electric portion of PHEV s, and a multiplier in the range of 1.2 to 2.0, so that each advanced technology vehicle would count as greater than one vehicle in a manufacturer’s fleet-wide compliance cal culation. Several commenters were very concerned about these credits and upon considering the public comments on this issue, EPA is finalizing an advanced technology vehicle incentive program to assign a zero gram/mile emissions compliance value for EVs and FCVs, and the electric portion of PHEVs, for up to the first 200,000 EV/PHE V/FCV vehicles produced by a given manufacturer during MY2012-2016. For any pr oduction greater than this amount, the compliance value for the vehicle will be grea ter than zero gram/mile, set at a level that reflects the vehicle’s averag e net increase in upstream greenhouse gas emissions in comparison to the gasoline or diesel vehicle it replaces. EPA is not finalizing a multiplier based on the concerns potentially excessive cred its using that incentive. EPA agrees that the multiplier, in combination with the zer o grams/mile compliance value, would be271 excessive. EPA will also allow this early advanced technology incentive program beginning in MYs 2009 through 2011. Further discussion on the advanced technology vehicle incentives, including more detail on the public comments and EPA’s response, is found in Section III.C.

EPA is also finalizing a temporary lead-time allowance (TLAAS) for manufacturers that sell vehicles in the U.S. in MY 2009 and for which U.S. vehicle sales in that model year are below 400,000 vehicles . This allowance will be available only during the MY 2012-2015 phase-in y ears of the program. A ma nufacturer that satisfies the threshold criteria will be able to treat a limited number of vehicles as a separate averaging fleet, which will be subjec t to a less stringent GHG standard. 164 Specifically, a standard of 125 percent of the vehicle’s othe rwise applicable foot-p rint target level will apply to up to 100,000 vehicles total, spr ead over the four year period of MY 2012 through 2015. Thus, the number of vehicles to which the flexibility could apply is limited. EPA also is setting appropriate restri ctions on credit use for these vehicles, as discussed further in Section III. By MY 2016, these allowance vehicles must be averaged into the manufacturer’s full fleet (i.e., they will no longer be e ligible for a different standard). EPA discusses this in more detail in Section III. B of the preamble.

EPA received comments from several smaller manufacturers that the TLAAS program was insufficient to allow manufactur ers with very limited product lines to comply. These manufacturers commented that they need additional lead-time to meet the

164 EPCA does not permit such an allowance. Consequently, manufacturers who may be able to take advantage of a lead-time allowanc e under the GHG standards would be required to comply with the applicable CAFE standard or be su bject to penalties for non-compliance.272 standards, because their CO 2 baselines are significantly hi gher and their vehicle product lines are even more limited, reducing their abi lity to average across their fleets compared even to other TLAAS manufacturers. EPA fully summarizes the public comments on the TLAAS program, including comments not suppor ting the program, in Section III.B. In summary, in response to the lead time issues raised by manufacturers, EPA is modifying the TLAAS program that applies to manu facturers with between 5,000 and 50,000 U.S. vehicle sales in MY 2009. These manufactures would have an incr eased allotment of vehicles, a total of 250,000, compared to 100,000 vehicles (for other TLAAS-eligible manufacturers. In addition, the TLAAS program for these manufacturers would be extended by one year, through MY2016 for these ve hicles, for a total of five years of eligibility. The other provisions of the TLAAS program would continue to apply, such as the restrictions on credit trad ing and the level of the standa rd. Additional restrictions would also apply to these vehicles, as disc ussed in Section III.B.5. In addition, for the smallest volume manufacturers, those with U.S. sales of below 5,000 vehicles, EPA is not setting standards at this time but is instead deferring standards until a future rulemaking. This is the same approach we are using for small businesses. The unique issues involved with these manufacturers will be addressed in that future rulemaking. Further discussion of the public comment on these issues and details on these changes from the proposed program are included in Section III.B.6. The agency received comments on its compliance with the Regulatory Flexibility Act. As stated in Section III.I.3, small entities are not significantly impacted by this rulemaking.273 EPA is also adopting caps on the tail pipe emissions of nitrous oxide (N 2 O) and methane (CH 4 )--0.010 g/mi for N 2 O and 0.030 g/mi for CH 4 —over the EPA FTP test. While N 2 O and CH 4 can be potent greenhouse gases on a relative mass basis, their emission levels from modern vehicle designs are extremely low and represent only about 1% of total late model light vehicle GHG emi ssions. 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 leve ls. Accordingly, these standards are not designed to require automakers to make any changes in current vehicle designs, and thus EPA is not projecting any environmental or eco nomic costs or benefits associated with these standards.

EPA has attempted to build on existing pr actice wherever possi ble in designing a compliance program for the GHG standards. In particular, the program structure will streamline the compliance process for both manufacturers and EPA by enabling manufacturers to use a single data set to satisfy both the new GHG and CAFE testing and reporting requirements. Timing of certif ication, model-level testing, and other compliance activities also follow current pract ices established under the Tier 2 emissions and CAFE programs.

EPA received numerous comments on issues related to the impacts on stationary sources, due to the Clean Air Act’s provisions for permitting requirements related to the issuance of the proposed GHG standards fo r new motor vehicles. Some comments suggested that EPA had underestimated the num ber of stationary sources that may be274 subject to GHG permitting requirements; othe r comments suggested that EPA did not adequately consider the permitting impact on small business sources. Other comments related to EPA’s interpretation of the CAA’s provisions for subjecti ng stationary sources to permit regulation after GHG standards are se t. EPA’s response to these comments is contained in the Response to Comments doc ument; however, many of these comments pertain to issues that EPA is addressing in its consideration of the final Greenhouse Gas Permit Tailoring Rule, Prevention of Signifi cant Deterioration and Title V Greenhouse Gas Tailoring Rule; Proposed Rule, 74 FR 55292 (October 27, 2009) and will thus be fully addressed in that rulemaking.

Some of the comments relating to the stationary source permitting issues suggested that EPA should defer setting GHG st andards for new motor vehicles to avoid such stationary source permitting impacts. EPA is issuing these final GHG standards for light-duty vehicles as part of its efforts to expeditiously respond to the Supreme Court’s nearly three year old ruling in Massachusetts v. EPA, 549 U.S. 497 (2007). In that case, the Court held that greenhouse ga ses fit within the definition of air pollutant in the Clean Air Act , and that EPA is therefore compelled to respond to the rulemaking petition under section 202(a) by determining whether or not emissions from new motor vehicles cause or contribute to air pollution which may r easonably be anticipated to endanger public health or welfare , or whether the science is too uncerta in to make a reasoned decision. The Court further ruled that, in making th ese decisions, the EPA Administrator is required to follow the language of section 202(a) of the CAA. The Court stated that under section 202(a), "[i]f EPA makes [the endangerment and cause or contribute275 findings], the Clean Air Act requires the agency to regulate emissions of the deleterious pollutant." 549 U.S. at 534. As discusse d above, EPA has made the two findings on contribution and endangerment. 74 FR 66496 (December 15, 2009). Thus, EPA is required to issue standards applicable to em issions of this air pollutant from new motor vehicles.

The Court properly noted that EPA retained "significant latitude" as to the "timing ... and coordination of its regulations with those of othe r agencies" (id.). However it has now been nearly three years since the Court issued its opi nion, and the time for delay has passed. In the absence of these final standard s, there would be thre e separate federal and state regimes independently regulating light- duty vehicles to increase fuel economy and reduce GHG emissions: NHTSA’s CAFE standa rds, EPA’s GHG standards, and the GHG standards applicable in California a nd other states adopting the California standards. This joint EPA-NHTSA program will allow automakers to meet all of these requirements with a single national fleet because California has indica ted that it will accept compliance with EPA’s GHG standards as compliance with California's GHG standards. 74 FR at 49460. California has not indicated that it would accept NHTSA’s CAFE standards by themselves. Without EPA’s vehicle GHG st andards, the states will not offer the federal program as an alternat ive compliance option to automakers and the benefits of a harmonized national program will be lost. California and several other states have expressed strong concern that, without comparable federal vehicle GHG standards, the states will not offer the federal program as an alternative compliance option to automakers. Letter dated February 23, 2010 from Commissioners of California,276 Maine, New Mexico, Oregon and Washingt on to Senators Harry Reid and Mitch McConnell (Docket EPA-HQ-OAR-2009-0472-11400) . The automobile industry also strongly supports issuance of these rules to allow implemen tation of the national program and avoid “a myriad of problems for the au to industry in terms of product planning, vehicle distribution, adverse economic im pacts and, most im portantly, adverse consequences for their dealers and cust omers.” Letter dated March 17, 2010 from Alliance of Automobile Manufacturers to Se nators Harry Reid and Mitch McConnell, and Representatives Nancy Pelosi an d John Boehner (Docket EPA-HQ-OAR-2009-0472- 11368). Thus, without EPA’s GHG standards as part of a federal harmonized program, important GHG reductions as well as benefits to the automakers and to consumers would be lost. 165 In addition, delaying the rule w ould impose significant burdens and uncertainty on automakers, who are already well into planning for production of MY 2012 vehicles, relying on the ability to pr oduce a single national fleet. Delaying the issuance of this final rule would very seriously disrupt the industry’s plans

Instead of delaying the LDV rule and losi ng the benefits of this rule and the harmonized national program, EPA is direc tly addressing concerns about stationary source permitting in other actions that EPA is taking with regard to such permitting. That is the proper approach to address the issue of stationary source permitting, as compared to delaying the issuance of this rule for some undefin ed, indefinite time period.

165 As discussed elsewhere, EPA’s GHG standards ac hieve greater overall reductions in GHGs than NHTSA’s CAFE standards.277 Some parties have argued that EPA’s i ssuance of this light-duty vehicle rule amounts to a denial of various administrativ e requests pending before EPA, in which parties have requested that EPA reconsider and stay the GHG endangerment finding published on December 15, 2009. That is not an accurate characterization of the impact of this final rule. EPA has not taken fina l action on these admini strative requests, and issuance of this vehicle rule is not final ag ency action, explicitly or implicitly, on those requests. Currently, while we carefully cons ider the pending request s for reconsideration on endangerment, these final findings on endang erment and contribution remain in place. Thus under section 202(a) EPA is obligated to promulgate GHG motor vehicle standards, although there is no statutory deadline for issuan ce of the light-duty vehicle rule or other motor vehicle rules. In that context, issuance of this final light-duty vehicle rule does no more than recognize the current status of the findings -- they are final and impose a rulemaking obligation on EPA, unless and until we change them. In issuing the vehicle rule we are not making a decision on request s to reconsider or stay the endangerment finding, and are not in any way prejudicing or limiting EPA's discretion in making a final decision on these administrative requests.

For discussion of comments on impacts on small entities and EPA’s compliance with the Regulatory Flexibility Act, see the discussion in Section III.I.3.278 b. Environmental and Economic Benefits and Costs of EPA’s Standards

In Table III.A.3-3 EPA presents estimated annual net benefits for the indicated calendar years. The table also shows the ne t present values of those benefits for the calendar years 2012-2050 using both a 3 percen t and a 7 percent discount rate. As discussed previously, EPA recognizes that much of these same costs and benefits are also attributable to the CAFE standard co ntained in this joint final rule.

Table III.A.3-3 Projected Quantif iable Benefits and Costs for CO 2 Standard (in million 2007$) 2020 2030 2040 2050 NPV, 3% a NPV, 7% a Quantified Annual Costs b -$20,100 -$64,000 -$101,900 -$152,200 -$1,199,700 -$480,700 Benefits from Reduced CO 2 Emissions at each assumed SCC value c,d,e Avg SCC at 5% $900 $2,700 $4,600 $7,200 $34,500 $34,500 Avg SCC at 3% $3,700 $8,900 $14,000 $21,000 $176,700 $176,700 Avg SCC at 2.5% $5,800 $14,000 $21,000 $30,000 $299,600 $299,600 95 th percentile SCC at 3% $11,000 $27,000 $43,000 $62,000 $538,500 $538,500 Other Impacts Criteria Pollutant Benefits f,g,h,i B $1,200- $1,300 $1,200- $1,300 $1,200- $1,300 $21,000 $14,000 Energy Security Impacts (price shock) $2,200 $4,500 $6,000 $7,600 $81,900 $36,900 Reduced Refueling $2,400 $4,800 $6,300 $8,000 $87,900 $40,100 Value of Increased Driving j $4,200 $8,800 $13,000 $18,400 $171,500 $75,500 Accidents, Noise, Congestion -$2,300 -$4,600 -$6,100 -$7,800 -$84,800 -$38,600 Quantified Net Benefits at each assumed SCC value c,d,e Avg SCC at 5% $27,500 $81,500 $127,000 $186,900 $1,511,700 $643,100 Avg SCC at 3% $30,300 $87,700 $136,400 $200,700 $1,653,900 $785,300 Avg SCC at 2.5% $32,400 $92,800 $143,400 $209,700 $1,776,800 $908,200 95 th percentile SCC at 3% $37,600 $105,800 $165,400 $241,700 $2,015,700 $1,147,100

a Note that net present value of reduced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for inte rnal consistency. Refer to Section III.F for more detail.279 b Quantified annual costs are negative because of fuel savings (see Table III.H.10-1 for a breakdown of the vehicle technology costs and fuel savings). The fuel savings outweigh the vehicle technology costs and, therefore, the costs are presented here are negative values.
c Monetized GHG benefits exclude the value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benef its, as explained in Section III.F.2. The SCC Technical Support Document (TSD) notes the di fference between the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value non-CO 2 emissions in future analyses. d Section III.H.6 notes that SCC incr eases over time. Corresponding to the years in this table, the SCC estimates range as follows: for Average SCC at 5% : $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at 2.5%: $35-$65; and for 95 th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.
e Note that net present value of reduced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for intern al consistency. Refer to SCC TSD for more detail. f Note that “B” indicates unquantified criteria pollutant benefits in the year 2020. For the final rule, we only modeled the rule’s PM 2.5 - and ozone-related impacts in the calendar year 2030. For the purposes of estimating a stream of future-year criteria pollutant benefits, we assume that the benefits out to 2050 are equal to, and no less than, those modeled in 2030 as re flected by the stream of estimated future emission reductions. The NPV of criteria pollu tant-related benefits should ther efore be considered a conservative estimate of the potential benefits associated with the final rule. g The benefits presented in this table include an estimate of PM-related premature mortality derived from Laden et al., 2006, and the ozone-related premature mortality estimate derived from Bell et al., 2004. If the benefit estimates were based on the ACS study of PM -related premature mortality (Pope et al., 2002) and the Levy et al., 2005 study of ozone-related premat ure mortality, the values would be as much as 70% smaller. h The calendar year benefits presented in this table assu me either a 3% discount rate in the valuation of PMrelated premature mortality ($1,300 million) or a 7% discount rate ($1,200 million) to account for a twentyyear segmented cessation lag. Note that the benefits estimated using a 3% discount rate were used to calculate the NPV using a 3% discount rate and the benefits estimated using a 7% discount rate were used to calculate the NPV using a 7% discount rate. For be nefits totals presented at each calendar year, we used the mid-point of the criteria pollutant benefits range ($1,250). i Note that the co-pollutant impacts presented here do not include the full complement of endpoints that, if quantified and monetized, would change the total monetized estimate of impacts. The full complement of human health and welfare effects associated with PM and ozone remain unquantified because of current limitations in methods or available data. We have not quantified a number of known or suspected health effects linked with ozone and PM for which appropriate health impact functions are not available or which do not provide easily interpretable outcomes (e.g., ch anges in heart rate variability). Additionally, we are unable to quantify a number of know n welfare effects, including reduce d acid and particulate deposition damage to cultural monuments and other materials, and environmental benefits due to reductions of impacts of eutrophication in coastal areas. j Calculated using pre-tax fuel prices.
4. Basis for the GHG Standards under Section 202(a)

EPA statutory authority under section 202( a) (1) of the Clean Air Act (CAA) is discussed in more detail in Section I.C.2 of the proposed rule (74 FR at 49464-65). The280 following is a summary of the basis for th e final GHG standards under section 202(a), which is discussed in more detail in the following portions of Section III.

With respect to CO 2 and HFCs, EPA is adopting attr ibute-based light-duty car and truck standards that achieve large and impor tant emissions reductions of GHGs. EPA has evaluated the technological feas ibility of the standards, and the information and analysis performed by EPA indicates that these standards are feasible in the lead time provided. EPA and NHTSA have carefully evaluated the e ffectiveness of indivi dual technologies as well as the interactions when technologies are combined. EPA’ s projection of the technology that would be used to comply with the standards indicat es that manufacturers will be able to meet the standards by employi ng a wide variety of technologies that are already commercially available and can be inco rporated into their ve hicles at the time of redesign. In addition to the consideration of the manufacturers’ redesign cycle, EPA’s analysis also takes into account certain fl exibilities that will facilitate compliance especially in the early years of the program when potential lead time constraints are most challenging. These flexibilities include aver aging, banking, and tradi ng of various types of credits. For the industry as a whole, EPA’ s projections indicate that the standards can be met using technology that will be availabl e in the lead-time pr ovided. At the same time, it must be noted that because technol ogy is commercially available today does not mean it can automatically be incorporated fl eet-wide during the model years in question. As discussed below, and in detail in Sec tion III.D.7, EPA and NHTSA carefully analyzed issues of adequacy of lead time in determini ng the level of the standards, and the agencies281 are convinced both that lead time is sufficient to meet the standards but that major further additions of technology across the fleet is not possible during these model years.

To account for additional lead-time c oncerns for various manufacturers of typically higher performance vehicles, EPA is adopting a Temporary Lead-time Allowance similar to that proposed that wi ll further facilitate compliance for limited volumes of such vehicles in the program’s initial years. For a few very small volume manufacturers, EPA is deferring stan dards pending later rulemaking.

EPA has also carefully considered the cost to manufacturers of meeting the standards, estimating piece co sts for all candidate technol ogies, direct manufacturing costs, cost markups to account for manufactur ers’ indirect costs, and manufacturer cost reductions attributable to learning. In es timating manufacturer costs, EPA took into account manufacturers’ own practices such as making major changes to model technology packages during a planned redesign cycle. EPA then projected the average cost across the industry to employ this t echnology, as well as manufacturer –bymanufacturer costs. EPA cons iders the per vehicle costs estimated from this analysis to be within a reasonable range in light of the emissions reducti ons and benefits received. EPA projects, for example, that the fuel sa vings over the life of the vehicles will more than offset the increase in cost associated with the technology used to meet the standards.

EPA has also evaluated the impacts of thes e standards with respect to reductions in GHGs and reductions in oil usage. For the lifetime of the model year 2012-2016282 vehicles we estimate GHG reductions of approximately 960 million metric tons CO 2 eq. and fuel reductions of 1.8 billion barrels of oil. These are im portant and significant reductions. EPA has also analy zed a variety of other impact s 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 a nd benefits of the standards, to the extent practicable. Our analysis to date indicates that the overall quantified benefits of the standards far out weigh the projected co sts. Utilizing a 3% discount rate, we estimate the total net social benefits over the lif e of the model year 2012-2016 vehicles is $192 billion, and the net pres ent value of the net social benefits of the standards through the year 2050 is $1.9 trillion dollars. 166 These values are estimated at $136 billion and $787 billion, respectively, using a 7% discount rate and the SCC discounted at 3 percent. 167

Under section 202(a) EPA is called upon to set standards that provide adequate lead-time for the development and application of technology to meet the standards. EPA’s standards satisfy this requirement, as discussed above. In se tting 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 nonGHG), impacts on oil conservation, impacts on nois e, energy, safety, and other factors, and has where practicable quantified the cost s and benefits of th e rule. In summary,

166 Based on the mean SCC at 3 percent discount rate, which is $21 per metric ton CO 2 in 2010 rising to $45 per metric ton CO 2 in 2050. 167 SCC was discounted at 3 percent to maintain intern al consistency in the SCC calculations while all other benefits were discounted at 7 percent. Specifically, the same discount rate used to discount the value of damages from future CO 2 emissions is used to calculate net present value of SCC.283 given the technical feasib ility of the standard, th e moderate cost per vehicle in light of the savings in fuel costs over the life time of th e vehicle, the very significant reductions in emissions and in oil usage, and the significan tly greater quantified benefits compared to quantified costs, EPA is confident that the standards are an appr opriate and reasonable balance of the factors to c onsider 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 technol ogy-based standard, and statut ory 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 numerical sta ndard we must ask whether the agency’s numbers are within a zone of reasonablene ss, not whether its nu mbers are precisely right”); Permian Basin Area Rate Cases , 390 U.S. 747, 797 (1968) (same); Federal Power Commission v. Conway Corp. , 426 U.S. 271, 278 (1976) (same); Exxon Mobil Gas Marketing Co. v. FERC , 297 F. 3d 1071, 1084 (D.C. Cir. 2002) (same).

EPA recognizes that the vast majority of technologies which we are considering for purposes of setting standards under sec tion 202(a) are commercially available and already being utilized to a limited extent ac ross the fleet. The vast majority of the emission reductions which would result from th is rule would result from the increased use of these technologies. EPA also rec ognizes that this rule would enhance the development and limited use of more advan ced technologies, such as PHEVs and EVs. In this technological context, there is no clear cut line that indicates that only one projection of technology penetra tion could potentially be cons idered feasible for purposes284 of section 202(a), or only one standard that could potentially be c onsidered a reasonable balancing of the factors releva nt under section 202(a). EPA therefore evaluated two sets of alternative standards, one more stringent than the promulgated standards and one less stringent.

The alternatives are 4% per year incr ease in standards which would be less stringent and a 6% per year increase in th e standards which would be more stringent. EPA is not adopting either of these. As discussed in Section III. D.7, the 4% per year forgoes CO 2 reductions which can be achieved at r easonable cost and are achievable by the industry within th e rule’s timeframe. The 6% per year alternative requires a significant increase in the projected requi red technology penetra tion which appears inappropriate in this timeframe due to the limited available lead time and the current difficult financial condition of the automotiv e industry. (See Section III.D.7 for a detailed discussion of why EPA is not adopti ng either of the alternatives.). EPA also believes that the no backsliding standards it is adopting for N 2 O and CH 4 are appropriate under section 202(a).

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

EPA is finalizing new emission standa rds to control greenhouse gases (GHGs) from light-duty vehicles. First, EPA is fi nalizing an emission sta ndard for carbon dioxide (CO 2 ) on a gram per mile (g/mile) basis that will apply to a manufactur er’s fleet of cars,285 and a separate standard that will apply to a manufacturer’s fleet of trucks. CO 2 is the primary greenhouse gas resulting from the comb ustion of vehicular fuels, and the amount of CO 2 emitted is directly correlated to the amount of fuel consumed. Second, EPA is providing auto manufacturers wi th the opportunity to earn cr edits toward the fleet-wide average CO 2 standards for improvements to ai r conditioning systems, including both hydrofluorocarbon (HFC) refrigerant losses (i .e., system leakage) and indirect CO 2 emissions related to the increased load on th e engine. Third, EPA is finalizing separate emissions standards for two other GHGs: methane (CH 4 ) and nitrous oxide (N 2 0). CH 4 and N 2 O emissions relate closely to the design and efficien t use of emission control hardware (i.e., catalytic conve rters). The standards for CH 4 and N 2 O will be set as a cap that will limit emissions increases and preven t backsliding from current emission levels. The final standards described below will appl y to passenger cars, light-duty trucks, and medium-duty passenger vehicles (MDPVs). As an overall group, they are referred to in this preamble as light vehicles or simply as vehicles. In this preamble section passenger cars may be referred to simply as “cars”, a nd light-duty trucks and MDPVs as “light trucks” or “trucks.” 168

EPA’s program includes a number of credit opportunities and othe r flexibilities to help manufacturers comply, especially in the early years of the program. EPA is establishing a system of averaging, banking, and trading of credits in tegral to the fleet averaging approach, based on ma nufacturer fleet average CO 2 performance, as discussed in Section III.B.4. This approach is sim ilar to averaging, banking, and trading (ABT)

168 As described in Section III. B.2., GHG emissions standards will use the same vehicle category definitions as are used in the CAFE program.286 programs EPA has established in other programs and is also similar to provisions in the CAFE program. In addition to traditiona l ABT credits based on the fleet emissions average, EPA is also including A/C credits as an aspect of the sta ndards, as mentioned above. EPA is also includi ng several additional credit provi sions that apply only in the initial model years of the program. These incl ude flex fuel vehicle credits, incentives for the early commercialization of certain advanced technology ve hicles, credits for new and innovative “off-cycle” technologies that are not captured by the current test procedures, and generation of credits prior to model year 2012. The A/C credits and additional credit opportunities are described in Section III.C. These credit programs will provide flexibility to manufacturers, which may be especially important during the early transition years of the program. EPA will al so allow a manufacturer to carry a credit deficit into the future for a limited number of model years. A parallel provision, referred to as credit carry-back, will be part of the CAFE program. Finally, EPA is finalizing an optional compliance flexibility, the Temporar y Leadtime Allowance Alternative Standard program, for intermediate volume manufactur ers, and is deferring standards for the smallest manufacturers, as discusse d in Sections III.B.5 and 6 below.

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

The attribute-based CO 2 standards, are projected to achieve a national fleet-wide average, covering both light cars a nd trucks, of 250 grams/mile of CO 2 in model year (MY) 2016. This includes CO 2 -equivalent emission reductions from A/C improvements, reflected as credits in the standard. Th e standards will begin with MY 2012, with a287 generally linear increase in stringency from MY 2012 through MY 2016. EPA will have separate standards for cars and light trucks. The tables in this section below provide overall fleet average levels that are proj ected for both cars and light trucks over the phase-in period which is estimated to corres pond with the standards. The actual fleetwide average g/mi level that will be achieve d in any year for cars and trucks will depend on the actual production for that year, as well as the use of the various credit and averaging, banking, and trading provisions. For example, in any year, manufacturers may generate credits from cars and use them for compliance with the truck standard. Such transfer of credits between cars and truc ks is not reflected in the table below. In Section III.F, EPA discusses the year-by-year estimate of emissions reductions that are projected to be achieved by the standards.

In general, the schedule of standards act s as a phase-in to the MY 2016 standards, and reflects consideration of the appropriate lead-tim e for each manufacturer to implement the requisite emission redu ctions technology acr oss its product line. 169 Note that 2016 is the final model year in which st andards become more stringent. The 2016
CO 2 standards will remain in place for 2017 a nd later model years, until revised by EPA in a future rulemaking.

EPA estimates that, on a combined fl eet-wide national basis, the 2016 MY standards will achieve a level of 250 g/mile CO 2 , including CO 2 -equivalent credits from A/C related reductions. The deri vation of the 250 g/mile estima te is described in Section
III.B.2.

169 See CAA section 202(a)(2).288 EPA has estimated the overall fleet-wide CO 2 -equivalent emission levels that correspond with the attribute-based standa rds, based on the projections of the composition of each manufacturer’s fleet in each year of the program. Tables III.B.1-1 and III.B.1-2 provides these esti mates for each manufacturer. 170

As a result of public comments and updated economic and future fleet projections, the attribute based curves have been updated for th is final rule, as discussed in detail in Section II.B of this preamble and Chapter 2 of the Joint TSD. This update in turn affects costs, benefits, and other impact s of the final standard s - thus EPA's overall projection of the impacts of the final rule st andards have been update d and the results are different than for the NPRM, though in general not by a large degree.

170 These levels do not include the effect of flexible fu el credits, transfer of cred its between cars and trucks, temporary lead time allowance, or any other credits.289 Table III.B.1-1 Estimated Fleet CO 2 -equivalent Levels Corresponding to the Standards for Cars (g/mile) Manufacturer Model Year 2012 2013 2014 2015 2016 BMW 266 259 250 239 228 Chrysler 269 262 254 243 232 Daimler 274 267 259 249 238 Ford 267 259 251 240 229 General Motors 268 261 252 241 230 Honda 260 252 244 233 222 Hyundai 260 254 246 233 222 Kia 263 255 247 235 224 Mazda 260 252 243 232 221 Mitsubishi 257 249 241 230 219 Nissan 263 256 248 237 226 Porsche 244 237 228 217 206 Subaru 253 246 237 226 215 Suzuki 245 238 230 218 208 Tata 288 280 272 261 250 Toyota 259 251 243 232 221 Volkswagen 256 249 240 229 219290 Table III.B.1-2 Estimated Fleet CO 2 -equivalent Levels Corresponding to the Standards for Light Trucks (g/mile) Manufacturer Model Year 2012 2013 2014 2015 2016 BMW 330 320 310 297 283 Chrysler 342 333 323 309 295 Daimler 343 332 323 308 294 Ford 354 344 334 319 305 General Motors 364 354 344 330 316 Honda 327 318 309 295 281 Hyundai 325 316 307 292 278 Kia 335 327 318 303 289 Mazda 319 308 299 285 271 Mitsubishi 316 306 297 283 269 Nissan 343 334 323 308 294 Porsche 334 325 315 301 287 Subaru 315 305 296 281 267 Suzuki 320 310 300 286 272 Tata 321 310 301 287 272 Toyota 342 333 323 308 294 Volkswagen 341 331 322 307 293

These estimates were aggregated base d on projected production volumes into the fleet-wide averages for cars a nd trucks (Table III.B.1-3). 171

171 Due to rounding during calculations, the estimated fleet-wide CO 2 -equivalent levels may vary by plus or minus 1 gram.291 Table III.B.1-3 Estimated Fleet-wide CO 2 -equivalent Levels Corresponding to the Standards Cars Trucks Model Year CO 2 (g/mi) CO 2 (g/mi) 2012 263 346 2013 256 337 2014 247 326 2015 236 312 2016 and later 225 298

As shown in Table III.B.1-3, fleet-wide CO 2 -equivalent emission levels for cars under the approach are projec ted to decrease from 263 to 225 grams per mile between MY 2012 and MY 2016. Similarly, fleet-wide CO 2 -equivalent emission levels for trucks are projected to decrease from 346 to 398 gram s per mile. These numbers do not include the effects of other flexibilities and credit s in the program. The estimated achieved values can be found in Chapter 5 of the Regulatory Impact Analysis (RIA).

EPA has also estimated the average fleet -wide levels for the combined car and truck fleets. These levels ar e provided in Table III.B.1-4. As shown, the overall fleet average CO 2 level is expected to be 250 g/mile in 2016.292 Table III.B.1-4 Estimated Fleet-wide Combined CO 2 -equivalent Levels Corresponding to the Standards Combined Car and Truck Model Year CO 2 (g/mi) 2012 295 2013 286 2014 276 2015 263 2016 250

As noted above, EPA is finalizing standards that will result in increasingly stringent levels of CO 2 control from MY 2012 though MY 2016 – applying the CO 2 footprint curves applicable in e ach model year to the vehicles expected to be sold in each model year produces fleet-wide annual reductions in CO 2 emissions. Comments from the Center for Biological Diversity (CBD) challeng ed EPA to increase the stringency of the standards for all of the year s of the program, and even argued that 2016 standards should be feasible in 2012. Other commenters not ed the non-linear increas e in the standards from 2011 (CAFE) to the 2012 GHG standards. As explained in greater detail in Section III.D below and the relevant support docum ents, EPA believes that the level of improvement achieves important CO 2 emissions reductions th rough the application of feasible control technology at reasonable cost, considering th e needed lead time for this program. EPA further believes that the averag ing, banking and tradi ng provisions, as well as other credit-generating mechanisms, allo w manufacturers further flexibilities which reduce the cost of the CO 2 standards and help to provide adequate lead time. EPA believes this approach is justified under section 202(a) of the Clean Air Act.

EPA has analyzed the feasibility under the CAA of achieving the CO 2 standards, based on projections of what actions manuf acturers are expected to take to reduce293 emissions. The results of the analysis are di scussed in detail in Section III.D below and in the RIA. EPA also presents the estimated costs and benefits of the car and truck CO 2 standards in Section III.H. In developing th e final rule, EPA has evaluated the kinds of technologies that could be utilized by the au tomobile industry, as well as the associated costs for the industry and fuel savings fo r the consumer, the magnitude of the GHG reductions that may be achieved, and ot her factors relevant under the CAA.

With respect to the lead time and cost of incorporating technology improvements that reduce GHG emissions, EPA and NHTSA pl ace important weight on the fact that during MYs 2012-2016 manufacturer s are expected to redesign and upgrade their lightduty vehicle products (and in some cases in troduce entirely new vehicles not on the market today). Over these five model years there will be an opportunity for manufacturers to evaluate almost every one of their vehicle model platforms and add technology in a cost-effective way to contro l GHG emissions and improve fuel economy. This includes redesign of the air conditioner systems in ways that will further reduce GHG emissions. The time-frame and levels for the standards, as well as the ability to average, bank and trade credits and carry a deficit forward for a limited time, are expected to provide manufactur ers the time needed to incorp orate technology that will achieve GHG reductions, and to do this as part of the normal vehicle redesign process. This is an important aspect of the final rule , as it will avoid the much higher costs that will occur if manufacturers needed to add or change technology at times other than these scheduled redesigns. This time period will also provide manufacturers the opportunity to plan for compliance using a multi-year time frame, again in accord with their normal294 business practice. Further details on lead ti me, redesigns and feasibility can be found in Section III-D.

Consistent with the requirement of C AA section 202(a)(1) that standards be applicable to vehicles “for thei r useful life,” EPA is finalizing CO 2 vehicle standards that will apply for the useful life of the vehicle. Under section 202(i) of the Act, which authorized the Tier 2 standards, EPA esta blished 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. 172 Tier 2 refers to EPA’s standard s for criteria pollutants such as NO X , HC, and CO. EPA is finalizing new CO 2 standards for the same group of vehicles, and therefore the Tier 2 useful life will apply for CO 2 standards as well. The in-use emission standard will be 10% higher than the model-level cer tification emission test results, to address issues of production variability and test-to-test variabilit y. The in-use standard is discussed in Section III.E.

EPA is requiring manufacturers to measure CO 2 for certification and compliance purposes using the same test procedures currently used by EPA for measuring fuel economy. These procedures are the Federal Te st Procedure (FTP or ‘‘city’’ test) and the Highway Fuel Economy Test (HFET or ‘‘highway’’ test). 173 This corresponds with the data used to develop the footprint-based CO 2 standards, since th e data on control technology efficiency was also developed in re ference to these test procedures. Although

172 See 65 FR 6698 (February 10, 2000). 173 EPA established the FTP for emissions measurement in the early 1970s. In 1976, in response to the Energy Policy and Conservation Act (EPCA) statute, EPA extended the use of the FTP to fuel economy measurement and added the HFET. The provisions in the 1976 regulation, effective with the 1977 model year, established procedures to calculate fuel economy values both for labeling and for CAFE purposes.295 EPA recently updated the test procedures used fo r fuel economy labeling, to better reflect the actual in-use fuel economy achieved by vehicles, EPA is not using these test procedures for the CO 2 standards in this final rule, gi ven the lack of data on control technology effectiveness under these procedures. 174 There were a number of commenters that advocated for a change in eith er the test procedures or the fuel economy calculation weighting factors. The U.S. Co alition for Advanced Diesel Cars urged a changing of the city/highway weighting fact ors from their current values of 45/55 to 43/57 to be more consistent with the EPA (5 -cycle) fuel economy labeling rule. EPA has decided that such a change would not be appr opriate, nor consistent with the technical analyses supporting the 5-cycle fuel ec onomy label rulemaking. The city/highway weighting of 43/57 was found to be appropriate when the city fuel economy is based on a combination of Bags 2 and 3 of the FTP and the city portion of the US06 test cycle, and when the highway fuel economy is based on a combination of the HFET and the highway portion of the US06 cycle. When city and highway fuel economy are based on the FTP and HFET cycles, respectively, the appropriate city/highway weighting is not 43/57, but very close to 55/45. Therefore, the weight ing of the city and highway fuel economy values contained in this rule is appropriate for and consistent with the use of the FTP and HFET cycles to measure city and highway fuel economy.

The American Council for an Energy-Efficient Economy (ACEEE), Cummins, and Sierra Club all suggested using more real-wor ld test procedures. It is not feasible at this time to base the final CO 2 standards on EPA’s five-cyc le fuel economy formulae. Consistent with its name, these formulae require vehicle testing over five test cycles, the

174 See 71 FR 77872, December 27, 2006.296 two cycles associated with the proposed CO 2 standards, plus the cold temperature FTP, the US06 high speed, high acceleration cycle and the SC03 air conditioning test. EPA considered employing the five-c ycle calculation of fuel ec onomy and GHG emissions for this rule, but there were a num ber of reasons why this was not practical. As discussed extensively in the Joint TSD, setting the appropriate levels of CO 2 standards requires extensive knowledge of the CO 2 emission control effectiveness over the certification test cycles. Such knowledge has been gathered over the FTP and HFET cycles for decades, but is severely lacking for the other three te st cycles. EPA simply lacks the technical basis to project the effectiveness of the avai lable technologies over th ese three test cycles and therefore, could not adequa tely support a rule which set CO 2 standards based on the five-cycle formulae. The benefits of today’s rule do presume a strong connection between CO 2 emissions measured over the FTP a nd HFET cycles and onroad operation. Since CO 2 emissions determined by the five-cycle formulae are believed to correlate reasonably with onroad emissions, this imp lies a strong connection between emissions over the FTP and HFET cycles and the five cy cle formulae. However, while we believe that this correlation is reasonable on aver age for the vehicle fleet, it may not be reasonable on a per vehicle basis, nor for a ny single manufacturer’s vehicles. Thus, we believe that it is reasonable to project a dir ect relationship between the percentage change in CO 2 emissions over the two certif ication cycles and onroad em issions (a surrogate of which is the five-cycle formulae), but not reas onable to base the cer tification of specific vehicles on that untested relati onship. Furthermore, EPA is allowing for off-cycle credits to encourage technologies that may not be not properl y captured on the 2-cycle city/highway test procedure (although these credits could a pply toward compliance with297 EPA's standards, not toward compliance with the CAFE standards). For future analysis, EPA will consider examining new drive cycl es and test procedures for fuel economy. 175

EPA is finalizing standards that incl ude hydrocarbons (HC) and carbon monoxide (CO) in its CO 2 emissions calculations on a CO 2 -equivalent basis. It is well accepted that HC and CO are typi cally 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 conten t of tailpipe HC and CO emissions and expressing it as CO 2 -equivalent emissions will add less than one percent to the overall
CO 2 -equivalent emissions level. This will also ensure consistency with CAFE calculations since HC and CO are incl uded in the “carbon balance” methodology that EPA uses to determine fuel usage as part of calculating vehicle fuel economy levels.

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

EPA is finalizing the same vehicle category definitions that are used in the CAFE program for the 2011 model year standards. 176 This approach allows EPA’s CO 2 standards and the CAFE standard s to be harmonized across all vehicles. In other words, vehicles will be subject to either car sta ndards or truck standards under both programs, and not car standards under one program a nd trucks standards under the other. The CAFE vehicle category definitions differ slightly from the EPA definitions for cars and light trucks used for the Tier 2 program and other EPA vehi cle programs. However, EPA

175 There were also a number of comments on air cond itioner test procedures; these will be discussed in Section III.C and the RIA. 176 See 49 CFR 523.298 is not changing the vehicle category definitio ns for any other light-duty mobile source programs, except the GHG standards.

EPA is finalizing separate car and truck standards, that is, vehicles defined as cars have one set of footprint-based curves fo r 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.

Some commenters requested a single or converging curve for both cars and trucks. 177 EPA is not finalizing a single fleet standard where all cars and trucks are measured against the same footprint curve fo r several reasons. Fi rst, some vehicles classified as trucks (such as pick-up trucks) have certai n attributes not common on cars which attributes contribute to higher CO 2 emissions – notably high load carrying capability and/or high towing capability. 178 Due to these differences, it is reasonable to separate the light-duty vehicl e fleet into two groups. Second, EPA wishes to harmonize key program design elements of the GHG standards with NHTSA’s CAFE program where it is reasonable to do so. NHTSA is re quired by statute to set separate standards for passenger cars and for non-pa ssenger cars. As discusse d in Section IV, EPCA does not preclude NHTSA from issuing converging sta ndards if its analysis indicates that these are the appropriate stan dards under the statute a pplicable separately to each fleet.

177 CBD, ICCT and NESCAUM supported a single curve an d the students at UC Santa Barbara commented on converging curves. 178 There is a distinction between body-on-frame trucks and unibody cars and trucks that make them technically different in a number of ways. Also, 2WD vehicles tend to have lower CO 2 emissions than their 4WD counterparts (all other things being equal). More discussion of this can be found in the TSD and RIA.299 Finally, most of the advantages of a singl e standard for all light duty vehicles are also present in the two-fleet standards fina lized here. Because EPA is allowing unlimited credit transfer between a manufacturer’s car and truck fleets, the two fleets can essentially be viewed as a single fleet when manufacturers consider compliance strategies. Manufacturers can thus choose on which vehicles within their fleet to focus GHG reducing technology and then use credit transfers as needed to demonstrate compliance, just as they will if there was a single fleet standard. The one benefit of a single light-duty fleet not capture d 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 m eet the regulatory definition of trucks. Although this is of concern to EPA, we do not believe at this time that concern is sufficient to outweigh the ot her reasons for finalizing se parate car and truck fleet standards. However, it is possi ble that in the future, recent tr ends may continue such that cars may become more truck-like and trucks may become more car-lik e. Therefore, EPA will reconsider whether it is appropriate to use converging curves if justified by future analysis.

For model years 2012 and later, EPA is finalizing a series of CO 2 standards that are described mathematically by a family of piecewise linear functions (with respect to vehicle footprint). 179 The form of the function is as follows:

179 See final regulations at 40 CFR 86.1818-12.300 CO 2 = a, if x ≤ l
CO 2 = cx + d, if l < x ≤ h
CO 2 = b, if x > h

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

EPA’s parameter values that define the family of functions for the CO 2 fleetwide average car and truck standards are as follows:

Table III.B.2-1 Parameter Values for Cars (for CO 2 gram per mile targets) Model Year a b c d Lower constraint Upper constraint 2012 244 315 4.72 50.5 41 56 2013 237 307 4.72 43.3 41 56 2014 228 299 4.72 34.8 41 56 2015 217 288 4.72 23.4 41 56 2016 and later 206 277 4.72 12.7 41 56301 Table III.B.2-2 Parameter Values for Trucks (for CO 2 gram per mile targets) Model Year a b c d Lower constraint Upper constraint 2012 294 395 4.04 128.6 41 66 2013 284 385 4.04 118.7 41 66 2014 275 376 4.04 109.4 41 66 2015 261 362 4.04 95.1 41 66 2016 and later 247 348 4.04 81.1 41 66

The equations can be shown graphically for each vehicle category, as shown in Figures III.B.2-1 and III.B.2-2. These st andards (or functions) decrease from 2012-2016 with a vertical shift.

The EPA received a number of comments on both the attribute and the shape of the curve. For reasons described in Section IIC and Chapter 2 of the TSD, the EPA feels that footprint is the most a ppropriate choice of attribute fo r this rule. More background discussion on other alternative attributes a nd curves EPA explored can be found in the EPA RIA. EPA recognizes th at the CAA does not mandate that EPA use an attribute based standard, as compared to NHTSA’s obligations under EPCA. The EPA believes that a footprint-based program will harmonize EPA’s program and the CAFE program as a single national program, result ing in reduced compliance comp lexity for manufacturers. EPA’s reasons for using an attribute based stan dard are discussed in more detail in the Joint TSD. Also described in these other se ctions are the reasons why EPA is finalizing the slopes and the constraints as shown above. For future analysis, EPA will consider other options and suggestions made by commenters.302 EPA also received public comments from three manufacturers, General Motors, Ford Motor Company, and Chrysler, sugges ting that the GHG program should harmonize with an EPCA provision that allows a manufact urer to exclude emergency vehicles from its CAFE fleet by providi ng written notice to NHTSA. 180 These manufacturers believe this provision is necessary because law enfo rcement vehicles (e.g., police cars) must be designed with special performance and features necessary for police work -- but which tend to raise GHG emissions and reduce fuel econo my relative to the base vehicle. These commenters provided several examples of features unique to these special purpose vehicles that negatively impact GHG emissions , such as heavy-duty suspensions, unique engine and transmission calibrations, a nd heavy-duty components (e.g., batteries, stabilizer bars, engine cooli ng). These manufacturers believ e consistency in addressing these vehicles between the EPA and NHTSA pr ograms is critical, as a manufacturer may be challenged to continue providing the performa nce needs of the federal, state, and local government purchasers of emergency vehicles.

EPA is not finalizing such an emergency vehicle provision in th is rule, since we believe that it is feasible for manufacturers to apply the same types of technologies to the base emergency vehicle as they would to ot her vehicles in their fleet. However, EPA also recognizes that, because of the unique “performance upgrading” needed to convert a base vehicle into one that meets the pe rformance demands of the law enforcement community – which tend to reduce GHGs relative to the base vehicles - there could be situations where a manufacturer is more ch allenged in meeting the GHG standards than the CAFE standards, simply due to inclus ion of these higher-emitting vehicles in the

180 49 U.S.C, 32902(e)303 GHG program fleet. While EPA is not fina lizing such an exclusion for emergency vehicles today, we do believe it is important to assess this issue in the future. EPA plans to assess the unique characteristics of thes e emergency vehicles and whether special provisions for addressing them are warranted. EPA plans to undertak e this evaluation as part of a follow-up rulemaking in the next 18 months (this rulemaking is discussed in the context of small volume manufacturers in Section III.B.6. below).304Figure III.B.2-1. CO2(g/mi) Car standard curves.305Figure III.B.2-2. CO2(g/mi) Truck standard curves.306 3. Overview of How EPA’s CO 2 Standards Will Be Implemented for Individual Manufacturers

This section provides a brief overview of how EPA will implement the CO 2 standards. Section III.E explains EPA’s approach to certification and compliance in detail. As proposed, EPA is finalizing two ki nds of standards – fleet average standards determined by a manufacturer’s fleet makeup, a nd in-use standards that will apply to the individual vehicles that make up the manufacturer’s fleet. Although this is similar in concept to the current light-duty vehicle Tier 2 program, there are important differences. In explaining EPA’s CO 2 standards, it is useful to summarize how the Tier 2 program works.

Under Tier 2, manufacturers se lect a test vehicle prior to certification and test the vehicle and/or its emissions hardware to de termine both its emissions performance when new and the emissions performance expected at the end of its useful life. Based on this testing, the vehicle is assigne d to one of several specified bins of emissions levels, identified in the Tier 2 rule, and this bin level becomes the emissions standard for the test group the test vehicle represen ts. All of the vehicles in the group must meet the emissions level for that bin throughout their us eful life. The emissions level assigned to the bin is also used in calculating th e manufacturer’s flee t average emissions performance.307 Since compliance with the Tier 2 fleet average depends on actual test group sales volumes and bin levels, it is not possibl e to determine compliance at the time the manufacturer applies for and r eceives a certificate of confor mity for a test group. Instead, at certification, the manufactur er demonstrates that the ve hicles in the test group are expected to comply throughout their useful lif e with 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. EPA issues a certificate for the vehicles covered by the test group based on this de monstration, and includes a condition in the certificate that if the manufactur er does not comply with the fleet average then production vehicles from that test group will be treated as not covered by the certificate to the extent needed to bring the manufacturer’s fleet average into compliance with Tier 2.

EPA is retaining the Tier 2 approach of requiring manufacturers to demonstrate in good faith at the time of certification that vehi cles in a test group will meet applicable standards throughout useful life. EPA is al so retaining the practice of conditioning certificates upon attainment of the fleet aver age standard. However, there are several important differences between a Tier 2 type of program and the CO 2 standards program. These differences and resulting modificati ons to EPA’s certifi cation protocols are summarized below and are described in detail in Section III.E.

EPA will continue to certify test groups as it does for Tier 2, and the CO 2 emission results for the test vehicle will serve as the initial or default standard for all of the vehicles in the test group. However, manuf acturers will later co llect and submit data308 for individual vehicle model types 181 within each test group, based on the extensive fuel economy testing that occurs through the course of the model year. This model type data will be used to assign a distin ct certification level for each model type, thus replacing the initial test group data as the compliance valu e for each model. It is these model type values that will be used to calculate the fleet average after the end of the model year. 182 The option to substitute model type data for the test group data is at the manufacturer's discretion, except they are requir ed, as they are under the CAFE test protocols, to submit sufficient vehicle test data to represent no le ss than 90 percent of th eir actual model year production. The test group emissions data will continue to apply for any model type that is not covered by vehicle test data specific to that model type.

EPA’s CO 2 standards also differ from Tier 2 in that the fleet average calculation for Tier 2 is based on test group bin levels and test gr oup sales whereas under the CO 2 program the CO 2 fleet average could be based on a combination of test group and model type emissions and model type production. For the new CO 2 standards, the final regulations use production rather than sales in calculating the fleet average in order to closely conform with the CAFE progra m, which is a production-based program. 183
Production as defined in the re gulations is relatively easy fo r manufacturers to track, but once the vehicle is delivered to dealership s the manufacturer becomes once step removed from the sale to the ultimate customer, and it becomes more difficult to track that final

181 “Model type” is defined in 40 CFR 600.002-08 as “... a unique combination of car line, basic engine, and transmission class.” A “car line” is essentially a model name, such as “Camry,” “Malibu,” or “F150.” The fleet average is calculated on the basis of model type emissions 182 The final in-use vehicle standards for each vehicle w ill also be based on the testing used to determine the model type values. As discussed in Section III.E.4, an in-use adjustment factor will be applied to the vehicle test results to determine the in-use standard that will apply during the useful life of the vehicle. 183 “Production” is defined as “vehicles produced and delivered for sale” and is not a measure of the number of vehicles actually sold.309 transaction. There is no environmental impact of using production inst ead of actual sales, and many commenters supported maintaining al ignment between EPA’s program and the CAFE program where possible.

4. Averaging, Banking, and Tr ading Provisions for CO 2 Standards

As explained above, EPA is finalizing a fleet average CO 2 program for passenger cars and light trucks. EPA has previously implemented similar averaging programs for a range of motor vehicle types and pollutant s, from the Tier 2 fleet average for NO X to motorcycle hydrocarbon (HC) pl us oxides of nitrogen (NO X ) emissions to NO X and particulate matter (PM) emissions from heavy-duty engines. 184 The program will operate much like EPA’s existing averaging program s in that manufacturers will calculate production-weighted fleet average emissions at the end of the model year and compare their fleet average with a fleet average emissi on standard to determine compliance. As in other EPA averaging programs, the Agency is also finalizing a comprehensive program for averaging, banking, and trading of credits which together will help manufacturers in planning and implementing the orderly phase-i n of emissions contro l technology in their production, consistent with thei r typical redesign schedules. 185

Averaging, Banking, and Trading (ABT) of emissions credits has been an important part of many mobile source pr ograms under CAA Title II, both for fuels

184 For example, see the Tier 2 light-duty vehicle emission standards program (65 FR 6698, February 10, 2000), the 2010 and later model year motorcycle emissions program (69 FR 2398, January 15, 2004), and the 2007 and later model year heavy-duty engine and vehicle standards program (66 FR 5001, January 18, 2001). 185 See final regulations at 40 CFR 86.1865-12.310 programs as well as for engine and vehicle pr ograms. ABT is important because it can help to address many issues of technological feasibility and lead-time, as well as considerations of cost. ABT is an integral pa rt of the standard set ting itself, and is not just an add-on to help reduce costs. In ma ny cases, ABT resolves issues of lead-time or technical feasibility, allowing EPA to set a st andard that is either numerically more stringent or goes into effect earlier than could have been justified otherwise. This provides important environmental benefits a nd at the same time it increases flexibility and reduces costs for the regulated industr y. A wide range of commenters expressed general support for the ABT provisions. Some commenters noted issues regarding specific provisions of the ABT program, which will be discussed in the appropriate context below. Several commenters requested that EPA publicly re lease manufacturerspecific ABT data to improve the transparency of credit transactions. These comments are addressed in Section III.E.

This section discusses generation of credits by achieving a fleet average CO 2 level that is lower than the manufacturer’s CO 2 fleet average standard. The final rule includes a variety of additional ways credits may be generated by manufacturers. Section III.C describes these additional opport unities to generate credits in detail. Manufacturers may earn credits through A/C system improvements beyond a specified baseline. Credits can also be generated by producing alterna tive fuel vehicles, by producing advanced technology vehicles including elec tric vehicles, plug-in hybri ds, and fuel cell vehicles, and by using technologies that improve off-cycl e emissions. In addi tion, early credits can be generated prior to the program’s MY 2012 start date. The credits will be used to311 determine a manufacturer’s compliance at the end of the model year. These credit generating opportunities are descri bed below in Section III.C.

As explained earlier, manufacturers will de termine the fleet average standard that applies to their car fleet and the standard for their truck fleet from the applicable attribute-based curve. A manufacturer’s credit or debit balance will be determined by comparing their fleet average with the manufacturer’s CO 2 standard for that model year. The standard will be calculated from footprint values on the attribute curve and actual production levels of vehicles at each footprint. A manufacturer will ge nerate credits if its car or truck fleet achieves a fleet average CO 2 level lower than its standard and will generate debits if its fleet average CO 2 level is above that stan dard. At the end of the model year, each manufacturer will calculat e a production-weighted fleet average for each averaging set (cars and trucks). A manuf acturer’s car or truck fleet that achieves a fleet average CO 2 level lower than its standard will generate credits, and if its fleet average CO 2 level is above that standard it s fleet will generate debits.

The regulations will account for the diffe rence in expected lifetime vehicle miles traveled (VMT) between cars and tr ucks in order to preserve CO 2 reductions when credits are transferred between cars and trucks. As directed by EISA, NHTSA accomplishes this in the CAFE program by using an adjustment f actor that is applied to credits when they are transferred between car and truck comp liance categories. The CAFE adjustment factor accounts for two different influences th at can cause the transfer of car and truck credits (expressed in tenths of a mpg), if left unadjusted, to pote ntially negate fuel312 reductions. First, mpg is not linear with fu el consumption, i.e., a 1 mpg improvement above a standard will imply a different amount of actual fuel consumed depending on the level of the standard. Second, NHTSA’s convers ion corrects for the f act that the typical lifetime miles for cars is less than that for tr ucks, meaning that credits earned for cars and trucks are not necessarily equal. NHTSA’s ad justment factor essentially converts credits into vehicle lifetime gallons to ensure preserva tion of fuel savings and the transfer credits on an equal basis, and then converts back to the statutorily-required credit units of tenths of a mile per gallon. To conve rt to gallons NHTSA’s convers ion must take into account the expected lifetime mileage for cars and trucks. Because EPA’s standards are expressed on a CO 2 gram per mile basis, which is linear with fuel consumption, EPA’s credit calculations do not need to account fo r the first issue noted above. However, EPA is accounting for the second issu e by expressing credits when they are generated in total lifetime Megagrams (metric tons), rather than through the use of c onversion factors that would apply at certain times. In this way credits may be freely exchanged between car and truck compliance categorie s without the need for adjustment. Additional detail regarding this approach, incl uding a discussion of the vehicle lifetime mileage estimates for cars and trucks can be found in Section II I.E.5. A discussion of the derivation of the estimated vehicle lifetime miles traveled can be found in Chapter 4 of the Joint Technical Support Document.

A manufacturer that generates credits in a given year and vehicle category may use those credits in essentially four wa ys, although with some limitations. These provisions are very similar to those of other EPA averaging, banking, and trading313 programs. These provisions have the poten tial to reduce costs and compliance burden, and support the feasibility of th e standards in terms of lead time and orderly redesign by a manufacturer, thus promoting and not reduc ing the environmental benefits of the
program.

First, EPA proposed that the manufacturer must use any credits earned to offset any deficit that had accrued in the current y ear or in a prior model year that had been carried over to the current model year. NR DC commented that such a provision is necessary to prevent credit “shell game s” from delaying the adoption of new technologies. EPA’s Tier 2 program includes such a restriction, and EPA is applying an identical restriction to the GHG program. Simply stated, a manufacturer may not bank (or carry forward) credits if that manufacturer is also carrying a deficit. In such a case, the manufacturer is obligated to use any current model year credits to offset that deficit. Using current model year credits to offset a pr ior model year deficit is referred to in the CAFE program as credit carry-back. EPA’s de ficit carry-forward, or credit carry-back provisions are describe d further, below.

Second, after satisfying any n eeds to offset pre-existing deficits, remaining credits may be banked, or saved for use in future ye ars. Credits generated in this program will be available to the manufacturer for use in any of the five model years after the model year in which they were generated, consistent with the CAFE program under EISA. This is also referred to as a cred it carry-forward provision.314 EPA received a number of comments rega rding the credit carry-back and carryforward provisions. Many supported the proposed consistency of these provisions with EISA and the flexibility provided by these pr ovisions, and several offered qualified or tentative support. For exampl e, NRDC encouraged EPA to consider further restrictions in the 2017 and later model years. Public Citizen expressed concern regarding the complexity of the program and how these pr ovisions might obscure a straightforward determination of compliance in any given model year. At least two automobile manufacturers suggested modeli ng the program after California, which allows credits to be carried forward for thr ee additional years following a discounting schedule.

For other new emission control programs, EPA has sometimes initially restricted credit life to allow time for the Agency to assess whether th e credit program is functioning as intended. When EPA first offered averaging and banking provisions in its light-duty emissions control program (the National Low Emission Vehicle Program), credit life was restricted to three years. The same is true of EPA’s early averaging and banking program for heavy-duty engines. As these programs matured and were subsequently revised, EPA became confiden t that the programs were functioning as intended and that the standards were sufficiently stringent to remove the restrictions on credit life. EPA is therefore acting consis tently with our past practice in finalizing reasonable restrictions on credit life in th is new program. The Agency believes that a credit life of five years represents an appropriate balance betw een promoting orderly redesign and upgrade of the emissions control technology in the manufa cturer’s fleet and the policy goal of preventing large numbers of credits accumulated early in the program315 from interfering with the incentive to deve lop and transition to other more advanced emissions control technologies. As discu ssed below in Section III.C, early credits generated by a manufacturer ar e also be subject to the five year credit carry-forward restriction based on the year in which they ar e generated. This limits the effect of the early credits on the long-term emissions re ductions anticipated to result from the new standards.

Third, the new program enables manufacturer s to transfer credits between the two averaging sets, passenger cars and trucks, within a manufactur er. For example, credits accrued by over-compliance with a manufactur er’s car fleet averag e standard may be used to offset debits accrued due to that manufacturer’s not meeting the truck fleet average standard in a given year. EPA believe s that such cross-category use of credits by a manufacturer provides important additional flexibility in the transition to emissions control technology without aff ecting overall emission reduc tions. Comments regarding the credit transfer provisions expressed gene ral support, noting that it does not matter to the environment whether a gram of greenhouse gas is generated from a car or a truck. Additional comments regarding EPA’s streamlined megagram approach and method of accounting for expected vehicle lifetime miles traveled are summarized in Section III.E.

Finally, accumulated credits may be traded to another vehicle manufacturer. As with intra-company credit use, such inter-company credit trading provides flexibility in the transition to emissions control technology without affecting overall emission reductions. Trading credits to another vehicle manufacturer could be a straightforward316 process between the two manufact urers, but could also involve third parties that could serve as credit brokers. Brokers may not ow n the credits at any time. These sorts of exchanges are typically allowed under EPA’s current emission credit programs, e.g., the Tier 2 light-duty vehicle NO X fleet average standard a nd the heavy-duty engine NO X fleet average standards, although manufacturers have seldom made such exchanges. Comments generally reflected support for the credit trading flexibility, although some questioned the extent to which trading might actually occur. As noted above, comments regarding program transparency are addressed in Section III.E.

If a manufacturer has accrued a deficit at the end of a mode l year – that is, its fleet average level failed to meet the required fl eet average standard – the manufacturer may carry that deficit forward (also referred to credit carry-back) for a total of three model years after the model year in which that defi cit was generated. EPA continues to believe that three years is an appropriate amount of time that gives the manufacturers adequate time to respond to a deficit s ituation but does not create a lengthy period of prolonged non-compliance with the fleet average standards. 186 As noted above, such a deficit carryforward may only occur after the manufacturer has applied any banked credits or credits from another averaging set. If a deficit sti ll remains after the manufacturer has applied all available credits, and the manuf acturer did not obtain credits elsewhere, the deficit may be carried forward for up to three model years. No deficit may be carried into the fourth model year after the model year in which the deficit occurred. Any deficit from the first model year that remains after the third mode l year will constitute a violation of the

186 EPA emission control programs that incorporate ABT provisions (e.g., the Tier 2 program and the Mobile Source Air Toxics program) have provided this three-year deficit carry-forward provision for this reason. See 65 FR 6745 (February 10, 2000), and 71 FR 8427 (February 26, 2007).317 condition on the certificate, which will consti tute a violation of the Clean Air Act and will be subject to enforcement action.

The averaging, banking, and trading provisions are genera lly consistent with those included in the CAFE program, with a few not able exceptions. As with EPA’s approach, CAFE allows five year carry-forward of cred its and three year carry-back. Under CAFE, transfers of credits across a manufacturer’s car and truck av eraging sets are also allowed, but with limits established by EISA on the us e 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 pa ssenger car standard. CAFE allows credit trading, but again, traded cr edits cannot be used to meet the minimum domestic passenger car standard. EPA did not propose, and is not finalizing, these constraints on the use of transferred credits.

Additional details regarding the aver aging, banking, and trading provisions and how EPA will implement these provisions can be found in Section III.E.

5. CO 2 Temporary Lead-Time Allowance Alternative Standards

EPA proposed adopting a limited and na rrowly prescribed option, called the Temporary Lead-time Allowance Alternative Standards (TLAAS), to provide additional lead time for a certain subset of manufacturer s. As noted in the proposal, this option was designed to address two differe nt situations where we project that more lead time is318 needed, based on the level of emissions control technology and emissions control performance currently exhibited by cert ain vehicles. One situation involves manufacturers who have traditionally paid CA FE fines instead of complying with the CAFE fleet average, and as a result at least part of their vehicle production currently has significantly higher CO 2 and lower fuel economy levels th an the industry average. More lead time is needed in the program’s initia l years to upgrade these vehicles to meet the aggressive CO 2 emissions performance levels requi red by the final rule. The other situation involves manufacturers who have a limited line of vehicl es and are therefore unable to average emissions pe rformance across a fu ll line of production. For example, some smaller volume manufacturers produce onl y vehicles with emissions above the corresponding CO 2 footprint target, and do not have ot her types of vehicl es (that exceed their compliance targets) in their production mix with which to average. Often, these manufacturers also pay fines under the CAFE program rather than meeting the applicable CAFE standard. Because voluntary non-complia nce through payment of civil penalties is impermissible for the GHG standards unde r the CAA, both of these types of manufacturers need additional lead time to upgrade vehicles and meet the standards. EPA proposed that this subset of manuf acturers be allowed to produce up to 100,000 vehicles over model years 2012-2015 that would be subject to a somewhat less stringent
CO 2 standard of 1.25 times the standard that would otherwise apply to those vehicles. Only manufacturers with total U.S. sales of less than 400,000 vehicles per year in MY 2009 would be eligible for this allowance. Those manufacturers would have to exhaust designated program flexibilities in order to be eligible, and credit generating and trading opportunities for the eligible vehicles would be restri cted. See 74 FR 49522-224.319 EPA is finalizing the optional TLAAS provisions, with certain limited modifications, so that these manufacturers ca n have sufficient lead time to meet the tougher MY 2016 GHG standards, while preservi ng consumer choice of vehicles during this time. 187 EPA is finalizing modified provi sions to address th e unique lead-time issues of smaller volume manufacturers. One provision involves additional flexibility under the TLAAS program for manufacturer s below 50,000 U.S. vehicle sales, as discussed further in Section III.B.5.b be low. Another provision defers the CO 2 standards for the smallest volume manufacturers, those below 5,000 U.S. vehicle sales, as discussed in Section III.B.6.

Comments from several manufacturers st rongly supported the TLAAS program as critical to provide the lead time needed for manufacturers to meet the standards. Volkswagen commented that TLAAS is an im portant aspect of EP A’s proposal and that it responds to the needs of some smaller manufacturers for additional lead time and flexibility under the CAA. Daimler Au tomotive Group commented that TLAAS is a critical element of the program and falls sq uarely within EPA’s di scretion to provide appropriate lead time to limited-line low-vol ume manufacturers. BMW also commented that TLAAS is needed because most of the companies with limite d lines will have to meet a more stringent fleet standard by 2016 than full-line manufacturers because they sell “feature-dense” vehicles (as opposed to light-weight large whee l-base vehicles) and no pick-up trucks. BMW comm ented that their MY 2016 foot print-based standard is projected to be 4 percent more stringent than the fleet average standard of 250 g/mile.

187 See final regulations at 40 CFR 86.1818-12(e).320 The Alliance of Automobile Manufacturers supp orted the flexibilities proposed by EPA, including TLAAS. As discussed in detail be low, EPA received extensive comments from many smaller volume manufacturers that the proposed TLAAS program was insufficient to address lead time and f easibility issues they wi ll face under the program.

In contrast, EPA also received comments fr om the Center for Biological Diversity opposing the TLAAS program, commenting that an exception for high performance vehicles is not allowed under EPCA or the CAA and that it reward s manufacturers that pay penalties under CAFE and penalizes thos e that have complied with CAFE. This commenter suggests that manufacturers could decrease vehicle mass or power output of engines, purchase credits from another ma nufacturer, or earn off-cycle credits. EPA responds to these comments below.

After carefully considering the public co mments, EPA continues to believe that the TLAAS program is essential in providing necessary lead time and flexibility to eligible manufacturers in the ea rly years of the standards. First, EPA believes that it is acting well within its legal authority in adopt ing the various TLAAS provisions. EPA is required to provide sufficien t lead time for industry as a whole for standards under section 202 (a) (1), which mandate s that standards are to take effect only “after providing such period as the Administrator finds necessary to permit the development and application of the requisite technology, giving appropriate c onsideration to the cost of compliance within such period.” Thus, a lthough section 202 (a)(1) does not explicitly authorize this or any other sp ecific lead time provision, it affords ample leeway for EPA321 to craft provisions designed to provide ade quate lead time, and to tailor those provisions as appropriate. We show below that the t ypes of technology penetrations required for TLAAS-eligible vehicles in the program’s ear lier years raise critical issues as to adequacy of lead time. As discussed in the EPA feasibility analysis provided in Section III.D.6 and III.D.7 several manufacturers elig ible for TLAAS are projected to face a compliance shortfall in MY2016 without th e TLAAS program, even with the full application of technologies assumed by the OMEGA Model, including hybrid use of up to 15 percent. These include BMW, Jagua r Land Rover, Daimler, Porsche, and Volkswagen In addition, the smaller volum e manufacturers of this group (i.e., Jaguar Land Rover and Porsche) face the greatest s hortfall (see Table III.D .6-4). Even with TLAAS, these manufacturers will need to take technology steps to comply with standards above and beyond those of other manufacturer s. These manufacturers have relatively few models with high baseline emissions and th is flexibility allows them additional lead time to adapt to a longer term strategy of m eeting the final standards within their vehicle redesign cycles.

Second, EPA has carefully evaluated other means of eligible manufacturers to meet the standards, such as utilizing available credit opportun ities. Indeed, eligibility for the TLAAS, and for temporary deferral of regulation for very small volume manufacturers, is conditioned on first exha usting the various programmatic flexibilities including credit utilization. At the same time, a basic reason certain manufacturers are faced with special lead time di fficulties is their inability to generate credits which can be then be averaged across their fleet be cause of limited product lines. And although322 purchasing credits is an option under the pr ogram, there are no guarantees that credits will be available. Historic practice in fact suggests that manufacturers do not sell credits to competitors. While some of the smaller manufacturers covered by the TLAAS program may be in a position to obtain credits, they are not likely to be available for the TLAAS manufacturers across the board in the volume needed to comply without the TLAAS provisions. At the same time the TL AAS provisions have been structured such that any credits that do become available would likely be used before a manufacturer would turn to the more restricted and limiting TLAAS provisions.

As discussed in Section III.C., off-cycle cr edits are available if manufacturers are able to employ new and innovative technologies not already in widespread use, which provide real-world emissions reductions not cap tured on the current test cycles. Further, these credits are eligible only for technologies that are newly introduced on just a few vehicle models, and are not yet in widespr ead use across the fleet. The magnitude of these credits are highly uncertain because they are based on new technologies, and EPA is not aware of any such technologies that would provide enough cr edits to bring these manufacturers into compliance without TLAAS lead time flexibility. Manufacturers first must develop these technologies and then demonstrate their emissions reductions capabilities, which will require lead time. Moreover, the technologies mentioned in the proposal which are the most likely to be e ligible based on present knowledge, including solar panels and active aerodynamics, are li kely to provide only small incremental emissions reductions.323 We agree with the comment that reduci ng vehicle mass or power are potential methods for reducing emissions that should be employed by TLAAS-eligible manufacturers to help them meet standards. However, based on our assessment of the lead time needed for these manufacturers to comply with the standa rds, especially given their more limited product offerings and highe r baseline emissions, we believe that additional time is needed for them to come into compliance. EPA can permissibly consider the TLAAS and other manufacturers’ le ad time, cost, and feasibility issues in developing the primary standards and has disc retion in setting the overall stringency of the standards to account for these factor s. Natural Resources Defense Council v. Thomas , 805 F. 2d 410, 421 (D.C. Cir. 1986) (even when implementing technologyforcing provisions of Title II, EPA may ba se standards on an i ndustry-wide capability “taking into account the broad spectrum of technol ogical capabilities as well as cost and other factors” across the industr y). EPA is not legally require d to set standards that drive these manufacturers or their products out of th e market, nor is EPA legally required to preserve a certain product line or vehicle characteristic. Instead EPA has broad discretion under section 202(a)(1) to set standards that reasonably balance lead time needs across the industry as a whole and vehi cle availability. In this ru lemaking, EPA has consistently emphasized the importance of obtaining very significant reductions in emissions of GHGs from the industry as a w hole, and obtaining those re ductions through regulatory approaches that avoid limiting the ability of manufacturers to provide model availability and choice for consumers. The primary mech anism to achieve this is the use of a footprint attribute curve in setting the increasi ngly stringent model year standards. The TLAAS provisions are a temporary and strict ly limited modification to these attribute324 standards allowing the TLAAS manufacturers lead time to upgrade their product lines to meet the 2016 GHG standards. EPA has made a reasonable choice here to preserve the overall stringency of the program, and to a fford increased flexibility in the program’s early years to a limited class of vehicles to assure adequate lead time for all manufacturers to meet the stri ctest of the standards by MY 2016.

As described below, EPA also carefully considered the comments of smaller volume manufacturers and believe s additional lead time is ne eded. Therefore, EPA is finalizing the TLAAS program, similar to th at proposed, and is also finalizing an additional TLAAS option for manufacturer s with annual U.S. sales under 50,000 vehicles. EPA is also deferring standards for manufacturers with annual sales of less than 5,000 vehicles. These new TLAAS provisi ons and the small volume manufacturer deferment are discussed in detail below and in Section III.B.6.

a. Base TLAAS Program

As proposed, EPA is establishing the TL AAS program for a specified subset of manufacturers. This alternative standard is an option only for manu facturers with total U.S. sales of less than 400,000 vehicles pe r year, using 2009 model year final sales numbers to determine eligibility for these alte rnative standards. Fo r manufacturers with annual U.S. sales of 50,000 or more but le ss than 400,000 vehicles, EP A is finalizing the TLAAS program largely as proposed. EPA proposed that under the TLAAS, qualifying manufacturers would be allo wed to produce up to 100,000 vehicles that would be subject325 to a somewhat less stringent CO 2 standard of 1.25 times the standard that would otherwise apply to those vehicles. This 100,000 volume is not an annual limit, but is an absolute limit for the total number of vehi cles which can use the TLAAS program over the model years 2012-2015. Any additional production would be subject to the same standards as any other manufact urer. EPA is retaining this limit for manufacturers with baseline MY 2009 sales of 50,000 but less than 400,000. In addition, as discussed further below, EPA is finalizing a variety of restri ctions on the use of the TLAAS program, to ensure that only manufacturers who need mo re lead time for the kinds of reasons noted above are likely to use the program.

Volvo and Saab commented that basi ng eligibility stri ctly on MY2009 sales would be problematic for these companies, which are being spun-off from larger manufacturer in the MY2009 time frame due to the upheaval in the auto industry over the past few years. These commenters offere d a variety of suggestions including using MY2010 as the eligibility cut-off instead ofMY2009, reassessing eligibility on a yearby-year basis as corporate relationships cha nge, or allowing companies separated from a larger parent company by the end of 2010 to use their MY2009 branded U.S. sales to qualify for TLAAS. In response to these conc erns, EPA recognizes that these companies currently being sold by larger manufacturer wi ll share the same ch aracteristics of the manufacturers for which the TLAAS program was designed. As newly independent companies, these firms will face the challeng es of a narrower fleet of vehicles across which to average, and may potentially be in a situation, at least in th e first few years, of paying fines under CAFE. Lead time concerns in the program’s initial years are in fact326 particularly acute for these manufacturers si nce they will be newly independent, and thus would have even less of an opportunity to modi fy their vehicles to meet the standards. Therefore, EPA is finalizing an approach th at allows manufacturers with U.S. “branded sales” in MY2009 under the umbrella of a larg er manufacturer that become independent by the end of calendar year 2010 to use their MY2009 branded sales to qualify for TLAAS eligibility. In other words, a manuf acturer will be eligible for TLAAS if it produced vehicles for the U.S. market in MY 2009, its branded sales of U.S. vehicles were less than 400,000 in MY2009 but whose vehicl es were sold as part of a larger manufacturer, and it becomes independent by the end of cal endar year 2010, if the new entity has sales below 400,000 vehicles.

Manufacturers with no U.S. sales in MY 2009 are not eligible to utilize the TLAAS program. EPA does not support the commenter’s suggestion of a year-by-year eligibility determination because it op ens up the TLAAS program to an unknown universe of potential eligible manufacturers, with the potential for gaming. EPA does not believe the TLAAS program should be available to new entrants to the U.S. market since these manufacturers are not tr ansitioning from the CAFE re gime which allows fine paying as a means of compliance to a C AA regime which does not, and hence do not present the same types of lead time issues. Manufacturers entering the U.S. market for the first time thus will be fully subject to the GHG fleet-average standards.

As proposed, manufacturers qualifying for TLAAS will be allowed to meet slightly less stringent sta ndards for a limited number of vehicles. An eligible327 manufacturer could have a total of up to 100,000 units of cars or trucks combined over model years 2012 – 2015 which would be subjec t 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 indivi dual manufacturer standards for the TLAAS fleets are based would be less stringent by a f actor of 1.25 for up to 100,000 of an eligible manufacturer’s vehicles for model year s 2012-2015. EPA believes that 100,000 units over four model years achieves an appropriate balance, as the emissions impact is quite small, but does provide companies with necessary lead time during MY 2012 – 2015. For example, for a manufacturer producing 400,000 vehicles per year, this would be a total of up to 100,000 vehicles out of a total production of up to 1.6 million vehicles over the four year period, or about 6 percent of total production.

Finally, for manufacturers of 50,000 but less than 400,000 U.S. vehicles sales during 2009, the program expires at the end of MY 2015 as proposed. EPA continues to believe the program reasonably addresses a re al world lead time constraint for these manufacturers, and does so in a way that bala nces the need for more lead time with the need to minimize any resulting loss in poten tial emissions reducti ons. In MY 2016, the TLAAS option thus ends for all but the sm allest manufacturers opting for TLAAS, and manufacturers must comply with the same CO 2 standards as non-TL AAS manufacturers; under the CAFE program companies would conti nue to be allowed to pay civil penalties in lieu of complying with the CAFE standard s. However, because companies must meet both the CAFE standards and the EPA CO 2 standards, the National Program will have the practical impact of providing a level playing field for almost all except the smallest328 companies beginning in MY2016. This option, even with the modifications being adopted, thereby results in more fuel savings and CO 2 reductions than would be the case under the CAFE program by itself.

EPA proposed that manufacturers meeti ng the cut-point of below 400,000 sales for MY 2009 but whose U.S. sales grew a bove 400,000 in any subsequent model years would remain eligible for the TLAAS program . The total sales number applies at the corporate level, so if a corporation owns seve ral vehicle brands the aggregate sales for the corporation must be used. These provisions would help prevent gaming of the provisions through corporate restructuring. Corporate ownership or cont rol relationships would be based on determinations made under CAFE for model year 2009 (excep t in the case of a manufacturer being sold by a larger manufacturer by the end of calendar year 2010, as discussed above). In other words, corporat ions grouped together for purposes of meeting CAFE standards in MY2009, must be grouped together for determining whether or not they are eligible unde r the 400,000 vehicle cut point. EP A is finalizing these provisions with the following modifications. EPA r ecognizes the dynamic corporate restructuring occurring in the auto industry and believe s it is important to structure additional provisions to ensure there is no ability to game the TLAAS provisions and to ensure no unintended loss of feasible environmental be nefits. Therefore, EPA is finalizing a provision that if two or more TLAAS eligible companies are later merged, with one company having at least 50% or more ownershi p of the other, or if the companies are combined for the purposes of EPA certification and compliance, the TLAAS allotment is not additive. The merged company will onl y be allowed the allotment for what is329 considered the parent company under the new co rporate structure. Further, if the newly formed company would have exceeded the 400,000 vehicle cut point based on combined MY2009 sales, the new entity is not eligible for TLAAS in the model year following the merger. EPA believes that such mergers and acquisitions would give the parent company additional opportunities to aver age across its fleet, eliminating one of the primary needs for the TLAAS program. This provision will not be retroactive and will not affect the TLAAS program in the year of the merger or for previous model years. EPA believes these additional provisions are essential to ensure the integrity of the TLAAS program by ensuring that it does not become available to large manufacturer s through mergers and acquisitions.

As proposed, the TLAAS vehicles will be separate car and truck fleets for that model year and subject to the less stringent footprint-based standards of 1.25 times the primary fleet average that would otherwise appl y. The manufacturer will determine what vehicles are assigned to these separate averag ing sets for each model year. As proposed, credits from the primary fleet average program can be transferred and used in the TLAAS program. Credits generated within the TLAAS program may also be transferred between the TLAAS car and truck averagi ng sets (but not to the primar y fleet as explained below) for use through MY2015 when the TLAAS ends.

EPA is finalizing a number of restricti ons on credit trading within the TLAAS program, as proposed. EPA is concerned that if credit use in the TLAAS program were unrestricted, some manufacturers would be able to place relatively clean vehicles in the330 TLAAS fleet, and generate credits for the primar y program fleet. First, credits generated under TLAAS may not be transfe rred or traded to the primar y program. Therefore, any unused credits under TLAAS expire after model year 2015 (or 2016 for manufacturers with annual sales less than 50,000 vehicles). EPA believes that this is necessary to limit the program to situations where it is need ed and to prevent the allowance from being inappropriately transferred to the long-ter m primary program where it is not needed. EPA continues to believe this provision is ne cessary to prevent credits from being earned simply by removing some high-emitting vehicles from the primary fleet. Absent this restriction, manufacturers would be able to choose to use the TLAAS for these vehicles and also be able to earn credits under the prim ary program that could be banked or traded under the primary program without restricti on. Second, EPA is finalizing two additional restrictions on the use of TLA AS by requiring that for a ny of the 2012-2015 model years for which an eligible manufacturer would lik e to use the TLAAS, the manufacturer must use two of the available flexib ilities in the GHG program first in order to try and comply with the primary standard before accessing the TLAAS -- i.e., TLAAS eligibility is not available to those manufacturer s with other readily-availa ble means of compliance. Specifically, before using the TLAAS a manuf acturer must: (1) use any banked emission credits from previous model years; and, (2) us e any available credits from the companies’ car or truck fleet for the specifi c model year (i.e., use credit tr ansfer from cars to trucks or from trucks to cars). That is, before using the TLAAS for either the car fleet or the truck fleet, the company must make use of any av ailable intra-manufacturer credit transfers first. Finally, EPA is restricting the use of banking and trading between companies of331 credits in the primary program in years in which the TLAAS is being used. No such restriction is in place for years when the TLAAS is not being used.

EPA received several comments in support of these credit rest rictions for the TLAAS program. On the negative side , one manufacturer commented that the restrictions were not necessa ry, saying that the restrict ions are counter to providing manufacturers with flexibility and that the emissions impacts estimated by EPA due to the full use of the program are small. Ho wever, EPA continues to believe that the restrictions are appropriate to prevent th e potential gaming described above, and to ensure that the TLAAS program is used onl y by those manufacturers that have exhausted all other readily available compliance mechanisms and consequently have legitimate lead time issues.

One manufacturer commented that the program is restrictive due to the requirement that manufacturers must decide pr ior to the start of the model year whether or not and how to use the TLAAS program. EPA did not intend for manufactures to have to make this determination prior to the st art of the model year. EPA expects that manufacturers will provide a best estimate of their plans to use the TLAAS program during certification based on proj ected model year sales, as part of their pre model year report projecting their overall plan fo r compliance (as required by §600.514-12 of the regulations). Manufacturers must determine the program’s actual use at the end of the model year during the proce ss of demonstrating year-end compliance. EPA recognizes332 that depending on actual sales for a given m odel year, a manufacturer’s use of TLAAS may change from the projections used in the pre-model year report.

b. Additional TLAAS Flexibility fo r Manufacturers with MY 2009 Sales of Less Than 50,000 Vehicles

EPA received extensive comments that the TLAAS program would not provide sufficient lead time and flexibility for companies with sales of significantly less than 400,000 vehicles. Jaguar Land Rover, which separated from Ford in 2008, commented that it sells products only in the middle and large vehicle segments and that its total product range remains significantly more limite d in terms of segments in comparison with its main competitors which typically have approximately 75% of their passenger car fleet in the small and middle segments. Ja guar Land Rover also commented that it has already committed $1.3 billion of investment to reducing CO 2 from its vehicle fleet and that this investment is already delivering a range of technologies to improve the fuel economy and CO 2 performance of its existing vehicles. Jaguar Land Rover submitted confidential business information regarding their future product plans and emissions performance capabilities of their vehicles which documents their assertions.

Porsche commented that their passenger ca r footprint-based sta ndard is the most stringent of any manufacturer and this, combined with their high baseline emissions level, means that it would need to reduce emissi ons by about 10 percent per year over the 2012 – 2016 time-frame. Porsche commented that su ch reductions were not feasible. They333 commented that their competitors will be able to continue to offer their full line of products because the competitors have a wider range of products with which to average. Porsche further commented that their product de velopment cycles are longer than larger competitors. Porsche recommended for small limited line niche manufacturers that EPA require an annual 5 percent reduction in emissi ons from baseline up to a total reduction of 25 percent, or to modify th e TLAAS program to require such reductions. Porsche noted that this percent reduction would be in line with the average emissions reductions required for larger manufacturers.

EPA also received comments from several very small volume manufacturers that, even with the TLAAS program, the proposed standards are not feasible for them, certainly not in the MY 2012-2016 MY time fr ame. These manufacturers included Aston Martin, McLaren, Lotus, and Ferrari. Their comments consistently focused on the need for separate, less stringent standards for sm all volume manufacturers . The manufacturers commented that they are willing to make progress in reducing emissions, but that separate, less-stringent small volume manufacturer standards are needed for them to remain in the U.S. market. The commenters note that their product line consists entirely of high end sports cars. Most of these ma nufacturers have only a few vehicle models, have annual sales on the order of a few hundred to a few thousand vehicles, and several have average baseline CO 2 emissions in excess of 500 g/m ile – nearly twice the industry average. McLaren commented that its ve hicle model to be in troduced in MY2011 will have class leading CO 2 performance but that it would not be able to offer the vehicle in the U.S. market because it does not have othe r vehicle models with which to average.334 Similarly, Aston Martin commented that it is of utmost importance that it is not required to reduce emissions significantly more than equivalent vehicles from larger manufacturers, which would render them unc ompetitive due purely to the size of its business. Manufacturers also noted that th ey launch new products less frequently than larger manufacturers (e.g., Ferrari noted th at their production peri od for models is 7-8 years), and that suppliers serv e large manufacturers first b ecause they can buy in larger volumes. Some manufacturers also noted that they would be willing to purchase credits at a reasonable price, but they believed that credit availabi lity from other manufacturers was highly unlikely due to the competitive natu re of the auto industr y. Several of these manufacturers provided confidential business information indicating their preliminary plans for reducing GHG emissions acro ss their product lines through MY2016 and beyond.

The Association of International Au tomobile Manufacturers (AIAM) also commented that, because of their essential features, vehicles produced by small volume manufacturers would not be ab le to meet the proposed green house gas standards. AIAM commented that “while it is possible th at these small volume manufacturers (SVMs) might be able to comply with greenhouse ga s standards by purchasing credits from other manufacturers, this is far too speculati ve a solution. The market for credits is unpredictable at this point. Othe r than exiting the U.S. mark et, therefore, the only other possible solution for an independent SVM woul d be to sell an equity interest in the company to a larger, full-line manufacturer, so that the emissions of the luxury vehicles could be averaged in with the much larger volume of other vehicles produced by the335 major manufacturer. This cannot possibly be the outcome EP A intends, especially when measured against the minimal, if any, envi ronmental benefit that would result.” AIAM commented further that “there is ample lega l authority for EPA to provide SVMs a more generous lead-time allowance or an altern ative standard. Indeed, EPA recognizes such authority in the proposal for a small entity exemption (for those co mpanies defined under the Small Business Administration's regulatio ns), see 74 FR at 49574, and in the TLAAS. These provisions are consistent with prev ious EPA rulemaking under the Clean Air Act which offer relief to SVMs.” AIAM recommended deferring standards for SVMs to a future rulemaking, providing EPA with adequa te time to assess relevant product plans and technology feasibility information from SVMs, conduct the necessary reviews and modeling that may be needed, and consult with the stakeholders.

These commenters noted that standard s for the smallest manufacturers were deferred in the California program until MY2016 and that California’s program would have established standards for small volume manufacturers in MY 2016 at a level that would be technologically feasible. The comm enters also suggested that California’s approach is similar to the approach being taken by EPA for small business entities. Further, these commenters noted that in Ti er 2 and other light- duty vehicle programs, EPA has allowed small volume manufacturer s (SVMs) until the end of the phase-in period to comply with standa rds. The commenters recommended that EPA should defer standards for SVMs, and conduct a future rule making to establish appropriate standards for SVMs starting in model year 2016. Alte rnatively, some manufacturers recommended establishing much less stringent standards for SVMs as part of the current rulemaking.336 In summary, the manufacturers commented that their range of products was insufficient to allow them to meet the sta ndards in the time provided, even with the proposed TLAAS program. Many of these ma nufacturers have ba seline emissions significantly higher than th eir larger-volume competitors, and thus the CO 2 reductions required from baseline under the program are la rger for many of these companies than for other companies. Although they are inve sting substantial re sources to reduce CO 2 emissions, they believe that they will not be able to achieve the standards under the proposed approach.

EPA also received comments urging us not to expand the TLAAS program. The commenters are concerned about the loss of benefits that would occur with any expansion.

EPA has considered the comments caref ully and concludes that additional flexibility is needed for these companies. After assessing th e issues raised by commenters, EPA believes there are two groups of manufacturers th at need additional lead time. The first group includes manufact urers with annual U.S. sales of less than 5,000 vehicles per year. Standards for th ese small volume manufacturers are being deferred until a future rulemaking in the 2012 ti meframe, as discussed in Section III.B.6, below. This will allow EPA to determine the appropriate level of standards for these manufacturers, as well as the small business entities, at a later time. The second group includes manufacturers with MY 2009 U.S. sa les of less than 50,000 vehicles but above337 the 5,000 vehicle threshold being established for small volume manufacturers. EPA has selected a cut point of 50,000 vehicles in orde r to limit the additional flexibility to only the smaller manufacturers with much more limited product lines over which to average. EPA has tailored these provisions as narrowly as possible to provide additional lead time only as needed by these smaller manufacturer s. We estimate that the TLAAS program, including the changes below will result in a tota l decrease in overall emissions reductions of about one percent of the total project ed GHG program emission benefits. These estimates are provided in RIA Chapter 5 Appendix A.

For some of the companies, the reduction from baseline CO 2 emissions required to meet the standards is clearly greater th an for other TLAAS-eligible manufacturers. Compared with other TLAAS-eligible manufac turers, these companies also have more limited fleets across which to average the standards. Some companies have only a few vehicle models all of a similar utility, and thus their averaging abilities are extremely limited posing lead time issues of great er severity than other TLAAS-eligible manufacturers. EPA’s feasibility analysis provided in Section III.D., shows that these companies face a compliance shortfall signifi cantly greater than other TLAAS companies (see Table III.D.6-4). This shortfall is prim arily due to their narrow product lines and more limited ability to average across their ve hicle fleets. In additi on, with fewer models with which to average, there is a higher likelihood that phase-in requirements may conflict with normal product redesign cycles.338 Therefore, for manufacturers with MY2009 U.S. sales of less than 50,000 vehicles, EPA is finalizing additional TLAAS compliance flexibility through model year 2016. These manufacturers will be allowe d to place up to 200,000 vehicles in the TLAAS program in MY2012-2015 and an addi tional 50,000 vehicles in MY2016. To be eligible for the additional allotment above the base TLAAS level of 100,000 vehicles, manufacturers must annually demonstrate that they have diligently made a good faith effort to purchase credits from other manufact urers in order to comply with the base TLAAS program, but that sufficient credit s were not available. Manufacturers must secure credits to the extent th ey reasonably available from other manufacturers to offset the difference between their emissions re ductions obligations under the base TLAAS program and the expanded TLAAS program. Manufacturers must document their efforts to purchase credits as part of their end of y ear compliance report. A ll other aspects of the TLAAS program including the 1.25x adjustme nt to the standards and the credits provision restrictions remain th e same as described above for the same reasons. This will still require the manufacturers to reduce emissions significantly in the 2012-2016 timeframe and to meet the final emissions sta ndards in MY2017. The standards remain very challenging for these manufacturers but these additional provisions will allow them the necessary lead time for implementing their st rategy for compliance with the final, most stringent standards.

The eligibility limit of 50,000 vehicles w ill be treated in a similar way as the 400,000 vehicle eligibility limit is treated, as de scribed above. Manuf acturers with model year 2009 U.S. sales of less than 50,000 vehi cles are eligible fo r the expanded TLAAS339 flexibility. Manufacturers whose sales grow in later years above 50,000 vehicles without merger or acquisition will continue to be eligible for the expanded TLAAS program. However, manufacturers that exceed the 50,000 vehicle limit through mergers or acquisitions will not be eligible for the expanded TLAAS program in the model year following the merger or acquisition, but may con tinue to be eligible for the base TLAAS program if the MY2009 sales of the new company would have been below the 400,000 vehicle eligibility cut point. The use of TLAAS by all the entities within the company in years prior to the merger must be counte d against the 100,000 vehicle limit of the base program. If the 100,000 vehicle limit has been exceeded, the company is no longer eligible for TLAAS.

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

In the proposal, in the co ntext of the TLAAS program, EPA recognized that there would be a wide range of companies within the eligible manufacturers with sales less than 400,000 vehicles in model year 2009. As noted in the proposal, some of these companies, while having relatively small U.S. sales volumes, are large global automotive firms, including companies such as Mercedes and Volkswagen. Other companies are significantly smaller niche firms, with sale s volumes closer to 10,000 vehicles per year worldwide, such as Aston Martin. EPA anticip ated that there are a small number of such smaller volume manufacturers, which may face greater challenges in meeting the standards due to their limited product lines across which to average. EPA requested340 comment on whether the proposed TLAAS progr am would provide su fficient lead-time for these smaller firms to incorporate the t echnology needed to comply with the proposed GHG standards. See 74 FR at 49524.

EPA received comments from several very small volume manufacturers that the TLAAS program would not provide sufficient lead time, as described above. EPA agrees with comments that the standards would be extremely challenging and potentially infeasible for these small volume manufacturers, absent credits from other manufacturers, and that credit availability at this point is highly uncertain –Although these companies are planning to introduce significant GHG-reducing t echnologies to their product lines, they are still highly unlikely to meet the standards by MY2016. Because the products produced by these manufacturers are so unique, these manufacturers were not included in EPA’s OMEGA modeling assessment of the tech nology feasibility and costs to meet the proposed standards. As noted above, thes e manufacturers have only a few models and have very high baseline emissions. TLAAS ma nufacturers are projected to be required to reduce emissions by up to 39%, whereas SVMs in many cases would need to cut their emissions by more than half to comply with MY2016 standards.

Given the unique feasibility issues ra ised for these manufacturers, EPA is deferring establishing CO 2 standards for manufacturers with U.S. sales of less than 5,000 vehicles. 188 This will provide EPA more time to consider the unique challenges faced by these manufacturers. EPA expects to conduc t this rulemaking in the 2012 timeframe. The deferment only applies to CO 2 standards and SVMs must meet N 2 O and CH 4

188 See final regulations at 40 CFR 86.1801-12(k).341 standards. EPA plans to set standards for these manufacturers as part of a future rulemaking in the next 18 months. This future rulemaking will allow EPA to fully examine the technologies and emissions levels of vehicles offered by small manufacturers and to determine the potential emissions control capabilities, costs, and necessary lead time. This timing may also a llow a credits market to develop, so that EPA may consider the availability of credits dur ing the rulemaking process. See State of
Mass. v. EPA , 549 U.S. at 533 (EPA retains discreti on as to timing of any regulations addressing vehicular GHG emissions under sectio n 202 (a)(1)). We expect that standards would begin to be implemented in the MY2016 ti me frame. This approach is consistent with that envisioned by California for these ma nufacturers. EPA estimates that eligible small volume manufacturers currently comprise less than 0.1 percent of the total lightduty vehicle sales in the U.S., and therefore the deferment will have a very small impact on the GHG emissions reductions from the standards.

In addition to the 5,000 vehicle per year cu t point, to be eligible for deferment each year, manufacturers must also demonstrat e due diligence in attempting to secure credits from other manufacturer s. Manufacturers must make a good faith effort to secure credits to the extent they are reasonably avai lable from other manufacturers to offset the difference between their baseline emissions and what their obligations would be under the TLAAS program starting in MY2012.

Eligibility will be determined somewh at differently compared to the TLAAS program. Manufacturers with either MY2008 or MY2009 U.S. sales of less than 5,000342 vehicles will be initially eligible. This in cludes “branded sales” for companies that sold vehicles under a larger manuf acturer but has become indepe ndent by the end of calendar year 2010. EPA is including MY2008 as well as MY2009 because some manufacturers in this market segment have such limited sa les that they often dr op in and out of the market from year to year.

In determining eligibilit y, manufacturers must be aggregated according to the provisions of 40 CFR 86 .1838-01(b)(3), which requires the sa les of different firms to be aggregated in various situations, including where one firm has a 10% or more equity ownership of another firm, or where a third pa rty has a 10% or more equity ownership of two or more firms. EPA received public comment from a manufacturer requesting that EPA should allow a manufacturer to appl y to EPA to establish small volume manufacturer status based on the independen ce of its research, development, testing, design, and manufacturing from another firm that may have an ownership interest in that manufacturer. EPA has reviewed this comment, but is not finalizing such a provision at this time. EPA believes that this issue likel y presents some competitive issues, which we would like to be fully considered through the public comment process. Therefore, EPA plans to consider this issue and seek pub lic comments in our proposal for small volume manufacturer CO 2 standards, which we expect to complete within 18 months.

To remain eligible for the deferral from standards, the rolling average of three consecutive model years of sales must rema in below 5,000 vehicles. EPA is establishing the 5,000 vehicle threshold to a llow for some sales growth by SVMs, as SVMs typically343 have annual sales of below 2,000 vehicles. Howe ver, EPA wants to ensure that standards for as few vehicles as possible are deferred and therefore believes it is appropriate that manufacturers with U.S. sales growing to a bove 5,000 vehicles per year be required to comply with standards (including TLAAS, as applicable). Manufact urers with unusually strong sales in a given year would still likel y remain eligible, based on the three year rolling average. However, if a manufacturer takes steps to expand in the U.S. market on a permanent basis such that they consistently sell more than 5,000 vehicles per year, they must meet the TLAAS standards. EPA believes a manufacturer will be able to consider these provisions, along with ot her factors, in its planning to significantly expand in the U.S. market.

For manufacturers exceeding the 5,000 ve hicle rolling average through mergers or acquisitions of other manufacturers, those manu facturers will lose eligibility in the MY immediately following the last year of the ro lling average. For manufacturers exceeding this level through sales growth, but rema ining below a 50,000 vehicle threshold, the manufacturer will lose eligibility for the deferred standards in the second model year following the last year of the rolling average. For example, if the rolling average of MYs 2009-2011 exceeded 5,000 vehicles but was below 50,000 vehicles, the manufacturer would not be eligible for the deferred sta ndards in MY2013. For ma nufacturers with a 3- year rolling average exceedi ng 50,000 vehicles, the manufacture r would lose eligibility in the MY immediately following the last model year in the rolling average. For example, if the rolling average of MYs 2009-2011 exceeded 50,000 vehicles, the manufacturer would not be eligible for the deferred standards in MY2012. Such manufacturers may continue344 to be eligible for TLAAS, or the expanded TLAAS program, per the provisions described above. EPA believes these provisions are ne eded to ensure that the SVM deferment remains targeted to true small volume manuf acturers and does not become available to larger manufacturers through mergers or acquisitions. EPA is including the 50,000 vehicle criteria to differentiate between manufacturers that may slowly gain more sales and manufacturers that have ta ken major steps to significantl y increase their presence in the U.S. market, such as by introduci ng new vehicle models. EPA believes manufacturers selling more than 50,000 vehicles should not be able to take advantage of the deferment, as they should be able to meet the applicable TL AAS standards through averaging across their larger product line.

EPA is requiring that potential SVMs subm it a declaration to EPA containing a detailed written description of how the manufacturer qualifies as a small volume manufacturer. The declaration must cont ain eligibility inform ation including MY2008 and 2009 U.S. sales, the last three completed MYs sales information, detailed information regarding ownership relationships with othe r manufacturers, and documentation of efforts to purchase credits from other manufacturer s. Because such manufacturers are not automatically exempted from other EPA regulat ions for light-duty vehicles and light-duty trucks, entities are subject to the greenhouse gas control re quirements in this program until such a declaration has been submitted a nd approved by EPA. The declaration must be submitted annually at the time of vehicle em issions certification under the EPA Tier 2 program, beginning in MY2012.345 7. Nitrous Oxide and Methane Standards

In addition to fleet-average CO 2 standards, as proposed, EPA is establishing separate per-vehicle stan dards for nitrous oxide (N 2 O) and methane (CH 4 ) emissions. 189 The agency's intention is to set emissions st andards that act to cap emissions to ensure that future vehicles do not increase their N 2 O and CH 4 emissions above le vels typical of today's vehicles. EPA proposed to cap N 2 O at a level of 0.010 g/mi and to cap CH 4 at a level of 0.03 g/mi. Both of these com pounds are more potent contributors to global warming than CO 2; N 2 O has a global warming potentia l, or GWP, of 298 and CH 4 has a GWP of 25. 190

EPA received many comments on the proposed N 2 O and CH 4 standards. A range of stakeholders supported the proposed appr oach of "cap" standards and the proposed emission levels, including most states and environmental organiza tions that addressed this topic, and the Manufact urers of Emissions Control A ssociation. These commenters stated that EPA needs to address all m obile GHGs under the Clean Air Act, and N 2 O and
CH 4 are both more potent contributor s to global warming than CO 2 . The Center for Biological Diversity commented that in light of the potency of these GHGs, EPA should develop standards which reduce emissions ove r current levels and that EPA had not analyzed either the technologies or the cost s of doing so. EPA discusses these comments and our responses below and in the Response to Comments Document.

189 See final regulations at 40 CFR 86.1818-12(f). 190 The global warming potentials (GWP) used in this rule are consistent with the Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report (AR4).346 Auto manufacturers generally did not s upport standards for these GHGs, stating that the levels of these GHGs from current ve hicles are too small to warrant standards at this time. These commenters also stated that if EPA were to proceed with "cap" standards, the stringency of the proposed leve ls could restrict th e introduction of some new technologies. Commenters specifically ra ised this concern w ith the examples of diesel and lean-burn gasoline for N 2 O, or natural gas and etha nol fueled vehicles for CH 4 . Only one manufacturer, Volkswagen, submitted act ual test data to support these claims; very limited emission data on two concept ve hicles -- a CNG vehicl e and a flexible-fuel vehicle -- indicated measured emission levels near or abov e the proposed standards, but included no indication of whether any technol ogical steps had been taken to reduce emissions below the cap levels. Many comment ers support an approach of establishing a
CO 2 -equivalent standard, where N 2 O and CH 4 could be averaged with CO 2 emissions to result in an overall CO 2 -equivalent compliance value, similar to the approach California has used for its GHG standards 191 Under such an appr oach, the auto industry commenters supported using a default value for N 2 O emissions in lieu of a measured test value. Several auto manufact urers also had concerns that a new requirement to measure
N 2 O would require significant equipment and fa cility upgrades and w ould create testing challenges with new measurement equipment with which they have little experience.

EPA has considered these comments a nd is finalizing the cap standards for N 2 O and CH 4 as proposed. EPA agrees with the NGO, state, and other commenters that lightduty vehicle emissions are small but im portant contributors to the U.S. N 2 O and CH 4

191 California Environmental Protection Agency Air Re sources Board, Staff Report: Initial Statement of Reasons for Proposed Rulemaking Public Hearing To Consider Adoption Of Regulations To Control Greenhouse Gas Emissions From Motor Vehicles, August 6, 2004.347 inventories, and that in the absence of a limitation, the potential for significant emission increases exists with the evolution of new vehicle and engine tec hnologies. (Indeed, the industry commenters concede as much in statin g that they are contemplating introducing vehicle technologies that could result in emi ssions exceeding the cap standard levels). EPA also believes that in most cases N 2 O and CH 4 emissions from light-duty vehicles will remain well below the cap standards. Therefore, we are setting cap standards for these GHGs at the proposed levels. Howeve r, as described below, the agency is incorporating several provi sions intended to address industry concerns about technological feasibility and l eadtime, includi ng an optional CO 2 -equivalent approach and, for N 2 O, more leadtime before testing will be required to demonstrate compliance with the emissions standard (in interim, manufacturers may certify based on a compliance statement based on good engineering judgment).

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

As stated above, N 2 O is a global warming gas with a high global warming potential. 192 It accounts for about 2.3% of the cu rrent greenhouse gas emissions from cars and light trucks. 193 EPA is setting a per-vehicle N 2 O emission standard of 0.010 g/mi, measured over the traditional FTP vehicle laboratory test cycles. The standard will become effective in model year 2012 for all light-duty cars and trucks . The standard is designed to prevent increases in N 2 O emissions from current levels; i.e., it is a nobacksliding standard.

192 N 2 O has a GWP of 298 according to the IPCC Fourth Assessment Report (AR4). 193 See RIA Chapter 2.348 N 2 O is emitted from gasoline and diesel vehicles mainly during specific catalyst temperature conditions conducive to N 2 O formation. Specifically, N 2 O can be generated during periods of emission hardware warm- up when rising catalyst temperatures pass through the temperature window when N 2 O formation potential is possible. For current Tier 2 compatible gasoline engines with conventional th ree-way catalyst technology, N 2 O is not generally produced in significant am ounts because the time the catalyst spends at the critical temperatures during warm-up is s hort. This is largely due to the need to quickly reach the higher temper atures necessary for high catalyst efficiency to achieve emission compliance for criteria pollutants. As several auto manufacturer comments noted, N 2 O is a more significant concern with diesel vehicles, and potentially future gasoline lean-burn engines, equi pped with advanced catalytic NO X emissions control systems. In the absence of N 2 O emission standards, these systems could be designed in a way that emphasizes efficient NO X control while at the same time allowing the formation of significant quantities of N 2 O. Excess oxygen present in the exhaust during lean-burn conditions in diesel or lean-burn gasoline e ngines equipped with these advanced systems can favor N 2 O formation if catalyst temperatures ar e not carefully controlled. Without specific attention to controlling N 2 O emissions in the development of such new NO X control systems, vehicles could have N 2 O emissions many times greater than are emitted by current gasoline vehicles.

EPA is setting an N 2 O emission standard that the ag ency believes will be met by current-technology gasoline vehicles at e ssentially no cost. As just noted, N 2 O formation349 in current catalyst systems occurs, but the emission levels are relatively low, because the time the catalyst spends at the critical temperatures during warm-up when N 2 O can form is short. At the same time, EPA believes that the standard will ensure that the design of advanced NO X control systems, especially for future diesel and lean-burn gasoline vehicles, will control N 2 O emission levels. While current NO X control approaches used on current Tier 2 diesel vehicles do not tend to favor the formation of N 2 O emissions, EPA believes that this N 2 O standard will discourage new emission control designs that achieve criteria emissions complia nce at the cost of increased N 2 O emissions. Thus, the standard will cap N 2 O emission levels, with the expectation that current gasoline and diesel vehicle control approaches that comply with the Tier 2 vehicle emission standards for NO X will not increase their emission levels, a nd that the cap will ensure that future vehicle designs will be appropriately controlled for N 2 O emissions.

The level of the N 2 O standard is approximately two times the average N 2 O level of current gasoline passenger cars and light-duty trucks that meet the Tier 2 NO X standards. EPA has not previously regulated N 2 O emissions, and available data on current vehicles is limited. However, EPA derived the standard from a combination of emission factor values used in modeling light duty vehicle emissions and limited recent EPA test data. 194, 195 Because the standard represents a level 100 percent higher than the average current N 2 O level, we continue to believe that most if not all Tier 2 compliant gasoline and diesel vehicles will easily be able to meet the sta ndards. Manufacturers typically use design targets for NO X emission levels of about 50% of the standard, to

194 Memo to docket “Derivation of Proposed N 2 O and CH 4 Cap Standards," Tad Wysor, EPA, November 19, 2009. Docket EPA-HQ-OAR-2009-0472-6801 195 Memo to docket “EPA NVFEL N 2 O Test Data,” Tony Fernandez, EPA.350 account for in-use emissions deterioration a nd normal testing and production variability, and EPA expects that manufacturers will use a similar approach for N 2 O emission compliance. EPA did not propose and is not finalizing a more stringent standard for current vehicles because we believe that the stringent Tier 2 program and the associated
NO X fleet average requirement al ready result in significant N 2 O control, and the agency does not expect current N 2 O levels to rise for these vehicles. Moreover, EPA believes that the CO 2 standards will be challenging for the i ndustry and that these standards should be the industry’s chief focus in this first phase of vehicular GHG emission controls. See Massachusetts v. EPA , 549 U.S. at 533 (EPA has signifi cant discretion as to timing of GHG regulations); see also Sierra Club v. EPA, 325 F. 3d 374, 379 (D.C. Cir. 2003) (upholding anti-backsliding sta ndards for air toxics under te chnology-forcing section 202 (l) because it is reasonable for EPA to asse ss the effects of its ot her regulations on the motor vehicle sector before aggressively re gulating emissions of toxic vehicular air pollutants.

Diesel cars and light trucks with adva nced emission control technology are in the early stages of development and commercializ ation. As this segment of the vehicle market develops, the N 2 O standard will likely require th ese manufacturers to incorporate control strategies that minimize N 2 O formation. Available approaches include using electronic controls to limit catalys t conditions that might favor N 2 O formation and consider different catalyst formulations. While some of these approaches may have modest associated costs, EPA believes that they will be small compared to the overall351 costs of the advanced NO X control technologies already required to meet Tier 2 standards.

In the proposal, EPA sought comment on an approach of expressing N 2 O and CH 4 in common terms of CO 2 -equivalent emissions and combini ng them into a single standard along with CO 2 emissions. 74 FR at 49524. Californi a’s “Pavley” program adopted such
a CO 2 -equivalent emissions standard s approach to GHG emissions. 196 EPA was primarily concerned that such an appro ach could undermine the stringency of the CO 2 standards, as the proposed standards were designed to “cap” N 2 O and CH 4 emissions, rather than reflecting a level either that is the industry fleet-wide average or that would effect reductions in these GHGs.

As noted above, several auto manufacture rs expressed interest in such a CO 2 - equivalent approach, due to c oncerns that the caps could be limiting for some advanced technology vehicles. While we continue to be lieve that the vast ma jority of light-duty vehicles will be able to easily meet the st andards, we acknowledge that advanced diesel or lean-burn gasoline vehicles of the futu re may face slightly greater challenges. Therefore, after considering these comments, EPA is finalizing an optional compliance approach to provide flexibility for any advanced technologies that may have challenges in meeting the N 2 O or CH 4 cap standards.

196 California Environmental Protection Agency Air Re sources Board, Staff Report: Initial Statement of Reasons for Proposed Rulemaking Public Hearing To Consider Adoption Of Regulations To Control Greenhouse Gas Emissions From Motor Vehicles, August 6, 2004.352 In lieu of complying with the separate N 2 O and CH 4 cap standards, a manufacturer may choose to comply with a CO 2 -equivalent standar d. A manufacturer choosing this option will convert its N 2 O and CH 4 test results (or, as described below, a default N 2 O value for MY 2012-2014) into CO 2 -equivalent values and add this sum to their CO 2 emissions. This CO 2 -equivalent value will still need to comply with the manufacturer’s footprint-based CO 2 target level. In other words, a manufacturer could offset any N 2 O emissions (or any CH 4 emissions) by taking steps to further reduce CO 2 . A manufacturer choosing this option will need to apply this approach to all of the test groups in its fleet. This appr oach is more environmentally protective overall than the cap standard approach, since the manufac turer will need to reduce its CO 2 emissions to offset the higher N 2 O (or CH 4 ) levels, but will not be allowed to increase CO 2 above its footprint target level by reducing N 2 O (or CH 4 ).

The compliance level in g/mi for the optional CO 2 -equivalent approach for gasoline vehicles is calculated as CO 2 + (CWF/0.273 × NMHC) + (1.571 × CO) + (298 ×
N 2 O) + (25 × CH 4 ). 197 The N 2 O and CH 4 values are the measured emission values for these GHGs, except N 2 O in model years 2012 through 2014. For these model years, manufacturers may use a default N 2 O value of 0.010 g/mi, the same value as the N 2 O cap standard. For MY 2015 and later, the manufact urer would need to provide actual test data on the emission data vehicle for each test group. (That is, N 2 O data would not be required for each model type, since EPA belie ves that there will likely be little N 2 O variability among model types w ithin a test group.) EPA be lieves that its selection of 0.010 g/mi as the N 2 O default value is an appropriately protective level, on the high end

197 This equation will differ depending upon the fuel; see the final regulations for equations for other fuels.353 of current technologies, as furthe r discussed below. Consistent with the other elements of the equation, N 2 O and CH 4 must be included at full useful life deteriorated values. This requires testing using the highway test cycle in addition to the FTP during the manufacturer’s deteriora tion factor (DF) development program. However, EPA recognizes that manufacturers may not be able to develop DFs for N 2 O and CH 4 for all their vehicles in the 2012 model year, and t hus EPA is allowing the use of alternative values through the 2014 model year. For N 2 O the alternative value is the DF developed for NO X emissions, and for CH 4 the alternative value is the DF developed for NMOG emissions. Finally, for manufactur ers using this option, the CO 2 -equivalent emission level would also be the basis for any cred its that the manufacturer might generate.

Manufacturers expressed con cerns about their ability to acquire and install N 2 O analytical equipment. However, the agency continues to believe that such burdens, while not trivial, will also not be excessive. Wh ile many manufacturers do not appear to have invested yet in adding N 2 O measurement equipment to thei r test facilities, EPA is not aware of any information to indicate that th at suppliers will have difficulty providing sufficient hardware, or that such equipment is unusually expensive or complex compared to existing measurement hardware. EPA allows N 2 O measurement using any of four methods, all of which are commercially availa ble today. The costs of certification and other indirect costs of this rule are accounted for in the Indirect Cost Multipliers, discussed in Section III.H below.354 Still, given the short lead-time fo r this rule and the newness of N 2 O testing to this industry, EPA proposed that manufacturers be able to apply for a certificate of conformity with the N 2 O standard for model year 2012 provided that they supply a compliance statement based on good engineering judgment. Under the proposal, beginning in MY2013, manufacturer s would have needed to ba se certification on actual
N 2 O testing data. This approach was intend ed to reasonably ensure that the emission standards are being met, while allowing ma nufacturers lead time to purchase new N 2 O emissions measurement equipment, modify certification test facilities, and begin N 2 O testing. After consideration of the commen ts, EPA agrees with manufacturers that one year of additional lead-time to begin actual N 2 O measurement across their vehicle fleets may be still be insufficient for manufacturers to efficiently make the necessary facility changes and equipment purchases. Therefore, EPA is extending the ability to certify based on a compliance statement for two additional years, through model year 2014. For 2015 and later model years, manufacturers will need to submit measurements of N 2 O for compliance purposes.

b. Methane (CH 4 ) Exhaust Emission Standard

Methane (CH 4 ) is a greenhouse gas with a high global warming potential. 198 It accounts for about 0.2% of the greenhouse gases from cars and light trucks. 199

198 CH 4 has a GWP of 25 according to the IPCC Fourth Assessment Report (AR4). 199 See RIA Chapter 2.355 EPA is setting a CH 4 emission standard of 0.030 g/mi as measured on the FTP, to apply beginning with model year 2012 for bot h cars and trucks. EPA believes that this level for the standard will be met by current gasoline and diesel vehicles, and will prevent large increases in future CH 4 emissions. This is particular ly a concern in the event that alternative fueled vehicles with high methane emissions , like some past dedicated compressed natural gas (CNG) vehicles and so me flexible-fueled vehicle when operated on E85 fuel, become a significant part of the vehicle fleet. Currently EPA does not have separate CH 4 standards because unlike other hydrocarbons it does not contribute significantly to ozone formation. 200 However, CH 4 emissions levels in the gasoline and diesel car and light tr uck fleet have neverthe less generally been c ontrolled by the Tier 2 standards for non-methane organic gases (N MOG). However, without an emission standard for CH 4 , there is no guarantee that future emission levels of CH 4 will remain at current levels as vehicle t echnologies and fuels evolve.

The standard will cap CH 4 emission levels, with the expectation that emissions levels of current gasoline and diesel vehicl es meeting the Tier 2 emission standards will not increase. The level of the standard will generally be achievable for typical vehicles through normal emission control methods alread y required to meet the Tier 2 emission standards for NMOG. Also, since CH 4 is already measured under the current Tier 2 regulations (so that it may be subtracted to calculate non-methane hydrocarbons), we believe that the standard will not result in any additional testing costs Therefore, EPA is not attributing any costs to this part of this program. Since CH 4 is produced during fuel

200 But see Ford Motor Co. v. EPA , 604 F. 2d 685 (D.C. Cir. 1979) (permissible for EPA to regulate CH 4 under CAA section 202 (b)).356 combustion in gasoline and diesel engines similarly to other hydrocarbon components, controls targeted at reduc ing overall NMOG levels are generally also effective in reducing CH 4 emissions. Therefore, for typi cal gasoline and diesel vehicles, manufacturer strategies to co mply with the Tier 2 NMOG st andards have to date tended to prevent increases in CH 4 emissions levels. The CH 4 standard will ensure that emissions will be addressed if in the future th ere are increases in the use of natural gas or other alternative fuels or technol ogies that may result in higher CH 4 emissions.

As with the N 2 O standard, EPA is setting the level of the CH 4 standard to be approximately two times the level of average CH 4 emissions from Tier 2 gasoline passenger cars and light-duty trucks. EPA be lieves the standard will easily be met by current gasoline vehicles, and that flexible fuel vehicles operating on ethanol can be designed to resolve any potential CH 4 emissions concerns. Sim ilarly, since current diesel vehicles generally have even lower CH 4 emissions than gasoline vehicles, EPA believes that diesels will also meet the CH 4 standard. However, EPA al so believes that to set a
CH 4 emission standard more stri ngent than the proposed standa rd could effectively make the Tier 2 NMOG standard more stringent and is inappropriate for that reason (and untimely as well, given the challenge of meeting the CO 2 standards, as noted above).

Some CNG-fueled vehicles have historically produced significantly higher CH 4 emissions than gasoline or di esel vehicles. This is because CNG fuel is essentially methane and any unburned fuel that escapes combustion and is not oxidized by the catalyst is emitted as methane. However, in recent model years, the few dedicated CNG357 vehicles sold in the U.S. meeti ng the Tier 2 standards have had CH 4 control as effective as that of gasoline or diesel vehicles. Still, even if these vehicles meet the Tier 2 NMOG standard and appear to have effective CH 4 control by nature of the NMOG controls, Tier 2 standards do not require CH 4 control. Although EPA believe s that in most cases that the CH 4 cap standard should not require any different emission control designs beyond what is already required to meet Tier 2 NMOG standards on a dedicated CNG vehicle, the cap will ensure that systems maintain the current level of CH 4 control.

Some manufacturers have also ex pressed some concerns about CH 4 emissions from flexible fueled vehicles operating on E 85 (85% ethanol, 15% gasoline). However, we are not aware of any information w ould indicate that if engine-out CH 4 proves to be higher than for a typical gasoline vehicle, th at such emissions could not be managed by reasonably available control strategies (perha ps similar to those of used in dedicated CNG vehicles).

As described above, in response to the comments, EPA will also allow manufacturers to choose to comply with a CO 2 -equivalent standard in lieu of complying with a separate CH 4 cap standards. A manufacturer choosing this option would convert its N 2 O and CH 4 test results into CO 2 -equivalent values (using the respective GWP values), and would then compare this valu e to the manufacturer's footprint-based CO 2 target level to determine compliance. However, as with N 2 O, this approach will not permit a manufacturer to increase its CO 2 by reducing CH 4 ; the company's footprintbased CO 2 target level would remain the same.358 8. Small Entity Exemption

As proposed, EPA is exempting from GHG emissions standards small entities meeting the Small Business Administration (SBA) size criteria of a small business as described in 13 CFR 121.201. 201 EPA will instead consider appropriate GHG standards for these entities as pa rt of a future regulatory action. This includes both U.S.-based and foreign small entities in three distinct cat egories of businesses for light-duty vehicles: small volume manufacturers, independent co mmercial importers (ICIs), and alternative fuel vehicle converters.

EPA has identified about 13 entities that fit the Small Business Administration (SBA) size criterion of a small business. EPA estimates there currently are approximately two small volume manufacturers, eight ICIs, and thre e alternative fuel vehicle converters in th e light-duty vehicle market. Furthe r detail is provided in Section III.I.3, below. EPA estimates that these sma ll entities comprise le ss than 0.1 percent of the total light-duty vehicle sales in the U. S., and therefore the exemption will have a negligible impact on the GHG emissions reductions from the standards.

To ensure that EPA is aware of which companies would be exempt, EPA proposed to require that such entities subm it 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. EP A has reconsidered the need for this additional

201 See final regulations at 40 CFR 86.1801-12(j).359 submission under the regulations and is deletin g it as not necessary. We already have information on the limited number of small entities that we expect would receive the benefits of the exemption, and do not need the proposed regulatory requirement to be able to effectively implement this exemption for those parties who in fact meet its terms. Small entities are currently covered by a number of EPA motor vehicle emission regulations, and they routinely submit informati on and data on an annual basis as part of their compliance responsibilities.

EPA did not receive adverse comments regarding the proposed small entity exemption. EPA received comments concer ning whether or not the small entity exemption applies to foreign manufacturers. EPA clarifies that foreign manufacturers meeting the SBA size criteria are eligible fo r the exemption, as was EPA’s intent during the proposal.

C. Additional Credit Opportunities for CO 2 Fleet Average Program

The final standards represent a significant multi-year challenge for manufacturers, especially in the ea rly years of the program. Section III.B.4 above describes EPA's provisions for manufacturers to be able to generate credits by achieving fleet average
CO 2 emissions below their fleet average sta ndard, and also how manufacturers can use credits to comply with the standards. As described in Section III.B.4, credits can be carried forward five years, carried back three years, transfe rred between vehicle categories, and traded between manufacturer s. The credits provisions described below360 provide manufacturers with additional ways to earn credits starting in MY 2012. EPA is also including early credits provisions for th e 2009–2011 model years, as described below in Section III.C.5.

The provisions described below provide a dditional flexibility, especially in the early years of the program. This helps to address issues of le ad-time or technical feasibility for variou s manufacturers and in several cas es provides an incentive for promotion of technology pathways that warrant further development. EPA is finalizing a variety of credit opportunities because manufact urers are not likely to be in a position to use every credit provision. EPA expects that manufacturers are likely to select the credit opportunities that best fit their future plans.

EPA believes it is critical that manufacturer s have options to ease the transition to the final MY 2016 standards. At the same tim e, EPA believes these credit programs must be and are designed in a way to ensure that they achieve emission reductions that achieve real-world reductions over the fu ll useful life of the vehicle (o r, in the case of FFV credits and Advanced Technology incentives, to in centivize the introduction of those vehicle technologies) and are verifiable. In additi on, EPA believes that these credit programs do not provide an opportunity for manufacturers to earn “windf all” credits. Comments on the proposed EPA credit programs are summarized below along with EPA’s response, and are detailed in the Response to Comments document.361 1. Air Conditioning Related Credits

Manufacturers will 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 (or otherwise to be able to bank or trade the credits). EPA expects that most manufacturers 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 manufactur ers will demonstrate compliance using 2-cycle (city/highway) tests (see Secti ons III.B and III.E.). Those tests do not measure either A/C leakage or tailpipe CO 2 emissions attributable to A/C load. Thus, it is a manufacturer’s option to include A/C GH G emission reductions as an aspect of its compliance demonstration. Since this is an el ective alternative, EPA is referring to the A/C part of the rule as a credit.

EPA estimates that direct A/C GHG emissi ons - emissions due to the leakage of the hydrofluorocarbon refriger ant in common use today - account for 5.1% of CO 2 - equivalent GHGs from light-dut y cars and trucks. This includes the direct leakage of refrigerant as well as the subsequent leakag e associated with maintenance and servicing, and with disposal at the end of the vehicle’s life. The emissions that are associated with leakage reductions are the direct leakage a nd the leakage associat ed with maintenance and servicing. Together th ese are equivalent to CO 2 emissions of approximately 13.6 g/mi per car and light-truck. EPA also estim ates that indirect GHG emissions (additional362 CO 2 emitted due to the load of the A/C system on the engine) account for another 3.9% of light-duty GHG emissions. 202 This is equivalent to CO 2 emissions of approximately 14.2 g/mi per vehicle. The derivation of thes e figures can be found in Chapter 2.2 of the
EPA RIA.

EPA believes that it is important to a ddress A/C direct and indirect emissions because the technologies that manufacturers will employ to reduce vehicle exhaust CO 2 will have little or no impact on A/C related emissions. W ithout 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 emissions.

Over 95% of the new cars and light trucks in the United States are equipped with A/C systems and, as noted, there are two m echanisms by which A/C systems contribute to the emissions of greenhouse gases: through le akage of refrigerant into the atmosphere and through the consumption of fuel to provi de mechanical power to the A/C system. With leakage, it is the high global warmi ng potential (GWP) of the current automotive refrigerant (HFC-134a, with a GWP of 1430) that results in the CO 2 -equivalent impact of 13.6 g/mi. 203 Due to the high GWP of this HFC, a small leakage of the refrigerant has a much greater global warming impact than a similar amount of emissions of CO 2 or other mobile source GHGs

. Manufacturers can reduce A/C leakage emissions by using leaktight components. Also, manufacturers can la rgely eliminate the global warming impact

202 See Chapter 2, Section 2.2.1.2 of the RIA. 203 The global warming potentials (GWP) used in this ru le are consistent with Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report (A R4). (At this time, the IPCC Second Assessment Report (SAR) GWP values are used in the official U.S. greenhouse gas inventory submission to the climate change framework.)363 of leakage emissions by adopting systems that use an alternative, low-GWP refrigerant, as discussed below. 204 The A/C system also contributes to increased CO 2 emissions through the additional work required to operate the compressor, fans, and blowers. This additional work typically is provided through the engine’s crankshaft, and delivered via belt drive to the alternator (which provid es electric energy for powering the fans and blowers) and the A/C compressor (which pressurizes the refri gerant during A/C operation). The additional fuel used to supply the pow er through the crankshaft necessary to operate the A/C system is converted into CO 2 by the engine during combustion. This incremental CO 2 produced from A/C operation can thus be reduced by increasing 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. 205

Manufacturers can make very feasible improvements to their A/C systems to address A/C system leakage and efficiency. EPA is finalizing two separate credit approaches to address leakage reductions and efficiency improvements independently. A leakage reduction credit will take into account the various technologies that could be used to reduce the GHG impact of refrigerant leak age, including the us e of an alternative refrigerant with a lower GWP. An efficien cy improvement credit will account for the various types of hardware a nd control of that hardware available to increase the A/C system efficiency. For purposes of use of A/C credits at certifi cation, manufacturers will

204 Refrigerant emissions during maintenance and at the end of the vehicle’s life (as well as emissions during the initial charging of the system with refrigerant) are also addressed by the CAA Title VI stratospheric ozone program, as described below. 205 We chose not to address changes to the weight of the A/C system, since the issue of CO 2 emissions from the fuel consumption of normal (non-A/C) operation, including basic vehicle weight, is inherently addressed by the primary CO 2 standards (Section III.B above).364 be required to attest to the durability of the leakage reduction and the efficiency improvement technologies over the full useful life of the vehicle.

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

so.

a. A/C Leakage Credits

The refrigerant used in vehicle A/C syst ems 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 e xperience. 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. In addition, there are emissions that occur during accidents and maintenance and servici ng events. Finally, there are end-of-life emissions if, at the time of vehicle scra ppage, refrigerant is not fully recovered.

Because the process of refrigerant leakage has similar root causes as those that cause fuel evaporative emissions from the fuel system, some of the emission control technologies are similar (including hose materi als and connections). There are, however, some fundamental differences between the syst ems that require a different approach, both365 to controlling and to documenti ng that control. The most no table difference is that A/C systems are completely closed systems and always under significant pressure, whereas the fuel system is not. Fuel systems are meant to be refilled as liqui d fuel is consumed by the engine, while the A/C system ideally should never require “recharging” of the contained refrigerant. Thus it is critical th at the A/C system leakages be kept to an absolute minimum. As a result, these emi ssions are typically too low to accurately measure in most current SHED chambers designed for fuel evaporative emissions measurement, especially for A/C system s that are new or early in life.

A few commenters suggested th at we allow manufacturers, as an option, to use an industry-developed “mini-shed” test pro cedure (SAE J2763 – Test Procedure for Determining Refrigerant Emissions from Mobile Air Conditioning Systems) to measure and report annual refrigerant leakage. 206 However, while EPA generally prefers performance testing, for an individual vehicl e A/C system or component, there is not a strong inherent correlation between a performance test using SAE J2763 and the designbased approach we are adopting (bas ed on SAE J2727, as discussed below). 207 Establishing such a correlation would require testing of a fairly br oad range of currenttechnology systems in order to establish th e effects of such factors as production variability and assembly practices (which ar e included in J2727 scores, but not in J2763 measurements). To EPA's knowledge, such a correlation study has not been done. At the same time, as discussed below, there are in dications that much of the industry will eventually be moving toward alternative refrigerants with very low GWPs. EPA believes

206 Honeywell and Volvo supported this view; most other commenters did not. 207 However, there is a correlation in the fleet between J2763 measuremen ts and J2727 scores.366 such a transition would diminish the value of any correlation studies that might be done to confirm the appropriateness of the SAE J2763 procedure as an option in this rule. For these reasons, EPA is therefore not adop ting such an optional direct measurement approach to addressing refriger ant leakage at this time.

Instead, as proposed, EPA is adopting a design-based method for manufacturers to demonstrate improvements in their A/C systems and components. 208 Manufacturers implementing system designs expected to result in reduced refrigerant leakage will be eligible for credits that could then be used to meet their CO 2 emission compliance requirements (or otherwise banked or traded). The A/C Leakage Credit provisions will generally assign larger credits to system de signs that would result in greater leakage reductions. In addition, proporti onately larger A/C Leakage Cr edits will be available to manufacturers that substitute a refrigerant with lower GW P than the current HFC-134a refrigerant.

Our method for calculating A/C Leakage Cr edits is based closely on an industryconsensus leakage scoring method, described below. This leakage scoring method is correlated to experimentally-measured leakage rates from a number of vehicles using the different available A/C components. Under the approach, manufactur ers will choose from a menu of A/C equipment and components used in their vehicles in order to establish leakage scores which will characterize their A/C system leakage performance. Credits will be generated from leakage reduction improvements that exceed average fleetwide leakage rates.

208 See final regulations at 40 CFR 86.1866-12(b).367 EPA believes that the design-based approach will result in estimates of leakage emissions reductions that will be comparable to those that will eventually result from performance-based testing. We believe that this method a ppropriately approximates the real-world leakage rates for the e xpected MY 2012-2016 A/C systems.

The cooperative industry and government Improved Mobile Air Conditioning (IMAC) program 209 has demonstrated that new-vehicl e leakage emissions can be reduced by 50%. This program has shown that this level of improvement can be accomplished by reducing the number and improving the quality of the components, fittings, seals, and hoses of the A/C system. All of these tec hnologies are already in commercial use and exist on some of today’s systems.

As proposed, a manufacturer wishing to generate A/C Leakage Credits will compare the components of its A/C system w ith a set of leakage-reduction technologies and actions based closely on that deve loped through IMAC and the Society of Automotive Engineers (as SAE Surface Vehi cle Standard J2727, August 2008 version). The J2727 approach was developed from laborat ory testing of a variety of A/C related components, and EPA believes that the J2727 leakage scoring system generally represents a reasonable correlation with averag e real-world leakage in new vehicles. The EPA credit approach addresses the same A/C components as does SAE J2727 and associates each component with the same gr am-per-year leakage rate as the SAE method,

209 Team 1-Refrigerant Leakage Reduction: Final Report to Sponsors, SAE, 2007.368 although, as described below, EPA limits the cr edits allowed and also modifies it for other factors such as alternative refrigerants.

A manufacturer choosing to generate A/ C Leakage Credits will sum the leakage values for an A/C system for a total A/ C leakage score according to the following formula. Because the primary GHG program st andards are expressed in terms of vehicle exhaust CO 2 emissions as measured in grams per mile, the credits programs adopted in this rule, including A/C related credits, must ultimately be converted to a common metric for proper calculation of credits toward comp liance with the primary vehicle standards. This formula describes the conversion of th e grams-per-year leakage score to a gramsper-mile CO 2 eq value, taking vehicle miles tr aveled (VMT) and the GWP of the refrigerant into account:

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

Where:

MaxCredit is 12.6 and 15.6 g/mi CO 2 eq for cars and trucks, respectively. These values become 13.8 and 17.2 for cars and trucks, respec tively, if low-GWP refrigerants are used, since this would generate additional credits from reducing emissions during maintenance events, accidents, a nd at end-of-life.369 LeakScore is the leakage score of the A/C system as measured according to the EPA leakage method (based on the J2727 procedure, as discussed above) in units of g/yr. The minimum score that EPA considers feasible is fixed at 8.3 and 10.4 g/yr for cars and trucks respectively (4.1 and 5.2 g/yr for systems using electric A/C compressors) as discussed below.

Avg Impact is the average current A/C leakag e emission rate, which is 16.6 and 20.7 g/yr for cars and trucks, respectively

GWPRefrigerant is the global warming potential (GWP ) for direct radiative forcing of the refrigerant. For purposes of this ru le, the GWP of HFC-134a is 1430, the GWP of HFC-152a is 124, the GWP of HFO-1234yf is 4, and the GWP of CO 2 as a refrigerant is
1.

The EPA Final RIA elaborates further on the development of each of the values incorporated in the A/C Leakage Credit form ula above, as summarized here. First, as proposed, EPA estimates that leakage emi ssion rates for systems using the current refrigerant (HFC-134a) could be feasibly reduc ed to rates no less than 50% of current rates -- or 8.3 and 10.4 g/yr for cars and truc ks, respectively -- ba sed on the conclusions of the IMAC study as well as consideration of refrigerant emissions over the full life of the vehicle.370 Also, some commenters noted that A/C compressors powered by electric motors (e.g. as used today in several hybrid vehicl e models) were not included in the IMAC study and yet allow for leakage emission rate reductions beyond EPA's estimates for systems with conventional belt-driven compre ssors. EPA agrees with these comments, and we have incorporated lower minimum emission rates into the formula above – 4.1 and 5.2 g/yr for cars and trucks, respectivel y – in order to allow additional leakage reduction credits for vehicles that use seal ed electric A/C compressors. The maximum available credits for these two approaches are summarized in Table III.C.1-1 below.

AIAM commented that EPA should not se t a lower limit on the leakage score, even for non-electric compressors. EPA has determined not to do so. First, although there do exist vehicles in th e Minnesota data with lower scores than our proposed (and now final) minimum scores, there are very fe w car models that have scores less than 8.3, and these range from 7.0 to about 8.0 and the difference are small compared to our minimum score. 210 More important, lowering the leakage limit would necessarily increase credit opportunities for equipment de sign changes, and EPA believes that these changes could discourage the environmentally optimal result of using low GWP refrigerants. Introduction of low GWP refrigerants could be discouraged because it may be less costly to reduce leakage than to replace many of the A/C system components. Moreover, due to the likelihood of in-use f actors, even a leakless (according to J2727) R134a system will have some emissions due to manufacturing variability, accidents, deterioration, maintenance, and end of life emissions, a further reason to cap the amount

210 The Minnesota refrigerant l eakage data can be found at http://www.pca.state.mn.us/climatechange/mobileair.html#leakdata371 of credits available through equipment design. The only way to guarantee a near zero emission system in-use is to use a low GWP refrigerant. The EPA has therefore decided for the purposes of this final rule to not change the minimum score for belt driven compressors due to the reason cited above a nd to the otherwise overwhelming support for the program as proposed from commenters.

In addition, as discussed above, EPA rec ognizes that substituting a refrigerant with a significantly lower GWP will be a very effective way to reduce the impact of all forms of refrigerant emissions, including main tenance, accidents, and vehicle scrappage. To address future GHG regulations in Europe and California, syst ems using alternative refrigerants -- including HFO1234y f, with a GWP of 4 and CO 2 with a GWP of 1 -- are under serious development and have been de monstrated in prototypes by A/C component suppliers. The European Union has enacted regul ations phasing in alternative refrigerants with GWP less than 150 starti ng this year, and the State of California proposed providing credits for alternative refrig erant use in its GHG rule. W ithin the timeframe of MYs 2012-2016, EPA is not expecting widespread use of low-GWP refrigerants. However, EPA believes that these developments are promising, and, as proposed, has included in the A/C Leakage Credit formula above a factor to account for the effective GHG reductions that could be expected from refrig erant substitution. The A/C Leakage Credits that will be available will be a function of the GWP of the alternative refrigerant, with the largest credits being available for refrigerants with GWPs at or approaching a value of 1. For a hypothetical altern ative refrigerant with a GWP of 1 (e.g., CO 2 as a refrigerant), effectively eliminating leakage as a GHG concern, our credit calculation method could372 result in maximum credits equal to total average emissions, or credits of 13.8 and 17.2 g/mi CO 2 eq for cars and trucks, respectively, as in corporated into the A/C Leakage Credit formula above as the "MaxCredit" term.

Table III.C.1-1 summarizes the maximu m A/C leakage credits available to a manufacturer, according to the formula above.

Table III.C.1-1 Maximum Leakage Cr edit Available to Manufacturers Car (g/mi) Truck (g/mi) R-134a refrigerant with belt-driven compressor 6.3 7.8 R-134a refrigerant with electric motor-driven compressor 9.5 11.7 Lowest-GWP refrigerant (GWP=1) 13.8 17.2

It is possible that alternative refrige rants could, without compensating action by the manufacturer, reduce the efficiency of th e A/C system (see related discussion of the A/C Efficiency Credit below.) However, as no ted at proposal and discussed further in the following section, EPA believes that manufactur ers will have substantial incentives to design their systems to maintain the efficiency of the A/C system. Therefore EPA is not accounting for any potential efficiency degr adation due to the use of alternative refrigerants.

Beyond the comments mentioned above, commen ters generally supported or were silent about EPA's refrigerant leakage me thodology (as based on SAE J2727), including the maximum leakage credits available, the t echnologies eligible for credit and their373 associated leakage reduction values, and the potential for alternative refrigerants. All comments related to A/C credits are addresse d in the Response to Comments Document.

b. A/C Efficiency Credits

Manufacturers that make improvements in their A/C systems to increase efficiency and thus reduce CO 2 emissions due to A/C system operation may be eligible for A/C Efficiency Credits. As with A/ C Leakage Credits, manufacturers could apply A/C Efficiency Credits toward compliance with their overall CO 2 standards (or otherwise bank and trade the credits).

As mentioned above, EPA estimates that the CO 2 emissions due to A/C related loads on the engine account for approximately 3.9% of total greenhouse gas emissions from passenger vehicles in the United States. Usage of A/C systems is inherently higher in hotter and more humid months and climat es; however, vehicle owners may use their A/C systems all year round in all parts of the nation. For example, people commonly use A/C systems to cool and dehumidify the cab in air for 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 ge ographical A/C usage rates can be found in the RIA.374 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 electric or hydraulic fans, which are used to move air across the condenser, and fr om the electric blower, which is used to move air across the evaporator and into the cabin. Manufacturers ha ve several currentlyexisting technology options for improving efficiency, including more efficient compressors, fans, and motors, and system c ontrols that avoid over-chilling the air (and subsequently re-heating it to provide the desi red air temperature with an associated loss of efficiency). For vehicles equipped with automatic climate-control systems, real-time adjustment of several aspects of the overall system (such as engagi ng the full capacity of the cooling system only when it is needed, and maximizing the use of recirculated air) can result in improved efficienc y. Table III.C.1-2 below lists some of these technologies and their respective efficiency improvements.

As discussed in the proposal, EPA is adopting a design-based “menu” approach for estimating efficiency improvements and, thus, quantifying A/C Efficiency Credits. 211 However, EPA’s ultimate preference is performance-based standards and credit mechanisms (i.e., using actual measurements ) as typically providing a more accurate measure of performance. However, EPA ha s concluded that a pr actical, performancebased procedure for the purpose of accurately quantifying A/C-related CO 2 emission reductions, and thus efficiency improvements fo r assigning credits, is not yet available. Still, EPA is introducing a new specialized performance-based test for the more limited purpose of demonstrating that actual effici ency improvements are being achieved by the

211 See final regulations at 40 CFR 86.1866-12(c).375 design improvements for which a manufacturer is seeking A/C credits. As discussed below, beginning in MY 2014, manufacturers wish ing to generate A/C Efficiency Credits will need to show improvement on the new A/C Id le Test in order to then use the "menu" approach to quantify the number of cred its attributable to those improvements.

In response to comments concerning the applicability and effectiveness of technologies that were or were not include d in our analysis, we have made several changes to the design-based menu. 212 First, we have separated the credit available for ‘recirculated air’ 213 technologies into those with closed -loop control of th e air supply and those with open-loop control. By “closed-l oop” control, we mean a system that uses feedback from a sensor, or sens ors, (e.g., humidity, glass fogging, CO 2 , etc.) to actively control the interior air quality. For those sy stems that use “open-l oop” control of the air supply, we project that since this approach cannot precisely adjust to varying ambient humidity or passenger respiration levels, the re lative effectiveness will be less than that for systems using closed-loop control.

Second, many commenters indicated that the electronic expansion valve, or EXV, should not be included in the menu of technol ogies, as its effectiv eness may not be as high as we projected. Commenters noted th at the SAE IMAC report stated efficiency improvements for an EXV used in conjunction with a more efficient compressor, and not as a stand alone technology a nd that no manufacturer s are considering th is technology for

212 Commenters included the Alliance of Automobile Manufacturers, Jaguar Land Rover, Denso, and the Motor and Equipment Manufacturers Association, among others. 213 Recirculated air is defined as air present in the pa ssenger compartment of the vehicle (versus outside air) available for the A/C system to cool or condition.376 their products within the timef rame of this rulemaking. We believe other technologies (improved compressor controls for example) can achieve the same benefit as an EXV, without the need for this uni que component, and therefore ar e not adopting it as an option in the design menu of efficien cy-improving A/C technologies.

Third, many commenters requested that an internal heat exchanger, or IHX, be added to the design menu. EPA initially cons idered adding this technology, but in our initial review of studies on this component , we had understood that the value of the technology is limited to systems using the alternative refriger ant HFO-1234yf. Some manufacturers, however, commented that an I HX can also be used with systems using the current refrigerant HFC-134a to improve effici ency, and that they plan on implementing this technology as part their strategy to improve A/C efficiency. Based on these comments, and projections in a more recent SA E Technical Paper, we project that an IHX in a conventional HFC-134a system can improve system efficiency by 20%, resulting in a credit of 1.1 g/mi. 214 Further discussion of IHX technology can be found in the RIA.

Fourth, we have modified the defi nition of ‘improved evaporators and condensers’ to recognize that improved versions of these h eat exchangers may be used separately or in conjunction with one anothe r, and that an engineering analysis must indicate a COP improvement of 10% or better when using either or both components (and not a 10% COP improvement for each component). Furthermore, we have modified the regulation text to clarify what is considered to be the ‘b aseline’ components for this

214 Mathur, Gursaran D., "Experimental Investigation with Cross Fluted Double-Pipe Suction Line Heat Exchanger to Enhance A/C System Performance,” SAE 2009-01-0970, 2009.377 analysis. We consider the baseline compone nt to be the version which a manufacturer most recently had in production on the same ve hicle or a vehicle in a similar EPA vehicle classification. The dimensional characteristics (e.g. tube conf iguration/ thickness/spacing, and fin density) of the baseline components are then compared to the new components, and an engineering analysis is required to demonstrate the COP improvement.

For model years 2012 and 2013, a manufact urers wishing to generate A/C Efficiency Credits for a group of its vehicl es with similar A/C systems will compare several of its vehicle A/C-rela ted components and systems with a list of effici ency-related technology improvements (see Table III.C.1-2 be low). Based on the technologies the manufacturer chooses, an A/C Ef ficiency Credit value will be established. This designbased approach will recognize the relationshi ps and synergies among efficiency-related technologies. Manufacturers co uld receive credits based on th e technologies they chose to incorporate in their A/C systems and the associated credit value for each technology. The total A/C Efficiency Credit will be th e total of these values, up to a maximum allowable credit of 5.7 g/mi CO 2 eq. This will be the maximum improvement from current average efficiencies for A/C systems (see the RIA for a full discussion of our derivation of the reductions and credit values for individual technologies and for the maximum total credit available). Although th e total of the indivi dual technology credit values may exceed 5.7 g/mi CO 2 eq, synergies among the technologies mean that the values are not additive. A/C Efficiency Credits as adopted may not exceed 5.7 g/mi
CO 2 eq.378 Table III.C.1-2 Efficiency-Improvi ng A/C Technologies and Credits Technology Description Estimated Reduction in

A/C CO 2 Emissions A/C Efficiency Credit (g/mi CO 2 ) Reduced reheat, with externally-controlled, variable-displacement compressor 30% 1.7 Reduced reheat, with externally-controlled,fixed-displacement or pneumatic variabledisplacement compressor 20% 1.1

Default to recirculated air with closed-loop control of the air supply (sensor feedback to control interior air quality) whenever the ambient temperature is 75 °F or higher (although deviations from this temperature are allowed if accompanied by an engineering analysis) 30% 1.7

Default to recirculated air with open-loop control air supply (no sensor feedback) whenever the ambient temperature 75 °F or higher lower temperatures are allowed) 20% 1.1

Blower motor controls which limit wasted electrical energy (e.g., pulse width modulated power controller) 15% 0.9

Internal heat exchanger 20% 1.1 Improved condensers and/or evaporators (with system analysis on the component(s) indicating a COP improvement greater than 10%, when compared to previous industry standard designs) 20% 1.1

Oil Separator (with engineering analysis demonstrating effectiveness relative to the baseline design) 10% 0.6

The proposal requested comment on adjusting the efficiency credit for alternative refrigerants. Although a few commenters noted that the efficiency of an HFO1234yf system may differ from a current HFC-134a system, 215 we believe that this difference does not take into account any efficiency im provements that may be recovered or gained

215 Ford noted that “the physical properties of the alte rnative refrigerant R1234yf could result in a reduction of efficiency by 5 to 10 percent compared to R134a in use today with a similar refrigerant system and controls technology.”379 when the overall system is specifically desi gned with consideration of the new refrigerant properties (as compared to only substituting th e new refrigerant). EPA is therefore not adjusting the credits based on efficien cy differences for this rule.

As noted above, for model years 2014 and later, manufacturers seeking to generate design-based A/C Efficiency Credits will also need to use a specific new EPA performance test to confirm that the design changes are resulting in improvements in A/C system efficiency as integrated into th e vehicle. As propos ed, beginning in MY 2014 manufacturers will need to perform an A/C CO 2 Idle Test for each A/C system (family) for which it desires to generate Efficien cy Credits. Manufacturers will need to demonstrate an improvement over current average A/C CO 2 levels (21.3 g/minute on the Idle Test) to qualify for the menu approach credits. Upon qualifying on the Idle Test, the manufacturer will be eligible to use the me nu approach above to quantify the potential credits it could generate. To earn the fu ll amount of credits available in the menu approach (limited to the maximum), the te st must demonstrate a 30% or greater improvement in CO 2 levels over the current average.

For A/C systems that achieve an impr ovement between 0-and-30% (or a result between 21.3 and 14.9 g/minute result on the A/C CO 2 Idle Test), a credit can still be earned, but a multiplicative credit adjustment factor will be applied to the eligible credits. As shown in Figure III.C.1-1 this factor w ill be scaled from 1.0 to 0, with vehicles demonstrating a 30% or better improvement (14.9 g/min or lower) receiving 100% of the eligible credit (adj. factor = 1.0), and vehi cles demonstrating a 0% improvement - 21.3380 g/min or higher result -- receiv ing no credit (adj. factor = 0)). We adopted this adjustment factor in response to commenter s who were concerned that a vehicle which incorporated many efficiency-improving t echnologies may not achieve the full 30% improvement, and as a result would receive no credit (thus discouraging them from using any of the technologies). Because ther e is environmental benefit (reduced CO 2 ) from the use of even some of these efficiency -improving technologies, EPA believes it is appropriate to scale the A/C e fficiency credits to account fo r these partial improvements.381Figure III.C.1-1 A/C Credit Adjustment Factor382 EPA is adopting the A/C CO 2 Idle Test procedure as proposed in most respects. This laboratory idle test is performed while the vehicle is at idle, similar to the idle carbon monoxide (CO) test that was once a part of EPA vehi cle certification. The test determines the additional CO 2 generated at idle when the A/C system is operated. The A/C CO 2 Idle Test will be run with and without the A/C system cooling the interior cabin while the vehicle’s engine is operating at idle and with the system under complete control of the engine and climate control system. The test includes tighter re strictions on test cell temperatures and humidity levels than apply for the basic FTP test procedure in order to more closely control the loads from operation of the A/C system. EPA is also adopting additional refinements to th e required in-vehicle blow er fan settings for manually controlled systems to more closely repr esent “real world” usage patterns.

Many commenters questioned the ability of this test to measure the improved efficiency of certain A/C technologies, and st ated that the test wa s not representative of real-world driving conditions. However, although EPA acknowledge s that this test directly simulates a relatively limited range of technologies and conditions, we determined that it is sufficiently robust for the purpose of demonstr ating that the system design changes are indeed implemented properl y and are resulting in improved efficiency of a vehicle’s A/C system, at idle as we ll as under a range of operating conditions. Further details of the A/C Idle Test can be found in the RIA and the regulations, as well as in the Response to Comments Document.383 The design of the A/C CO 2 Idle Test represents a balancing of the need for performance tests whenever possible to en sure the most accurate quantification of efficiency improvements, with practical concerns for testing burden and facility requirements. EPA believes that the Idle Test adds to the robust quantification of A/C credits that will result in real-world e fficiency improvements and reductions in A/Crelated CO 2 emissions. The Idle Test will not be required in order to generate A/C Efficiency Credits until MY 2014 to allow suffi cient time for manufacturers to make the necessary facilities improvements and to gain experience with the test.

EPA also considered and invited comm ent on a more comprehensive testing approach to quantifying A/C CO 2 emissions that could be somewhat more technically robust, but would require more test time and test facility improvements for many manufacturers. EPA invited comment on us ing an adapted version of the SCO3, an existing test procedure that is part of th e Supplemental Federal Test Procedure. EPA discussed and invited comment on the various benefits and concerns associated with using an adapted SCO3 test. There were many comments opposed to this proposal, and very few supporters. Most of the comments opposing this approach echoed the concerns made by in the NPRM. These included exces sive testing burden, limited test facilities and the cost of adding new ones, and the concern that the SC03 test may not be sufficiently representative of in use A/C us age. Some commenters supported a derivative of the SCO3 test or multiple runs of other urban cycles (such as the LA-4) for quantifying A/C system efficiency. While EPA considers a test cycle that covers a broader range of vehicle speed and climatic conditions to be ideal, developing such a representative A/C384 test would involve the work of many stakeholders, a nd would require a significant amount of time, exceeding the scope of this ru le. EPA expects to continue working with industry, the California Air Re sources Board, and other stak eholders to move toward increasingly robust performance tests and me thods for determining the efficiency of mobile A/C systems and the related impact on vehicle CO 2 emissions, including a potential adapted SC03 test.

c. Interaction with Title VI Refrigerant Regulations

Title VI of the Clean Air Act deals with the protection of stratospheric ozone. Section 608 establishes a comprehensive progr am to limit emissions of certain ozonedepleting substances (ODS). The rules promulgated under section 608 regulate the use and disposal of such substances during the serv ice, repair or disposal of appliances and industrial process refrigeration. In addition, section 608 and the regulations promulgated under it, prohibit knowingly venting or releas ing ODS during the course of maintaining, servicing, repairing or disposing of an a ppliance or industrial process refrigeration equipment. Section 609 governs the servici ng of motor vehicle A/C systems. The regulations promulgated under section 609 (40 CFR part 82, subpart B) establish standards and requirements rega rding the servicing of A/C sy stems. These regulations include establishing standard s for equipment that recovers and recycles (or, for refrigerant blends, only recove rs) refrigerant from A/C syst ems; requiring technician training and certification by an EPA-approved organization; establishing recordkeeping requirements; imposing sales restrictions; a nd prohibiting the venting of refrigerants.385 Section 612 requires EPA to review substitute s for class I and cla ss II ozone depleting substances and to consider whether such subs titutes will cause an adverse effect to human health or the environment as compared with other substitutes that are currently or potentially available. EPA promulgated regul ations for this program in 1992 and those regulations are located at 40 CFR part 82, s ubpart G. When reviewing substitutes, in addition to finding them acceptable or unaccep table, EPA may also find them acceptable so long as the user meets certain use condi tions. For example, all motor vehicle air conditioning system must have unique fittings and a uniquely colored label for the refrigerant being used in the system.

On September 14, 2006, EPA proposed to approve R-744 (CO 2 ) for use in motor vehicle A/C systems (71 FR 55140) and on October 19, 2009, EPA proposed to approve the low-GWP refrigerant HFO-1234yf for thes e systems (74 FR 53445), both subject to certain requirements. Final action on both of these proposals is expect ed later this year. EPA previously issued a final rule allowing th e use of HFC-152a as a refrigerant in motor vehicle A/C systems subject to certain re quirements (June 12, 2008; 73 FR 33304). As discussed above, manufacturers transitioning to any of the approved refrigerants would be eligible for A/C Leakage Credits, the value of which would depend on the GWP of their refrigerant and the degree of leakage reducti on of their systems.

EPA views this rule as complementing these Title VI programs, and not conflicting with them. To the extent that manufacturers choose to reduce refrigerant leakage in order to earn A/C Leakage Credits, this will dovetail with the Title VI section386 609 standards which apply to maintenance events , and to end-of-vehicle life disposal. In fact, as noted, a benefit of the A/C credit pr ovisions is that there should be fewer and less impactive maintenance events for MVACs, sin ce there will be less leakage. In addition, the credit provisions will not conflict (or overl ap) with the Title VI section 609 standards. EPA also believes the menu of leak control technologies described in this rule will complement the section 612 requirements, becau se these control technologies will help ensure that HFC-134a (or other refrigerants ) will be used in a manner that further minimizes potential adverse effects on hu man health and the environment.

2. Flexible Fuel and Alternative Fuel Vehicle Credits

EPA is finalizing its proposal to allo w flexible-fuel vehicles (FFVs) and alternative fuel vehicles to generate credit s for purposes of the GHG rule starting in the 2012 model year. FFVs are vehicles that ca n run on both an alternative fuel and a conventional fuel. Most FFVs are E85 vehicl es, which can run on a mixture of up to 85 percent ethanol and gasoline. De dicated alternative fuel vehicles are vehicles that run exclusively on an alternative fuel (e.g., compressed natura l gas). These credits are designed to complement the treatment of FFV s under CAFE, consistent with the emission reduction objectives of the CAA. As explai ned at proposal, EPCA includes an incentive under the CAFE program for production of dual- fueled vehicles or FFVs, and dedicated alternative fuel vehicles. 216 For FFVs and dual-fueled vehicles, the EPCA/EISA credits have three elements: 1) the assumption that the vehicle is opera ted 50% of the time on the conventional fuel and 50% of the time on the alternative fuel, 2) that 1 gallon of

216 49 U.S.C 32905387 alternative fuel is treated as 0.15 gallon of fu el, essentially increasi ng the fuel economy of a vehicle on alternative fuel by a factor of 6.67, and 3) a “cap” provision that limits the maximum fuel economy increase that can be applied to a manufacturer’s overall CAFE compliance value for all CAFE compliance categories (i.e., domestic passenger cars, import passenger cars, and light trucks) to 1.2 mpg through 2014 and 1.0 mpg in 2015. EPCA’s provisions were amended by the EISA to extend the period of availability of the FFV credits, but to begin phasing them out by annually reducing the amount of FFV credits that can be used in demonstra ting compliance with the CAFE standards. 217 EPCA does not premise the availability of the FFV credits on actual use of alternative fuel. Under EPCA, after MY 2019 no FFV credits will be available for CAFE compliance. 218 Under EPCA, for dedicated alternative fuel ve hicles, there are no limits or phase-out. As proposed, FFV and Alternative Fuel Vehicle Cred its will be calculate d as a part of the calculation of a manufacturer’s overall fleet average fuel economy and fleet average carbon-related exhaust emissions (§600.510-12).

Manufacturers supported the inclusion of FFV credits in the program. Chrysler noted that the credits encour age manufacturers to continue production of vehicles capable of running on alternative fuels as the producti on and distribution systems of such fuels are developed. Chrysler believes the lower carbon intensity of such fuels is an opportunity for further greenhouse gas reductio ns and increased energy independence, and the continuance of such incentives r ecognizes the important potential of this

217 See 49 U.S.C 32906. The mechan ism by which EPCA provides 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 32905 (b). This is typically referre d to as an FFV credit. 218 49 U.S.C 32906388 technology to reduce GHGs. Toyota noted that because actions taken by manufacturers to comply with EPA's regulation will, to a la rge extent, be the same as those taken to comply with NHTSA's CAFE regulation, it is appropriate for EPA to consider flexibilities contained in the CAFE progr am that clearly impact product plans and technology deployment plans already in place or nearly in place. Toyota believes that adopting the FFV credit for a transitional period of time appears to recognize this reality, while providing a pathway to eventually phase-out the flexibility.

As proposed, electric vehicles (EVs) or plug-in hybrid electric vehicles (PHEVs) are not eligible to generate this type of credit. These vehicles are covered by the advanced technology vehicle in centives provisions described in Section III.C.3, so including them here would lead to a double counting of credits.

a. Model Year 2012 – 2015 Credits

i. FFVs

For the GHG program, EPA is allowing FFV credits corresponding to the amounts allowed by the amended EPCA but only during the period from MYs 2012 to 2015. (As discussed below in Section III.E ., EPA is not allowing CAFE-based FFV credits to be generated as part of the early credits program.) As not ed at proposal, several manufacturers have already take n the availability of FFV credits into account in their near-term future planning for CAFE and this reliance indicates that these credits need to389 be considered in assessing necessary lead time for the CO 2 standards. Manufacturers commented that the credits are necessary in allowing them to transition to the new standards. EPA thus believes that allowing th ese credits, in the near term, would help provide adequate lead time for manufacturers to implement the new multi-year 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 a nd the CAFE program during these interim years. As discussed below, EPA is requi ring for MY 2016 and late r that manufacturers will need to reliably estimate the extent to which the alternative fuel is actually being used by vehicles in order to count the alternative fuel use in the vehicle’s CO 2 emissions level determination. Beginning in MY2016, th e FFV credits as described above for MY2012-2015 will no longer be available for EPA’s GHG program. Rather, GHG compliance values will be based on actual emissions performance of the FFV on conventional and alternative fuels, weighted by the actual use of these fuels in the FFVs.

As with the CAFE program, EPA will base MY 2012-2015 credits on the assumption that the vehicles would operate 50% of the time on the alternative fuel and 50% of the time on conventi onal fuel, resulting in CO 2 emissions that are based on an arithmetic average of alternative fuel and conventional fuel CO 2 emissions. 219 In addition, the measured CO 2 emissions on the alternative fuel will be multiplied by a 0.15 volumetric conversion factor which is includ ed in the CAFE calcu lation as provided by EPCA. Through this mechanism a gallon of a lternative fuel is deemed to contain 0.15 gallons of fuel. For example, for a fl exible-fuel vehicle that emitted 330 g/mi CO 2

219 49 U.S.C 32905 (b)390 operating on E85 and 350 g/mi CO 2 operating on gasolin e, the resulting CO 2 level to be used in the manufacturer’s flee t average calculation would be:


## ( ) 

## [ ] mi g CO / 8

. 199 2 350 15

. 0 330 2 = + × =

EPA understands that by using the CAFE approach -- includi ng the 0.15 factor -- the CO 2 emissions value for the vehicle is calcu lated to be significantly lower than it actually would be otherwise, even if th e vehicle were assumed to operate on the alternative fuel at all times. This repres ents a “credit” being provided to FFVs.

EPA notes also that the above equation and example are based on an FFV that is an E85 vehicle. EPCA, as amended by EISA, also establishes the us e of this approach, including the 0.15 factor, for all alternative fuels, not just E85. 220 The 0.15 factor is used for B-20 (20 percent biofuel and 80 percent di esel) FFVs. EPCA also establishes this approach, including the 0.15 factor, for gaseous -fueled dual-fueled vehicles, such as a vehicle able to operate on gasoline and CNG. 221 (For natural gas dual-fueled vehicles, EPCA establishes a factor of 0.823 gallons of fuel for every 100 cubi c feet a natural gas used to calculate a gallons equivalent. 222 ) The EISA’s use of the 0.15 factor in this way provides a similar regulatory treatment acros s the various types of alternative fuel vehicles. EPA also will use the 0.15 f actor for all FFVs in order not to disrupt

220 49 U.S.C 32905 (c) 221 49 U.S.C 32905 (d). 222 49 U.S.C 32905 (c).391 manufacturers’ near-ter m compliance planning and assure su fficient lead time. EPA, in any case, expects the vast majority of FFVs to be E85 vehicles, as is the case today.

The FFV credit limits for CAFE are 1.2 mpg for model years 2012-2014 and 1.0 mpg for model year 2015. 223 In CO 2 terms, these CAFE limits translate to declining CO 2 credit limits over the four model years, as th e CAFE standards increase in stringency. As the CAFE standard increases numerically, the limit becomes a smaller fraction of the standard. EPA proposed, but is not adopting, credit limits based on the overall industry average CO 2 standards for cars and trucks. EPA also requested comments on basing the calculated CO 2 credit limits on the individual ma nufacturer fleet-ave rage standards calculated from the footprint curves. EP A received comment from one manufacturer supporting this approach. EPA also recei ved comments from another manufacturer recommending that the credit limits for an individual manufacturer be based instead on that manufacturer’s fleet average performance. The commenter noted that this approach is in line with how CAFE FFV credit limits are applied. This is due to the fact that the GHG-equivalent of the CAFE 1.2 mpg cap w ill vary due to the non-linear relationship between fuel economy and GHGs/fuel consumption. EPA agrees with this approach since it best harmonizes how credit limits ar e determined in CAFE. EPA intended and continues to believe it is a ppropriate to provide essentia lly the same FFV credits under both programs for MYs 2012-2015. Therefore, EP A is finalizing FFV credits limits for MY2012-2015 based on a manufacturer ’s fleet-average performan ce. For example, if a manufacturer’s 2012 car fleet average emissions performance was 260 g/mile (34.2 mpg),

223 49 U.S.C 32906 (a).392 the credit limit in CO 2 terms would be 9.5 g/mile ( 34.2 mpg – 1.2 mpg = 33.0 mpg = 269.5 g/mile) and if it were 270 g/mile the limit would be 10.2 g/mile.

ii. Dedicated Alternative Fuel Vehicles

As proposed, EPA will calculate CO 2 emissions from dedicated alternative fuel vehicles for MY 2012 – 2015 by measuring the CO 2 emissions over the test procedure and multiplying the results by the 0.15 conversion factor described above. For example, for a dedicated alternative fuel vehi cle that would achieve 330 g/mi CO 2 while operating on alcohol (ethanol or me thanol), the effective CO 2 emissions of the vehicle for use in determining the vehicle’s CO 2 emissions would be calculated as follows:

mi g CO / 5

. 49 15

. 0 330 2 = × =

b. Model Years 2016 and Later

i. FFVs

EPA is treating FFV credits the same as under EPCA for model years 2012-2015, but is applying a different approach starting with model year 2016. EPA recognizes that under EPCA automatic FFV credits are entirely phased out of the CAFE program by MY 2020, and apply in the prior model years with certain limitations, but without a requirement that the manufacturers demonstrate actual use of the alternative fuel. Unlike393 EPCA, CAA section 202(a) does not mandate that EPA treat FFVs in a specific way. Instead EPA is required to exercise its own judgment and determine an appropriate approach that best promotes the goals of this CAA section. Under these circumstances, EPA will treat FFVs for model years 2012-2015 the same as under EPCA, as part of providing sufficient lead time gi ven manufacturers’ complian ce strategies which rely on the existence of these EPCA statut ory credits, as explained above.

Starting with model year 2016, as proposed, EPA will no longer allow manufacturers to base FFV emissions on the us e of the 0.15 factor credit described above, and on the use of an assumed 50% usage of alternative fuel. Instead, EPA believes the appropriate approach is to ensure that FFV emissions are based on demonstrated emissions performance. This will promote the environmental goals of the final program. EPA received several comments in support of EPA’s proposal to use this approach instead of the EPCA approach for MY2016 and later. Under the EPA program in MY2016 and later, manufacturers will be allowed to base an FFV’s emissions compliance value in part on the vehicle test values run on the alternative fuel, for that portion of its fleet for which the manufacturer de monstrates utilized th e alternative fuel in the field. In other words, the default is to assume FFVs operate on 100% gasoline, and the emissions value for the FFV vehicle will be based on the vehicl e’s tested value on gasoline. However, if a manufacturer can demonstrate that a portion of its FFVs are using an alternative fuel in use, then the FFV emissions compliance value can be calculated based on the vehicle’s tested value using the alternative fuel, prorated based on the percentage of the fleet usi ng the alternative fuel in the field. An example calculation394 is described below. EPA believes this appro ach will provide an actual incentive to ensure that such fuels are used. The incentive ar ises since actual use of the flexible fuel typically results in lower tailpipe GHG emissions than use of gasoline and hence improves the vehicles’ performance, making it more likely that its performance will improve a manufacturers’ average fleetwide pe rformance. Based on existing certification data, E85 FFV CO 2 emissions are typically about 5 percent lower on E85 than CO 2 emissions on 100 percent gasoline. Moreover, currently there is li ttle incentive to optimize CO 2 performance for vehicles when running on E85. EPA believes the above approach would provide such an incentive to manufacturers and that E85 vehicles could be optimized through engine redesign and calibration to provide additional CO 2 reductions.

Under the EPCA credit provisions, ther e is an incentive to produce FFVs but no actual incentive to ensure that the alternative fuels are used, or that actual vehicle fuel economy improves. GHG and energy security benefits are only achieved if the alternative fuel is actually used and (for GHGs) that performance improves, and EPA’s approach for MY2016 and beyond will now provide such an incentive. This approach will promote greater use of alternative fuels, as compared to a situation where there is a credit but no usage requirement. This is also consistent with the agency’s overall commitment to the expanded use of renewable fuels. Therefore, EPA is basing the FFV program for MYs 2016 and thereafter on real -world reductions: i. e., actual vehicle CO 2 emissions levels based on actual use of the two fuels, without the 0.15 conversion factor specified under EISA.395 For 2016 and later model years, EPA w ill therefore treat FFVs similarly to conventional fueled vehicles in that FFV emissions would be based on actual CO 2 results from emission testing on the fuels on which it operates. In calculating the emissions performance of an FFV, manufacturers may ba se FFV emissions on vehicle testing based on the alternative fuel emissions, if they can demonstrate that the alternative fuel is actually being used in the vehicles. Perfor mance will otherwise be calculated assuming use only of conventional fuel. The manufacturer must establish the ratio of operation that is on the alternative fuel compared to the c onventional fuel. The ratio will be used to weight the CO 2 emissions performance over the 2-cycl e test on the two fuels. The 0.15 conversion factor will no l onger be included in the CO 2 emissions calculation. For example, for a flexible-fuel vehicle that emitted 300 g/mi CO 2 operating on E85 ten percent of the time and 350 g/mi CO 2 operating on gasoline ninety percent of the time, the CO 2 emissions for the vehicles to be used in the manufacturer’s fleet average would be calculated as follows:

g/mi 345 ) 90

. 0 350 ( ) 10

. 0 300 ( 2 = × + × = CO

The most complex part of this approach is to establish what data are needed for a manufacturer to accurately demonstrate use of the alternative fuel, where the manufacturer intends for its performance to be calculated based on some use of alternative fuels. One option EPA is finalizing is establishing a rebuttable presumption using a national average approach based on na tional E85 fuel use. Manufacturers could396 use this value along with their vehicle emi ssions results demonstrating lower emissions on E85 to determine the emissions complian ce values for FFVs sold by manufacturers under this program. For example, national E85 volumes and national FFV sales may be used to prorate E85 use by manufacturer sales volumes and FFVs already in-use. Upon a manufacturer’s written request, EPA will conduc t an analysis of vehicle miles travelled (VMT) by year for all FFVs using its emi ssions inventory MOVES model. Using the VMT ratios and the overall E85 sales, E85 usage will be assigned to each vehicle. This method accounts for the VMT of new FFVs and FFVs already in the existing fleet using VMT data in the model. The model will then be used to determine the ratio of E85 and gasoline for new vehicles being sold. Fluctu ations in E85 sales and FFV sales will be taken into account to adjust the manufactur ers’ E85 actual use estimates annually. EPA plans to make this assigned fuel usage factor available through guida nce prior to the start of MY 2016 and adjust it annually as necessary . EPA believes this is a reasonable way to apportion E85 use across the fleet.

If manufacturers decide not to use EP A’s assigned fuel usage based on the national average analysis, they have a sec ond option of presenting their own data for consideration as the basis for evaluating fu el usage. Manufacturers have suggested demonstrations using vehicle on-board da ta gathering through the use of on-board sensors and computers. California’s program allows FFV credits based on FFV use and envisioned manufacturers collec ting fuel use data from vehicles in fleets with on-site refueling. Manufacturers must present a statisti cal analysis of alternative fuel usage data collected on actual vehicle opera tion. EPA is not attempting to specify how the data is397 collected or the amount of data needed. Ho wever, the analysis must be based on sound statistical methodology. Uncertainty in the an alysis must be accounted for in a way that provides reasonable certainty th at the program does not result in loss of emissions reductions.

EPA received comments that the 2016 a nd later FFV emissions performance methodology should be based on the life cycle emissions (i.e., including the upstream GHG emissions associated with fuel feed stocks, production, and transportation) associated with the use of the alternative fu el. Commenters are concerned that the use of ethanol will not result in lower GHGs on a lif ecycle basis. After considering these comments, EPA is not including lifecycle emissi ons in the calculation of vehicle credits. EPA continues to believe that it is appr opriate to base credits for MY2012-2015 on the EPCA/CAFE credits and to base complian ce values for MY2016 on the demonstrated tailpipe emissions performance on gasoline and E85, and is finalizing this approach as proposed. EPA recently finalized its RFS2 rulemaking which addresses lifecycle emissions from ethanol and the upstream GHG benefits of E85 use are already captured by this program. 224

ii. Dedicated Alternative Fuel Vehicles

As proposed, for model years 2016 and late r dedicated alternative fuel vehicles,
CO 2 will be measured over the 2-cycle test in order to be included in a manufacturer’s fleet average CO 2 calculations. As noted above, this is different than CAFE methodology

224 75 FR 14670 (March 26, 2010)398 which provides a methodology for calculating a petroleum-based mpg equivalent for alternative fuel vehicles so they can be included in CAFE. However, because CO 2 can be measured directly from alternative fuel ve hicles over the test pr ocedure, EPA believes this is the simplest and best approach since it is consistent with all other vehicle testing under the CO 2 program. EPA did not receive comments on this approach.

3. Advanced Technology Vehicle Incen tives for Electric Vehicles, Plug-in Hybrids, and Fuel Cell Vehicles

EPA is finalizing provisions that provide a temporary regulatory incentive for the commercialization of certain advanced vehicl e power trains—electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), a nd fuel cell vehicles (FCVs)—for model year 2012-2016 light-duty and medium-d uty passenger vehicles. 225 The purpose of these provisions is to provide a temporary incentiv e to promote technologies which have the potential to produce very large GHG reductio ns in the future, but which face major challenges such as vehicle cost, consumer acceptance, and the development of low-GHG fuel production infrastructure. The tailpip e GHG emissions from EVs, PHEVs operated on grid electricity, and hydrogen-fueled FCVs are zero, and traditiona lly the emissions of the vehicle itself are all that EPA takes into account for purposes of compliance with standards set under section 202(a) . Focusing on vehicle tailpi pe emissions has not raised any issues for criteria pollutants, as upstr eam emissions associated with production and distribution of the fuel are addressed by co mprehensive regulatory programs focused on

225 See final regulations at 40 CFR 86.1866-12(a).399 the upstream sources of those emissions. 226 At this time, however, there is no such comprehensive program addressing upstream emissions of GHGs, and the upstream GHG emissions associated with production and dist ribution of electricity are higher than the corresponding upstream GHG emissions of gasoline or other petroleum based fuels. In the future, if there were a program to co mprehensively control upstream GHG emissions, then the zero tailpipe levels from these vehicl es have the potential to produce very large GHG reductions, and to transform the transpor tation sector’s contri bution to nationwide GHG emissions.

This temporary incentive program applies only for the model years 2012-2016 covered by this final rule. EPA will reassess the issue of how to address EVs, PHEVs, and FCVs in rulemakings for model years 2017 and beyond, based on the status of advanced technology vehicle co mmercialization, the status of upstream GHG emissions control programs, and ot her relevant factors.

In the Joint Notice of Intent, EPA stated that “EPA is currently considering proposing additional credit opportunities to en courage the commercialization of advanced GHG/fuel economy control technology such as electric vehicles and plug-in hybrid electric vehicles. These ‘super credits’ could take the form of a multiplier that would be applied to the number of vehicles sold such that they would count as more than one vehicle in the manufacturer’s fleet average.” 227 Following through, EPA proposed two

226 In this section, “upstream” means all fuel-related GHG emissions prior to the fuel being introduced to the vehicle. 227 Notice of Upcoming Joint Rulemaking to Establish Vehicle GHG Emissions and CAFE Standards, 74 FR 24007, 24011 (May 22, 2009)400 mechanisms by which these vehicles would ear n credits: 1) a zero grams/mile compliance value for EVs, FCVs, and for PHEVs when opera ted on grid electricity, and 2) a vehicle multiplier in the range of 1.2 to 2.0. 228

The zero grams/mile compliance value for EVs (and for PHEVs when operated on grid electricity, as well as for FCVs whic h involve similar upstream GHG issues with respect to hydrogen production) is an incentive that operates like a credit because, while it accurately accounts for tailpipe GHG emissions, it does not reflect the increase in upstream GHG emissions associated with the electricity used by EVs compared to the upstream GHG emissions associated with the ga soline or diesel fuel used by conventional vehicles. 229 For example, based on GHG emissions from today’s national average electricity generation (incl uding GHG emissions associated with feedstock extraction, processing, and transportation) and other key assumptions re lated to vehicle electricity consumption, vehicle charging losses, and gr id transmission losses, a midsize EV might have an upstream GHG emissions of about 180 grams/mile, compared to the upstream GHG emissions of a typical midsize gasoline car of about 60 grams/mile. Thus, the EV would cause a net upstream GHG emissions increase of about 120 grams/mile (in general, the net upstream GHG increase would be less for a smaller EV and more for a larger EV). The zero grams/mile complian ce value provides an incentive because it is less than the 120 grams/mile value that woul d fully account for the net increase in GHG

228 74 FR 49533-34. 229 See 74 FR 49533 (“EPA recognizes that for each EV that is sold, in reality the total emissions off-set relative to the typical gasoline or diesel powered vehicl e is not zero, as there is a corresponding increase in upstream CO 2 emissions due to an increase in the requir ements for electric utility generation”).401 emissions, counting upstream emissions. 230 The net upstream GHG impact could change over time, of course, based on changes in elect ricity generation or gasoline production.

The proposed vehicle multiplier incentive w ould also have operated like a credit as it would have allowed an EV, PHEV, or FCV to count as more than one vehicle in the manufacturer’s fleet average. For example, combining a multiplier of 2.0 with a zero grams/mile compliance value for an EV woul d allow that EV to be counted as two vehicles, each with a zero grams/mile comp liance value, in the manufacturer’s fleet average calculations. In effect, a multipli er of 2.0 would double the overall credit associated with an EV, PHEV, or FCV.

EPA explained in the proposal that the potential for large future emissions benefits from these technologies provides a strong reason for providi ng incentives at this time to promote their commercialization in the 2012-2016 model years. At the same time, EPA acknowledged that the zero grams/ mile compliance value did not account for increased upstream GHG emissions. EPA reque sted comment on providing some type of incentive, the appropriateness of both the zero grams/mile and vehicle multiplier incentive mechanisms, and on any alterna tive approaches for addressing advanced technology vehicle incentives. EPA received many comments on these issues, which will be briefly summarized below.

230 This 120 grams/mile value for a midsize EV is approximately similar to the compliance value fortoday’s most efficient conventional hybrid vehicle, so the EV would not be significantly more “GHGpositive” than the most efficient conventional hybr id counterpart under a fu ll accounting approach. It should be noted that these emission levels would still be well below the footprint targets for the vehicles in question.402 Although some environmental organizati ons and State agenci es supported the principle of including some t ype of regulatory incentive mechanism, almost all of their comments were opposed to the combination of both the zero grams/mile compliance value and multipliers in the higher end of the proposed range of 1.2 to 2.0. The California Air Resources Board stated that the proposed credits “are excessive ” and the Union of Concerned Scientists stated that it “strongly objects” to the approach that lacks “technical justification” by not “accounting for upstr eam emissions.” The Natural Resources Defense Council (NRDC) stated that the cred its could “undermine the emissions benefits of the program and will have the unintended consequence of slowing the development of conventional cleaner vehicle emission reduc tion technologies into the fleet.” NRDC, along with several other commenters who made the same point, cited an example based on Nissan’s public statements that it pl ans on producing up to 150,000 Nissan Leaf EVs in the near future at its plant in Smyrna, Tennessee. 231 NRDC’s analysis showed that if EVs were to account for 10% of Nissan’s car fleet in 2016, the combination of the zero grams/mile and 2.0 multiplier would allow Nissan to make only relatively small improvements to its gasoline car fleet and still be in compliance. NRDC described a detailed methodology for calculating “true full fuel cycle emissions impacts” for EVs. The Sierra Club suggested that the zero grams/ mile credit would “taint” EVs as the public comes to understand that these vehicles ar e not zero-GHG vehicles, and that the zero grams/mile incentive would allow hi gher gasoline vehicle GHG emissions.

231 ”Secretary Chu Announces Closing of $1.4 Billion Lo an to Nissan,” Department of Energy, January 28, 2010, http://www.energy.gov/news/8581.htm. EPA Docket EPA-HQ-OAR-2009-0472.403 Most vehicle manufacturers were su pportive of both the zero grams/mile compliance value and a higher vehicle multiplier. The Alliance of Automobile Manufacturers supported zero grams/mile “since cu stomers need to receive a clear signal that they have made the right choice by pr eferring an EV, PHEV, or EREV....However, the Alliance recognizes the need for a comprehe nsive approach with shared responsibility in order to achieve an over all carbon reduction.” Nissan clai med that zero grams/mile is “legally required,” stating that EPA’s 2-cy cle test procedures do not account for upstream GHG emissions, that accounting for upstream em issions from electric vehicles but not from other vehicles would be arbitrary, a nd that including upstream GHG would “disrupt the careful balancing embedded into the Natio nal Program.” Several other manufacturers, including Ford, Chrysler, Toyota, and M itsubishi, also supported the proposed zero grams/mile compliance value . BMW suggested a compliance value approach similar to that used for CAFE compliance (described below), which would yield a very low, nonzero grams/mile compliance value. Honda oppos ed the zero grams/mile incentive. Honda suggested that EPA should fully account for upstream GHG and “should separate incentives and credits from the measurement of emissions.” Automakers universally supported higher multipliers, many higher than the maximum 2.0 level proposed by EPA. Honda suggested a multiplier of 16.0 for FC Vs. Mitsubishi supported the concept of larger, temporary incentives until advanced technology vehicle sales achieved a 10% market share. Finally, some commenters s uggested that other tec hnologies should also receive incentives, such as diesel vehicles, hydrogen-fueled internal combustion engines, and natural gas vehicles.404 Based on a careful consideration of these comments, EPA is modifying its proposed advanced technology ve hicle incentive program for EVs, PHEVs, and FCVs produced in 2012-2016. EPA is not extendi ng the program to include additional technologies at this time. The final incentiv e program, and our rationale for it, are described below.

One, the incentive program retains the zero grams/mile value for EVs and FCVs, and for PHEVs when operated on grid electric ity, subject to vehicle production caps discussed below. EPA acknowledges that, based on current electricity and hydrogen production processes, that EVs, PHEVs, and FCVs yield higher ups tream GHG emissions than comparable gasoline vehicles. But EPA reiterates its su pport for temporarily rewarding advanced emissions control tec hnologies by foregoing modest emissions reductions in the short term in order to lay the foundation for the potential for much larger emission reductions in the longer term. 232 EPA notes that EVs, PHEVs, and FCVs are potential GHG “game changers” if major co st and consumer barriers can be overcome and if there is a nationwide transformation to low-GHG electricity (or hydrogen, in the case of FCVs).

Although EVs and FCVs will have complia nce values of zero grams/mile, PHEV compliance values will be determined by comb ining zero grams/mile for grid electricity operation with the GHG emissions from the 2-cy cle test results duri ng operation on liquid fuel, and weighting these values by the percen tage of miles traveled that EPA believes

232 EPA has adopted this strategy in several of its mo st recent and important mobile source rulemakings, such as its Tier 2 Light-Duty Vehicle, 2007 Heavy-Duty Highway, and Tier 4 Nonroad Diesel rulemakings.405 will be performed on grid electricity and on liquid fuel, which will vary for different PHEVs. EPA is currently considering differe nt approaches for determining the weighting factor to be used in calculating PHEV GHG emissions compliance values. EPA will consider the work of the Society of Auto motive Engineers Hybrid Technical Standards Committee, as well as other relevant factors. EPA will issue a final rule on this methodology by the fall of 2010, when EPA exp ects some PHEVs to initially enter the market.

EPA agrees with the comments by the environmental organizations, States, and Honda that the zero grams/mile compliance value will reduce the overall GHG benefits of the program. However, EPA believes th ese reductions in GHG benefits will be relatively small based on the projected producti on of EVs, PHEVs, and FCVs during the 2012-2016 timeframe, along with the other changes that we are making in the incentive program. EPA believes this modest potenti al for reduction in near-term emissions control is more than offset by the potential fo r very large future emissions reductions that commercialization of these technologies could promote.

Two, the incentive program will not incl ude any vehicle multipliers, i.e., an EV’s zero grams/mile compliance value will count as one vehicle in a manufacturer’s fleet average, not as more than one vehicle as proposed. EPA has concluded that the combination of the zero grams/mile and multip lier credits would be excessive. Compared to the maximum multiplier of 2.0 that EPA had proposed, dropping this multiplier406 reduces the aggregate impact of the overall cr edit program by a factor of two (less so for lower multipliers, of course).

Three, EPA is placing a cumulative cap on the total production of EVs, PHEVs, and FCVs for which an individual manuf acturer can claim the zero grams/mile compliance value during model years 2012-2016. The cumulative production cap will be 200,000 vehicles, except those manufacturers that sell at least 25,000 EVs, PHEVs, and FCVs in MY2012 will have a cap of 300,000 vehicles for MY2012-2016. This higher cap option is an additional incentive for those manufacturers that ta ke an early leadership role in aggressively and successfully marketing advanced technology ve hicles. These caps are a second way to limit the potential GHG benefit losses asso ciated with the incentive program and therefore are anot her response to the concerns that the proposed incentives were excessive and could significantly unde rmine the program’s GHG benefits. If, for example, 500,000 EVs were produced in 2012-2016 that qualified for the zero grams/mile compliance value, the loss in GHG benefits due to this program would be about 25 million metric tons, or less than 3 pe rcent of the total projected GHG benefits of this program. 233 The rationale for these caps is that the incentive for EVs, PHEVs, and FCVs is most critical when individual auto makers are beginning to introduce advanced technologies in the market, and less critical once individual automakers have successfully achieved a reasonable market share and technology cost s decline due to higher production volumes and experience. EPA be lieves that cap levels of 200,000-300,000

233 See Regulatory Impact Analysis, Appendix 5.B. While it is, of course, impossible to predict the number of EVs, PHEVs, and FCVs that will be produced be tween 2012 and 2016 with absolute certainty, EPA believes that 500,000 “un-capped” EVs is an optimistic scenario. Fewer EVs, or a combination of 500,000 EVs and PHEVs, would lessen the short-term reduction in GHG benefits. Production of more than 500,000 “un-capped” EVs would increase the short-term reduction in GHG benefits.407 vehicles over a five model year period are reasonable, as production greater than this would indicate that the manuf acturer has overcome at least some of the initial market barriers to these advanced technologies. Furt her, EPA believes that it is unlikely that many manufacturers will approach these cap levels in the 2012-2016 timeframe. 234

Production beyond the cumulative vehi cle production cap for a given manufacturer in MY2012-2016 would have its compliance values calculated according to a methodology that accounts in full for the ne t increase in upstream GHG emissions. For an EV, for example, this would involve: 1) measuring the vehicle electricity consumption in watt-hours/mile over the 2-cycle test (in the example introduced earlier, a midsize EV might have a 2-cycle test electricity cons umption of 230 watt-hours/mile), 2) adjusting this watt-hours/mile value upward to account for electricity losses during transmission and vehicle charging (dividing 230 wa tt-hours/mile by 0.93 to account for grid/transmission losses and by 0.90 to reflec t losses during vehicle charging yields a value of 275 watt-hours/mile), 3) multiplying the adjusted watt-hours/mile value by a nationwide average electricity upstream GHG emissions rate of 0.642 grams/watt-hour at the powerplant 235 (275 watt-hours/mile multiplied by 0.642 grams GHG/watt-hour yields

234 Fundamental power train changes in the automotiv e market typically evolve slowly over time. For example, over ten years after the U. S. introduction of the first conventional hybrid electric vehicle, total hybrid sales are approximately 300,000 units per year. 235 The nationwide average electricity upstream GHG em issions rate of 0.642 grams GHG/watt-hour was calculated from 2005 nationwide powerplant data for CO 2 , CH 4 , and N 2 O emissions from eGRID2007 (http://www.epa.gov/cleanenergy/energy-resour ces/egrid/index.html), converting to CO 2 -e using Global Warming Potentials of 25 for CH 4 and 298 for N 2 O, and multiplying by a factor of 1.06 to account for GHG emissions associated with feedstock extraction, transportation, and processing (based on Argonne National Laboratory’s The Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) Model, Version 1.8c.0, available at http://www.transportation.anl.gov/ modeling_simulation/GREET/). EPA Docket EPA-HQ-OAR-2009- 0472. EPA recognizes that there are many issues involved with projecting the electricity upstream GHG emissions associated with future EV and PHEV use including, but not limited to, average vs marginal, daytime vs nighttime vehicle charging, geographical differences, and changes in future electricity408 177 grams/mile), and 4) subtracting the upstream GHG emissions of a comparable midsize gasoline vehicle of 56 grams/mile to reflect a true net increase in upstream GHG emissions (177 grams/mile for the EV minus 56 grams/mile for the gasoline vehicle yields a net increase and EV co mpliance value of 121 grams/mile). 236, 237 The full accounting methodology for the portion of PHEV operation on grid electricity would use this same approach.

EPA projects that the aggregate impact of the incentive pr ogram on advanced technology vehicle GHG compliance values wi ll be similar to the way advanced technologies are treated under DOT’s CAFE program. In the CAFE program, the mpg value for an EV is determined using a “pet roleum equivalency fact or” that has a 1/0.15 factor built into it similar to the flexible fuel vehicle credit. 238 For example, under current regulations, an EV with a 2- cycle electricity consumption of 230 watt-hours/mile would have a CAFE rating of about 360 miles per gallon, which would be equivalent to a gasoline vehicle GHG emissions value of 25 gr ams/mile, which is close to EPA’s zero grams/mile for EV production that is below an individual automake r’s cumulative vehicle production cap. The exception would be if a manufacturer exceeded its cumulative vehicle production cap during MY2012-2016. Then, the same EV would have a GHG

feedstocks. EPA chose to use the 2005 national av erage value because it is known and documentable. Values appropriate for future vehicle use may be higher or lower than this value. EPA will reevaluate this value in future rulemakings. 236 A midsize gasoline vehicle with a footprint of 45 square feet would have a MY2016 GHG target of about 225 grams/mile; dividing 8887 grams CO 2 /gallon of gasoline by 225 grams/mile yields an equivalent fuel economy level of 39.5 mpg; and dividing 2208 grams upstream GHG/gallon of gasoline by 39.5 mpg yields a midsize gasoline vehicle upstream GHG va lue of 56 grams/mile. Th e 2208 grams upstream GHG/gallon of gasoline is calculated from 19,200 grams upstream GHG/mmBtu (Renewable Fuel Standard Program, Regulatory Impact Analysis, Section 2.5.8, February 2010) and multiplying by 0.115 mmBtu/gallon of gasoline. 237 Manufacturers can utilize alternate calculation methodologies if shown to yield equivalent or superior results and if approved in advance by the Administrator. 238 65 FR 36987 (June 12, 2000).409 compliance value of about 120 grams/mile, wh ich would be significantly higher than the 25 gram/mile implied by the 360 mile/gallon CAFE value.

EPA disagrees with Nissan that exclud ing upstream GHGs is legally required under section 202(a)(1). In this rulemaking, EPA is a dopting standard s under section 202(a)(1), which provides EPA with broad discre tion in setting emissions standards. This includes authority to structure the emissions st andards in a way that provides an incentive to promote advances in emissions control technology. This discretion includes the adjustments to compliance values adopted in the final rule, the multipliers we proposed, and other kinds of incentives. EPA recogni zes that we have not previously made adjustments to a compliance value to account for upstream emissions in a section 202(a) vehicle emissions standard, but that does not mean we do not have authority to do so in this case. In addition, EPA is not dir ectly regulating upstream GHG emissions from stationary sources, but instead is deciding how much value to assign to a motor vehicle for purposes of compliance calculations with the motor vehicle standard. While the logical place to start is the emissions leve l measured under the test procedure, section 202(a)(1) does not require that EPA limit itself to only that level. For vehicles above the production volume cap described above, EPA w ill adjust the measured value to a level that reflects the net difference in upstream GHG emissions compared to a comparable conventional vehicle. This will account for the actual GHG emissions increase associated with the use of the EV. As shown above, upstream GHG emissions attributable to increased elec tricity production to operate EV s or PHEVs currently exceed the upstream GHG emissions attributable to ga soline vehicles. There is a rational basis410 for EPA to account for this net difference, as th at best reflects the re al world effect on the air pollution problem we are addressing. Fo r vehicles above the cap, EPA is reasonably and fairly accounting for the incremental incr ease in upstream GHG emissions from both the electric vehicles and the conventional ve hicles. EPA is not, as Nissan suggested, arbitrarily counting upstream emissions for elec tric vehicles but not for conventional fuel vehicles.

EPA recognizes that every motor vehicl e fuel and fuel production process has unique upstream GHG emissions impacts. EPA has discretion in this rulemaking under section 202(a) on whether to account for di fferences in net upstream GHG emissions relative to gasoline produced from oil, and intends to only consider upstream GHG emissions for those fuels that have significan tly higher or lower GHG emissions impacts. At this time, EPA is only making such a dete rmination for electricity, given that, as shown above in the example for a midsize car , electricity upstream GHG emissions are about three times higher than gasoline ups tream GHG emissions. For example, the difference in upstream GHG emissions for bot h diesel fuel from oil and CNG from natural gas are relatively small compared to di fferences associated with electricity. Nor is EPA arbitrarily ignoring upstream GHG emissions of flexible fuel vehicles (FFVs) that can operate on E85. Data show that, on average, FFVs operate on gasoline over 99 percent of the time, and on E85 fuel less than 1 percent of the time. 239 EPA’s recently promulgated Renewable Fuel St andard Program shows that, with respect to aggregate lifecycle emissions including non-tailpipe GHG emissions (such as feedstock growth, transportation, fuel production, and land use), lifecycle emissions for ethanol from corn

239 Renewable Fuel Standard Program (RFS2), Regulatory Impact Analysis, Section 1.7.4, February 2010.411 using advanced production technologies are about 20 percent less GHG than gasoline from oil. 240 Given this difference, and that E85 is used in FFVs less than 1 percent of the time, EPA has concluded that it is not neces sary to adopt a more complicated upstream accounting for FFVs. Accordingly, EPA’s incentiv e approach here is both reasonable and authorized under secti on 202(a)(1).

In summary, EPA believes that this program for MY2012-2016 strikes a reasoned balance by providing a temporary regula tory incentive to help promote commercialization of advanced vehicle tec hnologies which are potential game-changers, but which also face major barriers, while effectively minimizing potential GHG losses by dropping the proposed multiplier and adding individual automaker production volume caps. In the future, if there were a program to control utility GHG emissions, then these advanced technology vehicles have the potenti al to produce very large reductions in GHG emissions, and to transform the transporta tion sector’s contribution to nationwide GHG emissions. EPA will reassess the issue of how to address EVs, PHEVs, and FCVs in rulemakings for model years 2017 and beyond ba sed on the status of advanced vehicle technology commercialization, the status of upstream GHG control programs, and other relevant factors.

Finally, the criteria and definitions for what vehicles qualify for the advanced technology vehicle incentives are provided in Section III.E. These definitions for EVs, PHEVs, and FCVs ensure that only credible advanced tec hnology vehicles are provided the incentives.

240 75 FR 14670 (March 26, 2010)412 4. Off-cycle Technology Credits

As proposed, EPA is adopting an optional credit opportunity intended to apply to new and innovative technologies that reduce vehicle CO 2 emissions, but for which the
CO 2 reduction benefits are not significantly captu red over the 2-cycle test procedure used to determine compliance with the flee t average standards (i.e., “off-cycle”). 241 Eligible innovative technologies are thos e that are relatively newly introduced in one or more vehicle models, but that are not yet implemente d in widespread use in the light-duty fleet. EPA will not approve credits for technologies that are not innovative or do not provide novel approaches to reducing greenhouse gas emissions. Manufacturers must obtain EPA approval for new and innovative te chnologies at the time of ve hicle certification in order to earn credits for these technol ogies at the end of the mode l year. This approval must include the testing methodology to be used for quantifying credits. Further, any credits for these off-cycle technologies must be based on real-world GHG reductions not significantly captured on the current 2-cycle tests and ve rifiable test methods, and represent average U.S. driving conditions.

Similar to the technologies used to reduce A/C system indirect CO 2 emissions by increasing A/C efficiency, eligible technologi es would not be primarily active during the 2-cycle test and therefore the associated improvements in CO 2 emissions would not be significantly captured. Because these technolog ies are not nearly so well developed and understood, EPA is not prepared to consider them in assessing the stringency of the CO 2

241 See final regulations at 40 CFR 86.1866-12(d).413 standards. However, EPA is aware of some emerging and innova tive technologies and concepts in various stages of development with CO 2 reduction potential that might not be adequately captured on the FTP or HFET. EPA believes that ma nufacturers should be able to generate credit for the emission re ductions these technologies actually achieve, assuming these reductions can be adequately demonstrated and verified. Examples include solar panels on hybrids or electric vehicles, adaptive cruise control, and active aerodynamics. EPA believes it would be appr opriate to provide an incentive to encourage the introduction of these types of technologies, that bona fide reductions from these technologies should be considered in determining a manufacturer’s fleet average, and that a credit mechanism is an effective way to do this. This optional credit opportunity would be available through the 2016 m odel year.

EPA received comments from a few manuf acturers that the “new and innovative” criteria should be broadened. The comment ers pointed out that there are technologies already in the marketplace that would provi de emissions reductions off-cycle and that their use should be incentivized. One manu facturer suggested that off-cycle credits should be given for start-stop technologies. EPA does not agree th at this technology, which EPA’s modeling projects will be widely used by manufacturers in meeting the CO 2 standards, should qualify for off-cycle cred its. Start-stop tec hnology already achieves a significant CO 2 benefit on the current 2-cycle tests, which is why many manufacturers have announced plans to adopt in across larg e segments of the fleet. EPA recognizes there may be additional benefits to start- stop technology beyond the 2-cycle tests (e.g., heavy idle use), and that this is likely the case for other technologi es that manufacturers414 will rely on to meet the MY2012-2016 standards. EPA plans to continue to assess the off-cycle potential for these technologies in the future. However, EPA does not believe that off-cycle credits should be granted for technologies which we expect manufacturers to rely on in widespread use thr oughout the fleet in meeting the CO 2 standards. Such credits could lead to double counting, as there is alre ady significant CO 2 benefit over the 2-cycle tests. EPA expects that most if not all technologi es that reduce CO 2 emission on the 2-cycle test will also reduce CO 2 emissions during the wide variety of in-use operation that is not directly ca ptured in the 2-cycle test. Th is is no different than what occurs from the control technology on vehicles fo r criteria pollutants. We expect that the catalytic converter and other emission control technology will operate to reduce emissions throughout in-use driv ing, and not just when th e vehicle is tested on the specified test procedure. The aim for this off-cycle credit provisions is to provide an incentive for technologies that normally woul d not be chosen as a GHG control strategy, as their GHG benefits are not measured on the speci fied 2-cycle test. It is not designed to provide credits for technology that does pr ovide significant GHG bene fits on the 2-cycle test and as expected will also typically provide GHG benefits in other kinds of operation. Thus, EPA is finalizing the “new and innovati ve” criteria as proposed. That is, the potential to earn off-cycle cr edits will be limited to those technologies that are new and innovative, are introduced in only a limited number of vehicle models (i.e., not in widespread use), and are not captured on the cu rrent 2-cycle tests. This approach will encourage future innovation, which may lead to the opportunity for future emissions reductions.415 As proposed, manufacturers would quantify CO 2 reductions associated with the use of the innovative off-cycle technologies su ch that the credits could be applied on a g/mile equivalent basis, as is the case with A/C system improvements. Credits must be based on real additional reductions of CO 2 emissions and must be quantifiable and verifiable with a repeatable methodology. As proposed, the technologies upon which the credits are based would be subject to full usef ul life compliance provisions, as with other emissions controls. Unless the manufacturer can demonstrate that the technology would not be subject to in-use deterioration over the useful life of the vehi cle, the manufacturer must account for deterioration in the estimation of the credits in order to ensure that the credits are based on real in-use emissions reductions over the life of the vehicle.

As discussed below, EPA is finalizing a two-tiered process for demonstrating the
CO 2 reductions of an innovativ e and novel technology with benefits not captured by the FTP and HFET test procedures. First, a manuf acturer must determine whether the benefit of the technology could be captured using the 5-cycle methodology currently used to determine fuel economy label values. EPA esta blished the 5-cycle test methods to better represent real-world factors impacting fu el economy, including higher speeds and more aggressive driving, colder temp erature operation, and the use of air conditioning. If this determination is affirmative, the manufacture must follow the procedures described below (as codified in today’s rules). If th e manufacturer finds that the technology is such that the benefit is not adequately captu red using the 5-cycle approach, then the manufacturer would have to develop a robus t methodology, subject to EPA approval, to demonstrate the benefit and determine the appropriate CO 2 gram per mile credit. As416 discussed below, EPA is also providing oppor tunity for public comment as part of the approval process for such non-5-cycle credits.

a. Technology Demonstration Usi ng EPA 5-Cycle Methodology

As noted above, the CO 2 reduction benefit of some innovative technologies could be demonstrated using the 5-cycle appro ach currently used for EPA’s fuel economy labeling program. The 5-cycle methodology was finalized in EPA’s 2006 fuel economy labeling rule, 242 which provides a more accurate fuel economy label estimate to consumers starting with 2008 model year vehicl es. 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. Th e additional test cycles include cold temperature operation, high temperature, high hu midity and solar loading, and aggressive and high-speed driving; thus th ese tests could be used to demonstrate the benefit of a technology that reduces CO 2 over these types of driving and environmental conditions. Using the test results from these additional te st cycles collectively with the 2-cycle data provides a more precise estimate of the average fuel economy and CO 2 emissions of a vehicle for both the city and highway independe ntly. A significant benefit of using the 5- cycle methodology to measure and quantify the CO 2 reductions is that the test cycles are properly weighted for the expected average U. S. operation, meaning that the test results could be used without further adjustments.

242 Fuel Economy Labeling of Motor Vehicles: Revisions to Improve Calculation of Fuel Economy Estimates; Final Rule (71 FR 77872, Decembe r 27, 2006).417 EPA continues to believe that the use of these supplemental cycles may provide a method by which technologies not demonstr ated on the baseline 2-cycles can be quantified and is finalizing this approach as proposed. The cold temperature FTP can capture new technologie s that improve the CO 2 performance of vehi cles during colder weather operation. These improvements may be related to warm-up of the engine or other operation during the colder temperature. An example of such a new, innovative technology is a waste heat capture device that provides heat to the cabin interior, enabling additional engine-off operation during colder weather not previously enabled due to heating and defrosting requirements. The a dditional engine-off time would result in additional CO 2 reductions that otherwise would not ha ve been realized without the heat capture technology.

Although A/C credits for efficiency improve ments will largely be captured in the A/C credits provisions through the cred it menu of known efficiency improving components and controls, certain new tec hnologies may be able to use the high temperatures, humidity, and solar load of the SC03 test cycle to accu rately measure their impact. An example of a new technology may be a refrigerant storage device that accumulates pressurized refrigerant during dr iving 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 allo w additional engine-off operation while maintaining appropriate vehicl e interior occupant comfort levels. SC03 test data measuring the relative impact of innovative A/C-related technologies could be applied to the 5-cycle equation to quantify the CO 2 reductions of the technology.418 The US06 cycle may be used to capture innovative technolo gies 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 th e benefits of reduced aerodynamic drag at higher speeds and makes changes to the ve hicle at those speeds. The changes may include active front or grill ai r deflection devices designed to redirect frontal airflow. Certain active suspension devices designe d primarily to reduce aerodynamic drag by lowering the vehicle at higher speeds may al so be measured on the US06 cycle. To properly measure these technologies on the US 06, the vehicle would require unique load coefficients with and without the technologies. The different load coefficient (properly weighted for the US06 cycle) could effectiv ely result in reduced vehicle loads at the higher speeds when the technologies are activ e. Similar to the previously discussed cycles, the results from the US06 test with and without the technology could then use the 5-cycle methodology to quantify CO 2 reductions.

If the 5-cycle procedures can be used to demonstrate the innovative technology, then the regulatory evaluation/approval process will be relatively simple. The manufacturer will simply test vehicles w ith and without the technology installed or operating and compare results. All 5-cycles mu st be tested with the technology enabled and disabled, and the test re sults will used to calculat e a combined city/highway CO 2 value with the technology a nd without the technology. Th ese values will then be compared to determine the amount of th e credit; the combined city/highway CO 2 value419 with the technology operating w ill be subtracted from the combined city/highway CO 2 value without the technology operating to determine the gram per mile CO 2 credit. It is likely that multiple tests of each of the five te st procedures will need to be performed in order to achieve the necessary strong degree of statistical signif icance of the credit determination results. This will have to be done for each model type for which a credit is sought, unless the manufacturer could demonstr ate that the impact of the technology was independent of the vehicle configuration on wh ich it was installed. In this case, EPA may consider allowing the test to be perfor med on an engine family basis or other grouping. At the end of the model year, the manufacturer will determine the number of vehicles produced subject to each credit amount and report that to EPA in the final model year report. The gram per mile credit va lue determined with the 5-cycle comparison testing will be multiplied by th e total production of vehicles subject to that value to determine the total number of credits.

EPA received a few comments regardi ng the 5-cycle approach. While not commenting directly on the 5-cycle testi ng methodology, the Allia nce raised general concerns that the proposed approach did not offer manufacturers enough certainty with regard to credit applications and testing in or der to take advantage of the credits. The Alliance further commented that the proposal di d not provide a level playing field to all manufacturers in terms of possible credit availability. The Alliance recommended that rather than attempting to quantify CO 2 reductions with a prescr ibed test procedure on unknown technologies, EPA should ha ndle credit applications and testing guidelines via future guidance letters, as technol ogies emerge and are developed.420 EPA believes that 5-cycle testing met hodology is one clear an d objective way to demonstrate certain off-cycle emissions cont rol technologies, as discussed above. It provides certainty with regard to testing, and is available for all manufacturers. As discussed below, there are also other options for manufactures where the 5-cycle test is not appropriate. EPA is retaining this as a primary methodology for determining offcycle credits. For technologies not able to be demonstrated on the 5-cycle test, EPA is finalizing an approach that will include a public comm ent opportunity, as discussed below, which we believe addresses commente r concerns regarding maintaining a level playing field.

b. Alternative Off-Cycle Credit Methodologies

As proposed, in cases where the benefit of a technologi cal approach to reducing
CO 2 emissions can not be adequately re presented using exis ting test cycles, manufacturers will need to develop test proce dures and analytical approaches to estimate the effectiveness of the technology for the pur pose of generating cr edits. As discussed above, the first step must be a thorough asse ssment of whether the 5-cycle approach can be used to demonstrate a reduction in emissi ons. If EPA determines that the 5-cycle process is inadequate for th e specific technology being cons idered by the manufacturer (i.e., the 5-cycle test does not demonstrate a ny emissions reductions), then an alternative approach may be developed and submitted to EPA for approval. The demonstration421 program must be robust, verifiable, and capable of demonstrating the real-world emissions benefit of the technology w ith strong statistical significance.

The CO 2 benefit of some technologies may be able to be demonstrated with a modeling approach, using engineering principl es. An example would be where a roof solar panel is used to charge the on-board vehicle battery. Th e amount of potential electrical power that the panel could supply could be modeled for average U.S. conditions and the units of elect rical power could be translated to equivalent fuel energy or annualized CO 2 emission rate reduction from th e captured solar energy. The CO 2 reductions from other technologies may be more challenging to quantify, especially if they are interactive with th e driver, geographic location, environmental condition, or other aspect related to operat ion on actual roads. In th ese cases, manufacturers might have to design extensive on-road test programs. Any such on-road testing programs would need to be statistically robust and based on average U.S. driving conditions, factoring in differences in ge ography, climate, and driving behavior across the U.S.

Whether the approach involves on-road testing, modeling, or some other analytical approach, the manufacturer will be required to present a proposed methodology to EPA. EPA will approve the methodology and credits only if certain criteria are met. Baseline emissions and control emissions must be clearly demonstrated over a wide range of real world driving conditions and over a sufficient number of vehicles to address issues of uncertainty with the data. The analytical approach must be robust, verifiable, and capable of demonstrating the real-world emissions benefit with strong statistical422 significance. Data must be on a vehicl e model-specific basis unless a manufacturer demonstrated model specific data was not necessary. Approval of the approach to determining a CO 2 benefit will not impl y approval of the results of the program or methodology; when the testing, modeling, or analyses are complete the results will likewise be subject to EPA review and approva l. EPA believes that manufacturers could work together to develop testing, mode ling, or analytical methods for certain technologies, similar to the SAE approach used for A/C refrigerant l eakage credits.

In addition, EPA received several co mments recommending that the approval process include an opportunity for public co mment. As noted above, some manufacturers are concerned that there be a level playing field in term s of all manufacturers having a reasonable opportunity to earn credits under an approved approach. Commenters also want an opportunity for input in the me thodology to ensure the accuracy of credit determinations for these technologies. Comm enters point out that there are a broad number of stakeholders with experience in th e issues pertaining to the technologies that could add value in determining the most appr opriate method to assess these technologies’ performance. EPA agrees with these co mments and is including an opportunity for public comment as part of the approval proce ss. If and when EPA receives an application for off-cycle credits using an alternat ive non 5-cycle methodology, EPA will publish a notice of availability in the Federal Regist er with instructions on how to comment on draft off-cycle credit methodology. The public information availabl e for review will focus on the methodology for determining cred its but the public review obviously is limited to non-confidential business information. The timing for final approval will423 depend on the comments received. EPA also believes that a public review will encourage manufacturers to be thorough in their preparation prior to submitting their application for credits to EPA for approval. EPA will take comments into consideration, and where appropriate, work with the manufacturer to modify their approach prior to approving any off-cycle credits methodology. EPA will give final notice of its determination to the general public as well as the a pplicant. Off-cycle credits w ould be available in the model year following the final approval. Thus, it wi ll be imperative for a manufacturer pursuing this option to begin the process as early as possible.

EPA also received comments that the off- cycle credits highlights the inadequacy of current test procedures, and that there is a clear need for update d certification test procedures. As discussed in Section III. B., EPA believes the current test procedures are adequate for implementing the standards finalize d today. However, EPA is interested in improving test procedures in the future and believes that the off-cycle credits program has the potential to provide us eful data and insights both fo r the 5-cycle test procedures and also other test procedures that capture off-cycle emissions.

5. Early Credit Options

EPA is finalizing a program to allow manufacturers to generate early credits in model years 2009-2011. 243 As described below, credits may be generated through early additional fleet average CO 2 reductions, early A/C system improvements, early advanced technology vehicle credits, and early off-cycle credits. As with other credits, early credits

243 See final regulations at 40 CFR 86.1867-12.424 are subject to a five year carry-forward lim it based on the model year in which they are generated. Manufacturers may transfer early credits between vehi cle categories (e.g., between the car and truck fleet). With th e exception of MY2009 early program credits, as discussed below, a manufacturer may trade other early credits to other manufacturers without limits. The agencies note that CA FE credits earned in MYs prior to MY 2011 will still be available to ma nufacturers for use in the CA FE program in accordance with applicable regulations.

EPA is not adopting certification, complia nce, or in-use requirements for vehicles generating early credits. Since manufacturers are alre ady certifying MY 2010 and in some cases even MY 2011 vehicles, doing so would make certification, compliance, and in-use requirements unworkable. As discussed below, ma nufacturers are required to submit an early credits report to EPA for appr oval no later than 90 days after the end of MY 2011. This report must include details on all early credits the manufacturer generates, why the credits are bona fide, how they are quantified, and how they can be verified.

a. Credits Based on Early Fleet Average CO 2 Reductions

As proposed, EPA is finalizing opportuniti es for early credit generation in MYs 2009-2011 through over-compliance with a fleet average CO 2 baseline established by EPA. EPA is finalizing four pathways fo r doing so. In order to generate early CO 2 credits, manufacturers must select one of the four paths for credit generation for the entire425 three year period and may not switch between pathways for different model years. For two pathways, EPA is establishing the baseline equivalent to the California standards for the relevant model year. Generally, manu facturers that over-comply with those CARB standards would earn credits. Two additional pathways, descri bed below, include credits based on over-compliance with CAFE standard s in states that have not adopted the California standards.

EPA received comments from manufactur ers in support of the early credits program as a necessary compliance flexibility . The Alliance commented that the early credits reward manufacturers for providing fleet performance that exceeds California and Federal standards and do not re sult in a windfall. AIAM comm ented that early credits are essential to assure the feasib ility of the proposed standards and the need for such credits must be evaluated in the context of the drama tic changes the standards will necessitate in vehicle design and the current economic envir onment in which manufacturers are called upon to make the changes. Manufacturers al so supported retaining all four pathways, commenting that eliminating pathways would diminish the flexibility of the program. EPA also received comments from many environm ental organizations and states that the program would provide manuf acturers with windfall credits because manufacturers will not have to take any steps to earn credits beyond those that are already planned and in some cases implemented. These commenters were particularly concerned that the California truck standards in MY 2009 are not as stringent as CAFE, so overcompliance with the California standards could be a windfall in MY 2009, and possibly even MY2010. These commenters supported an early credits program based on426 overcompliance with the more stringent of eith er the CAFE or Califor nia standards in any given year. EPA is retaining the early cred its program because EPA judges that they are not windfall credits, and manu facturers in some cases have reasonably relied on the availability of these credits, and have base d early model year comp liance strategies on their availability so that the credits are need ed to provide adequate lead for the initial years of the program. However, as discussed below, EPA is restricting credit trading for MY2009 credits earned under the Ca lifornia-based pathways.

Manufacturers selecting Pathway 1 will ge nerate credits by over-complying with the California equivalent base line established by EPA over th e manufacturer’s fleet of vehicles sold nationwide. Manufacturers selecting Pathway 2 will generate credits against the California equivalent baseline only for the fleet of vehicles sold in California and the CAA section 177 states. 244 This approach includes a ll CAA 177 states as of the date of promulgation of the Final Rule in th is proceeding. Manufacturers are required to include both cars and trucks in the program. Under Pathways 1 and 2, EPA is requiring manufacturers to cover any deficits incurred against the baseline levels established by EPA during the three year period 2009-2011 befo re credits can be car ried 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 befo re any credits could be applied to 2012 (or later) model year fleets. EPA is includi ng this provision to help ensure the early credits generated under this program are cons istent with the cred its available under the

244 CAA 177 states refers to states that have adopted the California GHG standards. At present, there are thirteen CAA 177 states: New York, Massachusetts, Maryland, Vermont, Maine, Connecticut, Arizona, New Jersey, New Mexico, Oregon, Pennsylvania, Rhod e Island, Washington, as well as Washington, DC.427 California program during these model years. In its comments, California supported such an approach.

Table III.C.5-1 provides the California e quivalent baselines EPA is finalizing to be used as the basis for CO 2 credit generation under the California-based pathways. These are the California GHG standards for th e model years shown. EPA proposed to adjust the California standa rds by 2.0 g/mile to accountfor the exclusion of N 2 O and
CH 4 , which are included in the California GHG st andards, but not incl uded in the credits program. EPA received comments from one manufact urer that this adjustment is in error and should not be made. The commenter noted that EPA already includes total hydrocarbons in the carbon balance determin ation of carbon related exhaust emissions and therefore already accounts for CH 4 . EPA also includes CO in the carbon related exhaust emissions determination which acts to offset the need for an N 2 0 adjustment. The commenter noted that THC and CO add about 0.8 to 3.0 g/mile to the determination of carbon related emissions and therefore EPA should not make the 2.0g/mile adjustment. The commenter is correct, and therefore the final levels shown in the table below are 2.0 g/mile higher than proposed. These comment s are further discussed in the Response to Comments document. Manufacturers will generate CO 2 credits by achieving fleet average CO 2 levels below these baselines. As shown in the table, the California-based early credit pathways are based on the Ca lifornia vehicle categories. Also, the California-based baseline levels are not footprint-based, but universal levels that all manufacturers would use. Manufacturers will need to achieve fleet levels below those428 shown in the table in order to earn cr edits, using the California vehicle category definitions.

Table III.C.5-1 California Equivalent Baselines CO 2 Emissions Levels for Early Credit Generation

Model Year Passenger Cars and Light Trucks with an LVW of 0- 3,750 lbs Light Trucks with a LVW of 3,751 or more and a GVWR of up to 8,500 lbs plus Medium-duty Passenger Vehicles 2009 323 439 2010 301 420 2011 267 390

Manufacturers using Pathways 1 or 2 above will use year end car and truck sales in each category. Although production data is used for the program starting in 2012, EPA is using sales data for the early credit s program in order to apportion vehicles by state. This is described further below. Manufacturers must calculate actual fleet average emissions over the appropriate vehicle fleet, either for vehicles sold nationwide for Pathway 1, or California plus 177 stat es sales for Pathway 2. Early CO 2 credits are based on the difference between the baseline shown in the table above and the actual fleet average emissions level achieved. Any early A/C credits generated by the manufacturer, described below in Section III.C.5.b, will be included in the fleet average level determination. In model year 2009, the California CO 2 standard for cars (323 g/mi CO 2 ) is equivalent to 323 g/mi CO 2 , and the California light-tru ck standard (437 g/mi CO 2 ) is less stringent than the equiva lent CAFE standard, recogni zing that there are some differences between the way the California program and the CAFE program categorize vehicles. Manufacturers are requi red to show that they over comply over the entire three model year time period, not just the 2009 m odel year, to generate early credits under429 either Pathways 1, 2 or 3. A manufacture r cannot use credits gene rated in model year 2009 unless they offset any debits from model years 2010 and 2011.

EPA received comments that this appro ach will provide windfall credits to manufacturers because the MY2009 California light truck standards is less stringent than the corresponding CAFE standards. While this could be accurate if credits were based on performance in just MY 2009, that is not how credits are determined. Credits are based on the performance over a three model year period, MY 2009-2011. As noted in the proposal, EPA expects that the requirement to over comply over the entire time period covering these three model years should mean th at the credits that are generated are real and are in excess of what would have othe rwise occurred. However, because of the circumstances involving the 2009 model year, in particular for companies with significant truck sales, there is some con cern that under Pathways 1, 2, and 3, there is a potential for a large number of credits generated in 2009 agai nst the California standard, in particular for a number of companies who have si gnificantly over-achieved on CAFE in recent model years. Some commenters were very concerned about this i ssue and commented in support of restricting credit trading betw een firms of MY2009 credits based on the California program. EPA reque sted comments on this approach and is finalizing this credit trading restriction ba sed on continued concerns rega rding the issue of windfall credits. EPA wants to avoid a situation where, contrary to expectati on, some part of the early credits generated by a manufacturer ar e 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 fr om the 2012 and later EPA CO 2 standards. Therefore,430 manufacturers selecting Pathways 1, 2, or 3 will not be allowed to trade any MY 2009 credits that they may generate.

Commenters also recommended basing credits on the more stringent of the standards between CAFE and CARB, which fo r MY2009, would be the CAFE standards. However, EPA believes that this would not be necessary in light of the credit provisions requiring manufacturers choosing the Californi a based pathways to use the California pathway for all three MYs 2009-2011, and th e credit trading restrictions for MY2009 discussed above.

In addition, for Pathways 1 and 2, EP A is allowing manufacturers to include alternative compliance credits earned pe r the California alternative compliance
program. 245 These alternative compliance credits are based on the demonstrated use of alternative fuels in flex fuel vehicles. As with the California program, the credits are available beginning in MY 2010. Therefore, these early alternativ e compliance credits are available under EPA’s program for the 2010 and 2011 model years. FFVs are otherwise included in the early credit fl eet average based on their emissions on the conventional fuel. This does not apply to EVs and PHEVs. The emissions of EVs and PHEVs are to be determined as described in Section III.C.3. Manufacturers may choose to either include their EVs a nd PHEVs in one of the four pathways described in this section or under the early advanced technol ogy emissions credits described below, but not both due to issues of credit double counting.

245 See Section 6.6.E, California Environmental Protection Agency Air Resources Board, Staff Report: Initial Statement of Reasons For Proposed Rulemaki ng, Public Hearing to Consider Adoption of Regulations to Control Greenhouse Gas Emissions From Motor Vehicles, August 6, 2004.431 EPA is also finalizing two additional early credit pathways manufacturers could select. Pathways 3 and 4 incorporate cr edits based on over-co mpliance with CAFE standards for vehicles sold outside of Ca lifornia and CAA 177 states in MY 2009-2011. Pathway 3 allows manufacturers to earn cr edits as under Pathway 2, plus earn CAFEbased credits in other states. Credits may not be generated for cars sold in California and CAA 177 states unless vehicle fleets in thos e states are performing better than the standards which otherwise would apply in thos e states, i.e., the baselines shown in Table III.C.5-1 above.

Pathway 4 is for manufacturers choosing to forego California-based early credits entirely and earn only CAFE-based credits outside of California and CAA 177 states. Manufacturers may not include FFV credits unde r the CAFE-based early credit pathways since those credits do not automatically reflect actual reductions in CO 2 emissions.

The baselines for CAFE-based early path ways are provided in Table III.C.5-2 below. They are based on the CAFE standards for the 2009-2011 model years. For CAFE standards in 2009-2011 model years that are footprint-based, the baseline would vary by manufacturer. Footprint-based sta ndards are in effect for the 2011 model year CAFE standards. 246 Additionally, for Reform CAFE tr uck standards, footprint standards are optional for the 2009-2010 model years. Wh ere CAFE footprint- based standards are in effect, manufacturers will calculate a baseline using the footprints and sales of vehicles outside of California and CAA 177 states. The actual fleet CO 2 performance calculation

246 74 FR 14196, March 30, 2009.432 will also only include the vehicles sold outsi de of California and CAA 177 states, and as mentioned above, may not include FFV credits.

Table III.C.5-2 CAFE Equivalent Baselines CO 2 Emissions Levels for Early Credit Generation Model Year Cars Trucks 2009 323 381* 2010 323 376* 2011 Footprint-based standard Footprint-based standard * Must be footprint-based standard for ma nufacturers selecting footprint option under CAFE
For the CAFE-based pathways, EPA is using 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 ch ange starting in the 2011 model year, and therefore changes part way through the early credits program. EPA further recognizes that medium-duty passenger vehicles (MDPVs) are not part of the CAFE program until the 2011 model year, and therefore are not be pa rt of the early cred its calculations for 2009 – 2010 under the CAFE-based pathways.

Pathways 2 through 4 involve splitting th e vehicle fleet into two groups, vehicles sold in California and CAA 177 states and vehi cles sold outside of these states. This approach requires a clear accounting of loca tion of vehicle sales by the manufacturer. EPA believes it will be reasonable for manuf acturers to accurately track sales by state, based on its experience with the National Low Emissions Vehicle (NLEV) Program. NLEV required manufacturers to meet separate fleet average standards for vehicles sold433 in two different regions of the country. 247 As with NLEV, the determination is to be based on where the completed vehicles are deli vered as a point of first sale, which in most cases would be the dealer. 248

As noted above, manufacturers choosing to generate early CO 2 credits must select one of the four pathways for the entire early credits program and would not be able to switch among them. Manufacturers must submit their early credits report to EPA when they submit their final CAFE report for MY 2011 (which is required to be submitted no later than 90 days after the e nd of the model year). Manufacturers will have until then to decide which pathway to select. This gives manufacturers enough time to determine which pathway works best for them. This timing may be necessary in cases where manufacturers earn credits in MY 2011 and need time to assess data and prepare an early credits submittal for final EPA approval. The table below provides a summary of the four fleet average-based CO 2 early credit pathways EPA is finalizing:

247 62 FR 31211, June 6, 1997. 248 62 FR 31212, June 6, 1997434 Table III.C.5-3 Summary of Early Fleet Average CO 2 Credit Pathways Common Elements - Manufacturers select a pathway. Once selected, may not switch among pathways - All credits subject to 5 year carry-forward restrictions - For Pathways 2-4, vehicles apportioned by state based on point of first sale Pathway 1: California-based Credits for National Fleet - Manufacturers earn credits based on fleet average emissions compared with California equivalent baseline set by EPA - Based on nationwide CO 2 sales-weighted fleet average - Based on use of California vehicle categories - FFV alternative compliance credits per California program may be included - Once in the program, manufacturers must make up any deficits that are incurred prio r to 2012 in order to carry credits forward to 2012 and later Pathway 2: California-based Credits for vehicles sold in California plus CAA 177 States - Same as Pathway 1, but manufacturers only includes vehicles sold in California and CAA 177 states in the fleet average calculationPathway 3: Pathway 2 plus CAFEbased 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 emissi ons compared with baseline set by EPA - CAFE-based credits based on NHTSA car and truck definitions - FFV credits not allowed to be included for CAFE-based 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 emissi ons compared with baseline set by EPA - CAFE-based credits based on NHTSA car and truck definitions - FFV credits not allowed to be included for CAFE-based credits435 b. Early A/C Credits

As proposed, EPA is finalizing provisions allowing manufacturers to earn early A/C credits in MYs 2009-2011 using the same A/C system design-based EPA provisions being finalized for MYs commencing in 2012, as described in Section III.C.1, above. Manufacturers will be able to earn early A/C CO 2 -equivalent credits by demonstrating improved A/C system performance, for both direct and indirect emissions. To earn credits for vehicles sold in California and C AA 177 states, the vehicles must be included in one of the California-based early credit pa thways described above in III.C.5.a. EPA is finalizing this constraint in order to avoid credit double counting with the California program in place in those states, which also allo ws A/C system credits in this time frame. Manufacturers must fold the A/C credits into the fleet average CO 2 calculations under the California-based pathway. For example, the MY 2009 California-based program car baseline would be 323 g/mile (see Table III.C. 5-1). If a manufacturer under Pathway 1 had a MY 2009 car fleet average CO 2 level of 320 g/mile and th en earned an additional 12 g/mile CO 2 -equivalent A/C credit, the manufactur ers would earn a to tal of 10 g/mile of credit. Vehicles sold outside of Califor nia and 177 states would be eligible for the early A/C credits whether or not the manufacturers particip ate in other aspects of the early credits program. The early A/C credits for vehicles sold outside of California and 177 states are based on the NHTSA vehicle cate gories established for the model year in which early A/C credits are being earned.436 c. Early Advanced Technology Vehicle Incentive

As discussed in Section III.C.3, above, EPA is finalizing an incentive for sales of advanced technology vehicles including EVs, PH EVs, and fuel cell vehicles. EPA is not including a multiplier for these vehicles. However, EPA is allowing the use of the 0 g/mile value for electricity operation for up to 200,000 vehicles per manufacturer (or 300,000 vehicles for any manufacturer that sells 25,000 or more advanced technology vehicles in MY 2012). EPA believes that pr oviding an incentive for the sales of such vehicles prior to MY 2012 is consistent with the goal encouraging the introduction of such vehicles as early as possible. Theref ore, manufacturers may use the 0 g/mile value for vehicles sold in MY2009-2011 consistent with the approach being finalized for MY 2012-2016. Any vehicles sold prior to MY 2012 under these provisions must be counted against the cumulative sales cap of 200,000 (or 300,000, if applicable) vehicles. Manufacturers selling such vehicles in MY 2009-2011 have the option of either folding them into the early credits calculation under Pathways 1 th rough 4 described in III.C.5.a above, or tracking the sales of these vehicles separately for use in their fleetwide average compliance calculation in MY 2012 or later year s, but may not do both as this would lead to double counting. Manufactur ers tracking the sales of vehicles not folded into Pathways 1-4, may choose to use the vehicl e counts along with the 0 g/mi emissions value (up to the applicable ve hicle sales cap) to comply with 2012 or later standards. For example, if a manufacturer se lls 1,000 EVs in MY 2011, the manufacturer would then be able to include 1,000 vehicles at 0 g/mile in their MY 2012 fleet to decrease the fleet average for that model year. Again, these 1,000 vehicles would be counted against the437 cumulative cap of 200,000 or 300,000, as appl icable, vehicles. Also, these 1,000 EVs would not be included in the early credit pa thways discussed above in Section III.C.5.a, otherwise the vehicles would be double count ed. As with early credits, these early advanced technology vehicles will be tracke d by model year (2009, 2010, or 2011) and subject to the 5 year carry- forward restrictions.

d. Early Off-Cycle Credits

EPA’s is finalizing off-cycle innovative te chnology credit provisions, as described in Section III.C.4. EPA requested comme nt on beginning these cr edits in the 2009-2011 time frame, provided manufacturers are able to make the necessary demonstrations outlined in Section III.C.4, above. EPA is finalizing this approach for early off-cycle credits as a way to encourag e innovation to lower emissi ons as early as possible, including the requirements for public review described in Section III.C.4. Upon EPA approval of a manufacturer’s applicati on for credits, the credits may be earned retroactively. EPA did not receive comment s specifically on early off-cycle credits.

D. Feasibility of the Final CO 2 Standards

This final rule is based on the n eed to obtain significant GHG emissions reductions from the transportation sector, and the recognition that there are cost-effective technologies to achieve such reductions fo r MY 2012-2016 vehicles. As in many prior mobile source rulemakings, the decision on what standard to set is largely based on the438 effectiveness of the emissions control t echnology, the cost an d other impacts of implementing the technology, a nd the lead time needed for manufacturers to employ the control technology. The standards derived from assessing these factor s are also evaluated in terms of the need for reductions of greenhouse gases, the degree of reductions achieved by the standards, and th e impacts of the standards in terms of costs, quantified benefits, and other impacts of the standards. The availability of technology to achieve reductions and the cost and other aspects of this technology are therefore a central focus of this rulemaking.

EPA is taking the same basic approach in this rulemaking, although the technological problems and solutions involved in this rulemaking differ in some ways from prior mobile source rulemakings. He re, the focus of the emissions control technology is on reducing CO 2 and other greenhouse gases. Vehicles combust fuel to perform two basic functions: 1) to transport the vehicle, its passengers and its contents (and any towed loads), and 2) to operate va rious accessories during the operation of the vehicle such as the air conditioner. Technology can reduce CO 2 emissions by either making more efficient use of the energy that is produced through combustion of the fuel or reducing the energy needed to pe rform either of these functions.

This focus on efficiency calls for looking at the vehicle as an entire system, and the proposed and now final standards reflect th is basic paradigm. In addition to fuel delivery, combustion, and aftert reatment technology, any aspect of the vehicle that affects the need to produce energy must also be consid ered. For example, the efficiency of the439 transmission system, which takes the energy produced by the engine and transmits it to the wheels, and the resistance of the tires to rolling both have major impacts on the amount of fuel that is combus ted while operating the vehicle. The braking system, the aerodynamics of the vehicle, and the efficiency of accessories, such as the air conditioner, all affect how much fuel is combusted as well.

In evaluating vehicle efficiency, we have excluded fundamental changes in vehicles’ size and utility. For example, we did not evaluate converting minivans and SUVs to station wagons, converting vehicles with four wheel drive to two wheel drive, or reducing headroom in order to lower the r oofline and 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 wh ich they sell in response to this rule, but this is not a necessary consequence of the rule but ra ther a matter of automaker choice.

This need to focus on the efficient use of energy by the vehicle as a system leads to a broad focus on a wide variety of technologies that affect almost all the systems in the design of a vehicle. As discussed below, there are many technologies that are currently available which can reduce vehicle energy cons umption. These technologies are already being commercially utilized to a limited degr ee in the current light-duty fleet. These technologies include hybrid technologies that us e higher efficiency electric motors as the power source in combination with or instea d of internal combustion engines. While already commercialized, hybrid technology con tinues to be developed and offers the440 potential for even greater efficiency improve ments. Finally, there are other advanced technologies under development, such as lean burn gasoline engines, which offer the potential of improved energy generation th rough improvements in the basic combustion process. In addition, th e available technologies ar e not limited to powertrain improvements but also include mass reduction, electrical system efficiencies, and aerodynamic improvements.

The large number of possibl e technologies to consider and the breadth of vehicle systems that are affected mean that cons ideration of the manufacturer’s design and production process plays a major role in de veloping the final standards. Vehicle manufacturers typically deve lop many different models by basing them on a limited number of vehicle platforms. The platform t ypically consists of a common set of vehicle architecture and structural components. Th is allows for efficient use of design and manufacturing resources. Given the very large investment put into designing and producing each vehicle model, manufacturers typically plan on a major redesign for the models approximately every 5 years. At the redesign stage, the manufacturer will upgrade or add all of the technology and make most other changes supporting the manufacturer’s plans for the ne xt several years, in cluding plans related to emissions, fuel economy, and safety regulations.

This redesign often involves a package of changes designed to work together to meet the various requirements and plans for the model for several model years after the redesign. This often involves significant en gineering, development, manufacturing, and441 marketing resources to create a new product wi th multiple new features. In order to leverage this significan t upfront investment, manufacturer s plan vehicle redesigns with several model years’ of production in mind. Vehicle models are not completely static between redesigns as limited changes are ofte n incorporated for each model year. This interim process is called a refresh of the vehicle and generally doe s not allow for major technology changes although more minor one s can be done (e.g., small aerodynamic improvements, valve timing improvements, et c). More major technology upgrades that affect multiple systems of the vehicle thus occur at the vehi cle redesign stage and not in the time period between redesigns. The Ce nter for Biological Diversity commented on EPA’s assumptions on redesign cycles, and these comments are addressed in Section III.D.7 below.

As discussed below, there are a wide variety of CO 2 reducing technologies involving several different systems in the vehi cle 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 a nd its packaging in the vehicle, changes in vehicle shape to improve aerodynamic efficien cy and the application of aluminum (and other lightweight materials) in body panels to reduce mass. Logically, the incorporation of emissions control technologies would be during the periodic redesign process. This approach would allow manufacturers to de velop appropriate packages of technology upgrades that combine technologies in ways th at work together and fit with the overall goals of the redesign. It also allows the manufacturer to fit th e process of upgrading emissions control technology into its multi-year planning process, and it avoids the large442 increase in resources and cost s that would occur if technolog y had to be added outside of the redesign process.

This final rule affects five years of vehicle production, model years 2012-2016. Given the now-typical five year redesign cycle, nearly all of a manufacturer’s vehicles will be redesigned over this period. Howeve r, this assumes that a manufacturer has sufficient lead time to redesign the first model year affected by this final rule with the requirements of this final rule in mind. In fact, the lead time available for the start of model year 2012 (January 2011) is relatively short, less than a year. The time between this final rule and the start of 2013 mode l year (January 2012) production is under two years. At the same time, manufacturer produc t plans indicate that they are planning on introducing many of the technologies EPA proj ects could be used to show compliance with the final CO 2 standards in both 2012 and 2013. In order to account for the relatively short lead time available prior to the 2012 a nd 2013 model years, albeit mitigated by their existing plans, EPA has factored this reality into how the availa bility is modeled for much of the technology being considered for model years 2012-2016 as a whole. If the technology to control greenhouse gas emissions is efficiently folded into this redesign process, then EPA projects that 85 percent of each manufacturer’s sales will be able to be redesigned with many of the CO 2 emission reducing technologies by the 2016 model year, and as discussed below, to reduce emissions of HFCs from the air conditioner.

In determining the level of this firs t ever GHG emissions standard under the CAA for light-duty vehicles, EPA uses an appr oach that accounts fo r and builds on this443 redesign process. This provi des the opportunity for several control technologies to be incorporated into the vehicle during redesi gn, achieving significant emissions reductions from the model at one time. This is in cont rast to what would be a much more costly approach of trying to achieve small increm ents of reductions over multiple years by adding technology to the vehicle piece by piec e outside of the redesign process.

As described below, the vast majority of technology required by this final rule is commercially available and already being employed to a limited extent across the fleet (although the final rule will necessitate far wider penetration of these technologies throughout the fleet). The vast majority of the emission reductions which will result from this final rule will be produced from the in creased use of these technologies. EPA also believes that this final rule will encourage the development and limited use of more advanced technologies, such as PHEVs and EV s, and the final rule is structured to facilitate this result

In developing the final standard, EPA built on the technical work performed by the State of California during its developmen t of its statewide GHG program. EPA began by evaluating a nationwide CAA standard for MY 2016 that would requi re the levels of technology upgrade, across the country, which California standards would require for the subset of vehicles sold in California under Pavley 1. In essence, EPA developed an assessment of an equivalent na tional new vehicle fleet-wide CO 2 performance standards for model year 2016 which would result in the ne w vehicle fleet in the State of California having CO 2 performance equal to the performa nce from the California Pavley 1444 standards. This assessment is documented in Chapter 3.1 of the RIA. The results of this assessment predicts that a national light-dut y vehicle fleet which adopts technology that achieves performance of 250 g/mile CO 2 for model year 2016 will result in vehicles sold in California that would achieve the CO 2 performance equivalent to the Pavley 1 standards.

EPA then analyzed a level of 250 g/mi CO 2 in 2016 using the OMEGA model (described in more detail below), and th e car and truck footpr int curves’ relative stringency discussed in Section II to dete rmine what technology will be needed to achieve a fleet wide average of 250 g/mi CO 2 . As discussed later in this section we believe this level of technology application to the light-duty vehicle fleet can be achieved in this time frame, that such standard s will produce signifi cant reductions in GHG emissions, and that the costs for both the i ndustry and the costs to the consumer are reasonable. EPA also deve loped standards for the model years 2012 through 2015 that lead up to the 2016 level.

EPA’s independent technical assessment of the technical feasibility of the final MY2012-2016 standards is described below. EPA has also evaluated a set of alternative standards for these model years, one that is more stringent than the final standards and one that is less stringent. Th e technical feasibility of th ese alternative standards is discussed at the end of this section.445 Evaluating the feasibility of these st andards primarily includes identifying available technologies and asse ssing their effectiveness, cost, and impact on relevant aspects of vehicle performance and utility. The wide number of technologies which are available and likely to be used in combina tion requires a more sophisticated assessment of their combined cost and effectiveness. An important factor is also the degree that these technologies are alr eady being used in the curre nt vehicle fleet and thus, unavailable for use to improve energy effi ciency beyond current levels. Finally, the challenge for manufacturers to design th e technology into th eir products, and the appropriate lead time needed to employ th e technology over the product line of the industry must be considered.

Applying these technologies efficiently to the wide range of vehicles produced by various manufacturers is a challenging task. In order to assist in this task, EPA has developed a computerized model called the Optimization Model for reducing Emissions of Greenhouse gases from Automobiles (OMEGA) model. Broadly, the model starts with a description of the future vehicle fl eet, including manufactu rer, sales, base CO 2 emissions, footprint and the extent to whic h emission control technologies are already employed. For the purpose of this analysis , over 200 vehicle platforms were used to capture the important differences in vehicle and engine design and utility of future vehicle sales of roughly 16 million units in the 2016 timeframe. The model is then provided with a list of technologies which are applicable to various types of vehicles, along with their cost and effectiveness and the percentage of vehicle sales which can receive each technology during the redesign cycle of interest. The model combines this446 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 de scription of which tec hnologies are added to each vehicle platform, along with the resulting cost. While OMEGA can apply technologies which reduce CO 2 emissions and HFC refrigeran t emissions associated with air conditioner use, this task is currently handled outside of th e OMEGA model. The model can be set to account for various types of compliance flexibilities, such as FFV credits.

The remainder of this section describes the technical feasibility analysis in greater detail. Section III.D.1 describes the development of our projection of the MY 2012- 2016 fleet in the absence of this final rule. Section III.D.2 describes our estimates of the effectiveness and cost of th e control technologies availabl e for application in the 2012- 2016 timeframe. Section III.D.3 combines these 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 describes the pr ocess which manufacturers typically use to apply new technology to their vehicles. S ection III.D.5 describes EPA’s OMEGA model and its approach to estimati ng how manufacturers will add t echnology 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 tec hnology added to manufacturers’ vehicles and its cost. Section III.D.7 discusses the feasib ility of the alternative 4-percent-per-year and 6-percent-per-year standards. Further detail on all of these issues can be found in EPA447 and NHTSA’s Joint Technical Support Docume nt as well as EPA’s Regulatory Impact Analysis.

1. How Did EPA Develop a Reference Vehicle Fleet for Evaluating Further
CO 2 Reductions?

In order to calculate the im pacts of this final rule, it is necessary to project the GHG emissions characteristics of the future vehi cle fleet absent this regulation. This is called the “reference” fleet. EPA and NHTSA de velop this reference fleet using a three step process. Step one develops a set of detailed vehicle character istics and sales for a specific model year (in this case, 2008). Th is is called the baseline fleet. Step two adjusts the sales of these vehicles using projections made by AEO and CSM to account for expected changes in market conditions. Step three applies fu el saving and emission control technology to these vehicles to the ex tent necessary for manufacturers to comply with the MY2011 CAFE standards. Thus, th e reference fleet differs from the MY 2008 baseline fleet in both the leve l of technology utilized and in terms of the sales of any particular vehicle.

EPA and NHTSA perform steps one and two in an identical manner. The development of the characteristics of the ba seline 2008 fleet and the adjustment of sales to match AEO and CSM forecasts is described in detail in Section II.B above. The two agencies perform step three in a conceptually identical manner, but each agency utilizes its own vehicle technology and emission m odel to project the technology needed to448 comply with the 2011 CAFE standards. The ag encies use the same two models to project the technology and cost of th e 2012-2016 standards. Use of the same model for both precontrol and post-control cost s ensures consistency.

The agencies received one comment from the Center for Biological Diversity that the use of 2008 vehicles in our baseline and reference fleets inherently includes vehicle models which already have or will be discont inued by the time this rule takes effect and will be replaced by more advanced vehicle mode ls. This is true. However, we believe that the use of 2008 vehicle designs is still the most appropriate approach available. First, as discussed in Section II.B above, the designs of these new vehi cles at the level of detail required for emission and cost modeli ng are not publically available. Even the confidential descriptions of th ese vehicle designs are usually not of sufficient detail to facilitate the level of technology and emi ssion modeling performed by both agencies. Second, steps two and three of the process used to create th e reference fleet adjust both the sales and technology of the 2008 vehicles. Thus, our reference fleet reflects the extent that completely new vehi cles are expected to shift the light vehicle market in terms of both segment and manufacturer. Also, by adding technology to facilitate compliance with the 2011 CAFE standards, we account for the vast majority of ways in which these new vehicles will differ from their older counterparts.

The agencies also received a comment that some manufacturers have already announced plans to introduce technol ogy well beyond that re quired by the 2011 MY CAFE standards. This commenter indicated that the agencies’ approach over-estimated449 the technology and cost required by the proposed standards and result ed in less stringent standards being proposed than a more realis tic reference fleet would have supported. First, the agencies agree that limiting the a pplication of additional technology beyond that already on 2008 vehicles to only that required by the 2011 CAFE standards could underestimate the use of such technology absent this rule. However, it is difficult, if not impossible, to separate future fuel econ omy improvements made for marketing purposes from those designed to facilitate co mpliance with anticipated CAFE or CO 2 emission standards. For example, EISA was signed ove r two years ago, whic h contained specific minimum limits on light vehicle fuel econom y in 2020, while also requiring ratable improvements in the interim. NHTSA pr oposed fuel economy standards for the 2012- 2015 model years under the EISA provisi ons in April of 2008, although NHTSA finalized only 2011 standards for passenger vehi cles. It is also tr ue that manufacturers can change their plans based on market conditions and other factors. Thus, announcements of future plans are not certain . As mentioned above, these plans do not include specific vehicle charac teristics. Thus, in order to avoid under-estimating the cost associated with this rule, the agencies have limited the fuel economy improvements in the reference fleet to those projected to result from the existing CAFE standards. We disagree with the commenter that this has caused the sta ndards being promulgated today to be less stringent than would have been the case had we been able to confidently predict additional fuel economy and CO 2 emission improvements which will occur absent this rule. The inclusion of such technology in the reference fleet would certainly have reduced the cost of this final rule, as well as the benefits, but woul d not have changed the final level of technology required to meet the final standards. Also, we believe that the450 same impacts would apply to our evaluations of the two alternative sets of standards, the 4% per year and 6% per year standards. We are confident that the vast majority of manufacturers would not comply with the leas t stringent of these standards (the 4% per year standards) in the absence of this rule. Thus, changes to the re ference fleet would not have affected the differences in technology, co st or benefits between the final standards and the two alternatives. As described below, our rejection of the two alternatives in favor of the final standards is based pr imarily on the relative technology, cost and benefits associated with the three sets of standards than the absolute cost or benefit relative to the reference fleet. Thus, we do not agree with the commenter that our choice of reference fleet adversely impacted the development of the final standards being promulgated today.

The addition of technology to the baselin e fleet so that it complies with the MY 2011 CAFE standards is described later in Section III.D.4, as this uses the same methodology used to project co mpliance with the final CO 2 emission standards. In summary, the reference fleet represents vehi cle characteristics a nd sales in the 2012 and later model years absent this final rule. T echnology is then added to these vehicles in order to reduce CO 2 emissions to achieve compliance with the final CO 2 standards. As noted above, EPA did not factor in any changes to vehicle util ity or characteristics, or sales in projecting manufacturers’ compliance with this final rule.

After the reference fleet is created, the next step aggregates vehicle sales by a combination of manufacturer, vehicle platform, and engine design. As discussed in451 Section III.D.4 below, manufacturers impl ement 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 th e valve train design (such as SOHC, DOHC, etc.), the number of cylinders and in some cas es head design, the vehicle sales are broken down beyond the platform level to reflect re levant engine differences. The vehicle groupings are shown in Table III.D.1-1. Thes e groupings are the same as those used in the NPRM.452 Table III.D.1-1 Vehicle Groupings a Vehicle Description Vehicle Type Vehicle Description Vehicle Type Large SUV (Car) V8+ OHV 13 Subcompact Auto I4 1 Large SUV (Car) V6 4v 16 Large Pickup V8+ DOHC 19 Large SUV (Car) V6 OHV 12 Large Pickup V8+ SOHC 3v 14 Large SUV (Car) V6 2v SOHC 9 Large Pickup V8+ OHV 13 Large SUV (Car) I4 and I5 7 Large Pickup V8+ SOHC 10 Midsize SUV (Car) V6 2v SOHC 8 Large Pickup V6 DOHC 18 Midsize SUV (Car) V6 S/DOHC 4v 5 Large Pickup V6 OHV 12 Midsize SUV (Car) I4 7 Large Pickup V6 SOHC 2v 11 Small SUV (Car) V6 OHV 12 Large Pickup I4 S/DOHC 7 Small SUV (Car) V6 S/DOHC 4 Small Pickup V6 OHV 12 Small SUV (Car) I4 3 Small Pickup V6 2v SOHC 8 Large Auto V8+ OHV 13 Small Pickup I4 7 Large Auto V8+ SOHC 10 Large SUV V8+ DOHC 17 Large Auto V8+ DOHC, 4v SOHC 6 Large SUV V8+ SOHC 3v 14 Large Auto V6 OHV 12 Large SUV V8+ OHV 13 Large Auto V6 SOHC 2/3v 5 Large SUV V8+ SOHC 10 Midsize Auto V8+ OHV 13 Large SUV V6 S/DOHC 4v 16 Midsize Auto V8+ SOHC 10 Large SUV V6 OHV 12 Midsize Auto V7+ DOHC, 4v SOHC 6 Large SUV V6 SOHC 2v 9 Midsize Auto V6 OHV 12 Large SUV I4/ 7 Midsize Auto V6 2v SOHC 8 Midsize SUV V6 OHV 12 Midsize Auto V6 S/DOHC 4v 5 Midsize SUV V6 2v SOHC 8 Midsize Auto I4 3 Midsize SUV V6 S/DOHC 4v 5 Compact Auto V7+ S/DOHC 6 Midsize SUV I4 S/DOHC 7 Compact Auto V6 OHV 12 Small SUV V6 OHV 12 Compact Auto V6 S/DOHC 4v 4 Minivan V6 S/DOHC 16 Compact Auto I5 7 Minivan V6 OHV 12 Compact Auto I4 2 Minivan I4 7 Subcompact Auto V8+ OHV 13 Cargo Van V8+ OHV 13 Subcompact Auto V8+ S/DOHC 6 Cargo Van V8+ SOHC 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, respectively, DOHC = Double overhead cam, SOHC = Single overhead cam, OHV = Overhead valve, v = number of valves per cylinder, “/” = and, “+” = or larger.

As mentioned above, the second factor which needs to be considered in developing a reference fleet agains t which to evaluate the impacts of this final rule is the453 impact of the 2011 MY CAFE standards. Si nce the vehicles which comprise the above reference fleet are those sold in the 2008 MY, when coupled with our sales projections, they do not necessarily meet th e 2011 MY CAFE standards.

The levels of the 2011 MY CAFE standards are straightforward to apply to future sales fleets, as is the potential fine-paying fl exibility afforded by the CAFE program (i.e., $55 per mpg of shortfall). However, projec ting some of the compliance flexibilities afforded by EISA and the CAFE program ar e less clear. Two of these compliance flexibilities are relevant to EPA’s analysis: 1) the credit for FFVs, and 2) the limit on the transferring of credits between car and truck fleets. The FFV credit is limited to 1.2 mpg in 2011 and EISA gradually reduces this credit , to 1.0 mpg in 2015 and eventually to zero in 2020. In contrast, the lim it on car truck transfer is li mited to 1.0 mpg in 2011, and EISA increases this to 1.5 mpg beginning in 2015 and then to 2.0 mpg beginning in 2020. The question here is whether to hold the 2011 MY CAFE provisions constant in the future or incorporate the changes in the FFV credit and car-truck credit trading limits contained in EISA.

As was done for the NPRM, EPA has decided to hold the 2011 MY limits on FFV credit and car-truck credit trading cons tant in projecting the fuel economy and CO 2 emission levels of vehicles in our reference case. This approa ch treats the changes in the FFV credit and car-truck credit trading provi sions consistently with the other EISAmandated changes in the CAFE standards them selves. All EISA provisions relevant to 2011 MY vehicles are reflected in our refe rence case fleet, wh ile all post-2011 MY454 provisions are not. Practically, re lative to the alternative, this increases both the cost and benefit of the final standards. In our analysis of this fina l rule, any quantified benefits from the presence of FFVs in the fleet are not considered. Thus, the only impact of the FFV credit is to reduce onroad fuel economy. By assuming that the FFV credit stays at 1.2 mpg in the future absent this rule, the assumed level of onroad fuel economy that would occur absent this final rule is reduced. As this final rule eliminates the FFV credit (for purposes of CO 2 emission compliance) starting in 2016, the net result is to increase the projected level of fuel savings from our fi nal standards. Similarl y, the higher level of FFV credit reduces projected compliance co st for manufacturers to meet the 2011 MY standards in our reference case. This increa ses the projected cost of meeting the final 2012 and later standards.

As just implied, EPA needs to proj ect the technology (and resultant costs) required for the 2008 MY vehicles to comply with the 2011 MY CAFE standards in those cases where they do not automatically do so. The technology and costs are projected using the same methodology that projects co mpliance with the final 2012 and later CO 2 standards. The description of this process is described in the follo wing four sections and is essentially the same process used for the NPRM.

A more detailed description of the me thodology used to develop these sales projections can be found in th e Joint TSD. Detailed sales projections by model year and manufacturer can also be found in the TSD.455 2. What Are the Effectiveness and Costs of CO 2 -reducing Technologies?

EPA and NHTSA worked together to jointly develop information on the effectiveness and cost of the CO 2 -reducing technologies, a nd fuel economy-improving technologies, other than A/C re lated control technologies. This joint work is reflected in Chapter 3 of the Joint TSD and in Section II of this preamble. A summary of the effectiveness and cost of A/C related technol ogy is contained here. For more detailed information on the effectiveness and cost of A/C related technology, please refer to Section III.C of this preamble and Chapter 2 of EPA’s RIA.

A/C improvements are an integral part of EPA’s technology analysis and have been included in this section along with the other technology options. While discussed in Section III.C as a credit opportunity, air cond itioning-related improvements are included in Table III.D.2-1.because A/C improvement s are a very cost-effective technology at reducing CO 2 (or CO 2 -equivalent) emissions. EPA exp ects most manufacturers will choose to use AC improvement credit opportun ities as a strategy for meeting compliance with the CO 2 standards. Note that the costs s hown 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 savi ngs in our cost and benefit analysis presented in Section III.H. EPA discusses th e likely maintenance savings in Chapter 2 of the RIA, though these savings are not included in our final cost estimates for the final rule. The EPA approximates that the level of the credits earned will increase from 2012 to 2016 as more vehicles in th e fleet are redesigned. The pe netrations and average levels456 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 desc ribed in the RIA. As demonstrated in the IMAC study (and described in Section III.C as we ll as the RIA), these levels are feasible and achievable with technologi es that are available and cost-effective today.

These improvements are categorized as eith er leakage reduction, including use of alternative refrigerants, or system efficien cy improvements. Unlike the majority of the technologies described in this section, A/C improvements will not be demonstrated in the test cycles used to quantify CO 2 reductions in this final rule. As described earlier, for this analysis A/C-related CO 2 reductions are handled outside of OMEGA model and therefore their CO 2 reduction potential is expressed in grams per mile rather than a percentage used by the OMEGA model. See Section III.C.1 fo r the method by which potential reductions are calculated or measured. Further disc ussion of the technological basis for these improvements is included in Chapter 2 of the RIA.

Table III.D.2-1 Total CO 2 Reduction Potential and 2016 Cost for A/C Related Technologies for all Vehicle Cl asses (Costs in 2007 dollars) CO 2 Reduction Potential Incremental Compliance Costs A/C refrigerant leakage reduction 7.5 g/mi 249 $17 A/C efficiency improvements 5.7 g/mi $53

249 This represents 50% improvement in leakage and thus 50% of the A/C leakage impact potential compared to a maximum of 15 g/mi credit that can be achieved throug h the incorporation of a low very GWP refrigerant.457 Table III.D.2-2 A/C Related Technology Pe netration and Credit Levels Expected to be Earned Average credit over entire fleet Technology Penetration Car Truck Fleet Average 2012 28% 250 3.4 3.8 3.5 2013 40% 4.8 5.4 5.0 2014 60% 7.2 8.1 7.5 2015 80% 9.6 10.8 10.0 2016 85% 10.2 11.5 10.6

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

Individual technologies can be used by manufacturers to achieve incremental CO 2 reductions. However, as mentioned in Sec tion III.D.1, EPA believes that manufacturers are more likely to bundle techno logies into “packages” to ca pture synergisti c aspects and reflect progressively larger CO 2 reductions with additions or changes to any given package. In addition, manufacturers typically apply new technologies in packages during model redesigns that occur approximately once every five years, rather than adding new technologies one at a time on an annual or biennial basis. This way, manufacturers can more efficiently make use of their redesi gn resources and more effectively plan for changes necessary to meet future standards.

Therefore, as explained at proposal, the approach taken here is to group technologies into packages of increasing cost and effectivenes s. EPA determined that 19

250 We assume slightly higher A/C penetration in 2012 than was assumed in the proposal to correct for rounding that occurred in the curve setting process.458 different vehicle types provide d adequate representation to accurately model the entire fleet. This was the result of analyzing the exis ting light duty fleet w ith respect to vehicle size and powertrain configurations. All vehi cles, including cars a nd trucks, were first distributed based on their relative size, star ting from compact cars and working upward to large trucks. Next, each vehicle was evalua ted for powertrain, specifically the engine size, I4, V6, and V8, and finally by the number of valves per cylinder. Note that each of these 19 vehicle types was mapped into one of the five classes of ve hicles mentioned in Section III.D.2. While the five classes provide adequate representation for the cost basis associated with most technology applicati on, they do not adequately account for all existing vehicle attributes such as base vehicle powertrain configuration and mass reduction. As an example, costs and effectiv eness estimates for engi ne friction reduction for the small car class were used to repres ent cost and effectiveness for three vehicle types: subcompact cars, compact cars, and small multi-purpose vehicles (MPV) equipped with a 4-cylinder engine, however the mass reduction associated for each of these vehicle types was based on the vehicle t ype sales-weighted average. In another example, a vehicle type for V8 single ove rhead cam 3-valve engines was created to properly account for the incremental cost in moving to a dual overhead cam 4-valve configuration. Note also that these 19 vehicle types span the range of vehicle footprint (smaller footprints for smaller vehicles and la rger footprints for larger vehicles) which serve as the basis for the sta ndards being promulgated today. A complete list of vehicles and their associated vehicle types is shown above in Table III.D.1-1.459 Within each of the 19 vehicle types, multip le technology packages were created in increasing technology content resulting in incr easing effectiveness. Important to note that the effort in creating the packages attemp ted to maintain a constant utility for each package as compared to the baseline package. As such, each package is meant to provide equivalent driver-perceived performance to th e baseline package. The initial packages represent what a manufacturer will most likel y implement on all vehicles, including low rolling resistance tires, low friction lubricants , engine friction reducti on, aggressive shift logic, early torque converter lock-up, improved electrica l accessories, and low drag brakes. 251 Subsequent packages include adva nced gasoline engine and transmission technologies such as turbo/dow nsizing, GDI, and dual-clutch transmission. The most technologically advanced p ackages within a segment included HEV, PHEV and EV designs. The end result is a list of several packages for each of 19 different vehicle types from which a manufacturer could choose in orde r to modify its fleet such that compliance could be achieved.

Before using these technology packages as inputs to the OMEGA model, EPA calculated the cost and effectiveness for the package. The first step was to apply the scaling class for each technology package and vehicle type combination. The scaling class establishes the cost and effectiveness fo r each technology with respect to the vehicle size or type. The Large Car class was provi ded 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 mapped into one of those five classes. In the next step, the

251 When making reference to low friction lubricants, the technology being referred to is the engine changes and possible durability testing that would be done to accommodate the low friction lubricants, not the lubricants themselves.460 cost for a particular technology package was de termined as the sum of the costs of the applied technologies. The final step, determinat ion of effectiveness, requires greater care due to the synergistic effects mentioned in Section III.D.2. This step is described immediately below.

Usually, the benefits of the engine and transmission technologies can be combined multiplicatively. For example, if an engine technology reduces CO 2 emissions by five percent and a transmission technology reduces CO 2 emissions by four percent, the benefit of applying both technologies is 8. 8 percent (100% - (1 00% – 4%) * (100% - 5%)). In some cases, however, the benef it of the transmission -related technologies overlaps with many of the engine technologies. This occurs because the primary goal of most of the transmission technologies is to shif t operation of the engine to more efficient locations on the engine map. This is accomp lished by incorporating more ratio selections and a wider ratio span into the transmissions. Some of the engine technologies have the same goal, such as cylinder deactivation, a dvanced valvetrains, and turbocharging. In order to account for this overlap and avoid over-estimating emissions reduction effectiveness, EPA has developed a set of ad justment factors associ ated with specific pairs of engine and transmission technologies.

The various transmission tec hnologies are generally mutua lly exclusive. As such, the effectiveness of each transmission technol ogy generally supersedes each other. For example, the 9.5-14.5 percent reduction in CO 2 emissions associated with the automated manual transmission includes the 4.5-6.5 pe rcent benefit of a 6-speed automatic461 transmission. Exceptions are aggressive shif t logic and early tor que converter lock-up that can be applied to vehicles with several types of automatic transmissions.

EPA has chosen to use an engineering approach known as the lumped-parameter technique to determine these adjustment factors. The results from this approach were then applied directly to the vehicle packages . The lumped-parameter technique is well documented in the literature, and the specifi c approach developed by EPA is detailed in Chapter 1 of the RIA.

Table III.D.3-1 presents seve ral examples of the reduction in the effectiveness of technology pairs. A complete li st and detailed discussion of these synergies is presented in Chapter 3 of the Joint TSD.

Table III.D.3-1 Reduction in Effectiv eness for Selected Technology Pairs Engine Technology Transmission T echnology 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 Aggre ssive shift logic 0.5%

Table III.D.3-2 presents several examples of the CO 2 -reducing technology vehicle packages used in the OMEGA model fo r the large car class. Similar packages were generated for each of the 19 vehicle type s and the costs and effectiveness estimates for each of those packages are discussed in detail in Chapter 3 of the Joint TSD.462 Table III.D.3-2 CO 2 Reducing Technology Vehicle Packages for a Large Car Effectiveness and Costs in 2016 (Costs in 2007 dollars) Engine Technology Transmission Technology Additional Technology CO 2 Reduction Package Cost 3.3L V6 4 speed automatic None Baseline 3.0L V6 + GDI + CCP 6 speed automatic 3% Mass Reduction 17.9% $985 3.0L V6 + GDI + CCP + Deac 6 speed automatic 5% Mass Reduction 20.6% $1,238 2.2L I4 + GDI + Turbo + DCP 6 speed DCT 10% Mass Reduction Start-Stop 34.3% $1,903

4. Manufacturer’s Application of Technology

Vehicle manufacturers often introduce ma jor product changes together, as a package. In this manner the manufacture rs can optimize their available resources, including engineering, devel opment, manufacturing and mark eting activities to create a product with multiple new features. In additi on, manufacturers rec ognize that a vehicle will need to remain compet itive over its intended life, meet future regulatory requirements, and contribute to a manufactur er’s CAFE requirements. Furthermore, automotive manufacturers are largely focused on creating vehicle platforms to limit the development of entirely new vehicles and to realize economies of s cale with regard to variable cost. In very limited cases, manufacturers may implement an individual technology outside of a ve hicle’s redesign cycle. 252 In following with these industry practices, EPA has created set of vehicle tec hnology packages that represent the entire light duty fleet.

252 The Center for Biological Diversity submitted comme nts disputing this distinction as well as the need for lead time. These comments ar e addressed in Section III.D.7.463 In evaluating needed lead time, EPA has hi storically authorized manufacturers of new vehicles or nonroad equipment to phase in available emission control technology over a number of years. Examples of this are EPA’s Tier 2 program for cars and light trucks and its 2007 and later PM and NO X emission standards for heavy-duty vehicles. In both of these rules, the major modifications ex pected from the rules were the addition of exhaust aftertreatment control technologies. Some changes to the engine were expected as well, but these were not expected to affect engine size, packaging or performance. The
CO 2 reduction technologies described above pot entially involve much more significant changes to car and light truck designs. Many of the engine technologies involve changes to the engine block and heads. The transm ission technologies could change the size and shape of the transmission a nd thus, packaging. Improvements to aerodynamic drag could involve body design and therefore, the dies us ed to produce body panels. Changes of this sort potentially involve new capital inve stment and the obsolescence of existing investment.

At the same time, vehicle designs are not static, but change in major ways periodically. The manufactur ers’ product plans indicate that vehicles are usually redesigned every 5 years on average. 253 Vehicles also tend to receive a more modest “refresh” between major redesigns, as di scussed above. Because manufacturers are already changing their tooling, equipment and designs at these times, further changes to vehicle design at these times involve a mini mum of stranded capital equipment. Thus, the timing of any major technological changes is projected to coincide with changes that manufacturers are already making to their vehicles. This approach effectively avoids the

253 See discussion in Section III.D.7 with references464 need to quantify any costs a ssociated with discarding equi pment, tooling, emission and safety certification, etc. when CO 2 -reducing equipment is incorporated into a vehicle.

This final rule affects five years of vehicle production, model years 2012-2016. Given the now-typical five year redesign cycle, nearly all of a manufacturer’s vehicles will be redesigned over this period. Howeve r, this assumes that a manufacturer has sufficient lead time to redesign the first model year affected by this final rule with the requirements of this final rule in mind. In fact, the lead time available for model year 2012 is relatively short. The time between a likely final rule and the start of 2013 model year production is likely to be just over two years. At the same time, the manufacturer product plans indicate that they are planning on introduci ng many of the technologies projected to be required by th is final rule in both 2012 and 2013. In order to account for the relatively short lead time available pr ior to the 2012 and 2013 model years, albeit mitigated by their existing plans, EP A projects that only 85 percent of each manufacturer’s sales will be able to be redesigned with major CO 2 emission-reducing technologies by the 2016 model year. Less intr usive technologies can be introduced into essentially all of a manufactur er’s sales. This resulted in three levels of technology penetration caps, by manufact urer. Common technologies (e.g., low friction lubes, aerodynamic improvements) had a penetration cap of 100%. More advanced powertrain technologies (e.g., stoichiometric GDI, turboc harging) had a penetration cap of 85%. The most advanced technologies considered in this analysis (e.g., diesel engines, 254 as well as IMA, powersplit and 2-mode hybrids) had a 15% penetration cap.

254 While diesel engines are a mature technology and not “advanced”, the aftertr eatment systems necessary for them in the U.S. market are advanced.465 This is the same approach as was taken in the NPRM. EPA received several comments commending it on its approach to esta blishing technical feasibility via its use of the OMEGA model. The only adverse comme nt received regarding the application of technology was from the Center for Biological Diversity (CBD), which criticized EPA’s use of the 5-year redesign cycle. CBD argued that manufacturers occasionally redesign vehicles sooner than 5 years and that EPA did not quantify the cost of shortening the redesign cycle to less than 5 years and compar e this cost to the increased benefit of reduced CO 2 emissions. CBD also noted that ma nufacturers have been recently dropping vehicle lines and entire divisions with very little leadtime, indicat ing their ability to change product plans much quicker than projected above.

EPA did not explicitly evaluate the cost of reducing the average redesign cycle to less than 5 years for two reasons. One, in the past, manufacturers have usually shortened the redesign cycle to address serious problems with the current design, usually lower than anticipated sales. However, the amortized co st of the capital necessary to produce a new vehicle design will increase by 23%, from one-fif th of the capital cost to one-fourth (and assuming a 3% discount rate). This would be on top of the cost of the emission control equipment itself. The only benefit of this in crease in societal co st will be earlier CO 2 emission reductions (and the othe r benefits associated with CO 2 emission control). The capital costs associated with vehicle redesign go beyond CO 2 emission control and potentially involve every aspect of the vehi cle and can represent thousands of dollars.466 We believe that it would be an inefficient us e of societal resources to incur such costs when they can be obtained much more cost effectively just one year later.

Two, the examples of manufacturers dr opping vehicle lines and divisions with very short lead time is not relevant to the re design of vehicles. There is no relationship between a manufacturer’s ability to stop sel ling a vehicle model or to close a vehicle division and a manufacturer's ab ility to redesign a vehicle. A company could decide to stop selling all of its products within a few weeks – but it would still take a firm approximately 5 years to introdu ce a major new vehicle line. It is relatively easy to stop the manufacture of a particular product (though this too can incur some cost -- such as plant wind-down costs, employee layoff or reloca tion costs, and dealership related costs). It is much more difficult to perform the required engineering de sign and development, design, purchase, and install the necessary ca pital equipment and tooling for components and vehicle manufacturing and develop all the processes asso ciated with the application of a new technology. Further discussion of the CBD comments can be found in III.D.7 below.

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

EPA is generally taking the same appr oach to projecting the application of technology to vehicles as it di d for the NPRM. With the exception of two comments, all commenters agreed with the modeling approach taken in the NPRM. One of these two467 comments is addressed is Section III.D.1 above, while the other is addressed in Section III.D.3. above.

There are many ways for a manufacturer to reduce CO 2 -emissions from its vehicles. A manufacturer can choose from a myriad of CO 2 reducing technologies and can apply one or more of these technologies to some or all of its vehicles. Thus, for a variety of levels of CO 2 emission control, there are an almost infinite number of technology combinations which produce the desired CO 2 reduction. As noted earlier, EPA developed a new vehicle model, the OMEGA model in order to make a reasonable estimate of how manufacturers wi ll add technologies to vehicl es in order to meet a fleetwide CO 2 emissions level. EPA has descri bed OMEGA’s specifi c methodologies and algorithms in a memo to the docket for this rulemaking (Docket EPA-HQ-OAR-2009- 0472).

The OMEGA model utilizes four basic sets of input data. The first is a description of the vehicle fleet. The key pi eces of data required for each vehicle are its manufacturer, CO 2 emission level, fuel type, projected sales and footprint. The model also requires that each vehicle be assigned to one of the 19 vehicle types, which tells the model which set of technologies can be applied to that vehicle. (For a description of how the 19 vehicle types were created, reference S ection III.D.3.) In a ddition, the degree to which each vehicle already reflects the e ffectiveness and cost of each available technology must also be input. This avoids the situation, for example, where the model might try to add a basic engine improvement to a current hybrid vehicle. Except for this468 type of information, the development of the required data regarding the reference fleet was described in Section III.D.1 above and in Chapter 1 of the Joint TSD.

The second type of input data used by the model is a description of the technologies available to manufact urers, primarily their cost a nd 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 III.D.3 above as well as Chapter 3 of the Joint TSD. In all cases, the order of the technologies or technology packages for a particular vehicle type is determined by th e model user prior to running the model. Several criteria can be used to develop a reas onable ordering of tec hnologies or packages. These are described in the Joint TSD.

The third type of input data describes vehicle operational data, such as annual scrap rates and mileage accumulation rates, a nd economic data, such as fuel prices and discount rates. These estimates are descri bed in Section II.F above, Section III.H below and Chapter 4 of the Joint TSD.

The fourth type of data describes the CO 2 emission standards being modeled. These include the CO 2 emission equivalents of the 2011 MY CAFE standards and the final CO 2 standards for 2016. As described in mo re detail below, the application of A/C technology is evaluated in a se parate analysis from those technologies which impact CO 2 emissions over the 2-cycle test procedure. Thus, for the percent of vehicles that are469 projected to achieve A/C related reductions, the CO 2 credit associated with the projected use of improved A/C systems is used to adjust the final CO 2 standard which will be applicable to each manufacturer to develop a target for CO 2 emissions over the 2-cycle test which is assessed in our OMEGA modeling.

As mentioned above for the market data input file utili zed by OMEGA, which characterizes the vehicle fleet, our modeling mu st and does account for the fact that many 2008 MY vehicles are already equipped with one or more of the technologies discussed in Section III.D.2 above. Because of the c hoice to apply technologies in packages, and 2008 vehicles are equipped with individua l technologies in a wide variety of combinations, accounting for the presence of specific technologies in terms of their proportion of package cost and CO 2 effectiveness requires carefu l, detailed analysis. The first step in this analysis is to develop a list of individual technol ogies which are either contained in each technology package, or w ould supplant the addition of the relevant portion of each technology pack age. An example would be a 2008 MY vehicle equipped with variable valve timing and a 6-speed automatic transmission. The cost and effectiveness of variable valve timing would be considered to be already present for any technology packages which included the addition of variable valve timing or technologies which went beyond this technology in terms of engine related CO 2 control efficiency. An example of a technology which supplants several technologies would be a 2008 MY vehicle which was equipped with a diesel engine. The effectiveness of this technology would be considered to be present fo r technology packages which included improvements to a gasoline engine, since the resultant gasoline engines have a lower CO 2470 control efficiency than the diesel engine. However, if these packages which included improvements also included improvements unr elated to the engine, like transmission improvements, only the engine related porti on of the package already present on the vehicle would be considered. The transmissi on related portion of the package’s cost and effectiveness would be allowed to be app lied in order to comply with future CO 2 emission standards.

The second step in this process is to determine the total cost and CO 2 effectiveness of the technologies already presen t and relevant to each available package. Determining the total cost usually simply involves adding up the costs of the individual technologies present. In order to determin e the total effectiveness of the technologies already present on each vehicle, the lumped parameter model described above is used. Because the specific technologies present on each 2008 vehicle are known, the applicable synergies and dis-synergies can be fully accounted for.

The third step in this process is to divide the total cost and CO 2 effectiveness values determined in step 2 by the total cost and CO 2 effectiveness of the relevant technology packages. These fractions are capped at a value of 1.0 or less, since a value of 1.0 causes the OMEGA model to not change either the cost or CO 2 emissions of a vehicle when that technology package is added.

As described in Section III.D.3 above, t echnology packages are applied to groups of vehicles which generally re present a single vehicle platform and which are equipped471 with a single engine size (e.g., compact cars w ith four cylinder engine produced by Ford). These grouping are described in Table III.D.1-1. Thus, the fourth step is to combine the fractions of the cost and effectiveness of each technology package already present on the individual 2008 vehicles models for each vehi cle grouping. For cost, percentages of each package already present are combined using a simple sales-weighting procedure, since the cost of each package is the same for each vehicle in a grouping. For effectiveness, the individual percentages are combined by weighting them by both sales and base CO 2 emission level. This appropriately weights vehicle models with either higher sales or
CO 2 emissions within a grouping. Once again, this process preven ts the model from adding technology which is alrea dy present on vehicles, and t hus ensures that the model does not double count technology e ffectiveness and cost associ ated with complying with the 2011 MY CAFE standards and the final CO 2 standards.

Conceptually, the OMEGA model begins by determining the specific CO 2 emission standard applicable for each manufacturer and its vehicle class (i.e., car or truck). Since the final rule allows for aver aging across a manufacturer’s cars and trucks, the model determines the CO 2 emission standard applicable to each manufacturer’s car and truck sales from the two sets of coeffi cients describing the pi ecewise linear standard functions for cars and trucks in the inputs, and creates a combined car-truck standard. This combined standard considers the differe nce in lifetime VMT of cars and trucks, as indicated in the final regulations which gove rn credit trading betw een these two vehicle classes. For both the 2011 CAFE and 2016 CO 2 standards, these standards are a function of each manufacturer’s sales of cars and trucks and thei r footprint values. When472 evaluating the 2011 MY CAFE standards, the ca r-truck trading was limited to 1.2 mpg. When evaluating the final CO 2 standards, the OMEGA model was run only for MY 2016. OMEGA is designed to evaluate technology ad dition over a complete redesign cycle and 2016 represents the final year of a redesign cycl e starting with the first year of the final
CO 2 standards, 2012. Estimates of the techno logy and cost for the interim model years are developed from the model projections ma de for 2016. This process is discussed in Chapter 6 of EPA’s RIA to this final rule. When evaluating the 2016 standards using the OMEGA model, the final CO 2 standard which manufacturers will otherwise have to meet to account for the anticipated level of A/C cred its generated was adjusted. On an industry wide basis, the projection shows that manufact urers will generate 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.

As noted above, EPA estimated separately the cost of the improved A/C systems required to generate the 11 g/mi credit. This is consistent with our final A/C credit procedures, which will grant manufacturers A/C credits based on their total use of improved A/C systems, and not on the increased use of such systems relative to some base model year fleet. Some manufactu rers may already be using improved A/C technology. However, this represents a small fraction of current vehicle sales. 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 te chnology relative to the true reference fleet to a small degree.473 The model then works with one manufactur er at a time to a dd technologies until that manufacturer meets its applicable sta ndard. The OMEGA model can utilize several approaches to determining the order in whic h vehicles receive technologies. For this analysis, EPA used a “manufacturer-based net cost-effectiveness factor” to rank the technology packages in the order in which a manufacturer is likely to apply them. Conceptually, this approach estimates the cost of adding the technology from the manufacturer’s perspective a nd divides it by the mass of CO 2 the technology will reduce. One component of the cost of adding a tec hnology is its producti on cost, as discussed above. However, it is exp ected that new vehicle purc hasers value improved fuel economy since it reduces the cost of operating the vehicle. Typical vehicle purchasers are assumed to value the fuel savings accrue d over the period of time which they will own the vehicle, which is estimated to be r oughly five years. It is also assumed that consumers discount these savings at the same rate as that used in the rest of the analysis (3 or 7 percent). Any residual value of the additional technology which might remain when the vehicle is sold is not considered. The CO 2 emission reduction is the change in
CO 2 emissions multiplied by the percentage of vehicles surviving after each year of use multiplied by the annual miles travelled by age, again discounted to the year of vehicle purchase.

Given this definition, the higher priority technologies are thos e with the lowest manufacturer-based net cost-effectiveness valu e (relatively low tec hnology cost or high fuel savings leads to lower values). Because the order of technology application is set for each vehicle, the model uses the manufacturer -based net cost-effec tiveness primarily to474 decide which vehicle receives the next technology addition. Initially, technology package #1 is the only one available to any pa rticular vehicle. However, as soon as a vehicle receives technology package #1, the model considers the manufacturer-based net cost-effectiveness of technology package #2 for th at vehicle and so on. In general terms, the equation describing the calculation of manu facturer-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 E ffectiveness (in dollars per kilogram CO 2 ), TechCost = Marked up cost of the technology (dollars), PP = Payback period, or the number of years of vehicle use over which consumers value fuel savings when evaluating the value of a new vehicle at time of purchase, dFS i = Difference in fuel consumption due to the addition of technol ogy 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, and 1- Gap = Ratio of onroad fuel economy to two-cycle (FTP/HFET) fuel economy475 The OMEGA model does not currently allow for the VMT used in determining the various technology ranking factors to be a function of the rebound factor. If the user believed that the consideration of rebound VM T was important, they could increase their estimate of the payback period to simu late the impact of the rebound VMT.

EPA describes the technology ranking me thodology and manufacturer-based cost effectiveness metric in greater detail in a technical memo to the Docket for this final rule (Docket EPA-HQ-OAR-2009-0472).

When calculating the fuel savings, the full re tail price of fuel, including taxes is used. While taxes are not generally included wh en calculating the cost or benefits of a regulation, the net cost component of th e manufacturer-based ne t cost-effectiveness equation is not a measure of the social cost of this final rule, but a measure of the private cost, (i.e., a measure of the vehicle purchaser’s willingness to pay more for a vehicle with higher fuel efficiency). Since vehicle ope rators pay the full pri ce of fuel, including taxes, they value fuel costs or savings at this level, and the manufacturers will consider this when choosing among the technology options.

This definition of manufact urer-based net cost-effectiveness ignores any change in the residual value of the vehicle due to the additional technology when the vehicle is five years old. As discussed in Chapter 1 of the RIA, based on historic used car pricing, applicable sales taxes, and insurance, vehicl es are worth roughly 23% of their original cost after five years, discounted to year of vehicle purchase at 7% per annum. It is476 reasonable to estimate that th e added technology to improve CO 2 level and fuel economy will retain this same percentage of value when the vehicle is five years old. However, it is less clear whether first purchasers, and t hus, manufacturers consider this residual value when ranking technologies and making vehicle purchases, respectively. For this final rule, this factor was not included in our de termination of manufacturer-based net costeffectiveness in the analyses performed in support of this final rule.

The values of manufacturer-based net co st-effectiveness for specific technologies will vary from vehicle to vehicle, often substantially. This occurs for three reasons. First, both the cost and fuel-saving compone nt cost, ownership fuel-savings, and lifetime
CO 2 effectiveness of a specific technology all va ry by the type of vehicle or engine to which it is being applied (e.g., small car ve rsus large truck, or 4-cylinder versus 8- cylinder engine). Second, the effectivene ss of a specific technology often depends on the presence of other technologies already being used on the vehi cle (i.e., the dis-synergies. Third, the absolute fuel savings and CO 2 reduction of a percen tage an incremental reduction in fuel consumption depends on the CO 2 level of the vehicle prior to adding the technology. Chapter 1 of the RIA of this final rule contains further detail on the values of manufacturer-based net cost-effectiven ess for the various technology packages.

6. Why are the Final CO 2 Standards Feasible?

The finding that the final standards are t echnically feasible is based primarily on two factors. One is the level of technology needed to meet th e final standards. The other477 is the cost of this technology. The focus is on the final standards fo r 2016, as this is the most stringent standard and requires th e most extensive use of technology.

With respect to the level of technolog y required to meet the standards, EPA established technology penetration caps. As de scribed in Section III.D.4, EPA used two constraints to limit the model’ s application of te chnology by manufacturer. The first was the application of common fuel economy enable rs such as low rolling resistance tires and transmission logic changes. These were allowe d to be used on all vehicles and hence had no penetration cap. The second constraint wa s applied to most other technologies and limited their application to 85% with the ex ception of the most a dvanced technologies (e.g., power-split hybrid and 2-mode hybrid) and diesel 255 , whose application was limited to 15%.

EPA used the OMEGA model to proj ect the technology (and resultant cost) required for manufacturers to meet the curr ent 2011 MY CAFE standards and the final
2016 MY CO 2 emission standards. Both sets of standards were evaluated using the OMEGA model. The 2011 MY CAFE standa rds were applied to cars and trucks separately with the transfer of credits from one category to the other allowed up to an increase in fuel economy of 1.0 mpg as allowed under the ap plicable MY2011 CAFE regulations. Chrysler, Ford and General Motors are assumed to utilize FFV credits up to the maximum of 1.2 mpg for 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

255 While diesel engines are not an “advanced technology ” per se, diesel engines th at can meet EPA’s light duty Tier 2 Bin 5 NO x standards have advanced (and somewhat co stly) aftertreatment systems on them that make this technology penetration cap appropriate in ad dition to their relatively high incremental costs.478 banked credits from previous model years wa s not considered. The modification of the reference fleet to comply with the 2011 CAFE standards through the application of technology by the OMEGA model is the final step in creating the final reference fleet. This final reference fleet forms the basis for comparison for the model year 2016 standards.

Table III.D.6-1 shows the usage leve l of selected technologies in the 2008 vehicles coupled with 2016 sales prior to projecting their complia nce with the 2011 MY CAFE standards. These technologies incl ude converting port fuel-injected gasoline engines to direct inje ction (GDI), adding the ability to deactivate certain engine cylinders during low load operation to overhead cam e ngines (OHC-DEAC), adding a turbocharger and downsizing the engine (Turbo), diesel e ngine technology, increasing the number of transmission speeds to 6 , or converting automatic transmissions to dual-clutch automated manual transmissions (Dual-Clutch Trans), adding 42 volt start-stop capability (StartStop), and converting a vehicle to an intermediate or strong hybrid design. This last category includes three current hybrid designs: integrated motor assist (IMA), power-split (PS), 2-mode hybrids and electric vehicles. 256

256 EPA did not project reliance on the use of any plug-in hybrid or battery electric vehicles when projecting manufacturers’ compliance w ith the 2016 standards. However, BMW did sell a battery electric vehicle in the 2008 model year, so these sales are in cluded in the technology penetration estimates for the reference case and the final and altern ative standards evaluated for 2016.479 Table III.D.6-1 Penetration of Technology in 2008 Vehicles with 2016 Sales: Cars and Trucks

GDI OHCDEAC Turbo Diesel 6 Speed Auto Trans Dual Clutch Trans StartStop Hybrid BMW 7.5% 0.0% 6.1% 0.0% 86% 0.9% 0% 0.1% Chrysler 0.0% 0.0% 0.5% 0.1% 14% 0.0% 0% 0.0% Daimler 0.0% 0.0% 6.5% 5.6% 76% 7.5% 0% 0.0% Ford 0.4% 0.0% 2.2% 0.0% 29% 0.0% 0% 0.0% General Motors 3.1% 0.0% 1.4% 0.0% 15% 0.0% 0% 0.3% Honda 1.4% 7.1% 1.4% 0.0% 0% 0.0% 0% 2.1% Hyundai 0.0% 0.0% 0.0% 0.0% 3% 0.0% 0% 0.0% Kia 0.0% 0.0% 0.0% 0.0% 0% 0.0% 0% 0.0% Mazda 13.6% 0.0% 13.6% 0.0% 26% 0.0% 0% 0.0% Mitsubishi 0.0% 0.0% 0.0% 0.0% 10% 0.0% 0% 0.0% Nissan 0.0% 0.0% 0.0% 0.0% 0% 0.0% 0% 0.8% Porsche 58.6% 0.0% 14.9% 0.0% 49% 0.0% 0% 0.0% Subaru 0.0% 0.0% 9.8% 0.0% 0% 0.0% 0% 0.0% Suzuki 0.0% 0.0% 0.0% 0.0% 0% 0.0% 0% 0.0% Tata 0.0% 0.0% 17.3% 0.0% 99% 0.0% 0% 0.0% Toyota 6.8% 0.0% 0.0% 0.0% 21% 0.0% 0% 11.6% Volkswagen 50.6% 0.0% 39.5% 0.0% 69% 13.1% 0% 0.0% Overall 3.8% 0.8% 2.6% 0.1% 19.1% 0.5% 0.0% 2.2%
As can be seen, all of these technologi es were already being used on some 2008 MY vehicles, with the exception of direct injection gasoline engines with either cylinder deactivation or turbocharging and downsizing. Transmissions with more gearsets were the most prevalent, with some manufact urers (e.g., BMW, Suzuki) using them on essentially all of their vehicles. Both Daim ler and VW equip many of their vehicles with automated manual transmissions, while VW ma kes extensive use of direct injection gasoline engine technology. Toyota has converted a signifi cant percentage of its 2008 vehicles to strong hybrid design.480 Table III.D.6-2 shows the us age level of the same technologies in the reference case fleet after projecting their compliance with the 2011 MY CAFE standards. Except for mass reduction, the figures shown repres ent the percentages of each manufacturer’s sales which are projected to be equipped with the indicated technology. For mass reduction, the overall mass reduc tion projected for that manuf acturer’s sales is also shown. The last row in Table III.D.6- 2 shows the increase in projected technology penetration due to compliance with the 2011 MY CAFE standards. The results of DOT’s Volpe modeling were used to project that all manufacturers would comply with the 2011 MY standards in 2016 without th e need to pay fines, with one exception. This exception was Porsche in the case of their car fleet. When projecting Porsche’s compliance with the 2011 MY CAFE standard for cars, NHTSA projected that Porsche would achieve a
CO 2 emission level of 304.3 g/mi instead of the required 284.8 g/mi level (29.2 mpg instead of 31.2 mpg), and pay fines in lieu of further control.481 Table III.D.6-2 Penetration of Technol ogy Under 2011 MY CAFE Standards in 2016 Sales: Cars and Trucks (Percent of Sales)

GDI OHCDEAC Turbo 6 Speed Auto Trans Dual Clutch Trans StartStop Mass Reduction (%) BMW 44% 12% 30% 53% 37% 13% 2% Chrysler 0% 0% 0% 18% 0% 0% 0% Daimler 23% 22% 8% 52% 34% 26% 2% Ford 0% 0% 3% 27% 0% 0% 0% General Motors 3% 0% 1% 15% 0% 0% 0% Honda 2% 6% 2% 0% 0% 0% 0% Hyundai 0% 0% 0% 3% 0% 0% 0% Kia 0% 0% 0% 0% 0% 0% 0% Mazda 13% 0% 13% 20% 0% 0% 0% Mitsubishi 32% 0% 2% 25% 35% 0% 1% Nissan 0% 0% 0% 0% 0% 0% 0% Porsche 92% 0% 75% 5% 55% 38% 4% Subaru 0% 0% 9% 0% 0% 0% 0% Suzuki 70% 0% 0% 3% 67% 67% 3% Tata 85% 54% 20% 27% 73% 73% 6% Toyota 7% 0% 0% 19% 0% 0% 0% Volkswagen 89% 5% 81% 14% 78% 18% 3% Overall 10% 2% 7% 16% 7% 3% 0% Increase over 2008 MY 6% 1% 4% -3% 6% 3% 0%

As can be seen, the 2011 MY CAFE sta ndards, when evaluated on an industry wide basis, require only a mode st increase in the use of thes e technologies. The projected MY2016 fraction of automatic transmission w ith more gearsets actually decreases slightly due to conversion of these units to more efficient designs such as automated manual transmissions and hybrids. However, the impact of the 2011 MY CAFE standards is much greater on selected ma nufacturers, particularly BMW, Daimler,482 Porsche, Tata (Jaguar/Land Rover) and VW. All of these manufactur ers are projected to increase their use of direct injection gasoline en gine technology, advanced transmission technology, and start-stop technol ogy. It should be noted th at these manufacturers have traditionally paid fines under the CAFE program. However, with higher fuel prices and the lower cost mature technology projected to be available by 2016, these manufacturers would likely find it in their best interest to improve their fu el economy levels instead of continuing to pay fines (again with the excep tion of Porsche cars). While not shown, no gasoline engines were projected to be c onverted to diesel technology and no hybrid vehicles were projected. Most manuf acturers do not requir e the level of CO 2 emission control associated with either of these t echnologies. The few manufacturers that would were projected to choose to pay CAFE fines in 2011 in lieu of adding diesel or hybrid technologies.

This 2008 baseline fleet, modified to meet 2011 standards, becomes our “reference” case. S ee Section II.B above. This is the fleet against which the final 2016 standards are compared. Thus, it is also the flee t that is assumed to exist in the absence of this rule. No air conditioning improvement s are assumed for model year 2011 vehicles. The average CO 2 emission levels of this reference fleet vary slightly from 2012-2016 due to small changes in the vehicle sales by market segments and manufacturer. CO 2 emissions from cars range from 282-284 g/mi , while those from trucks range from 382- 384 g/mi. CO 2 emissions from the combined fleet range from 316-320. These estimates are described in greater detail in Section 5.3.2.2 of the EPA RIA.483 Conceptually, both EPA and NHTSA perform the same projection in order to develop their respective reference fleets. However, because the two agencies use two different models to modify the baseline fleet to meet the 2011 CAFE standards, the projected technology that could be added will be slightly different. The differences, however, are relatively small since most manuf acturers only require modest addition of technology to meet the 2011 CAFE standards.

EPA then used the OMEGA model once ag ain to project the level of technology needed to meet the final 2016 CO 2 emission standards. Using the results of the OMEGA model, every manufacturer was projected to be able to meet the final 2016 standards with the technology described above except for f our: BMW, VW, Porsche and Tata (which is comprised of Jaguar and Land Rover vehicl es in the U.S. fleet) . For these manufacturers, the results presented below ar e those with the fully allowable application of technology available in EPA’s OMEGA mo deling analysis and not for the technology projected to enable compliance with the fina l standards. Described below are a number of potential feasible solutions for how thes e companies can achieve compliance. The overall level of technology needed to meet the final 2016 standards is shown in Table III.D.6-3. As discussed above, all manufact urers are projected to improve the air conditioning systems on 85% of their 2016 sales. 257

257 Many of the technologies shown in this table are mutually exclusive. Thus, 85% penetration might not be possible. For example, any use of hybrids w ill reduce the DEAC, Turbo, 6SPD, DCT, and 42V S-S technologies. Additionally, not every technology is available to be used on every vehicle type.484 Table III.D.6-3 Final Penetr ation of Technology for 2016 CO 2 Standards: Cars and Trucks

GDI OHCDEAC Turbo Diesel 6 Speed Auto Trans Dual Clutch Trans StartStop Hybrid Mass Reduction (%) BMW 80% 21% 61% 6% 13% 63% 65% 14% 5% Chrysler 79% 13% 17% 0% 31% 52% 54% 0% 6% Daimler 76% 30% 53% 5% 12% 72% 67% 14% 5% Ford 84% 21% 19% 0% 27% 60% 61% 0% 6% General Motors 67% 25% 14% 0% 8% 61% 61% 0% 6% Honda 43% 6% 2% 0% 0% 49% 18% 2% 3% Hyundai 59% 0% 1% 0% 8% 52% 32% 0% 3% Kia 33% 0% 1% 0% 0% 52% 4% 0% 2% Mazda 60% 0% 14% 1% 17% 47% 41% 0% 4% Mitsubishi 74% 0% 33% 0% 14% 74% 74% 0% 6% Nissan 66% 7% 11% 0% 2% 62% 58% 1% 5% Porsche 83% 15% 62% 8% 5% 45% 62% 15% 4% Subaru 60% 0% 9% 0% 0% 58% 44% 0% 3% Suzuki 77% 0% 0% 0% 10% 67% 67% 0% 4% Tata 85% 55% 27% 0% 14% 70% 70% 15% 5% Toyota 26% 7% 3% 0% 13% 40% 7% 12% 2% Volkswagen 82% 18% 71% 11% 10% 68% 60% 15% 4% Overall 60% 13% 15% 1% 12% 55% 42% 4% 4% Increase over 2011 CAFE 49% 11% 9% 1% -4% 48% 39% 2% 4%

Table III.D.6-4 shows the 2016 standards, as well as the achieved CO 2 emission levels for the five manufacturers which are not able to meet these standards under the premises of our modeling. It should be not ed that the two sets of combined emission levels shown in Table III.D.6-4 are base d on sales weighting car and truck emission levels.485 Table III.D.6-4 Emissions of Manufacturers Unable to Meet Final 2016 Standards (g/mi CO 2 ) Achieved Emissions 2016 Standards Shortfall Manufacturer Car Truck Combined Car Truck Combined Combined BMW 236.3 278.7 248.5 228.4 282.5 243.9 4.6 Tata 258.6 323.6 284.2 249.9 272.5 258.8 25.4 Daimler 246.3 297.8 262.6 238.3 294.3 256.1 6.5 Porsche 244.1 332.0 273.4 206.1 286.9 233.0 40.4 Volkswagen 223.5 326.6 241.6 218.6 292.7 231.6 10.0

As can be seen, BMW and Daimler have the smallest shortfalls, 5-6 g/mi, while Porsche has the largest, 40 g/mi.

On an industry average basis, the tec hnology penetrations are very similar to those projected in the proposal. There is a slight shift from the use of cylinder deactivation to the two advanced transmission te chnologies. This is due to the fact that the estimated costs for these three technologies have been updated, a nd thus, their relative cost effectiveness when applied to specific ve hicles have also shifted. The reader is referred to Section II.E of this preamble as well as Chapter 3 of the Joint TSD for a detailed description of the cost estimates s upporting this final rule and to the RIA for a description of the selection of technology packages for specifi c vehicle types. The other technologies shown in Table III.D.6-4 changed by 2 percent or less between the proposal and this final rule.

As can be seen, the overall average reduction in vehicle weight is projected to be 4 percent. This reduction vari es across the two vehicle classe s and vehicle base weight. For cars below 2,950 pounds curb weight, th e average reduction is 2.8 percent (75 pounds), while the average was 4.3 per cent (153 pounds) for cars above 2,950 curb486 weight. For trucks below 3,850 pounds curb we ight, the average reduc tion is 4.7 percent (163 pounds), while it was 5.1 percent (240 pounds ) for trucks above 3,850 curb weight. Splitting trucks at a higher weight, for trucks below 5,000 pounds curb weight, the average reduction is 4.4 percent (186 pounds ), while it was 7.0 percent (376 pounds) for trucks above 5,000 curb weight.

The levels of requisite technologies differ significantly across the various manufacturers. Therefore, several analyses were performed to ascertain the cause. Because the baseline case fleet consists of 2008 MY vehicle designs, these analyses were focused on these vehicles, their technology and their CO 2 emission levels.

Comparing CO 2 emissions across manufacturers is not a simple task. In addition to widely varying vehicle styles, designs, and sizes, manufacturers have implemented fuel efficient technologies to varyi ng degrees, as indicated in Tabl e III.D.6-1. The projected levels of requisite technol ogy to enable compliance with the final 2016 standards shown in Table III.D.6-3 account for two of th e major factors which can affect CO 2 emissions:1) level of technology already being ut ilized 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 advan ced technologies. This is the case with Toyota’s high sales of their Prius hybrid. However, the presence of this technology in a 2008 vehicle eliminates the abil ity to significantly reduce CO 2 further through the use of this technology. In the extrem e, if a manufacturer were to hybridize a high level of its487 sales in 2016, it does not matte r whether this technology was present in 2008 or whether it would be added in order to comply with the standards. The final level of hybrid technology would be the same. Thus, the le vel at which technology is present in 2008 vehicles does not explain the difference in requisite technology levels shown in Table
III.D.6-3.

Similarly, the final CO 2 emission standards ad just the required CO 2 level according to a vehicle’s footprint, requiring lo wer absolute emission levels from smaller vehicles. Thus, just because a manufacturer produces larger vehicles than another manufacturer does not expl ain the differences seen in Table III.D.6-3.

In order to remove these two factor s from our comparison, the EPA lumped parameter model described above was used to estimate the degree to which technology present on each 2008 MY vehicle in our reference fleet was improving fuel efficiency. The effect of this technology was removed and each vehicle’s CO 2 emissions were estimated as if it utili zed no additional fuel efficiency technology beyond the baseline. The differences in vehicle size were accounted for by determining the difference between the sales-weighted average of each manufacturer’s “no technology” CO 2 levels to their required CO 2 emission level under the final 2016 standards. The industry-wide difference was subtracted from each manu facturer’s value to highlight which manufacturers had lower and higher than aver age “no technology” emissions. The results are shown in Figure III.D.6-1.488-60-40-20020406080100120 BMW C hry s ler Daimler Ford GeneralMot o r s Honda Hyundai Ki a Mazda Mitsubis h i Niss an Pors ch e S u b a ru Suzuki T a t a T oy ota Volkswagen

CO2 Emissions (g/mi )CarTruckFigure III.D.6-1 CO2Emission Reduction Required in 2016 from 2008 Vehicles After Removing theBenefit of Technology Already Present, Relative to That for the Fleet as a Whole489 As can be seen in Table III.D.6-3 the manufacturers projected to require the greatest levels of technology also show the highest offsets re lative to the industry. The greatest offset shown in Figure III.D.6-1 is for Tata’s trucks (Land Rover). These vehicles are estimated to have 100 g/mi greater CO 2 emissions than the average 2008 MY truck after accounting for differe nces in the use of fuel sa ving technology and footprint. The lowest adjustment is for Suba ru’s trucks, which have 50 g/mi CO 2 lower emissions than the average truck.

While this comparison confirms the diffe rences in the technology penetrations shown in Table III.D.6-3, it does not yet expl ain why these differences exist. Two well known factors affecting vehicl e fuel efficiency are vehi cle weight and acceleration performance (henceforth referred to as “perfo rmance”). The footprint-based form of the final CO 2 standard accounts for most of the differe nce in vehicle weight seen in the 2008 MY fleet. However, even at the same footpr int, vehicles can have varying weights. Higher performing vehicles also tend to have higher CO 2 emissions over the two-cycle fuel economy test procedure. So manufactur ers with higher averag e performance levels will tend to have higher average CO 2 emissions for any given footprint. This variability at any given footprint contributes to much of the scatter in the data (shown for example on plots like Figures II.C.1-3 through II.C.1-6).

We developed a methodology to assess th e impact of these two factors on each manufacturer’s projected compliance with the 2016 standards. First, we had to remove (or isolate) the effect of CO 2 control technology alre ady being employed on 2008490 vehicles. As described above, 2008 vehicles exhibit a wide range of control technology and leaving these impacts in place would confound the assessment of performance and weight on CO 2 emissions. Thus, the first step was to estimate each vehicle’s “no technology” CO 2 emissions. To do this, we used the EPA lumped parameter model (described in the TSD) to estimate the overall percentage reduction in CO 2 emissions associated with technology already on the vehicle and then backed out this effect mathematically. Second, we performed a le ast-square linear regression of these no technology CO 2 levels against curb weight and the ratio of rated engi ne horsepower to curb weight simultaneously. The ratio of ra ted engine horsepower to curb weight is a good surrogate for acceleration performance and the data is available for all vehicles, whereas the zero to sixty time is not. Both factors were found to be statistically significant at the 95% confidence level. Together, they explained over 80% of the variability in vehicles’ CO 2 emissions for cars and over 70% for trucks. Third, we determined the sales-weighted average curb weight per footprint for cars and trucks, respectively, for the fleet as a whole. We al so determined the sales-weighted average of the ratio of rated engine horsepower to curb weight for cars and truc ks, respectively, for the fleet as a whole. Fourth, we ad justed each vehicl e’s “no technology” CO 2 emissions to eliminate the degree to which the vehicl e had higher or lower acceleration performance or curb weight per footprint relative to the car or truck fleet as a whole. For example, if a car’s ratio of horsepower to weight was 0.007 and the average ratio for all cars was 0.006, then the vehicle’s “no technology” CO 2 emission level was reduced by the difference between these two values (0.001) ti mes the impact of th e ratio of horsepower to weight on car CO 2 emissions from the above linear regression. Finally, we substituted491 these performance and weight adjusted CO 2 emission levels for the original, “no technology” CO 2 emission levels shown in Figure III. D.6-1. The results are shown in Figure III.D.6-2.492-40-30-20-100102030 B MW

D ai m ler G en eralMot o r s Hyun d ai Mazd a Nis s an Subaru Tata Vol k s w a g en

CO2 Emissions (g/mi )CarTruckFigure III.D.6-2 CO2Emission Reduction Required in 2016 From 2008 Vehicles After 1) Removingthe Benefit of Technology Already Present, and 2) Adjusting for Differences in Weight perFootprint,andPerformance, Relative to That for the Fleetas a as a Whole493 First, note that the scale in Figure III.D.6- 2 is much smaller by a factor of 3 than that in Figure III.D.6-1. In other words, acc ounting for differences in vehicle weight (at constant footprint) and performance dram atically reduces the variability among the manufacturers’ CO 2 emissions. Most of the manufact urers with high positive offsets in Figure III.D.6-1 now show low or negative offsets. For example, BMW’s and VW’s trucks show very low CO 2 emissions. Tata’s emissions are very close to the industry average. Daimler’s vehicles are no more than 10 g/mi above the average for the industry. This analysis indicates that the primar y reasons for the differences in technology penetrations shown for the various manufact urers in Table III.D.6-3 are weight and acceleration performance. EPA has not dete rmined why some manufacturers’ vehicle weight is relatively high for its footprint value, or whether this weight provides additional utility for the consumer. Performance is more straightforward. Some consumers desire high acceleration performance a nd some manufacturers orient their sales towards these consumers. However, the cost in terms of CO 2 emissions is clear. Manufacturers producing relatively heavy or high performa nce vehicles presently (with concomitant increases CO 2 emissions) will require greater levels of technology in order to meet the final CO 2 standards in 2016.

As can be seen from Table III.D. 6-3 above, widespread use of several technologies is projected due to the final standards. The va st majority of engines are projected to be converted to direct injection, with some of these engines including cylinder deactivation or turbocharging and downsizing. More than 60 percent of all494 transmissions are projected to be either 6+ speed automatic transmissions or dual-clutch automated manual transmissions. More than on e third 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 si gnificant fuel efficiency improvement at a moderate cost.

In their comments, Porsche stated that their vehicles have twice the power-toweight ratio as the fleet average and that th eir vehicles presently have a high degree of technology penetration, which allows them to meet the 2009 CAFE standards. Porsche also commented that the 2016 standards are not f easible for their firm, in part due to the high level of technologies alre ady present in their vehicles and due to their “very long production life cycles”. BMW in their commen ts stated that their vehicles are “featuredense” thus “requiring additional effort s to comply” with future standards. 258 Ferrari, in their comments, states that the standards are not feasible for high-pe rformance sports cars without compromising on their “d istinctiveness”. They also state that because they already have many technologies on the vehi cles, “there are limited possibilities for further improvements.” Finally Ferrari stat es that smaller volume manufacturers have higher costs “because they can be distributed over very limited production volumes”, and they have longer product lifecycl es. The latter view was also shared by Lotus. These comments will be addressed below, but are ci ted here as supporting the conclusions from the above analysis that high performance a nd feature dense vehicles have a greater challenge meeting the 2016 standards. In general, other manufactur ers covering the rest

258 As a side note, one of the benefits for the off-cycle technology credits allowed in this final rule is the opportunity this flexibility provides for some of these ‘f eature dense’ vehicles to generate such credits to assist, to some extent, in the companies’ ability to comply.495 of the fleet and other commenters agreed with EPA’s analysis in the proposal of projected technology usage, and supported the view th at the 2016 model year standards were feasible in the lead-time provided.

In response to the comments above, EPA foresees no significant technical or engineering issues with the projected deployment of these technologies across the fleet by MY 2016, with their incorporat ion being folded into the ve hicle redesign process (with the exception of some of the small volume manufacturers). All of these technologies are commercially available now. The automotive industry has already begun to convert its port fuel-injected gasoline engines to dire ct injection. Cylinder deactivation and turbocharging technologies are already commercially available. As indicated in Table III.D.6-1, high speed transmissions are already widely used. However, while more common in Europe, automated manual transmissi ons are not currently used extensively in the U.S. Widespread use of this technology would require significan t capital investment but does not present any signifi cant technical or engineering issues. Start-stop systems based on a 42-volt architecture also represen t a challenge because of the complications involved in a changeover to a higher voltage electrical architecture. However, with appropriate capital investments (which are ca ptured in the EPA estimated costs), these technology penetration rates are ach ievable within the timeframe of this rule. While most manufacturers have some plans for these system s, our projections indicate that their use may exceed 35% of sales, with some manuf acturers projected to use higher levels.496 Most manufacturers are not projected to hybridize any vehicles to comply with the final standards. The hybrids shown for Toyo ta are projected to be sold even in the absence of the final standards. However the relatively high hybrid pe netrations (14-15%) projected for BMW, Daimler, Porsche, Tata and Volkswagen deserve further discussion. These manufacturers are all projected by the OMEGA model to utilize the maximum application of full hybrids allowed by our model in this time frame, which is 15 percent.

As discussed in the EPA RIA, a maxi mum 2016 technology pene tration rate of 85% is projected for the vast majority of available technologies, however, for full hybrid systems the projection shows that given the available lead-time full hybrids can only be applied to approximately 15% of a manufacture r’s fleet. This number of course can vary by manufacturer. Hybrids are a relatively costly technology option which requires significant changes to a vehicle’s powert rain design, and EPA estimates that manufacturers will require a significant amount of lead time and capital investment to introduce this technology into the market in very large numbers. Thus the EPA captures this significant change in pr oduction facilities with a lowe r penetration cap. A more thorough discussion of lead time limitations can be found below and in Section III.B.5.

While the hybridization levels of BMW, Daimler, Porsche, Tata and Volkswagen are relatively high, the sales levels of these fi ve manufacturers are re latively low. Thus, industry-wide, hybridization re aches only 4 percent, compared with 3 percent in the reference case. This 4 percent level is beli eved to be well within the capability of the hybrid component industry by 2016. Thus, the primary challenge for these five497 companies would be at the manufacturer level, redesigning a relatively large percentage of sales to include hybrid technology. The final TLAAS provisions will provide significant needed lead time to these manu facturers for pre-2016 compliance, since all qualified companies are 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 mass reduction, electric a nd/or plug-in hybrid vehicles as well as technologies that may not be included in our packages. Also, companies may have technology penetration rates of less costly techno logies (listed in the above tables) greater than 85%, and they may also be able to a pply hybrid technology to more than 15 percent of their fleet (while the 15% cap on the appl ication of hybrid technology is reasonable for the industry as a whole, higher percenta ges are certainly possible for individual manufacturers, particularly those with sma ll volumes). For example, a switch to a low GWP alternative refrigerant in a large frac tion of a fleet can replace many other much more costly technologies, but this option is not captured in the m odeling. In addition, these manufacturers can also take advantage of flexibilities, such as early credits for air conditioning and trading with other manufacturers.

EPA believes it is likely that there will be certain high volume manufacturers that will earn a significant amount of early GHG cr edits starting in 2010 th at would expire 5 years later, by 2015, unused. It is possible that these manufactu rers may be willing to sell498 these credits to manufacturers with whom there is little or no direct competition. 259 Furthermore, a large number of manufacturers have also stated publicly that they support the 2016 standards. The following companies ha ve all submitted letters in support of the national program, including the 2016 MY le vels discussed above: BMW, Chrysler, Daimler, Ford, GM, Nissan, Honda, Mazda, Toyota, and Volkswagen. This supports the view that the emissions reductions needed to achieve the standards are technically and economically feasible for all these companies, and that EP A’s projection of model year 2016 non-compliance for BMW, Daimler, and Volkswagen is based on an inability of our model at this time to fully account for the full flexibilities of the EPA program as well as the potentially unique technol ogy approaches or new produc t offerings which these manufactures are likely to employ.

In addition, manufacturers do not need to apply technology exactly according to our projections. Our projections simply indicate one path which would achieve compliance. Those manufacturers whose vehicl es are heavier (feature dense) and higher performing than average in par ticular have additional options to facilitate compliance and reduce their technological burde n closer to the industry aver age. These options include decreasing the mass of the vehicles and/or de creasing the power output of the engines. Finally, EPA allows compliance to be shown through the use of emission credits obtained from other manufacturers. Especially for the lower volume sales of some manufacturers that could be one component of an e ffective compliance st rategy, reducing the technology that needs to be em ployed on their vehicles.

259 For example, a manufacturer that on ly sells electric vehicles may very well sell the credits they earn to another manufacturer that does no t sell any electric vehicles.499 For light-duty cars and trucks, manufactur ers have available to them a range of technologies that are currently commercially available and can feas ibly be employed in their vehicles by MY 2016. Our modeling projec ts widespread use of these technologies as a technologically feasible approach to comp lying with the final standards. Comments from the manufactures provided broad support for this conclusion. A limited number of commenters presented specific concerns a bout their technology opportunities, and EPA has described above (and elsewhere in the rule ) the paths available for them to comply.

In sum, EPA believes that the emissi ons reductions called for by the final standards are technologically feasible, ba sed on projections of widespread use of commercially available technology, as well as use by some manufacturers of other technology approaches and compliance flexibilities not fully reflected in our modeling.

EPA also projected the cost associated with these projec tions of technology penetration. Table III.D.6- 4 shows the cost of technology in order for manufacturers to comply with the 2011 MY CAFE standards, as well as those associated with the final
2016 CO 2 emission standards. The latter costs ar e incremental to those associated with the 2011 MY standards and also include $60 pe r vehicle, on average, for the cost of projected use of improve d air-conditioning systems. 260

260 Note that the actual cost of the A/C technology is estimated at $71 per vehicle as shown in Table III.D.2-3. However, we expect only 85 percent of the fleet to add that technology. Therefore, the cost of the technology when spread acro ss the entire fleet is $60 per vehicle ($71 x 85% = $60).500 Table III.D.6-4 Cost of Tec hnology per Vehicle in 2016 ($2007) 2011 MY CAFE Standards, Relative to 2008 MY Final 2016 CO 2 Standards, Relative to 2011 MY CAFE Standards Cars Trucks All Cars Trucks All BMW $346 $423 $368 $1,558 $1,195 $1,453 Chrysler $33 $116 $77 $1,129 $1,501 $1,329 Daimler $468 $683 $536 $1,536 $931 $1,343 Ford $73 $161 $106 $1,108 $1,442 $1,231 General Motors $31 $181 $102 $899 $1,581 $1,219 Honda $0 $0 $0 $635 $473 $575 Hyundai $0 $69 $10 $802 $425 $745 Kia $0 $42 $7 $667 $247 $594 Mazda $0 $0 $0 $855 $537 $808 Mitsubishi $328 $246 $295 $817 $1,218 $978 Nissan $0 $61 $18 $686 $1,119 $810 Porsche $473 $706 $550 $1,506 $759 $1,257 Subaru $68 $62 $66 $962 $790 $899 Suzuki $49 $232 $79 $1,015 $537 $937 Tata $611 $1,205 $845 $1,181 $680 $984 Toyota $0 $0 $0 $381 $609 $455 Volkswagen $228 $482 $272 $1,848 $972 $1,694 Overall $63 $138 $89 $870 $1,099 $948

As can be seen, the industry average co st of complying with the 2011 MY CAFE standards is quite low, $89 per vehicle. Th is cost is $11 per vehi cle higher than that projected in the NPRM. This change is very small and is due to several factors, mainly changes in the projected sales of each manufact urer’s specific vehicles, and changes in estimated technology costs. Similar to the costs projected in th e NPRM, the range of costs across manufacturers is quite large. Honda, Mazda a nd Toyota are projected to face no cost. In contrast, Mitsubishi, Porsche, Tata and Volkswagen face costs of at least $272 per vehicle. As describe d above, three of these last four manufacturers (all but501 Mitsubishi) face high costs to meet even the 2011 MY CAFE standards due to either their vehicles’ weight per unit footpr int or performance. Porsche would have been projected to face lower costs in 2016 if they were not expected to pay CAFE fines in 2011.

As shown in the last row of Table III.D. 6-4, the average cost of technology to meet the final 2016 standards for cars and tr ucks combined relative to the 2011 MY CAFE standards is $948 per vehicle. This is $103 lower than that projected in the NPRM, due primarily to lower technology cost projections for the final rule compared to the NPRM for certain technologies. (See Ch apter 1 of the Joint TSD for a detailed description of how our technology costs for the final rule differ from those used in the NPRM). As was the case in the NPRM, Table III.D.6-4 shows that the average cost for cars would be slightly lower th an that for trucks. Toyota a nd Honda show projected costs significantly below the average, while BMW, Porsche, Tata and Volkswagen show significantly higher costs. On average, the $948 per vehicle cost is significant, representing 3.4 percent of the total cost of a new vehicle. However, as discussed below, the fuel savings associated with the final st andards exceed this cost significantly. In general, commenters supported EPA’s cost pr ojections, as discussed in Section II.

While the CO 2 emission compliance modeling us ing the OMEGA model focused on the final 2016 MY standards, the final st andards for 2012-2015 are also feasible. As discussed above, manufacturers develop their future vehicle designs with several model years in view. Generally, the technology estimated above for 2016 MY vehicles represents the technology wh ich would be added to thos e vehicles which are being502 redesigned in 2012-2015. The final CO 2 standards for 2012-2016 reduce CO 2 emissions at a fairly steady rate. Thus, manufacturer s which redesign their vehicles at a fairly steady rate will automatically comply with the interim standard as they plan for compliance in 2016.

Manufacturers which redesign much fewer than 20% of their sales in the early years of the final program would face a more difficult challenge, as simply implementing the “2016 MY” technology as vehicles are re designed may not enable compliance in the early years. However, even in this case, manufacturers would have several options to enable compliance. One, they could utili ze the debit carry-forward provisions described above. This may be sufficient alone to enable compliance through the 2012-2016 MY time period, if their redesign schedule exceed s 20% per year prior to 2016. If not, at some point, the manufacturer might need to increase their use of technology beyond that projected above in order to ge nerate the credits necessary to balance the accrued debits. For most manufacturers representing the vast ma jority of U.S. sales, this would simply mean extending the same technology to a greater percentage of sales. The added cost of this in the later years of the program woul d be balanced by lower costs in the earlier years. Two, the manufacture could take a dvantage of the many optional credit generation provisions contained in this final rule, including early-cr edit generation for model years 2009-2011, credits for advanced technology vehicl es, and credits for the application of technology which result in off-cycle GHG reduc tions. Finally, the manufacturer could buy credits from another manufacturer. As indicated above, several manufacturers are projected to require less st ringent technology than the av erage. These manufacturers503 would be in a position to provide credits at a reasonable technology cost. Thus, EPA believes the final standards for 2012-2016 would be feasible. Further discussion of the technical feasibility of the interim year standards, including for smaller volume manufacturers can be found in Section III. B, in the discussion on the Temporary Leadtime Allowance Alternative Standards.

7. What Other Fleet-Wide CO 2 Levels Were Considered?

Two alternative sets of CO 2 standards were considered. One set would reduce
CO 2 emissions at a rate of 4 percent pe r year. The second set would reduce CO 2 emissions at a rate of 6 percent per year. The analysis of these standards followed the exact same process as described above for the final standards. The only difference was the level of CO 2 emission standards. The footprint-ba sed standard coefficients of the car and truck curves for these tw o alternative control scenario s were discussed above. The resultant projected CO 2 standards in 2016 for each manufacturer under these two alternative scenarios and under the final rule are shown in Table III.D.7-1.504 Table III.D.7-1 Overall Average CO 2 Emission Standards by Manufacturer in 2016 4% per Year Final Rule 6% per Year BMW 248 244 224 Chrysler 270 266 245 Daimler 260 256 236 Ford 261 257 237 General Motors 275 271 250 Honda 248 244 224 Hyundai 234 231 212 Kia 239 236 217 Mazda 232 228 210 Mitsubishi 244 239 219 Nissan 250 245 226 Porsche 237 233 213 Subaru 238 234 214 Suzuki 222 218 199 Tata 263 259 239 Toyota 249 245 225 Volkswagen 236 232 213 Overall 254 250 230

Tables III.D.7-2 and III.D.7-3 show the technology penetration levels for the 4 percent per year and 6 percent per year standards in 2016.505 Table III.D.7-2 Technology Penetration - 4% per Year CO 2 Standards in 2016: Cars and Trucks Combined

GDI OHCDEAC Turbo Diesel 6 Speed Auto Trans Dual Clutch Trans StartStop Hybrid Mass Reduction (%) BMW 80% 21% 61% 6% 13% 63% 65% 14% 5% Chrysler 67% 13% 17% 0% 26% 52% 54% 0% 6% Daimler * 76% 30% 53% 5% 12% 72% 67% 14% 5% Ford 77% 18% 16% 0% 25% 58% 59% 0% 5% General Motors 62% 24% 11% 0% 7% 57% 57% 0% 5% Honda 44% 6% 2% 0% 0% 49% 15% 2% 2% Hyundai 52% 0% 1% 0% 3% 52% 28% 0% 3% Kia 37% 0% 1% 0% 0% 57% 0% 0% 2% Mazda 79% 0% 14% 1% 17% 66% 60% 0% 5% Mitsubishi 85% 0% 31% 0% 16% 72% 72% 0% 6% Nissan 69% 7% 11% 0% 2% 64% 61% 1% 6% Porsche * 83% 15% 62% 8% 5% 45% 62% 15% 4% Subaru 72% 0% 9% 0% 0% 70% 37% 0% 3% Suzuki 70% 0% 0% 0% 3% 67% 67% 0% 3% Tata * 85% 55% 27% 0% 14% 70% 70% 15% 5% Toyota 15% 7% 0% 0% 13% 30% 7% 12% 1% Volkswagen * 82% 18% 71% 11% 10% 68% 60% 15% 4% Overall 56% 13% 14% 1% 11% 53% 41% 4% 4% Increase over 2011 CAFE 46% 11% 7% 1% -5% 46% 38% 2% 4% * These manufacturers were unable to meet the final 2016 standards with the imposed caps on technology.506 Table III.D.7-3 Technology Penetration - 6% per Year Alternativ e Standards in 2016: Cars and Trucks Combined

GDI OHCDEAC Turbo Diesel 6 Speed Auto Trans Dual Clutch Trans StartStop Hybrid Mass Reduction (%) BMW * 80% 21% 61% 6% 13% 63% 65% 14% 5% Chrysler 85% 13% 50% 0% 3% 82% 83% 2% 8% Daimler * 76% 30% 53% 5% 12% 72% 67% 14% 5% Ford* 85% 13% 57% 0% 4% 74% 75% 10% 7% General Motors 85% 25% 43% 0% 2% 83% 83% 2% 8% Honda 68% 6% 10% 0% 1% 65% 65% 2% 6% Hyundai 73% 1% 12% 0% 9% 64% 64% 0% 5% Kia 62% 0% 1% 0% 0% 62% 61% 0% 5% Mazda 85% 0% 19% 1% 4% 80% 82% 0% 7% Mitsubishi* 85% 4% 42% 0% 4% 75% 75% 10% 7% Nissan 85% 8% 38% 0% 0% 78% 81% 4% 8% Porsche * 83% 15% 62% 8% 5% 45% 62% 15% 4% Subaru 84% 0% 18% 1% 3% 79% 80% 0% 6% Suzuki 85% 0% 85% 0% 0% 85% 85% 0% 8% Tata * 85% 55% 27% 0% 14% 70% 70% 15% 5% Toyota 71% 7% 5% 0% 20% 49% 47% 12% 4% Volkswagen * 82% 18% 71% 11% 10% 68% 60% 15% 4% Overall 79% 12% 33% 1% 7% 69% 69% 6% 6% Increase over 2011 CAFE 69% 10% 26% 1% -9% 62% 66% 4% 6% * These manufacturers were unable to meet the final 2016 standards with the imposed caps on technology.
With respect to the 4 percent per year st andards, the levels of requisite control technology are lower than those under the fi nal standards, as would be expected. Industry-wide, the largest decreases were a 7 percent decrease in use of gasoline direct injection engines, a 4 percent decrease in th e use of dual clutch transmissions, and a 2 percent decrease in the applic ation of start-stop technology. On a manufacturer specific basis, the most significant decreases were a 10 percent or larger decrease in the use of507 stop-start technology for Honda, Kia, Mitsubis hi and Suzuki and a 12 percent drop in turbocharger use for Mitsubishi. These are relatively small changes and are due to the fact that the 4 percent per year standards only require 4 g/mi CO 2 less control than the final standards in 2016. Porsche, Tata and Vo lkswagen continue to be unable to comply with the CO 2 standards in 2016, even under the 4 pe rcent per year standard scenario. BMW just complied under this scenario, so its costs and technology penetrations are the same as under the final standards.

With respect to the 6 percent per year st andards, the levels of requisite control technology increased substantially relative to those under the final standards, as again would be expected. Industry-wide, the larg est increase was a 25 percent increase in the application of start-stop t echnology and 13-17 percent increa ses in the use of gasoline direct injection engines, tur bocharging and dual clutch transm issions. On a manufacturer specific basis, the most significant increas es were a 10 percent increase in hybrid penetration for Ford and Mitsubishi. These are more significant changes and are due to the fact that the 6 percent per year standards require 20 g/mi CO 2 more control than the final standards in 2016. Our projections for BMW, Porsche, Tata and Volkswagen continue to show they are unable to comply with the CO 2 standards in 2016, so our projections for these manufacturers do not differ relative to the final standards, though the amount of short-fall for each firm increases significantly, by an additional 20 g/mi CO 2 per firm. However, Ford and Mitsubishi join this list as can be seen from Figure III.D.6- 2. The CO 2 emissions from Ford's cars are very similar to those of the industry when adjusted for technology, weight and performan ce. However, their trucks emit more than508 25% more CO 2 per mile than the industry average. It is possible that addressing this issue would resolve their difficulty in comply ing with the 6 percent per year scenario. Both Mitsubishi's cars and truck emit r oughly 10% more than the industry average vehicles after adjusting for t echnology, weight and performan ce. Again, addressing this issue could resolve their difficu lty in complying with the 6 percent per year scenario. Five manufacturers are projected to need to increase their use of start-stop technology by at least 30 percent.

Table III.D.7-4 shows the projected cost of the two alternative sets of standards.

Table III.D.7-4 Technology Cost per Vehicl e in 2016 – Alternative Standards ($2007) 4 Percent per Year Standards,

relative to 2011 MY CAFE standards 6 Percent per Year Standards, relative to 2011 MY CAFE standards Cars Trucks All Cars Trucks All BMW $1,558 $1,195 $1,453 $1,558 $1,195 $1,453 Chrysler $1,111 $1,236 $1,178 $1,447 $2,156 $1,827 Daimler $1,536 $931 $1,343 $1,536 $931 $1,343 Ford $1,013 $1,358 $1,140 $1,839 $2,090 $1,932 General Motors $834 $1,501 $1,148 $1,728 $2,030 $1,870 Honda $598 $411 $529 $894 $891 $893 Hyundai $769 $202 $684 $1,052 $1,251 $1,082 Kia $588 $238 $527 $1,132 $247 $979 Mazda $766 $537 $733 $1,093 $1,083 $1,092 Mitsubishi $733 $1,164 $906 $1,224 $1,840 $1,471 Nissan $572 $1,119 $729 $1,151 $1,693 $1,306 Porsche $1,506 $759 $1,257 $1,506 $759 $1,257 Subaru $962 $616 $836 $1,173 $1,316 $1,225 Suzuki $1,015 $179 $879 $1,426 $1,352 $1,414 Tata $1,181 $680 $984 $1,181 $680 $984 Toyota $323 $560 $400 $747 $906 $799 Volkswagen $1,848 $972 $1,694 $1,848 $972 $1,694 Overall $811 $1,020 $883 $1,296 $1,538 $1,379509 As can be seen, the average cost of the 4 percent per year st andards is only $65 per vehicle less than that for the final standards. This incremental cost is very similar to that projected in the NPRM. In contrast, the average cost of the 6 percent per year standards is over $430 per vehicle more than th at for the final standards, which is $80 less than that projected in the NPRM (again due to lower technol ogy costs). Compliance costs are entering the region of non-linearity. The $65 cost savings of the 4 percent per year standards relative to the fina l rule represents $19 per g/mi CO 2 increase. The $430 cost increase of the 6 percent per year stan dards relative to the final rule represents a 25 per g/mi CO 2 increase. More importantly, two additional manufacturers, Ford and Mitsubishi, are projected to be unable to comp ly with the 6% per year standards. In addition, under the 6% per year standards, four manufacturers (Chrys ler, General Motors, Suzuki and Nissan) are within 2 g/mi CO 2 of the minimum achievable levels projected by EPA’s OMEGA model analysis for 2016.

EPA does not believe the 4% per year alternative is an appropriate standard for the MY2012-2016 time frame. As discussed above, the 250 g/mi final rule is technologically feasible in this time frame at reasonable costs, and provides higher GHG emission reductions at a modest cost increase over the 4% per year alternative (less than $100 per vehicle). In addition, the 4% per year alternative does not result in a harmonized National Program for the country. Based on California’s letter of May 18, 2009, the emission standards under this altern ative would not resu lt in the State of California revising its regulat ions such that compliance with EPA’s GHG standards510 would be deemed to be in compliance with California’s GHG standards for these model years. Thus, the consequence of promulga ting 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 meeti ng the more stringent California standard for sale in California and the sect ion 177 states. This further increases the costs of the 4% per year standard and could lead to additio nal difficulties for the already stressed automotive industry.

EPA also does not believe the 6% per year alternative is an appropriate standard for the MY 2012-2016 time frame. As shown in Tables III.D.7-3 and III.D.7-4, the 6% per year alternative represents a significant increase in both the t echnology required and the overall costs compared to the final standard s. In absolute percent increases in the technology penetration, compared to the fina l standards the 6% pe r year alternative requires for the industry as a whole: an 18% increase in GDI fuel systems, an 11% increase in turbo-downsize systems, a 6% increase in dual-clutch automated manual transmissions (DCT), and a 9% increase in start-stop systems. For a number of manufacturers the expected incr ease in technology is greater: for GM, a 15% increase in both DCTs and start-stop systems, for Nissa n a 9% increase in full hybrid systems, for Ford an 11% increase in full hybrid systems, for Chrysler a 34% increase in both DCT and start-stop systems and for Hyundai a 23% increase in the overall penetration of DCT and start-stop systems. For the industry as a whole, the per-vehicle cost increase for the 6% per year alternative is n early $500. On average this is a 50% increase in costs511 compared to the final standards. At the same time, CO 2 emissions would be reduced by about 8%, compared to the 250 g/mi target level.

As noted above, EPA’s OMEGA model predic ts that for model year 2016, Ford, Mitsubhisi, Mercedes, BMW, Volkswagen, Jaguar-LandRover, and Porsche do not meet their target under the 6 percent per year scen ario. In addition, Ch rysler, General Motors, Suzuki and Nissan all are within 2 grams/mi CO 2 of maximizing the applicable technology allowed under EPA’s OMEGA model – that is, these companies have almost no head-room for compliance. In total, these 11 companies represent more than 58 percent of total 2016 projected U.S. light-dut y vehicle sales. Th is provides a strong indication that the 6 percent pe r year standard is much more stringent than the final standards, and presents a si gnificant risk of non-compliance for many firms, including four of the seven largest firms by U.S. sales.

These technology and cost increases are significant, given the amount of leadtime between now and model years 2012-2016. In order to achieve the levels of technology penetration for the final standards, the industry needs to invest significant capital and product development resources ri ght away, in partic ular for the 2012 and 2013 model year, which is only 2-3 years fr om now. For the 2014-2016 time frame, significant product development and capital inve stments will need to occur over the next 2-3 year in order to be ready for launchi ng these new products for those model years. Thus a major part of the required capital and resource investment will need to occur now and over the next few years, under the final stan dards. EPA believes that the final rule (a512 target of 250 gram/mile in 2016) already requires significant investment and product development costs for the industry, focused on the next few years.

It is important to note, and as discussed later in this preamble, as well as in the Joint Technical Support Document and the EP A Regulatory Impact Analysis document, the average model year 2016 per-vehicle co st increase of near ly $500 includes an estimate of both the increase in capital i nvestments by the auto companies and the suppliers as well as the incr ease in product development costs. These costs can be significant, especially as they must occur ove r the next 2-3 years. Both the domestic and transplant auto firms, as we ll as the domestic and world-wi de automotive supplier base, is experiencing one of the most difficult market s in the U.S. and internationally that has been seen in the past 30 years. One ma jor impact of the global downturn in the automotive industry and certainly in the U. S. is the significant reduction in product development engineers and staffs, as well as a tightening of the credit markets which allow auto firms and suppliers to make the near-term capital investments necessary to bring new technology into production. The 6% per year alterna tive standard would impose significantly increased pressure on capita l and other resources, indicating it is too stringent for this time frame, given both the relatively limite d amount of lead-time between now and model years 2012-2016, the n eed for much of these resources over the next few years, as well the current financia l and related circumstances of the automotive industry. EPA is not concluding that th e 6% per year altern ative standards are technologically infeasible, but EPA believes su ch standards for this time frame would be overly stringent given the significant strain it would place on the resources of the industry513 under current conditions. EPA believes this degr ee of stringency is not warranted at this time. Therefore EPA does not believe th e 6% per year alternative would be an appropriate balance of va rious relevant factors for model years 2012-1016.

Jaguar/Land Rover, in their comments, agreed that the more stringent standards would not be economically practicable, and se veral automotive firms indicated that the proposed standards, while feasible, would be overly challenging. 261 On the other hand, the Center for Biological Diversity (henceforth referred to here as CBD), strongly urged EPA to adopt more stringent standards. CBD gives examples of higher standards in other nations to support their contenti on that the standards should be more stringent. CBD also claims that the agencies are “setting standard s that deliberately delay implementation of technology that is available now” by setting lead time for the rule greater than 18 months. CBD also accuses the agencies of arbitrarily “adhering to strict fi ve-year manufacturer ‘redesign cycles.’” CBD notes that the agencies have stated that all of the “technologies are already available today,” and EPA and NHT SA’s assessment is that manufacturers “would be able to meet the proposed standa rds through more widespread use of these technologies across the fleet

. ” Based on the agencies’ previous statements, CBD concludes that the fleet can meet the 250 g/mi target in 2010. EPA believes that in all cases, CBD’s analysis for feasibility a nd necessary lead time is flawed.

Other countries’ absolute fleetwide st andards are not a re liable or directly relevant comparison. The fleet make-up in othe r nations is quite different than that of the United States. CBD primarily cites the Europe an Union and Japan as examples. Both of

261 See comments from Toyota, General Motors514 these regions have a large fraction of sma ll vehicles (with lower average weight, and footprint size) when compared to vehicles in the U.S. Also the U.S. has a much greater fraction of light-duty trucks. In particular in Europe, there is a much higher fraction of diesel vehicles in the existing fleet, which leads to lower CO 2 emissions in the baseline fleet as compared to the U.S. This is in la rge part due to the signi ficantly different fuel prices seen in Europe as compared to the U.S. The European fleet also has a much higher penetration of manual transmission than th e U.S., which also results in lower CO 2 emissions. Moreover , these countries use different test cycles, which bias CO 2 emissions relative to the EPA 2 cy cle test cycles. When looked at from a technology-basis, with the exception of the existing large penetration of diesels and manual transmissions in the European fleet – there is no “magic” in the European and Japanese markets which leads to lower fleet-wide CO 2 emissions. In fact, from a tec hnology perspective, the standards contained in this final rule are premised to a large degree on the same technologies which the European and Japanese governments have relied upon to establish their CO 2 & fuel economy limits for this same time frame and for the fleet mixes in thei r countries. That is for example, large increases in the use of 6+ speed transmissions, automated manual transmissions, gasoline direct injection, e ngine downsizing and turbocharging, and startstop systems. CBD has not provided any deta iled analysis of what technologies are available in Europe which EPA is not c onsidering – and there are no such “magic” technologies. The vast majority of the di fferences between the current and future CO 2 performance of the Japanese and European lig ht-duty vehicle fleets ar e due to differences in the size and current composition of the vehicle fleets in those two regions – not515 because EPA has ignored technologies which ar e available for application to the U.S. market in the 2012-2016 time frame.

If CBD is advocating a radical reshifting of domestic fleet composition, (such as requiring U.S. consumers to purchase muchsmaller vehicles and requiring U.S. consumers to purchase vehicles with manual tr ansmissions), it is sufficient to say that standards forcing such a resu lt are not compelled under sec tion 202 (a), where reasonable preservation of consumer choice remains a pertinent factor for EPA to consider in balancing the relevant stat utory factors. See also International Harvester (478 F. 2d at 640 (Administrator required to consider issues of basic demand for new passenger vehicles in making technical feasibility a nd lead time determinations). Thus EPA believes that the standard is at the proper level of stringency for the projected domestic fleet in the 2012-2016 model years taking into account the wide variety of consumer choice that is reflected in this projection of the domestic fleet.

As mentioned earlier (in III.D.4), CBD’s comments on available lead time also are inaccurate. Under section 202 (a), standard s are to take effect only “after providing such period as the Administrator finds necessary to permit the development and application of the requisite t echnology, giving appropriate c onsideration to the cost of compliance within such period.” Having sufficient lead time includes among other things, the time required to certify vehicles. For example, model year 2012 vehicles will be tested and certified for the EPA within a short time after the rule is finalized, and this can start as early as calenda r year 2010, for MY 2012 vehicles that can be produced in516 calendar year 2011. In addition, these 2012 MY vehicles have already been fully designed, with prototypes built several years earl ier. It takes several years to redesign a vehicle, and several more to design an en tirely new vehicle not based on an existing platform. Thus, redesign cycles are an inex tricable component of adequate lead time under the Act. A full line manufacturer only has limited staffing and financial resources to redesign vehicles, therefore the redesigns are staggered throughout a multi-year period to optimize human capital. 262 Furthermore, redesigns re quire a significant outlay of capital from the manufacturer. This include s research and devel opment, material and equipment purchasing, overhead, benefits, et c. These costs are significant and are included in the cost estimates for the technologi es in this rule. Because of the manpower and financial capital constrai nts, it would only be possible to redesign all the vehicles across a manufacturer’s line simultaneously if the manufacturer has access to tremendous amounts of ready capital and an unrealistica lly large engineeri ng staff– However no major automotive firm in the world has the ca pability to undertake such an effort, and it is unlikely that the supplier basis could suppor t such an effort if it was required by all major automotive firms. Even if this unlikely condition were possible, the large engineering staff would then ha ve to be downsized or work on the next redesign of the entire line another few years later. This w ould have the effect of increasing the cost of the vehicles.

262 See for example “How Automakers Plan Their Prod ucts”, Center for Automo tive Research, July 2007.517 There is much evidence to indicate that the average redesign cycle in the industry is about 5 years. 263 There are some manufacturers who have longer cycles (such as smaller manufacturers described above), and th ere are others who have shorter cycles for some of their products. EPA believes that there are no full line manufacturers who can maintain significant redesigns of vehicles (wit h relative large sales) in 1 or 2 years, and CBD has provided no evidence indicating this is technically feasible. A complete redesign of the entire U.S. light-duty fleet by model year 2012 is clearly infeasible, and EPA believes that several model years additiona l lead time is necessary in order for the manufacturers to meet the standards. The graduated increase in the stringency of the standards from MYs 2012 through 2016 acc ounts for this needed lead time.

There are other reasons that the fleet cannot meet the 250g/mi CO 2 target in 2012 (much less in 2010). The commenter reasons that if technology is in use now – even if limited use—it can be utilized across the fleet n early immediately. This is not the case. An immediate demand from original equipm ent manufacturers (OEM s) to supply 100% of the fleet with these technologies in 2012 w ould cause their suppliers to encounter the same lead time issues discussed above. S uppliers have limited capacity to change their current production over to the ne wer technologies quickly. Part of this reason is due to engineering, cost and manpower constraints as described above, but additionally, the suppliers face an issue of “stranded capital”. This is when the basic tooling and machines that produce the technologies in question ne ed to be replaced. If these tools and machines are replaced before they near the end of their useful life, the suppliers are left

263 See for example “Car Wars 2010-2013, The U.S. au tomotive product pipeline”, John Murphy, Research Analyst, Bank of America/Merrill Lync h research paper, July 15, 2009.518 with “stranded capital” i.e., a significan t financial loss because they are replacing perfectly good equipment with newer equipment. This situation can also occur for the OEMs. In an extreme example, a plant that switches over from building port fuel injected gasoline engines to building batteries and motors, will require a nearly complete retooling of the plant. In a less extreme exam ple, a plant that builds that same engine and switches over to suddenly building smaller tu rbocharged direct in jection engines with starter alternators might have significant retooling costs as well as stranded capital. Finally, it takes a signif icant amount of time to retool a factory and smoothly validate the tooling and processes to mass produce a repl acement technology. This is why most manufacturers do this process over time, replaci ng equipment as they wear out. CBD has not accounted for any of these considerations. EPA believes that attempting to force the types of massive technology penetration needed in the early model y ears of the standard to achieve the 2016 standards would be physically and cost prohibitive.

A number of automotive firms and asso ciations (including the Alliance of Automobile Manufacturers, Mercedes, and T oyota) commented that the standards during the early model years, in particular MY2012, are too stringent, a nd that a more linear phase-in of the standards beginning with the MY2011 CAFE standards and ending with the 250 gram/mi proposed EPA projected fleet-wide level in MY2016 is more appropriate. In the May 19, 2009 Joint Notice of Intent, EPA and NHTSA stated that the standards would have “... a generally linear phase-i n from MY 2012 through to model year 2016. ” (74 FR 24008). The Alliance of Autom obile Manufacturers stated that the phase-in of the standards is not linear, and they proposed a methodology for the CAFE519 standards to be a linear progression fro m MY2011 to MY2016. The California Air Resources Board commented that the proposed level of stringency, including the EPA proposed standards for MY2012-2015, were appr opriate and urged EPA to finalize the standards as proposed and not reduce the stri ngency in the early model years as this would result in a large loss of the GHG reduc tions from the National Program. EPA agrees with the comments from CARB, and we have not reduced the stringency of the program for the early model years. While so me automotive firms indicated a desire to see a linear transition from the Model Y ear 2011 CAFE standards, our technology and cost analysis indicates that our standards are appropriate fo r these interim years. As shown in Section III.H of this final rule, the final standards re sult in significant GHG reductions, including the reductions from MY2012-2015, and at reasonable costs, providing appropriate lead time. The automo tive industry commenters did not point to a specific technical issue with the standards, but rather their desire for a linear phase-in from the existing 2011 CAFE standards.

In summary, the EPA believes that the MY2012-2016 standa rds finalized are feasible and that there are compelling reasons not to adopt more stringent standards, based on a reasonable weighing of the statutor y factors, including available technology, its cost, and the lead time necessary to pe rmit its development and application.. For further discussion of these i ssues, see Chapter 4 of the RIA as well as the response to

comments.520 E. Certification, Compliance, and Enforcement

1. Compliance Program Overview

This section describes EPA's comprehensive program to ensure compliance with emission standards for carbon dioxide (CO 2 ), nitrous oxide (N 2 O), and methane (CH 4 ), as described in Section III.B. An effective comp liance program is essential to achieving the environmental and public health benefits promised by these mobile source GHG standards. EPA's GHG co mpliance program is designed around two overarching priorities: 1) to address Clean Air Act (CAA) requirements and policy objectives; and 2) to streamline the compliance process fo r both manufacturers and EPA by building on existing practice wherever possible, and by structuring the program such that manufacturers can use a single data set to satisfy both the new GHG and Corporate Average Fuel Economy (CAFE) testing and reporting requirements. The EPA and NHTSA programs recognize, and replicate as closely as possible, the compliance protocols associated with the existing CAA Ti er 2 vehicle emission standards, and with CAFE standards. The certification, tes ting, reporting, and associated compliance activities closely track current practices and are thus familiar to manufacturers. EPA already oversees testing, colle cts and processes test data, and performs calculations to determine compliance with both CAFE and C AA standards. Under this coordinated approach, the compliance mechanisms fo r both programs are consistent and nonduplicative.521 Vehicle emission standards establ ished under the CAA apply throughout a vehicle's full useful life. T oday’s rule establishes fleet average greenhouse gas standards where compliance with the fleet average is de termined based on the testing performed at time of production, as with the current CAFE fleet average. EPA is also establishing inuse standards that apply thr oughout a vehicle’s useful life, with the in-use standard determined by adding an adjustment factor to the emission results used to calculate the fleet average. EPA’s program will thus not only assess compliance with the fleet average standards described in Section III.B, but will also assess compliance with the in-use standards. As it does now, EPA will use a variety of compliance mechanisms to conduct these assessments, including pre-production certification and post-production, in-use monitoring once vehicles enter customer serv ice. Specifically, EPA is establishing a compliance program for the fleet average that utilizes CAFE program protocols with respect to testing, a certification procedure th at operates in conjunction with the existing CAA Tier 2 certification proce dures, and an assessment of compliance with the in-use standards concurrent with existing EPA a nd manufacturer Tier 2 emission compliance testing programs. Under this compliance program manufacturer s will also be afforded numerous flexibilities to help achieve compliance, both stemming from the program design itself in the form of a manufacturer-specific CO 2 fleet average standard, as well as in various credit banking and trading opportuni ties, as described in Section III.C. EPA received broad comment from regulated indus try and from the public interest community supporting this overall compliance program structure. The compliance program is outlined in further detail below.522 2. Compliance with Fleet-Average CO 2 Standards

Fleet average emission levels can only be determined when a complete fleet profile becomes available at the close of the model year. Therefore, EPA will determine compliance with the fleet average CO 2 standards when the model year closes out, as is currently the protocol under EPA’s Tier 2 program as well as unde r the current CAFE program. The compliance determination will be based on actual production figures for each model and on model-level emissions data collected through testing over the course of the model year. Manufacturers will submit this information to EPA in an end-of-year report which is 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 engine ering resources. Ma nufacturers submit their CAFE test results to EPA and EPA conducts confirmatory fuel economy testing at its laboratory on a subset of these vehicles under EPA's Part 600 regulations. EPA’s proposal to extend this approach to th e GHG program received overwhelming support from vehicle manufacturers. EPA is finalizing GHG requirements under which manufacturers will continue to perform the model-level testing currently required for CAFE fuel economy performance and measure and report the CO 2 values for all tests conducted. 264 Manufacturers will submit one data set in satisfaction of both CAFE and

264 As discussed in Section III.B.1, vehicle and fleet average compliance will be based on a combination of CO 2 , HC, and CO emissions. This is consistent with the carbon balance methodology used to determine fuel consumption for the labeling and CAFE programs. The final regulations account for these total carbon emissions appropriately and refer to the sum of thes e emissions as the “carbon-related exhaust emissions”523 GHG requirements such that EPA’s program w ill not impose additional timing or testing requirements on manufacturers beyond that required by the CA FE program. For example, manufacturers currently submit fuel economy test results at the subconfiguration and configuration levels to satisfy CAFE requi rements. Now manufacturers will also submit
CO 2 values for the same vehicles. Section III. E.3 discusses how this will be implemented in the certification process.

a. Compliance Determinations

As described in Section III.B above, the fleet average standards will be determined on a manufacturer by manufacturer ba sis, separately for cars and trucks, using the footprint attribute curves. EPA will calcu late the fleet average emission level using actual production figures a nd, for each model type, CO 2 emission test values generated at the time of a manufacturer's CAFE testing. EPA will then compare the actual fleet average to the manufacturer's footprint sta ndard to determine compliance, taking into consideration use of averaging and credits.

Final determination of compliance with fleet average CO 2 standards may not occur until several years after th e close of the model year due to the flexibilities of carryforward and carry-back credits and the remedi ation of deficits (see Section III.C). A failure to meet the fleet average standard after credit opportunities have been exhausted

(CREE). Although regulatory text uses the more accura te term “CREE” to represent the CO 2 – equivalent sum of carbon emissions, the term CO 2 is used as shorthand throughout Section III.E as a more familiar term for most readers.524 could ultimately result in pe nalties and injunctive orders under the CAA as described in Section III.E.6 below.

EPA received considerable comment about the need for transparency in its implementation of the greenhouse gas program and specifically about the need for public access to information about Agency compliance determinations. Many comments emphasized the importance of making gree nhouse gas compliance information publicly available to ensure such transparency. EP A also received comment from industry about the need to protect confidential business inform ation. Both transparency and protection of confidential information are longstanding EP A practices, and both will remain priorities in EPA’s implementation of the greenhous e gas program. EPA pe riodically provides mobile source emissions and fuel economy information to the public, for example through the annual Compliance Report 265 and Fuel Economy Trends Report. 266 As proposed, EPA plans to expand these re ports to include GHG performance and compliance trends information, such as annual st atus of credit balan ces or debits, use of various credit programs, attained fleet averag e emission levels compared with standards, and final compliance status for a model year after credit reconcil iation occurs. EPA intends to regularly disseminate non-confiden tial, model-level and fleet information for each manufacturer after the clos e of the model year. EPA will reassess data release needs and opportunities once the program is underway.

265 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 266 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.htm525 Beyond transparency in reporting emissions data and compliance status, EPA is concerned, as a matter of principle moving in to a new era of greenhouse gas control, that greenhouse gas reductions reported for purpos es of compliance with the standards adopted in this rule will be reflected in the real world a nd not just as calculated fleet average emission levels or measured certifi cation test results. Therefore EPA will pay close attention to technical details behi nd manufacturer reports. For example, EPA intends to look closely at each manufactur er’s certification testing procedures, GHG calculation procedures, and labor atory correlation with EPA’s laboratory, and to carefully review manufacturer pre-production, producti on, and in-use testing programs. In addition, EPA plans to monitor GHG perfor mance through its own in-use surveillance program in the coming years. This will ensure that the environmental benefits of the rule are achieved as well as ensure a level playing field for all.

b. Required Minimum Testing For Fleet Average CO 2

EPA received no public comment on provisi ons that would extend current CAFE testing requirements and flex ibilities to the GHG program, a nd is finalizing as proposed minimum testing requirements for fleet average CO 2 determination. EPA will require and use the same test data to determine a ma nufacturer’s compliance with both the CAFE standard and the fleet average CO 2 emissions standard. CAFE requires manufacturers to submit test data representing at least 90% of the manufacturer's model year production, by configuration. 267 The CAFE testing covers the vast majority of models in a manufacturer’s fleet. Ma nufacturers industry-wide curr ently test more than 1,000

267 See 40 CFR 600.010-08(d).526 vehicles each year to meet this requirement. EPA believes this minimum testing requirement is necessary and appl icable for calculating accurate CO 2 fleet average emissions. Manufacturers may test additional vehicles, at their option. As described above, EPA will use the emissions results from the model-level testing to calculate a manufacturer's fleet average CO 2 emissions and to determine compliance with the CO 2 fleet average standard.

EPA will continue to allow certain tes ting flexibilities that exist under the CAFE program. EPA has always permitted manufacturers some ability to reduce their test burden in tradeoff for lower fuel economy nu mbers. 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 values may only be applied to configurations that would be expected to have better fuel economy and for which no actual test data ex ist. EPA will continue to accept use of substituted data in the GHG program, but only when the substituted data are also used for CAFE purposes.

EPA regulations for CAFE testing permit the use of analytic ally derived fuel economy data in lieu of conducting actual fu el economy tests in certain situations. 268 Analytically derived data are generated math ematically using expressions determined by EPA and are allowed on a limited basis when a manufacturer has not tested a specific vehicle configuration. This has been done as a way to reduce some of the testing burden on manufacturers without sacrif icing accuracy in fuel econom y measurement. EPA has

268 40 CFR 600.006-08(e)527 issued guidance that provides details on analyt ically derived data and that specifies the conditions when analytically derived fuel economy data may be used. EPA will apply the same guidance to the GHG program and will allow any analytically derived data used for CAFE to also satisfy the GHG data reporti ng requirements. EPA will revise the terms in the current equations for analytically deri ved fuel economy to specify them in terms of
CO 2 . Analytically derived CO 2 data will not be permitted for the Emission Data Vehicle representing a test group for pre-production certification, only for the determination of the model level test results used to determine actual fleet-average CO 2 levels.

EPA is retaining the definitions needed to determine CO 2 levels of each model type (such as "subconfiguration, " "configuration," "base level," etc.) as they are currently defined in EPA's fuel economy regulations.

3. Vehicle Certification

CAA section 203(a)(1) prohibits manufact urers 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 de monstration of compliance with the emission standards established by EPA under secti on 202 of the Act. The certification demonstration requires emission testing, and must be done for each model year. 269

269 CAA section 206(a)(1).528 Under Tier 2 and other EP A emission standard program s, vehicle manufacturers certify a group of vehicles called a test gr oup. A test group typi cally includes multiple vehicle car lines and model types that share critical emissions-related features. 270 The manufacturer generally selects and tests one vehicle to repres ent the entire test group for certification purposes. The test vehicle is the one expected to be the worst case for the emission standard at issue. Emission results from the test vehicle are used to assign the test group to one of several specified bins of emissions levels, identified in the Tier 2 rule, and this bin level becomes the in-use emissions standard for that test group. 271

Since compliance with the Tier 2 fleet av erage depends on actual test group sales volumes and bin levels, it is not possible to determine compliance with the fleet average at the time the manufacturer app lies for and receives a certificate of conf ormity for a test group. Instead, EPA requires the manufacturer to make a good faith demonstration in the certification application that vehicles in the test group will both 1) comply throughout their useful life with the emissions bin assigned, and 2) contribute to fleet-wide compliance with the Tier 2 average when the year is over. EPA issues a certificate for the vehicles included in the test group ba sed on this demonstration, and includes a condition in the certificate th at if the manufacturer does not comply with the fleet average, then production vehicles from that test group will be treated as not covered by the certificate to the extent needed to bring the manufacturer’s fleet average into compliance with Tier 2.

270 The specific test group criteria are described in 40 CFR 86.1827-01, car lines and model types have the meaning given in 40 CFR 86.1803-01. 271 Initially in-use standards were different from the bi n level determined at certification as the useful 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 determining compliance with the fleet average.529 The certification process of ten occurs several months prior to production and manufacturer testing may occur months before the certificate is issued. The certification process for the Tier 2 program is an e fficient way for manufacturers to conduct the needed testing well in advance of certification, and 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 ensure compliance with the Tier 2 fleet
average.

EPA will similarly conditi on each certificate of conformity for the GHG program upon a manufacturer's demonstration of comp liance with the manufacturer’s fleet-wide average CO 2 standard. The following discussion explains how EPA will integrate the new GHG vehicle certification program into the existing certification program.

a. Compliance Plans

In an effort to expedite the Tier 2 program certification pr ocess and facilitate early resolution of any compliance related concerns, EPA conducts annual reviews of each manufacturer’s certification, in-use compliance and fuel economy plans for upcoming model year vehicles. EPA meets with each manufacturer individually, typically before the manufacturer begins to submit appl ications for certification for the new model year. Discussion topics include compliance plans for the upcoming model year, any new product offerings/new technologi es, certification and/or test ing issues, phase-in and/or530 ABT plans, and a projection of potential EPA confirmatory te st vehicles. EPA has been conducting these compliance preview meetings for more than 10 years and has found them to be very useful for both EPA and manu facturers. Besides helping to expedite the certification process, certifi cation preview meetings provide an opportunity to resolve potential issues before the process begins. The meetings give EPA an early opportunity to assess a manufacturer’s compliance strategy, which in turn enables EPA to address any potential concerns before plans are finalized . The early interacti on reduces the likelihood of unforeseen issues occurring during the actu al certification of a test group which can result in the delay or even termin ation of the certification process.

For the reasons discussed a bove, along with additional f actors, EPA believes it is appropriate for manufacturers to include th eir GHG compliance plan information as part of the new model year compliance preview pro cess. This requirement is both consistent with existing practice under Tier 2 and very similar to the pre-model year report required under existing and new CAFE regulation. Fu rthermore, in light of the production weighted fleet average program design in which the final compliance determination cannot be made until after the end of the model year, EPA believes it is especially important for manufacturers to demonstrate th at they have a credible compliance plan prior to the beginning of certification.

Several commenters raised concerns about EPA’s propos al for requiring manufacturers to submit GHG compliance plans. AIAM stated that EPA did not identify a clear purpose for the review of the plan s, criteria for evaluating the plans, or531 consequences if EPA found the plans to be unacceptable. AIAM also expressed concern over the appropriateness of requiring manuf acturers to prepare regulatory compliance plans in advance, since vicissitudes of the market and other factors beyond a manufacturer’s direct control may change ove r the course of the year and affect the model year outcome. Finally, AIAM commen ted that EPA should not attempt to take any enforcement action based on an asserted in adequacy of a plan. The comments stated that compliance should be determined only after the end of a model year and the subsequent credit earning period. Th e Alliance commented that there was an inconsistency between the proposed preamble language and the regulatory language in 600.514-12(a)(2)(i). The preamble language indi cated that the compliance report should be submitted prior to the beginning of the model year and prior to the certification of any test group, while the regulatory language stated that the pr e-model year report must be submitted during the month of December. The Alliance pointed out that if EPA wanted GHG compliance plan information before the certification of a ny test groups, the regulatory language would need to be corrected.

EPA understands that a manufacturer’s pl an may change over the course of a model year and that compliance information manufacturers present prior to the beginning of a new model year may not represent th e final compliance outcome. Rather, EPA views the compliance plan as a manufacturer ’s good-faith projection of strategy for achieving compliance with the greenhouse gas sta ndard. It is not EPA’s intent to base compliance action solely on differences between projections in the compliance plan and end of year results. EPA understands that compliance with the GHG program will be532 determined at the end of the m odel year after all appropriate credits have been taken into consideration.

As stated earlier, a requirement to in clude GHG compliance information in the new model year compliance preview meetings is consistent with long standing EPA policy. The information will provide EPA with an early overview of the manufacturer’s GHG compliance plan and allow EPA to make an early assessment as to possible issues, questions, or concerns with the program in or der to expedite the certification process and help manufacturers better understand overall compliance provisions of the GHG program. Therefore, EPA is finalizing revisions to 40 CFR 600.514-12 which will require manufacturers to submit a compliance plan to EPA prior to the beginning of the model year and prior to the ce rtification of any test group. The compliance plan must, at a minimum, include a manufacturer’s projected f ootprint profile, proj ected total and modellevel production volumes, projected fleet average and model-level CO 2 emission values, projected fleet average CO 2 standards and projected fleet average CO 2 credit status. In addition, EPA will expect the compliance plan to explain the various credit, transfer and trading options that will be used to comply with the standard, in cluding the amount of credit the manufacturer intends to generate for air conditioning leak age, air conditioning efficiency, off-cycle technology, and various early credit pr ograms. The compliance plan should also indicate how and when any deficits will be paid off through accrual of future credits.533 EPA has corrected the inconsistenc y between the proposed preamble and regulatory language with respect to when th e compliance report must be submitted and what level of information detail it must c ontain. EPA is finaliz ing revisions to 40 CFR 600.514-12 which require the compliance plan to be submitted to EPA prior to the beginning of the model year and prior to the certification of any test group. Today’s action will also finalize simplified repor ting requirements as discussed above.

b. Certification Test Groups and Test Vehicle Selection

Manufacturers currently divide their fl eet into "test groups " for certification purposes. The test group is EPA's unit of certif ication; one certificat e is issued per test group. These groupings cover vehicles with similar emission control system designs expected to have similar emissions performance. 272 The factors considered for determining test groups include combustion cy cle, engine type, engine displacement, number of cylinders and cylinder arrangement , fuel type, fuel metering system, catalyst construction and precious metal compositi on, among others. Ve hicles having these features in common are generally placed in the same test group. 273 Cars and trucks may be included in the same test group as long as they have similar emissions performance (manufacturers frequently produce cars and truc ks that have identical engine designs and emission controls).

272 40 CFR 86.1827-01. 273 EPA provides for other groupings in certain circumstances, and can establish its own test groups in cases where the criteria do not apply. 40 CFR 86.1827-01(b), (c) and (d).534 EPA recognizes that the Tier 2 test group criteria do not necessarily relate to CO 2 emission levels. For instance, while some of the criteria, such as combustion cycle, engine type and displaceme nt, and fuel metering, may have a relationship to CO 2 emissions, others, such as those pertaining to the catalyst, may not. In fact, there are many vehicle design factors that affect CO 2 generation and emissions but are not included in EPA's te st group criteria. 274 Most important among these may be vehicle weight, horsepower, aerodynamics, vehicl e size, and performance features.

As described in the proposal, EPA cons idered but did not propose a requirement for separate CO 2 test groups established around crit eria more directly related to CO 2 emissions. Although CO 2 -specific test groups might more consistently predict CO 2 emissions of all vehicles in the test group, the addition of a CO 2 test group requirement would greatly increase the pre-production ce rtification burden for both manufacturers and EPA. For example, a current Tier 2 test gr oup would need to be sp lit into tw o groups if automatic and manual transmissions models ha d been included in the same group. Twoand four-wheel drive vehicles in a current test group would similarly require separation, as would weight differences among vehicles. This would at least triple the number of test groups. EPA believes that the adde d burden of creating separate CO 2 test groups is not warranted or necessary to maintain an appropriately rigorous certification program because the test group data are later replaced by mode l specific data which are used as the basis for determining compliance with a manufacturer’s fleet average standard.

274 EPA noted this potential lack of connection betw een fuel economy testing and testing for emissions standard purposes when it first adopted fuel economy test procedures. See 41 FR at 38677 (Sept. 10, 1976).535 For these reasons, EPA will retain the current Tier 2 test group structure for cars and light trucks in the certification requirements for CO 2 . EPA believes that the current test group concept is also appropriate for N 2 0 and CH 4 because the technologies that are employed to control N 2 O and CH 4 emissions will generally be the same as those used to control the criteria pollutants. Vehicle manu facturers agreed with this assessment and universally supported the use of current Tier 2 test groups in lieu of developing separate
CO 2 test groups.

At the time of certification, manufacturers may use the CO 2 emission level from the Tier 2 Emission Data Vehicle as a surrogate to represent all of the models in the test group. However, following certification furthe r testing will generally be required for compliance with the fleet average CO 2 standard as described below. EPA's issuance of a certificate will be conditioned upon the manufact urer's subsequent model level testing and attainment of the actual fleet average. Further discussion of these requirements is presented in Section III.E.6.

As just discussed, the “worst case” Emissi ons Data Vehicle selected to represent a test group under Tier 2 (40 CFR 86.1828-01) may not have the highest levels of CO 2 in that group. For instance, there may be a heav ier, more powerful configuration that emits higher CO 2 , but may, due to the wa y the catalytic converter has been matched to the engine, actually have lower NO X , CO, PM or HC.536 Therefore, in lieu of a separate CO 2 -specific test group, EPA considered requiring manufacturer s to select a CO 2 test vehicle from within the Tier 2 test group that would be expected, based on good engineer ing judgment, to have the highest CO 2 emissions within that test group. The CO 2 emissions results from this vehicle would be used to establish an in-use CO 2 emission standard for the test group. The requirement for a separate, worst case CO 2 vehicle would provide EPA with some assurance that all vehicles within the te st group would have CO 2 emission levels at or below those of the selected vehicle, even if ther e is some variation in the CO 2 control strategies within the test group (such as different transmission type s). Under this approach, the test vehicle might or might not be the same one that w ould be selected as worst case for criteria pollutants. Vehicle manufacturers expressed concern with this approach as well, and EPA ultimately rejected this approach becau se it could have required manufacturers to test two vehicles in each test group, rather th an a single vehicle. This would represent an added timing burden to manufacturers because they might need to build additional test vehicles at the time of cert ification that previously we ren't required to be tested.

Instead, EPA proposed and will adopt pr ovisions that allow a single Emission Data Vehicle to represent the te st group for both Tier 2 and CO 2 certification. The manufacturer will be allowed to initially apply the Emission Data Vehicle’s CO 2 emissions value to all models in the test group, even if other models in the test group are expected to have higher CO 2 emissions. However, as a condi tion of the certificate, this surrogate CO 2 emissions value will generally be replaced with actual, model-level CO 2 values based on results from CAFE testing that occurs later in the model year. This model537 level data will become the official certif ication test results (as per the conditioned certificate) and will be used to determine comp liance with the fleet average. Only if the test vehicle is in fact the worst case CO 2 vehicle for the test gr oup 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 em issions. Manufacturers would be unlikely to make this choice, because doing so would i gnore 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 are already being submitted to EPA for CAFE and labeling purposes, so it would be an unusual situation that would cause a manufacturer to ignore th ese data and choose to accept a higher CO 2 fleet average.

Manufacturers will be subject to two standa rds, the fleet average standard and the in-use standard for the useful life of the vehicle. Compliance w ith the fleet average standard is based on production-weighted av eraging of the test data applied to each model. For each model, the in-use standard will generally be set at 10% higher than the level used for that model in calculatin g the fleet average (see Section III.E.4). 275 The certificate will cover both of these standa rds, and the manufacturer will have to demonstrate compliance with both of these standards for purposes of receiving a certificate of conformity. The certification pr ocess for the in-use standard is discussed below in Section III.E.4.

275 In cases where configuration or sub-configuration leve l data exist, the in-use standard will be set at 10% higher than those emissions te st results. See Section III.E.4538 c. Certification Testi ng Protocols and Procedures

To be consistent with CAFE, EPA will combine the CO 2 emissions results from the FTP and HFET tests using the same calculation method used to determine fuel economy for CAFE purposes. This approach is appropriate for CO 2 because CO 2 and fuel economy are so closely related. Other th an the fact that fuel economy is calculated using a harmonic average and CO 2 emissions can be calculated using a conventional average, the calculation methods are very similar. The FTP CO 2 data will be weighted at 55%, and the highway CO 2 data at 45%, and then averaged to determine the combined number. See Section III.B.1 fo r more detailed information on CO 2 test procedures, Section III.C.1 on Air Conditioning Emissions, and Section III.B.7 for N 2 O and CH 4 test procedures.

For the purposes of compliance with the fl eet average and in-use standards, the emissions measured from each test vehicl e will include hydrocarbons (HC) and carbon monoxide (CO), in addition to CO 2 . All three of these exhaus t constituents are currently measured and used to determine the amount of fuel burned over a given test cycle using a “carbon balance equation” defined in the regulati ons, and thus measurement of these is an integral part of current fuel economy testi ng. As explained in Section III.C, it is important to account for the total carbon cont ent of the fuel. Ther efore the carbon-related combustion products HC and CO must be in cluded in the calculations along with CO 2, and any other carbon-containi ng exhaust components such as aldehyde emissions from alcohol-fueled vehicles. CO emissions are adjusted by a co efficient that reflects the539 carbon weight fraction (CWF) of the CO mol ecule, and HC emissions are adjusted by a coefficient that reflects the CWF of the fuel being burned (the molecular weight approach doesn’t work since there are many diffe rent hydrocarbons compounds being accounted for). Thus, EPA will calculate the carbon -related exhaust emissions, also known as “CREE,” of each test vehicl e according to the following formula, where HC, CO, and
CO 2 are in units of grams per mile:

carbon-related exhaust emissions (g rams/mile) = CWF*HC + 1.571*CO + CO 2 where: CWF = the carbon weight fraction of the test fuel

As part of the current CAFE and Tier 2 compliance programs, EPA selects a subset of vehicles for confirmatory testi ng at its National Vehicl e and Fuel Emissions Laboratory. The purpose of confirmatory testing is to validate the manufacturer’s emissions and/or fuel economy data . Under this rule, EPA will add CO 2 , N 2 O, and CH 4 to the emissions measured in the course of Tier 2 and CAFE confirmatory testing. The
N 2 O and methane measurement requirements w ill begin for model year 2015, when requirements for manufacturer measurement to co mply with the standard also take effect. The emission values measured at the EPA laborat ory will continue to stand as official, as under existing regulatory programs.

Under current practice, if during EPA’s c onfirmatory fuel economy testing, the
EPA fuel economy value differs from the ma nufacturer's value by more than 3%, manufacturers can request a re-test. The re-t est results stand as official, even if they540 differ by more than 3% from the manufactur er’s value. EPA proposed extending this practice to CO 2 results, but manufacturers commented that this could l ead to duplicative testing and increased test burden. EPA agr ees that the close relationship between CO 2 and fuel economy precludes the need to conduct a dditional confirmatory tests for both fuel economy and CO 2 to resolve potential discrepancies. Therefore EPA will continue to allow a re-test request based on a 3% or greater disparity in manufacturer and EPA confirmatory fuel economy test values, si nce 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 opportuni ty for a compliance buffer)..

4. Useful Life Compliance

Section 202(a)(1) of the C AA requires emission standard s to apply to vehicles throughout their statutory useful life, as furt her described in Section III.A. For emission programs that have fleet average standards, such as Tier 2 NO X fleet average standards and the new CO 2 standards, the useful life requireme nt applies to individual vehicles rather than to the fleet average standard. For example, in Tier 2 the useful life requirements apply to the indivi dual emission standard levels or “bins” that the vehicles are certified to, not the fleet av erage standard. For Tier 2, the useful life requirement is 10 years 276 or 120,000 miles with an optional 15 year or 150,000 mile provision. A similar approach is used for heavy-duty e ngines, however a specific Family Emissions Level is assigned to the engine family at cer tification, as compared to a pre-defined bin emissions level as in Tier 2.

276 11 years for heavy-light-duty trucks, ref. 40 CFR 86.1805-12541 As noted above, the in-use CO 2 standard under the gree nhouse gas program, like Tier 2, will apply to individual vehicles and is separate from the fleet-average standard. However, unlike the Tier 2 program and othe r EPA fleet average standards, the modellevel CO 2 test results are themselves used to calculate the fleet average standard for compliance purposes. This is consistent with the current CAFE practice, but it means the fleet average standard and the emission test re sults used to calculate compliance with the fleet average standard do not take into account test-to-test variability and production variability that can affect in-use levels. Since the CO 2 fleet average uses the model level emissions test results themselves for purpos es of calculating the fleet average, EPA proposed an adjustment factor for the in-u se standard to provide some margin for production and test-to-test variab ility that could result in di fferences between the initial emission test results used to calculate th e fleet average and emission results obtained during subsequent in-use testing. EP A proposed that each model’s in-use CO 2 standard would be the model specific level used in calc ulating the fleet average, adjusted to be 10% higher.

EPA received significant comment from i ndustry expressing concern with the inuse standard. The comments focused on concer ns about manufacturer liability for in-use
CO 2 performance and for the most part did not address the proposed 10% adjustment level or even the need for an adjustment to account for variability. Some comments suggested that an in-use standard is not n ecessary because in-use testing is not mandated in the CAA. Others stated that since there is no evidence that CO 2 emission levels542 increase over time, there is no need for an in -use standard. Finally, there was a general concern that failure to meet the in-use sta ndard would result in recall liability and that recall can only be used in cases where it can be demonstrated that a “repair” can remedy the nonconformity. One manufacturer provi ded comments supporting the use of a 10% adjustment factor for the in-use standard. These comments also recommended that the 10% adjustment factor be applied to configurat ion or subconfiguration data rather than to model-level data unless the lower-level data we re not available. Fina lly, the manufacturer expressed concern that a strai ght 10% adjustment would result in inequity between highand low-emitting vehicles.

Section 202(a)(1) specifies that emissions standards are to be applicable for the useful life of the vehicle. The in-use emissions standard for CO 2 implements this provision. While EPA agrees that the CAA does not require the Agency to perform inuse testing to monitor compliance with in-use standards, the Act clea rly authorizes in-use testing. EPA has a long trad ition of performing in-use testing and has found it to be an effective tool in the overall light-duty vehi cle compliance program. EPA continues to believe that it is appropriate to perform in-use testing and that the evaluation of individual vehicle performance for all regulated emission constituents, including CO 2 , N 2 O and
CH 4 , is necessary to ensure compliance with all light-duty require ments. EPA also believes that the CAA clearly mandates that all emission standards apply for a vehicle’s useful life and that an in-use standard is therefore necessary.543 EPA agrees with industry commenters that th ere is little eviden ce to indicate that
CO 2 emission levels from current-technology vehi cles increase over time. However, as stated above, the CAA mandates that all emi ssion standards apply fo r a vehicle’s useful life regardless of whether the emissions increase over time. In addition, there are factors other than emission deterioration over time th at can cause in-use emissions to be greater than emission standards. The most obvious are component defects, production mistakes, and the stacking of component production and design tolerances. Any one of these can cause an exceedance of emission standards fo r individual vehicles or whole model lines. Finally EPA believes that it is essential to monitor in-use GHG emissions performance of new technologies, for which there is currently no in-use experience, as they enter the market. Thus EPA believes that the value in establishing an in-use standard extends beyond just addressing emissi on deterioration over time from current technology vehicles.

The concern over recall liability in cases where there is no effective repair remedy has some legitimate basis. For example, EPA agrees there would be a concern if a number of vehicles for a particular model were to have in-use emissions that exceed the in-use standard, with no effective repair available to remedy the noncompliance. However, EPA does not anticipate a scenario in volving exceedance of the in-use standard that would cause the Agency to pursue a recall unless there is a repairable cause of the exceedance. At the same time, failures to emission-related components, systems, software, and calibrations do occur that c ould result in a failure of the in-use CO 2 standard. For example, a defective oxygen se nsor that causes a vehi cle to burn excessive544 fuel could result in higher CO 2 levels that would exceed the in-use standard. While it is likely that such a problem would affect othe r emissions as well, there would still be a demonstratable, repairable problem such that a recall might be valid. Therefore, EPA believes that a CO 2 in-use standard is statutorily requi red and can serve as a useful tool for determining compliance with the GHG program.

EPA agrees with the industry comment th at it is appropriate where possible to apply the 10% adjustment factor to the vehicle- level emission test results, rather than to a model-type value that includes production weighting factors. If no subconfiguration test data are available, then the adjustment factor will be applied to the model-type value. Therefore, EPA is finalizing an in-use standard based on a 10% multiplicative adjustment factor but the adjustment will be applied to emissions test results for the vehicle subconfiguration if such data exist, or to the model-type emissions level used to calculate the fleet average if subconfiguratio n test data are not available.

EPA believes that the useful life peri od established for criteria pollutants under Tier 2 is also appropriate for CO 2 . Data from EPA’s current in-use compliance test program indicate that CO 2 emissions from current technology vehicles increase very little with age and in some cases may actually improve slightly. The stable CO 2 levels are expected because unlike criteria pollutants, CO 2 emissions in current technology vehicles are not controlled by after treatment systems that may fail with age. Rather, vehicle CO 2 emission levels depend primarily on fundamental vehicle design charac teristics that do545 not change over time. Therefore, vehicles designed for a given CO 2 emissions level will be expected to sustain the same emissi ons profile over their full useful life.

The CAA requires emission standards to be applicable for the vehicle’s full useful life. Under Tier 2 and other vehicle em ission standard programs, EPA requires manufacturers to demonstrate at the time of certification that th e new vehicles being certified will continue to meet emission standards thr oughout their useful life. EPA allows manufacturers several options for pred icting in-use deterioration, including full vehicle testing, bench-aging specific com ponents, and application of a deterioration factor based on data and/or engineering judgment.

In the specific case of CO 2 , EPA does not currently anticipate notable deterioration and has therefore determined that an assigned deteriorat ion factor be applied at the time of certification. At this time EPA will use an additive assigned deterioration factor of zero, or a multiplicative factor of one. EPA anticipates that the deterioration factor will be updated from time to time, as new data regarding emissions deterioration for CO 2 are obtained and analyzed . Additionally, EPA may c onsider technology-specific deterioration factors, should data indicate that certain CO 2 control technologies deteriorate differently than others.

During compliance plan discussions prior to the beginning of the certification process, EPA will explore with each manuf acturer any new technologies that could warrant use of a different dete rioration factor. For any vehicle model determined likely546 to experience increases in CO 2 emissions over the vehicle’ s useful life, manufacturers will not be allowed to use the assigned deterioration factor but rather will be required to establish an appropriate factor . If such an instance were to occur, EPA would allow manufacturers to use the w hole-vehicle mileage accumula tion method currently offered in EPA's regulations. 277

N 2 O and CH 4 emissions are directly affected by vehicle emission control systems. Any of the durability options offered under EPA's current compliance program can be used to determine how emissions of N 2 O and CH 4 change over time. EPA recognizes that manufacturers have not been requir ed to account for durab ility effects of N 2 O and
CH 4 prior to now. EPA also realizes that industry will need sufficient time to explore durability options and become familiar with procedures for determining deterioration of
N 2 O and CH 4 . Therefore, until the 2015 model year , rather than requiring manufacturers to establish a durab ility program for N 2 O and CH 4 , EPA will allow manufacturers to attest that vehicles meet th e deteriorated, full useful life standard. If manufacturers choose to comply with the optional CO 2 equivalent standard, EPA will allow the use of the manufacturer’s existing NO X deterioration factor for N 2 O and the existing NMOG deterioration factor for CH 4.

a. Ensuring Useful Life Compliance

The CAA requires a vehicle to comply w ith emission standards over its regulatory useful life and affords EPA broad authority for the implementation of this requirement.

277 40 CFR 86.1823-08547 As such, EPA has authority to require a manufacturer to remedy any noncompliance issues. The remedy can range from adjusti ng a manufacturer’s credit balance to the voluntary or mandatory recall of noncomplia nt vehicles. These potential remedies provide manufacturers with a st rong incentive to design and build complying vehicles.

Currently, EPA regulations require manufact urers to conduct in-use testing as a condition of certification. Sp ecifically, manufacturers must commit to later procure and test privately-owned vehicles that have been normally used and maintained. The vehicles are tested to determine the in-use levels of cr iteria pollutants when they are in their first and fourth years of service. This testing is referred to as the In-Use Verification Program (IUVP) testing, which was first implemente d as part of EPA’s CAP 2000 certification
program. 278 The emissions data collected from IUVP serve several purposes. IUVP results provide EPA with annual real-world in-use data representing the majority of certified vehicles. EPA uses IUVP data to identify in-use problems, validate the accuracy of the certification program, verify manufacturer durabil ity processes, and support emission modeling efforts. Manufacturers ar e required to test low mileage and high mileage vehicles over the FTP and US06 test cy cles. They are also required to provide evaporative emissions, onboard refueling vapory recovery (ORVR) emissions and onboard diagnostics (OBD) data.

Manufacturers are required to provide data for all regul ated criteria pollutants. Some manufacturers have voluntarily submitted CO 2 data as part of IUVP. EPA proposed that manufacturers provide CO 2 , N 2 O, and CH 4 data as part of the IUVP. EPA also

278 64 FR 23906, May 4, 1999.548 proposed that in order to adequa tely analyze and assess in-use CO 2 results, which are based on the combination of FTP and highway cycle test results, the highway fuel economy test would also need to be part of IUVP. The University of California, Santa Barbara expressed support for including N 2 O and CH 4 emissions as part of the IUVP. Manufacturer comments were almost unanim ously opposed to including any GHG as part of the IUVP. Specifically, industry commented that CO 2 emissions do not deteriorate over time and in some cases actually impr ove. Ford provided data for several 2004 through 2007 model year ve hicles that indicate CO 2 emissions improved an average of 1.42% when vehicles were tested over 5, 000 miles. Manufacturers commented that the inclusion of a greenhouse gas emi ssions requirement and the highway test cycle as part of the IUVP would unnecessarily increase burde n on manufacturers and provide no benefit, since CO 2 emissions do not deteriorate over time. Manufacturers also commented that
N 2 O and CH 4 emissions are very low and by EPA’s own account only represent about 1% of total light-duty vehicl e GHG emissions. They also expressed concern over the cost and burden of measuring N 2 O for IUVP, since many manuf acturers use contractor laboratories to assist in their IUVP testing and many of these facilities do not have the necessary equipment to measure N 2 O. They stated that since it was unnecessary to include CO 2 emissions as part of IUVP and since N 2 O and CH 4 were such small contributors to GHG emissions, it di d not make sense to include N 2 O and CH 4 as part of the IUVP either. They felt that N 2 O and CH 4 could be more appropriately handled through attestation or an annual unregulated emissions report.549 As discussed above, although EPA shares the view expressed in manufacturer comments that historical data demonstrate little CO 2 deterioration, in-use emissions can increase for a number of reasons other than deterioration over time. For example, production or design errors can result in increased GHG emissions. Components that aren’t built as they were desi gned or vehicles inadvertently assembled improperly or with the wrong parts or with parts improperly de signed can result in GHG emissions greater than those demonstrated to EPA during the ce rtification process and used in calculating the manufacturer’s fleet aver age. The “stacking” of co mponent design and production tolerances can also result in in-use emissions that are greater than those used in calculating a manufacturer’s fleet average.

EPA believes IUVP testing is also important to monitor in-use versus certification emission levels. Because the emphasis of the GHG program is on a manufacturer’s fleet average standard, it is difficult for EPA to make an assessment as to whether manufacturer’s vehicles are actually producing the GHG leve ls claimed in their fleet average without some in-use data for comp arison. For example, EPA has expressed concern that with the in-use standard base d on a 10% adjustment factor, there would be an incentive for manufacturers to develop thei r fleet average utilizing the full range of the 10% in-use standard. The only way for EPA to assess whether manufacturers are designing and producing vehicles that meet their respective fleet average standards is for EPA to be able to review in-u se GHG emissions from the IUVP.550 Finally EPA does have some concern about potential CO 2 emissions deterioration in advanced technologies for which we currently have no in-use experience or data. Since CAFE has never had an in-use requirement and today’s final regulations are the first ever GHG standards, there has been no need to focus on GHG emissions in-use as there will be with the new GHG standards. Many of th e advanced technologies that EPA expects manufacturers to use to m eet the GHG standards have been introduced in production vehicles, but until now not for the purpose of controlling greenhouse gas emissions. For example, advanced dual-clutch or seven-sp eed automatic transmissions, and start-stop technologies have not been broadly tested in the fi eld for their long-term CO 2 performance. In-use GHG performance informa tion for vehicles using these technologies is needed for many reasons, including eval uation of whether allo wing use of assigned deterioration factors for CO 2 in lieu of actual deteriorati on factors will continue to be appropriate.

Therefore, EPA is finalizing the requireme nt that all manufacturers must provide IUVP emissions data for CO 2. EPA will also require manufacturers to perform the highway test cycle as part of IUVP. Since the CO 2 standard reflects a combined value of FTP and highway results, it is necessary to in clude the highway emission test in IUVP to enable EPA to compare an in-use CO 2 level with a vehicle’s in-use standard. EPA understands that requiring manuf acturers to also measure N 2 O and CH 4 will be initially challenging, since many manufacturer facil ities do not currently have the proper analytical equipment. To be consistent with timing of the N 2 O and CH 4 emissions551 standards for this rule, N 2 O and CH 4 will not be required for IUVP until the 2015 model
year.

Another component of the CAP 2000 cer tification program is the In-Use Confirmatory Program (IUCP). This is a manufacturer-conducted re call quality in-use test program that can be used as the basis fo r EPA to order an emission recall. In order for vehicles tested in the IUVP to qualify fo r IUCP, there is a threshold of 1.30 times the certification emission standard a nd an additional requirement that at least 50% of the test vehicles for the test group fail for the same substance. EPA proposed to exclude IUVP data for CO 2 , N 2 O, and CH 4 emissions from the IUCP thre sholds EPA felt that there was not sufficient data to determine if the existing IUCP thresholds were appropriate or even applicable to those emissions. The University of California, Santa Barbara disagreed with EPA’s concer ns and recommended that CO 2 , N 2 O, and CH 4 emissions all be subject to the IUVP threshold criteria . Manufacturers commented that since CO 2 performance is a function of ve hicle design and cannot be reme died in the field with the addition or replacement of emissions control de vices like traditional criteria pollutants, it would not be appropriate or necessary to include IUCP thre shold criteria for GHG emissions.

EPA continues to believe that the IUCP is an important part of EPA’s in-use compliance program for traditional criteria pollutants. For GHG emissions, EPA believes the IUCP will also be a valuable future tool for achieving compliance. However, there are insufficient data today to determine whethe r the current IUCP th reshold criteria are552 appropriate for GHG emissions. Once EPA can gather more data from the IUVP program and from EPA’s internal survei llance program described below, EPA will reassess the need to exclude IUCP thres holds, and if warranted, propose a separate rulemaking establishing IUCP thresh old criteria which may include CO 2 , N 2 O, and CH 4 emissions. Therefore, for today’s final action, EPA will exclude IUVP data for CO 2 , N 2 O, and CH 4 emissions from the IUCP thresholds.

EPA has also administered its own in-use testing program for light-duty vehicles under authority of section 207(c) of the CAA for more than 30 years. In this program, EPA procures and tests representative priv ately owned vehicles to determine whether they are complying with emission standards. When testing indicates noncompliance, EPA works with the manufacturer to determin e the cause of the problem and to conduct appropriate additional testing to determine its extent or the effec tiveness of identified remedies. This program operates in conj unction with the IUVP program and other sources of information to pr ovide a comprehensive picture of the compliance profile for the entire fleet and address compliance problems that are identified. EPA will add CO 2 , N 2 O, and CH 4 to the emissions measurements it co llects during surveillance testing.

b. In-Use Compliance Standard

For Tier 2, the in-use standard and the standard used for fleet average calculation are the same. In-use compliance for an indi vidual vehicle is determined by comparing the vehicle’s in-use emission results with the emission standard levels or “bin” to which553 the vehicle is certified rather than to the Tier 2 fleet average standard for the manufacturer. This is because as part of a fleet average standard, individual vehicles can be certified to various emission standard leve ls, which could be higher or lower than the fleet average standard. Thus, it would be in appropriate to compare an individual vehicle to the fleet average, since that vehicle could have been certified to an emission level that is different than the fleet average level.

This will also be true for the CO 2 fleet average standard. Therefore, to ensure that an individual vehicle complies with the CO 2 standards in-use, it is necessary to compare the vehicle’s in-use CO 2 emission result with the appropriate model-level certification
CO 2 level used in determining the manufacturer’s fleet average result.

There is a fundamental difference between the CO 2 standards and Tier 2 standards. For Tier 2, the st andard level used for the fleet average calculation is one of eight different emission levels, or “bins,” whereas for the CO 2 fleet average standard, the standard level used for the fleet average calculation is the model-level certification CO 2 result. The Tier 2 fleet average standard is calculated using the “bin” emission level or standard, not the actual certification emission le vel of the certification test vehicle. So no matter how low a manufacturer’s actual certif ication emission results are, the fleet average is still calculated based on the “bin” level rather than the lower certification result. 279 In contrast, the CO 2 fleet average standard will be calculated using the actual vehicle model-level CO 2 values from the certification test vehicles. With a specified

279 In a similar fashion, the fleet average for heav y-duty engines is calculated using a Family Emission Level, determined by the manufacturer, which is different from the emission level of the test engine.554 certification emission standard, such as the Ti er 2 “bins,” manufacturers typically attempt to over-comply with the standard to give th emselves some cushion for potentially higher in-use testing results due to emissions performance deteriorat ion and/or variability that could result in higher emission levels during subsequent in -use testing. For our CO 2 standards, the emission level used to calculate the fleet average is the actual certification vehicle test result, thus ma nufacturers cannot over comply si nce the certif ication test vehicle result will always be the value used in determining the CO 2 fleet average. If the manufacturer attempted to design the vehicle to achieve a lower CO 2 value, similar to Tier 2 for in-use purposes, the new lower CO 2 value would simply become the new value used for calculating the fleet average.

The CO 2 fleet average standard is based on the performance of pre-production technology that is representative of the point of production, and while there is expected to be limited if any deterioration in effectivene ss for any vehicle during the useful life, the fleet average standard does not take into ac count the test-to-test variability or production variability that can affect in-use levels. Th erefore, EPA believes that unlike Tier 2, it is necessary to have a differe nt in-use standard for CO 2 to account for these variabilities. EPA proposed an in-use standard that was 10% higher than the appropriate model-level certification CO 2 level used in determining the manufacturer’s fleet average result.

As described above, manufacturers typical ly design their vehicles to emit at emission levels considerably below the certification standards. This intentional difference between the actual emission level an d the emission standard is referred to as555 “certification margin,” since it is typically the differen ce between the certification emission level and the emission standard. The certification margin can provide manufacturers with some protection from ex ceeding emission standards in-use, since the in-use standards are typically the levels used to calculate the fleet average. For Tier 2, the certification margin is the delta between the specific emission standard level, or “bin,” to which the vehicle is certified, and the vehicle’s certification emission level.

Since the level of the fleet average standard does not reflect this kind of variability, EPA believes it is appropriate to set an in-use standard that provides a reasonable cushion for in-use variability th at is beyond a manufacturer’s control. EPA proposed a factor of 10% that would act as a surrogate for a certification margin. The factor would only be applicable to CO 2 emissions, and would be applied to the modellevel test results that are used to establish the model-level in-use standard.

EPA selected a value of 10% for the in-u se standard based on a review of EPA’s fuel economy labeling and CAFE confirmatory test results for the past several vehicle model years. The EPA data indicate that it is common for test variability to range between three to six percent and only on ra re occasions 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 encounter. EPA considered both higher and lower values. The Tier 2 fleet as a whol e, for example, has a certification margin556 approaching 50%. 280 However, there are some fundamental differences between CO 2 emissions and other criteria pollutants in the magnitude of the compounds. Tier 2 NMOG and NO X emission standards are hundredths of a gram per mile (e.g., 0.07 g/mi
NO X & 0.09 g/mi NMOG), whereas the CO 2 standards are four orders of magnitude greater (e.g., 250 g/mi). Thus EPA does not believe it is appropriate to consider a value on the order of 50 percent. In addition, lit tle deterioration in emissions control is expected in-use. The adjustment factor a ddresses only one element of what is usually built into a compliance margin.

The intent of the separate in-use st andard, based on a 10% compliance factor adjustment, is to provide a reasonable margin such that vehicles are not automatically deemed as exceeding standards simply because of normal variability in test results. EPA has some concerns however that this in-use compliance factor could be 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 complian ce with the fleet averag e standard. This concern provides additional rationale fo r requiring FTP and HFET IUVP data for CO 2 emissions to ensure that in-use values are not regularly 10% higher than the values used in the fleet average calculation. If in the c ourse of reviewing a manu facturer’s IUVP data it becomes apparent that a manufacturer’s CO 2 results are consistently higher than the values used for calculation of the fleet av erage, EPA will discuss the matter with the manufacturer and consider possible resoluti ons such as changes to ensure that the

280 See pages 39-41 of EPA’s Vehicle and Engine Compliance 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.pdf557 emissions test data more accurately reflect th e emissions level of vehicles at the time of production, increased EPA confirmatory te sting, and other similar measures.

Commenters generally did not comment on whether 10% was the appropriate level for the adjustment fact or. Honda did support use of the proposed 10% adjustment factor for the in-use standa rd. But Honda also recommended that the 10% adjustment factor be applied to subconfiguration data rather than the model-level data unless there was no subconfiguration data available. H onda also expressed some concern over the inequity a straight 10% adjustment would incur between high- and low-emitting vehicles. They suggested that rather than using an across-the-board 10% multiplicative adjustment factor applied to the model-level CO 2 value for all vehicles, it would be more equitable to take the sum of a 5% multiplicative factor applied to the model-level CO 2 value and a 5% factor applied to the manufacturer’s fleet CO 2 target.

EPA understands that use of a multiplicativ e adjustment factor would result in a higher absolute in-use value fo r a vehicle that has higher CO 2 than for a vehicle with a lower CO 2 . However, this difference is not rele vant to the purpose of the adjustment factor, which is to provide some cushion fo r test and production variability. EPA does not believe the difference would be great enough to confer the higher-emitting vehicles with an unfair advantage with respec t to emissions variability.

Given that the purpose of the in-use sta ndard is to enable a fair comparison between certification and in-use emission leve ls, EPA agrees that it is appropriate to558 apply the 10% adjustment factor to actual emi ssion test results rather than to model-type emission levels which are production weighted. Therefore, EPA is finalizing an in-use standard that applies a multiplicative 10% ad justment factor to the subconfiguration emissions values, if such are available. (F or flexible-fuel and dual-fuel vehicles the multiplicative factor will be applied to the test results on each fuel. In other words, these vehicles will have two appli cable in-use emission standa rds; one for operation on the conventional fuel and one for operation on the alternative fuel.) If no emissions data exist at the subconfiguration level the adjustment will be applied to the model-type value as originally proposed. If th e in-use emission result for a vehicle exceeds the emissions level, as applicable, adjusted as just de scribed by 10%, then the vehicle will have exceeded the in-use emission standard. The in-use standard will apply to all in-use compliance testing including IUVP, selective en forcement audits, and EPA’s internal test
program.

5. Credit Program Implementation

As described in Section III.E.2 above, for each manufacturer’s model year production, the manufactur er will average the CO 2 emissions within each of the two averaging sets (passenger cars and trucks) and compare that with its respective fleet average standards (which in turn will ha ve been determined from the appropriate footprint curve applicable to that model ye ar). In addition to this within-company averaging, when a manufacturer’s fleet average CO 2 values of vehicles produced in an averaging set over-complies compared to th e applicable fleet average standard, the559 manufacturer could generate cred its that it could save for la ter use (banking) or could sell or otherwise distribute to another manufact urer (trading). Section III.C discusses opportunities for manufacturers to improve their fleet average, beyond the credits that are simply calculated by over- achieving their applicable fleet average standard. Implementation of the credit program genera lly involves two steps: calculation of the credit amount and reporting the amount and the associated data and calculations to EPA.

EPA is promulgating two broad types of credit programs under this rulemaking. One type of credit directly lo wers a manufacturer’s actual fl eet average by virtue of being applied within the methodology for calculating th e fleet average emissions. Examples of this type of credit include the credits avai lable for alternative fuel vehicles and the advanced technology vehicle provisions. The sec ond type of credit is independent of the calculation of a manufacturer’s fleet average. Rather than giving credit by lowering a manufacturer’s fleet average via a credit mechanism, these credits (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 reviews the different types of credits and shows where and how they are calculated and how they impact a manufacturer’s available credits.

a. Basic Credits: Fleet Average Emissions are Below the Standard

As just noted, basic credits are earned by a manufacturer’s fleet that performs better than the applicable fleet average standa rd. Manufacturers will calculate their fleet560 average standards (separate standards are calculated for cars and trucks) using the footprint-based equations described in Secti on III.B. A manufactur er’s actual end-ofyear fleet average is calculat ed similarly to the way in wh ich CAFE values are currently calculated; in fact, the regulations are essent ially identical. The current CAFE calculation methods are in 40 CFR Part 600. As part of this rulemaking, EPA has amended key subparts and sections of Part 600 to require that fleet average CO 2 emissions be calculated in a manner parallel to the wa y CAFE values are calculated. First, manufacturers will determine a CO 2 -equivalent value for each model type. The CO 2 - equivalent value is a summation of the ca rbon-containing constituents of the exhaust emissions on a CO 2 -equivalent basis. For gasoline and diesel vehicles this simply involves measurement of total hydrocarbons and carbon monoxide in addition to CO 2 . The calculation becomes somewhat more complex for alternative fuel vehicles due to the different nature of their exhaust emissions. For example, for ethanol-fueled vehicles, the emission tests must measure ethanol, meth anol, formaldehyde, and acetaldehyde in addition to CO 2 . However, all these measurements are currently necessary to determine fuel economy for the labeling and CAFE progr ams, and thus no new testing or data collection will be required. 281 Second, manufacturers will calculate a fleet average by weighting the CO 2 value for each model type by the pr oduction of that model type, as they currently do for the CAFE program. Again, this will be done separately for cars and trucks. Finally, the manufacturer will compare the calculated standard with the fleet average that is actually achiev ed to determine the credits (or debits) that are generated.

281 Note that the final rule also provides an option for manufacturers to incorporate N 2 O and CH 4 in this calculation at their CO 2 -equivalent values.561 Both the determination of the applicable st andard and the actual fleet average will be done after the model year is complete and us ing final model year vehicle production data.

Consider a basic hypothetical example where Manufacturer “A ” has calculated a car fleet average standard of 300 grams/mile and a car fleet average of 290 grams/mile (Table III.E.5-1). Further assume that the manufacturer produced 500,000 cars. The credit is calculated by taking the difference between the standard and the fleet average (300-290=10) and multiplying it by the manufacturer’s production of 500,000. This result is then multiplied by the assigned lifet ime vehicle miles travelled (for cars this is 195,264 miles, as discussed in Joint TSD Chap ter 4), then finally divided by 1,000,000 to convert from grams to total megagrams. Th e result is the total number of megagrams of credit generated by the manuf acturer’s car fleet. The same methodology is used to calculate the total number of me gagrams of deficit, if the ma nufacturer was not able to comply with the fleet average standard. In this example, the result is 976,320 megagrams of credits, as shown in Table III.E.5-1.

Table III.E.5-1 Summary for Manufact urer A: Earning Basic Credits CO 2 Totals Total production Conventional: 500,000 290 g/mi 500,000 Fleet average standard 300 g/mi Fleet average 290 g/mi Credits [(300-290) × 500,000 × 195,264] ÷ 1,000,000 = 954,855 Mg562 b. Interim Advanced Technology Vehicle Provisions

The lower exhaust greenhouse gas emi ssions of some advanced technology vehicles can directly benefit a manufacturer’s fleet average, thus increasing the amount of fleet average-based credits they earn (or reducing the amount of debits that would otherwise accrue). Manufact urers that produce electric vehi cles, plug-in hybrid electric vehicles, or fuel cell electric vehicles will include these vehicles in the fleet average calculation with their model t ype emission values. As desc ribed in detail in Section III.C.3, the emissions from electric vehicles and plug-in hybrid electric vehicles when operating on electricity will be accounted for by assuming zero emissions (0 g/mi CO 2 ) for a limited number of vehicl es through the 2016 model year . This interim limited use of 0 g/mi will be allowed for the technologies specifically noted above and as defined in the regulations, with the limitation that the ve hicles must be certified to Tier 2 Bin 5 emission standards or cleaner (i.e., advanced technology vehicles must contribute to criteria pollutant reductions as well as to greenhouse gas emission reductions).

EPA proposed specific definitions for the vehicle technologies eligible for these provisions. One manufacture r suggested the following ch anges in their comments:

• Insert an additional criterion for electric vehicles that specifically states that an electric vehicle may not have an onboa rd combustion engine/generator system.

• A minor deletion of text from the definition for “Fuel cell.”563 • The deletion of the requirement that a PHEV have an equivalent all-electric range of more than 10 miles.

EPA agrees with the first comment. As written in the proposal, a vehicle with an onboard combustion engine that serves as a generator would not have been excluded from the definition of electric vehicle. Ho wever, EPA believes it should be. Although such a vehicle might be propelled by an electr ic motor directly, if the indirect source of electricity is an onboard combustion engine then the vehicle is fundamentally not an electric vehicle. EPA is also adopting the commenter’s proposed rephrasing of the definition for “Fuel cell,” which is simpler and clearer. Finally, in the context of the advanced technology incentive pr ovisions in this final ru le, EPA concurs with the commenter that the requirement that a PHEV ha ve an equivalent all- electric range of at least ten miles is unnecessary. In the cont ext of the proposed credit multiplier EPA was concerned that some vehicles could insta ll a charging system on a limited battery and gain credit beyond what the limited technology would deserve simply by virtue of being defined as a PHEV. However, because EP A is not finalizing the proposed multiplier provisions (see Section III.C.3) and is in stead using as the sole incentive the zero emission tailpipe level as the compliance value for a manufacturer’s fleetwide average, this concern is no longer valid. Since EPA is not promulgating multipliers, the concern expressed at proposal no longer applies, and each PHEV will get a benefit from electricity commensurate with its measured us e of grid electricity, thus EPA is no longer concerned about the multiplier effect. Thus , EPA is finalizing the following definitions in the regulations:564 • Electric vehicle means a motor vehicle that is power ed solely by an electric motor drawing current from a rechargeable ener gy storage system, such as from storage batteries or other portable electrical en ergy storage devices, including hydrogen fuel cells, provided that:

o Recharge energy must be drawn from a source off the vehicle, such as residential electric service;

o The vehicle must be certified to the emission standards of Bin #1 of Table S04-1 in paragraph (c)(6) of §86.1811; and

o The vehicle does not have an onboa rd combustion engine/generator system as a means of providing electrical energy.

• Fuel cell electric vehicle means a motor vehicle propelled solely by an electric motor where energy for the motor is supplied by a fuel cell.

• Fuel cell means an electrochemical cell thatproduces electricity via the noncombustion reaction of a consum able fuel, typically hydrogen.

• Plug-in hybrid electric vehicle (PHEV) means a hybrid electric vehicle that has the capability to charge the battery from an off-vehicle electric source, such that the off-vehicle source cannot be connected to the vehicle while the vehicle is in motion.

With some simplifying assumptions, assume that 25,000 of Manufacturer A’s fleet are now plug-in hybrid electric vehicles with a calculated CO 2 value of 80 g/mi, and the remaining 475,000 are conventional tec hnology vehicles with an average CO 2 value of565 290 grams/mile. By including the advan ced technology PHEVs in their fleet, Manufacturer A now has more than 2.9 million credits (Table III.E.5-2).

Table III.E.5-2 Summary for Manufacturer A: Earning Basic and Interim Advanced Technology Credits CO 2 Totals Total production Conventional: 475,000 290 g/mi 500,000 PHEV: 25,000 80 g/mi Fleet average standard 300 g/mi Fleet average [(475,000 × 290) + (25,000 × 80)] ÷ [500,000] 280 g/mi Credits [(300-280) × 500,000 × 195,264] ÷ 1,000,000 = 1,952,640 Mg

c. Flexible-Fuel Vehicle Credits

As noted in Section III.C, treatment of fl exible-fuel vehicle (FFV) credits differs between model years 2012-2015 and 2016 and later. For the 2012 through 2015 model years the FFV credits will be calculated as they are in the CAFE program for the same model years, except that formulae in the final regulations have been modified as needed to do the calculations in terms of grams per mile of CO 2 values rather than miles per gallon. These credits are integral to the fl eet average calculation and allow the vehicles to be represented by artificially reduced emissions. To use this credit program, the CO 2 values of FFVs will be represented by the average of two things: the CO 2 value while operating on gasoline and the CO 2 value while operating on the alternative fuel multiplied by 0.15.566 For MY 2012 to 2015 for example, Manufacturer A makes 30,000 FFVs with
CO 2 values of 280 g/mi using gasoline and 260 g/mi using E85. The CO 2 value that would represent the FFVs in the fleet average ca lculation would be calc ulated as follows:

FFV emissions = [280 + (260×0.15)] ÷ 2 = 160 g/mi

Including these FFVs with the applicab le credit in Manufacturer A’s fleet average, as shown below in Table III.E.5-3, further reduces the fleet average to 256 grams/mile and increases the manufacturer’s credits to about 4.2 million megagrams.

Table III.E.5-3 Summary for Manufacturer A: Earning Basic, Interim Advanced Technol ogy, and Flexible Fuel Vehicle Credits CO 2 Totals Total production Conventional: 445,000 290 g/mi 500,000 PHEV: 25,000 80 g/mi FFV: 30,000 160 g/mi Fleet average standard 300 g/mi Fleet average [(445,000 × 290) + (25,000 × 80) + 30,000 x 160] ÷ [500,000] 272 g/mi

Credits [(300-272) × 500,000 × 195,264] ÷ 1,000,000 = 2,733,696 Mg
In the 2016 and later model years, th e calculation of FFV emissions differ substantially from prior years in that the determination of the CO 2 value to represent an FFV model type will be based upon the actual use of the alternative fuel and on actual emissions while operating on that fuel. EPA’ s default assumption in the regulations is that the alternative fuel is used negligibly, and the CO 2 value that will apply to an FFV by default would be the value determined for operation on conventional fuel. However, if567 the manufacturer believes that the alternative fu el is used in real-world driving and that accounting for this use could improve the fl eet average, the manufacturer has two options. First, the regulations allow a manu facturer to request that EPA determine an appropriate weighting value for an alternative fu el to reflect the degree of use of that fuel in FFVs relative to real-world use of the c onventional fuel. Section III.C describes how EPA might make this determination. Any value determined by EPA will be published by EPA, and that weighting value would be avai lable for all manufacturers to use for that fuel. The second option allows 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 must be approved by EPA before their use is allowed. In either case, whether EPA supplies the weighting factors or EPA approves a manufacturer’s alternative fuel weighting factors, the CO 2 emissions of an FFV in 2016 and later would be as follows (assuming non-zero use of the alternative fuel):

(W1×CO2conv)+(W2×CO2alt),

where W1 and W2 are the proportion of m iles driven using conventional fuel and alternative fuel, respectively, CO2conv is the CO 2 value while using conventional fuel, and CO2alt is the CO 2 value while using the alternative fuel. In the example above, for instance, the default CO 2 value for the fictional FFV described above would be the gasoline value of 280 g/mi, and the resulting fleet average and tota l credits would be 279 g/mi and 2,050,272 megagrams, respectively. Ho wever, if the EPA determines that realworld ethanol use amounts to 40 percent of dr iving, then using the equation above the568 FFV would be included in the fleet average calculation with a CO 2 value of 272 g/mi, resulting in an overall fleet average of 278 g/mi and to tal credit accumulation of 2,147,904 megagrams.

d. Dedicated Alternative Fuel Vehicle Credits

Like the FFV credit program described above, these credit s will be treated differently in the first years of the program than in the 2016 and later model years. In fact, these credits are essentia lly identical to the FFV cred its 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 sa me way they are for FFVs operating on the alternative fuel. For the 2012 through 2015 model years the CO 2 test results are multiplied by the credit adjustment factor of 0.15, and the result is production-weighted in the fleet average calculation. For exam ple, assume that Manufacturer A now produces 20,000 dedicated CNG vehicles with CO 2 emissions of 220 grams/mile, in addition to the FFVs and PHEVs already included in their fl eet (Table III.E.5-4). Prior to the 2016 model year the CO 2 emissions representing these CNG vehicles will be 33 grams/mile (220 × 0.15).569 Table III.E.5-4 Summary for Manufacturer A: Earning Basic, Advanced Technology, Flexible Fuel Vehicle, and Dedicated Alternative Fuel Vehicle Credits CO 2 Totals Total production Conventional: 425,000 290 g/mi 500,000 PHEV: 25,000 80 g/mi FFV: 30,000 160 g/mi CNG: 20,000 33 g/mi Fleet average standard 300 g/mi Fleet average [(425,000 × 290) + (25,000 × 80) + (30,000 × 160) + (20,000 × 33)] ÷ [500,000] 261 g/mi

Credits [(300-261) × 500,000 × 195,264] ÷ 1,000,000 = 3,807,648 Mg

The calculation for 2016 and later will be the same except the 0.15 credit adjustment factor is removed from the equa tion, and the CNG vehicles in this example would simply be production-weighted in the equation using their actual emissions value of 220 grams/mile instead of the “credited” value of 33 grams/mile.

e. Air Conditioning Leakage Credits

Unlike the credit programs described a bove, air conditioning-related credits do not affect the overall calculation of the fleet average or fleet average standard. Whether a manufacturer generates zero air conditioning credits or many, the calculated fleet average remains the same. Air conditioning credits are calculated and added to any credits (or deficit) that results from th e fleet average calculations s hown above. Thus, these credits can increase a manufacturer’s credit balance or offset a deficit, but their calculation is external to the fleet average calculation. As noted in Section III.C, manufacturers can generate credits for reducing the leakage of refrigerant from their air conditioning570 systems. To do this the manufacturer will identify an air conditioning system improvement, indicate that they intend to us e the improvement to generate credits, and then calculate an annual leakage rate (grams /year) for that system based on the method defined by the regulations. Air conditioning credits will be determined separately for cars and trucks using the car and truck-specifi c 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 cred its will need to be calculated separately for cars and trucks. Thus, the resulting grams per mile credit determined from the appropriate car or truck e quation will be multiplied by the lifetime VMT assigned by EPA (195,264 for cars; 225,865 for trucks), and then divided by 1,000,000 to get the total megagrams of CO 2 credits generated by the improved air conditioning system. Although the calculations are done separately for car s and trucks, the total megagrams will be summed and then added to the overall credit balance maintained by the manufacturer.

For example, assume that Manufacturer A has improved an air conditioning system that is installed in 250,000 cars a nd that the calculated leakage rate is 12 grams/year. Assume that the manufacturer ha s also implemented a new refrigerant with a Global Warming Potential of 850. In this case the credit per ai r conditioning unit, rounded to the nearest gram per mile would be:571 [13.8 × [1 – (12/16.6 × 850/1430)] = 7.9 g/mi.

Total megagrams of credits would then be:

[ 7.9 × 250,000 × 195,264] ÷ 1,000,000 = 385,646 Mg.

These credits would be added directly to a manufacturer’s total balance; thus in this example Manufacturer A would now have , after consideration of all the above credits, a total of 4,193,294 megagrams of credits.

f. Air Conditioning Efficiency Credits

As noted in Section III.C.1.b, manufact urers may earn credits for improvements in air conditioning efficiency that reduce the im pact of the air conditioning system on fuel consumption. These credits are similar to the air conditioning leak age credits described above, in that these credits are determined independently from the manufacturer’s fleet average calculation, and the resulting credit s are added to the ma nufacturer’s overall balance for the respective model year. Like the air conditioning leakage credits, these credits can increase a manufacturer’s credit balance or offset a deficit, but their calculation is external to the fleet average calculation.572 In order to put these credits on the same basis as the basic and other credits describe above, the air conditioning efficiency credits are calculated separately for cars and trucks. Thus, the resulting grams per mile credit determined in the above equation is multiplied by the lifetime VMT, and then divided by 1,000,000 to get the total megagrams of efficiency credits generate d by the improved air conditioning system. Although the calculations are done separately for cars and tr ucks, the total megagrams can be summed and then added to the overall credit balance maintained by the manufacturer.

As described in Section III.C, manufacturer s will determine their credit based on selections from a menu of tec hnologies, each of which provides a gram per mile credit amount. The credits will be summed fo r all the technologies implemented by the manufacturer, but cannot exceed 5.7 grams per m ile. Once this is done, the calculation is a straightforward translation of a gram per m ile credit to total car or truck megagrams, using the same methodology described above . For example, if Manufacturer A implements enough technologies to get the maximum 5.7 grams per mile for an air conditioning system that sells 250,000 units in cars, the calculation of total credits would be as follows:

[ 5.7 × 250,000 × 195,264] ÷ 1,000,000 = 278,251 Mg.573 These credits would be added directly to a manufacturer’s total balance; thus in this example Manufacturer A would now have , after consideration of all the above credits, a total of 4,471,545 megagrams of credits.

g. Off-Cycle Technology Credits

As described in Section III.C, these credit s will be available for certain new or innovative technologies that achieve real-world CO 2 reductions that aren’t adequately captured on the city or highway test cycles used to determine compliance with the fleet average standards. Like the air conditioning credits, these 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 tec hnology, the manufacturer could propose and use, with EPA approval, a different analytical approach to determining the credit amount. Like the air conditioning credits above, thes e credits will have to be determined separately for cars and trucks because of the differing lifetime mileage assumptions between cars and trucks.

Using the 5-cycle approach is relatively straightforward, and because the 5-cycle formulae account for nationwide variati ons 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 insta lled and operating and compare it with a 5-cycle CO 2 value determined without the tec hnology installed and/or operating.574 Existing regulations describe how to calcula te 5-cycle fuel economy values, and the GHG regulations contain provis ions that describe how to calculate 5-cycle CO 2 values (see 40 CFR 600.114-08). The manufactur er will have to design a test program that accounts for vehicle differences if the t echnology is installed in differe nt vehicle types, and enough data will have to be collected to address data uncertainty issues. Manufacturers seeking to generate off-cycle credits based on a 5- cycle analysis will be required to submit a description of their test program and the results to EPA for approval.

As noted in Section III.C.4, a manufacturer -developed testing, data collection, and analysis program will require additional EPA approval and oversight. EPA received considerable comment from environmental a nd public interest orga nizations suggesting that EPA’s decisions about which technologies merit off-cycle credit should be open and public. EPA agrees that a public process will help ensure a fair review and alleviate concerns about potential misuse of the off-cycle credit flexibility. Therefore EPA intends to seek public comment on manuf acturer proposals for off-cycle credit that do not use the 5-cycle approach to quantify emission reductions. EPA will consider any comments it receives in determining whether and how much credit is appropriate. Manufacturers should submit proposals well in ad vance of their desired decisi on date to allow time for these public and EPA reviews.

Once the demonstration of the CO 2 reduction of an o ff-cycle technology is complete, and the resulting value accounts for variations in driving, climate and other conditions across the country, the two appro aches are treated fundamentally the same575 way and in a way that parallels the approach for determining the air conditioning credits described above. Once a gram per mile valu e is approved by the EPA, the manufacturer will determine the total credit value by multip lying the gram per mile per vehicle credit by the production volume of ve hicles with that technology and approved for use of the credit. This would then be multiplied by the lifetime vehicle miles for cars or trucks, whichever applies, and divided by 1, 000,000 to obtain total megagrams of CO 2 credits. These credits would then be added to the manufacturer’s total ba lance for the given model year. Just like the above air conditio ning case, an off-cycle technology that is demonstrated to achieve an average CO 2 reduction of 4.4 grams /mile and that is installed in 175,000 cars would generate credits as follows:

[ 4.4 × 175,000 × 195,264] ÷ 1,000,000 = 150,353 Mg.

h. End-of-Year Reporting

In general, implementation of the av eraging, banking, and trading (ABT) program, including the calculation of credit s and deficits, will be accomplished via existing reporting mechanisms. EPA’s exis ting regulations define how manufacturers calculate fleet average miles per gallon fo r CAFE compliance purposes. Today’s action modifies these regulations to also require the parallel ca lculation of fleet average CO 2 levels for car and light truck compliance categor ies. These regulations already require an end-of-year report for each model year, submitte d to EPA, which details the test results576 and calculations that determine each manufact urer’s CAFE levels. EPA will now require a similar report that includes fleet average CO 2 levels and related information. That can be integrated with the CAFE report at the manufacturer’s option. In addition to requiring reporting of the actual fleet average achieved, this end-of-year report will also contain the calculations and data determining the manufact urer’s applicable fleet average standard for that model year. As under the existing Ti er 2 program, the report will be required to contain the fleet average standard, all valu es required to calculate the fleet average standard, the actual fleet average CO 2 that was achieved, all values required to calculate the actual fleet average, the number of credits generated or debits incurred, all the values required to calculate the credits or debits, the number of credits bought or sold, and the resulting balance of credits or debits.

Because of the multitude of credit pr ograms that are available under the greenhouse gas program, the end-of-year report w ill be required to have more data and a more defined and specific structure than the CAFE end–of-year report does today. Although requiring “all the data re quired” to calculate a given value should be inclusive, the report will contain some requirements specific to certain types of credits. For advanced technology credits that apply to ve hicles like electric vehicles and plug-in hybrid electric vehicles, manuf acturers will be required to identify the number and type of these vehicles and the effect of these cred its on their fleet average. The same will be true for credits due to flex ible-fuel and alternative-fuel vehicles, although for 2016 and later flexible-fuel credits manufacturers may al so have to provide a demonstration of the actual use of the alternative fuel in-u se and the resulting calculations of CO 2 values for577 such vehicles. For air conditioning leakage cr edits manufacturers will have to include a summary of their use of such credits that will include which air conditioning systems were subject to such credits, information regarding the vehicle models which were equipped with credit-earning air conditioning sy stems, the production volume of these air conditioning systems, the leakage score of each air conditioning system generating credits, and the resulting calculation of l eakage credits. Air conditioning efficiency reporting will be somewhat more complicated given the phase-in of the efficiency test procedure, and reporting will have to detail compliance with the phase-in as well as the test results and the resulting efficiency cred its generated. Similar reporting requirements will also apply to the variety of possible off-cycle credit options, where manufacturers will have to report the applicable tech nology, 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 repor t, when final production numbers are known, that will determine the degree of compliance and the actual values of any credits being generated by manufacturers, EPA will e xpect manufacturers to be prepared to discuss their compliance approach and their pot ential use of the variet y of credit options in pre-certification meetings that EPA routinel y has with manufacturers. In addition, and in conjunction with a pre-model year repor t required under the CAFE program, the manufacturer will be required to submit proj ections of all of the elements described above, plus any projected cr edit trading transactions (described below).578 Finally, to the extent that there are any cr edit transactions, the manufacturer will have to detail in the end-of -year report documentation on all credit transactions that the manufacturer has engaged in. Information for each transaction will include: the name of the credit provider, the name of the credit re cipient, the date the transfer occurred, the quantity of credits transferred, and the model year in which the credits were earned. The final report is due to EPA within 90 days of the end of the model year, or no later than March 31 in the calendar year after the calendar year named for the model year. For example, the final GHG report for the 2012 mode l year is due no la ter than March 31, 2013. Failure by the manufacturer to submit the annual report in the specified time period will be considered to be a violation of section 203(a)(1) of the Clean Air Act.

6. Enforcement

As discussed above in Section III.E.5, manufacturers will report to EPA their fleet average and fleet average standard for a give n model year (reporting separately for each of the car and truck averaging se ts), the credits or deficits generated in the current year, the balance of credit balances or deficits (taking into account banked credits, deficit carry-forward, etc. see Section III.E.5), and whether they were in compliance with the fleet average standard under the terms of th e regulations. EPA will review the annual reports, figures, and calculations submitted by the manufacturer to determine any nonconformance.579 Each certificate, required prior to intr oduction into commerce, will be conditioned upon the manufacturer attaining the CO 2 fleet average standard. If a manufacturer fails to meet this condition and has not generated or purchased enough credits to cover the fleet average exceedance following the three year deficit carry-forward (Section III.B.4, then EPA will review the manufacturer's production for the model year in which the deficit originated and designate which vehicles caused the fleet average standard to be exceeded.

EPA proposed that the vehicles that w ould be identified as nonconforming would come from the most recent model year, and some comments pointed out that this was inconsistent with how the NLEV and Tier 2 pr ograms were structured. EPA agrees with these comments and is finalizing an enforcement structure that is essentially identical to the one in place for existing programs. EPA would designate as nonconforming those vehicles with the highest emission values fi rst, continuing until a number of vehicles equal to the calculated number of non-complying vehicles as determined above is reached. Those vehicles would be considered to be not covered by the certificates of conformity covering those model types. In a test group where only a portion of vehicles would be deemed nonconforming, EPA would determine the actual nonconforming vehicles by counting backwards from the last vehicle produced in that model type. A manufacturer would be subject to penalties and injunctive or ders on an individual vehicle basis for sale of vehicles not covered by a certificate. This is the same general mechanism used for the National LEV and Tier 2 corporate average standards.580 Section 205 of the CAA authorizes EPA to assess penalties of up to $37,500 per vehicle for violations of the require ments or prohibitions of this rule. 282 This section of the CAA provides that the agency shall take the following penalty factors into consideration in determining the appropriate penalty for any specific case: the gravity of the violation, the economic benefit or savings (if any) resulting 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 effect of th e penalty on the violator's ability to continue in business, and such other matters as justice may require.

Manufacturer comments expressed concer n about potential enforcement action for violations of the greenhouse gas standard s, and the circumstances under which EPA would impose penalties. Manuf acturers also suggested that EPA should adopt a penalty structure similar to the one in place under CAFE.

The CAA specifies different civil penalty provisions for noncompliance than EPCA does, and EPA cannot therefore adopt the CAFE penalty structure. However, EPA recognizes that it may be appropriate, shoul d a manufacturer fail to comply with the NHTSA fuel economy standards as well as the CO 2 standard in a case arising out of the same facts and circumstances, to take into account the civil pena lties that NHTSA has assessed for violations of the CAFE standard s when determining the appropriate penalty amount for violations of the CO 2 emissions standards. This approach is consistent with EPA’s broad discretion to consider “such othe r matters as justice may require,” and will

282 42 U.S.C. 7524(a), Civil Monetary Penalty Inflation Adjustment, 69 FR 7121 (Feb. 13, 2004) and Civil Monetary Penalty Inflation Adjustment Rule, 73 FR 75340 (Dec. 11,2008).581 allow EPA to exercise its discretion to prevent injustice and ensure that penalties for violations of the CO 2 rule are assessed in a fair and reasonable manner.

The statutory penalty factor that allows EPA to consider “such other matters as justice may require” vests EPA with broad di scretion to reduce the penalty when other adjustment factors prove insufficient or inappropriate to achieve justice. 283 . The underlying principle of this pe nalty factor is to operate as a safety mechanism when necessary to prevent injustice. 284

In other environmental statutes, Congre ss has specifically required EPA to consider penalties assessed by other government agencies where violations arise from the same set of facts. For in stance, section 311(b )(8) of the Clean Wa ter Act, 33 U.S.C. 1321(b)(8) authorizes EPA to consider any ot her penalty for the same incident when determining the appropriate Clean Water Act penalty. Likewise, section 113(e) of the CAA authorizes EPA to consid er "payment by the violator of penalties previously assessed for the same violation" when assessi ng penalties for certain violations of Title I of the Act.

7. Prohibited Acts in the CAA

Section 203 of the Clean Air Act describes acts that are prohibited by law. This section and associated regulati ons apply equally to the green house gas standards as to any

283 In re Spang & Co. , 6 E.A.D. 226, 249 (EAB 1995) 284 B.J. Carney Industries , 7 E.A.D. 171, 232, n. 82 (EAB 1997).582 other regulated emission. Acts that are pr ohibited by section 203 of the Clean Air Act include the introduction into commerce or the sale of a vehicle without a certificate of conformity, removing or otherwise defeating emission control equipment, the sale or installation of devices designe d to defeat emission contro ls, and other actions. EPA proposed to include in the regulations a new s ection that details thes e prohibited acts. Prior regulations, such as the NLEV program , had included such a section, and although there is no burden associated with the regulations or any specific need to repeat what is in the Clean Air Act, EPA believes that including this language in the regulations provides clarity and improves the ease of use and comple teness of the regulations. No comments were received on the proposal, and EPA is fi nalizing the section on prohibited acts (see 40 CFR 86.1854-12).

8. Other Certification Issues

a. Carryover/Carry Across Certification Test Data

EPA's certification program for vehicles allows manufacturers to carry certification test data over a nd across certification testing fr om one model year to the next, when no significant changes to models ar e made. EPA will also apply this policy to
CO 2 , N 2 O and CH 4 certification test data. A manufact urer may also be eligible to use carryover and carry across data to demonstrate CO 2 fleet average compliance if they have done so for CAFE purposes.583 b. Compliance Fees

The CAA allows EPA to collect fees to cover the costs of i ssuing certificates of conformity for the classes of vehicl es and engines covered by this rule. On May 11, 2004, EPA updated its fees regulation based on a study 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 ru lemaking was not considered.

At this time the extent of any added costs to EPA as a result of this rule is not known. EPA will assess its compliance testing and other activities associated with the rule and may amend its fees regulations in the future to include any warranted new costs.

c. Small Entity Exemption

EPA is exempting small entities, and th ese entities (necessarily) would not be subject to the certification requirements of this rule.

As discussed in Section III.B.8, businesses meeting the Small Business Administration (SBA) criterion of a sma ll business as described in 13 CFR 121.201 would not be subject to the GHG requirement s, pending future regulatory action. EPA proposed that such entities in stead be required to submit a declaration to EPA containing a detailed written description of how that ma nufacturer qualifies as a small entity under the provisions of 13 CFR 121.201. EPA has r econsidered the need for this additional584 submission under the regulations and is deletin g it as not necessary. We already have information on the limited number of small entities that we expect would receive the benefits of the exemption, and do not need the proposed regulatory requirement to be able to effectively implement this exemption for those parties who in fact meet its terms. Small entities are currently covered by a number of EPA motor vehicle emission regulations, and they routinely submit informati on and data on an annual basis as part of their compliance responsibilities.

As discussed in detail in Section III.B.6, small volume manufacturers with annual sales volumes of less than 5,000 vehicles will also be deferred from the CO 2 standards, pending future regulatory action. These manufacturers would still be required to meet
N 2 O and CH 4 standards, however. To qualify for CO 2 standard deferral, manufacturers would need to submit a declaration to EPA, and would also be required to demonstrate due diligence in having attempted to first secu re credits from other manufacturers. This declaration would have to be signed by a chie f officer of the company, and would have to be made at least 30 days prior to the introdu ction into commerce of any vehicles for each model year for which the small volume manufac turer status is requested, but not later than December of the calenda r year prior to the model year for which deferral is requested. For example, if a manufacturer will be introducing m odel year 2012 vehicles in October of 2011, then the small volume ma nufacturer declaration would be due in September, 2011. If 2012 model year vehicles are not planned for introduction until March, 2012, then the declaration would have to be submitted in December, 2011. Such manufacturers are not automatically exempted from other EPA regulations for light-duty585 vehicles and light-duty trucks; therefore, absent this annual declaration EPA would assume that each manufacturer was not deferred from compliance with the greenhouse gas standards.

d. Onboard Diagnostics (OBD) and CO 2 Regulations

The light-duty on-board dia gnostics (OBD) regulations require manufacturers to detect and identify malfunctions in all mon itored emission-related powertrain systems or components. 285 Specifically, the OBD system is required to monitor catalysts, oxygen sensors, engine misfire, evaporative system leaks, and any other emission control systems directly intended to control emissions, su ch as exhaust gas recirculation (EGR), secondary air, and fuel control systems. The monitoring thres hold for all of these systems or components is 1.5 times the appl icable standards, which typically include NMHC, CO, NO X , and PM. EPA did not propose that CO 2 emissions would become one of the applicable standards required to be monitored by the OBD system. EPA did not propose CO 2 become an applicable standard for OBD because it was confident that many of the emission-related systems and compone nts currently monitored would effectively catch any malfunctions related to CO 2 emissions. For example, malfunctions resulting from engine misfire, oxygen sensors, the EG R system, the secondary air system, and the fuel control system would all have an impact on CO 2 emissions. Thus, repairs made to any of these systems or components shoul d also result in an improvement in CO 2 emissions. In addition, EPA did not have data on the feasibility or effectiveness of

285 40 CFR 86.1806-04586 monitoring various emission systems and components for CO 2 emissions and did not believe that it would be prudent to include CO 2 emissions without such information.

EPA did not address whether N 2 O or CH 4 emissions should become applicable standards for OBD monitoring in the proposal. Several manufacturers felt that EPA’s silence on this issue implied that EPA was proposing that N 2 O and CH 4 emissions become applicable OBD standards. They commented that EPA should not include them as part of OBD. They felt that adding N 2 O and CH 4 would significantly increase OBD development burden, without significant bene fit, since any malfunctions that increase
N 2 O and CH 4 would likely be caught by current OBD system designs. EPA agrees with the manufacturer’s comments on including N 2 O and CH 4 as applicable standards. Therefore, at this time, EPA is not requiring CO 2 , N 2 O, and CH 4 emissions as one of the applicable standards required for the OBD monitoring threshold. EPA plans to evaluate OBD monitoring technology, with regard to monitoring these GHG emissions-related systems and components, and may choose to propose to include CO 2 , N 2 O, and CH 4 emissions as part of the OBD requireme nts in a future regulatory action.

e. Applicability of Current High Altitude Provisions to Greenhouse Gases

Vehicles covered by this rule must meet the CO 2 , N 2 O and CH 4 standard at altitude. The CAA requires emission standa rds under section 202 fo r light-duty vehicles and trucks to apply at all altitudes. 286 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

286 See CAA 206(f).587 commonly used at all altitudes. Therefore, EPA will retain its current high altitude regulations so manufacturer s will not normally be required to submit vehicle CO 2 test data for high altitude. Instead, they must submit an engi neering evaluation indicating that common calibration approaches will be utili zed at high altitude. Any deviation in emission control practices employed only at altitude will need to be included in the auxiliary emission control device (AECD) de scriptions submitted by manufacturers at certification. In addition, any AECD specifi c to high altitude will be required to include emissions data to allow EPA evaluate and quantify any emission impact and validity of the AECD.

f. Applicability of Standards to Aftermarket Conversions

With the exception of the small entity and small volume exemptions, EPA’s emission standards, including greenhouse gas standa rds, will continue to apply as stated in the applicability se ctions of the relevant regulations . The greenhouse gas standards are being incorporated into 40 CFR part 86, subpart S, which includes exhaust and evaporative emission standards for criteria pollutants. S ubpart S includes requirements for new light-duty vehicles, light-duty truc ks, medium-duty passenger vehicles, Ottocycle complete heavy-duty vehicles, and some incomplete light-duty trucks. Subpart S is currently specifically applicable to af termarket conversion systems, aftermarket conversion installers, and afterm arket conversion certifiers, as those terms are defined in 40 CFR 85.502. EPA expects that some aftermarket conversion companies will qualify for and seek the small entity and/or small vol ume exemption, but those that do not qualify588 will be required to meet the applicable em ission standards, including the greenhouse gas standards.

g. Geographical Location of Gree nhouse Gas Fleet Vehicles

One manufacturer commented that the CAFE sales area location defined by Department of Transportation regulations is different than the EPA sales area location defined by the CAA. DOT regula tions require CAFE compliance 287 in the 50 states, the District of Columbia, and Puerto Rico. However, EPA emission certification regulations require emission compliance 288 in the 50 states, the District of Columbia, the Puerto Rico, the Virgin Islands, Guam, American Samoa and the Commonwealth of the Northern Mariana Islands.

The comment stated that EPA has the di scretion under the CAA to align the sales area location of production vehicles for th e greenhouse gas fleet with the sales area location for the CAFE fleet and recommended th at EPA amend the definitions in 40 CFR 86.1803 accordingly. This would exclude fr om greenhouse gas requirements production

287 DOT regulations at 49 CFR 525.4(a)(5) read “The term customs territory of the United States is used as defined in 19 U.S.C. 1202.” Section 19 U.S.C. 1202 has been replaced by the Harmonized Tariff Schedule of the United States. The Harmonized Tariff Schedule reads in part that "The term 'customs territory of the United States'...includes only the States, the Di strict of Columbia, and Puerto Rico." 288 Section 216 of the Clean Air Act defines the term commerce to mean “(A) commerce between any place in any State and any place outside thereof; and (B) co mmerce wholly within the District of Columbia.” Section 302(d) of the Clean Air Act reads “The term ``State'' means a State, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands , Guam, and American Samoa and includes the Commonwealth of the Northern Mariana Islands.” In addition, 40 CFR 85.1502 (14) regarding the importation of motor vehicles and motor vehicle engines defines the United States to include “the States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, Guam, American Samoa, and the U.S. Virgin Islands.”589 vehicles that are introduced into commerce in the Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana.

Although EPA has tried to harmonize greenhouse gas and CAFE requirements in this rule to the extent possible, EPA belie ves that the approach suggested in comment would be contrary to the requirements of th e Act. EPA does not believe that the Agency has discretion under the CAA to exclude from greenhouse gas requirements production vehicles introduced into commerce in the Vi rgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Is lands. In addition, this change would introduce an undesirable level of complexity into the certific ation process and result in confusion due to vehicles intended for co mmerce in separate geographical locations being covered under a single certificate. For these reasons, EPA will retain the proposed greenhouse gas production vehicle sales area location as defined in the CAA.

9. Miscellaneous Revisions to Existing Regulations

a. Revisions and Additions to Definitions

EPA has amended its definitions of "e ngine code," "transmission class," and "transmission configuration" in its vehicle certification regul ations (Part 86) to conform to the definitions for those terms in its fuel economy regulations (Part 600). The exact terms in Part 86 are used for reporting pur poses and are not used for any compliance purpose (e.g., an engine code will not determine which vehicle is selected for emission590 testing). However, the terms are used for th is purpose in Part 600 (e.g., engine codes, transmission class, and transmission configur ations are all criteria used to determine which vehicles are to be tested for the purpos es of establishing corporate average fuel economy). Since the same vehicles tested to determine corporate average fuel economy will also be tested to determine fleet average CO 2 , the same definitions will apply. Thus EPA has amended its Part 86 definitions of th e above terms to conform to the definitions in Part 600.

Two provisions have been amended to br ing EPA's fuel economy regulations in Part 600 into conformity with the fleet average CO 2 requirement contained in this rulemaking and with NHTSA's reform truck regulations. First, the definition of "footprint" in this rule is also being added to EPA's Part 86 and 600 regulations. This definition is based on the de finition promulgated by NHTSA at 49 CFR 523.2. Second, EPA is amending its model year CAFE reporti ng regulations to in clude the footprint information necessary for EPA to determine the reformed truck standards and the corporate average fuel economy. This same information is included in this rule for fleet average CO 2 and fuel economy compliance.

b. Addition of Ethanol Fuel Economy Calculation Procedures

EPA has amended part 600 to add calc ulation procedures for determining the carbon-related exhaust emissions and calculating the fuel ec onomy of vehicles operating on ethanol fuel. Manufacturers have been using these procedures as needed, but the591 regulatory language – which specifies how to determine the fuel economy of gasoline, diesel, compressed natural gas, and methanol fueled vehicles – has not previously been updated to specify procedures for vehicles ope rating on ethanol. Under today’s rule EPA is requiring use of a car bon balance approach fo r ethanol-fueled vehicles that is similar to the way carbon-related exhaust emissions are calculated for vehicles operating on other fuels for the purpose of determining fuel economy and for compliance with the fleet average CO 2 standards. The carbon balance formula is similar to the one in place for methanol, except that ethanol and acetaldehyde emissions must also be measured for ethanol-fueled vehicles. The carbon balance eq uation for determining fuel economy is as follows, where CWF is the carbon weight fraction of the fuel and CWF exHC is the carbon weight fraction of the exhaust hydrocarbons:

mpg = (CWF × SG × 3781.8)/((CWF exHC × HC) + (0.429 × CO) + (0.273 × CO 2 ) + (0.375 × CH 3 OH) + (0.400 × HCHO) + (0.521 × C 2 H 5 OH) + (0.545 × C 2 H 4 O))

The equation for determining the total carbon-related exhaust emissions for compliance with the CO 2 fleet average standards is the following, where CWF exHC is the carbon weight fraction of the exhaust hydrocarbons:

CO 2 -eq = (CWF exHC × HC) + (0.429 × CO) + (0.375 × CH 3 OH) + (0.400 × HCHO) + (0.521 × C 2 H 5 OH) + (0.545 × C 2 H 4 O) + CO 2 .592 c. Revision of Electric Vehi cle Applicability Provisions

In 1980 EPA issued a rule that provided fo r the inclusion of el ectric vehicles in the CAFE program. 289 EPA now believes that certain provisions of the regulations should be updated to reflect the current stat e of motor vehicle emission and fuel economy regulations. In particular, EPA believes that the exemption of electri c vehicles in certain cases from fuel economy labeling and CAFE requirements should be reevaluated and revised.

The 1980 rule created an exemption for el ectric vehicles from fuel economy labeling in the following cases: (1) if the electric vehicles are produced by a company that produces only electric vehicles; and (2) if the electric vehi cles are produced by a company that produces fewer than 10,000 vehi cles of all kinds worldwide. EPA believes that this exemption language is no longer appropriate and is deleting it from the affected regulations. First, since 1980 many regulatory provisions ha ve been put in place to address the concerns of small manufacturers and enable them to comply with fuel economy and emission programs with reduced burden. EPA believes that all small volume manufacturers should compete on a fair and level regulator y playing field and that there is no longer a need to treat small volume electric vehicles any differently than small volume manufacturers of other types of vehicles. Current regulations contain streamlined certification procedures for sma ll companies, and because electric vehicles emit no direct pollution there is effectively no certification emission testing burden. For

289 45 FR 49256, July 24, 1980.593 example, the greenhouse gas regulations cont ain a provision allowi ng the exemption of certain small entities. Meeting the require ments for fuel economy labeling and CAFE will entail a testing, reporting, and la beling burden, but these burdens are not extraordinary and should be applied equa lly to all small volume manufacturers, regardless of the fuel that moves their vehi cles. EPA has been working with existing electric vehicle manufacturers on fuel econom y labeling, and EPA believes it is important for the consumer to have impartial, accurate , and useful label information regarding the energy consumption of these vehicles. Second, EPCA does not provide for an exemption of electric vehicles from NHTSA ’s CAFE program, and NHTSA regulations regarding the applicability of the CAFE progr am do not provide an exemption for electric vehicles. Third, the blanket exemption for any manufacturer of onl y electric vehicles assumed at the time that these companies woul d all be small, but th e exemption language inappropriately did not account for size a nd would allow large ma nufacturers to be exempt as well. Finally, because of growth e xpected in the electric vehicle market in the future, EPA believes that the labeling and CAFE regulations need to be designed to more specifically accommodate electric vehicles a nd to require that consumers be provided with appropriate information regarding these vehicles. For these reasons EPA has revised 40 CFR Part 600 applicability regulations such that these electric vehicle exemptions are deleted starting with the 2012 model year.594 d. Miscellaneous Conforming Regulatory Amendments

EPA has made a number of minor amendm ents to update the regulations as needed or to ensure that the regulations are consistent with changes discussed in this preamble. For example, for consistency with the ethanol fuel economy calculation procedures discussed above, EPA has amende d regulations where necessary to require the collection of emissions of ethanol a nd acetaldehyde. Other ch anges are made to applicability sections to re move obsolete regulatory requirements such as phase-ins related to EPA’s Tier 2 emission standards program, and still other changes are made to better accommodate electric vehicles in EPA emission control regulations. Not all of these minor amendments are noted in this pr eamble, thus the reader should carefully evaluate regulatory text to ensure a comp lete understanding of the regulatory changes being promulgated by EPA.

In the process of amending regulations th at vary in applicability by model year, EPA has several approaches that can be taken. The first option is to amend an existing section of the regulations. For example, EP A did this in the final regulations with §86.111-94. In this case EPA chose to direc tly amend this section – which applies to 1994 and later model years as indicated by th e suffix after the hyphen – but ensure that the model year of applicability of the amendments (2015 and later for N 2 O measurement) is stated clearly in the regul atory text. A second option is to create a new section with specific applicability to the 2012 and later mode l years; i.e., a secti on number with a “12”595 following the hyphen. This approach typica lly involves pulling forw ard all the language from an earlier model year section, then ame nding as needed (but it could also involve a wholesale revision and replacement with entire ly new language). For example, EPA took this approach with §86.1809-12. Although only paragraphs (d) and (e) contain revisions pertaining to this greenhouse ga s rule, the remainder of the section is “pulled forward” from a prior model year sec tion (in this case, §86.1809-10) for completeness. Thus paragraphs (a) through (c) are unchanged rela tive to the prior model year section. Readers should therefore be awar e that sections that are indi cated as taking effect in the 2012 model year may differ in only subtle ways from the prior model year section being superseded. A third approach (not used in this regulation) is to use the “Reserved. For guidance see...” technique. For example, in the §86.1809-12, rather than bring forward the existing language from paragraphs (a) through (c) EPA could have simply put a statement in the regulations directing the reader to refe r back to §86.1809-10 for those requirements. This method has been used in the past, but is not being used in this regulation.

10. Warranty, Defect Reporting, and Other Emission-related Components Provisions

As outlined in the proposal, Section 207( a) of the Clean Air Act (CAA) requires manufacturers to provide a def ect warranty that warrants a vehicle is designed to comply with emission standards and will be free from defects that may cause noncompliance over the specified warranty period which is 2 year s/24,000 miles (whichever is first) or, for596 major emission control components, 8 years/ 80,000 miles. The warranty covers parts which must function properly to assure c ontinued compliance with emission standards. The proposal explained that under the greenhous e gas rule, this coverage would include compliance with the proposed CO 2 , CH 4 , and N 2 O standards. The proposal did not discuss the CAA Section 207(b) performance warranty.

EPA proposed to include air conditi oning system components under the CAA section 207(a) emission warranty in cases where manufacturers use air conditioning leakage and efficiency credits to comp ly with the proposed fleet average CO 2 standards. The warranty period of 2 years/ 24,000 miles would apply. EPA requested comments as to whether any other parts or components should be designated as ‘‘emission related parts’’ and thus subject to warranty and defect reporting provisions under this rule.

The Alliance of Automobile Manufacturer s (Alliance), Toyota and the State of New Jersey provided comments. The State of New Jersey supported EPA’s proposal to include motor vehicle air conditioning syst em components under the emission warranty provisions. Both the Alliance and T oyota commented that emission warranty requirements are not appropriate for mob ile air conditioners because 1) in-use performance of the air conditioning system at levels comparable to a new vehicle is not needed to achieve the emission levels targ eted by EPA and 2) ma nufacturer general warranties already cover air c onditioning systems and are typically longer than the twoyear/24,000 mile proposed emissions warranty period.597 Regarding direct emissions (refriger ant leakage), the Alliance and Toyota commented that warranty requirements are unn ecessary for refrigerants with a global warming potential (GWP) below 150 because th e environmental impact is negligible even if refrigerants are released from the system. Regarding indirect emissions (fuel consumed to power the air conditioning system), the Alliance commented that EPA should not require warranty coverage of the air conditioning system because in the vast majority of air conditioning failure modes, the system stops cooling and ceases operation -- either because the critical moving parts st op moving or because the system is switched off -- thereby actually re ducing the indirect CO 2 emissions.

EPA received no comments regarding 1) ot her parts or components which should be designated as ‘‘emission related parts’’ subj ect to warranty requirements, 2) defect reporting requirements, or 3) other requireme nts associated with warranty and defect reporting requirements (e.g., voluntary emissi on-related recall re porting requirements, performance warranty requirements, volunt ary aftermarket pa rts certification requirements or tampering requirements.

Defect Warranty. EPA’s current policy for def ect warranty requirements is provided in Section 207 of the Act. There ar e currently no defect warranty regulations. Congress provided under Section 207(a) and (b) of the CAA that emission-related components shall be covered under the 207( a) defect warranty and the 207(b) performance warranty for the warranty period ou tlined in section 207(i) of the CAA. For example, section 207(a) reads in part:598 “....the manufacturer of each new motor vehicle and new motor vehicle engine shall warrant to the ultimate purchaser and each subsequent purchaser that such vehicle or engine is (A) designed, built and equipped so as to conform at the time of sale with applicable regulations under section 202, and (B) free from defects in materials and workmanship which cause such vehicle or engine to fail to conform with applicable regulations for its useful life (a s determined under sec. 202(d)). In the case of vehicles and engines manufactured in the model year 1995 and thereafter such warranty shall require that the vehicle or engine is free from any such defects for the warranty period provided under subsection (i).”

Section 207(i) reads in part:

"(i) Warranty Period.--- (1) In General.—For purposes of subsection (a)(1) and subsection (b), the warranty period, effective with respect to new light-duty trucks and new light-duty vehicles and engines, manufactured in model year 1995 and thereafter, shall be the first 2 years or 24,000 miles of use (whichever first occurs), except as provided in paragraph (2). For the purposes of subsection (a)(1) and subsection (b), for other vehicles and engines the warranty period shall be the period established by the Administrator by regulation (promulgated prior to the enactment of the Clean Air Act Amendments of 1990) for such purposes unless the Administrator subsequently modifies such regulation. (2) In the case of a specified major emissi on control component, the warranty period for new light-duty trucks and new light-duty vehicles manufactured in the model year 1995 and thereafter for purposes of subsection (a)(1) and subsection (b) shall be 8 years or 80,000 miles of use (whichever first occurs). As used in this paragraph, the term 'specified major em ission control component' means only a599 catalytic converter, an electronic emissions control unit, and an onboard emissions diagnostic device, except that the Administrator may designate any other pollution control device or component as a specified major emission control component if--- (A) the device or component was not in general use on vehicles and engines manufactured prior to the model year 1990; and (B) the Administrator determines that the retail cost (exclusive of installation costs) of such device or component exceeds $200 (in 1989 dollars, adjusted for inflation or deflation as calculated by the Administrator at the time of such determination....."

Thus, the CAA provides the basis of th e warranty requirements contained in today’s final rule, which will cover “emissi on related parts” necessary to provide compliance with CO 2, CH 4 , and N 2 O standards. Emission re lated parts would include those parts, systems, components and softwa re installed for the specific purpose of controlling emissions or those components, syst ems, or elements of design which must function properly to assure continued vehicle emission compliance, including compliance with CO 2, CH 4 , and N 2 O standards; (similar to the curr ent definition of “emission related parts” provided in 40 CFR 85.2102(14) for performance warranty requirements). For example, today’s action will extend defect warranty requirements to emission-related components on advanced technology vehicles such as cylinder deactivation components or batteries used in hybrid-electric vehicles.

Under today’s rule, EPA will extend the defect warranty requirement to emissionrelated components necessary to meet CO 2, CH 4 , and N 2 O standards, including emissionrelated components which are used to obtai n optional credits for 1) certification of advanced technology vehicles, 2) credits for reduction of air condi tioning refrigerant600leakage, 3) credits for improving air conditioning system efficiency, 4) credits for offcycle CO 2 reducing technologies, an d 5) optional early credits for 2009-2011 model year vehicles outlined in the provisions of 40 CFR 86.1867-12 (which are required to be reported to EPA after the 2011 model year).

Regarding the comments received by the Alliance and Toyota, that warranty coverage is not needed for air conditioning components, EPA believes that the Clean Air Act requires warranty coverage on components used to demonstrate compliance with the emission standards, including components us ed in the optional credit programs for reduction of air conditioning refrigerant leakage and air conditioning efficiency improvements. EPA does not have the di scretion to forgo warranty requirements by regulation in today’s final rule. Thus , the Agency is adopting defect warranty requirements for air conditioning components as proposed.

Effective date of Warranty for Compone nts used to Obtain Early Credits

. Regarding the defect warranty for emission-re lated components used to obtain optional early credits for 2009-2011 vehicl es, the defect warranty should provide coverage for these components at the time the early credit s report is submitted to EPA (e.g., no later than 90 days after the end of the 2011 model year). For example, the defect warranty for early credit components does not have to a pply retroactively (before the manufacturer declares the credits to EPA). The Agency believ es this approach is reasonable, because 1) manufacturer’s early credit pl ans may not be finalized unti l after vehicles have been produced; 2) manufacturers will be provided satisfactory lead time to provide warranty601 requirements to customers; and 3) the manuf acturer’s basic (bumper-to-bumper) warranty for air conditioning and other early credit components are typically longer than the twoyear/24,000 mile proposed warranty period which will be applicable to most early credit components. ).

Performance Warranty . EPA did not propose any changes to the current performance warranty requirements, because the performance warranty preconditions outlined in section 207(b) of the CAA have not been satisfied. For example, section 207(b) of the CAA comes into play if EP A issues performance warranty short test regulations and determines that there are insp ection facilities availa ble in the field to determine when vehicles do not comply with greenhouse gas emission standards. Once EPA issues performance warranty short test regulations, then the CAA performance warranty provisions require the manufacturer to pay for em ission-related repairs if a vehicle is properly maintained and used, and fails the short test and is required to repair the vehicle. Currently the provisions of 85.2207 and 85.2222 provide performance warranty short test (commonly called an insp ection and maintenance or I/M test). The provisions of 85.2207 and 85.2222 provide an I/ M test procedure and failure criteria based on an inspection of the onboard diagnosti c (OBD) system of the vehicle. The OBD inspection procedure in 85.2222 is currently used in most areas of the country where I/M tests are required. For example, a vehicl e fails the OBD test procedure outlined in 85.2222 if the vehicle’s MIL is commanded to be “on” during the I/M test procedure.602 Although most areas of the country which require I/M testing use the OBD test procedure outlined in 40 CFR 85.2207 and 85.2222, the NPRM did not propose that the OBD system would be required monitor CO 2 , CH 4 or N 2 O emission performance, ref 74 FR 49574 and 74 FR 49755. Therefore, the performance warranty preconditions in 201(b) of the CAA are not currentl y in effect for greenhouse gas CO 2 emissions. The performance warranty continue s to apply for criteria pol lutants but not for greenhouse emissions.

Defect Reporting and Voluntary Emission- related Recall Reporting Requirements

. EPA did not propose any changes to the curren t defect reporting and voluntary emissionrelated recall reporting requi rements outlined in the provisions of 40 CFR 85.1901-1909. Although EPA requested comments, we did not receive any comments on defect reporting and voluntary emission-related r ecall reporting requirements. Current regulations require manufacturers to subm it a defect report to EPA whenever an emission-related defect exists in 25 or more in -use vehicles or engines of the same model year. The defect report is required to be submitted to EPA within 15 working days of the time the manufacturer become aware of that a de fect affects 25 or more vehicles. Current regulations require manufacturers to submit to EPA voluntary emission-related recall reports within 15 working days of the date when owner notification begins.

Similar to the performance warranty requirements outlined above, the Agency believes that as proposed, defect reporting and voluntary emission-re lated recall reporting requirements would apply to emission-re lated components nece ssary to meet CO 2, CH 4 ,603 and N 2 O standards for the usef ul life of the vehicle, including emission-related components that are used to obtain optional credits for 1) certifi cation of advanced technology vehicles, 2) credits for reduction of air conditioni ng refrigerant leakage, 3) credits for improving air conditioning system ef ficiency, and 4) credits for off-cycle CO 2 reducing technologies, and 5) optional earl y credits for 2009-2011 model year vehicles outlined in the provisions of 40 CFR 86.1867-12 (which are required to be reported to EPA after the 2011 model year). For early credit components, defect reporting requirements and voluntary emission-relate d recall reporting requirements become effective at the time the early credits report is submitted to EPA (e.g., no later than 90 days after the end of the 2011 model year).

The final rule includes a minor clarifi cation to the provisions of 40 CFR 85.1902 (b) and (d) to clarify that be ginning with the 2012 model year , manufacturers are required to report emission-related de fects and voluntary emission re calls to EPA, including emission-related defects and voluntary emi ssion recalls related to greenhouse gas emissions (CH 4 , N 2 O and CO 2 ).

11. Light Duty Vehicles and Fuel Economy Labeling

American consumers need accurate and meaningful information about the environmental and fuel economy performance of new light duty vehicles. EPA believes it is important that the fuel-economy label a ffixed to the new vehicles provide consumers with the critical information they need to make smart purchase decisions, especially in604 light of the expected increase in market share of electric and other advanced technology vehicles. Consumers may need new and differe nt information than today’s vehicle labels provide in order to help them understand th e energy use and associated cost of owning these electric and advanced technology vehicles.

Therefore, in proposing this greenhous e gas action, EPA sought comment on issues surrounding consumer ve hicle labeling in general, and labeling of advanced technology vehicles in particul ar. EPA specifically asked for input as to whether today’s miles per gallon fuel economy metric provi des adequate information to consumers.

EPA received considerable public input in response to the request for comment in the proposal. Since the greenhouse gas rule was proposed in September, 2009, EPA has initiated a separate rulemaking to explore in detail the information displayed on the fuel economy label and the methodology for deriving that information. The purpose of the vehicle labeling rulemaking is to ensure that American consumers continue to have the most accurate, meaningful, and useful inform ation available to them when purchasing new vehicles, and that the information is pres ented to them in clear and understandable

terms.

EPA will consider all vehicle labeling comments received in response to the greenhouse gas proposal in its development of the new labeling rule in coming months. We encourage the interested public to stay e ngaged and continue to provide input on this issue in the context of the vehicle labeling rulemaking.605 F. How Will This Final Rule Reduce GHG Emissions and Their Associated Effects?

This action is an important step toward s curbing steady growth of GHG emissions from cars and light trucks. In the absence of control, GHG emissions worldwide and in the U.S. are projected to c ontinue steady growth. Table I II.F-1 shows emissions of CO 2 , methane, nitrous oxide and air conditioning refrigerants on a CO 2 -equivalent basis for calendar years 2010, 2020, 2030, 2040 and 2050. As shown below, U.S. GHGs are estimated to make up roughly 17 percent of total worldwide emissions in 2010, and the contribution of direct emissions from cars and light-trucks to this U.S. share is growing over time, reaching an estimated 19 percent of U.S. emissions by 2030 in the absence of control. As discussed later in this section, this steady rise in GHG emissions is associated with numerous adverse impacts on human hea lth, food and agricultu re, air quality, and water and forestry resources.

Table III.F-1 Reference Case GHG Em issions by Calendar Year (MMTCO 2 eq) 2010 2020 2030 2040 2050 All Sectors (Worldwide) a 41,016 48,059 52,870 56,940 60,209

All Sectors (U.S. Only) a 7,118 7,390 7,765 8,101 8,379

U.S. Cars/Light Truck Only b 1,243 1,293 1,449 1,769 2,219

a ADAGE model projections, U.S. EPA 290 b MOVES2010 (2010), OMEGA Model (2020-50) U.S. EPA. See RIA Chapter 5.3 for modeling details.

290 U.S. EPA (2009). “EPA Analysis of the American Clean Energy and Security Act of 2009: H.R. 2454 in the 111th Congress.” U.S. Environmental Protection Agency, Washington, DC, USA (www.epa.gov/climatechange/economics/economicanalyses.html). ADAGE model projections of worldwide and U.S. totals include EI SA, and are provid ed for context.606 EPA’s GHG rule will result in significant reductions as newer, cleaner vehicles come into the fleet, and the rule is estimated to have a measurable impact on world global temperatures. As discussed in Section I, this GHG rule is part of a joint National Program such that a large majority of the pr ojected benefits would be achieved jointly with NHTSA’s CAFE standards, which are described in detail in Section IV. EPA estimates the reductions attributable to the GHG program over time assuming the model year 2016 standards continue indefinitely post-2016, 291 compared to a reference scenario in which the 2011 model year fuel econo my standards continue beyond 2011.

Using this approach EPA estimates these standards would cut annual fleetwide car and light truck tailpipe CO 2- eq emissions by 21 percent by 2030, when 90 percent of car and light truck miles will be travelled by vehicles meeting the new standards. Roughly 20 percent of these redu ctions are due to “upstream” emission reductions from gasoline extraction, production and distribution processes as a result of reduced gasoline demand associated with this rule. Some of the overall emission reductions also come from projected improvements in the efficiency of vehicle air conditioning systems, which will 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 estimates that compared to a baseline of indefinite 2011 model year standards, ne t GHG emission reductions from the program would be 307 million metric tons CO 2 -equivalent (MMTCO 2 eq) annually by 2030, which

291 This analysis does not include the EISA requirement for 35 MPG through 2020 or California’s Pavley 1 GHG standards. The standards are intended to supe rsede these requirements, and the baseline case for comparison are the emissions that would result without further action above the currently promulgated fuel economy standards.607 represents a reduction of 4 per cent of total U.S. GHG emissi ons and 0.6 percent of total worldwide GHG emissions projected in that year. This estimate accounts for all upstream fuel production and distribution emi ssion reductions, vehicle tailpipe emission reductions including air conditioni ng benefits, as well as incr eased vehicle miles travelled (VMT) due to the "rebound" effect discussed in Section III.H. EPA estimates this would be the equivalent of removing approximately 50 million cars and light trucks from the road in this timeframe. 292

EPA projects the total reducti on of the program over the full life of model year 2012-2016 vehicles to be about 960 MMTCO 2 eq, with fuel savings of 78 billion gallons (1.8 billion barrels) of gaso line over the life of these vehicles, assuming that some manufacturers take advantage of low-cost HFC reduction stra tegies to help meet these standards.

The impacts on global mean temperature and global mean sea level rise resulting from these emission reductions are discussed in Section III.F.3.

1. Impact on GHG Emissions

This action will reduce GHG emissions emitte d directly from vehicles due to reduced fuel use and more efficient air c onditioning systems. In addition to these “downstream” emissions, reducing CO 2 emissions translates directly to reductions in the

292 Estimated using MOVES2010, the average vehicle in the light duty fleet emitted 5.1 tons of CO 2 during calendar year 2008.608 emissions associated with the processes i nvolved in getting petroleum to the pump, including the extract ion and transportation of crud e oil, and the production and distribution of finished ga soline (termed “upstream” emissions). Reductions from tailpipe GHG standards grow over time as the fleet turns over to vehicles subject to the standards, meaning the benefit of the program will continue as long as the oldest vehicles in the fleet are replaced by newer, lower CO 2 emitting vehicles.

EPA is not projecting any reductions in tailpipe CH 4 or N 2 O emissions as a result of the emission caps set forth in this ru le, which are meant to prevent emission backsliding and to bring diesel vehicl es equipped with a dvanced technology aftertreatment, and other advanced technol ogy vehicles such as lean-burn gasoline vehicles, into alignment with cu rrent gasoline vehicle emissions. 293

No substantive comments were received on the emissions modeling methods or on the greenhouse gas inventorie s presented in the proposal. These analyses are updated here to include model revisions and more recent economic analysis, including revised estimates of future vehicle sales, fuel pri ces, and vehicle miles traveled. The primary source for these data is the AEO 2010 preliminary release. 294 For more details, please see the TSD and RIA Chapter 5.

293 EPA is adopting a compliance option wher eby manufacturers can comply with a CO 2 equivalent standard in lieu of meeting the CH 4 and N 2 O standards. This should have no effect on the estimated GHG reductions attributable to the rule since a condition of meeting that alternative standard is that the fleetwide CO 2 target remains in place. 294 Energy Information Administration. Annual Energy Outlook 2010 Early Release. http://www.eia.doe.gov/oiaf/aeo/.609 As detailed in the RIA, EPA estimated calendar year tailpipe CO 2 reductions based on pre- and post-control CO 2 gram per mile levels fr om EPA’s OMEGA model and assumed to continue indefinitely into the future, coupled with VMT projections derived from AEO 2010 Early Release. Thes e estimates reflect the real-world CO 2 emissions reductions projected for the entire U.S. ve hicle fleet in a specified calendar year, including the projected effect of air cond itioning credits, the TLAAS program and FFV credits. EPA also estimated full lifetim e reductions for model years 2012-2016 using pre- and post-control CO 2 levels projected by the OMEGA model, coupled with projected vehicle sales and lifetime mileag e estimates. These estimates reflect the real-world CO 2 emissions reductions projected for model years 2012 through 2016 vehicles over their entire life.

This rule allows manufacturers to earn credits for improved vehicle air conditioning efficiency. Sin ce these improvements are relatively low cost, EPA projects that manufacturers will take advantage of this flexibility, leading to reductions from emissions associated with vehicle air conditi oning systems. As explained above, these reductions will come from both direct emissi ons 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 estim ates that direct emissions of HFCs, one of the most potent greenhouse gases, would be reduced 50 percent from light-duty vehicles when the fleet has turned over to more effici ent vehicles. The fuel savings derived from lower tailpipe CO 2 would also lead to reductions in upstream emissions. Our estimated reductions from the A/C credits program are based on our analysis of how manufacturers610 are expected to take advant age of this credit opportunity in complying with the CO 2 fleetwide average tailpipe standards.

Upstream emission reductions associated with the production and distribution of fuel were estimated using emission factors from DOE’s GREET1.8 model, with some modifications as detailed in Chapter 5 of the RIA. These estimates include both international and domestic emission reductions , since reductions in foreign exports of finished gasoline and/or crude would make up a significant share of the fuel savings resulting from the GHG standards. Thus , significant portions of the upstream GHG emission reductions will occur outside of the U.S.; a breakdown of projected international versus domestic reductions is included in the RIA.

a. Calendar Year Reductions for Future Years

Table III.F.1-1 shows reductions estimat ed from these GHG standards assuming a pre-control case of 2011 MY standards con tinuing indefinitely beyond 2011, and a postcontrol case in which 2016 MY GHG sta ndards continue indefinitely beyond 2016. 295 These reductions are broken down by upstr eam and downstream components, including air conditioning improvements, and also acc ount for the offset from a 10 percent VMT “rebound” effect as discussed in Section I II.H. Including the reductions from upstream emissions, total reductions are estimated to reach 307 MMTCO 2 eq annually by 2030 (a 21 percent reduction in U.S. car and light truck emissions), and grow to over 500

295 Legally, the 2011 CAFE standards only apply to the 2011 model year and no standards apply to future model years. However, we do not believe that it would be appropriate to assume that no CAFE standards would apply beyond the 2011 model year when projecting the impacts of this rule.611 MMTCO 2 eq in 2050 as cleaner vehicles continue to come into the fleet (a 23 percent reduction in U.S. car and li ght truck emissions).

Table III.F.1-1 Projected GHG Reductions (MMTCO 2 eq per year) Calendar Year: 2020 2030 2040 2050 Net Reduction * 156.4 307.0 401.5 505.9 Net CO 2 139.1 273.3 360.4 458.7 Net other GHG 17.3 33.7 41.1 47.2 Downstream Reduction 125.2 245.7 320.7 403.0 CO 2 (excluding A/C) 101.2 199.5 263.2 335.1

A/C – indirect CO 2 10.6 20.2 26.5 33.8 A/C – direct HFCs 13.3 26.0 30.9 34.2 CH 4 (rebound effect) 0.0 0.0 0.0 0.0 N

2 O (rebound effect) 0.0 -0.1 -0.1 -0.1 Upstream Reduction 31.2 61.3 80.8 102.9 CO 2 27.2 53.5 70.6 89.9 CH 4 3.9 7.6 10.0 12.7 N

2 O 0.1 0.3 0.3 0.4

Percent reduction relative to U.S. reference (cars + light trucks) 12.1% 21.2% 22.7% 22.8% Percent reduction relative to U.S. reference (all sectors) 2.1% 4.0% 5.0% 6.0% Percent reduction relative to worldwide reference 0.3% 0.6% 0.7% 0.8% * includes impacts of 10% VMT rebound rate presented in Table III.F.1-3

b. Lifetime Reductions for 2012-2016 Model Years

EPA also analyzed the emission reductions over the full life of the 2012-2016 model year cars and trucks a ffected by this program. 296 These results, including both upstream

296 As detailed in the RIA Chapter 5 and TSD Chapter 4, for this analysis the full life of the vehicle is represented by average lifetime mileag es for cars (195,000 miles) and trucks (226,000 miles) averaged over calendar years 2012 through 2030, a function of how far vehicles drive per year and scrappage rates.612 and downstream GHG contributions, are presente d in Table III.F.1-2, showing lifetime reductions of about 960 MMTCO 2 eq, with fuel savings of 78 billion gallons (1.8 billion barrels) of gasoline.

Table III.F.1-2 Projected Net GHG Reductions ( MMTCO 2 eq per year ) Model Year Lifetime GHG Reduction (MMT CO 2 EQ) Lifetime Fuel Savings (Billion Gallons) 2012 88.9 7.3 2013 130.2 10.5 2014 174.2 13.9 2015 244.2 19.5 2016 324.6 26.5 Total Program Benefit 962.0 77.7

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 assessment of economic and environmental impacts of this rule. A 10 percent rebound case was used for this analysis, meaning that VMT for affected model years is modeled as increasing by 10 percent as much as the incr ease in fuel economy; i.e., a 10 percent increase in fuel economy would yield a 1.0 percent increase in VMT. Results are shown in Table III.F.1- 3; using the 10 percent rebound rate results in an overall emission increase of 25.0
MMTCO 2 eq annually in 2030 (this increase is acc ounted for in the reductions presented in Tables III.F.1-1 and III.F.1- 2). Our estimated changes in CH 4 or N 2 O emissions as a result of these vehicle GHG standards are at tributed solely to this rebound effect.613 Table III.F.1-3 GHG Impact Of 10% VMT Rebound a ( MMTCO 2 eq per year ) 2020 2030 2040 2050 Total GHG Increase 13.0 25.0 32.9 41.9 Tailpipe & Indirect A/C CO 2 10.2 19.6 25.8 32.8 Upstream GHGs b 2.8 5.4 7.1 9.1 Tailpipe CH 4 0.0 0.0 0.0 0.0 Tailpipe N 2 O 0.0 0.1 0.1 0.1

a These impacts are included in the reductions shown in Table III.F.1-1 and III.F.1-2. b Upstream rebound impact cal culated as upstream total CO 2 effect times ratio of downstream tailpipe rebound CO 2 effect to downstream tailpipe total CO 2 effect.
d. Analysis of Alternatives

EPA analyzed two alternative scenarios, including 4% and 6% annual increases in GHG emission standards. In addition to th is annual increase, EPA assumed that manufacturers would use air conditioning impr ovements in identical penetrations as in the primary scenario. Under these assumpti ons, EPA expects achieved fleetwide average emission levels of 253 g/mile CO 2 eq (4%), and 230 g/mile CO 2 eq(6%) in 2016.

As in the primary scenario, EPA assumed that the fleet complied with the standards. For full details on modeling assumptions, please refer to RIA Chapter 5. EPA’s assessment of these alternative st andards, including ou r response to public comments, is discussed in Section III.D.614 Table III.F.1-4 Calendar Year Impacts Of Alternative Scenarios Calendar Year Scenario CY 2020 CY2030 CY 2040 CY 2050 Primary -156.4 -307.0 -401.5 -505.8

4% -141.9 -286.2 -375.4 -472.9 Total GHG Reductions (MMT CO 2 eq) 6% -202.6 -403.4 -529.3 -668.7 Primary -12.6 -24.7 -32.6 -41.5

4% -11.3 -22.9 -30.3 -38.6 Fuel Savings (Billion Gallons Gasoline Equivalent) 6% -16.7 -33.2 -43.9 -55.9

Table III.F.1-5 Model Year Impacts of Alternative Scenarios Model Year Lifetime Scenario MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Total Primary -88.8 -130.2 -174.2 -244.2 -324.6 -962.0

4% -39.9 -96.6 -155.4 -226.5 -303.6 -822.0 Total GHG Reductions (MMT CO 2 eq) 6% -61.7 -146.5 -237.0 -332.2 -427.6 -1,204.9 Primary -7.3 -10.5 -13.9 -19.5 -26.5 -77.7

4% -2.9 -7.1 -12.2 -18.0 -24.6 -64.8 Fuel Savings (Billion Gallons Gasoline Equivalent) 6% -4.9 -12.0 -19.4 -27.3 -35.6 -99.1

2. Overview of Climate Change Impacts from GHG Emissions

Once emitted, GHGs that are the subject of this regulation can remain in the atmosphere for decades to centuries, meaning that 1) their concentrations become wellmixed throughout the global atmosphere rega rdless of emission origin, and 2) their effects on climate are long lasting. GHG emissi ons come mainly from the combustion of fossil fuels (coal, oil, and gas), with additi onal contributions from the clearing of forests and agricultural activities. The transportation sector represents a si gnificant portion, 28%, of U.S. GHG emissions. 297

297 U.S. EPA (2009) Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–2007 . EPA-430-R-09- 004, Washington, DC.615 This section provides a summary of observed and projected changes in GHG emissions and associated climate change impacts. The source document for the section below is the Technical Support Document (TSD) 298 for EPA’s Endangerment and Cause or Contribute Findings Under the Clean Air Act. 299 Below is the Executive Summary of the TSD which provides technical support for the endangerment and cause or contribute analyses concerning GHG emissions under sec tion 202(a) of the Clean Air Act. The TSD reviews observed and projected changes in climate based on current and projected atmospheric GHG concentrations and emissions, as well as the related impacts and risks from climate change that are projected in the absence of GHG mitigation actions, including this action and other U.S. and gl obal actions. The TSD was updated and revised based on expert technical re view and public comment as part of EPA’s rulemaking process for the final Endangerment Findings. The key findings synthesized here and the information throughout the TSD are primarily drawn from the assessment reports of the Intergovernmental Panel on Climate Change (IPCC), the U.S. Climate Change Science Program (CCSP), the U.S. Global Change Research Program (USGCRP), and the National Research Council (NRC). 300

298 “Technical Support Document for Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act” Docket: EPA-HQ-OAR-2009-0472-11292 299 See 74 FR 66496 (Dec. 15, 2009) 300 For a complete list of core references from IPCC, USGCRP/CCSP, NRC and others relied upon for development of the TSD for EPA’s Endangerment and Cause or Contribute Findings see section 1(b), specifically, Table 1.1 of the TSD.616 a. Observed Trends in Greenhouse Gas Emissions and Concentrations

The primary long-lived GHGs directly em itted by human activities include carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2 O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), a nd sulfur hexafluoride (SF 6 ). Greenhouse gases have a warming effect by trapping heat in the atmos phere that would otherwise escape to space. In 2007, U.S. GHG emissions were 7,150 teragrams 301 of CO 2 equivalent 302 (TgCO 2 eq). The dominant gas emitted is CO 2 , mostly from fossil fuel combustion. Methane is the second largest component of U.S. emissions, followed by N 2 O and the fluorinated gases (HFCs, PFCs, and SF 6 ). Electricity generation is the largest emitting sector (34% of total U.S. GHG emissions), followed by transpor tation (28%) and industry (19%).

Transportation sources under Section 202(a) 303 of the Clean Air Act (passenger cars, light duty trucks, othe r trucks and buses, motorcyc les, and passenger cooling) emitted 1,649 TgCO 2 eq in 2007, representing 23% of total U.S. GHG emissions. U.S. transportation sources under Section 202(a) made up 4.3% of total global GHG emissions in 2005, 304 which, in addition to the United Stat es as a whole, ranked only behind total GHG emissions from China, Russia, and India but ahead of Japan, Brazil, Germany, and

301 One teragram (Tg) = 1 million metric tons. 1 metr ic ton = 1,000 kilograms = 1.102 short tons = 2,205 pounds. 302 Long-lived GHGs are compared and summed together on a CO 2 -equivalent basis by multiplying each gas by its global warming potential (GWP), as estimated by IPCC. In accordance with United Nations Framework Convention on Climate Change (UNFCCC) reporting procedures, th e U.S. quantifies GHG emissions using the 100-year timeframe values for GWPs established in the IPCC Second Assessment Report. 303 Source categories under Section 202( a) of the Clean Air Act are a subs et of source categories considered in the transportation sector and do not include emissions from non-highway sources such as boats, rail, aircraft, agricultural equipment, construction/mining equipment, and other off-road equipment. 304 More recent emission data are available for the United States and other individual countries, but 2005 is the most recent year for which data for a ll countries and all gases are available.617 the rest of the world’s countri es. In 2005, total U.S. GHG emissions were responsible for 18% of global emissions, ranking only behind China, which was responsible for 19% of global GHG emissions. The scope of this action focuses on GHG emissions under Section 202(a) from passenger cars and light duty trucks source categories (see Section III.F.1).

The global atmospheric CO 2 concentration has increased about 38% from preindustrial levels to 2009, and almo st all of the increase is due to anthropogenic emissions. The global atmospheric concentration of CH 4 has increased by 149% since pre-industrial levels (through 2007); and the N 2 O concentration has increased by 23% (through 2007). The observed concentration increase in these ga ses can also be attributed primarily to anthropogenic emissions. The industrial fl uorinated gases, HFCs, PFCs, and SF 6 , have relatively low atmospheric concentrations but the total radiative forcing due to these gases is increasing rapidly; these gases are almost entirely anthropogenic in origin.

Historic data show that current atmos pheric concentrations of the two most important directly emitted, long-lived GHGs (CO 2 and CH 4 ) are well above the natural range of atmospheric concentrations compar ed to at least the last 650,000 years. Atmospheric GHG concentrations have been increasing because anth ropogenic emissions have been outpacing the rate at which GHGs are removed from the atmosphere by natural processes over timescales of decades to centuries.618 b. Observed Effects Associated With Global Elevated Concentrations of
GHGs

Current ambient air concentrations of CO 2 and other GHGs remain well below published exposure thresholds for any direct adverse health eff ects, such as respiratory or toxic effects.

The global average net effect of the in crease in atmospheric GHG concentrations, plus other human activities (e.g., land-use ch ange and aerosol emissions), on the global energy balance since 1750 has b een one of warming. This total net heating effect, referred to as forcing, is estimated to be +1.6 (+0.6 to +2.4) watts per square meter (W/m 2 ), with much of the range surrounding this estimate due to uncertainties about the cooling and warming effects of aerosols. Howe ver, as aerosol forcing has more regional variability than the well-mixed, long-lived GHGs, the global average might not capture some regional effects. The combined radiativ e forcing due to the cumulative (i.e., 1750 to 2005) increase in atmosphe ric concentrations of CO 2 , CH 4 , and N 2 O is estimated to be +2.30 (+2.07 to +2.53) W/m 2 . The rate of increase in pos itive radiative forcing due to these three GHGs during the i ndustrial era is very likely to have been unprecedented in more than 10,000 years.

Warming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice, and rising global average sea level. Global mean surface619 temperatures have risen by 1.3 ± 0.32 ° F (0.74°C ± 0.18 ° C) over the last 100 years. Eight of the 10 warmest years on record have occurred since 2001. Global mean surface temperature was higher during the last few d ecades of the 20th century than during any comparable period during the pr eceding four centuries.

Most of the observed increas e in global average temperatures since the mid-20th century is very likely due to the observed increase in anth ropogenic GHG concentrations. Climate model simulations suggest natural forc ing alone (i.e., changes in solar irradiance) cannot explain the observed warming.

U.S. temperatures also warmed during the 20 th and into the 21 st century; temperatures are now approximately 1.3°F (0 .7°C) warmer than at the start of the 20 th century, with an increased rate of warming over the past 30 years. Both the IPCC 305 and the CCSP reports attributed recent Nort h American warming to elevated GHG concentrations. In the CCSP (2008) report, 306 the authors find that for North America, “more than half of this warming [for the period 1951-2006] is likely the result of humancaused greenhouse gas forcing of climate change.”

305 Hegerl, G.C. et al. (2007) Understanding and Attributing Climate Change. In: Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M. Tignor, and H.L. Miller (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA. 306 CCSP (2008) Reanalysis of Historical Climate Data for Key Atmospheric Features: Implications for Attribution of Causes of Observed Change . A Report by the U.S. Climate Change Science Program and the Subcommittee on Global Change Research [Randall Dole, Martin Hoerling, and Siegfried Schubert (eds.)]. National Oceanic and Atmospheric Administration, Nati onal Climatic Data Center, Asheville, NC, 156 pp.620 Observations show that changes are occu rring in the amount, intensity, frequency and type of precipitation. Over the con tiguous United States, to tal annual precipitation increased by 6.1% from 1901 to 2008. It is lik ely that there have b een increases in the number of heavy precipitation events with in many land regions, even in those where there has been a reduction in total precip itation amount, consistent with a warming climate.

There is strong evidence that global sea level gradually rose in the 20 th century and is currently rising at an increased rate. It is not clear whether the increasing rate of sea level rise is a reflection of short-term variability or an incr ease in the longer-term trend. Nearly all of the Atlantic Ocean show s sea level rise during the last 50 years with the rate of rise reaching a maximum (over 2 millimeters [mm] per year) in a band along the U.S. east coast running east-northeast.

Satellite data since 1979 show that a nnual average Arctic sea ice extent has shrunk by 4.1% per decade. The size and speed of recent Arctic summer sea ice loss is highly anomalous relative to the pr evious few thousands of years.

Widespread changes in extreme temperatur es have been observed in the last 50 years across all world regions, including the Un ited States. Cold days, cold nights, and frost have become less frequent, while hot da ys, hot nights, and heat waves have become more frequent.621 Observational evidence from all continents and most oceans shows that many natural systems are being affected by regional climate changes, particularly temperature increases. However, directly attributing specif ic regional changes in climate to emissions of GHGs from human activities is difficult, especially for precipitation.

Ocean CO 2 uptake has lowered the average ocea n pH (increased acidity) level by approximately 0.1 since 1750. Consequences for marine ecosystems can include reduced calcification by shell-forming organisms, a nd in the longer term, the dissolution of carbonate sediments.

Observations show that climate change is currently affecting U.S. physical and biological systems in significant ways. The consistency of these observed changes in physical and biological systems and the obs erved significant warming likely cannot be explained entirely due to natural variabili ty or other confounding non-climate factors.

c. Projections of Future Climate Cha nge With Continued Increases in Elevated GHG Concentrations

Most future scenarios that assume no explicit GHG mitigation actions (beyond those already enacted) project increasing global GHG emissions over the century, with climbing GHG concentrations. Carbon dioxide is expected to remain the dominant anthropogenic GHG over the course of the 21 st century. The radiative forcing associated with the non-CO 2 GHGs is still significant and increasing over time.622 Future warming over the course of the 21 stcentury, even under scenarios of lowemission growth, is very likely to be grea ter than observed warming over the past century. According to climate mode l simulations summarized by the IPCC, 307 through about 2030, the global warming rate is affected little by the choice of different future emissions scenarios. By the end of the 21 st century, projected average global warming (compared to average temperature around 1990) varies significantly depending on the emission scenario and climate sensitivity assumptions, ranging from 3.2 to 7.2 ° F (1.8 to
4.0 ° C), with an uncertainty range of 2.0 to 11.5 ° F (1.1 to 6.4 ° C).

All of the United States is very likely to warm during this century, and most areas of the United States are expect ed to warm by more than the global average. The largest warming is projected to occur in winter over nor thern parts of Alaska. In western, central and eastern regions of North America, the projected warming has less seasonal variation and is not as large, especially near the coast, consistent with less warming over the

oceans.

It is very likely that heat waves will become more intense, more frequent, and longer lasting in a future warm climate, wher eas cold episodes are projected to decrease significantly.

307 Meehl, G.A. et al. (2007) Global Climate Projections. In: Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M. Tignor and H.L. Miller (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York , NY, USA.623 Increases i n the amount of precipitation are very likely in higher latitudes, while decreases are likely in most subtropical la titudes and the southwestern United States, continuing observed patterns. The mid-continen tal area is expected to experience drying during summer, indicating a gr eater risk of drought.

Intensity of precipitation events is project ed to increase in the United States and other regions of the world. More intense prec ipitation is expected to increase the risk of flooding and result in greater runoff and erosion that has th e potential for adverse water quality effects.

It is likely that hurricanes will become more intense, with stronger peak winds and more heavy precipitation associated w ith ongoing increases of tropical sea surface temperatures. Frequency changes in hurricane s are currently too uncertain for confident projections.

By the end of the century, global average sea level is projected by IPCC 308 to rise between 7.1 and 23 inches (18 and 59 centimet er [cm]), relative to around 1990, in the absence of increased dynamic ice sheet loss. Recent rapid changes at the edges of the Greenland and West Antarctic ice sheets show acceleration of flow and thinning. While an understanding of these ice sheet processes is incomplete, their inclusion in models would likely lead to increased sea le vel projections for the end of the 21 st century.

308 IPCC (2007) Summary for Policymakers. In: Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M. Tignor and H.L. Miller (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York , NY, USA.624 Sea ice extent is projected to shrink in the Arctic under all IPCC emissions scenarios.

d. Projected Risks and Impacts Associated With Future Climate Change

Risk to society, ecosystems, and many natural Earth processes increase with increases in both the rate and magnitude of climate change. Climate warming may increase the possibility of large, abrupt regional or global climatic events (e.g., disintegration of the Greenland I ce Sheet or collapse of the West Antarctic Ice Sheet). The partial deglaciation of Greenland (and po ssibly West Antarctica) could be triggered by a sustained temperature increase of 2 to 7 ° F (1 to 4oC) above 1990 levels. Such warming would cause a 13 to 20 feet (4 to 6 meter) rise in sea level, which would occur over a time period of centuries to millennia.

The CCSP 309 reports that climate change ha s the potential to accentuate the disparities already evident in the American health care system, as many of the expected health effects are likely to fall disproportionately on the poor , the elderly, the disabled, and the uninsured. The IPCC 310 states with very high confidence that climate change

309 Ebi, K.L., J. Balbus, P.L. Kinney, E. Lipp, D. Mills, M.S. O’Neill, and M. Wilson (2008) Effects of Global Change on Human Health. In: Analyses of the effects of global change on human health and welfare and human systems . A Report by the U.S. Climate Change Science Program and the Subcommittee on Global Change Research. [Gamble, J.L. (ed.), K.L. Ebi, F.G. Sussman, T.J. Wilbanks, (Authors)]. U.S. Environmental Protection Agency, Washington, DC, USA, pp. 2-1 to 2-78. 310 Field, C.B. et al. (2007) North America. In: Climate Change 2007: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [M.L. Parry, O.F. Canziani, J.P. Palutikof, P.J. van der Linden and C.E. Hanson (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.625 impacts on human health in U.S. cities will be compounded by populat ion growth and an aging population.

Severe heat waves are projected to inte nsify in magnitude and duration over the portions of the United States where these events already occur, with potential increases in mortality and morbidity, especially am ong the elderly, young, and frail.

Some reduction in the risk of death related to extreme cold is expected. It is notclear whether reduced mortality from cold will be greater or less than increased heatrelated mortality in the United States due to climate change.

I ncreases in regional ozon e pollution relative to ozone levels without climate change are expected due to higher temperatures and weaker circulation in the United States and other world cities relative to ai r quality levels without climate change. Climate change is expected to increase region al ozone pollution, with associated risks in respiratory illnesses and premature death. In addition to human health effects, tropospheric ozone has significant adverse e ffects on crop yields, pasture and forest growth, and species composition. The directional effect of climate change on ambient particulate matter levels remains uncertain.

Within settlements experiencing climate change, certain parts of the population may be especially vulnerable; these include the poor, the elderly, those already in poor health, the disabled, those liv ing alone, and/or indigenous populations dependent on one626 or a few resources. Thus, the potential imp acts of climate change raise environmental justice issues.

The CCSP 311 concludes that, with increased CO 2 and temperature, the life cycle of grain and oilseed crops will likely progress more rapidly. But, as temperature rises, these crops will increasingly begin to experience failure, especially if climate variability increases and precipitation lessens or beco mes more variable. Furthermore, the marketable yield of many horti cultural crops (e.g., tomatoes, oni ons, fruits) is very likely to be more sensitive to climate ch ange than grain and oilseed crops. Higher temperatures will very likely reduce livestock production during the summer season in some areas, but these losses will very likely be partially offset by warmer temperatures during the winter season.

Cold-water fisheries will likely be negativ ely affected; warm-water fisheries will generally benefit; and the results for cool-water fisheries will be mixed, with gains in the northern and losses in the sout hern portions of ranges.

Climate change has very likely increased the size and number of forest fires, insect outbreaks, and tree mortality in the interior West, the Southwest, and Alaska, and will continue to do so. Over North America, forest growth and productivity have been observed to increase since the middle of the 20 th century, in part due to observed climate

311 Backlund, P., A. Janetos, D.S. Schimel, J. Hatfie ld, M.G. Ryan, S.R. Archer , and D. Lettenmaier (2008) Executive Summary. In: The Effects of Climate Change on Agri culture, Land Resources, Water Resources, and Biodiversity in the United States. A Report by the U.S. Climate Change Science Program and the Subcommittee on Global Change Research. Washington, DC., USA, 362 pp.627 change. Rising CO 2 will very likely increase photosynthe sis for forests, but the increased photosynthesis will likely onl y increase wood production in young forests on fertile soils. The combined effects of expected increased temperature, CO 2 , nitrogen deposition, ozone, and forest disturbance on soil processes and soil carb on storage remain unclear.

Coastal communities and habitats will be increasingly stressed by climate change impacts interacting with devel opment and pollution. Sea leve l is rising along much of the U.S. coast, and the rate of change will very likely increase in the future, exacerbating the impacts of progressive inundation, storm-surg e flooding, and shoreline erosion. Storm impacts are likely to be more severe, especi ally along the Gulf and Atlantic coasts. Salt marshes, other coastal habitats, and dependent species are threatened by sea level rise, fixed structures blocking la ndward migration, and changes in vegetation. Population growth and rising value of infrastructure in coastal areas increases vulnerability to climate variability and future climate change.

Climate change will likely further constrai n already overallocated water resources in some regions of the United States, increasing competition among agricultural, municipal, industrial, and eco logical uses. Although water management practices in the United States are generally advanced, partic ularly in the West, the reliance on past conditions as the basis for current and future planning may no longe r be appropriate, as climate change increasingly creates conditions well outside of historical observations. Rising temperatures will diminish snowpack a nd increase evaporation, affecting seasonal availability of water. In the Great Lakes a nd major river systems, lower water levels are628 likely to exacerbate challenges relating to water quality, navigation, recreation, hydropower generation, water transfers, and bi national relationships. Decreased water supply and lower water levels are likely to exacerbate challenges relating to aquatic navigation in the United States.

Higher water temperatures, increased preci pitation intens ity, and longer periods of low flows will exacerbate many form s of water pollution, potentially making attainment of water quality goals more difficult. As waters become warmer, the aquatic life they now support will be replaced by ot her species better adapted to warmer water. In the long term, warmer water and changing flow may result in deterioration of aquatic ecosystems.

Ocean acidification is projected to conti nue, resulting in the reduced biological production of marine calcifi ers, including corals.

Climate change is likely to affect U.S. energy use and energy production and physical and institutional infrastructures. It will also likely interact with and possibly exacerbate ongoing environmental change and environmental pressures in settlements, particularly in Alaska where indigenous co mmunities are facing major environmental and cultural impacts. The U.S. energy sector, which relies h eavily on water for hydropower and cooling capacity, may be adversely impact ed by changes to water supply and quality in reservoirs and other wate r bodies. Water infrastructure , including drinking water and wastewater treatment plants, and sewer and st ormwater management systems, will be at629 greater risk of flooding, sea le vel rise and storm surge, low flows, and other factors that could impair performance.

Disturbances such as wildfires and ins ect outbreaks are increasing in the United States and are likely to intensify in a warmer future with warmer winters, drier soils, and longer growing seasons. Although recent clim ate trends have increased vegetation growth, continuing increases in disturbances are likely to limit carbon storage, facilitate invasive species, and disrupt ecosystem services.

Over the 21 st century, changes in climate will cause species to shift north and to higher elevations and fundamentally rearrange U.S. ecosystems. Differential capacities for range shifts and constraints from development, ha bitat fragmentation, invasive species, and broken ecological connections will alter ecosystem structure, function, and services.

Climate change impacts will vary in nature and magnitude across different regions of the United States.

• Sustained high summer temperatures, heat waves, and declining air quality are projected in the Northeast, 312 Southeast, 313 Southwest, 314 and Midwest. 315 Projected

312 Northeast includes West Virginia, Maryland, Delaware, Pennsylvania, New Jersey, New York, Connecticut, Rhode Island, Massachusetts, Vermont, New Hampshire, and Maine. 313 Southeast includes Kentucky, Virginia, Arkansas, Tennessee, North Carolina, South Carolina, southeast Texas, Louisiana, Mississippi, Alabama, Georgia, and Florida. 314 Southwest includes California, Nevada, Utah, western Colorado, Arizona, New Mexico (except the extreme eastern section), and southwest Texas. 315 The Midwest includes Minnesota, Wisconsin, Michigan, Iowa, Illinois, Indiana, Ohio, and Missouri.630 climate change would continue to cause loss of sea ice, glacier retreat, permafrost thawing, and coastal erosion in Alaska.

• Reduced snowpack, earlier spring snowme lt, and increased likelihood of seasonal summer droughts are projected in the Northeast, Northwest, 316 and Alaska. More severe, sustained droughts and water scarcity are projected in the Southeast, Great Plains, 317 and Southwest.

• The Southeast, Midwest, and Northwest in pa rticular are expected to be impacted by an increased frequency of heavy downpours and greater flood risk.

• Ecosystems of the Southeast, Midwest, Great Plains, Southwest, Northwest, and Alaska are expected to expe rience altered distribution of native species (including local extinctions), more frequent and intense wildfires, and an increase in insect pest outbreaks and invasive species.

• Sea level rise is expected to increase storm surge height and strength, flooding, erosion, and wetland loss along the coasts, particularly in the Northeast, Southeast, and islands.

• Warmer water temperatures and ocean acidification are expected to degrade important aquatic resources of islands and coasts such as coral reefs and fisheries.

• A longer growing season, low levels of warming, and fe rtilization effects of carbon dioxide may benefit certain crop species and fo rests, particularly in the Northeast and Alaska. Projected summer rainfall increas es in the Pacific islands may augment limited freshwater supplies. Cold-related mortality is projected to decrease,

316 The Northwest includes Washington, Idaho, western Montana, and Oregon. 317 The Great Plains includes central and eastern Montana, North Dakota, South Dakota, Wyoming, Nebraska, eastern Colorado, Nebraska, Kansas, ex treme eastern New Mexico, central Texas, and Oklahoma631 especially in the Southeast. In the Mi dwest in particular, heating oil demand and snow-related traffic accidents are expected to decrease.

Climate change impacts in certain regi ons of the world may exacerbate problems that raise humanitarian, trade, and national security issues for the United States. The
IPCC 318 identifies the most vulnerable world regi ons as the Arctic, because of the effects of high rates of projected warming on natural systems; Africa, especially the sub-Saharan region, because of current low adaptive capac ity as well as climate change; small islands, due to high exposure of population and infrastr ucture to risk of sea level rise and increased storm surge; and Asian mega-delta s, such as the Ganges-Brahmaputra and the Zhujiang, due to large populat ions and high exposure to sea level rise, storm surge and river flooding. Climate change has been described as a potential threat multiplier with regard to national security issues.

3. Changes in Global Climate Indica tors Associated with the Rule’s GHG Emissions Reductions

EPA examined 319 the reductions in CO 2 and other GHGs associated with this action and analyzed the projected effects on global mean surface temperature and sea level, two common indicators of climate change. The analysis projects that this action

318 Parry, M.L. et al. (2007 ) Technical Summary. In: Climate Change 2007: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [ M.L. Parry, O.F. Canziani, J.P. Palutikof, P.J. van der Linden, and C.E. Hanson (eds.)], Cambridge University Press, Cambridge, United Kingdom, pp. 23 S 78. 319 Using the Model for the Assessment of Greenhouse Gas Induced Climate Change (MAGICC, http://www.cgd.ucar.edu/cas/wigley/magicc/), EPA estima ted the effects of this action’s greenhouse gas emissions reductions on global mean temperature and s ea level. Please refer to Chapter 7.4 of the RIA for additional information.632 will reduce climate warming and sea level rise. Although the projected reductions are small in overall magnitude by themselves, th ey are quantifiable and would contribute to reducing climate change risks. A commenter agreed that the modeling results showed small, but quantifiable, reductions in the global atmospheric CO 2 concentration, as well as a reduction in projected global mean su rface temperature and sea level rise, from implementation of this action, across all c limate sensitivities. As such, the commenter encourages the agencies to move forward w ith this action while continuing to develop additional, more stringent ve hicle standards beyond 2016.

Another commenter indicated that the projected changes in climate impacts resulting from this action are small and theref ore not meaningful. EPA disagrees with this view as the reductions may be small in ove rall magnitude, but in the global climate change context, they are quantifiable showing a clear directional signal across a range of climate sensitivities. 320, 321 EPA therefore determines th at the projected reductions in atmospheric CO 2 , global mean temperature and sea le vel rise are meaningful in the context of this rule. EPA addresses this point further in the Response to Comments document. For the final rule, EPA provides an additional climate change impact analysis for projected changes in ocean pH in the cont ext of this action. In addition, EPA updated the modeling analysis based on the revised GHG emission reductions provided in Section III.F.1; however, the change in modeling resu lts was very small in magnitude. Based on

320 The National Research Council (NRC) 2001 study, Climate Change Science: An Analysis of Some Key Questions , defines climate sensitivity as the sensitivity of the climate system to a forcing is commonly expressed in terms of the global mean temperature chan ge that would be expected after a time sufficiently long enough for both the atmosphere and ocean to come to equilibrium with the change in climate forcing. 321 To capture some of the uncertainty in the climate system, the changes in atmospheric CO 2 , projected temperatures and sea level were estimated across the most current Intergovernmental Panel on Climate Change (IPCC) range of climat e sensitivities, 1.5°C to 6.0°C.633 the reanalysis the results for projected atmospheric CO 2 concentrations are estimated to be reduced by an average of 2.9 ppm (previ ously 3.0 ppm), global mean temperature is estimated to be reduced by 0.006 to 0.015 °C by 2100 (previously 0.007 to 0.016 °C) and sea-level rise is projected to be re duced by approximately 0.06-0.14cm by 2100 (previously 0.06-0.15cm).

a. Estimated Projected Reductions in Atmospheric CO 2 Concentration, Global Mean Surface Temperatures Sea Level Rise and Ocean pH

EPA estimated changes in the atmospheric CO 2 concentration, global mean surface temperature and sea level to 2100 result ing from the emissions reductions in this action using the Model for the Assessment of Greenhouse Gas Induced Climate Change (MAGICC, version 5.3). This wide ly-used, peer reviewed mode ling tool was also used to project temperature and sea level rise under di fferent emissions scenarios in the Third and Fourth Assessments of the Intergovernme ntal Panel on Climate Change (IPCC).

GHG emissions reductions from Section III.F. 1 were applied as net reductions to a peer reviewed global reference case (or ba seline) emissions scenario to generate an emissions scenario specific to this action. For the scenario related to this action, all emissions reductions were assumed to begin in 2012, with zero emissions change in 2011 (from the reference case) followed by emissions linearly increasing to equal the value supplied in Section III.F.1 for 2020 and then continuing to 2100. Details about the634 reference case scenario and how the emissions reductions were applied to generate the scenario can be found in the RIA Chapter 7.

Changes in atmospheric CO 2 concentration, temperatur e, and sea-level for both the reference case and the emissions scenarios associated with this action were computed using MAGICC. To compute the re ductions in the atmospheric CO 2 concentrations as well as in temperature and sea level resul ting from this action, the output from the scenario associated with this final rule wa s subtracted from an existing Global Change Assessment Model (GCAM, formerly MiniCAM) reference emission scenario. To capture some key uncertainties in the clim ate system with the MAGICC model, changes in temperature and sea-level rise were proj ected across the most current IPCC range for climate sensitivities which ranges from 1.5°C to 6.0°C (representing the 90% confidence interval). 322 This wide range reflects the uncertainty in this measure of how much the global mean temperature would rise if th e concentration of ca rbon dioxide in the atmosphere were to double. Details about th is modeling analysis can be found in the RIA Chapter 7.4.

The results of this modeling, summarized in Table III.F.3-1, show small, but quantifiable, reductions in atmospheric CO 2 concentrations, projected global mean surface temperature and sea level resulting from this action, across all climate

322 In IPCC reports, equilibrium climate sensitivity re fers 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 sensitivity is “likely” to be in the range of 2°C to 4.5°C, “very unlikely” to be less than 1.5°C, and “values substantially higher than 4.5°C cannot be excluded.” IPCC WGI, 2007, Climate Change 2007 - The Physical Science Basis, Contribution of Working Group I to the Fourth Assessment Report of the IPCC, http://www.ipcc.ch/635 sensitivities. As a result of the emission re ductions from this action, the atmospheric CO 2 concentration is projected to be reduced by an average of 2.9 parts per million (ppm), the global mean temperature is projected to be reduced by approximately 0.006-0.015°C by 2100, and global mean sea level rise is proj ected to be reduced by approximately 0.06- 0.14cm by 2100. The reductions are small re lative to the IPCC’s 2100 “best estimates” for global mean temperature increases (1.8 – 4. 0oC) and sea level rise (0.20-0.59m) for all global GHG emissions sources for a range of emissions scenarios. EPA used a peer reviewed model, the MAGICC model, to do this analysis. This analysis is specific to this rule and therefore does not come from previ ously published work. Further discussion of EPA’s modeling analysis is found in the final RIA.

Table III.F.3-1 Effect of GHG Emissions Re ductions On Projected Changes in Global Climate for the Final Vehicles Rulemaking (for climate sensitivities ranging from 1.5- 6°C) Measure Units Year Projected Change Atmospheric CO 2 Concentration ppm 2100 -2.7-3.1 Global Mean Surface Temperature o C 2100 -0.006-0.015 Sea Level Rise cm 2100 -0.06-0.14 Ocean pH pH units 2100 0.0014

As a substantial portion of CO 2 emitted into the atmosphere is not removed by natural processes for millennia, each unit of CO 2 not emitted into the atmosphere avoids essentially permanent climate change on centennial time scales. Though the magnitude of the avoided climate change projected here is small, these reductions would represent a reduction in the adverse risks associated with climate chan ge (though these risks were not formally estimated for this action) across all climate sensitivities.636 The IPCC 323 has noted that ocean acidification due to th e direct effects of elevated CO 2 concentrations will impair a wide range of planktonic and other marine organisms that use aragonite to make their shells or skeletons. EPA used the Program CO2SYS, 324 version 1.05 to estimate projected cha nges in tropical ocean pH based on the atmospheric CO 2 concentration reductions resulting fr om this action and other specified input conditions (e.g., sea surface temperature characteristic of tr opical waters). The program performs calculations relating parameters of the carbon dioxide (CO 2 ) system in seawater. EPA used the program to calculate ocean pH as a function of atmospheric CO 2 , among other specified input conditions. Based on the projected atmospheric CO 2 concentration reductions (average of 2.9 pp m by 2100) that would result from this rule, the program calculates an increase in ocean pH of about 0.0014 pH units in 2100. Thus, this analysis indicates the projected decrease in atmospheric CO 2 concentrations from today’s rule would result in an increase in ocean pH.

EPA’s analysis of the rule’s effect on global climate conditions is intended to quantify these potential reductions using the best available science. While EPA’s modeling results of the effect of this rule alone show small differences in climate effects (CO 2 concentration, temperature, sea-level rise , ocean pH), when expressed in terms of

323 Fischlin, A. et al. (2007) Ecosystems, their Prop erties, Goods, and Services. In: Climate Change 2007: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [M.L . Parry, O.F. Canziani, J.P. Palutikof, P.J. van der Linden and C.E. Hanson (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA. 324 Lewis, E., and D. W. R. Wall ace. 1998. Program Developed for CO 2 System Calculations. ORNL/CDIAC-105. Carbon Dioxide Information Analys is Center, Oak Ridge National Laboratory, U.S. Department of Energy, Oak Ridge, Tennessee.637 global climate endpoints and globa l GHG emissions, they yield re sults that are repeatable and consistent within the modeling frameworks used.

G. How Will the Standards Impact Non-GHG Emissions and Their Associated Effects?

In addition to reducing the emissions of gr eenhouse gases, this rule will influence the emissions of “criteria” air pollutants and air toxics (i.e., hazar dous air pollutants). The criteria air pollutant s include carbon monoxide (CO) , fine particulate matter (PM2.5), sulfur dioxide (SO X ) and the ozone precursors hydrocarbons (VOC) and oxides of nitrogen (NO X ); the air toxics include benzene, 1,3-butadiene, formaldehyde, acetaldehyde, and acrolein. Our estimates of these non-GHG emission impacts from the GHG program are shown by pollutant in Table III.G-1 and Table III.G-2 in total, and broken down by the two drivers of these change s: a) “upstream” emission reductions due to decreased extraction, production and di stribution of motor gasoline; and b) “downstream” emission increases, reflecting the effects of VMT rebound (discussed in Sections III.F and III.H) and the effects of our assumptions about ethanol-blended fuel (E10), as discussed below. Total program im pacts on criteria and toxics emissions are discussed below, followed by individual di scussions of the upstream and downstream impacts. Those are followed by discussions of the effects on air quali ty, health, and other environmental concerns.638 As in the proposal, for this analysis we attribute decreased fuel consumption from this program to gasoline only, while assumi ng no effect on volumes of ethanol and other renewable fuels because they are mandated under the Renewable Fuel Standard (RFS2). However, because this rule does not assume R FS2 volumes of ethanol in the baseline, the result is a greater projected market share of E10 in the control case. 325 In fact, the GHG standards will not be affecting the market share of E10, because EPA’s analysis for the RFS2 rule predicts 100% E10 penetration by 2014. 326

The amount of E10 affects downstream non-GHG emissions. In the proposal, EPA stated these same fuel assumptions a nd qualitatively noted that there were likely unquantified impacts on non-GHG emissions between the two cases. In DRIA Chapter 5, EPA indicated its plans to quantify these imp acts in the air quality modeling and in the final rule inventories. Upstream emissi on impacts depend only on fuel volumes, so the impacts presented here reflect only th e reduced gasoline consumption.

The inventories presented in this rulema king include an analysis of these fuel effects which was conducted using EPA’ s Motor Vehicle Emission Simulator (MOVES2010). The most notable impact, alth ough still relatively slight, is a 2.2 percent increase in 2030 in national acetaldehyde emi ssions over the baseline scenario. It should be noted that these emission impacts are not due to the new GHG vehicle standards.

325 When this rule’s analysis was initiated, the RFS2 rule was not yet final. Therefore, it assumes the ethanol volumes in Annual Energy Outlook 2007 (U.S. Energy Information Administration, Annual Energy Outlook 2007, Transportation Demand Sector Supplemental Table. http://www.eia.doe.gov/oiaf/archive/aeo07/supplement/index.html) 326 EPA 2010, Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis. EPA-420-R-10- 006. February 2010. Docket EPA-HQ-OAR-2009-0472-11332. See also 75 FR 14670, March 26, 2010.639 These impacts are instead a consequence of the assumed ethanol volumes. This program does not mandate an increase in E10, nor any pa rticular fuel blend. The emission impact of this shift was also modeled in the RFS2 rule.

As shown in Table III.G-1, EPA estimat es that this program would result in reductions of NO X , VOC, PM and SO X , but would increase CO emissions. For NO x, VOC, and PM we estimate net reductions because the emissions reductions from upstream sources are larger than the emissi on increases due to downstream sources. In the case of CO, we estimate slight emission increases, because ther e are relatively small reductions in upstream emissions, and thus the projected downstream emission increases are greater than the projected emission decreases due to reduced fuel production. For
SO x , downstream emissions are roughly proporti onal to fuel consumption, therefore a decrease is seen in both ups tream and downstream sources.

For all criteria pollutants the overall im pact of the program would be relatively small compared to total U.S. inventories ac ross all sectors. In 2030, EPA estimates the program would reduce total NO X , PM and SO X inventories by 0.1 to 0.8 percent and reduce the VOC inventory by 1.0 percent, while increasing the total national CO inventory by 0.6 percent.

As shown in Table III.G-2, EPA estimat es that the GHG program would result in small changes for air toxic emissions compared to total U.S. inventories across all sectors. In 2030, EPA estimates the pr ogram would reduce total benzene and 1,3640 butadiene emissions by 0.1 to 0.3 percent. Total acrolein and formaldehyde emissions would increase by 0.1 percent. Acetaldehyde em issions would increase by 2.2 percent.

One commenter requested that EPA presen t emission inventories for additional air toxics. EPA is presenting inventories fo r certain air toxic emissions which were identified as key national and regional-scale cancer and noncancer ri sk drivers in past National Air Toxics Assessments (NATA). Fo r additional details, please refer to the Response to Comments document. 327

Other factors which may impact non-GHG emi ssions, 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 th is program to be negligible on non-GHG emission rates per mile.

• The potential for increased market penetra tion of diesel vehicles; because these vehicles would be held to the same certi fication and in-use standards for criteria pollutants as their gasoline counterpart s, EPA expects their impact to be negligible on criteria pollutants a nd other non-GHG emissions. EPA does not project increased penetration of diesels as necessary to meet the GHG standards.

327 U.S. EPA. National Air Toxics Assessment. 2002, 1999, and 1996. Available at: http://www.epa.gov/nata/641 • Early introduction of electric vehicles a nd plug-in hybrid electric vehicles, which would reduce criteria emissions in cases where those vehicles are able to be certified to lower certifica tion standards. This woul d also likely reduce gaseous air toxics.

• Reduced refueling emissions due to less frequent refueling events and reduced annual refueling volumes resul ting from the GHG standards.

• Increased hot soak evaporative emissions due to the likely increase in number of trips associated with VMT rebound modeled in this rule.

Table III.G-1 Annual Criteria Emissi on Impacts of Program (short tons) Total Impacts Upstream Impacts Downstream Impacts 2020 2030 2020 2030 2020 2030 VOC -60,187 -115,542 -64,506 -126,749 4,318 11,207 % of total

inventory -0.51% -1.01% -0.55% -1.11% 0.04% 0.01% CO 3,992 170,675 -6,165 -12,113 10,156 182,788 % of total

inventory 0.01% 0.56% -0.02% -0.04% 0.01% 0.6% NO X -5,881 -21,763 -19,291 -37,905 13,410 16,143 % of total

inventory -0.02 -0.07% -0.06% -0.12% 0.04% 0.05% PM2.5 -2,398 -4,564 -2,629 -5,165 231.0 602.3 % of total

inventory -0.03% -0.05% -0.03% -0.06% 0.00% 0.01% SO X -13,832 -27,443 -11,804 -23,194 -2,027 -4,249 % of total

inventory -0.41% -0.82% -0.35% -0.69% -0.06% -0.13%642 Table III.G-2 Annual Air Toxic Emissi on Impacts of Program (short tons) Total Impacts Upstream Impacts Downstream Impacts 2020 2030 2020 2030 2020 2030 1,3-Butadiene -95 -21 -1.5 -3.0 -93.6 -18.1 % of total

inventory -0.38% -0.10% -0.01% -0.01% -0.37% -0.09% Acetaldehyde 760 668 -6.8 -13.4 766.9 681.5 % of total

inventory 2.26% 2.18% -0.02% -0.04% 2.28% 2.22% Acrolein 1 5 -0.9 -1.8 1.7 6.5 % of total

inventory 0.01% 0.07% -0.01% -0.03% 0.03% 0.10% Benzene -890 -523 -139.6 -274.3 -750.0 -248.3 % of total

inventory -0.48% -0.29% -0.08% -0.15% -0.40% -0.14% Formaldehyde -49 15 -51.4 -101.0 2.1 116.3 % of total

inventory -0.06% 0.02% -0.06% -0.12% 0.00% 0.14%

1. Upstream Impacts of Program

No substantive comments were received on the upstream inventory modeling used in the proposal. The rulemaking inventories were updated with the revised estimates of fuel savings as detailed in Section III.F.

Reducing tailpipe CO 2 emissions from light-duty car s and trucks through tailpipe standards and improved A/C efficiency will resu lt in reduced fuel demand and reductions in the emissions associated w ith all of the processes involved in getting petroleum to the pump. These upstream emission impacts on crit eria 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 w ould decrease by 127,000 tons, NO X by 38,000 tons, and PM2.5 by 5,000 tons. Table III.G-2 shows the corresponding impacts on upstream air643 toxic emissions in 2030. Formaldehyde decreases by 101 tons, benzene by 274 tons, acetaldehyde by 13 tons, acrolein by 2 t ons, and 1,3-butadiene by 3 tons.

To determine these impacts, EPA estima ted the impact of reduced petroleum volumes on the extraction and transportation of crude oil as well as the production and distribution of finished gasoline. For th e purpose of assessing domestic-only emission reductions it was necessary to estimate the fr action of fuel savings attributable to domestic finished gasoline, and of this gaso line what fraction is produced from domestic crude. For this analysis EPA estimated that 50 percent of fuel savings is attributable to domestic finished gasoline a nd that 90 percent of this gaso line originated from imported crude. Emission factors for most upstream emission sources are based on the GREET1.8 model, developed by DOE’s Argonne National Laboratory, 328 but in some cases the GREET values were modified or updated by EPA to be consistent with the National Emission Inventory (NEI). 329 The primary updates for this analysis were to incorporate newer information on gasoline distribution emi ssions 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 analysis: benzene, 1,3-butadiene, acetaldehyde, acrolein, and formaldehyde. The development of these emission fact ors is detailed in RIA Chapter 5.

328 Greenhouse Gas, Regulated Emissions, and Energy Use in Transportation model (GREET), U.S. Department of Energy, Argonne National Laboratory, http://www.transportation.anl.g ov/modeling_simulation/GREET/ 329 U.S. EPA. 2002 National Emissions Inventory (NEI) Data and Documentation, http://www.epa.gov/ttn/chief/net/2002inventory.html .644 2. Downstream Impacts of Program

No substantive comments were receiv ed on the emission modeling or emission inventories presented in this section. However, two change s in modeling differentiate the analysis presented here from that presented in the proposal. Economic inputs such as fuel prices and vehicle sales we re updated from AEO 2009 to AEO 2010 Early Release, and as described above, the effects of ethanol vol ume assumptions were explicitly modeled. Thus, the primary differences in non-GHG emi ssions between the proposed rule and final rule are attributed more to these changes in analytic inputs, and less to changes in the GHG standards program.

Downstream emission impacts attributable to this program are due to the VMT rebound effect and the ethanol volume assumpti ons. As discussed in more detail in Section III.H, the effect of fuel cost on VMT (“rebound”) was accounted for in our assessment of economic and environmental impa cts of this rule. A 10 percent rebound case was used for this analysis, meaning that VMT for affected model years is modeled as increasing by 10 percent as much as the increase in fuel economy; i.e., a 10 percent increase in fuel economy would yield approxi mately a 1 percent increase in VMT.

As detailed in the introduction to this section, fuel composition also has effects on vehicle emissions and particularly air toxics . The relationship between fuel composition and emission impacts used in MOVES2010 and applied in this analysis match those645 developed for the recent Renewable Fuel s Standard (RFS2) requirement, and are extensively documented in the R FS2 RIA and supporting documents. 330

Downstream emission impacts of the rebound effect are summarized in Table III.G-1 for criteria pollutants and precursors and Table III.G-2 for air toxics. The emission impacts from the rebound effect and th e change in fuel supply grow over time as the fleet turns over to cleaner CO 2 vehicles, so that by 2030 VOC would increase by 11,000 tons, NO X by 16,000 tons, and PM2.5 by 600 tons. Table III.G-2 shows the corresponding impacts on air toxic emissions . These impacts in 2030 include 18 fewer tons of 1,3-butadiene, 668 additional tons of acetaldehyde, 248 fewer tons of benzene, 116 additional tons of formaldehyde, a nd 6.5 additional tons of acrolein.

For this analysis, MOVES2010 was us ed to estimate base VOC, CO, NO X , PM and air toxics emissions for both control a nd reference cases. Rebound emissions from light duty cars and trucks were then calc ulated using the OME GA model post-processor and added to the control case. A more co mplete discussion of the inputs, methodology, and results is contained in RIA Chapter 5.

3. Health Effects of Non-GHG Pollutants

In this section we discuss health effects associated with exposure to some of the criteria and air toxics impacted by the vehicle standards; PM, ozone, NO X and SO X , CO

330 EPA 2010, Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis. EPA-420-R-10- 006. February 2010. Docket EPA-HQ-OAR-2009-0472-11332. See also 75 FR 14670, March 26, 2010646 and air toxics. No substantive comments we re received on the heal th effects of non-GHG pollutants.

a. Particulate Matter

i. Background

Particulate matter is a generic term for a broad class of chemi cally and physically diverse substances. It can be pr incipally characterized as discrete particles that exist in the condensed (liquid or solid) phase spanning se veral orders of magnitude in size. Since 1987, EPA has delineated that subset of inha lable particles small enough to penetrate to the thoracic region (including the tracheobr onchial and alveolar regions) of the respiratory tract (referred to as thor acic particles). 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 th e coarse fraction of PM 10 (referred to as thoracic coarse particles or coarse-fraction particles; generally including particles with a nominal mean aerodynamic diameter greater than 2.5 μm and less than or equal to 10 μm, or PM 10-2.5 ). Ultrafine particles are a subset of fine particles, generally less than 100 nanometers (0.1
μ m) in aerodynamic diameter.

Fine particles are produced primar ily by combustion processes and by transformations of gaseous emissions (e.g., SO X , NO X and VOC) in the atmosphere. The647 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, nitr ates, 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 asso ciated with a series of adverse health effects. These health effects are discu ssed in detail in EPA’s Integrated Science Assessment for Particulate Matter (ISA). 331 Further discussion of health effects associated with PM can also be found in the RIA for this rule. The ISA summarizes evidence associated with PM 2.5 , PM 10-2.5 , and ultrafine particles (UFPs).

The ISA concludes that health effects asso ciated with short-term exposures (hours to days) to ambient PM 2.5 include non-fatal cardiovascular effects, mortality, and respiratory effects, such as exacerbation of asthma symptoms in children and hospital admissions and emergency department visits for chronic obstructive pulmonary disease (COPD) and respiratory infections. 332 The ISA notes that long-term exposure to PM 2.5 (months to years) is associated with th e development/progression of cardiovascular disease, premature mortality, and respiratory effects, in cluding reduced lung function

331 U.S. EPA (2009) Integrated Science Assessment for Particulate Matter. EPA 600/R-08/139F, Docket EPA-HQ-OAR-2009-0472-11295 332 U.S. EPA (2009). Integrated Science Assessment for Particulate Matter (Final Report). U.S. Environmental Protection Agency, Washington, DC, EPA/600/R-08/139F, 2009. Section 2.3.1.1.648 growth, increased respiratory symptoms, and asthma development. 333 The ISA concludes that that the currently available scientific ev idence from epidemiologic, controlled human exposure studies, and toxicolo gical studies supports that a causal association exists between short- and long-term exposures to PM 2.5 and cardiovascular effects and mortality. Furthermore, the ISA concludes that the collective ev idence supports likely causal associations between short- and long-term PM 2.5 exposures and respiratory effects. The ISA also concludes that the evidence is suggestive of a causal association for reproductive and developmental effects and can cer, mutagenicity, and genotoxicity and long-term exposure to PM 2.5 . 334

For PM 10-2.5 , the ISA concludes that the curren t evidence is sugge stive of a causal relationship between short-term exposures and cardiovascular effects, such as hospitalization for ischemic heart disease. Th ere is also suggestive evidence of a causal relationship between short-term PM 10-2.5 exposure and mortality and respiratory effects. Data are inadequate to draw conclusions re garding the health effects associated with long-term exposure to PM 10-2.5 . 335

For UFPs, the ISA concludes that ther e is suggestive evidence of a causal relationship between short-term exposures and cardiovascular effects, such as changes in heart rhythm and blood vessel function. It also concludes that there is suggestive

333 U.S. EPA (2009). Integrated Science Assessment for Particulate Matter (Final Report). U.S. Environmental Protection Agency, Washington, DC, EPA/600/R-08/139F, 2009. page 2-12, Sections 7.3.1.1 and 7.3.2.1. 334 U.S. EPA (2009). Integrated Science Assessment for Particulate Matter (Final Report). U.S. Environmental Protection Agency, Washington, DC, EPA/600/R-08/139F, 2009. Section 2.3.2. 335 U.S. EPA (2009). Integrated Science Assessment for Particulate Matter (Final Report). U.S. Environmental Protection Agency, Washington, DC, EPA/600/R-08/139F, 2009. Section 2.3.4, Table 2-6.649 evidence of association between short-term exposure to UFPs and respiratory effects. Data are inadequate to draw conclusions re garding the health effects associated with long-term exposure to UFP’s. 336

b. Ozone

i. Background

Ground-level ozone pollution is typically formed by the reaction of VOC and
NO X in the lower atmosphere in the presence of heat and sunlight. These pollutants, often referred to as ozone precursors, are emitted by many types of pollution sources, such as highway and nonroad motor vehicles an d engines, power plants, chemical plants, refineries, makers of consumer and commercial products, industrial facilities, and smaller

area sources.

The science of ozone formation, tran sport, and accumulation is complex. 337 Ground-level ozone is produced and destroyed in a cyclical set of chemical reactions, many of which are sensitive to temperature and sunlight. When ambient temperatures and sunlight levels remain high for several da ys and the air is rela tively stagnant, ozone and its precursors can build up and result in mo re ozone than typically occurs on a single high-temperature day. Ozone can be tr ansported hundreds of miles downwind from

336 U.S. EPA (2009). Integrated Science Assessment for Particulate Matter (Final Report). U.S. Environmental Protection Agency, Washington, DC, EPA/600/R-08/139F, 2009. Section 2.3.5, Table 2-6. 337 U.S. EPA. (2006). Air Quality Criteria for Ozon e and Related Photochemical Oxidants (Final). EPA/600/R-05/004aF-cF. Washington, DC: U.S. EPA. Docket EPA-HQ-OAR-2009-0472-0099 through - 0101.650 precursor emissions, resulting in elevated ozon e levels even in areas with low local VOC
or NO X emissions.

ii. Health Effects of Ozone

The health and welfare eff ects of ozone are well documented and are assessed in EPA’s 2006 Air Quality Crite ria Document (ozone AQCD) and 2007 Staff Paper. 338, 339 Ozone can irritate the respiratory system, causing coughing, throat irritation, and/or uncomfortable sensation in th e chest. Ozone can reduce lung function and make it more difficult to breathe deeply; breathing may al so become more rapid and shallow than normal, thereby limiting a person’s activity. Oz one can also aggravate asthma, leading to more asthma attacks that require medical attention and/or th e use of additional medication. In addition, there is sugges tive evidence of a cont ribution of ozone to cardiovascular-related morbidity and highly suggestive evidence that short-term ozone exposure directly or indirectly contributes to non-accidental a nd cardiopulmonary-related mortality, but additional research is needed to clarify the underlying mechanisms causing these effects. In a recent report on the es timation 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 shoul d be included in estim ates of the health

338 U.S. EPA. (2006). Air Quality Criteria for Ozone and Related Photochemical Oxidants (Final). EPA/600/R-05/004aF-cF. Washington, DC: U.S. EPA. 339 U.S. EPA. (2007). Review of the National Am bient Air Quality Standards for Ozone: Policy Assessment of Scientific and Technical Information, OAQPS Staff Paper. EPA-452/R-07-003. Washington, DC, U.S. EPA. Docket EPA-HQ-OAR-2009-0472-0105 through -0106.651 benefits of reducing ozone exposure. 340 Animal toxicological evidence indicates that with repeated exposure, ozone can inflame and damage the lining of the lungs, which may lead to permanent changes in lung tissue an d irreversible reductions in lung function. People who are more susceptible to effects a ssociated with exposure to ozone can include children, the elderly, and individuals with resp iratory disease such as asthma. Those with greater exposures to ozone, for instance due to time spent outdoors (e.g., children and outdoor workers), are of particular concern.

The 2006 ozone AQCD also examined releva nt new scientific information that has emerged in the past decade, including th e impact of ozone exposure on such health effects as changes in lung structure a nd biochemistry, inflammation of the lungs, exacerbation and causation of asthma, respirat ory illness-related school absence, hospital admissions and premature mortality. Animal toxicological studies have suggested potential interactions between ozone and PM with increased responses observed to mixtures of the two pollutants compared to either ozone or PM alone. The respiratory morbidity observed in animal studies along w ith the evidence from epidemiologic studies supports a causal relationship between acute ambient ozone expos ures and increased respiratory-related emergency r oom visits and hospitalizations in the warm season. In addition, there is suggestive evidence of a c ontribution of ozone to cardiovascular-related morbidity and non-accidental and cardiopulmonary mortality.

340 National Research Council (NRC), 2008. Estimating Mortality Risk Reduction and Economic Benefits from Controlling Ozone Air Pollution . The National Academies Press: Washington, D.C. Docket EPAHQ-OAR-2009-0472-0322.652 c. NO X and SO X

i. Background

Nitrogen dioxide (NO 2 ) is a member of the NO X family of gases. Most NO 2 is formed in the air through the oxidation of nitric oxide (NO) emitted when fuel is burned at a high temperature. SO 2 , a member of the sulfur oxide (SO X ) family of gases, is formed from burning fuels containing sulfur (e .g., coal or oil derived), extracting gasoline from oil, or extracting metals from ore.

SO 2 and NO 2 can dissolve in water vapor and fu rther oxidize to form sulfuric and nitric acid which react with ammonia to form sulfates and nitrates, both of which are important components of ambient PM. The heal th effects of ambient PM are discussed in Section III.G.3.a of this preamble. NO X along with non-methane hydrocarbon (NMHC) are the two major precursors of ozone. The he alth effects of ozone are covered in Section III.G.3.b.

ii. Health Effects of NO 2

Information on the health effects of NO 2 can be found in the EPA Integrated Science Assessment (ISA) for Nitrogen Oxides. 341 The EPA has concluded that the

341 U.S. EPA (2008). Integrated Science Assessment for Oxides of Nitrogen – Health Criteria (Final Report). EPA/600/R-08/071. Washington, DC: U.S.EPA. Docket EPA-HQ-OAR-2009-0472-0350.653 findings of epidemiologic, controlled human exposure, and animal toxicological studies provide evidence that is sufficient to infer a likely causal relationshi p between respiratory effects and short-term NO 2 exposure. The ISA concludes th at the strongest evidence for such a relationship comes from epidemiologi c studies of respiratory effects including symptoms, emergency department visits, and hospital admissions. The ISA also draws two broad conclusions regarding ai rway responsiveness following NO 2 exposure. First, the ISA concludes that NO 2 exposure may enhance the sensitivity to allergen-induced decrements in lung function and increase the allergen-induced airway inflammatory response following 30-minute exposures of asthmatics to NO 2 concentrations as low as 0.26 ppm. In addition, small but signif icant increases in non-specific airway hyperresponsiveness were reported following 1-h our exposures of asthmatics to 0.1 ppm
NO 2 . Second, exposure to NO 2 has been found to enhance th e inherent responsiveness of the airway to subsequent nonspecific challenge s in controlled human exposure studies of asthmatic subjects. Enhanced airway re sponsiveness could have important clinical implications for asthmatics si nce transient increas es in airway responsiveness following
NO 2 exposure have the potential to increase symptoms and worsen asthma control. Together, the epidemiologic and experimental da ta sets form a plausible, consistent, and coherent description of a relationship between NO 2 exposures and an array of adverse health effects that range from the onset of respiratory symptoms to hospital admission.

Although the weight of evid ence supporting a causal re lationship is somewhat less certain than that associated with respiratory morbidity, NO 2 has also been linked to other health endpoints. Thes e include all-cause (nonaccid ental) mortality, hospital654 admissions or emergency department visits for cardiovascular disease, and decrements in lung function growth associat ed with chronic exposure.

iii. Health Effects of SO 2

Information on the health effects of SO 2 can be found in the EPA Integrated Science Assessment for Sulfur Oxides. 342 SO 2 has long been known to cause adverse respiratory health effects, pa rticularly among individuals wi th asthma. Other potentially sensitive groups include children and the elderl y. During periods of elevated ventilation, asthmatics may experience symptomatic bronchoc onstriction within minutes of exposure. Following an extensive evaluation of health evidence from epidemiologic and laboratory studies, the EPA has concluded that there is a causal relationship between respiratory health effects and short-term exposure to SO 2 . Separately, based on an evaluation of the epidemiologic evidence of associations between s hort-term exposure to SO 2 and mortality, the EPA has concluded that the overall evidence is s uggestive of a causal relationship between short-term exposure to SO 2 and mortality.

342 U.S. EPA. (2008). Integrated Science Assessment (ISA) for Sulfur Oxides – Health Criteria (Final Report) . EPA/600/R-08/047F. Washington, DC: U.S. Environmental Protection Agency. Docket EPA-HQOAR-2009-0472-0335.655 d. Carbon Monoxide

Information on the health effects of car bon monoxide (CO) can be found in the EPA Integrated Science Assessm ent (ISA) for Carbon Monoxide. 343 The ISA concludes that ambient concentrations of CO are asso ciated with a number of adverse health effects. 344 This section provides a summary of the health effect s associated with exposure to ambient concentrations of CO. 345

Human clinical studies of subjects with coronary artery disease show a decrease in the time to onset of exercise-induced a ngina (chest pain) a nd electrocardiogram changes following CO exposure. In addition, epidemiologic studies show associations between short-term CO exposure and cardiov ascular morbidity, particularly increased emergency room visits and hospital admissi ons for coronary heart disease (including ischemic heart disease, myocardial infarc tion, and angina). Some epidemiologic evidence is also available for increased hos pital admissions and emergency room visits for congestive heart failure and cardiovascular disease as a whole. The ISA concludes that a causal relationship is likely between short-term exposures to CO and cardiovascular morbidity. It also concludes that available data are inadequate to conclude

343 U.S. EPA, 2010. Integrated Science Assessment for Carbon Monoxide (Final Report). U.S. Environmental Protection Agency, Washington, DC, EPA/600/R-09/019F, 2010. http://cfpub.epa.gov/ncea/cfm/r ecordisplay.cfm?deid=218686 344 The ISA evaluates the health eviden ce associated with diff erent health effects, assigning one of five “weight of evidence” determination: causal relationshi p, likely to be a causal relationship, suggestive of a causal relationship, inadequate to infer a causal relations hip, and not likely to be a causal relationship. For definitions of these levels of evidence, please refer to Section 1.6 of the ISA. 345 Personal exposure includes contributions from many sources, and in many different environments. Total personal exposure to CO includes both ambient and nonambient components; and both components may contribute to adverse health effects.656 that a causal relationship exists between l ong-term exposures to CO and cardiovascular morbidity.

Animal studies show various neurological effects with in-utero CO exposure. Controlled human exposure studies report inc onsistent neural and behavioral effects following low-level CO exposures. The ISA concludes the evidence is suggestive of a causal relationship with both short- and long- term exposure to CO and central nervous system effects.

A number of epidemiologic and animal toxi cological studies cite d in the ISA have evaluated associations between preterm birth and cardiac birth defects and CO exposure. The epidemiologic studies provide limited ev idence of a CO-induced effect on pre-term births and birth defects, with weak evidence for a decrease in birth weight. Animal toxicological studies have found associati ons between perinatal CO exposure and decrements in birth weight, as well as other developmental outcomes. The ISA concludes these studies are suggestive of a causal relationship between long-term exposures to CO and developmen tal effects and birth outcomes.

Epidemiologic studies provide evidence of effects on respiratory morbidity such as changes in pulmonary function, resp iratory symptoms, and hospital admissions associated with ambient CO concentrations. A limited number of epidemiologic studies considered copollutants such as ozone, SO 2 , and PM in two-pollutant models and found that CO risk estimates were generally r obust, although this limited evidence makes it657 difficult to disentangle effects attributed to CO itself from those of the larger complex air pollution mixture. Controlled human exposure studies have not extensively evaluated the effect of CO on respiratory morbidity. Anim al studies at levels of 50-100 ppm CO show preliminary evidence of altered pulmonary va scular remodeling and oxidative injury. The ISA concludes that the evidence is sugge stive of a causal rela tionship between shortterm CO exposure and respiratory morbidity, and inadequate to conclude that a causal relationship exists between long-term e xposure and respiratory morbidity.

Finally, the ISA concludes that the epid emiologic evidence is suggestive of a causal relationship between short-term exposur es to CO and mortality. Epidemiologic studies provide evidence of an association between shor t-term exposure to CO and mortality, but limited evidence is available to evaluate cause-specific mortality outcomes associated with CO exposure. In addition, the attenuation of CO risk estimates which was often observed in copollutant models contri butes to the uncertainty as to whether CO is acting alone or as an indi cator for other combustion-rela ted pollutants. The ISA also concludes that there is not likely to be a causal relationship between relevant long-term exposures to CO and mortality.

e. Air Toxics

Motor vehicle emissions contribute to am bient levels of air toxics known or suspected as human or animal carcinogens, or that have noncancer he alth effects. The population experiences an elevated risk of can cer and other noncancer health effects from658 exposure to the class of pollutants known collectively as “air toxics”. 346 These compounds include, but are not limited to, benzene, 1,3-butadiene, formaldehyde, acetaldehyde, acrolein, polycyclic organic matter (POM), and naphthalene. These compounds, except acetaldehyde, were identified as national or regional risk drivers in the 2002 National-scale Air Toxics Assessment (NATA) and have significant inventory contributions from mobile sources. 347 Emissions and ambient concentrations of compounds are discussed in the RIA chapters on emission inventories and air quality (Chapters 5 and 7, respectively).

i. Benzene

The EPA’s IRIS database lists benzene as a known human carcinogen (causing leukemia) by all routes of exposure, and conc ludes that exposure is associated with additional health effects, including geneti c changes in both humans and animals and increased proliferation of bone marrow cells in mice. 348, 349, 350 EPA states in its IRIS database that data indicat e a causal relationship between benzene exposure and acute lymphocytic leukemia and suggest a relations hip between benzene exposure and chronic non-lymphocytic leukemia and chronic lymphocy tic leukemia. The In ternational Agency

346 U. S. EPA. 2002 National-Scale Air Toxics Assessment. http://www.epa.gov/ttn/atw/nata12002/risksum.h tml Docket EPA-HQ-OAR-2009-0472-11322 347 U.S. EPA .2009. National-Scale Air Toxics Assessment for 2002. http://www.epa.gov/ttn/atw/nata2002/ Docket EPA-HQ-OAR-2009-0472-11321 348 U.S. EPA. 2000. Integrated Risk Information System File for Benzene. This material is available electronically at http://www.epa .gov/iris/subst/0276.htm. Docket EPA-HQ-OAR-2009-0472-1659. 349 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. Docket EPA-HQ-OAR-2009-0472-0366 350 Irons, R.D.; Stillman, W.S.; Colagiovanni, D.B.; Henr y, V.A. 1992. Synergistic action of the benzene metabolite hydroquinone on myelopoietic stimulati ng activity of granulocyt e/macrophage colonystimulating factor in vitro, Proc. Natl. Acad. Sci. 89:3691-3695. Docket EPA-HQ-OAR-2009-0472-0370.659 for Research on Carcinogens (IARC) has determined that benzene is a human carcinogen and the U.S. Department of Health and Human Services (DHHS) has characterized benzene as a known human carcinogen. 351, 352

A number of adverse noncancer health eff ects including blood disorders, such as preleukemia and aplastic anemia, have also been associated with long-term exposure to benzene. 353, 354 The most sensitive noncancer effect observed in humans, based on current data, is the depression of th e absolute lymphocyt e count in blood. 355, 356 In addition, recent work, including studies sponsor ed by the Health Effects Institute (HEI), provides evidence that biochemical responses are occurring at lower levels of benzene exposure than previously known. 357, 358, 359, 360 EPA’s IRIS program has not yet evaluated these new data.

351 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. Docket EPA-HQ-OAR-2009-0472-0366 352 U.S. Department of Health and Human Services National Toxicology Program 11th Report on Carcinogens available at: http://ntp.niehs.nih.gov/go/16183. 353 Aksoy, M. (1989). Hematotoxicity and carcinogenicity of benzene. Environ. Health Perspect. 82: 193- 197. Docket EPA-HQ-OAR-2009-0472-0368. 354 Goldstein, B.D. (1988). Benzene toxicity. Occupational medicine. Stat e of the Art Reviews. 3: 541-554. Docket EPA-HQ-OAR-2009-0472-0325. 355 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) Hematotoxicityamong Chinese workers heavily exposed to benzene. Am. J. Ind. Med. 29: 236-246. Docket EPA-HQOAR-2009-0472-0326. 356 U.S. EPA (2002) Toxicological Review of Ben zene (Noncancer Effects). Environmental Protection Agency, Integrated Risk Information System (IRIS), Research and Development, National Center for Environmental Assessment, Washington DC. This material is available electronically at http://www.epa.gov/iris/subst/0276.htm. Docket EPA-HQ-OAR-2009-0472-0327. 357 Qu, O.; Shore, R.; Li, G.; Jin, X.; Chen, C.L.; Cohe n, 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. Docket EPA-HQ-OAR-2009-0472-0328. 358 Qu, Q., R. Shore, G. Li, X. Jin, L.C. Chen, B. Cohen, et al. (2002) Hematological changes among Chinese workers with a broad range of benzene exposures. Am. J. Industr. Med. 42: 275-285. Docket EPA-HQ-OAR-2009-0472-0329. 359 Lan, Qing, Zhang, L., Li, G., Vermeulen, R., et al . (2004) Hematotoxically in Workers Exposed to Low Levels of Benzene. Science 306: 1774-1776. Docket EPA-HQ-OAR-2009-0472-0330.660 ii. 1,3-Butadiene

EPA has characterized 1,3-butadie ne as carcinogenic to humans by inhalation. 361, 362 The IARC has determined that 1, 3-butadiene is a human carcinogen and the U.S. DHHS has characterized 1,3- butadiene as a known human carcinogen. 363, 364 There are numerous studies consistently dem onstrating that 1,3-butad iene is metabolized into genotoxic metabolites by experiment al animals and humans. The specific mechanisms of 1,3-butadiene-induced carcinogenesis are unknown; however, the scientific evidence strongly suggests that the carcinogenic effects are mediated by genotoxic metabolites. Animal data suggest that females may be more sensitive than males for cancer effects associated with 1, 3-butadiene exposure; there are insufficient data in humans from which to draw conc lusions about sensitiv e subpopulations. 1,3- butadiene also causes a variety of reproducti ve and developmental effects in mice; no

360 Turtletaub, K.W. and Mani, C. (2003) Benzene metabolism in rodents at doses relevant to human exposure from Urban Air. Research Reports Health Effect Inst. Report No.113. Docket EPA-HQ-OAR2009-0472-0385. 361 U.S. EPA (2002) Health Assessment of 1,3-Butadi ene. Office of Research and Development, National Center for Environmental Assessment, Washington Office, Washington, DC. Report No. EPA600-P-98- 001F. This document is available electronically at http://www.epa.gov/iris/supdocs/buta-sup.pdf. Docket EPA-HQ-OAR-2009-0472-0386. 362 U.S. EPA (2002) Full IRIS Summary for 1,3-butadiene (CASRN 106-99-0). Environmental Protection Agency, Integrated Risk Information System (IRIS), Research and Development, National Center for Environmental Assessment, Washington, DC http://w ww.epa.gov/iris/subst/013 9.htm. Docket EPA-HQOAR-2009-0472-1660 363 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, hydrazine and hydrogen peroxide and Volume 97 (in preparation), World Health Organization, Lyon, France. Docket EPA-HQ-OAR-2009-0472-0387 364 U.S. Department of Health and Human Services (2005) National Toxicology Program 11th Report onCarcinogens available at: ntp.niehs.nih.gov/index.cfm?objectid=32BA9724-F1F6-975E7FCE50709CB4C932.661 human data on these effects are available. Th e most sensitive effect was ovarian atrophy observed in a lifetime bioassay of female mice. 365

iii. Formaldehyde

Since 1987, EPA has classified formal dehyde as a probabl e human carcinogen based on evidence in humans and in rats, mice, hamsters, and monkeys. 366 EPA is currently reviewing recently published epidemiological data . For instance, research conducted by the National Cancer Institu te (NCI) found an increased risk of nasopharyngeal cancer and lymphohematopoiet ic malignancies such as leukemia among workers exposed to formaldehyde. 367, 368 In an analysis of the lymphohematopoietic cancer mortality from an extended follow-up of these workers, NCI confirmed an association between lym phohematopoietic cancer risk and peak exposures. 369 A recent National Institute of Occupati onal Safety and Health (NIOSH) study of garment workers also found increased risk of death due to leukemia among workers exposed to

365 Bevan, C.; Stadler, J.C.; Elliot, G.S.; et al. (1996) Subchronic toxicity of 4-vinylcyclohexene in rats and mice by inhalation. Fundam. Appl. Toxicol. 32:1-10. Docket EPA-HQ-OAR-2009-0472-0388. 366 U.S. EPA (1987) Assessment of H ealth Risks to Garment Workers an d Certain Home Residents fromExposure to Formaldehyde, Office of Pesticides and Toxic Substances, April 1987. Docket EPA-HQ-OAR2009-0472-0389. 367 Hauptmann, M..; Lubin, J. H.; Stewart, P. A.; Ha yes, R. B.; Blair, A. 2003. Mortality from lymphohematopoetic malignancies among workers in formaldehyde industries. Journal of the National Cancer Institute 95: 1615-1623. Docket EPA-HQ-OAR-2009-0472-0336. 368 Hauptmann, M..; Lubin, J. H.; Stewart, P. A.; Haye s, R. B.; Blair, A. 2004. Mortality from solid cancers among workers in formaldehyde industries. American Journal of Epidemiology 159: 1117-1130. Docket EPA-HQ-OAR-2009-0472-0337. 369 Beane Freeman, L. E.; Blair, A.; Lu bin, J. H.; Stewart, P. A.; Hayes, R. B.; Hoover, R. N.; Hauptmann, M. 2009. Mortality from lymphohematopoietic malignancies among wo rkers in formaldehyde industries: The National Cancer Institute cohort. J. National Ca ncer Inst. 101: 751-761. Docket EPA-HQ-OAR-2009- 0472-0338.662 formaldehyde. 370 Extended follow-up of a cohort of British chemical workers did not find evidence of an increase in nasophar yngeal or lymphohematopoi etic cancers, but a continuing statistically significant excess in lung cancers was reported. 371 Recently, the IARC re-classified formaldehyde as a human carcinogen (Group 1). 372

Formaldehyde exposure also causes a range of noncancer health effects, including irritation of the eyes (burning and watering of the eyes), nose and throat. Effects from repeated exposure in humans include respir atory tract irritation, chronic bronchitis and nasal epithelial lesions such as metaplasia and loss of cilia. Animal studies suggest that formaldehyde may also cause airway inflamma tion – including eosinophil infiltration into the airways. There are severa l studies that suggest that formaldehyde may increase the risk of asthma – par ticularly in the young. 373, 374

370 Pinkerton, L. E. 2004. Mortality among a cohort of garment workers exposed to formaldehyde: an update. Occup. Environ. Med. 61: 193-200. Docket EPA-HQ-OAR-2009-0472-0339. 371 Coggon, D, EC Harris, J Poole, KT Palmer. 2003. Extended follow-up of a cohort of British chemical workers exposed to formaldehyde. J National Cancer Inst. 95:1608-1615. Docket EPA-HQ-OAR-2009- 0472-0340. 372 International Agency for Research on Cancer (IA RC). 2006. Formaldehyde, 2-Butoxyethanol and 1-tertButoxypropan-2-ol. Volume 88. (in preparation), Wo rld Health Organization, Lyon, France. Docket EPAHQ-OAR-2009-0472-1164 373 Agency for Toxic Substances and Disease Regi stry (ATSDR). 1999. Toxicological profile for Formaldehyde. Atlanta, GA: U.S. Department of Health and Human Services, Public Health Service. http://www.atsdr.cdc.gov/toxpro files/tp111.html Docket EPA-HQ-OAR-2009-0472-1191. 374 WHO (2002) Concise International Chemical Assessment Document 40: Formaldehyde. Published under the joint sponsorship of the United Nations Environment Programme, the International LabourOrganization, and the World Health Organization, and produced within the framework of the InterOrganization Programme for the Sound Management of Chemicals. Geneva. Docket EPA-HQ-OAR-2009- 0472-1199.663 iv. Acetaldehyde

Acetaldehyde is classified in EPA’s IRIS database as a probable human carcinogen, based on nasal tumors in rats, and is considered toxic by the inhalation, oral, and intravenous routes. 375 Acetaldehyde is reasonably anticipated to be a human carcinogen by the U.S. DHHS in the 11 th Report on Carcinogens and is classified as possibly carcinogenic to humans (Group 2B) by the IARC. 376, 377 EPA is currently conducting a reassessment of cancer risk fr om inhalation exposure to acetaldehyde.

The primary noncancer effects of expos ure to acetaldehyde vapors include irritation of the eyes, sk in, and respiratory tract. 378 In short-term (4 week) rat studies, degeneration of olfactory epith elium was observed at various concentration levels of acetaldehyde exposure. 379, 380 Data from these studies were used by EPA to develop an inhalation reference conc entration. Some asthmatics have been shown to be a sensitive subpopulation to decrements in functiona l expiratory volume (FEV1 test) and

375 U.S. EPA. 1991. Integrated Risk Information System File of Acetaldehyde. Research and Development, National Center for Environmental Assessment, Washingt on, DC. This material is available electronically at http://www.epa.gov/iris/subst/0290.ht m. Docket EPA-HQ-OAR-2009-0472-0390. 376 U.S. Department of Health and Human Services National Toxicology Program 11th Report onCarcinogens available at: ntp.niehs.nih.gov/index.cfm?objectid=32BA9724-F1F6-975E7FCE50709CB4C932. 377 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. Docket EPA-HQ-OAR-2009-0472-0387 378 U.S. EPA. 1991. Integrated Risk Information System File of Acetaldehyde. This material is available electronically at http://www.e pa.gov/iris/subst/0290.htm. 379 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. 380 Appleman, L.M., R.A. Woutersen, and V.J. Feron. 1982. Inhala tion toxicity of acetaldehyde in rats. I. Acute and subacute studies. Toxicology. 23: 293-297. Docket EPA-HQ-OAR-2009-0472-0392.664 bronchoconstriction upon acetaldehyde inhalation. 381 The agency is currently conducting a reassessment of the health hazards from inhalation e xposure to acetaldehyde.

v. Acrolein

Acrolein is extremely acrid and irritati ng to humans when inhaled, with acute exposure resulting in upper respiratory tr act irritation, mucu s hypersecretion and congestion. The intense ir ritancy of this carbonyl has been demonstrated during controlled tests in human subj ects, who suffer intolerable eye and nasal mucosal sensory reactions within minutes of exposure. 382 These data and additi onal studies regarding acute effects of human exposure to acrolein are summarized in EPA’s 2003 IRIS Human Health Assessment for acrolein. 383 Evidence available from studies in humans indicate that levels as low as 0.09 ppm (0.21 mg/m 3 ) for five minutes may elicit subjective complaints of eye irritation with increasing co ncentrations leading to more extensive eye, nose and respiratory symptoms. 384 Lesions to the lungs and upper respiratory tract of rats, rabbits, and hamsters have been obser ved after subchronic exposure to acrolein. 385

381 Myou, S.; Fujimura, M.; Nishi K.; Ohka, T.; and Ma tsuda, T. 1993. Aeroso lized acetaldehyde induces histamine-mediated bronchoconstriction in asthmatics. Am. Rev. Respir.Dis. 148(4 Pt 1): 940-3. Docket EPA-HQ-OAR-2009-0472-0408. 382 Sim VM, Pattle RE. Effect of possible smog irritants on human subjects JAMA165: 1980-2010, 1957. Docket EPA-HQ-OAR-2009-0472-0395. 383 U.S. EPA (U.S. Environmental Protection Agency). (2003) Toxicological review of acrolein in support of summary information on Integrated Risk Information System (IRIS) National Center for Environmental Assessment, Washington, DC. EP A/635/R-03/003. Available onlin e at: http://www.epa.gov/ncea/iris

. 384 Weber-Tschopp, A; Fischer, T; Gierer, R; et al. (1977) Experimentelle reizwirkungen von Acrolein auf den Menschen. Int Arch Occup Environ Hlth 40(2):117-130. In German Docket EPA-HQ-OAR-2009- 0472-0394. 385 Integrated Risk Information System File of Acro lein. Office of Research and Development, National Center for Environmental Assessment, Washington, DC. This material is available at http://www.epa.gov/iris/subst/0364.htm Docket EPA-HQ-OAR-2009-0472-0391.665 Acute exposure effects in animal studies report bronchial hyper-responsiveness. 386 In a recent study, the acute respiratory irritant e ffects of exposure to 1.1 ppm acrolein were more pronounced in mice with allergic airw ay disease by comparison to non-diseased mice which also showed decreases in respiratory rate. 387 Based on these animal data and demonstration of similar effects in huma ns (e.g., reduction in respiratory rate), individuals with compromised respirator y function (e.g., emphysema, asthma) are expected to be at increased risk of developing adverse res ponses to strong respiratory irritants such as acrolein.

EPA determined in 2003 that the human carcinogenic potential of acrolein could not be determined because the available data were inadequate. No information was available on the carcinogenic effects of acrolei n in humans and the animal data provided inadequate evidence of carcinogenicity. 388 The IARC determined in 1995 that acrolein was not classifiable as to its carcinogenicity in humans. 389

386 U.S. EPA (U.S. Environmental Protection Agency). (2003) Toxicological review of acrolein in support of summary information on Integrated Risk Informati on System (IRIS) National Center for Environmental Assessment, Washington, DC. EP A/635/R-03/003. Available onlin e at: http://www.epa.gov/ncea/iris

. 387 Morris JB, Symanowicz PT, Olsen JE, et al. 2003 . Immediate sensory nerv e-mediated respiratory responses to irritants in healthy and allergic airway-diseased mice. J Appl Physiol 94(4):1563-1571. Docket EPA-HQ-OAR-2009-0472-0396. 388 U.S. EPA. 2003. Integrated Risk Information Syst em File of Acrolein. Research and Development, National Center for Environmental Assessment, Wash ington, DC. This material is available at http://www.epa.gov/iris/subst/0364.htm 389 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 Hea lth Organization, Lyon, France. Docket EPA-HQ-OAR-2009-0472-0393666 vi. Polycyclic Organic Matter (POM)

POM is generally defined as a large cl ass of organic compounds which have multiple benzene rings and a boiling point great er than 100 degrees Celsius. Many of the compounds included in the class of compounds known as POM are classified by EPA as probable human carcinogens based on animal data. One of these compounds, naphthalene, is discussed sepa rately below. Polycyclic aromatic hydrocarbons (PAHs) are a subset of POM that contain only hydr ogen and carbon atoms. A number of PAHs are known or suspected carcinogens. Recent st udies have found that maternal exposures to PAHs (a subclass of POM) in a populati on of pregnant women we re associated with several adverse birth outcomes, including low bi rth weight and reduced length at birth, as well as impaired cognitive development at age three. 390, 391 EPA has not yet evaluated these recent studies.

vii. Naphthalene

Naphthalene is found in small quantitie s in gasoline and diesel fuels. Naphthalene emissions have been measured in larger quantities in both gasoline and diesel exhaust compared with evaporative emi ssions from mobile sources, indicating it is

390 Perera, F.P.; Rauh, V.; Tsai, W-Y.; et al. (2002) Effect of transplacental ex posure to environmental pollutants on birth outcomes in a multiethnic population. Environ Health Perspect. 111: 201-205. Docket EPA-HQ-OAR-2009-0472-0372. 391 Perera, F.P.; Rauh, V.; Whyatt, R.M.; Tsai, W.Y.; Ta ng, D.; Diaz, D.; Hoepner, L.; Barr, D.; Tu, Y.H.; Camann, D.; Kinney, P. (2006) Effect of prenatal exposure to airborne polycyclic aromatic hydrocarbons on neurodevelopment in the first 3 years of life among inner-city children. Envi ron Health Perspect 114: 1287-1292. Docket EPA-HQ-OAR-2009-0472-0373.667 primarily a product of combustion. EPA re leased an external review draft of a reassessment of the inhalati on carcinogenicity of naphtha lene based on a number of recent animal carcinogenicity studies. 392 The draft reassessment completed external peer review. 393 Based on external peer review comments received, additional analyses are being undertaken. This external review draf t does not represent official agency opinion and was released solely for the purposes of external peer review and public comment. The National Toxicology Program listed naphth alene as "reasonably anticipated to be a human carcinogen" in 2004 on the basis of bioassays reporting clear evidence of carcinogenicity in rats and some evidence of carcinogenicity in mice. 394 California EPA has released a new risk assessment for naphthalene, and the IARC has reevaluated naphthalene and re-classified it as Gr oup 2B: possibly carcinogenic to humans. 395 Naphthalene also causes a number of chronic non-cancer effects in animals, including abnormal cell changes and growth in respiratory and nasal tissues. 396

392 U. S. EPA. 2004. Toxicological Review of Naphthalene (Rea ssessment of the Inhalation Cancer Risk), Environmental Protection Agency, In tegrated Risk Information Syst em, Research and Development, National Center for Environmental Assessment, Washingt on, DC. This material is available electronically at http://www.epa.gov/iris/subst/0436.htm. Docket EPA-HQ-OAR-2009-0472-0272. 393 Oak Ridge Institute for Science and Education. (2004). External Peer Review for the IRIS Reassessment of the Inhalation Carcinogenicity of Naphthalene. August 2004. http://cfpub.epa.gov/ncea/cfm/reco rdisplay.cfm?deid=84403 Docket EPA-HQ-OAR-2 009-0472-0273. 394 National Toxicology Program (NTP). (2004). 11th Report on Carcinogens. Public Health Service, U.S. Department of Health and Human Services, Research Triangle Park, NC. Available from: http://ntpserver.niehs.nih.gov. 395 International Agency for Research on Cancer (IARC). (2002). Monographs on the Evaluation of the Carcinogenic Risk of Chemicals for Humans. Vol. 82. Lyon, France. Docket EPA-HQ-OAR-2009-0472- 0274. 396 U. S. EPA. 1998. Toxicological Review of Naphth alene, Environmental Prot ection Agency, Integrated Risk Information System, Research and Development, National Center for Environmental Assessment, Washington, DC. This material is available elect ronically at http://www.epa .gov/iris/subst/0436.htm668 viii. Other Air Toxics

In addition to the compounds describe d above, other compounds in gaseous hydrocarbon and PM emissions from vehicles will be affected by this final rule. Mobile source air toxic compounds that would poten tially be impacted include ethylbenzene, propionaldehyde, toluene, and xylene. Informa tion regarding the health effects of these compounds can be found in EPA’s IRIS database. 397

f. Exposure and Health Effect s Associated with Traffic

Populations who live, work, or attend school near major roads experience elevated exposure concentrations to a wide ra nge of air pollutants, as well as higher risks for a number of adverse health effects. While the previous sections of this preamble have focused on the health effects associated with individual criteria pollu tants or air toxics, this section discusses the mixt ure of different exposures near major roadways, rather than the effects of any single pollutant. As such, this section emphasizes traffic-related air pollution, in general, as the relevant indicat or of exposure rather than any particular pollutant.

397 U.S. EPA Integrated Risk Information System (IRIS ) database is available at: www.epa.gov/iris669 Concentrations of many tr affic-generated air pollutants are elevated for up to 300- 500 meters downwind of roads with high traffic volumes. 398 Numerous sources on roads contribute to elevated roadside concentr ations, including exha ust and evaporative emissions, and resuspension of road dust and tire and brake wear. Concentrations of several criteria and haza rdous air pollutants are elevated ne ar major roads. Furthermore, different semi-volatile organic compounds and chemical components of particulate matter, including elemental carbon, organi c material, and trace metals, have been reported at higher concentrations near major roads.

Populations near major roads experience greater risk of certain adverse health effects. The Health Effects Institute publis hed a report on the health effects of trafficrelated air pollution. 399 It concluded that evidence is “s ufficient to infer the presence of a causal association” between traffic expos ure and exacerbation of childhood asthma symptoms. The HEI report also concludes that the evidence is either “sufficient” or “suggestive but not sufficient” for a causal a ssociation between traffic exposure and new childhood asthma cases. A review of asthma studies by Salam et al. (2008) reaches similar conclusions. 400 The HEI report also concludes th at there is “suggestive” evidence for pulmonary function deficits associated with traffic exposur e, but concluded that there is “inadequate and insufficient” evidence for causal associations with respiratory health care utilization, adult-onset asthma, COPD sy mptoms, and allergy. A review by Holguin

398 Zhou, Y.; Levy, J.I. (2007) Factors influencing the spatial extent of mobile source air pollution impacts: a meta-analysis. BMC Public Health 7: 89. doi:10.1186/1471-2458-7-89 399 HEI Panel on the Health Effects of Air Pollution. (2010) Traffic -related air pollution: a critical review of the literature on emissions, exposure, and hea lth effects. [Online at www.healtheffects.org] 400 Salam, M.T.; Islam, T.; Gilliland , F.D. (2008) Recent ev idence for adve rse effects of residential proximity to traffic sources on asthma. Current Opin Pulm Med 14: 3-8.670 (2008) notes that the effects of traffic on asthma may be modified by nutrition status, medication use, and genetic factors. 401

The HEI report also concludes that evidence is “suggestive” of a causal association between traffic e xposure and all-cause and cardiovascular mortality. There is also evidence of an association between tr affic-related air polluta nts and cardiovascular effects such as changes in heart rhythm, h eart attack, and cardiovascular disease. The HEI report characterizes this evidence as “s uggestive” of a causal association, and an independent epidemiological literature revi ew by Adar and Kaufman (2007) concludes that there is “consistent evidence” linki ng traffic-related pollution and adverse cardiovascular health outcomes. 402

Some studies have reported associations between traffi c exposure and other health effects, such as birth outcomes (e.g., low birth weight) and childhood cancer. The HEI report concludes that there is currently “inadequate and insufficient” evidence for a causal association between these effects a nd traffic exposure. A review by RaaschouNielsen and Reynolds (2006) concluded thatevidence of an association between childhood cancer and traffic-related air pollutant s is weak, but noted th e inability to draw firm conclusions based on limited evidence. 403

401 Holguin, F. (2008) Traffic, outdoor air pollution, and asthma. Immunol Allergy Clinics North Am 28: 577-588. 402 Adar, S.D.; Kaufman, J.D. (2007) Cardiovascular disease and air pollutants: evaluating and improving epidemiological data implicating traffic exposure. Inhal Toxicol 19: 135-149. 403 Raaschou-Nielsen, O.; Reynolds, P. (2006) Air pollution and childhood cancer: a review of the epidemiological literature. Int J Cancer 118: 2920-2929.671 There is a large population in the U.S. livi ng in close proximity of major roads. According to the Census Bureau’s American Housing Survey for 2007, approximately 20 million residences in the U.S., 15.6% of all hom es, are located within 300 feet (91 m) of a highway with 4+ lanes, a railroad, or an airport. 404 Therefore, at current population of approximately 309 million, assuming that population and housing similarly distributed, there are over 48 million people in the U.S. liv ing near such sources. The HEI report also notes that in two North American cities, Los Angeles and Toronto, over 40% of each city’s population live within 500 meters of a highway or 100 meters of a major road. It also notes that about 33% of each city’s population resides within 50 meters of major roads. Together, the evidence suggests that a large U.S. population lives in areas with elevated traffic-related air pollution.

People living near roads are often soci oeconomically disadvantaged. According to the 2007 American Housing Survey, a rente r-occupied property is over twice as likely as an owner-occupied property to be located near a highway with 4+ lanes, railroad or airport. In the same survey, the median household income of rental housing occupants was less than half that of owner-occupa nts ($28,921/$59,886). Numerous studies in individual urban areas report hi gher levels of traffic-related air pollutants in areas with high minority or poor populations. 405, 406, 407

404 U.S. Census Bureau (2008) American Housing Surv ey for the United States in 2007. Series H-150 (National Data), Table 1A-6. [Accessed at http://www.census.gov/hhes/www/housing/ahs /ahs07/ahs07.html on January 22, 2009] 405 Lena, T.S.; Ochieng, V.; Carter, M.; Holguín-Vera s, J.; Kinney, P.L. (2002) Elemental carbon and PM2.5 levels in an urban community heavily impacted by truck traffic. Environ Health Perspect 110: 1009-1015. 406 Wier, M.; Sciammas, C.; Seto, E.; Bhatia, R.; Riva rd, T. (2009) Health, traffic, and environmental justice: collaborative research and community action in San Francisco, California. Am J Public Health 99: S499-S504.672 Students may also be exposed in situa tions where schools are located near major roads. In a study of nine metropolitan areas across the U.S., Appatova et al. (2008) found that on average greater than 33% of schools were located within 400 m of an Interstate, U.S., or state highway, while 12% were located within 100 m. 408 The study also found that among the metropolitan areas studied, schoo ls in the Eastern U.S. were more often sited near major roadways than schools in the Western U.S.

Demographic studies of students in schools near major roadways suggest that this population is more likely than the general st udent population to be of non-white race or Hispanic ethnicity, and more often live in low socioeconomic status locations. 409, 410, 411 There is some inconsistency in the evidence, which may be due to different local development patterns and meas ures of traffic and geographi c scale used in the studies. 408

4. Environmental Effect s of Non-GHG Pollutants

In this section we discuss some of th e environmental effects of PM and its precursors such as visibility impairment, atmospheric deposition, and materials damage and soiling, as well as environmental effects associated with the presence of ozone in the

407 Forkenbrock, D.J. and L.A. Schweitzer, Envir onmental Justice and Transportation Investment Policy

. Iowa City: University of Iowa, 1997. 408 Appatova, A.S.; Ryan, P.H.; LeMasters, G.K.; Grinshpun, S.A. (2008) Proximal exposure of public schools and students to major roadways: a na tionwide U.S. survey. J Environ Plan Mgmt 409 Green, R.S.; Smorodinsky, S.; Kim, J.J.; McLaughlin , R.; Ostro, B. (2004) Proximity of California public schools to busy roads. Environ Health Perspect 112: 61-66. 410 Houston, D.; Ong, P.; Wu, J.; Winer, A. (2006) Proximity of licensed child care facilities to nearroadway vehicle pollution. Am J Public Health 96: 1611-1617. 411 Wu, Y.; Batterman, S. (2006) Proximity of schools in Detroit, Michigan to automobile and truck traffic. J Exposure Sci Environ Epidemiol 16: 457-470.673 ambient air, such as impacts on plants, including trees, agrono mic crops and urban ornamentals, and environmental effects associated with air toxics. No substantive comments were received on the environmen tal effects of non-GHG pollutants.

a. Visibility

Visibility can be defined as the degree to which the atmosphere is transparent to visible light. 412 Visibility impairment is caused by ligh t scattering and absorption by suspended particles and gases. Visibility is important because it has direct significance to people’s enjoyment of daily activities in all parts of the country. In dividuals value good visibility for the well-being it provides them directly , where they live and work, and in places where they enjoy recreational opportunities. Visi bility is also highly valued in significant natural areas, such as national parks and wilderness areas, an d special emphasis is given to protecting visibility in th ese areas. For more information on visibility see the final
2009 PM ISA. 413

EPA is pursuing a two-part strategy to address visibility. First, EPA has concluded that PM 2.5 causes adverse effects on visibili ty in various locations, depending on PM concentrations and fact ors such as chemical composition and average relative

412 National Research Council, 1993. Protecting Visi bility in National Parks and Wilderness Areas. National Academy of Sciences Committee on Haze in National Parks and Wilderness Areas. National Academy Press, Washington, DC. Docket EPA-HQ-OAR -2005-0161. This book can be viewed on the National Academy Press Website at http://www.nap.edu/books/0309048443/html/ 413 U.S. EPA (2009). Integrated Sc ience Assessment for Particulate Matter (Final Report). U.S.Environmental Protection Agency, Washington, DC, EPA/600/R-08/139F, 2009. Docket EPA-HQ-OAR2009-0472-11295.674 humidity, and has set secondary PM 2.5 standards. 414 The secondary PM 2.5 standards act in conjunction with the regional haze program. The regional haze rule (64 FR 35714) was put in place in July 1999 to protect the visibil ity in mandatory class I federal areas. There are 156 national parks, forests and wilderne ss areas categorized as mandatory class I federal areas (62 FR 38680-81, July 18, 1997). 415 Visibility can be said to be impaired in both PM 2.5 nonattainment areas and mandatory class I federal areas.

b. Plant and Ecosystem Effects of Ozone

Elevated ozone levels contri bute to environmental effects, with impacts to plants and ecosystems being of most concern. Ozone can produce both acute and chronic injury in sensitive species depending on the con centration level and the duration of the exposure. Ozone effects also tend to accumulate over the growing season of the plant, so that even low concentrations experienced for a longer duration have the potential to create chronic stress on vegetation. Ozone da mage to plants includes visible injury to leaves and impaired photosynthe sis, both of which can lead to reduced plant growth and reproduction, resulting in reduced crop yiel ds, forestry production, and use of sensitive ornamentals in landscaping. In addition, th e impairment of photosynthesis, the process by which the plant makes carbohydrates (its s ource of energy and food), can lead to a subsequent reduction in root growth and car bohydrate storage below ground, resulting in other, more subtle plant and ecosystems impacts.

414 The existing annual primary and secondary PM2.5 standards have been remanded and are being addressed in the currently ongoing PM NAAQS review. 415 These areas are defined in CAA section 162 as those national parks exceeding 6,000 acres, wilderness areas and memorial parks exceeding 5,000 acres, and all international parks which were in existence on August 7, 1977.675 These latter impacts include in creased susceptibility of plants to insect attack, disease, harsh weather, interspecies compe tition and overall decreased plant vigor. The adverse effects of ozone on forest and other natural vegetation can potentially lead to species shifts and loss from the affected ecosystems, resulting in a loss or reduction in associated ecosystem goods and services. Lastly , visible ozone injury to leaves can result in a loss of aesthetic value in areas of speci al scenic significance like national parks and wilderness areas. The final 2006 Ozone Air Quality Criteria Document presents more detailed information on ozone eff ects on vegetation and ecosystems.

c. Atmospheric Deposition
Wet and dry deposition of ambient partic ulate matter delivers a complex mixture of metals (e.g., mercury, zinc, lead, ni ckel, aluminum, cadmium), organic compounds (e.g., POM, dioxins, furans) and inorganic com pounds (e.g., nitrate, sulf ate) to terrestrial and aquatic ecosystems. The chemical fo rm of the compounds deposited depends on a variety of factors including ambient condi tions (e.g., temperature, humidity, oxidant levels) and the sources of the material. Ch emical and physical transformations of the compounds occur in the atmosphere as well as the media onto which they deposit. These transformations in turn influence the fate, bi oavailability and potential toxicity of these compounds. Atmospheric deposition has been identified as a ke y component of the676 environmental and human health hazard posed by several pollutants including mercury, dioxin and PCBs. 416

Adverse impacts on water quality can occur when atmospheric contaminants deposit to the water surface or when material deposited on the land enters a waterbody through runoff. Potential impacts of atmosphe ric deposition to waterbodies include those related to both nutrient and toxic inputs. Adverse effects to human health and welfarecan occur from the addition of excess nitrogen via atmospheric deposition. The nitrogennutrient enrichment contributes to toxic algae blooms a nd zones of depleted oxygen, which can lead to fish kills, frequently in coastal waters. Deposition of heavy metals or other toxics may lead to the human inges tion of contaminated fish, impairment of drinking water, damage to the marine ecology, and limits to recrea tional uses. Several studies have been conducted in U.S. coasta l waters and in the Great Lakes Region in which the role of ambient PM de position and runoff is investigated. 417, 418, 419, 420, 421

Atmospheric deposition of nitrogen and sulfur contributes to acidification, altering biogeochemistry and affecting animal and plant life in terrestrial and aquatic

416 U.S. EPA (2000) Deposition of Air Pollutants to the Great Waters: Third Report to Congress. Office of Air Quality Planning and Standa rds. EPA-453/R-00-0005. Docket EPA-HQ-OAR-2009-0472-0091. 417 U.S. EPA (2004) National Coastal Condition Report II . Office of Research and Development/ Office of Water. EPA-620/R-03/002. Docket EPA-HQ-OAR-2009-0472-0089. 418 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 Yo rk-New Jersey harbor estuary. Atmos. Environ. 36: 1077-1086. Docket EPA-HQ-OAR-2009-0472-11297. 419 Kim, G., N. Hussain, J.R. Scudlark, and T.M. Church. 2000. Factors influencing the atmospheric depositional fluxes of stable Pb, 210Pb, and 7Be into Chesapeake Bay. J. Atmos. Chem. 36: 65-79. Docket EPA-HQ-OAR-2009-0472-11299. 420 Lu, R., R.P. Turco, K. Stolzenbach, et al. 2003. Dry deposition of airborne trace metals on the Los Angeles Basin and adjacent coastal waters. J. Geophys. Res. 108(D2, 4074): AAC 11-1 to 11-24. Docket EPA-HQ-OAR-2009-0472-11296. 421 Marvin, C.H., M.N. Charlton, E.J. Reiner, et al. 200 2. Surficial sediment contamination in Lakes Erie and Ontario: A comparative analysis. J. Great Lakes Res. 28(3): 437-450. Docket EPA-HQ-OAR-2009- 0472-11300.677 ecosystems across the U.S. The sensitivity of terrestrial and aquatic ecosystems to acidification from nitrogen and sulfur depos ition is predominantly governed by geology. Prolonged exposure to excess nitrogen and sulf ur deposition in sens itive areas acidifies lakes, rivers and soils. Incr eased acidity in surf ace waters creates inhospitable conditions for biota and affects the abundance and nutri tional value of preferred prey species, threatening biodiversity and ecosystem functi on. Over time, acidifying deposition also removes essential nutrients from forest soils, depleting the capacity of soils to neutralize future acid loadings and negatively affecting fo rest sustainability. Major effects include a decline in sensitive forest tree species, such as red spruce ( Picea rubens ) and sugar maple ( Acer saccharum ), and a loss of biodiversity of fishes, zooplankton, and macro invertebrates.

In addition to the role nitrogen depos ition plays in acidification, nitrogen deposition also leads to nutri ent enrichment and altered biogeochemical cycling. In aquatic systems increased nitrogen can alter species assemblages and cause eutrophication. In terrestrial systems nitrogen loading can lead to loss of nitrogen sensitive lichen species, decr eased biodiversity of gra sslands, meadows and other sensitive habitats, and increased potential for in vasive species. For a broader explanation of the topics treated here, refer to the description in Secti on 7.1.2 of the RIA.
Adverse impacts on soil chemistry and pl ant life have been observed for areas heavily influenced by atmospheric depositi on of nutrients, metals and acid species, resulting in species shifts, loss of biodiver sity, forest decline a nd damage to forest productivity. Potential impacts also include adverse effects to human health through678 ingestion of contaminated vegetation or lives tock (as in the case for dioxin deposition), reduction in crop yield, and limited use of land due to contamination.
Atmospheric deposition of pollutants can re duce the aesthetic appeal of buildings and culturally important articles through so iling, and can contribut e directly (or in conjunction with other pollutants) to structural damage by mean s of corrosion or erosion. Atmospheric deposition may affect material s principally by promoting and accelerating the corrosion of metals, by degrading paints, and by deteriorating building materials such as concrete and limestone. Particles cont ribute to these effects because of their electrolytic, hygroscopic, and aci dic properties, and their abilit y to adsorb corrosive gases (principally sulfur dioxide).

d. Environmental Effects of Air Toxics

Fuel combustion emissions contribute to ambient levels of pollutants that contribute to adverse effects on vegetation. Volatile or ganic compounds (VOCs), some of which are considered air t oxics, have long been suspected to play a role in vegetation damage. 422 In laboratory experiments, a wide range of tolerance to VOCs has been observed. 423 Decreases in harvested seed pod wei ght have been reported for the more sensitive plants, and some studies have repor ted effects on seed germination, flowering and fruit ripening. Effects of individual VOC s or their role in conjunction with other

422 U.S. EPA. 1991. Effects of organic chemicals in the atmosphere on terrestrial plants. EPA/600/3-91/001. Docket EPA-HQ-OAR-2009-0472-0401. 423 Cape JN, ID Leith, J Binnie, J Content, M Donkin, M Skewes, DN Price AR Brown, AD Sharpe. 2003. Effects of VOCs on herbaceous plants in an open-top chamber experiment. Environ. Pollut. 124:341-343. Docket EPA-HQ-OAR-2009-0472-0357.679 stressors (e.g., acidification, drought, temperature extremes) ha ve not been well studied. In a recent study of a mixture of VOCs in cluding ethanol and toluene on herbaceous plants, significant effects on seed production, leaf water conten t and photosynthetic efficiency were reported for some plant species. 424

Research suggests an adverse impact of vehicle exhaust on plants, which has in some cases been attributed to aromatic compounds and in other cases to nitrogen oxides. 425, 426, 427 The impacts of VOCs on plant reproduction may have long-term implications for biodiversity and survival of native species ne ar major roadways. Most of the studies of the impacts of VOCs on vege tation have focused on short-term exposure and few studies have focused on long-term effects of VOCs on vegetation and the potential for metabolites of these compounds to affect herbivores or insects.

5. Air Quality Impact s of Non-GHG Pollutants
Air quality modeling was performed to asse ss the impact of the vehicle standards on criteria and air toxic polluta nts. In this section, we present information on current modeled levels of pollution as well as proj ections for 2030, with respect to ambient
PM 2.5 , ozone, selected air toxics, visibility leve ls and nitrogen and sulf ur deposition. The

424 Cape JN, ID Leith, J Binnie, J Content, M Donkin, M Skewes, DN Price AR Brown, AD Sharpe. 2003. Effects of VOCs on herbaceous plants in an open-top chamber experiment. Environ. Pollut. 124:341-343. Docket EPA-HQ-OAR-2009-0472-0357. 425 Viskari E-L. 2000. Epicuticular wax of Norway spruce needles as indicator of traffic pollutant deposition. Water, Air, and Soil Pollut. 121: 327-337. Docket EPA- HQ-OAR-2009-0472-1128. 426 Ugrekhelidze D, F Korte, G Kvesitadze. 1997. Upta ke and transformation of benzene and toluene by plant leaves. Ecotox. Environ. Safety 37:24-29. Docket EPA-HQ-OAR-2009-0472-1142. 427 Kammerbauer H, H Selinger, R Rommelt, A Ziegler-Jons, D Knoppik, B Hock. 1987. Toxic components of motor vehicl e emissions for the spruce Picea abies. En viron. Pollut. 48:2 35-243. Docket EPA-HQ-OAR-2009-0472-0358.680 air quality modeling re sults indicate that the GHG standards have relatively small but measureable impacts on ambient concentrations of these pollutants. The results are discussed in more detail belo w and in Section 7.2 of the RIA. No substantive comments were received on our plans for non-GHG air quali ty modeling that were detailed in the proposal for this rule.
We used the Community Multi-scale Ai r Quality (CMAQ) photochemical model, version 4.7.1, for our analysis. This version of CMAQ includes a number of improvements to previous versions of the model. These improvements are discussed in Section 7.2 of the RIA.

a. Particulate Matter

i. Current Levels

PM 2.5 concentrations exceeding the level of the PM 2.5 NAAQS occur in many parts of the country. In 2005, EPA desi gnated 39 nonattainment areas for the 1997 PM 2.5 NAAQS (70 FR 943, January 5, 2005). These areas are composed of 208 full or partial counties with a total population exceeding 88 million. The 1997 PM 2.5 NAAQS was revised in 2006 and the 2006 24-hour PM 2.5 NAAQS became effective on December 18, 2006. On October 8, 2009, the EPA issued fi nal nonattainment area designations for the 2006 24-hour PM 2.5 NAAQS (74 FR 58688, November 13, 2009). These designations include 31 areas composed of 120 full or pa rtial counties with a population of over 70 million. In total, there are 54 PM 2.5 nonattainment areas composed of 243 counties with a population of almost 102 million people.681 ii. Projected Levels without this Rule

States with PM 2.5 nonattainment areas are required to take action to bring those areas into compliance in the future. Ar eas designated as not attaining the 1997 PM 2.5 NAAQS will need to attain the 1997 standards in the 2010 to 2015 time frame, and then maintain them thereafter. The 2006 24-hour PM 2.5 nonattainment areas will be required to attain the 2006 24-hour PM 2.5 NAAQS in the 2014 to 2019 time frame and then be required to maintain the 2006 24-hour PM 2.5 NAAQS thereafter. The vehicle standards finalized in this action become effective in 2012 and therefore may be useful to states in attaining or maintaining the PM 2.5 NAAQS.

EPA has already adopted many emission c ontrol programs that are expected to reduce ambient PM 2.5 levels and which will assist in reducing the number of areas that fail to achieve the PM 2.5 NAAQS. Even so, our air quality modeling projects that in 2030, with all current controls but excluding the im pacts of the vehicle standards adopted here, at least 9 counties with a population of almost 28 million may not attain the 1997 annual PM 2.5 standard of 15 μg/m 3 and 26 counties with a population of over 41 million may not attain the 2006 24-hour PM 2.5 standard of 35 μg/m 3 . These numbers do not account for those areas that are close to (e.g., within 10 percent of) the PM 2.5 standards. These areas, although not violating the standard s, will also benefit from any reductions in
PM 2.5 ensuring long-term maintenance of the PM 2.5 NAAQS.682 iii. Projected Levels with this Rule

Air quality modeling performed for this fi nal rule shows that in 2030 the majority of the modeled counties will see d ecreases of less than 0.05 μg/m 3 in their annual PM 2.5 design values. The decreases in annual PM 2.5 design values that we see in some counties are likely due to emission reductions relate d to lower gasoline pr oduction at existing oil refineries; reductions in direct PM 2.5 emissions and PM 2.5 precursor emissions (NO X and
SO X ) contribute to reductions in ambien t concentrations of both direct PM 2.5 and secondarily-formed PM 2.5 . The maximum projected decrease in an annual PM 2.5 design value is 0.07 μg/m 3 in Harris County, TX. There ar e also a few counties that are projected to see increases of no more than 0.01 μg/m 3 in their annual PM 2.5 design values. These small increases in annual PM 2.5 design values are likel y related to downstream emission increases. On a population-weight ed basis, the average modeled 2030 annual
PM 2.5 design value is projected to decrease by 0.01 μg/m 3 due to this final rule. Those counties that are projected to be above the annual PM 2.5 standard in 2030 will see slightly larger population-weighted decreases of 0.03 μg/m 3 in their design values due to this final rule.

In addition to looking at annual PM 2.5 design values, we also modeled the impact of the standards on 24-hour PM 2.5 design values. Air quality modeling performed for this final rule shows that in 2030 the majority of the modeled countie s will see changes of between -0.05 μg/m 3 and +0.05 μg/m 3 in their 24-hour PM 2.5 design values. The decreases in 24-hour PM 2.5 design values that we see in some counties are likely due to683 emission reductions related to lower gaso line production at existing oil refineries; reductions in direct PM 2.5 emissions and PM 2.5 precursor emissions (NO X and SO X ) contribute to reductions in ambient concentrations of both direct PM 2.5 and secondarilyformed PM 2.5 . The maximum projected decrease in a 24-hour PM 2.5 design value is 0.21 μg/m 3 in Harris County, TX. There are also some counties that are projected to see increases of less than 0.05 μg/m 3 in their 24-hour PM 2.5 design values. These small increases in 24-hour PM 2.5 design values are likely re lated to downstream emission increases. On a population-weighted basis, the average modeled 2030 24-hour PM 2.5 design value is projected to decrease by 0.01 μg/m 3 due to this final rule. Those counties that are projected to be above the 24-hour PM 2.5 standard in 2030 will see slightly larger population-weighted decreases of 0.05 μg/m 3 in their design values due to this final rule.

b. Ozone

i. Current Levels
8-hour ozone concentrations exceeding th e level of the ozone NAAQS occur in many parts of the country. In 2008, the EPA amended the ozone NAAQS (73 FR 16436, March 27, 2008). The final 2008 ozone NAAQS ru le set forth revisions to the previous 1997 NAAQS for ozone to provide increased pr otection of public hea lth and welfare. EPA recently proposed to reconsider th e 2008 ozone NAAQS (75 FR 2938, January 19, 2010). Because of the uncerta inty the reconsideration pr oposal creates regarding the continued applicability of the 2008 ozone NAAQS, EPA has used its authority to extend by 1 year the deadline for promulgating designations for those NAAQS (75 FR 2936, January 19, 2010). The new deadline is Marc h 12, 2011. EPA intends to complete the684 reconsideration by August 31, 2010. If EPA establishes new ozone NAAQS as a result of the reconsideration, they would repl ace the 2008 ozone NAAQS and requirements to designate areas and implement th e 2008 NAAQS would no longer apply.

As of January 6, 2010 there are 51 areas designated as nonattainment for the 1997 8-hour ozone NAAQS, comprising 266 full or pa rtial counties with a total population of over 122 million people. These numbers do not include the people living in areas where there is a future risk of failing to mainta in or attain the 1997 8-hour ozone NAAQS. The numbers above likely underestimate the numbe r of counties that are not meeting the ozone NAAQS because the nonattainment areas associated with the more stringent 2008 8-hour ozone NAAQS have not yet been de signated. Table III.G.5-1 provides an estimate, based on 2005-07 air quality data, of the counties with design values greater than the 2008 8-hour ozone NAAQS of 0.075 ppm.

Table III.G.5-1 Counties with Design Values Greater Than the Ozone NAAQS NUMBER OF COUNTIES POPULATION A
1997 Ozone Standard: counties within the 54 areas currently designa ted as nonattainment (as of 1/6/10) 266 122,343, 799

2008 Ozone Standard: additional counties that would not meet the 2008 NAAQS (based on 2006-2008 air quality data) b 156 36,678,478

Total 422 159,022,277 Notes:
a Population numbers are from 2000 census data. b Area designations for the 2008 ozone NAAQS have not yet been made. Nonattainment for the 2008 Ozone NAAQS would be based on three years of air quality data from later years. Also, the county numbers in this row include only the counties with monitors violating the 2008 Ozone NAAQS. The numbers in this table may be an underestimate of the number of counties and populations that will eventually be included in areas with multiple counties designated nonattainment.685 ii. Projected Levels without this Rule

States with 8-hour ozone nonattainment areas are required to take action to bring those areas into compliance in the future . Based on the final rule designating and classifying 8-hour ozone nonatta inment areas for the 1997 standard (69 FR 23951, April 30, 2004), most 8-hour ozone nonattainment areas will be required to attain the ozone NAAQS in the 2007 to 2013 time frame and th en maintain the NAAQS thereafter. As noted, EPA is reconsidering the 2008 ozone NAAQS. If EPA pr omulgates different ozone NAAQS in 2010 as a result of the recons ideration, these sta ndards would replace the 2008 ozone NAAQS and there would no longer be a requirement to designate areas for the 2008 NAAQS. EPA would designate non attainment areas for a potential new 2010 primary ozone NAAQS in 2011. The a ttainment dates for areas designated nonattainment for a potential new 2010 primary ozone NAAQS are likely to be in the 2014 to 2031 timeframe, depending on th e severity of the problem. 428

EPA has already adopted many emission c ontrol programs that are expected to reduce ambient ozone levels and assist in reducing the number of areas that fail to achieve the ozone NAAQS. Even so, our air qu ality modeling projects that in 2030, with all current controls but excl uding the impacts of the vehicl e standards, up to 16 counties with a population of almost 35 million may not attain the 2008 ozone standard of 0.075 ppm (75 ppb). These numbers do not account fo r those areas that are close to (e.g., within 10 percent of) the 2008 ozone standard . These areas, although not violating the

428 U.S. EPA 2010, Fact Sheet Revisions to Ozone Standards. http://www.epa.gov/groundlevelozone/pdfs/fs20100106std.pdf686 standards, will also be impacted by changes in ozone as they work to ensure long-term maintenance of the ozone NAAQS.

iii. Projected Levels with this Rule

We do not expect this rule to have a meaningful impact on ozone concentrations, given the small magnitude of the ozone impacts and the fact that much of the impact is due to ethanol assumptions that are independe nt of this rule. Our modeling projects increases in ozone design value concentr ations in many areas of the country and decreases in ozone design value concentrations in a few areas. However, the increases in ozone design values are not due to the standards finalized in this rule, but are related to our assumptions about the volume of ethanol that will be blended into gasoline. The ethanol volumes will be occurring as a resu lt of the recent Renewable Fuel Standards (RFS2) rule. 429

The ethanol volume assumptions are discu ssed in the introduction to Section III.G of this preamble. We attribute decreased fuel consumption and production from this program to gasoline only, while assuming cons tant ethanol volumes in our reference and control cases. Holding etha nol volumes constant while decreasing gasoline volumes increases the market share of 10% ethanol (E 10) in the control case. However, the increased E10 market share is projected to occur regardless of this rule; in the RFS2 analysis we project 100% E10 by 2014. The air quality impacts of this effect are

429 EPA 2010, Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis. EPA-420-R-10- 006. February 2010. Docket EPA-HQ-OAR-2009-0472-11332. See also 75 FR 14670, March 26, 2010687 included in our analyses for the recent RFS2 rule. As the RFS2 analyses indicate, increasing usage of E10 fuels (when compared with E0 fuels) can increase NO X emissions and thereby increase ozone concentrations, especially in NO X -limited areas where relatively small amounts of NO X enable ozone to form rapidly. 430

The majority of the ozone design value increases are less than 0.1 ppb. The maximum projected increase in an 8-hour ozone design value is 0.25 ppb in Richland County, South Carolina. As mentioned above there are some areas which see decreases in their ozone design values. The decreases in ambient ozone concentration are likely due to projected upstream emissions decreases in NO X and VOCs from reduced gasoline production. The maximum decrease projected in an 8-hour ozone design value is 0.22 ppb in Riverside County, California. On a population-weighted basis, the average modeled 8-hour ozone design values are projected to increase by 0.01 ppb in 2030 and the design values for those counties that are projected to be above the 2008 ozone standard in 2030 will see population-we ighted decreases of 0.10 ppb.

c. Air Toxics

i. Current Levels
The majority of Americans continue to be exposed to ambient concentrations of air toxics at levels whic h have the potential to ca use adverse health effects. 431 The levels of air toxics to which people are exposed vary depending on where people live and work

430 Sections 3.4.2.1.2 and 3.4.3.3 of the Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis, EPA-420-R-10-006, February 2010. Docket EPA-HQ-OAR-2009-0472-11332

431 U. S. EPA. (2009) 2002 National-Scale Air Toxi cs Assessment. http://www.epa.gov/ttn/atw/nata2002/. Docket EPA-HQ-OAR-2009-0472-11321688 and the kinds of activities in which they e ngage, as discussed in detail in U.S. EPA’s most recent Mobile Source Air Toxics Rule. 432 According to the National Air Toxic Assessment (NATA) for 2002, 433 mobile sources were res ponsible for 47 percent of outdoor toxic emissions, over 50 percent of th e cancer risk, and over 80 percent of the noncancer hazard. Benzene is the largest cont ributor to cancer risk of all 124 pollutants quantitatively assessed in the 2002 NATA and mobile sources were responsible for 59 percent of benzene emissions in 2002. Ov er the years, EPA has implemented a number of mobile source and fuel controls resu lting in VOC reductions, which also reduce benzene and other air toxic emissions.
ii. Projected Levels
Our modeling indicates that the GHG standa rds have relatively little impact on national average ambient concentrations of th e modeled air toxics. Additional detail on the air toxics results can be found in Section 7.2.2.3 of the RIA.
d. Nitrogen and Sulfur Deposition

i. Current Levels
Over the past two decades, the EPA has undertaken numerous efforts to reduce nitrogen and sulfur deposition across the U.S. Analyses of long-term monitoring data for the U.S. show that deposition of both nitrog en and sulfur compounds has decreased over the last 17 years althoug h many areas continue to be nega tively impacted by deposition.

432 U. S. Environmental Protection Agency (2007). Control of Hazardous Air Pollutants from Mobile Sources; Final Rule. 72 FR 8434, February 26, 2007. Docket EPA-HQ-OAR-2009-0472-0271, 0271.1 and 0271.2 433 U. S. EPA. (2009) 2002 National-Scale Air Toxi cs Assessment. http://www.epa.gov/ttn/atw/nata2002/. Docket EPA-HQ-OAR-2009-0472-11321689 Deposition of inorganic nitrogen and sulfur species routinely measured in the U.S. between 2004 and 2006 were as high as 9.6 k ilograms of nitrogen per hectare per year (kg N/ha/yr) and 21.3 kilograms of sulfur per hectare per year (kg S/ha/yr). The data show that reductions were more substantia l for sulfur compounds than for nitrogen compounds. These numbers are generated by the U.S. national m onitoring network and they likely underestimate nitrogen deposition because ne ither ammonia nor organic nitrogen is measured. In th e eastern U.S., where data ar e most abundant, total sulfur deposition decreased by about 44% between 1990 and 2007, while total nitrogen deposition decreased by 25% over the same time frame. 434

ii. Projected Levels
Our air quality modeling does not show substantial overall nationwide impacts on the annual total sulfur and nitr ogen deposition occurr ing across the U.S. as a result of the vehicle standards required by th is rule. For sulfur depositi on the vehicle standards will result in annual percent decreases of 0.5% to more than 2% in locations with refineries as a result of the lower output from refineries due to less gasoline usage. These locations include the Texas and Louisiana portions of the Gulf Coast; the Washington D.C. area; Chicago, IL; portions of Oklahoma and nor thern Texas; Bismarck, North Dakota; Billings, Montana; Casper, Wyoming; Salt La ke City, Utah; Seattle, Washington; and San Francisco, Los Angeles, and San Luis Obispo, California. The remainder of the country will see only minimal changes in sulf ur deposition, ranging from decreases of

434 U.S. EPA. U.S. EPA's 2008 Report on the Environment (Final Report). U.S. Environmental Protection Agency, Washington, D.C., EPA/600/R-07/045F (NTIS PB2008-112484). Docket EPA-HQ-OAR-2009- 0472-11298. Updated data available online at: http://cfpub.epa.gov/eroe/index.cfm?fuseaction=deta il.viewInd&ch=46&subtop=341&lv=list.listByChapter &r=201744690 less than 0.5% to increases of less than 0.5%. For a map of 2030 sulfur deposition impacts and additional information on these impa cts, see Section 7.2.2.5 of the RIA. The impacts of the vehicle standards on nitrog en deposition are minimal, ranging from decreases of up to 0.5% to increases of up to 0.5%.
e. Visibility

i. Current Levels
As mentioned in Section III.G.5.a, millions of people live in nonattainment areas for the PM 2.5 NAAQS. These populations, as well as large numbers of individuals who travel to these areas, are likely to experien ce visibility impairment. In addition, while visibility trends have improved in mandatory class I federal areas, the most recent data show that these areas continue to suffer from visibility impairment. In summary, visibility impairment is experienced thr oughout the U.S., in multi-state regions, urban areas, and remote mandatory class I federal areas.

ii. Projected Levels
Air quality modeling conducted for this fina l rule was used to project visibility conditions in 138 mandatory cla ss I federal areas across the U.S. in 2030. The results show that all the modeled areas will continue to have annual aver age deciview levels above background in 2030. 435 The results also indicate that the majority of the modeled

435 The level of visibility impairment in an area is based on the light-extinction coefficient and a unitless visibility index, called a “deciview”, which is used in the valuation of visibility. The deciview metric provides a scale for perceived visual changes over the entire range of conditions, from clear to hazy. Under many scenic conditions, the average person can generally perceive a change of one deciview. The higher691 mandatory class I federal areas will see no change in their visibility, but some mandatory class I federal areas will see improvements in visibility due to the vehicle standards and a few mandatory class I federal areas will see visib ility decreases. The average visibility at all modeled mandatory class I federal areas on the 20% worst days is projected to improve by 0.002 deciviews, or 0.01%, in 2030. Section 7.2.2.6.2 of the RIA contains more detail on the visibility port ion of the air quality modeling.

H. What are the Estimated Cost, Ec onomic, and Other Impacts of the Program?

In this section, EPA presen ts the costs and impacts of EPA’s GHG program. It is important to note that NHTSA’s CAFE sta ndards and EPA’s GHG standards will both be in effect, and each will lead to average fuel economy increases and CO 2 emissions reductions. The two agencies’ standards co mprise the National Program, and this discussion of costs and benefits of EPA’s GHG standard does not ch ange the fact that both the CAFE and GHG standards, jointly, are the source of the benefits and costs of the National Program. These costs and benefits ar e appropriately analy zed separately by each agency and should not be added together.

This section outlines the basis for asse ssing the benefits and costs of the GHG standards and provides estimates of these cost s and benefits. Some of these effects are private, meaning that they affect consum ers and producers directly in their sales,

the deciview value, the worse the visibility. Thus, an improvement in visibility is a decrease in deciview value.692 purchases, and use of vehicles. These privat e effects include the upfront costs of the technology, fuel savings, and th e benefits of additional driving and reduced refueling. Other costs and benefits affect people outside the markets for vehicles and their use; these effects are termed external, because they aff ect people in ways other than the effect on the market for and use of new vehicles and are generally not taken into account by the purchaser of the vehicle. The external effect s include the climate im pacts, the effects on non-GHG pollutants, energy security impacts, and the effects on traffic, accidents, and noise due to additional driving. The sum of the private and ex ternal benefits and costs is the net social benefits of the program. Ther e is some debate about the role of private benefits in assessing the benefits and costs of the program: if consumers optimize their purchases of fuel economy, with full inform ation and perfect foresight, in perfectly efficient markets, it is possible that they have already considered these benefits in their vehicle purchase decisions. If so, then no net private benefits would result from the program, because consumers would already buy vehicles with the amount of fuel economy that is optimal for them; requiring a dditional fuel economy would 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 hol d, then the private benefits and costs would both count toward the program’s benefits. Section III.H.1 discusses this issue more fully.

The net benefits of EPA’s final program c onsist of the effects of the program on:693 • the vehicle program costs (costs of complying with the vehicle CO 2 standards, taking into account FFV cred its through 2015, the tempor ary lead-time alternative allowance standard program (TLAASP), full car/truck trading, and the A/C credit program, and other flexibilities built into the final program)

• fuel savings associated with reduced fuel usage resulting from the program

• greenhouse gas emissions,

• other pollutants,

• noise, congestion, accidents,

• energy security impacts,

• reduced refueling events

• increased driving due to the “rebound” effect. EPA also presents the cost-effec tiveness of the standards.

The total monetized benef its (excluding fuel savings) under the program are projected to be $17.5 to $41.8 billion in 2030, using a 3 percent discount rate applied to the valuation of PM 2.5 -related premature mortality and depending on the value used for the social cost of carbon. Th e total monetized benefits (e xcluding fuel savings) under the program are projected to be $17.4 to $41.7 bill ion in 2030, using a 7 percent discount rate applied to the valuation of PM 2.5 -related premature mortality and depending on the value used for the social cost of carbon. Thes e benefits are summarized below in Table III.H.10-2. The costs of the program in 2030 are estimated to be approximately $15.8 billion for new vehicle technology less $79.8 bi llion in savings realized by consumers through fewer fuel expenditures (calculated usin g pre-tax fuel prices). These costs are694 summarized below in Table III.H.10-1. The es timates developed here use as a baseline for comparison the fuel economy associated w ith MY 2011 vehicles. To the extent that greater fuel economy improvements than thos e assumed to occur under the baseline may have occurred due to market forces alone (a bsent the rule), the analysis overestimates private and social net benefits.

EPA has undertaken an analysis of the economy-wide impacts of the GHG tailpipe standards as an expl oratory exercise that EPA be lieves could provide additional insights into the potential impacts of the program. 436 These results were not a factor regarding the appropriateness of the GHG tailpipe standards. It is important to note that the results of this modeling exercise are de pendent on the assumptions associated with how producers will make fuel economy improvements and how consumers will respond to increases in higher vehicle costs and improved vehicle fuel economy as a result of the program. Section III.H.1 discusses the underlyi ng distinctions and implications of the role of consumer respon se in economic impacts.

Further information on these and other aspects of the economic impacts of our rule are summarized in the following sections and are presented in more detail in the RIA for this rulemaking.

436 See Memorandum to Docket, “Economy-Wide Impacts of Proposed Greenhouse Gas Tailpipe Standards,” March 4, 2010. Docket EPA-HQ-OAR-2009-0472.695 1. Conceptual Framework for Evaluating Consumer Impacts

For this rule, EPA projects significant private gains to consumers in three major areas: (1) reductions in spending on fuel, (2) time saved due to less refueling, and (3) welfare gains from additiona l driving that results from the rebound effect. In combination, these private savings, mostly from fuel savings, a ppear to outweigh by a large margin the costs of the program, even without accounting for externalities.

Admittedly, these findings pose an economic conundrum. On the one hand, consumers are expected to gain significantly fr om the rules, as the increased cost of fuel efficient cars appears to be far smaller than the fuel savings. Ye t these technologies are readily available; financially savvy consumers could have sought vehicles with improved fuel efficiency, and auto makers seeking those customers could have offered them. Assuming full information, perfect foresight, perfect competition, and financially rational consumers and producers, standard economic theory suggests that normal market operations would have provided the private net gains to cons umers, and the only benefits of the rule would be due to external benefits. If our analysis projects net private benefits that consumers have not realized in this pe rfectly functioning market , then increased fuel economy should be accompanied by a correspondi ng loss in consumer welfare. This calculation assumes that consumers accurately pr edict and act on all th e benefits they will get from a new vehicle, and that producers market products providing those benefits. The existence of large private net benefits from this rule, then, suggests either that the696 assumptions noted above do not hold, or that EPA’s analysis has missed some factor(s) tied to improved fuel economy that reduce(s) consumer welfare.

With respect to the latter, EPA believes the costs of the technologies developed for this rule take into acc ount the cost needed to ensu re that all vehicle qualities (including performance, reliab ility, and size) stay constant , except for fuel economy and vehicle price. As a result, there would need to be some other changed qualities that would reduce the benefits consumers r eceive from their vehicles. Changing circumstances (e.g., increased demand for hor sepower in response to a drop in fuel prices), and any changes in ve hicle attributes that manufactur ers elect to make may result in additional private impacts to vehicle buye rs from requiring increased fuel economy. Most comments generally supported the cost estimates and the maintenance of vehicle quality, though two comments expressed conc ern over unspecified losses to vehicle quality. Even if there is some such uniden tified loss (which, given existing evidence and modeling capabilities, is very difficult to quantify), EPA believes that under realistic assumptions, the private gains from the rule, toge ther with the social gains (in the form of reduction of externalities), will continue to substantially outweigh the costs.

The central conundrum has been referred to as the Energy Paradox in this setting (and in several others). 437 In short, the problem is that consumers appear not to purchase

437 Jaffe, A. B., and Stavins, R. N. (1994). The Energy Paradox and the Diffusion of Conservation Technology. Resource and Energy Economics, 16(2), 91-122. Docket EPA-HQ-OAR-2009-0472-11415.697 products that are in their econom ic self-interest. There are strong theoretical reasons why this might be so: 438

• Consumers might be myopic and he nce undervalue the long-term.

• Consumers might lack information or a full appreciation of information even when it is presented.

• Consumers might be especially averse to the short-term losses associated with the higher prices of energy efficient products relative to the uncertain future fuel savings, even if the expected present valu e of those fuel savings exceeds the cost (the behavioral phenomenon of “loss aversion”)

• Even if consumers have relevant knowl edge, the benefits of energy-efficient vehicles might not be sufficiently salient to them at the time of purchase, and the lack of salience might lead consumers to ne glect an attribute that it would be in their economic interest to consider.

• In the case of vehicle fuel efficiency, and perhaps as a result of one or more of the foregoing factors, consumers may have relatively few choices to purchase vehicles with greater fuel economy once ot her characteristics, such as vehicle class, are chosen. 439

438 For an overview, see id. 439 For instance, the range of fuel economy (combined city and highway) available among all listed 2010 6- cylinder minivans is 18 to 20 miles per gallon. With a manual-transmission 4-cylinder minivan, it is possible to get 24 mpg. See http://www.fueleconomy .gov, which is jointly maintained by the U.S. Department of Energy and the EPA. For recent but unpublished evidence, see Allcott, Hunt, and Nathan Wozny, “Gasoline Prices, Fuel Economy, and the Energy Paradox” (2010), available at http://web.mit.edu/allcott/www/Allc ott%20and%20Wozny%202010%20- %20Gasoline%20Prices,%20Fu el%20Economy,%20and%20the%20Energy%20Paradox.pdf .698 A great deal of work in behavioral econom ics identifies and ela borates factors of this sort, which help acc ount for the Energy Paradox. 440 This point holds in the context of fuel savings (the main focus here), but it applies equally to the other private benefits, including reductions in refueli ng time and additional driving. 441 For example, it might well be questioned whether significant reduc tions in refueling time, and corresponding private savings, are fully internalized when consumers are making purchasing decisions.

Considerable research findings indicate that the Energy Pa radox is real and significant but the literature has not reached a consensus about the reasons for its existence. Several researchers have f ound evidence suggesting that consumers do not give full or appropriate wei ght to fuel economy in purchas ing decisions. For example, Sanstad and Howarth 442 argue that consumers optimize be havior without full information by resorting to imprecise but convenient rules of thumb. Some studies find that a substantial portion of this undervaluation can be explained by inaccurate assessments of energy savings, or by uncertainty and irreversibility of energy investments due to fluctuations in energy prices. 443 For a number of reasons, consumers may undervalue

440 Jaffe, A. B., and Stavins, R. N. (1994). The Energy Paradox and the Diffusion of Conservation Technology. Resource and Energy Economics, 16(2), 91-122. Docket EPA-HQ-OAR-2009-0472-11415. See also Allcott and Wozny, supra note. 441 For example, it might be maintained that, at th e time of purchase, consumer s take full account of the time spent refueling potentially saved by fuel-efficient cars, but it might also be questioned whether they have adequate information to do so, or whether that factor is sufficiently salient to play the proper role in purchasing decisions. 442 Sanstad, A., and R. Howarth (1994). “’Normal’ Mark ets, Market Imperfections, and Energy Efficiency.” Energy Policy 22(10): 811

‐ 818 (Docket EPA-HQ-OAR-2009-0472-11416). 443 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 (Docket EPA-HQ-OAR-2009-0472-11538); 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 (Docket EPA-HQ-OAR-2009-0472-11539); 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(Docket699 future energy savings due to routine mistakes in how they evaluate these trade-offs. For instance, the calculation of fuel savings is complex, and consumers may not make it correctly. 444 The attribute of fuel economy may be insufficiently salient, leading to a situation in which consumers pay less than $1 for an expected $1 benefit in terms of discounted gasoline costs. 445 Larrick and Soll (2008) fi nd that consumers do not understand how to translate changes in miles-pe r-gallon into fuel savi ngs (a concern that EPA is continuing to attempt to address). 446 In addition, future fuel price (a major component of fuel savings) is highly uncertain . Consumer fuel savings also vary across individuals, who trav el different amounts and have di fferent driving styles. Cost calculations based on the averag e do not distinguish between t hose that may gain or lose as a result of the policy. 447 Studies regularly show that fuel economy plays a role in consumers’ vehicle purchases, but modeling that role is still in development, and there is no consensus that most consumers make fully informed tradeoffs. 448

EPA-HQ-OAR-2009-0472-11540); Hassett, K., and G. Metcalf (1995), "Energy Tax Credits and Residential Conservation Investment: Evidence from Panel Data," Journal of Public Economics 57: 201

‐ 217(Docket EPA-HQ-OAR-2009-0472-11543); Metcalf, G., and K. Hassett (1999), "Measuring the Energy Savings from Home Improvement Invest ments: Evidence from Monthly Billing Data," The Review of Economics and Statistics 81(3): 516

‐ 528 (Docket EPA-HQ-OAR-2009-0472-0051); van Soest D., and E. Bulte (2001), “Does the Energy

‐ Efficiency Paradox Exist? Technolo gical Progress an d Uncertainty.” E nvironmental and Resource Economics 18: 101–12 (Docket EPA-HQ-OAR-2009-0472-11542). 444 Turrentine, T. and K. Kurani (2007). “Car Buyers and Fuel Economy?” Energy Policy 35: 1213-1223 (Docket EPA-HQ-OAR-2009-0472); Larrick, R. P., and J.B. Soll (2008). “The MPG illusion

. ” Science 320: 1593-1594 (Docket EPA-HQ-OAR-2009-0472-0041). 445 Allcott, Hunt, and Nathan Wozny, “Gasoline Prices, Fuel Economy, and the Energy Paradox” (2010), available at http://web.mit.edu/allco tt/www/Allcott%20and% 20Wozny%202010%20-%20Gasoline%20Prices,%20Fuel%20Economy,%20and%20the%20Energy%20Paradox.pdf (Docket EPAHQ-OAR-2009-0472-11554) . 446 Sanstad, A., and R. Howarth (1994). “’Normal’ Mark ets, Market Imperfections, and Energy Efficiency.” Energy Policy 22(10): 811-818 (Docket EPA-HQ-OAR-2009-0472-11415); Larrick, R. P., and J.B. Soll (2008). “The MPG illusion

. ” Science 320: 1593-1594 (Docket EPA-HQ-OAR-2009-0472-0043). 447 Hausman J., Joskow P. (1982). “Evaluating the Costs and Benefits of Appliance Efficiency Standards.” American Economic Review 72: 220–25 (Docket EPA-HQ-OAR-2009-0472-11541). 448 E.g., Goldberg, Pinelopi Koujianou, “Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Autom obile Industry,” Econometrica 63(4) (July 1995): 891-951 (Docket EPA-HQOAR-2009-0472-0021); Goldberg, Pinelopi Koujianou, “The Effects of the Corporate Average Fuel Efficiency Standards in the U.S.,” Journal of Industrial Economics 46(1) (March 1998): 1-33 (Docket700 Some studies find that a substantial portion of the Energy Paradox can be explained in models of consumer behavior. For instance, one set of studies finds that accounting for uncertainty in fuel savings over time due to unanticipated changes in fuel prices goes a long way toward explaining this paradox. In this case, consumers give up some uncertain future fuel savings to avoid higher upfront costs.

A recent review commissioned by EPA suppor ts the finding of great variability, by looking at one key parameter: the role of fuel economy in consumers’ vehicle purchase decisions. 449 The review finds no consensus on the role of fuel economy in consumer purchase decisions. Of 27 studies , significant numbers of them find that consumers undervalue, overvalue, or value appr oximately correctly the fuel savings that they will receive from improved fuel econom y. The variation in the value of fuel economy in these studies is so high that it appears to be inappropr iate to identify one central estimate from the literature. Thus, estimating consumer response to higher vehicle fuel economy is still unsettled science.

If there is a difference between fuel savi ngs and consumers’ willingness to pay for fuel savings, the next question is, which is the appropriate measure of consumer benefit? Fuel savings measure the actual monetary value that consumers will receive after

EPA-HQ-OAR-2009-0472-0017); Busse, Meghan R., Ch ristopher R. Knittel, and Florian 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.ed u/faculty/knittel/papers/gaspaper_lat est.pdf (Docket EPA-HQ-OAR-2009- 0472-0044). 449 Greene, David L. “How Consumers Value Fuel Economy: A Literature Review.” EPA Report EPA420-R-10-008, March 2010 (Docket EPA-HQ-OAR-2009-0472-11575).701 purchasing a vehicle; the willingness to pay for fuel economy measures the value that, before a purchase, consumers place on additi onal fuel economy. As noted, there are a number of reasons that consumers may incorr ectly estimate the benefits that they get from improved fuel economy, including risk or loss aversion, and poor ability to calculate savings. Also as noted, fuel economy ma y not be as salient as other vehicle characteristics when a consumer is consideri ng vehicles. If these arguments are valid, then there will be significant gains to cons umers of the government mandating additional fuel economy.

EPA requested and received a number of comments discussing the role of the Energy Paradox in consumer vehicle purchas e decisions. Ten commenters, primarily from a number of academic and non-government al organizations, argued that there is a gap between the fuel economy that consumer s purchased and the cost-effective amount, due to a number of market and behavioral phenomena. These include consumers having inadequate information about future fuel sa vings relative to up-fr ont costs; imperfect competition among auto manufacturers; lack of choice over fuel economy within classes; lack of salience of fuel economy relative to ot her vehicle features at the time of vehicle purchase; consumer use of heuristic decision- making processes or other rules of thumb, rather than analyzing fuel economy decisions; consumer risk and loss aversion leading to more attention to up-front costs than futu re fuel savings; and consumer emphasis on visible, status-providing featur es of vehicles more than on relatively invisible features such as fuel economy. The RIA, Chapter 8. 1.2, includes further discussion of these phenomena.702 Because of the gap between the fuel economy consumers purchase and the costeffective amount, those and additional commen ters support using the full value of fuel savings as a benefit of the ru le. A few asserted, in additi on, that auto companies would benefit from offering vehicles with im proved fuel economy. Automakers might underprovide fuel economy because they believ e consumers would not buy it, or that it is not as salient as price when consumers are buying a vehicle. The commenters who supported the existence of the gap cite these phenomena as a basis for regulation of fuel economy. In contrast, two commenters (the United Au to Workers and one nonprofit research organization) argued that the market for fuel economy works efficiently; consumers reveal through their purchase deci sions that additional fuel economy is not important for them. These commenters expr essed concern that re gulation to promote more fuel economy would limit consumers’ choices as well as the value of the vehicles to consumers. Yet other commenters (including some states) noted that the rule protects the existing variety and choice of vehicles in the ma rket; for this reason, the value of vehicles to consumers should not suffer as a result of the rule.

While acknowledging the diversity of pers pectives, EPA continues to include the full fuel savings as private benefits of the rule. Improved fuel economy will significantly reduce consumer expenditures on fuel, thus be nefiting consumers. It is true that limitations in modeling affect our ability to estimate how much of these savings would have occurred in the absence of the rule. For example, some of the technologies predicted to be adopted in res ponse to the rule may already be developing due to shifts in703 consumer demand for fuel economy. It is possi ble that some of these savings would have occurred in the absence of the rule. To the extent that greater fuel economy improvements than those assumed to occur under the baseline may ha ve occurred due to market forces alone (absent the rule), the analysis overestimates private and social net benefits. In the absence of robust means to identify the changes in fuel economy that would have occurred without the rule, we estimate the benefits and costs under the assumption that the rule will lead to more fuel-efficient vehicles than would have occurred without the rule. As discussed belo w, limitations in modeling also affect our ability to estimate the effects of the rule on net benefits in the market for vehicles.

Consumer vehicle choice models estimat e what vehicles consumers buy based on vehicle and consumer characteristics. In prin ciple, such models could provide a means of understanding both the role of fuel economy in consumers’ purchase decisions and the effects of this rule on the benefits that consumers will get from vehicles. The NPRM included a discussion of the wide variation in the structure an d results of these models. Models or model results have not frequently b een systematically compared to each other. When they have, the results show large va riation over, for instance, the value that consumers place on additional fuel economy. As a result, EPA found that further assessment needed to be done before adopting a consumer vehicle choice model. In the NPRM, EPA asked for comment on the state of the art of consumer vehicle choice modeling and whether it is sufficiently deve loped for use in regulatory analysis.704 The responses were varied. Of the six co mmenters on this issue, five supported EPA’s performing consumer vehicle choice modeli ng, but only in general terms; they did not provide recommendations for how to evaluate the quality of different models or identify a model appropriate for EPA’s pur poses. One commenter argued that, if key differences across models were controlled, then different models would produce similar results, but there were no suggestions for what choices to make to control the key differences. One commenter specifically as ked for estimates that quantify losses to consumer welfare. Two commenters menti oned the importance of taking into account any losses in vehicle attributes due to increasing fuel economy, but without specific guidance for how to do so. Some commenters, including some who supported the use of these models, highlighted some of the m odels’ potential limitations. Two commenters noted the challenges of modeling for vehicles that are not yet in the market. Most consumer vehicle choice models are based on ex isting vehicle fleets. Future vehicles will present combinations of vehicl e characteristics not previously seen in markets, such as higher fuel economy and higher price with ot her characteristics c onstant; the existing models may not do well in predicting consum er responses to these changes. One comment suggested that the models might be sufficient for predicting changes in consumer purchase patterns, but not for calculating the welfare gains and losses to consumers of the changes.

EPA has not used a consumer vehicle choi ce model for the final rule analysis, due to concerns we explained in the proposal (a nd discussed in Chapter 8.1 of the RIA), and because no new information became available to resolve those concerns. It is likely that705 variation exists in measuring consumer respon se to changes in fuel economy as well as other vehicle characteristics, such as perfor mance. Thus, there does not appear to be evidence at this time to develop robust estima tes of consumer welfare effects of changes in vehicle attributes. As noted earlier, EPA’s and NHTSA’s cost estimates are based on maintaining these other vehi cle attributes. Comments generally supported the finding that our cost and technology estimates succeeded in maintaining these other attributes.

EPA will continue its efforts to revi ew the literature, but, given the known difficulties, EPA has not conducted an analysis using these models for this program. These issues are discussed in detail in RIA Chapter 8.1.2.

The next issue is the potential for loss in consumer welfare due to the rule. As mentioned above (and discussed more thoroughly in Section III.D of this preamble), the technology cost estimates developed here take into account the costs to hold other vehicle attributes, such as size and performance, cons tant. In addition, the analysis assumes that the full technology costs are passed along to consumers. With these assumptions, because welfare losses are monetary estimates of how much consumers would have to be compensated to be made as well off as in the absence of the change, 450 the price increase measures the loss to the consumer. 451 Assuming that the full technology cost gets passed

450 This approach describes the economic concept of compensating variation, a payment of money after a change that would make a consumer as well off after the change as before it. A related concept, equivalent variation, estimates the income chan ge that would be an alternative to the change taking place. The difference between them is whether the consumer’s po int of reference is her welfare before the change (compensating variation) or after the change (equivalent variation). In practice, these two measures are typically very close together. 451 Indeed, it is likely to be an overestimate of the lo ss to the consumer, because the consumer has choices other than buying the same vehicle with a higher price; she could choose a different vehicle, or decide not to buy a new vehicle. The consumer would choose one of those options only if the alternative involves less706 along to the consumer as an increase in pr ice, the technology cost thus measures the welfare loss to the consumer. Increasing fu el economy would have to lead to other changes in the vehicles that consumers find undesirable for there to be additional losses not included in the technology costs.

At this time EPA has no available methods to estimate potential additional effects on consumers not included in the technology co st estimates, e.g., due to changes in vehicles that consumers find undesirable, shif ts in consumer demand for other attributes, and uncertainties about the long term reliab ility of new technologies. Comments on the rule generally supported EPA’s analysis of the technology costs and the assumption that other vehicle characteristics were not adve rsely affected. Any consumer welfare loss cannot be quantified at this time. For reas ons stated above, EPA believes that any such loss is likely far smaller than the private gains, including fuel savings and reduced refueling time.

Chapter 8.1 of the RIA discusses in mo re depth the research on the Energy Paradox and the state of the art of c onsumer vehicle choice modeling.

2. Costs Associated with the Vehicle Program

In this section, EPA presents our estimat e of the costs associated with the final vehicle program. The presentation here summ arizes the costs associated with the new
loss than paying the higher price. Thus, the increase in price that the consumer faces would be the upper bound of loss of consumer welfare, unless there are other changes to th e vehicle due to the fuel economy improvements that make the vehi cle less desirable to consumers.707 vehicle technology expected to be added to meet the new GHG standards, including hardware costs to comply with the A/C credit program. The analysis summarized here provides our estimate of incremental costs on a per vehicle basis and on an annual total basis.

The presentation here summarizes the outputs of the OMEGA model that was discussed in some detail in Sec tion III.D of this preamble. For details behind the analysis such as the OMEGA model inputs and the estim ates of costs associated with individual technologies, the reader is dire cted to Chapters 1 and 2 of the RIA, and Chapter 3 of the Joint TSD. For more detail on the outputs of the OMEGA model and the overall vehicle program costs summarized here, the reader is directed to Chapters 4 and 7 of the RIA.

With respect to the cost estimates for vehicle technologies, EPA notes that, because these estimates relate to technologies which are in most cases already available, these cost estimates are techni cally robust. Some comments were received that addressed the technology costs that serv ed as inputs to the OMEGA model as was mentioned in Section II.E. While those co mments did not result in ch anges to the technology cost inputs, the technology cost estimates for a select group of technologies have changed since the NPRM thus changing the vehicle progr am costs presented here. These changes, as summarized in Section II.E and in Chapter 3 of the Joint TSD, were made in response to updated cost estimates, from the FEV tear down study, available to the agencies shortly after publication of the NPRM, not in respons e to comments. Those cost changes are708 summarized in Section II.E and in Chapter 3 of the Joint TSD. EPA believes that we have been conservative in esti mating the vehicle hardware costs associated with this rule.

With respect to the aggregate cost estimations presented in Section III.H.2.b, EPA notes that there are a number of areas wh ere the results of our analysis may be conservative and, in general, EPA believes we have directionally overestimated the costs of compliance with these new standards, especially in not accounting for the full range of credit opportunities available to manufacturers. For example, some cost saving programs are considered in our analysis, such as full ca r/truck trading, while ot hers are not, such as early credit generation and advanced vehicle technology credits.

a. Vehicle Compliance Costs Associated with the CO 2 Standards

For the technology and vehi cle package costs associ ated with adding new CO 2 - reducing technology to vehicles, EPA be gan with EPA’s 2008 Staff Report and NHTSA’s 2011 CAFE FRM both of which presented costs generated using existing literature, meetings with manufacturers a nd parts suppliers, and meetings with other experts in the field of automotive cost estimation. 452 EPA has updated some of those technology costs with new information from our contract with FEV, through further discussion with NHTSA, and by converting fr om 2006 dollars to 2007 dollars using the GDP price deflator. The estimated costs pres ented here represent the incremental costs associated with this rule relative to what th e future vehicle fleet would be expected to

452 “EPA Staff Technical Report: Cost and Effec tiveness Estimates of Technologies Used to Reduce Light-duty Vehicle Carbon Dioxide Emissions,” EPA 420-R-08-008; NHTSA 2011 CAFE FRM is at 74 FR 14196; both documents are contained in Docket EPA-HQ-OAR-2009-0472.709 look like absent this rule. A more detailed de scription of the factor s considered in our reference case is presented in Section III.D.

The estimates of vehicle compliance cost s cover the years of implementation of the program – 2012 through 2016. EPA has also estimated compliance costs for the years following implementation so that we can shed light on the long term (2022 and later) cost impacts of the program. 453 EPA used the year 2022 here because our short-term and long-term markup factors descri bed shortly below are applied in five year increments with the 2012 through 2016 implementation span and the 2017 through 2021 span both representing the short-term. Some of the individual te chnology cost estimates are presented in brief in Section III.D, and acc ount for both the direct and indirect costs incurred in the automobile manufacturing and dealer industries (for a complete presentation of technology costs, please refe r to Chapter 3 of the Joint TSD). To account for the indirect costs, EPA has applied an indi rect cost markup (ICM) factor to all of our direct costs to arrive at the estimated technology cost. 454 The ICM factors used range from 1.11 to 1.64 in the short-term (2012 through 2021), depending on the complexity of the given technology, to account for differences in the levels of R&D, tooling, and other indirect costs that will be incurred. Once th e program has been fully implemented, some of the indirect costs will no l onger be attributable to these st andards and, as such, a lower ICM factor is applied to di rect costs in years following full implementation. The ICM

453 Note that the assumption made here is that the standards would continue to apply for years beyond 2016 so that new vehicles sold in model years 2017 and later would continue to incur costs as a result of this rule. Those costs are estimated to get lower in 2022 b ecause some of the indirect costs attributable to this rule in the years prior to 2022 would be eliminated in 2022 and later. 454 Need to add the recent reference for this study by RTI. Alex Rogozhin et al., Automobile Industry Regail Price Equivalent and Indirect Cost Multipliers . Prepared for EPA by RTI International and Transportation Research Institute, University of Mi chigan. EPA-420-R-09-003, February 2009 (Docket EPA-HQ-OAR-2009-0472).710 factors used range from 1.07 to 1.39 in the long-term (2022 and later) depending on the complexity of the given technology. 455 Note that the short-te rm ICMs are used in the 2012 through 2016 years of implementation a nd continue through 2021. EPA does this since the standards are st ill being implemented during the 2012 through 2016 model years. Therefore, EPA considers the five year period following full implementation also to be short-term. Note that, in general th e comments received were supportive of our use of ICMs as opposed to the more trad itional Retail Price Equivalent (RPE). 456 However, we did receive some comment that we a pplied inappropriate ICM factors to some technologies. We have not changed our a pproach in response to those comments as explained in greater detail in ou r Response to Comments document.

EPA has also considered the impacts of manufacturer lear ning on the technology cost estimates. Consistent with past EP A rulemakings, 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 implementa tion. These volume-based cost declines, which EPA calls “volume” based learning, ta ke place after manufacturers have had the opportunity to find ways to improve upon th eir manufacturing processes or otherwise manufacture these technologies in a more efficient way. After two 20 percent cost

455 Gloria Helfand and Todd Sherwood, “Documentati on of the Development of Indirect Cost Multipliers for Three Automotive Technologies,” Office of Transp ortation and Air Quality, U.S. EPA, August 2009 (Docket EPA-HQ-OAR-2009-0472). 456 The RPE is based on the historical relationship between direct costs and consumer prices; it is intended to reflect the average markup over time required to sust ain the industry as a viab le 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 di rectly influence all of the indirect costs that are incurred in the normal course of business. For ex ample, 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 expected to change as a result of a new GH G regulation and, therefore, those indirect costs should not increase in relation to newly added hardware in response to a regulation.711 reduction steps, the cost reduction learning curv e flattens out considerably as only minor improvements in manufacturing techniques and effi ciencies remain to be had. By then, costs decline roughly th ree percent per year as manufact urers and suppliers continually strive to reduce costs. These time-based cost declines, which EPA calls “time” based learning, take place at a rate of three per cent per year. EPA has considered learning impacts on most but not all of the technologies expected to be used because some of the expected technologies are alr eady used rather widely in the industry and, presumably, learning impacts have already occurred. EP A has considered volume-based learning for only a handful of technologies that EPA cons iders to be new or emerging technologies such as the hybrids and electric vehicles. For most technologies, EPA has considered them to be more established given their curre nt use in the fleet and, hence, we have applied the lower time based learning. We have more discussion of our learning approach and the technologies to which we have applied which type of learning in Chapter 3 of the Joint TSD.

The technology cost estimates discussed in Section III.D and detailed in Chapter 3 of the Joint TSD are used to build up tec hnology package cost estimates which are then used as inputs to the OMEGA model. EPA discusses our technology packages and package costs in Chapter 1 of the RIA. The model determines what level of CO 2 improvement is required considering the refe rence case for each manufacturer’s fleet. The vehicle compliance costs are the outputs of the model and take into account FFV credits through 2015, TLAASP, full car/truck tr ading, and the A/C credit program. Table III.H.2-1 presents the fleet average incremental vehicle compliance costs for this rule. As712 the table indicates, 2012-2016 costs increase ever y year as the standards become more stringent. Costs per car and per truck th en remain stable through 2021 while cost per vehicle (car/truck combined) decline slightly as the fleet mix trends slowly to increasing car sales. In 2022, costs per car and per truck decline as the long-term ICM is applied because some indirect costs decrease or are no longer considered attributable to the program (e.g. , warranty costs go down). Costs per car and per truck remain constant thereafter while the cost per vehicle declines slightly as the fleet continues to trend toward cars. By 2030, projections of fleet mix changes become static and the cost per vehicle remains constant. EPA has a more detailed presentation of vehicle compliance costs on a manufacturer by manufacturer basis in Chapter 6 of the RIA.

Table III.H.2-1 Industry Average Vehicle Comp liance Costs Associated with the Tailpipe CO 2 Standards ($/vehicle in 2007 dollars) Calendar Year $/car $/truck $/vehicle (car & truck combined) 2012 $342 $314 $331 2013 $507 $496 $503 2014 $631 $652 $639 2015 $749 $820 $774 2016 $869 $1,098 $948 2017 $869 $1,098 $947 2018 $869 $1,098 $945 2019 $869 $1,098 $943 2020 $869 $1,098 $940 2021 $869 $1,098 $939 2022 $817 $1,032 $882 2030 $817 $1,032 $878 2040 $817 $1,032 $875 2050 $817 $1,032 $875713 b. Annual Costs of the Vehicle Program

The costs presented here represent the incremental costs for newly added technology to comply with the final program. Together with the pr ojected increases in car and light-truck sales, the increases in per-vehicle average costs shown in Table III.H.2-1 above result in the total annual costs reported in Table III.H.2-2 below. Note that the costs presented in Ta ble III.H.2-2 do not include the savings that would occur as a result of the improvements to fuel cons umption. Those impacts are presented in Section III.H.4.

Table III.H.2-2 Quantified Annual Costs Associated with the Vehicle Program ($Millions of 2007 dollars) Year Quantified Annual Costs 2012 $4,900 2013 $8,000 2014 $10,300 2015 $12,700 2016 $15,600 2020 $15,600 2030 $15,800 2040 $17,400 2050 $19,000 NPV, 3% $345,900 NPV, 7% $191,900

3. Cost per Ton of Emissions Reduced

EPA has calculated the cost per ton of GHG (CO 2 -equivalent, or CO 2 e) reductions associated with this rule using the above co sts and the emissions reductions described in Section III.F. More detail on the costs, emission reductions, and the cost per ton can be714 found in the RIA and Joint TSD. EPA has cal culated the cost per metric ton of GHG emissions reductions in the years 2020, 2030, 2040, and 2050 using the annual vehicle compliance costs and emission reductions for e ach of those years. The value in 2050 represents the long-term cost per ton of the emissions redu ced. EPA has also calculated the cost per metric ton of GHG emission reduc tions including the savings associated with reduced fuel consumption (presented below in Section III.H.4). This latter calculation does not include the other benefits associated with this rule su ch as those associated with criteria pollutant reductions or energy securi ty benefits as discussed later in sections III.H.4 through III.H.9. By including the fuel savings in the cost estimates, the cost per ton is less than $0, since the estimated va lue of fuel savings outweighs the vehicle program costs. With regard to the CH 4 and N 2 O standards, since these standards will be emissions caps designed to ensure that manufacturers do not backslide from current levels, EPA has not estimated costs associated with the standards (since the standards will not require any change from current practices nor does EPA estimate they will result in emissions reductions).

The results for CO 2 e costs per ton under the rule ar e shown in Table III.H.3-1.

Table III.H.3-1 Annual Cost Per Metric Ton of CO 2 e Reduced, in $2007 dollars

Year Vehicle Program

Cost a ($Millions) Fuel Savings b ($Millions) CO 2 e Reduced (Million Metric Tons) Cost per Ton of the Vehicle Program Only a Cost per Ton of the Vehicle Program with Fuel Savings b 2020 $15,600 -$35,700 160 $100 -$130 2030 $15,800 -$79,800 310 $50 -$210 2040 $17,400 -$119,300 400 $40 -$250 2050 $19,000 -$171,200 510 $40 -$300

a Costs here include vehicle compliance costs and do not include any fuel savings. b Fuel savings calculated using pre-tax fuel prices.715 4. Reduction in Fuel Consumption and its Impacts

a. What Are the Projected Ch anges in Fuel Consumption?

The new CO 2 standards will result in significant improvements in the fuel efficiency of affected vehicles. Drivers of those vehicles will s ee corresponding savings associated with reduced fuel expenditures . EPA has estimated the impacts on fuel consumption for both the tailpipe CO 2 standards and the A/C credit program. To do this, fuel consumption is calcu lated using both current CO 2 emission levels and the new CO 2 standards. The difference between these esti mates represents the net savings from the
CO 2 standards. Note that the total number of miles that vehicles are driven each year is different under each of the control case scenar ios than in the reference case due to the “rebound effect,” which is discussed in Secti on III.H.4.c. EPA also notes that consumers who drive more than our average estimates for vehicle miles traveled (VMT) will experience more fuel savings; consumers who drive less than our average VMT estimates will experience less fuel savings.

The expected impacts on fuel consumpti on are shown in Table III.H.4-1. The gallons shown in the tables re flect impacts from the new CO 2 standards, including the A/C credit program, and include increased consumption resulting from the rebound effect.716 Table III.H.4-1 Fuel Consumption Impacts of the Vehicle Standards and A/C Credit Programs (Million gallons)

Year Total

2012 550 2013 1,320 2014 2,330 2015 3,750 2016 5,670 2020 12,590 2030 24,730 2040 32,620 2050 41,520

b. What are the Monetized Fuel Savings?

Using the fuel consumption estimates presented in Section III.H.4.a, EPA can calculate the monetized fuel savings associated with the CO 2 standards. To do this, we multiply reduced fuel consumption in each year by the corresponding estimated average fuel price in that year, using the re ference case taken from the AEO 2010 Early Release. 457 AEO is the government consensus estimate used by NHTSA and many other government agencies to estimate the proj ected price of fuel. EPA has done this calculation using both the pre-tax and post-tax fuel prices. Sin ce the post-tax fuel prices are what consumers pay, the fuel savings calculated using these prices represent the savings consumers will see. The pre-tax fuel savings are those savings that society will see. These results are shown in Table III.H. 4-2. Note that in Section III.H.10, EPA

457 Energy Information Administration. Annual Energy Outlook 2010 Early Release. Supplemental Transportation Tables. December 2009. http ://www.eia.doe.gov/oiaf/aeo/supplement/sup_tran.xls717 presents the benefit-cost of th e rule and, for that reason, presents only the pre-tax fuel savings.

Table III.H.4-2 Estimated Monetized Fuel Savings (Millions of 2007 dollars)
Calendar Year Fuel Savings (pre-tax) Fuel Savings (post-tax) 2012 $1,137 $1,400 2013 $2,923 $3,800 2014 $5,708 $6,900 2015 $9,612 $11,300 2016 $14,816 $17,400 2020 $35,739 $41,100 2030 $79,838 $89,100 2040 $119,324 $131,700 2050 $171,248 $186,300 NPV, 3% $1,545,638 $1,723,900 NPV, 7% $672,629 $755,700

As shown in Table III.H.4-2, EPA is proj ecting that consumers would realize very large fuel savings as a result of the standards contained in this rule. As discussed further in Section III.H.1, it is a conundrum from an economic perspective that these large fuel savings have not been provided by automake rs and purchased by consumers. A number of behavioral and market phenomena may l ead to this disparity between the fuel economy that makes financial sense to consum ers and the fuel economy they purchase. Regardless how consumers make their decision s on how much fuel economy to purchase, EPA expects that, in the aggregate, they w ill gain these fuel savings, which will provide actual money in consumers’ pockets. We r eceived considerable comment on this issue, as discussed in Section III.H.1, and the issue is discussed further in Chapter 8 of the RIA.718 c. VMT Rebound Effect

The fuel economy rebound effect refers to th e fraction of fuel savings expected to result from an increase in vehicle fuel ec onomy, particularly one required by higher fuel efficiency standards, that is offset by additi onal vehicle use. The increase in vehicle use occurs because higher fuel economy reduces the fuel cost of driving, which is typically the largest single component of the monetary cost of opera ting a vehicle, and vehicle owners respond to this reduction in opera ting costs by driving slightly more.

For this rule, EPA is using an estimate of 10% for the rebound effect. This value is based on the most recent time period analyzed in the Small and Van Dender 2007
paper, 458 and falls within the range of the larg er body of historical work on the rebound effect. 459 Recent work by David Greene on the rebound effect for light-duty vehicles in the U.S. further supports the hypothesis that the rebound effect is decreasing over time.

460 If we were to use a dynamic estimate of the future rebound effect, our analysis shows that the rebound effect could be in the range of 5% or lower. 461 The rebound effect is

458 Small, K. and K. Van Dender, 2007a. “Fuel Effi ciency and Motor Vehicle Travel: The Declining Rebound Effect”, The Energy Journal, vol. 28, no. 1, pp. 25-51 (Docket EPA-HQ-OAR-2009-0472-0018). 459 Sorrell, S. and J. Dimitropoulos, 2007. “UKERC Revi ew of Evidence for the Re bound Effect, Technical Report 2: Econometric Studies”, UKERC/WP/TPA/2007/010, UK Energy Research Centre, London, October (Docket EPA-HQ-OAR-2009-0472-0012). 460 Report by Kenneth A. Small of University of California at Irvine to EPA, “The Rebound Effect from Fuel Efficiency Standards: Measurement and Projec tion to 2030”, June 12, 2009 (Docket EPA-HQ-OAR2009-0472-0002). 461 Revised Report by David Greene of Oak Ridge National Laboratory to EPA, “Rebound 2007: Analysis of National Light-Duty Vehicle Travel Statistics,” February 9, 2010 (Docket EPA-HQ-OAR-2009-0472- 0220). This paper has been accepted for an upc oming special issue of Ener gy Policy, although the publication date has not yet been determined.719 also further discussed in Chap ter 4 of the Joint TSD which reviews the relevant literature and discusses in more depth the reason ing for the rebound values used here.

We received several comments on the pr oposed value of the rebound effect. The California Air Resources Board (CARB) and the New Jersey Department of Environmental Protection supported the us e of a 10% rebound effect, although CARB encouraged EPA to consider lowering the va lue to 5%. Other commenters, such as the Missouri Department of Natural Resour ces, the Internati onal Council on Clean Transportation (ICCT), the Center for Biologi cal Diversity, and the Consumer Federation of America, recommended using a lowe r rebound effect. ICCT specifically recommended that the dynamic rebound eff ect methodology utilized by Small & Van Dender was the most appropriate methodology, which would support a rebound effect of 5% or lower. In contrast, the National A ssociation of Dealership s asserted that the rebound effect should be higher (e .g., in the lower range of th e 15-30% historical range), but did not submit any data to support this claim.

While we appreciate the i nput provided by commenters, we did not receive any new data or analysis to justif y revising our initial estimates of the rebound effect at this time. Based on the positive comments we received, we will continue using the dynamic rebound effect to help inform our estimate of the rebound effect in future rulemakings. However, given the relatively new nature of this analytical approach, we believe the larger body of historical studies should also be considered when determining the value of the rebound effect. As we described in the Technical Support Document, the more recent720 literature suggests that the re bound effect is 10% or lower, whereas the larger body of historical studies suggests a higher rebound effect . Therefore, we will continue to use the 10% rebound effect for this rulemaking. Howe ver, we plan to update our estimate of the rebound effect in future rulemakings as new data becomes available.

We also invited comments on whether we should also explore other alternatives for estimating the rebound effect, such as whet her it would be appropriate to use the price elasticity of demand for gasolin e to guide the choice of a va lue for the rebound effect. We received only one comment on this issue from ICCT. In their comments, ICCT stated that the short run elasticity can pr ovide a useful point of comparison for rebound effect estimates, but it should not be used to guide the choi ce of a value for the rebound effect. Therefore, we have not incor porated this metric into our analysis.

5. Impacts on U.S. Vehicle Sales and Payback Period

a. Vehicle Sales Impacts

This analysis compares two effects. On the one hand, the vehicles will become more expensive, which would, by itself, discour age sales. On the other hand, the vehicles will have improved fuel economy and thus lo wer operating costs. If consumers do not accurately compare the value of fuel savings with the increased cost of fuel economy technology in their vehicle purchase decisions, as discussed in Preamble III.H.1, they will continue to behave in this way after this ru le. If auto makers have accurately gauged how721 consumers consider fuel economy when pur chasing vehicles and have provided the amount that consumers want in vehicles, then consumers should not be expected to want the more fuel-efficient vehicles. After all, auto makers would have provided as much fuel economy as consumers want. If, on th e other hand, auto makers underestimated consumer demand for fuel economy, as suggest ed by some commenters and discussed in Preamble Section III.H.1 and RIA Section 8.1.2, then this rule may lead to production of more desirable vehicles, and vehicle sales may increase. This assumption implies that auto makers have missed some profit-making opportunities.

The methodology EPA used for estimati ng the impact on ve hicle sales is relatively straightforward, but makes a numbe r of simplifying assumptions. According to the literature, the price elasticity of demand for vehicles is commonly estimated to be -
1.0. 462 In other words, a one percent increase in the price of a vehicl e would be expected to decrease sales by one percent, holding all ot her factors constant. For our estimates, EPA calculated the effect of an increase in vehicle costs due to the GHG standards and assumes that consumers will face the full incr ease in costs, not an actual (estimated) change in vehicle price. (The estimated in creases in vehicle cost due to the rule are discussed in Section III.H.2) This is a c onservative methodology, since an increase in cost may not pass fully into an increase in market price in an oligopolistic industry such

462 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-2009-0472-0015); McCarthy, Patrick S., 1996. “Market Price and Income Elasticitie s of New Vehicle Demands.” Review of Economics and Statistics 78: 543-547 (Docket EPA-HQ-OAR-2009-0472-0016); Goldberg, Pinelopi K., 1998. “The Effects of the Corporate Average Fuel Efficiency Standards in the U.S.,” Journal of Industrial Economics 46(1): 1-33 (Docket EPA-HQ-OAR-2009-0472-0017).722 as the automotive sector. 463 EPA also notes that we have not used these estimated sales impacts in the OMEGA Model.

Although EPA uses the one percent price elas ticity of demand for vehicles as the basis for our vehicle sales impact estimates, we assumed that the consumer would take into account both the higher vehicle purchasing costs as well as some of the fuel savings benefits when deciding whether to purchase a new vehicle. Therefore, the incremental cost increase of a new vehicle would be offs et by reduced fuel expe nditures over a certain period of time (i.e., the “payback period”). For the purposes of this rulemaking, EPA used a five-year payback period, which is c onsistent with the length of a typical new light-duty vehicle loan. 464 The one commenter on this analysis stated that use of the fiveyear payback period was reasonable. This appr oach may not accurately reflect the role of fuel savings in consumers’ purchase deci sions, as the discussion in Section III.H.1 suggests. If consumers consid er fuel savings in a different fashion than modeled here, then this approach will not accurately reflect the impact of this rule on vehicle sales.

This increase in costs has other effects on consumers as well: if vehicle prices increase, consumers will face higher insurance costs and sales tax, and additional finance costs if the vehicle is bought on credit. In a ddition, the resale value of the vehicles will

463 See, for instance, Gron, Ann, and Deborah Swenson, 2000. “Cost Pass-Through in the U.S. Automobile Market,” Review of Economics and Statistics 82: 316-324 (Docket EPA-HQ-OAR-2009-0472-0007). 464 As discussed further in Section III.H.1, there is not a consensus in the literature on how consumers consider fuel economy in their vehicle purchases. Results are inconsistent, possibly due to fuel economy not being a major focus of many of the studies, and possibly due to sensitivity of results to modeling and data used. A survey by Greene (Greene, David L. “How Consumers Value Fuel Economy: A Literature Review.” EPA Report EPA-420-R-10-008, March 2010 (Docket EPA-HQ-OAR-2009-0472-11575)) finds that estimates in the literature of the value that co nsumers place on fuel econom y when buying a vehicle range from negative – consumers would pay to reduce fuel economy – to more than 1000 times the value of fuel savings.723 increase. EPA received no comments on these adjustments. The only change to these adjustments between the NPRM and this discussi on is an updating of the interest rate on auto loans. EPA estimates that, with correctio ns for these factors, the effect on consumer expenditures of the cost of the new technol ogy should be 0.914 times the cost of the technology at a 3% discount rate, and 0.876 tim es the cost of the technology at a 7% discount rate. The details of this calc ulation are in the RIA, Chapter 8.l.

Once the cost estimates are adjusted for these additional factors, the fuel cost savings associated with the rule, discussed in Section III.H.4, are subt racted to get the net effect on consumer expenditures for a new ve hicle. With the a ssumed elasticity of demand of -1, the percent change in this “e ffective price,” estimated as the adjusted increase in cost, is equal to the negative of the percent change in vehicle purchases. The net effect of this calculation is in Table III. H.5-1 and Table III.H.5-2. The values have changed slightly from the NPRM, due to ch anges in fuel prices and fuel savings, technology costs, and baseline vehicle sales pr ojections, in addition to the adjustment in financing costs.

The estimates provided in Table III.H.5-1 and Table III.H.5-2 are meant to be illustrative rather than a definitive prediction. When viewed at the industry-wide level, they give a general indication of the potential impact on vehi cle sales. As shown below, the overall impact is positive and growing ove r time for both cars and trucks. Because the fuel savings associated with this rule ar e expected to exceed the technology costs, the effective prices of vehicles (t he adjusted increase in technology cost less the fuel savings724 over five years) to consumers will fall, and consumers will buy more new vehicles. As a result, the lower net cost of the vehicles is projected to lead to an increase in sales for both cars and trucks.

As discussed above, this result depends on the assumption that more fuel efficient vehicles that yield net consumer benefits ove r five years would not otherwise be offered on the vehicle market due to market failure s on the part of vehicle manufacturers. If vehicles that achieve the fuel economy standa rds prescribed by t oday’s rulemaking would already be available, but consumers chose not to purchase them, then this rulemaking would not result in an increase in vehicle sales, because it does not alter how consumers make decisions about which vehicles to purchase. In addition, this analysis has not accounted for a number of factors that might a ffect consumer vehicle purchases, such as changing market conditions, changes in vehi cle characteristics that might accompany improvements in fuel economy, or consumers considering a different “payback period” for their fuel economy purchases. If consum ers use a shorter payback period, the sales impacts will be less positive, possibly ne gative; if consumers use a higher payback period, the impacts will be more positive. Al so, this is an aggregate analysis; some individual consumers (those who drive less than estimated here) will face lower net benefits, while others (who drive more than estimated here) will have even greater savings. These complications add considerable uncertainty to our vehicle sales impact analysis.725 Table III.H.5-1 Vehicle Sales Im pacts Using a 3% Discount Rate Change in Car Sales % Change Change in Truck Sales % Change 2012 67,500 0.7 62,100 1.1 2013 76,000 0.8 190,200 3.2 2014 114,000 1.1 254,900 4.3 2015 222,200 2.1 352,800 6.1 2016 360,500 3.3 488,000 8.6

Table III.H.5-1 shows the impacts on new ve hicle sales using a 3% discount rate. The fuel savings over five years are always higher than the tec hnology costs. Although both cars and trucks show very small effect s initially, over time vehicle sales become increasingly positive, as increased fuel prices make improved fuel economy more desirable. The increases in sales for trucks ar e larger than the increases for trucks (except in 2012) in both absolute numbe rs and percentage terms.

Table III.H.5-2 New Vehicle Sales Impacts Using a 7% Discount Rate Change in Car Sales % Change Change in Truck Sales % Change 2012 62,800 0.7 58,300 1 2013 70,500 0.7 92,300 1.5 2014 106,100 1 127,700 2.1 2015 208,400 2 194,200 3.3 2016 339,400 3.1 280,000 4.9

Table III.H.5-2 shows the impacts on new ve hicle sales using a 7% interest rate. While a 7% interest rate show s slightly lower impacts than using a 3% discount rate, the results are qualitatively similar to those us ing a 3% discount rate. Sales increase for every year. For both cars and trucks, sales become increasingly positive over time, as726 higher fuel prices make improved fuel econom y more valuable. The car market grows more than the truck market in absolute numbers, but less on a percentage basis.

The effect of this rule on the use and scrappage of older vehicles will be related to its effects on new vehicle prices, the fuel e fficiency of new vehicle models, and the total sales of new vehicles. If the value of fuel savings resulting from im proved fuel efficiency to the typical potential buyer of a new vehicle outweighs the average increase in new models’ prices, sales of new vehicles will rise, while scrappage rates of used vehicles will increase slightly. This will cause the “turnove r” of the vehicle fleet (i.e., the retirement of used vehicles and their replacement by new models) to accelerate slightly, thus accentuating the anticipated effect of the rule on fleet-wide fuel consumption and CO 2 emissions. However, if potential buyers va lue future fuel savings resulting from the increased fuel efficiency of new models at le ss than the increase in their average selling price, sales of new vehicles will decline, as w ill the rate at which used vehicles are retired from service. This effect will slow the re placement of used vehicles by new models, and thus partly offset the anticipated effects of this rule on fuel use and emissions.

Because the agencies are uncertain about how the value of projected fuel savings from this rule to potential buyers will comp are to their estimates of increases in new vehicle prices, we have not attempted to esti mate explicitly the effects of the rule on scrappage of older vehicles and the turnover of the vehicle fleet.727 A detailed discussion of the vehicle sale s impacts methodology is provided in the Chapter 8 of EPA’s RIA.

b. Consumer Payback Period and Lifetime Savings on New Vehicle Purchases

Another factor of interest is the payback period on the purchas e of a new vehicle that complies with the new standards. In other words, how long would it take for the expected fuel savings to outweigh the increased cost of a new vehicl e? For example, a new 2016 MY vehicle is estimated to cost $948 more (on average, and relative to the reference case vehicle) due to the additi on of new GHG reducing technology (see Section III.D.6 for details on this cost estimate). Th is new technology will result in lower fuel consumption and, therefore, savings in fuel expenditures (see Section III.H.10) for details on fuel savings). But how many months or years would pass before the fuel savings exceed the upfront cost of $948?

Table III.H.5-3 provides the answer to th is question for a vehicle purchaser who pays for the new vehicle upfront in cash (w e discuss later in this section the payback period for consumers who finance the new vehicl e purchase 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 Chapter 4 of the Joint TSD. The control case includes rebound VMT but the reference case does not, consistent with other parts of the analysis. Also included are fuel savings associated with A/C controls (in the control728 case only). Not included here are the lik ely A/C-related maintenance savings as discussed in Chapter 2 of EPA’s RIA. Furt her, this analysis do es not include other societal impacts such as the value of increased driving, or noise, congestion and accidents since the focus is meant to be on those fact ors consumers think about most while in the showroom considering a new car purchase. Car/truck fleet weighting is handled as described in Chapter 1 of the Joint TSD. As can be seen in the tabl e, it will take under 3 years (2 years and 7 months at a 3% discount rate, 2 years and 9 months at a 7% discount rate) for the cumulative discounted fuel savings to exceed the upfront increase in vehicle cost. More detail on this analysis ca n be found in Chapter 8 of EPA’s RIA.

Table III.H.5-3 Payback Period on a 2016 MY New Vehicle Purchase via Cash (2007 dollars)
YEAR OF OWNERSHIP INCREASED VEHICLE COST a ANNUAL FUEL SAVINGS b CUMULATIVE DISCOUNTED FUEL SAVINGS AT 3% CUMULATIVE DISCOUNTED FUEL SAVINGS AT 7% 1 $1,018 $424 $418 $410 2 $420 $820 $790 3 $414 $1,204 $1,139 4 $402 $1,567 $1,457

a Increased vehicle cost due to the rule is $948; the value here includes nationwide average sales tax of 5.3% and increased insurance premiums of 1.98%; both of these percentages are discussed in Section 8.1.1 of EPA’s RIA. b Calculated using AEO 2010 Early Release reference case fuel price including taxes.
However, most people purchase a new vehicle using credit rather than paying cash up front. The typical car loan today is a fi ve year, 60 month loan. As of February 9, 2010, the national average interest rate for a 5 y ear new car loan was 6.54 percent. If the increased vehicle cost is spr ead out over 5 years at 6.54 percent, the analysis would look like that shown in Table III.H.5-4. As can be seen in this table, the fuel savings immediately outweigh the increased paymen ts on the car loan, amounting to $177 in729 discounted net savings (3% discount rate) in the first year and similar savings for the next two years before reduced VMT starts to cause th e 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 aver age new vehicle their monthly fuel savings would be greater than the incr ease in the loan payments. This amounts to a savings on the order of $9 to $15 per month throughout the du ration of the 5 year loan. Note that in year six when the car loan is paid off, the net savings equal the fuel savings (as would be the case for the remaining years of ownership).

Table III.H.5-4 Payback Period on a 2016 MY New Vehicle Purchase via Credit (2007 dollars)
YEAR OF OWNERSHIP INCREASED VEHICLE COST a ANNUAL FUEL SAVINGS b ANNUAL DISCOUNTED NET SAVINGS AT 3% ANNUAL DISCOUNTED NET SAVINGS AT 7% 1 $245 $424 $177 $173 2 $245 $420 $167 $158 3 $245 $414 $157 $142 4 $245 $402 $142 $124 5 $245 $391 $127 $107 6 $0 $374 $318 $258 a This uses the same increased cost as Table III.H.4-3 but spreads it out over 5 years assuming a 5 year car loan at 6.54 percent. b Calculated using AEO 2010 Early Release reference case fuel price including taxes.
The lifetime fuel savings and net savings can also be calculated for those who purchase the vehicle using cash and for those wh o purchase the vehicle with credit. This calculation applies to the vehi cle owner who retains the vehicle for its entire life and drives the vehicle each year at the rate e qual to the national projected average. The results are shown in Table III.H. 5-5. In either case, the pr esent value of the lifetime net savings is greater than $3,100 at a 3% disc ount rate, or $2,300 at a 7% discount rate.730 Table III.H.5-5 Lifetime Discounted Net Savings on a 2016 MY New Vehicle Purchase (2007 dollars) PURCHASE

OPTION INCREASED DISCOUNTED VEHICLE COST LIFETIME DISCOUNTED FUEL SAVINGS B LIFETIME DISCOUNTED NET SAVINGS 3% discount rate Cash $1,018 $4,306 $3,303 Credit a $1,140 $4,306 $3,166 7% discount rate Cash $1,018 $3,381 $2,396 Credit a $1,040 $3,381 $2,340

a Assumes a 5 year loan at 6.54 percent. b Fuel savings here were calculated usin g AEO 2010 Early Release reference case fuel price including taxes.
Note that throughout this consumer pa yback discussion, the average number of vehicle miles traveled per year has been us ed. Drivers who drive more miles than the average would incur fuel related savings more quickly and, therefor e, the payback would come sooner. Drivers who drive fewer miles than the average would incur fuel related savings more slowly and, therefor e, the payback would come later.

6. Benefits of Reducing GHG Emissions

a. Social Cost of Carbon

In today’s final rule, EPA and NHTSA a ssigned a dollar value to reductions in
CO 2 emissions using the marginal dollar value of climate-related damages resulting from carbon emissions, also referred to as “social cost of carbon” (SCC). The SCC estimates used in today’s rule were recently develope d by an interagency process, in which EPA and NHTSA participated. As part of th e interagency group, EPA and NHTSA have critically evaluated the new SCC estimates a nd endorse them for use in these regulatory731 analyses, for the reasons presented below. The SCC TSD, Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 , presents a more detailed description of the methodology used to ge nerate the new estimates, the underlying assumptions, and the limitations of the new SCC estimates.

Under Executive Order 12866, agencies ar e required, to the extent permitted by law, “to assess both the costs a nd the benefits of the intend ed regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benef its of the intended re gulation justify its costs.” The purpose of the SCC estimates pres ented here is to incorporate the social benefits of reducing carbon dioxide (CO 2 ) emissions from light-dut y vehicles into a costbenefit analysis of this final rule, which has a small, or “marginal,” impact on cumulative global emissions. The estimates are presented with an acknowledgement of the many uncertainties involved and with a clear understanding that they should be updated over time to reflect increasing knowledge of the sc ience and economics of climate impacts.

The interagency process that developed these SCC estimates involved a group of technical experts from numerous agencies, which met on a regular basis to consider public comments, explore the technical litera ture in relevant fields, and discuss key model inputs and assumptions. The main objectiv e of this process was to develop a range of SCC values using a defensible set of input assumptions grounded in the existing scientific and economic literat ures. In this way, key uncertainties and model differences732 transparently and consistently inform the range of SCC estimates used in this rulemaking
process.

The interagency group selected four SCC va lues for use in regulatory analyses, which EPA and NHTSA have applied to this final rule. Three values are based on the average SCC from three integrated assessment models, at discount rates of 2.5, 3, and 5 percent. The fourth value, which represents the 95th percentile SCC estimate across all three models at a 3 percent discount rate, is included to represent higher-than-expected impacts from temperature change further ou t in the tails of the SCC distribution.

Table III.H.6-1 Social Cost of CO 2 , 2010 – 2050 a (in 2007 dollars) Discount Rate 5% 3% 2.5% 3% Year Avg Avg Avg 95th 2010 5 21 35 65 2015 6 24 38 73 2020 7 26 42 81 2025 8 30 46 90 2030 10 33 50 100 2035 11 36 54 110 2040 13 39 58 119 2045 14 42 62 128 2050 16 45 65 136

a The SCC estimates presented above have been rounded to nearest dollar for consistency with the benefits analysis. The SCC TSD presents estimates rounded to the nearest tenth of a cent.
i. Monetizing Carbon Dioxide Emissions

The “social cost of carbon” (SCC) is an estimate of the monetized damages associated with an incremental increase in carbon emissions in a given year. It is733 intended to include (but is not limited to) changes in net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem services. We report estimates of the social cost of carbon in dollars per metric ton of carbon dioxide throughout this document.

When attempting to assess the incremen tal economic impacts of carbon dioxide emissions, the analyst faces a number of se rious challenges. A 2009 report from the National Academies of Science points out that any assessment will suffer from uncertainty, speculation, and lack of info rmation about (1) future emissions of greenhouse gases, (2) the effect s of past and future emissions on the climate system, (3) the impact of changes in climate on the physic al and biological envi ronment, and (4) the translation of these environmenta l impacts into economic damages. 465 As a result, any effort to quantify and monetize the harms a ssociated with climat e change will raise serious questions of science, economics, and et hics and should be view ed as provisional.

Despite the serious limits of both quantif ication and monetization, SCC estimates can be useful in estimating the social bene fits of reducing carbon dioxide emissions. Under Executive Order 12866, agencies are requ ired, to the extent permitted by law, “to assess both the costs and the benefits of th e intended regulation and, recognizing that some costs and benefits are difficult to qua ntify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs.” EPA and NHTSA have used the SCC estimates to incorporate social benefits from

465 National Research Council (2009). Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use . National Academies Press.734 reducing carbon dioxide emissions from light-duty vehicles into a cost-benefit analysis of this final rule, which has a small, or “marginal,” impacts on cumulative global emissions. Most federal regulatory actions can be expected to have marginal impacts on global emissions.

For policies that have marginal impact s on global emissions, the benefits from reduced (or costs from increased) emissions in any future year can be estimated by multiplying the change in emissions in that year by the SCC value appropriate for that year. The net present value of the benefits can then be calculated by multiplying each of these future benefits by an appropriate di scount factor and summi ng across all affected years. This approach assumes that the ma rginal damages from increased emissions are constant for small departures from the baseli ne emissions path, an approximation that is reasonable for policies that have effects on emi ssions that are small relative to cumulative global carbon dioxide emissions. For policies that have a large (non-marginal) impact on global cumulative emissions, there is a sepa rate question of whether the SCC is an appropriate tool for calculati ng the benefits of reduced emissions; we do not attempt to answer that question here.

As noted above, the interagency group c onvened on a regular basis to consider public comments, explore the tech nical literature in relevant fields, and discuss key inputs and assumptions in order to generate SCC estimates. In addition to EPA and NHTSA, agencies that actively participated in the in teragency process include d the Departments of Agriculture, Commerce, Ener gy, and Treasury. This process was convened by the735 Council of Economic Advisers and the Office of Management and Budget, with active participation and regular input from the Council on Environmental Quality, National Economic Council, Office of Energy and Clim ate Change, and Office of Science and Technology Policy. The main objective of this process was to develop a range of SCC values using a defensible set of input a ssumptions that are grounded in the existing literature. In this way, key uncertainties and model differences can more transparently and consistently inform the range of SCC es timates used in the rulemaking process.

The interagency group selected four globa l SCC estimates for use in regulatory analyses. For 2010, these estimates are $5, $21, $35, and $65 (in 2007 dollars). The first three estimates are based on the average SCC across models and socio-economic and emissions scenarios at the 5, 3, and 2.5 per cent discount rates, resp ectively. The fourth value is included to represent the higher-tha n-expected impacts from temperature change further out in the tails of the SCC distribution. For this purpose, we use the SCC value for the 95th percentile at a 3 percent discount ra te. The central value is the average SCC across models at the 3 percent discount rate . For purposes of captu ring the uncertainties involved in regulatory impact analysis, we emphasize the importance and value of considering the full range. These SCC estimates also grow over time. For instance, the central value increases to $24 per ton of CO 2 in 2015 and $26 per ton of CO 2 in 2020. See the SCC TSD for the full range of annual SCC estimates from 2010 to 2050.

These new SCC estimates represent global measures and the center of our current attention because of the distinctive nature of the climate change problem. The climate736 change problem is highly unusual in at least two respects. First, it involves a global externality: emissions of most greenhouse gases contribut e to damages around the world even when they are emitted in the United St ates. Consequently, to address the global nature of the problem, the SCC must inco rporate the full (global) damages caused by GHG emissions. Second, climate change presen ts a problem that the United States alone cannot solve. Even if the United States we re to reduce its greenhouse gas emissions to zero, that step would be far from enough to avoid substantial climate change. Other countries would also need to take action to reduce emissions if significant changes in the global climate are to be avoided.

It is important to emphasize that the interagency process is committed to updating these estimates as the science and economi c understanding of climate change and its impacts on society improves over time. Speci fically, the interagency group has set a preliminary goal of revisiting the SCC values within two years or at such time as substantially updated models become available, and to continue to support research in this area. In the meantime, the interagenc y group will continue to explore the issues raised in the SCC TSD and consider public comments as part of the ongoing interagency
process.

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

To date, economic analyses for Federal re gulations have used a wide range of values to estimate the benefits associated with reducing carbon dioxide emissions. In the737 final model year 2011 CAFE rule, the Depart ment of Transportation (DOT) used both a “domestic” SCC value of $2 per ton of CO 2 and a “global” SCC value of $33 per ton of
CO 2 for 2007 emission reductions (in 2007 dollars), increasing both values at 2.4 percent per year. It also included a sensi tivity analysis at $80 per ton of CO 2 . A domestic SCC value is meant to reflect the value of damage s in the United States resulting from a unit change in carbon dioxide emissions, while a gl obal SCC value is meant to reflect the value of damages worldwide.

A 2008 regulation proposed by DOT assumed a domestic SCC value of $7 per ton
CO 2 (in 2006 dollars) for 2011 emission reductions (with a range of $0-$14 for sensitivity analysis), also increasing at 2.4 percent per year. A regulation finalized by DOE in October of 2008 used a domestic SCC range of $0 to $20 per ton CO 2 for 2007 emission reductions (in 2007 dollars). In additi on, EPA’s 2008 Advance Notice of Proposed Rulemaking for Greenhouse Gases identified wh at it described as “very preliminary” SCC estimates subject to revision. EPA’s global mean values were $68 and $40 per ton
CO 2 for discount rates of approximately 2 pe rcent and 3 percent, respectively (in 2006 dollars for 2007 emissions).

In 2009, an interagency process was initiate d to offer a preliminary assessment of how best to quantify the benefits from re ducing carbon dioxide emissions. To ensure consistency in how benefits are evaluated ac ross agencies, the Administration sought to develop a transparent and de fensible method, specifically designed for the rulemaking process, to quantify avoided climat e change damages from reduced CO 2 emissions. The738 interagency group did not undert ake any original analysis. Instead, it combined SCC estimates from the existing literature to use as interim values until a more comprehensive analysis could be conducted.

The outcome of the preliminary assessment by the interagency group was a set of five interim values: global SCC estimates for 2007 (in 2006 dollars) of $55, $33, $19, $10, and $5 per ton of CO 2 . The $33 and $5 values represented model-weighted means of the published estimates produced from the mo st recently available versions of three integrated assessment models (DICE, P AGE, and FUND) at approximately 3 and 5 percent discount rates. 466 The $55 and $10 values were derived by adjusting the published estimates for uncertainty in the discount rate (using factors developed by Newell and Pizer (2003)) at 3 and 5 percent discount rates, respectively. 467 The $19 value was chosen as a central value between the $5 and $33 per ton estimat es. All of these values were assumed to increase at 3 percent annually to represent growth in incremental damages over time as the magnitude of climate change increases.

These interim values represent the first sustained interagency effort within the U.S. government to develop an SCC for use in regulatory analysis. The results of this preliminary effort were presented in several proposed and final rules and were offered for

466 The DICE (Dynamic Integrated Climate and Eco nomy) model by William Nordhaus evolved from a series of energy models and was first presented in 1990 (Nordhaus and Boyer 2000, Nordhaus 2008). The PAGE (Policy Analysis of the Greenhouse Effect) model was developed by Chris Hope in 1991 for use by European decision-makers in assessi ng the marginal impact of carbon emissions (Hope 2006, Hope 2008). The FUND (Climate Framework for Uncertainty, Negotiation, and Distribution) model, developed by Richard Tol in the early 1990s, originally to study in ternational capital transfers in climate policy. is now widely used to study climate impacts (e.g., Tol 2002a, Tol 2002b, Anthoff et al. 2009, Tol 2009). 467 Newell, R., and W. Pizer. 2003. Discounting the di stant future: how much do uncertain rates increase valuations? Journal of Environmental Economics and Management 46: 52-71.739 public comment in connection with proposed ru les. In particular, EPA and NHTSA used the interim SCC estimates in the joint proposal leading to this final rule.

iii. Approach and Key Assumptions

Since the release of the interim valu es, interagency group has reconvened on a regular basis to generate im proved SCC estimates, which EPA and NHTSA used in this final rule. Specifically, the group has consid ered public comments and further explored the technical literature in relevant fields. The general approach to estimating SCC values was to run the three integrated assessment models (FUND, DICE, and PAGE) using the following inputs agreed upon by the interagency group:

• A Roe and Baker distribution for the climate sensitivity parameter bounded between 0 and 10 with a median of 3 °C and a cumulative probability between 2 and 4.5 °C of two-thirds. 468

• Five sets of GDP, population and ca rbon emissions trajectories based on the recent Stanford Energy Modeling Forum, EMF-22.

• Constant annual discount rates of 2.5, 3, and 5 percent.

The SCC TSD presents a summary of the resu lts and details the modeling exercise and the choices and assumptions that underlie the resulting estimates of the SCC. Thecomplete model results are available in the docket for this final rule [EPA-HQ-OAR2009-0472].

468 Roe, G., and M. Baker. 2007. “Why is climate sensitivity so unpredictable?” Science 318:629-632740 It is important to recognize that a number of key uncertainties remain, and that current SCC estimates should be treated as provisional and revisable since they will evolve with improved scientific and economic understanding. The in teragency group also recognizes that the existing models are imperfect and incomplete. The National Academy of Science (2009) points out that th ere is tension between the goal of producing quantified estimates of the economic damages from an incremental ton of carbon and the limits of existing efforts to model these e ffects. The SCC TSD highlights a number of concerns and problems that should be addr essed by the research community, including research programs housed in many of the ag encies participating in the interagency process to estimate the SCC.

The U.S. Government will periodically review and reconsider estimates of the SCC used for cost-benefit analyses to re flect increasing knowledge of the science and economics of climate impacts, as well as im provements in modeling. In this context, statements recognizing the limitations of the anal ysis and calling for further research take on exceptional significance. The interagenc y group offers the new SCC values with all due humility about the uncertainties embedded in them and with a sincere promise to continue work to improve them.741 iv. Use of New SCC Estimates to Calcul ate GHG Benefits for this Final Rule

The table below summarizes the total GHG be nefits for the lifetime of the rule, which are calculated by using the four new SCC values. Specifically, EPA calculated the total monetized benefits in each year by multip lying the marginal benefits estimates per metric ton of CO 2 (the SCC) by the reductions in CO 2 for that year.

Table III.H.6-2 Monetized CO 2 Benefits of Vehicle Program, CO 2 Emissions a,b (Million 2007$) BENEFITS YEAR CO 2 EMISSIONS REDUCTION (Million Metric Tons) Avg SCC at 5% ($5-$16) c Avg SCC at 3% ($21-$45) c Avg SCC at 2.5% ($35-$65) c 95 th percentile SCC at 3% ($65-$136) c 2020 139 $900 $3,700 $5,800 $11,000 2030 273 $2,700 $8,900 $14,000 $27,000 2040 360 $4,600 $14,000 $21,000 $43,000 2050 459 $7,200 $21,000 $30,000 $62,000

a Monetized GHG benefits exclude the value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benef its, as explained in Section III.F.2. The SCC TSD notes the difference between the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value non-CO 2 emissions in future analyses. b Numbers may not compute exactly from Tables III.H.6-1 and III.H.6-2 due to rounding.
c As noted above, SCC increases over time; tables lists ranges for years 2010 through 2050. See Table III.H.6-1 for the SCC estimates corresponding to the years in this table.
b. Summary of the Response to Comments

EPA and NHTSA received extensive public comments about the scientific, economic, and ethical issues involved in es timating the SCC, including the proposed742 rule’s estimates of the value of emissi ons reductions from new cars and trucks. 469 In particular, the comments addressed the me thodology used to derive the interim SCC estimates, limitations of integrated assessment models, discount rate selection, treatment of uncertainty and catastrophic impacts, us e of global and domestic SCC, and the presentation and use of SCC estimates. Th e rest of this preamble section briefly summarizes EPA’s response to the comment s; the Response to Comments document provides the complete responses to all comments received.

EPA received extensive comments about the methodology and discount rates used to derive the interim SCC estimates. While one commenter from the auto industry noted that the interim methodology was acceptabl e given available data, many commenters (representing academic and environmental orga nizations) expressed concerns that the filters were too narrow, stated that model-weighting averaging was inappropriate, and recommended that EPA use lower discount ra tes. These commenters also discussed alternative approaches to select discount rates and generally recommended that EPA use lower rates to give more weight to climat e damages experienced by future generations.

For the final rule, EPA conducted new anal yses of SCC. EPA did not continue with its interim approach to derive estimates from the existing literature and instead conducted new model runs that produced a va st amount of SCC data at three separate certainty-equivalent discount rate s (2.5, 3, and 5 percent). As discussed further in the

469 EPA estimated GHG benefits in the proposed rule using a set of interim SCC values developed by an interagency group, in which EPA and NHTSA participated. As discussed in the SCC TSD, the interagency group selected the interim estimates from the existing literature and agreed to use those interim estimates in regulatory analyses until it could develop a more comprehensive characterization of the SCC.743 SCC TSD, this modeling exercise resulted in a fuller distribution of SCC estimates and better accounted for uncertainty through a Monte Carlo analysis. Comments on specific issues are addressed in the Response to Comments document.

EPA received comments on the limitations of the integrated assessment models concluding that the selection of models a nd reliance on the model authors’ datasets contributed to the downward bias of the interi m SCC estimates. In this final rule, EPA relied on the default values in each model fo r the remaining parameter; research gaps and practical constraints required EPA to limit its modification of the models to socioeconomic and emissions scenarios, clim ate sensitivity, and discount rate. While EPA recognizes that the models ’ translations of physical im pacts to economic values are incomplete, approximate, and highly uncertain, it regards them as the best currently available representations. EPA also cons idered, for each model, the treatment of uncertainty, catastrophic impacts, and omitted impacts, and as discussed in the SCC TSD and the Response to Comments document, used best available information and techniques to quantify such impacts as feasible and supplemented the SCC with qualitative assessments. Comments on specifi c issues are addresse d in the Response to Comments document.

Six commenters, representing academia and environmental organizations, supported the proposed rule’s preference for gl obal SCC estimates while several industry groups stated that under the Clean Air Ac t, EPA is prohibited from using global estimates. EPA agrees that a global m easure of GHG mitigation benefits is both744 appropriate and lawful for EPA to consider in evaluating the benefits of GHG emissions standards adopted under section 202(a). Global climate change represents a problem that the United States cannot solve alone without global action, and for a variety of reasons there is a value to the U.S. from domestic emissions reductions that reduce the harm occurring globally. This is not exercise of regulatory authority over conduct occurring overseas, but instead is a reasonable exercise of discretion in how to place a monetary value on a reduction in domestic emissions . See the Response to Comments document for a complete discussion of this issue.

Finally, EPA received various comments regarding the presentation of the SCC methodology and resulting estimates. EP A has responded to these concerns by presenting a detailed discussion about the methodology, including key model assumptions, as well as uncertainties and research gaps associated with the SCC estimates and the implications for the SCC estimates. Among these key assumptions and uncertainties are issues involving discount ra tes, climate sensitivity and socioeconomic scenario assumptions, incomplete treatment of potential catastrophic impacts, incomplete treatment of non-catastr ophic impacts, uncertainty in extrapolation of damages to high temperatures, incomplete treatment of adaptation and technological change, and assumptions about risk aversion to hi gh-impact outcomes (see SCC TSD).745 7. Non-Greenhouse Gas Health and Environmental Impacts

This section presents EPA’s analysis of the non-GHG health and environmental impacts that can be expected to occur as a result of th e light-duty vehicle GHG rule. GHG emissions are predominantly the byproduct of fossil fuel combustion processes that also produce criteria and hazardous air pollutant s. The vehicles that are subject to the standards are also significant sources of mob ile source air pollution such as direct PM,
NO X , VOCs and air toxics. The standards wi ll affect exhaust emissions of these pollutants from vehicles. They will also affect emissions from upstream sources related to changes in fuel consumption. Changes in ambient ozone, PM 2.5 , and air toxics that will result from the standards are expected to affect human health in the form of premature deaths and other serious human h ealth effects, as well as other important public health and welfare effects.

As many commenters noted, it is impor tant to quantify the health and environmental impacts associated with the fi nal rule because a failure to adequately consider these ancillary co-pol lutant impacts could lead to an incorrect assessment of their net costs and benefits. Moreover, co- pollutant impacts tend to accrue in the near term, while any effects from reduced climat e change mostly accrue over a time frame of several decades or longer.746 This section is split into two sub-secti ons: the first presents the PM- and ozonerelated health and environmental impacts associ ated with final rule in calendar year (CY) 2030; the second presents the PM-related bene fits-per-ton values us ed to monetize the PM-related co-benefits associated with the m odel year (MY) analysis of the final rule. 470

a. Quantified and Monetized Non-GHG Human Health Benefits of the 2030 Calendar Year (CY) Analysis

This analysis reflects the impact of the final light-duty GHG rule in 2030 compared to a future-year reference scenario without the rule in place. Overall, we estimate that the final rule will lead to a net decrease in PM 2.5 -related health impacts (see Section III.G.5 of this preamble for more information about the air quality modeling results). While the PM-related air quality im pacts are relatively small, the decrease in population-weighted national average PM 2.5 exposure results in a net decrease in adverse PM-related human health impacts (the decrea se in national populat ion-weighted annual average PM 2.5 is 0.0036 μ g/m3).

The air quality modeling (discussed in Section III.G.5) projects very small increases in ozone concentrations in many areas, but these are driven by the ethanol production volumes mandated by the recently fina lized RFS2 rule and are not due to the

470 EPA typically analyzes rule impacts (emissions, air qu ality, costs and benefits) in the year in which they occur; for this analysis, we selected 2030 as a representative fu ture year. We refer to this analysis as the “Calendar Year” (CY) analysis. EPA also conducted a separate analysis of the impacts over the model year lifetimes of the 2012 through 2016 model year vehicl es. We refer to this analysis as the “Model Year” (MY) analysis. In contrast to th e CY analysis, the MY lifetime analys is shows the lifetime impacts of the program on each of these MY fleets ov er the course of its lifetime.747 standards finalized in this rule. While the ozone-related impacts are very small, the increase in population-weighted national av erage ozone exposure results in a small increase in ozone-related health impacts (population-weighted ma ximum 8-hour average ozone increases by 0.0104 ppb).

We base our analysis of the final rule’s impact on human health in 2030 on peerreviewed studies of air quality and human health effects. 471, 472 These methods are described in more detail in the RIA that accompanies this action. Our benefits methods are also consistent with recent rulemaki ng analyses such as the proposed Portland Cement National Emissions Standards fo r Hazardous Air Pollutants (NESHAP) RIA, 473
the final NO 2 NAAQS, 474 and the final Category 3 Marine Engine rule. 475 To model the ozone and PM air quality impacts of the fi nal rule, we used the Community Multiscale Air Quality (CMAQ) model (see Section III.G. 5). The modeled ambient air quality data serves as an input to the Environmenta l Benefits Mapping and Analysis Program

471 U.S. Environmental Protection Agency. (2006). Final Regulatory Impact Analysis (RIA) for the National Ambient Air Quality Standards for Particulate Matter . Prepared by: Office of Air and Radiation. Retrieved March, 26, 2009 at http://www.epa.gov/ttn/ ecas/ria.html. EPA-HQ -OAR-2009-0472-0240 472 U.S. Environmental Protection Agency. (2008). Final Ozone NAAQS Regulatory Impact Analysis

. Prepared by: Office of Air and Radiation, Office of Ai r Quality Planning and Standards. Retrieved March, 26, 2009 at http://www.epa .gov/ttn/ecas/ria.html. EP A-HQ-OAR-2009 -0472-0238 473 U.S. Environmental Protection Agency (U.S. EPA) . 2009. Regulatory Impact Analysis: National Emission Standards for Hazardous Air Pollutants from the Portland Cement Manufacturing Industry. Office of Air Quality Planning and Standards, Research Triangle Park , NC. April. Available on the Internet at http://www.epa. gov/ttn/ecas/regdata/RIAs/po rtlandcementria_4-20-09.pdf. Accessed March 15, 2010. EPA-HQ-OAR-2009-0472-0241 474 U.S. Environmental Protection Agency (U.S. EPA). 2010. Final NO2 NAAQS Regulatory Impact Analysis (RIA). Office of Air Quality Planning and Standards, Research Triang le Park, NC. April. Available on the Internet at h ttp://www.epa.gov/ttn/ecas/regdata/RIAs/ FinalNO2RIAfull document.pdf. Accessed March 15, 2010. EPA-HQ-OAR-2009-0472-0237 475 U.S. Environmental Protection Agency. 2009. Regu latory Impact Analysis: Control of Emissions of Air Pollution from Category 3 Marine Diesel Engines. EPA-420-R-09-0 19, December 2009. Prepared by Office of Air and Radiation. http://www.epa.gov/ot aq/regs/nonroad/marine/ci/4 20r09019.pdf. Accessed February 9, 2010. EPA-HQ-OAR-2009-0472-0283748 (BenMAP). 476 BenMAP is a computer program developed by the U.S. EPA that integrates a number of the modeling elem ents used in previous analyses (e.g., interpolation functions, popul ation projections, health im pact functions, valuation functions, analysis and pooling methods) to tr anslate modeled air co ncentration estimates into health effects incidence estima tes and monetized benefits estimates.
The range of total monetized ozone- and PM-related health impacts is presented in Table III.H.7-1. We present total benefits based on the PM- and ozone-related premature mortality function used. The benefits ranges therefore reflect the addition of each estimate of ozone-related premature mo rtality (each with its own row in Table III.H.7-1) to estimates of PM-related premature mortality. These estimates represent EPA’s preferred approach to characterizing a be st estimate of benefits. As is the nature of Regulatory Impact Analyses (RIAs), the a ssumptions and methods used to estimate air quality benefits evolve to reflect the Agency’s most current interpretation of the scientific and economic literature.

476 Information on BenMAP, including downloads of the software, can be found at http://www.epa.gov/ttn/ ecas/ benmodels.html.749 Table III.H.7-1 Estimated 2030 Monetized PM-and Ozone-Related Health Benefits a 2030 Total Ozone and PM Benefits – PM Mortality De rived from American Cancer Society Analysis and Six-Cities Analysis a Premature Ozone Mortality Function Reference Total Benefits (Millions, 2007$, 3% Discount Rate) b,c,d Total Benefits (Millions, 2007$, 7% Discount Rate) b,c,d Bell et al., 2004 Total: $510 - $1,300 PM: $550 - $1,300 Ozone: -$40 Total: $460 - $1,200 PM: $500 - $1,200 Ozone: -$40 Huang et al., 2005 Total: $490 - $1,300 PM: $550 - $1,300 Ozone: -$64 Total: $440 - $1,200 PM: $500 - $1,200 Ozone: -$64 Multi-city analyses

Schwartz, 2005 Total: $490 - $1,300 PM: $550 - $1,300 Ozone: -$60 Total: $440 - $1,200 PM: $500 - $1,200 Ozone: -$60 Bell et al., 2005 Total: $430 - $1,200 PM: $550 - $1,300 Ozone: -$120 Total: $380 - $1,100 PM: $500 - $1,200 Ozone: -$120 Ito et al., 2005 Total: $380 - $1,200 PM: $550 - $1,300 Ozone: -$170 Total: $330 - $1,000 PM: $500 - $1,200 Ozone: -$170 Meta-analyses

Levy et al., 2005 Total: $380 - $1,200 PM: $550 - $1,300 Ozone: -$170 Total: $330 - $1,000 PM: $500 - $1,200 Ozone: -$170 Notes:
a Total includes premature mortality-related and morbidity-related ozone and PM 2.5 benefits. Range was developed by adding the estimate from the ozone premature mortality function to the estimate of PM 2.5 - related premature mortality derived from either the ACS study (Pope et al., 2002) 477 or the Six-Cities study (Laden et al., 2006). 478 b Note that total benefits presented here do not incl ude a number of unquantifie d benefits categories. A detailed listing of unquantified h ealth and welfare effects is pr ovided in Table III.H.7-2.
c Results reflect the use of both a 3 and 7 percent discount rate, as recommended by EPA’s Guidelines for Preparing Economic Analyses and OMB Circular A-4. Results are rounded to two significant digits for ease of presentation and computation. d Negatives indicate a disbenefit, or an in crease in health effect incidence.
The benefits in Table III.H.7-1 include all of the human health impacts we are able to quantify and monetize at this time. However, the full complement of human health and welfare effects a ssociated with PM and ozone remain unquantified because of

477 Pope, C.A., III, R.T. Burnett, M.J. Thun, E.E. Calle, D. Krewski, K. Ito, and G.D. Thurston. (2002). “Lung Cancer, Cardiopulmonary Mortality, and Long-term Exposure to Fine Particulate Air Pollution.” Journal of the American Medical Association 287:1132-1141. EPA-HQ-OAR-2009-0472-0263 478 Laden, F., J. Schwartz, F.E. Speizer, and D.W. Dockery. (2006). Reduction in Fine Particulate Air Pollution and Mortality. American Journal of Respiratory and Critical Care Medicine. 173: 667-672. EPA-HQ-OAR-2009-0472-1661750 current limitations in methods or available data. We have not qua ntified a number of known or suspected health eff ects linked with ozone and PM for which appropriate health impact functions are not available or whic h do not provide easily interpretable outcomes (e.g., changes in heart rate variability). Additionally, we are unable to quantify a number of known welfare effects, incl uding reduced acid and partic ulate deposition damage to cultural monuments and other materials, and en vironmental benefits due to reductions of impacts of eutrophication in co astal areas. These are listed in Table III.H.7-2. As a result, the health benefits quantified in this section are likely undere stimates of the total benefits attributable to the final rule.

Table III.H.7-2 Unquantified and Non-Monetized Potential Effects Pollutant/Effects Effects Not Included in Analysis - Changes in: Ozone Health a Chronic respiratory damage b Premature aging of the lungs b Non-asthma respiratory emergency room visits Exposure to UVb (+/-) e Ozone Welfare Yields for -commercial forests -some fruits and vegetables -non-commercial crops Damage to urban ornamental plants Impacts on recreational demand from damaged forest aesthetics Ecosystem functions Exposure to UVb (+/-) e PM Health c Premature mortality - short term exposures d Low birth weight Pulmonary function Chronic respiratory diseases other than chronic bronchitis Non-asthma respiratory emergency room visits Exposure to UVb (+/-) e PM Welfare Residential and recreatio nal visibility in non-Class I areas Soiling and materials damage Damage to ecosystem functions Exposure to UVb (+/-) e751 Nitrogen and Sulfate Deposition Welfare Commercial forests due to acidic sulfate and nitrate deposition Commercial freshwater fishing due to acidic deposition Recreation in terrestrial ecosystems due to acidic deposition Existence values for currently healthy ecosystems Commercial fishing, agriculture, and forests due to nitrogen deposition Recreation in estuarine ecosystems due to nitrogen deposition Ecosystem functions Passive fertilization CO Health Behavioral effects HC/Toxics Health f Cancer (benzene, 1,3-butadien e, formaldehyde, acetaldehyde) Anemia (benzene) Disruption of production of blood components (benzene) Reduction in the number of blood platelets (benzene) Excessive bone marrow formation (benzene) Depression of lymphocyte counts (benzene) Reproductive and developmental effects (1,3-butadiene) Irritation of eyes and mucu s membranes (formaldehyde) Respiratory irritation (formaldehyde) Asthma attacks in asthmatics (formaldehyde) Asthma-like symptoms in non-asthmatics (formaldehyde) Irritation of the eyes, skin, and respiratory tract (acetaldehyde) Upper respiratory tract irritation and congestion (acrolein) HC/Toxics Welfare Direct toxic effects to animals Bioaccumulation in the food chain Damage to ecosystem function Odor

Notes: a The public health impact of biological responses such as increased airway responsiveness to stimuli, inflammation in the lung, acute inflammation and resp iratory cell damage, and increased susceptibility to respiratory infection are likely partially represented by our quantified endpoints. b The public health impact of effects such as chroni c respiratory damage and premature aging of the lungs may be partially represented by quan tified endpoints such as hospital admissions or premature mortality, but a number of other related health impacts, such as doctor visits and decreased athletic performance, remain unquantified. c In addition to primary economic endpoints, there ar e a number of biological responses that have been associated with PM health effects including morphological changes and altered host defense mechanisms. The public health impact of these biological responses may be partly represented by our quantified endpoints. d While some of the effects of short-term exposures are likely to be captured in the estimates, there may be premature mortality due to short-term exposure to PM not captured in the cohort studies used in this analysis. However, the PM mortality results derive d from the expert elicitation do take into account premature mortality effects of short term exposures. e May result in benefits or disbenefits. f Many of the key hydrocarbons related to this rule are also hazardous air pollutants listed in the CAA.
While there will be impacts associated w ith air toxic pollutant emission changes that result from the final rule, we do not at tempt to monetize those impacts. This is primarily because currently av ailable tools and methods to assess air toxics risk from752 mobile sources at the nationa l scale are not adequate 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 Scien ce Advisory Board specifically commented in their review of the 1996 NATA that thes e tools were 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 effects. 479 While EPA has since improved the tools, there remain critical limitations for estimating incidence and assessing benefits of reducing mobile sour ce air toxics. EPA continues to work to address these limitations; however , we did not have the methods and tools available for national-scale application in time fo r the analysis of the final rule. 480

EPA is also unaware of specific inform ation identifying any effects on listed endangered species from the small fluctuations in pollutant concentrations associated with this rule (see Section III.G.5). Furt hermore, our current modeling tools are not designed to trace fluctuations in ambient c oncentration levels to potential impacts on particular endangered species.

479 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. EPA-HQ-OAR-2009-0472-0244 480 In April, 2009, EPA hosted a workshop on estimating the benefits or reducing hazardous air pollutants. This workshop built upon the work accomplished in the June 2000 Science Advisory Board/EPA Workshop on the Benefits of Reductions in Expos ure to Hazardous Air Pollutants, which generated thoughtful discussion on approaches to estimating hu man health benefits from reductions in air toxics exposure, but no consensus was reached on methods that could be implemented in the near term for a broad selection of air toxics. Please visit http://epa.gov/ air/toxicair/2009workshop.html for more information about the workshop and its associated materials.753 i. Quantified Human Health Impacts

Tables III.H.7-3 and III.H.7-4 present the annual PM 2.5 and ozone health impacts in the 48 contiguous U.S. states associated with the final rule for 2030. For each endpoint presented in Tables III.H.7-3 and III.H.7-4, we provide both the mean estimate and the 90% confidence interval.

Using EPA’s preferred estimates, based on the American Cancer Society (ACS) and Six-Cities studies and no threshold assumption in the model of mortality, we estimate that the final rule will result in between 60 and 150 cases of avoided PM 2.5 -related premature deaths annually in 2030. As a sens itivity analysis, when the range of expert opinion is used, we estimate between 22 a nd 200 fewer premature mortalities in 2030 (see Table 7.7 in the RIA that accompanies this rule). For ozone-related premature mortality in 2030, we estimate a range of between 4 to 18 additional premature mortalities related to the ethanol producti on volumes mandated by th e recently finalized RFS2 rule 481 (and reflected in the air quality modeling for this rule), but are not due to the final standards themselves.

481 EPA 2010, Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis. EPA-420-R-10- 006. February 2010. Docket EPA-HQ-OAR-2009-0472-11332. EPA-HQ-OAR-2009-0472-11332. See also 75 FR 14670, March 26, 2010754 Table III.H.7-3 Estimated PM 2.5 -Related Health Impacts a
Health Effect 2030 Annual Reduction in Incidence (5 th % - 95 th %ile) Premature Mortality – Derived from epidemiology literature b Adult, age 30+, ACS Cohort Study (Pope et al., 2002) Adult, age 25+, Six-Cities Study (Laden et al., 2006) Infant, age <1 year (Woodruff et al., 1997) 60 (23 – 96) 150 (83 – 220) 0 (0-1)

Chronic bronchitis (adult, age 26 and over) 42 (8 – 77) Non-fatal myocardial infarction (adult, age 18 and over) 100 (38 – 170) Hospital admissions - respiratory (all ages) c 13 (7 – 20) Hospital admissions - cardiovascular (adults, age >18) d 32 (23 – 38) Emergency room visits for asthma (age 18 years and younger) 42 (25 – 59) Acute bronchitis, (children, age 8-12) 95 (0 – 190) Lower respiratory symptoms (children, age 7-14) 1,100 (540 – 1,700) Upper respiratory symptoms (asthmatic children, age 9-18) 850 (270 – 1,400) Asthma exacerbation (asthmatic children, age 6-18) 1,000 (120 – 2,900) Work loss days 7,600 (6,600 – 8,500) Minor restricted activity days (adults age 18-65) 45,000 (38,000 – 52,000) Notes:
a Incidence is rounded to two significant digits. Estimates represent incidence within the 48 contiguous United States. b PM-related adult mortality based upon the American Cancer Society (ACS) Cohort Study (Pope et al., 2002) and the Six-Cities Study (Laden et al., 2006) . Note that these are two alternative estimates of adult mortality and should not be summed. PM-related infant mortality based upon a study by755 Woodruff, Grillo, and Schoendorf, (1997). 482

c Respiratory hospital admissions for PM include admissions for chronic obstructive pulmonary disease (COPD), pneumonia and asthma. d Cardiovascular hospital admissions for PM incl ude total cardiovascular and subcategories for ischemic heart disease, dysrhythmias, and heart failure.

Table III.H.7-4 Estimated Oz one-Related Health Impacts a
Health Effect 2030 Annual Reduction in Incidence (5th% - 95th%ile) Premature Mortality, All ages b Multi-City Analyses Bell et al. (2004) – Non-accidental Huang et al. (2005) – Cardiopulmonary Schwartz (2005) – Non-accidental Meta-analyses: Bell et al. (2005) – All cause Ito et al. (2005) – Non-accidental Levy et al. (2005) – All cause -4 (-8 – 0) -7 (-14 – 1) -6 (-13 – 1)
-13 (-24 - -2) -18 (-30 - -6) -18 (-28 - -9) Hospital admissions- respir atory causes (adult, 65 and older)c -38 (-86 - -6) Hospital admissions -respiratory causes (children, under 2) -6 (-13 – 1) Emergency room visit for asthma (all ages) -16 (-51 – 8) Minor restricted activity days (adults, age 18- 65) -18,000 (-40,000 – 3,700) School absence days -7,700 (-16,000 – 1,200) Notes:
a Negatives indicate a disbenefit, or an increase in health effect incidence. Incidence is rounded to two significant digits. Estimates represent incidence within the 48 contiguous U.S. b Estimates of ozone-related premature mortality are based upon incidence estimates derived from several alternative studies: Bell et al. (2004); Hu ang et al. (2005); Schwar tz (2005) ; Bell et al. (2005); Ito et al. (2005); Levy et al. (2005). The estimates of ozone-related premature mortality should therefore not be summed.
c Respiratory hospital admissions for ozone includ e admissions for all respiratory causes and subcategories for COPD and pneumonia.

482 Woodruff, T.J., J. Grillo, and K.C. Schoendorf. 1997. “The Relatio nship Between Selected Causes of Postneonatal Infant Mortality and Particulate Air Pollution in the United States.” Environmental Health Perspectives 105(6):608-612. EPA-HQ-OAR-2009-0472-0382756 ii. Monetized Benefits

Table III.H.7-5 presents the estimated mone tary value of changes in the incidence of ozone and PM 2.5 -related health effects. All monetized estimates are stated in 2007$. These estimates account for growth in real gross domestic product (GDP) per capita between the present and 2030. Our estimate of total monetized benefits in 2030 for the final rule, using the ACS and Six-Cities PM mortality studies and the range of ozone mortality assumptions, is between $380 and $1,300 million, assuming a 3 percent discount rate, or between $330 and $1,200 million, assuming a 7 percent discount rate. As the results indicate, total benefits are driven primarily by the reduction in PM 2.5 - related premature fa talities each year.

Table III.H.7-5 Estimated Monetary Value of Changes in Incidence of Health and Welfare Effects (in millions of 2007$) a,b 2030 PM 2.5 -Related Health Effect (5 th and 95 th %ile) Adult, age 30+ - ACS study (Pope et al., 2002) 3% discount rate 7% discount rate $510 ($70 - $1,300) $460 ($63 - $1,200) Adult, age 25+ - Six-Cities study (Laden et al., 2006) 3% discount rate 7% discount rate $1,300 ($190 - $3,300) $1,200 ($180 - $3,000) Premature Mortality – Derived from Epidemiology Studies c,d,

Infant Mortality, <1 year – (Woodruff et al. 1997) $1.8 ($0 - $7.0) Chronic bronchitis (adults, 26 and over) $22 ($1.9 - $77) Non-fatal acute myocardial infarctions 3% discount rate 7% discount rate $14 ($3.9 - $35) $14 ($3.6 - $35)757 Hospital admissions for respiratory causes $0.20 ($0.01 - $0.29) Hospital admissions for cardiovascular causes $0.91 ($0.58 - $1.3) Emergency room visits for asthma $0.016 ($0.009 - $0.024) Acute bronchitis (children, age 8–12) $0.007 ($0 – $0.018) Lower respiratory symptoms (children, 7–14) $0.022 ($0.009 - $0.043) Upper respiratory symptoms (asthma, 9–11) $0.027 ($0.008 - $0.061) Asthma exacerbations $0.058 ($0.006 - $0.17) Work loss days $1.2 ($1.0 - $1.3) Minor restricted-activity days (MRADs) $2.9 ($1.7 - $4.2) Ozone-related Health Effect Bell et al., 2004 -$38 (-$110 - $4.2) Huang et al., 2005 -$62 (-$180 - $4.7) Premature Mortality, All ages – Derived from Multi-city analyses

Schwartz, 2005 -$58 (-$170 - $8.8) Bell et al., 2005 -$120 (-$330 - -$7.9) Ito et al., 2005 -$170 (-$430 - -$19) Premature Mortality, All ages – Derived from Meta-analyses

Levy et al., 2005 -$170 (-$410 - -$21) Hospital admissions- respiratory causes (adult, 65 and older) -$0.92 (-$2.1 - $0.27) Hospital admissions- respiratory causes (children, under 2) -$.21 (-$.45 - $0.031) Emergency room visit for asthma (all ages) -$0.006 (-$0.018 - $0.003) Minor restricted activity days (adults, age 18-65) -$1.2 (-$2.7 - $0.25) School absence days -$0.71 (-$1.4 - $0.11) Notes:
a Negatives indicate a disbenefit, or an increase in health effect incidence. Monetary benefits are rounded to two significant digits for ease of presentation and computation. PM and ozone benefits are nationwide. b Monetary benefits adjusted to account for growth in real GDP per capita between 1990 and the analysis year (2030).
c Valuation assumes discounting over the SAB recommended 20 year segmented lag structure. Results reflect the use of 3 percent and 7 percent discount rates consistent with EPA and OMB guidelines for preparing economic analyses.758 iii. What Are the Limitations of the Benefits Analysis?

Every benefit-cost analysis examining the potential effects of a change in environmental protection requirements is limite d to some extent by data gaps, limitations in model capabilities (such as geographic c overage), and uncertain ties in the underlying scientific and economic studies used to configure the benefit and cost models. Limitations of the scientific literature often result in the inability to estimate quantitative changes in health and environmental effects, such as potential increases in premature mortality associated with in creased exposure to carbon monoxi de. Deficiencies in the economics literature often result in the inability to assign eco nomic values even to those health and environmental outcomes which can be quantified. These general uncertainties in the underlying scientific and economics literatu re, which can lead to valuations that are higher or lower, are discusse d in detail in the RIA and its supporting references. Key uncertainties that have a bearing on the results of the benefit-cost analysis of the final rule include the following:

• The exclusion of potentially significant and unquantified bene fit categories (such as health, odor, and ecological impa cts of air toxics, ozone, and PM);

• Errors in measurement and projection fo r variables such as population growth;

• Uncertainties in the estimation of futu re year emissions inventories and air quality;759 • Uncertainty in the estimated relationships of health and welfare effects to changes in pollutant concentrations including the sh ape of the C-R function, the size of the effect estimates, and the relative toxic ity of the many components of the PM mixture;

• Uncertainties in exposure estimation; and

• Uncertainties associated with the eff ect of potential future actions to limit emissions.

As Table III.H.7-5 indicates, total benefits are driven primarily by the reduction in
PM 2.5 -related premature mortalitie s each year. Some key assumptions underlying the premature mortality estimates include the following, which may also contribute to uncertainty:

• Inhalation of fine particles is causally associated with premature death at concentrations near those experienced by most Americans on a daily basis. Although biological mechanisms for this e ffect have not yet been completely established, the weight of the availa ble epidemiological, toxicological, and experimental evidence supports an assu mption of causality. The impacts of including a probabilistic representation of causality we re explored in the expert elicitation-based results of the PM NAAQS RIA.

• All fine particles, regardless of their chemical composition, are equally potent in causing premature mortality. This is an important assumption, because PM produced via transported precursors emitted from engines may differ significantly from PM precursors released from electri c generating units a nd other industrial760 sources. However, no clear scientific grounds exist for supporting differential effects estimates by particle type.

• The C-R function for fine particles is approximately linear within the range of ambient concentrations under consideration. Thus, the estimates include health benefits from reducing fine particles in areas with varied c oncentrations of PM, including both regions that may be in attainment with PM 2.5 standards and those that are at risk of not meeting the standards.

• There is uncertainty in the magnitude of the association between ozone and premature mortality. The range of ozone impacts associated with the final rule is estimated based on the risk of several s ources of ozone-related mortality effect estimates. In a recent report on the estimation of ozone-related premature mortality published by the National Res earch Council, a panel of experts and reviewers concluded that short-term e xposure to ambient ozone is likely to contribute to premature deaths and th at ozone-related mortality should be included in estimates of the health benefits of reducing ozone exposure. 483 EPA has requested advice from the National Academy of Sciences on how best to quantify uncertainty in th e relationship between ozone exposure and premature mortality in the context of quantifying benefits.
Acknowledging omissions and uncertainties, we present a best estimate of the total benefits based on our interpretation of the best available scientific literature and methods supported by EPA’s technical peer re view panel, the Science Advisory Board’s

483 National Research Council (NRC), 2008. Estimating Mortality Risk Reduction and Economic Benefits from Controlling Ozone Air Pollution. The Nationa l Academies Press: Washington, D.C. EPA-HQ-OAR2009-0472-0322761 Health Effects Subcommittee (SAB-HES). The National Academies of Science (NRC, 2002) has also reviewed EPA’s methodology fo r analyzing the health benefits of measures taken to reduce ai r pollution. EPA addressed ma ny of these comments in the analysis of the final PM NAAQS. 484, 485 This analysis incorporates this most recent work to the extent possible.

b. PM-related Monetized Benefits of the Model Year (MY) Analysis

As described in Section III.G, the final standards will reduce emissions of several criteria and toxic pollutants and precursors. In the MY analysis, EPA estimates the economic value of the human health be nefits associated with reducing PM 2.5 exposure. Due to analytical limitations, this analysis does not 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 associated with PM 2.5 .

The MY analysis uses a “benefit-per-ton” method to estimate a selected suite of
PM 2.5 -related health benefits described below. These PM 2.5 benefit-per-ton estimates provide the total monetized human health bene fits (the sum of premature mortality and premature morbidity) of reduci ng one ton of directly emitted PM 2.5 , or its precursors (such as NO X , SO X , and VOCs), from a specified source. Ideally, the human health benefits associated with the MY analysis would be estimated based on changes in

484 National Research Council (NRC). 2002. Estimating the Public Health Benefits of Proposed Air Pollution Regulations. The National Academies Press: Washington, D.C. 485 U.S. Environmental Protection Agency. October 2006. Final Regulatory Impact Analysis (RIA) for the National Ambient Air Quality Standards for Particulate Matter . Prepared by: Office of Air and Radiation. Available at http://www.epa.gov/ttn/ecas/r ia.html. EPA-HQ- OAR-2009-0472-0240762 ambient PM 2.5 as determined by full-scale air quality modeling. However, this modeling was not possible in the timefr ame for the final rule.

The dollar-per-ton estimates used in this anal ysis are provided in Table III.H.7-6. In the summary of costs and benefits, Secti on III.H.10 of this preamble, EPA presents the monetized value of PM-related impr ovements associated with the rule.

Table III.H.7-6 Benefits-per-ton Values (2007$) De rived Using the ACS Cohort Study for PM-related Premature Mo rtality (Pope et al., 2002) a All Sources d Stationary (Non-EGU) Sources Mobile Sources Year c
SO X VOC NO X Direct PM 2.5 NO X Direct PM 2.5 Estimated Using a 3 Percent Discount Rate b 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 Estimated Using a 7 Percent Discount Rate b 2015 $26,000 $1,100 $4,200 $200,000 $4,400 $240,000 2020 $28,000 $1,200 $4,600 $220,000 $4,800 $270,000 2030 $33,000 $1,400 $5,500 $250,000 $5,800 $320,000 2040 $39,000 $1,600 $6,600 $300,000 $6,900 $380,000

a The benefit-per-ton estimates presented in this tabl e are based on an estimate of premature mortalityderived from the ACS study (Pope et al., 2002). If the benefit-per-ton estimates were based on the SixCities study (Laden et al., 2006), the values would be approximately 145% (nearly two-and-a-half times) larger. b The benefit-per-ton estimates presented in this table as sume either a 3 percent or 7 percent discount rate in the valuation of premature mortality to account for a twenty-year segmented cessation lag.
c Benefit-per-ton values were estimated for the years 2015, 2020, and 2030. For 2040, EPA and NHTSA extrapolated exponentially based on the growth between 2020 and 2030. d Note that the benefit-per-ton value for SO X is based on the value for Stationary (Non-EGU) sources; no SO X value was estimated for mobile sources. The benefit-per-ton value for VOCs was estimated across all sources.
The benefit per-ton technique has been used in previous analyses, including EPA’s recent Ozone National Ambient Air Quality Standards (NAAQS) RIA, 486 the

486 U.S. Environmental Protection Agency (U.S. EPA). 2008. Regulatory Impact Analysis, 2008 National Ambient Air Quality Standards for Ground-level Ozone, Chapter 6. Office of Air Quality Planning and Standards, Research Triangle Park, NC. March. Available at763 proposed Portland Cement National Emissions Standards for Hazardous Air Pollutants (NESHAP) RIA, 487 and the final NO 2 NAAQS (U.S. EPA, 2009b). 488 Table III.H.7 -7 shows the quantified and unquantified PM 2.5 -related co-benefits captured in those benefitper-ton estimates.

Table III.H.7-7 Human Health and Welfare Effects of PM 2.5 Pollutant /

Effect Quantified and Monetized in Primary Estimates Unquantified Effects Changes in: PM 2.5 Adult premature mortality Bronchitis: chronic and acute Hospital admissions: respiratory and cardiovascular Emergency room visits for asthma Nonfatal heart attacks (myocardial infarction) Lower and upper respiratory illness Minor restricted-activity days Work loss days Asthma exacerbations (a sthmatic population) Infant mortality Subchronic bronchitis cases Low birth weight Pulmonary function Chronic respiratory diseases other than chronic bronchitis Non-asthma respiratory emergency room visits Visibility Household soiling

Consistent with the NO 2 NAAQS, 489 the benefits estimates utilize the concentration-response functions as reported in the epidemiol ogy literature. To calculate the total monetized impacts associated with quantified health impacts, EPA applies values derived from a number of sources. Fo r premature mortality, EPA applies a value of a statistical life (VSL) derived from the mortality valuation literature. For certain

<http://www.epa.gov/ttn /ecas/regdata/RIAs/6-ozoneriachapter6.p df>. Accessed March 15, 2010. EPAHQ-OAR-2009-0472-0108 487 U.S. Environmental Protection Agency (U.S. EPA) . 2009. Regulatory Impact Analysis: National Emission Standards for Hazardous Air Pollutants from the Portland Cement Manufacturing Industry. Office of Air Quality Planning and Standards, Research Triangle Park , NC. April. Available on the Internet at <http://www.epa .gov/ttn/ecas/regdata/RIAs/portlandcemen tria_4-20-09.pdf>. Accessed March 15, 2010. EPA-HQ-OAR-2009-0472-0241 488 U.S. Environmental Protection Agency (U.S. EPA). 2010. Final NO2 NAAQS Regulatory Impact Analysis (RIA). Office of Air Quality Planning and Standards, Research Triang le Park, NC. April. Available on the Internet at h ttp://www.epa.gov/ttn/ecas/regdata/RIAs/ FinalNO2RIAfull document.pdf. Accessed March 15, 2010. EPA-HQ-OAR-2009-0472-0237 489 Although we summarize the main issues in this ch apter, we encourage interested readers to see the benefits chapter of the final NO 2 NAAQS for a more detailed description of recent changes to the PM benefits presentation and preference for the no-threshold model.764 health impacts, such as chronic bronchitis and a number of respir atory-related ailments, EPA applies willingness-to-pay estimates derive d from the valuation literature. For the remaining health impacts, EPA applies values derived from current cost-of-illness and/or wage estimates.

Readers interested in reviewing th e complete methodology for creating the benefit-per-ton estimates us ed in this analysis can consult the Technical Support Document (TSD) 490 accompanying the recent final oz one NAAQS RIA. Readers can also refer to Fann et al. (2009) 491 for a detailed description of the benefit-per-ton methodology. 492 A more detailed description of th e benefit-per-ton estimates is also provided in the Joint TSD that accompanies this rulemaking.

As described in the documentation for th e benefit per-ton estimates cited above, national per-ton estimates were developed for selected pollutant/source category combinations. The per-ton values calculated therefore 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 estimate of PM 2.5 benefits is therefore

490 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 Park, NC. March. Available on the Internet at <http://www.regulations.gov>. EPA-HQ-OAR-2009-0472-0228 491 Fann, N. et al. (2009). The influence of location, source, and emission type in estimates of the human health benefits of reducing a ton of air pollution. Air Qual Atmos Health. Published online: 09 June, 2009. EPA-HQ-OAR-2009-0472-0229 492 The values included in this report are different from those presented in the article cited above. Benefits methods change to reflect new information and evaluation of the science. Since publication of the June 2009 article, EPA has made two significant changes to its benefits methods: (1) We no longer assume that a threshold exists in PM-related models of health impacts; and (2) We have revised the Value of a Statistical Life to equal $6.3 million (year 2000$), up from an estimate of $5.5 million (year 2000$) used in the June 2009 report. Please refer to the following website for updates to the dollar-per-ton estimates: http://www.epa.gov/air/benmap/bpt.html. EPA-HQ-OAR-2009-0472-0227765 based on the total direct PM 2.5 and PM-related precursor emi ssions controlled by sector and multiplied by each per-ton value.

The benefit-per-ton estimates are subject to a number of assumptions and uncertainties.

• Dollar-per-ton estimates do not reflect 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 actual benefits of controlling fine particulates. In Section III.G, we describe the full-scale air quali ty modeling conducted for the 2030 calendar year analysis in an effort to capture this variability.

• There are several health benefits categories that EPA was unable to quantify in the MY analysis due to limitations associated with using benefits-per-ton estimates, several of which could be substantial. Because
NO X and VOC emissions are also precu rsors to ozone, changes in NO X and VOC would also impact ozone formation and the health effects associated with ozone exposure. Benefits-per-ton estimates do not exist for ozone, however, due to issues associated with the complexity of the atmospheric air chemistry and nonlin earities associated with ozone formation. The PM-related benefits-p er-ton estimates also do not include any human welfare or ecological benefits . Please refer to Chapter 7 of the RIA that accompanies this rule for a description of the quantification and766 monetization of health impacts for the CY analysis and a description of the unquantified co-pollutant benefits as sociated with this rulemaking.

• The benefit-per-ton estimates used in th is analysis incorporate projections of key variables, including atmospheri c conditions, source level emissions, population, health baselines and inco mes, technology. These projections introduce some uncertainties to the benefit per ton estimates.

• As described above, using the benefit- per-ton value derived from the ACS study (Pope et al., 2002) alone provides an incomplete characterization of
PM 2.5 benefits. When placed in the context of the Expert Elicitation results, this estimate falls toward the lower end of the distribution. By contrast, the estimated PM 2.5 benefits using the coefficient reported by Laden in that author’s reanalysis of the Harvard Six-Cities cohort fall toward the upper end of the Expert Elicitation distribution results.

As mentioned above, emissions changes a nd benefits-per-ton estimates alone are not a good indication of local or regional air qua lity and health impacts, as there may be localized impacts associated with this rulemaking. Additionally, the atmospheric chemistry related to ambient concentrations of PM 2.5 , ozone and air toxics is very complex. Full-scale photoc hemical modeling is therefor e necessary to provide the needed spatial and temporal detail to more completely and accurately estimate the changes in ambient levels of these pollutant s and their associated health and welfare impacts. Timing and resource constraint s precluded EPA from conducting full-scale photochemical air quality modeling for the MY analysis. We have, however, conducted767 national-scale air qual ity modeling for the CY analysis to analyze the impacts of the standards on PM 2.5 , ozone, and selected air toxics.

8. Energy Security Impacts

This rule to reduce GHG emissions in light -duty vehicles results in improved fuel efficiency which, in turn, helps to reduce U. S. petroleum imports. A reduction of U.S. petroleum imports reduces both financial and strategic risks caused by potential sudden disruptions in the supply of im ported petroleum to the U.S. This reduction in risk is a measure of improved U.S. energy security. Th is section summarizes our estimate of the monetary value of the energy security benef its of the GHG vehicle standards against the reference case by estimating the impact of the expanded use of lower-GHG vehicle technologies on U.S. oil imports and avoided U.S. oil import expenditures. Additional discussion of this issue can be found in Chap ter 5.1 of EPA’s RIA and Section 4.2.8 of the TSD.

a. Implications of Reduced Petroleum Use on U.S. Imports

In 2008, U.S. petroleum import expenditures represented 21 percent of total U.S. imports of all goods and services. 493 In 2008, the U.S. imported 66 percent of the petroleum it consumed, and the transportation sector accounted for 70 percent of total U.S. petroleum consumption. This compares to approximately 37 percent of petroleum

493 Source: U.S. Bureau of Economic Analysis, U.S. In ternational Transactions Accounts Data, as shown on June 24, 2009.768 from imports and 55 percent of consumption fr om petroleum in the transportation sector in 1975. 494 It is clear that petroleum imports have a significant impact on the U.S. economy. Requiring lower-GHG vehicle technol ogy in the U.S. is expected to lower U.S. petroleum imports.

b. Energy Security Implications

In order to understand the energy secu rity implications of reducing U.S. petroleum imports, EPA worked with Oak Ridge National Laborat ory (ORNL), which has developed approaches for evaluating the economic costs and energy security implications of oil use. The energy securi ty estimates provided below are based upon a methodology developed in a pe er-reviewed study entitled " The Energy Security Benefits of Reduced Oil Use, 2006-2015 ," completed in March 2008. This study is included as part of the docket for this rulemaking. 495, 496

When conducting this analysis, ORNL c onsidered the economic cost of importing petroleum into the U.S. The economic cost of importing petroleum into the U.S. is defined to include two component s in addition to the purchase price of petroleum itself. These are: (1) the higher costs for oil imports resulting from the effect of increasing U.S.

494 Source: U.S. Department of Energy, Annual Energy Review 2008, Report No. DOE/EIA-0384(2008), Tables 5.1 and 5.13c, June 26, 2009. 495 Leiby, Paul N. " Estimating the Energy Security Bene fits of Reduced U.S. Oil Imports " Oak Ridge National Laboratory, ORNL/TM-2007/028, Final Report, 2008. (Docket EPA-HQ-OAR-2009-0472) 496 The ORNL study “ The Energy Security Benefits of Reduced Oil Use, 2006-2015 ," completed in March 2008, is an update version of the approach used for estimating the energy security benefits of U.S. oil import reductions developed in an ORNL 1997 Report by Leiby, Paul N., Donald W. Jones, T. Randall Curlee, and Russell Lee, entitled “ Oil Imports: An Assessment of Benefits and Costs. " (Docket EPA-HQOAR-2009-0472)769 import demand on the world oil price and on OP EC market power (i.e., the "demand" or "monopsony" costs); and (2) the risk of reductions in U.S. economic output and disruption of the U.S. economy caused by sudde n disruptions in the supply of imported petroleum to the U.S. (i.e., macroeconomic di sruption/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 hard to quantify.

One commenter on this rule felt that that the magnitude of the economic disruption portion of the energy security benef it may be too high. This commenter cites a recent paper written by Stephen P.A. Brow n and Hillard G. Huntington, entitled

" Estimating U.S. Oil Security Premiums " (September 2009) as the basis for their comment. The Agency reviewed this pa per and found that it conducted a somewhat different analysis than the one conducted by ORNL in support of this rule. The Brown and Huntington paper focuses on policies a nd the energy security implications of increasing U.S. demand for oil (or at least ho lding U.S. oil consumption constant), while the ORNL analysis examines the energy secu rity implications of decreasing U.S. oil consumption and oil imports. These asymmetri cal analyses would be expected to yield somewhat different energy security results.

However, even given the different scen arios consider, the Brown and Huntington estimates are roughly similar to the ORNL es timates. For example, for an increase in U.S. consumption that leads to an increase in U.S. imports of oil, Brown and Huntington770 estimate a 2015 disruption premium of $4.87 per barrel, with an uncer tainty range from $1.03 to $14.10 per barrel. The corresponding 20 15 estimate for ORNL as the result of a reduction in U.S. oil imports is $6.70 per ba rrel, with an uncertainty range of $3.11 to $10.67 per barrel. Given that the two studies analyze different scenarios, since the Brown and Huntington disruption premiums are well within the uncertainty range of the ORNL study, and given that the ORNL scenar io matches the specific oil market impacts anticipated from the rule while the Brow n and Huntington paper does not, the Agency has concluded that the ORNL disruption secur ity premium estimates are more applicable for analyzing this final rule.

In the energy security literature, the macroeconomic disruption component of the energy security premium traditionally has included both (1) increased payments for petroleum imports associated with a rapid in crease in world oil prices, and (2) the GDP losses and adjustment costs that result from projected future oil price shocks. One commenter suggested that the increased paym ents associated with rapid increases in petroleum prices (i.e., price increases in a di srupted market) represent transfers from U.S. oil consumers to petroleum suppliers rather than real economic costs, and therefore, should not be counted as a benefit.

This approach would represent a significant departure from how the macroeconomic disruption costs associated with oil price shocks have been quantified in the broader energy security literature, and the Agencies believe it should be analyzed in more detail before being applie d in a regulatory context. In addition, the Agencies also771 believe that there are compelling reasons to treat higher oil import costs during oil supply disruptions differently than simple wealth tr ansfers that reflect the exercise of market power by petroleum sellers or consumers. Acco rding to the OMB definition of a transfer: “Benefit and cost estimates should reflect re al resource use. Transfer payments are monetary payments from one group to another that do not affect tota l resources available to society...The net reduction in the total surplus (consumer pl us producer) is a real cost to society, but the transfer from buyers to se llers resulting from a highe r price is not a real cost since the net reduction automatically acc ounts for the transfer from buyers to sellers.” 497 In other words, pure transfers do not lead to changes in the allocation or consumption of economic resources, whereas changes in the resource allocation or use produce real economic costs or benefits.

While price increases during oil price disruptions can result in large transfers of wealth, they also result in a combination of real resource shortages, costly short-run shifts in energy supply, behavioral and demand adjustments by energy users, and other response costs. Unlike pure transfers, the ro ot cause of the disrup tion price increase is a real resource supply reduction due, for exampl e, to disaster or war. Regions where supplies are disrupted (i.e., the U.S.) suffer ve ry high costs. Businesses’ and households’ emergency responses to supply disruptions and rapid price increas es are likely to consume some real economic resources, in addi tion to causing financial losses to the U.S. economy that are matched by offsetting ga ins elsewhere in the global economy.

497 OMB Circular A-4, September 17, 2003. See http://www.whitehouse.gov/omb/assets/omb/circulars/a004/a-4.pdf772 While households and businesses can redu ce their petroleum consumption, invest in fuel switching technologies, or use futures markets to insulate themselves in advance against the potential costs of rapid increases in oil prices, when deciding how extensively to do so, they are unlikely to account for the effect of their petroleum consumption on the magnitude of costs that supply interrupti ons and accompanying price shocks impose on others. As a consequence, the U.S. economy as a whole will not make sufficient use of these mechanisms to insulate itself from the r eal costs of rapid incr eases in energy prices and outlays that usually acco mpany oil supply interruptions. 498 Therefore, the ORNL estimate of macroeconomic disruption and adju stment costs that the Agencies use to value energy security benefits includes the increased oil import costs stemming from oil price shocks that are unantic ipated and not internalized by advance actions of U.S. consumers of petroleum products. The Agenci es believe that, as the ORNL analysis argues, the uninternalized o il import costs that occur dur ing oil supply interruptions represents a real cost associated with U.S. petroleum consumption and imports, and that reducing its value by lowering domestic pe troleum consumption and imports thus represents a real economic benef it from lower fuel consumption.

For this rule, ORNL estimated the ener gy security premium by incorporating the oil price forecast of the Energy Inform ation Administration’s 2009 Annual Energy Outlook (AEO) to its model. The Agency cons idered, but rejected the option, of further updating this analysis using th e oil price estimates provided by the AEO 2010. Given the

498 For a more complete discussion of the reasons why the oil import cost component of the macroeconomic disruption and adjustment costs includ es some real costs and does not re present a pure transfer, see Paul N. Leiby, Estimating the Energy Security Benefits of Reduced U.S. Oil Imports: Final Report, ORNL-TM2007-028, Oak Ridge National Laboratory, March 14, 2008, pp. 21-25.773 broad uncertainty bands around oil price forecasts and the relatively modest change in oil price forecasts between the AEO 2009 and AE O 2010, the Agency felt that updating to AEO 2010 oil prices would not significantly cha nge the results of this energy security analysis. Finally, the EPA used its OME GA model in conjunction with ORNL’s energy security premium estimates to develop the to tal energy security benefits for a number of different years; please refer to Table III.H. 8-1 for this information for years 2015, 2020, 2030 and 2040, 499 as well as a breakdown of the components of the energy security premium for each of these years. The com ponents of the energy security premium and their values are discussed in de tail in the Joint TSD Chapter 4.

Because the price of oil is determined globally, supply and demand shocks anywhere in the world will have an adverse impact on the United States (and on all other oil consuming countries). The total economic costs of those shocks to the U.S. will depend on both U.S. petroleum consumption and imports of petroleum and refined products. The analysis relied upon to estimat e energy security benefits from reducing U.S. petroleum consumption estimates the value of energy security using the estimated oil import premium, and is thus consistent wi th how much of the energy security literature reports energy security impacts. Since this rule is expected to have little impact on the U.S. supply of crude petroleum, a reduc tion in U.S. fuel consumption is expected to be reflected predominantly in reduced im ports of petroleum and refined fuel. The estimated energy security premium associat ed with a reduction in U.S. petroleum consumption that leads to a reduction in imports w ould likely be somewhat larger, due to

499 AEO 2009 forecasts energy market trends and valu es only to 2030. The energy security premium estimates post-2030 were assumed to be the 2030 estimate.774 diminished sensitivity of the U.S. economy to oil supply shocks that would accompany the reduction in oil consumption.

In addition, while the estimates of ener gy security externalities used in this analysis depend on a combination of U.S. pe troleum consumption and imports, they have been expressed as per barrel of petroleum imported into the U.S. The Agencies’ analyses apply these estimates to the reduction in U. S. imports of crude petroleum and refined products that is projected to result from the rule in order to determine the benefits that are likely to result from fuel savings and the consequent reduction in imports. Thus, the estimates of energy security externalities have be en used in this analysis in a way that is completely consistent with how they are defined and measured in the ORNL analysis

Table III.H.8-1 Energy Security Prem ium in 2015, 2020, 2030 and 2040 (2007$/Barrel)
Year (range) Monopsony Macroeconomic Disruption/Adjustment Costs Total Mid-Point 2015 $11.79 ($4.26 - $21.37) $6.70 ($3.11 – $10.67) $18.49 ($9.80 - $28.08) 2020 $12.31 ($4.46 - $22.53) $7.62 ($3.77 – $12.46) $19.94 ($10.58 - $30.47) 2030 $10.57 ($3.84 – 18.94)) $8.12 ($3.90 – $13.04) $18.69 ($10.52 - $27.89) 2040 $10.57 ($3.84 – $18.94) $8.12 ($3.90 - $13.04) $18.69 ($10.52 - $27.89)

The literature on the energy security fo r the last two decades has routinely combined the monopsony and the macroeconomic disruption components when calculating the total value of the energy securi ty premium. However, in the context of using a global value for the Social Cost of Carbon (SCC) the question arises: how should775 the energy security premium be used when some benefits from the rule, such as the benefits of reducing greenhouse gas emissions, are calculated using a global value? Monopsony benefits represent avoided payments by the U.S. to oil producers in foreign countries that result from a decrease in the world oil price as the U.S. decreases its consumption of imported oil. Although ther e is clearly a benef it to the U.S. when considered from the domestic perspective, the decrease in price due to decreased demand in the U.S. also represents a loss of in come to oil-producing countries. Given the redistributive nature of this effect, do the ne gative effects on other countries “net out” the positive impacts to the U.S.? If this is th e case, then the monopsony portion of the energy security premium should be excluded from th e net benefits calculation for the rule. OMB’s Circular A-4 gives guida nce in this regard. Domes tic pecuniary benefits (or transfers between buyers and sellers) genera lly should not be included because they do not represent real resource cost s, though A-4 notes that transf ers to the U.S. from other countries may be counted as benefits as l ong as the analysis is conducted from a U.S. perspective.

Energy security is broadly defined as protecting the U.S. economy against circumstances that threaten significant short- and long-term increases in energy costs. Energy security is inherently a domestic benefit. Accordingly, it is possible to argue that the use of the domestic monopsony benefit may not necessarily be in conflict with the use of the global SCC, because the global SCC represents the benefits against which the costs of our (i.e., the U.S.’s) domestic mitigation e fforts should be judged. In the final analysis,776 the Agency has determined that using only the macroeconomic disruption component of the energy security benefit is the appropriate metric for this rule.

At proposal, the Agency took the position that since a global perspective was being taken with the use of the global SCC, that the monopsony benefits “net out” and were a transfer. Two commenters felt th at the monopsony effect should be excluded from net benefits calculations for the rule si nce it is a “pecuniary” externality or does not represent an efficiency gain. One of the co mmenters suggested that EPA instead conduct a distributional analysis of the monopsony impacts of the final rule. The Agency disagrees that all pecuniary externalities shou ld necessarily be excluded from net benefits calculations as a general rule. In this cas e considered here, the oil market is noncompetitive, and if the social decision-making unit of interest is the U.S., there is an argument for accounting for the monopsony prem ium to assess the ex cess transfer of wealth caused by the exercise of car tel power outside of the U.S.

However, for the final rule, the Agency continues to take a global perspective with respect to climate change by using the global SCC. Therefore, the Agency did not count monopsony benefits since they “net out” with losses to other countries outside the U.S. Since a global perspective has been taken, a distributional analysis was not undertaken for this final rule, since the losses to the losers (oil producer s that export oil to the U.S.) would equal the gain s to the winners (U.S. consumers of imported oil). As a result, the Agency has included only the m acroeconomic disruption portion of the energy security benefits to monetize the total energy security benefits of this rule. Hence, the777 total annual energy security be nefits are derived from the estimated reductions in U.S. imports of finished petroleum products a nd crude oil using only the macroeconomic disruption/adjustment portion of the energy secu rity premium. These values are shown in Table III.H.8-2. 500 The reduced oil estimates were derived from the OMEGA model, as explained in Section III.F of this preamble. EPA used the same assumption that NHTSA used in its Corporate Average Fuel Economy and CAFE Reform for MY 2008-2011 Light Trucks rule, which assumed that each gallon of fuel saved reduces total U.S. imports of crude oil or refined products by 0.95 gallons. 501

Table III.H.8-2 Total Annual Energy Security Benefits Using Only the Macroeconomic Disruption/Adjustment Component of the En ergy Security Premium in 2015, 2020, 2030 and 2040 (billions of 2007$) Year Benefits 2015 $0.57 2020 $2.17 2030 $4.55 2040 $6.00

9. Other Impacts There are other impacts associated with the CO 2 emissions standards and associated reduced fuel consumption that vary with miles driven. Lower fuel

500 Estimated reductions in U.S. imports of finished petroleum products and crude oil are 95% of 89 million barrels (MMB) in 2015, 300 MMB in 2020, 590 MMB in 2030, and 778 MMB in 2040. 501 Preliminary Regulatory Impacts Analysis, April 2008. Based on a detailed analysis of differences in fuel consumption, petroleum imports, and imports of refined petroleum products among the Reference Case, High Economic Growth, and Low Economic Growth Scenarios presented in the Energy Information Administration’s Annual Energy Outlook 2007, NHTSA estimated that approximately 50 percent of the reduction in fuel consumption is likely to be reflected in reduced U.S. imports of refined fuel, while the remaining 50 percent would be expected to be reflected in reduced domestic fuel refining. Of this latter figure, 90 percent is anticipated to reduce U.S. imports of crude petroleum for use as a refinery feedstock, while the remaining 10 percent is expected to reduce U.S. domestic production of crude petroleum. Thus on balance, each gallon of fuel saved is anticipated to re duce total U.S. imports of crude petroleum or refined fuel by 0.95 gallons.778 consumption would, presumably, result in fewer trips to the filling station to refuel and, thus, time saved. The rebound effect, discussed in detail in Section III.H.4.c, produces additional benefits to vehicle owners in the fo rm of consumer surplus from the increase in vehicle-miles driven, but may also increase th e societal costs associated with 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 standards, but they are nevertheless important to include. Tabl e III.H.9-1 summarizes the other economic impacts. Please refer to Preamble Section II. F and the Joint TSD that accompanies this rule for more information about these impacts and how EPA and NHTSA use them in their analyses.

Note that for the estimated value of less frequent refueling events, EPA's estimate is subject to a number of uncertainties which we discuss in detail in Chapter 4.1.11 of the Joint TSD, and the actual value could be highe r or lower than the value presented here. Specifically, the analysis makes three assumpti ons: (a) that manufacturers will not adjust fuel tank capacities downward (from the curr ent average of 19.3 gallons) when they improve the fuel economy of their vehicle mode ls. (b) that the aver age fuel purchase (55 percent of fuel tank capacity) is the typical fuel purchase. (c) that 100 percent of all refueling is demand-based; i.e., that every ga llon of fuel which is saved would reduce the need to return to the refueling station. A new research project is being planned by DOT which will include a detailed study of refueling events, and which is expected to improve upon these assumptions. These assumptions and the new DOT research project are discussed in detail in Joint TSD Chapter 4.2.10.779 Table III.H.9-1 Other Impacts Associated with the Light-Duty Vehicle GHG Program ($Millions of 2007 dollars) 2020 2030 2040 2050 NPV, 3% NPV, 7% Value of Less Frequent Refueling $2,400 $4,800 $6,300 $8,000 $87,900 $40,100
Value of Increased Driving a $4,200 $8,800 $13,000 $18,400 $171,500 $75,500 Accidents, Noise, Congestion -$2,300 -$4,600 -$6,100 -$7,800 -$84,800 -$38,600

a Calculated using post -tax fuel prices.
10. Summary of Costs and Benefits

In this section, EPA presents a summary of costs, benefits, and net benefits of the rule. Table III.H.10-1 shows the estimated a nnual societal costs of the vehicle program for the indicated calendar years. The table also shows the net present values of those costs for the calendar years 2012-2050 using both a 3 percent and a 7 percent discount rate. In this table, fuel savings are cal culated using pre-tax fuel prices.

Consumers are expected to receive the fuel savings presented here. The cost estimates for the fuel-saving technology are based on designs that will hold all vehicle attributes constant except fuel economy and technology cost. This analysis also assumes that consumers will not change the vehicl es that they purchase. Automakers may redesign vehicles as part of their complia nce strategies. The redesigns should be expected to make the vehicles more attractiv e to consumers, because the ability to hold all other attributes constant means that the on ly reason to change them is to make them780 more marketable to consumers. In addition, consumers may choose to purchase different vehicles than they would in the absence of this rule. These changes may affect the net benefits that consumers receive from their vehicles. If consumers can buy the same vehicle as before, except with increased price and fuel economy, then the increase in vehicle price is the maximum loss in welfar e to the consumer, because compensating the increase in price would leave her able to buy he r previous vehicle with no change. If she decides to purchase a different vehicle, or not to purchase a vehicle, she would do so only if she were better off than buying her original choice. Because of the unsettled state of the modeling of consumer choices (discussed in Section III.H.1 and in RIA Section 8.1.2), this analysis does not measure these effects. If the technol ogy costs are not sufficient to maintain other vehicle attributes, then it is possible that automakers would be required to make less marketable vehicles in order to comp ly with the rule; as a result, there may be an additional loss in consumer welfare due to the rule. While EPA received comments expressing concern over the possibility of thes e losses, there were no specific losses identified.

Table III.H.10-1 Estimated Societal Cost s of the Light-Duty Vehicle GHG Program (Millions of 2007 dollars) Social Costs 2020 2030 2040 2050 NPV, 3% NPV, 7% Vehicle Compliance Costs $15,600 $15,800 $17,400 $19,000 $345,900 $191,900 Fuel Savings a -$35,700 -$79,800 -$119,300 -$171,200 -$1,545,600 -$672,600 Quantified Annual Costs -$20,100 -$64,000 -$101,900 -$152,200 -$1,199,700 -$480,700

a Calculated using pre-tax fuel prices.781 Table III.H.10-2 presents estimated annua l societal benefits for the indicated calendar years. The table also shows the net present values of those benefits for the calendar years 2012-2050 using both a 3 percent and a 7 percent discount rate. The table shows the benefits of reduced CO 2 emissions—and consequently the annual quantified benefits (i.e., total benefits)—for each of four SCC values considered by EPA. As discussed in the RIA Section 7.5, the IP CC Fourth Assessment Report (2007) concluded that that the benefit estimates from CO 2 reductions are “very likel y” underestimates. One of the primary reasons is that models us ed to calculate SCC values do not include information about impacts that have not been quantified.

In addition, these monetized GHG benefits exclude the value of reductions in
non-CO 2 GHG emissions (HFC, CH 4 , N 2 O) expected under this final rule. Although EPA has not monetized the bene fits of reductions in non-CO 2 GHGs, the value of these reductions should not be inte rpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benef its, as explained in Section III.F. The SCC TSD notes the difference between the social cost of non-CO 2 emissions and SCC and specifies a goal to develop methods to value non-CO 2 emissions in future analyses.782 Table III.H.10-2 Estimated Societal Benefits Associated with the Light-Duty Vehicle GHG Program (Millions of 2007 dollars) Benefits Category 2020 2030 2040 2050 NPV, 3% a NPV, 7% a Reduced CO 2 Emissions at each assumed SCC value b,c

Avg SCC at 5% $900 $2,700 $4,600 $7,200 $34,500 $34,500 Avg SCC at 3% $3,700 $8,900 $14,000 $21,000 $176,700 $176,700 Avg SCC at 2.5% $5,800 $14,000 $21,000 $30,000 $299,600 $299,600 95 th percentile SCC at 3% $11,000 $27,000 $43,000 $62,000 $538,500 $538,500 Criteria Pollutant Benefits d,e,f,g B $1,200- $1,300 $1,200- $1,300 $1,200- $1,300 $21,000 $14,000 Energy Security Impacts (price shock) $2,200 $4,500 $6,000 $7,600 $81,900 $36,900 Reduced Refueling $2,400 $4,800 $6,300 $8,000 $87,900 $40,100 Value of Increased Driving h $4,200 $8,800 $13,000 $18,400 $171,500 $75,500 Accidents, Noise, Congestion -$2,300 -$4,600 -$6,100 -$7,800 -$84,800 -$38,600 Quantified Annual Benefits at each assumed SCC value b,c

Avg SCC at 5% $7,400 $17,500 $25,100 $34,700 $312,000 $162,400 Avg SCC at 3% $10,200 $23,700 $34,500 $48,500 $454,200 $304,600 Avg SCC at 2.5% $12,300 $28,800 $41,500 $57,500 $577,100 $427,500 95 th percentile SCC at 3% $17,500 $41,800 $63,500 $89,500 $816,000 $666,400

a Note that net present value of reduced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for in ternal consistency. Refer to the SCC TSD for more detail. b Monetized GHG benefits exclude the value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benef its, as explained in Section III.F.2. The SCC TSD notes the difference between the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value non-CO 2 emissions in future analyses.
c Section III.H.6 notes that SCC in creases over time. Corresponding to the years in this table, the SCC estimates range as follows: for Average SCC at 5% : $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at 2.5%: $36-$65; and for 95 th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates. d Note that “B” indicates unquantified criteria pollutant benefits in the year 2020. For the final rule, we only modeled the rule’s PM2.5- and ozone-related impacts in the calendar year 2030. For the purposes of estimating a stream of future-year criteria pollutant benefits, we assume that the benefits out to 2050 are equal to, and no less than, those modeled in 2030 as re flected by the stream of estimated future emission reductions. The NPV of criteria pollu tant-related benefits should ther efore be considered a conservative estimate of the potential benefits associated with the final rule.
e The benefits presented in this table include an estimate of PM-related premature mortality derived from Laden et al., 2006, and the ozone-related premature mortality estimate derived from Bell et al., 2004. If the benefit estimates were based on the ACS study of PM -related premature mortality (Pope et al., 2002) and the Levy et al., 2005 study of ozone-related premat ure mortality, the values would be as much as 70% smaller. f The calendar year benefits presented in this table assu me either a 3% discount rate in the valuation of PMrelated premature mortality ($1,300 million) or a 7% discount rate ($1,200 million) to account for a twentyyear segmented cessation lag. Note that the benefits estimated using a 3% discount rate were used to calculate the NPV using a 3% discount rate and the benefits estimated using a 7% discount rate were used783 to calculate the NPV using a 7% discount rate. For be nefits totals presented at each calendar year, we used the mid-point of the criteria pollutant benefits range ($1,250). g Note that the co-pollutant impacts presented here do not include the full complement of endpoints that, if quantified and monetized, would change the total monetized estimate of impacts. The full complement of human health and welfare effects associated with PM and ozone remain unquantified because of current limitations in methods or available data. We have not quantified a number of known or suspected health effects linked with ozone and PM for which appropriate health impact functions are not available or which do not provide easily interpretable outcomes (e.g., ch anges in heart rate variability). Additionally, we are unable to quantify a number of know n welfare effects, including reduce d acid and particulate deposition damage to cultural monuments and other materials, and environmental benefits due to reductions of impacts of eutrophication in coastal areas. h Calculated using pre-tax fuel prices.
Table III.H.10-3 presents estimated annua l net benefits for the indicated calendar years. The table also shows the net present va lues of those net benefits for the calendar years 2012-2050 using both a 3 percent and a 7 pe rcent discount rate. The table includes the benefits of reduced CO 2 emissions (and consequently th e annual net benefits) for each of four SCC values considered by EPA. As noted above, the benefit estimates from CO 2 reductions are “very likely,” according to the IPCC Fourth Assessment Report, underestimates because, in part, models us ed to calculate SCC values do not include information about impacts that have not been quantified.784 Table III.H.10-3 Quantified Net Benefits A ssociated with the Light-Duty Vehicle GHG Program a (Millions of 2007 dollars) 2020 2030 2040 2050 NPV, 3% b NPV, 7% b Quantified Annual Costs -$20,100 -$64,000 -$101,900 -$152,200 -$1,199,700 -$480,700 Quantified Annual Benefits at each assumed SCC value c,d

Avg SCC at 5% $7,400 $17,500 $25,100 $34,700 $312,000 $162,400 Avg SCC at 3% $10,200 $23,700 $34,500 $48,500 $454,200 $304,600 Avg SCC at 2.5% $12,300 $28,800 $41,500 $57,500 $577,100 $427,500 95 th percentile SCC at 3% $17,500 $41,800 $63,500 $89,500 $816,000 $666,400 Quantified Net Benefits at each assumed SCC value c,d

Avg SCC at 5% $27,500 $81,500 $127,000 $186,900 $1,511,700 $643,100 Avg SCC at 3% $30,300 $87,700 $136,400 $200,700 $1,653,900 $785,300 Avg SCC at 2.5% $32,400 $92,800 $143,400 $209,700 $1,776,800 $908,200 95 th percentile SCC at 3% $37,600 $105,800 $165,400 $241,700 $2,015,700 $1,147,100

a Fuel impacts were calculated using pre-tax fuel prices. b Note that net present value of reduced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for in ternal consistency. Refer to the SCC TSD for more detail.
c Monetized GHG benefits exclude the value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benef its, as explained in Section III.F.2. The SCC TSD notes the difference between the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value non-CO 2 emissions in future analyses. d Section III.H.6 notes that SCC increases over time. Corresponding to the years in this table, the SCC estimates range as follows: for Average SCC at 5% : $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at 2.5%: $36-$65; and for 95 th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.
EPA also conducted a separate analysis of the total benefits over the model year lifetimes of the 2012 through 2016 m odel year vehicles. In cont rast to the calendar year analysis presented in Table III.H.10-1 through Table III.H.10-3, the model year lifetime analysis shows the lifetime impacts of the program on each of these MY fleets over the course of its lifetime. Full details of the inputs to this analysis can be found in RIA Chapter 5. The societal benefits of the full life of each of the five model years from 2012 through 2016 are shown in Tables III.H.10-4 and III.H.10-5 at both a 3 percent and a 7 percent discount rate, respectiv ely. The net benefits are shown in Tables III.H.10-6 and785 III.H.10-7 for both a 3 percent and a 7 percent discount rate. Note that the quantified annual benefits shown in Table III.H.10-4 and Table III.H.10-5 include fuel savings as a positive benefit. As such, the quantified a nnual 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 each of the Tables III.H.10-4 through Table III.H.10-7 include the benefits of reduced CO 2 emissions—and consequently the tota l benefits—for each of four SCC values considered by EPA. As noted above, the benefit estimates from CO 2 reductions are “very likely,” according to the IPCC Fourth Assessment Report, underestimates because, in part, models used to calculate SCC values do not include information about impacts that have not been quantified.

Table III.H.10-4 Estimated Societal Benefits Associated with the Lifetimes of 2012-2016 Model Year Vehicles (Millions of 2007 dollars; 3% Discount Rate) Monetized Values (millions) 2012MY 2013MY 2014MY 2015MY 2016MY Sum Cost of Noise, Accident, Congestion ($) -$1,100 -$1,600 -$2,100 -$2,900 -$3,900 -$11,600 Pretax Fuel Savings ($) $16,100 $23,900 $32,200 $46,000 $63,500 $181,800 Energy Security (price shock) ($) a $900 $1,400 $1,800 $2,500 $3,500 $10,100 Value of Reduced Refueling time ($) $1,100 $1,600 $2,100 $3,000 $4,000 $11,900 Value of Additional Driving ($) $2,400 $3,400 $4,400 $6,000 $7,900 $24,000 Value of PM 2.5 -related Health Impacts ($) b,c,d $700 $900 $1,300 $1,800 $2,400 $7,000 Reduced CO 2 Emissions at each assumed SCC value e,f,g

Avg SCC at 5% $400 $500 $700 $1,000 $1,300 $3,800 Avg SCC at 3% $1,700 $2,400 $3,100 $4,400 $5,900 $17,000 Avg SCC at 2.5% $2,700 $3,900 $5,200 $7,200 $9,700 $29,000 95 th percentile SCC at 3% $5,100 $7,300 $9,600 $13,000 $18,000 $53,000 Total Benefits at each assumed SCC value e,f,g

Avg SCC at 5% $20,500 $30,100 $40,400 $57,400 $78,700 $227,000 Avg SCC at 3% $21,800 $32,000 $42,800 $60,800 $83,300 $240,200 Avg SCC at 2.5% $22,800 $33,500 $44,900 $63,600 $87,100 $252,200 95 th percentile SCC at 3% $25,200 $36,900 $49,300 $69,400 $95,400 $276,200

a Note that, due to a calculation error in the proposal, the energy security impacts for the model year analysis were roughly half what they should have been. b Note that the co-pollutant impacts associated with the standards presented here do not include the full complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-related impacts. Inst ead, the co-pollutant benefits are based on benefit-per-ton values that reflect only human health impacts associated with reductions in PM2.5 exposure. Ideally, human health and environmental benefits would be based on changes in ambient PM2.5 and ozone as determined by full-786 scale air quality modeling. However, EPA was unable to conduct a full-scale air quality modeling analysis associated with the vehicle model year lifetimes for the final rule.
c The PM2.5-related benefits (derived from benefit-per-ton values) presented in this table are based on an estimate of premature mortality derived from the ACS study (Pope et al., 2002). If the benefit-per-ton estimates were based on the Six Cities study (Laden et al., 2006), the values would be approximately 145% (nearly two-and-a-half times) larger. d The PM2.5-related benefits (derived from benefit- per-ton values) presented in this table assume a 3% discount rate in the valuation of premature mortality to account for a twenty-year segmented cessation lag. If a 7% discount rate had been used, the va lues would be approximately 9% lower.
e Note that net present value of reduced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for in ternal consistency. Refer to the SCC TSD for more detail. f Monetized GHG benefits exclude the value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benef its, as explained in Section III.F.2. The SCC TSD notes the difference between the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value non-CO 2 emissions in future analyses. g Section III.H.6 notes that SCC increases over time. Corresponding to the years in this table, the SCC estimates range as follows: for Average SCC at 5% : $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at 2.5%: $36-$65; and for 95 th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.

Table III.H.10-5 Estimated So cietal Benefits Associated with the Lifetimes of 2012- 2016 Model Year Vehicles (Millions of 2007 dollars; 7% Discount Rate) Monetized Values (millions) 2012MY 2013MY 2014MY 2015MY 2016MY Sum Cost of Noise, Accident, Congestion ($) -$900 -$1,200 -$1,600 -$2,300 -$3,100 -$9,200 Pretax Fuel Savings ($) $12,500 $18,600 $25,100 $36,000 $49,600 $141,900 Energy Security (price shock) ($) a $800 $1,100 $1,400 $2,000 $2,700 $8,000 Value of Reduced Refueling time ($) $900 $1,300 $1,700 $2,400 $3,200 $9,400 Value of Additional Driving ($) $1,900 $2,700 $3,500 $4,700 $6,200 $19,000 Value of PM 2.5 -related Health Impacts ($) b,c,d $500 $800 $1,000 $1,400 $1,900 $5,600 Reduced CO 2 Emissions at each assumed SCC value e,f,g

Avg SCC at 5% $400 $500 $700 $1,000 $1,300 $3,800 Avg SCC at 3% $1,700 $2,400 $3,100 $4,400 $5,900 $17,000 Avg SCC at 2.5% $2,700 $3,900 $5,200 $7,200 $9,700 $29,000 95 th percentile SCC at 3% $5,100 $7,300 $9,600 $13,000 $18,000 $53,000 Total Benefits at each assumed SCC value e,f,g

Avg SCC at 5% $16,100 $23,800 $31,800 $45,200 $61,800 $178,500 Avg SCC at 3% $17,400 $25,700 $34,200 $48,600 $66,400 $191,700 Avg SCC at 2.5% $18,400 $27,200 $36,300 $51,400 $70,200 $203,700 95 th percentile SCC at 3% $20,800 $30,600 $40,700 $57,200 $78,500 $227,700

a Note that, due to a calculation error in the proposal, the energy security impacts for the model year analysis were roughly half what they should have been. b Note that the co-pollutant impacts associated with the standards presented here do not include the full complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-related impacts. Inst ead, the co-pollutant benefits are based on benefit-per-ton values that reflect only human health impacts associated with reductions in PM2.5 exposure. Ideally, human health and environmental benefits would be based on changes in ambient PM2.5 and ozone as determined by full-787 scale air quality modeling. However, EPA was unable to conduct a full-scale air quality modeling analysis associated with the vehicle model year lifetimes for the final rule.
c The PM2.5-related benefits (derived from benefit-per-ton values) presented in this table are based on an estimate of premature mortality derived from the ACS study (Pope et al., 2002). If the benefit-per-ton estimates were based on the Six Cities study (Laden et al., 2006), the values would be approximately 145% (nearly two-and-a-half times) larger. d The PM2.5-related benefits (derived from benefit- per-ton values) presented in this table assume a 3% discount rate in the valuation of premature mortality to account for a twenty-year segmented cessation lag. If a 7% discount rate had been used, the va lues would be approximately 9% lower.
e Note that net present value of reduced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for in ternal consistency. Refer to the SCC TSD for more detail. f Monetized GHG benefits exclude the value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benef its, as explained in Section III.F.2. The SCC TSD notes the difference between the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value non-CO 2 emissions in future analyses. g Section III.H.6 notes that SCC increases over time. Corresponding to the years in this table, the SCC estimates range as follows: for Average SCC at 5% : $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at 2.5%: $36-$65; and for 95 th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.

Table III.H.10-6 Quantified Net Benefits Associated with th e Lifetimes of 2012-2016 Model Year Vehicles (Millions of 2007 dollars; 3% Discount Rate) Monetized Values (millions) 2012MY 2013MY 2014MY 2015MY 2016MY Sum Quantified Annual Costs (excluding fuel savings) a $4,900 $8,000 $10,300 $12,700 $15,600 $51,500 Quantified Annual Benefits at each assumed SCC value b,c,d

Avg SCC at 5% $20,500 $30,100 $40,400 $57,400 $78,700 $227,000 Avg SCC at 3% $21,800 $32,000 $42,800 $60,800 $83,300 $240,200 Avg SCC at 2.5% $22,800 $33,500 $44,900 $63,600 $87,100 $252,200 95 th percentile SCC at 3% $25,200 $36,900 $49,300 $69,400 $95,400 $276,200 Quantified Net Benefits at each assumed SCC value b,c,d

Avg SCC at 5% $15,600 $22,100 $30,100 $44,700 $63,100 $175,500 Avg SCC at 3% $16,900 $24,000 $32,500 $48,100 $67,700 $188,700 Avg SCC at 2.5% $17,900 $25,500 $34,600 $50,900 $71,500 $200,700 95 th percentile SCC at 3% $20,300 $28,900 $39,000 $56,700 $79,800 $224,700

a Quantified annual costs as shown here are the increased costs for new vehicles in each given model year. Since those costs are assumed to occur in the given mode l year (i.e., not over a se veral year time span), the discount rate does no t affect the costs. b Note that net present value of reduced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for in ternal consistency. Refer to the SCC TSD for more detail.
c Monetized GHG benefits exclude the value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benef its, as explained in Section III.F.2. The SCC TSD notes the difference between the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value non-CO 2 emissions in future analyses.788 d Section III.H.6 notes that SCC increases over time. Corresponding to the years in this table, the SCC estimates range as follows: for Average SCC at 5% : $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at 2.5%: $36-$65; and for 95 th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.

Table III.H.10-7 Quantified Net Benefits Associated with th e Lifetimes of 2012-2016 Model Year Vehicles (Millions of 2007 dollars; 7% Discount Rate) Monetized Values (millions) 2012MY 2013MY 2014MY 2015MY 2016MY Sum Quantified Annual Costs (excluding fuel savings) a $4,900 $8,000 $10,300 $12,700 $15,600 $51,500 Quantified Annual Benefits at each assumed SCC value b,c,d

Avg SCC at 5% $16,100 $23,800 $31,800 $45,200 $61,800 $178,500 Avg SCC at 3% $17,400 $25,700 $34,200 $48,600 $66,400 $191,700 Avg SCC at 2.5% $18,400 $27,200 $36,300 $51,400 $70,200 $203,700 95 th percentile SCC at 3% $20,800 $30,600 $40,700 $57,200 $78,500 $227,700 Quantified Net Benefits at each assumed SCC value b,c,d

Avg SCC at 5% $11,200 $15,800 $21,500 $32,500 $46,200 $127,000 Avg SCC at 3% $12,500 $17,700 $23,900 $35,900 $50,800 $140,200 Avg SCC at 2.5% $13,500 $19,200 $26,000 $38,700 $54,600 $152,200 95 th percentile SCC at 3% $15,900 $22,600 $30,400 $44,500 $62,900 $176,200

a Quantified annual costs as shown here are the increased costs for new vehicles in each given model year. Since those costs are assumed to occur in the given mode l year (i.e., not over a se veral year time span), the discount rate does no t affect the costs. b Note that net present value of reduced GHG emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5, 3, 2.5 percent) is used to calculate net present value of SCC for in ternal consistency. Refer to the SCC TSD for more detail.
c Monetized GHG benefits exclude the value of reductions in non-CO 2 GHG emissions (HFC, CH 4 and N 2 O) expected under this final rule. Although EPA has not monetized the benefits of reductions in these non-CO 2 emissions, the value of these reductions should not be interpreted as zero. Rather, the reductions in non-CO 2 GHGs will contribute to this rule’s climate benef its, as explained in Section III.F.2. The SCC TSD notes the difference between the social cost of non-CO 2 emissions and CO 2 emissions, and specifies a goal to develop methods to value non-CO 2 emissions in future analyses. d Section III.H.6 notes that SCC incr eases over time. Corresponding to the years in this table, the SCC estimates range as follows: for Average SCC at 5% : $5-$16; for Average SCC at 3%: $21-$45; for Average SCC at 2.5%: $36-$65; and for 95 th percentile SCC at 3%: $65-$136. Section III.H.6 also presents these SCC estimates.
I. Statutory and Executive Order Reviews

1. Executive Order 12866: Regul atory Planning and Review

Under section 3(f)(1) of Executive Or der (EO) 12866 (58 FR 51735, October 4, 1993), this action is an "economically significan t regulatory action” because it is likely to789 have an annual effect on the economy of $100 million or more. Accordingly, EPA submitted this action to the Office of Mana gement and Budget (OMB) for review under EO 12866 and any changes made in respons e to OMB recommendations have been documented in the docket for this action.

In addition, EPA prepared an analys is of the potential costs and benefits associated with this action. This analysis is contained in the Final Regulatory Impact Analysis, which is available in the docket fo r this rulemaking and at the docket internet address listed under ADDRESSES above.

2. Paperwork Reduction Act

The information collection requirements in th is final rule have been submitted for approval to the Office of Management and Budget (OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq., and has been assigned OMB control number 0783.57. The information collection requi rements are not enforceable until OMB approves them.

The Agency is finalizing requirements fo r manufacturers to submit information to ensure compliance with the provisions in this rule. This includes a variety of requirements for vehicle manufacturers. Sectio n 208(a) of the Clean Air Act requires that vehicle manufacturers provide information th e Administrator may reasonably require to determine compliance with the regulations; su bmission of the information is therefore790 mandatory. We will consider confidential al l information meeting the requirements of section 208(c) of the Clean Air Act.

As shown in Table III.I.2-1, the total a nnual burden associated with this rule is about 39,900 hours and $5 million, based on a projection of 33 respondents. The estimated burden for vehicle manufacturer s is a total estimate for new reporting requirements. Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, or di sclose or provide info rmation to or for a Federal agency. This includes the time needed to review instructions; develop, acquire, install, and utilize technology and systems for the purposes of collecting, validating, and verifying information, processing and main taining information, and disclosing and providing information; adjust th e existing ways to comply with any previously applicable instructions and requirements; train personnel to be able to respond to a collection of information; search data sources; complete and review the collection of information; and transmit or otherwise disclose the information.

Table III.I.2-1 Estimated Burden for Re porting and Recordkeeping Requirements Number of respondents Annual burden hours Annual costs 33 39,940 $5,001,000

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9. In addition, EPA is amending the table in 40 CFR part 9 of currently approved OMB control791 numbers for various regulations to list th e regulatory citations for the information requirements contained in this final rule.

3. Regulatory Flexibility Act

a. Overview

The Regulatory Flexibility Act (RFA) gene rally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Proce dure Act or any other statute unless the agency certifies that the rule will not have a significant ec onomic impact on a substantial number of small entities directly subject to the rule. Small entities include small businesses, small organizations, a nd 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, school district or special district with a population of less than 50,000; and (3) a sma ll organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.

Table III.I.3-1 provides an overview of the primary SBA small business categories included in the light-duty vehicle sector:792 Table III.I.3-1 Primary SBA Small Busine ss Categories in the Light-Duty Vehicle Sector Industry a Defined as small entity by SBA if less

than or equal to: NAICS Codes b

Light-duty vehicles: - vehicle manufacturers ( including small volume manufacturers ) - independent comme rcial importers

- alternative fuel vehicle converters 1,000 employees

$7 million annual sales $23 million annual sales 100 employees
50 employees 750 employees 1,000 employees $7 million annual sales 336111

811111, 811112, 811198 441120 423110, 424990 336312, 336322, 336399 335312 454312, 485310, 811198
Notes:
a Light-duty vehicle entities that qualify as small busine sses would not be subject to this rule. We are exempting small vehicle entities, and we intend to address these entities in a future rule. b North American Industri al Classification System
b. Summary of Potentially Affected Small Entities

EPA has not conducted a Regulatory Flex ibility Analysis or a SBREFA SBAR Panel for the rule because we are certifying that the rule would not have a significant economic impact on a substantial number of sma ll entities directly subj ect to the rule. As proposed, EPA is exempting manufacturers meeting SBA’s business size criteria for small business as provided in 13 CFR 121.201, due to the short lead time to develop this rule, the extremely small emissions contributi on of these entities, a nd the potential need to develop a program that woul d be structured differently fo r them (which would require more time). EPA would instead consider appr opriate GHG standards for these entities as part of a future regulatory action. This in cludes U.S. and foreign small entities in three793 distinct categories of busi nesses for light-duty vehicles : small volume manufacturers (SVMs), independent commercial importers (ICIs), and alternative fuel vehicle converters. EPA has identified a total of about 47 vehicle businesses; about 13 entities (or 28 percent) fit the Small Business Administ ration (SBA) criteria of a small business. There are about 2 SVMs, 8 ICIs , and 3 alternative fuel vehi cle converters in the lightduty vehicle market which are small businesse s (no major vehicle manufacturers meet the small-entity criteria as defined by SBA). EPA estimates that these small entities comprise about 0.03 percent of the total light-d uty vehicle sales in the U.S., and therefore the exemption will have a ne gligible impact on the GHG emissions reductions from the standards.

To ensure that EPA is aware of which companies would be exempt, EPA proposed to require that such entities subm it 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. EPA has reconsidered the need for this additional submission under the regulations and is deletin g it as not necessary. We already have information on the limited number of small entities that we expect would receive the benefits of the exemption, and do not need the proposed regulatory requirement to be able to effectively implement this exemption for those parties who in fact meet its terms. Small entities are currently covered by a number of EPA motor vehicle emission regulations, and they routinely submit informati on and data on an annual basis as part of their compliance responsibilities. Based on th is, EPA is certifying that the rule would not have a significant economic impact on a s ubstantial number of small entities.794 c. Conclusions

I therefore certify that this rule will not have a significant economic impact on a substantial number of small en tities. However, EPA recognizes that some small entities continue to be concerned about the potential impacts of the stat utory imposition of PSD requirements that may occur given the various EPA rulemakings currently under consideration concerning greenhouse gas emi ssions. As explained in the preamble for the proposed PSD tailoring rule (74 FR 55292, Oct. 27, 2009), EPA used the discretion afforded to it under section 609(c) of the RF A to consult with OMB and SBA, with input from outreach to small entities, regardi ng the potential impacts of PSD regulatory requirements that might occur as EPA consid ers regulations of GH Gs. Concerns about the potential impacts of statutorily imposed PSD requirements on small entities were the subject of deliberations in that consultation and outreach. EPA has compiled a summary of that consultation and outreach, which is av ailable in the docket for the Tailoring Rule (EPA-HQ-OAR-2009-0517).

4. Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Refo rm Act of 1995 (UMRA), 2 U.S.C. 1531- 1538, requires Federal agencies, unless otherwis e prohibited by law, to assess the effects of their regulatory actions on State, local, and tribal govern ments and the private sector. Under section 202 of the UMRA, EPA genera lly must prepare a written statement,795 including a cost-benef it analysis, for proposed and final rules with "Federal mandates" that may result in expenditures to State, local, and tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year.

This rule is not subject to the requirements of section 203 of UMRA because it contains no regulatory require ments that might significantly or uniquely affect small governments. This rule contains no Federal mandates (under the regu latory provisions of Title II of the UMRA) for State, local, or tribal governments. The rule imposes no enforceable duty on any State, lo cal or tribal governments. EPA has determined that this rule contains no regulatory requirements that might significantly or uniquely affect small governments. EPA has determined that this rule 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 action repr esents the least costly, most cost-effective approach to achieve the statutory requirements of the rule. The costs and benefits associated with the rule are discussed above and in the Final Re gulatory Impact Analys is, as required by the
UMRA.

5. Executive Order 13132 (Federalism)

This action does not have federalism imp lications. It will not have substantial direct effects on the States, on the relations hip between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Or der 13132. This rulemaking applies to796 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 consu lt with representatives of state governments in developing this action.

In the spirit of Executive Order 13132, and consistent with EPA policy to promote communications between EPA and State a nd local governments, EPA specifically solicited comment on the proposed action from St ate and local official s. Many state and local governments submitted public comments on the rule, the majority of which were supportive of the EPA’s greenhouse gas progr am. However, these entities did not provide comments indicating there would be a su bstantial direct effect on state or local governments resulting from this rule.

6. Executive Order 13175 (Consultation a nd Coordination with Indian Tribal Governments)

This action does not have tribal impli cations, as specified in Executive Order 13175 (65 FR 67249, November 9, 2000)

. This rule will be implemented at the Federal level and impose compliance costs only on ve hicle manufacturers. Tribal governments will be affected only to the extent they purchase and use regulated vehicles. Thus, Executive Order 13175 does not apply to this action.797 7. Executive Order 13045: “Protection of Children from Environmental Health Risks and Safety Risks”

This action is subject to EO 13045 (62 FR 19885, April 23, 1997) because it is an economically significant regul atory action as defined by EO 12866, and EPA believes that the environmental health or safety risk addressed by this action may have a disproportionate effect on children. A synt hesis of the science a nd research regarding how climate change may affect children and other vulnerable subpopulations is contained in the Technical Support Document for E ndangerment or Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act, which can be found in the public docket for this rule. 502 A summary of the analys is is presented below.

With respect to GHG emissions, the effect s of climate change observed to date and projected to occur in the future include the increased likelihood of more frequent and intense heat waves. Specifically, EPA’s analysis of the scientific assessment literature has determined that severe heat waves are projec ted to intensify in magnitude, frequency, and duration over the portions of the U.S. where these events already occur, with potential increases in mortality and morbidity, especia lly among the young, elderly, and frail. EPA has estimated reductions in projected global mean surface temperatures as a result of reductions in GHG emissions associated with the standards finalized in this action (Section III.F). Children ma y receive benefits from reductions in GHG emissions

502 U.S. EPA. (2009). Technical Support Document for Endangerment or Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act. Washington, D.C.: U.S. EPA.. Docket EPAHQ-OAR-2009-0472-11292798 because they are included in the segment of the population that is most vulnerable to extreme temperatures.

For non-GHG pollutants, EPA has determined that climate change is expected to increase regional ozone pollution, with asso ciated risks in respiratory infection, aggravation of asthma, and premature death. The directional effect of climate change on ambient PM levels remains uncertain. However, disturbances such as wildfires are increasing in the U.S. and are likely to intens ify in a warmer future with drier soils and longer growing seasons. PM emissions from fo rest fires can contribute to acute and chronic illnesses of the respiratory system, pa rticularly in children, including pneumonia, upper respiratory diseases, asthma and ch ronic obstructive pulmonary diseases.

8. Executive Order 13211 (Energy Effects)

This rule is not a “significant energy action” as defined in Executive Order 13211, “Actions Concerning Regulations That 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 finalized today result in significant fuel sa vings, this rule encourages mo re 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.799 9. National Technology Transfer Advancement Act

Section 12(d) of the Na tional 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 regulat ory activities unless to do so would be inconsistent with applicable law or otherw ise impractical. Voluntary consensus standards are technical standards (e.g., materials speci fications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. NTTAA directs EPA to provide Congr ess, through OMB, explanations when the Agency decides not to use available and a pplicable voluntary consensus standards.

The rulemaking involves technical standa rds. Therefore, the Agency conducted a search to identify potentially applicable voluntary consensus standards. For CO 2 , N 2 O, and CH 4 emissions, we identified no such sta ndards, and none were brought to our attention in comments. Therefore, EPA is collecting data over the same test cycles that are used for the CAFE program following standardized test methods and sampling procedures. This will minimize the amount of testing done by manufacturers, since manufacturers are already re quired to run these tests. For A/C system leakage improvement credits, EPA identified a So ciety of Automotive Engineers (SAE) methodology and EPA’s approach is based cl osely on this SAE methodology. For the A/C system efficiency improvement credits, including the new idle test, EPA generally uses standardized test methods and sampli ng procedures. However, EPA knows of no800 consensus standard available for an A/C id le test to measure system efficiency improvements.

10. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations

Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes federal executive policy on environmental justice. It s main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressi ng, as appropriate, di sproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States.

With respect to GHG emissions, EPA has dete rmined that this final rule will not have disproportionately high and adverse hum an health or environmental effects on minority or low-income populations because it increases the level of environmental protection for all affected populations wit hout having any disproportionately high and adverse human health or environmental eff ects on any population, including any minority or low-income population. The reductions in CO 2 and other GHGs associated with the standards will affect climate change projec tions, and EPA has estimated reductions in projected global mean surface temperatures (Section III.F.3). Within communities experiencing climate change, certain pa rts of the population may be especially vulnerable; these include the poor , the elderly, thos e already in poor health, the disabled,801 those living alone, and/or i ndigenous populations dependent on one or a few resources.

503 In addition, the U.S. Climate Change Science Program 504 stated as one of its conclusions: “The United States is certainly capable of adapting to the collective impacts of climate change. However, there will stil l be certain individuals and locations where the adaptive capacity is less and these i ndividuals and their communities will be disproportionally impacted by climate cha nge.” Therefore, these specific subpopulations 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 whet her there would be disp roportionately high and adverse human health or environmental effects on minority and/or low income populations from this final rule.

11. Congressional Review Act

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgati ng the rule must submit a rule report, which includes a copy of the rule, to each House of the Congr ess and to the Comptroller General of the United States. EPA will submit a report containing this rule and other

503 U.S. EPA. (2009). Technical Support Document for Endangerment or Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act. Washington, D.C.: U.S. EPA. Docket EPAHQ-OAR-2009-0472-11292 504 CCSP (2008) Analyses of the effects of global change on human health and welfare and human systems

. A Report by the U.S. Climate Change Science Program and the Subcommittee on Global Change Research. [Gamble, J.L. (ed.), K.L. Ebi, F.G. Sussman, T.J. Wilbanks, (Authors)]. U.S. Environmental Protection Agency, Washington, DC, USA.802 required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prio r to publication of the rule in the Federal Register. A Major rule cannot ta ke effect until 60 days after it is published in the Federal Register. This action is a “major rule” as defined by 5 U.S.C. 804(2). This rule will be effective [Insert date 60 days after public ation in the Federal Register], sixty days after date of publication in the Federal Register

.

J. Statutory Provisions and Legal Authority

Statutory authority for the ve hicle controls finalized toda y is found in section 202 (a) (which authorizes standards for emissions of pollutants from new motor vehicles which emissions cause or contribute to air polluti on which may reasonably be anticipated to endanger public health or welfare), 202 (d ), 203-209, 216, and 301 of the Clean Air Act, 42 U.S.C. 7521 (a), 7521 (d), 7522, 7523, 7524, 7525, 7541, 7542, 7543, 7550, and 7601.

IV. NHTSA Final Rule and Record of Decision for Passenger Car and Light Truck CAFE Standards for MYs 2012-2016

A. Executive Overview of NHTSA Final Rule

1. Introduction

The National Highway Traffic Safety Ad ministration (NHTSA) is establishing Corporate Average Fuel Economy (CAFE) standards for passenger automobiles803 (passenger cars) and nonpassenger automobile s (light trucks) for model years (MY) 2012-2016. Improving vehicle fuel economy has been long and widely recognized as one of the key ways of achieving energy inde pendence, energy security, and a low carbon
economy. 505 NHTSA’s CAFE standards will require passenger cars and light trucks to meet an estimated combined average of 34. 1 mpg in MY 2016. This represents an average annual increase of 4.3 percent from the 27.6 mpg combined fuel economy level in MY 2011. NHTSA’s final rule projects tota l fuel savings of a pproximately 61 billion gallons over the lifetimes of the vehi cles sold in mode l years 2012-2016, with corresponding net societal benefits of over $180 billion using a 3 percent discount rate. 506

505 Among the reports and studies noting this point are the following: John Podesta, Todd Stern and Kim Batten, “Capturing the Energy Opportunity; Creating a Low-Carbon Economy,” Center for American Progress (Novembe r 2007), pp. 2, 6, 8, and 24-29, available at : http://www.americanprogress .org/issues/2007/11/pdf/en ergy_chapter.pdf (last accessed March 1, 2010). Sarah Ladislaw, Kathryn Zyla, Jonathan Pershing, Frank Verrastro, Jenna Goodward, David Pumphrey, and Britt Staley, “A Roadmap for a Secure, Low-Carbon Energy Economy; Balancing Energy Security and Climate Change,” World Resources Institute and Center for Strategic and International Studies (January 2009), pp. 21-22; available at : http://pdf.wri.org/secure_low_carbon_energy_economy_roadmap.pdf (last accessed March 1, 2010). Alliance to Save Energy et al., “Reducing the Cost of Addressing Climate Change Through Energy Efficiency (2009), available at : http://Aceee.org/energy/climate/leg.ht m (last accessed March 1, 2010). John DeCicco and Freda Fung, “Global Warming on the Road; The Climate Impact of America’s Automobiles,” Environmental Defense (2006) pp. iv-vii; available at : http://www.edf.org/documents/5301_Globalwarmingo ntheroad.pdf (last accessed March 1, 2010). “Why is Fuel Economy Important?,” a webpage maintained by the Department of Energy and Environmental Protection Agency, available at http://www.fueleconomy.gov/fe g/why.shtml (last accessed March 1, 2010); Robert Socolow, Roberta Hotinski, Jeffery B. Gree nblatt, and Stephen Pacala, “Solving The Climate Problem: Technologies Available to Curb CO 2 Emissions,” Environment , volume 46, no. 10, 2004. pages 8–19, available at : http://www.princeton.edu/m ae/people/faculty/socolo w/ENVIRONMENTDec2004iss ue.pdf (last accessed March 1, 2010). 506 This value is based on what NHTSA refers to as “Reference Case” inputs, which are based on the assumptions that NHTSA has employed for its main anal ysis (as opposed to sensitivity analyses to examine the effect of variations in the assumptions on costs and benefits). The Reference Case inputs include fuel prices based on the AEO 2010 Reference Case, a 3 percent discount rate, a 10 percent rebound effect, a value for the social cost of carbon (SCC) of $21/metric ton CO 2 (in 2010, rising to $45/metric ton in 2050, at a 3 percent discount rate), etc. For a full listi ng of the Reference Case input assumptions, see Section IV.C.3 below.804 The significance accorded to improving fuel economy reflects several factors. Conserving energy, especial ly reducing the nation’s dependence on petroleum, benefits the U.S. in severa l ways. Improving energy efficiency has benefits for economic growth and the envir onment, as well as other benefits, such as reducing pollution and improving security of energy supply. More specifically, reducing total petroleum use decreases our economy’s vulnerability to oil price shocks. Reducing dependence on oil im ports from regions with uncertain conditions enhances our energy security . Additionally, the emission of CO 2 from the tailpipes of cars and light trucks is one of the largest sources of U.S. CO 2 emissions. 507 Using vehicle technology to improve fuel economy, thereby reducing tailpipe emissions of CO 2 , is one of the three main measures of reducing those tailpipe emissions of CO 2 . 508 The two other measures for reducing the tailpipe emissions of CO 2 are switching to vehicle fuels with lower carbon content and changing driver behavior, i.e ., inducing people to drive less.

While NHTSA has been setting fuel ec onomy standards since the 1970s, today’s action represents the first-ever joint fina l rule by NHTSA with another agency, the Environmental Protection Agency. As disc ussed in Section I, NHTSA’s final MYs 2012- 2016 CAFE standards are part of a joint National Program. A large majority of the projected benefits are achieved jointly with EPA’s GHG rule, de scribed in detail above in

507 EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990 – 2006 (April 2008), pp. ES-4, ES8, and 2-24. Available at http://www.epa.gov/climatechange/emi ssions/usgginv_archive.html (last accessed March 1, 2010). 508 Podesta et al., p. 25; Ladislaw et al. p. 21; DeCi cco et al. p. vii; “Reduce Climate Change,” a webpage maintained by the Department of Energy and Environmental Protection Agency at http://www.fueleconomy.gov/feg/climate. shtml (last accessed March 1, 2010).805 Section III of this preamble. These final CAFE standards are consistent with the President’s National Fuel Efficiency Polic y announcement of May 19, 2009, which called for harmonized rules for all automakers, in stead of three overla pping and potentially inconsistent requirements from DOT, EPA, a nd the California Air Resources Board. And finally, the final CAFE standards and the analysis supporting them also respond to President’s Obama’s January 26 memorandum re garding the setting of CAFE standards for model years 2011 and beyond.

2. Role of Fuel Economy Improvements in Promoting Energy Independence, Energy Security, and a Low Carbon Economy

The need to reduce energy consumption is more crucial today than it was when EPCA was enacted in the mid-1970s. U.S. energy consumption has been outstripping U.S. energy production at an increasing rate . Net petroleum imports now account for approximately 57 percent of U.S. domestic pe troleum consumption, and the share of U.S. oil consumption for transportati on is approximately 71 percent. 509 Moreover, world crude oil production continues to be highly c oncentrated, exacerbating the risks of supply disruptions and their negative effects on both the U.S. and global economies.

Gasoline consumption in the U.S. has historically been relatively insensitive to fluctuations in both price and consumer inco me, and people in most parts of the country tend to view gasoline consumption as a non-discretionary expense. Thus, when

509 Energy Information Administration, Petroleum Basic Statistics, updated July 2009. Available at http://www.eia.doe.g ov/basics/quickoil.html (last accessed March 1, 2010).806 gasoline’s share in consumer expenditures rise s, the public experiences fiscal distress. This fiscal distress can, in some cases, have macroeconomic consequences for the economy at large. Additionally, since U.S. oil production is only aff ected by fluctuations in prices over a period of years, any ch anges in petroleum consumption (as through increased fuel economy) largely flow into changes in the quantity of imports. Since petroleum imports account for about 2 percent of GDP, increase in oil imports can create a discernable fiscal drag. As a conse quence, measures that reduce petroleumconsumption, such as fuel economy standards, will directly benefit the balance-ofpayments account, and strengthen the domestic economy to some degree. And finally, U.S. foreign policy has been affected for d ecades by rising U.S. and world dependency of crude oil as the basis for modern tran sportation systems, although fuel economy standards have only an indirect and ge neral impact on U.S. foreign policy.

The benefits of a low carbon economy are manifold. The U.S. transportation sector is a significant contri butor to total U.S. and globa l anthropogenic emissions of greenhouse gases. Motor vehicles are the second largest greenhouse gas-emitting sector in the U.S., after electricity generation, and accounted for 24 percent of total U.S. greenhouse gas emissions in 2006. Concen trations of greenhouse gases are at unprecedented levels compared to the recent and distant past, which means that fuel economy improvements to reduce those emissions are a crucial step toward addressing the risks of global climate change. These risk s are well documented in Section III of this notice.807 3. The National Program

NHTSA and EPA are each announcing fina l rules that have the effect of addressing the urgent and cl osely intertwined challenges of energy independence and security and global warming. These final ru les call for a strong and coordinated federal greenhouse gas and fuel economy program fo r passenger cars, light-duty-trucks, and medium-duty passenger vehicles (hereafter lig ht-duty vehicles), referred to as the National Program. The final rules represen t a coordinated program that can achieve substantial reductions of greenhouse gas ( GHG) emissions and improvements in fuel economy from the light-duty ve hicle part of the trans portation sector, based on technology that will be commercially available and th at can be incorporated at a reasonable cost in the rulemaking timeframe. The agencies’ final rules will also provide regulatory certainty and consis tency for the automobile i ndustry by setting harmonized national standards. They we re developed and are designed in ways that recognize and accommodate the relatively short amount of l ead time for the model years covered by the rulemaking and the serious current economi c situation faced by this industry.

These joint standards are consistent with the President’s announcement on May 19, 2009 of a National Fuel Efficiency Polic y that will reduce gr eenhouse gas emissions and improve fuel economy for all new cars and light-duty trucks sold in the United States, 510 and with the Notice of Upcoming Joint Rulemaking signed by DOT and EPA

510 President Obama Announces Natio nal Fuel Efficiency Policy, Th e White House, May 19, 2009. Available at http://www.whitehouse.gov/the_press_office/ President-Obama-Anno unces-National-FuelEfficiency-Policy/ (last accessed March 15, 2010).808 on that date. 511 This joint final rule also res ponds to the President’s January 26, 2009 memorandum on CAFE standards for model y ears 2011 and beyond, the details of which can be found below.

a. Building Blocks of the National Program

The National Program is both needed and possible because the relationship between improving fuel economy and reducing CO 2 tailpipe emissions is a very direct and close one. CO 2 is the natural by-product of the co mbustion of fuel in motor vehicle engines. The more fuel efficient a vehicle is, the less fuel it burns to travel a given distance. The less fuel it burns, the less CO 2 it emits in traveling that distance. 512 Since the amount of CO 2 emissions is essentially constant per gallon combusted of a given type of fuel, the amount of fuel consumption per m ile is directly relate d to the amount of CO 2 emissions per mile. In the real world, ther e is a single pool of t echnologies for reducing fuel consumption and CO 2 emissions. Using those technologies in the way that minimizes fuel consumption also minimizes CO 2 emissions. While there are emission control technologies that can capture or destroy the po llutants (e.g., carbon monoxide) that are produced by imperfect combustion of fuel, there is at pres ent no such technology for CO 2 . In fact, the only way at present to reduce tailpipe emissions of CO 2 is by reducing fuel consumption. The National Pr ogram thus has dual benefits: it conserves energy by improving fuel economy, as require d of NHTSA by EPCA and EISA; in the

511 74 FR 24007 (May 22, 2009). 512 Panel on Policy Implications of Greenhouse Warming, National Academy of Sciences, National Academy of Engineering, Institute of Medicine, “Po licy Implications of Greenhouse Warming: Mitigation, Adaptation, and the Science Base,” National Academies Press, 1992, at 287.809 process, it necessarily reduces tailpipe CO 2 emissions consonant with EPA’s purposes and responsibilities under the Clean Air Act.

i. DOT’s CAFE Program

In 1975, Congress enacted the Energy Policy and Conservation Act (EPCA), mandating a regulatory program for motor vehi cle fuel economy to meet the various facets of the need to conserve energy, including ones having energy independence and security, environmental and foreign policy implications. EPCA allocates the responsibility for implementing the program between NHTSA and EPA as follows:

• NHTSA sets Corporate Average Fuel Economy (CAFE) standards for passenger cars and light trucks.

• Because fuel economy performance is measured during emissions regulation testing, EPA establishes the procedures for testing, tests vehicles, collects and analyzes manufacturers’ test data, and calculates the averag e fuel economy of each manufacturer’s passenger cars and light trucks. EPA determines fuel economy by measuring the amount of CO 2 emitted from the tailpipe, rather than by attempting to measure directly the am ount of fuel consumed during a vehicle test, a difficult task to accomplish with precision. EPA then uses the carbon content of the test fuel 513 to calculate the am ount of fuel that had to be consumed per mile in order to produce that amount of CO 2. Finally, EPA converts that fuel consumption figure into a miles-per-gallon figure.

513 This is the method that EPA uses to dete rmine compliance with NH TSA’s CAFE standards.810 • Based on EPA’s calculation, NHTSA enforces the CAFE standards

The CAFE standards and compliance testi ng cannot capture all of the real world
CO 2 emissions, because EPCA currently require s EPA to use the 1975 passenger car test procedures under which vehicl e air conditioners are not tu rned on during fuel economy testing. 514 CAFE standards also do not address the 5-8 percent of GHG emissions that
are not CO 2 , i.e., nitrous oxide (N 2 O), and methane (CH 4 ) as well as emissions of hydrofluorocarbons (HFCs) related to ope ration of the air conditioning system.

NHTSA has been setting CAFE standards pursuant to EPCA since the enactment of the statute. Fuel economy gains since 1975, due both to the standards and to market factors, have resulted in saving billions of ba rrels of oil and avoiding billions of metric tons of CO 2 emissions. In December 2007, Congr ess enacted the Energy Independence and Securities Act (EISA), amending EPCA to require, among other things, attributebased standards for passenger cars and light trucks. The most recent CAFE rulemaking action was the issuance of standards govern ing model years 2011 cars and trucks.

ii. EPA’s Greenhouse Gas Program

On April 2, 2007, the U.S. Supreme Court issued its opinion in Massachusetts v.
EPA , 515 a case involving a 2003 order of the E nvironmental Protection Agency (EPA) denying a petition for rulemaking to regul ate greenhouse gas emissions from motor

514 See 49 U.S.C. 32904(c). 515 127 S.Ct. 1438 (2007).811 vehicles under the Clean Air Act. 516 The Court ruled th at greenhouse gases are “pollutants” under the CAA and that the Ac t therefore authori zes EPA to regulate greenhouse gas emissions from motor vehicles if that agency makes the necessary findings and determinations under section 202 of the Act. The Court considered EPCA only briefly, stating that the two obligations may overlap, bu t there is no reason to think the two agencies cannot both administer thei r obligations and yet avoid inconsistency.

EPA has been working on appropriate res ponses that are consistent with the decision of the Supreme Court in Massachusetts v. EPA

. 517 As part of those responses, in July 2008, EPA issued an Advance Noti ce of Proposed Rulemaking seeking comments on the impact of greenhouse gases on the e nvironment and on ways to reduce greenhouse gas emissions from motor vehicles. EPA recen tly also issued a final rule finding that emissions of GHGs from new motor vehicl es and motor vehicle engines cause or contribute to air pollution that en danger public health and welfare. 518

iii. California Air Resources Board’s Greenhouse Gas Program

In 2004, the California Air Resources Bo ard approved standards for new lightduty vehicles, which regulate the emission of not only CO 2 , but also other GHGs. Since then, thirteen states and the District of Co lumbia, comprising approximately 40 percent of

516 68 FR 52922 (Sept. 8, 2003). 517 549 U.S. 497 (2007). For further information on Massachusetts v. EPA see the July 30, 2008 Advance Notice of Proposed Rulemaking, “Regulating Greenhouse Gas Emissions under the Clean Air Act”, 73 FR 44354 at 44397. There is a comprehensive discussion of the litigation’s history, the Supreme Court’s findings, and subsequent actions undertaken by the EPA from 2007-2008 in response to the Supreme Court remand. 518 74 FR 66496 (Dec. 15, 2009).812 the light-duty vehicle market, have adopted California’s standards. These standards apply to model years 2009 through 2016 and require CO 2 emissions levels for passenger cars and some light trucks of 323 g/mil in 2009, decreasing to 205 g/mi in 2016, and 439 g/mi for light trucks in 2009, decreasing to 332 g/mi in 2016. In 2008, EPA denied a request by California for a waiver of pr eemption under the CAA for its GHG emissions standards. However, consistent with anot her Presidential Memorandum of January 26, 2009, EPA reconsidered the prior denial of California’s request. 519 EPA withdrew the prior denial and granted California’s request for a waiver on June 30, 2009. 520 The granting of the waiver permits California’s emission standards to come into effect notwithstanding the general preemption of state emission standards for new motor vehicles that otherwise app lies under the Clean Air Act.

b. The President’s Announcement of Na tional Fuel Efficiency Policy (May 2009)

The issue of three separate regulatory frameworks and overlapping requirements for reducing fuel consumption and CO 2 emissions has been a subject of much controversy and legal disputes. On May 19, 2009 President Obama announced a National Fuel Efficiency Policy aimed at both increasing fuel economy and reducing greenhouse gas pollution for all new cars and truc ks sold in the United States, while also providing a predictable regulat ory framework for the automotive industry. The policy seeks to set harmonized federal standards to regulate both fuel economy and greenhouse

519 74 FR 66495 (Dec. 15, 2009). The endangerment finding was challenged by industry in a filing submitted December 23, 2009; a hearing date does not appear to have been set. 520 74 FR 32744 (July 8, 2009).813 gas emissions while preserving the legal author ities of the Department of Transportation, the Environmental Protection Agency and the State of California. The program covers model year 2012 to model year 2016 and ultimate ly requires the equivalent of an average fuel economy of 35.5 mpg in 2016, if all CO 2 reduction were achieved through fuel economy improvements. Building on the MY 2011 standard that was set in March 2009, this represents an average of 5 percent increase in average fuel economy each year between 2012 and 2016.

In conjunction with the President’s announcement, the Department of Transportation and the Environmental Prot ection Agency issued on May 19, 2009, a Notice of Upcoming Joint Rulemaking to propos e a strong and coordi nated fuel economy and greenhouse gas National Program fo r Model Year (MY) 2012-2016 light duty vehicles. Consistent, harmonized, and str eamlined requirements under that program hold out the promise of delivering environmenta l and energy benefits, cost savings, and administrative efficiencies on a nationwide ba sis that might not be available under a less coordinated approach. The National Program makes it possible for the standards of two different federal agencies and the standards of California and other states to act in a unified fashion in providing these benefits. A harmonized approach to regulating lightduty vehicle greenhouse gas (GHG) emissions and fuel economy is critically important given the interdependent goals of addre ssing climate change and ensuring energy independence and security. Additionally, a harmonized approach may help to mitigate the cost to manufacturers of having to comp ly with multiple sets of federal and state standards814 4. Review of CAFE Standard Se tting Methodology Per the President’s January 26, 2009 Memorandum on CAFE Standards for MYs 2011 and Beyond

On May 2, 2008, NHTSA published a Notice of Proposed Rulemaking entitled Average Fuel Economy Standards, Passenger Cars and Light Truc ks; Model Years 2011- 2015, 73 FR 24352. In mid-October, the ag ency completed and released a final environmental impact statement in anticipati on of issuing standards for those years. Based on its consideration of the public co mments and other available information, including information on the financial conditi on of the automotive industry, the agency adjusted its analysis and th e standards and prepared a final rule for MYs 2011-2015. On November 14, the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget conclude d review of the rule as consistent with the Order. 521 However, issuance of the fina l rule was held in abeyance. On January 7, 2009, the Department of Transportation announced that the final rule would not be issued.

a. Requests in the President’s Memorandum

In light of the requirement to pres cribe standards for MY 2011 by March 30, 2009 and in order to provide additional time to cons ider issues concerning the analysis used to

521 Record of OIRA’s action can be found at http:// www.reginfo.gov/public/do/eo HistReviewSearch (last accessed March 1, 2010). To find the report on the cl earance of the draft final ru le, select “Department of Transportation” under “Economically Significant Reviews Completed” and select “2008” under “Select Calendar Year.”815 determine the appropriate level of sta ndards for MYs 2012 and beyond, the President issued a memorandum on January 26, 2009, re questing the Secretar y of Transportation and Administrator of the National Highway Traffic Safety Administration NHTSA to divide the rulemaking into two parts: (1) MY 2011 standards, and (2) standards for MY 2012 and beyond.

i. CAFE Standards for Model Year 2011

The request that the final rule es tablishing CAFE st andards for MY 2011 passenger cars and light truc ks be prescribed by March 30, 2009 was based on several factors. One was the requirement that the fi nal rule regarding fuel economy standards for a given model year must be adopted at leas t 18 months before the beginning of that model year (49 U.S.C. 32902(g)(2)). The other was that the beginning of MY 2011 is considered for the purposes of CAFE standa rd setting to be October 1, 2010.

ii. CAFE Standards for Model Years 2012 and Beyond

The President requested that, before promulgating a final rule concerning the model years after model year 2011, NHTSA [C]onsider the appropriate legal factors under the EISA, the comments filed in response to th e Notice of Proposed Rulemaking, the relevant technological and scientific considera tions, and to the extent feasible, the816 forthcoming report by the National A cademy of Sciences mandated under section 107 of EISA.

In addition, the President requested that NHTSA consider whether any provisions regarding preemption are appropriate under applicable law and policy.

b. Implementing the President’s Memorandum

In keeping with the President’s rema rks on January 26, 2009 for new national policies to address the closely intertwined i ssues of energy independe nce, energy security and climate change, and for the initiati on of serious and sustained domestic and international action to address them, NHTSA has developed CAFE standards for MY 2012 and beyond after collecting new informa tion, conducting a careful review of technical and economic inputs and assumpti ons, and standard setting methodology, and completing new analyses.

The goal of the review and re-evaluation wa s to ensure that the approach used for MY 2012 and thereafter would pr oduce standards that contribu te, to the maximum extent possible under EPCA/EISA, to meeting the energy and e nvironmental challenges and goals outlined by the President. We have s ought to craft our progr am with the goal of creating the maximum incentives for innovation, providing flexibility to the regulated parties, and meeting the goal of making s ubstantial and continuing reductions in the consumption of fuel. To that end, we have made every effort to ensure that the CAFE817 program for MYs 2012-2016 is based on the best scientific, techni cal, and economic information available, and that such info rmation was developed in close coordination with other federal agencies and our stake holders, including the states and the vehicle manufacturers.

We have also re-examined EPCA, as am ended by EISA, to consider whether additional opportunities exist to improve the effectiveness of the CAFE program. For example, EPCA authorizes increasing the am ount of civil penalties for violating the CAFE standards. 522 Further, if the test procedures us ed for light trucks were revised to provide for the operation of air conditioni ng during fuel economy testing, vehicle manufacturers would have a regulatory in centive to increase the efficiency of air conditioning systems, thereby reducing both fu el consumption and tailpipe emissions of
CO 2 . 523

With respect to the President’s request that NHTSA consider the issue of preemption, NHTSA is deferring further cons ideration of the preemption issue. The agency believes that it is unnecessary to addres s the issue further at this time because of the consistent and coordinated federal standa rds that apply nationally under the National Program.

522 Under 49 U.S.C. 32912(c), roughly, NHTSA may raise the penalty amount if the agency decides that doing so will increase energy conservation substantially without having a substantial deleterious impact on the economy, employment, or compe tition among automobile manufacturers. 523 Under 49 U.S.C. 32904(c), EPA must use the same procedures for passenger automobiles that the Administrator used for model year 1975 (weighted 55 percent urban cycle and 45 percent highway cycle), or procedures that give comparable results.818 As requested in the President’s memorandum, NHTSA reviewed comments received on the MY 2011 rulemaking and revi sited its assumptions and methodologies for purposes of developing the propose d MY 2012-2016 standards. For more information on how the proposed CAFE standa rds were developed with those comments in mind, see the NPRM and the supporting documents.

5. Summary of the Final MY 2012-2016 CAFE Standards

NHTSA is issuing CAFE standards th at are, like the standards NHTSA promulgated in March 2009 for MY 2011, expressed as mathematical functions depending on vehicle footprint. Footprint is one measure of vehicle size, and is determined by multiplying the vehicle’s wheelbase by the vehicle’s average track width. 524 Under the final CAFE standards, each light vehicle model produced for sale in the United States has a fuel economy target. The CAFE levels that must be met by the fleet of each manufacturer will be determin ed by computing the sales-weighted harmonic average of the targets applicable to each of the manufacturer’s passenger cars and light trucks. These targets, the mathematical form and coefficients of which are presented later in today’s notice, appear as follows when the values of the targets are plotted versus vehicle footprint:

524 See 49 CFR 523.2 for the exact definition of “footprint.”819 Figure IV.A.5-1 Final MY 2011 and Final MY 2012-2016 Passenger Car Fuel Economy Targets

20 25 30 35 40 45

35 40 45 50 55 60 65 70 T a r g e t ( m p g )

Footprint (sf) 2011 2016

2015 2014 2013 2012820 Figure IV.A.5-2 Final MY 2011 and Final MY 2012-2016 Light Truck Fuel Economy Targets

20 25 30 35 40 45

35 40 45 50 55 60 65 70 T a r g e t ( m p g )

Footprint (sf) 2011 2016
2015
2014 2013 2012821 Under these final footprint-based CAFE st andards, the CAFE levels required of individual manufacturers depend, as noted above, on the mix of vehicles sold. It is important to note that NHTSA’s CAFE sta ndards and EPA’s GHG standards will both be in effect, and each will lead to increases in average fuel economy and CO 2 emissions reductions. The two agencies’ standards t ogether comprise the National Program, and this discussion of costs and benefits of NHTSA’s CAFE st andards 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.

Based on the forecast developed for this final rule of the MYs 2012-2016 vehicle fleet, NHTSA estimates that the targets shown above will resu lt in the following estimated average required CAFE levels:

Table IV.A.5-1 Estimated Average Required Fuel Economy (mpg) under Final Standards 2012 2013 2014 2015 2016 Passenger Cars 33.3 34.2 34.9 36.2 37.8 Light Trucks 25.4 26.0 26.6 27.5 28.8 Combined Cars & Trucks 29.7 30.5 31.3 32.6 34.1

For the reader’s reference, these miles per gallon values would be equivalent to the following gallons per 100 m iles values for passenger cars and light trucks:

2012 2013 2014 2015 2016 Passenger Cars 3.00 2.93 2.86 2.76 2.65 Light Trucks 3.94 3.85 3.76 3.63 3.48 Combined Cars & Trucks 3.36 3.28 3.19 3.07 2.93822 NHTSA estimates that average achieved fuel economy levels will correspondingly increase through MY 2016, but that manufacturers will, on average, undercomply 525 in some model years and overcomply 526 in others, reaching a combined average fuel economy of 33.7 mpg in MY 2016. 527 Table IV.A.5-1 is the estimated required fuel economy for the final CAFE st andards while Table IV.A.5-2 includes the effects of some manufacturers’ payment of CAFE fines and use of FFV credits. In addition, Section IV.G.4 below contains an an alysis of the achieved levels (and projected fuel savings, costs, and benefits) when the use of FFV credits is assumed.

Table IV.A.5-2 Estimated Average Achieved Fuel Economy (mpg) under Final Standards 2012 2013 2014 2015 2016 Passenger Cars 32.8 34.4 35.3 36.3 37.2 Light Trucks 25.1 26.0 27.0 27.6 28.5 Combined Cars & Trucks 29.3 30.6 31.7 32.6 33.7

For the reader’s reference, these miles pe r gallon values would be equivalent to the following gallons per 100 miles values for passenger cars and light trucks:

525 In NHTSA’s analysis, “und ercompliance” is mitigated either through use of FF V credits, use of existing or “banked” credits, or through fine payment. Because NHTSA cannot consider availability of credits in setting standards, the estimated achieved CAFE levels presented here do not account for their use. In contrast, because NHTSA is not prohibited from considering fine payment, the estimated achieved CAFE levels presented here include the assumption that BMW, Daimler (i.e., Mercedes), Porsche, and, Tata (i.e., Jaguar and Rover) will only apply technology up to the point that it would be less expensive to pay civil penalties. 526 In NHTSA’s analysis, “overcompliance” occurs through multi-year planni ng: manufacturers apply some “extra” technology in early m odel years (e.g., MY 2014) in order to carry that technology forward and thereby facilitate compliance in later model years (e.g., MY 2016) 527 Consistent with EPCA, NHTSA has not accounted fo r manufacturers’ ability to earn CAFE credits for selling FFVs, carry credits forward and back betwee n model years, and transfer credits between the passenger car and light truck fleets.823 2012 2013 2014 2015 2016 Passenger Cars 3.05 2.91 2.83 2.76 2.69 Light Trucks 3.99 3.84 3.71 3.62 3.50 Combined Cars & Trucks 3.42 3.27 3.15 3.06 2.97

NHTSA estimates that these fuel economy increases will lead to fuel savings totaling 61 billion gallons dur ing the lifetimes of vehicl es sold in MYs 2012-2016 (all following tables assume Reference Case economic inputs):

Table IV.A.5-3. Fuel Saved (bi llion gallons) under Final Standards 2012 2013 2014 2015 2016 Total Passenger Cars 2.4 5.2 7.2 9.4 11.4 35.7 Light Trucks 1.8 3.7 5.3 6.5 8.1 25.4 Combined 4.2 8.9 12.5 16.0 19.5 61.0

The agency also estimates that thes e new CAFE standards will lead to corresponding reductions of CO 2 emissions totaling 655 million metric tons (mmt) during the useful lives of vehicles sold in MYs 2012-2016:

Table IV.A.5-4 Avoided Carbon Dioxide Emissions (mmt) under Final Standards 2012 2013 2014 2015 2016 Total Passenger Cars 25 54 77 101 123 380 Light Trucks 19 40 57 71 88 275 Combined 44 94 134 172 210 655

The agency estimates that these fuel economy increases would produce other benefits (e.g., reduced time spent refueling), as well as some disbenefits (e.g., increased traffic congestion) caused by driv ers’ tendency to increase trav el when the cost of driving declines (as it does when fuel economy increases). The agency has estimated the total824 monetary value to society of these benefits and disbenefits, and estimates that the final standards will produce significant benefits to society. NHTSA estimates that, in present value terms, these benefits would total over $180 billion over the useful lives of vehicles sold during MYs 2012-2016:

Table IV.A.5-5 Present Value of Benef its ($billion) under Final CAFE Standards 2012 2013 2014 2015 2016 Total Passenger Cars 6.8 15.2 21.6 28.7 35.2 107.5 Light Trucks 5.1 10.7 15.5 19.4 24.3 75.0 Combined 11.9 25.8 37.1 48 59.5 182.5

NHTSA attributes most of these bene fits—about $143 billion, as noted above—to reductions in fuel consumption, valuing fuel (for societal purposes) at future pretax prices in the Energy Information Administration’s (E IA’s) reference case forecast from Annual Energy Outlook (AEO) 2010. The Final Regulatory Impact Analysis (FRIA) accompanying today’s final rule presents a deta iled analysis of specific benefits of the final rule.

Monetized Value (Discounted) Amount 3% Discount Rate 7% Discount Rate Fuel savings 61.0 billion gallons $143. 0 billion $112.0 billion CO 2 emissions reductions 528 655 mmt $14.5 billion $14.5 billion

NHTSA estimates that the necessary in creases in technology application will involve considerable monetary outlays, totaling $52 billion in incremental outlays (i.e.,

528 We note that the net present value of reduced CO 2 emissions is calculated differently than other benefits. The same discount rate used to discount the value of damages from future emissions (SCC at 5 percent, 3 percent, and 2.5 percent) is used to calculate the ne t present value of the SCC for internal consistency. Additionally, we note that the S CC increases over time. See Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 , Interagency Working Group on Social Cost of Carbon, United States Government, February 2010 (available in Docket No. NHTSA-2009-0059 for more information.825 beyond those attributable to the MY 2011 sta ndards) by new vehicle purchasers during
MYs 2012-2016:

Table IV.A.5-6 Incremental Technology Outlays ($b) under Final CAFE Standards 2012 2013 2014 2015 2016 Total Passenger Cars 4.1 5.4 6.9 8.2 9.5 34.2 Light Trucks 1.8 2.5 3.7 4.3 5.4 17.6 Combined 5.9 7.9 10.5 12.5 14.9 51.7

Corresponding to these outlays and, to a much lesser extent, civil penalties that some companies are expected to pay for nonc ompliance, the agency estimates that the final standards would lead to increases in average new vehicle pri ces, ranging from $322 per vehicle in MY 2012 to $961 per vehicle in MY 2016:

Table IV.A.5-7 Incremental Increases in Average New Vehicle Pr ices ($) under Final CAFE Standards 2012 2013 2014 2015 2016 Passenger Cars 505 573 690 799 907 Light Trucks 322 416 621 752 961 Combined 434 513 665 782 926

Tables IV.A.5-8 and IV.A.5-9 below pres ent itemized costs and benefits for a 3 percent and a 7 percent discount rate, respectively, for the combined fleet (passenger cars and light trucks) in each model year and for all model years combined, again assuming Reference Case inputs (except for the variati on in discount rate). Numbers in parentheses represent negative values.826 Table IV.A.5-8 Itemized Cost and Benefit Es timates for the Combined Vehicle Fleet, 3% Discount Rate MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Total Costs Technology Costs 5,903 7,890 10,512 12,539 14,904 51,748

Benefits Savings in Lifetime Fuel Expenditures 9,265 20,178 29,083 37,700 46,823 143,048

Consumer Surplus from Additional Driving 696 1,504 2,150 2,754 3,387 10,491

Value of Savings in Refueling Time 706 1,383 1,939 2,464 2,950 9,443

Reduction in Petroleum Market Externalities 545 1,154 1,630 2,080 2,543 7,952

Reduction in Climate-Related Damages from Lower CO 2 Emissions 529 921 2,025 2,940 3,840 4,804 14,528

Reduction in Health Damage Costs from Lo wer Emissions of Criteria Air Pollutants: CO 0 0 0 0 0 0 VOC 42 76 102 125 149 494 NO X 70 104 126 146 166 612 PM 205 434 612 776 946 2,974 SO X 158 332 469 598 731 2,288 Dis-Benefits from Increased Driving: Congestion Costs (447) (902) (1,282) (1,633) (2,000) (6,264) Noise Costs (9) (18) (25) (32) (39) (122) Crash Costs (217) (430) (614) (778) (950) (2,989) Total Benefits 11,936 25,840 37,132 48,040 59,509 182,457
Net Benefits 6,033 17,950 26,619 35,501 44,606 130,709

529 See supra note 528.827 Table IV.A.5-9 Itemized Cost and Benefit Es timates for the Combined Vehicle Fleet, 7% Discount Rate MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Total Costs Technology Costs 5,903 7,890 10,512 12,539 14,904 51,748

Benefits Savings in Lifetime Fuel Expenditures 7,197 15,781 22,757 29,542 36,727 112,004

Consumer Surplus from Additional Driving 542 1,179 1,686 2,163 2,663 8,233

Value of Savings in Refueling Time 567 1,114 1,562 1,986 2,379 7,608

Reduction in Petroleum Market Externalities 432 917 1,296 1,654 2,023 6,322

Reduction in Climate-Related Damages from Lower CO 2 Emissions 530 921 2,025 2,940 3,840 4,804 14,530

Reduction in Health Damage Costs from Lo wer Emissions of Criteria Air Pollutants: CO 0 0 0 0 0 0 VOC 32 60 80 99 119 390 NO X 53 80 98 114 131 476 PM 154 336 480 611 748 2,329 SO X 125 265 373 475 581 1,819 Dis-Benefits from Increased Driving: Congestion Costs (355) (719) (1,021) (1,302) (1,595) (4,992) Noise Costs (7) (14) (20) (26) (31) (98) Crash Costs (173) (342) (488) (619) (756) (2,378) Total Benefits 9,488 20,682 29,743 38,537 47,793 146,243
Net Benefits 3,586 12,792 19,231 25,998 32,890 94,497

530 See supra note 529.828 Neither EPCA nor EISA requires that NHTSA conduct a cost-benefit analysis in determining average fuel economy standard s, but too, neither precludes its use. 531 EPCA does require that NHTSA consider economic practicability among other factors, and NHTSA has concluded, as disc ussed elsewhere herein, that the standards it promulgates today are economically practicab le. Further validating and supporting its conclusion that the standards it promulgates today are reason able, a comparison of the standards’ costs and benefits shows that the standards’ estimate d benefits far outweigh its estimated costs. Based on the figures reported above, NHTSA es timates that the total benefits of today’s final standards would be more than three ti mes the magnitude of the corresponding costs, such that the final standards would produ ce net benefits of ove r $130 billion over the useful lives of vehicles sold during MYs 2012-2016.

B. Background

1. Chronology of Events Since the National Academy of Sciences Called for Reforming and Increasing CAFE Standards

a. National Academy of Sciences Issu es Report on Future of CAFE Program (February 2002)

531 Center for Biological Diversity v. NHTSA , 508 F.3d 508 (9 th Cir. 2007) (rejecting argument that EPCA precludes the use of a marginal cost-ben efit analysis that attempted to weig h all of the social benefits (i.e., externalities as well as direct benefits to consumers) of improved fuel savings in determining the stringency of the CAFE standards). See also Entergy Corp. v. Riverkeeper, Inc. , 129 S.Ct. 1498, 1508 (2009) (“[U]nder Chevron , that an agency is not required to [conduct a cost-benefit anal ysis] does not mean that an agency is not permitted to do so.”)829 i. Significantly Increasing CAFE Standards Without Making them Attributebased Would Adversely Affect Safety

In the 2002 congressionally-mandated repor t entitled “Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards,” 532 a majority of the committee of the National Academy of Sciences (NAS ) (“2002 NAS Report”) concluded that the then-existing form of passenger car and light truck CAFE standards permitted vehicle manufacturers to comply in part by downwe ighting and even downs izing their vehicles and that these actions had led to additional fatalities. The committee explained that this safety problem arose because, at that time, th e CAFE standards were not attributed-based and thus subjected all passenger cars to the sa me fuel economy target and all light trucks to the same target, regardless of their weight, size, or load-carrying capacity. 533 The committee said that this experience suggest s that consideration should be given to developing a new system of fuel economy targets that reflects differences in such vehicle attributes. Without a thoughtfu l restructuring of the program, there would be trade-offs that must be made if CAFE standard s were increased by any significant amount. 534

532 National Research Council, “Effectiveness and Imp act of Corporate Averag e Fuel Economy (CAFE) Standards,” National Academy Press, Washington, DC (2002). Available at http://www.nap.edu/openbook .php?isbn=0309076013 (last accessed Ma rch 1, 2010). The conference committee report for the Department of Transportation and Related Agencies Appropriations Act for FY 2001 (Pub. L. 106-346) directed NHTSA to fund a study by NAS to evaluate the effectiveness and impacts of CAFE standards (H. Rep. No. 106-940, p. 117-118). In response to the direction from Congress, NAS published this lengthy report. 533 NHTSA formerly used this appro ach for CAFE standards. EISA pr ohibits its use after MY 2010. 534 NAS, p. 9. As discussed at length in prior CAFE rules, two members of the NAS Committee dissented from the majority opinion that there would be safety impacts to downweighting under a flat-standard system.830 In response to these conclusions, NHTSA considered various attributes and ultimately issued footprint-based CAFE standa rds for light trucks and sought legislative authority to issue attribute- based CAFE standards for passe nger cars before undertaking to raise the car standards. Congress went a step furthe r in enacting EISA, not only authorizing the issuance of attribute-ba sed standards, but also mandating them.

ii. Climate Change and Other Externaliti es Justify Increasing the CAFE Standards

The NAS committee said that there are two compelling concerns that justify increasing the fuel economy sta ndards, both relating to external ities. The first and most important concern, it argued, is the accumu lation in the atmosphere of greenhouse gases, principally carbon dioxide. 535

A second concern is that petroleum imports have been steadily rising because of the nation’s increasing demand for gasoline without a corresponding increase in domestic supply. The high cost of oil imports poses two risks: downward pres sure on the strength of the dollar (which drives up the cost of goods that American s import) and an increase in U.S. vulnerability to macroeconomic shocks that cost the economy considerable real output.

To determine how much the fuel econo my standards should be increased, the committee urged that all social benefits of such increases be considered. That is, it urged

535 NAS, pp. 2, 13, and 83.831 not only that the dollar value of the saved fu el be considered, but also that the dollar value to society of the re sulting reductions in gree nhouse gas emissions and in dependence on imported oil should be calculated and considered.

iii. Reforming the CAFE Program Could A ddress Inequity Arising from the
CAFE Structure

The 2002 NAS report expressed concerns about increasing th e standards under the CAFE program as it was then structur ed. While raising CAFE standards under the then existing structure would reduce fuel consumption, doing so under alternative structures “could accomplish the same end at lower cost, provide more flexibility to manufacturers, or address inequities arising from the present” structure. 536

To address those structural problems , the report suggested various possible reforms. The report found that the “CAFE program might be improved significantly by converting it to a system in which fuel targets depend on vehicle attributes.” 537 The report noted further that under an attribute-based approach , the required CAFE levels could vary among the manufacturers based on th e distribution of thei r product mix. NAS stated that targets could vary among passe nger cars and among trucks, based on some attribute of these vehicles such as weight , size, or load-carryi ng capacity. The report explained that a particular manufacturer’s aver age target for passenger cars or for trucks

536 NAS, pp. 4-5 (Finding 10). 537 NAS, p. 5 (Finding 12).832 would depend upon the fractions of vehicles it sold with pa rticular levels of these attributes. 538

b. NHTSA Issues Final Rule Establishing Attribute-Based CAFE Standards for MY 2008-2011 Light Trucks (March 2006)

The 2006 final rule reformed the structure of the CAFE program for light trucks by introducing an attribute-based approach and using that approach to establish higher CAFE standards for MY 2008-2011 light trucks. 539 Reforming the CAFE program enabled it to achieve larger fuel savings, while enhancing safety and preventing adverse economic consequences.

As noted above, fuel economy standards were restructured so that they were based on a vehicle attribute, a measure of vehicl e size called “footprint.” It is the product of multiplying a vehicle’s wheelbase by its track width. A target level of fuel economy was established for each increment in footprint (0.1 ft 2 ). Trucks with smaller footprints have higher fuel economy targ ets; conversely, larger one s have lower targets. A particular manufacturer’s compliance obligati on for a model year is calculated as the harmonic average of the fuel economy targets for the manufacturer’s vehicles, weighted by the distribution of the manufacturer’s production volumes among the footprint increments. Thus, each manufacturer is requi red to comply with a single overall average fuel economy level for each model year of production.

538 NAS, p. 87. 539 71 FR 17566 (Apr. 6, 2006).833 Compared to non-attribute-based CAFE, a ttribute-based CAFE enhances overall fuel savings while providing vehicle manufact urers with the flexibility they need to respond to changing market conditions. Attr ibute-based CAFE also provides a more equitable regulatory framework by creating a level playing fiel d for manufacturers, regardless of whether they are full-line or limited-line manufacturers. We were particularly encouraged that attribute-ba sed CAFE will confer no compliance advantage if vehicle makers choose to downsize some of their fleet as a CAFE compliance strategy, thereby reducing the adverse sa fety risks associated with the non-attribute-based CAFE
program.

c. Ninth Circuit Issues Decision re Final Rule for MY 2008-2011 Light Trucks (November 2007)

On November 15, 2007, the United States Court of Appeals for the Ninth Circuit issued its decision in Center for Biological Diversity v. NHTSA , 540 the challenge to the MY 2008-11 light truck CAFE rule. The cour t held that EPCA permits, but does not require, the use of a marginal cost-benefit an alysis. The court specifically emphasized NHTSA’s discretion to decide how to balance the statutory factors – as long as that balancing does not undermine the fundamental st atutory purpose of energy conservation. Although the Court found that NHTSA had been arbitrary and capricious in several respects, the Court did not vacate the standard s, but instead said it would remand the rule to NHTSA to promulgate new standards consis tent with its opinion “as expeditiously as

540 508 F.3d 508.834 possible and for the earliest model year practi cable.” Under the decision, the standards established by the April 2006 final rule would remain in effect unless and until amended by NHTSA. In addition, it dire cted the agency to prepare an Environmental Impact
Statement.

d. Congress Enacts Energy Security and Independence Act of 2007 (December 2007)

As noted above in Section I.B., EISA significantly changed the provisions of EPCA governing the establishment of future CAFE standards. These changes made it necessary for NHTSA to pause in its efforts so that it could assess the implications of the amendments made by EISA and then, as require d, revise some aspects of the proposals it had been developing (e.g., the model year s covered and credit issues).

e. NHTSA Proposes CAFE Standards for MYs 2011-2015 (April 2008)

The agency could not set out the exact le vel of CAFE that each manufacturer would have been required to meet for each model year under the passenger car or light truck standards since the levels would depend on information that would not be available until the end of each of the model years, i. e., the final actual pr oduction figures for each of those years. The agency could, howeve r, project what the i ndustry-wide level of average fuel economy would have been for pa ssenger cars and for li ght trucks if each835 manufacturer produced its exp ected mix of automobiles and just met its obligations under the proposed “optimized” standards for each model year.

Passenger cars mpg Light trucks mpg MY 2011 31.2 25.0 MY 2012 32.8 26.4 MY 2013 34.0 27.8 MY 2014 34.8 28.2 MY 2015 35.7 28.6

The combined industry-wide average fuel economy (in miles per gallon, or mpg) levels for both cars and light tr ucks, if each manufacturer ju st met its obligations under the proposed “optimized” standards for each model year, would have been as follows:

Combined mpg MY 2011 27.8 MY 2012 29.2 MY 2013 30.5 MY 2014 31.0 MY 2015 31.6

The annual average increase during this five year period would have been approximately 4.5 percent. Due to the une ven distribution of new model introductions during this period and to the fact that significant technologi cal changes could be most readily made in conjunction with those in troductions, the annual percentage increases were greater in the early years in this period.836 f. Ninth Circuit Revises its Decisi on re Final Rule for MY 2008-2011 Light Trucks (August 2008)

In response to the Government petition fo r rehearing, the Ninth Circuit modified its decision by replacing its direc tion to prepare an EIS with a direction to prepare either a new EA or, if necessary, an EIS. 541

g. NHTSA Releases Final Environmen tal Impact Statement (October 2008)

On October 17, 2008, EPA published a notice announcing the availability of NHTSA’s final environmental impact statement (FEIS) for the MYs 2011-2015 rulemaking. 542 Throughout the FEIS, NHTSA relied extensively on findings of the United Nations Intergovernmental Panel on Climate Change (IPCC) and the U.S. Climate Change Science Program (USCCSP). In partic ular, the agency relied heavily on the most recent, thoroughly peer-reviewed, and credible assessments of global climate change and its impact on the United States: the IPCC Fourth Assessment Report Working Group I4 and II5 Reports, and report s by the USCCSP that include Scientific Assessments of the Effects of Global Climate Change on the United States and Synthesis and Assessment Products.

In the FEIS, NHTSA compared the envi ronmental impacts of its preferred alternative and those of reas onable alternatives. It cons idered direct, indirect, and

541 See CBD v. NHTSA , 538 F.3d 1172 (9 th Cir. 2008). 542 73 FR 61859 (Oct. 18, 2008).837 cumulative impacts and describes these imp acts to inform the decision maker and the public of the environmental impact s of the various alternatives.

Among other potential impacts, NHTSA anal yzed the direct and indirect impacts related to fuel and energy use, emissi ons, including carbon dioxide and its effects on temperature and climate change, air qua lity, natural resour ces, and the human environment. Specifically, the FEIS used a climate model to estimate and report on four direct and indirect effects of climate cha nge, driven by alternative scenarios of GHG emissions, including:

1. Changes in CO 2 concentrations; 2. Changes in global mean surface temperature; 3. Changes in regional temper ature and precipitation; and 4. Changes in sea level.

NHTSA also considered the cumulative impacts of the proposed standards for MY 2011-2015 passenger cars and light trucks , together with es timated impacts of NHTSA’s implementation of the CAFE pr ogram through MY 2010 and NHTSA’s future CAFE rulemaking for MYs 2016-2020.838 h. Department of Transportation De cides Not to Issue MY 2011-2015 Final Rule (January 2009)

On January 7, 2009, the Department of Transportation announced that the Bush Administration would not issue the final rule, notwithstanding the Office of Information and Regulatory Affairs’ comp letion of review of the rule under Executive Order 12866, Regulatory Pla nning and Review, on November 14,
2008. 543

i. The President Requests NHTSA to Issue Final Rule for MY 2011 Only (January 2009)

As explained above, in his memorandum of January 26, 2009, the President requested the agency to issu e a final rule adopting CAFE standards for MY 2011 only. Further, the President reque sted NHTSA to establish standards for MY 2012 and later after considering the appropriate legal factors, the comments filed in response to the May 2008 proposal, the relevant technolog ical and scientific consider ations, and, to the extent feasible, a forthcoming report by the National Academy of Sciences assessing automotive technologies that can practicably be used to improve fuel economy.

543 The statement can be found at http://www.dot.gov/affair s/dot0109.htm (last accessed March 1, 2010).839 j. NHTSA Issues Final Rule for MY 2011 (March 2009)

i. Standards

The final rule established footprint-ba sed fuel economy standards for MY 2011 passenger cars and light trucks. Each vehicle manufacturer’s required level of CAFE was based on target levels of average fuel econom y set for vehicles of different sizes and on the distribution of that manufacturer’s vehi cles among those sizes. The curves defining the performance target at each footprint reflect the technological and economic capabilities of the industry. The target for each footprint is the same for all manufacturers, regardless of differences in their overall fleet mix. Compliance would be determined by comparing a manufacturer’s harmonically averaged fleet fuel economy levels in a model year with a required fuel economy level calculated using the manufacturer’s actual production levels and the targets for each footprint of the vehicles that it produces.

The agency analyzed seven regulatory al ternatives, one of which maximizes net benefits within the limits of available in formation and was known at the time as the “optimized standards.” The optimized standard s were set at levels, such that, considering all of the manufacturers together , no other alternative is estimated to produce greater net benefits to society. Upon a considered analys is of all information available, including all information submitted to NHTSA in comment s, the agency adopted the “optimized840 standard” alternative as th e final standards for MY 2011. 544 By limiting the standards to levels that can be achieved using technologies each of which are estimated to provide benefits that at least equal its costs, the ne t benefit maximization approach helped, at the time, to assure the marketability of the manufacturers’ vehicles and thus economic practicability of the standards, for the reasons discussed extensively in that final rule.

The following levels were projected for wh at the industry-wide level of average fuel economy will be for passenger cars a nd for light trucks if each manufacturer produced its expected mix of automobiles and just met its obligations under the “optimized” standards.

Passenger cars mpg Light trucks mpg MY 2011 30.2 24.1

The combined industry-wide average fuel economy (in miles per gallon, or mpg) levels for both cars and light tr ucks, if each manufacturer ju st met its obligations under the “optimized” standards, were projected as follows:

Combined mpg mpg increase over prior year MY 2011 27.3 2.0

544 The agency notes, for NEPA purposes, that the “ optimized standard” alternative adopted as the final standards corresponds to the “Optimized Mid-2” scenario described in Section 2.2.2 of the FEIS.841 In addition, per EISA, each manufacturer’s domestic passenger fleet is required in MY 2011 to achieve 27.5 mpg or 92 percent of the CAFE of the industry-wide combined fleet of domestic and no n-domestic passenger cars 545 for that model year, whichever is higher. This requirement resulted in th e following projected alternative minimum standard (not attribute-based) for domestic passenger cars:

Domestic passenger cars mpg MY 2011 27.8

ii. Credits

NHTSA also adopted a new Part 536 on use of “credits” earned for exceeding applicable CAFE standards. Part 536 impl ements the provisions in EISA authorizing NHTSA to establish by regulation a credit trad ing program and directi ng it to establish by regulation a credit transfer program. 546 Since its enactment, EPCA has permitted manufacturers to earn credits for exceeding the standards and to a pply those credits to compliance obligations in years other than th e model year in which it was earned. EISA extended the “carry-forward” period to five m odel years, and left the “carry-back” period at three model years. Under Part 536, cr edit holders (including, but not limited to, manufacturers) will have cr edit accounts with NHTSA, and will be able to hold credits, apply them to compliance with CAFE standa rds, transfer them to another “compliance

545 Those numbers set out several paragraphs above. 546 Congress required that DOT establish a credit “t ransferring” regulation, to allow individual manufacturers to move credits from one of their fleets to another (e.g., using a credit earned for exceeding the light truck standard for compliance with the dome stic passenger car standard). Congress allowed DOT to establish a credit “trading” regulation, so that cr edits may be bought and sold between manufacturers and other parties.842 category” for application to compliance ther e, or trade them. A credit may also be cancelled before its expiry date, if the credit holder so chooses. Traded and transferred credits will be subject to an “adjustment fact or” to ensure total oil savings are preserved, as required by EISA. EISA also prohibits credits earned before MY 2011 from being transferred, so NHTSA has developed seve ral regulatory restric tions on trading and transferring to facilita te Congress’ intent in this regard.

2. Energy Policy and Conservation Act, as Amended by the Energy Independence and Security Act

NHTSA establishes CAFE standards for pa ssenger cars and light trucks for each model year under EPCA, as amended by EISA. EPCA mandates a motor vehicle fuel economy regulatory program to meet the various facets of the need to conserve energy, including ones having environm ental and foreign policy implications. EPCA allocates the responsibility for implementing the pr ogram between NHTSA and EPA as follows: NHTSA sets CAFE standards for passenger ca rs and light trucks; EPA establishes the procedures for testing, test s vehicles, collects and analyz es manufacturers’ data, and calculates the average fuel economy of each manufacturer’s passenger cars and light trucks; and NHTSA enforces the st andards based on EPA’s calculations.843 a. Standard Setting

We have summarized below the most impor tant aspects of standard setting under EPCA, as amended by EISA.

For each future model year, EPCA require s that NHTSA establish standards at “the maximum feasible average fuel economy level that it decides the manufacturers can achieve in that model year,” based on the agency ’s consideration of four statutory factors: technological feasibility, econom ic practicability, the effect of other standards of the Government on fuel economy, and the need of the nation to conser ve energy. EPCA does not define these terms or specify what weight to give each concern in balancing them; thus, NHTSA defines them and determin es the appropriate weighting based on the circumstances in each CAFE standard rulemaking. 547

For MYs 2011-2020, EPCA further requires th at separate standards for passenger cars and for light trucks be se t at levels high enough to ensure that the CAFE of the industry-wide combined fleet of new passenger cars and light trucks reaches at least 35 mpg not later than MY 2020.

547 See Center for Biological Diversity v. NHTSA, 538 F.3d. 1172, 1195 (9 th Cir. 2008) (“The EPCA clearly requires the agency to cons ider these four factors, but it give s NHTSA discretion to decide how to balance the statutory factors—as long as NHTSA’s ba lancing does not undermine the fundamental purpose of the EPCA: energy conservation.”)844 i. Factors That Must be Considered in Deciding the Appropriate Stringency of CAFE Standards

(1) Technological feasibility

“Technological feasibility” refers to whether a part icular method of improving fuel economy can be available for commercial application in the model year for which a standard is being established. Thus, the agen cy is not limited in determining the level of new standards to technology that is already being commercially applied at the time of the rulemaking. NHTSA has historically consider ed all types of tec hnologies that improve real-world fuel economy, excep t those whose effect s are not reflected in fuel economy testing. Principal among them are technologi es that improve air conditioner efficiency because the air conditioners are not turn ed on during testing under existing test procedures.

(2) Economic practicability

“Economic practicability” refers to whethe r a standard is one “within the financial capability of the industry, but not so stri ngent as to” lead to “adverse economic consequences, such as a significant loss of jobs or the unreasonable elimination of consumer choice.” 548 This factor is especially important in the context of current events, where the automobile industry is facing si gnificantly adverse economic conditions, as well as significant loss of jobs. In an attempt to ensure the economic practicability of

548 67 FR 77015, 77021 (Dec. 16, 2002).845 attribute-based standards, NHTSA considers a variety of factors, including the annual rate at which manufacturers can increase the percentage of its fleet that employs a particular type of fuel-saving technology, and cost to consumers. Consumer acceptability is also an element of economi c practicability, one which is particularly difficult to gauge during times of frequently-changing fuel pr ices. NHTSA believes this approach is reasonable for the MY 2012-2016 standards in view of the facts before it at this time.

At the same time, the law does not preclude a CAFE standard that poses considerable challenges to any individual manufacturer. The Conference Report for EPCA, as enacted in 1975, makes clear, and the case law affirms, “a determination of maximum feasible average fuel economy shoul d not be keyed to the single manufacturer which might have the most difficulty ach ieving a given level of average fuel economy.” 549 Instead, NHTSA is compelled “to we igh the benefits to the nation of a higher fuel economy standard against the difficulties of individual automobile manufacturers.” Id. The law permits CAFE standards exceeding the projected capability of any particular manufacturer as long as the standard is economically practicable for the industry as a whole. Thus, while a partic ular CAFE standard may pose difficulties for one manufacturer, it may also present opportu nities for another. The CAFE program is not necessarily intended to maintain the competitive positioning of each particular company. Rather, it is in tended to enhance fuel economy of the vehicle fleet on American roads, while protecting motor vehicl e safety and being mindful of the risk of harm to the overall United States economy.

549 CEI-I, 793 F.2d 1322, 1352 (D.C. Cir. 1986).846 (3) The effect of other motor vehicle standards of the Government on fuel

economy

“The effect of other motor vehicle standards of the Government on fuel economy,” involves an analysis of the effects of compliance with emission, 550 safety, noise, or damageability standards on fuel economy capability and thus on average fuel economy. In previous CAFE rulemakings, the agency has said that pursuant to this provision, it considers the a dverse effects of other moto r vehicle standards on fuel economy. It said so because, from the CAFE program’s earliest years 551 until present, the effects of such compliance on fuel econom y capability over the history of the CAFE program have been negative ones. For example, safety standards that have the effect of increasing vehicle weight lower vehicle fuel economy capability and thus decrease the level of average fuel economy that the agency can determine to be feasible.

NHTSA also recognizes that in some cas es the effect of other motor vehicle standards of the Government on fuel economy may be neutral or positive. For example, to the extent the GHG standards set by EPA a nd California result in increases in fuel economy, they would do so almost exclusivel y as a result of inducing manufacturers to install the same types of technologies used by manufacturers in complying with the CAFE standards. The primary excepti on would involve lower-GHG-producing air

550 In the case of emission standards, this includes standards adopted by the Federal government and can include standards adopted by the Stat es as well, since in certain circ umstances the Clean Air Act allows States to adopt and enforce State standa rds different from the Federal ones. 551 42 FR 63184, 63188 (Dec. 15, 1977). See also 42 FR 33534, 33537 (Jun. 30, 1977).847 conditioners. The agency considered EPA’s standards and the harm onization benefits of the National Program in devel oping its own standards.

(4) The need of the United States to conserve energy

“The need of the United States to cons erve energy” means “the consumer cost, national balance of payments, environmental, and foreign policy implications of our need for large quantities of petroleum, especially imported petroleum.” 552 Environmental implications principally include reductions in emissions of criteria polluta nts and carbon dioxide. Prime examples of foreign polic y implications are energy independence and security concerns.

(a) Fuel prices and the value of saving fuel

Projected future fuel prices are a crit ical input into the preliminary economic analysis of alternative CAFE standards, becau se they determine the value of fuel savings both to new vehicle buyers and to society. In this rule, NHTSA relies on fuel price projections from the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook (AEO) for this analysis. Federal government agencies generally use EIA’s projections in their assessments of future energy-related policies.

552 42 FR 63184, 63188 (1977).848 (b) Petroleum consumption and import externalities

U.S. consumption and imports of pe troleum products impose costs on the domestic economy that are not reflected in the market price for crude petroleum, or in the prices paid by consumers of petroleum products such as gasoline. These costs include (1) higher prices for petroleum products resulti ng from the effect of U.S. oil import demand on the world oil price; (2) the risk of disr uptions to the U.S. economy caused by sudden reductions in the supply of imported oil to th e U.S.; and (3) expenses for maintaining a U.S. military presence to secure imported oil supplies from unstable regions, and for maintaining the strategic petroleum reserve (SPR) to provide a re sponse option should a disruption in commercial oil supplies threat en the U.S. economy, to allow the United States to meet part of its International En ergy Agency obligation to maintain emergency oil stocks, and to provide a national defense fu el reserve. Higher U.S. imports of crude oil or refined petroleum pr oducts increase the magnitude of these external economic costs, thus increasing the true economic cost of supplying transportation fuels above the resource costs of producing them. Conversely, reducing U.S. imports of crude petroleum or refined fuels or reducing fuel consum ption can reduce these external costs.

(c) Air pollutant emissions

While reductions in domestic fuel refini ng and distribution that result from lower fuel consumption will reduce U.S. emissions of various pollutants, additional vehicle use849 associated with the rebound effect 553 from higher fuel economy will increase emissions of these pollutants. Thus, the net effect of stricter CAFE standards on emissions of each pollutant depends on the relative magnitudes of its reduced emissions in fuel refining and distribution, and increases in it s emissions from vehicle use.

Fuel savings from stricter CAFE standa rds also result in lower emissions of CO 2 , the main greenhouse gas emitted as a result of refining, distribution, and use of transportation fuels. Lower fuel consumpti on reduces carbon dioxide emissions directly, because the primary source of transportation-related CO 2 emissions is fuel combustion in internal combustion engines.

NHTSA has considered environmental issu es, both within the context of EPCA and the National Environmental Policy Act, in making decisions about the setting of standards from the earliest days of the CAFE pr ogram. As courts of appeal have noted in three decisions stretching over the last 20 years, 554 NHTSA defined the “need of the Nation to conserve energy” in the late 1970s as including “the consumer cost, national balance of payments, environmenta l, and foreign policy implications of our need for large quantities of petroleum, esp ecially imported petroleum.” 555 Pursuant to that view, NHTSA declined in the past to include dies el engines in determining the appropriate level of standards for passenge r cars and for light trucks because particulate emissions

553 The “rebound effect” refers to the te ndency of drivers to drive their vehi cles more as the cost of doing so goes down, as when fuel economy improves. 554 Center for Auto Safety v. NHTSA , 793 F.2d 1322, 1325 n. 12 (D.C.Cir.1986); Public Citizen v. NHTSA , 848 F.2d 256, 262-3 n. 27 (D.C. Cir. 1988) (noting that “NHTSA itself has interpreted the factors it must consider in setting CAFE standards as including environmental effects”);and Center for Biological Diversity v. NHTSA , 538 F.3d 1172 (9 th Cir. 2007). 555 42 FR 63184, 63188 (Dec. 15, 1977) (emphasis added)850 from diesels were then both a s ource of concern and unregulated. 556 In 1988, NHTSA included climate change concepts in its CAFE notices and prepared its first environmental assessment addressing that subject. 557 It cited concerns about climate change as one of its reasons for limiting the ex tent of its reduction of the CAFE standard for MY 1989 passenger cars. 558 Since then, NHTSA has considered the benefits of reducing tailpipe carbon dioxide emissions in its fuel economy rulemakings pursuant to the statutory requirement to consider the nation’s need to conserve energy by reducing fuel consumption.

ii. Other Factors Considered by NHTSA

NHTSA considers the potential for adve rse safety consequences when in establishing CAFE standards. This pract ice is recognized appr ovingly in case law. 559
Under the universal or “flat” CAFE standard s that NHTSA was previously authorized to establish, manufacturers were encouraged to respond to higher standards by building smaller, less safe vehicles in order to “bal ance out” the larger, safer vehicles that the public generally preferred to buy, which resu lted in a higher mass differential between

556 For example, the final rules establishing CAFE standards for MY 1981-84 passenger cars, 42 FR 33533,33540-1 and 33551 (Jun. 30, 1977), and for MY 1983-85 light trucks, 45 FR 81593, 81597 (Dec. 11, 1980). 557 53 FR 33080, 33096 (Aug. 29, 1988). 558 53 FR 39275, 39302 (Oct. 6, 1988). 559 See, e.g. , Center for Auto Safety v. NHTSA (CAS), 793 F. 2d 1322 (D.C. Cir. 1986) (Administrator’s consideration of market demand as component of ec onomic practicability found to be reasonable); Public Citizen 848 F.2d 256 (Congress established broad guidelin es in the fuel economy statute; agency’s decision to set lower standard was a reason able accommodation of conflicting policies). As the United States Court of Appeals pointed out in upholding NHTSA's exercise of judgment in setting the 1987-1989 passenger car standards, “NHTSA has always examined the safety consequences of the CAFE standards in its overall consideration of relevant f actors since its earliest rulemaking under the CAFE program.” Competitive Enterprise Institute v. NHTSA (CEI I), 901 F.2d 107, 120 at n.11 (D.C. Cir. 1990).851 the smallest and the largest vehicles, with a correspondingly greater risk to safety. Under the attribute-based standards being proposed to day, that risk is reduced because building smaller vehicles would tend to raise a manu facturer’s overall CAFE obligation, rather than only raising its fleet average CAFE, a nd because all vehicles are required to continue improving their fuel economy.

In addition, the agency considers consum er demand in establishing new standards and in assessing whether already established standards remained feasible. In the 1980s, the agency relied in part on the unexpected drop in fuel prices and the resulting unexpected failure of consumer demand for sm all cars to develop in explaining the need to reduce CAFE standards for a several year pe riod in order to give manufacturers time to develop alternative technol ogy-based strategies for improving fuel economy.

iii. Factors that NHTSA is Statutorily Prohibited from Considering in Setting Standards

EPCA provides that in determining the level at which it should set CAFE standards for a particular model year, NHTSA may not consid er the ability of manufacturers to take advantage of several EPCA provisions that facilitate compliance with the CAFE standards and ther eby reduce the costs of compliance. 560 As noted below, manufacturers can earn compliance credits by exceeding the CAFE standards and then use those credits to achieve compliance in ye ars in which their measured average fuel economy falls below the standard s. Manufacturers can also increase their CAFE levels

560 49 U.S.C. 32902(h).852 through MY 2019 by producing alternative fuel vehicles. EPCA provides an incentive for producing these vehicles by specifying that their fuel economy is to be determined using a special calculation procedure that re sults in those vehicles being assigned a high fuel economy level.

iv. Weighing and Balancing of Factors

NHTSA has broad discretion in balancing the above factors in determining the average fuel economy level that the manufact urers can achieve. Congress “specifically delegated the process of setti ng ... fuel economy standards with broad guidelines concerning the factors that the agency must consider. The breadth of those guidelines, the absence of any statutorily prescribed form ula for balancing the factors, the fact that the relative weight to be gi ven to the various factors may change from rulemaking to rulemaking as the underlying facts change, and the fact that the f actors may often be conflicting with respect to whether they milita te toward higher or lower standards give NHTSA discretion to decide what weight to give each of the competing policies and concerns and then determine how to bala nce them-as long as NHTSA's balancing does not undermine the fundamental purpose of th e EPCA: energy conservation, and as long as that balancing reasonably accommodates “conflicting policies that were committed to the agency's care by the statute.’”

Thus, EPCA does not mandate that any particular number be adopted when NHTSA determines the level of CAFE standard s. Rather, any number within a zone of853 reasonableness may be, in NHTSA’s assessment, the level of stringency that manufacturers can achieve. See, e.g., Hercules Inc. v. EPA , 598 F. 2d 91, 106 (D.C. Cir. 1978) (“In reviewing a numerical standard we must ask wh ether the agency’s numbers are within a zone of reasonableness, not whether its numbers are precisely right”).

v. Other Requirements Related to Standard Setting

The standards for passenger cars and those for light trucks must increase ratably each year. This statutory requirement is inte rpreted, in combinati on with the requirement to set the standards for each model year at the level determined to be the maximum feasible level that manufacturers can achieve fo r that model year, to mean that the annual increases should not be disproportionately large or small in relation to each other.

The standards for passenger cars and light trucks must be based on one or more vehicle attributes, like size or weight, that correlate with fuel economy and must be expressed in terms of a mathematical func tion. Fuel economy targets are set for individual vehicles and increase as the attrib ute decreases and vice versa. For example, size-based (i.e., size-indexed) standards assi gn higher fuel economy targets to smaller (and generally, but not necessarily, lighte r) vehicles and lower ones to larger (and generally, but not necessarily, heavier) vehicles. The fleet-wide average fuel economy that a particular manufacturer is required to achieve depends on the size mix of its fleet, i.e., the proportion of the fleet that is small-, medium- or large-sized.854 This approach can be used to require virtually all manufacturers to increase significantly the fuel economy of a broad ra nge of both passenger ca rs and light trucks, i.e., the manufacturer must improve the fuel economy of all the vehicles in its fleet. Further, this approach can do so without cr eating an incentive for manufacturers to make small vehicles smaller or large vehicles larger, with attendant implications for safety.

b. Test Procedures fo r Measuring Fuel Economy

EPCA provides EPA with the responsi bility for establishing CAFE test procedures. Current test procedures measure the effects of many fuel saving technologies. The principal exception is impr ovements in air conditioni ng efficiency. By statutory law in the case of pa ssenger cars and by administrativ e regulation in the case of light trucks, air conditione rs are not turned on duri ng fuel economy testing.

The fuel economy test procedures for light trucks could be amended through rulemaking to provide for air conditioner opera tion during testing and to take other steps for improving the accuracy and representativ eness of fuel economy measurements. NHTSA sought comment in the NPRM regarding implementing such amendments beginning in MY 2017 and also on the more immediate interim alternative step of providing CAFE program credits under the au thority of 49 U.S.C. 32904(c) for light trucks equipped with relatively efficient air conditioners for MYs 2012-2016, but decided against finalizing either option for purposes of this final rule, choosing to defer the matter for now. Modernizing the passenger car test procedures, or even providing similar credits, would not be possible under EPCA as currently written.855 c. Enforcement and Compliance Flexibility

EPA is responsible for measuring auto mobile manufacturers’ CAFE so that NHTSA can determine compliance with the CAFE standards. When NHTSA finds that a manufacturer is not in compliance, it notifie s the manufacturer. Su rplus credits generated from the five previous years can be used to make up the deficit. The amount of credit earned is determined by multiplying the number of tenths of a mpg by which a manufacturer exceeds a standard for a partic ular category of automobiles by the total volume of automobiles of that category manu factured by the manuf acturer for a given model year. If there are no (or not enough) credits availabl e, then the manufacturer can either pay the fine, or submit a carry back pl an to NHTSA. A carry back plan describes what the manufacturer plans to do in the following three model years to earn enough credits to make up for the deficit. NHTSA must examine and determine whether to approve the plan.

In the event that a manufacturer does not comply with a CAFE standard, even after the consideration of credits, EPCA pr ovides for the assessing of civil penalties, unless, as provided below, the manufacturer has earned credits for exceeding a standard in an earlier year or expects to earn credits in a later year. 561 The Act specifies a precise formula for determining the amount of civil penalties for such a noncompliance. The penalty, as adjusted for inflation by law, is $5.50 for each tenth of a mpg that a manufacturer’s average fuel economy falls shor t of the standard for a given model year

561 EPCA does not provide authority for seeking to enjoin violations of the CAFE standards.856 multiplied by the total volume of those vehicles in the affected fleet (i.e., import or domestic passenger car, or light truck), manufactured for that model year. The amount of the penalty may not be reduced except under the unusual or extreme circumstances specified in the statute.

Unlike the National Traffic and Motor Vehicle Safety Act, EPCA does not provide for recall and remedy in the event of a noncompliance. The presence of recall and remedy provisions 562 in the Safety Act and their absence in EPCA is believed to arise from the difference in the application of th e safety standards and CAFE standards. A safety standard applies to i ndividual vehicles; that is, each vehicle must possess the requisite equipment or featur e that must provide the re quisite type and level of performance. If a vehicle does not, it is noncompliant. Typically, a vehicle does not entirely lack an item or equipment or feature. Instead, the equipment or features fails to perform adequately. Recalling the vehicle to repair or replace the noncompliant equipment or feature can usually be readily accomplished.

In contrast, a CAFE standard applies to a manufacturer’s entire fleet for a model year. It does not require that a particular individual vehicle be equipped with any particular equipment or feature or meet a part icular level of fuel economy. It does require that the manufacturer’s fleet , as a whole, comply. Further, although under the attributebased approach to setting CAFE standards fuel economy targets are established for individual vehicles based on thei r footprints, the vehicles are not required to comply with those targets. However, as a practical matte r, if a manufacturer chooses to design some

562 49 U.S.C. 30120, Remedies for defects and noncompliance.857 vehicles that fall below their target levels of fuel economy, it will need to design other vehicles that exceed their targets if the manuf acturer’s overall fleet average is to meet the applicable standard. Thus, under EPCA, there is no such thi ng as a noncompliant vehicle, only a noncompliant fleet. No particul ar vehicle in a noncompliant fleet is any more, or less, noncompliant than any other vehicle in the fleet.

C. Development and Feasibility of the Final Standards

1. How Was the Baseline and Reference Vehicle Fleet Developed?

a. Why Do the Agencies Establish a Baseline and Reference Vehicle Fleet?

As also discussed in Section II.B above, in order to determine what levels of stringency are feasible in future model years, the agencies must project what vehicles will exist in those model years, and then evaluate what technologie s can feasibly be applied to those vehicles in order to raise their fuel economy and lower their CO 2 emissions. The agencies therefore established a baseline ve hicle fleet representing those vehicles, based on the best available transparent information. Each agency then developed a separate reference fleet, accounting (via their respective analytical models) for the effect that the MY 2011 CAFE standards have on the baseline fl eet. This reference fleet is then used for comparisons of technologies’ incremental co st and effectiveness, as well as for other relevant comparisons in the rule.858 Because NHTSA and EPA have different established practices, the agencies’ rulemaking documents (the Federal Register notice, Joint Technical Support Document, agency-specific Regulatory Impact Analyses, and NHTSA Environmental Impact Analysis) have some differences in terminol ogy. In connection with its first-ever GHG emissions rule under the CAA, EPA has used th e term “baseline fleet” to refer to the MY 2008 fleet (i.e., from EPA certification and fuel economy data for MY 2008) prior to adjustment to reflect projected shifts in ma rket composition. NHTSA, as in recent CAFE rulemakings, refers to the resultant market forecast, as specified in CAFE model input files (and corresponding input files for EPA’s OMEGA model) , as the “baseline” fleet. EPA refers to this fleet as the “reference fleet.” NHTSA refers to the “no action” standards identified in the EIS (that is, the MY 2011 st andards carried forward through MY 2016) as defining the “baseline” scenar io, and refers to the fleet to which technologies have been added in response to these standards as th e “adjusted baseline” fleet. 563 EPA refers to this as the “final reference fleet.” These differences in terminology are summarized in the following table:

Fleet Description EPA Termi nology NHTSA Terminology MY 2008 Fleet with MY 2008 Production Volumes Baseline MY 2008 Fleet MY 2008 Fleet Adjusted to Reflect Projected Market Shifts Reference Fleet Baseline [Market Forecast] MY 2008 Fleet Adjusted to Reflected Projected Market Shifts and Response to MY 2011 CAFE Standards [Final] Reference Fleet Adjusted Baseline

The agencies have retained this mixe d terminology in order to facilitate comparison to past rulemakings. In genera l, EPA’s RIA and the Joint TSD apply EPA’s

563 Some manufacturers’ baseline fleets (as reflected in the agencies’ market forecast) do not, without applying additional technology and/or CAFE credits , show compliance with the baseline standards.859 nomenclature, NHTSA’s RIA and EIS appl y NHTSA’s nomenclature, and the joint Federal Register notice uses EPA’s nomenclature when focusing on GHG emissions standards, and NHTSA’s nomenclatur e when focusing CAFE standards.

b. What Data Did the Agencies Use to Construct the Baseline, and How Did They Do So?

As explained in the Technical Suppor t Document (TSD) prepared jointly by NHTSA and EPA, both agencies used a baseli ne vehicle fleet cons tructed beginning with EPA fuel economy certification data for the 2008 model year, the most recent model year for which final data is currently available from manufacturers. These data were used as the source for MY 2008 production volum es and some vehicle engineering characteristics, such as fuel economy rati ngs, engine sizes, numbers of cylinders, and transmission types.

Some information important for analyzi ng new CAFE standards is not contained in the EPA fuel economy certification data. EPA staff estimated vehicle wheelbase and track widths using data from Motortrend.co m and Edmunds.com. This information is necessary for estimating vehicle footprint, whic h is required for the analysis of footprintbased standards. Considerable additional information regarding vehicle engineering characteristics is also important for estima ting the potential to a dd new technologies in response to new CAFE standards. In genera l, such information helps to avoid “adding” technologies to vehicles that already have the same or a more advanced technology.860 Examples include valvetrain configurati on (e.g., OHV, SOHC, DOHC), presence of cylinder deactivation, and fuel delivery (e.g., MPFI, SIDI). To the extent that such engineering characteristics we re not available in certificat ion data, EPA staff relied on data published by Ward’s Automotive, supplemen ting this with information from internet sites such as Motortrend.co m and Edmunds.com. NHTSA staff also added some more detailed engineering characteristics (e.g., t ype of variable valve timing) using data available from ALLDATA® Online. Combined with the certification data, all of this information yielded the MY 2008 baseline vehicle fleet.

After the baseline was created the next step was to project the sales volumes for 2011-2016 model years. EPA used projected car and truck volumes for this period from Energy Information Administration’s (E IA’s) 2009 Annual En ergy Outlook (AEO). 564 However, AEO projects sales only at the car and truck level, not at the manufacturer and model-specific level, which are needed in order to estimate the effects new standards will have on individual manufacturers. Ther efore, EPA purchased data from CSMWorldwide and used their projections of the num ber of vehicles of each type predicted to be sold by manufacturers in 2011-2015. 565 This provided the yea r-by-year percentages of cars and trucks sold by each manufacturer as well as the pe rcentages of each vehicle segment. The changes between company ma rket share and industry market segments were most significant from 2011-2014, while for 2014-2015 the changes were relatively

564 Available at http://www.eia.doe.gov/oiaf/ aeo/index.html (last accessed Ma rch 15, 2010). Specifically, while the total volume of both cars and trucks was obtained from AEO 2010, the car-truck split was obtained from AEO 2009. The agencies have also used fuel price forecasts from AEO 2010. Both agencies regard AEO a credible source not only of su ch forecasts, but also of many underlying forecasts, including forecasts of the size th e future light vehicle market. 565 EPA also considered other sources of similar information, such as J.D. Powers, and concluded that CSM was more appropriate for purposes of this rulemaking analysis.861 small. Noting this, and lacking a credible forecast of company and segment shares after 2015, the agencies assumed 2016 ma rket share and mark et segments to be the same as for 2015. Using these percentages normalized to the AEO projected volumes then provided the manufacturer-specific market share a nd model-specific sales for model years 2011-
2016.

The processes for constructing the MY 2008 baseline vehicle fleet and subsequently adjusting sales volumes to construct the MY 2011-2016 baseline vehicle fleet are presented in detail in Chapter 1 of the Joint Technical Support Document accompanying today’s final rule.

c. How is This Different From NHTS A’s Historical Approach and Why is This Approach Preferable?

As discussed above in Section II.B.4, NHT SA has historically based its analysis of potential new CAFE standards on detailed product plans the agency has requested from manufacturers planning to produce light-duty vehicles for sale in the United States. In contrast, the current market forecast is based primarily on information sources which are all either in the public domain or availa ble commercially. There are advantages to this approach, namely transparency and the potential to reduce some errors due to manufacturers’ misunderstanding of NHTSA’s request for info rmation. There are also disadvantages, namely that the current market forecast does not repr esent certain changes likely to occur in the future vehicle fleet as opposed to the MY 2008 vehicle fleet, such as862 vehicles being discontinued and newly introduc ed. On balance, however, the agencies have carefully considered these advantages and disadvantages of using a market forecast derived from public and commercial sources rather than from manufacturers’ product plans, and conclude that the advant ages outweigh the disadvantages.

Although manufacturers did not comment on the agency’s proposal to rely on public and commercial informa tion rather than manufacturers’ confidential product plans when developing a market forecast, those or ganizations that did comment on this issue supported this change. The California Air Resources Board (CARB) and Center for Biological Diversity (CBD) both commended th e resultant increase in transparency. CARB further indicated that the use of public and commercial information should produce a better forecast. On the other hand, as discussed above in Section I, CBD and the Northeast States for Coordinated Ai r Use Management (NESCAUM) both raised concerns regarding the resultant omission of some new vehicle models, and the inclusion of some vehicles to be discontinued, while CARB suggested that the impact of these inaccuracies should be minor.

As discussed above in Section II.B.4, wh ile a baseline developed using publicly and commercially available sources has both ad vantages and disadvant ages relative to a baseline developed using manufacturers’ product plans, NHTSA has concluded for today’s rule that the advantag es outweigh the disadvantages. Today’s approach is much more transparent than the agency’s past a pproach of relying on product plans, and as863 discussed in Section II.B.4, any inaccuracies related to new or discontinued vehicle models should have only a minor impact on the agency’s analysis.

For subsequent rulemakings, NHTSA remains hopeful that manufacturers will agree to make public their plans for model years that are very near, so that this information could be incorporated into analys is available for public review and comment. In any event, because NHTSA is releasing market inputs used in the agency’s analysis of this final rule, all interested parties can review th ese inputs fully, as intended in adopting the transparent approach. More information on the advantages and disadvantages of the current approach and the agencies’ decision to follow it is available in Section II.B.4.

d. How is This Baseline Different Quantitatively from the Baseline That NHTSA Used for the MY 2011 (March 2009) Final Rule?

As discussed above, the current baselin e was developed from adjusted MY 2008 compliance data and covers MYs 2011-2016, while the baseline that NHTSA used for the MY 2011 CAFE rule was developed from c onfidential manufacturer product plans for MY 2011. This section describes, for the r eader’s comparison, some of the differences between the current baseline and the MY 2011 CAFE rule ba seline. This comparison provides a basis for understanding general charact eristics and measures of the difference, in this case, between using publicly (and commercially) available sources and using manufacturers’ confidential product plans. The current baseline, while developed using the same methods as the baseline used for MYs 2012-2016 NPRM, reflects updates to the864 underlying commercially-available forecast of manufacturer and market segment shares of the future light vehicle market. These changes are discussed above in Section II.B.

Estimated vehicle sales :

The sales forecasts, based on the Energy Information Administration’s (EIA’s) Annual Energy Outlook 2010 (AEO 2010), used in the current baseline indicate that the total number of light vehicles expected to be sold during MYs 2011-2015 is 77 million, or about 15.4 million vehicles annually. 566 NHTSA’s MY 2011 final rule forecast, based on AEO 2008, of the total number of light vehicles likely to be sold during MY 2011 through MY 2015 was 83 million, or about 16.6 m illion vehicles annually. Light trucks are expected to make up 41 percent of th e MY 2011 baseline market forecast in the current baseline, compared to 42 percent of the baseline market forecast in the MY 2011 final rule. These changes in both the overall size of the light vehicle market and the relative market shares of passenger cars and light trucks reflect changes in the economic forecast underlying AEO, and changes in AEO’s forecast of future fuel prices.

The figures below attempt to demonstrat e graphically the difference between the variation of fuel economy with footprint for passenger cars under the curren t baseline and MY 2011 final rule, and for light trucks under the current baseline and MY 2011 final rule, respectively. Figures IV.C.1-1 and 1- 2 show the variation of fuel economy with footprint for passenger car models in the curr ent baseline and in the MY 2011 final rule,

566 Please see Section II.B above and Chapter 1 of the Jo int TSD for more discussi on on the agencies’ use of AEO 2010 to determine the sales forecasts for light vehicles during the model years covered by the rulemaking, as well as the memo availa ble at Docket No. NHTSA-2009-059-0222.865 while Figures IV.C.1-3 and 1-4 show the vari ation of fuel economy with footprint for light truck models in the curr ent baseline and in the MY 2011 final rule. However, it is difficult to draw meaningful conclusions by comparing figures from the current baseline with those of the MY 2011 final rule. In the current base line the number of make/models, and their associated fuel econom y and footprint, are fixed and do not vary over time—this is why the number of data point s in the current baseline figures appears smaller as compared to the number of data poi nts in the MY 2011 final rule baseline. In contrast, the baseline fleet us ed in the MY 2011 final rule va ries over time as vehicles (with different fuel economy and footprint ch aracteristics) are adde d to and dropped from the product mix.866 Figure IV.C.1-1 Planned Fuel Economy vs. Foot print, Passenger Cars in Current Baseline

10 15 20 25 30 35 40 45 50 55 60 65 70

35 40 45 50 55 60 65 70 75 Footprint (sf)Fuel Economy(mpg)867 Figure IV.C.1-2 Planned Fuel Economy vs. Footprint, Passenger Cars in MY 2011 Final Rule

10 15 20 25 30 35 40 45 50 55 60 65 70

35 40 45 50 55 60 65 70 75 80 Footprint (sf)Fuel Economy (mpg)868 Figure IV.C.1-3 Planned Fuel Economy vs. F ootprint, Light Trucks in Current Baseline

10 15 20 25 30 35 40 45 50 55 60 65 70

35 40 45 50 55 60 65 70 75 80 Footprint (sf)Fuel Economy (mpg)869 Figure IV.C.1-4 Planned Fuel Economy vs. Footprint, Light Trucks in MY 2011 Final Rule

10 15 20 25 30 35 40 45 50 55 60 65 70

35 40 45 50 55 60 65 70 75 80 Footprint (sf)Fuel Economy (mpg)870 Estimated manufacturer market shares :

NHTSA’s expectations regarding manufactur ers’ market shares (the basis for which is discussed below) have also changed since the MY 2011 final rule, given that the agency is relying on different sources of mate rial for these assumptions as discussed in Section II.B above and Chapter 1 of the Joint TSD. These changes are reflected below in Table IV.C.1-1, which shows the agency’s sa les forecasts for passenger cars and light trucks under the current baseline and the MY 2011 final rule. 567

Table IV.C.1-1 Sales Forecasts (Production for U.S. Sale in MY 2011, Thousand Units) Current Baseline MY 2011 Final Rule Manufacturer Passenger Nonpassenger Passenger Nonpassenger Chrysler 326 737 707 1,216 Ford 1,344 792 1,615 1,144 General Motors 1,249 1,347 1,700 1,844 Honda 851 585 1,250 470 Hyundai 382 46 655 221 Kia 306 88 Nissan 612 331 789 479 Toyota 1,356 888 1,405 1,094 Other Asian 664 246 441 191 European 833 396 724 190 Total 7,923 5,458 9,286 6,849

567 As explained below, although NHTSA normalized each manufacturer’s overall ma rket share to produce a realistically-sized fleet, the product mix for each manufacturer that submitted product plans was preserved. The agency has reviewed manufacturers’ product plans in detail, and understands that manufacturers do not sell the same mix of vehicles in every model year.871 Dual-fueled vehicles :

Manufacturers have also, duri ng and since MY 2008, indica ted to the agency that they intend to sell more dual-fueled or flex ible-fuel vehicles (FFVs) in MY 2011 than indicated in the current baseline of adjust ed MY 2008 compliance data. FFVs create a potential market for alternatives to petrol eum-based gasoline and diesel fuel. For purposes of determining compliance with CAFE standards, the fuel economy of a FFV is, subject to limitations, adjusted upward to account for this potential. 568 However, NHTSA is precluded from “taking credit” for the compliance flex ibility by accounting for manufacturers’ ability to earn and use cred its in setting the level of the standards.” 569 Some manufacturers plan to pr oduce a considerably greater sh are of FFVs than can earn full credit under EPCA. The pr ojected average FFV share of the market in MY 2011 is 7 percent for the current baseline, versus 17 percent for the MY 2011 final rule. NHTSA notes that in MY 2008 (the model year provi ding the vehicle models upon which today’s market forecast is based), the three U.S.-bas ed OEMs produced most of the FFVs offered for sale in the U.S., yet these OEMs account are projected to account for a smaller share of the future market in the forecast the agency has used to develop and analyze today’s rule than in the forecast the agency used to develop and analyze the MY 2011 standards.

568 See 49 U.S.C. 32905 and 32906. 569 49 U.S.C..32902(h).872 Estimated achieved fuel economy levels :

Because manufacturers’ product plans also reflect simultaneous changes in fleet mix and other vehicle charac teristics, the relationship between increased technology utilization and increased fuel economy cannot be isolated with any certainty. To do so would require an apples-to-appl es “counterfactual” fleet of ve hicles that are, except for technology and fuel economy, iden tical—for example, in term s of fleet mix and vehicle performance and utility. The current base line market forecast shows industry-wide average fuel economy levels somewhat lo wer in MY 2011 than shown in the MY 2011 final rule and the MYs 2012-2016 NPRM. U nder the current baseline, average fuel economy for MY 2011 is 26.4 mpg, versus 26.5 mpg under the baseline in the MY 2011 final rule, and 26.7 mpg under the baselin e in the MYs 2012-2016 NPRM. The 0.3 mpg change relative to the MYs 2012-2016 baseline is the result of changes in manufacturer and market segment shares of the MY 2011 market.

These differences are shown in greater detail below in Table IV.C.1-2, which shows manufacturer-specific CAFE levels (not counting FFV credits that some manufacturers expect to earn) from the current baseline versus the MY 2011 final rule baseline (from manufacturers’ 2008 product plans) for passenger cars and light trucks. Table IV.C.1-3 shows the combined averages of these planned CAFE levels in the respective baseline fleets. These tables demonstrate that, while the difference at the industry level is not so large, there are significant differences in CAFE at the manufacturer level between the current base line and the MY 2011 fina l rule baseline.873 For example, while Volkswagen is essent ially the same under both, Toyota and Nissan show increased combined CAFE levels unde r the current baseline (by 1.9 and 0.7 mpg respectively), while Chrysler, Ford, and GM show decreased combined CAFE levels under the current baseline (by 1. 4, 1.1, and 0.8 mpg, respec tively) relative to the MY 2011 final rule baseline.

Table IV.C.1-2 Current Baseline Planned CAFE Levels in MY 2011 versus MY 2011 Final Rule Planned CAFE Levels (Passenger and Nonpassenger) Current baseline CAFE levels MY 2011 planned CAFE levels Manufacturer Passenger Nonpassenger Passenger Nonpassenger BMW 27.2 23.0 27.0 23.0 Chrysler 27.8 21.8 28.2 23.1 Ford 28.0 21.0 29.3 22.5 Subaru 29.2 26.1 28.6 28.6 General Motors 28.2 21.2 30.3 21.4 Honda 33.5 25.0 32.3 25.2 Hyundai 32.5 24.3 31.7 26.0 Tata 24.6 19.6 24.7 23.9 Kia 570 31.7 23.7 Mazda 571 30.6 26.0 Daimler 26.4 21.0 25.2 20.6 Mitsubishi 29.4 23.6 29.3 26.7 Nissan 31.7 21.7 31.3 21.4 Porsche 26.2 20.0 27.2 20.0 Ferrari 572 16.2 Maserati 573 18.2 Suzuki 30.9 23.3 28.7 24.0 Toyota 35.1 23.7 33.2 22.7 Volkswagen 29.1 20.2 28.5 20.1 Total/Average 30.3 22.2 30.4 22.6

570 Again, Kia is not listed in the table for the MY 2011 final rule because it was considered as part of Hyundai for purposes of that analysis (i.e., Hyundai-Kia). 571 Mazda is not listed in the table for the MY 2011 final rule because it wa s considered as part of Ford for purposes of that analysis. 572 EPA did not include Ferrari in the current baseline based on the conclusion that including them would not impact the results, and therefore Ferrari is not listed in the table for the current baseline. 573 EPA did not include Maserati in the current baseline based on the conclusion that including them would not impact the results, and therefore Maserati is not listed in the table for the current baseline.874 Table IV.C.1-3 Current Baseline Planned CAFE Levels in MY 2011 versus MY 2011 Final Rule Planned CAFE Levels (Combined) Manufacturer Current baseline MY 2011 Final Rule baseline BMW 25.0 26.0 Chrysler 23.3 24.7 Ford 24.9 26.0 Subaru 27.9 28.6 General Motors 24.1 24.9 Honda 29.5 30.0 Hyundai 31.3 30.0 Tata 21.4 24.4 Kia 29.5 Mazda 29.8 Daimler 24.4 23.6 Mitsubishi 27.4 29.1 Nissan 27.3 26.6 Porsche 23.7 22.0 Ferrari 16.2 Maserati 18.2 Suzuki 29.7 27.8 Toyota 29.5 27.6 Volkswagen 27.0 27.1 Total/Average 26.4 26.5

Tables IV.C.1-4 through 1-6 summari ze other differences between the current baseline and manufacturers’ product plan s submitted to NHTSA in 2008 for the MY 2011 final rule. These tables present average vehicle footprint, curb weight, and powerto-weight ratios for each manuf acturer represented in the current baseline and of the seven largest manufacturers represented in the pr oduct plan data used in that rulemaking, and for the overall industry. The tables containing product plan data do not identify manufacturers by name, and do not pres ent them in the same sequence.875 Tables IV.C.1-4a and 1-4b show that the cu rrent baseline reflects a slight decrease in overall average passenger vehicle size relativ e to the manufacturers’ plans. This is a reflection of the market segment shifts unde rlying the sales forecasts of the current baseline.

Table IV.C.1-4a Current Baseline Average MY 2011 Vehicle Footprint (Square Feet) Manufacturer PC LT Avg. BMW 45.4 49.9 47.5 Chrysler 46.8 52.8 50.9 Daimler 47.1 53.3 49.0 Ford 46.3 56.1 49.9 General Motors 46.4 58.2 52.5 Honda 44.3 49.1 46.3 Hyundai 44.4 48.7 44.8 Kia 45.2 51.0 46.5 Mazda 44.4 47.3 44.9 Mitsubishi 43.8 46.5 44.6 Nissan 45.3 53.9 48.3 Porsche 38.6 51.0 42.8 Subaru 43.1 26.6 36.8 Suzuki 40.8 47.2 41.6 Tata 50.3 47.8 48.8 Toyota 44.0 53.0 47.6 Volkswagen 43.5 52.6 45.1 Industry Average 45.2 53.5 48.6

Table IV.C.1-4b MY 2011 Final Rule Av erage Planned MY 2011 Vehicle Footprint (Square Feet) PC LT Avg. Manufacturer 1 46.7 58.5 52.8 Manufacturer 2 46.0 5.4 47.1 Manufacturer 3 44.9 52.8 48.4 Manufacturer 4 45.4 55.8 49.3 Manufacturer 5 45.2 57.5 50.3 Manufacturer 6 48.5 54.7 52.4 Manufacturer 7 45.1 49.9 46.4 Industry Average 45.6 55.1 49.7876 Tables IV.C.1-5a and 1-5b show that the current baseline reflects a decrease in overall average vehicle weight relative to the manufacturers’ plans. As above, this is most likely a reflection of the market segment sh ifts underlying the sales forecasts of the current baseline.

Table IV.C.1-5a Current Baseline Aver age MY 2011 Vehicle Curb Weight (Pounds) Manufacturer PC LT Avg. BMW 3,535 4,648 4,055 Chrysler 3,572 4,469 4,194 Daimler 3,583 5,127 4,063 Ford 3,526 4,472 3,877 General Motors 3,528 4,978 4,281 Honda 3,040 4,054 3,453 Hyundai 3,014 4,078 3,129 Kia 3,035 4,007 3,252 Mazda 3,258 3,803 3,348 Mitsubishi 3,298 3,860 3,468 Nissan 3,251 4,499 3,689 Porsche 3,159 4,906 3,760 Subaru 3,176 2,001 2,727 Suzuki 2,842 3,843 2,965 Tata 3,906 5,171 4,627 Toyota 3,109 4,321 3,589 Volkswagen 3,445 5,672 3,839 Industry Average 3,313 4,499 3,797

Table IV.C.1-5b MY 2011 Final Rule Aver age Planned MY 2011 Vehicle Curb Weight (Pounds) PC LT Avg. Manufacturer 1 3,197 4,329 3,692 Manufacturer 2 3,691 4,754 4,363 Manufacturer 3 3,293 4,038 3,481 Manufacturer 4 3,254 4,191 3,510 Manufacturer 5 3,547 5,188 4,401 Manufacturer 6 3,314 4,641 3,815 Manufacturer 7 3,345 4,599 3,865 Industry Average 3,380 4,687 3,935877 Tables IV.C.1-6a and IV.C.1-6b show that the current baseline reflects a decrease in average performance rela tive to that of the manufact urers’ product plans. This decreased performance is most likely a reflec tion of the market segment shifts underlying the sales forecasts of the current baseline, that is, an assumed sh ift away from higher performance vehicles.

Table IV.C.1-6a Current Baseline Aver age MY 2011 Vehicle Power-to-Weight Ratio (hp/lb) Manufacturer PC LT Avg. BMW 0.072 0.061 0.067 Chrysler 0.055 0.052 0.053 Daimler 0.068 0.056 0.064 Ford 0.058 0.054 0.056 General Motors 0.057 0.056 0.056 Honda 0.056 0.054 0.056 Hyundai 0.052 0.055 0.052 Kia 0.050 0.056 0.051 Mazda 0.052 0.055 0.052 Mitsubishi 0.053 0.056 0.054 Nissan 0.059 0.057 0.058 Porsche 0.105 0.073 0.094 Subaru 0.060 0.030 0.048 Suzuki 0.049 0.062 0.051 Tata 0.077 0.057 0.065 Toyota 0.053 0.062 0.056 Volkswagen 0.057 0.052 0.056 Industry Average 0.057 0.056 0.056878 Table IV.C.1-6b MY 2011 Final Rule Av erage Planned MY 2011 Vehicle Power-toWeight Ratio (hp/lb) PC LT Avg. Manufacturer 1 0.065 0.058 0.060 Manufacturer 2 0.061 0.065 0.062 Manufacturer 3 0.053 0.059 0.056 Manufacturer 4 0.060 0.058 0.059 Manufacturer 5 0.060 0.057 0.059 Manufacturer 6 0.063 0.065 0.065 Manufacturer 7 0.053 0.055 0.053 Industry Average 0.060 0.059 0.060

As discussed above, the agencies’ ma rket forecast for MY 2012-2016 holds the performance and other characteri stics of individual vehicle m odels constant, adjusting the size and composition of the fleet from one model year to the next.

Refresh and redesign schedules (for application in NHTSA’s modeling) :

Expected model years in which each ve hicle model will be redesigned or freshened constitute another important aspect of NHTSA’s market forecast. As discussed in Section IV.C.2.c below, NHTSA’s anal ysis supporting the curre nt rulemaking times the addition of nearly all tec hnologies to coincide with ei ther a vehicle redesign or a vehicle freshening. Product plans subm itted to NHTSA preceding the MY 2011 final rule contained manufacturers’ estimates of vehicle redesign and fres hening schedules and NHTSA’s estimates of the timing of the five -year redesign cycle and the two- to threeyear refresh cycle were made with reference to those plans. In th e current baseline, in contrast, estimates of the timing of the refresh and redesign cycles were based on historical dates—i.e., counting forward from known redesigns occurring in or prior to879 MY 2008 for each vehicle in the fleet a nd assigning refresh and redesign years accordingly. After applying these estimates, the shares of manuf acturers’ passenger car and light truck estimated to be redesigned in MY 2011 were as summarized below for the current baseline and the MY 2011 final rule. Table IV.C.1-7 below shows the percentages of each manufacturer’s fleets expected to be redesigned in MY 2011 for the current baseline. Table IV.C.1-8 presents correspondi ng estimates from the market forecast used by NHTSA in the analysis supporting the MY 2011 final rule (again, to protect confidential information, manufactur ers are not identified by name).

Table IV.C.1-7 Current Baseline, Share of Fleet Redesigned in MY 2011 Manufacturer PC LT Avg. BMW 32% 37% 34% Chrysler 0% 13% 9% Daimler 0% 0% 0% Ford 12% 8% 11% General Motors 17% 3% 9% Honda 29% 26% 28% Hyundai 26% 0% 23% Kia 38% 83% 48% Mazda 0% 0% 0% Mitsubishi 0% 59% 18% Nissan 5% 25% 12% Porsche 0% 100% 34% Subaru 0% 42% 16% Suzuki 4% 21% 6% Tata 28% 100% 69% Toyota 5% 15% 9% Volkswagen 16% 0% 13% Industry Average 13% 15% 14%880 Table IV.C.1-8 MY 2011 Final Rule, Share of Fleet Redesigned in MY 2011 PC LT Avg. Manufacturer 1 19% 0% 11% Manufacturer 2 34% 27% 29% Manufacturer 3 5% 0% 3% Manufacturer 4 7% 0% 5% Manufacturer 5 19% 0% 11% Manufacturer 6 34% 28% 33% Manufacturer 7 27% 28% 28% Overall 20% 9% 15%

We continue, therefore, to estimate that manufacturers’ redesigns will not be uniformly distributed across model years. Th is is in keeping with standard industry practices, and reflects what manufacturers actually do–NHTSA has observed that manufacturers in fact do redesign more vehicl es in some years than in others. NHTSA staff have closely examined manufacturers’ planned redesign sche dules, contacting some manufacturers for clarification of some plan s, and confirmed that these plans remain unevenly distributed over time. For exam ple, although Table IV.C.1-8 shows that NHTSA expects Company 2 to redesign 34 perc ent of its passenger car models in MY 2011, current information indicates that this company will then redesign only (a different) 10 percent of its passenger cars in MY 2012. Similarly, although Table IV.C.1-8 shows that NHTSA expects four of the largest se ven light truck manuf acturers to redesign virtually no light truck models in MY 2011, current informati on also indicates that these four manufacturers will redesign 21-49 per cent of their light trucks in MY 2012.881 e. How does Manufacturer Product Plan Da ta Factor into the Baseline Used in this Rule?

As discussed in Section II.B.5 above, wh ile the agencies received updated product plans in Spring and Fall 2009 in response to NHTSA ’s requests, the baseline data used in this final rule is not informed by these pr oduct plans, except with respect to specific engineering characteristics (e.g., GVWR) of some MY 2008 vehicle models, because these product plans contain confidential busine ss information that the agencies are legally required to protect from disclosure, and becau se the agencies have concluded that, for purposes of this final rule, a tr ansparent baseline is preferable.

For the NPRM, NHTSA conducted a separate analysis that did make use of these product plans. NHTSA performed this sepa rate analysis for purposes of comparison only. For today’s final rule NHTSA used th e publicly available baseline for all analysis related to the development and evaluation of the new CAFE standards. As discussed above in Section II.B.4, while a baseline developed using publicly and commercially available sources has both advantages and di sadvantages relative to a baseline developed using manufacturers’ product plans, NHTSA has concluded for today’s rule that the advantages outweigh the disadva ntages. NHTSA plans to consider these advantages and disadvantages further in connection with futu re rulemakings, taking into account changes in the market, changes in the scope and qua lity of publicly and commercially available882 data, and any changes in manufacturers’ wi llingness to make some product planning information publicly available.

2. How were the Technology Inputs Developed?

As discussed above in Section II.E, for developing the technology inputs for the MY 2012-2016 CAFE and GHG standards, the agencies primarily began with the technology inputs used in the MY 2011 CAFE final rule and in the July 2008 EPA ANPRM, and then reviewed, as requested by President Obama in his January 26 memorandum, the technology assumptions th at NHTSA used in setting the MY 2011 standards and the comments that NHTSA recei ved in response to its May 2008 Notice of Proposed Rulemaking, as well as the comments received to the NPRM for this rule. In addition, the agencies supplemented their re view with updated information from the FEV tear-down studies contracted by EPA, more current literature, new product plans and from EPA certification testing. More deta il is available regarding how the agencies developed the technology inputs for this final ru le above in Section II. E, in Chapter 3 of the Joint TSD, and in Section V of NHTSA’s FRIA.

a. What Technologies does NHTSA Consider?

Section II.E.1 above describes the fuel -saving technologies considered by the agencies that manufacturers could use to im prove the fuel economy of their vehicles during MYs 2012-2016. The majority of the t echnologies described in this section are883 readily available, well known, and could be incorporated into vehicles once production decisions are made. As discussed, the tec hnologies considered fall into five broad categories: engine techno logies, transmission technologi es, vehicle technologies, electrification/acce ssory technologies, and hybrid tec hnologies. Table IV.C.2-1 below lists all the technologies consid ered and provides the abbrevia tions used for them in the Volpe model, 574 as well as their year of availabi lity, which for purposes of NHTSA’s analysis means the first model year in the rulemaking period that the Volpe model is allowed to apply a technol ogy to a manufacturer’s fleet. 575 Year of availability recognizes that technologies must achieve a leve l of technical viability before they can be implemented in the Volpe model, and are thus a means of cons training technology use until such time as it is considered to be technologically feasible. For a more detailed description of each technology and their costs an d effectiveness, we refer the reader to Chapter 3 of the Joint TSD a nd Section V of NHTSA’s FRIA.

574 The abbreviations are used in this section both for br evity and for the reader’s reference if they wish to refer to the expanded decision trees and the model input and output sheets, which are available in Docket No. NHTSA-2009-0059-0156 and on NHTSA’s website. 575 A date of 2011 means the technology can be applied in all model years, while a date of 2014 means the technology can only be applied in model years 2014 through 2016.884 Table IV.C.2-1 List of t echnologies in NHTSA’s analysis Technology Model Abbreviation Year Available Low Friction Lubricants LUB 2011 Engine Friction Reduction EFR 2011 VVT - Coupled Cam Phasing (CCP) on SOHC CCPS 2011 Discrete Variable Valve Lift (DVVL) on SOHC DVVLS 2011 Cylinder Deactivation on SOHC DEACS 2011 VVT - Intake Cam Phasing (ICP) ICP 2011 VVT – Dual Cam Phasing (DCP) DCP 2011 Discrete Variable Valve Lift (DVVL) on DOHC DVVLD 2011 Continuously Variable Valve Lift (CVVL) CVVL 2011 Cylinder Deactivation on DOHC DEACD 2011 Cylinder Deactivation on OHV DEACO 2011 VVT - Coupled Cam Phasing (CCP) on OHV CCPO 2011 Discrete Variable Valve Lift (DVVL) on OHV DVVLO 2011 Conversion to DOHC with DCP CDOHC 2011 Stoichiometric Gasoline Direct Injection (GDI) SGDI 2011 Combustion Restart CBRST 2014 Turbocharging and Downsizing TRBDS 2011 Exhaust Gas Recirculation (EGR) Boost EGRB 2013 Conversion to Diesel following CBRST DSLC 2011 Conversion to Diesel following TRBDS DSLT 2011 6-Speed Manual/Improved Internals 6MAN 2011 Improved Auto. Trans. Controls/Externals IATC 2011 Continuously Variable Transmission CVT 2011 6/7/8-Speed Auto. Trans with Improved Internals NAUTO 2011 Dual Clutch or Automated Manual Transmission DCTAM 2011 Electric Power Steering EPS 2011 Improved Accessories IACC 2011 12V Micro-Hybrid MHEV 2011 Belt Integrated Starter Generator BISG 2011 Crank Integrated Starter Generator CISG 2011 Power Split Hybrid PSHEV 2011 2-Mode Hybrid 2MHEV 2011 Plug-in Hybrid PHEV 2011 Mass Reduction 1 (1.5%) MS1 2011 Mass Reduction 2 (3.5% – 8.5%) MS2 2014 Low Rolling Resistance Tires ROLL 2011 Low Drag Brakes LDB 2011 Secondary Axle Disconnect 4WD SAX 2011 Aero Drag Reduction AERO 2011885 For purposes of this final rule and as disc ussed in greater detail in the Joint TSD, NHTSA and EPA carefully reviewed the list of technologies used in the agency’s analysis for the MY 2011 final rule. NHTSA and EPA concluded that the considerable majority of technologies were correctly define d and continued to be appropriate for use in the analysis supporting the final standards. However, some refinements were made as discussed in the NPRM. 576 Additionally, the following refinements were made for purposes of the final rule.

Specific to its modeling, NHTSA has revi sed two technologies used in the final rule analysis from those considered in the NPRM. These revisions were based on comments received in response to the NPRM a nd the identification of area to improve accuracy. In the NPRM, a diesel engine opt ion (DSLT or DSLC) was not available for small vehicles because it did not appear to be a cost-effective option. However, based on comments received in response to the NPRM, th e agency added a diesel engine option for small vehicles. Additionally, in the NPRM , the mass reduction/material substitution technology, MS1, assumed engine downsizing. However, for purposes of the final rule, engine downsizing is no longer assumed for MS1, thus sligh tly lowering the effectiveness estimate to better reflect how manufacturers might implement small amounts of mass reduction/material substitution. Chapter 3 of the Joint TS D and Section V of NHTSA’s FRIA provide a more detailed explanation of these revisions.

576 74 FR at 49655-56 (Sept. 28, 2009).886 b. How Did NHTSA Determine the Costs and Effectiveness of Each of These Technologies for Use in its Modeling Analysis?

Building on NHTSA’s estimates developed for the MY 2011 CAFE final rule and EPA’s Advanced Notice of Proposed Rule making, which relied on EPA’s 2008 Staff Technical Report, 577 the agencies took a fresh look at technology cost and effectiveness values and incorporated addi tional FEV tear-down study results for purposes of this final rule. This joint work is reflected in Chapter 3 of the Joint TSD and in Section II of this preamble, as summarized below. For more detailed information on the effectiveness and cost of fuel-saving technologies, please refe r to Chapter 3 of the Joint TSD and Section V of NHTSA’s FRIA. NHTSA and EPA are c onfident that the thorough review conducted for purposes of this final rule led to the best av ailable conclusions regarding technology costs and effectiveness estimates for the current rulemaking and resulted in excellent consistency between the agencies’ respectiv e analyses for developing the CAFE and CO 2 standards.

Generally speaking, while NHTSA and EPA found that much of the cost information used in NHTSA’s MY 2011 final rule and EPA’s 2008 Staff Report was consistent to a great extent, the agencies, in reconsidering information from many sources revised several component costs of severa l major technologies for purposes of the NRPM: mild and strong hybrids, diesels, SGDI , and Valve Train Lift Technologies. In

577 EPA Staff Technical Report: Cost and Effectiven ess Estimates of Technologies Used to Reduce LightDuty Vehicle Carbon Dioxide Emissions. EPA420-R-08-008, March 2008. Available at Docket No. NHTSA-2009-0059-0027.887 addition, based on FEV tear-down studies, the costs for turbocharging/downsizing, 6-,7- ,8-speed automatic transmissions, and dual cl utch transmissions were revised for this final rule. These revisions are discussed at length in the Joint TSD and in NHTSA’s
FRIA.

Most effectiveness estimates used in both the MY 2011 final rule and the 2008 EPA Staff Report were determined to be accurate and were carried forward without significant change into this rulemaking. When NHTSA and EPA’s estimates for effectiveness diverged slightly due to differences in how th e agencies apply technologies to vehicles in their respective models, we report the ranges for the effectiveness values used in each model. For purposes of the final rule analysis, NHT SA made only a couple of changes to the effectiveness estimates . Specifically, in reviewing the NPRM effectiveness estimates for this final rule NHTSA discovered that the DCTAM effectiveness value for Subcompact and Comp act subclasses was in correct; the (lower) wet clutch effectiveness estimate had been used instead of the intended (higher) dry clutch estimate for these vehicle classes. 578 Thus, NHTSA corrected these effectiveness estimates. Additionally, as discussed above, the effectiv eness estimate for MS1 was revised (lowered) to better represent the impact of reducing mass at a refresh. For much more information on the costs and effectiveness of individua l technologies, we refer the reader to Chapter 3 of the Joint TSD and Section V of NHTSA’s FRIA.

578 “Dry clutch” DCTAMs and “wet cl utch” DCTAMs have different characteristics and different uses. A dry clutch DCTAM is more efficient and less expens ive than a wet clutch DCTAM, which requires a wetclutch-type hydraulic system to co ol the clutches. However, without a cooling system, a dry clutch DCTAM has a lower torque capacity. Dry clutch DCTA Ms are thus ideal for smaller vehicles with lower torque ratings, like those in the Subcompact and Co mpact classes, while wet clutch DCTAMs would be more appropriate for, e.g., larger trucks. Thus, it is appropriate to distinguish accordingly in DCTAM effectiveness between subclasses.888 As a general matter, NHTSA received relatively few comments related to technology cost and effectiveness estimates as compared to the number received on these issues in previous CAFE rulemakings. The California Air Resources Board (CARB) generally agreed with cost estimates used in the NPRM analysis. NHTSA also received comments from the Aluminum Association, General Motors, Honeywell, International Council on Clean Transportation (ICCT), Manufacturers of Emission Controls Association (MECA), Motor and Equipmen t Manufacturers Association (MEMA) and the New Jersey Department of Environmental Protection related to co st and effectiveness estimates for specific technologies, includi ng but not limited to hybrids, diesels, turbocharging and downsizing, and mass reduction/material substitution. A detailed description of these comments and NHTSA’ s responses can be found in Section V of
NHTSA’s FRIA.

NHTSA notes that, in developing technology cost and effectiveness estimates, the agencies have made every effort to hold constant aspects of vehicle performance and utility typically valued by consumers, su ch as horsepower, carrying capacity, and towing and hauling capacity. For example, NHTSA in cludes in its analysis technology cost and effectiveness estimates that are specific to performance passenger cars (i.e., sports cars), as compared to non-performance passenger cars. NHTSA sought comment on the extent to which commenters believed that the agencies have been successful in holding constant these elements of vehicle performance and utility in developing the technology cost and effectiveness estimates, but received relatively little in response. NHTSA thus concludes889 that commenters had no significant issues with its approach for purposes of this rulemaking, but the agency will continue to analyze this issue going forward.

Additionally, NHTSA notes th at the technology costs included in this final rule take into account only those associ ated with the initial build of the vehicle. The agencies sought comment on the additional lifetime costs, if any, associated with the implementation of advanced technologi es, including warranty, maintenance and replacement costs, such as the replacement costs for low rolling resistance tires, low friction lubricants, and hybrid batteries, and maintenance cost s for diesel aftertreatment components, but received no responses. The agency will continue to examine this issue closely for subsequent rulemakings, particular ly as manufacturers turn increasingly to even more advanced technologies in the futu re that may have more significant lifetime

costs.

The tables below provide examples of the incremental cost and effectiveness estimates employed by the agency in developing this final rule, according to the decision trees used in the Volpe modeling analysis. Thus, the effectiveness and cost estimates are not absolute to a single reference vehicle, but are incremental to the technology or technologies that precede it.890Table IV.C.2-2 Technology Effectiveness Estimates Employed in the Volpe Model for Certain TechnologiesVEHICLE TECHNOLOGY INCREMENTAL FUEL CONSUMPTION REDUCTION (-%)Subcomp.CarCompactCarMidsizeCarLargeCarPerform.Subcomp.CarPerform.CompactCarPerform.MidsizeCarPerform.LargeCarMinivanLTSmallLTMidsizeLTLargeLTLow Friction Lubricants 0.5 0.5 0.50.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5VVT - Dual Cam Phasing(DCP)2.0 - 3.0 2.0 - 3.0 2.0- 3.0 2.0 - 3.0 2.0 - 3.0 2.0 -3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.02.0 - 3.0 2.0 - 3.0Discrete Variable ValveLift (DVVL) on DOHC1.0 - 3.0 1.0 - 3.0 1.0- 3.0 1.0 - 3.0 1.0 - 3.0 1.0 -3.0 1.0 - 3.0 1.0 - 3.0 1.0 - 3.0 1.0 - 3.01.0 - 3.0 1.0 - 3.0Cylinder Deactivation onOHVn.a. n.a. n.a. 3.9 - 5.5 n.a. 3.9 -5.5 3.9 - 5.5 3.9 -5.5 3.9 - 5.5 n.a.3.9 - 5.5 3.9 - 5.5Stoichiometric GasolineDirect Injection (GDI)2.0 - 3.0 2.0 - 3.0 2.0- 3.0 2.0 - 3.0 2.0 - 3.0 2.0 -3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.02.0 - 3.0 2.0 - 3.0Turbocharging andDownsizing4.2 - 4.8 4.2 - 4.8 4.2- 4.8 1.8 - 1.9 4.2 - 4.8 1.8 -1.9 1.8 - 1.9 1.8 - 1.9 1.8 - 1.9 4.2 -4.81.8 - 1.9 1.8 - 1.96/7/8-Speed Auto. Transwith Improved Internals1.4 - 3.4 1.4 - 3.4 1.4- 3.4 1.4 - 3.4 1.4 - 3.4 1.4 -3.4 1.4 - 3.4 1.4 - 3.4 1.4 - 3.4 1.4 - 3.41.4 - 3.4 1.4 - 3.4Electric Power Steering 1.0 - 2.0 1.0 - 2.01.0 - 2.0 1.0 - 2.0 1.0 - 2.0 1.0 - 2.0 1.0 - 2.0 1.0 -2.0 1.0 - 2.01.0 - 2.0 1.0- 2.0 1.0 - 2.012V Micro-Hybrid 2.0 - 3.0 2.0- 3.0 2.0 - 3.0 2.5 - 3.5 2.0 -3.0 2.5 - 3.5 2.5 - 3.5 3.0 - 4.0 2.5 - 3.52.0 - 3.0 2.5 - 3.5n.a.Crank mountedIntegrated StarterGenerator8.6 - 8.9 8.6 - 8.9 8.6 - 8.9 8.7 - 8.9 8.6 - 8.9 8.7 -8.9 8.7 - 8.9 8.7- 8.9 8.7 - 8.9 8.6 - 8.9 8.7 - 8.914.1 -16.3Power Split Hybrid 6.3 - 12.46.3 -12.46.3 -12.46.3 -12.46.3 - 12.46.3 -12.46.3 -12.46.3 -12.46.3 -12.46.3 -12.46.3 -12.4n.a.Aero Drag Reduction 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.02.0 - 3.0 2.0 - 3.0 2.0 - 3.0 2.0 - 3.0891Table IV.C.2-3 Technology Cost Estimates Employed in the Volpe Model for Certain TechnologiesVEHICLE TECHNOLOGY ICM COSTS PER VEHICLE ($)Subcomp.CarCompactCarMidsizeCarLargeCarPerform.Subcomp.CarPerform.CompactCarPerform.MidsizeCarPerform.LargeCarMinivanLTSmallLTMidsizeLTLargeLTNominal baseline engine (forcost purpose)Inline 4 Inline 4 Inline 4 V6 Inline 4 V6 V6 V8 V6Inline4V6 V8Low Friction Lubricants 3 3 3 3 3 3 3 3 3 3 3 3VVT - Dual Cam Phasing (DCP) 38 38 38 82 38 82 82 82 82 38 82 82Discrete Variable Valve Lift(DVVL) on DOHC142 142 142 206 142 206 206 294 206 142 206 294Cylinder Deactivation on OHV n.a. n.a. n.a. 168 n.a.168 168 192 168 n.a. 168 192Stoichiometric Gasoline DirectInjection (GDI)236 236 236 342 236 342 342 392 342 236 342 392Turbocharging and Downsizing 445 445 445 325 445 325 325 919 325 445 325 9196/7/8-Speed Auto. Trans withImproved Internals112 112 112 112 112 - 214 112 - 214 112 - 214 112 - 214 112 - 214 112 112 - 214 112 - 214Electric Power Steering 106 106 106 106 106 106 106 106 106 106 106 10612V Micro-Hybrid 288 311 342 367 314 337 372 410 337 325 376 n.a.Crank mounted IntegratedStarter Generator2,791 3,107 3,319 3,5472,839 3,149 3,335 3,5713,149 3,141 3,611 5,124Power Split Hybrid 1,6002,133 2,742 3,261 3,6614,018 5,287 6,723 4,0182,337 3,462 n.a.Aero Drag Reduction 48 48 48 48 48 48 48 48 48 48 48 48892 c. How Does NHTSA Use These Assu mptions in its Modeling Analysis?
NHTSA relies on several inputs and data files to conduct the compliance analysis using the Volpe model , as discussed further below and in Section V of the FRIA. For the purposes of applying technologies, the Volp e model primarily uses two data files, one that contains data on the vehicles expected to be manufactured in the model years covered by the rulemaking and identifies the appropriate stage within the vehicle’s lifecycle for the technology to be applied, and one that contains data /parameters regarding the available technologies the model can a pply. These inputs are discussed below.

As discussed above, the Volpe model begins with an initial state of the domestic vehicle market, which in this case is the ma rket for passenger cars a nd light trucks to be sold during the period covered by the final standards. The vehicle market is defined on a model-by-model, engine-by-e ngine, and transmission-by-tran smission basis, such that each defined vehicle model refers to a separate ly defined engine and a separately defined transmission.

For the current standards, which cove r MYs 2012-2016, the light-duty vehicle (passenger car and light truck) market fo recast was developed jointly by NHTSA and EPA staff using MY 2008 CAFE compliance data. The MY 2008 compliance data includes about 1,100 vehicle models, about 400 specific engines, and about 200 specific transmissions, which is a somewhat lower level of detail in the representation of the vehicle market than that used by NHTSA in recent CAFE analyses—previous analyses would count a vehicle as “new” in any year when significant technology differences are893 made, such as at a redesign. 579 However, within the limitations of information that can be made available to the public, it provides the foundation for a real istic analysis of manufacturer-specific costs and the analysis of attribute-based CAFE standards, and is much greater than the level of detail used by many other models and analyses relevant to light-duty vehicle fuel economy. 580

In addition to containing data about each vehicle, engine, and transmission, this file contains information for each technology under consideration as it pertains to the specific vehicle (whether the ve hicle is equipped with it or not), the estimated model year the vehicle is undergoing redesign, and in formation about the vehicle’s subclass for purposes of technology application. In e ssence, the model considers whether it is appropriate to apply a technology to a vehicle.

Is a vehicle already equipped, or can it not be equipped, with a particular technology?

The market forecast file provides NHTSA the ability to identify, on a technology by technology basis, which technologies may already be present (manufactured) on a particular vehicle, engine, or transmission, or which technolo gies are not applicable (due to technical considerations) to a particular vehicle, engine, or transmission. These

579 The market file for the MY 2011 final rule, which included data for MYs 2011-2015, had 5500 vehicles, about 5 times what we are using in this analysis of the MY 2008 certification data. 580 Because CAFE standards apply to the average pe rformance of each manufacturer’s fleet of cars and light trucks, the impact of potential standards on individual manufacturers cannot be credibly estimated without analysis of the fleets that manufacturers can be expected to produce in the future. Furthermore, because required CAFE levels under an attribute-ba sed CAFE standard depend on manufacturers’ fleet composition, the stringency of an attribute-based standard cannot be predicted without performing analysis at this level of detail.894 identifications are made on a model-by-mode l, engine-by-engine, and transmission-bytransmission basis. For example, if the ma rket forecast file indicates that Manufacturer X’s Vehicle Y is manufactur ed with Technology Z, then for this vehicle Technology Z will be shown as used. Additionally, NHTSA has determined that some technologies are only suitable or unsuitable when certain vehicl e, engine, or transmission conditions exist. For example, secondary axle disconnect is only suitable for 4WD vehicles, and cylinder deactivation is unsuitable for any engine w ith fewer than 6 cylinders, while CVTs can only be applied to unibody vehicles. Sim ilarly, comments received to the 2008 NPRM indicated that cylinder deactivation could not li kely be applied to vehicles equipped with manual transmissions during the rulemaking timeframe, due primarily to the cylinder deactivation system not being able to anticip ate gear shifts. The Volpe model employs “engineering constraints” to address issues like these, which are a programmatic method of controlling technology applic ation that is independent of other constraints. Thus, the market forecast file would indicate that th e technology in question should not be applied to the particular vehicle/engine/transmission (i .e., is unavailable). Since multiple vehicle models may be equipped with an engine or tr ansmission, this may affect multiple models. In using this aspect of the market forecast file, NHTSA ensures the Volpe model only applies technologies in an appropriate ma nner, since before any application of a technology can occur, the model checks the market forecast to see if it is either already present or unavailable.

In response to the NPRM, NHTSA receive d comments from GM that included a description of technical consid erations, concerns, limitations and risks that need to be895 considered when implementing turbochargi ng and downsizing tec hnologies on full size trucks. These include concerns related to engine knock, drivability, control of boost pressure, packaging complexity, enhanced c ooling for vehicles that are designed for towing or hauling, and noise, vibration and harshness. NHTSA judges that the expressed technical considerations, concerns, limitati ons and risks are well recognized within the industry and it is standard industry practice to address each during the design and development phases of applying turbochargi ng and downsizing technologies. Cost and effectiveness estimates used in the final rule are based on analysis that assumes each of these factors is addressed prior to producti on implementation of the technologies. In comments related to full size trucks, GM co mmented that potential to address knock limit concerns through various alternatives, which include use of higher octane premium fuel and/or the addition of a supplemental ethano l injection system. For this rulemaking, NHTSA has not assumed that either of these approaches is implemented to address knock limit concerns, and these technologies are no t included in assessmen t of turbocharging and downsizing feasibility, cost or effectiveness. 581 In addition, NHTSA has received confidential business information from a manuf acturer that supports that turbocharging and downsizing is feasible on a full size tr uck product during the rulemaking period.

581 Note that for one of the teardown analysis cost studies of turbocharging and downsizing conducted by FEV, in which a 2.4L I4 DOHC naturally aspirated engine was replaced by a 1.6L I4 DOHC SGDI turbocharged engine, the particular 1.6L turbocharged engine chosen for the study was a premium octane fuel engine. For this rulemaking, NHTSA intends that a turbocharged and downsized engine achieve comparable performance to a baseline engine without requiring premium octane fuel. For the FEV study of the 1.6L turbocharged engine, this could be achieved through the specification of an engine with a displacement of slightly great er than 1.6L. NHTSA judges that a s lightly larger engine would have small effect on the overall cost analysis used in this ru lemaking. For all other teardown studies conducted by FEV, both the naturally aspirated engine and the replacemen t turbocharged and downsized engine were specified to use regular octane fuel.896 Is a vehicle being redesigned or refreshed?

Manufacturers typically plan vehicle changes to coincide with certain stages of a vehicle’s life cycle that are appropriate for the change, or in this case the technology being applied. In the automobile industry there are two terms that describe when technology changes to vehicles occur: rede sign and refresh (i.e., freshening). Vehicle redesign usually refers to significant change s to a vehicle’s appearance, shape, dimensions, and powertrain. Redesign is tradi tionally associated with the introduction of “new” vehicles into the market, often characte rized as the “next generation” of a vehicle, or a new platform. Vehicle refresh usually refers to less extensive vehicle modifications, such as minor changes to a vehicle’s app earance, a moderate upgrade to a powertrain system, or small changes to the vehicle’s featur e or safety equipment content. Refresh is traditionally associated with mid-cycle cosmetic changes to a vehicle, within its current generation, to make it appear “fresh.” Vehicle refresh gene rally occurs no earlier than two years after a vehicle redesign, or at leas t two years before a sc heduled redesign. For the majority of technologies discussed toda y, manufacturers will onl y be able to apply them at a refresh or redesign, because th eir application would be significant enough to involve some level of engineeri ng, testing, and calibration work. 582

Some technologies (e.g., thos e that require significant re vision) are nearly always applied only when the vehicle is expected to be redesigned, like tu rbocharging and engine

582 For example, applying material substitution through weight reduction, or even something as simple as low rolling-resistance tires, to a vehicle will likely requ ire some level of validation and testing to ensure that the vehicle may continue to be certified as co mpliant with NHTSA’s Federal Motor Vehicle Safety Standards (FMVSS). Weight reduction might affect a vehicle’s crashworthin ess; low rolling-resistance tires might change a vehicle’s braking characteristics or how it performs in crash avoidance tests.897 downsizing, or conversion to diesel or hybridization. Ot her technologies, like cylinder deactivation, electric power steering, a nd aerodynamic drag reduction can be applied either when the vehicle is expected to be refreshed or when it is expected to be redesigned, while a few others, like low fricti on lubricants, can be applied at any time, regardless of whether a refresh or redesign ev ent is conducted. Accordingly, the model will only apply a technology at the particular point deemed suitable. These constraints are intended to produce results consistent with manufacturers’ technology application practices. For each technology under considerat ion, NHTSA stipulates whether it can be applied any time, at refresh/redesign, or only at redesign. The data forms another input to the Volpe model. NHTSA develops rede sign and refresh schedules for each of a manufacturer’s vehicles included in the an alysis, essentially based on the last known redesign year for each vehicle and projected fo rward in a 5-year redesign and a 2-3 year refresh cycle, and this data is also stored in the market forecast file. We note that this approach is different than NHTSA has empl oyed previously for determining redesign and refresh schedules, where NHTSA included the redesign and refresh dates in the market forecast file as provided by manufacturers in confidential product plans. The new approach is necessary given th e nature of the new baseline wh ich as a single year of data does not contain its own refres h and redesign cycle cues for future model years, and to ensure the complete transparency of the ag ency’s analysis. Vehicle redesign/refresh assumptions are discussed in more detail in Section V of the FRIA and in Chapter 3 of the TSD.898 NHTSA received comments from the Center for Biological Diversity (CBD) and Ferrari regarding redesign cycles. CBD st ated that manufacturers do not necessarily adhere to the agencies’ assumed five-yea r redesign cycle, and may add significant technologies by redesigning vehicl es at more frequent interval s, albeit at higher costs. CBD argued that NHTSA should analyze th e costs and benefits of manufacturers choosing to redesign vehicles mo re frequently than a 5-year average. Conversely, Ferrari agreed with the agencies that major t echnology changes are introduced at vehicle redesigns, rather than at vehi cle freshenings, stating further that as compared to full-line manufacturers, small-volume manufacturers in fa ct may have 7 to 8-year redesign cycles. In response, NHTSA recognizes that not al l manufacturers follow a precise five-year redesign cycle for every vehicle they produce, 583 but continues to believe that the fiveyear redesign cycle assumption is a reasona ble estimate of how of ten manufacturers can make major technological changes fo r purposes of its modeling analysis. 584 NHTSA has

583 In prior NHTSA rulemakings, the agency was able to account for shorter redesign cycles on some models (e.g., some sedans), and longer redesign cycles on others (e.g., cargo vans), but has standardized the redesign cycle in this analysis using the transparent baseline. 584 In the MY 2011 final rule, NHTSA noted that the CAR report submitted by th e Alliance, prepared by the Center for Automotive Research and EDF, stated that “For a given vehicle line, the time from conception to first production may span two and one-half to five years,” but that “The time from first production (“Job#1”) to the last vehi cle off the line (“Balance Out”) may span from four to five years to eight to ten years or more, depending on the dynamics of the market segment,” The CAR report then stated that “At the point of final production of the curren t vehicle line, a new model with the same badge and similar characteristics may be ready to take its place, continuing the cycle, or the old model may be dropped in favor of a different product.” See NHTSA-2008-0089-0170.1, Attachment 16, at 8 (393 of pdf). NHTSA explained that this description, which states that a vehicle model will be redesigned or dropped after 4-10 years, was consistent with other characterizations of the redesign and freshening process, and supported the 5-year redesign and 2-3 year refresh cycle assumptions used in the MY 2011 final rule. See id. , at 9 (394 of pdf). Given that th e situation faced by the auto industry today is not so wholly different from that in March 2009, when the MY 2011 final rule was published, and given that the commenters did not present information to suggest that these assumptions are unreasonable (but rath er simply that different manufacturers may redesign their vehicles more or less frequently, as the range of cycles above indicates), NHTSA believes that the assumptions remain reasonable for purposes of this final rule analysis. See also “Car Wars 2009-2012, The U.S. automotive product pipeline”, John Murphy, Research Analyst, Merrill Lynch research paper, May 14, 2008 and “Car Wars 2010-2013, The U.S. automotive product pipeline,” John Murphy, Research Analyst, Bank of Ameri ca/Merrill Lynch research paper, July 15, 2009. Available at

http://www.autonews.com/a ssets/PDF/CA66116716. PDF. (last accessed March 15, 2010).899 considered attempting to quantify the increased cost impacts of setting standards that rise in stringency so rapidly that manufacturers are forced to apply “usual redesign” technologies at non-redesign intervals, but such an analysis would be exceedingly complex and is beyond the scope of this rule making given the timefra me and the current condition of the industry. NHT SA emphatically disagrees th at the redesign cycle is a barrier to increasing penetra tion of technologies as CBD s uggests, but we also believe that standards so stringent that they w ould require manufacturers to abandon redesign cycles entirely would be be yond the realm of economic prac ticability and technological feasibility, particularly in this rulema king timeframe given lead time and capital constraints. Manufacturers can and will acco mplish much improvement in fuel economy and GHG reductions while applyi ng technology consistent with their redesign schedules.

Once the model indicates that a technol ogy should be applied to a vehicle, the model must evaluate which technology shoul d be applied. This will depend on the vehicle subclass to which the vehicle is assi gned; what technologies have already been applied to the vehicle (i.e., where in the “decision tree” the vehicle is); when the technology is first available (i .e., year of availability); whether the technology is still available (i.e., “phase-in caps”); and the costs and effectiven ess of the technologies being considered. Technology costs may be redu ced, in turn, by learning effects, while technology effectiveness may be increased or reduced by synergis tic effects between technologies. In the tech nology input file, NHTSA has de veloped a separate set of technology data variables for each of the twelve vehicle subclasses. Each set of variables is referred to as an “input sheet,” so for example, the subcompact input sheet holds the900 technology data that is appropriate for the subcompact subclass. Each input sheet contains a list of technologies available for me mbers of the particular vehicle subclass. The following items are provided for each tech nology: the name of the technology, its abbreviation, the decision tree with which it is associated, the (first) year in which it is available, the upper and lower cost and e ffectiveness (fuel consumption reduction) estimates, the learning type and rate, the cost basis, its applicability, and the phase-in values.

To which vehicle subclass is the vehicle is assigned?

As part of its consideration of technol ogical feasibility, th e agency evaluates whether each technology could be implemente d on all types and sizes of vehicles, and whether some differentiation is necessary in applying certain tec hnologies to certain types and sizes of vehicles, and with respec t to the cost incurred and fuel consumption and CO 2 emissions reduction achieved when doing so. The 2002 NAS Report differentiated technology applic ation using ten vehicle “cla sses” (4 cars classes and 6 truck classes), 585 but did not determine how cost an d effectiveness values differ from class to class. NAS’s purpose in separating vehicles into these classes was to create groups of “like” vehicles, i.e., vehicles simila r in size, powertrain configuration, weight, and consumer use, and for which similar tec hnologies are applicable. NHTSA similarly differentiates vehicles by “subclass” for the purpose of applying tec hnologies to “like” vehicles and assessing their incremental cost s and effectiveness. NHTSA assigns each

585 The NAS classes included subcompact cars, compact cars, midsize cars, large cars, small SUVs, midsize SUVs, large SUVs, small pickups, large pickups, and minivans.901 vehicle manufactured in the rulemaking peri od to one of 12 subclasses: for passenger cars, Subcompact, Subcompact Performance, Compact, Compact Performance, Midsize, Midsize Performance, Large, and Large Performance; and for light trucks, Small SUV/Pickup/Van, Midsize SUV/ Pickup/Van, Large SUV/Pic kup/Van, and Minivan.

For this final rule as for the NPRM, NHTSA divides the vehicle fleet into subclasses based on model inputs, and applie s subclass-specific estimates, also from model inputs, of the applicability, cost, and e ffectiveness of each fuel-saving technology. Therefore, the model’s estimates of the cost to improve the fuel economy of each vehicle model depend upon the subclass to which the vehicle model is assigned.

Each vehicle’s subclass is stored in th e market forecast file. When conducting a compliance analysis, if the Volpe model seeks to apply technology to a particular vehicle, it checks the market forecast to see if the technology is av ailable and if the refresh/redesign criteria are met. If these conditions are sa tisfied, the model determines the vehicle’s subclass from the market data fi le, which it then uses to reference another input called the technology i nput file. NHTSA reviewed its methodology for dividing vehicles into subclasses for purposes of technology applica tion that it used in the MY 2011 final rule, and concluded that the same methodology would be appropriate for this final rule for MYs 2012-2016. No comments were received on the vehicle subclasses employed in the agency’s NPRM analysis, and NHTSA has retained the subclasses and the methodology for dividing vehicles among them for the final rule analysis. Vehicle902 subclasses are discussed in more detail in Se ction V of the FRIA and in Chapter 3 of the
TSD.

For the reader’s reference, the subclasse s and example vehicles from the market forecast file are provided in the tables below.

Passenger Car Subclasses Example (MY 2008) Vehicles Class Example vehicles Subcompact Chevy Aveo, Hyundai Accent Subcompact Performance Mazda MX-5, BMW Z4 Compact Chevy Cobalt, Nissan Sentra and Altima Compact Performance Audi S4, Mazda RX-8 Midsize Chevy Impala, Toyota Camry, Honda Accord, Hyundai Azera Midsize Performance Chevy Corvette, Ford Mustang (V8), Nissan G37 Coupe Large Audi A8, Cadillac CTS and DTS Large Performance Bentley Arnage, Daimler CL600

Light Truck Subclasses Ex ample (MY 2008) Vehicles Class Example vehicles Minivans Dodge Caravan, Toyota Sienna Small SUV/Pickup/Van Ford Escape & Ranger, Nissan Rogue
Midsize SUV/Pickup/Van Chevy Colorado, Jeep Wrangler, Toyota Tacoma Large SUV/Pickup/Van Chevy Silverado, Ford E-Series, Toyota Sequoia903 What technologies have already been a pplied to the vehicle (i.e., where in the “decision trees” is it)?

NHTSA’s methodology for technology applic ation analysis developed out of the approach taken by NAS in the 2002 Report, and evaluates the applicat ion of individual technologies and their incremental costs a nd effectiveness. Incremental costs and effectiveness of individual te chnologies are relative to the pr ior technology state, which means that it is crucial to understand what technologies ar e already present on a vehicle in order to determine correct incremental cost and effectiveness values. The benefit of the incremental approach is transparency in accounting, insofa r as when individual technologies are added incrementally to indi vidual vehicles, it is clear and easy to determine how costs and effectiveness a dd up as technology levels increase.

To keep track of incremental costs and effectiveness and to know which technology to apply and in which order, the Volpe model’s architect ure uses a logical sequence, which NHTSA refers to as “d ecision trees,” for applying fuel economyimproving technologies to i ndividual vehicles. In the MY 2011 final rule, NHTSA worked with Ricardo to modify previously-emp loyed decision trees in order to allow for a much more accurate application of technolog ies to vehicles. For purposes of the final rule, NHTSA reviewed the technology se quencing architecture and updated, as appropriate, the decision trees used in the an alysis reported in the final rule for MY 2011 and in the MY 2012-2016 NPRM.904 In general, and as described in great detail in the MY 2011 final rule and in Section V of the current FRIA, each technology is assigned to one of the five following categories based on the system it affect s or impacts: engine, transmission, electrification/accesso ry, hybrid or vehicle. Each of these categories has its own decision tree that the Volpe model uses to apply t echnologies sequentially during the compliance analysis. The decision trees were designed a nd configured to allow the Volpe model to apply technologies in a cost-effective, l ogical order that also considers ease of implementation. For example, software or control logic changes are implemented before replacing a component or system with a comp letely redesigned one, which is typically a much more expensive option. In some cases, and as appropriate, the model may combine the sequential technologies shown on a deci sion tree and apply them simultaneously, effectively developing dynamic technology packages on an as-needed basis. For example, if compliance demands indicate, the model may elect to apply LUB, EFR, and ICP on a dual overhead cam engine, if they are not already present, in one single step. An example simplified decision tree for engine technologies is provided below; the other simplified decision trees may be found in Chap ter 3 of the Joint TSD and in the FRIA. Expanded decision trees are available in the docket for this final rule.905 Figure IV.C.2-1 Engine T echnology (EngMod) Decision Tree906 Each technology within the decision tr ees has an incremental cost and an incremental effectiveness estimate associated with it, and estimates are specific to a particular vehicle subclass (see the tables in Section V of th e FRIA). Each technology’s incremental estimate takes into account its po sition in the decision tree path. If a technology is located further down the decisi on tree, the estimates for the costs and effectiveness values attributed to that technology are influenced by the incremental estimates of costs and effectiveness values for prior technology applications. In essence, this approach accounts for “in-path” effectivenes s synergies, as well as cost effects that occur between the technologies in the same path. When comparing cost and effectiveness estimates from various sources and those provided by commenters in this and the previous CAFE rulemakings, it is important that the estimates evaluated are analyzed in the proper context, especially as concerns their likely position in the decision trees and other technologies that may be pres ent or missing. Not all estimates available in the public domain or that have been o ffered for the agencies’ consideration can be evaluated in an “apples-to-apples” comparison with those used by the Volpe model, since in some cases the order of application, or included technology conten t, is inconsistent with that assumed in the decision tree.

The MY 2011 final rule discussed in deta il the revisions and improvements made to the Volpe model and decision trees duri ng that rulemaking process, including the improved handling and accuracy of valv e train technology ap plication and the development and implementation of a method for accounting path-dependent correction907 factors in order to ensure that technologies are evaluated within the proper context. The reader should consult the MY 2011 final rule documents for further information on these modeling techniques, all of which continued to be utilized in devel oping this final rule. 586
To the extent that the decision trees have changed for purposes of the NPRM and this final rule, it was due not to revi sions in the order of technolog y application, but rather to redefinitions of technologies or additi on or subtraction of technologies.

NHTSA did not receive any comments rela ted to the use or ordering of the decision trees, and the agency continued to use the decision trees as they were proposed in the NPRM.

Is the next technology available in this model year?

As discussed above, the majority of t echnologies considered are available on vehicles today, and thus will be available for application (albeit in varying degrees) in the model years covered by this rule. Some technologies, however, will not become available for purposes of NHTSA’s analysis un til later in the rule making time frame. When the model is considering whether to add a technology to a ve hicle, it checks its year of availability—if the technology is availabl e, it may be added; if it is not available, the model will consider whether to switch to a different decision tree to look for another technology, or will skip to the next vehicle in a manufacturer’s fl eet. The year of availability for each technology is provided above in Table IV.C.2-1.

586 See , e.g., 74 FR 14238-46 (Mar. 30, 2009) for a full discussion of the decision trees in NHTSA’s MY 2011 final rule, and Docket No. NHTSA-2009-0062-0003.1 for an expanded decision tree used in that rulemaking.908 CBD commented that because many of the technologies considered in the NPRM are currently available, manuf acturers should be able to atta in mpg levels equivalent to the MY 2016 standards in MY 2009. In response, as discus sed above, technology “availability” is not determined based si mply on whether the technology exists, but depends also on whether the technology has achie ved a level of techni cal viability that makes it appropriate for widespread applicati on. This depends in turn on component supplier constraints, capital investment and engineering c onstraints, and manufacturer product cycles, among other things. Moreover, even if a technology is available for application, it may not be available for ev ery vehicle. Some technologies may have considerable fuel economy benefits, but ca nnot be applied to so me vehicles due to technological constraints – for example, cylinder deactivation cannot be applied to vehicles with current 4-cylinder engines (b ecause not enough cylinde rs are present to deactivate some and continue moving the vehicle) or on vehicles with manual transmissions within the rulemaking timefr ame. The agencies have provided for increases over time to reach the mpg level of the MY 2016 standards precisely because of these types of constraints, because they ha ve a real effect on how quickly manufacturers can apply technology to vehicl es in their fleets.

Has the technology reached the phase-in cap for this model year?

Besides the refresh/redesign cycles used in the Volpe model, which constrain the rate of technology application at the vehicle level so as to ensure a period of stability909 following any modeled technol ogy applications, the othe r constraint on technology application employed in NHTSA’s analysis is “phase-in caps.” Unlike vehicle-level cycle settings, phase-in caps constrain technol ogy application at th e vehicle manufacturer level. 587 They are intended to reflect a manufact urer’s overall resour ce capacity available for implementing new technologies (such as engineering and development personnel and financial resources), thereby ensuring that resource capacity is accounted for in the modeling process. At a high level, phase-in caps and refresh/redesign cycles work in conjunction with one another to avoid the modeling process out-pacing an OEM’s limited pool of available resources during the rulema king time frame, especially in years where many models may be scheduled for refresh or redesign. This helps to ensure technological feasibility and ec onomic practicability in determ ining the stringency of the standards.

NHTSA has been developing the concept of phase-in caps for purposes of the agency’s modeling analysis over the course of the last several CAFE rulemakings, as discussed in greater detail in the MY 2011 final rule, 588 and in Section V of the FRIA and Chapter 3 of the Joint TSD. The MY 2011 final rule employed non-linear phase-in caps (that is, caps that varied from year to y ear) that were designed to respond to comments raising lead-time concerns in refere nce to the agency’s proposed MY 2011-2015

587 While phase-in caps are expressed as specific percentages of a manufacturer’s fleet to which a technology may be applied in a given model year, phas e-in caps cannot always be applied as precise limits, and the Volpe model in fact allows “override” of a cap in certain circumstances. When only a small portion of a phase-in cap limit remains, or when the cap is set to a very low value, or when a manufacturer has a very limited product line, the cap might prevent the technology from being applied at all since any application would cause the cap to be exceeded. Ther efore, the Volpe model eval uates and enforces each phase-in cap constraint after it has been exceeded by the application of the technology (as opposed to evaluating it before application), which can result in the described overriding of the cap. 588 74 FR 14268–14271 (Mar. 30, 2009)910 standards, but because the final rule covere d only one model year, many phase-in caps for that model year were lower than had origin ally been proposed. NHTSA emphasized that the MY 2011 phase-in caps were based on assump tions for the full five year period of the proposal (2011-2015), and stated that it would reconsider the phase-in settings for all years beyond 2011 in a future rulemaking analysis. 589

For purposes of this final rule for MYs 2012-2016, as in th e MY 2011 final rule, NHTSA combines phase-in caps for some group s of similar technologies, such as valve phasing technologies that are applicable to different forms of engine design (SOHC, DOHC, OHV), since they are very similar from an engineering and implementation standpoint. When the phase-in caps for two technologies are combined, the maximum total application of either or both to any manufacturer’s fleet is limited to the value of the
cap. 590 In contrast to the phase-in caps us ed in the MY 2011 final rule, NHTSA has increased the phase-in caps for most of the technologies, as discussed below.

In developing phase-in cap values for purpos es of this final rule, NHTSA initially considered the fact that many of the tec hnologies commonly applied by the model, those placed near the top of the decision trees, such as low friction lubes, valve phasing, electric power steering, impr oved automatic transmission cont rols, and others, have been commonly available to manufact urers for several years now. Many technologies, in fact, precede the 2002 NAS Report, which estimated th at such technologies would take 4 to 8 years to penetrate the fleet. Since this final rule would take effect in MY 2012, nearly 10

589 See 74 FR at 14269 (Mar. 20, 2009). 590 See 74 FR at 14270 (Mar. 30, 2009) for further discussion and examples.911 years beyond the NAS report, and extends to MY 2016, and in the interest of harmonization with EPA’s proposal, NHTSA dete rmined that higher phase-in caps were likely justified. Additionally, NHTSA considered the fact that manufacturers, as part of the agreements supporting the National Progr am, appear to be anticipating higher technology application rates than those used in the MY 2011 final rule. This also supported higher phase-in caps for purposes of the analysis underlying this final rule.

Thus, while phase-in caps for the MY 2011 final rule reached a maximum of 50 percent for a couple of technologies and ge nerally fell in the ra nge between 0 and 20 percent, phase-in caps for this final rule for the majority of technol ogies are set to reach 85 or 100 percent by MY 2016, although more advanced technologies like diesels and strong hybrids reach only 15 percent by MY 2016.

NHTSA received comments from the Allia nce and ICCT relating to phase-in caps. The Alliance commented that the highe r phase-in caps in the NPRM analysis (as compared to the MY 2011 final rule ) “ignore OEM engine architecture differences/limitations,” arguing that the agen cy must consider manufacturing investment and lead time implications when defining phase -in caps. ICCT did not raise the issue of phase-in caps directly, but commented that th e agencies had not provided information in the proposal documents explaining when each manufacturer can implement the different technologies and how long it will take the tec hnologies to spread acr oss the fleet. ICCT argued that this information was crucial to considering how quickly the stringency of the standards could be increa sed, and at what cost.912 In response to the Alliance comments, th e phase-in cap constraint is, in fact, exactly intended to account for manufacturing i nvestment and lead time implications, as discussed above: phase-in caps are intended to reflect a manuf acturer’s overall resource capacity available for implementing new technologies (such as engineering and development personnel and financial resources), to help ensure that resource capacity is accounted for in the modeling process. A lthough the phase-in caps for the analysis supporting these standards are higher than the phase-in caps employed in the MY 2011 final rule, as stated in the NPRM, the agencies considered the fact that manufacturers, as part of the agreements supporting the National Program, appear to be anticipating higher technology application rates during the rulemaki ng timeframe – indicating that the values selected for the phase-in caps are more lik ely within the range of practicability. Additionally, the agencies did not receive any comments from manuf acturers indicating a direct concern with the proposed application rates, which they were able to review in the detailed manufacturer level model outputs. Th e agencies believe that as manufacturers focus their resources (i.e., engineering, capital investment, etc.) on fuel economyimproving technologies, many of which have been in produc tion for many years, the application rates being modeled are appropr iate for the timeframe being analyzed.

In response to ICCT’s comments, the combination of phase-in caps, refresh/redesign cycles, engineering constr aints, etc., are intended to simulate manufacturers’ technology app lication decisions, and ultimate ly define the technology application/implementation rates for each ma nufacturer. NHTSA has used the best913 public data available to define refresh a nd redesign schedules to define technology implementation, which allows us to appl y technologies at the specific times each manufacturer is planning. There was full notic e of not just the phase-in caps themselves, but their specific application as well. NHTSA notes that the PRIA and the FRIA do contain manufacturer-specific applicatio n/implementation rates for prominent technologies, and that manufacturer-specifi c technology application as employed in the agency’s analysis is available in full in the Volpe model outputs available on NHTSA’s website. The model outputs present the resu ltant application of technologies at the industry, manufacturer, and vehicle levels.

Theoretically, significantly higher phase-in caps, such as those used in the current proposal and final rule as compared to those used in the MY 2011 final rule, should result in higher levels of technology penetrati on in the modeling resu lts. Reviewing the modeling output does not, however, indi cate unreasonable levels of technology penetration for the final standards. 591 NHTSA believes that this is due to the interaction of the various changes in me thodology for this final rule—changes to phase-in caps are but one of a number of revisions to the Volp e model and its inputs th at could potentially impact the rate at which technologies are app lied in the modeling analysis for this final rule as compared to prior rulemakings. Other revisions that could impact modeled application rates include the us e of transparent CAFE certification data in baseline fleet formulation and the use of othe r data for projecting it forward, 592 or the use of a multi-

591 The modeling output for the analysis underlying these final standards is available on NHTSA’s website. 592 The baseline fleet sets the starting point, from a technology point of view, for where the model begins the technology application process, so changes have a direct impact on the proj ected net application of technology.914 year planning programming technique to a pply technology retroact ively to earlier-MY vehicles, both of which may have a direct impact on the modeling process. Conversely the model and inputs remain unchanged in othe r areas that also could impact technology application, such as in the refresh/rede sign cycle settings, estimates used for the technologies, both of which remain largel y unchanged from the MY 2011 final rule. These changes together make it difficult to pr edict how phase-in caps should be expected to function in the new modeling process.

Thus, after reviewing the output files, NHTSA concludes that the higher phase-in caps, and the resulting technol ogy application rates produced by the Volpe model, at both the industry and manufacturer level, are appropriate for th e analysis underlying these final standards, achieving a suitable level of stringency without requiring unrealistic or unachievable penetration rates.

Is the technology less expens ive due to learning effects?

Historically, NHTSA did not explicit ly account for the cost reductions a manufacturer might reali ze through learning achieved fr om experience in actually applying a technology. Since working with EPA to develop the 2008 NPRM for MYs 2011-2015, and with Ricardo to refine the concept for the March 2009 MY 2011 final rule, NHTSA has accounted for these cost reductions through two kinds of mutually exclusive learning, “volume-based” and “time- based” which it continues to use in this rule, as discussed below.915 In the 2008 NPRM, NHTSA applied learning factors to technology costs for the first time. These learning factors were developed using the parameters of learning threshold, learning rate, and the initial cost , and were based on the “experience curve” concept which describes reductions in produc tion costs as a function of accumulated production volume. The typical curve shows a relatively steep init ial decline in cost which flattens out to a gentle downwardly sloping line as the volume increase to large values. In the NPRM, NHTSA applied a lear ning rate discount of 20 percent for each successive doubling of production volume (on a per manufacturer basis), and a learning threshold of 25,000 units was assumed (thus a technology was viewed as being fully learned out at 100,000 units). The factor wa s only applied to certa in technologies that were considered emerging or newly implem ented on the basis that significant cost improvements would be achieved as economie s of scale were realized (i.e., the technologies were on the steep part of the curve).

In the MY 2011 final rule, NHTSA continue d to use this learning factor, referring to it as volume-based learning since the cost reductions we re determined by production volume increases, and again only applied it to emerging technologies. However, and in response to comments, NHTSA revised its a ssumptions on learning threshold, basing them instead on an industry-wide producti on basis, and increasi ng the threshold to 300,000 units annually.916 Commenters to the 2008 NPRM also descri bed another type of learning factor which NHTSA decided to adopt and implemen t in the MY 2011 final rule. Commenters described a relatively small negotiated cost decrease that occurred on an annual basis through contractual agreements with first tier component and systems suppliers for readily available, high volume technologies commonly in use by multiple OEMs. Based on the same experience curve principal, howev er at production volumes that were on the flatter part of the curve (and thus the type s of volumes that repr esent annual industry volumes), NHTSA adopted this t ype learning and referred to it as time-based learning. An annual cost reduction of 3 percent in th e second and each subsequent year, which was consistent with estimates from commenters and supported by work Ricardo conducted for NHTSA, was used in the final rule.

In developing the proposed standards, NHTSA and EPA reviewed both types of learning factors, and the thresholds (300,000) and reduction rates (20 percent for volume, 3 percent for time-based) they rely on, a nd as implemented in the MY 2011 final rule, and agreed that both factors continue to be accurate and appropriate; each agency thus implemented time- and volume-based learning in their analyses. Noting that only one type of learning can be applied to any single technology, if any learni ng is applied at all, the agencies reviewed each to determine whic h learning factor was appropriate. Volumebased learning was applied to the higher complexity hybrid technologies, while no learning was applied to tec hnologies likely to be affect ed by commodity costs (LUB, ROLL) or that have loosely- defined BOMs (EFR, LDB), as was the case in the MY 2011 final rule. Chapter 3 of the Joint TSD s hows the specific learni ng factors that NHTSA917 has applied in this analysis for each technol ogy, and discusses learning factors and each agencies’ use of them further.

ICCT and Ferrari commented on learning curv es. ICCT stated the agencies could improve the accuracy of the le arning curve assumptions if they used a more dynamic or continuous learning curve that is more tec hnology-specific, rather than using step decreases as the current time- and volume-based learning curves appear to do. ICCT also commented on the appropriate application of volume- versus time-based learning, and stated further that worldwide production vol umes should be taken into account when developing learning curves. Fe rrari commented that is more difficult for small-volume manufacturers to negotiate cost decreases from things like cost learning effects with their suppliers, implying that learning effects may not be applicable equally for all manufacturers.

NHTSA agrees that a continuous curv e, if implemented correctly, could potentially improve the accuracy of modeling cost-learning effects, although the agency cannot estimate at this time how significant the improvement would be. To implement a continuous curve, however, NHTSA would need to develop a learning curve cost model to be integrated into the agency’s existi ng model for CAFE analysis. Due to time constraints the agencies were not able to i nvestigate fully the use of a continuous costlearning effects curve for each technology, but we will investigate the applicability of this approach for future rulemakings. For purpos es of the final rule analysis, however,918 NHTSA believes that while more detailed cost learning approaches may eventually be possible, the approach taken for this final rule is valid.

Additionally, while the agen cies agree that worldwide production volumes can impact learning curves, the agencies do not forecast worldwide vehicle production volumes in addition to the already complex task of forecasting the U.S. market. That said, the agencies do consider current and projected worldwide technology proliferation when determining the maturity of a particular technology used to determine the appropriateness of applying time- or volume- based learning, which helps to account for the effect of globalized production.

With regard to ICCT’s comments on th e appropriate applic ation of volumeversus time-based learning, however, it seem s as though ICCT is referencing a study that defines volume- and time-based learning in a different manner than the current definitions used by the agencies, and so is not directly relevant. The agencies use “volume-based” learning for non-mature te chnologies that have the potential for significant cost reductions through learning, wh ile “time-based” learning is used for mature technologies that have already had si gnificant cost reducti ons and only have the potential for smaller cost reductions. For “ time-based” learning, the agencies chose to emulate the small year-over-year cost reduc tions manufacturers re alize through defined cost reductions, approximately 3 percent per year, negotiated into contracts with suppliers. A more detailed description of how the agencies define volume- and timebased learning can be found in NHTSA’s PRIA.919 And finally, in response to Ferrari’s comment, NHTSA recognizes that cost negotiations can be different for different manufacturers, but believes that on balance, cost learning at the supplier level will genera lly impact costs to all purchasers. Thus, if cost reductions are realized for a particular technology, all entitie s that purchase the technology will benefit from these cost reductions.

Is the technology more or less eff ective due to synergistic effects?

When two or more technologies are adde d to a particular vehicle model to improve its fuel efficiency and reduce CO 2 emissions, the resultant fuel consumption reduction may sometimes be higher or lo wer than the product of the individual effectiveness values for those items. 593 This may occur because one or more technologies applied to the same vehicle partially addre ss the same source (or sources) of engine, drivetrain or vehicle losses. Alternately, this effect ma y be seen when one technology shifts the engine operating points, and therefore increa ses or reduces the fuel consumption reduction achieved by another t echnology or set of technologies. The difference between the observed fuel consum ption reduction associated with a set of technologies and the product of the individual effectiv eness values in that set is referred to for purposes of this rulemaking as a “synergy.” Synergies may be positive (increased

593 More specifically, the products of the differences between one and the technology-specific levels of effectiveness in reducing fuel consumption. For exam ple, not accounting for interactions, if technologies A and B are estimated to reduce fu el consumption by 10 percent ( i.e ., 0.1) and 20 percent (i.e., 0.2) respectively, the “product of the individual effectiveness values” would be 1 – 0.1 times 1 – 0.2, or 0.9 times 0.8, which equals 0.72, corresponding to a comb ined effectiveness of 28 percent rather than the 30 percent obtained by adding 10 percent to 20 percent. The “synergy factors” discussed in this section further adjust these multiplicatively combined effectiveness values.920 fuel consumption reduction compared to the prod uct of the individual effects) or negative (decreased fuel consumption reduction). An example of a positive synergy might be a vehicle technology that reduces road load s at highway speeds (e.g., lower aerodynamic drag or low rolling resistance tires), that could extend the vehicl e operating range over which cylinder deactivation may be employed. An example of a negative synergy might be a variable valvetrain system technology, which reduces pumping losses by altering the profile of the engine speed/load map, a nd a six-speed automatic transmission, which shifts the engine operating points to a portion of the e ngine speed/load map where pumping losses are less significan t. As the complexity of the technology combinations is increased, and the number of interacting t echnologies grows accordingly, it becomes increasingly important to account for these synergies.

NHTSA and EPA determined synergisti c impacts for this rulemaking using EPA’s “lumped parameter” anal ysis tool, which EPA descri bed at length in its March 2008 Staff Technical Report. 594 The lumped parameter tool is a spreadsheet model that represents energy consumption in terms of average performance over the fuel economy test procedure, rather than explicitly anal yzing specific drive cycles. The tool begins with an apportionment of fuel consumption across several loss mechanisms and accounts for the average extent to which different te chnologies affect these loss mechanisms using estimates of engine, drivetrain and vehicle ch aracteristics that are averaged over the EPA fuel economy drive cycle. Results of this anal ysis were generally consistent with those of full-scale vehicle simulation modeling performed in 2007 by Ricardo, Inc.

594 EPA Staff Technical Report: Cost and Effectiveness Estimates of Technologies Used to Reduce Lightduty Vehicle Carbon Dioxide Emissions; EPA420-R-08-008, March 2008. Available at Docket No. NHTSA-2009-0059-0027.921 For the current rulemaking, NHTSA used th e lumped parameter tool as modified in the MY 2011 CAFE final ru le. NHTSA modified the lumped parameter tool from the version described in the EP A Staff Technical Report in response to public comments received in that rulemaking. The modificati ons included updating the list of technologies and their associated effectiven ess values to match the updated list of technologies used in the final rule. NHTSA also expanded the li st of synergy pairings based on further consideration of the technologi es for which a competition for losses would be expected. These losses are described in more detail in Section V of the FRIA.

NHTSA and EPA incorporate synergistic impacts in their analyses in slightly different manners. Because NHTSA applies technologies individua lly in its modeling analysis, NHTSA incorporates synergistic effects between pair ings of individual technologies. The use of disc rete technology pair incremental synergies is similar to that in DOE’s National Energy Modeling System (NEMS). 595 Inputs to the Volpe model incorporate NEMS-identified pairs, as well as additional pairs from the set of technologies considered in the Volpe model.

NHTSA notes that synergies that occu r within a decision tree are already addressed within the incremental values assi gned and therefore do not require a synergy pair to address. For example, all engine technologies take into account incremental

595 U.S. Department of Energy, Energy Information Administration, Transportation Sector Module of the National Energy Modeling System: Model Documentation 2007 , May 2007, Washington, DC, DOE/EIAM070(2007), at 29-30. Available at http://tonto.eia.doe.gov/ftproot/modeldoc/m070(2007).pdf (last accessed March 15, 2010).922 synergy factors of preceding e ngine technologies, and all tr ansmission technologies take into account incremental synergy factors of preceding transmission technologies. These factors are expressed in the fuel consumption improvement factors in the input files used by the Volpe model.

For applying incremental synergy factors in separate path technologies, the Volpe model uses an input table (see the tables in Chapter 3 of th e TSD and in the FRIA) which lists technology pairings and in cremental synergy factors asso ciated with those pairings, most of which are between engine technol ogies and transmission/ electrification/hybrid technologies. When a technology is applie d to a vehicle by the Volpe model, all instances of that technology in the incremental synergy ta ble which match technologies already applied to the vehicl e (either pre-existing or prev iously applied by the Volpe model) are summed and applied to the fuel consumption improvement factor of the technology being applied. Synergies for th e strong hybrid technology fuel consumption reductions are included in the incremental value for the specific hybrid technology block since the model applies technologi es in the order of the most effectiveness for least cost and also applies all available electrifica tion and transmission technologies before applying strong hybrid technologies.

NHTSA received only one comment regarding synergies, from MEMA, who commented that NHTSA’s Volpe model adequa tely addressed synergistic effects. Having received no information to the contra ry, NHTSA finalized th e synergy approach and values for the final rule.923 d. Where Can Readers Find More Detailed Information about NHTSA’s Technology Analysis?

Much more detailed information is pr ovided in Section V of the FRIA, and a discussion of how NHTSA and EPA jointly reviewed and updated technology assumptions for purposes of this final rule is available in Chapter 3 of the TSD. Additionally, all of NHT SA’s model input and output f iles are now public and available for the reader’s review and c onsideration. The technology in put files can be found in the docket for this final rule, Docket No . NHTSA-2009-0059, and on NHTSA’s website. And finally, because much of NHTSA’s tec hnology analysis for purposes of this final rule builds on the work that was done for the MY 2011 final rule, we refer readers to that document as well for background informa tion concerning how NHTSA’s methodology for technology application analys is has evolved over the past several rulemakings, both in response to comments and as a result of the ag ency’s growing experien ce with this type of analysis. 596

3. How Did NHTSA Develop its Economic Assumptions?

NHTSA’s analysis of alternative CAFE standards for the model years covered by this rulemaking relies on a range of forecast variables, economic assumptions, and parameter values. This section describes th e sources of these forecasts, the rationale underlying each assumption, and the agency’s choices of specific parameter values.

596 74 FR 14233-308 (Mar. 30, 2009).924 These economic values play a significant role in determining the benefits of alternative CAFE standards, as they have for the la st several CAFE rulemakings. Under those alternatives where standards w ould be established by reference to their costs and benefits, these economic values also affect the levels of the CAFE standards themselves. Some of these variables have more important effect s on the level of CAFE standards and the benefits from requiring alternative incr eases in fuel economy than do others.

In reviewing these variables and the ag ency’s estimates of their values for purposes of this final rule, NHTSA reconsid ered previous comments it had received and comments received to the NPRM, as well as re viewed newly available literature. As a consequence, the agency elected to revi se some of its economic assumptions and parameter estimates from previous rulemaki ngs at the NPRM stage, while retaining others. Some of the most important changes, which are discussed in greater detail below, as well as in Chapter 4 of the Joint TSD and in Chapter VIII of the FRIA, include significant revisions to the markup factors for technology costs; reducing the rebound effect from 15 to 10 percent; and revising the value of reducing CO 2 emissions based on recent interagency efforts to develop estimates of this value for government-wide use. The comments the agency received and its re sponses are discussed in detail below, as well as in the TSD and FRIA. For the r eader’s reference, Table IV.C.3-1 below summarizes the values used to calculate the economic benefits from each alternative.925 Table IV.C.3-1 Economic Values for Benefits Computations (2007$) Fuel Economy Rebound Effect 10% "Gap" between test and on-road MPG 20% Value of refueling time p er ($ per vehicle-hour) $ 24.64 Average percentage of tank refilled per refueling 55% Percent of drivers refueling in response to low fuel level 100% Annual growth in average vehicle use 1.15% Fuel Prices (2012-50 average, $/gallon) Retail gasoline price $3.66 Pre-tax gasoline price $3.29 Economic Benefits from Reducing Oil Imports ($/gallon) "Monopsony" Component $ 0.00 Price Shock Component $ 0.17 Military Security Component $ 0.00 Total Economic Costs ($/gallon) $ 0.17 Emission Damage Costs (2020, $/ton or $/metric ton) Carbon monoxide $ 0 Volatile organic compounds (VOC) $ 1,300 Nitrogen oxides (NOx) – vehicle use $ 5, 300 Nitrogen oxides (NOx) – fuel production and distribution $ 5,100 Particulate matter (PM 2.5 ) – vehicle use $ 290,000 Particulate matter (PM 2.5 ) – fuel production and distribution $ 240,000 Sulfur dioxide (SO 2 ) $ 31,000 Carbon dioxide (CO 2 ) $ 21 597
Annual Increase in CO 2 Damage Cost Varies by yearExternal Costs from Additional Automobile Use ($/vehiclemile) Congestion $ 0.054 Accidents $ 0.023 Noise $ 0.001 Total External Costs $ 0.078 External Costs from Additional Light Truck Use ($/vehiclemile) Congestion $0.048 Accidents $0.026 Noise $0.001 Total External Costs $0.075 Discount Rate Applied to Future Benefits 3%, 7%

597 The $21 value is for CO 2 emissions in 2010, which rises to $45/ton in 2050, at an average discount rate of 3 percent.926 a. Costs of Fuel Economy-Improving Technologies

NHTSA and EPA previously developed detailed estimates of the costs of applying fuel economy-improving te chnologies to vehicle models for use in analyzing the impacts of alternative standards consider ed in the proposed rulemaking, including varying cost estimates for applying certain fuel economy technologies to vehicles of different sizes and body styles. These estimates were modified for purposes of this analysis as a result of extensive consulta tions among engineers fr om NHTSA, EPA, and the Volpe Center. Building on NHTSA’s es timates developed for the MY 2011 CAFE final rule and EPA’s Advanced Notice of Proposed Rulemaking, which relied on EPA’s 2008 Staff Technical Report, the two agencies took a fresh look at technology cost and effectiveness values and incorporated FEV t ear-down study results for purposes of this joint final rule under th e National Program.

While NHTSA generally found that much of the cost information used in the MY 2011 final rule and EPA’s 2008 Staff Report wa s consistent to a great extent, the agencies, in reconsidering information from many sources, revise d the component costs of several major technologies including: turbocharging/ downsizing, mild and strong hybrids, diesels, SGDI, and Valve Train Lift Technologies for purposes of the NPRM. In addition, based on FEV tear-down studies, the costs for turbocharging/downsizing, 6-,7-927 ,8-speed automatic transmissions, and dual cl utch transmissions were revised for this final rule.

The technology cost estimates used in this analysis are intended to represent manufacturers’ direct costs for high-vol ume production of vehicles with these technologies and sufficient experience with th eir application so that all remaining cost reductions due to “learning curve” effects have been fully realized. However, NHTSA recognizes that manufacturers’ actual cost s for employing these technologies include additional outlays for accompanying design or engineering changes to models that use them, development and testing of prototype versions, recalibrat ing engine operating parameters, and integrating the technology w ith other attributes of the vehicle. Manufacturers’ indirect costs for employing th ese technologies also include expenses for product development and integration, modi fying assembly processes and training assembly workers to install them, increased expenses for operation and maintaining assembly lines, higher initial warranty cost s for new technologies, any added expenses for selling and distributing vehicles that us e these technologies, and manufacturer and dealer profit.

In previous CAFE rulemakings and in NHTSA’s safety rulemakings, the agency has accounted for these additional costs by using a Retail Pri ce Equivalent (RPE) multiplier of 1.5. For purposes of this rulemaking, based on recent work by EPA, NHTSA has applied indirect cost multipliers rang ing from 1.11 to 1.64 to the estimates of vehicle manufacturers’ direct costs fo r producing or acquiring each technology to928 improve fuel economy. 598 These multipliers vary with the complexity of each technology and the time frame over which costs are estimated. More complex technologies are associated with higher multipliers because of the larger increases in manufacturers’ indirect costs for developi ng, producing (or procuring) , and deploying these more complex technologies. The appropriate multipli ers decline over time for technologies of all complexity levels, since increased familiari ty and experience with their application is assumed to reduce manufacturers’ indirect costs for employing them.

NHTSA and EPA received far fewer specific comments on technology cost estimates than in previous CAFE rulemakings, which suggests that most, although not all, stakeholders generally agreed with the ag encies’ assumptions. Several commenters supported the agencies’ use of tear-down studies for devel oping some of the technology costs, largely citing the agencies’ own reas ons in support of that methodology. Some specific comments were received with regard to hybrid and other technology costs, to which the agencies are respondi ng directly in Chapter 3 of the Joint TSD and in the agencies’ respective FRIAs. Generally speaking, however, to the extent that commenters disagreed with the agencies’ cost estimates, often the disagreement stemmed from assumptions about the technology’s matu rity, which the agencies have tried to account for in the analysis. These issues are discussed further in Chapter 3 of the TSD. Additionally, we note that tec hnology costs will also be addressed in the upcoming revised NAS report.

598 NHTSA notes that in addition to the technology cost analysis employing this “ICM” approach, the FRIA contains a sensitivity analysis using a technology cost multiplier of 1.5.929 With regard to the indirect cost multiplier approach, commenters also generally supported the higher level of specificity provi ded by the ICM approach compared to the RPE approach, although some commenters suggested specific refinements to the measurement of ICMs. For example, while the automotive dealer organization NADA argued that all dealer costs of sales should be included in “dealer profit,” another commenter noted expressly that the ICM does not include profits. Comments from ICCT also argued in favor of revising the “tec hnology complexity” component of the ICM to account for the complexity of integrating a ne w technology into a vehicle, rather than for only the complexity of produci ng the technology itself. Th ese comments and others on the ICM are addressed in Chapter 3 of the Joint TSD and in the agencies’ respective FRIAs. NHTSA notes that profits were not incl uded in the indirect cost estimates of this rule, and also that NHTSA’s sensitivity anal ysis, presented in Chapter X of the FRIA, indicates that using the 1.5 RPE multiplier w ould result in higher costs compared to today’s final rule costs incorporating the IC M multiplier, although even with those higher costs the 1.5 RPE analysis still resulted in si gnificant net benefits for the rulemaking as a whole. NHTSA continues to study this issu e and may employ a different approach in future rulemakings.

b. Potential Opportunity Costs of Improved Fuel Economy

An important concern is whether ach ieving the fuel economy improvements required by alternative CAFE standards might result in manufacturers compromising the performance, carrying capacity, safety, or comf ort of their vehicle models. To the extent930 that it does so, the resulting sacrifice in th e value of these attr ibutes to consumers represents an additional cost of achieving the required impr ovements in fuel economy. (This possibility is addressed in detail in Section IV.G.6.) Although exact dollar values of these attributes to consumers are difficu lt to infer, differences in vehicle purchase prices and buyers’ choices am ong competing models that feat ure varying combinations of these characteristics clearly demonstrate that ch anges in these attributes affect the utility and economic value that vehicl es offer to potential buyers. 599

NHTSA and EPA have approached this potential problem by developing cost estimates for fuel economy-improving t echnologies that incl ude any additional manufacturing costs that would be necessary to maintain the originally planned levels of performance, comfort, carrying capacity, and safety of any light-duty vehicle model to which those technologies are applied. In doing so, the agencies followed the precedent established by the 2002 NAS Report, which estim ated “constant performance and utility” costs for fuel economy technologies. NHTSA has used these as the basis for its continuing efforts to refine the technology co sts it uses to analyze manufacturer’s costs for complying with alternative passenger ca r and light truck CAFE standards for MYs 2012-2016. Although the agency has revised its estimates of manufacturers’ costs for some technologies significantly for use in th is rulemaking, these revised estimates are still intended to represent costs that w ould allow manufacturers to maintain the

599 See, e.g., Kleit A.N., 1990. “The Effect of Annu al Changes in Automobile Fuel Economy Standards.” Journal of Regulatory Economics 2: 151-172 (Docket EPA-HQ-OAR-2009-0472-0015); Berry, Steven, James Levinsohn, and Ariel Pakes, 1995. “Automobile Prices in Market Equilibri um,” Econometrica 63(4): 841-940 (Docket NHTSA-2009-0059-0031); McCarthy, Patrick S., 1996. “Market Price and Income Elasticities of New Vehicle Demands.” Review of Ec onomics and Statistics 78: 543-547 (Docket NHTSA2009-0059-0039); and Goldberg, Pinelopi K., 1998. “The Effects of the Corporate Average Fuel Efficiency Standards in the U.S.,” Journal of Industrial Economics 46(1): 1-33 (Docket EPA-HQ-OAR-2009-0472- 0017).931 performance, carrying capacity , and utility of vehicle mode ls while improving their fuel
economy.

Although we believe that our cost estimates for fuel economy-improving technologies include adequate provision for accompanying outlays that are necessary to prevent any significant degradati on in other attributes that ve hicle owners value, it is possible that they do not include adequate allowance for the necessary efforts by manufacturers to prevent sacrifices in these attr ibutes on all vehicle models. If this is the case, the true economic costs of achievi ng higher fuel economy should include the opportunity costs to vehicle owners of any s acrifices in vehicles’ performance, carrying capacity, and utility, and om itting these will cause the ag ency’s estimated technology costs to underestimate the true economi c costs of improving fuel economy.

Recognizing this possibility, it would be desirable to estimate explicitly the changes in vehicle buyers’ welfare from the co mbination of higher prices for new vehicle models, increases in their fuel economy, and any accompanying changes in vehicle attributes such as performance, passe nger- and cargo-carrying capacity, or other dimensions of utility. The net change in buyer’s welfar e that results from the combination of these changes would provide a more accurate estimate of the true economic costs for improving fuel economy. Although the agency has been unable to develop a procedure for doing so as part of this rulemaking, Section IV.G.6. below includes a detailed analysis and discussion of how omitting possible changes in vehicle932 attributes other than their pr ices and fuel economy might aff ect its estimates of benefits and costs resulting from the standards this rule establishes.

c. The On-Road Fuel Economy “Gap”

Actual fuel economy levels achieved by light -duty vehicles in on-road driving fall somewhat short of their levels measured unde r the laboratory-like test conditions used by EPA to establish its published fuel economy ra tings for different models. In analyzing the fuel savings from alternative CAFE sta ndards, NHTSA has previously adjusted the actual fuel economy performance of each light truck model downward from its rated value to reflect the expected size of this on-road fuel economy “gap.” On December 27, 2006, EPA adopted changes to its regulati ons on fuel economy labeling, which were intended to bring vehicles’ rated fuel economy le vels closer to their actual on-road fuel economy levels. 600

In its Final Rule, EPA estimated that act ual on-road fuel economy for light-duty vehicles averages 20 percent lower than publis hed fuel economy levels. For example, if the overall EPA fuel economy rating of a light truck is 20 mpg, the on-road fuel economy actually achieved by a typical driv er of that vehicle is exp ected to be 16 mpg (20*.80). NHTSA employed EPA’s revised estimate of this on-road fuel economy gap in its analysis of the fuel savings resulting from alternative CAFE standards evaluated in the MY 2011 final rule.

600 71 FR 77871 (Dec. 27, 2006).933 For purposes of this final rule, NHTSA conducted additional analysis of this issue. The agency used data on the number of passenger cars and light trucks of each model year that were registered for use during calendar years 2000 through 2006, average rated fuel economy for passenger cars and lig ht trucks produced during each model year, and estimates of average miles driven per year by cars and light trucks of different ages. These data were combined to develop estimates of the average fuel economy that the U.S. passenger vehicle fleet would have achieved from 2000 through 2006 if cars and light trucks of each model year achieved the same fuel economy levels in actual on-road driving as they did under test conditions when new.

NHTSA compared these estimates to the Federal Highway Administration’s (FHWA) published values of actual on-road fuel economy for passenger cars and light trucks during each of those years. 601 FHWA’s estimates of actual fuel economy for passenger cars averaged 22 percent lower th an NHTSA’s estimates of its fleet-wide average value under test conditions over this period, while FHWA’s estimates for light trucks averaged 17 lower than NHTSA’s estim ates of average light truck fuel economy under test conditions. These results appear to confirm that the 20 percent on-road fuel economy discount or gap represen ts a reasonable estimate for use in evaluating the fuel savings likely to result from alternative CAFE standards for MY 2012-2016 vehicles.

601 Federal Highway Administration, Highway Statistics, 2000 through 2006 editions, Table VM-1; See http://www.fhwa.dot.gov/polic y/ohpi/hss/hsspubs.cfm (las t accessed March 1, 2010).934 NHTSA received no comments on this issue in response to the NPRM. Accordingly, it has not revised its estimate of the on-road fuel economy gap from the 20 percent figure used previously.

d. Fuel Prices and the Value of Saving Fuel

Projected future fuel prices are a criti cal input into the economic analysis of alternative CAFE standards, be cause they determine the value of fuel savings both to new vehicle buyers and to society. NHTSA relie d on the most recent fuel price projections from the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook (AEO) for this analysis. Specifically, we us ed the AEO 2010 Early Release (December 2009) Reference Case forecasts of inflation-adjusted (constant-dollar) retail gasoline and diesel fuel prices, which represent the EIA’s most up- to-date estimate of the most likely course of future prices for petroleum products. 602 This forecast is somewhat lower than the AEO 2009 Reference Case forecast the agency relied upon in the analysis it conducted for the NPRM. Over the period from 2010 to 2030, the AEO 2010 Early Release Reference Case forecast of retail gasoline pric es used in this analysis averages $3.18 per

602 Energy Information Administration, Annual Energy Outlook 2010 Early Release, Reference Case (December 2009), Table A12. Available at http://www.eia.doe.gov/oiaf/aeo/pdf/appa.pdf, p. 25(last accessed March 1, 2010). These forecasts reflect the provisions of the Energy In dependence and Security Act of 2007 (EISA), including the requirement that th e combined mpg level of U.S. cars and light trucks reach 35 miles per gallon by model year 2020. Becaus e this provision would be expected to reduce future U.S. demand for gasoline and lead to a decline in its fu ture price, there is some concern about whether the AEO 2010 forecast of fuel prices partly reflects the in creases in CAFE standards considered in this rule, and thus whether it is suitable for valuing the projected redu ctions in fuel use. In response to this concern, the agency notes that EIA issued a revised version of AEO 2008 in June 2008, which modified its previous December 2007 Early Release of AEO 2008 to refl ect the effects of then recently-passed EISA legislation. 602 The fuel price forecasts reported in EIA’s Revised Release of AEO 2008 differed by less than one cent per gallon th roughout the entire forecast period (2008-23 0) from those previously issued as part of its initial release of AEO 2008. Thus, the ag encies are reasonably confident that the fuel price forecasts presented in AEO 2010 and used to analyze th e value of fuel savings proj ected to result from this rule are not unduly affected by the CAFE provisions of EISA.935 gallon (in 2007 dollars), in c ontrast to the $3.38 per gallon average price for that same period forecast in the earlier AEO 2009 Refere nce Case and used in the NPRM analysis.

While NHTSA relied on the forecasts of fuel prices presented in AEO 2008 High Price Case in the MY 2011 final rule, we noted at the time that we were relying on that estimate primarily because volatility in the o il market appeared to have overtaken the Reference Case. We also anticipated that the Reference Case forecasts would be significantly higher in subseque nt editions of AEO, and that in future rulemaking analyses the agency would be likely to rely on the Reference Case rather than High Price Case forecasts. In fact, both EIA’s AEO 2009 Reference Case and its subsequent AEO 2010 Early Release Reference Case forecasts project higher retail fuel prices in most future years than those for ecast in the High Price Case fr om AEO 2008. NHTSA is thus confident that the AEO 2010 Early Release Refe rence Case is an appropriate forecast for projected future fuel prices.

NHTSA and EPA received relatively few comments on the fuel prices used in the NPRM analysis, compared to previous CAFE rulemakings. Two commenters, CARB and NADA, supported the use of AEO’s Reference Case for use in the agencies’ analysis, although they disagreed on the agencies’ us e of the High and Low Price Cases for sensitivities. Both commenters emphasized the sensitivity of the market and the agencies’ analysis to higher and lower gas prices, and on that basis, CARB supported the use of the High and Low Price Cases in sensi tivity analysis but urged the agencies to caveat the “Reference Case” results more exp licitly. In contrast, NADA argued that the936 agencies should not use the High and Low Price Cases, because EIA does not assign specific probabilities to either of them. On ly one commenter, James Adcock, argued that the agencies should use forecasts of future fuel prices other than those reported in AEO; Adcock stated that future fuel prices shoul d be assumed to be higher than current pump prices.

Measured in constant 2007 dollars, the AEO 2010 Early Release Reference Case forecast of retail gasoline prices during cal endar year 2010 is $2.44 per gallon, and rises gradually to $3.83 by the year 2035 (these values include federal, state and local taxes). However, the agency’s analysis of the value of fuel savings over the lifetimes of MY 2012-2016 cars and light trucks requires for ecasts extending through calendar year 2050, approximately the last year during which a significant number of MY 2016 vehicles will remain in service. To obtain fuel pric e forecasts for the years 2036 through 2050, the agency assumes that retail fuel prices will continue to increase after 2035 at the average annual rates projected for 2025 through 2035 in the AEO 2010 Early Release Reference
Case. 603 This assumption results in a projected retail price of gasolin e that reaches $4.49 in 2007 dollars during the year 2050.

The value of fuel savings resulting fro m improved fuel economy to buyers of light-duty vehicles is determined by the retail price of fuel, which includes federal, state, and any local taxes imposed on fuel sales. The agency has updated the estimates of

603 This projection uses the rate of in crease in fuel prices for 2020-2030 rather than that over the complete forecast period (2009-2030 ) because there is extreme volatility in th e forecasts for the years 2009 through approximately 2020. Using the average rate of change over the complete 2009-2 030 forecast pe riod would result in projections of declining fuel prices after 2030.937 gasoline taxes it employed in the NPRM usi ng the recent data on state fuel tax rates; expressed in 2007 dollars, fede ral gasoline taxes are curren tly $0.178, while state and local gasoline taxes together average $0.231 per gallon, fo r a total tax burden of $0.401 per gallon. Because fuel taxes represent tr ansfers of resources from fuel buyers to government agencies, however, rather than real resources that are consumed in the process of supplying or using fu el, NHTSA deducts their value from retail fuel prices to determine the true value of fuel savings resu lting from more string ent CAFE standards to the U.S. economy.

NHTSA follows the assumptions used by EIA in AEO 2010 Early Release that state and local gasoline taxes will keep pace with inflation in nomi nal terms, and thus remain constant when expressed in constant dollars. In contrast, EIA assumes that federal gasoline taxes will remain unchanged in nominalterms, and thus decline throughout the forecast period when expresse d in constant dollars. These differing assumptions about the likely future behavior of federal and state/ local fuel taxes are consistent with recent historical experience, wh ich reflects the fact that federal as well as most state motor fuel taxes are specified on a cents-per-gallon rather than an ad valorem basis, and typically require le gislation to change. The proj ected value of total taxes is deducted from each future year’s forecast of retail gasoline and diesel prices to determine the economic value of each gallon of fu el saved during that ye ar as a result of improved fuel economy. Subtracting fuel taxe s from the retail prices forecast in AEO 2010 Early Release results in a projected value for saving gasoline of $2.04 per gallon938 during 2010, rising to $3.48 per gallon by th e year 2035,and averaging $2.91 over this 25-year period.

Although the Early Release of AEO 2010 contains only the Reference Case forecast, EIA includes “High Price Case” and “L ow Price Case” forecasts in each year’s complete AEO, which reflect uncertainties re garding future levels of oil production and demand. For this final rule, NHTSA has c ontinued to use the most recent “High Price Case” and “Low Price Case” forecasts availa ble, which are those from AEO 2009. While NHTSA recognizes that these forecasts ar e not probabilistic, as NADA commented, we continue to believe that usi ng them for sensitivity analyses provides valuable information for agency decision-makers, because it illustra tes the sensitivity of the rule’s primary economic benefit resulting from uncertainty about future growth in world demand for petroleum energy and the strategic behavior of oil suppliers.

These alternative scenarios project retail ga soline prices that range from a low of $2.02 to a high of $5.04 per gallon during 2020, and from $2.04 to $5.47 per gallon during 2030 (all figures in 2007 do llars). In conjunction with our assumption that fuel taxes will remain constant in real or inflation-adjusted terms over this period, these forecasts imply pre-tax values of saving fuel ranging from $1.63 to $4.65 per gallon during 2020, and from $1.66 to $5.09 per gallon in 2030 (again, all figures are in constant 2007 dollars). In conducting the analysis of uncertainty in benefits and costs from alternative CAFE standards required by OM B, NHTSA evaluated the sensitivity of its benefits estimates to these alternative forecasts of future fuel prices. Detailed results and939 discussion of this sensitivity analysis can be found in the FRIA. Generally, however, this analysis confirmed that as several comment ers suggested, the primary economic benefit resulting from the rule – the value of fuel savings – is quite sensitive to forecast fuel prices.

e. Consumer Valuation of Fuel Economy and Payback Period

In estimating the impacts on vehicle sale s that would result from alternative CAFE standards to potential vehicle buyers , NHTSA assumes, as in the MY 2011 final rule, that potential vehicle buyers value the resulting fuel savings over only part of the expected lifetime of the vehicles they purch ase. Specifically, we assume that buyers value fuel savings over the first five years of a new vehicle’s lifetime, and discount the value of these future fuel savings at a 3 percent annual rate. The five-year figure represents approximately the current averag e term of consumer loans to finance the purchase of new vehicles. We recognize that the period over wh ich individual buyers finance new vehicle purchases may not corr espond exactly to the time horizons they apply in valuing fuel savings from higher fuel economy.

The agency deducts the discounted present va lue of fuel savings over the first five years of a vehicle model’s lifetime fr om the technology costs incurred by its manufacturer to improve that model’s fuel economy to determine the increase in its “effective price” to buyers. The Volpe model us es these estimates of effective costs for increasing the fuel economy of each vehicl e model to identify the order in which940 manufacturers would be likely to select models for the application of fuel economyimproving technologies in order to comply with stricter standa rds. The average value of the resulting increase in effective cost fr om each manufacturer’s simulated compliance strategy is also used to estimate the impact of alternative standards on its total sales for future model years.

One commenter, NADA, supported the agency ’s assumption of a five-year period for buyers’ valuation of fuel economy, on the basis that the consid erable majority of consumers seek to recoup costs quickly. However, NADA also encouraged the agencies to ensure that purchaser finance costs, opportunity costs of vehicle ownership, and increased maintenance costs were accounted for. Another commenter, James Adcock, argued that the assumption of a five-year peri od was irrational, because it did not account for the fact that first purchasers will be able to sell a higher-mpg vehicle for more money than a lower-mpg vehicle.

In response to these comments, the agency notes that it estimates the aggregate value to the U.S. economy of fuel savings re sulting from alternative standards – or their “social” value – over the entire expected lifetimes of vehicles manufactured under those standards, rather than over the shorter 5-year “payback period” we assume that manufacturers employ to represent the pref erences of vehicle buyers. The 5-year payback period is only utilized to identify th e likely sequence of improvements in fuel economy that manufacturers are likely to make to their different vehicle models. The procedure the agency uses for calculating lifetim e fuel savings is discussed in detail in the941 following section, while alte rnative assumptions about the time horizon over which potential buyers consider fuel savings in th eir vehicle purchasing decisions are analyzed and discussed in detail in Section IV.G.6 below.

Valuing fuel savings over vehicles’ entire lifetimes in effect recognizes the gains that future vehicle owners will receive, ev en if initial purchasers of higher-mpg models are not able to recover the entire remaining va lue of fuel savings when they re-sell those vehicles. The agency acknowledges, however, th at it has not accounted for any effects of increased financing costs for purchasing vehicl es with higher fuel economy or increased expenses for maintaining them on benefits to vehicle owners, over either the short-run payback period or the full lifetimes of vehicles.

f. Vehicle Survival and Use Assumptions

NHTSA’s first step in estimating lifetim e fuel consumption by vehicles produced during a model year is to calculate the numbe r expected to remain in service during each year following their production and sale. 604 This is calculated by multiplying the number of vehicles originally produced during a m odel year by the proporti on typically expected

604 Vehicles are defined to be of age 1 during the cal endar year corresponding to the model year in which they are produced; thus for example, model year 2000 vehicles are c onsidered to be of age 1 during calendar year 2000, age 1 during calen dar year 2001, and to reach their maximum age of 26 years during calendar year 2025. NHTSA considers the maximum lifetime of vehicles to be the age after which less than 2 percent of the vehicles orig inally produced during a model year remain in service. Applying these conventions to vehicle registration data indicates that passenger cars have a maximum age of 26 years, while light trucks have a maximum lifetime of 36 years. See Lu, S., NHTSA, Regulatory Analysis and Evaluation Division, “Vehicle Survivability and Trav el Mileage Schedules,” DOT HS 809 952, 8-11 (January 2006). Available at http://www-nrd.nhtsa.d ot.gov/Pubs/809952.pdf (last accessed March 1, 2010)

.942 to remain in service at their age during each later year, often referred to as a “survival
rate.”

As discussed in more detail in Section II.B.3 above and in Chapter 1 of the TSD, to estimate production volumes of passenge r cars and light trucks for individual manufacturers, NHTSA relied on a baseline market forecast constructed by EPA staff beginning with MY 2008 CAFE certificati on data. After constructing a MY 2008 baseline, EPA and NHTSA used projected car and truck volumes fo r this period from Energy Information Administration’s (EIA’s ) Annual Energy Outlook (AEO) 2009 in the NPRM analysis. 605 For the analysis supporting this final rule, NHTSA substituted the revised forecasts of total volume reporte d in EIA’s Annual Energy Outlook 2010 Early Release. However, Annual Energy Outlook forecas ts only total car and light truck sales, rather than sales at the manuf acturer and model-specific level, which the agencies require in order to estimate the effects new sta ndards will have on individual manufacturers. 606

To estimate sales of individual car a nd light truck models produced by each manufacturer, EPA purchased data from CSM Worldwide and used its projections of the number of vehicles of each type (car or truck) that will be produced and sold by

605 Available at http://www.eia.doe .gov/oiaf/aeo/index.html (last acce ssed March 15, 2010). NHTSA and EPA made the simplifying assumption that projected sales of cars and light trucks during each calendar year from 2012 through 2016 represented the likely production volumes for the corresponding model year. The agency did not attempt to establish the exact co rrespondence between projected sales during individual calendar years and production volu mes for specific model years. 606 Because AEO 2009’s “car” and “truck” classes di d not reflect NHTSA’s r ecent reclassification (in March 2009 for enforcement beginning MY 2011) of many two wheel drive SUVs from the nonpassenger (i.e., light truck) fleet to the passe nger car fleet, EPA staff made adjustments to account for such vehicles in the baseline.943 manufacturers in model years 2011 through 2015. 607 This provided year-by-year estimates of the percentage of cars and truc ks sold by each manufacturer, as well as the sales percentages accounted for by each vehicl e market segment. (The distributions of car and truck sales by manufacturer and by ma rket segment for the 2016 model year and beyond were assumed to be the same as CSM’s forecast for the 2015 calendar year.) Normalizing these percentages to the total car and light truck sales volumes projected for 2012 through 2016 in AEO 2009 provided manuf acturer-specific market share and model-specific sales estimates for those model years. The volumes were then scaled to AEO 2010 total volume for each year.

To estimate the number of passenger cars a nd light trucks originally produced during model years 2012 through 2016 that will remain in use during each subsequent year, the agency applied age-specific surviv al rates for cars and light trucks to these adjusted forecasts of passenger car and light truck sales. In 2008, NHTSA updated its previous estimates of car and light truck surv ival rates using the most current registration data for vehicles produced during recent mode l years, in order to ensure that they reflected recent increases in the durability and expected life spans of cars and light trucks. 608

607 EPA also considered other sources of similar information, such as J.D. Powers, and concluded that CSM was better able to provide forecasts at the requisite le vel of detail for most of the model years of interest. 608 Lu, S., NHTSA, Regulatory Analysis and Evalua tion Division, “Vehicle Survivability and Travel Mileage Schedules,” DOT HS 809 952, 8-11 (January 2006). Available at http://wwwnrd.nhtsa.dot.gov/Pubs/809 952.pdf (last accessed March 1, 2010). These updated survival rates suggest that the expected lifetimes of r ecent-model passenger cars and light tr ucks are 13.8 and 14.5 years.944 The next step in estimating fuel use is to calculate the total number of miles that model year 2012-2016 cars and light trucks rema ining in use will be driven each year. To estimate total miles driven, the number pr ojected to remain in use during each future year is multiplied by the average number of miles they are expected to be driven at the age they will reach in that year. The agen cy estimated annual usage of cars and light trucks of each age using data from the Federal Highway Admini stration’s 2001 National Household Transportation Survey (NHTS). 609 Because these estimates reflect the historically low gasoline pri ces that prevailed at the time the 2001 NHTS was conducted, however, NHTSA adjusted them to account for the effect on vehicle use of subsequent increases in fuel prices. Details of this adjustment are provided in Chapter VIII of the FRIA and Chapter 4 of the Joint TSD.

Increases in average annual use of cars and light trucks have been an important source of historical growth in the total numbe r of miles they are driven each year. To estimate future growth in their average a nnual use for purposes of this rulemaking, NHTSA calculated the rate of growth in the adjusted mileage schedules derived from the 2001 NHTS necessary for total car and light truck travel to in crease at the rate forecast in the AEO 2010 Early Release Reference Case. 610 This rate was calculated to be consistent with future changes in the overall size and ag e distributions of the U.S. passenger car and light truck fleets that result from the agency’s forecasts of total car and light truck sales and updated survival rates. The resulting gr owth rate in averag e annual car and light

609 For a description of the Survey , See http://nhts.ornl.gov /quickStart.shtml (last accessed March 1, 2010). 610 This approach differs from that used in the MY 201 1 final rule, where it was assumed that future growth in the total number of cars and light trucks in use resulting from projected sales of new vehicles was adequate by itself to account for growth in total vehicle use, without assuming continuing growth in average vehicle use.945 truck use of 1.15 percent per year was applied to the mil eage figures derived from the 2001 NHTS to estimate annual mileage during each year of the expected lifetimes of MY 2012-2016 cars and light trucks. 611

Finally, the agency estimated total fuel consumption by passenger cars and light trucks remaining in use each year by di viding the total number of miles surviving vehicles are driven by the fuel economy they are expected to achieve under each alternative CAFE standard. E ach model year’s total lifetime fuel consumption is the sum of fuel use by the cars or light trucks produ ced during that model year during each year of their life spans. In turn, the savings in a model year’s lifetime fuel use that will result from each alternative CAFE standard is the di fference between its lifet ime fuel use at the fuel economy level it attains under the Baseline alternative, and its lifetime fuel use at the higher fuel economy level it is projected to achieve under that al ternative standard. 612

611 While the adjustment for future fuel prices reduces average mileage at each age from the values derived from the 2001 NHTS, the adjustment for expected future growth in average vehicle use increases it. The net effect of these two adjustments is to increas e expected lifetime mileage by about 18 percent significantly for both passenger cars and about 16 percent for light trucks. 612 To illustrate these calculations, the agency’s ad justment of the AEO 2009 Revised Reference Case forecast indicates that 9.26 million passenger cars will be produced duri ng 2012, and the agency’s updated survival rates show that 83 percent of these vehicles, or 7.64 milli on, are projected to remain in service during the year 2022, when they will have reached an ag e of 10 years. At that age, passenger achieving the fuel economy level they are projected to achieve under the Baseline alte rnative are driven an average of about 800 miles, so surviving model year 2012 passenger cars will be driven a total of 82.5 billion miles (= 7.64 million surviving vehicles x 10,800 miles per vehicle) during 2022. Summing the results of similar calculations for each year of their 26-year maximum lifetime, model year 2012 passenger cars will be driven a total of 1,395 billion miles under the Baseline alternative. Under that alternative, they are projected to achieve a test fuel economy level of 32.4 mpg, which corresponds to actual on-road fuel economy of 25.9 mpg (= 32.4 mpg x 80 percent). Thus their lifetime fuel use under the Baseline alternative is projected to be 53.9 billion gallons (= 1,395 billion miles divided by 25.9 miles per gallon).946 NHTSA and EPA received no comments on their respective NPRMs indicating that these assumptions should be updated or reconsidered. Thus the agencies have continued to employ them in the an alysis supporting this final rule.

g. Accounting for the Fuel Economy Rebound Effect

The fuel economy rebound effect refers to th e fraction of fuel savings expected to result from an increase in vehicle fuel ec onomy – particularly an increase required by the adoption of higher CAFE standards – that is offset by additional vehicle use. The increase in vehicle use occurs because hi gher fuel economy reduces the fuel cost of driving, typically the larges t single component of the monetary cost of operating a vehicle, and vehicle owners respond to th is reduction in operating costs by driving slightly more. By lowering the marginal co st of vehicle use, improved fuel economy may lead to an increase in the number of miles vehicles are driven each year and over their lifetimes. Even with their higher fuel ec onomy, this additional driving consumes some fuel, so the rebound effect reduces the net fuel savings that result when new CAFE standards require manufacturers to improve fuel economy.

The magnitude of the rebound effect is an important determinant of the actual fuel savings that are likely to resu lt from adopting stricter CAFE standards. Research on the magnitude of the rebound effect in light-dut y vehicle use dates to the early 1980s, and generally concludes that a sta tistically significant rebound effect occurs when vehicle fuel947 efficiency improves. 613 The agency reviewed studie s of the rebound effect it had previously relied upon, considered more r ecently published estimates, and developed new estimates of its magnitude for purposes of the NPRM. 614 Recent studies provide some evidence that the rebound effect has been d eclining over time, and may decline further over the immediate future if incomes rise faster than gasoline prices. This result appears plausible, because the responsiven ess of vehicle use to variatio n in fuel costs is expected to decline as they account for a smaller proportion of the total monetary cost of driving, which has been the case until very recently. At the same time, rising personal incomes would be expected to reduce the sensitivity of vehicle use to fuel costs as the time component of driving costs – which is likely to be related to income levels – accounts for a larger fraction the total cost of automobile travel.

NHTSA developed new estimates of the rebound effect by using national data on light-duty vehicle travel over the period fr om 1950 through 2006 to estimate various econometric models of the relationship between vehicle miles-travel ed and factors likely to influence it, including household income, fu el prices, vehicle fuel efficiency, road supply, the number of vehicles in us e, vehicle prices, and other factors. 615 The results of NHTSA’s analysis are consistent with th e findings from other recent research: the average long-run rebound effect ranged from 16 percent to 30 percent over the period

613 Some studies estimate that the long-run rebound e ffect is significantly larger than the immediate response to increased fuel efficien cy. Although their estimates of the adjustment period required for the rebound effect to reach its long-run magnitude vary, this long-run effect is most appropriate for evaluating the fuel savings and emissions reductio ns resulting from stricter standards that would apply to future model years. 614 For details of the agency’s analysis, see Chapter VI II of the PRIA and Chapter 4 of the draft Joint TSD accompanying this proposed rule. 615 The agency used several different model specifications and estimation procedures to control for the effect of fuel prices on fuel effi ciency in order to obtain accurate estimates of the rebound effect.948 from 1950 through 2007, while estimates of the rebound effect in 2007 range from 8 percent to 14 percent. Projected values of the rebound effect for the period from 2010 through 2030, which the agency developed us ing forecasts of personal income, fuel prices, and fuel efficiency from AEO 2009’s Reference Case, range from 4 percent to 16 percent, depending on the specific m odel used to generate them.

In light of these results, th e agency’s judgment is that the apparent decline over time in the magnitude of the rebound effect just ifies using a value for future analysis that is lower than historical estimates, which aver age 15-25 percent. Because the lifetimes of vehicles affected by the alternative CAFE st andards considered in this rulemaking will extend from 2012 until nearly 2050, a value that is significantly lower than historical estimates appears to be appropriate. Thus NHTSA used a 10 percent rebound effect in its analysis of fuel savings and other benefits from higher CAFE standards for the NPRM. The agency also sought comment on other a lternatives for estimating the rebound effect, such as whether it would be appropriate to us e the price elasticity of demand for gasoline, or other alternative approach es, to guide the choice of a value for the rebound effect.

NHTSA and EPA received far fewer comments on the rebound effect than were previously received to CAFE rulemakings. Only one commenter, NJ DEP, expressly supported the agencies’ assumption of 10 percent for the rebound effect; other commenters (CARB, CBD, ICCT) argued th at 10 percent should be the absolute maximum value and that the rebound effect a ssumed by the agencies should be lower, and would also be expected to decline over time . ICCT added that th e price elasticity of949 gasoline demand could be a useful comparis on for the rebound effect, but should not be used to derive it. Other commenters argued that a rebound effect e ither was unlikely to occur (James Hyde), or was unlikely to produ ce a uniform increase in use of all vehicles with improved fuel economy (Missouri DNR). NADA argued, in contrast, that the agencies had not provided sufficient justifi cation for lowering the rebound effect to 10 percent from the “historically justified” range of 15 to 30 percent.

The agency’s interpretation of historical and recent evidence on the magnitude of the rebound effect is that a significan t fuel economy rebound effect exists, and commenters did not provide any additional data or analysis to justify revising our initial estimates of the rebound effect. Therefore, the data available at this time do not justify using a rebound effect below the 10 percent figure employed in its NPRM analysis. NHTSA believes that projections of a continued decline in the magn itude of the rebound effect are unrealistic because they assume the rate at whic h it declines in response to increasing incomes remain constant, and in so me cases imply that the rebound effect will become negative in the near future. In addi tion, the continued incr eases in fuel prices used in this analysis will tend to increas e the magnitude of the rebound effect, thus offsetting part of the effect of rising income s. As the preceding discussion indicates, there is a wide range of estimates for both the historical magnitude of the rebound effect and its projected future value, and there is some evidence that the magnitude of the rebound effect appears to be declining over ti me. Nevertheless, NHTSA requires a single point estimate for the rebound effect as an input to its analysis , although a range of estimates can be used to test the sensitivity to uncertainty about its exact magnitude. For950 the final rule, NHTSA chose to use 10 pe rcent as its primary estimate of the rebound effect, with a range of 5-15 percent for use in sensitivity testing.

The 10 percent figure is well below those re ported in almost all previous research, and it is also below most estimates of the hi storical and current ma gnitude of the rebound effect developed by NHTSA. However, ot her recent research - particularly that conducted by Small and Van Dender and by Greene - reports persuasive evidence that the magnitude of the rebound effect is likely to be declining over time, and the forecasts developed by NHTSA also suggest that this is likely to be the case. As a consequence, NHTSA concluded that a value below the histor ical estimates reported here is likely to provide a more reliable estimate of its magn itude during the future period spanned by NHTSA's analysis of the impacts of this rule. The 10 percent estimate meets this condition, since it lies below the 15-30 percen t range of estimates for the historical rebound effect reported in most previous research, and at the upper end of the 5-10 percent range of estimates for the future re bound effect reported in th e recent studies by Small and Van Dender and by Greene. It also lies within the 3-16 percent range of forecasts of the future magnitude of the rebound effect developed by NHTSA in its recent research. In summary, the 10 percent value was not derived from a single point estimate from a particular study, but instead repres ents a reasonable comp romise between the historical estimates and the projected future estimates. NHTSA will continue to review this estimate of the rebound effect in future rulemakings, but the agency has continued to use the 10 percent rebound effect over the entire future period spanned by the analysis it conducted for this final rule.951 h. Benefits from Increased Vehicle Use

The increase in vehicle use from the rebound effect provides additional benefits to their owners, who may make more frequent trips or travel fart her to reach more desirable destinations. This additional travel provides benefits to drivers and their passengers by improving their access to social and econom ic opportunities away from home. As evidenced by their decisions to make more fr equent or longer trip s when improved fuel economy reduces their costs for driving, the be nefits from this additional travel exceed the costs drivers and passengers incur in ma king more frequent or longer trips.

The agency’s analysis estimates the ec onomic benefits from increased reboundeffect driving as the sum of fuel costs drivers incur plus the consumer surplus they receive from the additional accessibility it provides. 616 Because the increase in travel depends on the extent of improvement in fuel economy, the value of benefits it provides differs among model years and alternativ e CAFE standards. Under even those alternatives that would impos e the highest standards, howev er, the magnitude of these benefits represents a small fraction of total benefits. Because no comments addressed this issue of benefits from increased vehicl e use or the procedure used to estimate them, the agencies have finalized their proposed assumptions for purposes of the final rule analysis.

616 The consumer surplus provided by added travel is es timated as one-half of the product of the decline in fuel cost per mile and the resulting increase in the annual number of miles driven.952 i. The Value of Increased Driving Range

Improving vehicles’ fuel economy may also increase their driving range before they require refueling. By reducing the fr equency with which drivers typically refuel, and by extending the upper limit of the range they can travel before requiring refueling, improving fuel economy thus provides some additional benefits to their owners. 617 NHTSA re-examined this issue for purposes of this rulemaking, and found no information in comments or elsewhere that w ould cause the agency to revise its previous approach. Since no direct estimates of the va lue of extended vehicle range are available, NHTSA calculates directly th e reduction in the annual num ber of required refueling cycles that results from improved fuel economy, and applies DOT-recommended values of travel time savings to c onvert the resulting time savi ngs to their economic value. 618

As an illustration, a typical small light truck model has an average fuel tank size of approximately 20 gallons. Assuming that dr ivers typically refuel when their tanks are 55 percent full (i.e., 11 gallons in reserve), in creasing this model’s actual on-road fuel economy from 24 to 25 mpg would extend its dr iving range from 216 miles (= 9 gallons x 24 mpg) to 225 miles (= 9 gallons x 25 mpg). Assuming that it is driven 12,000 miles/year, this reduces the number of times it needs to be refueled each year from 55.6

617 If manufacturers respond to improved fuel economy by reducing the size of fuel tanks to maintain a constant driving range, the resulting cost saving will pr esumably be reflected in lower vehicle sales prices. 618 See Department of Transportation, Guidance Memorandum, “The Value of Saving Travel Time: Departmental Guidance for Conducting Economic Evaluations,” Apr. 9, 1997. http://ostpxweb.dot.gov/policy/Da ta/VOT97guid.pd f (last accessed March 1, 2010); update available at http://ostpxweb.dot.gov/policy/Data /VOTrevision1_2-11-03.pdf (l ast accessed March 1, 2010).953 (= 12,000 miles per year / 216 miles per refuel ing) to 53.3 (= 12,000 miles per year / 225 miles per refueling), or by 2.3 refuelings per year.

Weighted by the nationwide mix of urba n and rural driving, personal and business travel in urban and rural areas, and average vehicle occupancy for driving trips, the DOTrecommended values of travel time pe r vehicle-hour is $24.64 (in 2007 dollars). 619 Assuming that locating a stati on and filling up requires a total of five minutes, the annual value of time saved as a result of less fre quent refueling amounts to $4.72 (calculated as 5/60 x 2.3 x $24.64). This calculation is repe ated for each future year that model year 2012-2016 cars and light trucks would remain in service. Like fuel savings and other benefits, the value of this benefit declines ov er a model year’s lifet ime, because a smaller number of vehicles originally produced duri ng that model year remain in service each year, and those remaining in service are driven fewer miles.

Although the agencies received no public comments on the procedures they used to estimate the benefits from less frequent refueling or the magnitude of those benefits, we note also that the estimated value of less frequent refueling events is subject to a number of uncertainties which we discuss in detail in Chapter 4.1.11 of the Joint TSD, and the actual value could be higher or lower than the value presented here. Specifically,

619 The hourly wage rate during 2008 is estimated to average $25.50 when expressed in 2007 dollars. Personal travel in urban areas (which represents 94 percent of urban travel) is valued at 50 percent of the hourly wage rate, while business travel (the remaining 6 percent of urban travel) is valued at 100 percent of the hourly wage rate. For intercity travel, personal trav el (87 percent of total intercity travel) is valued at 70 percent of the wage rate, while business travel (13 percent) is valued at 100 percent of the wage rate. The resulting values of travel time are $12.67 for urba n travel and $17.66 for intercity travel, and must be multiplied by vehicle occupancy (1.6) to obtain the estimated values of time per vehicle hour in urban and rural driving. Finally, about 66% of driving occurs in urban areas, while the remaining 34% takes place in rural areas, and these percentages are used to calculate a weighted average of the value of time in all driving.954 the analysis makes three assumptions: (a) that manufacturers will not adjust fuel tank capacities downward (from the current average of 19.3 gallons) when they improve the fuel economy of their vehicle models. (b) th at the average fuel pur chase (55 percent of fuel tank capacity) is the typi cal fuel purchase. (c) that 100 percent of al l refueling is demand-based; i.e., that every gallon of fuel which is saved would reduce the need to return to the refueling station. NHTSA ha s planned a new research project which will include a detailed study of refueling events, and which is expected to improve upon these assumptions. These assumptions and the upc oming research project are discussed in detail in Joint TSD Chapter 4.2.10, as we ll as in Chapter VIII of NHTSA’s FRIA.

j. Added Costs from Congestion, Crashes and Noise

Increased vehicle use associated with the rebound effect al so contributes to increased traffic congestion, motor vehicle accidents, and highway noise. NHTSA relies on estimates of per-mile congestion, accident, and noise costs caused by increased use of automobiles and light trucks developed by the Federal Highway Administration to estimate these increased costs. 620 NHTSA employed these estimates previously in its analysis accompanying the MY 2011 final rule, and after reviewing the procedures used by FHWA to develop them and considering ot her available estimates of these values, continues to find them appropriate for use in this final rule. The agency multiplies FHWA’s estimates of per-mile costs by the annual increases in automobile and light

620 These estimates were developed by FHWA for use in its 1997 Federal Highway Cost Allocation Study ; See http://www.fhwa.dot.gov/po licy/hcas/final/index.htm (last accessed March 1, 2010).955 truck use from the rebound effect to yield th e estimated increases in congestion, accident, and noise externality costs during each future year.

One commenter, Inrix, Inc., stated that “deeply connected vehicles,” i.e., those with built-in computer systems to help dr ivers identify alternative routes to avoid congestion, are better able to avoid congestion than conventional vehicles. The commenter argued that increased use of these models may be less likely to contribute to increased congestion, and urged the agencies to consider the impact of this on their estimates of fuel use and GHG emissions. NHTSA notes that the number of such vehicles is extremely small at present, and is likely to remain modest for the model years affected by this rule, and has thus continue d to employ the estimates of congestion costs from additional rebound-effect vehicle use that it utilized in the NPRM analysis. The agency recognizes that these vehicles may b ecome sufficiently common in the future that their effect on the fuel economy drivers actua lly experience could b ecome significant, but notes that to the extent this occurs, it would be reflected in the gap between test and onroad fuel economy. NHTSA will continue to monitor the production of such vehicles and their representation in the vehicle fleet in its future rulemakings.

k. Petroleum Consumption and Import Externalities

U.S. consumption and imports of petrol eum products also impose costs on the domestic economy that are not reflected in the market price for crude petroleum, or in the prices paid by consumers of petroleum products such as gasoline. These costs include (1)956 higher prices for petroleum products resulti ng from the effect of U.S. oil import demand on the world oil price; (2) the risk of disr uptions to the U.S. economy caused by sudden reductions in the supply of imported oil to th e U.S.; and (3) expenses for maintaining a U.S. military presence to secure imported oil supplies from unstable regions, and for maintaining the strategic petroleum reserve (SPR) to cushion agai nst resulting price increases. 621

Higher U.S. imports of crude oil or re fined petroleum products increase the magnitude of these external economic costs, thus increasing the tr ue economic cost of supplying transportation fuels above their ma rket prices. Conversely, lowering U.S. imports of crude petroleum or refined fuel s by reducing domestic fuel consumption can reduce these external costs, and any reducti on in their total value that results from improved fuel economy represents an econom ic benefit of more stringent CAFE standards, in addition to the value of saving fuel itself.

NHTSA has carefully reviewed its assumptions regarding the appropriate value of these benefits for this final rule. In analyzing benefits from its recent actions to increase light truck CAFE standards for model years 2005-07 and 2008-11, NHTSA relied on a 1997 study by Oak Ridge National Laboratory (ORNL) to estimate the value of reduced

621 See , e.g., Bohi, Douglas R. and W. David Montgomery (1982). Oil Prices, Energy Security, and Import Policy Washington, DC: Resources for the Future, Johns Hopkins University Press; Bohi, D. R., and M. A. Toman (1993). "Energy and Security: Externalities and Policies," Energy Policy 21:1093-1109 (Docket NHTSA-2009-0062-24); and Toman, M. A. (1993). "The Economics of Energy Security: Theory, Evidence, Policy," in A. V. Kneese and J. L. Sweeney, eds. (1993) (Docket NHTSA-2009-0062-23). Handbook of Natural Resource and Energy Economics, Vol. III. Amsterdam: North-Holland, pp. 1167- 1218.957 economic externalities from petroleum consumption and imports. 622 More recently, ORNL updated its estimates of the value of these externalities, using the analytic framework developed in its original 1997 st udy in conjunction with recent estimates of the variables and parameters that determine their value. 623 The updated ORNL study was subjected to a detailed peer review comissioned by EPA, a nd ORNL’s estimates of the value of oil import externalities were subse quently revised to refl ect their comments and recommendations of the peer reviewers. 624 Finally, at the request of EPA, ORNL further revised its 2008 estimates of external costs from U.S. oil imports to reflect recent changes in the outlook for world petroleum prices, as well as continuing changes in the structure and characteristics of global petroleum supply and demand.

These most recent revisions increase ORNL’s estimates of the “monopsony premium” associated with U.S. oil imports, which measures the increase in payments from U.S. oil purchasers to foreign oil suppliers beyond the increased purchase price of petroleum itself that results when increased U.S. import demand raises the world price of petroleum. 625 However, the monopsony premium represents a financial transfer from consumers of petroleum products to oil produ cers, which does not entail the consumption of real economic resources. Thus reduci ng the magnitude of the monopsony premium

622 Leiby, Paul N., Donald W. Jones, T. Randall Curlee, and Russell Lee, Oil Imports: An Assessment of Benefits and Costs , ORNL-6851, Oak Ridge National Laboratory, November 1, 1997. Available at http://pzl1.ed.ornl.gov/ ORNL6851.pdf (last accessed March 1, 2010). 623 Leiby, Paul N. "Estimating the Energy Security Benefits of Reduced U.S. Oil Imports," Oak Ridge National Laboratory, ORNL/TM-2007/028, Revised July 23, 2007. Available at http://pzl1.ed.ornl.gov/energysecurity.html (click on link below “Oil Imports Costs and Benefits”) (last accessed March 1, 2010). 624 Peer Review Report Summary: Estimating the Energy Security Benefits of Re duced U.S. Oil Imports , ICF, Inc., September 2007. Available at Docket No. NHTSA-2009-0059-0160. 625 The reduction in payments from U.S. oil purchasers to domestic petroleum producers is not included as a benefit, since it represents a transfer that occurs entirely within the U.S. economy.958 produces no savings in real economic resource s globally or domestically, although it does reduce the value of the financia l transfer from U.S. consumers of petroleum products to foreign suppliers of petroleum. Accordingl y, NHTSA’s analysis of the benefits from adopting proposed CAFE standards for MY 2012-2016 cars and light trucks excluded the reduced value of monopsony payments by U.S. oil consumers that might result from lower fuel consumption by these vehicles. The agency sought comment on whether it would be reasonable to include the reducti on in monopsony payments by U.S. consumers of petroleum products in their estimates of total economic benefits from reducing U.S. fuel consumption.

Commenters from NYU School of La w argued that monopsony payments should be treated as a distributional effect, not a st andard efficiency benefit. An individual commenter, A.G. Fraas, also supported the agen cies’ exclusion of th e monopsony benefit, arguing that it represents a pec uniary externality that should no t be considered in benefitcost analyses of governmental actions—aga in, in essence, that it represents a distributional effect. These comments s upport the agency’s decision to exclude any reduction in monopsony premium payments that results from lower U.S. petroleum imports from its accounting of benefits from re duced fuel consumption. Thus the agency continues to exclude any reduction in monops ony premium payments from its estimates of benefits for the stricter CAFE standards this final rule establishes.

ORNL’s most recently revised estimates of the increase in the expected costs associated with potential disr uptions in U.S. petroleum impor ts imply that each gallon of959 imported fuel or petroleum saved reduces the expected costs of oil supply disruptions to the U.S. economy by $0.169 per gallon (in 2007$ ). In contrast to reduced monopsony premium payments, the reduction in expected di sruption costs represents a real savings in resources, and thus cont ributes economic benefits in addition to the savings in fuel production costs that result from increasing fu el economy. NHTSA employs this value in its analysis of the economic benefits from adopting higher CAFE standards for MY 2012- 2016 cars and light trucks.

A.G. Fraas commented on this proposed rule and felt that that magnitude of the economic disruption portion of the energy securi ty benefit may be too high. He cites a recent paper written by Stephen P.A. Brow n and Hillard G. Huntington, entitled “Estimating U.S. Oil Security Premiums” (September 2009). He commented that the Brown and Huntington premium associated with replacing oil imports by increased domestic oil production while keeping U.S. o il consumption unchanged (i.e., “the cost of displacing a barrel of domestic oil with a barrel of importe d oil”) ranges from $2.17 per barrel in 2015 to $2.37 per barrel in 2030 (2007$), or $0.052 to $0.056 per gallon.

In contrast, this rule is not a domestic o il supply initiative, but is one intended to reduce domestic oil consumption and thereby also to a significant extent reduce U.S. oil imports. When NHTSA used the ORNL Energy Security Premium An alysis to calculate the energy security premium for this rule , it based the energy security premium on decreased demand for oil and oil products. The agency estimated that most of the decreased demand for oil and oil products w ould come from decreased imports of oil,960 given the inelasticity of U.S. supply and the modest estimated change in world oil price. The Brown and Huntington estimates for th is change, considering the disruption component alone, are much in line with the ORNL estimates. For a reduction in U.S. consumption that largely leads to a reducti on in imports, Brown a nd Huntington estimate a midpoint premium of $4.98 per barrel in 2015 rising to $6.82 per barrel by 2030 (2007$). The 2015 disruption premium estimate has an uncertainty range of $1.10 to $14.35 (2007$). The corresponding 2030 estimate from ORNL is only about 19 percent higher ($8.12/bbl), with an uncertainty range -- $3.90 to $13.04 – completely enclosed by that of Brown and Huntington. Thus, we c onclude that the ORNL disruption security premium estimates for this rule is roughl y consistent with the Brown and Huntington results.

Commenters from the NYU School of Law agreed that reduced disruption costs should be counted as a benefit, but stated that the agencies should disaggregate and exclude any reduction in wealth transfers that occur during oil shocks from their calculation of this benefit. NHTSA acknowledges that for c onsistency with its exclusion of reductions in monopsony premium payments from the benefits of reduced fuel consumption and petroleum imports, it may be necessary to exclude reductions in the wealth transfer component of macroeconomic disruption costs from the benefits of reducing U.S. petroleum imports. In futu re rulemakings, the agency will assess the arguments for excluding the wealth transfer component of disruption costs from its accounting of benefits from reducing domes tic fuel consumption and U.S. petroleum961 imports, and explore whether it is practical to estimate its value separately and exclude it from the benefits calculations.

NHTSA’s analysis does not include savings in budgetary outlays to support U.S. military activities among the benefits of higher fuel economy and the resulting fuel savings. 626 NHTSA’s analysis of benefits from alternative CAFE standards for MY 2012-2016 also excludes any cost savings from maintaining a smaller SPR from its estimates of the external benefits of reducing gasoline consumption and petroleum imports. This view concurs with that of the recent ORNL study of economic costs from U.S. oil imports, which concludes that savi ngs in government outlays for these purposes are unlikely to result from reductions in consumption of petroleum products and oil imports on the scale of those result ing from higher CAFE standards.

Commenters from the NYU School of Law st ated that the agencies were justified in not including a value for military security , as long as the agencies incorporate the increased protection value of the SPR into th eir calculation of disr uption effects. CBD and James Adcock disagreed, and stated that th e agencies should, in fact, include a value for military security – CBD cited several studies, and Mr. Adcock presented his own value of $0.275 per gallon. CARB stated si mply that the agencies should include a sensitivity analysis for military security at $0.15 per gallon, in addition to the $0.05 per gallon already evaluated. EDF also cited st udies claiming a benefit for increased national security

626 However, the agency conducted a sensitivity analysis of the potential effect of assuming that some reduction military spending would result from fuel savings and reduced petroleum imports in order to investigate its impacts on the standards and fuel savings.962 In response to the comments from CBD and Mr. Adcock, NHTSA’s examination of the historical record indicates that while costs for U.S. military security may vary over time in response to long-term changes in the level of oil imports into the U.S., these costs are unlikely to decline in res ponse to the small reductions in U.S. oil imports (relative to total oil imports) that are typically projected to result from raising CAFE standards for light-duty vehicles. U.S. military activities in regions that represent vital sources of oil imports also serve a broader range of securi ty and foreign policy objectives than simply protecting oil supplies, and as a consequen ce are unlikely to vary significantly in response to the modest changes in the level of oil imports likely to be prompted by higher CAFE standards.

The agency does not find evidence in the historical record th at Congress or the Executive Branch has ever attempted to calibra te U.S. military expenditures, overall force levels, or specific deployment s to any measure of global oil market activity or U.S. reliance on petroleum imports, or to a ny calculation of the projected economic consequences of hostilities arising in the Pers ian Gulf. Instead, changes in U.S. force levels, deployments, and thus military spendi ng in that region have been largely governed by political events, emerging threats, and ot her military and political considerations, rather than by shifts in U.S. oil consumpti on or imports. NHTSA t hus concludes that the levels of U.S. military activity and expenditu res are likely to remain unaffected by even relatively large changes in light duty vehicl e fuel consumption, and has continued to963 exclude any reduction in these outlays from its estimates of the economic benefits resulting from lower U.S. fuel c onsumption and petroleum imports.

In response to the comments from the NYU School of Law, NHTSA will explore how it might estimate the contribution of th e SPR to reducing potential macroeconomic costs from oil supply disrupti ons, although the agency notes that to some extent the existence of the SPR may alrea dy be reflected in the magnitude of price elasticities of the supplies of foreign oil available for import to the U.S. However, the agency notes that the size of the SPR has not appeared to cha nge significantly in re sponse to historical variation in U.S. petroleum consumption or imports, sugge sting that its effect on the magnitude of potential macroeconomic costs fr om disruptions in petroleum imports may be limited.

Finally, in response to the comment from ED F, the agency notes that the value of $0.05 per gallon for the reduction in military secu rity outlays that is used for sensitivity analysis assumes that the entire reduction in U.S. petrol eum imports resulting from higher CAFE standards would reflect lower impo rts from Persian Gulf suppliers, that the estimate of annual U.S. military costs for s ecuring Persian Gulf oil supplies reported by Delucchi and Murphy is correct, and that Congress would reduce half of these outlays in proportion to any decline in U.S. oil impor ts from the region. The $0.15 per gallon estimate recommended by CARB would thus requi re that U.S. military outlays to protect Persian Gulf oil supplies are three times as large as Delu cchi and Murphy estimate, or that Congress would reduce military spending in that region more than in proportion to964 any reduction in U.S. petroleum imports or iginating there. Because it views these possibilities as unrealistic, NHTSA has continued to use the $0.05 figure in its sensitivity analysis, rather than th e higher figure suggested.

Based on a detailed analysis of differe nces in fuel consumption, petroleum imports, and imports of refined petroleum products among the Reference Case, High Economic Growth, and Low Economic Grow th Scenarios presented in AEO 2009, NHTSA estimated that approximately 50 per cent of the reduction in fuel consumption resulting from adopting higher CAFE standards is likely to be reflected in reduced U.S. imports of refined fuel, while the remain ing 50 percent would reduce domestic fuel refining. 627 Of this latter figure, 90 percent is an ticipated to reduce U.S. imports of crude petroleum for use as a refinery feedstock, wh ile the remaining 10 percent is expected to reduce U.S. domestic production of crude petroleum. 628 Thus on balance, each 100 gallons of fuel saved as a consequence of hi gher CAFE standards is anticipated to reduce total U.S. imports of crude petrol eum or refined fuel by 95 gallons. 629

NHTSA employed this estimate in the analysis presented in the NPRM, and received no comments on the assumptions or data used to develop it. Hence the agency has continued to assume that each 100 gall ons of fuel saved as a consequence of the CAFE standards established by this final rule will reduce total U.S. imports of crude

627 Differences between forecast annu al U.S. imports of cr ude petroleum and refined products among these three scenarios range from 24-89 percent of differences in projected annual gasoline and diesel fuel consumption in the U.S. These differences average 49 percent over the forecas t period spanned by AEO 2009. 628 Differences between forecas t annual U.S. imports of crude petroleum among these three scenarios range from 67-97 percent of differences in total U.S. refining of crude petroleum, and average 85 percent over the forecast period spanned by AEO 2009. 629 This figure is calculated as 50 gallons + 50 gallons*90% = 50 gallons + 45 gallons = 95 gallons.965 petroleum or refined fuel by 95 gallons. NHTSA has applied the estimates of economic benefits from lower U.S. petroleum imports to the resulting estimate of reductions in imports of crude petroleum and refined fuel.

l. Air Pollutant Emissions

i. Changes in Criteria Air Pollutant Emissions

Criteria air pollutants emitted by vehicl es and during fuel production include carbon monoxide (CO), hydrocarbon compounds (usu ally referred to as “volatile organic compounds,” or VOC), nitrogen oxides (NO x ), fine particulate matter (PM2.5), and sulfur oxides (SO x ). While reductions in domestic fuel refining and distributi on that result from lower fuel consumption will reduce U.S. emissions of these pollutants, additional vehicle use associated with the rebound effect from higher fuel economy will increase their emissions. Thus the net effect of stricter CAFE standards on emissions of each criteria pollutant depends on the relative magnitudes of its reduced emissions in fuel refining and distribution, and increases in its emissions from vehicle use. Because the relationship between emissions in fuel refining and vehicle use is different for each criteria pollutant, the net effect of fuel savings from the proposed standards on total emissions of each pollutant is likely to differ. We note that any benefits in terms of criteria air pollutant reductions resulting from this rule would not be direct benefits.966 With the exception of SO 2 , NHTSA calculated annual emissions of each criteria pollutant resulting from vehicle use by multiplyi ng its estimates of car and light truck use during each year over their ex pected lifetimes by per-mile em ission rates appropriate to each vehicle type, fuel, model year, and age. These emission rates were developed by U.S. EPA using its Motor Vehicl e Emission Simulator (MOVES 2010). 630 Emission rates for SO 2 were calculated by NHTSA using average fuel sulfur content estimates supplied by EPA, together with the assumption th at the entire sulfur content of fuel is emitted in the form of SO 2 . 631 Total SO 2 emissions under each alternative CAFE standard were calculated by applying the re sulting emission rates directly to estimated annual gasoline and diesel fuel use by cars and light trucks.

As with other impacts, the changes in emissions of criteria air pollutants resulting from alternative increases in CAFE standards for MY 2012-2016 cars and light trucks were calculated from the differences between emissions under each alternative that would increase CAFE standards, and emissions under the baseline alternative.

NHTSA estimated the reductions in criter ia pollutant emissions from producing and distributing fuel that w ould occur under alternative CA FE standards using emission rates obtained by EPA from Argonne Nati onal Laboratories’ Greenhouse Gases and

630 The MOVES model assumes that the per-mile rates at which these pollutants are emitted are determined by EPA regulations and the effectiveness of catalytic after-treatment of engine exhaust emissions, and are thus unaffected by changes in car and light truck fuel economy. 631 These are 30 and 15 parts per million (ppm, measured on a mass basis) for gasoline and diesel respectively, which produces emission rates of 0.17 grams of SO 2 per gallon of gasoline and 0.10 grams per gallon of diesel.967 Regulated Emissions in Transportation (GREET) model. 632 The GREET model provides separate estimates of air pollutant emissions that occur in different phases of fuel production and distribution, including crude oi l extraction, transpor tation, and storage, fuel refining, and fuel distribution and storage. 633 EPA modified the GREET model to change certain assumptions about emissi ons during crude petroleum extraction and transportation, as well as to update its emission rates to reflect adopted and pending EPA emission standards. NHTSA converted thes e emission rates from the mass per fuel energy content basis on which GR EET reports them to mass per gallon of fuel supplied using estimates of fuel ener gy content supplied by GREET.

The resulting emission rates were applie d to the agency’s estimates of fuel consumption under each alternative CAFE st andard to develop estimates of total emissions of each criteria pollutant duri ng fuel production and distribution. The assumptions about the effects of changes in fuel consumption on domestic and imported sources of fuel supply discussed above were then employed to calcu late the effects of reductions in fuel use from alternative CAFE standards on changes in imports of refined fuel and domestic refining. NHTSA’s analys is assumes that reductions in imports of refined fuel would reduce criter ia pollutant emissions during fuel storage and distribution only. Reductions in domestic fuel refining using imported crude oil as a feedstock are

632 Argonne National Laboratories, The Greenhouse Gas and Regulated Emissions from Transportation (GREET) Model , Version 1.8, June 2007, available at http://www.transportation.anl.gov/ modeling_simulation/GREET/index. html (last accessed March 15, 2010). 633 Emissions that occur during vehicle refueling at retail gasoline stations (primarily evaporative emissions of volatile organic compounds, or VOCs) are already acc ounted for in the “tailpipe” emission factors used to estimate the emissions generated by increased light truck use. GREET estimate s emissions in each phase of gasoline production and distribution in mass per unit of gasoline energy content; these factors are then converted to mass per gallon of gasoline using the average energy content of gasoline.968 assumed to reduce emissions during fuel refini ng, storage, and distribution, because each of these activities would be reduced. Reduceddomestic fuel refining using domesticallyproduced crude oil is assumed to reduce em issions during all four phases of fuel production and distribution. 634

Finally, NHTSA calculated the net changes in domestic emissions of each criteria pollutant by summing the increases in emissi ons projected to result from increased vehicle use, and the reductions anticipated to result from lo wer domestic fuel refining and distribution. 635 As indicated previously , the effect of adopting higher CAFE standards on total emissions of each criteri a pollutant depends on the relative magnitudes of the resulting reduction in emissions from fuel re fining and distribution, and the increase in emissions from additional vehicle use. Although these net changes vary significantly among individual criteria pollutants, the agency projects that on balance, adopting higher CAFE standards would reduce emissions of all criteria air poll utants except carbon monoxide (CO).

The net changes in domestic emissi ons of fine particulates (PM 2.5 ) and its chemical precursors (such as NOx, SOx, a nd VOCs) are converted to economic values using estimates of the reductions in health damage costs per ton of emissions of each pollutant that is avoided, which were de veloped and recently revised by EPA. These

634 In effect, this assumes that the di stances crude oil travels to U.S. refineries are approximately the same regardless of whether it travels from domestic oilfield s or import terminals, and that the distances that gasoline travels from refineries to retail stations are approximately the same as those from import terminals to gasoline stations. We note that while assuming that all changes in upstream emissions result from a decrease in petroleum production and transport, our analysis of downstream criteria pollutant impacts assumes no change in the composition of the gasoline fuel supply. 635 All emissions from increased vehi cle use are assumed to occur within the U.S., since CAFE standards would apply only to vehicles produced for sale in the U.S.969 savings represent the estimated reductions in the value of damages to human health resulting from lower atmosphe ric concentrations and populat ion exposure to air pollution that occur when emissions of each polluta nt that contributes to atmospheric PM 2.5 concentrations are reduced. The value of reduc tions in the risk of premature death due to exposure to fine particulate pollution (PM 2.5 ) account for a majority of EPA’s estimated values of reducing criteria pollutant emissions, although th e value of avoiding other health impacts is also incl uded in these estimates.

These values do not include a number of unquantified benefits, such as reduction in the welfare and environmental impacts of PM 2.5 pollution, or reductio ns in health and welfare impacts related to other criteria pollutants (ozone, NO 2 , and SO 2 ) and air toxics. EPA estimates different PM-re lated per-ton values for reducing emissions from vehicle use than for reductions in emissions of that occur during fuel production and distribution. 636 NHTSA applies these separate valu es to its estimates of changes in emissions from vehicle use and fuel produc tion and distribution to determine the net change in total economic damages from emissions of these pollutants.

EPA projects that the per-ton values for reducing emissions of criteria pollutants from both mobile sources (including motor vehi cles) and stationary sources such as fuel refineries and storage facilities will increase over time. These projected increases reflect rising income levels, which are assumed to in crease affected individuals’ willingness to

636 These reflect differences in the typical geographic distributions of emissions of each pollutant, their contributions to ambient PM 2.5 concentrations, pollution levels (predominantly those of PM 2.5 ), and resulting changes in population exposure.970 pay for reduced exposure to health threats fr om air pollution, as we ll as future population growth, which increases population exposure to future levels of air pollution.

NHTSA and EPA received no comments on the procedures they employed to estimate the reductions in emissions of criteria air pollutants reported in their respective NPRMs, or on the unit economic values the ag encies applied to those reductions to calculate their total value. Thus the agencies have continued to employ these procedures and values in the analysis reported in this fi nal rule. However, the agencies have made some minor changes in the emission factors used to calculate changes in emissions resulting from increased vehicle use; these re visions are detailed in Chapter 4 of the Final Technical Support Document accompanying this rule.

ii. Reductions in CO 2 Emissions

Emissions of carbon dioxide and ot her greenhouse gases (GHGs) occur throughout the process of produci ng and distributing transporta tion fuels, as well as from fuel combustion itself. By reducing the vol ume of fuel consumed by passenger cars and light trucks, higher CAFE sta ndards will reduce GHG emissions generated by fuel use, as well as throughout the fuel supply cycle. Lowe ring these emissions is likely to slow the projected pace and reduce the ultim ate extent of future changes in the global climate, thus reducing future economic damages that change s in the global climate are expected to cause. By reducing the probability that clim ate changes with potentially catastrophic economic or environmental impacts will occu r, lowering GHG emissions may also result971 in economic benefits that exceed the resulti ng reduction in the expected future economic costs caused by gradual changes in the earth’s climatic systems.

Quantifying and monetizing benefits from reducing GHG emissions is thus an important step in estimating th e total economic benefits likely to result from establishing higher CAFE standards. The agency estimated emissions of CO 2 from passenger car and light truck use by multiplying the number of ga llons of each type of fuel (gasoline and diesel) they are projected to consume under alternative CA FE standards by the quantity or mass of CO 2 emissions released per gallon of fuel consumed. This calculation assumes that the entire carbon conten t of each fuel is converted to CO 2 emissions during the combustion process. Carbon dioxide emi ssions account for nearly 95 percent of total GHG emissions that result from fuel combustion during vehicle use.

iii. Economic Value of Reductions in CO 2 Emissions

NHTSA has taken the economi c benefits of reducing CO 2 emission into account in this rulemaking, both in developing alte rnative CAFE standards and in assessing the economic benefits of each alternative that was considered. Since direct estimates of the economic benefits from reducing CO 2 or other GHG emissions are generally not reported in published literature on the impacts of climate change, these benefits are typically assumed to be the “mirror image” of the estimated incremental costs resulting from an increase in those emissions. Thus the benefits from reducing CO 2 emissions are usually972 measured by the savings in estimated economic damages that an equivalent increase in emissions would otherwise have caused.

The “social cost of carbon” (SCC) is inte nded to be a monetary measure of the incremental damage resulting from increased carbon dioxide (CO 2 ) emissions, including losses in agricultural pro ductivity, the economic damages caused by adverse effects on human health, property losses and damages resu lting from sea level rise, and changes in the value of ecosystem services. The SCC is usually expressed in dollars per additional metric ton of CO 2 emissions occurring during a specifi ed year, and is higher for more distant future years because the damages caused by an additional ton of emissions increase with larger existing concentrations of CO 2 in the earth’s atmosphere. Marginal reductions in CO 2 emissions that are projected to re sult from lower fuel consumption, refining, and distribution during each futu re year are multiplied by the estimated SCC appropriate for that year, which is used to represent the value of eliminating each ton of
CO 2 emissions, to determine the total economic benefit from reduced emissions during that year. These benefits are then discounted to their present value as usual, using a discount rate that is consistent with that used to develop th e estimate of the SCC itself.

The agency’s NPRM incorporated th e federal interagency working group’s interim guidance on appropriate SCC values for estimating economic benefits from reductions in CO 2 emissions. NHTSA specifically asked for comment on the procedures employed by the group to develop its r ecommended values, as well as on the reasonableness and correct interpretation of those values. Comments the agency received973 address several different issu es, including (1) the intera gency group’s procedures for selecting SCC estimates to incorporate in its recommended values; (2) the appropriateness of the procedures the agency used to combine and summarize these estimates; (3) the parame ter values and input assumptions used by different researchers to develop their estimates of the SCC; (4) the choice between global and domestic estimates of the SCC for use in federal regulatory analys is, (5) the discount rates used to derive estimates of the SCC; and (6) the overall level of the agency’s SCC estimates.

NHTSA’s procedures for selecting SCC estimates

Many of the comments NHTSA received concerned the group’s procedures for selecting published estimates and aggregating them to arrive at its range of recommended values. CARB asked for a clearer explanat ion of why mean SCC estimates from only two of the three major climate models were in cluded in the average values reported in the interim guidance, and whether the arithmetic me an of reported values is the appropriate measure of their central tendency. Students from the University of California at Santa Barbara (UCSB) noted that the interagenc y group often selected only a single SCC estimate from studies reporting multiple estimat es or a range of values to include in developing its summary values , and objected that this procedure caused the group to understate the degree of uncertainty surrounding its recommended values.

Steven Rose also noted that the inte ragency group’s “filtering” of published estimates of the SCC on the basis of their vint age and input assumptions tended to restrict974 the included estimates to a relatively narrow band that excluded most potentially catastrophic climate changes, and thus was not representative of the wide uncertainty surrounding the “true” SCC. If the purpose of incorporating the SCC into regulatory analysis was effectively to price CO 2 emissions so that emitters would account for climate damages caused by their actions, he reas oned, then the estimate to be used should incorporate the wide range of uncertainty surrounding the magnitude of potential damages.

Rose also noted that many of the more recent studies reporting estimates of the SCC were designed to explore the influence of different factors on the extent and timing of climate damages, rather than to estimate the SCC specifically, and thus that these more recent estimates were not necessarily more informative than SCC estimates reported in some older studies. Rose argued that because there has been little change in major climate models since about 2001, all estimat es published after th at date should be considered in order to expand the size of th e sample represented by average values, rather than limiting it by including only the most recently-reported estimates.

James Adcock objected to the interagenc y group’s reliance on Tol’s survey of published estimates of the SCC, since many of the estimates it included were developed by Tol himself. In contrast, Steven Rose ar gued that the Tol survey offered a useful way to summarize and represent variation among published estimates of the SCC, and thus to indicate the uncertainty surrounding its true value.975 Procedures for Summarizing Published SCC Estimates

Steven Rose argued that combining S CC estimates generated using different discount rates was inappropriate, and urged the interagency group instea d to select one or more discount rates and then to average only SCC estimates developed using the same discount rate. Rose also noted that the in teragency group’s explanation of how it applied the procedure developed by Newell and Pizer to incorporate uncertainty in the discount rate was inadequately detailed, and in any case it may not be appropriate for use in combining SCC estimates that were based on different discount rates. UCS also questioned NHTSA’s use of averaging to combine estimates of the SCC relying on different discount rates, as well as the agency’s equal weighting of upper- and lowerbound SCC estimates reported in published studies.

NESCAUM commented that the interage ncy group’s basis for deriving the $20 SCC estimate from its summary of published values was not adequately clear, and that the group’s guidance should clarif y the origin of this value. NESCAUM also urged the interagency group to identify a representative range of altern ative SCC estimates for use in assessing benefits from reduced emi ssions, rather than a single value.

Ford commented that the interagenc y group’s methodology for developing an estimate of the SCC was acceptable, but argue d that NHTSA agency should rely on the costs of reducing CO 2 emissions in other sectors of the U.S. economy to evaluate economic benefits from reducing motor vehicl e emission. Ford asserted that this976 represented a more reliable estimate of the benefits from reducing emissions than the potential climate damages avoided by reduci ng vehicle emissions, since lowering vehicle emissions reduces the need to control em issions from other economic sectors.

Parameter values and Input Assu mptions Underlying SCC Estimates

CARB also noted that some of the wi de variation in published SCC estimates relied upon by the interagency group could be at tributed to authors’ differing assumptions about future GHG emissions scen arios and choices of discount rates. Steven Rose noted that SCC estimates derived using future em issions scenarios that assumed significant reductions in emissions were probably inap propriate for use in federal regulatory analysis, since federally regulations must be adopted individually and are each likely to lead to only marginal reductions in emissions , so it is unreasonable to assume that their collective effect on future emissions will be large.

CARB also emphasized that SCC estimates were not available over the same range of discount rates for all major climate models, thus making averages of available results less reliable as indicators of any centr al tendency in estimates of the SCC. To remedy this shortcoming, the Pew Center on Climate Change urged the interagency group to analyze the sensitivity of SCC estimates to systematic variation in uncertain model parameters and input scenarios as a m eans of identifying the range of uncertainty in the SCC itself, as well as to include a risk premium in its SCC estimates as a means of977 compensating for climate models’ omissi on of potential economic damages from catastrophic climate changes.

CBD commented that the interim nature of the interagency group’s guidance made it impossible for decision-makers to determine whether the agency’s proposed CAFE standards were sufficiently stringent . CBD also argued that economic models’ exclusion of some potential climate impact s caused them to underestimate the “true” SCC, and that the interagenc y group’s procedure of averaging published estimates failed to convey important information about variat ion in estimates of the SCC to decision makers. In a related comment, the Pew Cent er on Climate Change cautioned against use of the interagency group’s interim SCC estim ates for analyzing benefits from NHTSA’s final rule, on the grounds that some older estimates of the SCC surveyed for the interim guidance implausibly suggested that there c ould be positive net benefits from climate change, while more recent research suggests uniformly negative economic impacts.

James Adcock presented his own esti mate of the value of reducing CO 2 emissions, which he derived by assuming th at climate change would completely eliminate the economic value of all services provided by the local natural environment within a 50-year time frame. In addition, Adcock urged that federal agencies use a consistent estimate of the SCC in their regul atory analyses, and that this estimate be updated regularly to reflect new knowledge; he also asserted that the SCC should be above the per-ton price of CO 2 emissions permits under a cap-and-trade system.978 Global vs. Domestic SCC Values

NADA argued that NHTSA should employ an estimate of the domestic value of reducing CO 2 emissions for purposes of estimati ng their aggregate economic benefits, since the agency includes only the domestic value of benefits st emming from reductions in other environmental and energy security exte rnalities. In contra st, both the Pew Center on Climate Change and students from the Univ ersity of California at Santa Barbara (UCSB) asserted that a global value of the SCC was appropriate for use even in analyzing benefits from U.S. domestic environmental regulations such as CAFE, and Steven Rose added that it was difficult to identify any proper role for a domestic estimate of the SCC. James Adcock commented that the agency’s derivation of the fraction of the global SCC it employed (6 percent) to obtain a domes tic value was not clearly explained.

Discount Rates Used to Derive SCC Estimates

NRDC also cited the effect of positive discount rates on damages occurring in the distant future, which reduce the present va lue of those damages to misleadingly low levels. Similarly, Steven Rose argued th at the interagency group should have used discount rates below the 3 percent lower bound the group selected, and that the discount rate should also have been allowed to vary over time to account for un certainty in its true value. The Pew Center also urged NH TSA to account explicitly for uncertainty surrounding the correct discount ra te, but did not indicate how the agency should do so.979 CARB echoed the recommendation for incl uding SCC values reflecting discount rates below 3 percent, since EPA had previous ly used lower rates in previously proposed rules to discount benefits that were not expected to occur until the distant future, and thus to be experienced mainly by future gene rations. The New Jersey Department of Environmental Protection noted that giving nearly equal weig ht to future generations would imply a discount rate of less than 3 percent -- proba bly in the neighborhood of 2 percent -- and endorsed the interagency gr oup’s use of the procedure developed by Newell and Pizer to account for uncertainty surrounding the correct discount rate.

The Pew Center urged the agency to i gnore SCC estimates derived using discount rates above 5 percent, and in stead to use the lowest possi ble rates, even including the possibility of negative values. Similarly, NRDC asserted that both the 3 percent and 5 percent discount rates selected by the interagency group ar e inappropriately high, but did not recommend a specific alternative rate. Students from UCSB observed that the interagency group’s equal weighting of the 3 pe rcent and 5 percent ra tes appeared to be inconsistent with the more frequent use of 3 percent in published estimates of the SCC, as well as with OMB’s guidance that the 3 pe rcent rate was appropriate for discounting future impacts on consumption. The group urged NHTSA to consid er a wider range of discount rates in its revised estimates of the SCC, including some below 3 percent. CBD argued that the discount rate s hould increase over the future to reflect the potential for catastrophic climate impacts.980 CBD asserted that because the potential consequences of climate change are so extreme, that future economic impacts of clim ate change should not be discounted (i.e., a 0 percent discount rate should be used). James Adcock echoed this view.

Overall Level of SCC Estimates

NRDC argued that the SCC estimate recommended by the interagency group was likely to be too low, because of most m odels’ omission of some important climate impacts, particularly including potential catastrophic impacts resulting from nonincremental changes in climate conditions. CARB argued that it seemed prudent to include SCC values as high as $200 per ton, to reflect the possibility of low-probability but catastrophic changes in th e global climate and the resulting economic damages.

The New Jersey Department of Environm ental Protection pointed out that SCC estimates reviewed by the IPCC ranged as hi gh as $95/ton, and that the Stern Report’s estimate was $85/ton, suggesting the possibili ty that the interagency group may have inappropriately filtered out the highest estimates of the SCC. Other commenters including NACAA, NESCAUM, NRDC, and UC S urged NHTSA to employ higher SCC values than it used in the NPRM analysis , but did not recommend specific values. CARB urged the agency to use higher values of the SCC than it employed in its NPRM analysis, and recommended a value of $25/ton, growing at 2.4 percent annually, or alternatively, a fixed value of $50/ton.981 Steven Rose cautioned against applying a uni form 3 percent annual growth rate to all of the provisional SCC estimates recomm ended by the interagency group, and noted that the base year where such growth is assu med to begin should be determined carefully for each estimate.

Finally, the Institute for Energy Resear ch commented that NHTSA had probably overstated the reductions in CO 2 emissions that would result from the proposed standards – and thus their economic value – because of the potential for compensating increases in emissions, such as those cause by increased re tention and use of older, less fuel-efficient vehicles in the fleet.

After carefully considering comments receiv ed to the NPRM, for purposes of this final rule, NHTSA has relied on estimates of the SCC developed by the federal interagency working group convened for th e specific purpose of developing new estimates to be used by U.S. federal agenci es in regulatory evaluations. Under Executive Order 12866, federal agencies are required, to the extent permitted by law, “to assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a re gulation only upon a reasoned determination that the benefits of the intended regulation ju stify its costs.” The group’s purpose in developing new estimates of the SCC was to allow federal agencies to incorporate the social benefits of reducing carbon dioxide (CO 2 ) emissions into costbenefit analyses of regulatory actions that have small, or “marginal,” impacts on cumulative global emissions, as most federal regula tory actions can be expected to have.982 The interagency group convened on a regular basis to consider public comments, explore the technical literature in relevant fields, and disc uss key inputs and assumptions in order to generate SCC estimates. Agencies that actively participated in the interagency process included the Environmental Prot ection Agency and the Departments of Agriculture, Commerce, Ener gy, Transportation, and Treas ury. This process was convened by the Council of Economic Advi sers and the Office of Management and Budget, with active participation and regul ar input from the Council on Environmental Quality, National Economic Council, Office of Energy and Climate Change, and Office of Science and Technology Policy. The main objective of this pro cess was to develop a range of SCC values using a defensible set of input assumptions th at are grounded in the existing literature. In this way, key un certainties and model differences can more transparently and consistently inform the ra nge of SCC estimates used in the rulemaking
process.

The interagency group developed its estimat es of the SCC estimates while clearly acknowledging the many uncertainties involved, and with a clear unde rstanding that they should be updated over time to reflect increasing knowledge of the science and economics of climate impacts. Technical experts from numerous agencies met on a regular basis to consider public comments, e xplore the technical literature in relevant fields, and discuss key model inputs and assu mptions. The main objective of this process was to develop a range of SCC values usi ng a defensible set of input assumptions grounded in the existing scientif ic and economic literature. In this way, key uncertainties983 and model differences transparently and c onsistently can inform the range of SCC estimates used in the rulemaking process.

The group ultimately selected four SCC valu es for use in regulatory analyses. Three values are based on the average SCC fr om three integrated assessment models, using discount rates of 2.5, 3, and 5 percent. The fourth value, which represents the 95 th percentile SCC estimate across all three models at a 3 percent discount rate, is included to represent the possibility of higher-than-expected impacts fr om temperature change that lie further out in the tails of the distribution of SCC estimates. Table IV.C.3-2 summarizes the interagency group’s estimates of the SCC during various future years. The SCC estimates reported in the table a ssume that the marginal damages from increased emissions are constant for small de partures from the baseline emissions path, an approximation that is reas onable for policies that have effects on emissions that are small relative to cumulative global carbon dioxide emissions.

Table IV.C.3-2 Social Cost of CO 2 Emissions, 2010 – 2050 (2007 dollars) Discount Rate 5% 3% 2.5% 3% Source Average of Estimates 95 t h Percentile Estimate

2010 4.7 21.4 35.1 64.9 2015 5.7 23.8 38.4 72.8 2020 6.8 26.3 41.7 80.7 2025 8.2 29.6 45.9 90.4 2030 9.7 32.8 50.0 100.0 2035 11.2 36.0 54.2 109.7 2040 12.7 39.2 58.4 119.3 2045 14.2 42.1 61.7 127.8 2050 15.7 44.9 65.0 136.2984 As Table IV.C.3-2 shows, the four SCC estimates selected by the interagency group for use in regulatory analyses are $5, $21, $35, and $65 (in 2007 dollars) for emissions occurring in the year 2010. The fi rst three estimates are based on the average SCC across models and socio-economic and em issions scenarios at the 5, 3, and 2.5 percent discount rates, respectiv ely. The fourth value is in cluded to represent the higherthan-expected impacts from temperature change further out in the tails of the SCC distribution. For this purpose, the gr oup elected to use the SCC value for the 95 th percentile at a 3 per cent discount rate.

The central value identifie d by the interagency group is the average SCC across models at the 3 percent disc ount rate, or $21 per metric t on in 2010. To capture the uncertainties involved in re gulatory impact analysis, how ever, the group emphasized the importance of considering the full range of estimated SCC values. As the table also shows, the SCC estimates also rise over time ; for example, the central value increases to $24 per ton of CO 2 in 2015 and $26 per ton of CO 2 in 2020.

The interagency group is committed to updati ng these estimates as the science and economic understanding of climate change and its impacts on society improves over time. Specifically, the group has set a prel iminary goal of revisiting the SCC values within two years or at such time as substantially updated models become available, and to continue to support research in this area. U. S. federal agencies w ill periodically review and reconsider estimates of the SCC used fo r cost-benefit analyses to reflect increasing985 knowledge of the science and economics of cl imate impacts, as well as improvements in modeling.

Details of the process used by the intera gency group to develop its SCC estimates, complete results including year-by-year estimates of each of the four values, and a thorough discussion of their intended use and limitations is provided in the document Social Cost of Carbon for Regulatory Im pact Analysis Under Executive Order 12866 , Interagency Working Group on Social Cost of Carbon, United States Government, February 2010. 637

m. Discounting Future Benefits and Costs

Discounting future fuel savings and othe r benefits is intended to account for the reduction in their value to society when they are deferred until some future date, rather than received immediately. Th e discount rate expresses the percent decline in the value of these benefits—as viewed from today’s pe rspective—for each year they are deferred into the future. In evaluati ng the benefits from alternativ e proposed increases in CAFE standards for MY 2012-2016 passenger cars and light trucks, NHTSA employed a discount rate of 3 percent per ye ar, but also presents these be nefit and cost estimates at a 7 percent discount rate.

While both discount rates are presented, NHTSA believes that 3 percent is the most appropriate rate for discounting future benefits from increased CAFE standards

637 This document is available in the docket for this rulemaking (NHTSA-2009-0059).986 because most or all of vehicle manufacturer s’ costs for complying with higher CAFE standards will ultimately be refl ected in higher sales prices fo r their new vehicle models. By increasing sales prices for new cars and light trucks, CAFE regulations will thus primarily affect vehicle purchases and othe r private consumption decisions. Both economic theory and OMB guidance on discounting indicate that the future benefits and costs of regulations that mainly affect private consumption should be discounted at consumers’ rate of time preference. 638

OMB guidance also indicates th at savers appear to disc ount future consumption at an average real (that is, adjusted to remove the effect of infl ation) rate of about 3 percent when they face little risk about its likely leve l. Since the real rate that savers use to discount future consumption represents a reas onable estimate of consumers’ rate of time preference, NHTSA believes that the 3 percent rate to discount projected future benefits and costs resulting from higher CAFE sta ndards for MY 2012-2016 passenger cars and light trucks is more appropriate than 7 percent, but presents both. 639 One commenter, NRDC, supported the agencies’ use of a 3 perc ent discount rate as consistent with DOE practice in energy efficiency-related rule makings and OMB guidance. OMB guidance actually requires that benefits and costs be presented at both a 3 and a 7 percent discount

rate.

Because there is some remaining uncertain ty about whether vehicle manufacturers will completely recover their costs for complying with higher CAFE standards by

638 Id. 639 Office of Management and Budget, Circular A-4, “Regulatory Analysis,” September 17, 2003, 33. Available at http://www.whitehouse.gov/omb /circulars/a004/a-4 .pdf (last accessed August 9, 2009).987 increasing vehicle sales prices, however, NHTSA also presents these benefit and cost estimates using a higher discount rate. OM B guidance indicates that the real economywide opportunity cost of capital is the appropria te discount rate to apply to future benefits and costs when the primary effect of a regul ation is “...to displace or alter the use of capital in the private sector,” and OMB estimates that this rate currently averages about 7 percent. 640 Thus the agency has also examined its benefit and cost estimates for alternative MY 2012-2016 CAFE standards usi ng a 7 percent real discount rate.

In its proposed rule, NHTSA sought co mment on whether it should evaluate CAFE standards using a discount rate of 3 percent, 7 percent, or an alternative value. NRDC not only opposed the agency ’s use of a 7 percent disc ount rate, but also opposed conducting even sensitivity analyses with disc ount rates higher than 3 percent. In contrast, two other commenters, NADA and th e Institute for Energy Research, advised that the agencies should use discount rates of 7 percent or higher. NADA argued that the most appropriate discount rate would be one closer to historical financing rates on motor vehicle loans (which currently average about 6.5 percent), while the Institute for Energy Research argued that consumers may have mu ch higher discount rate s than the agencies assumed, perhaps even as high as 25 percent.

After carefully consideri ng these comments, NHTSA has elected to use discount rates of both 3 and 7 percent in the analysis supporting this final rule. As indicated above, the agency believes that vehicle manuf acturers will recover most or all of their added costs for complying with the CAFE sta ndards this rule establishes by raising sales

640 Id.988 prices for some or all vehicle models. As a consequence, this regulation will thus primarily affect vehicle purchases and relate d consumption decisions, which suggests that its future benefits and costs should be disc ounted at the rate of time preference vehicle buyers reveal in their consumption and sa vings behavior. OMB’s 3 percent figure appears to be a conservative (i.e., low) estimat e of this rate, because it assumes in effect that vehicle buyers face little ri sk about the value of future fu el savings and other benefits from the rule; nevertheless, in the current economic environment it appears to represent a reasonable estimate of consumers’ rate of time preference. Thus NHTSA has mainly relied upon the 3 percent rate to discount proj ected future benefits and costs resulting from higher CAFE standards for MY 2012-2016 passenger cars and light trucks

One important exception to the 3 percent discount rate is the rates used to discount benefits from reducing CO 2 emissions from the years in which reduced emissions occur, which span the lifetimes of MY 2012-2016 cars and lig ht trucks, to their present values. In order to ensure consistenc y in the derivation and use of the interagency group’s estimates of the un it values of reducing CO 2 emissions, the benefits from reducing those emissions during each fu ture year are discounted using the same “intergenerational” discount ra tes that were used to derive each of the alternative unit values of reducing CO 2 emissions. As indicate in Tabl e IV.C.3-2 above, these rates are 2.5 percent, 3 percent, and 5 percent depending on which esti mate of the SCC is being considered. 641

641 The fact that the 3 percent discount rate used by the interagency group to derive its central estimate of the SCC is identical to the 3 percent short-term or “i ntra-generational” discount rate used by NHTSA to discount future benefits other than reductions in CO 2 emissions is coincidental, and should not be interpreted as a required condition that must be satisfied in future rulemakings.989 n. Accounting for Uncertainty in Benefits and Costs

In analyzing the uncertainty surrounding its estimates of benefits and costs from alternative CAFE standards, NHTSA has c onsidered alternative estimates of those assumptions and parameters likely to have the largest effect. These include the projected costs of fuel economy-improving technologies and their expected effectiveness in reducing vehicle fuel consumption, forecasts of future fuel prices, the magnitude of the rebound effect, the reduction in external econom ic costs resulting from lower U.S. oil imports, and the discount rate applied to future benefits and costs. The range for each of these variables employed in the uncertainty analysis is presented in the section of this notice discussing each variable.

The uncertainty analysis was conduc ted by assuming independent normal probability distributions for each of these vari ables, using the low and high estimates for each variable as the values below which 5 percent and 95 percent of observed values are believed to fall. Each trial of the uncertainty analysis employed a set of values randomly drawn from each of these probability dist ributions, assuming that the value of each variable is independent of the others. Bene fits and costs of each alternative standard were estimated using each combination of variab les. A total of 1,000 trials were used to establish the likely probability distributions of estimated benefits and costs for each alternative standard.990 o. Where Can Readers Find More Information About the Economic Assumptions?

Much more detailed information is pr ovided in Chapter VIII of the FRIA, and a discussion of how NHTSA and EPA jointly reviewed and updated economic assumptions for purposes of this final rule is available in Chapter 4 of the Joint TSD. In addition, all of NHTSA’s model input and output files are now public and available for the reader’s review and consideration. The economic input files can be found in the docket for this final rule, NHTSA-2009-0059, and on NHTSA’s website. 642 Finally, because much of NHTSA’s economic analysis for purposes of th is final rule builds on the work that was done for the MY 2011 final rule, we refer readers to that document as well for background information concerning how NHT SA’s assumptions regarding economic inputs for CAFE analysis have evolved ove r the past several rulemakings, both in response to comments and as a result of the ag ency’s growing experien ce with this type of analysis. 643

4. How Does NHTSA Use the Assump tions in its Modeling Analysis?

In developing today’s final CAFE standa rds, NHTSA has made significant use of results produced by the CAFE Compliance a nd Effects Model (comm only referred to as “the CAFE model” or “the Volpe model”), which DOT’s Volpe National Transportation Systems Center developed specifically to support NHTSA’s CAFE rulemakings. The

642 See http://www.nhtsa.dot.gov (click on “Fuel Econom y Standards (CAFE),” click on “Related Links: CAFE Compliance and Effects Modeling System: The Volpe Model.”) 643 74 FR 14308-14358 (Mar. 30, 2009).991 model, which has been constructed specifica lly for the purpose of analyzing potential CAFE standards, integrates the following core capabilities: (1) estimating how manufacturers could apply technologies in response to new fuel economy standards, (2) estimating the costs that would be incurred in applying these technologies, (3) estimating the physical effects resu lting from the application of these technologies, such as changes in tr avel demand, fuel consumption, and emissions of carbon dioxide and criteria pollutants, and (4) estimating the monetized societal benefits of these physical effects.

An overview of the model follows below. Separate model documentation provides a detailed explanation of the func tions the model performs, the calculations it performs in doing so, and how to install the model, construct inputs to the model, and interpret the model’s out puts. Documentation of the model, along with model installation files, source code, and sample inputs are available at NHTSA’s web site. The model documentation is also available in the docket for today’s final rule, as are inputs for and outputs from analysis of toda y’s final CAFE standards.

a. How Does the Model Operate?

As discussed above, the agency uses the Volpe model to estimate how manufacturers could attempt to comply with a given CAFE standard by adding technology to fleets that the agency anticipates they will produce in future model years.992 This exercise constitutes a simulation of ma nufacturers’ decisions regarding compliance with CAFE standards.

This compliance simulation begins with th e following inputs: (a) the baseline and reference market forecast discussed above in Section IV.C.1 and Chapter 1 of the TSD, (b) technology-related estimates discussed abov e in Section IV.C.2 and Chapter 3 of the TSD, (c) economic inputs disc ussed above in Section IV.C.3 and Chapter 4 of the TSD, and (d) inputs defining baseline and pot ential new CAFE standards. For each manufacturer, the model applies technologies in a sequence that follows a defined engineering logic (“decision tr ees” discussed in the MY 2011 fi nal rule and in the model documentation) and a cost-minimizing strategy in order to identify a set of technologies the manufacturer could apply in response to new CAFE standards. 644 The model applies technologies to each of the projected individual vehicles in a manuf acturer’s fleet, until one of three things occurs: (1) the manufacturer’s fleet achieves compliance with the applicable standard; (2) the manufacturer “exhausts” 645 available technologies; or (3) for manufacturers estimated to be willing to pay civil penalties, the manufacturer reaches th e point at which doing so would be more cost-

644 NHTSA does its best to remain scrupulously neutral in the application of technologies through the modeling analysis, to avoid picking technology “winners.” The technology application methodology has been reviewed by the agency over the course of several rulemakings, and commenters have been generally supportive of the agency’s approach. See, e.g., 74 FR 14238-14246 (Mar. 30, 2009). 645 In a given model year, the model makes additional technologies available to each vehicle model within several constraints, including (a) whether or not the technology is applicable to the vehicle model’s technology class, (b) whether the vehicle is undergoing a redesign or freshening in the given model year, (c) whether engineering aspects of the vehicle make the technology unavailable (e.g., secondary axle disconnect cannot be applied to two-wheel drive vehicles), and (d) whether technology application remains within “phase in caps” constraining the overall share of a manufacturer’s fleet to which the technology can be added in a given model year. Once enough technology is added to a given manufacturer’s fleet in a given model year that these constraints make further technology application unavailable, technologies are “exhausted” for that manufacturer in that model year.993 effective (from the manufacturer’s perspective) than adding further technology. 646

As discussed below, the model has also been modified in order to apply additional technology in early model years if doing so will facilitate comp liance in later model years. This is designed to simulate a manufacturer’s decision to plan for CAFE obligations several years in advance, which NHTSA believes better replicates manufacturers’ actual behavior as compared to the year-by-year evaluation which EPCA would otherwise require.

The model accounts explicitly for each m odel year, applying mo st technologies when vehicles are scheduled to be rede signed or freshened, and carrying forward technologies between model years. The CAFE model accounts explicitly for each model year because EPCA requires that NHTSA ma ke a year-by-year determination of the appropriate level of stringency and then set the standard at that level, while ensuring ratable increases in average fuel economy. 647 The multi-year planning capability

646 This possibility was added to the model to accoun t for the fact that under EPCA/EISA, manufacturers must pay fines if they do not achieve compliance with applicable CAFE standards. 49 U.S.C. 32912(b). NHTSA recognizes that some manufacturers will find it more cost-effective to pay fines than to achieve compliance, and believes that to assume these manufact urers would exhaust available technologies before paying fines would cause unrealistically high estimates of market penetration of expensive technologies such as diesel engines and strong hybrid electric vehi cles, as well as correspondingly inflated estimates of both the costs and benefits of any potential CAFE st andards. NHTSA thus includes the possibility of manufacturers choosing to pay fines in its modeling analysis in order to achieve what the agency believes is a more realistic simulation of manuf acturer decision-making. Unlike flex-fuel and other credits, NHTSA is not barred by statute from considering fine-payment in determining maximum feasible standards under EPCA/EISA. 49 U.S.C. 32902(h). 647 49 U.S.C. 32902(a) states that at least 18 months before the beginning of each model year, the Secretary of Transportation shall prescribe by regulation average fuel economy st andards for automobiles manufactured by a manufacturer in that model year, an d that each standard shall be the maximum feasible average fuel economy level that the Secretary decide s the manufacturers can achiev e in that year. NHTSA994 mentioned above increases the model’s abilit y to simulate manufacturers’ real-world behavior, accounting for the f act that manufacturers will seek out compliance paths for several model years at a time, while acco mmodating the year-by-year requirement.

The model also calculates the costs, effect s, and benefits of technologies that it estimates could be added in response to a given CAFE standard. 648 It calculates costs by applying the cost estimation techniques di scussed above in Section IV.C.2, and by accounting for the number of affected vehicles. It accounts for effects such as changes in vehicle travel, changes in fuel consumpti on, and changes in greenhouse gas and criteria pollutant emissions. It does so by applying the fuel consumption estimation techniques also discussed in Section IV.C.2, and the vehicle survival and mileage accumulation forecasts, the rebound effect estimate and the fuel properties and emission factors discussed in Section IV.C.3. Consider ing changes in travel demand and fuel consumption, the model estimates the mone tized value of accompanying benefits to society, as discussed in Section IV.C.3. The model calculates bot h the undiscounted and discounted value of benefits that accrue over time in the future.

The Volpe model has other capabilities that facilitate the development of a CAFE standard. It can be used to fit a mathemati cal function forming the basis for an attributebased CAFE standard, following the steps described below. It can also be used to

has long interpreted this statutory language to require year-by-year assessment of manufacturer capabilities. 49 U.S.C. 32902(b)(2)(C) also requires that standards increase ratably between MY 2011 and MY 2020. 648 As for all of its other rulemakings, NHTSA is required by Executive Order 12866 and DOT regulations to analyze the costs and benefits of CAFE standards. Executive Order 12866, 58 FR 51735 (Oct. 4, 1993); DOT Order 2100.5, “Regulatory Policies and Procedures,” 1979, available at http://regs.dot.gov/rulemaki ngrequirements.htm (last accessed February 21, 2010).995 evaluate many (e.g., 200 per model year) pote ntial levels of stri ngency sequentially, and identify the stringency at which specific crite ria are met. For example, it can identify the stringency at which net benefits to soci ety are maximized, the stringency at which a specified total cost is reached, or the stri ngency at which a given average required fuel economy level is attained. This allows the ag ency to compare more easily the impacts in terms of fuel savings, emissions reductions, and costs and benefits of achieving different levels of stringency according to different cr iteria. The model can also be used to perform uncertainty analysis (i.e., Monte Carlo simulation), in which input estimates are varied randomly according to specified probabil ity distributions, such that the uncertainty of key measures (e.g., fuel consumption, costs, benefits) can be evaluated.

b. Has NHTSA Considered Other Models?

Nothing in EPCA requires NHTSA to use th e Volpe model. In principle, NHTSA could perform all of these task s through other means. For ex ample, in developing today’s final standards, the agency did not use the Volpe model’s curve fitting routines; rather, as discussed above in Section II, the agency fitted curves outside the model (as for the NPRM) but elected to retain th e curve shapes defining the proposed standards. In general, though, these model capabilities have greatly in creased the agency’s ability to rapidly, systematically, and reproducibly conduct key analyses relevant to the formulation and evaluation of new CAFE standards.996 During its previous rulemaking, whic h led to the final MY 2011 standards promulgated earlier this year, NHTSA recei ved comments from the Alliance and CARB encouraging NHTSA to examine the usefulness of other models. As discussed in that final rule, NHTSA, having undertaken such c onsideration, concl uded that the Volpe model is a sound and reliable tool for the de velopment and evaluation of potential CAFE standards. 649 Also, although some observers have criticized analyses the agency has conducted using the Volpe model, those critic isms have largely concerned inputs to the model (such as fuel prices and the estimated economic cost of CO 2 emissions), not the model itself. In comments on the NPRM preceding today’s final rule, one of these observers, the Center for Biologi cal Diversity (CBD), suggested that the revisions to such inputs have produced an unbias ed cost-benefit analysis.

One commenter, the International Council on Clean Transportation (ICCT) suggested that the Volpe mode l is excessively complex and insufficiently transparent. However, in NHTSA’s view, the complexity of the Volpe model has evolved in response to the complex analytical demands surrounding very significant regulations impacting a large and important sector of the economy, and ICCT’s own comments illustrate some of the potential pitfalls of model simplification. Furthermore, ICCT’s assertions regarding model transparency relate to the use of confidential business information, not to the Volpe model itself; as discussed elsewhere in this final rule, NHTSA and the Volpe Center have taken pains to make the Volpe model transparent by releasing the model and supporting documentation, along with the underlying source code and accompanying model inputs and outputs. Therefore, the agen cy disagrees with these ICCT comments.

649 74 FR 14372 (Mar. 30, 2009).997 In reconsidering and reaffirming this conclusion for purposes of this NPRM, NHTSA notes that the Volpe model not only has been formally peer-reviewed and tested through three rulemakings, but also has some features especially important for the analysis of CAFE standards under EPCA/EISA. Among these are the ability to perform year-by-year analysis, and the ability to account for engineering differences between specific vehicle models.

EPCA requires that NHTSA set CAFE sta ndards for each model year at the level that would be “maximum feasible” for that year. 650 Doing so requires the ability to analyze each model year and, when deve loping regulations covering multiple model years, to account for the interdependency of model years in terms of the appropriate levels of stringency for each one. Also, as part of the evaluation of the economic practicability of the standard s, as required by EPCA, NHTS A has traditionally assessed the annual costs and benefits of the standards. The first (2002) version of DOT’s model treated each model year separa tely, and did not perform this type of explicit accounting. Manufacturers took strong exception to th ese shortcomings. For example, GM commented in 2002 that “although the table sugg ests that the proposed standard for MY 2007, considered in isolation, promises bene fits exceeding costs, that anomalous outcome is merely an artifact of the peculiar Volpe methodology, which treats each year independently of any other...” In 2002, GM al so criticized DOT’s analysis for, in some cases, adding a technology in MY 2006 and then replacing it with another technology in MY 2007. GM (and other manufacturers) argued that this completely failed to represent

650 49 U.S.C. 32902(a).998 true manufacturer product -development cycles, and therefore could not be technologically feasible or economically practicable.

In response to these concerns, and to related concerns expressed by other manufacturers, DOT modified the CAFE model in order to account for dependencies between model years and to better represen t manufacturers’ planning cycles, in a way that still allowed NHTSA to comply with the statutory requirement to determine the appropriate level of the standards for each model year. This was accomplished by limiting the application of many technologies to model years in which vehicle models are scheduled to be redesigned (or, for some technologies, “freshened”), and by causing the model to “carry forward” a pplied technologies from one model year to the next.

During the recent rulemaking for MY 2011 passenger cars and light trucks, DOT further modified the CAFE model to account for cost reductions attributable to “learning effects” related to volume (i.e., economies ofscale) and the passage of time (i.e., timebased learning), both of which evolve on y ear-by-year basis. These changes were implemented in response to comments by environmental groups and other stakeholders.

The Volpe model is also able to account for important engineering differences between specific vehicle models, and to ther eby reduce the risk of applying technologies that may be incompatible with or alrea dy present on a given vehicle model. Some commenters have previously suggested that manufacturers are most likely to broadly apply generic technology “packages,” and the Volpe model does tend to form “packages”999 dynamically, based on vehicle characteristic s, redesign schedules, and schedules for increases in CAFE standards. For exam ple, under the final CAFE standards for passenger cars, the CAFE model estimated that manufacturers could apply turbocharged SGDI engines mated with dual-clutch AMTs to 2.4 million passenger cars in MY 2016, about 22 percent of the MY 2016 passenger car fl eet. Recent modifications to the model, discussed below, to represent multi-year planning, increase the model’s tendency to add relatively cost-effective technologies when vehicles are es timated to be redesigned, and thereby increase the model’s tendency to form such packages.

On the other hand, some manufacturers have indicated that especially when faced with significant progressive increases in the stringency of new CAFE standards, they are likely to also look for narrower opportunitie s to apply specific technologies. By progressively applying specific technologies to specific vehicle models, the CAFE model also produces such outcomes. For example, under the final CAFE standards for passenger cars, the CAFE model estimated th at in MY 2012, some manufacturers could find it advantageous to apply SIDI to so me vehicle models without also adding turbochargers.

By following this approach of combini ng technologies incrementally and on a model-by-model basis, the CAFE model is able to account for im portant engineering differences between vehicle models and a void unlikely technology combinations. For example, the model does not apply dual-clu tch AMTs (or strong hybrid systems) to vehicle models with 6-speed manual transmissions. Some vehicle buyers prefer a manual1000 transmission; this preference cannot be a ssumed away. The model’s accounting for manual transmissions is also important for vehi cles with larger engines: for example, cylinder deactivation cannot be applied to ve hicles with manual transmissions, because there is no reliable means of predicting when th e driver will change gears. By retaining cylinder deactivation as a specific technology rather than part of a pre-determined package and by retaining differentiation between vehicles with diffe rent transmissions, DOT’s model is able to target cylinder deactiv ation only to vehicle models for which it is technologically feasible.

The Volpe model also produces a single vehicle-level output file that, for each vehicle model, shows which technologies were present at the outset of modeling, which technologies were superseded by other t echnologies, and which technologies were ultimately present at the conclusion of modeli ng. For each vehicle, the same file shows resultant changes in vehicle weight, fuel ec onomy, and cost. This provides for efficient identification, analysis, and correction of e rrors, a task with which the public can now assist the agency, since a ll inputs and outputs are public.

Such considerations, as well as those re lated to the efficiency with which the Volpe model is able to analyze attribute-ba sed CAFE standards and changes in vehicle classification, and to perform higher-level anal ysis such as stringency estimation (to meet predetermined criteria), sensitivity analysis, and uncertainty analysis, lead the agency to conclude that the model remains the best available to the agency for the purposes of analyzing potential new CAFE standards.1001 c. What Changes Has DOT Made to the Model?

As discussed in the NPRM preceding today’ s final rule, the Volpe model has been revised to make some minor improvements, and to add one significant new capability: the ability to simulate manufacturers’ ability to engage in “multi-y ear planning.” Multiyear planning refers to the fact that when redesigning or freshening vehicles, manufacturers can anticipate future fuel economy or CO 2 standards, and add technologies accounting for these standards. For example, a manufacturer might choose to overcomply in a given model year when many vehi cle models are scheduled for redesign, in order to facilitate compliance in a later model year when standards will be more stringent yet few vehicle models are scheduled for redesign. 651 Prior comments have indicated that the Volpe model, by not representing such ma nufacturer choices, tended to overestimate compliance costs. However, because of the technical complexity involved in representing these choices when, as in the Volpe model, each model year is accounted for separately and explicitly, the model could not be modified to add this capability prior to the statutory deadline for the MY 2011 final standards.

The model now includes this capability, and NHTSA has applied it in conducting analysis to support the NPRM and in anal yzing the standards finalized today. Consequently, this new capability often pr oduces results indicati ng that manufacturers could over-comply in some model years (w ith corresponding increases in costs and

651 Although a manufacturer may, in addition, generate CAFE credits in early model years for use in later model years (or, less likely, in later years for us e in early years), EPCA doe s not allow NHTSA, when setting CAFE standards, to account for manufacturers’ use of CAFE credits.1002 benefits in those model years) and thereby “carry forward” technology into later model years in order to reduce compliance costs in those later model years. NHTSA believes this better represents how ma nufacturers would actually resp ond to new CAFE standards, and thereby produces more realistic estimates of the costs and benefits of such standards.

The Volpe model has also been modified to accommodate i nputs specifying the amount of CAFE credit to be applied to each manufacturer’s fleet. Although the model is not currently capable of estimating manufactur ers’ decisions regard ing the generation and use of CAFE credits, and EPCA does not al low NHTSA, in setting CAFE standards, to take into account manufacturers’ potential use of cred its, this additional capability in the Volpe model provides a basis for more accurately estimating costs, effects, and benefits that may actually result from new CAFE st andards. Insofar as some manufacturers actually do earn and use CAFE credits, th is provides NHTSA with some ability to examine outcomes more realistically than EP CA allows for purposes of setting new CAFE standards.

In comments on recent NHTSA rulemakings, some reviewers have suggested that the Volpe model should be modified to estima te the extent to which new CAFE standards would induce changes in the mi x of vehicles in the new ve hicle fleet. NHTSA, like EPA, agrees that a “market shift” model, also called a consumer vehicl e choice model, could provide useful information regarding the possible effects of potential new CAFE standards. An earlier experimental version of the Volpe model included a multinomial logit model that estimated changes in sale s resulting from CAFE-induced increases in1003 new vehicle fuel economy and prices. A fuller description of this attempt can be found in Section V of the FRIA. However, NHTSA has thus far been unable to develop credible coefficients specifying such a model. In addi tion, as discussed in Section II.H.4, such a model is sensitive to the coefficients used in it, and there is great variation over some key values of these coefficients in published studies.

In the NPRM preceding today’s final ru le, NHTSA sought comment on ways to improve on this earlier work and develop this capability effectively. Some comments implied that the agency should continue work to do so, without providing specific recommendations. The Alliance of Autom obile Manufacturers identified consumer choice as one of several factors outside the i ndustry’s control yet influential with respect to the agencies’ analysis. Also, the Univ ersity of Pennsylvania Environmental Law Project suggested that the rule would cha nge consumers’ vehicle purchasing decisions, and the California Air Resources Board expre ssed support for continue d consideration of consumer choice modeling. On the othe r hand, citing concerns regarding model calibration, handling of advan ced technologies, and applicab ility to the future light vehicle market, ACEEE, ICCT, UCS, and NRDC all expressed opposition to the possibility of using consumer choice models in estimating the costs and benefits of new standards. Notwithstanding comments on this issue, NHTSA has been unable to further develop this capability in time to include it in the analysis supporting decisions regarding final CAFE standards. The agency will, how ever, continue efforts to develop and make use of this capability in future rulemakings , taking into account comments received in connection with today’s final rule.1004 d. Does the Model Set the Standards?

Since NHTSA began using the Volpe model in CAFE analysis, some commenters have interpreted the agency’s use of the m odel as the way by which the agency chooses the maximum feasible fuel economy standard s. This is incorre ct. Although NHTSA currently uses the Volpe model as a tool to inform its consideration of potential CAFE standards, the Volpe model does not determine the CAFE standards that NHTSA proposes or promulgates as fi nal regulations. The result s it produces are completely dependent on inputs selected by NHTSA, base d on the best available information and data available in the agency ’s estimation at the time sta ndards are set. Although the model has been programmed in previous rulema kings to estimate at what stringency net benefits are maximized, it was not the model’s d ecision to seek that level of stringency, it was the agency’s, as it is always the agency’s decision what level of CAFE stringency is appropriate. Ultimately, NHTSA’s selection of appropriate CAFE standards is governed and guided by the statutory re quirements of EPCA, as ame nded by EISA: NHTSA sets the standard at the maximum feasible averag e fuel economy level that it determines is achievable during a particular model year , considering techno logical feasibility, economic practicability, the effect of ot her standards of the Government on fuel economy, and the need of the nation to conserve energy.

NHTSA considers the results of anal yses conducted by the Volpe model and analyses conducted outside of the Volpe m odel, including analysis of the impacts of1005 carbon dioxide and criteria pollutant emissions , analysis of technologies that may be available in the long term and whether NHTSA could expedite their entry into the market through these standards, and anal ysis of the extent to which changes in vehicle prices and fuel economy might affect vehicle production an d sales. Using all of this information— not solely that from the Volpe model—th e agency considers the governing statutory factors, along with environmental issues and ot her relevant societal issues such as safety, and promulgates the standards based on its best judgment on how to balance these factors.

This is why the agency considered ei ght regulatory altern atives, only one of which reflects the agency’s final standards, based on the agency’s determinations and assumptions. Others assess alternative sta ndards, some of which exceed the final standards and/or the point at wh ich net benefits are maximized. 652 These comprehensive analyses, which also included scenarios with different economic input assumptions as presented in the FEIS and FRIA, are intended to inform and contribute to the agency’s consideration of the “need of the United States to conserve energy,” as well as the other statutory factors. 49 U.S.C. 32902(f). Additi onally, the agency’s analysis considers the need of the nation to cons erve energy by accounting for economic externalities of petroleum consumption and monetizing the economic costs of incremental CO 2 emissions in the social cost of carbon. NHTSA uses information from the model when considering what standards to propose and finalize, but the model does not determine the standards.

652 See Section IV.F below for a discussion of the regu latory alternatives considered in this rulemaking.1006 e. How Does NHTSA Make the M odel Available and Transparent?

Model documentation, which is publicly available in the rulemaking docket and on NHTSA’s web site, explains how the model is installed, how the model inputs (all of which are available to the public) 653 and outputs are structured, and how the model is used. The model can be used on any Windows- based personal computer with Microsoft Office 2003 or 2007 and the Microsoft .NET fram ework installed (the latter available without charge from Microsoft). The execu table version of the model and the underlying source code are also available at NHTSA’s web site. The in put files used to conduct the core analysis documented in this final rule are available in the public docket. With the model and these input files, anyone is capab le of independently running the model to repeat, evaluate, and/or modify the agency’s analysis.

NHTSA is aware of two attempts by co mmenters to install and use the Volpe model in connection with the NPRM. Jame s Adcock, an individual reviewer, reported difficulties installing the model on a computer with Microsoft® Office 2003 installed. Also, students from the University of Califor nia at Santa Barbara, though successful in installing and running the model, reported being unable to repr oduce NHTSA’s results underlying the development of the shapes of the passenger car and light truck curves.

Regarding the difficulties Mr. Adcock reported encountering, NHTSA staff is aware of no attempts to cont act the agency for assistan ce locating supporting material

653 We note, however, that files from any supplemental an alysis conducted that relied in part on confidential manufacturer product plans cannot be made public, as prohibited under 49 CFR Part 512.1007 related to the MYs 2012-2016 CA FE rulemaking. Further, the model documentation provides specific minimum hardware requi rements and also indicates operating environment requirements, both of which have remained materially unchanged for more than a year. Volpe Center staff members rou tinely install and run the model successfully on new laptops, desktops, and servers as part of normal equipment refreshes and interagency support activities. We believe, therefore, that if the minimum hardware and operating environment requirements are met, installing and running the model should be straightforward and successful. The mode l documentation notes that some of the development and operating environment used by the Volpe model (e.g., the software environment rather than the hardware on wh ich that software environment operates), particularly the version of Microsoft® Excel used by the model, is Microsoft® Office 2003. We recognize that some users may ha ve more recent versions of Microsoft® Office. However, as in the case of othe r large organizations, software licensing decisions, including the version of Microsoft® Office, is cent ralized in the Office of the Chief Information Officer. Nonetheless, th e Volpe Model is proven on both Microsoft® Office version 2003 and the newer 2007 version.

As discussed in Section II.C, consid ering comments by the UC Santa Barbara students regarding difficulties reproducing NHTSA’s analysis, NHTSA reexamined its analysis, and discovered some erroneous entr ies in model inputs underlying the analysis used to develop the curves proposed in the NPRM. These errors are discussed in the FRIA and have since been co rrected. Updated inputs and ou tputs have been posted to1008 NHTSA’s web site, and should enable outside re plication of the anal ysis documented in today’s notice.

5. How Did NHTSA Develop the Shape of the Target Curves for the Final Standards?

In developing the shape of the target curves for today’s final standards, NHTSA took a new approach, primarily in respons e to comments received in the MY 2011 rulemaking. NHTSA’s authority under EISA allows consideration of any “attribute related to fuel economy” and any “mathematical function.” While the attribute, footprint, is the same for these final standards as the attribute used for the MY 2011 standards, the mathematical function is new.

Both vehicle manufacturers and public in terest groups expressed concern in the MY 2011 rulemaking process that the constrai ned logistic function, particularly the function for the passenger car standards, was overly steep and could lead, on the one hand, to fuel economy targets that were overl y stringent for small f ootprint vehicles, and on the other hand, to a greater incentive for manufacturers to upsize vehicles in order to reduce their compliance obligati on (because larger-footprint ve hicles have less stringent targets) in ways that could compromise energy and environmental benefits. Given comments received in response to the NPRM pr eceding this final rule, it appears that the constrained linear function developed here significantly mitigates prior steepness concerns, and appropriately balances, for purpos es of this rulemaking, the objectives of1009 (1) discouraging vehicle downs izing that could compromise highway safety and (2) avoiding an overly strong incentive to incr ease vehicle sizes in ways that could compromise energy and environmental benefits.

a. Standards are Attribute-Based a nd Defined by a Mathematical Function

EPCA, as amended by EISA, expressly requires that CAFE standards for passenger cars and light trucks be based on one or more vehicl e attributes related to fuel economy, and be expressed in the form of a mathematical function. 654 Like the MY 2011 standards, the MY 2012-2016 passenger car and light truck standards are attribute-based and defined by a mathematical function. 655 Also like the MY 2011 standards, the MY 2012-2016 standards are based on the footprint attribute. However, unlike the MY 2011 standards, the MY 2012-2016 standards are define d by a constrained linear rather than a constrained logistic function. The reasons for these similarities and differences are explained below.

As discussed above in Section II, under at tribute-based standards, the fleet-wide average fuel economy that a particular manufact urer must achieve in a given model year depends on the mix of vehicles that it produces for sale. Until NHTSA began to set “Reformed” attribute-based st andards for light trucks in MYs 2008-2011, and until EISA gave NHTSA authority to set attribute-base d standards for passenge r cars beginning in

654 49 U.S.C. 32902(a)(3)(A). 655 As discussed in Chapter 2 of the TSD, EPA is also settin g attribute-based CO 2 standards that are defined by a mathematical function, given the advantages of using attribute-based standards and given the goal of coordinating and harmonizing the CAFE and CO 2 standards as expressed by President Obama in his announcement of the new National Program and in the joint NOI.1010 MY 2011, NHTSA set “universal” or “flat” industry-wide average CAFE standards. Attribute-based standards are pr eferable to universal industr y-wide average standards for several reasons. First, a ttribute-based standards incr ease fuel savings and reduce emissions when compared to an equivalent universal industry-wide standard under which each manufacturer is subject to the same numerical requirem ent. Absent a policy to require all full-line manufacturers to produ ce and sell essentially the same mix of vehicles, the stringency of the universal i ndustry-wide standards is constrained by the capability of those full-line manufacturers whose product mix includes a relatively high proportion of larger and heavier vehicles. In effect, the standards are based on the mix of those manufacturers. As a result, the standard s are generally set below the capabilities of full-line and limited-line manufacturers that sell predominantly lighter and smaller vehicles.

Under an attribute-based system, in contra st, every manufacturer is more likely to be required to continue adding more fuel-s aving technology each year because the level of the compliance obligation of each manufacturer is based on its own particular product mix. Thus, the compliance obligation of a manufacturer with a higher percentage of lighter and smaller vehicles will have a hi gher compliance obligation than a manufacturer with a lower percentage of such vehicles . As a result, all manufacturers must use technologies to enhance the fuel economy levels of the vehicles they sell. Therefore, fuel savings and CO 2 emissions reductions should be highe r under an attribute-based system than under a comparable industry-wide standard.1011 Second, attribute-based standards mini mize the incentive for manufacturers to respond to CAFE in ways harmful to safety. 656 Because each vehicle model has its own target (based on the attribute chosen), attri bute-based standards provi de no incentive to build smaller vehicles simply to meet a fleet -wide average. Since smaller vehicles are subject to more stringent fuel economy target s, a manufacturer’s in creasing its proportion of smaller vehicles would simply cause its compliance obligation to increase.

Third, attribute-based standards provid e a more equitable regulatory framework for different vehicle manufacturers. 657 A universal industry- wide average standard imposes disproportionate cost burdens and compliance difficulties on the manufacturers that need to change their product plans a nd no obligation on those manufacturers that have no need to change their plans. Attrib ute-based standards spr ead the regulatory cost burden for fuel economy more broadly across al l of the vehicle manuf acturers within the industry.

And fourth, attribute-based standards re spect economic conditi ons and consumer choice, instead of having the government manda te a certain fleet mix. Manufacturers are required to invest in technologi es that improve the fuel economy of their fleets, regardless of vehicle mix. Additionally, attribute-based standards help to avoid the need to conduct rulemakings to amend standards if economic conditions change, causi ng a shift in the mix of vehicles demanded by the public. NHTSA conducted three rulemakings during the

656 The 2002 NAS Report described at length and quantif ied the potential safety problem with average fuel economy standards that specify a sing le numerical requirement for the enti re industry. See NAS Report at 5, finding 12. 657 Id . at 4-5, finding 10.1012 1980s to amend passenger car standards for MYs 1986-1989 in response to unexpected drops in fuel prices and resulting shifts in consumer demand that made the universal passenger car standard of 27.5 mpg infeasible for several ye ars following the change in fuel prices.

As discussed above in Section II, for purpos es of the CAFE standards finalized in this NPRM, NHTSA recognizes that the risk, even if small, does exist that low fuel prices in MYs 2012-2016 might lead indir ectly to less than currently anticipated fuel savings and emissions reductions. Section II disc usses the reasons that the agency does not believe that fuel savings and emissions re ductions will be significantly lower than anticipated such as to warra nt additional backstop measures beyond the one mandated by EISA, but the agency will monitor the situa tion and consider furthe r rulemaking solutions if necessary and as lead time permits. See also Section IV.E.3 below for further discussion of NHTSA’s backstop authority.

b. What Attribute Does NHTSA Use, and Why?

Consistent with the MY 2011 CAFE standa rds, NHTSA is usi ng footprint as the attribute for the MY 2012-2016 CAFE standards. There are several policy reasons why NHTSA and EPA both believe that footprint is the most appropriate attribute on which to base the standards, as discussed below.1013 As discussed in Section IV.D.1.a.ii be low, in NHTSA’s judgment, from the standpoint of vehicle safety, it is important th at the CAFE standards be set in a way that does not encourage manufacturers to respond by selling vehicles that are in any way less safe. NHTSA’s research indicates that redu ctions in vehicle mass tend to compromise vehicle safety if applied on an equal basis across the entire light duty vehicle fleet, however if greater mass reduction is applied to the higher mass vehicles (the larger light trucks), an improvement in aggregate fleet sa fety is possible. F ootprint-based standards provide an incentive to use a dvanced lightweight material s and structures that, if carefully designed and validated, should mi nimize impacts on safety, although that will be better proven as these vehicles become more prevalent in the future.

Further, although we recognize that weight is better co rrelated with fuel economy than is footprint, we continue to believe that there is less risk of “gaming” (artificial manipulation of the attribute(s) to achie ve a more favorable target) by increasing footprint under footprint-based standards th an by increasing vehicle mass under weightbased standards—it is relatively easy for a manufacturer to add enough weight to a vehicle to decrease it s applicable fuel economy target a significant amount, as compared to increasing vehicle f ootprint. We also agree with concerns raised in 2008 by some commenters in the MY 2011 CAFE rulemaking that there would be greater potential for gaming under multi-attribute standards, such as standards under which targets would also depend on attributes such as weight, torque , power, towing capability, and/or off-road capability. Standards that incorporate such at tributes in conjunction with footprint would not only be significantly more complex, but by providing degrees of freedom with respect1014 to more easily-adjusted attributes, they woul d make it less certain that the future fleet would actually achieve the projec ted average fuel economy and CO 2 reduction levels.

As discussed above in Section II. C, NHTSA and EPA sought comment on whether the agencies should consider setting standards for the final rule based on another attribute or another combination of attri butes. Although NHTSA specifically requested that the commenters address the concerns ra ised in the paragraphs above regarding the use of other attributes, and explain how st andards should be developed using the other attribute(s) in a way that contri butes more to fuel savings and CO 2 reductions than the footprint-based standards, without compro mising safety, commenters raising the issue largely reiterated comments submitted in prior CAFE rulemakings, which the agency answered in the MY 2011 final rule. 658 As a result, and as disc ussed further in Section II, the agencies finalized target curve st andards based on footprint for MYs 2012-2016.

c. What Mathematical Function Did NHTSA Use for the RecentlyPromulgated MY 2011 CAFE Standards?

The MY 2011 CAFE standards are defined by a continuous, cons trained logistic function, which takes the form of an S-curve, and is defined according to the following formula:

658 See 74 FR at 14358-59 (Mar. 30, 2009).1015 ( ) ( ) 1 1 11 1 FOOTPRINT c d
FOOTPRINT c d TARGET e a ba e −

− = ⎛ ⎞ + −

⎜ ⎟ + ⎝ ⎠

Here, TARGET is the fuel economy target (in m pg) applicable to vehicles of a given footprint ( FOOTPRINT , in square feet), b and a are the function’ s lower and upper asymptotes (also in mpg), e is approximately equal to 2.718, 659 c is the footprint (in square feet) at which the inverse of the fu el economy target falls halfway between the inverses of the lower and upper asymptotes, and d is a parameter (in square feet) that determines how gradually the fuel economy ta rget transitions from the upper toward the lower asymptote as the footprint increases.

After fitting this mathematical form (separately) to the passenger car and light truck fleets and determining the stringency of the standards (i.e., the vertical positions of the curves), NHTSA arrived at the following curves to de fine the MY 2011 standards:

659 e is the irrational number for which the slope of the function y = number x is equal to 1 when x is equal to zero. The first 8 digits of e are 2.7182818.1016 Figure IV.C.5-1 MY 2011 CAFE Standard s for Passenger Cars and Light Trucks

20 25 30 35 40 45

35 40 45 50 55 60 65 70 Footprint (sf)Target (mpg) Passenger Cars Light Trucks1017 d. What Mathematical Function is NHTSA Using for the MYs 2012-2016 CAFE Standards, and Why?

In finalizing the MY 2011 standards, NHTSA noted that the agency is not required to use a constrained l ogistic function and indicated th at the agency may consider defining future CAFE standards in terms of a different mathematical function. NHTSA has done so for the final CAFE standards.

In revisiting this question, NHTSA found that the final MY 2011 CAFE standard for passenger cars, though less steep than the MY 2011 standard NHTSA final in 2008, continues to concentrate the sloped portion of the curve (from a compliance perspective, the area in which upsizing results in a slightly lower applicable target) within a relatively narrow footprint range (approxima tely 47-55 square feet). Further, most passenger car models have footprints smaller than the cu rve’s 51.4 square foot inflection point, and many passenger car models have footprints at which the curve is relatively flat.

For both passenger cars and light trucks, a mathematical function that has some slope at most footprints where vehicles are produced is adva ntageous in terms of fairly balancing regulatory burdens among manufacturers, and in terms of providing a disincentive to respond to new standards by downsizing vehicles in ways that compromise vehicle safety. For example, a fl at standard may be very difficult for a fullline manufacturer to meet, while requiring very little of a manufact urer concentrating on small vehicles, and a flat standard may provi de an incentive to ma nufacturers to downsize1018 certain vehicles, in order to “balance out” othe r vehicles subject to the same standard. As discussed above in Section II.C, NHT SA and EPA have considered comments by students from UC Santa Barbar a indicating that the passenger car and light truck curves should be flatter. The agencies conclude that flatter curves w ould reduce the incentives intended in shifting from “flat” CAFE st andards to attribute-based CAFE and GHG standards—those being the incen tive to respond to attribute-ba sed standards in ways that minimize compromises in vehicle safety, and the incentive for more manufacturers (than primarily those selling a wider range of vehicl es) across the range of the attribute to have to increase the application of fuel-saving technologies.

As a potential alternative to the constrai ned logistic function, NHTSA had, in proposing MY 2011 standards, presented info rmation regarding a constrained linear function. As shown in the 2008 NPRM, a cons trained linear function has the potential to avoid creating a localized region (in terms of vehicle footprint) ove r which the slope of the function is relatively steep. Altho ugh NHTSA did not receive public comments on this option at that time, the agency indicat ed that it still believed a linear function constrained by upper (on a gpm basis) a nd possibly lower limits could merit reconsideration in future CAFE rulemakings.

Having re-examined a constrained linear function for purposes of the final standards, and considered comments discusse d above in Section II, NHTSA, with EPA, concludes that for both passenger cars and light trucks, the constrained linear functions finalized today remain meaningfully sl oped over a wide footprint range, thereby1019 providing a well-distributed di sincentive to downsize vehi cles in ways that could compromise highway safety. Further, the cons trained linear functions finalized today are not so steeply sloped that they would provide a strong incentive to increase vehicle size in order to obtain a lower CAFE requirement and higher CO 2 limit, thereby compromising energy and environmental bene fits. Therefore, today’s final CAFE standards are defined by c onstrained linear functions.

The constrained linear function is define d according to the following formula:

1 1 1

, , TARGET MIN MAX c FOOTPRINT d a b = ⎡ ⎤ ⎛ ⎞ × + ⎜ ⎟ ⎢ ⎥ ⎝ ⎠ ⎣ ⎦

Here, TARGET is the fuel economy target (in m pg) applicable to vehicles of a given footprint ( FOOTPRINT , in square feet), b and a are the function’ s lower and upper asymptotes (also in mpg), respectively, c is the slope (in gpm per square foot) of the sloped portion of the function, and d is the intercept (in gpm) of the sloped portion of the function (that is, the value the sloped portion wo uld take if extended to a footprint of 0 square feet. The MIN and MAX functions take the minimu m and maximum, respectively of the included values; for example, MIN (1,2) = 1, MAX (1,2) = 2, and
MIN [ MAX (1,2),3)]=2.1020 e. How Did NHTSA Fit the Coefficients that Determine the Shape of the Final Curves?

For purposes of this final rule and the preceding NPRM, and for EPA’s use in developing new CO 2 emissions standards, potential curve shapes were fitted using methods similar to those applied by NHTSA in fitting the curves defining the MY 2011 standards. We began with the market inputs discussed above, but because the baseline fleet is technologically heterogeneous, NHTSA used the CAFE model to develop a fleet to which nearly all the technologies discussed in Section V of the FR IA and Chapter 3 of the Joint TSD 660 were applied, by taking the fo llowing steps: (1) treating all manufacturers as unwilling to pay civil pena lties rather than a pplying technology, (2) applying any technology at any time, irrespec tive of scheduled vehicle redesigns or freshening, and (3) ignoring “phase-in cap s” that constrain the overall amount of technology that can be applied by the model to a given manuf acturer’s fleet. These steps helped to increase technologi cal parity among vehicle models, thereby providing a better basis (than the baseline fleet) for estimating the statistical relati onship between vehicle size and fuel economy.

However, while this approach produced curves that the agencies’ judged appropriate for the NPRM, it did not do so fo r the final rule. Corrections to some engineering inputs in NHTSA’s market forecast, while lead ing to a light truck curve

660 The agencies excluded diesel e ngines and strong hybrid vehicle technologies from this exercise (and only this exercise) because the agencies expect that manufacturers would not need to rely heavily on these technologies in order to comply with the final stan dards. NHTSA and EPA did include diesel engines and strong hybrid vehicle technologies in all other portions of their analyses.1021 nearly identical to that derived for the NP RM, yielded a considerably steeper passenger car curve. As discussed above in Secti on II, NHTSA and EPA are concerned about the incentives that would result from a significan tly steeper curve. Considering this, and considering that the updated analysis—in terms of the error m easure applied by the agency—supports the curve from the NPRM nearly as well as it supports the steeper curve, NHTSA and EPA are promulgating fina l standards based on the curves proposed in the NPRM.

More information on the process for fitting the passenger car and light truck curves for MYs 2012-2016 is available above in Section II.C, and NHTSA refers the reader to that section and to Chapter 2 of the Joint TSD. Section II.C also discusses comments NHTSA and EPA received on this pr ocess, and on the outcomes thereof.

D. Statutory Requirements

1. EPCA, as Amended by EISA

a. Standard Setting

NHTSA must establish separate stan dards for MY 2011-2020 passenger cars and light trucks, subject to two principal requirements. 661 First, the standards are subject to a

661 EISA added the following add itional requirements: (1) Standards must be attribute-based and expressed in the form of a mathematical function. 49 U.S.C. 32902(b)(3)(A). (2) Standards for MYs 2011-2020 must “increase ratably” in each model year. 49 U.S.C. 32902(b)(2)(C). This requirement does not have a precise mathematical meaning, particularly because it must be interpreted in conjunction with1022 minimum requirement regarding stringency: th ey must be set at levels high enough to ensure that the combined U.S. passenger car an d light truck fleet achieves an average fuel economy level of not less than 35 mpg not later than MY 2020. 662 Second, as discussed above and at length in the March 2009 fi nal rule establishing the MY 2011 CAFE standards, EPCA requires that the agency es tablish standards for all new passenger cars and light trucks at the maximum feasible av erage fuel economy level that the Secretary decides the manufacturers can achieve in that model year, based on a balancing of express statutory and other factors. 663 The implication of this second requirement is that it calls for setting a standard that exceed s the minimum requirement if the agency determines that the manufacturers can achieve a higher level. When determining the level achievable by the manufact urers, EPCA requires that th e agency consider the four statutory factors of technological feasibility, economic practicability, the effect of other motor vehicle standards of the Government on fuel economy, and the need of the United States to conserve energy. In addition, th e agency has the authority to and traditionally does consider other relevant f actors, such as the effect of the CAFE standards on motor vehicle safety. The ultimate determinati on of what standards can be considered maximum feasible involves a weighing and bala ncing of these factors. NHTSA received a number of comments on how the agency interp rets its statutory requirements, and will respond to them in this section.

the requirement to set the standards for each model year at the level determined to be the maximum feasible level for that model year. Generally speaking, the requirement for ratable increases means that the annual increases should not be disproportionately large or small in relation to each other. 662 49 U.S.C. 32902(b)(2)(A). 663 49 U.S.C. 32902(a).1023 i. Statutory Factors Considered in De termining the Achievable Level of Average Fuel Economy

As none of the four factors is defined in EPCA and each remains interpreted only to a limited degree by case law, NHTSA has cons iderable latitude in interpreting them. NHTSA interprets the four statut ory factors as set forth below.

(1) Technological feasibility

“Technological feasibility” refers to whether a particular technology for improving fuel economy is available or can b ecome available for commercial application in the model year for which a standard is being established. Thus, the agency is not limited in determining the level of new standards to technology that is already being commercially applied at the time of the rulemaking. It can, instead, set technologyforcing standards, i.e., ones that make it necessary for manufact urers to engage in research and development in order to bring a new technology to market.

Commenters appear to have generally agr eed with the agency’s interpretation of technological feasibility. NESCAUM commented that the proposed standards were technologically feasib le and cost-effective in the rule making timeframe. CBD and the UCSB students focused their comments more on the technology-forcing aspects of the definition of technological feas ibility. CBD commented that the standards must be below the level of all that is tec hnologically feasible if all the technology necessary to meet1024 them is available today. The UCSB stude nts similarly commented that the agencies should not base regulations for MY 2016 solely on technologies available today, that they should also consider technologies still in the research phase for the later years of the rulemaking timeframe.

While NHTSA agrees that the technologica l feasibility factor can include a degree of technology forcing, and th at this could certainly be appropriate given EPCA’s overarching purpose of energy c onservation, we note that determining what levels of technology to require in the rulemaking timefra me requires a balancing of all relevant factors. Technologies that are still in the research phase now may be sufficiently advanced to become available for commercia l application in, for example, MY 2016. However, given the rate at which the standa rds already require average mpg to rise, and given the current state of the industry, NHTSA does not believe that it would be reasonable to set standards mandating that ma nufacturers devote substantial resources to bringing these technologies to market immedi ately rather than to simply improving the fuel economy of their fleets by applying more of the technologies on the market today. As will be discussed further in Section IV.F be low, technological feasibility is one of four factors that the agency balances in dete rmining what standards would be maximum feasible for each model year. As the bala ncing may vary depending on the circumstances at hand for the model years in which the standards are set, the extent to which technological feasibility is simply met or plays a more dynamic role may also shift.1025 (2) Economic practicability

“Economic practicability” refers to whethe r a standard is one “within the financial capability of the industry, but not so stri ngent as to” lead to “adverse economic consequences, such as a significant loss of jobs or the unreasonable elimination of consumer choice.” 664 In an attempt to ensure the st andards’ economic practicability, the agency considers a variety of factors, incl uding the annual rate at which manufacturers can increase the percentage of the fleet th at has a particular type of fuel saving technology, and cost to consumers. Consum er acceptability is al so an element of economic practicability.

At the same time, the law does not preclude a CAFE standard that poses considerable challenges to any individual manufacturer. The Conference Report for EPCA, as enacted in 1975, makes clear, and th e case law affirms, “(A) determination of maximum feasible average fuel economy shoul d not be keyed to the single manufacturer which might have the most difficulty ach ieving a given level of average fuel economy.” 665 Instead, the agency is compelled “to weigh the benefits to the nation of a higher fuel economy standard against the difficulties of individual automobile manufacturers.” Id. The law permits CAFE standards exceeding the projected capability of any particular manufacturer as long as the standard is economically practicable for the industry as a whole. Thus, while a partic ular CAFE standard may pose difficulties for one manufacturer, it may also present opportu nities for another. The CAFE program is

664 67 FR 77015, 77021 (Dec. 16, 2002). 665 CEI-I , 793 F.2d 1322, 1352 (D.C. Cir. 1986).1026 not necessarily intended to maintain the competitive positioning of each particular company. Rather, it is in tended to enhance fuel economy of the vehicle fleet on American roads, while protecting motor vehicl e safety and being mindful of the risk of harm to the overall United States economy.

Thus, NHTSA believes that this factor must be consider ed in the context of the competing concerns associated with different levels of sta ndards. Prior to the MY 2005- 2007 rulemaking, the agency generally sought to ensure the economy practicability of standards in part by setting them at or n ear the capability of the “least capable manufacturer” with a significant share of the market, i.e., typically the manufacturer whose vehicles are, on average, the heaviest an d largest. In the first several rulemakings to establish attribute based standards, the agen cy applied marginal cost benefit analysis. This ensured that the agency’s applicati on of technologies was limited to those that would pay for themselves and thus should have significant appeal to consumers. However, the agency can and has limited its application of t echnologies to those technologies, with or without the use of such analysis.

Besides the many commenters raising economic practicabil ity as an issue in the context of the stringency of the proposed st andards, some commenters also directly addressed the agency’s interpretation of ec onomic practicability. AIAM commented that NHTSA has wide discretion to consider ec onomic practicability c oncerns as long as EPCA’s overarching purpose of energy conservati on is met, and that it would be within NHTSA’s statutory discretion to set standards at levels below those at which net benefits1027 are maximized due to economic practicability . GM and Mitsubishi both commented that consideration of economic practicability should include more focus on individual manufacturers: GM stated that NHTSA must consider sales and employment impacts on individual manufacturers and not just industry in the aggregate, while Mitsubishi emphasized the difficulties of limited-line manufacturers in meeting standards that might be economically practicable for full-line manufacturers. CBD commented that a determination of economic practicability shou ld not be tied to “differences between incremental improvements” that “fail to consider all relevant costs and benefits and fail to analyze the overall impact of the proposed st andards.” CBD pointed to the three-to-one benefit-cost ratio of the propos ed standards to argue that mu ch more stringent standards would still be economically practicable. AC EEE also commented that standards set at the level at which net benefits are maximi zed should be considered a “lower bound” for determining economic practicability.

While NHTSA agrees with AIAM in general that the agency has wide discretion to consider economic prac ticability concerns, we do not believe that economic practicability will always counsel setting st andards lower than the point at which net benefits are maximized, given th at it must be considered in the context of the overall balancing and EPCA’s overarching purpose of energy conservation. Depending on the conditions of the industry and the assumpti ons used in the agency’s analysis of alternative stringencies, NHTSA could we ll find that standards that maximize net benefits, or even higher sta ndards, could be economically practicable. To that end, however, given the current conditions faced by the industry, which is perhaps just now1028 passing the nadir of the economy-wide downtur n and looking at a challenging road to recovery, and the relatively limited amount of lead time for MYs 2012-2016, we disagree with CBD’s comment that the benefit-cost ratio of the final standards indicates that more stringent standards would be economically practicable duri ng the rulemaking timeframe and with ACEEE’s comment that standards hi gher than those that would maximize net benefits would be economically practicable at this time. These comments overlook the fact that nearly all manufacturers are capital -constrained at this time and may be for the next couple of model years; a ccess to capital in a down mark et is crucial to making the investments in technology that the final standards will require, and requiring more technology will require significantly more cap ital, to which manufacturers would not likely have access. Moreover, economic prac ticability depends as well on manufacturers’ ability to sell the vehicles that the standards require them to produce. If per-vehicle costs increase too much too soon, consumers may defer new vehicle purchases, which defeats the object of raising CAFE standards to get vehicles with better mileage on the road sooner and meet the need of the Nation to c onserve energy. See Section IV.F below for further discussion of these issues.

As for GM’s and Mitsubishi’s comments, while the agency does consider carefully the impacts on indivi dual manufacturers in the agency’s analysis, as shown in the FRIA, we reiterate that economic pract icability is not keyed to any single manufacturer. One of the main benefits of a ttribute-based standards is greater regulatory fairness – for all the manufacturers who build vehi cles of a particular footprint, the target for that footprint is the same, yet each manuf acturer has their own individual compliance1029 obligation depending on the mix of vehicles they produce for sale. More manufacturers are required to improve their fuel economy, yet in a fairer way. And while some manufacturers may face difficulties under a given CAFE standard, others will find opportunities. The agency’s consideration of economic practicabil ity recognizes these difficulties and opportunities in th e context of the industry as a whole, and in the context of balancing against the ot her statutory factors, as discussed further below.

(3) The effect of other motor vehicle standards of the government on fuel

economy

“The effect of other motor vehicle standards of the Government on fuel economy,” involves an analysis of the effects of compliance with emission, 666 safety, noise, or damageability standards on fuel economy capability and thus on average fuel economy. In previous CAFE rulemakings, the agency has said that pursuant to this provision, it considers the a dverse effects of other moto r vehicle standards on fuel economy. It said so because, from the CAFE program’s earliest years 667 until present, the effects of such compliance on fuel econom y capability over the history of the CAFE program have been negative ones. In those instances in which the effects are negative, NHTSA has said that it is called upon to “mak [e] a straightforward adjustment to the fuel economy improvement projections to account for the impacts of other Federal standards, principally those in the areas of emission control, occupant safety, vehicle damageability,

666 In the case of emission standards, this includes standards adopted by the Federal government and can include standards adopted by the Stat es as well, since in certain circ umstances the Clean Air Act allows States to adopt and enforce State standa rds different from the Federal ones. 667 42 FR 63184, 63188 (Dec. 15, 1977). See also 42 FR 33534, 33537 (Jun. 30, 1977).1030 and vehicle noise. However, only the una voidable consequences should be accounted for. The automobile manufacturers must be ex pected to adopt those feasible methods of achieving compliance with other Federal standards which minimize any adverse fuel economy effects of those standards.” 668 For example, safety standards that have the effect of increasing vehicle weight lower vehicle fuel economy capab ility and thus decrease the level of average fuel economy that the agency can determine to be feasible.

The “other motor vehicle standards” cons ideration has thus in practice functioned in a fashion similar to the provision in EPCA , as originally enacted, for adjusting the statutorily-specified CAFE standa rds for MY 1978-1980 passengers cars. 669 EPCA did not permit NHTSA to amend those standa rds based on a finding that the maximum feasible level of average fu el economy for any of those th ree years was greater or less than the standard specified for that year. Instead, it provided that the agency could only reduce the standards and only on one basis: if the agency found th at there had been a federal standards fuel economy reduction, i.e., a reduction in fuel economy due to changes in the Federal vehicle standards, e.g., emissions and safety, relative to the year of enactment, 1975.

The “other motor vehicle standards” provision is broader than the federal standards fuel economy reduction provision. A lthough the effects analyzed to date under the “other motor vehicle standards” provi sion have been negative, there could be circumstances in which the effects are positive. In the event that the agency encountered

668 42 FR 33534, 33537 (Jun. 30, 1977). 669 That provision was deleted as obsolete when EPCA was codified in 1994.1031 such circumstances, it would be required to consider those positive effects. For example, if changes in vehicle safety technology led to NHTSA’s ame nding a safety standard in a way that permits manufacturers to reduce the weight added in complying with that standard, that weight reduc tion would increase vehicle fu el economy capability and thus increase the level of average fuel economy th at could be determined to be feasible.

In the wake of Massachusetts v. EPA and of EPA’s endangerment finding, its granting of a waiver to California for its motor vehicle GHG standards, and its own GHG standards for light-duty vehicles, NHTSA is c onfronted with the issue of how to treat those standards under the “other motor vehicle standards” provision. To the extent the GHG standards result in increases in fuel ec onomy, they would do so almost exclusively as a result of inducing manufacturers to instal l the same types of technologies used by manufacturers in complying with the CAFE standards. The primary exception would involve increases in the effici ency of air conditioners.

In the NPRM, NHTSA tentatively concl uded that the effects of the EPA and California standards are neither positive nor negative because the proposed rule resulted in consistent standards among all components of the National Program, but sought comment on whether and in what way the eff ects of the California and EPA standards should be considered under the “other motor vehicle st andards” provision or other provisions of EPCA in 49 U.S.C. 32902, consistent with NHTSA’s independent obligation under EPCA/EISA to issue CAFE standards. NHTSA stated that it had1032 already considered EPA’s pr oposal and the harmonization benefits of the National Program in developing its own proposed maximum feasible standards.

The Alliance commented that the extent to which the consideration of other motor vehicle standards of the government should a ffect NHTSA’s standard -setting process was entirely within the agency’s discretion. The Alliance agreed with NHTSA that the original intent of th e factor was to ensure that NHTSA accounted for other government standards that might reduce fuel economy or inhibit fuel economy improvements, but stated that since GHG standards set by EPA and California overlap CAFE standards so extensively, and are thus functionally e quivalent to CAFE standards (plus air conditioning), those standards should be “basi cally irrelevant to NHTSA’s mission to set fuel economy standards, unless some specifi c aspect of the GHG standards actually makes it harder for mfrs to improve fuel economy.” The Alliance stated further that NHTSA must still determine what levels of CAFE standards would be maximum feasible regardless of the findings or standards set by EPA and California. Thus, the Alliance stated, for purposes of the MYs 2012-2016 CAFE standards, EPA’s GHG standards could be sufficiently considered by NHTSA given the agency’s decision to harmonize as part of the National Program, 670 while California’s GHG standards need not be considered because of the state’s agreemen t under the National Program that compliance with EPA’s standards would constitute co mpliance with its own. Ford concurred individually with the Alliance comments. NADA, in contrast, commented that EPA’s GHG standards should not be considered as an “other vehicle standard” for purposes of

670 The University of Pennsylvania Environmental Law Project offered a similar comment.1033 this statutory factor, and argued that NHTSA need not and should not consider California’s GHG standards due to preemption under EPCA.

Commenters from the state of California (the Attorney General and the Air Resources Board), in contrast, stated that NHTSA must consider the effects of the California GHG standards on fuel economy as a baseline for NHTSA’s analysis, to give credit to the state’s leadership role in achieving the levels required by the National Program. CBD seconded this comment. 671 The California Attorney General further stated that Congress discussed both positive and negative impacts of other standards on fuel economy in the 1975 Conference Reports preceding EPCA’s enactment. 672 CARB and the University of Pennsylvania E nvironmental Law Proj ect both cited the Green Mountain Chrysler 673 and Central Valley Chrysler 674 cases as supporting NHTSA’s consideration of CARB’s GHG standa rds pursuant to this factor.

NHTSA believes that these comments generally support the agency’s interpretation of this factor as stated in the NPRM. While the agency may consider both positive and negative effects of other motor ve hicle standards of the Government on fuel economy in determining what level of CAFE standards would be maximum feasible, given the fact that the final rule results in consistent st andards among all components of the National Program, and given that NHTSA considered the harmonization benefits of

671 NHTSA answered similar comments in the FEIS. See FEIS Section 10.2 .4.2 for the agency’s response. 672 Citing HR Rep 94-340 at 86-87, 89-91 (1975 USCCAN 1762, 1848-49, 1851-53). 673 Green Mountain Chrysler Plymouth Dodge Jeep v. Crombie, 508 F.Supp.2d 295 (D.Vt. 2007). 674 Central Valley Chrysler Jeep, Inc. v. Gold stene, 529 F.Supp.2d 1151 (E.D. Cal. 2007).1034 the National Program in developing its own stan dards, the agency’s obligation to balance this factor with the others ma y be considered accounted for.

(4) The need of the United States to conserve energy

“The need of the United St ates to conserve energy” means “the consumer cost, national balance of payments, environmental, and foreign policy implications of our need for large quantities of petroleum, especially imported petroleum.” 675 Environmental implications principally include those associat ed with reductions in emissions of criteria pollutants and CO 2 . A prime example of foreign policy implications are energy independence and security concerns.

While a number of commenters cited the need of the nation to conserve energy in calling for the agency to set more stringent CAFE standards, none disagreed with the agency’s interpretation of this factor and its influence on the statut ory balancing required by EPCA. CBD, for example, commented that “Increasing mileage standards for this vehicle fleet is the single most effective and quickest available step the U.S. can take to conserve energy and to reduce the U.S. de pendence on foreign oil, and also has an immediate and highly significant effect on total U.S. GHG emissions,” and that accordingly, NHTSA should consider the need of the nation to conserve energy as counseling the agency to raise standards at a fa ster rate. NHTSA agrees that this factor tends to influence stringency upwards, but reiterates that the need of the nation to conserve energy is still but one of four factors that must be balanced, as discussed below.

675 42 FR 63184, 63188 (1977).1035 ii. Other Factors Considered by NHTSA

The agency historically has consider ed the potential for adverse safety consequences in setting CAFE standards. Th is practice is recognized approvingly in case law. As the courts have recognized, “ NHTSA has always examined the safety consequences of the CAFE standards in its ove rall consideration of re levant factors since its earliest rulemaking under the CAFE program.” Competitive Enterprise Institute v.
NHTSA , 901 F.2d 107, 120 n. 11 (DC Cir. 1990) (“ CEI I ”) (citing 42 FR 33534, 33551 (June 30, 1977)). The courts have consis tently upheld NHTSA’s implementation of EPCA in this manner. See, e.g., Competitive Enterprise Institute v. NHTSA , 956 F.2d 321, 322 (D.C. Cir. 1992) (“ CEI II ”) (in determining the maxi mum feasible fuel economy standard, “NHTSA has always taken pa ssenger safety into account.”) (citing CEI I , 901 F.2d at 120 n. 11); Competitive Enterprise Institute v. NHTSA , 45 F.3d 481, 482-83 (D.C. Cir. 1995) (“ CEI III ”) (same); Center for Biological Diversity v. NHTSA , 538 F.3d 1172, 1203-04 (9th Cir. 2008) (upholding NHT SA’s analysis of vehicle safety issues associated with weight in connection with the MY 2008-11 light truck CAFE rule). Thus, in evaluating what levels of stringency would result in ma ximum feasible standards, NHTSA assesses the potential safety impacts and considers them in balancing the statutory considerations and to determine th e appropriate level of the standards.

Under the universal or “flat” CAFE standards that NHTSA was previously authorized to establish, manu facturers were encouraged to respond to higher standards by1036 building smaller, less safe vehicles in order to “balance out” the larger, safer vehicles that the public generally preferred to buy, which resulted in a higher mass differential between the smallest and the largest vehicl es, with a correspondingly greater risk to safety. Under the attribute-based standards be ing finalized today, th at risk is reduced because building smaller vehicles would te nd to raise a manufacturer’s overall CAFE obligation, rather than only raising its fleet average CAFE, and because all vehicles are required to continue improving their fuel economy. In prior rulemakings, NHTSA limited the application of mass reduction/material substitution in our modeling analysis to vehicles over 5,000 lbs GVWR, 676 but for purposes of today’ s final standards, NHTSA has revised its modeling analysis to allow some application of mass reduction/material substitution for all vehicles, although it is c oncentrated in the largest and heaviest vehicles, because we believe that this is mo re consistent with how manufacturers will actually respond to the standards. Howeve r, as discussed above, NHTSA does not mandate the use of any particular technology by manufacturers in meeting the standards. More information on the new approach to modeling manufacturer use of downweighting/material substitution is availa ble in Chapter 3 of the Joint TSD and in Section V of the FRIA; and the estimated safe ty impacts that may be due to the final standards are described below.

iii. Factors that NHTSA is Prohibited From Considering

EPCA also provides that in determini ng the level at which it should set CAFE standards for a particular model year, NHTSA may not consid er the ability of

676 S ee 74 FR 14396-14407 (Mar. 30, 2009).1037 manufacturers to take advantage of several EPCA provisions that facilitate compliance with the CAFE standards and ther eby reduce the costs of compliance. 677 As discussed further below, manufacturers can earn compliance credits by exceeding the CAFE standards and then use those credits to ach ieve compliance in years in which their measured average fuel economy falls below the standards. Manufacturers can also increase their CAFE levels through MY 2019 by producing alternative fuel vehicles. EPCA provides an incentive for producing th ese vehicles by specifying that their fuel economy is to be determined using a special calculation procedure th at results in those vehicles being assigned a high fuel economy level.

The effect of the prohibitions against considering these flexibilities in setting the CAFE standards is that the flexibilities re main voluntarily-employed measures. If the agency were instead to assume manufacturer use of those flexibilities in setting new standards, that assumption w ould result in higher standards and thus tend to require manufacturers to use those flexibilities.

iv

. Determining the Level of the Standards by Balancing the Factors

NHTSA has broad discretion in balancing the above factors in determining the appropriate levels of average fuel economy at which to set the CAFE standards for each model year. Congress “specifically delega ted the process of setting ... fuel economy standards with broad guidelines concerning the factors that the agency must consider.” 678

677 49 U.S.C. 32902(h). 678 Center for Auto Safety v. NHTSA , 793 F.2d 1322, 1341 (C.A.D.C. 1986).1038 The breadth of those guidelines, the absence of any statutorily pr escribed formula for balancing the factors, the fact that the relativ e weight to be given to the various factors may change from rulemaking to rulemaking as the underlying facts change, and the fact that the factors may often be conflicting with respect to whether they militate toward higher or lower standards give NHTSA broad discretion to d ecide what weight to give each of the competing policies and concerns and then determine how to balance them. The exercise of that discretion is subject to the necessity of ensuring that NHTSA's balancing does not undermine the funda mental purpose of the EPCA: energy conservation, 679 and as long as that balancing reasonably accommodates “conflicting policies that were committed to the agency's care by the statute.” 680 The balancing of the factors in any given rulemaking is highly dependent on th e factual and policy context of that rulemaking. Given the changes over ti me in facts bearing on assessment of the various factors, such as those relating to the economic conditi ons, fuel prices and the state of climate change science, the agency recogniz es that what was a reasonable balancing of competing statutory priorities in one rulemaking may not be a reasonable balancing of those priorities in another rulemaking. 681 Nevertheless, the agency retains substantial discretion under EPCA to choos e among reasonable alternatives.

EPCA neither requires nor precludes the us e of any type of cost-benefit analysis as a tool to help inform the balancing process. While NHTSA used marginal cost-benefit analysis in the first two rulemakings to es tablish attribute-based CAFE standards, as

679 Center for Biological Diversity v. NHTSA , 538 F.3d 1172, 1195 (9 th Cir. 2008) 680 CAS , 1338 (quoting Chevron U.S.A., Inc. v. Natural Resources Defense Council , Inc ., 467 U.S. 837, 845) 681 CBD v. NHTSA , 538 F.3d 1172, 1198 (9 th Cir. 2008)1039 noted above, it was not required to do so and is not required to continue to do so. Regardless of what type of analysis is or is not used, considerations relating to costs and benefits remain an important part of CAFE standard setting.

Because the relevant considerations and factors can reasonably be balanced in a variety of ways under EPCA, and because of uncertainties associated with the many technological and cost inputs, NHTSA consider s a wide variety of alternative sets of standards, each reflecting diffe rent balancing of those policie s and concerns, to aid it in discerning reasonable outcomes. Among the alte rnatives providing for an increase in the standards in this rulemaking, the alternatives range in stringency from a set of standards that increase, on average, 3 percent annually to a set of standards that increase, on average, 7 percent annually.

v. Other Standards – Minimum Domestic Passenger Car Standard

The minimum domestic passenger car sta ndard was added to the CAFE program through EISA, when Congress gave NHTSA exp licit authority to set universal standards for domestically-manufactured passenger cars at the level of 27.5 mpg or 92 percent of the average fuel economy of the combined dom estic and import passenger car fleets in that model year, whichever was greater. 682 This minimum standard was intended to act as a “backstop,” ensuring that domestically-m anufactured passenger cars reached a given mpg level even if the market shifted in ways likely to reduce overall fleet mpg. Congress was silent as to whether the agency could or should develop sim ilar backstop standards

682 49 U.S.C. 32902(b)(4).1040 for imported passenger cars and light trucks. NHTSA has struggled with this question since EISA was enacted.

In the MY 2011 final rule, facing comme nts split fairly evenly between support and opposition to additional backstop standa rds, NHTSA noted Congress’ silence and “accept[ed] at least the possibility that ... [ it] could be reasonably interpreted as permissive rather than restrictive,” but conc luded based on the record for that rulemaking as a whole that additional backstop standard s were not necessary for MY 2011, given the lack of leadtime for manuf acturers to change their MY 2011 vehicles, the apparentlygrowing public preference for smaller vehicles , and the anti-backsliding characteristics of the footprint-based curves. 683 NHTSA stated, however, that it would continue to monitor manufacturers’ product plans and compliance, and would revisit the backstop issue if it became necessary in future rulemakings. 684

Thus, in the MYs 2012-2016 NPRM, NHTSA again sought comment on the issue of additional backstop standards, recognizing th e possibility that low fuel prices during the years that the MYs 2012-2016 vehicles ar e in service might lead to less than anticipated fuel savings. 685 NHTSA asked commenters, in addressing this issue, to consider reviewing the agency’s discussion in the MY 2011 final rule, which the agency described as concluding that its authority was likely lim ited by Congress’ silence to setting only the backstop that Congress expressly provided for. 686 EPA also sought

683 74 FR at 14412 (Mar. 30, 2009). 684 Id. 685 74 FR at 49685 (Sept. 28, 2009). 686 Id . at 49637, 49685 (Sept. 28, 2009).1041 comment on whether it should set back stop standards under the CAA for MYs 2012-
2016.

As discussed above in Section II, many commenters addressed the backstop issue, and again comments were fairly evenly spli t between support and oppos ition to additional backstop standards. While commenters opposed to additional backstops, such as the Alliance, largely reiterated NHTSA’s previous statements with regard to its backstop authority, some commenters in favor of additional backstops provided more detailed legal arguments than have been previously presente d for the agency’s consideration. Section II provides NHTSA’s and EPA’s general response to comments on the backstop issue; this section provides NHTSA’s specific respons e to the legal arguments by Sierra Club et al

. 687 on the agency’s authority to set additional backstop standards.

The Sierra Club et al . commented that a more permissive reading of Congress’ silence in EISA was appropriate give n the context of the statute, the 9 th Circuit’s revised opinion in CBD v. NHTSA , and the assumptions employed in the NPRM analysis. The commenters stated that given that EISA includes the 35-in-2020 and ratable increase requirements, and given that CAFE standards were only just starting to rise for light trucks at the time of EISA’s enactment and had remained at the statutory level of 27.5 mpg for passenger cars for many years, it appear s that Congress’ inte nt in EISA was to raise CAFE standards as rapidly as possible. Thus, the commenters stated, if the purpose

687 NHTSA refers to these commenters by the shorthand “Sierra Club et al .,” but the group consists of the Sierra Club, the Safe Climate Campaign, the Coalition for Clean Air, the Alliance for Climate Protection, and Environment America. Their comments may be found at Docket No. EPA-HQ-OAR-2009-0472- 7278.1.1042 of EISA was to promote the maximum feasib le increase in fuel economy with ratable increases, then there was no reason to think th at backstop standards would be inconsistent with that purpose – if they were inconsiste nt, Congress would not have included one for domestic passenger cars. Similarly, Congr ess could not have thought that additional backstops were inconsistent with attribute-ba sed standards, or it w ould not have included one for domestic passenger cars. 688 The commenters also ci ted D.C. Circuit case law stating that congressional sile nce leaves room for agency di scretion; specifically, that “[w]hen interpreting statutes th at govern agency action, [the courts] have consistently recognized that a congressional mandate in one section and silen ce in another often ‘suggests not a prohibition but simply a d ecision not to mandate any solution in the second context, i.e., to leave the question to agency discretion.’” 689

The Sierra Club et al. also commented that it appeared that the 9 th Circuit’s revised opinion in CBD v. NHTSA supported the agency’s di scretion to set additional backstops, since it was revised after the passage of EISA a nd did not change its earlier holding (pertaining to the orig inal EPCA language) that backstop standards were within the agency’s discretion. 690

And finally, the commenters stated th at NHTSA’s rationale for not adopting additional backstops in the MY 2011 final rule should not be relied on for MYs 2012-

688 The commenters also suggested that NHTSA could set attribute-based backstop standards if it was concerned that Congress’ mandate to set attribute-based standards generally precluded additional flat backstops. 689 Citing Catawba County, N.C. v. EPA, 571 F.3d 20, 36 (D.C. Cir. 2009) (quoting Cheney R. Co. v. ICC , 902 F.2d 66, 69 (D.C. Cir. 1990)). 690 Citing CBD v. NHTSA, 538 F.3d at 1204-06 (9 th Cir. 2008).1043 2016, namely, that the agency’s belief th at backstop standards were unnecessary to ensure the expected levels of fuel savi ngs given the short lead time between the promulgation of the final standards and the beginning of MY 2011, the apparent growing consumer preference for smaller vehicles, a nd the existing anti-backsliding measures in the attribute-based curves. As described above in Section II, these commenters (and many others) expressed concern about the agencies’ fleet mix assumptions and their potential effect on estimated fuel savings.

In response, and given D.C. Circuit pr ecedent as cited above, NHTSA agrees that whether to adopt additional minimum standa rds for imported passenger cars and light trucks is squarely within the agency’s di scretion, and that such discretion should be exercised as necessary to avoi d undue losses in fuel savings due to market shifts or other forces while still respecting the statutorily-m andated manufacturer need for lead time in establishing CAFE standards. However, as discussed above in Section II.C, NHTSA remains confident that the projections of the future fleet mix are reliable, and that future changes in the fleet mix of footprints and sales are not likely to lead to more than modest changes in projected emissions reductions or fuel savings. Ther e are only a relatively few model years at issue, and market trends today are consistent with the agencies’ estimates, showing shifts from light trucks to passenger cars and increased emphasis on fuel economy from all vehicles. The shapes of the curves also tend to avoid or minimize regulatory incentives for manuf acturers to upsize their fleet to change their compliance burden, and the risk of vehicle upsizing or changing vehicle offerings to “game” the passenger car and light truck defi nitions to which commenters re fer is not so great for the1044 model years in question, because the cha nges that commenters suggest manufacturers might make are neither so simple nor so lik ely to be accepted by consumers, as discussed above.

Thus, NHTSA is confident that the anticip ated increases in average fuel economy and reductions in average CO 2 emission rates can be achieved without backstops under EISA, as noted above. Nevertheless, we acknowledge that the MY 2016 fuel economy goal of 34.1 mpg is an es timate and not a standard, 691 and that changes in fuel prices, consumer preferences, and/or vehicle surv ival and mileage accumulation rates could result in either smaller or la rger oil savings. However, as explained above and elsewhere in the rule, NHTSA believes that the possibi lity of not meeting (or, alternatively, exceeding) fuel economy goals exists, but is not likely to lead to more than modest changes in the currently-proje cted levels of fuel and GHG savings. NHTSA plans to conduct retrospective analysis to monitor pr ogress, and has the authority to revise standards if warranted, as long as sufficient l ead time is provided. Given this, and given the potential complexities in designing an appropriate backstop, NHTSA believes that the balance here points to not adopting additio nal backstops at this time for the MYs 2012- 2016 standards other than NHTSA’s issui ng the ones required by EPCA/EISA for domestic passenger cars. If, during the tim eframe of this rule, NHTSA observes a significant shift in the manufacturer’s product mix resulting in a relaxation of their estimated targets, NHTSA and EPA will reconsider options, both for MYs 2012-2016 and future rulemakings.

691 The MYs 2012-2016 passenger car and light truck curves are the actual standards.1045 2. Administrative Procedure Act

To be upheld under the “arbitrary and caprici ous” standard of judicial review in the APA, an agency rule must be rational, ba sed on consideration of the relevant factors, and within the scope of the aut hority delegated to the agency by the statute. The agency must examine the relevant data and articula te a satisfactory explanation for its action including a “rational conn ection between the facts found and the choice made.” Burlington Truck Lines, Inc. v. United States , 371 U.S. 156, 168 (1962).

Statutory interpretations incl uded in an agency’s rule ar e subjected to the two-step analysis of Chevron, U.S.A., Inc. v. Natural Resources Defense Council , 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Under step one, where a statute “has directly spoken to the precise question at issue,” id. at 842, 104 S.Ct. 2778, the court and the agency “must give effect to the unamb iguously expressed intent of Congress,” id. at 843, 104 S.Ct. 2778. If the statute is silent or ambiguous regardi ng the specific question, the court proceeds to step two and asks “whe ther the agency's answer is based on a permissible construction of the statute.” Id.

If an agency’s interpretation differs from the one that it has previously adopted, the agency need not demonstrate that the prio r position was wrong or even less desirable. Rather, the agency would need only to demonstrate that its new position is consistent with the statute and supporte d by the record, and acknowledge that this is a departure from past positions. The Supreme Court emphasized this recently in FCC v. Fox1046 Television , 129 S.Ct. 1800 (2009). When an agency changes course from earlier regulations, “the requirement that an agency provide reasoned expl anation for its action would ordinarily demand that it display awareness that it is changing position,” but “need not demonstrate to a court's satisfaction that the reasons for the new policy are better than the reasons for the old one; it suffices that the new policy is permissible under the statute, that there are good reasons for it, and that the agency believes it to be better, which the conscious change of course adequately indicates.” 692

The APA also requires that agencies provide notice and comment to the public when proposing regulations. 693 Two commenters, the American Chemistry Council and the American Petroleum Institute, argued th at the agreements by au to manufacturers and California to support the Nati onal Program indicated that a “deal” had been struck between the agencies and these parties, which was not available as part of the administrative record and which the public had not been given the opportunity to comment on. The commenters argue d that this violated the APA.

In response, under the APA, agencies “m ust justify their rulemakings solely on the basis of the record [they] compile[] and make[] public.” 694 Any informal contacts that occurred prior to the release of the NPRM may have been informative for the agencies and other parties involved in devel oping the NPRM, but they did not release the agencies of their obligation consider a nd respond to public comments on the NPRM and to justify the final standards based on the publ ic record. The agencies believe that the

692 Ibid ., 1181. 693 5 U.S.C. 553. 694 Sierra Club v. Costle, 657 F.2d 298, 401 (D.C. Cir. 1981).1047 record fully justifies the final standards, de monstrating analytically that they are the maximum feasible and reasonable for the model years covered. Thus, we disagree that there has been any violation of the APA.

3. National Environmental Policy Act

As discussed above, EPCA requires the agen cy to determine what level at which to set the CAFE standards for each model year by considering th e four factors of technological feasibility, ec onomic practicability, the effect of other motor vehicle standards of the Government on fuel economy, and the need of the United States to conserve energy. NEPA directs that environmental considerations be integrated into that process. To accomplish that purpose, NEPA re quires an agency to compare the potential environmental impacts of its proposed ac tion to those of a reasonable range of alternatives.

To explore the environmental consequences in depth, NHTSA has prepared both a draft and a final environmental impact statement. The purpose of an EIS is to “provide full and fair discussion of significant environmental impacts and [to] inform decisionmakers and the public of the reas onable alternatives which would avoid or minimize adverse impacts or enhance the quality of the human environment.” 40 CFR
1502.1.1048 NEPA is “a procedural statute that manda tes a process rather than a particular result.” Stewart Park & Reserve Coal., Inc. v. Slater , 352 F.3d at 557. The agency's overall EIS-related obligation is to “take a ‘hard look’ at th e environmental consequences before taking a major action.” Baltimore Gas & Elec. Co. v. Natural Res. Def. Council,
Inc ., 462 U.S. 87, 97, 103 S.Ct. 2246, 76 L.Ed. 2d 437 (1983). Significantly, “[i]f the adverse environmental effects of the propos ed action are adequately identified and evaluated, the agency is not constrained by NEPA from deciding that other values outweigh the environmental costs.” Robertson v. Methow Valley Citizens Council , 490 U.S. 332, 350, 109 S.Ct. 1835, 104 L.Ed.2d 351 (1989).

The agency must identify the “environmen tally preferable” alte rnative, but need not adopt it. “Congress in enacting NEPA . . . did not require agencies to elevate environmental concerns over other appropriate considerations.” Baltimore Gas and Elec. Co. v. Natural Resources Defense Council, Inc ., 462 U.S. 87, 97 (1983). Instead, NEPA requires an agency to develop alternatives to the proposed action in preparing an EIS. 42 U.S.C. 4332(2)(C)(iii). Th e statute does not command the agency to favor an environmentally preferable course of action, on ly that it make its decision to proceed with the action after taking a hard look at environmental consequences.

This final rule also constitutes a Re cord of Decision for NHTSA under NEPA. Section IV.K below provides much more info rmation on the agency’s NEPA analysis for this rulemaking, and on how this final ru le constitutes a Record of Decision.1049 E. What are the Final CAFE Standards?

1. Form of the Standards

Each of the CAFE standards that NHTSA is finalizing today for passenger cars and light trucks is expressed as a mathem atical function that defines a fuel economy target applicable to each vehi cle model and, for each fleet, establishes a required CAFE level determined by computing the sales-we ighted harmonic average of those targets. 695

As discussed above in Section II.C, NHT SA has determined fuel economy targets using a constrained linear function defi ned according to the following formula:

1 1 1

, , TARGET MIN MAX c FOOTPRINT d a b = ⎡ ⎤ ⎛ ⎞ × + ⎜ ⎟ ⎢ ⎥ ⎝ ⎠ ⎣ ⎦

Here, TARGET is the fuel economy target (in m pg) applicable to vehicles of a given footprint ( FOOTPRINT , in square feet), b and a are the function’ s lower and upper asymptotes (also in mpg), respectively, c is the slope (in gpm per square foot) of the sloped portion of the function, and d is the intercept (in gpm) of the sloped portion of the

695 Required CAFE levels shown here are estimated required levels based on NHTSA’s current projection of manufacturers’ vehicle fleets in MYs 2012-2016. Actual required levels are not determined until the end of each model year, when all of the vehicles produced by a manufacturer in that model year are known and their compliance obligation can be determined with ce rtainty. The target curves, as defined by the constrained linear function, and as embedded in the function for the sales-weighted harmonic average, are the real “standards” being established today.1050 function (that is, the value the sloped portion wo uld take if extended to a footprint of 0 square feet. The MIN and MAX functions take the minimu m and maximum, respectively of the included values.

In the NPRM preceding today’s final rule (as under the recently-promulgated MY 2011 standards), NHTSA proposed that the CAFE level required of any given manufacturer be determined by calculating the production-weighted harmonic average of the fuel economy targets applicable to each vehicle model:

i i required i
i i SALES CAFE SALES TARGET = 

## ∑ ∑

Here, CAFE required is the required level for a given fleet, SALES i is the number of units of model i produced for sale in the United States, TARGET i is the fuel economy target applicable to model i (according to the equation shown in Chapter II and based on the footprint of model i ), and the summations in the numerator and denominator are both performed over all models in the fleet in question.

However, comments by Honda and Toyota i ndicate that the defined variables used in the equations could be interpreted differently by ve hicle manufacturers. The term “footprint of a vehicle model” could be interpreted to mean that a manufacturer only has to use one representative footprint within a model type or that it is necessary to use1051 all the unique footprints and corresponding fuel economy target standards within a model type when determining a fleet target standard.

In the same NPRM, EPA proposed new regulations which also include the calculation of standards based on the attribute of footprint. The EPA regulation text is specific and states that standards will be deri ved using the target values “for each unique combination of model type and footprin t value” (proposed regulation text 40 CFR 86.1818-12 (c)(2)(ii)(B) for passenge r automobiles and (c)(3)(ii) (B) for light trucks). Also, in an EPA final rule issued Novemb er 25, 2009, the manufact urers are required to provide in their final model year reports to EPA data for “each uni que footprint within each model type” used to calculate the new CAFE program fuel economy levels (40 CFR 600.512-08(c)(8)and(9)). Using this term would be more definitive than using terms such as “footprint of a vehicle m odel” and would more fully harmonize the NHTSA and EPA regulations. Therefore, under the final CAFE standards promulgated today, a manufacturer’s “fleet target standard” will be derived from the summation of the targets for all and every unique footprint within each model type for all model types that make up a fleet of vehicles. Also, to provide grea ter clarity, the equation will use the variable

name PRODUCTION rather than SALES to refer to production of vehicles for sale in the United States. Otherwise, for purposes of the final rule the same equation will apply:

i i required i
i i

PRODUCTION CAFE PRODUCTION TARGET = 

## ∑ ∑1052 However, PRODUCTION i is the number of units produced for sale in the United States of each i th unique footprint within each model type, produced for sale in the United States, and TARGET i is the corresponding fuel economy target (according to the equation shown in Chapter II and based on the correspond ing footprint), and the summations in the numerator and denominator are both performe d over all unique footprint and model type combinations in the fleet in question. Th e equations and terms specified for calculating the required CAFE fleet values in Part 531.5 (b) and (c) for MYs 2012-2016, and Part 533.5 (g), (h) and (i) for MYs 2008-2016 will be updated accordingly. Although the agency is not changing the equations for the MY 2011 standards, we would expect manufacturers to follow the same procedures for calculating their required levels for that model year. Also, the Appendices in each of these parts will also be updated to provide corresponding examples of calcula ting the fleet standards.

Corresponding changes to regulatory text de fining CAFE standards are discussed below in Section IV.I.

The final standards are, therefore, specifi ed by the four coefficients defining fuel economy targets:

a = upper limit (mpg)
b = lower limit (mpg)

c = slope (gpm per square foot)
d

= intercept (gpm)1053 The values of the coefficients are different for the passenger car standards and the light truck standards.

2. Passenger Car Standards for MYs 2012-2016

For passenger cars, NHTSA proposed CAFE standards defined by the following coefficients during MYs 2012-2016:

Table IV.E.2-1 Coefficients Defining Proposed MY 2012-2016 Fuel Economy Targets for Passenger Cars Coefficient 2012 2013 2014 2015 2016

a (mpg) 36.23 37.15 38.08 39.55 41.38 b (mpg) 28.12 28.67 29.22 30.08 31.12 c (gpm/sf) 0.0005308 0.0005308 0.0005308 0.0005308 0.0005308

d

(gpm) 0.005842 0.005153 0.004498 0.003520 0.002406

After updating inputs to its an alysis, and revisiting the form and stringency of both passenger cars and light truck standards, as discussed in Section II, NHTSA is finalizing passenger car CAFE standards de fined by the following coefficients during
MYs 2012-2016:

Table IV.E.2-2 Coefficients Defining Final MY 2012-2016 Fuel Economy Targets for Passenger Cars Coefficient 2012 2013 2014 2015 2016

a (mpg) 35.95 36.80 37.75 39.24 41.09 b (mpg) 27.95 28.46 29.03 29.90 30.96 c (gpm/sf) 0.0005308 0.0005308 0.0005308 0.0005308 0.0005308

d

(gpm) 0.006057 0.005410 0.004725 0.003719 0.0025731054 These coefficients reflect the agency’s d ecision, discussed above in Section II, to leave the shapes of both the passenger car a nd light truck curves unchanged. They also reflect the agency’s reevaluation of the “g ap” in stringency between the passenger car and light truck standard, also discussed in Section II.

These coefficients result in the foot print-dependent target curves shown graphically below. The MY 2011 final sta ndard, which is specified by a constrained logistic function rather than a constrained linear function, is shown for comparison.1055 Figure IV.E.2-1 Final MY 2011 and Final MY 2012-2016 Fuel Economy Target Curves for Passenger Cars

20 25 30 35 40 45

35 40 45 50 55 60 65 70 T a r g e t ( m p g )

Footprint (sf) 2011 2016

2015 2014 2013 20121056 As discussed, the CAFE levels required of individual manufacturers will depend on the mix of vehicles they produce for sale in the United States. Based on the market forecast of future sales that NHTSA has used to examine today’s final CAFE standards, the agency estimates that th e targets shown above will result in the following average required fuel economy levels for indivi dual manufacturers du ring MYs 2012-2016 (an updated estimate of the average required fuel economy level under the final MY 2011 standard is shown for comparison) 696 :

Table IV.E.2-3 Estimated Average Fuel Economy Required under Final MY 2011 and Final MY 2012-2016 CAFE Standards for Passenger Cars Manufacturer MY 2011 MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 BMW 30.2 33.0 33.7 34.5 35.7 37.3 Chrysler 29.4 32.6 33.3 34.1 35.2 36.7 Daimler 29.2 32.0 32.7 33.3 34.4 35.8 Ford 29.7 32.9 33.7 34.4 35.6 37.1 General Motors 30.3 32.7 33.5 34.2 35.4 36.9 Honda 30.8 33.8 34.6 35.4 36.7 38.3 Hyundai 30.9 33.8 34.3 35.1 36.6 38.2 Kia 30.6 33.4 34.2 35.0 36.3 37.9 Mazda 30.6 33.8 34.6 35.5 36.8 38.4 Mitsubishi 31.0 34.2 35.0 35.8 37.1 38.7 Nissan 30.7 33.3 34.1 34.9 36.1 37.7 Porsche 31.2 35.9 36.8 37.8 39.2 41.1 Subaru 31.0 34.6 35.5 36.3 37.7 39.4 Suzuki 31.2 35.8 36.6 37.5 39.0 40.8 Tata 28.0 30.7 31.4 32.1 33.3 34.7 Toyota 30.8 33.9 34.7 35.5 36.8 38.4 Volkswagen 30.8 34.3 35.0 35.9 37.2 38.8 Average 30.4 33.3 34.2 34.9 36.2 37.8

696 In the March 2009 final rule establishing MY 2011 standards for passenger cars and light trucks, NHTSA estimated that the required fuel economy levels for passenger cars would average 30.2 mpg under the MY 2011 passenger car standard. Based on the agen cy’s current forecast of the MY 2011 passenger car market, which anticipates greater numbers of passenger cars than the forecast used in the MY 2011 final rule, NHTSA now estimates that the average required fu el economy level for passenger cars will be 30.4 mpg in MY 2011. This does not m ean that the agency is making the standards more stringent for that model year, or that any manufacturer will necessarily face a more difficult CAFE standard, it simply reflects the change in assumptions about what vehicles will be produced for sale in that model year. The target curve remains the same, and each manufacturer ’s compliance obligation will still be determined at the end of the model year.1057 Because a manufacturer’s required averag e fuel economy level for a model year under the final standards will be based on its actual production numbers in that model year, its official required fuel economy leve l will not be known until the end of that model year. However, because the targets for each vehicle footprint will be established in advance of the model year, a manufacturer sh ould be able to estimate its required level accurately.

3. Minimum Domestic Passenger Car Standards

EISA expressly requires each manufactu rer to meet a minimum fuel economy standard for domestically manufactured passenger cars in addition to meeting the standards set by NHTSA. According to the statute (49 U.S.C. 32902(b)(4)) the minimum standard shall be the greater of (A) 27.5 mile s per gallon; or (B) 92 percent of the average fuel economy projected by the Secretary fo r the combined domestic and non-domestic passenger automobile fleets manufactured for sale in the United States by all manufacturers in the model year. The ag ency must publish the projected minimum standards in the Federal Register when the passenger car stan dards for the model year in question are promulgated.

As published in the MY 2011 final rule , the domestic minimum passenger car standard for MY 2011 was set at 27.8 mpg, which represented 92 percent of the final1058 projected passenger car standards promulgated for that model year. 697 NHTSA stated at the time that “The final calculated minimu m standards will be updated to reflect any changes in the projected passenger car standards.” 698 Subsequently, in the NPRM proposing the MYs 2012-2016 standards, NHTSA noted that given changes in the projected estimated required passe nger car standard for MY 2011, 699 92 percent of that standard would be 28.0 mpg, not 27.8 mpg, and proposed to raise the minimum domestic passenger car standard accordingly.

The Alliance commented to the NPRM that the minimum domestic passenger car standard is subject to the 18-month lead time rule for standards per 49 U.S.C. per 49 U.S.C. 32902(a), and that NHT SA therefore cannot revise it at this time. Toyota individually offered identical comments.

49 U.S.C. 32902(b)(4)(B) does state that the minimum domestic passenger car standard shall be 92 percent of the projected average fuel economy for the passenger car fleet, “which projection shall be published in the Federal Register when the standard for that model year is promulgated in accordance w ith this section.” In reviewing the statute, the agency concurs that the minimum domes tic passenger car standard should be based on the agency’s fleet assumptions when the passenger car standard for that year is promulgated, which would make it inappropria te to change the minimum standard for

697 See 74 FR at 14410 (Mar. 30, 3009). 698 Id

. 699 Readers should remember, of course, that the “es timated required standard” is not necessarily the ultimate mpg level with which manufacturers will have to comply, because the ultimate mpg level for each manufacturer is determined at the end of the model year based on the target curves and the mix of vehicles that each manufacturer has produced fo r sale. The mpg level designated as “estimated required’ is exactly that, an estimate.1059 MY 2011 at this time. However, we note that we do not read this language to preclude any change in the minimum standard after it is first promulgated for a model year. As long as the 18-month lead-time requirement of 49 U.S.C. 32902(a) is respected, NHTSA believes that the language of the statute sugge sts that the 92 percent should be determined anew any time the passenger car standards are revised.

The Alliance also commented that the minimum domestic passenger car standard should be based on the projected “actual” (NHTSA refers to this as “estimated achieved”) mpg level for the combined passenger car fl eet, rather than based on the projected “target” mpg level (NHTSA refers to this as “estimated required”) for the combined fleet. The Alliance argued that the plai n language of the statute states that 92 percent should be taken of the “average fuel economy projecte d ... for the combined ... fleets,” which is different than the average fuel economy standard projected. The Alliance further argued that using the “estimated achieved” value to determine the 92 percent will avoid inadvertently “considering” FFV credits in setting the minimum standard, since the “estimated achieved” value is determined by ignoring FFV credits. Toyota individually offered identical comments.

NHTSA disagrees that the minimum sta ndard should be based on the estimated achieved levels rather than the estimated required levels. NHTSA interprets Congress’ reference in the second clause of 32902(b)(4)(B ) to the standard promulgated in that model year as indicating that Congress intended “projected average fuel economy” in the first clause to pertain to th e estimated required level, not the estimated achieved level.1060 The Alliance’s concern that a minimum standard based on the estimated required level “inadvertently considers” FFV credits is misplaced, because NHTSA is statutorily prohibited from considering FFV credits in se tting maximum feasible standards. Thus, NHTSA has continued to determine the mini mum domestic passenger car standard based on the estimated required mpg levels projected for the model years covered by the rulemaking.

Based on NHTSA’s current market forecas t, the agency’s estimates of these minimum standards under the final MY 2012-2016 CAFE standards (and, for comparison, the final MY 2011 minimum domestic passenger car standard) are summarized below in Table IV.E.3-1.

Table IV.E.3-1 Estimated Minimum Standard for Domestically Manufactured Passenger Cars under Final MY 2011 and Final MY 2012-2016 CAFE Standards for Passenger Cars
2011 2012 2013 2014 2015 2016 27.8 30.7 31.4 32.1 33.3 34.7

4. Light Truck Standards

For light trucks, NHTSA proposed CAFE standards defined by the following coefficients during MYs 2012-2016:1061 Table IV.E.4-1 Coefficients Defining Proposed MY 2012-2016 Fuel Economy Targets for Light Trucks Coefficient 2012 2013 2014 2015 2016

a (mpg) 29.44 30.32 31.30 32.70 34.38 b (mpg) 22.06 22.55 23.09 23.84 24.72 c (gpm/sf) 0.0004546 0.0004546 0.0004546 0.0004546 0.0004546

d

(gpm) 0.01533 0.01434 0.01331 0.01194 0.01045

After updating inputs to its an alysis, and revisiting the form and stringency of both passenger cars and light truck standards, as discussed in Section II, NHTSA is finalizing light truck CAFE standards defi ned by the following coefficients during MYs
2012-2016:

Table IV.E.4-2 Coefficients Defining Final MY 2012-2016 Fuel Economy Targets for Light Trucks Coefficient 2012 2013 2014 2015 2016

a (mpg) 29.82 30.67 31.38 32.72 34.42 b (mpg) 22.27 22.74 23.13 23.85 24.74 c (gpm/sf) 0.0004546 0.0004546 0.0004546 0.0004546 0.0004546

d

(gpm) 0.014900 0.013968 0.013225 0.011920 0.010413

As for passenger cars, these coefficients reflect the agency’s decision, discussed above in Section II, to leave the shapes of both the passenge r car and light truck curves unchanged. They also reflect the agency’s reevaluation of the “gap” in stringency between the passenger car and light truck st andard, also discus sed in Section II.

These coefficients result in the footpr int-dependent target s shown graphically below. The MY 2011 final standard, which is specified by a constrai ned logistic function rather than a constrained linear f unction, is shown for comparison.1062 Figure IV.E.4-1 Final MY 2011 and Fina l MY 2012-2016 Fuel Economy Targets for Light Trucks

20 25 30 35 40 45

35 40 45 50 55 60 65 70 T a r g e t ( m p g )

Footprint (sf) 2011 2016
2015
2014 2013 20121063 Again, given these targets, the CAFE le vels required of individual manufacturers will depend on the mix of vehicles they produce for sale in the United States. Based on the market forecast NHTSA has used to examine today’s final CAFE standards, the agency estimates that the targets shown above will result in the following average required fuel economy levels for indivi dual manufacturers du ring MYs 2012-2016 (an updated estimate of the average required fuel economy level under the final MY 2011 standard is shown for comparison) 700 :

Table IV.E.4-3 Estimated Average Fuel Economy Required under Final MY 2011 and Final MY 2012-2016 CAFE Standards for Light Trucks Manufacturer MY 2011 MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 BMW 25.6 26.6 27.3 27.9 28.9 30.2 Chrysler 24.5 25.7 26.2 26.8 27.8 29.0 Daimler 24.7 25.6 26.3 26.9 27.8 29.1 Ford 23.7 24.8 25.4 26.0 27.0 28.1 General Motors 23.3 24.2 24.8 25.2 26.1 27.2 Honda 25.7 26.9 27.5 28.0 29.1 30.4 Hyundai 25.9 27.0 27.6 28.2 29.3 30.7 Kia 25.2 26.2 26.7 27.3 28.3 29.5 Mazda 26.2 27.6 28.4 28.9 30.1 31.5 Mitsubishi 26.4 27.8 28.5 29.1 30.2 31.7 Nissan 24.5 25.6 26.2 26.8 27.8 29.1 Porsche 25.5 26.3 26.9 27.5 28.5 29.8 Subaru 26.5 27.9 28.6 29.2 30.4 31.9 Suzuki 26.3 27.5 28.2 28.8 29.9 31.4 Tata 26.2 27.4 28.2 28.8 29.9 31.3 Toyota 24.6 25.7 26.2 26.8 27.8 29.1 Volkswagen 25.0 25.8 26.4 27.0 28.0 29.2 Average 24.4 25.4 26.0 26.6 27.5 28.8

700 In the March 2009 final rule establishing MY 2011 standards for passenger cars and light trucks, NHTSA estimated that the required fuel economy levels for light trucks would average 24.1 mpg under the MY 2011 light truck standard. Based on the agency’s current forecast of the MY 2011 light truck market, NHTSA now estimates that the required fuel economy levels will average 24.4 mpg in MY 2011. The increase in the estimate reflects a decrease in the size of the average light truck.1064 As discussed above with respect to the fina l passenger cars standards, we note that a manufacturer’s required fuel economy leve l for a model year under the final standards will be based on its actual production numbers in that model year.

F. How Do the Final Standards Fulfill NHTSA’s Statutory Obligations?

In developing the proposed MY 2012-16 st andards, the agency developed and considered a wide variety of alternatives. In response to comments received in the last round of rulemaking, in our March 2009 notice of intent to prepare an environmental impact statement, the agency selected a ra nge of candidate stringe ncies that increased annually, on average, 3% to 7%. 701 That same approach has been carried over to this final rule and to the accompanying FEIS and FRIA. Thus, the majority of the alternatives considered in this rulemaking are defined as average percentage in creases in stringency— 3 percent per year, 4 percent per year, 5 pe rcent per year, and so on. NHTSA believes that this approach clearly communicates the level of stringency of each alternative and allows us to identify alternatives that represent different ways to balance NHTSA’s statutory requirements under EPCA/EISA.

In the NPRM, we noted that each of the li sted alternatives re presents, in part, a different way in which NHTSA could conc eivably balance different policies and considerations in setting the st andards. We were mindful that the agency needs to weigh and balance many factors, such as technol ogical feasibility, economic practicability,

701 Notice of intent to prepare an EIS, 74 FR 14857, 14859-60, April 1, 2009.1065 including lead time considerations for the in troduction of technologies and impacts on the auto industry, the impacts of th e standards on fuel savings and CO 2 emissions, and fuel savings by consumers, as well as other relevant factors such as safety. For example, the 7% Alternative weighs energy conservation and climate change considerations more heavily and technological feasibility and economic practicability less heavily. In contrast, the 3% Alternative, the least stri ngent alternative, places more weight on technological feasibility and economic pr acticability. We recognized that the “feasibility” of the alternatives also may re flect differences and uncertainties in the way in which key economic (e.g., the price of fu el and the social cost of carbon) and technological inputs could be a ssessed and estimated or valued . We also recognized that some technologies (e.g., , PHEV s and EVs) will not be availa ble for more than limited commercial use through MY 2016, a nd that even those technol ogies that could be more widely commercialized through MY 2016 cannot all be deployed on every vehicle model in MY 2012 but require a realis tic schedule for more widespread commercialization to be within the realm of economically practicability.

In addition to the alternativ es that increase evenly at annual rates ranging from 3% to 7%, NHTSA also included alternatives developed using benefit-cost criteria. The agency emphasized benefit-cost-related al ternatives in its rulemakings for MY 2008-2011 and, subsequently, MY 2011 standards. By including such alternat ives in its current analysis, the agency is providing a degree of analytical continuity between the two approaches to defining alternatives in an effort to illustrate the similarities and dissimilarities. To that end, we included and analyzed two additional alternatives, one1066 that sets standards at the point where net be nefits are maximized (labeled “MNB” in the table below), and another that sets standards at the point at which total costs are most nearly equal to total benefits (labeled “TCTB” in the table below). 702 With respect to the first of those alternatives, we note that Executive Order 12866 focuses attention on an approach that maximizes net benefits. Furt her, since NHTSA has thus far set attributebased CAFE standards at the point at which net benefits are maximized, we believed it would be useful and informative to consider the potential impacts of that approach as compared to the new approach for MYs 2012-2016.

After working with EPA in thoroughly re viewing and in some cases reassessing the effectiveness and costs of technologies (m ost of which are already being incorporated in at least some vehicles ) , market forecasts and economic assumptions, NHTSA used the Volpe model extensively to assess the techno logies that the manufacturers could apply in order to comply with each of the alternatives. This allowed us to assess the variety, amount and cost of the technologies that coul d be used to enable the manufacturers to comply with each of the altern atives. NHTSA estimated how the application of these and other technologies could incr ease vehicle costs, reduce fu el consumption, and reduce CO 2 emissions.

702 The stringency indicated by each of these altern atives depends on the va lue of inputs to NHTSA’s analysis. Results presented here for these two alte rnatives are based on NHTSA’s reference case inputs, which underlie the central analysis of the proposed standards. In the accompanying FRIA, the agency presents the results of that analysis to explore the se nsitivity of results to changes in key economic inputs. Because of numerous ch anges in model inputs (e.g., disco unt rate, rebound effect, CO 2 value, technology cost estimates), our analysis often exhausts all availa ble technologies before r eaching the point at which total costs equal total benefits. In these cases, the stringency that exhausts all available technologies is considered.1067 The agency then assessed which alte rnative would represent a reasonable balancing of the statutory criteria, given th e difficulties confronti ng the industry and the economy, and other relevant goals and priori ties. Those priorities and goals include maximizing energy conservation and achieving a nationally harmonized and coordinated program for regulating fuel economy and GHG emissions.

Part of that assessment of alternatives entailed an evaluation of the stringencies necessary to achieve both Federal and State GHG emission reduction goals, especially those of California and the States that ha ve adopted its GHG emission standard for motor vehicles. Given that EPCA requires at tribute-based standards, NHTSA and EPA determined the level at which a national attribute-based GHG emissions standard would need to be set to achieve the same emissi on reductions in California as the California GHG program. This was done by evaluating a nationwide Clean Air Act standard for MY 2016 that would apply acros s the country and require the levels of emissions reduction which California standards would requ ire for the subset of vehicles sold in California under the California standards for MY 2009-2016 (known as “Pavley 1”). In essence, the stringency of the California Pavley 1 program was evaluated, but for a national standard. For a number of reasons discussed in Section III.D, an assessment was developed of national new vehicle fleet-wide CO 2 performance standards for model year 2016 which would result in the new light-dut y vehicle fleet in the State of California having CO 2 performance equal to the performa nce from the California Pavley 1 standards. That level, 250 g/mi, is equiva lent to 35.5 mpg if the GHG standard were met1068 exclusively by fuel economy improvements – a nd the overall result is the model year 2016 goals of the National Program.

However, the level of stringency for th e National Program goal of 250 g/mi CO 2 can be met with both fuel economy “tailp ipe” improvements as well as other GHGreduction related improvements, such as A/ C refrigerant leakage reductions. CAFE standards, as discussed elsewhere in this final rule, cannot be met by improvements that cannot be accounted for on the FTP/HFET tests. Thus, setting CAFE standards at 35.5 mpg would require more tail pipe technology (at more expe nse to manufacturers) than would be required under such a CAA standard. To obtain an equivale nt CAFE standard, we determined how much tailpipe technology would be necessary in order to meet an mpg level of 35.5 if manufactur ers also employed what EPA deemed to be an average amount of A/C “credits” (leakage and efficiency ) to reach the 250 g/mi equivalent. This results in a figure of 34.1 mpg as the appr opriate counterpart CA FE standard. This differential gives manufacturers the opportunity to reach 35.5 mpg equivalent under the CAA in ways that would significantly redu ce their costs. Were NHTSA instead to establish its standard at the same level, ma nufacturers would need to make substantially greater expenditures on fuel-saving tec hnologies to reach 35.5 mpg under EPCA.

Thus, as part of the process of consider ing all of the factors relevant under EPCA for setting standards, in a context where achieving a harmonized National Program is important, for the proposal we created a new alternative whose annual percentage increases would achieve 34.1 mpg by MY 2016. That alternative is one which increases1069 on average at 4.3% annually. This new altern ative, like the seven alternatives presented above, represents a unique balancing of the statutory factors and other relevant considerations. For the reader’s reference, th e estimated required levels of stringency for each alternative in each mode l year are presented below:

Table IV.F-1 Estimated Required Fuel Economy Level for Regulatory Alternatives. 703 Alt. 1 Alt. 2 Alt. 3 Alt. 4 Alt. 5 Alt. 6 Alt. 7 Alt. 8 Alt. 9

No Action 3%/year Increase 4%/year Increase ~4.3%/year Increase 5%/year Increase ~6.0%/year Increase

MNB 6%/year Increase 7%/year Increase ~6.6%/year Increase

TCTB 2012 Passenger Cars 30.5 31.7 32.1 33.3 32.4 33.0 32.7 33.0 33.4 Light Trucks 24.4 24.1 24.4 25.4 24.6 26.3 24.9 25.1 26.3 Combined 27.8 28.3 28.6 29.7 28.8 30.0 29.1 29.4 30.3 2013 Passenger Cars 30.5 32.6 33.3 34.2 33.9 36.1 34.5 35.2 36.7 Light Trucks 24.4 24.8 25.3 26.0 25.8 27.7 26.3 26.8 28.0 Combined 27.8 29.1 29.7 30.5 30.3 32.3 30.8 31.4 32.8 2014 Passenger Cars 30.5 33.5 34.5 34.9 35.5 38.1 36.5 37.6 39.2 Light Trucks 24.5 25.5 26.3 26.6 27.0 29.1 27.8 28.6 29.7 Combined 28.0 30.0 30.9 31.3 31.8 34.2 32.7 33.7 35.0 2015 Passenger Cars 30.5 34.4 35.8 36.2 37.1 39.4 38.6 40.1 40.7 Light Trucks 24.4 26.2 27.2 27.5 28.3 30.3 29.4 30.5 30.7 Combined 28.0 31.0 32.2 32.6 33.4 35.6 34.7 36.0 36.5 2016 Passenger Cars 30.5 35.4 37.2 37.8 39.0 40.9 40.9 42.9 42.3 Light Trucks 24.4 27.0 28.3 28.8 29.7 31.1 31.1 32.6 31.8 Combined 28.1 32.0 33.6 34.1 35.2 36.9 36.9 38.7 38.0

703 Also, the “MNB” and the “TCTB” alternatives depe nd on the inputs to the agencies’ analysis. The sensitivity analysis presented in the FRIA documents th e response of these alternatives to changes in key economic inputs. For example, the combined aver age required fuel economy under the “MNB” alternative is 36.9 mpg under the reference case economic inputs presented here, and ranges from 33.7 mpg to 37.2 mpg under the alternative economic inputs presented in the FRIA. See Table X-14 in the FRIA.1070 The following figure presents this same information but in a different way, comparing estimated average fuel economy levels required of manufacturers under the eight regulatory alternatives in MYs 2012, 2014, and 2016. Required levels for MY 2013 and MY 2015 fall between those for MYs 2012 and 2014 and MYs 2014 and 2016, respectively. Although required levels for these interim year s are not presented in the following figure to limit the complexity of the figure, they do appear in the accompanying FRIA.1071 Figure IV.F-1 Average Estimated Requi red Fuel Economy (MYs 2012, 2014, and 2016)

20 25 30 35 40 45

A v e r a g e R e q u i r e d F u e l E c o n o m y ( m p g )

PC, 2012 LT, 2012 Comb., 2012 PC, 2014 LT, 2014 Comb., 2014 PC, 2016 LT, 2016 Comb. 2016

3%/y 4%/y Final 5%/y 6%/y Max NB 7%/y TC=TB1072 As this figure illustrates, the final st andards involve a “fas ter start” toward increased stringency than do any of the alterna tives that increase steadily (i.e., the 3%/y, 4%/y, 5%/y, 6%/y, and 7%/y alternatives). However, by MY 2016, the stringency of the final standards reflects an average annual increase of 4.3%/y. The final standards, therefore, represent an alterna tive that could be referred to as “4.3% per year with a fast start” or a “front-loaded 4. 3% average annual increase.”

For each alternative, including today’s final standards, NHTSA has estimated all corresponding effects for each model year, including fuel savings, CO 2 reductions, and other effects, as well as the estimated so cietal benefits of these effects. The accompanying FRIA presents a detailed analysis of these results. Table IV.F-2 presents fuel savings, CO 2 reductions, and total industry cost outlays for model year 2012 – 2016 for the eight alternatives.

Table IV.F-2 Fuel Savings, CO 2 Reductions, and Technology Costs for Regulatory Alternatives Regulatory Alternative Fuel Savings (b. gal) CO 2 Reductions (mmt) Cost ($b) 3% per Year 34 373 23 4% per Year 50 539 39 Final (4.3% per Year) 61 655 52 5% per Year 68 709 63 6% per Year 82 840 90 Maximum Net Benefit 90 925 103 7% per Year 93 945 111 Total Cost = Total Benefit 96 986 1141073 As noted earlier, NHTSA has used the Volpe model to analyze each of these alternatives based on analyti cal inputs determined jointly with EPA. For a given regulatory alternative, the Volpe model es timates how each manufacturer could apply technology in response to the MY 2012 standard (separately for cars and trucks), carries technologies applied in MY 2012 forward to MY 2013, and then estimates how each manufacturer could apply technology in response to the MY 2013 standard. When analyzing MY 2013, the model considers the potential to add “ex tra” technology in MY 2012 in order to carry that te chnology into MY 2013, thereb y avoiding the use of more expensive technologies in MY 2013. The m odel continues in this fashion through MY 2016, and then performs calculations to estimate the costs, effects, and benefits of the applied technologies, and to estimate any civil penalties owed based on projected noncompliance. For each regulatory alternativ e, the model calculates incremental costs, effects, and benefits relative to the regulat ory baseline (i.e., the no-action alternative), under which the MY 2011 CAFE standards continue through MY 2016. The model calculates results for each model year, b ecause EPCA requires that NHTSA set its standards for each model year at the “maximum feasible average fuel economy level that the Secretary decides the manufacturers can ach ieve in that model year” considering four statutory factors. Pursuant to EPCA’s re quirement that NHTSA not consider statutory credits in establishing CAFE standards, NHT SA did not consider FFV credits, credits carried forward and backward, and tran sferred credits in this calculation 704, 705 In

704 NHTSA has conducted a separate analysis, discusse d above in Section I, which accounts for EPCA’s provisions regarding FFVs. 705 For a number of reasons, the re sults of this modeling differ from EPA’s for specific manufacturers, fleets, and model years. These reasons include represen ting every model year explicitly, accounting for estimates of when vehicle model redesigns will occur, and not considering those compliance flexibilities where EPCA forbids such consideration in setting CAFE st andards. It should be noted, however, that these flexibilities in fact provide manuf acturers significant latitude to manage their compliance obligations.1074 addition, the analysis incorporates fines for some manufacturers that have traditionally paid fines rather than comply with the st andards. Because it entails year-by-year examination of eight regulatory alternatives for, separately, passenger cars and light trucks, NHTSA’s analysis involves a large amoun t of information. Detailed results of this analysis are presented se parately in NHTSA’s FRIA.

In reviewing the results of the various alternatives, NHTSA confirmed that progressive increases in stri ngency require progressively greater deployment of fuelsaving technology and corresponding increases in technology outlays and related costs, fuel savings, and CO 2 emission reductions. To begin, NHTSA estimated total incremental outlays for additional technology in each model year. The following figure shows cumulative results for MYs 2012-2016 for industry as a whole and Chrysler, Ford, General Motors, Honda, Nissan, and Toyota. This figure focuses on these manufacturers as they currently (in MY 2010) represent three large U.S.-h eadquartered and three large foreign-headquartered full-line manufacturers.1075 Figure IV.F-2 Incremental Technology Outlays (MYs 2012-2016)

- 20 40 60 80 100 120

- 5 10 15 20 25 30

3%/y 4%/y Final 5%/y 6%/y Max. NB 7%/y TC=TB I n c r e m e n t a l T e c h n o l o g y O u t l a y s ( $ b )

Chrysler Ford General Motors Honda Nissan Toyota Industry1076 As part of the incremental technolog y outlays, NHTSA also analyzes which technologies manufacturers could apply to meet the standard s. In NHTSA’s analysis, manufacturers achieve compliance with the fu el economy levels thr ough application of technology rather than through changes in the mix of vehicles produced for sale in the U.S. The accompanying FRIA presents de tailed estimates of additional technology penetration into the NHTSA reference fleet asso ciated with each regulatory alternative. The following four charts illustrate the results of this analysis, considering the application of four technologies by six manufacturers and by the industry as a whole. Technologies include gasoline direct injection (GDI), e ngine turbocharging a nd downsizing, diesel engines, and strong HEV systems (including CI SG systems). GDI and turbocharging are presented because they are among the technol ogies that play an important role in achieving the fuel economy improvements show n in NHTSA’s analysis, and diesels and strong HEVs are presented because they repres ent technologies involving significant cost and related lead time challenges for widesp read use through MY 2016. These figures focus on Chrysler, Ford, General Motors, Honda , Nissan, and Toyota, as above. For each alternative, the figures show additio nal application of technology by MY 2016. 706

706 The FRIA presents results for all model years, technologies, and manufacturers, and NHTSA has considered these broader results when considering the eight regulatory alternatives.1077 Figure IV.F-3 Additional A pplication of GDI (MY 2016)

0% 20% 40% 60% 80% 100%

3%/y 4%/y Final 5%/y 6%/y Max. NB 7%/y TC=TB A d d i t i o n a l A p p l i c a t i o n ( % P r o d u c t i o n )

Chrysler Ford General Motors Honda Nissan Toyota Industry1078 Figure IV.F-4 Additional Application of Engine Tu rbocharging & Downsizing (MY 2016)

0% 20% 40% 60% 80% 100%

3%/y 4%/y Final 5%/y 6%/y Max. NB 7%/y TC=TB A d d i t i o n a l A p p l i c a t i o n ( % P r o d u c t i o n )

Chrysler Ford General Motors Honda Nissan Toyota Industry1079 Figure IV.F-5 Additional Applica tion of Diesel Engines (MY 2016)

0% 20% 40% 60% 80% 100%

3%/y 4%/y Final 5%/y 6%/y Max. NB 7%/y TC=TB A d d i t i o n a l A p p l i c a t i o n ( % P r o d u c t i o n )

Chrysler Ford General Motors Honda Nissan Toyota Industry1080 Figure IV.F-6 Additional Application of CISG and Strong HEV Systems (MY 2016)

0% 20% 40% 60% 80% 100%

3%/y 4%/y Final 5%/y 6%/y Max. NB 7%/y TC=TB A d d i t i o n a l A p p l i c a t i o n ( % P r o d u c t i o n )

Chrysler Ford General Motors Honda Nissan Toyota Industry1081 The modeling analysis demonstrates that applying these tech nologies, of course, results in fuel savings. Re levant to EPCA’s requirement that NHTSA consider, among other factors, economic practicability and the need of the nation to conserve energy, the following figure compares the incremental t echnology outlays and related cost presented above for the industry to the corr esponding cumulative fuel savings.1082 Figure IV.F-7 Incremental Technology Ou tlays and Fuel Savings (MYs 2012-2016)

- 20 40 60 80 100 120

- 20 40 60 80 100 120

3%/y 4%/y Final 5%/y 6%/y Max. NB 7%/y TC=TB F u e l S a v i n g s ( b . g a l . )

T e c h n o l o g y O u t l a y s ( $ b )

Cost Fuel Savings1083 These incremental technology outlays (and corresponding fuel savings) also result in corresponding increases in incremental co st per vehicle, as shown below. The following five figures show industry-wide average incremental (i.e., relative to the reference fleet) per-vehicle costs, for each m odel year, each fleet, and the combined fleet. Estimates specific to each manufactur er are shown in NHTSA’s FRIA.1084 Figure IV.F-8 Average Incremen tal Per-Vehicle Costs (MY 2012)1085 Figure IV.F-9 Average Incremen tal Per-Vehicle Costs (MY 2013)1086 Figure IV.F-10 Average Incremen tal Per-Vehicle Costs (MY 2014)1087 Figure IV.F-11 Average Incremen tal Per-Vehicle Costs (MY 2015)1088 Figure IV.F-12 Average Incremen tal Per-Vehicle Costs (MY 2016)1089 As discussed in the NPRM, the agency began the process of winnowing the alternatives by determining wh ether any of the lower stringe ncy alternatives should be eliminated from consideration. To begin with, the agency needs to ensure that its standards are high enough to enable the combin ed fleet of passenger cars and light trucks to achieve at least 35 mpg not later than MY 2020, as requi red by EISA. Achieving that level makes it necessary for the chosen alterna tive to increase at over 3 percent annually. Additionally, given that CO 2 and fuel savings are very cl osely correlated, the 3%/y and 4%/y alternative would not produce th e reductions in fuel savings and CO 2 emissions that the Nation needs at this time. Picking either of those alternatives would unnecessarily result in foregoing substantial benefits, in terms of fuel savings and reduced CO 2 emissions, which would be achievable at reason able cost. And finally, neither the 3%/y nor the 4%/y alternatives would lead to th e regulatory harmonizati on that forms a vital core principle of the National Program th at EPA and NHTSA are jointly striving to implement. These alternatives would give in adequate weight to ot her standards of the Government, specifically EPA’s and CARB’s . Thus, the agency concluded that alternatives less stringent than the proposed standards would not yield the emissions reductions required to produce a harmonized national program and would not produce corresponding fuel savings, and therefore would not place adequate emphasis on the nation’s need to conserve energy. NHTSA has therefore concluded that it must reject the 3%/y and 4%/y alternatives.1090 NHTSA then considered the “environmenta lly-preferable” alternative. Based on the information provided in the FEIS, the e nvironmentally-preferable alternative would be that involving stringencies that increase at 7% annually. 707 NHTSA notes that NEPA does not require that agencies choose the e nvironmentally-preferabl e alternative if doing so would be contrary to th e choice that the agency w ould otherwise make under its governing statute. Given the levels of technology and co st required by the environmentally-preferable alternative and the la ck of lead time to achieve such levels between now and MY 2016, as discussed fu rther below, NHTSA concludes that the environmentally-preferable alternative w ould not be economically practicable or technologically feasible , and thus concludes that it woul d result in standards that would be beyond the level achievable for MYs 2012-2016.

For the other alternatives, NHTSA determined that it would be inappropriate to choose any of the other more stringent altern atives due to concerns over lead time and economic practicability. There are re al-world technological and economic time constraints which must be considered due to the short lead time available for the early years of this program, in particular for MYs 2012 and 2013. The alternatives more stringent than the final standards begin to accrue costs considerably more rapidly than they accrue fuel savings and emissions reducti ons, and at levels that are increasingly economically burdensome, especially cons idering the need to make underlying investments (e.g., for engineering and tooling) well in advance of actual production. As shown in Figures IV-2 to IV-6 above, while the final standards already require aggressive

707 See, e.g., FEIS, figure S-12, p. 18, which shows th at 7%/y alternative yields greatest cumulative effect on global mean temperature.1091 application of technologies, more stringent standards would require more widespread use (including more substantia l implementation of advanced technologies such as stoichiometric gasoline direct injection engines, diesel en gines, and strong hybrids), and would raise serious issues of ad equacy of lead time, not only to meet the standards but to coordinate such significant changes with manufacturers’ redesign cycles. The agency maintains, as it has historically, that th ere is an important distinction between considerations of technologica l feasibility and economic pr acticability, both of which enter into the agency’s determination of the maximum feasible levels of stringency. A given level of performance may be technologi cally feasible (i.e., setting aside economic constraints) for a given vehicle model. However, it would not be economically practicable to require a level of fleet averag e performance that assumes every vehicle will immediately (i.e., within 18 months of the ru le’s promulgation) perform at its highest technologically feasible level, because ma nufacturers do not have unlimited access to the financial resources or the time required to hire enough engineers, build enough facilities, and install enough tooling. Th e lead time reasonably needed to make capital investments and to devote the resources and time to de sign and prepare for commercial production of a more fuel efficient vehicle is an im portant element that NHTSA takes into consideration in establis hing the standards.

In addition, the figures presented above reveal that increasing stringency beyond the final standards would entail significant additional application of technology. Among the more stringent alternatives, the one closest in stringency to the standards being finalized today is the alternat ive under which combined CAFE stringency increases at 5%1092 annually. As indicated above, this alte rnative would yield fuel savings and CO 2 reductions about 11% and 8% higher, respectivel y, than the final standards. However, compared to the final standards, this a lternative would increase outlays for new technologies during MY 2012- 2016 by about 22%, or $12b. Average MY 2016 cost increases would, in turn, rise from $ 903 under the final standards to $1,152 when stringency increases at 5% a nnually. This represents a 28% increase in per-vehicle cost for only a 3% increase in average performance (on a gallon-per-mile basis to which fuel savings are proportional). Additionally, the 5%/y alternative disproportionally burdens the light truck fleet requiring a nearly $400 (42 percent) cost increase in MY 2016 compared to the final standards. The following three tables summarize estimated manufacturer-level average incremental costs for the 5%/y alternative and the average of the passenger and light truck fleets:

Table IV.F-3 Average Incremental Costs ($ /vehicle) under the 5%/y Alternative CAFE Standards for Passenger Cars Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 BMW 3 4 24 184 585 Chrysler 734 1,303 1,462 1,653 1,727 Daimler - - 410 801 1,109 Ford 743 1,245 1,261 1,583 1,923 General Motors 448 823 1,187 1,425 1,594 Honda 50 109 271 375 606 Hyundai 747 877 1,057 1,052 1,124 Kia 49 128 197 261 369 Mazda 555 718 1,166 1,407 1,427 Mitsubishi 534 507 2,534 3,213 3,141 Nissan 294 491 965 1,064 1,125 Porsche 68 (52) (51) (50) (49) Subaru 292 324 1,372 1,723 1,679 Suzuki - 959 1,267 1,316 1,540 Tata 111 93 183 306 710 Toyota 31 29 52 129 212 Volkswagen 145 428 477 492 783 Average 337 540 726 886 1,0531093 Table IV.F-4 Average Incremental Costs ($ /vehicle) under the 5%/y Alternative CAFE Standards for Light Trucks Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 BMW 169 160 201 453 868 Chrysler 360 559 1,120 1,216 1,432 Daimler 60 55 51 52 51 Ford 1,207 1,663 1,882 2,258 2,225 General Motors 292 628 866 968 1,136 Honda 258 234 611 750 1,047 Hyundai 711 685 1,923 1,909 1,862 Kia 47 293 556 782 1,157 Mazda 248 408 419 519 768 Mitsubishi - - 1,037 1,189 1,556 Nissan 613 723 2,142 2,148 2,315 Porsche - (0) (1) 469 469 Subaru 1,225 1,220 1,365 1,374 1,330 Suzuki - 1,998 1,895 1,837 2,096 Tata - - - - 503 Toyota 63 187 594 734 991 Volkswagen - - 514 458 441 Average 415 628 1,026 1,173 1,343

Table IV.F-5 Average Incremental Costs ($ /vehicle) under the 5%/y Alternative CAFE Standards for Passenger Cars and Light Trucks Combined Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 BMW 72 64 84 265 666 Chrysler 499 870 1,272 1,414 1,569 Daimler 20 20 281 554 773 Ford 914 1,407 1,498 1,838 2,034 General Motors 371 726 1,033 1,205 1,379 Honda 135 157 396 518 769 Hyundai 742 838 1,237 1,186 1,235 Kia 49 168 273 355 506 Mazda 500 667 1,053 1,272 1,330 Mitsubishi 371 352 1,973 2,386 2,506 Nissan 399 565 1,344 1,387 1,467 Porsche 52 (39) (35) 130 124 Subaru 617 628 1,369 1,597 1,553 Suzuki - 1,134 1,381 1,404 1,630 Tata 61 56 101 182 629 Toyota 43 82 239 333 466 Volkswagen 117 333 486 486 723 Average 367 573 836 987 1,1521094 These cost increases derive from increas ed application of ad vanced technologies as stringency increases past the levels in the final standards. For example, under the final standards, additional diesel application ra tes average 1.6% for the industry and range from 0% to 3% among Chrysler, Ford, GM, H onda, Nissan, and Toyota. Under standards increasing in combined stringency at 5% annua lly, these rates more than triple, averaging 6.2% for the industry and ranging from 0% to 21% for the same six manufacturers.

These technology and cost increases are significant, given the amount of leadtime between now and model years 2012-2016. In order to achieve the levels of technology penetration for the final standards, the industry needs to invest significant capital and product development resources ri ght away, in partic ular for the 2012 and 2013 model year, which is only 2-3 years fr om now. For the 2014-2016 time frame, significant product development and capital inve stments will need to occur over the next 2-3 year in order to be ready for launchi ng these new products for those model years. Thus a major part of the required capital and resource investment will need to occur now and over the next few years, under the final standards. NHTSA believes that the final rule requires significant investment and pr oduct development costs for the industry, focused on the next few years.

It is important to note, and as discussed later in this preamble, as well as in the Joint Technical Support Document and the ag ency’s Regulatory Impact Analysis, the average model year 2016 per-vehicle cost increase of more than $900 includes an estimate of both the increase in capital i nvestments by the auto companies and the1095 suppliers as well as the incr ease in product development costs. These costs can be significant, especially as they must occur ove r the next 2-3 years. Both the domestic and transplant auto firms, as we ll as the domestic and world- wide automotive supplier base, are experiencing one of the most difficult market s in the U.S. and internationally that has been seen in the past 30 years. One ma jor impact of the global downturn in the automotive industry and certainly in the U. S. is the significant reduction in product development engineers and staffs, as well as a tightening of the credit markets which allow auto firms and suppliers to make the near-term capital investments necessary to bring new technology into production.

The agency concludes that the levels of technology penetration required by the final standards are reasonable. Increasing the standards beyond those levels would lead to rapidly increasing dependence on adva nced technologies with higher costs— technology that, though perhaps technologically feasible for indivi dual vehicle models, would, at the scales involved, pose too great an economic burden given the state of the industry, particularly in the early years of the rulemaking time frame. 708

Therefore, the agency concluded that thes e more stringent alte rnatives would give insufficient weight to economic practicability and related lead tim e concerns, given the current state of the industry and the rate of incr ease in stringency that would be required.

708 Although the final standards are projected to be slightly more costly than the 5% alternative in MY 2012, that alternative standard becomes progressively more costly than the final standards in the remaining model years. See Figures IV.F.8 through IV.F.10 above. Moreover, as discussed above, after MY 2012, the 5% alternative standard yields less incremental fuel economy benefits at increased cost (both industrywide and per vehicle), directionally the less desirable re sult. These increased costs incurred to increase fuel economy through MY 2016 would impose significantly in creased economic burden on the manufacturers in the next few calendar years to prepar e for these future model years. In weighing the statutory factors, NHTSA accordingly rejected this altern ative in favor of the final standard.1096 Overall, the agency concluded that among the alternatives considered by the agency, the proposed alternative contained the maximu m feasible CAFE standards for MYs 2012- 2016 as they were the most appropriate ba lance of the various statutory factors.

Some commenters argued th at the agency should se lect a more stringent alternative than that proposed in the NPRM . The Union of Concer ned Scientists (UCS) commented that NHTSA should set standard s to produce the “maximum environmental benefit” available at “reasonable” cost, and at least at the stringency maximizing net benefits. Students from the University of Ca lifornia at Santa Barbara commented that the agency should have based standards not just on technologies known to be available, but also on technologies that may be available in the future—and should do so in order to force manufacturers to “reach” to greater levels of performance. Also, the Center for Biological Diversity (CBD) co mmented that, having conducte d an unbiased cost-benefit analysis showing benefits three times the magn itude of costs for the proposed alternative, the agency should select a more stringent alternative. CBD also argued that the agency should have evaluated the extent to whic h manufacturers could deploy technology more rapidly than suggested by a five-year redesign cycle.

Conversely, other commenters argued that NHTSA should select a less stringent alternative, either in all mode l years or at least in the earl ier model years. Chrysler, VW, and the Alliance of Automobile Manufactur ers commented that the stringency of NHTSA’s CAFE standards should be further reduced relative to that of EPA’s GHG emissions standards, so that manufacturers would not be required by CAFE to add any1097 tailpipe technology beyond what they thought would be necessary to meet an mpg level of 35.5 minus the maximum possible A/C cred its that could be obtained under the EPA program. Also, Chrysler, Daimler, Toyota, Volkswagen, and the Alliance argued that the agency should reduce the rate of increase in stringency to produce steadier and more “linear” increases between MY 2011 and MY 2016. In addition, the Heritage Foundation commented that the proposed standards w ould, in effect, force accelerated progress toward EISA’s “35 mpg by 2020” require ment, causing financially-stressed manufacturers to incur undue costs th at would passed along to consumers.

However, most commenters supported th e agency’s selection of the proposed standards. The American Chemical So ciety, the New York Department of Environmental Conservation, the Washington State Department of Ecology, and several individuals all expressed ge neral support for the levels of stringency proposed by NHTSA as part of the joint proposal. Genera l Motors and Nissan bot h indicated that the proposed standards are consistent with th e National Program announced by the President and supported in letters of comm itment signed by these comp anies’ executives. Finally, the California Air Resources Board (CARB) strongly supported the stringency of the proposed standards, as well as the agencies ’ underlying technical an alysis and weighing of statutory factors. CARB fu rther commented that the stringency increases in the earlier model years are essential to pr oviding environmental benefits at least as great as would be achieved through state-level enforcem ent of CARB’s GHG emissions standards. 709

709 Generally speaking, the cumulative benefits (in terms of fuel savings and GHG reductions) of frontloaded standards will be greater than standards that increase linearly.1098 The agency has considered these comment s and all others, and having considered those comments, believes the final standards be st balance all relevant factors that the agency considers when determining maximum feasible CAFE standards. As discussed below, having updated inputs to its analysis and correspondingly updated its definition and analysis of these regulatory alternativ es, the agency continues to conclude that manufacturers can respond to the proposed standards with technol ogies that will be available at reasonable cost. The agency finds that alternatives less stringent that the one adopted today would leave too much tec hnology “on the shelf” unnecessarily, thereby failing to deliver the fuel savi ngs that the nation needs or to yield environmental benefits necessary to support a harmonized national program. In response to some manufacturers’ suggestion that NHTSA’s CAFE standards shoul d be made even less stringent compared to EPA’s GHG emissions standards, NHTSA no tes that the differen ce, consistent with the underlying Notice of Intent, is base d on the agencies’ estimate of the average amount of air conditioning credit earned, not the ma ximum theoretically available, and that NHTSA’s analysis indicates that most manuf acturers can achieve the CAFE standards by MY 2016 using tailpipe technologies. This is full y consistent with the agency’s historical position. As NHTSA explained in the NP RM, the Conference Report for EPCA, as enacted in 1975, makes clear, and applicable law affirms, “a determination of maximum feasible average fuel economy should not be keyed to the single manufacturer which might have the most difficulty achieving a gi ven level of average fuel economy.” CEI-I , 793 F.2d 1322, 1352 (D.C. Cir. 1986). Instead , NHTSA is compelled “to weigh the benefits to the nation of a higher fuel ec onomy standard against the difficulties of individual automobile manufacturers.” Id . Thus, the law permits CAFE standards1099 exceeding the projected capability of any part icular manufacturer as long as the standard is economically practicable fo r the industry as a whole.

While some manufacturers ma y find greater A/C improveme nts to be a more costeffective way of meeting the GHG standards, that does not mean those manufacturers will be unable to meet the CAFE standards with tailpipe technologies. NHTSA’s analysis has demonstrated a feasible path to compliance with the CAFE standards for most manufacturers using thos e technologies. “Economic prac ticability” means just that, practicability, and need not al ways mean what is “cheapest” or “most cost-effective” for a specific manufacturer. Moreover, ma ny of the A/C improvements on which manufacturers intend to rely for meeting the GHG standards will reduce GHG emissions, specifically HFC emissions, but they will not lead to greater fuel savings. 710 The core purpose of the CAFE standards under EPCA is to reduce fuel consumption. NHTSA believes that less stringent standards would allow tailpipe fuel economy technologies to be left on the table that can be feasibly a nd economically applied, and failing to apply them would lead to a loss in fuel savings. This would not place appropriate emphasis on the core CAFE purpose of conserving fuel. For this reason, we decline to reduce the stringency of our standards as requested by some manufacturers. Similarly, we decline to pursue with EPA in this rulemaking the sugge stion by one commenter that that agency’s calculation authority under EPCA be used to provide A/C credits.

710 This is not to say that NHTSA means, in a ny way, to deter manufacturers from employing A/C technologies to meet EPA’s standards, but simply to say that NHTSA’s independent obligation to set maximum feasible CAFE standards to be met through application of tailpipe technologies alone must be fulfilled, while recognizing the flexibilities offered in another regulatory program.1100 With respect to some manufacturers’ concerns regarding the increase in stringency through MY 2013, the agency notes that stringency increases in these model years are especially important in terms of the accumulation of fuel savings and emission reductions over time. In addition, a weaken ing would risk failing to produce emission reductions at least as great as might be achieved through CARB’s GHG standards. Therefore, the agency believes that alternativ es less stringent than the one adopted today would not give sufficient emphasis to the nation’s need to conserve energy. The requirement to set standards that increas e ratably between MYs 2011 and 2020 must also be considered in the context of what levels of standards would be maximum feasible. The agency believes that the rate of incr ease of the final standards is reasonable.

On the other hand, the agency disagrees with comments by UCS, CBD, and others indicating that more stringent standards w ould be appropriate. As discussed above, alternatives more stringent than the one a dopted today would entail a rapidly increasing dependence on the most expensive technologies and those which are technically more demanding to implement, with commensurately ra pid increases in costs. In the agency’s considered judgment, these al ternatives are not economica lly practicable, nor do they provide correspondingly sufficient lead time. The agency also disagrees with CBD’s assertion that NHTSA and EPA have been overly conservative in assuming an average redesign cycle of 5 years. There are some manufacturers who apply longer cycles (such as smaller manufacturers described above), ther e are others who have shorter cycles for some of their products, and there are some products (e.g., cargo vans) that tend to be redesigned on longer cycles. NHTSA believe s that there are no fu ll line manufacturers1101 who can maintain significant redesigns of vehicl es (with relative large sales) in 1 or 2 years, and CBD has provided no evidence indicating this would be practicable. A complete redesign of the entire U.S. li ght-duty fleet by model year 2012 is clearly infeasible, and NHTSA and EPA believe that several model years additional lead time is necessary in order for the manufacturers to meet the most stringent standards. The graduated increase in the stringency of the standards from MYs 2012 through 2016 accounts for the economic necessity of timing the application of ma ny major technologies to coincide with scheduled model redesigns.

In contrast, through analysis of the illustr ative results shown above, as well as the more complete and detailed results pres ented in the accompanying FRIA, NHTSA has concluded that the final st andards are technologically feasible and economically practicable. The final standards will requi re manufacturers to apply considerable additional technology, starting with very si gnificant investment in technology design, development and capital investment called fo r in the next few years. Although NHTSA cannot predict how manufacturers will respond to the final standards, the agency’s analysis indicates that the standards could le ad to significantly greater use of advanced engine and transmission technologies. As shown above, the agency’s analysis shows considerable increases in the application of SGDI systems and engine turbocharging and downsizing. Though not presented above, the agency’s analysis also shows similarly large increases in the use of dual-clutch automated manual transmissions (AMTs). However, the agency’s analysis does not sugge st that the additional application of these technologies in response to the final sta ndards would extend beyond levels achievable by1102 the industry. These technologies are likely to be applied to at least some extent even in the absence of new CAFE standa rds. In addition, the agency’s analysis indicates that most manufacturers would rely only to a limite d extent on the most costly technologies, such as diesel engines and advanced technologies, such as strong HEVs.

As shown below, NHTSA estimates that th e final standards could lead to average incremental costs ranging from $303 per vehicl e (for light trucks in MY 2012) to $947 per vehicle (for light trucks in MY 2016), increasing steadily from $396 per vehicle for all light vehicles in MY 2012 to $903 for all light vehicle in MY 2016. NHTSA estimates that these costs would vary c onsiderably among manufacturers, but would rarely exceed $1,800 per vehicle. The fo llowing three tables summarize estimated manufacturer-level average incremental costs for the final standards and the average of the passenger and light truck fleets:

Table IV.F-6 Average Incremental Costs ($/vehicle) under Final Passenger Car CAFE Standards Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 BMW 3 4 24 184 585 Chrysler 734 1,043 1,129 1,270 1,358 Daimler - - 410 801 1,109 Ford 1,619 1,537 1,533 1,713 1,884 General Motors 448 896 1,127 1,302 1,323 Honda 33 98 205 273 456 Hyundai 559 591 768 744 838 Kia 110 144 177 235 277 Mazda 555 656 799 854 923 Mitsubishi 534 460 1,588 1,875 1,831 Nissan 119 323 707 723 832 Porsche 68 (52) (51) (50) (49) Subaru 292 324 988 1,385 1,361 Suzuki - 625 779 794 1,005 Tata 111 93 183 306 710 Toyota 31 29 41 121 126 Volkswagen 145 428 477 492 783 Average 455 552 670 774 8801103 Table IV.F-7 Average Incremental Costs ($/vehicle) under Fina l Light Truck CAFE Standards Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 BMW 252 239 277 281 701 Chrysler 360 527 876 931 1,170 Daimler 60 51 51 52 51 Ford 465 633 673 1,074 1,174 General Motors 292 513 749 807 986 Honda 233 217 370 457 806 Hyundai 693 630 1,148 1,136 1,113 Kia 400 467 582 780 1,137 Mazda 144 241 250 354 480 Mitsubishi - - 553 686 1,371 Nissan 398 489 970 1,026 1,362 Porsche - (1) (1) 469 469 Subaru 1,036 995 1,016 1,060 1,049 Suzuki - 1,797 1,744 1,689 1,732 Tata - - - - 503 Toyota 130 150 384 499 713 Volkswagen - - 514 458 441 Average 303 411 615 741 947

Table IV.F-8 Average Incremental Cost s ($/vehicle) under Final CAFE Standards Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 BMW 106 94 110 213 618 Chrysler 499 743 989 1,084 1,257 Daimler 20 18 281 554 773 Ford 1,195 1,187 1,205 1,472 1,622 General Motors 371 705 946 1,064 1,165 Honda 116 144 266 343 585 Hyundai 577 599 847 805 879 Kia 176 221 263 334 426 Mazda 482 587 716 778 858 Mitsubishi 371 319 1,200 1,389 1,647 Nissan 211 376 792 813 984 Porsche 52 (39) (35) 130 124 Subaru 551 552 998 1,267 1,248 Suzuki - 823 954 946 1,123 Tata 61 56 101 182 629 Toyota 67 70 159 248 317 Volkswagen 117 333 486 486 723 Average 396 498 650 762 9031104 In summary, NHTSA has considered eight regulatory alternat ives, including the final standards, examining technologies th at could be applied in response to each alternative, as well as corre sponding costs, effects, and benefits. The agency has concluded that alternatives less stringent th an the final standard s would not produce the fuel savings and CO 2 reductions necessary at this time to achieve either the overarching purpose of EPCA, i.e., energy conservation, or an important part of the regulatory harmonization underpinning the National Program, and would forego these benefits even though there is adequate lead time to impl ement reasonable and feasible technology for the vehicles. Conversely, the agency has c oncluded that more stri ngent standards would involve levels of addition al technology and cost th at would be economically impracticable and, correspondingl y, would provide inadequate lead time, considering the economic state of the automotive industry, would not be economically practicable.Therefore, having considered these eight regulatory alternatives, and the statutorilyrelevant factors of technological feasibility, economic practicability, the effect of other motor vehicle standards of the Government on fuel economy, and the need of the United States to conserve energy, along with other relevant factors su ch as the safety impacts of the final standards, 711 NHTSA concludes that the final standards represent a reasonable balancing of all of these c oncerns, and are the maximum f easible average fuel economy levels that the manufacturer s can achieve in MYs 2012-2016.

711 See Section IV.G.7 below.1105 G. Impacts of the Final CAFE Standards

1. How Will These Standards Improve Fuel Economy and Reduce GHG Emissions for MY 2012-2016 Vehicles?

As discussed above, the CAFE level requi red under an attribute-based standard depends on the mix of vehicles produced for sale in the U.S. Based on the market forecast that NHTSA and EPA have used to develop and analyze new CAFE and CO 2 emissions standards, NHTSA estimates that the new CAFE standards will require CAFE levels to increase by an average of 4.3 percent annually through MY 2016, reaching a combined average fuel economy requirement of 34.1 mpg in that model year:

Table IV.G.1-1 Estimated Average Required Fuel Economy (mpg) under Final Standards Model Year 2012 2013 2014 2015 2016 Passenger Cars 33.3 34.2 34.9 36.2 37.8 Light Trucks 25.4 26.0 26.6 27.5 28.8 Combined 29.7 30.5 31.3 32.6 34.1

NHTSA estimates that average achieved fuel economy levels will correspondingly increase through MY 2016, but that manufacturers will, on average, undercomply 712 in some model years and overcomply 713 in others, reaching a combined average fuel economy of 33.7 mpg in MY 2016: 714

712 In NHTSA’s analysis, “und ercompliance” is mitigated either through use of FF V credits, use of existing or “banked” credits, or through fine payment. Because NHTSA cannot consider availability of credits in1106 Table IV.G.1-2 Estimated Average Achieved Fuel Economy (mpg) under Final Standards Model Year 2012 2013 2014 2015 2016 Passenger Cars 32.8 34.4 35.3 36.3 37.2 Light Trucks 25.1 26.0 27.0 27.6 28.5 Combined 29.3 30.6 31.7 32.6 33.7

NHTSA estimates that these fuel economy increases will lead to fuel savings totaling 61 billion gallons duri ng the useful lives of vehicl es manufactured in MYs 2012-
2016:

Table IV.G.1-3 Fuel Saved (bi llion gallons) under Final Standards Model Year 2012 2013 2014 2015 2016 Total Passenger Cars 2.4 5.2 7.2 9.4 11.4 35.7 Light Trucks 1.8 3.7 5.3 6.5 8.1 25.4 Combined 4.2 8.9 12.5 16.0 19.5 61.0

The agency also estimates that th ese new CAFE standards will lead to corresponding reductions of CO 2 emissions totaling 655 million metric tons (mmt) during the useful lives of vehicles sold in MYs 2012-2016:

setting standards, the estimated achieved CAFE levels presented here do not account for their use. In contrast, because NHTSA is not prohibited from considering fine payment, the estimated achieved CAFE levels presented here include the assumption that BMW, Daimler (i.e., Mercedes), Porsche, and, Tata (i.e., Jaguar and Rover) will only apply technology up to the point that it would be less expensive to pay civil penalties. 713 In NHTSA’s analysis, “overcompliance” occurs through multi-year planni ng: manufacturers apply some “extra” technology in early m odel years (e.g., MY 2014) in order to carry that technology forward and thereby facilitate compliance in later model years (e.g., MY 2016) 714 Consistent with EPCA, NHTSA has not accounted fo r manufacturers’ ability to earn CAFE credits for selling FFVs, carry credits forward and back betwee n model years, and transfer credits between the passenger car and light truck fleets.1107 Table IV.G.1-4 Carbon Dioxide Emissions (mmt) Avoided under Final Standards Model Year 2012 2013 2014 2015 2016 Total Passenger Cars 25 54 77 101 123 380 Light Trucks 19 40 57 71 88 275 Combined 44 94 134 172 210 655

2. How Will These Standards Improve Fleet-wide Fuel Economy and Reduce GHG Emissions Beyond MY 2016?

Under the assumption that CAFE standard s at least as stringent as those being finalized today for MY 2016 would be establishe d for subsequent model years, the effects of the final standards on fuel consumption and GHG emissions will continue to increase for many years. This will occur because over time, a growing fraction of the U.S. lightduty vehicle fleet will be comprised of car s and light trucks that meet the MY 2016 standard. The impact of the new standards on fuel use and GHG emissions will continue to grow through approximately 2050, when virtua lly all cars and light trucks in service will have met standards as stringent as those established for MY 2016.

As Table IV.G.2-1 shows, NHTSA estimat es that the fuel economy increases resulting from the final standards will lead to reductions in total fuel consumption by cars and light trucks of 10 billion gallons dur ing 2020, increasing to 32 billion gallons by 2050. Over the period from 2012, when the fina l standards would begin to take effect, through 2050, cumulative fuel savings would to tal 729 billion gallons, as Table IV.G.2-1 also indicates.1108 Table IV.G.2-1 Reduction in Fleet-Wide Fuel Use (billion gallons) under Final Standards Calendar Year 2020 2030 2040 2050 Total, 2012- 2050 Passenger Cars 6 13 17 21 469 Light Trucks 4 7 9 11 260 Combined 10 20 26 32 729

The energy security analysis conducted for this rule estimates that the world price of oil will fall modestly in response to lowe r U.S. demand for refined fuel. One potential result of this decline in the world price of oil would be an increase in the consumption of petroleum products outside the U.S., which woul d in turn lead to a modest increase in emissions of greenhouse gases, criteria air po llutants, and airborne toxics from their refining and use. While additional informati on would be needed to analyze this “leakage effect” in detail, NHTSA provides a sample estimate of its potential magnitude in its Final EIS. 715 This analysis indicates that the leak age effect is likely to offset only a modest fraction of the reductions in emi ssions projected to result from the rule.

As a consequence of these reductions in fleet-wide fuel consumption, the agency also estimates that the new CAFE standards for MYs 2012-2016 will lead to corresponding reductions in CO 2 emissions from the U.S. light-duty vehicle fleet. Specifically, NHTSA estimates that total annual CO 2 emissions associated with passenger car and light truck use in the U.S. use will decline by 116 million metric tons (mmt) in 2020 as a consequence of the new st andards, as Table IV.G.2-2 reports. The table also shows that the this annual reducti on is estimated to grow to nearly 400 million

715 NHTSA Final Environmental Im pact Statement: Corporate Aver age Fuel Economy Standards, Passenger Cars and Light Trucks, Model Years 2012-2016, February 2010, page 3-14..1109 metric tons by the year 2050, and will total ne arly 9 billion metric tons over the period from 2012, when the final standards would take effect, through 2050.

Table IV.G.2-2. Reduction in Fleet-Wide Carbon Dioxide Emissions (mmt) From Passenger Car and Light Tr uck Use under Final Standards Calendar Year 2020 2030 2040 2050 Total, 2012- 2050 Passenger Cars 69 153 205 255 5,607 Light Trucks 49 89 112 136 3,208 Combined 117 242 316 391 8,815

These reductions in fleet-wide CO 2 emissions, together with corresponding reductions in other GHG emissions from fuel production and use, would lead to small but significant reductions in projected changes in the future global climate. These changes, based on analysis documented in the final Environmental Impact Statement (EIS) that informed the agency’s decisions regarding th is rule, are summarized in Table IV.G.2-3 below.

Table IV.G.2-3 Effects of Reductions in Fleet-Wide Carbon Dioxide Emissions (mmt) on Projected Changes in Global Climate Projected Change in Measure Measure Units Date No Action With Proposed Standards Difference Atmospheric CO 2 Concentration ppm 2100 783.0 780.3 -2.7 Increase in Global Mean Surface Temperature o C 2100 3.136 3.125 -0.011 Sea Level Rise cm 2100 38.00 37.91 -0.09 Global Mean Precipitation % change from 1980-

1999 avg. 2090 4.59% 4.57% -0.02%1110 3. How Will These Final Standards Impact Non-GHG emissions and Their Associated Effects?

Under the assumption that CAFE standards at least as stringent as those proposed for MY 2016 would be established for subseque nt model years, the effects of the new standards on air quality and its associated he alth effects will continue to be felt over the foreseeable future. This will occur because over time a growing fraction of the U.S. light-duty vehicle fleet will be comprised of cars and light trucks that meet the MY 2016 standard, and this growth will continue until approximately 2050.

Increases in the fuel economy of light -duty vehicles required by the new CAFE standards will cause a slight increase in the number of mile s they are driven, through the fuel economy “rebound effect.” In turn, this in crease in vehicle use wi ll lead to increases in emissions of criteria air pol lutants and some airborne toxics, since these are products of the number of miles ve hicles are driven.

At the same time, however, the projecte d reductions in fuel production and use reported in Table IV.G.2-1 above will lead to corresponding reductions in emissions of these pollutants that occur during fuel production and distri bution (“upstream” emissions). For most of these pollutants, the reduction in upstream emissions resulting1111 from lower fuel production and distribution will outweigh the increase in emissions from vehicle use, resulting in a net decline in their total emissions. 716

Tables IV.G.3-1a and 3-1b report estimate d reductions in emissions of selected criteria air pollutants (or their chemical precursors) and airborne toxics expected to result from the final standards during calendar year 2030. By that date, the majority of lightduty vehicles in use will have met the MY 2016 CAFE standards, so these reductions provide a useful index of the long-term imp act of the final standa rds on air pollution and its consequences for human health.

716 As stated elsewhere, while the agency’s analysis a ssumes that all changes in upstream emissions result from a decrease in petroleum production and transpor t, the analysis of non-GHG emissions in future calendar years also assumes that retail gasoline composition is unaffected by this rule; as a result, the impacts of this rule on downstream non-GHG emissions (more specifically, on air toxics) may be underestimated. See also Section III.G above for more information.1112 Table IV.G.3-1a Projected Changes in Emissi ons of Criteria Air Pollutants from Car and Light Truck Use (calendar year 2030; tons) Criteria Air Pollutant Vehicle

Class Source of Emissions Nitrogen Oxides (NOx) Particulate Matter (PM2.5) Sulfur Oxides (SOx) Volatile Organic Compounds (VOC) Vehicle use 2,718 465 -2,442 2,523 Fuel production and distribution -20,970 -2,831 -12,698 -75,342 Passenger Cars
All sources -18,252 -2,366 -15,140 -72,820 Vehicle use 3,544 176 -1,420 1,586 Fuel production and distribution -12,252 -1,655 -7,424 -43,763 Light Trucks
All sources -8,707 -1,479 -8,845 -42,177 Vehicle use 6,263 642 -3,862 4,108 Fuel production and distribution -33,222 -4,487 -20,122 -119,106 Total

All sources -26,959 -3,845 -23,984 -114,9971113 Table IV.G.3-1b Projected Changes in Emissi ons of Airborne Toxics from Car and Light Truck Use (calendar year 2030; tons) Toxic Air Pollutant Vehicle Class Source of Emissions Benzene 1,3- Butadiene Formaldehyde Vehicle use 72 18 59 Fuel production and distribution -161 -2 -58 Passenger Cars All sources -89 16 1 Vehicle use 38 10 65 Fuel production and distribution -94 -1 -34 Light Trucks All sources -55 9 32 Vehicle use 111 28 124 Fuel production and distribution -254 -3 -91 Total All sources -144 25 33 Note: positive values indicate increases in em issions; negative values indicate reductions.

In turn, the reductions in emissions re ported in Tables IV.G.3-1a and 3-1b are projected to result in signifi cant declines in the health e ffects that result from population exposure to these pollutants. Table IV.G.3-2 reports the esti mated reductions in selected
PM 2.5 -related human health impacts that are e xpected to result fr om reduced population exposure to unhealthful atmos pheric concentrations of PM 2.5 . The estimates reported in Table IV.G.3-2, based on analysis documented in the final Environmental Impact Statement (EIS) that informed the agency’s decisions regarding th is rule, are derived from PM 2.5 -related dollar-per-ton estimates that in clude only quantifiable reductions in health impacts likely to result from re duced population exposure to particular matter (PM). They do not include all health impacts rela ted to reduced exposure to PM, nor do they include any reductions in health imp acts resulting from lower population exposure to1114 other criteria air pollutants (particularly oz one) and air toxics. However, emissions changes and dollar-per-ton estimates alone ar e not necessarily a good indication of local or regional air quality and health impacts, as there may be localized impacts associated with this rulemaking, because the atmo spheric chemistry related to ambient concentrations of PM 2.5 , ozone, and air toxics is very complex. Full-scale photochemical modeling provides the n ecessary spatial and temporal detail to more completely and accurately estimate the changes in ambient leve ls of these pollutants and their associated health and welfare impacts. Although EPA conducted such modeling for purposes of the final rule, it was not available in time to be included in NHTSA’s FEIS. See Section III.G above for EPA’s description of the fu ll-scale air quality modeling it conducted for the 2030 calendar year in an effort to capture this variability.

Table IV.G.3-2 Projected Reductions in Heal th Impacts of Exposure to Criteria Air Pollutants from Final Standa rds (calendar year 2030) Health Impact Measure Projected Reduction (2030) Mortality (ages 30 and older) premature deaths per year 243 to 623 Chronic Bronchitis cases per year 160 Emergency Room Visits for Asthma number per year 222 Work Loss workdays per year 28,705

4. What Are the Estimated Costs and Benefits of These Final Standards?

NHTSA estimates that the final standa rds could entail significant additional technology beyond the levels reflected in the baseline market forecast used by NHTSA. This additional technology will lead to incr eases in costs to ma nufacturers and vehicle1115 buyers, as well as fuel savings to vehicle buy ers. The following three tables summarize the extent to which the agency estimates t echnologies could be a dded to the passenger car, light truck, and overall fleets in each model year in response to the proposed standards. Percentages reflect the technology’ s additional application in the market, and are negative in cases where one technology is su perseded (i.e., displaced) by another. For example, the agency estimates that many automatic transmissions used in light trucks could be displaced by dual clutch transmissions.1116 Table IV.G.4-1 Addition of Technologies to Passenger Car Fleet under Final Standards Technology MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Low Friction Lubricants 14% 18% 19% 21% 21% Engine Friction Reduction 15% 37% 41% 43% 52% VVT - Coupled Cam Phasing (CCP) on SOHC 2% 3% 3% 5% 7% Discrete Variable Valve Lift (DVV L) on SOHC 0% 1% 1% 4% 4% Cylinder Deactivation on SO HC 0% 0% 0% 0% 0% VVT - Intake Cam Phasing (ICP) 0% 0% 0% 0% 0% VVT - Dual Cam Phasing (D CP) 11% 15% 16% 17% 24% Discrete Variable Valve Lift (DVV L) on DOHC 9% 19% 22% 23% 29% Continuously Variable Valve Lift (CVVL) 0% 0% 0% 0% 0% Cylinder Deactivation on DO HC 0% 0% 0% 1% 2% Cylinder Deactivation on OHV 0% 1% 1% 1% 1% VVT - Coupled Cam Phasing (CCP) on OHV 0% 1% 2% 2% 2% Discrete Variable Valve Lift (D VVL) on OHV 0% 1% 1% 2% 3% Conversion to DOHC with DCP 0% 0% 0% 0% 0% Stoichiometric Gasoline Direct Injection (GDI) 9% 18% 21% 24% 28% Combustion Restart 0% 0% 1% 4% 9% Turbocharging and Downsizing 8% 14% 16% 19% 21% Exhaust Gas Recirculation (EGR) Boost 0% 8% 10% 13% 17% Conversion to Diesel following TRBDS 2% 2% 2% 2% 2% Conversion to Diesel following CBRST 0% 0% 0% 0% 0%

6-Speed Manual/Improved Internals 1% 1% 1% 1% 1% Improved Auto. Trans. Controls/Externals 0% 3% 4% 1% -3% Continuously Variable Transmission 0% 0% 0% 0% 0% 6/7/8-Speed Auto. Trans with Improved Internals 0% 0% 1% 1% 2% Dual Clutch or Automated Manual Transmission 12% 26% 34% 47% 54% Electric Power Steering 9% 22% 25% 26% 38% Improved Accessories 18% 25% 27% 31% 41%

12V Micro-Hybrid 0% 0% 0% 0% 0% Belt mounted Integrated Starter Generator 4% 11% 19% 24% 25% Crank mounted Integrated Starter Generator 3% 3% 3% 3% 3% Power Split Hybrid 2% 2% 2% 2% 2%

2-Mode Hybrid 0% 0% 0% 0% 0% Plug-in Hybrid 0% 0% 0% 0% 0% Mass Reduction (1.5%) 18% 26% 32% 39% 46% Mass Reduction (3.5% to 8.5%) 0% 0% 17% 31% 40%

Low Rolling Resistance Tires 4% 16% 23% 32% 35% Low Drag Brakes 2% 3% 4% 4% 6% Secondary Axle Disconnect - Unibody 0% 0% 0% 0% 0% Secondary Axle Disconnect - Ladder Frame 1% 2% 2% 2% 2% Aero Drag Reduction 6% 20% 29% 34% 38%1117 Table IV.G.4-2 Addition of Technologies to Light Truck Fleet under Final Standards Technology MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Low Friction Lubricants 18% 20% 22% 23% 23% Engine Friction Reduction 14% 34% 35% 40% 51% VVT - Coupled Cam Phasing (CCP) on SOHC 2% 3% 3% 2% 2% Discrete Variable Valve Lift (DVV L) on SOHC 1% 2% 2% 2% 3% Cylinder Deactivation on SO HC 6% 6% 6% 6% 5% VVT - Intake Cam Phasing (ICP) 0% 0% 0% 1% 1% VVT - Dual Cam Phasing (DCP) 6% 8% 13% 13% 17% Discrete Variable Valve Lift (DVV L) on DOHC 9% 12% 17% 17% 18% Continuously Variable Valve Lift (CVVL) 0% 0% 0% 0% 0% Cylinder Deactivation on DO HC 1% 1% 1% 1% 0% Cylinder Deactivation on OHV 0% 1% 1% 2% 7% VVT - Coupled Cam Phasing (CCP) on OHV 0% 0% 0% 0% 13% Discrete Variable Valve Lift (DVVL) on OHV 0% 13% 14% 19% 19% Conversion to DOHC with DCP 0% 0% 0% 0% 0% Stoichiometric Gasoline Direct Injection (GDI) 12% 17% 23% 24% 31% Combustion Restart 0% 0% 3% 5% 18% Turbocharging and Downsizing 3% 6% 10% 10% 14% Exhaust Gas Recirculation (EGR) Boost 0% 2% 6% 6% 9% Conversion to Diesel following TRBDS 1% 1% 1% 1% 1% Conversion to Diesel following CBRST 0% 0% 0% 0% 0%

6-Speed Manual/Improved Internals 0% 0% 0% 0% 0% Improved Auto. Trans. Controls/Externals 0% -11% -17% -28% -32% Continuously Variable Transmission 0% 0% 0% 0% 0% 6/7/8-Speed Auto. Trans with Improv ed Internals -2% -2% -2% -2% -1% Dual Clutch or Automated Manual Transmission 10% 32% 46% 58% 65% Electric Power Steering 7% 11% 11% 20% 27% Improved Accessories 7% 9% 10% 15% 23%

12V Micro-Hybrid 0% 0% 0% 0% 0% Belt mounted Integrated Starter Generator 5% 10% 19% 20% 21% Crank mounted Integrated Starter Generator 0% 0% 0% 0% 0% Power Split Hybrid 1% 1% 1% 1% 1%

2-Mode Hybrid 0% 0% 0% 0% 0% Plug-in Hybrid 0% 0% 0% 0% 0% Mass Reduction (1.5%) 4% 5% 21% 35% 48% Mass Reduction (3.5% to 8.5%) 0% 0% 19% 33% 54%

Low Rolling Resistance Tires 11% 12% 13% 16% 17% Low Drag Brakes 14% 32% 30% 31% 40% Secondary Axle Disconnect - Unibody 0% 0% 0% 0% 0% Secondary Axle Disconnect - La dder Frame 17% 19% 20% 21% 28% Aero Drag Reduction 13% 15% 20% 22% 25%1118 Table IV.G.4-3 Addition of Technologies to Overall Fleet under Final Standards Technology MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Low Friction Lubricants 16% 18% 20% 22% 22% Engine Friction Reduction 15% 36% 39% 42% 51% VVT - Coupled Cam Phasing (CCP) on SOHC 2% 3% 3% 4% 5% Discrete Variable Valve Lift (DVV L) on SOHC 0% 1% 2% 3% 3% Cylinder Deactivation on SO HC 2% 3% 2% 2% 2% VVT - Intake Cam Phasing (ICP) 0% 0% 0% 0% 0% VVT - Dual Cam Phasing (DCP) 9% 13% 15% 16% 22% Discrete Variable Valve Lift (DVV L) on DOHC 9% 16% 20% 21% 25% Continuously Variable Valve Lift (CVVL) 0% 0% 0% 0% 0% Cylinder Deactivation on DO HC 0% 1% 0% 1% 1% Cylinder Deactivation on OHV 0% 1% 1% 1% 3% VVT - Coupled Cam Phasing (CCP) on OHV 0% 1% 1% 1% 6% Discrete Variable Valve Lift (D VVL) on OHV 0% 6% 6% 8% 8% Conversion to DOHC with DCP 0% 0% 0% 0% 0% Stoichiometric Gasoline Direct Injection (GDI) 10% 17% 22% 24% 29% Combustion Restart 0% 0% 1% 4% 12% Turbocharging and Downsizing 6% 11% 14% 16% 19% Exhaust Gas Recirculation (EGR) Boost 0% 6% 8% 11% 14% Conversion to Diesel following TRBDS 1% 2% 2% 2% 2% Conversion to Diesel following CBRST 0% 0% 0% 0% 0%

6-Speed Manual/Improved Internals 0% 0% 0% 0% 1% Improved Auto. Trans. Controls/Externals 0% -2% -4% -10% -13% Continuously Variable Transmission 0% 0% 0% 0% 0% 6/7/8-Speed Auto. Trans with Improved Internals -1% 0% 0% 0% 1% Dual Clutch or Automated Manual Transmission 11% 28% 38% 51% 58% Electric Power Steering 8% 18% 20% 24% 34% Improved Accessories 13% 19% 21% 25% 35%

12V Micro-Hybrid 0% 0% 0% 0% 0% Belt mounted Integrated Starter Generator 5% 11% 19% 23% 23% Crank mounted Integrated Starter Generator 2% 2% 2% 2% 2% Power Split Hybrid 2% 2% 2% 1% 1%

2-Mode Hybrid 0% 0% 0% 0% 0% Plug-in Hybrid 0% 0% 0% 0% 0% Mass Reduction (1.5%) 13% 18% 28% 37% 47% Mass Reduction (3.5% to 8.5%) 0% 0% 18% 32% 45%

Low Rolling Resistance Tires 7% 14% 19% 26% 29% Low Drag Brakes 6% 14% 14% 14% 18% Secondary Axle Disconnect - Unibody 0% 0% 0% 0% 0% Secondary Axle Disconnect - Ladder Frame 7% 8% 8% 8% 11% Aero Drag Reduction 9% 18% 26% 30% 34%1119 In order to pay for this additional tec hnology (and, for some manufacturers, civil penalties), NHTSA estimates that the cost of an average passenger car and light truck will, relative to levels resulting from co mpliance with baseline (MY 2011) standards, increase by $505-$907 and $322-$961, respec tively, during MYs 2011-2016. The following tables summarize the agency’s estimates of average cost increases for each manufacturer’s passenger car, light truck, a nd overall fleets (with corresponding averages for the industry):

Table IV.G.4-4 Average Passenger Ca r Incremental Cost Increases ($) under Final Standards Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 BMW 157 196 255 443 855 Chrysler 794 1,043 1,129 1,270 1,358 Daimler 160 198 564 944 1,252 Ford 1,641 1,537 1,533 1,713 1,884 General Motors 552 896 1,127 1,302 1,323 Honda 33 98 205 273 456 Hyundai 559 591 768 744 838 Kia 110 144 177 235 277 Mazda 632 656 799 854 923 Mitsubishi 644 620 1,588 1,875 1,831 Nissan 119 323 707 723 832 Porsche 316 251 307 390 496 Subaru 413 472 988 1,385 1,361 Suzuki 242 625 779 794 1,005 Tata 243 258 370 532 924 Toyota 31 29 41 121 126 Volkswagen 293 505 587 668 964 Total/Average 505 573 690 799 9071120 Table IV.G.4-5 Average Light Truck Incremental Cost Increases ($) under Final Standards Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 BMW 252 272 338 402 827 Chrysler 409 527 876 931 1,170 Daimler 98 123 155 189 260 Ford 465 633 673 1,074 1,174 General Motors 336 513 749 807 986 Honda 233 217 370 457 806 Hyundai 693 630 1,148 1,136 1,113 Kia 406 467 582 780 1,137 Mazda 144 241 250 354 480 Mitsubishi 39 77 553 686 1,371 Nissan 398 489 970 1,026 1,362 Porsche 44 76 109 568 640 Subaru 1,036 995 1,016 1,060 1,049 Suzuki 66 1,797 1,744 1,689 1,732 Tata 66 110 137 198 690 Toyota 130 150 384 499 713 Volkswagen 44 77 552 557 606 Total/Average 322 416 621 752 961
Table IV.G.4-6 Average Incremental Cost Increases ($) By Manufacturer under Final Standards Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 BMW 196 225 283 430 847 Chrysler 553 743 989 1,084 1,257 Daimler 139 171 417 695 937 Ford 1,209 1,187 1,205 1,472 1,622 General Motors 446 705 946 1,064 1,165 Honda 116 144 266 343 585 Hyundai 577 599 847 805 879 Kia 177 221 263 334 426 Mazda 545 587 716 778 858 Mitsubishi 459 453 1,200 1,389 1,647 Nissan 211 376 792 813 984 Porsche 250 207 243 452 544 Subaru 630 650 998 1,267 1,248 Suzuki 231 823 954 946 1,123 Tata 164 199 265 396 832 Toyota 67 70 159 248 317 Volkswagen 245 410 579 648 901 Total/Average 434 513 665 782 9261121 Based on the agencies’ estimates of manu facturers’ future sales volumes, these cost increases will lead to a total of $51.7 billion in in cremental outlays during MYs 2012-2016 for additional technology attribut able to the final standards:

Table IV.G.4-7 Incremental Technol ogy Outlays ($b) under Final Standards 2012 2013 2014 2015 2016 Total Passenger Cars 4.1 5.4 6.9 8.2 9.5 34.2 Light Trucks 1.8 2.5 3.7 4.3 5.4 17.6 Combined 5.9 7.9 10.5 12.5 14.9 51.7

NHTSA notes that these estimates of the economic costs for meeting higher CAFE standards omit certain pot entially important categorie s of costs, and may also reflect underestimation (or possibly overestimati on) of some costs that are included. For example, although the agency’s analysis is intended to hold vehicle performance, capacity, and utility constant in estimating the costs of a pplying fuel-saving technologies to vehicles, the analysis imputes no cost to any actual reductions in vehicle performance, capacity, and utility that may re sult from manufacturer s’ efforts to comply with the final CAFE standards. Although these costs ar e difficult to estimate accurately, they nonetheless represent a notabl e category of omitted costs if they have not been adequately accounted for in the cost estimates . Similarly, the agency’s estimates of net benefits for meeting higher CAFE standard s does not estimate the economic value of potential changes in motor vehicle fatalities and injuries that coul d result from reductions in the size or weight of vehicles. While NHTSA reports a range of estimates of these potential safety effects below and in the FRIA (ranging from a ne t negative monetary impact to a net positive benefits for soci ety), no estimate of their economic value is included in the agency’s estimates of the net benefits resulting from the final standards.1122 Finally, while NHTSA is confident that th e cost estimates are the best available and appropriate for purposes of this final ru le, it is possible that the agency may have underestimated or overestimated manufacturer s’ direct costs for applying some fuel economy technologies, or the increases in manuf acturer’s indirect costs associated with higher vehicle manufacturing costs. In either case, the technology outlays reported here will not correctly represent the costs of m eeting higher CAFE standards. Similarly, NHTSA’s estimates of increased costs of conge stion, accidents, and noise associated with added vehicle use are drawn from a 1997 study, and the correct magnitude of these values may have changed since they were developed. If this is the case, the costs of increased vehicle use associated with the fuel econom y rebound effect will differ from the agency’s estimates in this analysis. Thus, like the agency’s estim ates of economic benefits, estimates of total compliance costs reported here may underestimate or overestimate the true economic costs of the final standards.

However, offsetting these costs, the achi eved increases in fuel economy will also produce significant benefits to society. NHT SA attributes most of these benefits to reductions in fuel consumption, valuing fuel savings at future pretax prices in EIA’s reference case forecast from AEO 2010. The total benefits also include other benefits and dis-benefits, examples of which include the social values of reductions in CO 2 and criteria pollutant emissions, the value of a dditional travel (induced by the rebound effect), and the social cost of additional congestion, accidents, and noise attributable to that1123 additional travel. The FRIA accompanying today’s final rule presents a detailed analysis of the rule’s specific benefits.

As Table IV.G.4-8 shows, NHTSA estimates that at the discount rate of 3 percent prescribed in OMB guidance for regulatory analysis, the present value of total benefits from the final CAFE standards over the li fetimes of MY 2012-2016 passenger cars and light trucks will be $182.5 billion.

Table IV.G.4-8 Present Valu e of Benefits ($billion) under Final Standards using 3 percent Discount Rate 717 2012 2013 2014 2015 2016 Total Passenger Cars 6.8 15.2 21.6 28.7 35.2 107.5 Light Trucks 5.1 10.7 15.5 19.4 24.3 75.0 Combined 11.9 25.8 37.1 48.0 59.5 182.5

Table IV.G.4-9 reports that the present va lue of total benefits from requiring cars and light trucks to achieve the fuel economy le vels specified in the final CAFE standards for MYs 2012-16 will be $146.2 billion when di scounted at the 7 percent rate also required by OMB guidance. Thus the present value of fuel savings and other benefits over the lifetimes of the vehicl es covered by the final standard s is $36.3 billion – or about 20 percent – lower when discounted at a 7 percent annual rate th an when discounted using the a 3 percent annual rate. 718

717 Unless otherwise indicated, all tables in Section IV report benefits calculated using the Reference Case input assumptions, with future benefits resulting from reductions in carbon dioxide emissions discounted at the 3 percent rate prescribed in the intera gency guidance on the social cost of carbon. 718 For tables that report total or net benefits using a 7 percent discount rate, future benefits from reducing carbon dioxide emissions are discounted at 3 percent, in order to maintain consistency with the discount rate used to develop the reference case estimate of the social cost of carbon. All other future benefits reported in these tables are discounted using the 7 percent rate.1124 Table IV.G.4-9 Present Valu e of Benefits ($billion) under Final Standards using 7 percent Discount Rate 2012 2013 2014 2015 2016 Total Passenger Cars 5.5 12.3 17.5 23.2 28.6 87.0 Light Trucks 4.0 8.4 12.2 15.3 19.2 59.2 Combined 9.5 20.7 29.7 38.5 47.8 146.2

For both the passenger car and light truck fleets, NHTSA estimates that the benefits of today’s final standards w ill exceed the corresponding costs in every model year, so that the net social benefits from requiring higher fuel economy – the difference between the total benefits that result from higher fu el economy and the technology outlays required to achieve it – will be subs tantial. Because the technology outlays required to achieve the fuel economy levels required by the final standards are incurred during the model years when vehicles are produced and sold, however, they are not subject to discounting, so that their pres ent value does not depend on the discount rate used. 719 Thus the net benefits of the final standards differ depending on whether the 3 percent or 7 percent discount rate is used, but only because the choice of discount rates affects the present value of total benefits, and not that of technology costs.

As Table IV.G.4-10 shows, over the lif etimes of the affected (MY 2012-2016) vehicles, the agency estimates that when the be nefits of the final st andards are discounted at a 3 percent rate, they will exceed the co sts of the final standards by $130.7 billion:

719 Although technology costs are incu rred at the beginning of each model year’s lifetime and thus are not subject to discounting, the discount rate does influence the effective cost of some technologies. Because NHTSA assumes some manufacturers will be willing to pay civil penalties when compliance costs become sufficiently high, It is still possible for the discount rate to affect the agency’s estimate of total technology outlays. However, this does not occur under the a lternative NHTSA has adopted for its final MY 2012-16 CAFE standards.1125 Table IV.G.4-10 Present Value of Net Benef its ($billion) under Fi nal Standards using 3 percent Discount Rate 2012 2013 2014 2015 2016 Total Passenger Cars 2.7 9.7 14.8 20.5 25.7 73.3 Light Trucks 3.4 8.2 11.8 15.0 18.9 57.4 Combined 6.0 18.0 26.6 35.5 44.6 130.7

As indicated previously, when fuel savi ngs and other future benefits resulting from the final standards are discounted at the 7 percent rate prescribed in OMB guidance, they are $36.3 billion lower than when the 3 percent discount rate is applied. Because technology costs are not subject to discounting, using the higher 7 percent discount rate reduces net benefits by exactly this same amount. Nevertheless, Table IV.G.4-11 shows that the net benefits from requiring passenger ca rs and light trucks to achieve higher fuel economy are still substantial even when future benefits are discounted at the higher rate, totaling $94.5 billion over MYs 2012-16. Net be nefits are thus a bout 28 percent lower when future benefits are discounted at a 7 pe rcent annual rate than at a 3 percent rate.

Table IV.G.4-11 Present Value of Net Benef its ($billion) under Fi nal Standards using 7 percent Discount Rate 2012 2013 2014 2015 2016 Total Passenger Cars 1.3 6.8 10.6 15.0 19.0 52.9 Light Trucks 2.3 5.9 8.6 11.0 13.9 41.6 Combined 3.6 12.8 19.2 26.0 32.9 94.5

NHTSA’s estimates of economic benefits from establishing higher CAFE standards are subject to consid erable uncertainty. Most important, the agency’s estimates of the fuel savings likely to result from a dopting higher CAFE standards depend critically on the accuracy of the estimated fuel economy levels that will be achieved under both the baseline scenario, which assumes that manufacturers will continue to comply with the1126 MY 2011 CAFE standards, and under alternative increases in the standards that apply to MYs 2012-16 passenger cars and light trucks . Specifically, if the agency has underestimated the fuel economy levels that manufacturers would have achieved under the baseline scenario – or is too optimistic about the fuel economy levels that manufacturers will actually achieve under the final standards – its estimates of fuel savings and the resulting economic benefits attributable to this rule will be too large.

Another major source of potential overes timation in the agency’s estimates of benefits from requiring higher fuel economy stems from its reliance on the Reference Case fuel price forecasts reported in AE O 2010. Although NHTSA believes that these forecasts are the most reliable that are availa ble, they are nevertheless significantly higher than the fuel price projections reported in most previous editions of EIA’s Annual Energy Outlook, and reflect projections of world oil pr ices that are well above forecasts issued by other firms and government agencies. If th e future fuel prices projected in AEO 2010 prove to be too high, the agency’s estimates of the value of future fuel savings – the major component of benefits from this rule – will also be too high.

In addition, it is possible that NHTSA’s estimates of economic benefits from the effects of saving fuel on U.S. petroleum consumption and imports are too high. The estimated “energy security premium” the ag ency uses to value reductions in U.S. petroleum imports includes both increased payments for petroleu m imports that occur when world oil prices increase rapidly, and losses in U.S. GDP losses and adjustment costs that result from oil price shocks. On e commenter suggested increased import costs1127 associated with rapid increases in petroleu m prices represent transfers from U.S. oil consumers to petroleum suppliers rather than real economic costs, so any reduction in their potential magnitude should be excluded when calculating benefits from lower U.S. petroleum imports. If this view is correct, th en the agency’s estimates of benefits from the effect of reduced fuel consumption on U.S. petroleum imports would indeed be too high. 720

However, it is also possible that NHTSA’s estimates of economic benefits from establishing higher CAFE standards under estimate the true economic benefits of the fuel savings those standards would produce. If th e AEO 2010 forecast of fuel prices proves to be too low, for example, NHTSA will have underestimated the value of fuel savings that will result from adopting higher CAFE standards for MY 2012-16. As another example, the agency’s estimate of bene fits from reducing the threat of economic damages from disruptions in the supply of im ported petroleum to the U.S. applies to calendar year 2015. If the magnitude of this estimate would be expected to grow after 2015 in response to increases in U.S. petroleum imports, growth in the level of U.S. economic activity, or increases in the likelihood of disruptions in the supply of im ported petroleum, the agency may have underestimated the benefits from the reduction in petroleum imports expected to result from adopting hi gher CAFE standards.

720 Doing so, however, would represent a significant departure from how disruption costs associated with oil price shocks have been quantified in research on the value of energy security, and NHTSA believes this issue should be analyzed in more detail before these costs are excluded. Moreover, the agency believes that increases in import costs during oil supply disruptions differ from transfers due to the existence of U.S. monopsony power in the world oil market, since they reflect real resource shortages and costly short-run shifts in demand by energy users, rather than losses to consumers of petroleum products that that are matched by offsetting gains to suppliers. Thus the agency believes that reducing their expected value provides real economic benefits, and they do not represent pure transfers.1128 NHTSA’s benefit estimates could also be too low because they exclude or understate the economic value of certain potentially significant categories of benefits from reducing fuel consumption. As one example, EPA’s estimates of the economic value of reduced damages to human health re sulting from lower e xposure to criteria air pollutants includes only the effects of reducing population exposure to PM 2.5 emissions. Although this is likely to be the most signi ficant component of health benefits from reduced emissions of criteria air pollutants, it excludes the value of reduced damages to human health and other impacts resulting from lower emissions and reduced population exposure to other criteria air pollutants, including ozone and nitrous oxide (N 2 O), as well as airborne toxics. EPA’s estimates exclude these benefits becaus e no reliable dollar-perton estimates of the health impacts of criteria pollutan ts other than PM 2.5 or of the health impacts of airborne toxics were available to use in developing estimates of these benefits.

Similarly, the agency’s estimate of the value of reduced climate-related economic damages from lower emissions of GHGs excludes many sources of potential benefits from reducing the pace and extent of global climate change. 721 For example, none of the three models used to value climate-related economic damages includes ocean acidification or loss of species and wildlife. The models al so may not adequately capture certain other impacts, such as potentially abrupt changes in climate associated with thresholds that govern climate system re sponses, inter-sectoral and inter-regional interactions, including global security imp acts of high-end extreme warming, or limited near-term substitutability between damage to natural systems and increased consumption.

721 Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 , Interagency Working Group on Social Cost of Carbon, United States Government, February 2010. Available in Docket No. NHTSA-2009-0059.1129 Including monetized estimates of benefits from reducing the extent of climate change and these associated impacts would increase the ag ency’s estimates of benefits from adopting higher CAFE standards.

The following tables present itemized costs and benefits for the combined passenger car and light truck fleets for each mode l year affected by the final standards as well as for all model years combined, us ing both discount rate s prescribed by OMB regulatory guidance. Table IV.G.4-12 reports technology outlays, each separate component of benefits (including costs asso ciated with additional driving due to the rebound effect, labeled “dis-benefits”), the tota l value of benefits, a nd net benefits, using the 3 percent discount rate. (Numbers in parentheses represent negative values.)1130 Table IV.G.4-12 Itemized Cost and Benef it Estimates for the Combined Vehicle Fleet using 3 percent Discount Rate ($m) MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Total Costs Technology Costs 5,903 7,890 10,512 12,539 14,904 51,748

Benefits Savings in Lifetime Fuel Expenditures 9,265 20,178 29,083 37,700 46,823 143,048
Consumer Surplus from Additional Driving 696 1,504 2,150 2,754 3,387 10,491 Value of Savings in Refueling Time 706 1,383 1,939 2,464 2,950 9,443 Reduction in Petroleum Market Externalities 545 1,154 1,630 2,080 2,543 7,952

Reduction in Climate-Related Damages from Lower CO 2 Emissions 722 921 2,025 2,940 3,840 4,804 14,528

Reduction in Health Damage Costs from Lo wer Emissions of Criteria Air Pollutants: CO 0 0 0 0 0 0 VOC 42 76 102 125 149 494 NO X 70 104 126 146 166 612 PM 205 434 612 776 946 2,974 SO X 158 332 469 598 731 2,288 Dis-Benefits from Increased Driving: Congestion Costs (447) (902) (1,282) (1,633) (2,000) (6,264) Noise Costs (9) (18) (25) (32) (39) (122) Crash Costs (217) (430) (614) (778) (950) (2,989) Total Benefits 11,936 25,840 37,132 48,040 59,509 182,457
Net Benefits 6,033 17,950 26,619 35,501 44,606 130,709

722 Using the central value of $21 per metric ton for the SCC, and discounting future benefits from reduced CO2 emissions at a 3 percent annual rate. Additionally, we note that the $21 per metric ton value for the SCC applies to calendar year 2010, and increases ov er time. See the interagency guidance on SCC for more information.1131 Similarly, Table IV.G.4-13 below repor ts technology outlays, the individual components of benefits (including “dis-benef its” resulting from additional driving) and their total, and net benefits, using the 7 percent discount rate. (Again, numbers in parentheses represent negative values.)1132 Table IV.G.4-13 Itemized Cost and Benef it Estimates for the Combined Vehicle Fleet using 7 percent Discount Rate ($m) MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Total Costs Technology Costs 5,903 7,890 10,512 12,539 14,904 51,748

Benefits Savings in Lifetime Fuel Expenditures 7,197 15,781 22,757 29,542 36,727 112,004
Consumer Surplus from Additional Driving 542 1,179 1,686 2,163 2,663 8,233 Value of Savings in Refueling Time 567 1,114 1,562 1,986 2,379 7,608 Reduction in Petroleum Market Externalities 432 917 1,296 1,654 2,023 6,322

Reduction in Climate-Related Damages from Lower CO 2 Emissions 723 921 2,025 2,940 3,840 4,804 14,530

Reduction in Health Damage Costs from Lo wer Emissions of Criteria Air Pollutants: CO 0 0 0 0 0 0 VOC 32 60 80 99 119 390 NO X 53 80 98 114 131 476 PM 154 336 480 611 748 2,329 SO X 125 265 373 475 581 1,819 Dis-Benefits from Increased Driving: Congestion Costs (355) (719) (1,021) (1,302) (1,595) (4,992) Noise Costs (7) (14) (20) (26) (31) (98) Crash Costs (173) (342) (488) (619) (756) (2,378) Total Benefits 9,488 20,682 29,743 38,537 47,793 146,243
Net Benefits 3,586 12,792 19,231 25,998 32,890 94,497

723 Using the central value of $21 per metric ton for the SCC, and discounting future benefits from reduced CO2 emissions at a 3 percent annual rate. Additionally, we note that the $21 per metric ton value for the SCC applies to calendar year 2010, and increases ov er time. See the interagency guidance on SCC for more information.1133 The above benefit and cost estimates did not reflect the availability and use of flexibility mechanisms, such as compliance credits and credit trading, because EPCA prohibits NHTSA from considering the eff ects of those mechanisms in setting CAFE standards. However, the agency noted that, in reality, manufacturers were likely to rely to some extent on flexibility mechanisms provided by EPCA and would thereby reduce the cost of complying with the final standards to a meaningful extent.

As discussed in the FRIA, NHTSA has pe rformed an analysis to estimate the costs and benefits if EPCA’s provisions re garding FFVs are accounted for. The agency considered also attempting to account for other EPCA flexibility mechanisms, in particular credit transfer s between the passenger and nonpassenger fleets, but has concluded that, at least within a context in which each model year is represented explicitly, technologies carry forward betw een model years, and multi-year planning effects are represented, there is no basis to estimate reliably how manufacturers might use these mechanisms. Accounting for the FFV provisions indicates that achieved fuel economies would be 0.5-1.3 mpg lower than when these provisions are not considered (for comparison see Table IV.G.1-2 above):1134 Table IV.G.4-14 Average Achieved Fuel Economy (mpg) under Final Standards (with FFV Credits) 2012 2013 2014 2015 2016 Passenger Cars 32.3 33.5 34.2 35.0 36.2 Light Trucks 24.5 25.1 25.9 26.7 27.5 Combined 28.7 29.7 30.6 31.5 32.7

As a result, NHTSA estimates that, when FFV credits are taken into account, fuel savings will total 58.6 billion gallons—about 3.9 percent less than the 61.0 billion gallons estimated when these credits are not considered:

Table IV.G.4-15 Fuel Saved (billion gall ons) under Final Standa rds (with FFV Credits) 2012 2013 2014 2015 2016 Total Passenger Cars 2.7 4.7 6.4 8.4 11.0 33.1 Light Trucks 2.3 3.6 5.0 6.6 8.1 25.5 Combined 4.9 8.2 11.3 15.0 19.1 58.6

The agency similarly estimates CO 2 emissions reductions will total 636 million metric tons (mmt), about 2.9 percent less th an the 655 mmt estimated when these credits are not considered: 724

Table IV.G.4-16 Avoided Carbon Dioxide Em issions (mmt) under Final Standards (with FFV Credits) 2012 2013 2014 2015 2016 Total Passenger Cars 28 50 69 91 119 357 Light Trucks 25 39 54 72 88 279 Combined 53 89 123 163 208 636

724 Differences in the application of diesel engines lead to differen ces in the incremental percentage changes in fuel consumption and carbon dioxide emissions.1135 This analysis further indicates that si gnificant reductions in outlays for additional technology will result when FFV provisions ar e taken into account. Table IV.G.4-17 below shows that as a result, total technology cost s are estimated to decline to $37.5 billion, or about 27 percent less than th e $51.7 billion estimated when excluding these provisions:

Table IV.G.4-17 Incremental Technology Outl ays ($b) under Final Standards with FFV Credits 2012 2013 2014 2015 2016 Total Passenger Cars 2.6 3.6 4.8 6.1 7.5 24.6 Light Trucks 1.1 1.5 2.5 3.4 4.4 12.9 Combined 3.7 5.1 7.3 9.5 11.9 37.5

Because NHTSA’s analysis indicated that FFV provisions will not significantly reduce fuel savings, the agency’s estimate of the present value of total benefits will be $175.6 billion when discounted at a 3 percent annua l rate, as Table IV.G.4-18 following reports. This estimate of total benefits is $6.9 billion, or about 3.8 pe rcent, lower than the $182.5 billion reported previously for the an alysis that excluded these provisions:

Table IV.G.4-18 Present Value of Benefits ($billion) under Final Standards with FFV Credits using 3 per cent Discount Rate 2012 2013 2014 2015 2016 Total Passenger Cars 7.6 13.7 19.1 25.6 34.0 100.0 Light Trucks 6.4 10.4 14.6 19.8 24.4 75.6 Combined 14.0 24.1 33.7 45.4 58.4 175.6

Similarly, because the FFV are not expect ed to reduce fuel savings significantly, NHTSA estimates that the present value of tota l benefits will decline only slightly from its previous estimate when future fuel savings and other benefits are discounted at the1136 higher 7 percent rate. Table IV.G.4-19 reports that the present value of benefits from requiring higher fuel economy for MY 2012-16 cars and light trucks will total $140.7 billion when discounted using a 7 percent rate, about $5.5 bil lion (or again, 3.8 percent ) below the previous $146.2 billi on estimate of total benefits when FFV credits were not permitted:

Table IV.G.4-19 Present Value of Benefits ($billion) under Final Standards with FFV Credits using 7 per cent Discount Rate 2012 2013 2014 2015 2016 Total Passenger Cars 6.1 11.1 15.5 20.7 27.6 80.9 Light Trucks 5.0 8.2 11.5 15.6 19.3 59.7 Combined 11.2 19.3 27.0 36.4 46.9 140.7

Although the discounted present value of total benefits will be slightly lower when FFV provisions are taken into account, the agency esti mates that these provisions will slightly increase net benefits. This occurs because the flexibility these provisions provide to manufacturers will allow them to reduce technology costs for meeting the new standards by considerably more than the redu ction in the value of fuel savings and other benefits. As Table IV.G.4-20 shows, the ag ency estimates that the availability of FFV credits will increase net benefits from the final CAFE standards to $138.2 billion from the previously-reported estimate of $130.7 billion withoutthose credits, or by about 5.7 percent.1137 Table IV.G.4-20 Present Value of Net Benef its ($billion) under Final Standards with FFV Credits using 3% Discount Rate 2012 2013 2014 2015 2016 Total Passenger Cars 5.1 10.1 14.3 19.5 26.5 75.4 Light Trucks 5.3 8.8 12.1 16.4 20.0 62.7 Combined 10.4 19.0 26.5 35.9 46.5 138.2

Similarly, Table IV.G.4-21 immediatel y below shows that NHTSA estimates manufacturers’ use of FFV credits will rais e net benefits from requiring higher fuel economy for MY 2012-16 cars and light trucks to $103.2 billion if a 7 percent discount rate is applied to future benefits. This es timate is $8.7 billion – or about 9.2% – higher than the previously-reported $94.5 billion estima te of net benefits without the availability of FFV credits using that same discount rate.

Table IV.G.4-21 Present Value of Net Benef its ($billion) under Final Standards with FFV Credits using 7% Discount Rate 2012 2013 2014 2015 2016 Total Passenger Cars 3.6 7.5 10.7 14.6 20.0 56.4 Light Trucks 3.9 6.6 9.1 12.3 14.9 46.8 Combined 7.5 14.1 19.7 26.9 35.0 103.2

The agency has also performed several sens itivity analyses to examine the effects of varying important assumptions that affect its estimates of benefits and costs from higher CAFE standards for MY 2012-16 cars and light trucks. We examine the sensitivity of fuel savings, total economic be nefits, and technology costs with respect to the following five economic parameters:1138 1) The price of gasoline: The Referenc e Case uses the AEO 2010 reference case estimate for the price of gasoline. In this sensitivity analysis we examine the effect of instead using the AEO 2009 high and low price forecasts.

2) The rebound effect: The Reference Case uses a rebound effect of 10 percent to project increased miles traveled as the co st per mile driven decreases. In the sensitivity analysis, we examine the eff ect of instead using a 5 percent or 15 percent rebound effect.

3) The values of CO 2 benefits: The Reference Case uses $21 per ton (in 2010 in 2007$, rising over time to $45 in 2030) to quantify the benefits of reducing CO 2 emissions and $0.17 per gallon to quantif y the energy security benefits from reducing fuel consumption. In the sensitivity analysis, we examine the effect of using values of $5, and $65 per ton instead of the refe rence value of $21 per ton to value CO 2 benefits. These values can be translated into cents per gallon by multiplying by 0.0089, 725 giving the following values:

($5 per ton CO 2 ) x 0.0089 = $0.045 per gallon ($21 per ton CO 2 ) x 0.0089 = $0.187per gallon ($35 per ton CO 2 ) x 0.0089 = $0.312 per gallon ($67 per ton CO 2 ) x 0.0089 = $0.596 per gallon

725 The molecular weight of Carbon (C) is 12, the molecular weight of Oxygen (O) is 16, thus the molecular weight of CO 2 is 44. One ton of C = 44/12 tons CO 2 = 3.67 tons CO 2 . 1 gallon of gas weighs 2,819 grams, of that 2,433 grams are carbon. $1.00 CO 2 = $3.67 C and $3.67/ton * ton/1000kg * kg/1000g * 2433g/gallon = (3.67 * 2433) / 1000 * 1000 = $0.0089/gallon.1139 4) Military security: The Reference Case uses $0 per gallon to quantify the military security benefits of reducing fuel consumption. In the sensitivity analysis, we examine the impact of instead using a value of 5 cents per gallon.

Varying each of these four parameters in isolation results in 9 additional economic scenarios, in addition to the Reference case. These are listed in Table IV.G.4-22 below, together with two additional scenarios that use combinations of these parameters that together produce the lowest and highest benefits.

Table IV.G.4-22 Sensitivity Anal yses Evaluated in NHTSA’s FRIA Name Fuel Price Discount Rate Rebound Effect SCC Military Security Reference AEO 20210 Reference Case 3% 10% $21 0¢/gal High Fuel Price AEO 2009 High Price Case 3% 10% $21 0¢/gal
Low Fuel Price AEO 2009 Low Price Case 3% 10% $21 0¢/gal 5% Rebound Effect AEO 20210 Reference Case 3% 5% $21 0¢/gal 15% Rebound Effect AEO 20210 Reference Case 3% 15% $21 0¢/gal $67/ton CO 2 Value AEO 20210 Reference Case 3% 10% $67 0¢/gal $35/ton CO 2 Value AEO 20210 Reference Case 3% 10% $35 0¢/gal $5/ton CO 2 Value AEO 20210 Reference Case 3% 10% $5 0¢/gal $5/ton CO 2 AEO 20210 Reference Case 3% 10% $5 0¢/gal 5¢/gal Military Security Value AEO 20210 Reference Case 3% 10% $21 5¢/gal
Lowest Discounted Benefits AEO 2009 Low Price Case 7% 15% $5 0¢/gal Highest Discounted Benefits AEO 2009 High Price Case 3% 5% $67 5¢/gal1140 The basic results of the sensitiv ity analyses were as follows:

1) The various economic assumptions have no effect on the final passenger car and light truck standards established by th is rule, because these are determined without reference to economic benefits. 2) Varying the economic assumptions individually has comparatively modest impacts on fuel savings resulting from the adopted standards. The range of variation in fuel savings in response to changes in individual assumptions extends from a reduction of nearly 5 percent to an increase of that same percentage. 3) The economic parameter with the greate st impacts on fuel savings is the magnitude of the rebound effect. Vary ing the rebound effect from 5 percent to 15 percent is responsible for a 4.6 percent increase and 4.6 percent reduction in fuel savings compared to the Reference results. 4) The only other parameter that has a si gnificant effect on fuel savings is forecast fuel prices, although its effect is complex because changes in fuel prices affect vehicle use and fuel co nsumption in both the baseline and under the final standards. 5) Variation in forecast fuel prices and in the value of reducing CO 2 emissions have significant effects on the total economic benefits resulting from the final standards. Changing the fuel price forecast to AEO’s High Price forecast raises estimated economic benefits by almost 40 percent, while using AEO’s Low Price forecast reduces total economic benefits by only about 5 percent.1141 Raising the value of eliminating each ton of CO 2 emissions to $67 increases total benefits by 15 percent. 6) Varying all economic parameters simulta neously has a significant effect on total economic benefits. The combina tion of parameter values producing the highest benefits increases their total by slightly more than 50 percent, while that producing the lowest benefits reduces their value by almost 55 percent. However, varying these parameters in combination has less significant effects on other measures; for example, the hi gh- and low-benefit combinations of parameter values raise or lower fu el savings and technology costs by only about 5 percent.

For more detailed information regarding NHTSA’s sensitivity analyses for this final rule, please see Chapter X of NHTSA’s FRIA.

5. How Would These Final Sta ndards Impact Vehicle Sales?

The effect of this rule on sales of new vehicles depends pa rtly on how potential buyers evaluate and respond to its effects on vehicle prices and fuel economy. The rule will make new cars and light trucks more expe nsive, as manufacturers attempt to recover their costs for complying with the rule by raising vehicle prices, which by itself would discourage sales. At the same time, the ru le will require manufacturers to improve the fuel economy of at least some of their models, which will lo wer their operating costs.1142 However, this rule will not change the way that potential buyers evaluate improved fuel economy. If some consumers find it difficult to estimate the value of future fuel savings and correctly compare it with th e increased cost of purchasing higher fuel economy (possibilities discussed below in Sectio n IV.G.6) – or if they simply have low values of saving fuel – this rule will not ch ange that situation, and they are unlikely to purchase the more fuel-efficient models that ma nufacturers offer. To the extent that other consumers more completely or correctly acc ount for the value of fuel savings and the costs of acquiring higher fuel economy in their purchasing decisions, they will also continue to do so, and they are likely to view models with improved fuel economy as more attractive purchases than currently available models. The effect of the rule on sales of new vehicles will depend on which form of behavior is more widespread.

In general we would expect that the net eff ect of this rule would be to reduce sales of new vehicles or leave them unchanged. If consumers are satisfied with the combinations of fuel economy levels and pr ices that current models offer, we would expect some to decide that the higher prices of those models no l onger justify purchasing them, even though they offer higher fuel econom y. Other potential buyers may decide to purchase the same vehicle they would have befo re the rule took effect, or to adjust their purchases in favor of models offering other attributes. T hus sales of new models would decline, regardless of whether “consumer-sid e” failures in the market for fuel economy currently lead buyers to under-invest in fuel eco nomy. However, if there is some market failure on the producer or supply side that cu rrently inhibits manuf acturers from offering increases in fuel economy that would increase their profits – for example, if producers1143 have underestimated the demand for fuel economy, or do not compete vigorously to provide as much as buyers would prefer – th en the new standards would make vehicles more attractive to many buyers, and their sales should increase (potenti al explanations for such producer market failures are di scussed in Section IV.G.6 below).

NHTSA examined the potential impact of higher vehicle prices on sales on an industry-wide basis for passenge r cars and light trucks separately. We note that the analysis conducted for this rule does not have the precision to examine effects on individual manufacturers or di fferent vehicle classes. The methodology NHTSA used for estimating the impact on vehicle sales in effect assumes that the latter situation will prevail; although it is relativel y straightforward, it relies on a number of simplifying assumptions.

There is a broad consensus in the economi c literature that the price elasticity for demand for automobiles is approximately –1.0. 726 Thus, every one percent increase in the price of the vehicle would reduce sales by one percent. Elasticity estimates assume no perceived change in the quality of the produc t. However, in this case, vehicle price increases result from adding t echnologies that improve fuel economy. If consumers did not value improved fuel economy at all, and c onsidered nothing but the increase in price in their purchase decisions, then the estimated impact on sales from price elasticity could

726 Kleit, A.N. (1990). “The Effect of Annual Changes in Automobile Fuel Economy Standards,” Journal of Regulatory Economics , vol. 2, pp 151-172 (Docket EPA-HQ-OAR-2009-0472-0015); Bordley, R. (1994). “An Overlapping Choice Set M odel of Automotive Price Elasticities,” Transportation Research B , vol 28B, no 6, pp 401-408 (Docket NHTSA-2009-0059-0153); McCarthy , P.S. (1996). “Market Price and Income Elasticities of New Vehicle Demands,” The Review of Economics and Statistics , vol. LXXVII, no. 3, pp. 543-547 (Docket NHTSA-2009-0059-0039).1144 be applied directly. However, NHTSA belie ves that consumers do value improved fuel economy, because it reduces the operating cost of the vehicles. NHTSA also believes that consumers consider other factors that aff ect their costs and have included these in the analysis.

The main question, however, is how much of the retail price needed to cover the technology investments to meet higher fuel economy standards will manufacturers be able to pass on to consumers. The ability of manufacturers to pass the compliance costs on to consumers depends upon how consumers value the fuel economy improvements. 727 The estimates reported below as part of NHTSA ’s analysis on sales impacts assume that manufacturers will be able to pass all of their costs to improve fuel economy on to consumers. To the extent that NHTSA has accurately predicted the price of gasoline and consumers reactions, and manufacturers can pass on all of the costs to consumers, then the sales and employment impact analyses are reasonable. On the other hand, if manufacturers only increase reta il prices to the extent that consumers value these fuel economy improvements (i.e., to the extent that they value fuel savings), then there would be no impact on sales, although manufacturers’ profit levels would fall. Sales losses are predicted to occur only if c onsumers fail to value fuel economy improvements at least as much as they pay in higher vehicle prices. Likewise, if fuel pr ices rise beyond levels used in this analysis, cons umer valuation of improved fuel economy could potentially increase beyond that estimated here, which coul d result in an increa se in sales levels.

727 Gron, Ann and Swenson, Deborah, 2000, “Cost Pass-Through in the U.S. Automobile Market,” The Review of Economics and Statistics , 82: 316-324. (Docket EPA-HQ-OAR-2009-0472-0007)1145 To estimate the average value consumers place on fuel savings at the time of purchase, NHTSA assumes that the average pu rchaser considers the fuel savings they would receive over a 5 year time frame. NHTSA chose 5 years because this is the average length of time of a financing agreement. 728 The present values of these savings were calculated using a 3 per cent discount rate. NHTSA used a fuel price forecast that included taxes, because this is what consumer s must pay. Fuel savings were calculated over the first 5 years and discount ed back to a present value.

NHTSA believes that consumers may cons ider several other factors over the 5 year horizon when contemplating the purchas e of a new vehicle. NHTSA added these factors into the calculation to represent how an increase in technology costs might affect consumers’ buying considerations.

First, consumers might consider the sales taxes they have to pay at the time of purchasing the vehicle. NHTSA took sales taxes in 2007 by state and weighted them by population by state to determine a national weight ed-average sales tax of 5.5 percent.

Second, NHTSA considered insurance co sts over the 5 year period. More expensive vehicles will require more expensive collision an d comprehensive (e.g., theft) car insurance. The increase in insurance costs is estimated from the average value of collision plus comprehensive insurance as a proportion of average new vehicle price. Collision plus comprehensive insurance is the portion of insurance costs that depend on

728 National average financing terms for automobile loan s are available from the Bo ard of Governors of the Federal Reserve System G.19 “Consumer Finance” release. See http://www.federalrese rve.gov/releases/g 19/ (last accessed February 26, 2010).1146 vehicle value. The Insurance Informati on Institute provides the average value of collision plus comprehensive insurance in 2006 as $448. 729 This is compared to an average price for light vehicles of $24,033 for 2006. 730 Average prices and estimated sales volumes are needed because price elasticity is an estimate of how a percent increase in price affects the percent decrease in sales.

Dividing the insurance cost by the aver age price of a new vehicle gives the proportion of comprehensive plus collision insurance as 1.86 percent of the price of a vehicle. If we assume that this premiu m is proportional to the new vehicle price, it represents about 1.86 percent of the new vehicle price and insu rance is paid each year for the five year period we are considering for payback. Discounting that stream of insurance costs back to presen t value indicates that the pres ent value of the component of insurance costs that vary with vehicle price is equal to 8.5 pe rcent of the vehicle’s price at a 3 percent discount rate.

Third, NHTSA considered that 70 percen t of new vehicle purchasers take out loans to finance their purchase. The average ne w vehicle loan is for 5 years at a 6 percent

rate. 731 At these terms, the average person ta king a loan will pay 16 percent more for their vehicle over the 5 years than a consumer paying cash for the vehicle at the time of

729 Insurance Information Institute, 2008, “Average Expe nditures for Auto Insurance By State, 2005-2006.” Available at http://www.iii.org/media/facts/statsbyi ssue/auto/ (last accessed March 15, 2010). 730 $29,678/$26,201 = 1.1327 * $22,651 = $25,657 average price for light trucks. In 2006, passenger cars were 54 percent of the on-road fleet and light trucks were 46 percent of the on-road fleet, resulting in an average light vehicle price for 2006 of $24,033. 731 New car loan rates in 2007 averaged about 7.8 percent at commercial banks and 4.5 percent at auto finance companies, so their average is close to 7 percent.1147 purchase. 732 Discounting the additional 3.2 percent (16 percent / 5 years) per year over the 5 years using a 3 percent mid-year discount rate 733 results in a discounted present value of 14.87 percent higher for those taking a loan. Multiplying that by the 70 percent of consumers who take out a loan means that the average consumer would pay 10.2 percent more than the retail price for lo ans the consumer disc ounted at a 3 percent discount rate.

Fourth, NHTSA considered the residual valu e (or resale value) of the vehicle after 5 years and expressed this as a percentage of the new vehicle pr ice. In other words, if the price of the vehicle increases due to fuel economy technologies, the resale value of the vehicle will go up proportionately. The average resale price of a vehicle after 5 years is about 35 percent of the original purchase price. 734 Discounting the residual value back 5 years using a 3 percent discount rate (35 percent * .8755) gives an effective residual value at new of 30.6 percent.

NHTSA then adds these four factors toge ther. At a 3 percent discount rate, the consumer considers she could get 30.6 percen t back upon resale in 5 years, but will pay 5.5 percent more for taxes, 8.5 percent more in insurance, and 10.2 percent more for loans, results in a 6.48 percent return on the increase in price for fuel economy technology. Thus, the increase in price pe r vehicle is multiplied by 0.9352 (1 – 0.0648)

732 Based on www.bankrate.com auto loan calcu lator for a 5 year loan at 6 percent. 733 For a 3 percent discount rate, the summation of 3.2 percent x 0.9853 in year one, 3.2 x 0.9566 in year two, 3.2 x 0.9288 in year three, 3.2 x 0.9017 in year 4, and 3.2 x 0.8755 in year five. 734 Consumer Reports, August 2008, “What That Car Really Costs to Own.” Available at http://www.consumerreports.org/cro/ cars/pricing/what-that-car-really-c osts-to-own-4-08/overview/whatthat-car-really-costs-to- own-ov.htm (last accessed February 26, 2010).1148 before subtracting the fuel savings to determ ine the overall net consumer valuation of the increase of costs on her purchase decision.

The following table shows the estimated im pact on sales for passenger cars, light trucks, and both combined for the final standa rds. For all model years except MY 2012, NHTSA anticipates an increase in sales, ba sed on consumers valuing the improvement in fuel economy more than th e increase in price.

Table IV.G.5-1 Potential Impact on Sale s, Passenger Cars and Light Trucks, and Combined MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Passenger Cars -65,202 46,801 103,422 168,334 227,039 Light Trucks 48,561 106,658 139,893 171,920 213,868 Combined -16,641 153,459 243,315 340,255 440,907

The estimates provided in the tables above 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 impact on vehicle sale s. As shown below, the overall impact is positive and growing over time for both cars a nd trucks. Because the fuel savings associated with this rule are expected to ex ceed the technology costs, the effective prices of vehicles (the adjusted incr ease in technology cost less the fuel savings over five years) to consumers will fall, and consumers will buy mo re new vehicles. As a result, the lower net cost of the vehicles is projected to lead to an increase in sales for both cars and trucks.

As discussed above, this result depends on the assumption that more fuel efficient vehicles yielding net consumer benefits over th eir first five years would not otherwise be1149 offered, due to market failures on the part of vehicle manufacturers. However, vehicle models that achieve the fuel economy targ ets prescribed by today’s rulemaking are already available, and consumers do not curr ently purchase a combination of them that meets the fuel economy levels this rule requ ires. This suggests that the rule may not result in an increase in vehicle sales, becau se it does not alter how consumers currently make decisions about which models to purchas e. In addition, th is analysis has not accounted for a number of factors that might a ffect consumer vehicle purchases, such as changing market conditions, changes in vehi cle characteristics that might accompany improvements in fuel economy, or consumers considering a different “payback period” for their fuel economy purchases. If consum ers use a shorter payback period, sales will increase by less than estimated here, and might even decline, while if consumers use longer payback periods, the increase in sales is likely to be larger than reported. In addition, because this is an aggregate an alysis some individual consumers (including those who drive less than estimated here) will receive lower net benefits from the increase n fuel economy this rule requires, while others (who drive more than estimated here) will realize even greater savings. These complications – which have not been taken into account in our analysis – add cons iderable uncertainty to our estimates of changes in vehicle sales resulting from this rule.

6. Potential Unquantified Consumer We lfare Impacts of the Final Standards

The underlying goal of the CAFE and GHG standards is to increase social welfare, in the broadest sense, and as shown in earlier sections, NHT SA projects that the1150 MY 2012-2016 CAFE standards will yield large ne t social benefits. In its net benefits analysis, NHTSA made every attempt to include all of the costs and benefits that could be identified and quantified.

It is important to highlight several fe atures of the rulemaking analysis that NHTSA believes gives high confidence to its co nclusion that there are large net social benefits from these standards. First, the agencies adopted footpr int-based standards in large part so that the full range of vehicle c hoices in the marketplace could be maintained. Second, the agencies performed a rigorous technological feasibil ity, cost, and leadtime analysis that showed that the standards coul d be met while maintaining current levels of other vehicle attributes such as safety, u tility, and performance. Third, widespread automaker support for the standards, in conj unction with the future product plans that have been provided by automakers to the agencies and recent industry announcements on new product offerings, provides further indicat ion that the standards can be met while retaining the full spectrum of vehicle choices.

Notwithstanding these points, and its high degree of confidence that the benefits amply justify the costs, NHTSA recognizes th e possibility of consumer welfare impacts that are not accounted for in its analysis of benefits and costs from higher CAFE standards. The agencies received public comments expressing diverging views on this issue. The majority of commenters suggest ed that potential losses in welfare from requiring higher fuel economy were unlikely to be a significant concern, because of the many imperfections in the market for fuel economy. In contrast, other comments1151 suggested that potential unide ntified and unquantified consum er welfare losses could be large. Acknowledging the comments, the FRIA provides a sensitivity analysis showing how various levels of unidentified consumer we lfare losses would affect the projected net social benefits from the CAFE sta ndards established by this final rule.

There are two viewpoints for evaluating the costs and benefits of the increase in CAFE standards: the private perspective of vehicle buyers themselves on the higher fuel economy levels that the rule would requi re, and the economy-wide or “social” perspective on the costs and bene fits of requiring higher fuel ec onomy. It is important, in short, to distinguish between costs and benef its that are “private” and costs and benefits that are “social.” The agency’s analysis of benefits and costs from requiring higher fuel efficiency, presented above, includes several ca tegories of benefits (“so cial benefits”) that are not limited to automobile purchasers and that extend throughout the U.S. economy, such as reductions in the energy security co sts associated with U.S. petroleum imports and in the economic damages expected to resu lt from climate change. In contrast, other categories of benefits – principally the economic value of future fuel savings projected to result from higher fuel economy – will be experienced exclusively by the initial purchasers and subsequent owners of vehi cle models whose fuel economy manufacturers elect to improve as part of their strategi es for complying with higher CAFE standards (“private benefits”).

Although the economy-wide or “social” benefits from requiring higher fuel economy represent an important share of the total economic benefits from raising CAFE1152 standards, NHTSA estimates that benefits to vehicle buyers themselves will significantly exceed the costs of complying with the st ricter fuel economy standards this rule establishes, as shown above. Since the ag ency also assumes that the costs of new technologies manufacturers will employ to im prove fuel economy will ultimately be shifted to vehicle buyers in the form of higher purchase pr ices, NHTSA concludes that the benefits to vehicle buyers from requiring higher fuel e fficiency will far outweigh the costs they will be required to pay to obtain it. However, this raises the question of why current purchasing patterns do not already re sult in higher average fuel economy, and why stricter fuel efficiency standards should be necessary to achieve that goal.

As an illustration, Table IV.G.6-1 reports the agency’s estimates of the average lifetime values of fuel savings for MY 2012-2016 passenger cars and light trucks calculated using future retail fuel prices, which are those likely to be used by vehicle buyers to project the value of fuel savings they expect from higher fuel economy. The table compares NHTSA’s estimates of the aver age lifetime value of fuel savings for cars and light trucks to the price increases it projects to result as manufacturers attempt to recover their costs for complying with incr eased CAFE standards for those model years by increasing vehicle sales prices. As the table shows, the agency’s estimates of the present value of lifetime fuel savings (dis counted using the OMB-recommended 3% rate) substantially outweigh projected vehicle price increases for bo th cars and light trucks in every model year, even under the assumpti on that all of manufacturers’ technology outlays are passed on to buyers in the form of higher selling prices for new cars and light trucks. By model year 2016, NHTSA projects that average lifetime fuel savings will1153 exceed the average price increase by more than $2,000 for cars, and by more than $2,700 for light trucks.

Table IV.G.6-1 Value of Lifetime Fuel Savings vs. Vehicle Price Increases Model year Fleet Measure 2012 2013 2014 2015 2016 Value of Fuel Savings $759 $1,349 $1,914 $2,480 $2,932 Average Price Increase $505 $573 $690 $799 $907 Passenger Cars Difference $255 $897 $1,264 $1,680 $2,025 Value of Fuel Savings $828 $1,634 $2,277 $2,887 $3,700 Average Price Increase $322 $416 $621 $752 $961 Light Trucks Difference $506 $1,218 $1,656 $2,135 $2,739

The comparisons above immediately rais e the question of why current vehicle purchasing patterns do not already result in average fuel economy levels approaching those that this rule would require, and why stricter CAFE standards should be necessary to increase the fuel economy of new cars and lig ht trucks. They also raise the question of why manufacturers do not elect to provide hi gher fuel economy even in the absence of increases in CAFE standards, since the compar isons in Table IV.G.6-1 suggest that doing so would increase the value of many new vehi cle models by far more than it would raise the cost of producing them (and thus raise their purchase prices), thus presumably increasing sales of new vehicles. More sp ecifically, why would potential buyers of new vehicles hesitate to make investments in higher fuel economy that would produce the substantial economic returns illustrated by the comparisons presented in Table IV.G.6-1? And why would manufacturers voluntarily forego opportunities to increase the attractiveness, value, and competitive positioni ng of their car and light truck models by improving their fuel economy?1154 The majority of comments received on this topic answered these questions by pointing out many reasons why the market for vehicle fuel economy does not appear to work perfectly, and accordingly, that pr operly designed CAFE standards would be expected to increase consumer welfare. So me of these imperfections might stem from standard market failures (such as an abse nce of adequate information on the part of consumers); some of them might involve findi ngs in behavioral economics (including, for example, a lack of sufficient consumer atte ntion to long-term sa vings, or a lack of salience, to consumers at the time of purchase, of relevant benefits, including fuel and time savings). Both theoretical and empirica l research suggests that many consumers do not make energy-efficient investments even wh en those investments would pay off in the relatively short-term. 735 This research is in line with related findings that consumers may underweight benefits and costs that are less sali ent or that will be realized only in the future. 736

Existing work provides support for the ag ency’s conclusion that the benefits buyers will receive from requiring manufactur ers to increase fuel economy far outweigh the costs they will pay to acquire those benefits, by identifying aspects of normal behavior that may explain buye rs’ current reluctance to pur chase vehicles whose higher

735 Jaffe, A. B., and Stavins, R. N. (1994). The Energy Paradox and the Diffusion of Conservation Technology. Resource and Energy Economics, 16(2); see Hunt Alcott and Nathan Wozny, Gasoline Prices, Fuel Economy, and the Energy Paradox (2010, available at http://web.mit.edu/allcott/www/Allc ott%20and%20Wozny%202010%20- %20Gasoline%20Prices,%20Fu el%20Economy,%20and%20the%20Energy%20Paradox.pdf 736 Hossain, Janjim, and John Morgan (2009). “. . . Plus Shipping and Handling: Revenue (Non)Equivalence in Field Experiments on eBay,” Advances in Economic Analysis and Policy vol. 6; Barber, Brad, Terrence Odean, and Lu Zheng (2005). “Out of Sight, Out of Mind: The Effectsof Expenses on Mutual Fund Flows,” Journal of Business vol. 78, no. 6, pp. 2095-2020.1155 fuel economy appears to offer an attractive economic return. For example, consumers’ understandable aversion to the prospect of losses (“loss aversion”) may produce an exaggerated sense of uncertainty about th e value of future fuel savings, making consumers reluctant to purchase a more fuel-efficient vehicle seem unattractive, even when doing so is likely to be a sound economic decisi on. Compare the finding in Greene et al. (2009) to the effect th at the expected net present value of increasing the fuel economy of a passenger car from 28 to 35 miles per gallon falls from $405 when calculated using standard net present value calc ulations, to nearly zero when uncertainty regarding future cost savi ngs is taken into account. 737

The well-known finding that as gas prices rise, consumers show more willingness to pay for fuel-efficient vehicles is not in consistent with the possibility that many consumers undervalue gasoline costs and fuel economy at the time of purchase. In ordinary circumstances, such costs may be a relatively “shrouded” attribute in consumers’ decisions, in part because th e savings are cumulative and extend over a significant period of time. This claim fits well with recent findings to the effect that many consumers are willing to pay less than $1 upfront to obtain a $1 benefit reduction in discounted gasoline costs. 738

737 Greene, D., J. German, and M. Delucchi (2009). “Fuel Economy: The Case for Market Failure” in Reducing Climate Impacts in the Transportation Sector , Sperling, D., and J. Cannon, eds. Springer Science. Surprisingly, the authors find that uncertainty regard ing the future price of gasoline appears to be less important than uncertainty surrounding the expected lifetimes of new vehicles. (Docket NHTSA-2009- 0059-0154) 738 See Alcott and Wozny.1156 Some research suggests that the consum ers’ apparent unwillingness to purchase more fuel efficient vehicles stems from th eir inability to value future fuel savings correctly. For example, Larrick and Soll (2008) find evidence that consumers do not understand how to translate changes in fuel economy, which is denominated in miles per gallon, into resulting changes in fuel c onsumption, measured in gallons per time period. 739 Sanstad and Howarth (1994) argue that consumers resort to imprecise but convenient rules of thumb to compare vehicles that offer different fuel economy ratings, and that this behavior can cause many buyers to underestimate the value of fuel savings, particularly from significant increases in fuel economy. 740 If the behavior identified in these studies is widespread, then the agency’s estimates suggesting that the benefits to vehicle owners from requiring higher fuel ec onomy significantly exceed the costs of providing it are indeed lik ely to be correct.

Another possible reconc iliation of the agency ’s claim that the average vehicle buyer will experience large fuel savings fr om the higher CAFE standards this rule establishes with the fact that the average fuel economy of vehicles currently purchased falls well short of the new standards is that th e values of future savings from higher fuel economy vary widely across consumers. As an illustration, one recent review of consumers’ willingness to pay for improved fuel economy found estimates that varied from less than 1% to almost ten times the pres ent value of the resulting fuel savings when

739 Larrick, R. P., and J.B. Soll (2008). “The MPG illusion

. ” Science 320: 1593-1594. 740 Sanstad, A., and R. Howarth (1994). “’Normal’ Mark ets, Market Imperfections, and Energy Efficiency.” Energy Policy 22(10): 811-818.1157 those are discounted at 7% over the vehicle’s ex pected lifetime. 741 The wide variation in these estimates undoubtedly reflects methodol ogical and measurement differences among the studies surveyed. However, it may also reveal that the expected savings from purchasing a vehicle with higher fuel econom y vary widely among individuals, because they travel different amounts, have differe nt driving styles, or simply have varying expectations about future fuel prices.

These differences reflect the possibility th at many buyers with high valuations of increased fuel economy already purchase vehicle models that offer it, while those with lower values of fuel economy emphasize othe r vehicle attributes in their purchasing decisions. A related possibility is that because the effects of differing fuel economy levels are relatively modest when compared to those provided by other, more prominent features of new vehicles - passenger and cargo-carrying cap acity, performance, safety, etc. - it is simply not in ma ny shoppers’ interest to spend th e time and effort necessary to determine the economic value of higher fuel economy, attempt to isolate the component of a new vehicle’s selling price that is related to its fuel ec onomy, and compare these two. (This possibility is consistent with the view that fuel ec onomy is a relatively “shrouded” attribute.) In either case, the agency’s estimates of the average value of fuel savings that will result from requiring cars and light trucks to achieve higher fuel economy may be correct, but those savings may not be large enough to lead a sufficient number of buyers

741 Greene, David L., “How Consumers Value Fuel Econom y: A Literature Review,” Draft report to U.S. Environmental Protection Agency, Oak Ridge National Laboratory, December 29, 2009; see Table 10, p. 37. See also David Greene and Jin-Tan Liu (1988). “Automotive Fuel Economy Improvements and Consumers’ Surplus.” Transportation Research Part A 22A(3): 203-218 (Docket EPA-HQ-OAR-2009- 0472-0045). The study actually calculated the willingness to pay for reduced vehicle operating costs, of which vehicle fuel economy is a major component.1158 to push for vehicles with higher fuel economy to increase average fuel economy from its current levels.

Defects in the market for cars and light trucks could also lead manufacturers to undersupply fuel economy, even in cases wh ere many buyers were willing to pay the increased prices necessa ry to provide it.

To be sure, the relevant market, taken as a whole, has a great deal of competition. But even in those circumstances, there may not such competition with respect to all vehicle attributes. Incomplete or “as ymmetric” access to information on vehicle attributes such as fuel economy – whereby manufacturers of new vehi cles or sellers of used cars and light trucks have more comp lete knowledge of the value of purchasing higher fuel economy, than do potential buyers – ma y also prevents sellers of new or used vehicles from capturing its full value. In th is situation, the level of fuel efficiency provided in the markets for new or used vehi cles might remain persistently lower than that demanded by potential buyers (at le ast if they are well-informed).

It is also possible that deliberate decisions by manu facturers of cars and light trucks, rather than constrai nts on the combinations of fu el economy, carrying capacity, and performance that manufacturers can offer using current technologies, limit the range of fuel economy available to buyers within individual vehicle market segments, such as full-size automobiles, small SUVs, or minivans . As an illustration, once a potential buyer has decided to purchase a minivan, the ra nge of fuel economy among current models1159 extends only from 18 to 24 mpg. 742 Manufacturers might make such decisions if they underestimate the premiums that shoppers in certain market segments are willing to pay for more fuel-efficient versions of the vehicle models thy cu rrently offer to prospective buyers within those segments. If this occu rs, manufacturers may fail to supply levels of fuel efficiency as high as those buyers are willing to pay for, and the average fuel efficiency of their entire ne w vehicle fleets could remain below the levels that potential buyers demand and are willing to pay for. (Of cour se this possibility is most realistic if it is also assumed that buyers are imperfectly informed or if fuel economy savings are not sufficiently salient). However, other comm enters suggested that, if one assumes a perfectly functioning market, there must be unidentified consumer welfare losses that could offset the private fuel savings that consumers are currently foregoing.

One explanation for this apparent paradox is that NHTSA’s estimates of benefits and costs from requiring manuf acturers to improve the fuel efficiency of their vehicle models do not match potential vehicle buyers’ as sessment of the likely benefits and costs from requiring higher fuel efficiency. This could occur because the agency’s underlying assumptions about some of the factors that a ffect the value of fuel savings differ from those made by potential buyers, because NHTSA has used different estimates for some components of the benefits from saving fuel than do buyers, or because the agency has failed to account for some potential co sts of achieving higher fuel economy.

742 This is the range of combined city and highway fu el economy levels from lo west (Toyota Siena 4WD) to highest (Mazda 5) available for model year 2010; http://www.fueleconomy.gov/feg/ bestworstEPAtrucks.htm (last accessed February 15, 2010).1160 For example, buyers may not value incr eased fuel economy as highly as the agencies’ calculations suggest, because they have shorter time horizons than the full vehicle lifetimes assumed by NHTSA and EPA, or because, when buying vehicles, they discount future fuel future savings using hi gher rates than those prescribed by OMB for evaluating federal regulations. Potential buyers may also antic ipate lower fuel prices in the future than those forecast by the Energy Information Administration, or may expect larger differences between vehicles’ rate d and actual on-road MPG levels than the agencies estimate.

To illustrate the first of these possibilitie s, Table IV.G.6-2 shows the effect of differing assumptions about ve hicle buyers’ time horizons fo r assessing the value of future fuel savings. Specifically, the table compares the average value of fuel savings from purchasing a MY 2016 car or light tr uck when fuel savings are evaluated over different time horizons to the estimated increase in its price. This table shows that as reported previously in Table IV.G.6-2, when fuel savings are evaluated over the entire expected lifetime of a MY 2016 car (approxim ately 14 years) or lig ht truck (about 16 years), their discounted present value (usi ng the OMB-recommended 3% discount rate) lifetime fuel savings exceeds the estimated average price increase by more than $2,000 for cars and by more than $2,700 for light trucks.

If buyers are instead assumed to cons ider fuel savings over a 10-year time horizon, however, the present value of fuel savings exceeds the projected price increase for a MY 2016 car by about $1,300, and by somewhat more than $1,500 for a MY 20161161 light truck. Finally, Table VI .G.6-2 shows that under the as sumption that buyers consider fuel savings only over the le ngth of time for which they typically finance new car purchases (slightly more than 5 years during 2009), the value of fuel savings exceeds the estimated increase in the price of a MY 2016 car by only about $350, and the corresponding difference is reduced to slig htly more than $500 for a MY 2016 light truck..

Table IV.G.6-2 Value of Fuel Savings vs. Vehicle Price Increase s with Alternative Assumptions about Vehicle Buyer Time Horizons Value over Alternative Time Horizons Vehicle Measure Expected Lifetime 743 10 Years Average Loan Term 744 Fuel Savings $2,932 $2,180 $1,254 Price Increase $907 $907 $907 MY 2016 Passenger Car Difference $2,025 $1,273 $347 Fuel Savings $3,700 $2,508 $1,484 Price Increase $961 $961 $961 MY 2016 Light Truck Difference $2,739 $1,547 $523

Potential vehicle buyers may also discount future fuel future savings using higher rates than those typically used to evaluate federal regulations. OM B guidance prescribes that future benefits and costs of regulati ons that mainly affect private consumption decisions, as will be the case if manufactur ers’ costs for complying with higher fuel economy standards are passed on to vehicl e buyers, should be discounted using a

743 Expected lifetimes are approximately 14 year s for cars and 16 years for light trucks. 744 Average term on new vehicle loans made by auto finance companies during 2009 was 62 months; See Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release G.19, Consumer Credit. Available at http://www.federalreserve. gov/releases/g19/Current (last accessed March 1, 2010).1162 consumption rate of time preference. 745 OMB estimates that savers currently discount future consumption at an average real or infl ation-adjusted rate of about 3 percent when they face little risk about its likely level, which makes it a reasonable estimate of the consumption rate of time preference. Howe ver, vehicle buyers may view the value of future fuel savings that results from purch asing a vehicle with higher fuel economy as risky or uncertain, or they may instead discount future consumption at rates reflecting their costs for financing the higher capita l outlays required to purchase more fuelefficient models. In either case, they may disc ount future fuel savings at rates well above the 3% assumed in NHTSA’s evaluati on in their purchase decisions.

Table IV.G.6-3 shows the effects of higher discount rate s on vehicle buyers’ evaluation of the fuel savings projected to result from the CAFE standards established by this rule, again using MY 2016 passenger cars a nd light trucks as an example. As Table IV.G.6-1 showed previously, average future fuel savings discounted at the OMB 3% consumer rate exceed the agency’s estimated price increases by more than $2,000 for MY 2016 passenger cars and by more than $2, 700 for MY 2016 light trucks. If vehicle buyers instead discount future fuel savings at the average new-car loan rate during 2009 (6.7%), however, these differences decline to slightly more than $1,400 for cars and $1,900 for light trucks, as Table IV.G.6-3 illustrates.

This is a potentially plausible alternativ e assumption, because buyers are likely to finance the increases in purchase prices resulting from compliance with higher CAFE

745 Office of Management and Budget, Circular A-4, “Regulatory Analysis,” September 17, 2003, 33. Available at http://www.whitehouse.gov/omb /assets/regulatory_matters_pdf/a-4.pdf (last accessed March 1, 2010).1163 standards as part of the process of financi ng the vehicle purchase itself. Finally, as the table also shows, discounting fu ture fuel savings using a cons umer credit card rate (which averaged 13.4% during 2009) reduces these differences to less than $800 for a MY 2016 passenger car and less than $1,100 for the t ypical MY 2016 light truck. Note, however, that even at these higher discount rates, the table shows that the private net benefits from purchasing a vehicle with the average level of fuel economy this rule requires remain s large.

Table IV.G.6-3 Value of Fuel Savings vs. Vehicle Price Increase s with Alternative Assumptions about Consumer Discount Rates Value over Alternative Time Horizons Vehicle Measure OMB Consumer Rate (3%) New Car Loan Rate (6.7%) 746 OMB Investment Rate (7%) Consumer Credit Card Rate (13.4%) 747 Fuel Savings $2,932 $2,336 $2,300 $1,669 Price Increase $907 $907 $907 $907 MY 2016 Passenger Car Difference $2,025 $1,429 $1,393 $762 Fuel Savings $3,700 $2,884 $2,836 $2,030 Price Increase $961 $961 $961 $961 MY 2016

Light Truck Difference $2,739 $1,923 $1,875 $1,069

Combinations of a shorter time horizon a nd a higher discount rate could further reduce or even eliminate the difference be tween the value of fuel savings and the agency’s estimates of increases in vehicle prices. One plausible combination would be for buyers to discount fuel savings over the term of a new car loan, using the interest rate

746 Average rate on 48-month new vehicle loans made by commercial banks during 2009 was 6.72%; See Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release G.19, Consumer Credit. Available at http://www.federalreserve. gov/releases/g19/Current (last accessed March 1, 2010). 747 Average rate on consumer credit card accounts at co mmercial banks during 2009 was 13.4%; See Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release G.19, Consumer Credit. Available at http://www.federalreserve.gov/releases/g19 /Current (last accessed March 1, 2010).1164 on that loan as a discount ra te. Doing so would reduce the amount by which future fuel savings exceed the estimated increase in th e prices of MY 2016 vehicles to about $340 for passenger cars and $570 for light trucks. Some evidence also s uggests directly that vehicle buyers may employ combinations of higher discount rates and shorter time horizons for their purchase decisions; for ex ample, consumers surveyed by Kubik (2006) reported that fuel savings would have to be adequate to pay back the additional purchase price of a more fuel-efficient vehicle in less than 3 years to persua de a typical buyer to purchase it. 748 As these comparisons and evidence illustrate, reasonable alternative assumptions about how consumers might evaluate the major benefit from requiring higher fuel economy can significantly affect the benefits they e xpect to receive when they decide to purchase a new vehicle.

Imaginable combinations of shorter ti me horizons, higher discount rates, and lower expectations about future fuel prices or annual vehicle use a nd fuel savings could make potential buyers hesitant or even unwilling to purchase vehicles offering the increased fuel economy levels this rule will require manufacturers to produce. At the same time, they might cause vehicle buyers ’ collective a ssessment of the aggregate benefits and costs of this rule to differ fr om NHTSA’s estimates. If consumers’ views about critical variables such as future fuel prices or the appropriat e discount rate differ sufficiently from the assumptions used by the agency, some or perhaps many potential vehicle buyers might conclude that the value of fuel savings and other benefits they will experience from higher fuel economy are not suff icient to justify the increase in purchase

748 Kubik, M. (2006). Consumer Views on Transportation and Energy. Second Edition. Technical Report: National Renewable Energy Laboratory. Available at Docket No. NHTSA-2009-0059-0038.1165 prices they expect to pay. This would e xplain why their current choices among available models do not result in average fuel economy levels approaching those this rule would require.

Another possibility is th at achieving the fuel econo my improvements required by stricter fuel economy standards might mean th at manufacturers will forego planned future improvements in performance, carrying capacity, safety, or other features of their vehicle models that represent importa nt sources of utility to vehicle owners. Although the specific economic values that vehicle buyers a ttach to individual vehicle attributes such as fuel economy, performance, passenger- a nd cargo-carrying capacity, and other sources of vehicles’ utility are difficult to infer from their purchasing decisions and vehicle prices, changes in vehicle attributes can significantly affect the overall utility that vehicles offer to potential buyers. Foregoing future improvements in these or other highly-valued attributes coul d be viewed by potential buyers as an additional cost of improving fuel economy.

As indicated in its previous discus sion of technology costs, NHTSA has approached this potential problem by de veloping cost estimates for fuel economyimproving technologies that include allowanc es for any additional manufacturing costs that would be necessary to maintain the reference fleet (or baseline) levels of performance, comfort, capacity, or safety of light-duty vehicle m odels to which those technologies are applied. In doing so, the agency followed the precedent established by the 2002 NAS Report on improving fuel economy, which estimated “constant1166 performance and utility” costs for technol ogies that manufacturers could employ to increase the fuel efficiency of cars or light trucks. Although NHTSA has revised its estimates of manufacturers’ costs for some technologies significantly for use in this rulemaking, these revised estimates are still intended to represent co sts that would allow manufacturers to maintain the performance, safety, carrying capacity, and utility of vehicle models while improving their fuel ec onomy. The adoption of the footprint-based standards also addresses this concern.

Finally, vehicle buyers may simply prefer the choices of vehicle models they now have available to the combinations of pri ce, fuel economy, and other attributes that manufacturers are likely to o ffer when required to achieve higher overall fuel economy. If this is the case, their choices among models – and even some buyers’ decisions about whether to purchase a new vehicle – will re spond accordingly, and their responses to these new choices will reduce their overall welfare. Some may buy models with combinations of price, fuel efficiency, and other attributes that they consider less desirable than those they w ould otherwise have purchased, while others may simply postpone buying a new vehicle. The use of the footprint-based sta ndards, the level of stringency, and the lead time this rule allows manufacturers are all inte nded to ensure that this does not occur. Although the potential losses in buyers ’ welfare associated with these responses cannot be large enough to o ffset the estimated value of fuel savings reported in the agencies’ analyses, they might reduce the benefits from requiring manufacturers to achieve highe r fuel efficiency, particularly in combination with the other possibilities outlined previously.1167 As the foregoing discussion suggests, the agency does not have a complete answer to the question of why the apparentlylarge differences between its estimates of benefits from requiring higher fuel economy an d the costs of supplyi ng it do not result in higher average fuel economy for new cars and light trucks in the absence of this rule. One explanation is that NHTSA’s estimates are reasonable, and that for the reasons outlined above, the market for fuel economy is not operating efficiently. NHTSA believes that the existing literature gives s upport for the view that because of various market failures (including behavioral factors, such as emphasis on the short-term and a lack of salience), there are likely to be substantial private gains, on net, from the rule, but it will continue to investigate new empiri cal literature as it become available.

NHTSA acknowledges the possibility that it has incorrectly characterized the impact of the CAFE standards this rule es tablishes on consumers. To recognize this possibility, this section presents an altern ative accounting of the be nefits and costs of CAFE standards for MYs 2012-2016 passenger ca rs and light trucks and discusses its implications. Table IV.G.6-4 displays the ec onomic impacts of the rule as viewed from the perspective of potential buye rs, and also reconciles the es timated net benefits of the rule as they are likely to be viewed by vehi cle buyers with its net benefits to the economy as a whole.

As the table shows, the total benefits to vehicle buyers (line 4) consist of the value of fuel savings at retail fuel prices (line 1), the economic value of vehicle occupants’1168 savings in refueling time (line 2), and th e economic benefits from added rebound-effect driving (line 3). As the zero entries in line 5 of the table suggest, the agency’s estimate of the retail value of fuel savings reported in li ne 1 is assumed to be correct, and no losses in consumer welfare from changes in vehicle attr ibutes (other than those from increases in vehicle prices) are assumed to occur. Thus there is no reduction in the total private benefits to vehicle owners, so that net privat e benefits to vehicle buyers (line 6) are equal to total private benefits (reported previously in line 4).

As Table IV.G.6-4 also shows, the decline in fuel tax revenues (line 7) that results from reduced fuel purchases is in effect a soci al cost that offsets pa rt of the benefits of fuel savings to vehicle buyers (line 1). 749 Thus the sum of lines 1 and 7 is the savings in fuel production costs that was re ported previously as the value of fuel savings at pre-tax prices in the agency’s usual accounting of benefits and cost s. Lines 8 and 9 of Table IV.G.6-4 report the valu e of reductions in air pollution a nd climate-related externalities resulting from lower emissions during fuel production and consumption, while line 10 reports the savings in energy security exte rnalities to the U.S. economy from reduced consumption and imports of crude petroleum an d refined fuel. Line 12 reports the costs of increased congestion delays, accidents, a nd noise that result from additional driving due to the fuel economy rebound effect; net social benefits (line 13) is thus the sum of the

749 Strictly speaking, fuel taxes represent a transfer of resources from consumers of fuel to government agencies and not a use of economic resources. Reducin g the volume of fuel purchases simply reduces the value of this transfer, and thus canno t produce a real economic cost or be nefit. Representing the change in fuel tax revenues in effect as an economy-wide cost is necessary to offset the portion of fuel savings included in line 1 that represents savings in fuel tax payments by consumers. This prevents the savings in tax revenues from being counted as a benefit from the economy-wide perspective.1169 change in fuel tax revenues, the reduc tion in environmental and energy security externalities, and increased costs from added driving.

Line 14 of Table IV.G.6-4 shows manuf acturers’ technology outlays for meeting higher CAFE standards for passenger cars and li ght trucks, which represent the principal cost of requiring higher fuel economy. The net total benefits ( line 15 of the table) resulting from the rule consist of the sum of private (line 6) and external (line 13) benefits, minus technology costs (line 14); as expected, the figur es reported in line 15 of the table are identical to those reported prev iously in the agency’s customary format.

Table IV.G.6-4 highlights se veral important features of this rule’s economic impacts. First, comparing the rule’s net priv ate (line 6) and extern al (line 13) benefits makes it clear that a substantial majority of the benefits from requiring higher fuel economy are experienced by vehicle buyers, with only a small share distributed throughout the remainder of the U.S. economy. In turn, the vast majority of private benefits stem from fuel savings. External benefits are small because the value of reductions in environmental and energy security externalities is almost exactly offset by the decline in fuel tax revenues and the increas ed costs associated with added vehicle use via the rebound effect of higher fuel econom y. As a consequence, the net economic benefits of the rule mirror closely its benef its to private vehicle buyers and the technology costs for achieving higher fuel economy, agai n highlighting the importance of accounting for any other effects of the rule on th e economic welfare of vehicle buyers.1170 Table IV.G.6-4 Private, Social, and Tota l Benefits and Costs of MY 2012-16 CAFE Standards: Passenger Cars plus Light Trucks Model Year Entry 2012 2013 2014 2015 2016 Total, 2012- 2016 1. Value of Fuel Savings (at Retail Fuel Prices) $10.5 $22.9 $32.9 $42.5 $52.7 $161.6 2. Savings in Refueling Time $0.7 $1.4 $1.9 $2.5 $3.0 $9.4 3. Consumer Surplus from Added Driving $0.7 $1.5 $2.2 $2.8 $3.4 $10.5 4. Total Private Benefits (=1+2+3) $11.9 $25.8 $37.0 $47.8 $59.0 $181.5 5. Reduction in Private Benefits $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 6. Net Private Benefits (=1+2) $11.9 $25.8 $37.0 $47.8 $59.0 $181.5 7. Change in Fuel Tax Revenues -$1.3 -$2.7 -$3.8 -$4.8 -$5.9 -$18.5 8. Reduced Health Damages from Criteria Emissions $0.5 $0.9 $1.3 $1.6 $2.0 $6.4 9. Reduced Climate Damages from CO 2 Emissions $0.9 $2.0 $2.9 $3.8 $4.8 $14.5 10. Reduced Energy Security Externalities $0.5 $1.2 $1.6 $2.1 $2.5 $8.0 11. Reduction in Externalities (=8+9+10) $1.9 $4.1 $5.9 $7.6 $9.3 $28.8 12. Increased Costs of Congestion, etc. -$0.7 -$1.3 -$1.9 -$2.4 -$3.0 -$9.4 13. Net Social Benefits (=7+11+12) $0.0 $0.1 $0.1 $0.3 $0.5 $1.0 14. Technology Costs $5.9 $7.9 $10.5 $12.5 $14.9 $51.7 15. Net Social Benefits (=6+12-14) $6.0 $17.9 $26.6 $35.5 $44.6 $130.7
As discussed in detail previously, NHTS A believes that the aggregate benefits from this rule amply justify its aggregate cost s, but it remains possible that the agency has overestimated the value of fuel savings to buyers and subsequent owners of the cars and light trucks to which higher CAFE standards will apply. It is also possible that the agency has failed to identify a nd value reductions in consumer welfare that could result from buyers’ responses to changes in vehicle attributes that manufact urers make as part of their efforts to achieve higher fuel ec onomy. To acknowledge these possibilities, NHTSA examines their potential impact on th e rule’s benefits and costs, showing the rule’s economic impacts for MY 2012-16 passeng er cars and light trucks under varying theoretical assumptions about the agency’s potentia l overestimation of private benefits1171 from higher fuel economy and the value of potenti al changes in other vehicle attributes. See Chapter VIII of the FRIA.

7. What Other Impacts (Quantitative and Unquantifiable) will These Final Standards Have?

In addition to the quantified benefits a nd costs of fuel economy standards, the final standards will have other impacts that we have not quantified in monetary terms. The decision on whether or not to quantify a particular impact depends on several considerations:

• Does the impact exist, and can the magnitude of the impact reasonably be attributed to the outcome of this rulemaking?

• Would quantification help NHTSA and the public evaluate standards that may be set in rulemaking?

• Is the impact readily quan tifiable in monetary term s? Do we know how to quantify a particular impact?

• If quantified, would the monetary impact likely be material?

• Can a quantification be derived with a su fficiently narrow range of uncertainty so that the estimate is useful?

NHTSA expects that this rulemaking will have a number of genuine, material impacts that have not been quantified due to one or more of the considerations listed above. In some cases, further research may yield estimates for future rulemakings.1172 Technology Forcing

The final rule will improve the fuel economy of the U.S. new vehicle fleet, but it will also increase the cost (and presumably, the price) of new passenger cars and light trucks built during MYs 2012-2016. We anticipate that the cost, scope, and duration of this rule, as well as the steadily rising sta ndards it requires, will cause automakers and suppliers to devote increased attention to methods of improving vehicle fuel economy.

This increased attention will stimulate additional research and engineering, and we anticipate that, over time, innovative approa ches to reducing the fuel consumption of light duty vehicles will emerge. Several commenters agreed. These innovative approaches may reduce the cost of the final rule in its later years, and also increase the set of feasible technologies in future years.

We have attempted to estimate the effect of learning on known technologies within the period of the rulemaking. We have not attempted to estimate the extent to which not-yet-invented technologies will appear , either within the time period of the current rulemaking or that might be available after MY 2016.1173 Effects on Vehicle Maintenance, Operation, and Insurance Costs

Any action that increases the cost of new vehicles will subsequently make such vehicles more costly to maintain, repair, a nd insure. In general, this effect can be expected to be a positive linea r function of vehicle costs. The final rule raises vehicle costs by over $900 by 2016, and for some ma nufacturers costs will increase by $1000- $1800. Depending on the retail price of the ve hicle, this could represent a significant increase in the overall vehicle cost and subse quently increase insurance rates, operation costs, and maintenance costs. Comprehensive insurance costs are likely to be directly related to price increases, but liability premiums will go up by a smaller proportion because the bulk of liability coverage reflects the cost of personal injury. The impact on operation and maintenance costs is less clear, because the maintenance burden and useful life of each technology are not known. Howeve r, one of the common consequences of using more complex or innovative technologies is a decline in vehicl e reliability and an increase in maintenance costs, borne, in part, by the manufacturer (through warranty costs, which are included in th e indirect costs of production) and, in part by the vehicle owner. NHTSA believes that this effect is di fficult to quantify for purposes of this final rule. The agency will analyze this issue fu rther for future rulemakings to attempt to gauge its impact more completely.1174 Effects on Vehicle Miles Traveled (VMT)

While NHTSA has estimated the impact of the rebound effect on VMT, we have not estimated how a change in vehicle sales could impact VMT. Since the value of the fuel savings to consumers outweighs the technology costs, new vehicle sales are predicted to increase. A change in vehicl e sales will have complicated and a hard-toquantify effect on vehicle miles traveled gi ven the rebound effect, th e trade-in of older vehicles, etc. In general, overall VMT should not be significantly affected.

Effect on Composition of Passenge r Car and Light Truck Sales

In addition, manufacturers, to the extent that they pass on costs to customers, may distribute these costs across their motor vehicl e fleets in ways that affect the composition of sales by model. To the extent that cha nges in the composition of sales occur, this could affect fuel savings to some degree. However, NHTSA’s view is that the scope for compositional effects is relatively small, sin ce most vehicles will to some extent be impacted by the standards. Compositional e ffects might be important with respect to compliance costs for individual manufacturers, but are unlikely to be material for the rule as a whole.

NHTSA is continuing to study methods of estimating compositional effects and may be able to develop methods for use in future rulemakings.1175 Effects on the Used Vehicle Market

The effect of this rule on the use and scrappage of older vehicles will be related to its effects on new vehicle prices, the fuel e fficiency of new vehicle models, and the total sales of new vehicles. Elsewhere in this analysis, NHTSA estimates that vehicle sales will increase. This would occur because the value of fuel savings resulting from improved fuel efficiency to the typical potential buyer of a new vehicle outweighs the average increase in new models’ costs. Unde r these circumstances, sales of new vehicles will rise, while scrappage rates of used vehicles will increase slightly . This will cause the “turnover” of the vehicle fleet – that is, th e retirement of used vehicles and their replacement by new models – to accelerate s lightly, thus accentuating the anticipated effect of the rule on fleet-wide fuel consumption and CO 2 emissions. However, if potential buyers value future fuel savings resu lting from the increased fuel efficiency of new models at less than the in crease in their average selling price, sales of new vehicles would decline, as would the rate at which used vehicles are retired from service. This effect will slow the replacement of used vehi cles by new models, and thus partly offset the anticipated effects of the proposed rules on fuel use and emissions.

Impacts of Changing Fuel Compositi on on Costs, Benefits, and Emissions

EPAct, as amended by EISA, creates a Rene wable Fuels Standard that sets targets for greatly increased usage of renewable fuels over the next decade. The law requires1176 fixed volumes of renewable fuels to be used —volumes that are not linked to actual usage of transportation fuels.

Ethanol and biodiesel (in the required volumes) may increase or decrease the cost of blended gasoline and diesel depending on crude oil prices and tax subsidies. The potential extra cost of renewable fuels would be borne through a cros s-subsidy: the price of every gallon of blended gasoline could rise sufficiently to pay for any extra cost of renewable fuels. However, if the price of fuel increases enough, the consumer could actually realize a savings thr ough the increased usage of re newable fuels. The final CAFE rule, by reducing total fuel consumpti on, could tend to increase any necessary cross-subsidy per gallon of fuel , and hence raise the market pr ice of transportation fuels, while there would be no change in the vol ume or cost of renewable fuels used.

These effects are indirectly incorporated in NHTSA’s analysis of the proposed CAFE rule because they are directly incorporat ed in EIA’s projections of future gasoline and diesel prices in the Annual Energy Outlook, which incorporates in its baseline both a Renewable Fuel Standard and an increasing CAFE standard.

The net effect of incorporating an RFS then might be to slightly reduce the benefits of the rule because a ffected vehicles might be driv en slightly less, and because they emit slightly fewer greenhouse gas emissions per gallon. In addition there might be corresponding losses from the induced reduction in VMT. All of these effects are difficult to estimate, because of uncertainty in future crude oil prices, uncertainty in1177 future tax policy, and uncertainty about how petroleum marketers will actually comply with the RFS, but they are likely to be small, because the cumulative deviation from baseline fuel consumption induced by th e final rule will itself be small.

Macroeconomic Impacts of this Rule

The final rule will have a number of consequences that may have short-run and longer-run macroeconomic effects. It is im portant to recognize, however, that these effects do not represent benefits in addition to those resulting directly from reduced fuel consumption and emissions. Instead, they represent the economic effects that occur as these direct impacts filter through the in terconnected markets comprising the U.S.
economy.

• Increasing the cost and quality (in the form of better fuel economy) of new passenger cars and light trucks will have ripple effects through the rest of the economy. Depending on the assumptions ma de, the rule could generate very small increases or declines in output.

• Reducing consumption of imported petrol eum should induce an increase in longrun output.

• Decreasing the world price of oil should induce an increase in long-run output.

NHTSA has not studied the macroeconomic effects of the final rule, however a discussion of the economy-wide impacts of th is rule conducted by EPA is presented in1178 Section III.H and is included in the doc ket. Although economy-wide models do not capture all of the potential impacts of this rule (e.g., improvements in product quality), these models can provide valuable insights on how this final rule would impact the U.S. economy in ways that extend beyond the transportation sector.

Military Expenditures

This analysis contains quantified estima tes for the social cost of petroleum imports based on the risk of oil market disr uption. We have not included estimates of monopsony effects or the cost of military expenditures associated with petroleum imports.

Distributional Effects

The final rule analysis provides a nati onal-level distribution of impacts for gas price and similar variables. NHTSA also s hows the effects of the EIA high and low gas price forecasts on the aggregate benefits in the sensitivity analysis. Generally, this rule has the greatest impact on those individuals who purchase vehicles. In terms of how the benefits of the rule might accrue different ly for different consumers, consumers who drive more than our mean estimates for VMT will see more fuel sa vings, while those who drive less than our mean VMT estimat es will see less fuel savings.1179 H. Vehicle Classification

Vehicle classification, for purposes of the CAFE program, refers to whether NHTSA considers a vehicle to be a passenger automobile or a light truck, and thus subject to either the passenger automobile or the light truck standards. As NHTSA explained in the MY 2011 rulemaking, EPCA cat egorizes some light 4-wheeled vehicles as passenger automobiles (cars) and the ba lance as non-passenger automobiles (light trucks). EPCA defines passenger automob iles as any automobile (other than an automobile capable of off-highway opera tion) which NHTSA decides by rule is manufactured primarily for use in the transp ortation of not more than 10 individuals. EPCA 501(2), 89 Stat. 901. NHTSA created regulatory defini tions for passenger automobiles and light trucks, found at 49 CFR 523, to guide the agency and manufacturers in clas sifying vehicles.

Under EPCA, there are two general groups of automob iles that qualify as nonpassenger automobiles or light trucks: (1) t hose defined by NHTSA in its regulations as other than passenger automobiles due to their having design features that indicate they were not manufactured “primarily” for trans porting up to ten indivi duals; and (2) those expressly excluded from the pa ssenger category by statute due to their capability for offhighway operation, regardless of whether they might have been manufactured primarily for passenger transportation. 750 NHTSA’s classification rule directly tracks those two

750 49 U.S.C. 32901(a)(18). We note that the statute re fers both to vehicles that are 4WD and to vehicles over 6,000 lbs GVWR as potential candidates for off-ro ad capability, if they also meet the “significant1180 broad groups of non-passenger auto mobiles in subsections (a) a nd (b), respectively, of 49
CFR 523.5.

For the purpose of this NPRM for the MYs 2012-2016 standards, EPA agreed to use NHTSA’s regulatory definitions for determining which vehicles would be subject to which CO 2 standards.

In the MY 2011 rulemaking, NHTSA took a fresh look at the regulatory definitions in light of several factors and developments: its desire to ensure clarity in how vehicles are classified, the passage of EISA, and the Ninth Circuit’s decision in CBD
v. NHTSA

. 751 NHTSA explained the origin of th e current definitions of passenger automobiles and light trucks by tracing them back through the history of the CAFE program, and did not propose to change the defi nitions themselves at that time, because the agency concluded that the de finitions were largely consiste nt with Congress’ intent in separating passenger automobiles and light trucks, but also in part because the agency tentatively concluded that doing so would not lead to increased fuel savings. However, the agency tightened the definitions in §523.5 to ensure that only vehicles that actually have 4WD will be classified as off-highway vehicles by reason of having 4WD (to prevent 2WD SUVs that also come in a 4WD “version” from qualifying automatically as “off-road capable” simply by reason of the exis tence of the 4WD version). It also took this action to ensure that manufacturers may only use the “greater cargo-carrying

feature ...designed for off-highway operation” as defined by the Secr etary. NHTSA would consider “AWD” vehicles as 4WD for purposes of this determin ation – they send power to all wheels of the vehicle all the time, while 4WD vehicles may only do so part of the time, which appears to make them equal candidates for off-road capability gi ven other necessary characteristics. 751 538 F.3d 1172 (9 th Cir. 2008).1181 capacity” criterion of 523.5(a)(4) for cargo van-t ype vehicles, rather than for SUVs with removable second-row seats unless they truly have greater cargo-carrying than passengercarrying capacity “as sold” to the first reta il purchaser. NHTSA concluded that these changes increased clarity, were consistent with EPCA and EISA, and responded to the Ninth Circuit’s decision with rega rd to vehicle classification.

However, NHTSA recognizes that manuf acturers may have an incentive to classify vehicles as light truc ks if the fuel economy target for light trucks with a given footprint is less stringent than the target for passenger cars with the same footprint. This is often the case given the curren t fleet, due to the fact that the curves are based on actual fuel economy capabilities of the vehicles to which they apply. Because of characteristics like 4WD and towing and hauling capacity (and correspondingl y, although not necessarily, heavier weight), th e vehicles in the current light truck fleet are generally less capable of achieving higher fuel economy le vels as compared to the vehicles in the passenger car fleet. 2WD SUVs are the vehicles that could be most readily redesigned so that they can be “moved” from the passenger car to the light truck fleet. A manufacturer could do this by adding a third row of seat s, for example, or boosting GVWR over 6,000 lbs for a 2WD SUV that already meets the ground clearance requirements for “off-road capability.” A change like this may only be possible during a vehicle redesign, but since vehicles are redesigned, on average, every 5 years, at least some manufacturers may choose to make such changes before or during the model years covered by this rulemaking.1182 In the NPRM, in looking forward to model years beyond 2011 and considering how CAFE should operate in the context of the National Program and previouslyreceived comments as requested by Presid ent Obama, NHTSA sought comment on the following potential changes to NHTSA’s vehi cle classification system, as well as on whether, if any of the changes were to be adopted, they should be applied to any of the model years covered by this rulemaking or wh ether, due to lead time concerns, they should apply only to MY 2017 and thereafter.

Reclassifying minivans and other “3-row” light trucks as passenger cars (i.e., removing 49 CFR 523.5(a)(5)) :

NHTSA has received repeated comments over the course of the last several rulemakings from environmental and consum er groups regarding the classification of minivans as light trucks instead of as passenger cars. Commenters have argued that because minivans generally have three rows of seats, are built on unibody chassis, and are used primarily for transporting passengers, they should be classified as passenger cars. NHTSA did not accept these arguments in the MY 2011 final rule, due to concerns that moving minivans to the passenger car fleet would lower the fuel economy targets for those passenger cars having essentially the same footprint as the minivans, and thus lower the overall fuel average fuel economy level that the manufacturers w ould need to meet. However, due to the new methodology for se tting standards, th e as-yet-unknown fueleconomy capabilities of future minivans and 3-row 2WD SUVs, and the unknown state of the vehicle market (particularly for MY s 2017 and beyond), NHTSA did not feel that it1183 could say with certainty that moving these vehicles could negatively affect potential stringency levels for either passenger cars or light trucks. Thus, although such a change would not be made applicable during the MY 2012-2016 time frame, NHTSA sought comment on why the agency should or should not consider, as part of this rulemaking, reclassifying minivans (and other current light trucks that qualify as such because they have three rows of designated seating pos itions as standard equipment) for MYs 2017 and after.

Comments received on this issue were sp lit between support and opposition. As perhaps expected, the Alliance, AIAM, NADA, Chrysler, Ford, and Toyota all commented in favor of maintaining 3-row vehi cles as light trucks indefinitely. The Alliance and Chrysler stated that the existing definitions for light trucks are consistent with Congressional intent in EPCA and EISA , given that Congress could have changed the 3-row definition in passing EISA but did not do so. The Alliance, AIAM, and Chrysler also argued that the functional char acteristics of 3-row ve hicles do make them “truck-like,” citing their “high load characterist ics” and ability to carry cargo if their seats are stowed or removed. Ford and Toyota emphasized the need for stability in the definitions as manufacturers adjust to th e recent reclassification of many 2WD SUVs from the truck to the car fleet, and the Alliance argued further that moving the 3-row vehicles to the car fleet would simply de ter manufacturers from continuing to provide them, causing consumers to purchase larger fu ll-size vans instead and resulting in less fuel savings and emissions reductions. Toyot a stated further that no significant changes have occurred in the marketplace (as in, not all 2WD SUVs suddenly have 3 rows) to1184 trigger additional reclassifi cation beyond that required by the MY 2011 final rule. Hyundai neither supported nor objected to reclas sification, but requested ample lead time for the industry if any cha nges are eventually made.

Other commenters favored recl assification of 3-row vehicl es from the truck to the car fleet: NJ DEP expressed general support for reclassifying 3-row vehicles for MYs 2017 and beyond, while the UCSB student comme nters seemed to support reclassifying these vehicles for the current rulemaking. The UCSB students stated that EPCA/EISA properly distinguishes lig ht trucks based on their “specializ ed utility,” eith er their ability to go off-road or to transport material loads, but that 3-row vehicles do not generally have such utility as sold, and are clearly primarily sold and used for transporting passengers. The UCSB students suggested that reclassifyi ng the 3-row vehicles from the truck to the car fleet could help to ensure the anticipated levels of fuel savings by moving the fleet closer to the 67/33 fleet split assumed in the agencies’ analysis for MY 2016, and stated that this would increase fuel economy over th e long term. The students urged NHTSA to look at the impact on fuel savings from recl assifying these vehicles for the model years covered by the rulemaking.

In response, NHTSA did conduct such an analysis to attempt to consider the impact of moving these vehicles. As previously stated, the agency’s hypothesis is that moving 3-row vehicles from the truck to the ca r fleet will tend to bring the achieved fuel economy levels down in both fleets – the car fl eet achieved levels could theoretically fall due to the introduction of many more vehicles that are re latively heavy for their footprint1185 and thus comparatively less fuel economy-capable, while the truck fleet achieved levels could theoretically fall due to the characteris tics of the vehicles remaining in the fleet (4WDs and pickups, mainly) that are often co mparatively less fuel-economy capable than 3-row vehicles, although more vehicles would be subject to the rela tively more stringent passenger car standards, assuming the cu rves were not refit to the data.

The agency first identified which vehicles should be moved. We identified all of the 3-row vehicles in th e baseline (MY 2008) fleet, 752 and then considered whether any could be properly classified as a light tr uck under a different provision of 49 CFR 523.5 – about 40 vehicles were cl assifiable under §523.5(b) as off-highway capable.

The agency then transferre d those remaining 3-row vehi cles from the light truck to the passenger car input sheets for the Volpe model, re-estimated the gap in stringency between the passenger car and light truck standards, shifted the curves to obtain the same overall average required fuel economy as unde r the final standards, and ran the model to evaluate potential impacts (in terms of costs, fuel savings, etc.) of moving these vehicles. The results of this analysis may be found in the same location on NHTSA’s web site as the results of the analysis of the final st andards. In summary, moving the vehicles reduced the stringency of the passenger car standards by approximately 0.8 mpg on average for the five years of the rule, a nd reduced the stringency of the light truck standards by approximately 0.2 mpg on average for the five years of the rule. It also caused the gap between the car curve and the truck curve to decrease or narrow slightly, by 0.1 mpg. However, the analysis also showed that such a shift in 3-row vehicles could

752 Of the 430 light trucks models in the fleet, 175 of these had 3 rows.1186 result in approximately 676 million fewer gallons of fuel consumed (equivalent to about 1 percent of the reduction in fuel consum ption under the final standards) and 7.1 mmt fewer CO 2 emissions (equivalent to about 1 percent of the reduction in CO 2 emissions under the final standards) over the lifetime of the MYs 2012-2016 ve hicles. This result is attributable to slight diffe rences (due to rounding preci sion) in the overall average required fuel economy levels in MYs 2012-2014, and to the retention of the relatively high lifetime mileage accumulation (compared to “traditional” passenger cars) of the vehicles moved from the light truc k fleet to the passenger car fleet.

The changes in overall costs and vehicle price did not necessarily go in the same direction for both fleets, however. Overall costs of applying technology for the passenger car fleet went up approximately $1 billion per year for each of MYs 2012-2016, while overall costs for the light truck fleet we nt down by an average of approximately $800 million for each year, such that the net e ffect was approximately $200 million additional spending on technology each year (equivalent to about 2 percent of the average increase in annual technology outlays under the final st andards). Assuming manufacturers would pass that cost forward to consumers by incr easing vehicle costs, vehicle prices would increase by an average of a pproximately $13 during MYs 2012-2016.

However, one important point to note in th is comparative analysis is that, due to time constraints, the agency did not attempt to refit the respective fleet target curves or to change the intended required stringency in MY 2016 of 34.1 mpg for the combined fleets. If we had refitted curves followi ng the same procedures described above in1187 Section II, considering the vehicles in questi on, we expect that we might have obtained a somewhat steeper passenger car curve, and a so mewhat flatter light tr uck curve. If so, this might have increased the gap in between portions of the passenge r car and light truck

curves.

NHTSA agrees with the industry commenter s that some degree of stability in the passenger car and light truck definitions will as sist the industry in making the transition to the stringency of the new National Progr am, and therefore will not reclassify 3-row vehicles to the passenger car fleet for purpos es of MYs 2012-2016. Going forward, the real question is how to bala nce the benefits of regulatory stability against the potential benefits of greater fuel savings if reclassification is determined to lead in that direction. NHTSA believes that this question merits much further analysis before the agency can make a decision for model years beyond MY 2016, and will provide further opportunity for public comment regarding that analysis pr ior to finalizing any changes in the future.

Classifying “like” vehicles together :

Many commenters objected in the rule making for the MY 2011 standards to NHTSA’s regulatory separation of “like” vehicl es. Industry commente rs argued that it was technologically inappropriate for NHTSA to place 4WD and 2WD versions of the same SUV in separate classes. They argue d that the vehicles are the same, except for their drivetrain features, thus giving them similar fuel economy improvement potential. They further argued that all SUVs should be classified as light trucks. Environmental1188 and consumer group commenters, on the othe r hand, argued that 4WD SUVs and 2WD SUVs that are “off-highway capable” by vi rtue of a GVWR above 6,000 pounds should be classified as passenger cars, since they ar e primarily used to transport passengers. In the MY 2011 rulemaking, NHTSA rejected both of these sets of arguments. NHTSA concluded that 2WD SUVs that were ne ither “off-highway cap able” nor possessed “truck-like” functional characteri stics were appropriately classi fied as passenger cars. At the same time, NHTSA also concluded that because Congress e xplicitly designated vehicles with GVWRs over 6,000 pounds as “off-highway capable” (if they meet the ground clearance requirements establishe d by the agency), NHTSA did not have authority to move these vehicl es to the passenger car fleet.

With regard to the first argument, that “like” vehicles should be classified similarly (i.e., that 2WD SUVs should be classified as light trucks because, besides their drivetrain, they are “like” the 4WD versi on that qualifies as a light truck), NHTSA continues to believe that 2WD SUVs that do not meet any part of the existing regulatory definition for light trucks should be classi fied as passenger cars. However, NHTSA recognizes the additional point raised by industry commenters in the MY 2011 rulemaking that manufacturers may respond to this tighter classification by ceasing to build 2WD versions of SUVs, which could reduce fu el savings. In response to that point, NHTSA stated in the MY 2011 final rule that it expects that manufact urer decisions about whether to continue building 2WD SUVs w ill be driven in much greater measure by consumer demand than by NHTSA’s regulatory definitions. If it appears, in the course of the next several model years, that manuf acturers are indeed responding to the CAFE1189 regulatory definitions in a way that reduces overall fuel savings from expected levels, it may be appropriate for NHTSA to review th is question again. NHTSA sought comment in the NPRM on how the agency might go about reviewing this question as more information about manufacturer behavior is accumulated, but no commenters really responded to this issue direc tly, although several cited the po ssibility that manufacturers might cease to build 2WD SUVs as a way of avoiding the higher passenger car curve targets in arguing that the ag encies should implement backst op standards for all fleets. Since NHTSA has already stated above that it will revisit the backstop question as necessary in the future, we may as well add th at we will consider the need to classify “like” vehicles together as necessary in the future.

With regard to the second argument, that NHTSA should move vehicles that qualify as “off-highway capable” from the light truck to the passenger car fleet because they are primarily used to transport passengers , NHTSA reiterates that EPCA is clear that certain vehicles are non-passenger automobiles (i.e., light trucks) because of their offhighway capabilities, regardless of how they may be used day-to-day.

However, NHTSA suggested in the NPRM that it could explore additional approaches, although it cautioned that not all could be pursued on current law. Possible alternative legal regimes might include: a) cl assifying vehicles as pa ssenger cars or light trucks based on use alone (rather than ch aracteristics); b) re moving the regulatory distinction altogether and setti ng standards for the entire flee t of vehicles instead of for separate passenger car and light truck fleets; or c) dividing the fleet into multiple1190 categories more consistent with current ve hicle fleets (i.e., sedans, minivans, SUVs, pickup trucks, etc.). NHTSA sought comment on whether and why it should pursue any of these courses of action.

Some commenters (ICCT, CBD, NESCAUM) did raise the issue of removing the regulatory distinction between car s and trucks and setting standa rds for the entire fleet of vehicles, but those commenters did not appe ar to recognize the fact that EPCA/EISA expressly requires that NHTSA set separate standards for passenger cars and light trucks. As the statute is currently written, NHTSA doe s not believe that a single standard would be appropriate unless the observed relations hip between footprint and fuel economy of the two fleets converged significantly over time . Nevertheless, NHTSA will continue to monitor the issue going forward.

Besides these issues in vehicle cla ssification, NHTSA additionally received comments from two manufacturers on issues not raised by NHTSA in the NPRM. VW requested clarification with respect to how the agency evaluates a vehicle for off-road capability under 49 CFR 523.5(b)(2), asking the agency to measure vehicles with “active ride height management” at th e “height setting representative of off-road operation if the vehicle has the capability to change ride he ight.” NHTSA issued an interpretation to Porsche in 2004 addressing this issue, when Porsche asked whethe r a driver-c ontrolled variable ride height suspension system coul d be used in the “off-road” ride height position to meet the suspension parameters required for an off- road classification1191 determination. 753 Porsche argued that a vehicle shoul d not need to satisfy the four-outof-five criteria at all ride heights in order to be deemed capable of off-highway operation. NHTSA agreed that 523.5(b)(2) doe s not require a vehicle to meet four of the five criteria

at all ride heights, but stat ed that a vehicle must meet four out of the five criteria in at
least one ride height. The agency determined th at it would be appropr iate to measure the vehicle’s running clearance w ith the vehicle’s adjustable suspension placed in the position(s) intended for off-road ope ration under real-world conditions.

Thus, NHTSA clarifies that the agency would consider it appropriate to measure vehicles for off-road capability at the height setting intended for off-road operation under real-world conditions. However, we note that before this question need be asked and answered, the vehicle must first either be e quipped with 4WD or be rated at more than 6,000 pounds gross vehicle weight to be eligible for classification as a light truck under 49 CFR 523.5(b).

The final comment on the issue of ve hicle classification was received from Honda, who recommended that deformable aero parts, such as strakes, should be excluded from the ride height measurements that determine whether a vehicle qualifies as a truck for off-road capability. The air st rakes described by Honda are semi-deformable parts similar to a mud flap that can be us ed to improve a vehicle’s aerodynamics, and thus to improve its fuel economy. H onda argued that NHTSA would deter the application of this technology if it did not agree to measure ride height with the air

753 Available at http://isearch.nhtsa.gov/files/porschevrh s.html (last accessed Mar. 1, 2010).1192 strakes at their most deformed state, because otherwise a vehicle so equipped would have to be classified as a passenger car and thus be faced with the more stringent standard.

In response, Honda did not provide enough information to the agency for the agency to make a decision with regard to how air strakes should be considered in measuring a vehicle for off-road capability. NHTSA personnel would prefer to directly examine a vehicle equipped with these devices before considering the issue further. The agency will defer consideration of this issu e to another time, and no changes will be made in this final rule in response to this comment.

I. Compliance and Enforcement

1. Overview

NHTSA’s CAFE enforcement program and the compliance flexibilities available to manufacturers are largely established by statute – unlike the CAA, EPCA and EISA are very prescriptive and leave the agency lim ited authority to increase the flexibilities available to manufacturers. This was intentional, howev er. Congress balanced the energy saving purposes of the statute against th e benefits of the various flexibilities and incentives it provided and placed precise limits on those flexibilities and incentives. For example, while the Department sought authority for unlimited transfer of credits between a manufacturer’s car and li ght truck fleets, Congress limited the extent to which a manufacturer could raise its average fuel economy for one of its classes of vehicles1193 through credit transfer in lieu of adding more fuel saving technologies. It did not want these provisions to slow pr ogress toward achieving greater energy conservation or other policy goals. In keeping with EPCA’s fo cus on energy conservation, NHTSA has done its best, for example, in crafting the credit transfer and trading regulations authorized by EISA, to ensure that total fuel savings are preserved when manufacturers exercise their compliance flexibilities.

The following sections explain how NHT SA determines whether manufacturers are in compliance with the CAFE standards for each model year, and how manufacturers may address potential non-compliance situations through the use of compliance flexibilities or fine payment.

2. How Does NHTSA Determine Compliance?

a. Manufacturer Submission of Data and CAFE Testing by EPA

NHTSA begins to determine CAFE co mpliance by considering pre- and midmodel year reports submitted by manufactur ers pursuant to 49 CFR 537, Automotive Fuel Economy Reports. 754 The reports for the current model year are submitted to NHTSA every December and July. As of the ti me of this final rule, NHTSA has received pre-model year reports from manufacturers for MY 2010, a nd anticipates receiving mid-- model year reports for MY 2010 in July of th is year. Although the reports are used for NHTSA’s reference only, they help the agen cy, and the manufacturers who prepare them,

754 49 CFR Part 537 is authorized by 49 U.S.C. 32907.1194 anticipate potential compliance i ssues as early as possible, and help manufacturers plan compliance strategies. Currently, NHTSA receive s these reports in paper form. In order to facilitate submission by ma nufacturers and consistent with the President’s electronic government initiatives, NHTSA proposed to amend Part 537 to allow for electronic submission of the pre- and mid-model ye ar CAFE reports. The only comments addressing this proposal were fr om Ferrari, who supported it in the interest of efficiency, and Ford, who did not object as long as CBI was sufficiently protected. Having received no comments objecting, NHTSA is fina lizing this change to Part 537.

NHTSA makes its ultimate determination of manufacturers’ CAFE compliance upon receiving EPA’s official certified and re ported CAFE data. The EPA certified data is based on vehicle testing and on final model year data submitted by manufacturers to EPA pursuant to 40 CFR 600.512, Model Year Re port, no later than 90 days after the end of the calendar year. Pursuant to 49 U.S.C. 32904(e), EPA is responsible for calculating automobile manufacturers’ CAFE values so that NHTSA can determine compliance with the CAFE standards. In measuring the fuel economy of passenger cars, EPA is required by EPCA 755 to use the EPA test procedures in pl ace as of 1975 (or procedures that give comparable results), which are the city and hi ghway tests of today, with adjustments for procedural changes that have occurred since 197 5. EPA uses similar procedures for light trucks, although, as noted above, EPCA does not require it to do so.

As discussed above in Section III, a numb er of commenters raised the issue of whether the city and highway test procedures and the calculation are still appropriate or

755 49 U.S.C. 32904(c).1195 whether they may be outdated. Several commen ters argued that the calculation should be more “real-world”: for example, ACEEE st ated that EPA should use a “correction factor” like the one used for the fuel econom y label in the interim until test procedures can be changed, while BorgWarner, Cummins, Honeywell, MECA, and MEMA argued that EPA should change the weighting of the city and highway cycles (to more highway and less city) to reflect current American driving patterns and to avoid biasing the calculation against technologies that provide greater efficiency in highway driving than in city driving. Sierra Club et al . commented that the fact th at EPA was proposing to allow off-cycle credits indicated that the test pro cedures and the calculat ion needed updating. Several commenters (API, James Hyde, ME CA, NACAA, and NY DEC) stated that the test procedures should use more “real-world” fuel, like E-10 instead of “indolene clear.” The UCSB students also had a number of comm ents aimed at making the test procedures more thorough and real-world. Several indus try-related commenters (AIAM, Ferrari, and Ford) argued to the contrary that existing test procedures and calculations are fine for now, and that any changes would require signi ficant lead time to allow manufacturers to adjust their plans to the new procedures.

Statutorily, the decision to change the te st procedures or calculation is within EPA’s discretion, so NHTSA will not attempt to answer these comments in detail, see

supra Section III for EPA’s responses. We note simply that the agency recognizes the need for lead time for the industry if test pr ocedures were to change in the future to become more real-world, and will keep it in mind.1196 One notable shortcoming of the 1975 test pr ocedure is that it does not include a provision for air conditioner usage during the te st cycle. As discussed in Section III above, air conditioner usage increases the load on a vehicle’s engine, reducing fuel efficiency and increasing CO 2 emissions. Since the air conditioner is not turned on during testing, equipping a vehicle model with a relatively inefficient air conditioner will not adversely affect that model’s measured fuel economy, while equipping a vehicle model with a relatively efficient air conditione r will not raise that model’s measured fuel economy. The fuel economy test procedures for light trucks could be amended through rulemaking to provide for air conditioner opera tion during testing and to take other steps for improving the accuracy and representativenes s of fuel economy measurements. In the NPRM, NHTSA sought comment regarding implementing such amendments beginning in MY 2017 and also on the more immediate interim step of providing credits under 49 U.S.C. 32904(c) for light trucks equipped with relatively efficient air conditioners for MYs 2012-2016. NHTSA emphasized that modernizing the passenger car test procedures as well would not be possibl e under EPCA as currently written.

Comments were split as to whether the te st procedure should be changed. Several manufacturers and manufactur er groups (BMW, GM, Toyota, VW, the Alliance) opposed changes to the test procedures to account for A/C usage on the grounds that any changes could create negative unintended consequences. Public Citizen also opposed changes to the test procedure, arguing that the fuel ec onomy information presented to the consumer on the fuel economy label is already confusing, and that further changes to the light truck test procedures when there was no authority to change the passenger car test procedures1197 would simply result in more confusion. In contrast, NJ DEP fully supported changes to the light truck test procedures beginning with MY 2017, and an individual commenter (Weber) also supported the inclusion of A/C in the test procedures to represent real-world “A/C on” time.

However, some of the same commenters –BMW, Toyota, and VW, for example – that opposed changes to the test procedure supported NHTSA allowing credits for A/C. Toyota stated that it supported anything that increased compliance flexibility, while VW emphasized that A/C credits for CAFE would help to address the fact that NHTSA’s standards could end up being more stringe nt than EPA’s for manufacturers relying heavily on A/C improvements to meet the GHG standards. NJ DEP also supported interim A/C credits for light trucks, but in co ntrast to VW, argued that the light truck standards would have to be ma de more stringent to account for those credits if they were allowed.

Other commenters (Chrysler, Daimler, Fe rrari) supported interim A/C credits for light truck CAFE, but stated th at such credits could simply be added to EPA’s calculation of CAFE under 49 U.S.C. 32904(c) without any change in the test procedure ever being necessary. Daimler stated th at the prohibition on changing the test procedure, according to legislative history, was to avoid sudden and dramatic changes and provide consistency for manufacturers in the beginning of the CAFE program, but that no thing indicated that EPA was barred from updating the way a manuf acturer’s fuel economy is calculated after the test procedures are followed. Daimler emphasized that EPA has broad authority in1198 how it calculates fuel economy, and that addi ng credits at the end of the calculation would make CAFE more consistent with the GHG program and recognize real-world benefits not measured by the test cycle. Da imler argued that if EPA did not include A/C credits as part of the calculation, it woul d remove incentives to improve A/C, because those gains could not be used for CAFE compliance and NHTSA has no authority to include A/C in determining stringency, because A/C is a “parasitic load” that does not impact mpg.

Some commenters opposed interi m A/C credits. CARB stated that no A/C credits should be given under EPCA unless the test procedures can be changed to fully account for A/C and NHTSA is given clear authority for A/C, while GM stated that NHTSA’s authority to create additional types of credits must be limited by the fact that Congress clearly provided in EPCA for some types of CAFE credits but not for A/C-related credits for CAFE.

NHTSA has decided not to implement interim A/C credits for purposes of this final rule and MYs 2012-2016 light trucks. Change s to the test procedure for light trucks will be considered by the agencies in subsequent rulemakings.

While NHTSA agrees with commenters that the EPA authority to consider how fuel economy is calculated is broad, especially as to light trucks, we disagree that credits could simply be added to the CAFE calcu lation without making parallel changes in CAFE standard stringency to reflect their availa bility. CAFE stringency is determined, in1199 part, with reference to the technologies avai lable to manufacturers to improve mpg. If a technology draws power from the engine, like A/C, then making that technology more efficient to reduce its load on the engine wi ll conserve fuel, consistent with EPCA’s purposes. However, as noted above, some technologies that improve mpg are not accounted for in current CAFE test procedures . NHTSA agrees that the test procedures should be updated to account fo r the real-world loads on the engine and their impact on fuel economy, but recognizes that manufactur ers will need lead-tim e and advance notice in order to ready themselves for such ch anges and their impact on CAFE compliance.

Thus, if manufacturers are able to achieve improvements in mpg that are not reflected on the test cycle, th en the level of CAFE that th ey are capable of achieving is higher than that which their performance on the test cycle would otherwise indicate, which suggests, in turn, that a higher stringency is feasible. NHTSA has determined that the current CAFE levels being finalized toda y are feasible using traditional “tailpipe technologies” alone. If ma nufacturers are capable of improving fuel economy beyond that level using A/C technologi es, and wish to receive credit for doing so, then NHTSA believes that more stringent CAFE standards would need to be established. Not raising CAFE could allow manufacturers to leav e tailpipe technology on the table and make cheaper A/C improvements, which would not re sult in the maximum feasible fuel savings contemplated by EPCA.

Because raising CAFE stringency in conjunction with allowing A/C credits was not a possibility clearly contemplated in the NPRM, NHTSA does not believe that it1200 would be within scope of notice for purposes of this rulemaking. A ccordingly, the final rule cannot provide for interi m A/C credits. However, if NHTSA were to allow A/C credits in the future, NHTSA believes it w ould be required to increase standard stringency accordingly, to avoid losses in fuel savings, as stated above. NHTSA will consider this approach further, ensuring th at any changes to the treatment of A/C and accompanying changes in CAFE stringency ar e made with sufficient notice and leadtime.

b. NHTSA Then Analyzes EPA-Certified CAFE Values for Compliance

Determining CAFE compliance is fairly straightforward: after testing, EPA verifies the data submitted by manufactur ers and issues final CAFE reports to manufacturers and to NHTSA between April an d October of each year (for the previous model year), and NHTSA then identifies the manufacturers’ compliance categories (fleets) that do not meet the a pplicable CAFE fleet standards.

To determine if manufacturers have ea rned credits that would offset those shortfalls, NHTSA calculates a cumulative cr edit status for each of a manufacturer’s vehicle compliance categories according to 49 U.S.C. 32903. If a manufacturer’s compliance category exceeds th e applicable fuel economy st andard, NHTSA adds credits to the account for that compliance category. If a manufacturer’s vehicles in a particular compliance category fall below the standard fuel economy value, NHTSA will provide written notification to the manufacturer that it has not met a particular fleet standard. The1201 manufacturer will be required to confirm the shortfall and must either: submit a plan indicating it will alloca te existing credits, and/or for MY 2011 and later, how it will earn, transfer and/or acquire cred its; or pay the appropriate civil penalty. The manufacturer must submit a plan or payment within 60 days of receiving agency notification. The amount of credits are determined by multiplyi ng the number of tenths of a mpg by which a manufacturer exceeds, or falls short of, a standard for a particular category of automobiles by the total volume of automob iles of that category manufactured by the manufacturer for a given model y ear. Credits used to offset shortfalls are subject to the three and five year limitations as described in 49 U.S.C. 32903(a). Transferred credits are subject to the limitations specified by 49 U.S.C. 32903(g)(3). The value of each credit, when used for compliance, received via trade or transfer is adjusted, using the adjustment factor described in 49 CFR 536.4, pu rsuant to 49 U.S.C. 32903(f)(1). Credit allocation plans received from the manufacturer will be reviewed and approved by NHTSA. NHTSA will approve a credit allocation plan unless it finds the proposed credits are unavailable or that it is unlikely th at the plan will result in the manufacturer earning sufficient credits to offset the subject credit shortfall. If a plan is approved, NHTSA will revise the respective manufacturer’s credit account accordingly. If a plan is rejected, NHTSA will notify the respective manu facturer and request a revised plan or payment of the appropriate fine.

In the event that a manufacturer does not comply with a CAFE standard, even after the consideration of credits, EPCA provi des for the assessing of civil penalties. The Act specifies a precise formula for determini ng the amount of civil penalties for such a1202 noncompliance. The penalty, as adjusted for inflation by law, is $5.50 for each tenth of a mpg that a manufacturer’s average fuel econom y falls short of the standard for a given model year multiplied by the total volume of those vehicles in the affected fleet (i.e., import or domestic passenger car, or light truc k), manufactured for that model year. The amount of the penalty may not be redu ced except under the un usual or extreme circumstances specified in the statute. All pe nalties are paid to th e U.S. Treasury and not to NHTSA itself. 756

Unlike the National Traffic and Motor Vehicle Safety Act, EPCA does not provide for recall and remedy in the event of a noncompliance. The presence of recall and remedy provisions 757 in the Safety Act and their absence in EPCA is believed to arise from the difference in the application of th e safety standards and CAFE standards. A safety standard applies to i ndividual vehicles; that is, each vehicle must possess the requisite equipment or featur e which must provide the re quisite type and level of performance. If a vehicle does not, it is noncompliant. Typically, a vehicle does not entirely lack an item or equipment or feature. Instead, the equipment or features fails to perform adequately. Recalling the vehicle to repair or replace the noncompliant equipment or feature can usually be readily accomplished.

756 Honeywell commented that any fines imposed an d collected under the CAFE and GHG standards should be appropriated to the development of vehicle technologies that continue to improve fuel economy in the future, and that the direct application of the penalties collected would support the underlying legislative policy and drive innovation. While NHTSA certainly would not oppose such an outcome, it would lie within the hands of Congress and not the agency to direct the use of the fines in that manner. 757 49 U.S.C. 30120, Remedies for defects and noncompliance.1203 In contrast, a CAFE standard applies to a manufacturer’s entire fleet for a model year. It does not require that a particular individual vehicle be equipped with any particular equipment or feature or meet a part icular level of fuel economy. It does require that the manufacturer’s fleet , as a whole, comply. Further, although under the attributebased approach to setting CAFE standards fuel economy targets are established for individual vehicles based on thei r footprints, the vehicles are not required to comply with those targets on a model-by-model or vehicle-by- vehicle basis. However, as a practical matter, if a manufacturer choos es to design some vehicles so they fall below their target levels of fuel economy, it will need to design ot her vehicles so they ex ceed their targets if the manufacturer’s overall flee t average is to meet the applicable standard.

Thus, under EPCA, there is no such thi ng as a noncompliant vehicle, only a noncompliant fleet. No particul ar vehicle in a noncompliant fleet is any more, or less, noncompliant than any other vehicle in the fleet.

After enforcement letters are sent, NHTSA continues to monitor receipt of credit allocation plans or civil penalty payments thatare due within 60 days from the date of receipt of the letter by th e vehicle manufacturer, and ta kes further action if the manufacturer is delinquent in responding.

Several commenters encouraged the agency to increase the tr ansparency of how the agency monitors and enforces CAFE comp liance. EDF, Public Citizen, Sierra Club et al ., UCS, and Porsche all commented that NHTSA should publish an annual compliance1204 report for manufacturers, and Porsche suggested that it be available online. Sierra Club et al . and Porsche stated that this would help clarify manufacturers’ credit status (for the benefit of the public and manuf acturers looking to purchase credits, respectively) and sales, and Sierra Club et al . further stated that the agency should make public all information regarding credits and attained ve rsus projected fleet average mpg levels. EDF similarly urged the agency to provide publ icly a compliance report every year that would include any recommended adjustments to the program, enforcement actions, or prospective policy action to ensure the policy objectives are achieved.

In response, NHTSA agrees that there c ould be substantial be nefits to increasing the transparency of information concerning the credit holdings of each credit holder. Along with the MY 2011 final rule, NHTSA issued a new regulation 49 CFR 536 to implement the new CAFE credit trading a nd transfer programs authorized by EISA. Paragraph 536.5(e) requires that we periodically publish credit holding information. NHTSA plans to make this information avai lable to the public on the NHTSA web site. The exact format that will be used to displa y this information has not been finalized but it is our plan to begin making this information available no later than calendar year 2011 to coincide with MY 2011 when manufacturer s may begin utilizing credit trades and transfers.1205 3. What Compliance Flexibilities Are Available under the CAFE Program and How Do Manufacturers Use Them?

There are three basic flexibilities permitted by EPCA/EISA that manufacturers can use to achieve compliance with CA FE standards beyond applying fuel economyimproving technologies: (1) building dual- and alternative-fueled ve hicles; (2) banking, trading, and transferring credits earned fo r exceeding fuel economy standards; and (3) paying fines. We note again that while these flexibility mechanisms will reduce compliance costs to some degree for most manufacturers, 49 U.S.C. 32902(h) expressly prohibits NHTSA from considering the availabil ity of credits (either for building dual- or alternative-fueled vehicles or from accumula ted transfers or trades) in determining the level of the standards. Thus, NHTSA may not raise CAFE standards because manufacturers have enough cred its to meet higher standards. This is an important difference from EPA’s authority under th e CAA, which does not contain such a restriction, and which allows EPA to set higher standards as a result.

a. Dual- and Alternative-Fueled Vehicles

As discussed at length in prior rulema kings, EPCA encourages manufacturers to build alternative-fueled and dual- (or flexib le-) fueled vehicles by providing special fuel economy calculations for “dedicated” (that is, 100 percent) alternative fueled vehicles and “dual-fueled” (that is, capable of running on either the alternative fuel or gasoline)1206 vehicles. The fuel economy of a dedicated alternative fuel vehicle is determined by dividing its fuel economy in equivalent mile s per gallon of gasoline or diesel fuel by
0.15. 758 Thus, a 15 mpg dedicated alternative fu el vehicle would be rated as 100 mpg. For dual-fueled vehicles, the rating is the average of the fuel economy on gasoline or diesel and the fuel economy on the alte rnative fuel vehicle divided by 0.15. 759

For example, this calculation procedure turns a dual-fueled vehicle that averages 25 mpg on gasoline or diesel into a 40 mpg vehicle for CAFE purposes. This assumes that (1) the vehicle operate s on gasoline or diesel 50 percent of the time and on alternative fuel 50 percent of the time; (2) fuel economy while operating on alternative fuel is 15 mpg (15/.15 = 100 mpg); and (3) fu el economy while operating on gas or diesel is 25 mpg. Thus:

CAFE FE = 1/{0.5/(mpg gas) + 0.5/(m pg alt fuel)} = 1/{0.5/25 + 0.5/100) = 40 mpg

In the case of natural gas, the calculation is performed in a similar manner. The fuel economy is the weighted average while operating on natural gas and operating on gas or diesel. The statute specifies that 100 cubic feet (ft 3 ) of natural gas is equivalent to 0.823 gallons of gasoline. The gallon equivalenc y of natural gas is equal to 0.15 (as for other alternative fuels). 760 Thus, if a vehicle averages 25 miles per 100 ft 3 of natural gas, then:

758 49 U.S.C. 32905(a). 759 49 U.S.C. 32905(b) 760 49 U.S.C. 32905(c).1207 CAFE FE = (25/100) * (100/.823)*(1/0.15) = 203 mpg

Congress extended the incen tive in EISA for dual-f ueled automobiles through MY 2019, but provided for its pha se out between MYs 2015 and 2019. 761 The maximum fuel economy increase which may be attribut ed to the incentive is thus as follows:

Model Year mpg increase MYs 1993-2014........... 1.2 MY 2015................... 1.0 MY 2016................... 0.8 MY 2017................... 0.6 MY 2018................... 0.4 MY 2019................... 0.2 After MY 2019............ 0

49 CFR 538 implements the statutory alternative-fueled and dual-fueled automobile manufacturing incentive. NHTSA u pdated Part 538 as part of this final rule to reflect the EISA changes extending the ince ntive to MY 2019, but to the extent that 49 U.S.C. 32906(a) differs from the current vers ion of 49 CFR 538.9, the statute supersedes the regulation, and regulated parties ma y rely on the text of the statute.

A major difference between EPA’s stat utory authority and NHTSA’s statutory authority is that the CAA contains no specifi c prescriptions with regard to credits for dual- and alternative-fueled vehicles comparab le to those found in EPCA/EISA. As an exercise of that authority, and as discussed in Section III above, EPA is offering similar

761 49 U.S.C. 32906(a). NHTSA notes that the incentive for dedicated alternative-fuel automobiles, automobiles that run exclusively on an alternative fuel, at 49 U.S.C. 32905(a), was not phased-out by EISA.1208 credits for dual- and alternative-fueled ve hicles through MY 2015 fo r compliance with its
CO 2 standards, but for MY 2016 and beyond EPA will establish CO 2 emission levels for alternative fuel vehicles ba sed on measurement of actual CO 2 emissions during testing, plus a manufacturer demonstr ation that the vehicles ar e actually being run on the alternative fuel. The manufacturer would th en be allowed to weight the gasoline and alternative fuel test results based on the pr oportion of actual usage of both fuels, as discussed above in Section III. NHTSA has no such authority under EPCA/EISA to require that vehicles manufactured for the pur pose of obtaining the cr edit actually be run on the alternative fuel, but requested comment in the NPRM on whether it should seek legislative changes to revise its authority to address this issue.

NHTSA received only one comment on this issue: VW commented that NHTSA should not seek a change in its authority, b ecause Congress’ intent for NHTSA is already clear. VW did, however, encourage NHTSA to include the statutory FFV credit phaseout in Part 538, which the agency is doing.

b. Credit Trading and Transfer

As part of the MY 2011 final rule, NHTSA established Part 536 for credit trading and transfer. Part 536 implements the pr ovisions in EISA authorizing NHTSA to establish by regulation a credit trading program and directi ng it to establish by regulation a credit transfer program. 762 Since its enactment, EPCA has permitted manufacturers to

762 Congress required that DOT establish a credit “transferring” regulation, to allow individual manufacturers to move credits from one of their fleets to another (e.g., using a credit earned for exceeding1209 earn credits for exceeding the standards and to carry those credits backward or forward. EISA extended the “carry-forward” period from three to five model years, and left the “carry-back” period at three model years. Unde r Part 536, credit hol ders (including, but not limited to, manufacturers) will have cred it accounts with NHTSA, and will be able to hold credits, use them to achieve complianc e with CAFE standards, transfer them between compliance categories, or trade them. A credit may also be cancelled before its expiry date, if the cr edit holder so chooses. Traded and transferred credits are subject to an “adjustment factor” to ensure total oil savings are preserved, as required by EISA. 763 EISA also prohibits credits earned before MY 2011 from being transferred, so NHTSA has developed several regulatory restrictions on trading and transf erring to facilitate Congress’ intent in this regard. EISA also establishes a “cap” for the maximum increase in any compliance category attributable to transferred cred its: for MYs 2011-2013, transferred credits can only be used to incr ease a manufacturer’s CAFE level in a given compliance category by 1.0 mpg; for MY s 2014-2017, by 1.5 mpg; and for MYs 2018 and beyond, by 2.0 mpg.

the light truck standard for compliance with the dome stic passenger car standard). Congress allowed DOT to establish a credit “trading” regulation, so that cr edits may be bought and sold between manufacturers and other parties. 763 Ford and Toyota both commented on NHTSA’s use of the adjustment factor : Ford stated that it preferred a streamlined “megagrams ” approach like EPA was proposing, while Toyota stated that NHTSA and EPA should use consistent VMT estimates for purpos es of all analysis and fo r use in the adjustment factor. In response to Ford, NHTSA is maintaining use of the adjustment factor ju st finalized last March, which uses mpg rather than gallons or grams and is thus consistent with the rest of the CAFE program. In response to Toyota, NHTSA agrees that consistenc y of VMT estimates should be maintained and will revise the adjustment factor as necessary.1210 NHTSA recognizes that some manufact urers may have to rely on credit transferring for comp liance in MYs 2012-2017. 764 As a way to improve the transferring flexibility mechanism for manufacturers, NHT SA interprets EISA not to prohibit the banking of transferred credits for use in late r model years. Thus, NHTSA believes that the language of EISA may be read to allow manufacturers to transf er credits from one fleet that has an excess number of credits, within the limits specified, to another fleet that may also have excess credits instead of tr ansferring only to a fleet that has a credit shortfall. This would mean that a manufacturer could transfer a cert ain number of credits each year and bank them, and then the credits could be carried forward or back “without limit” later if and when a shortfall ever occurred in that same fleet. NHTSA bases this interpretation on 49 U.S.C. 32903(g)(2), whic h states that tran sferred credits “are available to be used in the same model ye ars that the manufacturer could have applied such credits under subsections (a), (b), (d), and (e), as well as for the model year in which the manufacturer earned such credits.” The EISA limitation applies only to the application of such credits for compliance in particular model years, and not their transfer

per se . If transferred credits have the same lifespan and may be used in carry-back and carry-forward plans, it seems reasonable that they should be allowed to be stored in any fleet, rather than only in the fleet in which they were earned. Of course, manufacturers could not transfer and bank cr edits for purposes of achieving the minimum standard for domestically-manufactured pa ssenger cars, as prohibited by 49 U.S.C. 32903(g)(4). Transferred and banked credits w ould additionally still be subject to the adjustment factor

764 In contrast, manufacturers stated in comments in NHTSA’s MY 2011 rulemaking that they did not anticipate a robust market for credit trading, due to competitive concerns. NHTSA does not yet know whether those concerns will continue to deter manufacturers from exercising the trading flexibility during MYs 2012-2016.1211 when actually used, which would help to ensure that total oil savings are preserved while still offering greater flexibility to manufacturer s. This interpretation of EISA also helps NHTSA, to some extent, to harmonize better with EPA’s CO 2 program, which allows unlimited banking and transfer of credits. NHTSA sought comment in the NPRM on this interpretation of EISA.

Only one commenter, VW, commented on NHTSA’s interpretation of EISA as allowing the banking of transferred credits, a nd agreed with it. VW suggested that NHTSA revise Part 536 to clarify accordingl y, and that NHTSA include the statutory transfer cap in Part 536 as well. While NHTSA does not believe that including the statutory transfer cap in the regulation is necessary, NHTSA will revise Part 536 in this final rule by amending the definition of “transfer” as follows (in bold and italics):

Transfer means the application by a manufact urer of credits earned by that manufacturer in one compliance categor y or credits acquired be trade (and originally earned by anothe r manufacturer in that categ ory) to achieve compliance with fuel economy standards with respect to a different compliance category. For example, a manufacturer may purchas e light truck credits from another manufacturer, and transfer them to ach ieve compliance in the manufacturer’s domestically manufactured passenger car fleet. Subject to the credit transfer limitations of 49 U.S.C. 32903 (g)(3), cred its can also be transferred across compliance categories and banked or saved in that category to be carried forward or backward to addr ess a credit shortfall.1212 c. Payment of Fines

If a manufacturer’s average miles per gallon for a given compliance category (domestic passenger car, imported passenger car, light truck) falls below the applicable standard, and the manufacturer cannot make up the difference by using credits earned or acquired, the manufacturer is subject to penaltie s. The penalty, as mentioned, is $5.50 for each tenth of a mpg that a manufacturer’s average fuel economy falls short of the standard for a given model year, multiplied by the total volume of those vehicles in the affected fleet, manufactured for that mode l year. NHTSA has collected $785,772,714.50 to date in CAFE penalties, the largest ever being paid by DaimlerChrysler for its MY 2006 import passenger car fleet, $30,257,920.00. For their MY 2008 fleets, six manufacturers paid CAFE fines for not m eeting an applicable standard—Ferrari, Maserati, Mercedes-Benz, Porsche, Chrysl er and Fiat—for a total of $12,922,255,50.

NHTSA recognizes that some manufacturer s may use the option to pay fines as a CAFE compliance flexibility—presumably, wh en paying fines is deemed more costeffective than applying additional fuel economy-improving technology, or when adding fuel economy-improving technology would fundame ntally change the characteristics of the vehicle in ways that the manufacturer believes its target consumers would not accept. NHTSA has no authority under EPCA/EISA to prevent manufacturers from turning to fine-payment if they choose to do so. This is another important difference from EPA’s authority under the CAA, which allows EPA to revoke a manufacturer’s certificate of1213 conformity that permits it to sell vehicles if EPA determines that the manufacturer is in non-compliance, and does not permit manufactur ers to pay fines in lieu of compliance with applicable standards.

NHTSA has grappled repeatedly with th e issue of whether fines are motivational for manufacturers, and whether raising fine s would increase manufacturers’ compliance with the standards. EPCA authorizes incr easing the civil penalty very slightly up to $10.00, exclusive of inflationary adjustments, if NHTSA decides that the increase in the penalty “will result in, or s ubstantially further, substa ntial energy conservation for automobiles in the model years in which th e increased penalty may be imposed; and will not have a substantial deleteri ous impact on the economy of th e United States, a State, or a region of a State.” 49 U.S.C. 32912(c).

To support a decision that increasing th e penalty would result in “substantial energy conservation” without having “a subs tantial deleterious impact on the economy,” NHTSA would likely need to pr ovide some reasonably certai n quantitative estimates of the fuel that would be saved, and the impact on the economy, if the penalty were raised. Comments received on this issue in the past ha ve not explained in clear quantitative terms what the benefits and drawbacks to raising the penalty might be. Additionally, it may be that the range of possible increase that the statute provides, i.e., up to $10 per tenth of a mpg, is insufficient to result in substantia l energy conservation, although changing this would require an amendment to the statute by Congress. While NHTSA continues to seek to gain information on this issue to inform a future rulemaking decision, we1214 requested in the NPRM that commenters wish ing to address this i ssue please provide, as specifically as possible, estimates of how rais ing or not raising the penalty amount will or will not substantially raise energy conservation and impact the economy.

Only Ferrari and Daimler commented on this issue. Both manufacturers argued that raising the penalty would have no imp act on fuel savings and would simply hurt the manufacturers forced to pay it. Daimler st ated further that the agency’s asking for a quantitative analysis ignores the fact that manufacturers pay fines because they cannot increase energy savings any furt her. Thus, again, the agency finds itself without a clear quantitative explanation of what the benefits and drawbacks to raising the penalty might be, but it continues to appear th at the range of possible increase is insufficient to result in additional substantial energy conservation. NHTSA will therefore defer consideration of this issue for purposes of this rulemaking.

4. Other CAFE Enforcement Issues—Variations in Footprint

NHTSA has a standardized test proce dure for determining vehicle footprint, 765 which is defined by regulation as follows:

Footprint is defined as the produc t of track width (measured in inches, calculated as the average of front and rear track widths, and rounded to the nearest tenth of

765 NHTSA TP-537-01, March 30, 2009. Available at http://www.nhtsa.gov/portal/site/nhtsa/menuitem.b166d5602714f9a73baf3210dba046a0/, scroll down to “537” (last accessed July 18, 2009).1215 an inch) times wheelbase (measured in in ches and rounded to the nearest tenth of an inch), divided by 144 and then rounded to the nearest tenth of a square foot. 766

“Track width,” in turn, is defined as “the lateral distance between the centerlines of the base tires at ground, in cluding the camber angle.” 767 “Wheelbase” is defined as “the longitudinal distance between front and rear wheel centerlines.” 768

NHTSA began requiring manufacturers to submit this information on footprint, wheelbase, and track width as part of their pre-model year reports in MY 2008 for light trucks, and will require manufacturers to subm it this information for passenger cars as well beginning in MY 2010. Manufacturers ha ve submitted the required information for their light trucks, but NHTSA has identified several issues with regard to footprint measurement that could affect how required fuel economy levels are calculated for a manufacturer as discussed below.

a. Variations in Track Width

By definition, wheelbase measurement shoul d be very consistent from one vehicle to another of the same model. Track width, in contrast, may vary in two respects: wheel offset, 769 and camber. Most current vehicles have wheels with positive offset, with

766 49 CFR 523.2. 767 Id. 768 Id. 769 Offset of a wheel is the distan ce from its hub mounting surface to the centerline of the wheel, i.e., measured laterally inboard or outboard. Zero offset – the hub mounting surface is even with the centerline of the wheel Positive offset – the hub mo unting surface is outboard of the cente rline of the wheel (t oward street side)1216 technical specifications for offset typically expressed in millimeters. Additionally, for most vehicles, the camber angle of each of a ve hicle’s wheels is specified as a range, i.e., front axle, left and right within minus 0.9 to plus 0.3 degree and rear axle, left and right within minus 0.9 to plus 0.1 degree. Give n the small variations in offset and camber angle dimensions, the potential effects of co mponents (wheels) and vehicle specifications (camber) within existing desi gns on vehicle footprints ar e considered insignificant.

However, NHTSA recognizes that manufact urers may change the specifications of and the equipment on vehicles, even those that are not redesigned or refreshed, during a model year and from year to year. Th ere may be opportunity for manufacturers to change specifications for wheel offset and cam ber to increase a vehi cle’s track width and footprint, and thus decrease their required fuel economy level. NHTSA believes that this is likely easiest on vehicles that already ha ve sufficient space to accommodate changes without accompanying changes to the body profile and/or suspension component locations.

There may be drawbacks to such a decision, however. Changing from positive offset wheels to wheels with zero or negative offset will move tires and wheels outward toward the fenders. Increasing the negative upper limit of camber will tilt the top of the tire and wheel inward and move the bottom outward, placing the upper portion of the rotating tires and wheels in closer proximity to suspension components. In addition, higher negative camber can adversely affect tir e life and the on-road fuel economy of the vehicle. Furthermore, it is likely that most vehicle de signs have already used the Negative offset – the hub mounting surf ace is inboard of the cen terline of the wheel (away from street side)1217 available space in wheel areas since, by doing so, the vehicle’s handling performance is improved. Therefore, it seems unlikely that manufacturers will make significant changes to wheel offset and camber. No comments were received on this issue.

b. How Manufacturers Designa te “Base Tires” and Wheels

According to the definition of “track wi dth” in 49 CFR 523.2, manufacturers must determine track width when the vehicle is equipped with “base tires.” Section 523.2 defines “base tire,” in turn, as “the tire sp ecified as standard equi pment by a manufacturer on each configuration of a model type.” NHT SA did not define “standard equipment.”

In their pre-model year reports require d by 49 CFR 537, manufacturers have the option of either (A) reporting a base tire for each model type, or (B) reporting a base tire for each vehicle configuration within a model type, which represents an additional level of specificity. If different vehicle configurations have di fferent footprint values, then reporting the number of vehicles for each f ootprint will improve the accuracy of the required fuel economy level for the fleet, since the pre-model year repor t data is part of what manufacturers use to dete rmine their CAFE obligations.

For example, assume a manufacturer’s pr e-model year report listed five vehicle configurations that comprise one model t ype. If the manufacturer provides only one vehicle configuration’s front and rear track wi dths, wheelbase, footprin t and base tire size to represent the model type, and the other vehi cle configurations all have a different tire1218 size specified as standard equipment, the f ootprint value represented by the manufacturer may not capture the full spectrum of footprint va lues for that model type. Similarly, the base tires of a model type may be mounted on two or more wheels with different offset dimensions for different vehicle configurations . Of course, if the footprint value for all vehicle configurations is esse ntially the same, there would be no need to report by vehicle configuration. However, if footprints ar e different—larger or smaller—reporting for each group with similar footprints or for each vehicle configuration would produce a more accurate result. No comments were received on this issue.

c. Vehicle “Design” Valu es Reported by Manufacturers

NHTSA understands that the track widths and wheelbase values and the calculated footprint calculated values, as provi ded in pre-model year reports, are based on vehicle designs. This can lead to inaccurate calcul ations of required fuel economy level. For example, if the values reported by manuf acturers are within an expected range of values, but are skewed to the higher end of the ranges, the required fuel economy level for the fleet will be artificially lower, an in accurate attribute based value. Likewise, it would be inaccurate for manufacturers to s ubmit values on the lowe r end of the ranges, but would decrease the likelihood that measur ed values would be less than the values reported and reduce the likelihood of an agen cy inquiry. Since not every vehicle is identical, it is also probable that variations between vehicles exist that can affect track width, wheelbase and footprint. As with ot her self-certific ations, each manufacturer must1219 decide how it will report, by model type, vehicle configuration, or a combination, and whether the reported values have suffici ent margin to account for variations.

To address this, the agency will be monitoring the track widths, wheelbases and footprints reported by manufacturers, and antici pates measuring vehicles to determine if the reported and measured values are consiste nt. We will look for year-to-year changes in the reported values. We can compare MY 2008 light truck information and MY 2010 passenger car information to the information reported in subsequent model years. Moreover, under 49 CFR 537.8, manufacturers ma y make separate reports to explain why changes have occurred or they may be cont acted by the agency to explain them. No comments were received on this issue.

d. How Manufacturers Report this Information in their Pre-Model Year Reports

49 CFR 537.7(c) requires that manufacturer s’ pre-model year reports include “model type and configuration fuel economy and technical information.” The fuel economy of a “model type” is, for many manu facturers, comprised of a number of vehicle configurations. 49 CFR 537.4 states that “model type” and “vehicle configuration” are defined in 40 CFR 600. Under that Part, “model type” includes engine, transmission, and drive configurati on (2WD, 4WD, or all-wheel drive), while “vehicle configuration” includes those parame ters plus test weight. Model type is important for calculating fuel economy in th e new attribute-based system—the required1220 fuel economy level for each of a manufacturer ’s fleets is calculated using the number of vehicles within each model type and the applicable fuel economy target for each model type.

In MY 2008 and 2009 pre-model year reports for light trucks, manufacturers have expressed information in different ways. Some manufacturers that have many vehicle configurations within a m odel type have included information for each vehicle configuration’s track width, wheelbase and footprint. Ot her manufacturers reported vehicle configuration information per §537.7(c )(4), but provided only model type track width, wheelbase and footprint information for subsections 537.7( c)(4)(xvi)(B)(3), (4) and (5). NHTSA believes that these manuf acturers may have reported the information this way because the track widths, wheelbase and footprint are essentially the same for each vehicle configuration within each m odel type. A third group of manufacturers submitted model type information only, pres umably because each model type contains only one vehicle configuration.

NHTSA does not believe that this variat ion in reporting methodology presents an inherent problem, as long as manufacturers follow the specifications in Part 537 for reporting format, and as long as pre-model y ear reports provide information that is accurate and represents each vehicle configur ation within a model type. The report may, but need not, be similar to what manufactur ers submit to EPA as their end-of-model year report. However, NHTSA sought comment in the NPRM on any potential benefits or drawbacks to requiring a more standardi zed reporting methodology. NHTSA requested1221 that, if commenters recommend increasing standardization, they provide specific examples of what information should be required and how NH TSA should require it to be provided but no comments were received on this specific issue.

However, on a related topic, Honda a nd Toyota both commented on the equations and corresponding terms used to calculat e the fleet required standards. Both manufacturers indicated that the terms defined for use in the equations could be interpreted differently by vehi cle manufacturers. For exam ple, the term “footprint of a vehicle model” could be interpreted to mean that a manufacturer only has to use one representative footprint within a model type or that it is necessary to use all the unique footprints and corresponding fu el economy target standards within a model type when determining a fleet target standard. This issue is discussed in more detail in Section IV.E. above.

5. Other CAFE Enforcemen t Issues – Miscellaneous

Hyundai commented that 49 CFR 537.9 appear ed to contain erroneous references to 40 CFR 600.506 and 600.506(a)(2), which seem ed not to exist, and asked the agency to check those references. In response, NHTSA examined the issue and found that 40 CFR 600.506 was, in fact, eliminated by a fi nal rule published on Ap ril 6, 1984 (49 FR 13832). That section of 40 CFR originally required manufacturers to submit preliminary CAFE data to EPA prior to submitting the final end of the year data. EPA’s primary intent for eliminating the requirement, as stated in the final rule, was to reduce1222 administration burden. To address these ina ccurate references, NHTSA is revising Part 537 to delete references to 40 CFR 600.506. This will not impact the existing requirements for the pre-model year, mid- model year and supplemental reports manufacturers must submit to NHTSA under Part 537.

J. Other Near-Term Rulemakings Mandated by EISA

1. Commercial Medium- and Heavy-Du ty On-Highway Vehicles and Work Trucks

EISA added new provisions to 49 U.S. C. 32902 requiring DOT, in consultation with DOE and EPA, to conduct a study regarding a program to require improvements in the fuel efficiency of commercial medium - and heavy-duty on-hi ghway vehicles and work trucks and then to conduct a rulemaking to adopt and implement such a program . In the study, the agency must examine the fuel efficiency of commercial medium- and heavy-duty on-highway vehicles 770 and work trucks 771 and determine the appropriate test procedures and methodologies for measuring their fuel efficiency, as well as the appropriate metric for measur ing and expressing their fuel efficiency performance and the range of factors that affect their fuel effi ciency. Then the agency must determine in a rulemaking proceeding how to implement a commercial medium- and heavy-duty onhighway vehicle and work truck fuel effi ciency improvement program designed to

770 Defined as an on-highway vehicle with a gross vehicle weight rating of 10,000 pounds or more. 771 Defined as a vehicle that is both rated at between 8,500 and 10,000 pounds gross vehicle weight; and also is not a medium-duty passenger vehicle (as defined in 40 CFR 86.1803-01, as in effect on the date of EISA’s enactment.1223 achieve the maximum feasible improvement, and adopt and implement appropriate test methods, measurement metrics, fuel economy standards, and compliance and enforcement protocols that are appropriate, cost-effective, and tec hnologically feasible for commercial medium- and heavy-duty on-hi ghway vehicles and work trucks. The agency is working closely with EPA on developing a proposal for these standards.

2. Consumer Information on Fuel Efficiency and Emissions

EISA also added a new provision to 49 U.S.C. 32908 requiring DOT, in consultation with DOE and EPA, to develop and implement by rule a program to require manufacturers to label new automobiles sold in the United States with: 1) information reflecting an automobile’s performance on the basis of criteria that EPA shall develop, not later than 18 months af ter the date of the enactment of EISA, to reflect fuel economy and greenhouse gas and ot her emissions over the useful life of the automobile; and 2) a rating system that would make it easy for consumers to compare the fuel economy and greenhouse gas and other emissi ons of automobiles at the point of purchase, including a designation of autom obiles with the lowest greenhouse gas emissions over the useful life of the vehi cles; and with the highest fuel economy. DOT must also develop and implem ent by rule a program to require manufacturers to include in the owner’s manual for vehicles capable of operating on alternative fuels information that describes that capability and the benefits of using1224 alternative fuels, including the renewable na ture and environmenta l benefits of using alternative fuels.

EISA further requires DOT, in c onsultation with DOE and EPA, to

• develop and implement by rule a cons umer education program to improve consumer understanding of automobile pe rformance described [by the label to be developed] and to inform consumers of th e benefits of using alternative fuel in automobiles and the location of statio ns with alternative fuel capacity;

• establish a consumer education campai gn on the fuel savings that would be recognized from the purchase of vehicles equipped with thermal management technologies, including energy efficient air conditioning systems and glass; and

• by rule require a label to be attached to the fuel compartment of vehicles capable of operating on alternative fuels, with the form of alternative fuel stated on the label.

49 U.S.C. 32908(g)(2) and (3).

DOT has 42 months from the date of EI SA’s enactment (by the end of 2011) to issue final rules under this subsection. Workon developing these standards is also ongoing. The agency is working closely w ith EPA on developing a proposal for these regulations.1225 Additionally, in preparation for this future rulemaking, NHTSA will consider appropriate metrics for presenting fuel econom y-related information on labels. Based on the non-linear relationship between mpg and fuel costs as well as emissions, inclusion of the “gallons per 100 miles” metric on fuel economy labels may be appropriate going forward, although the mpg information is curr ently required by law. A cost/distance metric may also be useful, as could a CO 2 e grams per mile metric to facilitate comparisons between conventional vehicles and alternative fuel vehicles and to incorporate information about air conditioning-related emissions.

K. Record of Decision

On May 19, 2009 President Obama announced a National Fuel Efficiency Policy aimed at both increasing fuel economy and re ducing greenhouse gas pollution for all new cars and trucks sold in the United States, wh ile also providing a predictable regulatory framework for the automotive industry. Th e policy seeks to set harmonized federal standards to regulate both fuel economy and GHG emissions. The program covers model year 2012 to model year 2016 and ultimately requ ires the equivalent of an average fuel economy of 35.5 mpg in 2016, if all CO 2 reduction were achieved through fuel economy improvements.

In accordance with President Obama’s May 19, 2009 announcement, this final rule promulgates the fuel economy standa rds for MYs 2012-2016. This final rule constitutes the Record of Decisi on (ROD) for NHTSA’s MYs 2012-2016 CAFE1226 standards, pursuant to the National Environmental Policy Ac t (NEPA) and the Council on Environmental Quality’s (CEQ ) implementing regulations. 772 See 40 CFR 1505.2.

As required by CEQ regulations, this final rule and ROD sets forth the following: (1) the agency’s decision; (2) alternatives considered by NHTSA in reaching its decision, including the environmentally preferable alternat ive; (3) the factors balanced by NHTSA in making its decision, including considerations of national policy; (4) how these factors and considerations entered into its decisi on; and (5) the agency’s preferences among alternatives based on relevant factors, including economic and technical considerations and agency statutory missions. This final rule also briefly addresses mitigation.

The Agency’s Decision

In the DEIS and the FEIS, the agency identified the approximately 4.3-percent average annual increase altern ative as NHTSA’s Preferred Al ternative. After carefully reviewing and analyzing all of the information in the publ ic record including technical support documents, the FEIS, and public and agency comments submitted on the DEIS, the FEIS, and the NPRM, NHTSA has decided to proceed with the Preferred Alternative. The Preferred Alternative re quires approximately a 4.3-percent average annual increase in mpg for MYs 2012-2016. This decision re sults in an estimated required MY 2016 fleetwide 37.8 mpg for passenger cars and 28.7 mpg for light trucks. As stated in the

772 NEPA is codified at 42 U.S.C. 4321-47. CEQ NEPA implementing regulations are codified at 40 Code of Federal Regulations (CFR) Parts 1500-08.1227 FEIS, the Preferred Alternative results in a combined estimated required fleetwide 34.1 mpg in MY 2016.

Following publication of the FEIS, the fe deral government Interagency Working Group on Social Cost of Carbon made public a revised estimate of the Social Cost of Carbon to support federal regulato ry activities where reducing CO 2 emissions is an important potential outcome. NHTSA re lied upon the interagency group’s interim guidance published in August 2009 for the FEIS analysis. For this final rule NHTSA has updated the analysis and now uses the central SCC value of $21 per metric ton (2010 emissions) identified in the inte ragency group’s revised guidance. 773 See Section IV.C.3.l.iii.

The group’s purpose in developing new estimat es of the SCC was to allow federal agencies to incorporate the social be nefits of reducing carbon dioxide (CO 2 ) emissions into cost-benefit analyses of regulatory actions that have small, or “marginal,” impacts on cumulative global emissions, as most federal regu latory actions can be expected to have. The interagency group convened on a regular ba sis to consider public comments, explore the technical literature in relevant fields, a nd discuss key inputs and assumptions in order to generate SCC estimates. The revised SCC estimates represent th e interagency group’s

773 The $21/ton estimate is for 2010 emissions and increases over time because of damages resulting from increased GHG concentrations. $21 is the average S CC at the 3 percent discount rate. The other three estimates include: Avg SCC at 5% ($5-$16); Avg SCC at 2.5% ($35-$65); and 95 th percentile at 3% ($65- $136).1228 consideration of the literature and judgments about how to m onetize some of the benefits of GHG mitigation. 774

Incorporating the revised estimate, NHTSA’s analysis indicates that the Agency’s Decision will likely result in sli ghtly greater fuel savings and CO 2 emissions reductions than those noted in the EIS. The revised S CC valuation applied for purposes of the final rule resulted in a slightly smaller gap in stringency between the passenger car and light truck standards; the ratio of passenger car stringency (i .e., average required fuel economy) to light truck string ency in MY 2016 shrank from 1.318 to 1.313, or about 0.4 percent. Because manufacturers projected to pay civil penalties (rather than fully complying with CAFE standard s) account for a smaller shar e of the light truck market than of the passenger car market, and because lifetime mileage accumu lation is somewhat higher for light trucks than for passenger cars, this slight shift in relative stringency caused average fuel economy levels achieved under the preferred a lternative to increase by about 0.02 mpg during MYs 2012-2016, result ed in corresponding lifetime (i.e., over the full useful life of MYs 2012-2016 vehicles ) fuel savings incr eases of about 0.9 percent, and corresponding increases in lifetime CO 2 emission reductions of about 1.1 percent. For environmental impacts associ ated with NHTSA’s Decision, see Section IV.G of this final rule.

The incorporation of the revised interage ncy estimate of SCC results in minimal changes to the required fleetwide mpg for some model years covered by this final rule.

774 The interagency group intends to update these estimates as the science and economic understanding of climate change and its impacts on society improves over time.1229 All changes are less than or equal to .1 mpg (but may re flect an increase when rounding up during calculations) and c ontinue to result, on averag e, in a 4.3 percent annual increase in mpg. 775 See Section IV.F for discussion of required annual fleetwide mpg.

For a discussion of the agency’s selec tion of the Preferred Alternative as NHTSA’s Decision, see Section IV.F of this final rule.

Alternatives Considered by NHTSA in Reaching its Decision, Including the Environmentally Preferable Alternative

When preparing an EIS, NEPA requires an agency to compare the potential environmental impacts of its proposed action and a reasonable range of alternatives. NHTSA identified alternative stringencies that represent the spectrum of potential actions the agency could take. The environmental imp acts of these alternatives, in turn, represent the spectrum of potential environmental impact s that could result from NHTSA’s chosen action in setting CAFE standard s. Specifically, the DEIS a nd FEIS analyzed the impacts of the following eight “action” alternatives : 3-Percent Alternative (Alternative 2), 4- Percent Alternative (Alternative 3), Prefe rred Alternative (Alternative 4), 5-Percent Alternative (Alternative 5), an alterna tive that maximizes net benefits (MNB) (Alternative 6), 6-Percent Alte rnative (Alternative 7), 7-Per cent Alternative (Alternative 8), and an alternative under which total cost equals total benefit (TCTB) (Alternative 9).

775 There are no “substantial changes to the propos ed action” and there are no “significant new circumstances or information relevant to environmental concerns and bearing on the proposed action or its impacts.” Therefore, consistent with 40 CFR 1502.9(c ), no supplement to the EIS is required. Moreover, the environmental impacts of this decision fall within the spectrum of impacts analyzed in the DEIS and the FEIS.1230 The DEIS and FEIS also analyzed the im pacts that would be expected if NHTSA imposed no new requirements (the No Acti on Alternative). In accordance with CEQ regulations, the agency selected a Preferred Alternative in the DEIS and the FEIS (the approximately 4.3-percent averag e annual increase alternative).

In response to public comments, the FEIS expanded the analysis to determine how the proposed alternatives were affected by variations in the economic assumptions input into the computer model NHTSA uses to calculate the costs and benefits of various potential CAFE standards (the Volpe model) . Variations in economic assumptions can be used to examine the sensitivity of cost s and benefits of each of the alternatives, including future fuel pri ces, the value of reducing CO 2 emissions (referred to as the social cost of carbon or SCC), the magnitude of th e rebound effect, and the value of oil import externalities. Different combinations of economic assumptions can also affect the calculation of environmental im pacts of the various action al ternatives. This occurs partly because some economic inputs to the Volpe model—notably fuel prices and the size of the rebound effect – influence its estima tes of vehicle use and fuel consumption, the main factors that determine emissions of GHGs, criteria air pollutants, and airborne toxics. See section 2.4 of the FEIS for a di scussion of the sensitivity analysis conducted for the FEIS.

The agency considered and analyzed each of the individual economic assumptions to determine which assumptions most accurately represent future economic conditions.1231 For a discussion of the analysis supporting the selection of the economic assumptions relied on by the agency in this final rule, see Section IV.C.3.

Also in response to comments, the agency conducted a national-scale photochemical air quality modeling and health risk assessment for a subset of the DEIS alternatives to support and confirm the health effects and health-related economic estimates of the EIS. The photochemical ai r quality study is incl uded as Appendix F to the EIS. The study used air quality modeling and health be nefits analysis tools to quantify the air quality and health-related benefits associ ated with the alternative CAFE standards. Four alternatives from the DEIS were modeled: the No Action Alternative and Alternative 2 (the 3-Per cent Alternative) to represen t fuel economy requirements at the lower end of the range; A lternative 4 (the Preferred Alternative) and Alternative 8 (the 7-Percent Alternative) to represent fu el economy requirements at the higher end of the range.

The agency compared the potential envi ronmental impacts of alternative mpg levels, analyzing direct, indi rect, and cumulative impacts. For a discussion of the environmental impacts associated with each of the alternatives, see Chapters 3 and 4 of the FEIS.

Alternative 8 (the 7-Percent Alternative) is the overall Enviro nmentally Preferable Alternative, because it woul d result in the largest reduc tions in fuel use and GHG emissions by vehicles produced duri ng MYs 2012-2016 among the alternatives1232 considered. Under each alte rnative the agency consider ed, the reduction in fuel consumption resulting from higher fuel econom y causes emissions thatoccur during fuel refining and distribution to decl ine. For most pollutants, this decline is more than sufficient to offset the increase in tailpipe emissions that results from increased driving due to the fuel economy rebound effect, leading to a net reduction in total emissions from fuel production, distribution, and use. Because it leads to the largest reductions in fuel refining, distribution, and consumption among the alternatives cons idered, Alternative 8 would also lead to the largest net reductions in emissions of CO 2 and other GHGs, most criteria air pollutants, 776 as well as the mobile source ai r toxics (MSATs) benzene and diesel particulate matter (diesel PM).

However, NHTSA’s environmental analys is indicates that emissions of the MSATs acetaldehyde, acrolein, 1,3-butadiene, and formaldehyde would increase under some alternatives, with the largest increases in emissions of these MSATs projected to occur under Alternative 8 in most future years. This occurs because the rates at which these MSATs are emitted during fuel refining and distribution are very low relative to their emission rates during vehicle use. As a consequence, the reductions in their total emissions during fuel refining and distribu tion that result from lower fuel use are insufficient to offset the increases in emissi ons that result from additional vehicle use. The amount by which increased tailpipe emissions of these MSATs exceeds the

776 Reductions in emissions of two criteria air pollutants, fine particulate matter (PM2.5) and sulfur oxides (SOx), are forecast to be slightly larger for Altern ative 9 (TCTB) than for A lternative 8. Because the estimates of health benefits depend most critically on changes in particulate matter emissions, this causes the health benefits estimates reported in this FEIS to be slightly larger for Alternative 9 than for Alternative 8. See Section 3.3 of the FEIS. Nonetheless, fo r the other reasons explaine d above, NHTSA considers Alternative 8 to be the overall Envi ronmentally Preferable Alternative.1233 reductions in their emissions during fuel refining and distri bution increases for alternatives that require larger improvements in fuel economy, and in most future years is smallest under Altern ative 2 (which would increase CA FE standards least rapidly among the action alternatives) and largest under A lternative 8 (which would require the most rapid increase in fuel economy). Thus wh ile Alternative 8 is the environmentally preferable alternative on the basis of CO 2 and other GHGs, most cr iteria air pollutants, and some MSATs, other alternatives are envi ronmentally preferable from the standpoint of the criteria air pollutants fine particulate matter and sulfur oxides, as well as the MSATs acetaldehyde, acrolein, 1,3-butadiene, and formaldehyde. Overall, however, NHTSA considers Alternative 8 to be the Environmentally Preferable Alternative.

For additional discussion regarding the al ternatives considered by the agency in reaching its decision, including the Environmen tally Preferable Alternative, see Section IV.F of this final rule. For a discussion of the environmental impacts associated with each alternative, see Chapters 3 and 4 of the FEIS.

Factors Balanced By NHTSA In Making Its Decision

For discussion of the factors balanced by NHTSA in making its decision, see Sections IV.D. and IV.F of this final rule.1234 How the Factors and Considerations Ba lanced by NHTSA Entered into its Decision

For discussion of how the factors and c onsiderations balanced by the agency entered into NHTSA’s Decision, see Section IV.F of this final rule.

The Agency’s Preferences Among Alternatives Based on Relevant Factors, Including Economic and Technical Cons iderations and Agency Statutory Missions

For discussion of the agency’s preferen ces among alternatives based on relevant factors, including economic and technical considerations, see Section IV.F of this final rule.

Mitigation

The CEQ regulations specify that a ROD must “state whether all practicable means to avoid or minimize environmental harm from the alternative selected have been adopted, and if not, why they were not.” 49 CFR 1505.2(c). The majority of the environmental effects of NHTSA’s action are positive, i.e., beneficial environmental impacts, and would not raise issues of mitigation. The only negative environmental impacts are the projected increase in emissi ons of carbon monoxide and certain air toxics, as discussed above under the Environmentally Pr eferable Alternative, and in Section 2.61235 and Chapter 5 of the FEIS. The agency fo recasts these increases because, under all the alternatives analyzed in the EIS, increase in vehicle use due to improved fuel economy is projected to result in growth in total miles traveled by passenger ca rs and light trucks. This growth is exacerbated by the expected growth in the number of passenger cars and light trucks in use in the United States. The growth in travel outpaces emissions reductions for some pollutants, resulting in projected increases for these pollutants.

NHTSA’s authority to promulgate new fu el economy standards is limited and does not allow regulation of vehicle emissions or of factors affecting vehicle emissions, including driving habits. Consequently, under the CAFE progra m, NHTSA must set standards but is unable to take steps to mitigate the impacts of these standards. However, we note that the Department of Transportati on is currently implementing initiatives that work toward the stated Secretarial policy goa l of reducing annual vehi cle miles traveled. Chapter 5 of the FEIS outlines a number of ot her initiatives across government that could ameliorate the environmental im pacts of motor vehicle use.

L. Regulatory Notices and Analyses

Following is a discussion of regulatory no tices and analyses relevant to this rulemaking.1236 1. Executive Order 12866 and DOT Regulatory Policies and Procedures

Executive Order 12866, “Regulatory Planni ng and Review” (58 FR 51735, Oct. 4, 1993), provides for making determinations whet her a regulatory acti on is “significant” and therefore subject to OMB review and to the requirements of the Executive Order. The Order defines a “significant regulatory action” as one that is likely to result in a rule that may:

(1) Have an annual effect on the econom y of $100 million or more or adversely affect in a material way the economy, a sect or of the economy, productivity, competition, jobs, the environment, public health or safety , or State, local or Tribal governments or communities;

(2) Create a serious inconsistency or ot herwise interfere with an action taken or planned by another agency;

(3) Materially alter the budge tary impact of entitlements, grants, user fees, or loan programs or the rights and obligatio ns of recipients thereof; or

(4) Raise novel legal or policy issues aris ing out of legal mandates, the President’s priorities, or the principles set forth in the Executive Order.1237 The rulemaking proposed in this NPRM is economically significant. Accordingly, OMB reviewed it under Executive Or der 12866. The rule is also significant within the meaning of the Department of Transportati on’s Regulatory Policies and Procedures.

The benefits and costs of this rule ar e described above. Because the rule is economically significant under bot h the Department of Trans portation’s procedures and OMB guidelines, the agency has prepared a Final Regulatory Impact Analysis (FRIA) and placed it in the docket and on the agency ’s website. Further, pursuant to OMB Circular A-4, we have prepared a formal proba bilistic uncertainty analysis for this rule. The circular requires such an analysis for complex rules where there are large, multiple uncertainties whose analysis raises techni cal challenges or where effects cascade and where the impacts of the rule ex ceed $1 billion. This final rule meets these criteria on all

counts.

2. National Environmental Policy Act

Under NEPA, a Federal agency must prep are an Environmental Impact Statement (EIS) on proposed actions that could signi ficantly impact the quality of the human environment. The requirement is designed to serve three major functions: (1) to provide the decisionmaker(s) with a deta iled description of the potenti al environmental impacts of a proposed action prior to its adoption, (2) to rigorously explore and evaluate all1238 reasonable alternatives, and (3 ) to inform the public of, and allow comment on, such efforts.

In addition, the CEQ regulations empha size agency cooperation early in the NEPA process, and allow a lead agency (in this case, NHTSA) to request the assistance of other agencies that either have jurisdic tion by law or have speci al expertise regarding issues considered in an EIS. 777 NHTSA invited EPA to be a cooperating agency because of its special expertise in th e areas of climate change and air quality. On May 12, 2009, EPA agreed to become a cooperating agency. 778

NHTSA, in cooperation with EPA, prepared a draft EIS (DEIS) , solicited public comments in writing and in a public hearing, and prepared a final EIS (FEIS) responding to those comments. Specifically, in April 2009, NHTSA published an NOI to prepare an EIS for proposed MYs 2012-2016 CAFE standards. 779 See 40 CFR 1501.7.

On September 25, 2009, EPA issued its Notice of Availabili ty of the DEIS, 780 triggering the 45-day public comment period. See 74 FR 48951. See also 40 CFR

777 40 CFR 1501.6. 778 Consistent with the National Fuel Efficiency Polic y that the President announced on May 19, 2009, EPA and NHTSA published their Notice of Upcoming Joint Rulemaking to ensure a coordinated National Program on GHG emissions and fuel economy for passenger cars, light-duty trucks, and medium-duty passenger vehicles. NHTSA takes no position on whet her the EPA proposed rule on GHG emissions could be considered a “connected action” under the CEQ regulation at 40 CFR Section 1508.25. For purposes of the EIS, however, NHTSA decided to treat the EPA propo sed rule as if it were a “connected action” under that regulation to improve the usefulness of the EIS for NHTSA decisionmakers and the public. NHTSA is aware that Section 7(c) of the Energy Supply and Environmental Coordination Act of 1974 expressly exempts from NEPA requirements EPA action taken under the CAA. See 15 U.S.C. 793(c)(1). 779 See Notice of Intent to Prepare an Environmental Im pact Statement for New Corporate Average Fuel Economy Standards, 74 FR 14857 (Apr. 1, 2009). 780 Also on September 25, 2009, NHTSA published a Federal Register Notice of Availability of its DEIS. See 74 FR 48894. NHTSA’s Notice of Availability also announced the date and location of a public1239 1506.10. In accordance with CEQ regulations, the public was invited to submit written comments on the DEIS until November 9, 2009. See 40 CFR 1503, et seq.

NHTSA mailed (both electronically a nd through regular U.S. mail) over 500 copies of the DEIS to interested parties, in cluding federal, state, and local officials and agencies; elected officials, environmental and public interest groups; Native American tribes; and other interested individuals. NHTSA held a public hearing on the DEIS at the National Transportation Safety Board Confer ence Center in Washi ngton, DC on October 30, 2009.

NHTSA received 11 written comments from interested stakeholders, including federal agencies, state agencies, environmenta l advocacy groups, and private citizens. In addition, three interested parties spoke at the public hearing. The transcript from the public hearing and written comments submitted to NHTSA are part of the administrative record, and are available on the Federal Docket, which can be found on the Web at http://www.regulations.gov, Refe rence Docket No. NHTSA-2009-0059.

NHTSA reviewed and analyzed all comments received during the public comment period and revised the FEIS in response to comments on the EIS where appropriate. 781 For a more detailed discussi on of NHTSA’s scoping and comment periods, see Section 1.5 and Chapter 10 of the FEIS.

hearing, and invited the public to participate at the hearing on October 30, 2009, in Washington, DC. See id. 781 The agency also changed the FEIS as a result of updated information that became available after issuance of the DEIS.1240 On February 22, 2010, NHTSA submitted the FEIS to the EPA. NHTSA also mailed (both electronically and through regular U.S. mail) over 500 copies of the FEIS to interested parties and posted the FEIS on its website, http://www.nhtsa.gov/portal/fueleconomy.j sp. On March 3, 2010, EPA published a Notice of Availability of the FEIS in the Federal Register . See 75 FR 9596.

The FEIS analyzes and discloses the pot ential environmental impacts of the proposed MYs 2012-2016 CAFE standards for the total fleet of passenger cars and light trucks and reasonable altern ative standards for the NHTSA CAFE Program pursuant to the National Environmental Policy Act (NEPA), the Council on Environmental Quality (CEQ) regulations implementing NE PA, DOT Order 5610.1C, and NHTSA regulations. 782 The FEIS compared the potential environmental impacts of alternative mile per gallon (mpg) levels considered by NHT SA for the final rule. It also analyzed direct, indirect, and cumulative impacts a nd analyzes impacts in proportion to their significance. See the FEIS and the FEIS Su mmary for a discussion of the environmental impacts analyzed. Docket Nos. NHTSA-2009-0059-0140, NHT SA-2009-0059-0141.

The MYs 2012-2016 CAFE standards adopted in this final rule have been informed by analyses contained in the Final Environmental Impact Statement, Corporate Average Fuel Economy Standards, Passenger Cars and Light Trucks, Model Years 2012- 2016, Docket No. NHTSA-2009-0059 (FEIS). Fo r purposes of this rulemaking, the

782 NEPA is codified at 42 U.S.C. 4321-4347. CEQ NEPA implementing regulations are codified at 40 Code of Federal Regulations (CFR) Parts 1500-1508. NHTSA NEPA implementing regulations are codified at 49 CFR Part 520.1241 agency referred to an extensive compilation of technical and policy documents available in NHTSA’s EIS/Rulemaking docket and EPA’ s docket. NHTSA’s EIS and rulemaking docket and EPA’s rulemaking docket can be found on the Web at http://www.regulations.gov, Reference Docket Nos.: NHTSA-2009-0059 (EIS and Rulemaking) and EPA-HQ-OAR- 2009-0472 (EPA Rulemaking).

Based on the foregoing, the agency conclude s that the environmental analysis and public involvement process complies with NE PA implementing regulations issued by CEQ, DOT Order 5610.1C, and NHTSA regulations. 783

3. Clean Air Act (CAA)

The CAA (42 U.S.C. 7401) is the primary Federal legislation that addresses air quality. Under the authority of the CAA and subsequent amendments, the EPA has established National Ambient Air Quality Stan dards (NAAQS) for six criteria pollutants, which are relatively commonplace pollutants that can accumulate in the atmosphere as a result of normal levels of human activity . The EPA is required to review the NAAQS every five years and to change the levels of the standards if warranted by new scientific information.

The air quality of a geographic region is usually assessed by comparing the levels of criteria air pollutant s found in the atmosphere to the levels established by the NAAQS.

783 NEPA is codified at 42 U.S.C. 4321-4347. CEQ’s NEPA implementing regulations are codified at 40 CFR Pts. 1500-1508, and NHTSA’s NEPA implementing re gulations are codified at 49 CFR Part 520.1242 Concentrations of criteria pollu tants within the air mass of a region are measured in parts of a pollutant per million parts of air (ppm) or in micrograms of a pollutant per cubic meter ( μ g/m3) of air present in repeated air samples taken at designated monitoring locations. These ambient concentrations of each criteria pollutant are compared to the permissible levels specified by the NAAQS in order to assess wh ether the region’s air quality is potentially unhealthful.

When the measured concentrations of a criteria pollutant within a geographic region are below those permitted by the NAAQS, the region is designated by the EPA as an attainment area for that pollutant, while regions where concentrations of criteria pollutants exceed Federal standards are ca lled nonattainment areas (NAAs). Former NAAs that have attained the NAAQS are desi gnated as maintenance areas. Each NAA is required to develop and implement a State Im plementation Plan (SIP), which documents how the region will reach attainment levels with in time periods specified in the CAA. In maintenance areas, the SIP documents how the State intends to main tain compliance with the NAAQS. When EPA changes a NAAQS, States must revise their SIPs to address how they will attain the new standard.

Section 176(c) of the CAA prohibits Fede ral agencies from taking actions in nonattainment or maintenance areas that do not “conform” to the State Implementation Plan (SIP). The purpose of this conformity requi rement is to ensure that Federal activities do not interfere with meeting the emissions targ ets in the SIPs, do not cause or contribute1243 to new violations of the NAAQS, and do not impe de the ability to attain or maintain the NAAQS. The EPA has issued two sets of regul ations to implement CAA Section 176(c):

 The Transportation Conformity Rules (40 CFR 51 Subpart T), which apply to transportation plans, programs, a nd projects funded under title 23 United States Code (U.S.C.) or the Federa l Transit Act. Highway and transit infrastructure projects funded by FHWA or the Federal Transit Administration (FTA) usually are subj ect to transportation conformity.

 The General Conformity Rules (40 CFR 51 Subpart W) apply to all other Federal actions not covered under tran sportation conformity. The General Conformity Rules established emissions thresholds, or de minimis levels, for use in evaluating the conformity of a project. If the net emission increases due to the project are less than these th resholds, then the project is presumed to conform and no further conformity evaluation is required. If the emission increases exceed any of these thresholds , then a conformity determination is required. The conformity determinat ion may entail air quality modeling studies, consultation w ith EPA and State air quality agencies, and commitments to revise the SIP or to implement measures to mitigate air quality impacts.

The CAFE standards and associated progr am activities are not funded under title 23 U.S.C. or the Federal Transit Act. Fu rther, CAFE standard s are established by1244 NHTSA and are not an action undertaken by FH WA or FTA. Accordingly, the CAFE standards are not subject to transportation conformity.

The General Conformity Rules contain seve ral exemptions applicable to “Federal actions,” which the conformity regulations define as: “any activity engaged in by a department, agency, or instrumentality of th e Federal Government, or any activity that a department, agency or instrumentality of th e Federal Government supports in any way, provides financial assistance for, licenses, permits, or approves, other than activities [subject to transportation conformity].” 40 CFR 51.852. “Rulemaking and policy development and issuance” are exempted at 40 CFR 51.853(c)(2)(iii). Since NHTSA’s CAFE standards involve a rulemaking proce ss, its action is exempt from general conformity. Also, emissions for which a Federal agency does not have a “continuing program responsibility” are not considered “indirect emissions” subject to general conformity under 40 CFR 51.852. “Emissions that a Federal agency has a continuing program responsibility for means emissions th at are specifically caused by an agency carrying out its authorities, a nd does not include emissions th at occur due to subsequent activities, unless such activities are require d by the Federal agency.” 40 CFR 51.852. Emissions that occur as a result of the final CAFE standards are not caused by NHTSA carrying out its statutory aut horities and clearly occur due to subsequent activities, including vehicle manufacturers’ production of passenger car and light truck fleets and consumer purchases and driving behavior. Thus, changes in any emissions that result from NHTSA’s final CAFE standards are not those for which the agency has a “continuing program responsibility” and NHTSA is confident that a general conformity1245 determination is not required. NHTSA has evaluated the potential impacts of air emissions under NEPA.

4. National Historic Preservation Act (NHPA)

The NHPA (16 U.S.C. 470) sets fort h government policy and procedures regarding “historic properties”—t hat is, districts, sites, build ings, structures, and objects included in or eligible for the National Regi ster of Historic Places (NRHP). See also 36 CFR 800. Section 106 of the NHPA requires fe deral agencies to “take into account” the effects of their actions on historic properties. The agency concludes that the NHPA is not applicable to NHTSA’s Decision, because it doe s not directly involve historic properties. The agency has, however, conducted a qualitative review of the rela ted direct, indirect, and cumulative impacts, positive or negative, of the alternatives on potentially affected resources, including historic a nd cultural resources. See Sections 3.5 and 4.5 of the FEIS.

5. Executive Order 12898 (Environmental Justice)

Under Executive Order 12898, Federal ag encies are required to identify and address any disproportionately high and advers e human health or environmental effects of its programs, policies, and activitie s on minority populations and low-income populations. NHTSA complied with this or der by identifying and addressing the potential effects of the alternatives on mi nority and low-income populations in Sections1246 3.5 and 4.5 of the FEIS, where the agency set forth a qualitative analysis of the cumulative effects of the altern atives on these populations.

6. Fish and Wildlife Conservation Act (FWCA)

The FWCA (16 U.S.C. 2900) provides financ ial and technical a ssistance to States for the development, revision, and implem entation of conservation plans and programs for nongame fish and wildlife. In addition, the Act encourages all Federal agencies and departments to utilize their authority to conserve and to prom ote conservation of nongame fish and wildlife and their habitats. The agency concludes that the FWCA is not applicable to NHTSA’s Decision, because e it does not directly involve fish and wildlife.

7. Coastal Zone Management Act (CZMA)

The Coastal Zone Management Act (16 U.S.C. 1450) provides for the preservation, protection, deve lopment, and (where possible) restoration and enhancement of the nation’s coastal zone re sources. Under the statute, St ates are provided with funds and technical assistance in developing co astal zone management programs. Each participating State must submit its program to the Secretary of Commerce for approval. Once the program has been approved, any activit y of a Federal agency, either within or outside of the coastal zone, that affects any land or water use or natural resource of the1247 coastal zone must be carried out in a manner that is consistent, to the maximum extent practicable, with the enforceable pol icies of the State’s program.

The agency concludes that the CZMA is not applicable to NHTSA’s Decision, because it does not involve an activity within, or outside of, the nation’s coastal zones. The agency has, however, conducted a qualitative review of the rela ted direct, indirect, and cumulative impacts, positive or negative, of the alternatives on potentially affected resources, including coastal zones. See Sections 3.5 and 4.5 of the FEIS.

8. Endangered Species Act (ESA)

Under Section 7(a)(2) of the Endangered Species Act (ESA) federal agencies must ensure that actions they authorize, fund, or carry out are “not likely to jeopardize” federally listed threatened or endangered spec ies or result in the de struction or adverse modification of the designated critical habitat of these species. 16 U.S.C. 1536(a)(2). If a federal agency determines that an agency action may affect a listed species or designated critical habitat, it must initiate c onsultation with the appr opriate Service – the U.S. Fish and Wildlife Service (FWS) of the De partment of the Interior and/ or National Oceanic and Atmospheric Administration’s National Marine Fish eries Service (NOAA Fisheries Service) of the Department of Commerce, depending on the species involved— in order to ensure that the action is not lik ely to jeopardize the species or destroy or adversely modify designated cr itical habitat. See 50 CFR 40 2.14. Under this standard,1248 the federal agency taking action evaluates the possible effects of its action and determines whether to initiate consultation. See 51 FR 19926, 19949 (Jun. 3, 1986).
NHTSA has reviewed applicable ESA regulations, case law, guidance, and rulings in assessing the potential for impacts to threatened and endangered species from the proposed CAFE standards. NHTSA belie ves that the agency’s action of setting CAFE standards, which will result in na tionwide fuel savings and, consequently, emissions reductions from what would otherw ise occur in the absence of the agency’s CAFE standards, does not require consulta tion with NOAA Fisheries Service or the FWS under section 7(a)(2) of the ESA. For additional discussion of the agency’s rationale, see Appendix G of the FEIS. Accordingly, NHTSA has concluded its review of this action under Section 7 of the ESA.
NHTSA has worked with EPA to assess ESA requirements and develop the agencies’ responses to comments addressing this issue. NHTSA notes that EPA has reached the same conclusion as NHTSA, and ha s determined that ESA consultation is not required for its action taken today pursuant to the Clean Air Act. EPA’s determination with regard to ESA is set forth in its res ponse to comments regarding ESA requirements, and can be found in EPA’s Response to Comments document, which EPA will place in the EPA docket for this rulemaking (OAR-2009-0472), and on the EPA website. As set forth therein, EPA adopts the reasoning of NHTSA’s response in Appendix G of the FEIS as applied to EPA’s rulemaking action.1249 9. Floodplain Management (Execu tive Order 11988 & DOT Order 5650.2)

These Orders require Federal agencies to avoid the long- and short-term adverse impacts associated with the occupancy and modification of floodpl ains, and to restore and preserve the natural and beneficial va lues served by floodplains. Executive Order 11988 also directs agencies to minimize the im pact of floods on human safety, health and welfare, and to restore and preserve the natural and beneficial values served by floodplains through evaluating the potential effect s of any actions the agency may take in a floodplain and ensuring th at its program planning a nd budget requests reflect consideration of flood hazards and floodplain management. DOT Order 5650.2 sets forth DOT policies and procedures for implemen ting Executive Order 11988. The DOT Order requires that the agency determine if a propos ed action is within the limits of a base floodplain, meaning it is encroaching on the floo dplain, and whether this encroachment is significant. If significant, th e agency is required to c onduct further analysis of the proposed action and any practicab le alternatives. If a pract icable alternative avoids floodplain encroachment, then the agency is required to implement it.

In this rulemaking, the agency is not occupying, modifying a nd/or encroaching on floodplains. The agency, therefore, conclude s that the Orders ar e not applicable to NHTSA’s Decision. The agency has, however , conducted a review of the alternatives on potentially affected resources , including floodplains. See Section 4.5 of the FEIS.1250 10. Preservation of the Nation’s We tlands (Executive Order 11990 & DOT Order 5660.1a)

These Orders require Federal agencies to avoid, to the extent possible, undertaking or providing assistance for new construction located in wetlands unless the agency head finds that there is no practicable alternative to such construction and that the proposed action includes all practicable meas ures to minimize harms to wetlands that may result from such use. Executive Order 11990 also directs agencies to take action to minimize the destruction, loss or degrad ation of wetlands in “conducting Federal activities and programs affecting land use, in cluding but not limited to water and related land resources planning, regulating, and li censing activities.” DOT Order 5660.1a sets forth DOT policy for interpre ting Executive Order 11990 and re quires that transportation projects “located in or having an impact on wetlands” should be conducted to assure protection of the Nation’s wetlands. If a project does have a significant impact on wetlands, an EIS must be prepared.

The agency is not undertaking or prov iding assistance for new construction located in wetlands. The agency, therefore, concludes that these Or ders do not apply to NHTSA’s Decision. The agency has, however , conducted a review of the alternatives on potentially affected resources, including wetlands. See Section 4.5 of the FEIS.1251 11. Migratory Bird Treaty Act (MBTA) , Bald and Golden Eagle Protection Act (BGEPA), Executive Order 13186.

The MBTA provides for the pr otection of migratory bird s that are native to the United States by making it illegal for anyone to pursue, hunt, take, attempt to take, kill, capture, collect, possess, buy, sell, trade, sh ip, import, or export any migratory bird covered under the statute. Th e statute prohibits both intentional and unintentional acts. Therefore, the statute is viol ated if an agency acts in a manner that harms a migratory bird, whether it was intended or not. See, e.g., United States v. FMC Corp. , 572 F.2d 902 (2nd Cir. 1978).

The BGEPA (16 U.S.C. 668) prohibits any form of possession or taking of both bald and golden eagles. Under the BGEPA, vi olators are subject to criminal and civil sanctions as well as an enhanced penalty provision for subsequent offenses.

Executive Order 13186, “Responsibilities of Federal Agencies to Protect Migratory Birds,” helps to further the pur poses of the MBTA by requiring a Federal agency to develop a Memorandum of Unders tanding (MOU) with the Fish and Wildlife Service when it is taking an action that has (or is likely to have) a measurable negative impact on migratory bird populations.1252 The agency concludes that the MBTA , BGEPA, and Executive Order 13186 do not apply to NHTSA’s Decision, because there is no disturba nce and/or take involved in NHTSA’s Decision.

12. Department of Trans portation Act (Section 4(f))

Section 4(f) of the Department of Tran sportation Act of 1966 (49 U.S.C. 303), as amended by Pub. Law §109-59, is designed to preserve publicly owned parklands, waterfowl and wildlife refuges, and significant historic sites. Specifically, Section 4(f) of the Department of Transportation Act provi des that DOT agencies cannot approve a transportation program or project that require s the use of any publicly owned land from a significant public park, recrea tion area, or wildlife and waterfowl refuge, or any land from a significant historic site, unless a determination is made that:

 There is no feasible and prudent alte rnative to the use of land, and

 The program or project includes all possi ble planning to minimize harm to the property resulting from use, or

 A transportation use of Secti on 4(f) property results in a de minimis impact.

The agency concludes that the Section 4(f) is not applicable to NHTSA’s Decision because this rulemaking does not requ ire the use of any pub licly owned land. For a more detailed discussion, plea se see Section 3.5 of the FEIS.1253 13. Regulatory Flexibility Act

Pursuant to the Regulatory Flex ibility Act (5 U.S.C. 601 et seq. , as amended by the Small Business Regulatory Enforcemen t Fairness Act (SBREFA) of 1996), whenever an agency is required to publish a notice of rulemaking for any proposed or final rule, it must prepare and make available for public co mment a regulatory flexibility analysis that describes the effect of the rule on small entities (i.e. , small businesses, small organizations, and small governmental jurisdictions). The Small Business Administration’s regulations at 13 CFR 121 define a small business, in part, as a business entity “which operates primarily within th e United States.” 13 CFR 121.105(a). No regulatory flexibility analysis is required if the head of an agency certifies the rule will not have a significant economic impact on a substantial number of small entities.

I certify that this final rule will not have a significant economic impact on a substantial number of small entities. The following is NHTSA’s statement providing the factual basis for the certification (5 U.S.C. 605(b)).

The final rule directly affects twenty -one large single stage motor vehicle manufacturers. 784 According to current information, the final rule woul d also affect two small domestic single stage motor vehi cle manufacturers, Saleen and Tesla. 785 According to the Small Business Administration’s small business size standards (see 13

784 BMW, Daimler (Mercedes), Chrysler, Ferrari, Ford, Subaru, General Motors, Honda, Hyundai, Kia, Lotus, Maserati, Mazda, Mitsubishi, Nissan, Porsch e, Subaru, Suzuki, Tata, Toyota, and Volkswagen. 785 The Regulatory Flexibility Act only requires analys is of small domestic manufacturers. There are two passenger car manufacturers that we know of, Saleen and Tesla, and no light truck manufacturers.1254 CFR 121.201), a single stage automobile or light truck manufacturer (NAICS code 336111, Automobile Manufacturing; 336112, Light Truck and Utility Vehicle Manufacturing) must have 1,000 or fewer employees to qualify as a small business. Both Saleen and Tesla have less than 1,000 empl oyees and make less than 1,000 vehicles per year. We believe that the rulemaking woul d not have a significant economic impact on these small vehicle manufacturers because under Part 525, passenger car manufacturers making less than 10,000 vehicles per year can petition NHTSA to have alternative standards set for those manufacturers. Tesla produces only electric vehicles with fuel economy values far above those finalized today, so we would not expect them to need to petition for relief. Saleen modifies a very small number of vehicl es produced by one of the 21 large single-stage manufacturers, and currently does not meet the 27.5 mpg passenger car standard, nor is it anticipated to be able to meet the standards proposed today. However, Saleen already petitions the ag ency for relief. If the standard is raised, it has no meaningful impact on Saleen, because it must still go through the same process to petition for relief. Ferrari commented th at NHTSA will not necessarily always grant the petitions of small vehicle manufacturers fo r alternative standards, and that therefore the relief is not guaranteed. 786 In response, NHTSA notes th at the fact that the agency may not grant a petition for an alternative st andard for one manufacturer at one time does not mean that the mechanism for handling sma ll businesses is unavailable for all. Thus, given that there already is a mechanism fo r handling small businesses, which is the purpose of the Regulatory Flexibility Act, a regulatory flexibility analysis was not prepared.

786 We note that Ferrari would not currently qualify fo r such an alternative sta ndard, because it does not manufacture fewer than 10,000 passenger automobiles per year, as required by 49 U.S.C. 32902(d) for exemption from the main passenger car CAFE standard.1255 14. Executive Order 13132 (Federalism)

Executive Order 13132 requires NHTSA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism im plications.” The Order defines the term “Policies that have federalism implications” to include regulations that have “substantial direct effects on the States, on the relations hip between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” Under the Order, NHTSA may not issue a regulation that has federalism implications, that imposes substantial direct compliance costs, and th at is not required by statute, unless the Federal government provide s the funds necessary to pay the direct compliance costs incurred by State and local governments, or NHTSA consults with State and local officials early in th e process of developing the pr oposed regulation. Several state agencies provided comments to the proposed standards.

Additionally, in his January 26 memorandum , the President requested NHTSA to “consider whether any provisions regarding pr eemption are consistent with the EISA, the Supreme Court's decision in Massachusetts v. EPA and other relevant provisions of law and the policies underlying them.” NHTSA is deferring consideration of the preemption issue. The agency believes that it is unnece ssary to address the issue further at this time because of the consistent and coordinated fe deral standards that will apply nationally under the National Program.1256 15. Executive Order 12988 (Civil Justice Reform)

Pursuant to Executive Order 12988, “Civil Justice Reform,” 787 NHTSA has considered whether this rulemaking would have any retroactive effect. This final rule does not have any retroactive effect.

16. Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires Federal agencies to prepare a written assessmen t of the costs, benefits, and other effects of a proposed or final rule that includes a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the ag gregate, or by the private sector, of more than $100 million in any one year (adjusted for inflation with base year of 1995). Adjusting this amount by the implicit gross domestic product price deflator for 2006 results in $126 million (116.043/92.106 = 1. 26). Before promulgating a rule for which a written statement is needed, section 205 of UMRA ge nerally requires NHTSA to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective, or least burdenso me alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, s ection 205 allows NHTSA to adopt an alternative other than the least costly, most cost-effective, or least burdensome alternative if the agency publishes with the final rule an explana tion why that alternative was not adopted.

787 61 FR 4729 (Feb. 7, 1996).1257 This final rule will not result in the expenditure by State, local, or tribal governments, in the aggregate, of more than $126 million annually, but it will result in the expenditure of that magnitude by vehicl e manufacturers and/or their suppliers. In promulgating this final rule, NHTSA consider ed a variety of alte rnative average fuel economy standards lower and higher than those proposed. NHTSA is statutorily required to set standards at the maximum feasible le vel achievable by manuf acturers based on its consideration and balancing of relevant factors and has c oncluded that the final fuel economy standards are the maximum feasible standards for the passenger car and light truck fleets for MYs 2012-2016 in light of the statutory considerations.

17. Regulation Identifier Number

The Department of Transportation assigns a regulation identifier number (RIN) to each regulatory action listed in the Unifie d Agenda of Federal Regulations. The Regulatory Information Service Center pub lishes the Unified Agenda in April and October of each year. You may use the RIN c ontained in the heading at the beginning of this document to find this action in the Unified Agenda.

18. Executive Order 13045

Executive Order 13045 788 applies to any rule that: (1) Is determined to be economically significant as defined u nder E.O. 12866, and (2) concerns an

788 62 FR 19885 (Apr. 23, 1997).1258 environmental, health, or safety risk th at NHTSA has reason to believe may have a disproportionate effect on children. If the re gulatory action meets both criteria, we must evaluate the environmental health or safety e ffects of the proposed rule on children, and explain why the proposed regulation is pref erable to other poten tially effective and reasonably foreseeable alternatives considered by us.

Chapter 4 of NHTSA’s FEIS notes that breathing PM can cause respiratory ailments, heart attack, a nd arrhythmias (Dockery et al. 1993, Samet et al. 2000, Pope et al. 1995, 2002, 2004, Pope and Dockery 2006, Dominici et al. 2006, Laden et al. 2006, all in Ebi et al. 2008). 789 Populations at greatest risk c ould include children, the elderly, and those with heart and lung disease, diabetes (Ebi et al. 2008), and high blood pressure (Künzli et al. 2005, in Ebi et al. 2008). Chronic exposure to PM could decrease lifespan by 1 to 3 years (Pope 2000, in American Lung Association 2008). Increasing PM concentrations are expected to have a m easurable adverse impact on human health (Confalonieri et al. 2007).

Additionally, the FEIS notes that subs tantial morbidity and childhood mortality has been linked to water- and food-borne dise ases. Climate change is projected to alter temperature and the hydrologic cycle through changes in precipitation, evaporation, transpiration, and water storage. These cha nges, in turn, potentially affect water-borne and food-borne diseases, such as salmone llosis, campylobacter, leptospirosis, and pathogenic species of vibrio. They also have a direct impact on surface water availability and water quality. Increased temperatures, greater evaporation, and heavy rain events

789 The references referred to in the remainder of th is section are detailed in Section 7.4.5 of the FEIS.1259 have been associated with adverse im pacts on drinking water through increased waterborne diseases, algal blooms, and toxins (Chorus and Bartram 1999, Levin et al. 2002, Johnson and Murphy 2004, all in Epstein et al. 2005). A seasona l signature has been associated with waterborne disease outbreaks (EPA 2009b). In the United States, 68 percent of all waterborne diseases be tween 1948 and 1994 were observed after heavy rainfall events (Curriero et al. 2001a, in Epstein et al. 2005).

Climate change could further impact a pat hogen by directly affecting its life cycle (Ebi et al. 2008). The global increase in the fr equency, intensity, and duration of red tides could be linked to local impacts alrea dy associated with clim ate change (Harvell et al. 1999, in Epstein et al. 2005); toxins associated with red tide directly affect the nervous system (Epstein et al. 2005).

Many people do not report or seek medical attention for their ailments of waterborne or food-borne diseases; hence, the numbe r of actual cases with these diseases is greater than clinical records demonstrate (Mead et al . 1999, in Ebi et al. 2008). Many of the gastrointestinal diseases associated with water-borne and food-bor ne diseases can be self-limiting; however, vulner able populations include young children, those with a compromised immune system, and the elderly.

Thus, as detailed in the FEIS, NHTSA has evaluated the environmental health and safety effects of agency’s action on children.1260 19. National Technology Transfer and Advancement Act

Section 12(d) of the National Tec hnology Transfer and Advancement Act (NTTAA) requires NHTA to evaluate and use existing voluntary consensus standards in its regulatory activities unless doing so would be inconsistent with applicable law (e.g., the statutory provisions regarding NHTSA’s vehicle safety author ity) or otherwise impractical.

Voluntary consensus standards are tec hnical standards deve loped or adopted by voluntary consensus standards bodies. Technica l standards are define d by the NTTAA as “performance-base or design-specific tec hnical specification and related management systems practices.” They pertain to “products and processes, such as size, strength, or technical performance of a pr oduct, process or material.”

Examples of organizations generally re garded as voluntary consensus standards bodies include the American Society for Tes ting and Materials (ASTM), the Society of Automotive Engineers (SAE), and the American National Standards Institute (ANSI). If NHTSA does not use available and potentially applicable voluntary c onsensus standards, we are required by the Act to provide Congr ess, through OMB, an explanation of the reasons for not using such standards.1261 There are currently no voluntary consensus standards relevant to today’s final CAFE standards.

20. Executive Order 13211

Executive Order 13211 790 applies to any rule that: (1) Is determined to be economically significant as defined under E.O. 12866, and is likely to have a significant adverse effect on the supply, dist ribution, or use of energy; or (2) that is designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. If the regulatory ac tion meets either criterion, we must evaluate the adverse energy effects of the final rule and explain w hy the final regulation is preferable to other potentially effective and reasonably feas ible alternatives considered by us.

The final rule seeks to establish pa ssenger car and light truck fuel economy standards that will reduce the consumption of petroleum and will not have any adverse energy effects. Accordingly, this final rulemaking action is not designated as a significant energy action.

21. Department of Energy Review

In accordance with 49 U.S.C. 32902(j)(1), we submitted this final rule to the Department of Energy for review. That Depa rtment did not make any comments that we have not addressed.

790 66 FR 28355 (May 18, 2001).12621263 22. Privacy Act

Anyone is able to search the electronic fo rm of all comments r eceived into any of our dockets by the name of the individua l submitting the comment (or signing the comment, if submitted on behalf of an organization, business, labor union, etc.). You may review DOT’s complete Privacy Act statement in the Federal Register (65 FR 19477-78, April 11, 2000) or you may vi sit http://www.dot.gov/privacy.html.

List of Subjects

40 CFR Part 85 Confidential business information, Imports, Labeling, Motor vehicle pollution, Reporting and recordkeeping requirements, Research, Warranties.

40 CFR Part 86 Administrative practice and pr ocedure, Confidential business information, Incorporation by reference, Labeling, Motor vehicle pollution, Reporting and recordkeeping requirements.

40 CFR Part 600 Administrative practice and pr ocedure, Electric power, Fuel economy, Incorporation by reference, Labeling, Reporting and recordkeeping requirements.1264 49 CFR Part 531 and 533 Fuel economy.

49 CFR Part 537 Fuel economy, Reporting and recordkeeping requirements.

49 CFR Part 538 Administrative practice and procedure, Fuel economy, Mo tor vehicles, Reporting and recordkeeping requirements.

Environmental Protection Agency

40 CFR Chapter I

PART 85—CONTROL OF AIR POLLUTION FROM MOBILE SOURCES

1. The authority citation for part 85 continues to read as follows:

Authority: 42 U.S.C. 7401–7671q.

Subpart T -- [Amended]

2. Section 85.1902 is amended by revising para graphs (b) and (d) to read as follows:1265 §85.1902 Definitions. * * * * * (b) The phrase emission-related defect shall mean: (1) A defect in design, materials, or workmanship in a device, system, or assembly described in the approved Appli cation for Certificati on (required by 40 CFR 86.1843-01 and 86.1844-01, and by 40 CFR 86.001-22 and similar provisions of 40 CFR part 86) which affects any parameter or specifi cation enumerated in appendix VIII of this part; or (2) A defect in the design, materials, or workmanship in one or more emissions control or emission-related parts, components, systems, software or elements of design which must function properly to assure continued compliance with vehicle emission requirements, including compliance with CO 2 , CH 4 , N 2 O, and carbon-related exhaust emission standards;
* * * * * (d) The phrase Voluntary Emissions Recall shall mean a repair, adjustment, or modification program voluntar ily initiated and conducted by a manufacturer to remedy any emission-related defect for which direct no tification of vehicle or engine owners has been provided, including programs to remedy defects related to em issions standards for
CO 2 , CH 4 , N 2 O, and/or carbon-relate d exhaust emissions.
* * * * *1266 PART 86--CONTROL OF EMISSIONS FROM NEW AND IN-USE HIGHWAY VEHICLES AND ENGINES

3. The authority citation for part 86 continues to read as follows:

Authority: 42 U.S.C. 7401-7671q.

4. Section 86.1 is amended by adding paragr aphs (b)(2)(xxxix) through (xxxx) to read as follows:

§86.1 Reference materials. * * * * * (b) * * * (2) * * *(xxxix) SAE J2064, Revised December 2005, R134a Refrigerant Automotive AirConditioned Hose, IBR approved for §86.166-12. (xxxx) SAE J2765, October, 2008, Pr ocedure for Measuring System COP [Coefficient of Performance] of a Mobile Air Conditioning System on a Test Bench, IBR approved for §86.1866-12.
* * * * *1267 Subpart B--[Amended]

5. Section 86.111-94 is amended by revising pa ragraph (b) introductory text to read as follows:

§86.111-94 Exhaust gas analytical system. * * * * * (b) Major component description. The exhaust gas analytical system, Figure B94– 7, consists of a flame ionization detector (FID) (heated, 235 °±15 °F (113 °±8 °C) for methanol-fueled vehicles) for the determinati on of THC, a methane analyzer (consisting of a gas chromatograph combined with a FID) for the determination of CH 4 , nondispersive infrared analyzers (NDIR) for the determination of CO and CO 2 , a chemiluminescence analyzer (CL) for the determination of NO X , and an analyzer meeting the requirements specified in 40 CF R 1065.275 for the determination of N 2 O (required for 2015 and later model year vehicles). A h eated flame ionization detector (HFID) is used for the continuous determination of THC from petroleum-fueled diesel-cycle vehicles (may also be used with methanol-f ueled diesel-cycle vehicles), Figure B94–5 (or B94–6). The analytical system for methanol consists of a gas chromatograph (GC) equipped with a flame ionization detector. Th e analysis for formaldehyde is performed using high-pressure liquid chromatography (HPLC) of 2,4-dinitrophenylhydrazine (DNPH) derivatives using ultraviolet (UV) de tection. The exhaust gas analytical system shall conform to the following requirements:1268 * * * * *

6. Section 86.113-04 is amended by revising th e entry for RVP in the table in paragraph (a)(1) to read as follows:

§86.113-04 Fuel specifications. * * * * * (a) * * * (1) * * *
Item ASTM test method No. Value * * * * * * * RVP 2,3 D 323 8.7-9.2 (60.0-63.4) * * * * * * * * * * * *

7. A new §86.127-12 is adde d to read as follows:

§86.127-12 Test procedures; overview. Applicability. The procedures described in this subpart are used to determine the conformity of vehicles with the standards se t forth in subpart A or S of this part (as applicable) for light-duty vehicles, ligh t-duty trucks, and medium-duty passenger vehicles. Except where noted, the procedures of paragraphs (a) through (d) of this section, and the contents of §§86.135–00, 86.136–90, 86.137–96, 86.140–94, 86.142–90, and 86.144–94 are applicable for determini ng emission results for vehicle exhaust emission systems designed to comply with the FTP emission standards, or the FTP1269 emission element required for determining co mpliance with composite SFTP standards. Paragraph (e) of this section discusses fuel spitback emissions . Paragraphs (f) and (g) of this section discuss the additional test elem ents of aggressive driving (US06) and air conditioning (SC03) that comprise the exhaust emission components of the SFTP. Paragraphs (h) and (i) of th is section are applicable to all vehicle emission test procedures. (a) The overall test consists of prescrib ed sequences of fueling, parking, and operating test conditions. Vehicl es are tested for any or al l of the following emissions, depending upon the specific test requir ements and the vehicle fuel type: (1) Gaseous exhaust THC, NMHC, NMOG, CO, NO X , CO 2 , N 2 O, CH 4 , CH 3 OH,
C 2 H 5 OH, C 2 H 4 O, and HCHO. (2) Particulates. (3) Evaporative HC (for gasoline-fuel ed, methanol-fueled and gaseous-fueled vehicles) and CH 3 OH (for methanol-fueled vehicles). The evaporative te sting portion of the procedure occurs after the exhaust emission test; however, exhaust emissions need not be sampled to complete a test for evaporative emissions. (4) Fuel spitback (this test is not re quired for gaseous-fueled vehicles). (b) The FTP Otto-cycle exhaust emission test is designed to determine gaseous THC, NMHC, NMOG, CO, CO 2 , CH 4 , NO X , N 2 O, and particulate mass emissions from gasoline-fueled, methanol-fueled and gaseous -fueled Otto-cycle vehicles as well as methanol and formaldehyde from methanol-f ueled Otto-cycle ve hicles, as well as methanol, ethanol, acetaldehyde, and formalde hyde from ethanol-fueled vehicles, while simulating an average trip in an urban area of approximately 11 miles (approximately 181270 kilometers). The test consists of engine start-ups and vehicle operation on a chassis dynamometer through a specified driving schedu le (see paragraph (a) of appendix I to this part for the Urban Dynamometer Driv ing Schedule). A proportional part of the diluted exhaust is collected continuously for subsequent analysis, using a constant volume (variable dilution) sampler or critical flow venturi sampler. (c) The diesel-cycle exhaust emission test is designed to determine particulate and gaseous mass emissions during the test describe d in paragraph (b) of this section. For petroleum-fueled diesel-cycle vehicles, dilu ted exhaust is continuously analyzed for THC using a heated sample line and anal yzer; the other gaseous emissions (CH 4 , CO, CO 2 , N 2 O, and NO X ) are collected continuously for analysis as in paragraph (b) of this section. For methanol- and ethanol-fueled vehicl es, THC, methanol, formaldehyde, CO, CO 2 , CH 4 , N 2 O, and NO X are collected continuously for analys is as in paragraph (b) of this section. Additionally, for ethanol-fueled vehi cles, ethanol and acetaldehyde are collected continuously for analysis as in paragraph (b) of this section. THC, methanol, ethanol, acetaldehyde, and formaldehyde are collected using heated sample lines, and a heated FID is used for THC analyses. Simultaneous with the gaseous e xhaust collection and analysis, particulates from a proportional pa rt of the diluted exhaust are collected continuously on a filter. The mass of particulat e is determined by the procedure described in §86.139. This testing requires a dilution tunne l as well as the constant volume sampler. (d) The evaporative emission test (gasoline-fueled vehicles, methanol-fueled and gaseous-fueled vehicles) is designed to de termine hydrocarbon and methanol evaporative emissions as a consequence of diurnal temp erature fluctuation, urban driving and hot soaks following drives. It is associated with a series of events that a vehicle may1271 experience and that may result in hydrocarbon and/or methanol vapor losses. The test procedure is designed to measure: (1) Diurnal emissions resulting from da ily temperature changes (as well as relatively constant re sting losses), measured by the en closure technique (see §86.133-96); (2) Running losses resulting from a simu lated trip performed on a chassis dynamometer, measured by the enclosure or point-source technique (see §86.134-96; this test is not required for ga seous-fueled vehicles); and (3) Hot soak emissions, which result when the vehicle is parked and the hot engine is turned off, measured by the enclosure technique (see §86.138-96). (e) Fuel spitback emissions occur when a vehicle's fuel fill neck cannot accommodate dispensing rates. The vehicle test for spitback consists of a short drive followed immediately by a complete refueling event. This test is not required for gaseous-fueled vehicles. (f) The element of the SFTP for exhaust emissions related to aggressive driving (US06) is designed to determine gaseous THC, NMHC, CO, CO 2 , CH 4 , and NO X emissions from gasoline-fueled or diesel -fueled vehicles (see §86.158–08 Supplemental test procedures; overview, and §86.159–08 Exha ust emission test procedures for US06 emissions). The test cycle simulates urban driving speeds and accelerations that are not represented by the FTP Urban Dynamometer Dr iving Schedule simulated trips discussed in paragraph (b) of this section. The test consists of vehicle operation on a chassis dynamometer through a specified driving cycl e (see paragraph (g), US06 Dynamometer Driving Schedule, of appendix I to this part). A proportional part of the diluted exhaust is1272 collected continuously for subsequent anal ysis, using a constant volume (variable dilution) sampler or critical flow venturi sampler. (g)(1) The element of the SFTP related to the increased exhaust emissions caused by air conditioning operation (S C03) is designed to determine gaseous THC, NMHC, CO, CO 2 , CH 4 , and NO X emissions from gasoline-fueled or diesel fueled vehicles related to air conditioning use (see §86.158–08 Supplemen tal federal test procedures; overview and §86.160–00 Exhaust emission test procedur e for SC03 emissions). The test cycle simulates urban driving behavior with the ai r conditioner operating. The test consists of engine startups and vehicle operation on a chassis dynamometer through specified driving cycles (see paragraph (h), SC03 Dyna mometer Driving Schedule, of appendix I to this part). A proportional part of the dilu ted exhaust is collected continuously for subsequent analysis, using a constant volume (v ariable dilution) sampler or critical flow venturi sampler. The testing sequence incl udes an approved preconditioning cycle, a 10 minute soak with the engine turned off, and the SC03 cycle with measured exhaust emissions. (2) The SC03 air conditioning test is c onducted with the air conditioner operating at specified settings and th e ambient test conditions of: (i) Air temperature of 95 °F; (ii) 100 grains of water/pound of dry ai r (approximately 40 percent relative humidity); (iii) Simulated solar h eat intensity of 850 W/m 2 (see §86.161–00(d)); and (iv) Air flow directed at the vehicle that will provide representative air conditioner system condenser cooling at al l vehicle speeds (see §86.161–00(e)).1273 (3) Manufacturers have the option of simulating air conditioning operation during testing at other ambient test conditions provided they can dem onstrate that the vehicle tail pipe exhaust emissions are representative of the emissions that would result from the SC03 cycle test procedure and the ambient condi tions of paragraph (g)(2) of this section. The simulation test procedure must be appr oved in advance by the Administrator (see §§86.162–03 and 86.163–00). (h) Except in cases of component malf unction or failure, all emission control systems installed on or incorporated in a new motor vehicle shall be functioning during all procedures in this subpart. Maintenance to correct component malfunction or failure shall be authorized in accordance with §86.007–25 or §86.1834–01 as applicable. (i) Background concentrations are measur ed for all species for which emissions measurements are made. For exhaust testing, this requires sampling and analysis of the dilution air. For evaporative testing, this re quires measuring initial concentrations. (When testing methanol-fueled vehicles, manufactur ers may choose not to measure background concentrations of methanol and/or formaldehyde , and then assume that the concentrations are zero during calculations.)

8. A new §86.135-12 is adde d to read as follows:

§86.135-12 Dynamometer procedure. (a) Overview. The dynamometer run consists of two tests, a “cold” start test, after a minimum 12-hour and a maximum 36-hour soak according to the provisions of §§86.132 and 86.133, and a “hot” start test fo llowing the “cold” start by 10 minutes.1274 Engine startup (with all acce ssories turned off), operation over the UDDS, and engine shutdown make a complete cold start test. En gine startup and operati on over the first 505 seconds of the driving schedule complete th e hot start test. The exhaust emissions are diluted with ambient air in the dilution t unnel as shown in Figure B94–5 and Figure B94– 6. A dilution tunnel is not requ ired for testing vehicles waiv ed from the requirement to measure particulates. Six particulate samples are collected on filters for weighing; the first sample plus backup is collected during th e first 505 seconds of th e cold start test; the second sample plus backup is collected duri ng the remainder of the cold start test (including shutdown); the third sample plus ba ckup is collected duri ng the hot start test. Continuous proportional samples of gaseous em issions are collected for analysis duringeach test phase. For gasoline-fueled, natural gas-fueled and liquefied petroleum gasfueled Otto-cycle vehicles, the composite sa mples collected in bags are analyzed for THC, CO, CO 2 , CH 4 , NO X , and, for 2015 and later model year vehicles, N 2 O. For petroleum-fueled diesel-cycle vehicles ( optional for natural gas-fueled, liquefied petroleum gas-fueled and methanol-fueled di esel-cycle vehicles), THC is sampled and analyzed continuously according to the provi sions of §86.110-94. Parallel samples of the dilution air are similarly analyzed for THC, CO, CO 2 , CH 4 , NO X , and, for 2015 and later model year vehicles, N 2 O. For natural gas-fueled, lique fied petroleum gas-fueled and methanol-fueled vehicles, bag samples are collected and analyzed for THC (if not sampled continuously), CO, CO 2 , CH 4 , NO X , and, for 2015 and later model year vehicles,
N 2 O. For methanol-fueled vehicles, methanol and formaldehyde samples are taken for both exhaust emissions and dilution air (a single dilution air formaldehyde sample, covering the total test period may be collected ). For ethanol-fueled vehicles, methanol,1275 ethanol, acetaldehyde, and formaldehyde sample s are taken for both exhaust emissions and dilution air (a single dilu tion air formaldehyde sample, c overing the total test period may be collected). Parallel bag samples of dilution air are analyzed for THC, CO, CO 2 , CH 4 , NO X , and, for 2015 and later model year vehicles, N 2 O. (b) During dynamometer operation, a fixed speed cooling fan shall be positioned so as to direct cooling air to the vehicle in an appropr iate manner with the engine compartment cover open. In the case of vehicl es with front engine compartments, the fan shall be squarely positioned within 12 inches (30.5 centimeters) of th e vehicle. In the case of vehicles with rear engine compartmen ts (or if special designs make the above impractical), the cooling fan shall be placed in a position to provide sufficient air to maintain vehicle cooling. The fan capacity shall normally not exceed 5300 cfm (2.50

m 3 /sec). However, if the manufacturer can show that during field ope ration the vehicle receives additional cooling, and that such additional cooling is needed to provide a representative test, the fan capacity may be increased, additional fans used, variable speed fan(s) may be used, a nd/or the engine compartment cover may be closed, if approved in advance by the Administrator. For example, the hood may be closed to provide adequate air flow to an intercool er through a factory installed hood scoop. Additionally, the Administrator may conduct certification, fuel economy and in-use testing using the additional cooling se t-up approved for a specific vehicle. (c) The vehicle speed as measured from the dynamometer rolls shall be used. A speed vs. time recording, as evidence of dyna mometer test validity, shall be supplied on request of the Administrator.1276 (d) Practice runs over the prescribed driv ing schedule may be performed at test point, provided an emission sample is not ta ken, for the purpose of finding the minimum throttle action to maintain the proper speed -time relationship, or to permit sampling system adjustment. Note: When using two-roll dynamometers a truer speed-time trace may be obtained by minimizing the rocking of th e vehicle in the rolls; the rocking of the vehicle changes the tire rolling radius on each roll. This rocking may be minimized by restraining the vehicle horizontally (or nearly so) by using a cable and winch. (e) The drive wheel tires may be inflated up to a gauge pressure of 45 psi (310 kPa) in order to prevent tire damage. The drive wheel tire pressure shall be reported with the test results. (f) lf the dynamometer has not been operated during the 2-hour period immediately preceding the test, it shall be warmed up for 15 minutes by operating at 30 mph (48 kph) using a non-test vehicle or as recommended by the dynamometer manufacturer. (g) If the dynamometer horsepower must be adjusted manually, it shall be set within 1 hour prior to the exhaust emissions test phase. The test vehicle shall not be used to make this adjustment. Dynamometers usi ng automatic control of pre-selectable power settings may be set anytime prior to the beginning of the emissions test. (h) The driving distance, as measured by counting the number of dynamometer roll or shaft revolutions, shall be determined fo r the transient cold st art, stabilized cold start, and transient hot start phases of the te st. The revolutions shall be measured on the same roll or shaft used for measuring the vehicle's speed.1277 (i) Four-wheel drive and all- wheel drive vehicles may be tested either in a fourwheel drive or a two-wheel driv e mode of operation. In orde r to test in the two-wheel drive mode, four-wheel drive and all-wheel drive vehicles may have one set of drive wheels disengaged; four-wheel and all-wheel drive vehicles which can be shifted to a two-wheel mode by the driver may be tested in a two-wheel drive mode of operation.

9. A new §86.165-12 is added to subpart B to read as follows:

§86.165-12 Air conditioning idle test procedure. (a) Applicability . This section describes pro cedures for determining air conditioning-related CO 2 emissions from light-duty ve hicles, light-duty trucks, and medium-duty passenger vehicles. The results of this test are used to qualify for air conditioning efficiency CO 2 credits according to §86.1866-12(c). (b) Overview . The test consists of a brief period to stabilize the vehicle at idle, followed by a ten-minute period at idle when CO 2 emissions are measured without any air conditioning systems operating, followe d by a ten-minute period at idle when CO 2 emissions are measured with the air conditioning system operating. This test is designed to determine the air conditioning-related CO 2 emission value, in grams per minute. If engine stalling occurs during cycle operati on, follow the provisions of §86.136–90 to restart the test. Measurement instruments must meet the specifications described in this subpart.1278 (c) Test cell ambient conditions

. (1) Ambient humidity within the test cell during all phases of the test sequence shall be controlled to an average of 50 ± 5 grains of water/pound of dry air. (2) Ambient air temperature within the test cell during all phases of the test sequence shall be controlled to 75 ± 2 °F on average and 75 ± 5 °F as an instantaneous measurement. Air temperature shall be reco rded continuously at a minimum of 30 second intervals. (d) Test sequence

. (1) Connect the vehicle exhaust system to the raw sampling location or dilution stage according to the provisions of this subpart. For dilution systems, dilute the exhaust as described in this subpart. Continuous sampling systems must meet the specifications provided in this subpart. (2) Test the vehicle in a fully warmed-up condition. If the vehicle has soaked for two hours or less since the last exhaust test element, precond itioning may consist of a 505 Cycle, 866 Cycle, US06, or SC03, as th ese terms are defined in §86.1803-01, or a highway fuel economy test procedure, as defi ned in §600.002-08 of this chapter. For soak periods longer than two hours, precond ition the vehicle using one full Urban Dynamometer Driving Schedule. Ensure that the vehicle has stabi lized at test cell ambient conditions such that the vehicle interi or temperature is not substantially different from the external test cell temperature. Windows may be opened during preconditioning to achieve this stabilization.1279 (3) Immediately after the pr econditioning, turn off any cooling fans, if present, close the vehicle’s hood, fully close all the vehicle’s wi ndows, ensure that all the vehicle’s air conditioning systems are set to full off, start the CO 2 sampling system, and then idle the vehicle for not less than 1 mi nute and not more than 5 minutes to achieve normal and stable idle operation. (4) Measure and record the continuous CO 2 concentration for 600 seconds. Measure the CO 2 concentration continuously using ra w or dilute sampling procedures. Multiply this concentration by the continuous (r aw or dilute) flow rate at the emission sampling location to determine the CO 2 flow rate. Calculate the CO 2 cumulative flow rate continuously over the test interval. This cumu lative value is the total mass of the emitted
CO 2 . (5) Within 60 seconds after completing the measurement described in paragraph (d)(4) of this section, turn on the vehicle’s air conditioning system. Set automatic air conditioning systems to a temperature 9 °F (5 °C) below the ambient temperature of the test cell. Set manual air conditioning system s to maximum cooling with recirculation turned off, except that recirculation shall be enabled if the air conditioning system automatically defaults to a recirculation m ode when set to maximum cooling. Continue idling the vehicle while measuring and recording the continuous CO 2 concentration for 600 seconds as described in paragraph (d)(4) of this section. Ai r conditioning systems with automatic temperature controls are finish ed with the test afte r this 600 second idle period. Manually controlled air conditioning systems must complete one additional idle period as described in paragra ph (d)(6) of this section.1280 (6) This paragraph (d)(6) applies only to manually c ontrolled air conditioning systems. Within 60 seconds after completi ng the measurement described in paragraph (d)(5) of this section, leave the vehicle’s ai r conditioning system on and set as described in paragraph (d)(5) of this section but set the fan speed to the lowest setting that continues to provide air flow. Recirculation shall be turn ed off except that if the system defaults to a recirculation mode when se t to maximum cooling and maintains recirculation with the low fan speed, then recirculation shall conti nue to be enabled. After the fan speed has been set, continue idling the vehicle while measuring and recording the continuous CO 2 concentration for a total of 600 seconds as described in paragr aph (d)(4) of this section. (e) Calculations . (1) For the measurement with no air conditioning operation, calculate the CO 2 emissions (in grams per minute) by dividing the total mass of CO 2 from paragraph (d)(4) of this s ection by 10.0 (the duration in minutes for which CO 2 is measured). Round this result to the n earest tenth of a gram per minute. (2)(i) For the measurement with air conditioning in operation for automatic air conditioning systems, calculate the CO 2 emissions (in grams pe r minute) by dividing the total mass of CO 2 from paragraph (d)(5) of this sec tion by 10.0. Round this result to the nearest tenth of a gram per minute. (ii) For the measurement with air conditioning in operation for manually controlled air conditioning sy stems, calculate the CO 2 emissions (in grams per minute) by summing the total mass of CO 2 from paragraphs (d)(5) and (d)(6) of this section and dividing by 20.0. Round this result to th e nearest tenth of a gram per minute.1281 (3) Calculate the increased CO 2 emissions due to air conditioning (in grams per minute) by subtracting the result s of paragraph (e)(1) of this section from the results of paragraph (e)(2)(i) or (ii) of this section, whichever is applicable. (f) The Administrator may pr escribe procedures other th an those in this section for air conditioning systems and/or vehicles that may not be suscep tible to satisfactory testing by the procedures and methods in this section. For example, the Administrator may prescribe alternative air conditioning system settings for systems with controls that are not able to meet the requirements in this section.

10. A new §86.166-12 is added to subpart B to read as follows:

§86.166-12 Method for calculating emission s due to air conditioning leakage. This section describes procedures used to determine a refrigerant leakage rate in grams per year from vehicle-based air conditioni ng units. The results of this test are used to determine air condit ioning leakage credits ac cording to §86.1866-12(b). (a) Emission totals . Calculate an annual rate of refrigerant leakage from an air conditioning system using the following equation: Grams/YR TOT = Grams/YR RP + Grams/YR SP + Grams/YR FH + Grams/YR MC + Grams/YR C Where: Grams/YR TOT = Total air conditioning system emission rate in grams per year and rounded to the nearest tenth of a gram per year.1282 Grams/YR RP = Emission rate for rigid pipe conne ctions as described in paragraph (b) of this section. Grams/YR SP = Emission rate for service ports a nd refrigerant control devices as described in paragraph (c) of this section. Grams/YR FH = Emission rate for flexible hoses as described in paragraph (d) of this section. Grams/YR MC = Emission rate for heat exchange rs, mufflers, receiver/driers, and accumulators as described in para graph (e) of this section. Grams/YR C = Emission rate for compressors as de scribed in paragraph (f) of this section. (b) Rigid pipe connections . Determine the grams per year emission rate for rigid pipe connections using the following equation: Grams/YR RP = 0.00522 × [(125 × SO) + (75 × SCO) + (50 × MO) + (10 × SW) + (5 × SWO) + (MG)] Where: Grams/YR RP = Total emission rate for rigid pipe connections in grams per year. SO = The number of si ngle O-ring connections. SCO = The number of single captured O-ring connections. MO = The number of multiple O-ring connections. SW = The number of seal washer connections. SWO = The number of seal wa sher with O-ring connections. MG = The number of metal gasket connections.1283 (c) Service ports and refrigerant control devices . Determine the grams per year emission rate for service ports and refrig erant control devices using the following equation: Grams/YR SP = 0.522 × [(0.3 × HSSP) + (0.2 × LSSP) + (0.2 × STV) + (0.2 × TXV)] Where: Grams/YR SP = The emission rate for service por ts and refrigerant control devices, in grams per year. HSSP = The number of high side service ports. LSSP = The number of low side service ports. STV = The total number of switches, tran sducers, and pressure relief valves. TXV = The number of refrigerant control devices. (d) Flexible hoses . Determine the permeation emission rate in grams per year for each segment of flexible hose using the following equation, and then sum the values for all hoses in the system to calculate a total fl exible hose emission rate for the system. Hose end connections shall be included in the calcula tions in paragraph (b) of this section. Grams/YR FH = 0.00522 × (3.14159 × ID × L × ER) Where: Grams/YR FH = Emission rate for a segment of flexible hose in grams per year. ID = Inner diameter of hose, in millimeters. L = Length of hose, in millimeters. ER = Emission rate per unit internal surface area of the hose, in g/mm 2 . Select the appropriate value for ER from the following table:1284 ER Material/configuration High-pressure side Low-pressure side All rubber hose 0.0216 0.0144 Standard barrier or veneer hose 0.0054 0.0036 Ultra-low permeation barrier or veneer hose 0.00225 0.00167

(e) Heat exchangers, mufflers, receiver/driers, and accumulators . Use an emission rate of 0.261 grams per year as a combined value for all heat exchangers, mufflers, receiver/driers, and accumulators (Grams/YR MC ). (f) Compressors . Determine the emission rate for compressors using the following equation, except that the fina l term in the equation (“1500/SS L”) is not applicable to electric (or semi-hermetic) compressors: Grams/YR C = 0.00522 × [(300 × OHS) + (200 × MHS) + (150 × FAP) + (100 × GHS) + (1500/SSL)] Where: Grams/YR C = The emission rate for the compressors in the air conditioning system, in grams per year. OHS = The number of O-ring housing seals. MHS = The number of molded housing seals. FAP = The number of fitting adapter plates. GHS = The number of gasket housing seals. SSL = The number of lips on shaft seal (for belt-driven compressors only). (g) Definitions . The following definitions apply to this section:1285 (1) All rubber hose means a Type A or Type B hose as defined by SAE J2064 with a permeation rate not greater than 15 kg/m 2 /year when tested according to SAE J2064. SAE J2064 is incorporated by reference; see §86.1. (2) Standard barrier or veneer hose means a Type C, D, E, or F hose as defined by SAE J2064 with a permeation rate not greater than 5 kg/m 2 /year when tested according to SAE J2064. SAE J2064 is in corporated by reference; see §86.1. (3) Ultra-low permeation ba rrier or veneer hose means a hose with a permeation rate not greater than 1.5 kg/m 2 /year when tested according to SAE J2064. SAE J2064 is incorporated by reference; see §86.1.

Subpart S--[Amended]

11. A new §86.1801-12 is added to read as follows:

§86.1801-12 Applicability. (a) Applicability. Except as otherwise indicated, the provisions of this subpart apply to new light-duty vehicl es, light-duty trucks, medium- duty passenger vehicles, and Otto-cycle complete heavy-duty vehicles, including multi-fueled, alternative fueled, hybrid electric, plug-in hybrid electric, and el ectric vehicles. These provisions also apply to new incomplete light-duty trucks below 8,500 Gross Vehicle Weight Rating. In cases where a provision applies only to a certain vehicle group base d on its model year, vehicle class, motor fuel, engine type, or othe r distinguishing characteristics, the limited applicability is cited in the appr opriate section of this subpart.1286 (b) Aftermarket conversions. The provisions of this s ubpart apply to aftermarket conversion systems, aftermarket conversi on installers, and af termarket conversion certifiers, as those terms ar e defined in 40 CFR 85.502, of all model year light-duty vehicles, light-duty trucks, medium-duty passe nger vehicles, and complete Otto-cycle heavy-duty vehicles. (c) Optional applicability. (1) [Reserved] (2) A manufacturer may request to certif y any incomplete Otto-cycle heavy-duty vehicle of 14,000 pounds Gross Vehicle Weight Rating or less in accordance with the provisions for complete heavy-duty vehicles . Heavy-duty engine or heavy-duty vehicle provisions of subpart A of this part do not apply to such a vehicle. (3) [Reserved] (4) Upon preapproval by the Administrator, a manufacturer may optionally certify an aftermarket conversion of a complete heavy-duty vehicle greater than 10,000 pounds Gross Vehicle Weight Rating and of 14,000 pounds Gross Vehicle Weight Rating or less under the heavy-duty engine or heavy-duty vehicle provisions of subpart A of this part. Such preapproval will be granted only upon demonstration that chassis-based certification would be infeas ible or unreasonable for th e manufacturer to perform. (5) A manufacturer may optionally cert ify an aftermarket conversion of a complete heavy-duty vehicle greater than 10,000 pounds Gross Vehicle Weight Rating and of 14,000 pounds Gross Vehicle Weight Ra ting or less under the heavy-duty engine or heavy-duty vehicle provisions of subpart A of this part without advance approval from1287 the Administrator if the vehicle was origina lly certified to the heavy-duty engine or heavy-duty vehicle provisions of subpart A of this part. (d) Small volume manufacturers. Special certification procedures are available for any manufacturer whose projecte d or actual combined sales in all states and territories of the United States of light-duty vehicles, light-duty trucks, heavy-duty vehicles, and heavy-duty engines in its pr oduct line (including all vehicl es and engines imported under the provisions of 40 CFR 85.1505 and 85.1509) are fewer than 15,000 units for the model year in which the manufacturer seeks certi fication. The small volume manufacturer's light-duty vehicle and light- duty truck certification pro cedures are described in §86.1838–01. (e) - (g) [Reserved] (h) Applicability of provisions of this subpart to light-duty vehicles, light-duty trucks, medium-duty passenger veh icles, and heavy-duty vehicles. Numerous sections in this subpart provide requiremen ts or procedures applicable to a “vehicle” or “vehicles.” Unless otherwise specified or otherwise determined by the Administrator, the term “vehicle” or “vehicles” in those provisions apply equally to light- duty vehicles (LDVs), light-duty trucks (LDTs), medium-duty pa ssenger vehicles (MDPVs), and heavy-duty vehicles (HDVs), as those terms are defined in §86.1803-01. (i) Applicability of provis ions of this subpart to exhaust greenhouse gas
emissions . Numerous sections in this subpart re fer to requirements relating to “exhaust emissions.” Unless otherwise specified or othe rwise determined by the Administrator, the term “exhaust emissions” refers at a minimum to emissions of all pollutants described by1288 emission standards in this subpa rt, including carbon dioxide (CO 2 ), nitrous oxide (N 2 O), and methane (CH 4 ). (j) Exemption from greenhous e gas emission standards for small businesses

. Manufacturers that qualify as a small busin ess under the Small Business Administration regulations in 13 CFR part 121 are exempt from the greenhouse gas emission standards specified in §86.1818-12 and in associated provisi ons in this part and in part 600 of this chapter. Both U.S.-based and non-U.S.-based businesses are eligible for this exemption. The following categories of businesses (with their associated NAICS codes) may be eligible for exemption based on the Small Bu siness Administration size standards in 13
CFR 121.201. (1) Vehicle manufactur ers (NAICS code 336111). (2) Independent commercial importers (NAICS codes 811111, 811112, 811198, 423110, 424990, and 441120). (3) Alternate fuel vehicle conve rters (NAICS codes 335312, 336312, 336322, 336399, 454312, 485310, and 811198). (k) Conditional exemption from greenhouse gas emission standards

. Manufacturers meeting the eligibility requireme nts described in paragraph (k)(1) and (2) of this section may request a conditional exemption from compliance with the emission standards described in §86. 1818-12 paragraphs (c) through (e ) and associated provisions in this part and in part 600 of this chapter. The terms “sales” and “sold” as used in this paragraph (k) shall mean vehicl es produced and delivered for sale (or sold) in the states and territories of the United States. For the pur pose of determining eligibility the sales of related companies shall be aggregated acco rding to the provisions of §86.1838-01(b)(3).1289 (1) Eligibility requirements . Eligibility as determined in this paragraph (k) shall be based on the total sales of combined passenger automobiles and light trucks. Manufacturers must meet one of the requirement s in paragraph (k)(1)(i) or (ii) of this section to initially qualify for this exemption. (i) A manufacturer with 2008 or 2009 model year sales of more than zero and fewer than 5,000 is eligible for a conditional exemption from the greenhouse gas emission standards described in §86. 1818-12 paragraphs (c) through (e). (ii) A manufacturer with 2008 or 2009 model year sale s of more than zero and fewer than 5,000 while under the control of another manufacturer, where those 2008 or 2009 model year vehicles bore the brand of the producing manufacturer but were sold by or otherwise under the control of anothe r manufacturer, and where the manufacturer producing the vehicles became independent no la ter than December 31, 2010, is eligible for a conditional exemption from the gree nhouse gas emission standards described in §86.1818-12 paragraphs (c) through (e). (2) Maintaining eligibility for exemption from greenhouse gas emission
standards . To remain eligible for exemption unde r this paragraph (k) the manufacturer’s average sales for the three most recent c onsecutive model years must remain below 5,000. If a manufacturer’s average sales for the three most re cent consecutive model years exceeds 4999, the manufact urer will no longer be eligible for exemption and must meet applicable emission standards according to the provisions in this paragraph (k)(2). (i) If a manufacturer’s average sales for three consecutive model years exceeds 4999, and if the increase in sa les is the result of corpor ate acquisitions, mergers, or purchase by another manufacturer, the manuf acturer shall comply with the emission1290 standards described in §86.1818- 12 paragraphs (c) through (e), as applicable, beginning with the first model year after the last y ear of the three consecutive model years. (ii) If a manufacturer’s average sales for three consecutive model years exceeds 4999 and is less than 50,000, and if the increase in sales is solely the result of the manufacturer’s expansion in vehicle production, the manufact urer shall comp ly with the emission standards described in §86.1818-12 para graphs (c) through (e), as applicable, beginning with the second model year after th e last year of the three consecutive model
years. (iii) If a manufacturer’s average sales for three consecutive model years exceeds 49,999, the manufacturer shall comply w ith the emission standards described in §86.1818-12 paragraphs (c) through (e), as app licable, beginning w ith the first model year after the last year of th e three consecutive model years. (2) Requesting the conditional exemption from standards . To be exempted from the standards described in §86.1818-12 paragraphs (c) through (e), th e manufacturer must submit a declaration to EPA containing a detailed written description of how the manufacturer qualifies under th e provisions of this paragrap h (k). The declaration must describe eligibility information that in cludes the following: model year 2008 and 2009 sales, sales volumes for each of the most r ecent three model years, detailed information regarding ownership relationships with ot her manufacturers, details regarding the application of the provisions of §86.1838-01(b)(3 ) regarding the aggreg ation of sales of related companies, and documentation of good -faith efforts made by the manufacturer to purchase credits from other manufacturers. Th is declaration must be signed by a chief officer of the company, and must be made prior to each model year for which the1291 exemption is requested. The declaration must be submitted to EPA at least 30 days prior to the introduction into commerce of any ve hicles for each model year for which the exemption is requested, but not later than December of the calenda r year prior to the model year for which exemption is request ed. A conditional exemption will be granted when EPA approves the exemption declaration. The declaration must be sent to the Environmental Protection Agency at the fo llowing address: Director, Compliance and Innovative Strategies Division, U.S. Envi ronmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, Michigan 48105.

12. Section 86.1803-01 is amended as follows: a. By adding the definition for “Air conditioning idle test.” b. By adding the definition for “Air conditioning system.” c. By revising the definition for “Banking.” d. By adding the definition for “Base level.” e. By adding the definition for “Base tire.” f. By adding the definition for “Base vehicle.” g. By revising the definition for “Basic engine.” h. By adding the definition for “C arbon-related exhaust emissions.” i. By adding the definition for “Combined CO 2 .” j. By adding the definition for “Combined CREE.” k. By adding the definition for “Electric vehicle.” l. By revising the definition for “Engine code.” m. By adding the definition for “Ethanol fueled vehicle.”1292 n. By revising the definition for “Flexible fuel vehicle.” o. By adding the definition for “Footprint.” p. By adding the definition for “Fuel cell electr ic vehicle.” q. By adding the definition for “Highway fuel economy test procedure.” r. By adding the definition fo r “Hybrid electric vehicle.” s. By adding the definition for “Interior volume index.” t. By revising the definition for “Model type.” u. By adding the definition for “Motor vehicle.” v. By adding the definition for “Multi-fuel vehicle.” w. By adding the definition for “Petroleum equivalency factor.” x. By adding the definition for “Pet roleum-equivalent fuel economy.” y. By adding the definition for “Petroleum powered accessory.” z. By adding the definition for “P lug-in hybrid electric vehicle.” aa. By adding the definition for “Production volume.” bb. By revising the definition for “Round, rounded, or rounding.” cc. By adding the definition for “Subconfiguration.” dd. By adding the definition for “Track width.” ee. By revising the definition for “Transmission class.” ff. By revising the definition fo r “Transmission configuration.” gg. By adding the definition for “Wheelbase.”

§86.1803-01 Definitions.
* * * * *1293 Air Conditioning Idle Test means the test procedure specified in §86.165-12. Air conditioning system means a unique combination of air conditioning and climate control components, including: compre ssor type (e.g., belt, gear, or electricdriven, or a combination of compressor dr ive mechanisms); compressor refrigerant capacity; the number and type of rigid pipe and flexible hose connections; the number of high side service ports; the number of low si de service ports; the number of switches, transducers, and expansion va lves; the number of TXV refrigerant control devices; the number and type of heat exchangers, muffle rs, receiver/dryers, and accumulators; and the length and type of flexible hose (e.g., rubbe r, standard barrier or veneer, ultra-low permeation).
* * * * * Banking means one of the following: (1) The retention of NO X emission credits for complete heavy-duty vehicles by the manufacturer generating the emi ssion credits, for use in fu ture model year certification programs as permitted by regulation. (2) The retention of cold temper ature non-methane hydrocarbon (NMHC) emission credits for light-duty vehicles, lig ht-duty trucks, and me dium-duty passenger vehicles by the manufacturer generating the em ission credits, for use in future model year certification programs as permitted by regulation. (3) The retention of NO X emission credits for light -duty vehicles, light-duty trucks, and medium-duty passenger vehicles fo r use in future model year certification programs as permitted by regulation.1294 (4) The retention of CO 2 emission credits for light -duty vehicles, light-duty trucks, and medium-duty passenger vehicles fo r use in future model year certification programs as permitted by regulation.
Base level has the meaning given in §600.002-08 of this chapter.
Base tire has the meaning given in §600.002-08 of this chapter.
Base vehicle has the meaning given in §600.002-08 of this chapter. Basic engine has the meaning given in §600.002-08 of this chapter.
* * * * * Carbon-related exhaust emissions (CREE) has the meaning given in §600.002-08 of this chapter.
* * * * *
Combined CO 2 means the CO 2 value determined for a vehicle (or vehicles) by averaging the city and highway CO 2 values, weighted 0.55 and 0.45 respectively. Combined CREE means the CREE value determined for a vehicle (or vehicles) by averaging the city and highway fuel CREE va lues, weighted 0.55 and 0.45 respectively.
* * * * *
Electric vehicle means a motor vehicle that is power ed solely by an electric motor drawing current from a rechargeable ener gy storage system, such as from storage batteries or other portable electrical energy storage devi ces, including hydrogen fuel cells, provided that: (1) The vehicle is capable of drawing recharge energy from a source off the vehicle, such as residential electric service; and1295 (2) The vehicle must be certified to th e emission standards of Bin #1 of Table S04-1 in §86.1811-09(c)(6). (3) The vehicle does not have an onboard combustion engine/generator system as a means of providing electrical energy.
* * * * * Engine code means a unique combination within a test group of displacement, fuel injection (or carbureto r) calibration, choke calibrati on, distributor calibration, auxiliary emission control devices, and ot her engine and emission control system components specified by the Administrator. Fo r electric vehicles, engine code means a unique combination of manufacturer, electric traction motor, motor configuration, motor controller, and energy storage device.
* * * * * Ethanol-fueled vehicle means any motor vehicle or motor vehicle engine that is engineered and designed to be operated using ethanol fuel (i.e ., a fuel that contains at least 50 percent ethanol (C 2 H 5 OH) by volume) as fuel.
* * * * * Flexible fuel vehicle means any motor vehicle engi neered and designed to be operated on a petroleum fuel and on a methanol or ethanol fuel, or any mixture of the petroleum fuel and methanol or ethanol. Meth anol-fueled and ethanol-fueled vehicles that are only marginally functional when using ga soline (e.g., the engine has a drop in rated horsepower of more than 80 percent) are not flexible fuel vehicles. Footprint is the product of track width (measur ed in inches, calculated as the average of front and rear track widths, and rounded to the nearest tenth of an inch) and1296 wheelbase (measured in inches and rounded to the nearest tenth of an inch), divided by 144 and then rounded to the nearest tenth of a square foot.
Fuel cell vehicle means an electric vehicle propelle d solely by an electric motor where energy for the motor is supplied by an electrochemical cell that produces electricity via the non-combus tion reaction of a consumable fuel, typically hydrogen.
* * * * * Highway Fuel Economy Test Procedure (HFET) has the meaning given in §600.002-08 of this chapter.
* * * * * Hybrid electric vehicle (HEV) means a motor vehicle which draws propulsion energy from onboard sources of stored ener gy that are both an internal combustion engine or heat engine using consumable fu el, and a rechargeable energy storage system such as a battery, capacitor, hydraulic accumu lator, or flywheel, where recharge energy for the energy storage system comes solely from sources on board the vehicle.
* * * * *
Interior volume index has the meaning given in §600.315-08 of this chapter.
* * * * * Model type has the meaning given in §600.002-08 of this chapter.
* * * * *
Motor vehicle has the meaning given in §85.1703 of this chapter.
* * * * * Multi-fuel vehicle means any motor vehicle capable of operating on two or more different fuel types, either separately or simultaneously.1297 * * * * * Petroleum equivalency factor means the value specified in 10 CFR 474.3(b), which incorporates the parameters listed in 49 U.S.C. 32904(a)(2)(B) and is used to calculate petroleum-equi valent fuel economy. Petroleum-equivalent fuel economy means the value, expressed in miles per gallon, that is calculated for an electric vehicle in accordance with 10 CFR 474.3(a), and reported to the Administrato r of the Environmental Prot ection Agency for use in determining the vehicle manufacturer 's corporate average fuel economy.
* * * * * Petroleum-powered accessory means a vehicle accessory (e.g., a cabin heater, defroster, and/or air conditioner) that: (1) Uses gasoline or diesel fuel as its primary energy source; and (2) Meets the requirements for fuel, opera tion, and emissions in §88.104–94(g) of this chapter. Plug-in hybrid electric vehicle (PHEV) means a hybrid electric vehicle that has the capability to charge the battery from an off-vehicle electric source, such that the offvehicle source cannot be connected to the ve hicle while the vehicle is in motion.
* * * * *
Production volume has the meaning given in §60 0.002-08 of this chapter.
* * * * * Round, rounded or rounding means, unless otherwise specified, that numbers will be rounded according to ASTM-E29-93a, which is incorporated by reference in this part pursuant to §86.1.1298 * * * * * Subconfiguration has the meaning given in §600.002-08 of this chapter.
* * * * *
Track width is the lateral distance between the centerlines of the base tires at ground, including the camber angle.
* * * * *
Transmission class has the meaning given in §60 0.002-08 of this chapter. Transmission configuration has the meaning given in §600. 002-08 of this chapter.
* * * * *
Wheelbase is the longitudinal distance between front and rear wheel centerlines.
* * * * *

13. A new §86.1805-12 is added to read as follows:

§86.1805-12 Useful life. (a) Except as permitted under paragraph (b ) of this section or required under paragraphs (c) and (d) of this section, the full useful life for all LDVs and LLDTs is a period of use of 10 years or 120, 000 miles, whichever occurs first. The full useful life for all HLDTs, MDPVs, and complete heavy-duty vehicles is a period of 11 years or 120,000 miles, whichever occurs first. These full useful life values apply to all exhaust, evaporative and refueling emission requirement s except for standards which are specified to only be applicable at the ti me of certification. These full useful life requirements also apply to all air conditioning leakage credits, air conditioning efficiency credits, and other1299 credit programs used by the manufacturer to comply with the fleet average CO 2 emission standards in §86.1818-12. (b) Manufacturers may elect to optionally ce rtify a test group to the Tier 2 exhaust emission standards for 150,000 miles to gain additional NO X credits, as permitted in §86.1860–04(g), or to opt out of intermediate life standards as permitted in §86.1811– 04(c). In such cases, useful life is a period of use of 15 years or 150,000 miles, whichever occurs first, for all exhaust, evaporative and refueling emission requirements except for cold CO standards and standards which are app licable only at the time of certification. (c) Where intermediate useful life exhaust emission standards are applicable, such standards are applicable for five years or 50,000 miles, whichever occurs first. (d) Where cold CO standards are applicable, the useful life requirement for compliance with the cold CO standard only, is 5 years or 50,000 mile s, whichever occurs first.

14. Section 86.1806-05 is amended by revising paragraph (a)(1) to read as follows:

§86.1806-05 On-board diagnostics for vehicles less than or equal to 14,000 pounds GVWR. (a) * * * (1) Except as provided by paragraph (a)(2) of this section, all light-duty vehicles, light-duty trucks and comple te heavy-duty vehicles we ighing 14,000 pounds GVWR or less (including MDPVs) must be equipped with an onboard diagnostic (OBD) system capable of monitoring all emission-related powertrain systems or components during the1300 applicable useful life of th e vehicle. All systems and co mponents required to be monitored by these regulations must be evalua ted periodically, but no less frequently than once per applicable certificat ion test cycle as defined in paragraphs (a) and (d) of Appendix I of this part, or similar trip as approved by the Administrator. Emissions of
CO 2 , CH 4 , and N 2 O are not required to be monitored by the OBD system.
* * * * *

15. A new §86.1809-12 is added to read as follows:

§86.1809-12 Prohibition of defeat devices. (a) No new light-duty vehicl e, light-duty truck, medi um-duty passenger vehicle, or complete heavy-duty vehicle shall be equipped with a defeat device. (b) The Administrator may test or require testing on any vehi cle at a designated location, using driving cycles and conditions that may reasonably be expected to be encountered in normal operation and use, for the purposes of invest igating a potential defeat device. (c) For cold temperature CO and cold temperature NMHC emission control, the Administrator will use a guideline to determine the appropriateness of the CO and NMHC emission control at ambient temperatur es between 25 °F (the upper bound of the FTP test temperature range) and 68 °F (t he lower bound of the FTP test temperature range). The guideline for CO emission congr uity across the intermediate temperature range is the linear interpolation between the CO standard applicable at 25 °F and the CO standard applicable at 68 °F. The guideline for NMHC emission congruity across the1301 intermediate temperature range is the linea r interpolation between the NMHC FEL pass limit (e.g. 0.3499 g/mi for a 0.3 g/mi FEL) applicable at 20 °F and the Tier 2 NMOG standard to which the vehicle was certified at 68 °F, where the intermediate temperature NMHC level is rounded to th e nearest hundredth for comparis on to the interpolated line. For vehicles that exceed this CO emissions guideline or this NMHC emissions guideline upon intermediate temperature cold testing: (1) If the CO emission level is greater than the 20 °F emission standard, the vehicle will automatically be considered to be equipped with a defeat device without further investigation. If the intermediate temperature NMHC emission level, rounded to the nearest hundredth, is greater than th e 20 °F FEL pass limit, the vehicle will be presumed to have a defeat device unless the manufacturer provides evidence to EPA's satisfaction that the cause of the test result in question is not due to a defeat device. (2) If the CO emission level does not exceed the 20 °F emission standard, the Administrator may investigate the vehicle de sign for the presence of a defeat device under paragraph (d) of this se ction. If the intermediate temperature NMHC emission level, rounded to the nearest hundredth, does not exceed the 20 °F FEL pass limit the Administrator may investigate the vehicle de sign for the presence of a defeat device under paragraph (d) of this section. (d) The following provisions apply for vehicle designs designated by the Administrator to be investigat ed for possible defeat devices: (1) The manufacturer must show to the sa tisfaction of the Administrator that the vehicle design does not incorpor ate strategies that unnecessa rily reduce emission control effectiveness exhibited during the Federal Test Procedure or Supplemental Federal Test1302 Procedure (FTP or SFTP) or the Highway Fu el Economy Test Procedure (described in subpart B of 40 CFR part 600), or the Air C onditioning Idle Test (d escribed in §86.165- 12), when the vehicle is operated under conditio ns that may reasonably be expected to be encountered in normal operation and use. (2) The following informa tion requirements apply: (i) Upon request by the Administrator, the manufacturer must provide an explanation containing detail ed information regarding test programs, engineering evaluations, design specifica tions, calibrations, on-board computer algorithms, and design strategies incorporated for operati on both during and outside of the Federal emission test procedures. (ii) For purposes of investigations of possible cold temperature CO or cold temperature NMHC defeat devices under this paragraph (d), the manufacturer must provide an explanation to show, to the sa tisfaction of the Administrator, that CO emissions and NMHC emissions are reasonabl y controlled in reference to the linear guideline across the interm ediate temperature range. (e) For each test group the manufacturer must submit, with the Part II certification application, an engineering evaluation de monstrating to the satisfaction of the Administrator that a discontinuity in emi ssions of non-methane organic gases, carbon monoxide, carbon dioxide, oxides of nitrogen, nitrous oxide, methane, and formaldehyde measured on the Federal Test Procedure (subpart B of this part) and on the Highway Fuel Economy Test Procedure (subpart B of 40 CFR Part 600) does not occur in the temperature range of 20 to 86 °F. For diesel vehicles, the engineering evaluation must also include particulate emissions.1303 16. Section 86.1810-09 is amended by revisi ng paragraph (f) to read as follows:

§86.1810-09 General standards; increase in em issions; unsafe condition; waivers. * * * * * (f) Altitude requirements. (1) All emission standards apply at low altitude conditions and at high altitude conditions, except for the following standards, which apply only at low altitude conditions: (i) The supplemental exhaust emission standards as described in §86.1811–04(f); (ii) The cold temperature NMHC emi ssion standards as described in §86.1811– 10(g); (iii) The evaporative emission standa rds as described in §86.1811-09(e). (2) For vehicles that comply with the cold temperature NMHC standards described in §86.1811–10(g) and the CO 2 , N 2 O, and CH 4 exhaust emission standards described in §86.1818–12, manufacturers must submit an engineering evaluation indicating that common calibration approach es are utilized at high altitudes. Any deviation from low altitude emission control practices must be included in the auxiliary emission control device (AECD) descriptions submitted at certification. Any AECD specific to high altitude must require engine ering emission data for EPA evaluation to quantify any emission impact and validity of the AECD.
* * * * *

17. A new §86.1818-12 is added to read as follows:1304 §86.1818-12 Greenhouse gas emission standards for light-duty vehicles, light-duty trucks, and medium-duty passenger vehicles. (a) Applicability. This section contains standards and other regulati ons applicable to the emission of the air pollutant define d as the aggregate group of six greenhouse gases: carbon dioxide, nitrous oxide, meth ane, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. This section applies to 2012 and later model year LDVs, LDTs and MDPVs, including multi-fuel vehicles, vehicles fueled with altern ative fuels, hybrid electric vehicles, plug-in hybrid electric vehicles, electric ve hicles, and fuel cell vehicles. Unless otherwise specified, multi-fuel vehicl es must comply with all requirements established for each consumed fuel. The provisions of this section also apply to aftermarket conversion systems, aftermarke t conversion installers, and aftermarket conversion certifiers, as those terms are de fined in 40 CFR 85.502, of all model year light-duty vehicles, light-duty trucks , and medium-duty passenger vehicles. Manufacturers that qualify as a small bus iness according to the requirements of §86.1801-12(j) are exempt from the emission st andards in this section. Manufacturers that have submitted a declaration for a model year according to the requirements of §86.1801-12(k) for which approval has been granted by the Administrator are conditionally exempt from the emission standard s in paragraphs (c) through (e) of this section for the approved model year. (b) Definitions . For the purposes of this section, the following definitions shall apply:1305 (1) Passenger automobile means a motor vehicle that is a passenger automobile as that term is defined in 49 CFR 523.4. (2) Light truck means a motor vehicle that is a non-passenger automobile as that term is defined in 49 CFR 523.5. (c) Fleet average CO 2 standards for passenger au tomobiles and light trucks . (1) For a given individual mode l year’s production of passenger automobiles and light trucks, manufacturers must comply with a fleet average CO 2 standard calculated according to the provisions of this paragra ph (c). Manufacturers must calculate separate fleet average CO 2 standards for their passenger automob ile and light truck fleets, as those terms are defined in this section. Each manufacturer’s fleet average CO 2 standards determined in this paragraph (c) shall be e xpressed in whole grams per mile, in the model year specified as applicable. Manufacturers e ligible for and choosing to participate in the Temporary Leadtime Allowance Alternativ e Standards for qualifying manufacturers specified in paragraph (e) of this section shall not include vehicles subject to the Temporary Leadtime Allowance Alternative Standards in the calculations of their primary passenger automobile or light truck st andards determined in this paragraph (c). Manufacturers shall demonstrate compliance wi th the applicable standards according to the provisions of §86.1865-12. (2) Passenger automobiles

. (i) Calculation of CO 2 target values for passenger automobiles . A CO 2 target value shall be determined for each passenger automobile as follows:1306 (A) For passenger automobiles with a footprint of less th an or equal to 41 square feet, the gram/mile CO 2 target value shall be selected fo r the appropriate model year from the following table:
Model Year CO 2 Target Value (grams/mile) 2012 244.0 2013 237.0 2014 228.0 2015 217.0 2016 and later 206.0

(B) For passenger automobiles with a footprint of greater than 56 square feet, the gram/mile CO 2 target value shall be selected for the appropriate model year from the following table:
Model Year CO 2 Target Value (grams/mile) 2012 315.0 2013 307.0 2014 299.0 2015 288.0 2016 and later 277.0

(C) For passenger automobiles with a footprint that is greater than 41 square feet and less than or equal to 56 square feet, the gram/mile CO 2 target value shall be calculated using the following equation and rounded to the near est 0.1 grams/mile: Target CO 2 

## [ ] b f + × = 72

. 4
Where: f

is the vehicle footprint, as defined in §86.1803; and
b is selected from the following table for the appropriate model year:1307 Model Year b 2012 50.5 2013 43.3 2014 34.8 2015 23.4 2016 and later 12.7

(ii) Calculation of the fleet average CO 2 standard for passenger automobiles . In each model year manufacturers must comply with the CO 2 exhaust emission standard for their passenger automobile fleet, calculated for that model year as follows: (A) A CO 2 target value shall be determined according to paragraph (c)(2)(i) of this section for each unique combinati on of model type and footprint value. (B) Each CO 2 target value, determined for each unique combination of model type and footprint value, shall be multip lied by the total produ ction of that model type/footprint combination for the appropriate model year. (C) The resulting products shall be summed , and that sum shall be divided by the total production of passenger auto mobiles in that model year. The result shall be rounded to the nearest whole gram per mile. This result shall be the applicable fleet average CO 2 standard for the manufacturer’s passenger automobile fleet. (3) Light trucks

. (i) Calculation of CO 2 target values for light trucks . A CO 2 target value shall be determined for each light truck as follows: (A) For light trucks with a footprint of le ss than or equal to 41 square feet, the gram/mile CO 2 target value shall be selected for the appropriate model year from the following table:1308 Model Year CO 2 Target Value (grams/mile) 2012 294.0 2013 284.0 2014 275.0 2015 261.0 2016 and later 247.0

(B) For light trucks with a footprint of greater than 66 square feet, the gram/mile
CO 2 target value shall be selected for the appropriate model year from the following table:

Model Year CO 2 Target Value (grams/mile) 2012 395.0 2013 385.0 2014 376.0 2015 362.0 2016 and later 348.0 (C) For light trucks with a footprint that is greater than 41 square feet and less than or equal to 66 square feet, the gram/mile CO 2 target value shall be calculated using the following equation and rounded to the nearest 0.1 grams/mile: Target CO 2 

## ( ) b f + × = 04

. 4
Where: f

is the footprint, as defined in §86.1803; and
b is selected from the following table for the appropriate model year:1309 Model Year b 2012 128.6 2013 118.7 2014 109.4 2015 95.1 2016 and later 81.1

(ii) Calculation of fleet average CO 2 standards for light trucks . In each model year manufacturers must comply with the CO 2 exhaust emission standard for their light truck fleet, calculated for that model year as follows: (A) A CO 2 target value shall be determined according to paragraph (c)(3)(i) of this section for each unique combinati on of model type and footprint value. (B) Each CO 2 target value, which represents a unique combination of model type and footprint value, shall be multiplie d by the total production of that model type/footprint combination for the appropriate model year. (C) The resulting products shall be summed , and that sum shall be divided by the total production of light trucks in that model year. The result shall be rounded to the nearest whole gram per mile. This result shall be the applicable fleet average CO 2 standard for the manufacture r’s light truck fleet. (d) In-use CO 2 exhaust emission standards. The in-use exhaust CO 2 emission standard shall be the combined city/hi ghway carbon-related exhaust emission value calculated for the appropriate vehicle carline/subconfiguration according to the provisions of §600.113-08(g)(4) of this chapter multiplied by 1.1 and rounded to the nearest whole gram per mile. For in-use ve hicle carlines/subconfi gurations for which a combined city/highway carbon-related exhaus t emission value was not determined under §600.113(g)(4) of this chapter, the in-use exhaust CO 2 emission standard shall be the1310 combined city/highway carbon-related exhaus t emission value calculated according to the provisions of §600.208-12 of this chapter for the vehicle mode l type (excep t that total model year production data shall be used in stead of sales projections) multiplied by 1.1 and rounded to the nearest whole gram per mile. For vehicles that are capable of operating on multiple fuels, including but not limited to alcohol dual fuel, natural gas dual fuel and plug-in hybrid electric vehicl es, a separate in-use standard shall be determined for each fuel that the vehicle is capable of operating on. These standards apply to in-use testing pe rformed by the manufacturer pursuant to regulations at §86.1845–04 and 86.1846–01 and to in-use testing performed by EPA. (e) Temporary Lead Time Allowance Alternative Standards. (1) The interim fleet average CO 2 standards in this paragr aph (e) are optionally applicable to each qualifying manufacturer, where the terms “sales” or “sol d” as used in this paragraph (e) means vehicles produced and delivered for sale (or sold) in the states and territories of the United States. (i) A qualifying manufacturer is a manufact urer with sales of 2009 model year combined passenger automobiles and light tr ucks of greater than zero and less than 400,000 vehicles. (A) If a manufacturer sold less than 4 00,000 but more than zero 2009 model year combined passenger automobiles and light tr ucks while under the control of another manufacturer, where those 2009 model year pa ssenger automobiles and light trucks bore the brand of the producing ma nufacturer, and where the pr oducing manufacturer became independent no later than December 31, 2010, the producing manufacturer is a qualifying manufacturer.1311 (B) In the case where two or more qua lifying manufacturers combine as the result of merger or the purchase of 50 percent or more of one or more companies by another company, and if the combined 2009 model y ear sales of the merged or combined companies is less than 400,000 but more than zero (combined passenger automobiles and light trucks), the corporate entity formed by the combination of two or more qualifying manufacturers shall continue to be a qu alifying manufacturer. Th e total number of vehicles that the corporate entity is allowed to include under the Temporary Leadtime Allowance Alternative Standards shall be dete rmined by paragraph (e)(2 ) or (e)(3) of this section where sales is the total combined 2009 model year sales of all of the merged or combined companies. Vehicles sold by the companies that combined by merger/acquisition to form the corporate en tity that were subject to the Temporary Leadtime Allowance Alternative Standards in pa ragraph (e)(4) of this section prior to the merger/acquisition shall be combined to dete rmine the remaining number of vehicles that the corporate entity may include under the Temporary Leadtime Allowance Alternative Standards in this paragraph (e). (C) In the case where two or more manuf acturers combine as the result of merger or the purchase of 50 percent or more of one or more companies by another company, and if the combined 2009 model year sales of the merged or combined companies is equal to or greater than 400,000 (combined passenger automobiles a nd light trucks), the new corporate entity formed by the combinati on of two or more manufacturers is not a qualifying manufacturer. Such a manufacturer shall meet the emission standards in paragraph (c) of this section beginning with the model year that is numerically two years greater than the calendar year in whic h the merger/acquisition(s) took place.1312 (ii) For the purposes of making the determ ination in paragraph (e)(1)(i) of this section, “manufacturer” shall mean that term as defined at 49 CFR 531.4 and as that definition was applied to the 2009 model year for the purpose of determining compliance with the 2009 corporate average fuel econom y standards at 49 CFR parts 531 and 533. (iii) A qualifying manufacturer may not use these Temporary Leadtime Allowance Alternative Standards until they have used all available banked credits and/or credits available for transfer accrued unde r §86.1865-12(k). A qualifying manufacturer with a net positive credit balance calcul ated under §86.1865-12(k) in any model year after considering all available credits either generated, carried forw ard from a prior model year, transferred from other averaging sets, or obtained from other manufacturers, may not use these Temporary Leadtime Allowance A lternative Standards in such model year. (2) Qualifying manufacturers may sel ect any combination of 2012 through 2015 model year passenger automobiles and/or li ght trucks to include under the Temporary Leadtime Allowance Alternative Standards de termined in this paragraph (e) up to a cumulative total of 100,000 vehicles. Vehicles selected to comply with these standards shall not be included in the calculations of the manufacturer’s fleet average standards under paragraph (c) of this section. (3) Qualifying manufacturers with sales of 2009 model year combined passenger automobiles and light trucks in the United Stat es of greater than zero and less than 50,000 vehicles may select any combinati on of 2012 through 2015 model year passenger automobiles and/or light trucks to incl ude under the Temporary Leadtime Allowance Alternative Standards determined in this paragraph (e) up to a cumulative total of 200,000 vehicles, and additionally may select up to 50,000 2016 model year vehicles to1313 include under the Temporary L eadtime Allowance Alternative Standards determined in this paragraph (e). To be eligible for the provisions of this pa ragraph (e)(3) qualifying manufacturers must provide annual docume ntation of good-faith efforts made by the manufacturer to purchase cred its from other manufacturers. Without such documentation, the manufacturer may use the Temporary L eadtime Allowance Alternative Standards according to the provisions of paragraph (e)(2) of this section, and the provisions of this paragraph (e)(3) shall not apply. Vehicles sel ected to comply with these standards shall not be included in the calculations of th e manufacturer’s fleet average standards under paragraph (c) of this section. (4) To calculate the applicable Temp orary Leadtime Allowance Alternative Standards, qualifying manufacturers shall determ ine the fleet average standard separately for the passenger automobiles and light trucks selected by the manufacturer to be subject to the Temporary Leadtime Allowance Alterna tive Standards, subject to the limitations expressed in paragraphs (e)(1) through (3) of this section. (i) The Temporary Leadtime Allowance A lternative Standard applicable to qualified passenger autom obiles as defined in §600.002-08 of this chapter shall be the standard calculated using the pr ovisions of paragraph (c)(2)( ii) of this section for the appropriate model year multiplied by 1.25 and rounded to the nearest whole gram per mile. For the purposes of applying paragraph (c )(2)(ii) of this section to determine the standard, the passenger automobile fleet sha ll be limited to those passenger automobiles subject to the Temporary Leadtime Allowance Alternative Standard. (ii) The Temporary Leadtime Allowance Alternative Standard applicable to qualified light trucks (i.e. non-passenger auto mobiles as defined in §600.002-08 of this1314 chapter) shall be the standard calculated using the provision s of paragraph (c)(3)(ii) of this section for the appropriate model year multiplied by 1.25 and rounded to the nearest whole gram per mile. For the purposes of appl ying paragraph (c )(3)(ii) of this section to determine the standard, the light truck fleet shall be limited to those light trucks subject to the Temporary Leadtime Allowa nce Alternative Standard. (5) Manufacturers choosing to optionally ap ply these standards are subject to the restrictions on credit banking and trading specified in §86.1865-12. (f) Nitrous oxide (N 2 O) and methane (CH 4 ) exhaust emission standards for passenger automobiles and light trucks . Each manufacturer’s fleet of combined passenger automobile and light trucks must comply with N 2 O and CH 4 standards using either the provisions of paragr aph (f)(1) of this section or the provisions of paragraph (f)(2) of this section. The manufacturer ma y not use the provisions of both paragraphs (f)(1) and (f)(2) of this secti on in a model year. For example, a manufacturer may not use the provisions of paragraph (f )(1) of this section for their passenger automobile fleet and the provisions of paragraph (f)(2) for their light truck fl eet in the same model year. (1) Standards applicable to each test group

. (i) Exhaust emissions of nitrous oxide (N 2 O) shall not exceed 0.010 grams per mile at full useful life, as measured according to the Federal Test Procedure (FTP) described in subpart B of this part. (ii) Exhaust emissions of methane (CH 4 ) shall not exceed 0.030 grams per mile at full useful life, as measured according to th e Federal Test Procedure (FTP) described in subpart B of this part.1315 (2) Including N 2 O and CH 4 in fleet averaging program . Manufacturers may elect to not meet the emission standards in paragr aph (f)(1) of this s ection. Manufacturers making this election shall include N 2 O and CH 4 emissions in the determination of their fleet average carbon-related exhaust emissions, as calculated in subpart F of part 600 of this chapter. Manufact urers using this option must include both N 2 O and CH 4 full useful life values in the fleet average calculations for passenger automob iles and light trucks. Use of this option will account for N 2 O and CH 4 emissions within the carbon-related exhaust emission value determined for each model type according to the provisions part 600 of this chapter. This option requires the determination of full useful life emission values for both the Federal Test Proce dure and the Highway Fuel Economy Test.

18. Section 86.1823-08 is amended by adding paragraph (m) to read as follows:

§86.1823-08 Durability demonstration pro cedures for exhaust emissions. * * * * * (m) Durability demonstration procedures fo r vehicles subject to the greenhouse gas exhaust emission standar ds specified in §86.1818-12

. (1) CO 2 . (i) Unless otherwise speci fied under paragraph (m)(1 )(ii) of this section, manufacturers may use a multiplicative CO 2 deterioration factor of one or an additive deterioration factor of zero. (ii) Based on an analysis of industry- wide data, EPA may periodically establish and/or update the deterioration factor for CO 2 emissions including air conditioning and other credit related emissions. Deterioration factors establis hed and/or updated under this1316 paragraph (m)(1)(ii) will provide adequate lead time for manufacturers to plan for the change. (iii) Alternatively, manufacturers may use the whole-vehicle mileage accumulation procedures in §86.1823-08 paragraphs (c) or (d)(1) to determine CO 2 deterioration factors. In this case, each FTP test performed on the durability data vehicle selected under §86.1822-01 of this part must also be accompanied by an HFET test, and combined FTP/HFET CO 2 results determined by averagi ng the city (FTP) and highway (HFET) CO 2 values, weighted 0.55 and 0.45 respectively. The deteri oration factor will be determined for this combined CO 2 value. Calculated multiplicative deterioration factors that are less than one shall be set to equa l one, and calculated a dditive deterioration factors that are less than zero shall be set to zero. (iv) If, in the good engineer ing judgment of the manuf acturer, the deterioration factors determined according to paragraphs (m )(1)(i), (m)(1)(ii), or (m)(1)(iii) of this section do not adequately account for the expected CO 2 emission deterioration over the vehicle's useful life, the manufacturer ma y petition EPA to request a more appropriate deterioration factor. (2) N 2 O and CH 4 . (i) For manufacturers complying with the emission standards for N 2 O and CH 4 specified in §86.1818-12(f)(1), deterioration factors for N 2 O and CH 4 shall be determined according to the provisi ons of paragraphs (a) through (l) of this section. (ii) For manufacturers complying with the fleet averaging option for N 2 O and CH 4 as allowed under §86.1818-12(f)(2), separate deterioration fact ors shall be determined for the FTP and HFET test cycles. Therefore each FTP test performed on the durability data1317 vehicle selected under §86.1822-01 of this pa rt must also be accompanied by an HFET

test. (iii) For the 2012 through 2014 model years only, manufacturers may use alternative deterioration factors. For N 2 O, the alternative deteriorat ion factor to be used to adjust FTP and HFET emissions is the de terioration factor determined for NO X emissions according to the provisions of this section. For CH 4 , the alternative deterioration factor to be used to adjust FTP and HFET emissions is the deterioration factor determined for NMOG or NMHC emissions according to the provisions of this section. (3) Other carbon-related exhaust emissions . Deterioration factors shall be determined according to the provisions of pa ragraphs (a) through (l) of this section. Optionally, in lieu of determining emission -specific FTP and HFET deterioration factors for CH 3 OH (methanol), HCHO (formaldehyde), C 2 H 5 OH (ethanol), and C 2 H 4 O (acetaldehyde), manufacturers may use the dete rioration factor determined for NMOG or NMHC emissions according to th e provisions of this section. (4) Air Conditioning leakage and efficiency or other emission credit requirements to comply with exhaust CO 2 standards . Manufactures will attest to the durability of components and systems used to meet the CO 2 standards. Manufacturers may submit engineering data to provide durability demonstration.

19. Section 86.1827-01 is amended by revising paragraph (a)(5) and by adding paragraph (f) to read as follows:

§86.1827-01 Test group determination.1318 * * * * * (a) * * * (5) Subject to the same emission standards (except for CO 2 ), or FEL in the case of cold temperature NMHC standards, except that a manufacturer may request to group vehicles into the same test group as vehicles subject to more stringent standards, so long as all the vehicles within the test group ar e certified to the most stringent standards applicable to any vehicle with in that test group. Light-duty trucks and light-duty vehicles may be included in the same test group if all vehicles in the test group are subject to the same emission standards, w ith the exception of the CO 2 standard and/or the total HC standard.
* * * * * (f) Unless otherwise approved by the Admini strator, a manufacturer of electric vehicles must create separa te test groups based on the t ype of battery technology, the capacity and voltage of the battery, and th e type and size of the electric motor.

20. Section 86.1829-01 is amended by revi sing paragraph (b)(1)(i) and by adding paragraph (b)(1)(iii)(G) to read as follows:

§86.1829-01 Durability and emission te sting requirements; waivers. * * * * * (b) * * (1) * * *1319 (i) Testing at low altitude . One EDV shall be tested in each test group for exhaust emissions using the FTP and SFTP test procedur es of subpart B of this part and the HFET test procedure of subpart B of part 600 of th is chapter. The configuration of the EDV will be determined under the provision s of §86.1828–01 of this subpart.
* * * * * (iii) * * * (G) For the 2012 through 2014 model years only, in lieu of testing a vehicle for
N 2 O emissions, a manufacturer may provide a st atement in its application for certification that such vehicles comply with the applicable standards. Such a statement must be based on previous emission tests, development tests, or other appropriat e information and good engineering judgment.
* * * * *

21. Section 86.1835-01 is amended as follows: a. By revising paragraph (a)(4). b. By revising paragraph (b)(1) introductory text. c. By adding paragraph (b)(1)(vi). d. By revising paragraph (b)(3). e. By revising paragraph (c)(1)(ii).

§86.1835-01 Confirmatory certification testing. (a) * * *1320 (4) Retesting for fuel economy reasons or for compliance with greenhouse gas exhaust emission standards in §86.181-12 may be conducted under the provisions of §600.008–08 of this chapter. (b) * * * (1) If the Administrator determines not to conduct a confirmatory test under the provisions of paragraph (a) of this section, manufacturers of light-duty vehicles, lightduty trucks, and/or medium-duty passenger vehicles will cond uct a confirmatory test at their facility after submitting the original test data to the Administrator whenever any of the conditions listed in paragr aphs (b)(1)(i) through (vi) of this section exist, and complete heavy-duty vehicles manufacturers will conduct a confirma tory test at their facility after submitting the original test data to the Administrator whenever the conditions listed in paragraph (b)(1)(i) or (b )(1)(ii) of this section exist, as follows:
* * * * * (vi) The exhaust carbon-rela ted exhaust emissions of the test as measured in accordance with the procedures in 40 CFR Pa rt 600 are lower than expected based on procedures approved by the Administrator.
* * * * * (3) For light-duty vehicles, light-duty truc ks, and medium-duty passenger vehicles the manufacturer shall conduct a retest of the FTP or highw ay test if the difference between the fuel economy of the confirmatory test and the original manufacturer's test equals or exceeds three percent (or such lower pe rcentage to be applied consistently to all manufacturer conducted confirmatory test ing as requested by the manufacturer and approved by the Administrator).1321 (i) For use in the fuel economy and exhaust greenhouse gas fleet averaging program described in 40 CFR parts 86 and 600, the manufacturer may, in lieu of conducting a retest, accept as offi cial the lower of th e original and confirmatory test fuel economy results, and by doing so will also accep t as official the calculated CREE value associated with the lower fuel economy test results. (ii) The manufacturer shall conduct a sec ond retest of the FTP or highway test if the fuel economy difference between the sec ond confirmatory test and the original manufacturer test equals or exceeds three per cent (or such lower percentage as requested by the manufacturer and approve d by the Administrator) and the fuel economy difference between the second confirmatory test and the first confirmatory te st equals or exceeds three percent (or such lower percentage as requested by the manuf acturer and approved by the Administrator). In lieu of conducting a second retest, the manufacturer may accept as official (for use in the fuel economy program and the exhaust greenhouse gas fleet averaging program) the lowest fuel economy of the original test, th e first confirmatory test, and the second confirmatory test fuel economy results, and by doing so will also accept as official the calculated CREE value asso ciated with the lowest fuel economy test results. (c) * * * (1) * * * (ii) Official test results fo r fuel economy and exhaust CO 2 emission purposes are determined in accordance with the provisions of §600.008–08 of this chapter.
* * * * *1322 22. Section 86.1841-01 is amended by adding pa ragraph (a)(3) and revising paragraph (b) to read as follows:

§86.1841-01 Compliance with emission standard s for the purpose of certification. (a) * * * (3) Compliance with CO 2 exhaust emission standards shall be demonstrated at certification by the certifica tion levels on the FTP and HF ET tests for carbon-related exhaust emissions determined according to §600.113-08 of this chapter.
* * * * * (b) To be considered in compliance w ith the standards for the purposes of certification, the certification levels for the test vehicle calculated in paragraph (a) of this section shall be less than or equal to the st andards for all emission constituents to which the test group is subject, at both full and intermediate useful life as appropriate for that test group. * * * * *

23. Section 86.1845-04 is amended as follows: a. By revising paragraph (a)(1). b. By revising paragraph (b)(5)(i). c. By revising paragraph (c)(5)(i).

§86.1845-04 Manufacturer in-use verification testing requirements. (a) * * *1323 (1) A manufacturer of LDVs, LDTs, MDPV s and/or complete HDVs must test, or cause to have tested, a specified number of LDVs, LDTs, MDPVs and complete HDVs. Such testing must be conducted in accordance with the provisions of this section. For purposes of this section, the term vehicle includes light-duty vehicles, light-duty trucks and medium-duty passenger vehicles.
* * * * * (b) * * * (5) * * * (i) Each test vehicle of a test group shall be tested in accordance with the Federal Test Procedure and the US06 portion of the Supplemental Fe deral Test Procedure as described in subpart B of this part, when such test vehicle is tested for compliance with applicable exhaust emission standards under this subpart. Test ve hicles subject to applicable exhaust CO 2 emission standards under this subpa rt shall also be tested in accordance with the highway fuel economy test as described in part 600, subpart B of this chapter.
* * * * * (c) * * * (5) * * * (i) Each test vehicle shall be tested in accordance with the Federal Test Procedure and the US06 portion of the Supplemental Federa l Test Procedure as described in subpart B of this part when such test vehicle is tested for compliance with applicable exhaust emission standards under this subpart. Test ve hicles subject to a pplicable exhaust CO 2 emission standards under this subpa rt shall also be tested in accordance with the highway1324 fuel economy test as described in part 600, subpart B of this chapter. The US06 portion of the SFTP is not required to be performed on vehicles certified in accordance with the National LEV provisions of subpart R of this part. One test vehicle from each test group shall receive a Federal Test Procedure at hi gh altitude. The test ve hicle tested at high altitude is not required to be one of the same test vehicles tested at low altitude. The test vehicle tested at high altitude is counted when determining the compliance with the requirements shown in Table S04–06 and Ta ble S04–07 in paragraph (b)(3) of this section or the expanded sample size as provided for in this paragraph (c).
* * * * *

24. Section 86.1846-01 is amended by revisi ng paragraphs (a)(1) and (b) introductory text to read as follows:

§86.1846-01 Manufacturer in-use confirmatory testing requirements. (a) * * * (1) A manufacturer of LDVs, LDTs and/or MDPVs must test, or cause testing to be conducted, under this section when the em ission levels shown by a test group sample from testing under §§86.1845–01 or 86.1845–04, as applicable, exceeds the criteria specified in paragraph (b) of this section. The testing requ ired under this section applies separately to each test group a nd at each test point (low and high mileage) that meets the specified criteria. The testing requirements a pply separately for each model year starting with model year 2001. These provisions do not apply to heavy-duty vehicles or heavy-1325 duty engines prior to the 2007 model year. Thes e provisions do not a pply to emissions of
CO 2 , CH 4 , and N 2 O. * * * * * (b) Criteria for additional testing. A manufacturer shall te st a test group or a subset of a test group as descri bed in paragraph (j) of this section when the results from testing conducted under §§86.1845–01 and 86. 1845–04, as applicable, show mean emissions for that test group of any pollutant(s) (except CO 2 , CH 4 , and N 2 O) to be equal to or greater than 1.30 times the applicable in-use standard and a failure rate, among the test group vehicles, for the corresponding po llutant(s) of fifty pe rcent or greater. * * * * *

25. Section 86.1848-10 is amended by adding paragraph (c)(9) to read as follows:

§86.1848-10 Certification. * * * * * (c) * * * (9) For 2012 and later model year LDVs, LDTs, and MDPVs, a ll certificates of conformity issued are conditional upon compliance with all provisions of §86.1818–12 and §86.1865–12 both during and after model year production. The ma nufacturer bears the burden of establishing to the satisfacti on of the Administrator that the terms and conditions upon which the certificate(s) was (w ere) issued were satisfied. For recall and warranty purposes, vehicles not covered by a certificate of conformity will continue to be1326 held to the standards stated or referenced in the certificate that otherwise would have applied to the vehicles. (i) Failure to meet the fleet average CO 2 requirements will be considered a failure to satisfy the terms and conditions upon which the certificate(s) was (w ere) issued and the vehicles sold in violation of the fleet average CO 2 standard will not be covered by the certificate(s). The vehicles sold in viol ation will be determined according to §86.1865- 12(k)(7). (ii) Failure to comply fully with the prohi bition against selling credits that are not generated or that are not available, as specified in §86.1865–12, will be considered a failure to satisfy the terms and conditions upon which the certif icate(s) was (were) issued and the vehicles sold in violation of this prohibition will not be covered by the certificate(s).
* * * * *

26. A new §86.1854-12 is added to read as follows:

§86.1854-12 Prohibited acts. (a) The following acts and the causing thereof are prohibited: (1) In the case of a manufacturer, as defined by §86.1803, of new motor vehicles or new motor vehicle engines for distribution in commerce, the sale, or the offering for sale, or the introduction, or delivery for in troduction, into commerce, or (in the case of any person, except as provided by regulation of the Administrator), the importation into the United States of any new motor vehicle or new motor vehicle engi ne subject to this1327 subpart, unless such vehicle or engine is c overed by a certificate of conformity issued (and in effect) under regulations found in this subpart (except as provided in Section 203(b) of the Clean Air Act (42 U.S.C. 7522(b )) or regulations prom ulgated thereunder). (2)(i) For any person to fail or refuse to permit access to or copying of records or to fail to make reports or provide inform ation required under Sec tion 208 of the Clean Air Act (42 U.S.C. 7542) w ith regard to vehicles. (ii) For a person to fail or refuse to perm it entry, testing, or inspection authorized under Section 206(c) (42 U.S.C. 7525(c)) or Se ction 208 of the Clean Air Act (42 U.S.C. 7542) with regard to vehicles. (iii) For a person to fail or refuse to perf orm tests, or to have tests performed as required under Section 208 of the Clean Ai r Act (42 U.S.C. 7542) with regard to vehicles. (iv) For a person to fail to establish or maintain records as required under §§86.1844, 86.1862, 86.1864, and 86.1865 with regard to vehicles. (v) For any manufacturer to fail to ma ke information available as provided by regulation under Section 202(m)(5) of the Clean Air Act (42 U.S.C. 7521(m)(5)) with regard to vehicles. (3)(i) For any person to remove or re nder inoperative any device or element of design installed on or in a ve hicle or engine in complian ce with regulations under this subpart prior to its sale and delivery to the ultimate purchaser, or for any person knowingly to remove or render inoperative a ny such device or elem ent of design after such sale and delivery to the ultimate purchaser.1328 (ii) For any person to manufacture, sell or offer to sell, or install, any part or component intended for use with, or as part of, any vehicle or engine, where a principal effect of the part or component is to bypass, defeat, or re nder inoperative any device or element of design installed on or in a vehicl e or engine in complia nce with regulations issued under this subpart, and where the pers on knows or should know that the part or component is being offered for sale or inst alled for this use or put to such use. (4) For any manufacturer of a vehicle or engine subject to standards prescribed under this subpart: (i) To sell, offer for sale, introduce or deliver into commerce, or lease any such vehicle or engine unless the manufacturer has complied with the requirements of Section 207 (a) and (b) of the Clean Air Act (42 U.S.C. 7541 (a), (b)) with resp ect to such vehicle or engine, and unless a label or tag is affixed to such vehicl e or engine in accordance with Section 207(c)(3) of the Clean Air Act (42 U.S.C. 7541(c)(3)). (ii) To fail or refuse to comply with th e requirements of Section 207 (c) or (e) of the Clean Air Act (42 U.S.C. 7541 (c) or (e)). (iii) Except as provided in Section 207(c)(3) of the Clean Air Act (42 U.S.C. 7541(c)(3)), to provide directly or indire ctly in any communica tion to the ultimate purchaser or any subsequent purchaser that the coverage of a wa rranty under the Clean Air Act is conditioned upon use of any part, component, or system manufactured by the manufacturer or a person acti ng for the manufacturer or under its control, or conditioned upon service performed by such persons. (iv) To fail or refuse to comply with the terms and conditions of the warranty under Section 207 (a) or (b) of the Clean Air Act (42 U.S.C. 7541 (a) or (b)).1329 (b) For the purposes of enforcement of this subpart, the following apply: (1) No action with respect to any element of design referred to in paragraph (a)(3) of this section (includi ng any adjustment or alteration of su ch element) shall be treated as a prohibited act under paragraph (a )(3) of this section if such action is in accordance with Section 215 of the Clean Ai r Act (42 U.S.C. 7549); (2) Nothing in paragraph (a)(3) of this sect ion is to be construed to require the use of manufacturer parts in main taining or repairing a vehicle or engine. For the purposes of the preceding sentence, the term “manufacturer parts” means, with respect to a motor vehicle engine, parts produced or sold by th e manufacturer of the motor vehicle or motor vehicle engine; (3) Actions for the purpose of repair or replacement of a device or element of design or any other item are not considered prohibited acts und er paragraph (a)(3) of this section if the action is a n ecessary and temporary procedure, the device or element is replaced upon completion of the procedur e, and the action results in the proper functioning of the device or element of design; (4) Actions for the purpose of a conversi on of a motor vehicle or motor vehicle engine for use of a clean alternative fuel (as defined in title II of the Clean Air Act) are not considered prohibite d acts under paragraph (a) of this section if: (i) The vehicle complies with the applicable standard when operating on the alternative fuel; and (ii) In the case of engines converted to dual fuel or flexible use, the device or element is replaced upon completion of the c onversion procedure, and the action results1330 in proper functioning of the device or element when the motor vehicle operates on conventional fuel.

27. A new §86.1865-12 is added to subpart S to read as follows:

§86.1865-12 How to comply with the fleet average CO 2 standards. (a) Applicability. (1) Unless otherwise exempt ed under the provisions of §86.1801-12(j), CO 2 fleet average exhaust emission standards apply to: (i) 2012 and later model year passen ger automobiles and light trucks. (ii) Aftermarket conversion systems as defined in 40 CFR 85.502. (iii) Vehicles imported by ICIs as defined in 40 CFR 85.1502. (2) The terms “passenger automobile” and “l ight truck” as used in this section have the meanings as defined in §86.1818–12. (b) Useful life requirements. Full useful life requirements for CO 2 standards are defined in §86.1818–12. There is not an inte rmediate useful life standard for CO 2 emissions. (c) Altitude. Altitude requirements for CO 2 standards are provided in §86.1810– 09(f). (d) Small volume manufacturer certification procedures. Certification procedures for small volume manufacturers are provide d in §86.1838–01. Small businesses meeting certain criteria may be exempted from the greenhouse gas emission standards in §86.1818-12 according to the provisions of §86.1801-12(j).1331 (e) CO 2 fleet average exhaust emission standards. The fleet average standards referred to in this section ar e the corporate fleet average CO 2 standards for passenger automobiles and light trucks set forth in §86.1818-12(c) and (e). The fleet average CO 2 standards applicable in a given model y ear are calculated separately for passenger automobiles and light trucks for each manufact urer and each model year according to the provisions in §86.1818–12. Each manufacturer must comply with the applicable CO 2 fleet average standard on a production-wei ghted average basis, for each separate averaging set, at the end of each model year , using the procedure described in paragraph (j) of this section. (f) In-use CO 2 standards. In-use CO 2 exhaust emission standards applicable to each model type are provided in §86.1818–12(d). (g) Durability procedures and method of dete rmining deterioration factors (DFs). Deterioration factors for CO 2 exhaust emission standa rds are provided in §86.1823– 08(m). (h) Vehicle test procedures. (1) The test procedures fo r demonstrating compliance with CO 2 exhaust emission standards are contained in subpart B of this part and subpart B of part 600 of this chapter. (2) Testing of all passenger automobiles and light trucks to determine compliance with CO 2 exhaust emission standards set forth in th is section must be on a loaded vehicle weight (LVW) basis, as defined in §86.1803–01. (3) Testing for the purpose of providing cer tification data is required only at low altitude conditions. If hardware and software emission control strategies used during low altitude condition testing are not used similarly across all al titudes for in-use operation,1332 the manufacturer must include a statement in the application for certification, in accordance with §86.1844–01(d)(11) and §86.18 10–09(f), stating what the different strategies are and why they are used. (i) Calculating the fleet average carbon-related exhaust emissions . (1) Manufacturers must compute separate produc tion-weighted fleet average carbon-related exhaust emissions at the end of the model year for passenger automobiles and light trucks, using actual production, where producti on means vehicles pr oduced and delivered for sale, and certifying model types to st andards as defined in §86.1818–12. The model type carbon-related exhaust emission re sults determined according to 40 CFR 600 subpart F (in units of grams per mile rounde d to the nearest whole number) become the certification standard for each model type. (2) Manufacturers must separately calc ulate production-weighted fleet average carbon-related exhaust emissions levels for th e following averaging se ts according to the provisions of part 600 subpart F of this chapter: (i) Passenger automobiles subj ect to the fleet average CO 2 standards specified in §86.1818-12(c)(2); (ii) Light trucks subjec t to the fleet average CO 2 standards specified in §86.1818- 12(c)(3); (iii) Passenger automobiles subject to the Temporary Leadtime Allowance Alternative Standards specified in §86.1818-12(e), if applicable; and (iv) Light trucks subject to the Tem porary Leadtime Allowance Alternative Standards specified in §86. 1818-12(e), if applicable.1333 (j) Certification compliance and enfo rcement requirements for CO 2 exhaust
emission standards. (1) Compliance and enforcement requirements are provided in §86.1864–10 and §86.1848–10(c)(9). (2) The certificate issued for each test gr oup requires all model types within that test group to meet the in-use emission standard s to which each model type is certified as outlined in §86.1818-12(d). (3) Each manufacturer must co mply with the applicable CO 2 fleet average standard on a production-weighted average basis, at the end of each model year, using the procedure described in paragr aph (i) of this section. (4) Each manufacturer must comply on an annual basis with the fleet average standards as follows: (i) Manufacturers must report in their annua l reports to the Agency that they met the relevant corporate average standard by showing that their production-weighted average CO 2 emissions levels of passenger autom obiles and light trucks, as applicable, are at or below the applicable fleet average standard; or (ii) If the production-weighted average is above the applicable fleet average standard, manufacturers must obtain and apply sufficient CO 2 credits as authorized under paragraph (k)(8) of this section. A manufactur er must show that they have offset any exceedence of the corporate average standard via the use of credits. Manufacturers must also include their credit balances or defic its in their annual report to the Agency. (iii) If a manufacturer fails to meet the corporate average CO 2 standard for four consecutive years, the vehicles causing the corporate average exceedence will be considered not covered by the certificate of conformity (see paragr aph (k)(8) of this1334 section). A manufacturer will be subject to penalties on an individual-vehicle basis for sale of vehicles not covered by a certificate. (iv) EPA will review each manufacturer's production to de signate the vehicles that caused the exceedence of the corporate average standard. EPA will designate as nonconforming those vehicles in test groups with the highest certification emission values first, continuing until reaching a numbe r of vehicles equal to the calculated number of noncomplying vehicles as determined in paragraph (k)(8) of this section. In a group where only a portion of vehicles w ould be deemed nonconforming, EPA will determine the actual nonconf orming vehicles by counting backwards from the last vehicle produced in that test group. Manufact urers will be liable for penalties for each vehicle sold that is not covered by a certificate. (k) Requirements for the CO 2 averaging, banking and trading (ABT) program . (1) A manufacturer whose CO 2 fleet average emissions exceed the applicable standard must complete the calculation in paragraph (k)(4) of this section to determine the size of its
CO 2 deficit. A manuf acturer whose CO 2 fleet average emissions are less than the applicable standard must complete the calculation in paragraph (k)(4) of this section to generate CO 2 credits. In either case, the number of credits or debits must be rounded to the nearest whole number. (2) There are no property ri ghts associated with CO 2 credits generated under this subpart. Credits are a limited authorization to emit the designated amount of emissions. Nothing in this part or any other provisi on of law should be c onstrued to limit EPA's authority to terminate or limit this authorization th rough a rulemaking.1335 (3) Each manufacturer must comply with the reporting and recordkeeping requirements of paragraph (l ) of this section for CO 2 credits, including early credits. The averaging, banking and trading program is enforceable through the certificate of conformity that allows the manufacturer to introduce any regulated vehicles into

commerce. (4) Credits are earned on the last day of the model year. Manufacturers must calculate, for a given model year and sepa rately for passenger automobiles and light trucks, the number of credits or debits it has generated according to the following equation, rounded to the nearest megagram:
CO 2 Credits or Debits (Mg) = [(CO 2 Standard - Manufacturer's ProductionWeighted Fleet Average CO 2 Emissions) × (Total Number of Vehicles Produced) × (Vehicle Lifetime Miles)] ÷ 1,000,000 Where:
CO 2 Standard = the applicable standard for the model year as determined by §86.1818-12; Manufacturer's Production-We ighted Fleet Average CO 2 Emissions = average calculated according to paragr aph (i) of this section; Total Number of Vehicles Produced = The number of vehicles domestically produced plus those imported as define d in §600.511-80 of this chapter; and Vehicle Lifetime Miles is 195,264 for passenger automobiles and 225,865 for light trucks. (5) Total credits or debits generated in a model year, maintained and reported separately for passenger automobiles and light trucks, shall be the sum of the credits or1336 debits calculated in paragraph (k )(4) of this section and any of the following credits, if applicable: (i) Air conditioning leakage credits earned accordi ng to the provisions of §86.1866-12(b); (ii) Air conditioning efficiency credits earned according to the provisions of §86.1866-12(c); (iii) Off-cycle technology credits earned according to the provisions of §86.1866- 12(d). (6) Unused CO 2 credits shall retain their full value through the five subsequent model years after the model year in which they were generated. Cred its available at the end of the fifth model year after the year in which they were generated shall expire. (7) Credits may be used as follows: (i) Credits generated and cal culated according to the method in paragraph (k)(4) of this section may not be used to offset de ficits other than those deficits accrued with respect to the standard in §86.1818–12. Credits may be banked and used in a future model year in which a manufacturer's average CO 2 level exceeds the applicable standard. Credits may be exchanged between the passenge r automobile and light truck fleets of a given manufacturer. Credits may also be trad ed to another manufacturer according to the provisions in paragraph (k)(8) of this section. Before trading or carrying over credits to the next model year, a manufacturer must appl y available credits to offset any deficit, where the deadline to offset that credit deficit has not yet passed. (ii) The use of credits shall not change Selective Enforcement Auditing or in-use testing failures from a failure to a non-failure . The enforcement of the averaging standard1337 occurs through the vehicle's certificate of c onformity. A manufactur er's certificate of conformity is conditioned upon compliance with the averaging provisions. The certificate will be void ab initio if a manufacturer fails to meet the corporate average standard and does not obtain appropriate credits to cover its sh ortfalls in that model year or subsequent model years (see deficit carry-f orward provisions in paragra ph (k)(8) of this section). (iii) Special provisions for manufacturers using the Temporary Leadtime Allowance Alternative Standards. (A) Credits generated by vehi cles subject to the fleet average CO 2 standards specified in §86.1818-12(c) ma y only be used to offset a deficit generated by vehicles subject to the Temporary Leadtime Allowance Alternative Standards specified in §86.1818-12(e). (B) Credits generated by a passenger auto mobile or light truck averaging set subject to the Temporary Leadtime Allowa nce Alternative Standards specified in §86.1818-12(e)(4)(i) or (ii) of this section may be used to offset a deficit generated by an averaging set subject to the Temporary L eadtime Allowance Alternative Standards through the 2015 model year, except that manuf acturers qualifying under the provisions of §86.1818-12(e)(3) may use such credits to offset a deficit gene rated by an averaging set subject to the Temporary Leadtime A llowance Alternative Standards through the 2016 model year . (C) Credits generated by an averaging set subject to the Temporary Leadtime Allowance Alternative Standards specified in §86.1818-12(e)(4)(i) or (ii) of this section may not be used to offset a deficit genera ted by an averaging set subject to the fleet average CO 2 standards specified in §86.1818-12(c)(2) or (3) or otherwise transferred to1338 an averaging set subject to the fleet average CO 2 standards specified in §86.1818-12(c)(2) or (3). (D) Credits generated by ve hicles subject to the Temporary Leadtime Allowance Alternative Standards specified in §86.1818-12(e)(4)(i) or (ii) may be banked for use in a future model year (to offset a deficit gene rated by an averaging set subject to the Temporary Leadtime Allowance Alternative Sta ndards). All such credits shall expire at the end of the 2015 model year, except th at manufacturers qu alifying under the provisions of §86.1818-12(e)(3) may use such cred its to offset a deficit generated by an averaging set subject to the Temporary L eadtime Allowance Alternative Standards through the 2016 model year. (E) A manufacturer with any vehicles subject to the Temporary Leadtime Allowance Alternative Standards specified in §86.1818-12(e)(4)(i) or (ii) of this section in a model year in which that manufacturer also generates credits with vehicles subject to the fleet average CO 2 standards specified in §86.1818-12( c) may not trade or bank credits earned against the fleet average standards in §86.1818-12(c) for use in a future model
year. (8) The following provisions a pply if debits are accrued: (i) If a manufacturer calcula tes that it has negative credits (also called “debits” or a “credit deficit”) for a given model year, it may carry that deficit forward into the next three model years. Such a carry-forward ma y only occur after the manufacturer exhausts any supply of banked credits. At the end of the third model year, the deficit must be covered with an appropriate number of cr edits that the manufacturer generates or purchases. Any remaining deficit is subject to a voiding of the certif icate ab initio, as1339 described in this paragraph (k)(8). Manufacturers are not permitted to have a credit deficit for four consecutive years. (ii) If debits are not offset within the sp ecified time period, the number of vehicles not meeting the fleet average CO 2 standards (and therefore not covered by the certificate) must be calculated. (A) Determine the gram per mile quantity of debits for the noncompliant vehicle category by multiplying the total megagram deficit by 1,000,000 and then dividing by the vehicle lifetime miles for the vehicle categor y (passenger automobile or light truck) specified in paragraph (k )(4) of this section. (B) Divide the result by the fleet average standard applic able to the model year in which the debits were first incurred and round to the neares t whole number to determine the number of vehicles not meeting the fleet average CO 2 standards. (iii) EPA will determine the vehicles not covered by a certificate because the condition on the certificate was not satisfied by designating vehicles in those test groups with the highest CO 2 emission values first and con tinuing until reaching a number of vehicles equal to the calculated number of noncomplying vehicles as determined in paragraph (k)(7) of this secti on. If this calculation determines that only a portion of vehicles in a test group contribute to the de bit situation, then EPA will designate actual vehicles in that test group as not covered by the certificate, starting with the last vehicle produced and counting backwards. (iv)(A) If a manufacturer ceases producti on of passenger cars and light trucks, the manufacturer continues to be responsible for offsetting any debits outstanding within the required time period. Any failure to offset the debits will be considered a violation of1340 paragraph (k)(7)(i) of this section and may subject the manufacturer to an enforcement action for sale of vehicles not covered by a cer tificate, pursuant to paragraphs (k)(7)(ii) and (iii) of this section. (B) If a manufacturer is pur chased by, merges with, or otherwise combines with another manufacturer, the controlling entity is responsible for offsetting any debits outstanding within the required time period. A ny failure to offset the debits will be considered a violation of paragraph (k)(7)( i) of this section and may subject the manufacturer to an enforcement action for sa le of vehicles not c overed by a certificate, pursuant to paragraphs (k)(7)(ii ) and (iii) of this section. (v) For purposes of calculating the stat ute of limitations, a violation of the requirements of paragraph (k)(7)(i ) of this section, a failure to satisfy the conditions upon which a certificate(s) was issued and hence a sale of vehicles not covered by the certificate, all occur upon the expiration of th e deadline for offsetting debits specified in paragraph (k)(7)(i) of this section. (9) The following provisions apply to CO 2 credit trading: (i) EPA may reject CO 2 credit trades if the involve d manufacturers fail to submit the credit trade notification in the annual report. (ii) A manufacturer may not sell credits th at are not available for sale pursuant to the provisions in paragra ph (k)(6) of this section. (iii) In the event of a nega tive credit balance resulting from a transaction, both the buyer and seller are liable. EPA may void ab initio th e certificates of conformity of all test groups participating in such a trade.1341 (iv) (A) If a manufacturer trades a credit that it has not generated pursuant to paragraph (k) of this section or acquired from another party, the manufacturer will be considered to have generated a debit in the model year that the manufacturer traded the credit. The manufacturer must offset such debits by the dead line for the annual report for that same model year. (B) Failure to offset the debits within the required time period will be considered a failure to satisfy the conditions upon whic h the certificate(s) was issued and will be addressed pursuant to paragra ph (k)(7) of this section. (v) A manufacturer may only trade cred its that it has generated pursuant to paragraph (k)(4) of this section or acquired from another party. (l) Maintenance of records and submittal of information relevant to compliance with fleet average CO 2 standards —(1) Maintenance of records . (i) Manufacturers producing any light-duty vehicles , light-duty trucks, or medi um-duty passenger vehicles subject to the provisions in th is subpart must establish, maintain, and retain all the following information in adequately or ganized records for each model year: (A) Model year. (B) Applicable fleet average CO 2 standards for each averaging set as defined in paragraph (i) of this section. (C) The calculated fleet average CO 2 value for each averaging set as defined in paragraph (i) of this section. (D) All values used in calculating the fleet average CO 2 values. (ii) Manufacturers producing any passenger cars or light trucks subject to the provisions in this subpart must establis h, maintain, and retain all the following1342 information in adequately organized records fo r each passenger car or light truck subject to this subpart: (A) Model year. (B) Applicable fleet average CO 2 standard. (C) EPA test group. (D) Assembly plant. (E) Vehicle identification number. (F) Carbon-related exhaust emission standard to which the passenger car or light truck is certified. (G) In-use carbon-related exhaust emission standard. (H) Information on the point of first sale, including the purchaser, city, and state. (iii) Manufacturers must retain all requi red records for a period of eight years from the due date for the annual report. Reco rds may be stored in any format and on any media, as long as manufacturers can promp tly send EPA organized written records in English if requested by the Administrator. Manufacturers must keep records readily available as EPA may revi ew them at any time. (iv) The Administrator may require the ma nufacturer to retain additional records or submit information not specifically required by this section. (v) Pursuant to a request made by the Administrator, the manufacturer must submit to the Administrator the information th at the manufacturer is required to retain. (vi) EPA may void ab initio a certificate of conformity for vehicles certified to emission standards as set forth or otherwise referenced in this subpart for which the manufacturer fails to retain the records re quired in this section or to provide such1343 information to the Administrator upon request, or to submit the reports required in this section in the specified time period. (2) Reporting . (i) Each manufacturer must su bmit an annual re port. The annual report must contain for each applicable CO 2 standard, the calculated fleet average CO 2 value, all values required to calculate the CO 2 emissions value, the number of credits generated or debits incurred, all the values re quired to calculate the credits or debits, and the resulting balance of credits or debits. (ii) For each applicable fleet average CO 2 standard, the annual report must also include documentation on all cr edit transactions the manufac turer has engaged in since those included in the last report. Informati on for each transaction must include all of the following: (A) Name of credit provider. (B) Name of credit recipient. (C) Date the trade occurred. (D) Quantity of credits traded in megagrams. (E) Model year in which the credits were earned. (iii) Manufacturers calculating early air conditioning leakage and/or efficiency credits under paragraph §86.1867-12(b) of this section shall include in the 2012 report, the following information for each model year separately for passenger automobiles and light trucks and for each air conditioni ng system used to generate credits: (A) A description of the air conditioning system. (B) The leakage credit value and all the information required to determine this value.1344 (C) The total credits earned for each averaging set, model year, and region, as applicable. (iv) Manufacturers calculat ing early advanced tec hnology vehicle credits under paragraph §86.1867-12(c) shall include in the 2012 report, separately for each model year and separately for passenger automobiles and light trucks, the following information: (A) The number of each model type of eligible vehicle sold. (B) The cumulative model year production of eligible vehicles starting with the 2009 model year. (C) The carbon-related exhaust emission value by model type and model year. (v) Manufacturers calculating early o ff-cycle technology credits under paragraph §86.1867-12(d) shall include in the 2012 report, for each model year and separately for passenger automobiles and light trucks, all te st results and data required for calculating such credits. (vi) Unless a manufacturer re ports the data required by th is section in the annual production report required under §86.1844–01(e) or the annual repo rt required under §600.512-12 of this chapter, a manufacturer must submit an annual report for each model year after production ends for all affected vehicles produced by the manufacturer subject to the provisions of this subpart and no late r than May 1 of the calendar year following the given model year. Annual reports must be submitted to: Director, Compliance and Innovative Strategies Division, U.S. Environmental Protection Agency, 2000 Traverwood, Ann Arbor, Michigan 48105. (vii) Failure by a manufacturer to submit the annual report in the specified time period for all vehicles subject to the provisions in this sect ion is a violation of section1345 203(a)(1) of the Clean Air Act (42 U.S.C. 7522 (a)(1)) for each applicable vehicle produced by that manufacturer. (viii) If EPA or the manufacturer determin es that a reporting error occurred on an annual report previously submitted to EPA, the manufacturer's credit or debit calculations will be recalculated. EPA may void erroneous credits, unless traded, and will adjust erroneous debits. In the case of traded err oneous credits, EPA mu st adjust the selling manufacturer's credit balance to reflect the sale of such credits and any resulting credit deficit. (3) Notice of opportunity for hearing . Any voiding of the certificate under paragraph (l)(1)(vi) of this se ction will be made only after EPA has offered the affected manufacturer an opportunity for a heari ng conducted in accordance with §86.614–84 for light-duty vehicles or §86.1014–84 for light-duty trucks and, if a ma nufacturer requests such a hearing, will be made only after an initial decision by the Presiding Officer.

28. A new §86.1866-12 is added to subpart S to read as follows:

§86.1866-12 CO 2 fleet average credit programs. (a) Incentive for certification of advanced technology vehicles . Electric vehicles, plug-in hybrid electric vehicl es, and fuel cell vehicles, as those terms are defined in §86.1803-01, that are certified and produced in the 2012 through 2016 model years may be eligible for a reduced CO 2 emission value under the provi sions of this paragraph (a) and under the provisions of part 600 of this chapter.1346 (1) Electric vehicles, fuel cell vehicles, and plug-in hybrid electric vehicles may use a value of zero (0) grams/mile of CO 2 to represent the propor tion of electric operation of a vehicle that is derived from electricity that is generated fro m sources that are not onboard the vehicle. (2) The use of zero (0) grams/mile CO 2 is limited to the first 200,000 combined electric vehicles, plug-in hybr id electric vehicles, and fuel cell vehicles produced and delivered for sale by a manufacturer in th e 2012 through 2016 model years, except that a manufacturer that produces and delivers for sale 25,000 or more such vehicles in the 2012 model year shall be subj ect to a limitation on the use of zero (0) grams/mile CO 2 to the first 300,000 combined electr ic vehicles, plug-in hybrid el ectric vehicles, and fuel cell vehicles produced and delivered for sa le by a manufacturer in the 2012 through 2016 model years. (b) Credits for reduction of air c onditioning refrigerant leakage . Manufacturers may generate credits applicable to the CO 2 fleet average program described in §86.1865- 12 by implementing specific air conditioning system technologies designed to reduce air conditioning refrigerant leakage over the useful life of thei r passenger cars and/or light trucks. Credits shall be calculated according to this paragraph (b) for each air conditioning system that the manuf acturer is using to generate CO 2 credits. Manufacturers may also generate early air c onditioning refrigerant l eakage credits under this paragraph (b) for the 2009 through 2011 model years acco rding to the provisions of §86.1867-12(b). (1) The manufacturer shall calculate an annua l rate of refrigeran t leakage from an air conditioning system in grams per year ac cording to the provisions of §86.166-12.1347 (2) The CO 2 -equivalent gram per mile leakage reduction to be used to calculate the total credits generated by the air conditioni ng system shall be determined according to the following formulae, rounded to the nearest tenth of a gram per mile: (i) Passenger automobiles: 

### ⎥ ⎦ ⎤ ⎢ ⎣ ⎡ ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛ × ⎟ ⎠ ⎞ ⎜ ⎝ ⎛

− × =

a HFC

REF 

### GWP

GWP Leakage MaxCredit L 134 

### 6

. 16 1 credit eakage

Where: MaxCredit is 12.6 (grams CO 2 -equivalent/mile)for air conditioning systems using HFC-134a, and 13.8 (grams CO 2 -equivalent/mile) for air conditioning systems using a refrigerant with a lower global warming potential. Leakage means the annual refrigerant l eakage rate determined according to the provisions of §86.166-12(a), except if the calculated rate is less than 8.3 grams/year (4.1 grams/year for systems using electric comp ressors) the rate for the purpose of this formula shall be 8.3 grams/year (4.1 grams/ year for systems using electric compressors); The constant 16.6 is the average passenge r car impact of air conditioning leakage in units of grams/year;
GWP REF means the global warming potential of the refrigerant as indicated in paragraph (b)(5) of this section or as ot herwise determined by the Administrator;
GWP HFC134a means the global warming potential of HFC-134a as indicated in paragraph (b)(5) of this section or as ot herwise determined by the Administrator. (ii) Light trucks: 

### ⎥ ⎦ ⎤ ⎢ ⎣ ⎡ ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛ × ⎟ ⎠ ⎞ ⎜ ⎝ ⎛

− × =

a HFC

REF 

### GWP

GWP Leakage MaxCredit L 134 

### 7

. 20 1 credit eakage1348 Where: MaxCredit is 15.6 (grams CO 2 -equivalent/mile) for air conditioning systems using HFC-134a, and 17.2 (grams CO 2 -equivalent/mile) for air conditioning systems using a refrigerant with a lower global warming potential. Leakage means the annual refrigerant l eakage rate determined according to the provisions of §86.166-12(a), except if the calculated rate is less than 10.4 grams/year (5.2 grams/year for systems using electric comp ressors) the rate for the purpose of this formula shall be 10.4 grams/year (5.2 grams/year for systems using electric compressors); The constant 20.7 is the average passenge r car impact of air conditioning leakage in units of grams/year;
GWP REF means the global warming potential of the refrigerant as indicated in paragraph (b)(5) of this section or as ot herwise determined by the Administrator;
GWP R134a means the global warming potenti al of HFC-134a as indicated in paragraph (b)(5) of this section or as ot herwise determined by the Administrator. (3) The total leakage reduction credits generated by the air conditioning system shall be calculated separately for passenge r cars and light trucks according to the following formula: Total Credits (megagrams) = (Leak age x Production x VLM) ÷ 1,000,000 Where: Leakage = the CO 2 -equivalent leakage credit value in grams per mile determined in paragraph (b)(2) of this section.1349 Production = The total number of passenge r cars or light trucks, whichever is applicable, produced with the air conditioning sy stem to which to the leakage credit value from paragraph (b)(2) of this section applies. VLM = vehicle lifetime miles, which for passenger cars shall be 195,264 and for light trucks shall be 225,865. (4) The results of paragra ph (b)(3) of this section, rounded to the nearest whole number, shall be included in the manufactur er’s credit/debit totals calculated in §86.1865-12(k)(5). (5) The following values for refrigerant global warming potential (GWP REF ), or alternative values as determined by the Administ rator, shall be used in the calculations of this paragraph (b). The Administrator will determine values for refrigerants not included in this paragraph (b)(5) u pon request by a manufacturer. (i) For HFC-134a, GWP REF =1430; (ii) For HFC-152a, GWP REF =124; (iii) For HFO-1234yf,: GWP REF =4; (iv) For CO 2 , GWP REF= 1. (c) Credits for improving air c onditioning system efficiency . Manufacturers may generate credits applicable to the CO 2 fleet average program described in §86.1865-12 by implementing specific air conditioning syst em technologies designed to reduce air conditioning-related CO 2 emissions over the useful life of their passenger cars and/or light trucks. Credits shall be calculated acco rding to this paragraph (c) for each air conditioning system that the manuf acturer is using to generate CO 2 credits. Manufacturers may also generate early air conditioning efficiency credits under this1350 paragraph (c) for the 2009 th rough 2011 model years accordin g to the provisions of §86.1867-12(b). For model years 2012 and 2013 the manufacturer may determine air conditioning efficiency credits using the requirements in pa ragraphs (c)(1) through (4) of this section. For model year s 2014 and later the eligibility requirements specified in paragraph (c)(5) of this section must be met before an air conditioning system is allowed to generate credits. (1) Air conditioning efficiency credits ar e available for the following technologies in the gram per mile amounts indicated: (i) Reduced reheat, with externally-controlled, variable-displacement compressor (e.g. a compressor that controls displacem ent based on temperature setpoint and/or cooling demand of the air conditioning system control settings inside the passenger compartment): 1.7 g/mi. (ii) Reduced reheat, with externally-cont rolled, fixed-displacement or pneumatic variable displacement compressor (e.g. a compressor that controls displacement based on conditions within, or internal to, the air conditioning syst em, such has head pressure, suction pressure, or evaporator outlet temperature): 1.1 g/mi. (iii) Default to recirculated air with cl osed-loop control of the air supply (sensor feedback to control interior air quality) wh enever the ambient temperature is 75 °F or higher: 1.7 g/mi. Air conditioning systems that operated with closed-loop control of the air supply at different temperatures may receive credits by submitting an engineering analysis to the Administrator for approval. (iv) Default to recirculated air with open-loop control air supply (no sensor feedback) whenever the ambient temperatur e is 75 °F or higher: 1.1 g/mi. Air1351 conditioning systems that operate with open-l oop control of the air supply at different temperatures may receive credits by submitting an engineering analysis to the Administrator for approval. (v) Blower motor controls which limit wa sted electrical energy (e.g. pulse width modulated power controller): 0.9 g/mi. (vi) Internal heat exchanger (e.g. a de vice that transfers heat from the highpressure, liquid-phase refriger ant entering the evaporator to the low-pressure, gas-phase refrigerant exiting the ev aporator): 1.1 g/mi. (vii) Improved condensers and/or evapor ators with system analysis on the component(s) indicating a coefficient of pe rformance improvement for the system of greater than 10% when compared to previous industry standard designs): 1.1 g/mi. (viii) Oil separator: 0.6 g/mi. The ma nufacturer must submit an engineering analysis demonstrating the increased improvement of the system relative to the baseline design, where the baseline component fo r comparison is the version which a manufacturer most recently had in production on the same vehicle design or in a similar or related vehicle model. The characteris tics of the baseline component shall be compared to the new component to demonstrate the improvement. (2) Air conditioning efficiency credits are determined on an air conditioning system basis. For each air conditioning system that is eligible for a credit based on the use of one or more of the items listed in paragraph (c)(1) of this section, the total credit value is the sum of the gram per mile values listed in paragraph (c)(1) of this section for each item that applies to the air conditioning system. If the su m of those values for an air1352 conditioning system is greater than 5.7 grams per mile, the total credit value is deemed to be 5.7 grams per mile. (3) The total efficiency credits generate d by an air conditioning system shall be calculated separately for passenger cars a nd light trucks according to the following formula: Total Credits (Megagra ms) = (Credit x Production x VLM) ÷ 1,000,000 Where: Credit = the CO 2 efficiency credit value in grams per mile determined in paragraph (c)(2) or (c)(5) of this section, whichever is applicable. Production = The total number of passenge r cars or light trucks, whichever is applicable, produced with the air conditioning system to which to the efficiency credit value from paragraph (c)(2) of this section applies. VLM = vehicle lifetime miles, which for passenger cars shall be 195,264 and for light trucks shall be 225,865. (4) The results of paragraph (c)(3) of th is section, rounded to the nearest whole number, shall be included in the manufactur er’s credit/debit totals calculated in §86.1865-12(k)(5). (5) Use of the Air Conditioning Idle Te st Procedure is re quired after the 2013 model year as specified in this paragraph (c)(5). (i) After the 2013 model year, for each air conditioning system selected by the manufacturer to generate ai r conditioning efficiency credits, the manufacturer shall perform the Air Conditioning Idle Test Pro cedure specified in §86.165-14 of this part.1353 (ii) Using good engineering judgment, th e manufacturer must select the vehicle configuration to be tested that is expect ed to result in the greatest increased CO 2 emissions as a result of the operation of the air conditioning system for which efficiency credits are being sought. If the air conditioni ng system is being installed in passenger automobiles and light trucks, a separate de termination of the quantity of credits for passenger automobiles and light trucks must be made, but only one test vehicle is required to represent the air conditioning system, provided it represents the worst-case impact of the system on CO 2 emissions. (iii) For an air conditioning system to be eligible to generate credits in the 2014 and later model years, the increased CO 2 emissions as a result of the operation of that air conditioning system determined according to the Idle Test Procedure in §86.165-14 must be less than 21.3 grams per minute. (A) If the increased CO 2 emissions determined from the Idle Test Procedure in §86.165-14 is less than or equal to 14.9 gram s/minute, the total credit value for use in paragraph (c)(3) of this section shall be as determined in para graph (c)(2) of th is section. (B) If the increased CO 2 emissions determined from the Idle Test Procedure in §86.165-14 is greater than 14.9 grams/minute a nd less than 21.3 grams/minute, the total credit value for use in paragraph (c)(3) of this section shall be as determined according to the following formula: 

## ⎥ ⎦ ⎤ ⎢ ⎣ ⎡ ⎟ ⎠ ⎞ ⎜ ⎝ ⎛

−

− × = 4

. 6 9

. 14 1 1 

## ITP TCV TCV

Where: TCV=The total credit value for use in paragraph (c)(3) of this section;1354 TCV 1 =The total credit value determined according to paragraph (c)(2) of this section; and ITP= the increased CO 2 emissions determined from the Idle Test Procedure in §86.165-14. (iv) Air conditioning systems with compressors that are solely powered by electricity shall submit Air Conditioning Idle Test Procedure data to be eligible to generate credits in the 2014 a nd later model years, but such systems are not required to meet a specific threshold to be eligible to generate such credits, as long as the engine remains off for a period of at least 2 minutes during the air conditioning on portion of the Idle Test Procedure in §86.165-12 (d). (6) The following definitions a pply to this paragraph (c): (i) Reduced reheat, with externally-controlled, va riable displacement compressor means a system in which compressor displacem ent is controlled via an electronic signal, based on input from sensors (e.g. position or se tpoint of interior temperature control, interior temperature, evaporator outlet air temp erature, or refrigerant temperature) and air temperature at the outlet of the evaporator can be controlled to a level at 41 °F, or higher. (ii) Reduced reheat, with exter nally-controlled, fixed-dis placement or pneumatic variable displacement compressor means a system in which the output of either compressor is controlled by cycling the comp ressor clutch off-and-on via an electronic signal, based on input from sensors (e.g. posit ion or setpoint of interior temperature control, interior temperature, evaporator outlet air temperature, or refrigerant temperature) and air temperature at the outlet of the evaporator can be controlled to a level at 41 °F, or higher.1355 (iii) Default to recirculated air mode means that the default position of the mechanism which controls the source of air supplied to the air c onditioning system shall change from outside air to r ecirculated air when the opera tor or the automatic climate control system has engaged the air conditioning system (i.e. evaporator is removing heat), except under those conditions where dehumidifi cation is required for visibility (i.e. defogger mode). In vehicles equipped with in terior air quality se nsors (e.g. humidity sensor, or carbon dioxide sens or), the controls may determ ine proper blend of air supply sources to maintain freshness of the cabi n air and prevent fogg ing of windows while continuing to maximize the use of recirculated air. At any time, the vehicle operator may manually select the non-recirculated air sett ing during vehicle operation but the system must default to recirculated air mode on subs equent vehicle operati ons (i.e. next vehicle start). The climate control system may dela y switching to recirculation mode until the interior air temperature is less than the outside air temperature, at which time the system must switch to recirculated air mode. (iv) Blower motor controls which limit waste energy means a method of controlling fan and blower speeds which does no t use resistive elements to decrease the voltage supplied to the motor. (v) Improved condensers and/or evaporators means that the coefficient of performance (COP) of air conditioning system using improved evaporator and condenser designs is 10 percent higher, as determined using the bench test procedures described in SAE J2765 “Procedure for Measuring System COP of a Mobile Air Conditioning System on a Test Bench,” when compared to a system using standard, or prior model year, component designs. SAE J2765 is incor porated by reference; see §86.1. The1356 manufacturer must submit an engineeri ng analysis demonstrating the increased improvement of the system relative to the baseline design, where the baseline component(s) for comparison is the version which a manufacturer most recently had in production on the same vehicle design or in a similar or relate d vehicle model. The dimensional characteristics (e.g., tube confi guration/thickness/spacing, and fin density) of the baseline component(s) shall be compared to the new component(s) to demonstrate the improvement in coefficient of performance. (vi) Oil separator means a mechanism which removes at least 50 percent of the oil entrained in the oil/refrigerant mixture exiting the compressor and returns it to the compressor housing or compressor inlet, or a compressor design which does not rely on the circulation of an oil/refrig erant mixture for lubrication. (d) Credits for CO 2 -reducing technologies where the CO 2 reduction is not captured on the Federal Test Proced ure or the Highway Fuel Economy Test . With prior EPA approval, manufacturers may optionally generate credits applicable to the CO 2 fleet average program described in §86.1865-12 by implementing innovative technologies that have a measurable, demonstrable, and verifiable real-world CO 2 reduction. These optional credits are referred to as “off-cy cle” credits and may be earned through the 2016 model year. (1) Qualification criteria . To qualify for this credit, the criteria in this paragraph (d)(1) must be met as determined by the Administratory: (i) The technology must be an innovative and novel vehicle- or engine-based approach to reducing greenhouse gas emi ssions, and not in widespread use.1357 (ii) The CO 2 -reducing impact of the technol ogy must not be significantly measurable over the Federal Test Procedur e and the Highway Fuel Economy Test. The technology must improve CO 2 emissions beyond the driving c onditions of those tests. (iii) The technology must be able to be de monstrated to be effective for the full useful life of the vehicle. Un less the manufacturer demonstrat es that the technology is not subject to in-use deteriora tion, the manufacturer must acc ount for the dete rioration in their analysis. (2) Quantifying the CO 2 reductions of an of f-cycle technology . The manufacturer may use one of the two options specified in this paragraph (d)(2) to measure the CO 2 - reducing potential of an innovative off-cy cle technology. The option described in paragraph (d)(2)(ii) of this section may be us ed only with EPA appr oval, and to use that option the manufacturer must be able to ju stify to the Administrator why the 5-cycle option described in paragraph (d)(2)(i) of th is section insufficien tly characterizes the effectiveness of the off-cycle technology. The manufacturer should notify EPA in their pre-model year report of their intention to ge nerate any credits under paragraph (d) of this section. (i) Technology demonstration using EPA 5-cycle methodology . To demonstrate an off-cycle technology and to determine a CO 2 credit using the EPA 5-cycle methodology, the manufacturer shall determine 5-cycle city /highway combined carbon-related exhaust emissions both with the technology installed and operating and wit hout the technology installed and/or operating. Th e manufacturer shall conduct th e following steps, both with the off-cycle technology insta lled and operating and without the technology operating or installed.1358 (A) Determine carbon-related exhaust emissions over the FTP, the HFET, the US06, the SC03, and the cold temperature FTP test procedures according to the test procedure provisions specified in 40 CFR pa rt 600 subpart B and using the calculation procedures specified in §600.113-08 of this chapter. (B) Calculate 5-cycle city and highway carbon-related exhaust emissions using data determined in paragraph (d)(2)(i)(A) of this section according to the calculation procedures in paragraphs (d) throug h (f) of §600.114-08 of this chapter. (C) Calculate a 5-cycle city/highway combined carbon-related exhaust emission value using the city and highway values dete rmined in paragraph (d)(2)(i)(B) of this section. (D) Subtract the 5-cycle city/highway combined carbon-related exhaust emission value determined with the off-cycle tec hnology operating from the 5- cycle city/highway combined carbon-related exhaust emission value determined with the off-cycle technology not operating. The result is the gr am per mile credit amount assigned to the technology. (ii) Technology demonstration using alternative EPA-approved methodology . In cases where the EPA 5-cycle methodology describe d in paragraph (d)(2)(i) of this section cannot adequately measure the emission reducti on attributable to an innovative off-cycle technology, the manufacturer may develop an a lternative approach. Prior to a model year in which a manufacturer intends to seek these credits, the manufacturer must submit a detailed analytical plan to EPA. EPA will work with the manufacturer to ensure that an analytical plan will result in appropriate data for the purposes of generating these credits.1359 The alternative demonstration program must be approved in advance by the Administrator and should: (A) Use modeling, on-road te sting, on-road data colle ction, or other approved analytical or engineering methods; (B) Be robust, verifiable, and capable of demonstrating the re al-world emissions benefit with strong stat istical significance; (C) Result in a demonstration of baselin e and controlled emissions over a wide range of driving conditions and number of vehicl es such that issues of data uncertainty are minimized; (D) Result in data on a model type basi s unless the manufacturer demonstrates that another basis is appropriate and adequate. (iii) Calculation of total off-cycle credits . Total off-cycle credits in Megagrams of
CO 2 (rounded to the nearest whol e number) shall be calculate d separately for passenger automobiles and light trucks according to the following formula: Total Credits (Megagra ms) = (Credit x Production x VLM) ÷ 1,000,000 Where: Credit = the 5-cycle credit value in grams per mile determined in paragraph (d)(2)(i)(D) or (d)(2)(ii) of this section. Production = The total number of passenge r cars or light trucks, whichever is applicable, produced with the off-cycle technology to which to the credit value determined in paragraph (d)(2)(i)(D) or (d)(2)(ii) of this section applies. VLM = vehicle lifetime miles, which for passenger cars shall be 195,264 and for light trucks shall be 225,865.1360 (3) Notice and opportunity for public comment . The Administrator will publish a notice of availability in the Federal Regist er notifying the public of a manufacturer’s proposed alternative off-cycle credit cal culation methodology. The notice will include details regarding the proposed methodology, but will not include any Confidential Business Information. The notice will include instructions on how to comment on the methodology. The Administrator will take pub lic comments into consideration in the final determination, and will not ify the public of the final de termination. Credits may not be accrued using an approved methodology unt il the model year following the final approval.

29. A new §86.1867-12 is added to subpart S to read as follows:

§86.1867-12 Optional early CO 2 credit programs. Manufacturers may optionally generate CO 2 credits in the 2009 through 2011 model years for use in the 2012 and later mode l years subject to EPA approval and to the provisions of this section. Manufacturers ma y generate early fleet average credits, air conditioning leakage credits, air conditioni ng efficiency credits, early advanced technology credits, and early o ff-cycle technology credits. Manufacturers generating any credits under this section must submit an ea rly credits report to the Administrator as required in this section. The terms “sales” and “sold” as used in this section shall mean vehicles produced and delivered for sale in th e states and territories of the United States. (a) Early fleet average CO 2 reduction credits . Manufacturers may optionally generate credits for reductions in their fleet average CO 2 emissions achieved in the 20091361 through 2011 model years. To ge nerate early fleet average CO 2 reduction credits, manufacturers must select one of the four pathways described in paragraphs (a)(1) through (4) of this se ction. The manufacturer may sele ct only one pathway, and that pathway must remain in effect for the 2009 through 2011 model years. Fleet average credits (or debits) must be calculated a nd reported to EPA for each model year under each selected pathway. Early credits are subject to five year carry-forward restrictions based on the model year in whic h the credits are generated. (1) Pathway 1 . To earn credits under this pa thway, the manufacturer shall calculate an average carbon-related exhaust emission value to the nearest one gram per mile for the classes of motor vehicles identified in this paragraph (a)( 1), and the results of such calculations will be reported to the Ad ministrator for use in determining compliance with the applicable CO 2 early credit threshold values. (i) An average carbon-related exhaust emi ssion value calculation will be made for the combined LDV/LDT1 averaging set. (ii) An average carbon-related exhaust em ission value calculation will be made for the combined LDT2/HLDT/MDPV averaging set. (iii) Average carbon-related exhaust em ission values shall be determined according to the provisions of §600.510- 12 of this chapter, except that: (A) Total U.S. model year sales data will be used, instead of production data; (B) The average carbon-related exhaust em issions for alcohol fueled model types shall be calculated according to the provision s of §600.510-12(j)(2)(ii)(B ) of this chapter, without the use of the 0.15 multiplicative factor.1362 (C) The average carbon-related exhaust em issions for natural gas fueled model types shall be calculated according to the pr ovisions of §600.510-12(j )(2)(iii)(B) of this chapter, without the use of the 0.15 multiplicative factor. (D) The average carbon-related exhaust em issions for alcohol dual fueled model types shall be the value measured using gasoline or diesel fuel, as applicable, and shall be calculated according to the pr ovisions of §600.510-12(j)(2)(vi) of this chapter, without the use of the 0.15 multiplicative factor and with F=0. For the 2010 and 2011 model years only, if the California Air Resources Board has approved a ma nufacturer’s request to use a non-zero value of F, the manufact urer may use such an approved value. (E) The average carbon-related exhaust emissions for natural gas dual fueled model types shall be the value measured using gasoline or diesel fuel, as applicable, and shall be calculated according to the provision s of §600.510-12(j)(2)(vii) of this chapter, without the use of the 0.15 multiplicative fa ctor and with F=0. For the 2010 and 2011 model years only, if the California Air Re sources Board has appr oved a manufacturer’s request to use a non-zero value of F, the manufacturer may use such an approved value. (F) Carbon-related exhaust emission values for electric, fuel cell, and plug-in hybrid electric model types shall be include d in the fleet average determined under paragraph (a)(1) of this section only to the exte nt that such vehicles are not being used to generate early advanced tec hnology vehicle credits under paragr aph (c) of this section. (iv) Fleet average CO 2 credit threshold values. Model year LDV/LDT1 LDT2/HLDT/MDPV 2009 323 439 2010 301 420 2011 267 3901363 (v) Credits are earned on the last day of the model year. Manufacturers must calculate, for a given model year, the number of credits or debits it has generated according to the following equation, rounded to the nearest megagram:
CO 2 Credits or Debits (Mg) = [(CO 2 Credit Threshold - Manufacturer's Sales Weighted Fleet Average CO 2 Emissions) × (Total Number of Vehicles Sold) × (Vehicle Lifetime Miles)] ÷ 1,000,000 Where:
CO 2 Credit Threshold = the applicable cred it threshold value for the model year and vehicle averaging set as determined by paragraph (a)(1)(iv) of this section; Manufacturer's Sales Weighted Fleet Average CO 2 Emissions = average calculated according to paragraph (a)(1)(iii) of this section; Total Number of Vehicles Sold = The num ber of vehicles domestically sold as defined in §600.511-80 of this chapter; and Vehicle Lifetime Miles is 195,264 for the LDV/LDT1 averaging set and 225,865 for the LDT2/HLDT/MDPV averaging set. (vi) Deficits generated against the applicable CO 2 credit threshold values in paragraph (a)(1)(iv) of this section in any averaging se t for any of the 2009-2011 model years must be offset using credits accumula ted by any averaging set in any of the 2009- 2011 model years before determining the number of credits that may be carried forward to the 2012. Deficit carry forward and cred it banking provisions of §86.1865-12 apply to early credits earned under this paragraph (a)(1), except that deficits may not be carried forward from any of the 2009-2011 model year s into the 2012 mode l year, and credits earned in the 2009 model year may not be traded to other manufacturers.1364 (2) Pathway 2 . To earn credits under this pathwa y, manufacturers shall calculate an average carbon-related exhaust emission valu e to the nearest one gram per mile for the classes of motor vehicles identified in paragr aph (a)(1) of this section, and the results of such calculations will be reported to the Ad ministrator for use in determining compliance with the applicable CO 2 early credit threshold values. (i) Credits under this pathway shall be calculated according to the provisions of paragraph (a)(1) of this secti on, except credits may only be generated by vehicles sold in a model year in California and in states with a section 177 program in effect in that model year. For the purposes of this section, “section 177 program ” means State regulations or other laws that apply to vehi cle emissions from any of the following categories of motor vehicles: Passenger cars, light-duty trucks up through 6,000 pounds GVWR, and medium-duty vehicles from 6,001 to 14,000 pounds GVWR, as these categories of motor vehicles are defined in the Ca lifornia Code of Regulations, Title 13, Division 3, Chapter 1, Article 1, Section 1900. (ii) A deficit in any averaging set fo r any of the 2009-2011 model years must be offset using credits accumulated by any averaging set in any of the 2009-2011 model years before determining the number of credits that may be carried forward to the 2012 model year. Deficit carry fo rward and credit banking provi sions of §86.1865-12 apply to early credits earned under this paragraph (a)(1), except that deficits may not be carried forward from any of the 2009-2011 model year s into the 2012 mode l year, and credits earned in the 2009 model year may not be traded to other manufacturers. (3) Pathway 3 . Pathway 3 credits are those cr edits earned under Pathway 2 as described in paragraph (a)(2) of this section in California and in the section 177 states1365 determined in paragraph (a)(2)(i) of this se ction, combined with additional credits earned in the set of states that does not include California and the section 177 states determined in paragraph (a)(2)(i) of this section and cal culated according to this paragraph (a)(3). (i) Manufacturers shall earn additional cr edits under Pathway 3 by calculating an average carbon-related exhaust emission value to the nearest one gram per mile for the classes of motor vehicles identified in th is paragraph (a)(3). The results of such calculations will be reported to the Administra tor for use in determining compliance with the applicable CO 2 early credit threshold values. (ii) An average carbon-related exhaust emission value calcul ation will be made for the passenger automobile averaging set. The term “passenger automobile” shall have the meaning given by the Department of Tran sportation at 49 CFR 523.4 for the specific model year for which the calculation is being made. (iii) An average carbon-related exhaust emission value calcul ation will be made for the light truck averaging set. The term “ light truck” shall have the meaning given by the Department of Transporta tion at 49 CFR 523.5 for the sp ecific model year for which the calculation is being made. (iv) Average carbon-related exhaust em ission values shall be determined according to the provisions of §600.510- 12 of this chapter, except that: (A) Total model year sales data will be used, instead of production data, except that vehicles sold in the s ection 177 states determined in paragraph (a)(2)(i) of this section shall not be included;1366 (B) The average carbon-related exhaust em issions for alcohol fueled model types shall be calculated according to the provision s of §600.510-12(j)(2)(ii)(B ) of this chapter, without the use of the 0.15 multiplicative factor. (C) The average carbon-related exhaust em issions for natural gas fueled model types shall be calculated according to the pr ovisions of §600.510-12(j )(2)(iii)(B) of this chapter, without the use of the 0.15 multiplicative factor. (D) The average carbon-related exhaust em issions for alcohol dual fueled model types shall be calculated according to the provisions of §600.510-12(j)(2)(vi) of this chapter, without the use of the 0.15 multiplicative factor and with F=0. (E) The average carbon-related exhaust emissions for natural gas dual fueled model types shall be calculated according to the provisions of §600.510-12(j)(2)(vii) of this chapter, without the use of the 0. 15 multiplicative factor and with F=0. (F) Section 600.510-12(j)(3 ) of this chapter shall not a pply. Electric, fuel cell, and plug-in hybrid electric mode l type carbon-related exhaus t emission values shall be included in the fleet average determined under pa ragraph (a)(1) of this section only to the extent that such vehicles are not being used to genera te early advanced technology vehicle credits under paragraph (c) of this section. (v) Pathway 3 fleet average CO 2 credit threshold values. (A) For 2009 and 2010 model year passenge r automobiles, the fleet average CO 2 credit threshold value is 323 grams/mile. (B) For 2009 model year light trucks the fleet average CO 2 credit threshold value is 381 grams/mile, or, if the manufacturer chose to optionally m eet an alternative manufacturer-specific light tr uck fuel economy standard ca lculated under 49 CFR 533.51367 for the 2009 model year, the gram per mile fleet average CO 2 credit threshold shall be the
CO 2 value determined by dividing 8887 by that alternative manufacturer-specific fuel economy standard and rounding to th e nearest whole gram per mile. (C) For 2010 model year light trucks the fleet average CO 2 credit threshold value is 376 grams/mile, or, if the manufacturer chose to optionally m eet an alternative manufacturer-specific light tr uck fuel economy standard ca lculated under 49 CFR 533.5 for the 2010 model year, the gram per mile fleet average CO 2 credit threshold shall be the
CO 2 value determined by dividing 8887 by that alternative manufacturer-specific fuel economy standard and rounding to th e nearest whole gram per mile. (D) For 2011 model year passenger automobiles the fleet average CO 2 credit threshold value is the value determined by dividing 8887 by the ma nufacturer-specific passenger automobile fuel economy standard for the 2011 model year determined under 49 CFR 531.5 and rounding to the nearest whole gram per mile. (E) For 2011 model year light trucks the fleet average CO 2 credit threshold value is the value determined by dividing 8887 by th e manufacturer-specifi c light truck fuel economy standard for the 2011 model year determined under 49 CFR 533.5 and rounding to the nearest whole gram per mile. (vi) Credits are earned on the last da y of the model year. Manufacturers must calculate, for a given model year, the number of credits or debits it has generated according to the following equation, rounded to the nearest megagram:
CO 2 Credits or Debits (Mg) = [(CO 2 Credit Threshold - Manufacturer's Sales Weighted Fleet Average CO 2 Emissions) × (Total Number of Vehicles Sold) × (Vehicle Lifetime Miles)] ÷ 1,000,0001368 Where:
CO 2 Credit Threshold = the applicable cred it threshold value for the model year and vehicle averaging set as determined by paragraph (a)(3)(vii) of this section; Manufacturer's Sales Weighted Fleet Average CO 2 Emissions = average calculated according to paragra ph (a)(3)(vi) of this section; Total Number of Vehicles Sold = The num ber of vehicles domestically sold as defined in §600.511-80 of this chapter except th at vehicles sold in the section 177 states determined in paragraph (a)(2)(i) of th is section shall not be included; and Vehicle Lifetime Miles is 195,264 for the LDV/LDT1 averaging set and 225,865 for the LDT2/HLDT/MDPV averaging set. (vii) Deficits in any averaging set for any of the 2009-2011 model years must be offset using credits accumulated by any averaging set in any of the 2009-2011 model years before determining the number of credits that may be carried forward to the 2012. Deficit carry forward and credit banking pr ovisions of §86.1865-12 appl y to early credits earned under this paragraph (a)(3), except that deficits may not be carried forward from any of the 2009-2011 model years into the 2012 model year, and credits earned in the 2009 model year may not be traded to other manufacturers. (4) Pathway 4 . Pathway 4 credits are those cr edits earned under Pathway 3 as described in paragraph (a)(3) of this section in the set of states that does not include California and the section 177 stat es determined in paragraph (a )(2)(i) of this section and calculated according to paragra ph (a)(3) of this section. Cr edits may only be generated by vehicles sold in the set of states that does not include the section 177 states determined in paragraph (a)(2)(i) of this section.1369 (b) Early air conditioning leak age and efficiency credits . (1) Manufacturers may optionally generate air conditioning refrig erant leakage credits according to the provisions of §86.1866-12(b) and/or air condit ioning efficiency cred its according to the provisions of §86.1866-12(c) in model years 2009 through 2011. The early credits are subject to five year carry forward limits ba sed on the model year in which the credits are generated. Credits must be tracke d by model type and model year. (2) Manufacturers that are required to comply with California greenhouse gas requirements in model years 2009-2011 (for California and section 177 states) may not generate early air conditioning cr edits for vehicles sold in Ca lifornia and the section 177 states as determined in paragra ph (a)(2)(i) of this section. (c) Early advanced technol ogy vehicle incentive . Vehicles eligible for this incentive are electric vehicles, fuel cell vehi cles, and plug-in hybrid electric vehicles, as those terms are defined in §86.1803-01. If a ma nufacturer chooses to not include electric vehicles, fuel cell vehicles, and plug-in hybrid electric vehicles in their fleet averages calculated under any of the early credit path ways described in paragraph (a) of this section, the manufacturer may generate early advanced technology vehicle credits pursuant to this paragraph (c). (1) The manufacturer shall record the sales and car bon-related exhaust emission values of eligible vehicles by model type and model year for model years 2009 through 2011 and report these values to the Administra tor under paragraph (e) of this section. (2) Manufacturers may use the 2009 through 2011 eligible vehicles in their fleet average calculations starting with the 2012 m odel year, subject to a five-year carryforward limitation.1370 (i) Eligible 2009 model year vehicles may be used in the calculation of a manufacturer’s fleet averag e carbon-related exhaust em issions in the 2012 through 2014 model years. (ii) Eligible 2010 model year vehicles may be used in the calculation of a manufacturer’s fleet averag e carbon-related exhaust em issions in the 2012 through 2015 model years. (iii) Eligible 2011 model year vehicles may be used in the calculation of a manufacturer’s fleet averag e carbon-related exhaust em issions in the 2012 through 2016 model years. (3)(i) To use the advanced technology ve hicle incentive, the manufacturer will apply the 2009, 2010, and/or 2011 model type sales volumes and their model type emission levels to the manufacturer ’s fleet average calculation. (ii) The early advanced technology vehicle incentive must be used to offset a deficit in one of the 2012 through 2016 mode l years, as appropriate under paragraph (c)(2) of this section. (iii) The advanced technology vehicle sa les and emission values may be included in a fleet average calculation for passenger automobiles or light tr ucks, but may not be used to generate credits in the model year in which they are included or in the averaging set in which they are used. Use of early adva nced technology vehicle credits is limited to offsetting a deficit that woul d otherwise be generated without the use of those credits. Manufacturers shall report the use of such cred its in their model year report for the model year in which the credits are used.1371 (4) Manufacturers may use zero grams/ mile to represent the carbon-related exhaust emission values for the electr ic operation of 2009 through 2011 model year electric vehicles, fuel cell vehicles, and plug-in hybrid el ectric vehicles subject to the limitations in §86.1866-12(a). The 2009 through 2011 model year vehicles using zero grams per mile shall count against the 200,000 or 300,000 caps on use of this credit value, whichever is applicable under §86.1866-12(a). (d) Early off-cycle technology credits . Manufacturers may optionally generate credits for the implementation of certain CO 2 -reducing technologies according to the provisions of §86.1866-12(d) in model years 2009 through 2011. The early credits are subject to five year carry forward limits ba sed on the model year in which the credits are generated. Credits must be tracke d by model type and model year. (e) Early credit reporting requirements . Each manufacturer shall submit a report to the Administrator, known as the early credit s report, that reports the credits earned in the 2009 through 2011 model year s under this section. (1) The report shall contain all informa tion necessary for the calculation of the manufacturer’s early credits in each of the 2009 through 2011 model years. (2) The early credits report shall be in writing, signed by the authorized representative of the manufacturer and shall be submitted no later than 90 days after the end of the 2011 model year. (3) Manufacturers using one of th e optional early fleet average CO 2 reduction credit pathways described in paragraph (a ) of this section shall report the following information separately for the appropriate averaging sets (e.g. LDV/LDT1 and LDT2/HLDT/MDPV averaging sets for pa thways 1 and 2; LDV, LDT/2011 MDPV,1372 LDV/LDT1 and LDT2/HLDT/MDPV averagin g sets for Pathway 3; LDV and LDT/2011 MDPV averaging sets for Pathway 4): (i) The pathway that they have selected (1, 2, 3, or 4). (ii) A carbon-related exhaust emission value for each model type of the manufacturer’s product line calculated accord ing to paragraph (a) of this section. (iii) The manufacturer’s average carbon-re lated exhaust emission value calculated according to paragraph (a) of this section fo r the applicable averag ing set and region and all data required to complete this calculation. (iv) The credits earned for each averag ing set, model year, and region, as applicable. (4) Manufacturers calculating early air conditioning leakage and/or efficiency credits under paragraph (b) of this section sh all report the following information for each model year separately for passenger autom obiles and light trucks and for each air conditioning system used to generate credits: (i) A description of th e air conditioning system. (ii) The leakage credit value and all the information required to determine this value. (iii) The total credits earned for each aver aging set, model year, and region, as applicable. (5) Manufacturers calculating early a dvanced technology vehicle credits under paragraph (c) of this section shall report , for each model year and separately for passenger automobiles and light trucks, the following information: (i) The number of each model type of eligible vehicle sold.1373 (ii) The carbon-related exhaust emission value by model type and model year. (6) Manufacturers calculating early o ff-cycle technology credits under paragraph (d) of this section shall report, for each model year and separately for passenger automobiles and light trucks, all test results and data required for calculating such credits.

PART 600—FUEL ECONOMY AND CARBON-RELATED EXHAUST EMISSIONS OF MOTOR VEHICLES

30. The authority citation for part 60 0 continues to read as follows:

Authority: 49 U.S.C. 32901—23919q, Pub. L. 109–58.

31. The heading for Part 600 is revised as set forth above.

Subpart A—Fuel Economy and Carbon-relat ed Exhaust Emission Regulations for 1977 and Later Model Year Auto mobiles—General Provisions

32. The heading for subpart A is revised as set forth above.

33. A new §600.001-12 is added to s ubpart A to read as follows:

§600.001-12 General applicability.1374 (a) The provisions of this subpart are applicable to 2012 and later model year automobiles and to the manufacturers of 2012 and later model year automobiles. (b) Fuel economy and related emissions data . Unless stated otherwise, references to fuel economy or fuel economy data in this subpart shall also be in terpreted to mean the related exhaust emissions of CO 2 , HC, and CO, and where appli cable for alternative fuel vehicles, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC and CH 4 . References to average fuel economy shall be interpreted to also mean average carbon-related exhaust emissions. References to fuel economy data vehicles shal l also be meant to refer to vehicles tested for carbon-related exhaust emissions for the purpose of demonstrating compliance with fleet average CO 2 standards in §86.1818-12 of this chapter.

34. Section 600.002-08 is amended as follows: a. By adding the definition for “Base tire.” b. By adding the definition for “C arbon-related exhaust emissions.” c. By adding the definition for “Electric vehicle.” d. By adding the definition for “Footprint.” e. By adding the definition for “Fuel cell.” f. By adding the definition for “Fuel cell vehicle.” g. By adding the definition for “Hybrid electric vehicle.” h. By revising the definition for “Non-passenger automobile.” i. By revising the definition for “Passenger automobile.” j. By adding the definition for “P lug-in hybrid electric vehicle.” k. By adding the definition for “Track width.”1375 l. By adding the definition for “Wheelbase.”

§600.002-08 Definitions. * * * * *
Base tire means the tire specified as standa rd equipment by the manufacturer.
* * * * * Carbon-related exhaust emissions (CREE) means the summation of the carboncontaining constituents of the exhaust emissions, with each constituent adjusted by a coefficient representing the ca rbon weight fraction of each c onstituent relative to the CO 2 carbon weight fractoin, as sp ecified in §600.113-08. For exam ple, carbon-related exhaust emissions (weighted 55 percen t city and 45 percent highway ) are used to demonstrate compliance with fleet average CO 2 emission standards outlined in §86.1818(c) of this chapter.
* * * * *
Electric vehicle has the meaning given in §86. 1803-01 of this chapter.
* * * * * Footprint has the meaning given in §86.1803-01 of this chapter.
* * * * *
Fuel cell has the meaning given in §86.1803-01 of this chapter.
Fuel cell vehicle has the meaning given in §86.1803-01 of this chapter.
* * * * * Hybrid electric vehicle (HEV) has the meaning given in §86.1803-01 of this chapter.1376 * * * * * Non-passenger automobile has the meaning given by the Department of Transportation at 49 CFR 523.5. This term is synonymous with “light truck.”
* * * * * Passenger automobile has the meaning given by the Department of Transportation at 49 CFR 523.4.
* * * * * Plug-in hybrid electric vehicle (PHEV) has the meaning given in §86.1803-01 of this chapter.
* * * * *
Track width has the meaning given in §86.1803-01 of this chapter.
* * * * *
Wheelbase has the meaning given in §86.1803-01 of this chapter.
* * * * *

35. Section 600.006-08 is amended as follows: a. By revising the section heading. b. By revising paragraph (b)(2)(ii). c. By revising paragraph (b)(2)(iv). d. By revising paragraph (c) introductory text. e. By adding paragraph (c)(5). f. By revising paragraph (e). g. By revising paragraph (g)(3).1377 §600.006-08 Data and information requirements for fuel economy data vehicles. * * * * * (b) * * * (2) * * * (ii) In the case of electric vehicles, pl ug-in hybrid electric vehicles, and hybrid electric vehicles, a description of all mainte nance to electric motor, motor controller, battery configuration, or other components performed within 2,000 miles prior to fuel economy testing.
* * * * * (iv) In the case of electr ic vehicles, plug-in hybrid el ectric vehicles, and hybrid electric vehicles, a copy of ca librations for the electric moto r, motor controller, battery configuration, or other com ponents on the test vehicle as well as the design tolerances.
* * * * * (c) The manufacturer shall submit the following fuel economy data:
* * * * * (5) Starting with the 2012 model year, the data submitted according to paragraphs (c)(1) through (c)(4) of this sect ion shall include total HC, CO, CO 2 , and, where applicable for alternative fuel vehicles, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC and
CH 4 . Manufacturers incorporating N 2 O and CH 4 emissions in their fleet average carbonrelated exhaust emissions as allowed under §86.1818(f)(2) of this chapter shall also submit N 2 O and CH 4 emission data where applicable. The fuel economy and CO 2 emission test results shall be adjusted in acco rdance with paragraph (g ) of this section.1378 * * * * * (e) In lieu of submitting actual data from a test vehicle, a manufacturer may provide fuel economy values derived from a pr eviously tested vehicle, where the fuel economy and carbon-related exhaust emissions ar e expected to be equivalent (or less fuel-efficient and with higher carbon-related e xhaust emissions). Add itionally, in lieu of submitting actual data from a test vehicle, a manufacturer may provide fuel economy and carbon-related exhaust emission values derived from an analytical expression, e.g., regression analysis. In order for fuel economy values derived from analytical methods to be accepted, the expression (form and coefficients) must have been approved by the Administrator.
* * * * * (g) * * * (3)(i) The manufacturer shall adjust a ll fuel economy test data generated by vehicles with engine-drive system combina tions with more than 6,200 miles by using the following equation:
FE 4,000mi = FE T [0.979 + 5.25×10 − 6 (mi)] − 1
Where:
FE 4,000mi = Fuel economy data adjusted to 4, 000-mile test point rounded to the nearest 0.1 mpg.
FE T = Tested fuel economy value ro unded to the nearest 0.1 mpg. mi = System miles accumulated at the st art of the test rounded to the nearest whole mile.1379 (ii)(A) The manufacturer sh all adjust all carbon-related exhaust emission (CREE) test data generated by vehicles with engine-d rive system combinations with more than 6,200 miles by using the following equation:
CREE 4,000mi = CREE T [0.979 + 5.25×10 − 6 (mi)] Where:
CREE 4,000mi = CREE emission data adjusted to 4,000-mile test point.
CREE T = Tested emissions value of CREE in grams per mile. mi = System miles accumulated at the st art of the test rounded to the nearest whole mile. (B) Emissions test values and results used and determined in the calculations in paragraph (g)(3)(ii) of this section sha ll be rounded in accordance with §86.1837-01 of this chapter as applicable. CR EE values shall be rounded to the nearest gram per mile.
* * * * *

36. Section 600.007-08 is amended as follows: a. By revising paragraph (b)(4) through (6). b. By revising paragraph (c). c. By revising paragraph (f) introductory text.

§600.007-08 Vehicle acceptability. * * * * * (b) * * *1380 (4) Each fuel economy data vehicle mu st meet the same exhaust emission standards as certification vehicles of the re spective engine-system combination during the test in which the city fuel economy test resu lts are generated. This may be demonstrated using one of the following methods: (i) The deterioration factors establis hed for the respective engine-system combination per §86.1841–01 of this chapte r as applicable will be used; or (ii) The fuel economy data vehicle will be equipped with aged emission control components according to the provisions of §86.1823-08 of this chapter. (5) The calibration information submitted under §600.006(b) must be representative of the vehicl e configuration for which the fuel economy and carbon-related exhaust emissions data were submitted. (6) Any vehicle tested for fuel economy or carbon-related exhaust emissions purposes must be representative of a vehi cle which the manufacturer intends to produce under the provisions of a certificate of conformity.
* * * * * (c) If, based on review of the info rmation submitted under §600.006(b), the Administrator determines that a fuel economy data vehicle meet s the requirements of this section, the fuel economy data vehicle will be judged to be acceptable and fuel economy and carbon-related exhaust emissions data from that fuel economy data vehicle will be reviewed pursuant to §600.008.
* * * * *1381 (f) All vehicles used to generate fuel economy and car bon-related exhaust emissions data, and for which emission standa rds apply, must be covered by a certificate of conformity under part 86 of this chapter before:
* * * * *

37. Section 600.008-08 is amended by revising the section heading and paragraph (a)(1) to read as follows:

§600.008-08 Review of fuel economy and carb on-related exhaust emission data, testing by the Administrator. (a) Testing by the Administrator. (1)(i) The Administrator may require that any one or more of the test vehicles be submitted to the Agency, at such place or places as the Agency may designate, for the purposes of conducting fuel economy tests. The Administrator may specify that such testing be conducted at the manufacturer's facility, in which case instrumentation and equipment speci fied by the Administrator shall be made available by the manufacturer for test operations . The tests to be performed may comprise the FTP, highway fuel economy test, US06, SC03, or Cold temperature FTP or any combination of those tests. Any testing conduc ted at a manufacturer's facility pursuant to this paragraph shall be scheduled by the manufacturer as promptly as possible. (ii) Starting with the 2012 model year, eval uations, testing, and test data described in this section pertaining to fuel economy shall also be performed for carbon-related exhaust emissions, except that carbon-related exhaust emissions shall be arithmetically averaged instead of harmonically averaged, and in cases where the manufacturer selects1382 the lowest of several fuel economy results to represent the vehicle, the manufacturer shall select the carbon-related exhaus t emissions value from the test results associated with the lowest fuel economy results.
* * * * *

38. Section 600.010-08 is amended by revisi ng paragraph (d) to read as follows:

§600.010-08 Vehicle test requirements and minimum data requirements. * * * * * (d) Minimum data requirements for the manuf acturer's average fuel economy and average carbon-related exhaust emissions For the purpose of calculating the manufacturer's average fuel economy and average carbon-related exhaust emissions under §600.510, the manufacturer shall submit FT P (city) and HFET (highway) test data representing at least 90 per cent of the manufacturer's actua l model year production, by configuration, for each category identif ied for calculation under §600.510–08(a).

39. Section 600.011-93 is amended to read as follows:

§600.011-93 Reference materials. (a) Incorporation by reference. The documents referenced in this section have been incorporated by reference in this part . The incorporation by reference was approved by the Director of the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies may be inspected at the U. S. Environmental Protection Agency, Office of1383 Air and Radiation, 1200 Pennsylvania Ave., NW., Washington, DC 20460, phone (202) 272–0167, or at the National Archives a nd Records Administration (NARA). For information on the availability of this material at NARA, call 202–741–6030, or go to: http://www.archives.gov/federal_register/code _of_federal_regulations/ibr_locations.html and is available from the sources listed below: (b) ASTM. The following material is available from the American Society for Testing and Materials. Copies of these mate rials may be obtained from American Society for Testing and Materials, ASTM Internati onal, 100 Barr Harbor Drive, PO Box C700, West Conshohocken, PA, 19428-2959, phone 610-832-9585 . http://www.astm.org/. (1) ASTM E 29–67 (Reapproved 1973) St andard Recommended Practice for Indicating Which Places of Fi gures Are To Be Considered Significant in Specified Limiting Values, IBR approved for §§ 600.002–93, and 600.002–08. (2) ASTM D 1298–85 (Reapproved 1990) Standa rd Practice for Density, Relative Density (Specific Gravity), or API Gravit y of Crude Petroleum and Liquid Petroleum Products by Hydrometer Method, IBR approved for §§ 600.113–93, 600.510–93, 600.113–08, 600.510– 08, and 600.510-12. (3) ASTM D 3343–90 Standard Test Method for Estimation of Hydrogen Content of Aviation Fuels, IBR approved for §§ 600.113–93, and 600.113–08. (4) ASTM D 3338–92 Standard Test Method for Estimation of Net Heat of Combustion of Aviation Fuels, I BR approved for §§ 600.113–93, and 600.113–08. (5) ASTM D 240–92 Standard Test Method for Heat of Combustion of Liquid Hydrocarbon Fuels by Bomb Calorimete r, IBR approved for §§ 600.113–93, 600.510–93, 600.113–08, and 600.510–08.1384 (6) ASTM D975–04c Standard Specificati on for Diesel Fuel Oils, IBR approved for § 600.107–08. (7) ASTM D 1945–91 Standard Test Method for Analysis of Natural Gas By Gas Chromatography, IBR approved for §§ 600.113–93, 600.113–08. (c) SAE Material. The following material is ava ilable from the Society of Automotive Engineers. Copies of these ma terials may be obtained from Society of Automotive Engineers World Headquarters, 400 Commonwealth Dr., Warrendale, PA 15096–0001, phone (877) 606–7323 (U.S. and Canada) or (724) 776–4970 (outside the U.S. and Canada), or at http://www.sae.org. (1) Motor Vehicle Dimensions—Recom mended Practice SAE 1100a (Report of Human Factors Engineering Committee, Soci ety of Automotive Engineers, approved September 1973 as revised September 1975), IBR approved for §§ 600.315-08 and
600.315-82. (2) [Reserved]

Subpart B—FUEL ECONOMY AND C ARBON-RELATED EXHAUST EMISSION REGULATIONS FO R 1978 AND LATER MODEL YEAR AUTOMOBILES--TEST PROCEDURES

40. The heading for subpart B is revised as set forth above.

41. A new §600.101-12 is added to s ubpart B to read as follows:1385 §600.101-12 General applicability. (a) The provisions of this subpart are applicable to 2012 and later model year automobiles and to the manufacturers of 2012 and later model year automobiles. (b) Fuel economy and carbon-related emissions data . Unless stated otherwise, references to fuel economy or fuel economy data in this subpart sha ll also be interpreted to mean the related exhaust emissions of CO 2 , HC, and CO, and where applicable for alternative fuel vehicles, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC and CH 4 . References to average fuel economy shall be interpreted to also mean average carbon-related exhaust emissions.

42. Section 600.111-08 is amended by revisi ng paragraph (f) to read as follows:

§600.111-08 Test procedures. * * * * * (f) Special Test Procedures . The Administrator may prescribe test procedures, other than those set forth in this Subpart B, for any vehicle which is not susceptible to satisfactory testing and/or tes ting results by the procedures set forth in this part. For example, special test procedures may be used for advanced technology vehicles, including, but not limited to battery electric vehicles, fuel cell vehicles, plug-in hybrid electric vehicles and vehicl es equipped with hydrogen internal combustion engines. Additionally, the Administrator may conduc t fuel economy and carbon-related exhaust emission testing using the special test pro cedures approved for a specific vehicle.1386 43. A new §600.113-12 is added to subpart B to read as follows:

§600.113-12 Fuel economy and carbon-related exhaust emission calculations for FTP, HFET, US06, SC03 and cold temperature FTP tests. The Administrator will use the calculation procedure set forth in this paragraph for all official EPA testing of vehicles fuel ed with gasoline, diesel, alcohol-based or natural gas fuel. The calculations of the weighted fuel economy and carbon-related exhaust emission values require input of th e weighted grams/mile values for total hydrocarbons (HC), carbon monoxide (CO), and carbon dioxide (CO 2 ); and, additionally for methanol-fueled auto mobiles, methanol (CH 3 OH) and formaldehyde (HCHO); and, additionally for ethanol-fueled automobiles, methanol (CH 3 OH), ethanol (C 2 H 5 OH), acetaldehyde (C 2 H 4 O), and formaldehyde (HCHO); a nd additionally for natural gasfueled vehicles, non-methane hydroc arbons (NMHC) and methane (CH 4 ). For manufacturers selecting the fleet averaging option for N 2 O and CH 4 as allowed under §86.1818-12(f)(2) of this chapter the calculations of the carbo n-related exhaust emissions require the input of grams/mile values for nitrous oxide (N 2 O) and methane (CH 4 ). Emissions shall be determined for the FT P, HFET, US06, SC03 and cold temperature FTP tests. Additionally, the specific gravity, carbon weight fraction and net heating value of the test fuel must be determined. The FTP, HFET, US06, SC03 and cold temperature FTP fuel economy and carbon-related exhaust emission values shall be calculated as specified in this section. An example fuel economy calculation app ears in Appendix II of this part. (a) Calculate the FTP fuel economy.1387 (1) Calculate the weighted grams/mile values for the FTP test for CO 2 , HC, and CO, and where applicable, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC, N 2 O and CH 4 as specified in §86.144(b) of this chapter. Measure and record th e test fuel's properties as specified in paragraph (f) of this section. (2) Calculate separately the grams/mile values for the cold transient phase, stabilized phase and hot transi ent phase of the FTP test. For vehicles with more than one source of propulsion energy, one of which is a rechargeable energy storage system, or vehicles with special features that the Administrator determ ines may have a rechargeable energy source, whose charge can vary during th e test, calculate separately the grams/mile values for the cold transient phase, stabilized phase, hot transient pha se and hot stabilized phase of the FTP test. (b) Calculate the HFET fuel economy. (1) Calculate the mass values for the highway fuel economy test for HC, CO and
CO 2 , and where applicable, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC, N 2 O and CH 4 as specified in §86.144(b) of this chapter. Measure and record th e test fuel's properties as specified in paragraph (f) of this section. (2) Calculate the grams/mile values for the highway fuel economy test for HC, CO and CO 2 , and where applicable CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC, N 2 O and
CH 4 by dividing the mass values obtained in pa ragraph (b)(1) of this section, by the actual distance traveled, measured in miles, as specified in §86.135(h) of this chapter. (c) Calculate the cold temperature FTP fuel economy. (1) Calculate the weighted grams/mile values for the cold temperature FTP test for HC, CO and CO 2 , and where applicable, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC,1388 N 2 O and CH 4 as specified in §86.144(b) of this chapter. For 2008 through 2010 dieselfueled vehicles, HC measurement is optional. (2) Calculate separately the grams/mile values for the cold transient phase, stabilized phase and hot tran sient phase of the cold temp erature FTP test in §86.244 of this chapter. (3) Measure and record the test fuel's pr operties as specified in paragraph (f) of this section. (d) Calculate the US06 fuel economy. (1) Calculate the total grams/mile valu es for the US06 test for HC, CO and CO 2 , and where applicable, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC, N 2 O and CH 4 as specified in §86.144(b) of this chapter. (2) Calculate separately the grams/mile values for HC, CO and CO 2 , and where applicable, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC, N 2 O and CH 4 , for both the US06 City phase and the US06 Highway phase of th e US06 test as specifi ed in §86.164 of this chapter. In lieu of directly measuring the emissions of the separate city and highway phases of the US06 test according to the pr ovisions of §86.159 of this chapter, the manufacturer may, with the advance a pproval of the Administrator and using good engineering judgment, optionally analytically determine the grams/mile values for the city and highway phases of the US06 test. To analytically determine US06 City and US06 Highway phase emission results, the ma nufacturer shall multiply the US06 total grams/mile values determined in paragra ph (d)(1) of this sect ion by the estimated proportion of fuel use for the city and highway phases relative to the total US06 fuel use. The manufacturer may estimate the proportion of fuel use for the US06 City and US061389 Highway phases by using modal CO 2 , HC, and CO emissions data, or by using appropriate OBD data (e.g., fuel flow rate in grams of fuel per second), or another method approved by the Administrator. (3) Measure and record the test fuel's pr operties as specified in paragraph (f) of this section. (e) Calculate the SC03 fuel economy. (1) Calculate the grams/mile values for the SC03 test for HC, CO and CO 2 , and where applicable, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC, N 2 O and CH 4 as specified in §86.144(b) of this chapter. (2) Measure and record the test fuel's pr operties as specified in paragraph (f) of this section. (f) Fuel property determination and analysis. (1) Gasoline test fuel properties shall be determined by analysis of a fuel sample taken from the fuel supply. A sample shall be taken after each addition of fresh fuel to the fuel supply. Additionally, the fuel shall be resampled once a month to account for any fuel property changes during storage. Less frequent resampling may be permitted if EPA concludes, on the basis of ma nufacturer-supplied data, that th e properties of test fuel in the manufacturer's storage facility will remain stable for a period longer than one month. The fuel samples shall be an alyzed to determine the following fuel properties: (i) Specific gravity measured us ing ASTM D 1298–85 (Reapproved 1990) “Standard Practice for Density, Relative Dens ity (Specific Gravity), or API Gravity of Crude Petroleum and Liquid Petroleum Produc ts by Hydrometer Me thod” (incorporated by reference at §600.011-93).1390 (ii) Carbon weight frac tion measured using ASTM D 3343–90 “Standard Test Method for Estimation of Hydrogen Conten t of Aviation Fuels” (incorporated by reference at §600.011-93). (iii) Net heating value (Btu/lb) determined using ASTM D 3338–92 “Standard Test Method for Estimation of Net Heat of Combustion of Aviation Fuels” (incorporated by reference at §600.011-93). (2) Methanol test fuel shall be anal yzed to determine the following fuel properties: (i) Specific gravity using either: (A) ASTM D 1298–85 (Reapproved 1990) “S tandard Practice for Density, Relative Density (Specific Gravity), or AP I Gravity of Crude Petroleum and Liquid Petroleum Products by Hydrometer Method” (incorporated by re ference at §600.011-93) for the blend, or: (B) ASTM D 1298–85 (Reapproved 1990) “S tandard Practice for Density, Relative Density (Specific Gravity), or AP I Gravity of Crude Petroleum and Liquid Petroleum Products by Hydrometer Method” (incorporated by re ference at §600.011-93) for the gasoline fuel component and also fo r the methanol fuel component and combining as follows. SG = SGg × volume fraction gasoline + SGm × volume fraction methanol. (ii)(A) Carbon weight fraction using the following equation: CWF = CWFg × MFg+ 0.375 × MFm Where:1391 CWFg= Carbon weight fraction of gasolin e portion of ble nd measured using ASTM D 3343–90 “Standard Test Method fo r Estimation of Hydrogen Content of Aviation Fuels” (incorporated by reference at §600.011-93). MFg=Mass fraction gasoline=(G × SGg)/(G × SGg + M × SGm) MFm=Mass fraction methanol=(M × SGm)/(G × SGg + M × SGm) Where: G=Volume fraction gasoline. M=Volume fraction methanol. SGg=Specific gravity of gasoline as measured using ASTM D 1298–85 (Reapproved 1990) “Standard Practice for Densit y, Relative Density (Specific Gravity), or API Gravity of Crude Petroleum and Liquid Petroleum Products by Hydrometer Method” (incorporated by reference at §600.011-93). SGm=Specific gravity of methanol as measured using ASTM D 1298–85 (Reapproved 1990) “Standard Practice for Densit y, Relative Density (Specific Gravity), or API Gravity of Crude Petroleum and Liquid Petroleum Products by Hydrometer Method” (incorporated by reference at §600.011-93). (B) Upon the approval of the Administrato r, other procedures to measure the carbon weight fraction of the fuel blend may be used if the manufacturer can show that the procedures are superior to or equally as accurate as those specified in this paragraph (f)(2)(ii). (3) Natural gas test fuel shall be an alyzed to determine the following fuel properties:1392 (i) Fuel composition measured using ASTM D 1945–91 “Standard Test Method for Analysis of Natural Gas By Gas Chro matography” (incorporated by reference at §600.011-93). (ii) Specific gravity measured as ba sed on fuel composition per ASTM D 1945– 91 “Standard Test Method for Analysis of Natural Gas by Gas Chromatography” (incorporated by refere nce at §600.011-93). (iii) Carbon weight fracti on, based on the carbon contained only in the hydrocarbon constituents of the fuel. This e quals the weight of carbon in the hydrocarbon constituents divided by the total weight of fuel. (iv) Carbon weight fraction of the fuel, which equals the total weight of carbon in the fuel (i.e , includes carbon c ontained in hydrocarbons and in CO 2 ) divided by the total weight of fuel. (4) Ethanol test fuel shall be analyzed to determine the following fuel properties: (i) Specific gravity using either: (A) ASTM D 1298–85 (Reapproved 1990) “S tandard Practice for Density, Relative Density (Specific Gravity), or AP I Gravity of Crude Petroleum and Liquid Petroleum Products by Hydrometer Method” (incorporated by re ference at §600.011-93) for the blend. or: (B) ASTM D 1298–85 (Reapproved 1990) “S tandard Practice for Density, Relative Density (Specific Gravity), or AP I Gravity of Crude Petroleum and Liquid Petroleum Products by Hydrometer Method” (incorporated by re ference at §600.011-93) for the gasoline fuel component and also fo r the methanol fuel component and combining as follows.1393 SG = SGg × volume fraction gasoline + SGm × volume fraction ethanol. (ii)(A) Carbon weight fraction using the following equation: CWF = CWFg × MFg+ 0.521 × MFe Where: CWFg= Carbon weight fraction of gasolin e portion of ble nd measured using ASTM D 3343–90 “Standard Test Method fo r Estimation of Hydrogen Content of Aviation Fuels” (incorporated by reference at §600.011-93). MFg=Mass fraction gasoline=(G × SGg)/(G × SGg+ E × SGm) MFe=Mass fraction ethanol=(E × SGm)/(G × SGg+ E × SGm) Where: G=Volume fraction gasoline. E=Volume fraction ethanol. SGg=Specific gravity of gasoline as measured using ASTM D 1298–85 (Reapproved 1990) “Standard Practice for Densit y, Relative Density (Specific Gravity), or API Gravity of Crude Petroleum and Liquid Petroleum Products by Hydrometer Method” (incorporated by reference at §600.011-93). SGm=Specific gravity of ethanol as measured using ASTM D 1298–85 (Reapproved 1990) “Standard Practice for Densit y, Relative Density (Specific Gravity), or API Gravity of Crude Petroleum and Liquid Petroleum Products by Hydrometer Method” (incorporated by reference at §600.011-93). (B) Upon the approval of the Administrato r, other procedures to measure the carbon weight fraction of the fuel blend may be used if the manufacturer can show that1394 the procedures are superior to or equally as accurate as those specified in this paragraph (f)(2)(ii). (g) Calculate separate FTP, highway, US06, SC03 and Cold temperature FTP fuel economy and carbon-related exhaust emissions fr om the grams/mile values for total HC, CO, CO 2 and, where applicable, CH 3 OH, C 2 H 5 OH, C 2 H 4 O, HCHO, NMHC, N 2 O, and
CH 4 , and the test fuel's specific gravity, car bon weight fraction, net heating value, and additionally for natural gas, th e test fuel's composition. (1) Emission values for fuel economy calculations . The emission values (obtained per paragraph (a) through (e) of th is section, as applicable) used in the calculations of fuel economy in this section shall be rounde d in accordance with §§86.094–26(a)(6)(iii) or 86.1837–01 of this chapter as applicable. The CO 2 values (obtained per this section, as applicable) used in ea ch calculation of fuel economy in this section shall be rounded to the nearest gram/mile. (2) Emission values for carbon-rela ted exhaust emission calculations

. (i) If the emission values ( obtained per paragraph (a) th rough (e) of this section, as applicable) were obtained from testing w ith aged exhaust emission control components as allowed under §86.1823-08 of this chapter, then these test values sh all be used in the calculations of carbon-related exhaus t emissions in this section. (ii) If the emission values (obtained per pa ragraph (a) through (e ) of this section, as applicable) were not obtained from tes ting with aged exhaust emission control components as allowed under §86.1823-08 of this ch apter, then these test values shall be adjusted by the appropriate deterioration f actor determined according to §86.1823-08 of this chapter before being used in the calcu lations of carbon-related exhaust emissions in1395 this section. For vehicles w ithin a test group, the appropria te NMOG deterioration factor may be used in lieu of th e deterioration factors for CH 3 OH, C 2 H 5 OH, and/or C 2 H 4 O emissions. (iii) The emission values determined in pa ragraph (g)(2)(A) or (B ) of this section shall be rounded in accordance with §86.094–26( a)(6)(iii) or §86.1837–01 of this chapter as applicable. The CO 2 values (obtained per this secti on, as applicable) used in each calculation of carbon-related exha ust emissions in this sect ion shall be rounded to the nearest gram/mile. (iv) For manufacturers complying with the fleet averaging option for N 2 O and
CH 4 as allowed under §86.1818-12(f )(2) of this chapter, N 2 O and CH 4 emission values for use in the calculation of carbon-related exha ust emissions in this section shall be the values determined according to paragraph (g)(2) (iv)(A), (B), or (C) of this section. (A) The FTP and HFET test values as de termined for the emission data vehicle according to the provisions of §86.1835-01 of this chapter. These values shall apply to all vehicles tested under this section that are included in the test group represented by the emission data vehicle and shall be adjusted by the appropriate de terioration factor determined according to §86.1823-08 of this chapte r before being used in the calculations of carbon-related exhaust emi ssions in this section. (B) The FTP and HFET test values as determined according to testing conducted under the provisions of this subpart. These va lues shall be adjusted by the appropriate deterioration factor determined according to §86.1823-08 of this chapter before being used in the calculations of carbon-related exhaust emissions in this section.1396 (C) For the 2012 through 2014 model year s only, manufacturers may use an assigned value of 0.010 g/mi for N 2 O FTP and HFET test values. This value is not required to be adjusted by a deterioration factor. (3) The specific gravity and the carbon we ight fraction (obtained per paragraph (f) of this section) shall be recorded using thr ee places to the right of the decimal point. The net heating value (obtained per paragraph (f) of this section) shall be recorded to the nearest whole Btu/lb. (4) For the purpose of determining the a pplicable in-use emission standard under §86.1818-12(d) of this chapter, the combin ed city/highway carbon-related exhaust emission value for a vehicle subconfiguration is calculated by arithmetically averaging the FTP-based city and HFET-based highway carbon-related exhaust emission values, as determined in §600.113(a) and (b) of this sect ion for the subconfiguration, weighted 0.55 and 0.45 respectively, and rounded to th e nearest tenth of a gram per mile. (h)(1) For gasoline-fueled automobiles test ed on test fuel specified in §86.113– 04(a) of this chapter, the fuel economy in m iles per gallon is to be calculated using the following equation and rounded to the nearest 0.1 miles per gallon: mpg = (5174 × 10 4 × CWF × SG)/[((CWF × HC) + (0.429 × CO) + (0.273 ×
CO 2 )) × ((0.6 × SG × NHV) + 5471)] Where: HC = Grams/mile HC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.1397 CWF = Carbon weight fraction of test fuel as obtained in paragraph (g) of this section. NHV = Net heating value by mass of test fuel as obtained in para graph (g) of this section. SG = Specific gravity of test fuel as obt ained in paragraph (g ) of this section. (2)(A) For 2012 and later model year gaso line-fueled automobiles tested on test fuel specified in §86.113–04(a) of this chapte r, the carbon-related exhaust emissions in grams per mile is to be calc ulated using the following equati on and rounded to the nearest 1 gram per mile: CREE = (CWF/0.273×HC) + (1.571×CO) + CO 2 Where: CREE means the carbon-related exhaust emissions as defined in §600.002-08. HC = Grams/mile HC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section. CWF = Carbon weight fraction of test fuel as obtained in paragraph (g) of this section. (B) For manufacturers complying with the fleet averaging option for N 2 O and
CH 4 as allowed under §86.1818-12(f)(2) of this chapter, the carbon-related exhaust emissions in grams per mile for 2012 and la ter model year gasoline-fueled automobiles tested on test fuel specified in §86.113–04(a) of this chapter is to be calculated using the following equation and rounded to the nearest 1 gram per mile: CREE = [(CWF/0.273)×NMHC] + (1.571×CO) + CO 2 + (298×N 2 O) + (25×CH 4 )1398 Where: CREE means the carbon-related exhaust emissions as defined in §600.002-08. NMHC = Grams/mile NMHC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.
N 2 O= Grams/mile N 2 O as obtained in paragraph (g) of this section.
CH 4 = Grams/mile CH 4 as obtained in paragraph (g) of this section. CWF = Carbon weight fraction of test fuel as obtained in paragraph (g) of this section. (i)(1) For diesel-fueled automobiles, calculate the fuel economy in miles per gallon of diesel fuel by dividing 2778 by the sum of three terms and rounding the quotient to the nearest 0.1 mile per gallon: (i)(A) 0.866 multiplied by HC (in grams/mile s as obtained in paragraph (g) of this section), or (B) Zero, in the case of cold FTP diesel tests for which HC was not collected, as permitted in §600.113–08(c); (ii) 0.429 multiplied by CO (in grams/mile as obtained in paragraph (g) of this section); and (iii) 0.273 multiplied by CO 2 (in grams/mile as obtained in paragraph (g) of this section). (2)(A) For 2012 and later model year di esel-fueled automobiles, the carbonrelated exhaust emissions in grams per mile is to be calculated using the following equation and rounded to the nearest 1 gram per mile:1399 CREE = (3.172×HC) + (1.571×CO) + CO 2 Where: CREE means the carbon-related exhaust emissions as defined in §600.002-08. HC = Grams/mile HC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section. (B) For manufacturers complying with the fleet averaging option for N 2 O and
CH 4 as allowed under §86.1818-12(f)(2) of this chapter, the carbon-related exhaust emissions in grams per mile for 2012 and later model year diesel-fueled automobiles is to be calculated using the following equation a nd rounded to the nearest 1 gram per mile: CREE = (3.172×NMHC) + (1.571×CO) + CO 2 + (298×N 2 O) + (25×CH 4 ) Where: CREE means the carbon-related exhaust emissions as defined in §600.002-08. NMHC = Grams/mile NMHC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.
N 2 O= Grams/mile N 2 O as obtained in paragraph (g) of this section.
CH 4 = Grams/mile CH 4 as obtained in paragraph (g) of this section. (j)(1) For methanol-fueled automobiles and automobiles designed to operate on mixtures of gasoline and methanol, the fuel economy in miles per gallon is to be calculated using the following equation: mpg = (CWF×SG×3781.8)/((CWF exHC ×HC) + (0.429×CO) + (0.273×CO 2 ) + (0.375×CH 3 OH) + (0.400×HCHO))1400 Where: CWF = Carbon weight fraction of the fuel as determined in paragraph (f)(2)(ii) of this section. SG = Specific gravity of the fuel as de termined in paragraph (f)(2)(i) of this section.
CWF exHC = Carbon weight fraction of exhaust hydrocarbons = CWF g as determined in paragraph (f)(2)(ii) of this section (for M100 fuel, CWF exHC = 0.866). HC = Grams/mile HC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO 2 = Grams/mile CO2 as obtained in paragraph (g) of this section.
CH 3 OH = Grams/mile CH 3 OH (methanol) as obtained in paragraph (d) of this section. HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) of this section. (2)(A) For 2012 and later model year methanol-fueled automobiles and automobiles designed to operate on mixtures of gasoline and metha nol, the carbon-related exhaust emissions in grams per mile is to be calculated using the following equation and rounded to the nearest 1 gram per mile: CREE = (CWF exHC /0.273×HC) + (1.571×CO) + (1.374×CH 3 OH) + (1.466×HCHO) + CO 2 Where: CREE means the carbon-related exhaust em ission value as defined in §600.002-
08.1401 CWF exHC = Carbon weight fraction of exhaust hydrocarbons = CWF g as determined in (f)(2)(ii) of th is section (for M100 fuel, CWF exHC = 0.866). HC = Grams/mile HC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.
CH 3 OH = Grams/mile CH 3 OH (methanol) as obtained in paragraph (d) of this section. HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) of this section. (B) For manufacturers complying with the fleet averaging option for N 2 O and
CH 4 as allowed under §86.1818-12(f)(2) of this chapter, the carbon-related exhaust emissions in grams per mile for 2012 and la ter model year methanol-fueled automobiles and automobiles designed to operate on mixtures of gasoline and methanol is to be calculated using the following equation and r ounded to the nearest 1 gram per mile: CREE = [(CWF exHC /0.273)×NMHC] + (1.571×CO) + (1.374×CH 3 OH) + (1.466×HCHO) + CO 2 + (298×N 2 O) + (25×CH 4 ) Where: CREE means the carbon-related exhaust em ission value as defined in §600.002-
08.
CWF exHC = Carbon weight fraction of exhaust hydrocarbons = CWF g as determined in (f)(2)(ii) of th is section (for M100 fuel, CWF exHC = 0.866). NMHC = Grams/mile HC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.1402 CO 2 = Grams/mile CO2 as obtained in paragraph (g) of this section.
CH 3 OH = Grams/mile CH 3 OH (methanol) as obtained in paragraph (d) of this section. HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) of this section.
N 2 O = Grams/mile N 2 O as obtained in paragraph (g) of this section.
CH 4 = Grams/mile CH 4 as obtained in paragraph (g) of this section. (k)(1) For automobiles fueled with natura l gas, the fuel economy in miles per gallon of natural gas is to be cal culated using the following equation: 

## ( )( )( ) ( ) ( ) NG NMHC NG NG HC e CO CO CO NMHC CWF CH D CWF mpg 2 2 4 / 273

. 0 429

. 0 749

. 0 5

. 121

− × + × + × + × × × =

Where:
mpg e =miles per equivalent gallon of natural gas.
CWF HC/NG =carbon weight fraction based on the hydrocarbon constituents in the natural gas fuel as obtained in paragraph (g) of this section.
D NG =density of the natural gas fuel [grams/ft 3 at 68 °F (20 °C) and 760 mm Hg (101.3 kPa)] pressure as obtained in paragraph (g) of this section.
CH 4 , NMHC, CO, and CO 2 = weighted mass exhaust emissions [grams/mile] for methane, non-methane HC, carbon monoxide, and carbon dioxide as calculated in §600.113.
CWF NMHC = carbon weight fraction of the non-me thane HC constituents in the fuel as determined from th e speciated fuel composition pe r paragraph (f)(3) of this section.1403 CO 2NG = grams of carbon dioxide in the natura l gas fuel consumed per mile of travel.
CO 2NG = FC NG × D NG × WF CO2 Where: 

### ( ) ( ) ( ) ( )

NG NG 2 NMHC 4 NG D CWF CO 0.273 CO 0.429 NMHC CWF CH 0.749 FC × × + × + × + × =

mile per consumed fuel gas natural of feet cubic = Where:
CWF NG = the carbon weight fraction of the na tural gas fuel as calculated in paragraph (f) of this section.
WF CO2 = weight fraction carbon dioxide of th e natural gas fuel calculated using the mole fractions and molecular weights of the natural gas fuel constituents per ASTM D 1945–91 “Standard Test Method for Analysis of Natural Gas by Gas Chromatography” (incorporated by refere nce at §600.011-93). (2)(A) For automobiles fueled with na tural gas, the car bon-related exhaust emissions in grams per mile is to be calcu lated for 2012 and later model year vehicles using the following equation and rounde d to the nearest 1 gram per mile:
CREE = 2.743×CH 4 + CWF NMHC /0.273×NMHC + 1.571×CO + CO 2 Where: CREE means the carbon-related exhaust em ission value as defined in §600.002-
08.
CH 4 = Grams/mile CH 4 as obtained in paragraph (g) of this section. NMHC = Grams/mile NMHC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.1404 CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.
CWF NMHC = carbon weight fraction of the non- methane HC constituents in the fuel as determined from th e speciated fuel composition pe r paragraph (f)(3) of this section. (B) For manufacturers complying with the fleet averaging option for N 2 O and
CH 4 as allowed under §86.1818-12(f)(2) of this chapter, the carbon-related exhaust emissions in grams per mile for 2012 and la ter model year automobiles fueled with natural gas is to be calculated using the following equation and r ounded to the nearest 1 gram per mile: CREE = (25×CH 4 )+ [(CWF NMHC /0.273)×NMHC] + (1.571×CO) + CO 2 + (298×N 2 O) Where: CREE means the carbon-related exhaust em ission value as defined in §600.002-
08.
CH 4 = Grams/mile CH 4 as obtained in paragraph (g) of this section. NMHC = Grams/mile NMHC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.
CWF NMHC = carbon weight fraction of the non- methane HC constituents in the fuel as determined from th e speciated fuel composition pe r paragraph (f)(3) of this section.
N 2 O = Grams/mile N 2 O as obtained in paragraph (g) of this section.1405 (l)(1) For ethanol-fueled automobiles and automobiles designed to operate on mixtures of gasoline and ethanol, the fuel econo my in miles per gallon is to be calculated using the following equation: mpg = (CWF × SG × 3781.8)/((CWF exHC × HC) + (0.429 × CO) + (0.273 × CO 2 ) + (0.375 × CH 3 OH) + (0.400 × HCHO) + (0.521 × C 2 H 5 OH) + (0.545 × C 2 H 4 O)) Where: CWF = Carbon weight fraction of the fuel as determined in paragraph (f)(4) of this section. SG = Specific gravity of the fuel as determ ined in paragraph (f)(4 ) of this section.
CWF exHC = Carbon weight fraction of exhaust hydrocarbons = CWF g as determined in (f)(4) of this section. HC = Grams/mile HC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO 2 = Grams/mile CO 2 as obtained in paragraph (g) of this section.
CH 3 OH = Grams/mile CH 3 OH (methanol) as obtained in paragraph (d) of this section. HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) of this section.
C 2 H 5 OH = Grams/mile C 2 H 5 OH (ethanol) as obtained in paragraph (d) of this section.
C 2 H 4 O = Grams/mile C 2 H 4 O (acetaldehyde) as obtained in paragraph (d) of this section.1406 (2)(A) For 2012 and later model year etha nol-fueled automobile s and automobiles designed to operate on mixtures of gaso line and ethanol, the carbon-related exhaust emissions in grams per mile is to be calcu lated using the following equation and rounded to the nearest 1 gram per mile: CREE = (CWF exHC /0.273×HC) + (1.571×CO) + (1.374×CH 3 OH) + (1.466×HCHO) + (1.911×C 2 H 5 OH) + (1.998×C 2 H 4 O) + CO 2 Where: CREE means the carbon-related exhaust em ission value as defined in §600.002-
08.
CWF exHC = Carbon weight fraction of exhaust hydrocarbons = CWF g as determined in (f)(4) of this section. HC = Grams/mile HC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO 2 = Grams/mile CO2 as obtained in paragraph (g) of this section.
CH 3 OH = Grams/mile CH 3 OH (methanol) as obtained in paragraph (d) of this section. HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) of this section.
C 2 H 5 OH = Grams/mile C 2 H 5 OH (ethanol) as obtained in paragraph (d) of this section.
C 2 H 4 O = Grams/mile C 2 H 4 O (acetaldehyde) as obtained in paragraph (d) of this section.1407 (B) For manufacturers complying with the fleet averaging option for N 2 O and
CH 4 as allowed under §86.1818-12(f)(2) of this chapter, the carbon-related exhaust emissions in grams per mile for 2012 and la ter model year ethanol-fueled automobiles and automobiles designed to operate on mixt ures of gasoline and ethanol is to be calculated using the following equation and r ounded to the neares t 1 gram per mile: CREE = [(CWF exHC /0.273)×NMHC] + (1.571×CO) + (1.374×CH 3 OH) + (1.466×HCHO) + (1.911×C 2 H 5 OH) + (1.998×C 2 H 4 O) + CO 2 + (298×N 2 O) + (25×CH 4 ) Where: CREE means the carbon-related exhaust em ission value as defined in §600.002-
08.
CWF exHC = Carbon weight fraction of exhaust hydrocarbons = CWF g as determined in (f)(4) of this section. NMHC = Grams/mile HC as obtained in paragraph (g) of this section. CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO 2 = Grams/mile CO2 as obtained in paragraph (g) of this section.
CH 3 OH = Grams/mile CH 3 OH (methanol) as obtained in paragraph (d) of this section. HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) of this section.
C 2 H 5 OH = Grams/mile C 2 H 5 OH (ethanol) as obtained in paragraph (d) of this section.
C 2 H 4 O = Grams/mile C 2 H 4 O (acetaldehyde) as obtained in paragraph (d) of this section.1408 N 2 O= Grams/mile N 2 O as obtained in paragraph (g) of this section.
CH 4 = Grams/mile CH 4 as obtained in paragraph (g) of this section. (m) Carbon-related exhaust emissions for el ectric vehicles, fu el cell vehicles and plug-in hybrid electric vehicles . Manufacturers shall dete rmine carbon-related exhaust emissions for electric vehicles, fuel cell ve hicles, and plug-in hybr id electric vehicles according to the provisions of this paragraph (m). Subject to the limitations described in §86.1866-12(a) of this chapter, the manufactur er may be allowed to use a value of 0 grams/mile to represent the emissions of fuel cell vehicles and the proportion of electric operation of a electric vehicles and plug-in hybr id electric vehicles that is derived from electricity that is generated from sources that are not onboard the vehi cle, as described in paragraphs (m)(1) through (3) of this section. (1) For 2012 and later model year electr ic vehicles, but not including fuel cell vehicles, the carbon-related exhaust emissions in grams per mile is to be calculated using the following equation and rounded to the nearest one gram per mile:
CREE = CREE UP - CREE GAS Where: CREE means the carbon-related exhaust em ission value as defined in §600.002- 08, which may be set equal to zero for eligible 2012 through 2016 model year electric vehicles as described in §86. 1866-12(a) of this chapter.
CREE UP = 0.7670 × EC, and
CREE GAS = 0.2485 × TargetCO 2 , Where:1409 EC = The vehicle energy consumption in watt-hours per mile, determined according to procedures established by the Administrator under §600.111-08(f). TargetCO 2 = The CO 2 Target Value determined according to §86.1818-12(c)(2) of this chapter for passenger automobile s and according to §86. 1818-12(c)(3) of this chapter for light trucks. (2) For 2012 and later model year plug-inhybrid electric vehicles, the carbonrelated exhaust emissions in grams per mile is to be calculated using the following equation and rounded to the ne arest one gram per mile:
CREE = CREE CD + CREE CS , Where: CREE means the carbon-related exhaust em ission value as defined in §600.002-
08.
CREE CS = The carbon-related exhaust emissions determined for charge-sustaining operation according to procedures esta blished by the Administrator under §600.111- 08(f); and
CREE CD = (ECF × CREE CDEC ) + [(1-ECF) × CREE CDGAS ] Where:
CREE CD = The carbon-related exhaust emission s determined for charge-depleting operation determined according to the provisions of this section for the applicable fuel and according to procedures establishe d by the Administrator under §600.111-08(f);
CREE CDEC = The carbon-related exhaust emi ssions determined for electricity consumption during charge-depleting operati on, which shall be de termined using the method specified in paragraph (m)(1) of this section and according to procedures1410 established by the Administra tor under §600.111-08(f), and which may be set equal to zero for eligible 2012 through 2016 model year vehicles as described in §86.1866-12(a) of this chapter;
CREE CDGAS = The carbon-related exhaust em issions determined for chargedepleting operation determined according to the provisions of this section for the applicable fuel and according to procedur es established by the Administrator under §600.111-08(f); and ECF = Electricity consumption factor as determined by the Administrator under §600.111-08(f). (3) For 2012 and later model year fuel cell vehicles, the ca rbon-related exhaust emissions in grams per mile shall be calcula ted using the method specified in paragraph (m)(1) of this section, except that CREE UP shall be determined according to procedures established by the Administ rator under §600.111-08(f). As described in §86.1866-12(a) of this chapter the value of CREE may be se t equal to zero for eligible 2012 through 2016 model year fuel cell vehicles. (n) Equations for fuels other than those sp ecified in paragraphs (h) through (l) of this section may be used with advance EPA approval. Alternate cal culation methods for fuel economy and carbon-related exhaust emissi ons may be used in lieu of the methods described in this section if shown to yield eq uivalent or superior results and if approved in advance by the Administrator.

44. Section 600.114-08 is amended as follows: a. By revising the section heading.1411 b. By revising the introductory text. c. By adding paragraphs (d) through (f).

§600.114-08 Vehicle-specific 5-cycle fuel ec onomy and carbon-related exhaust emission calculations. Paragraphs (a) through (c) of this secti on apply to data used for fuel economy labeling under Subpart D of this part. Paragra phs (d) through (f) of th is section are used to calculate 5-cycle carbon -related exhaust emissions va lues for the purpose of determining optional technology-based CO 2 emissions credits under the provisions of paragraph (d) of §86.1866- 12 of this chapter.
* * * * * (d) City carbon-related ex haust emission value. For each vehicle tested, determine the 5-cycle city carbon-related exhaust emissions using the following equation: (1) 

## ( ) E RunningCRE StartCREE 0.905 CityCREE + × = Where: (i) StartCREE = 

## ( ) ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ × + × × 4.1 StartCREE 0.24 StartCREE 0.76 0.33 20 75

Where: 

## ( ) X X X CREE 3 Bag CREE 1 Bag 3.6 CREE Start

− × = Where: Bag Y CREE X = the carbon-related exhaust emi ssions in grams per mile during the specified bag of the FTP test conducted at an ambient temperature of 75 °F or 20 °F. (ii) Running CREE =1412 

### ( ) ( ) ( ) 

### [ ] ( )( ) 

### [ ] ( )( ) ( ) 

### [ ] CREE Bag2 0.39 CREE Bag3 0.61 CREE SC03 0.144 CREE Bag3 0.5 CREE Bag2 0.5 0.18 CREE City US06 0.11 CREE Bag3 0.41 CREE Bag2 0.48 0.82

75 75 20 20 75

75

× + ×
− × + × + × × + × + × + × ×

Where: BagY X CREE =carbon-related exhaust emissions in grams per mile over Bag Y at temperature X. US06 City CREE = carbon-related exhaust emissions in grams per mile over the “city” portion of the US06 test. SC03 CREE = carbon-related exhaust emissi ons in grams per mile over the SC03

test. (e) Highway carbon-relate d exhaust emissions. (1) For each vehicle tested, determine the 5-cycle highway carbon-relate d exhaust emissions using the following equation: 

## ( ) E RunningCRE StartCREE 0.905 E HighwayCRE + × = Where:

(i) StartCREE = 

## ( ) ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ × + × × = 60 StartCREE 0.24 StartCREE 0.76 0.33 20 75

Where: 

## ( ) X X X CREE 3 Bag CREE 1 Bag 3.6 CREE Start

− × = (ii) Running CREE = 

## ( ) ( ) 

## [ ] ( )( ) ( ) 

## [ ] CREE Bag CREE Bag CREE SC CREE HFET CREE Highway US

75 75 2 39

. 0 3 61

. 0 03 045

. 0 21

. 0 06 79

. 0 007

. 1

× + ×
− × + × + × ×

Where: BagY X CREE =carbon-related exhaust emissions in grams per mile over Bag Y at temperature X,1413 US06 Highway CREE = carbon-re lated exhaust emissions in grams per mile over the highway portion of the US06 test, HFET CREE = carbon-related exhaust emi ssions in grams per mile over the HFET test, SC03 CREE = carbon-related exhaust emissi ons in grams per mile over the SC03

test. (f) Carbon-related exhaust emissions calcul ations for hybrid electric vehicles. Hybrid electric vehicles shall be tested according to California test methods which require FTP emission sampling for the 75 °F FTP test over four phases (bags) of the UDDS (cold-start, transient, warm-start, tran sient). Optionally, these four phases may be combined into two phases (phases 1 + 2 a nd phases 3 + 4). Calculations for these sampling methods follow. (1) Four-bag FTP equations. If the 4-bag sampling method is used, manufacturers may use the equations in paragraphs (a) and (b) of this section to determine city and highway carbon-related exhaust emissions values . If this method is chosen, it must be used to determine both city and highway carbon-related exhaust emissions. Optionally, the following calculations may be used, provided that they are used to determine both city and highway carbon-relate d exhaust emissions values: (i) City carbon-related exhaust emissions. 

# ( ) E RunningCRE StartCREE 0.905 CityCREE + × = Where:

(A) StartCREE = 

# ( ) ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ × + × × 4.1 StartCREE 0.24 StartCREE 0.76 0.33 20 751414 Where:

( 1 ) StartCREE 75 = 

## ( ) ( ) 75 75 75 

### 4 2 9

. 3 75 3 1 6

. 3 CREE Bag CREE Bag CREE Bag CREE Bag

− × +

− × and ( 2 ) StartCREE 20 = 

# ( ) 20 20 

## 3 1 6

. 3 CREE Bag CREE Bag

− × = (B) RunningCREE = 

## ( ) ( ) ( ) 

## [ ] ( )( ) 

## [ ] ( )( ) ( ) 

## [ ] CREE Bag CREE Bag CREE SC CREE Bag CREE Bag CREE City US CREE Bag CREE Bag

75 75 20 20 75

75


### 4 39

. 0 3 61

. 0 03 144

. 0 3 5

. 0 2 5

. 0 18

. 0 06 11

. 0 3 41

. 0 4 48

. 0 82

. 0

× + ×
− × + × + × × + × + × + × ×

Where: US06 Highway CREE = carbon-re lated exhaust emissions in grams per mile over the city portion of the US06 test. US06 Highway CREE = carbon-related exha ust emissions in miles per gallon over the Highway portion of the US06 test. HFET CREE = carbon-related exhaust emi ssions in grams per mile over the
HFET test. SC03 CREE = carbon-related exhaust emissi ons in grams per mile over the SC03

test. (ii) Highway carbon-relate d exhaust emissions. 

# ( ) E RunningCRE StartCREE 0.905 E HighwayCRE + × = Where:

(A) StartCREE =1415 

# ( ) ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ × + × × = 60 StartCREE 0.24 StartCREE 0.76 0.33 20 75

Where: 

### ( ) ( ) 75 75 75 75 CREE 4 Bag CREE 2 Bag 3.9 CREE75 3 Bag CREE 1 Bag 3.6 CREE Start

− × +

− × =

and 

# ( ) 20 20 20 

## CREE 3 Bag CREE 1 Bag 3.6 CREE Start

− × = (B) RunningCREE = 

## ( ) ( ) 

## [ ] ( )( ) ( ) 

## [ ] CREE Bag CREE Bag CREE SC CREE HFET CREE Highway US

75 75 4 39

. 0 3 61

. 0 03 045

. 0 21

. 0 06 79

. 0 007

. 1

× + ×
− × + × + × ×

Where: US06 Highway CREE = carbon-re lated exhaust emissions in grams per mile over the Highway portion of the US06 test, HFET CREE = carbon-related exhaust emi ssions in grams per mile over the HFET test, SC03 CREE = carbon-related exhaust emissi ons in grams per mile over the SC03

test. (2) Two-bag FTP equations. If the 2-bag sampling method is used for the 75 °F FTP test, it must be used to determine both city and highway carbon-related exhaust emissions. The following calcula tions must be used to dete rmine both city and highway carbon-related exhaust emissions: (i) City carbon-related exhaust emissions. 

# ( ) E RunningCRE StartCREE 0.905 CityCREE + × = Where:

(A) StartCREE =1416 

# ( ) ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ × + × × = 4.1 StartCREE 0.24 StartCREE 0.76 0.33 20 75

Where: 

## ( ) 75 75 75 

### CREE 3/4 Bag CREE 1/2 Bag 3.6 CREE Start

− × = and 

# ( ) 20 20 20 

### CREE 3 Bag CREE 1 Bag 3.6 CREE Start

− × = Where: Bag Y FE 20 = the carbon-related exhaust emissi ons in grams per mile of fuel during Bag 1 or Bag 3 of the 20 °F FTP test, and Bag X/Y FE 75 = carbon-related exhaust emissions in grams per mile of fuel during combined phases 1 and 2 or phases 3 and 4 of the FTP test conducted at an ambient temperature of 75 °F. (B) RunningCREE = 

## ( ) ( ) 

## [ ] ( )( ) 

## [ ] ( ) 

## [ ] CREE Bag3/4 CREE SC03 0.144 CREE Bag3 0.5 CREE Bag2 0.5 0.18 CREE City US06 0.10 CREE Bag3/4 0.90 0.82

75 20 20 75



### − × + × + × × + × + × ×

Where: US06 City CREE = carbon-related exhaust emissions in grams per mile over the city portion of the US06 test, and SC03 CREE = carbon-related exhaust emissi ons in grams per mile over the SC03 test, and Bag X/Y FE 75 = carbon-related exhaust emissions in grams per mile of fuel during combined phases 1 and 2 or phases 3 and 4 of the FTP test conducted at an ambient temperature of 75 °F.1417 (ii) Highway carbon-relate d exhaust emissions. 

## ( ) E RunningCRE StartCREE 0.905 E HighwayCRE + × = Where:

(A) StartCREE = 

# ( ) ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ × + × × 60 StartCREE 0.24 StartCREE 0.76 0.33 20 75

Where: 

# ( ) 75 75 75 

### CREE 3/4 Bag CREE 1/2 Bag 5

. 7 CREE Start

− × = and 

# ( ) 20 20 20 

### CREE 3 Bag CREE 1 Bag 3.6 CREE Start

− × = (B) RunningCREE = 

## ( ) ( ) 

## [ ] [ ] CREE Bag3/4 CREE SC03 0.045 CREE HFET 0.21 CREE Highway US06 0.79 1.007

75 

### − × + × + × ×

Where: US06 Highway CREE = carbon-re lated exhaust emissions in grams per mile over the city portion of the US06 test, and SC03 CREE = carbon-related exhaust emissi ons in gram per mile over the SC03 test, and Bag Y FE 20 = the carbon-related exhaust emissi ons in grams per mile of fuel during Bag 1 or Bag 3 of the 20 °F FTP test, and Bag X/Y FE 75 = carbon-related exhaust emissions in grams per mile of fuel during phases 1 and 2 or phases 3 and 4 of the FTP te st conducted at an ambient temperature of
75 °F.1418 Subpart C—Procedures for Calculating Fuel Economy and Carbon-related Exhaust Emission Values for 1977 and Later Model Year Automobiles

45. The heading for subpart C is revised as set forth above.

46. A new §600.201-12 is added to subpart C to read as follows:

§600.201-12 General applicability. The provisions of this subpart are app licable to 2012 and later model year automobiles and to the manufacturers of 2012 and later model year automobiles.

47. A new §600.206-12 is added to subpart C to read as follows:

§600.206-12 Calculation and use of FTP-based and HFET-based fuel economy and carbon-related exhaust emission values for vehicle configurations. (a) Fuel economy and carbon-related exha ust emissions values determined for each vehicle under §600.113(a) and (b) and as approved in §600.008–08 (c), are used to determine FTP-based city, HFET-based hi ghway, and combined FTP/Highway-based fuel economy and carbon-related exhaust emi ssion values for each vehicle configuration for which data are available. (1) If only one set of FTP-based city and HFET-based highway fuel economy values is accepted for a vehicl e configuration, these values , rounded to the nearest tenth of a mile per gallon, comprise the city and highway fuel economy values for that1419 configuration. If only one set of FTP-base d city and HFET-based highway carbon-related exhaust emission values is accepted for a vehi cle configuration, th ese values, rounded to the nearest gram per mile, comprise th e city and highway carbon-related exhaust emission values for that configuration. (2) If more than one set of FTP-based city and HFET-based highway fuel economy and/or carbon-related exhaust emi ssion values are accepted for a vehicle configuration: (i) All data shall be grouped according to the subconfiguration for which the data were generated using sales projections s upplied in accordance with §600.208-12(a)(3). (ii) Within each group of data, all fuel economy values are harmonically averaged and rounded to the nearest 0.0001 of a mile per gallon and all carbon-related exhaust emission values are arithmetically averaged and rounded to the nearest tenth of a gram per mile in order to determine FTP-base d city and HFET-based highway fuel economy and carbon-related exhaust emission values for each subconfiguration at which the vehicle configuration was tested. (iii) All FTP-based city fuel economy a nd carbon-related exhaust emission values and all HFET-based highway fuel economy and carbon-related exhaust emission values calculated in paragraph (a)(2)( ii) of this section are (sep arately for city and highway) averaged in proportion to the sales fraction (rounded to the neares t 0.0001) within the vehicle configuration (as provi ded to the Administrator by th e manufacturer) of vehicles of each tested subconfiguration. Fuel economy values shall be harm onically averaged and carbon-related exhaust emission values shall be arithmetically averaged. The resultant fuel economy values, rounded to the nearest 0.0001 mile per gallon, are the FTP-based1420 city and HFET-based highway fuel economy va lues for the vehicle configuration. The resultant carbon-related exhaust emission values , rounded to the nearest tenth of a gram per mile, are the FTP-based city and HF ET-based highway carbon-related exhaust emission values for the vehicle configuration. (3)(i) For the purpose of determinin g average fuel economy under §600.510–08, the combined fuel economy value for a vehicle configurati on is calculated by harmonically averaging the FTP-based c ity and HFET-based highway fuel economy values, as determined in §600.206(a)(1) or (2 ) of this section, weighted 0.55 and 0.45 respectively, and rounded to the nearest 0.0001 mile per gallon. A sample of this calculation appears in Ap pendix II of this part. (ii) For the purpose of determining av erage carbon-related exhaust emissions under §600.510–08, the combined carbon-related exhaust emission value for a vehicle configuration is calculated by arithmetically averaging the FTP-based city and HFETbased highway carbon-related exhaust emissi on values, as determined in §600.206(a)(1) or (2) of this section, weighted 0.55 and 0.45 respectively, and rounded to the nearest tenth of gram per mile. (4) For alcohol dual fuel automobiles and natural gas dual fuel automobiles the procedures of paragraphs (a)(1) or (2) of this section, as applicable, shall be used to calculate two separate sets of FTP-based city, HFET-based highway, and combined fuel economy and carbon-related exhaust emissi on values for each configuration. (i) Calculate the city, highway, and combined fuel economy and carbon-related exhaust emission values from the tests perf ormed using gasoline or diesel test fuel.1421 (ii) Calculate the city, highway, and co mbined fuel economy and carbon-related exhaust emission values from the tests perfor med using alcohol or na tural gas test fuel. (b) If only one equivalent petroleum-ba sed fuel economy value exists for an electric vehicle configuration, that value, rounded to the nearest tenth of a mile per gallon, will comprise the petroleum-based fuel economy for that configuration. (c) If more than one equivalent petroleum-based fuel economy value exists for an electric vehicle configuration, all values for that vehicle configuration are harmonically averaged and rounded to the nearest 0.0001 mile per gallon for that configuration.

48. A new §600.208-12 is added to subpart C to read as follows:

§600.208-12 Calculation of FTP-based and HF ET-based fuel economy and carbonrelated exhaust emission values for a model type. (a) Fuel economy and carbon-related exhaus t emission values for a base level are calculated from vehicle confi guration fuel economy and car bon-related exhaust emission values as determined in §600.206–12(a), (b), or (c) as applicable, for low-altitude tests. (1) If the Administrator determines that au tomobiles intended for sale in the State of California are likely to exhibit signifi cant differences in fuel economy and carbonrelated exhaust emission values from those intended for sale in other states, she will calculate fuel economy and carbon-related exha ust emission values for each base level for vehicles intended for sale in California and for each base level for vehicles intended for sale in the rest of the states.1422 (2) In order to highlight the fuel effi ciency and carbon-related exhaust emission values of certain designs ot herwise included with in a model type, a manufacturer may wish to subdivide a model type into one or more additional model types. This is accomplished by separating subconfigurations from an existing base level and placing them into a new base level. The new base level is identical to the existing base level except that it shall be considered, for the pur poses of this paragra ph, as containing a new basic engine. The manufacturer will be pe rmitted to designate such new basic engines and base level(s) if: (i) Each additional model type resulting from division of another model type has a unique car line name and that name appears on the label and on the vehicle bearing that label; (ii) The subconfigurations included in th e new base levels are not included in any other base level which differs only by basic en gine (i.e., they are not included in the calculation of the original base level fuel economy values); and (iii) All subconfigurations within the new base level are represented by test data in accordance with §600.010–08(c)(1)(ii). (3) The manufacturer shall supply total m odel year sales projections for each car line/vehicle subconfiguration combination. (i) Sales projections must be supplied separately for each car line-vehicle subconfiguration intended for sale in California and each car line/vehicle subconfiguration intended for sale in the rest of the states if required by the Administrator under paragraph (a)(1) of this section.1423 (ii) Manufacturers shall upda te sales projections at th e time any model type value is calculated for a label value. (iii) The provisions of paragraph (a)(3) of this section may be satisfied by providing an amended applica tion for certification, as described in §86.1844–01 of this chapter. (4) Vehicle configuration fuel economy and carbon-related exhaust emission values, as determined in §600.206–12 (a), (b) or (c), as applicable, are grouped according to base level. (i) If only one vehicle configuration within a base level has been tested, the fuel economy and carbon-related exhaust emission valu es from that vehicle configuration will constitute the fuel economy and carbon-rela ted exhaust emission values for that base level. (ii) If more than one vehicle configurati on within a base level has been tested, the vehicle configuration fuel economy values ar e harmonically averaged in proportion to the respective sales fraction (rounded to the near est 0.0001) of each vehicle configuration and the resultant fuel economy value rounded to the nearest 0.0001 mile per gallon; and the vehicle configuration carbon-related exha ust emission values are arithmetically averaged in proportion to the respective sales frac tion (rounded to the nearest 0.0001) of each vehicle configuration and the result ant carbon-related exhaust emission value rounded to the nearest gram per mile. (5) The procedure specified in paragraph (a )(1) through (4) of th is section will be repeated for each base level, thus establis hing city, highway, and combined fuel economy and carbon-related exhaust emission values for each base level.1424 (6) For the purposes of calculating a base level fuel economy or carbon-related exhaust emission value, if the only vehicle c onfiguration(s) within the base level are vehicle configuration(s) whic h are intended for sale at hi gh altitude, the Administrator may use fuel economy and carbon-related exhaus t emission data from tests conducted on these vehicle configuration(s) at high altitude to calcul ate the fuel economy or carbonrelated exhaust emission va lue for the base level. (7) For alcohol dual fuel automobiles and natural gas dual fuel automobiles, the procedures of paragraphs (a)(1) through (6) of this section shall be used to calculate two separate sets of city, highway, and comb ined fuel economy and carbon-related exhaust emission values for each base level. (i) Calculate the city, highway, and combined fuel economy and carbon-related exhaust emission values from the tests perf ormed using gasoline or diesel test fuel. (ii) Calculate the city, highway, and co mbined fuel economy and carbon-related exhaust emission values from the tests perfor med using alcohol or na tural gas test fuel. (b) For each model type, as determined by the Administrator, a city, highway, and combined fuel economy value and a carbon- related exhaust emission value will be calculated by using the projected sales and fuel economy and carbon-related exhaust emission values for each base level within the model type. Separate model type calculations will be done based on the vehi cle configuration fuel economy and carbonrelated exhaust emission values as dete rmined in §600.206–12 (a), (b) or (c), as applicable. (1) If the Administrator determines that au tomobiles intended for sale in the State of California are likely to exhibit signifi cant differences in fuel economy and carbon-1425 related exhaust emission values from those intended for sale in other states, she will calculate fuel economy and carbon-related exha ust emission values for each model type for vehicles intended for sale in California a nd for each model type for vehicles intended for sale in the rest of the states. (2) The sales fraction for each base leve l is calculated by dividing the projected sales of the base level within the model type by the projected sales of the model type and rounding the quotient to the nearest 0.0001. (3)(i) The FTP-based city fuel economy va lues of the model type (calculated to the nearest 0.0001 mpg) are determined by divi ding one by a sum of terms, each of which corresponds to a base level and which is a fraction determined by dividing: (A) The sales fraction of a base level; by (B) The FTP-based city fuel economy va lue for the respective base level. (ii) The FTP-based city carbon-related e xhaust emission value of the model type (calculated to the nearest gram per mile) are determined by a sum of terms, each of which corresponds to a base level and which is a product determined by multiplying: (A) The sales fraction of a base level; by (B) The FTP-based city carbon-related e xhaust emission value for the respective base level. (4) The procedure specified in paragraph (b )(3) of this section is repeated in ananalogous manner to determine the highway and combined fuel economy and carbonrelated exhaust emission values for the model type. (5) For alcohol dual fuel automobiles and natural gas dual fuel automobiles, the procedures of paragraphs (b)(1 ) through (4) of this section shall be used to calculate two1426 separate sets of city, highwa y, and combined fuel economy values and two separate sets of city, highway, and combined carbon-related exhaust emission values for each model type. (i) Calculate the city, highway, and combined fuel economy and carbon-related exhaust emission values from the tests perf ormed using gasoline or diesel test fuel. (ii) Calculate the city, highway, and co mbined fuel economy and carbon-related exhaust emission values from the tests perfor med using alcohol or na tural gas test fuel.

Subpart D—[Amended]

49. A new §600.301-12 is added to s ubpart D to read as follows:

§600.301-12 General applicability. (a) Unless otherwise specified, the provisi ons of this subpart are applicable to 2012 and later model year automobiles. (b) [Reserved]

Subpart F—Fuel Economy Regulations for Model Year 1978 Passenger Automobiles and for 1979 and Later Model Year Automobiles (Light Trucks and Passenger Automobiles)—Procedures for Determining Manufacturer's Average Fuel Economy and Manufacturer’s Average Carbon-related Exhaust Emissions

50. The heading for subpart F is revised as set forth above.1427 51. A new §600.501-12 is added to subpart F to read as follows:

§600.501-12 General applicability. The provisions of this subpart are app licable to 2012 and later model year passenger automobiles and light trucks and to the manufacturers of 2012 and later model year passenger automobiles and light trucks. Th e provisions of this s ubpart are applicable to medium-duty passenger vehicles and to manufacturers of such vehicles.

52. A new §600.507-12 is added to subpart F to read as follows:

§600.507-12 Running change data requirements. (a) Except as specified in paragraph (d) of this section, the manufacturer shall submit additional running change fuel ec onomy and carbon-related exhaust emissions data as specified in paragraph (b) of this section for any running change approved or implemented under §§86.079–32, 86.079–33, 86.082–34, or 86.1842–01 of this chapter, as applicable, which: (1) Creates a new base level or, (2) Affects an existing base level by: (i) Adding an axle ratio which is at l east 10 percent larger (or, optionally, 10 percent smaller) than the largest axle ratio tested. (ii) Increasing (or, optio nally, decreasing) the ro ad-load horsepower for a subconfiguration by 10 percent or more fo r the individual running change or, when1428 considered cumulatively, since original ce rtification (for each cumulative 10 percent increase using the originally certified road-load horsepower as a base). (iii) Adding a new subconfigur ation by increasing (or, optionally, decreasing) the equivalent test weight for any previously tested subconfiguration in the base level. (iv) Revising the calibration of an elect ric vehicle, fuel cell vehicle, hybrid electric vehicle, plug-in hybrid electric vehicle or other ad vanced technology vehicle in such a way that the city or highway fu el economy of the vehicle (or the energy consumption of the vehicle, as may be appl icable) is expected to become less fuel efficient (or optionally, more fu el efficient) by 4.0 percent or more as compared to the original fuel economy label values for fuel economy and/or energy consumption, as applicable. (b)(1) The additional running change fuel economy and carbon-related exhaust emissions data requirement in paragraph (a) of this section will be determined based on the sales of the vehicle configurations in the created or affected base level(s) as updated at the time of running change approval. (2) Within each newly created base level as specified in paragraph (a)(1) of this section, the manufacturer shal l submit data from the highest projected total model year sales subconfiguration within the highest projec ted total model year sales configuration in the base level. (3) Within each base level affected by a running change as specified in paragraph (a)(2) of this section, fuel economy and car bon-related exhaust emi ssions data shall be submitted for the vehicle configuration created or affected by the running change which has the highest total model year projected sales. The test vehicle shall be of the1429 subconfiguration created by the running cha nge which has the highest projected total model year sales within the appl icable vehicle configuration. (c) The manufacturer shall submit the fuel economy data required by this section to the Administrator in a ccordance with §600.314(b). (d) For those model types created u nder §600.208–12(a)(2), the manufacturer shall submit fuel economy and carbon-rela ted exhaust emissions data for each subconfiguration added by a running change.

53. A new §600.509-12 is added to subpart F to read as follows:

§600.509-12 Voluntary submission of additional data. (a) The manufacturer may optionally submit data in addition to the data required by the Administrator. (b) Additional fuel economy and carbon-re lated exhaust emissions data may be submitted by the manufacturer for any vehicle configuration which is to be tested as required in §600.507 or for which fuel ec onomy and carbon-related exhaust emissions data were previously submitted under paragraph (c) of this section. (c) Within a base level, additional fuel economy and carbon-related exhaust emissions data may be submitted by the ma nufacturer for any vehicle configuration which is not required to be tested by §600.507.

54. A new §600.510-12 is added to subpart F to read as follows:1430 §600.510-12 Calculation of average fuel ec onomy and average carbon-related exhaust emissions. (a)(1) Average fuel economy will be calcu lated to the nearest 0.1 mpg for the categories of automobiles identified in this section, and the results of such calculations will be reported to the Secretary of Transportation for use in determining compliance with the applicable fu el economy standards. (i) An average fuel economy calculati on will be made for the category of passenger automobiles as determined by the Se cretary of Transporta tion. For example, categories may include, but are not limited to domestically manufactured and/or nondomestically manufactured pa ssenger automobiles as determ ined by the Secretary of Transportation. (ii) [Reserved] (iii) An average fuel economy calculation will be made for the category of trucks as determined by the Secretary of Transpor tation. For example, categories may include, but are not limited to domestically manufact ured trucks, non-domestically manufactured trucks, light-duty trucks, medium-duty passenge r vehicles, and/or heavy-duty trucks as determined by the Secretary of Transportation. (iv) [Reserved] (2) Average carbon-related exhaust emissions will be calculated to the nearest one gram per mile for the categories of automobiles identified in this section, and the results of such calculations will be reported to the Administrator for use in determining compliance with the applicable CO 2 emission standards.1431 (i) An average carbon-related exhaust emissions calculation will be made for passenger automobiles. (ii) An average carbon-related exhaust emissions calculation will be made for light trucks. (b) For the purpose of calc ulating average fuel econo my under paragraph (c) of this section and for the purpose of calcula ting average carbon-related exhaust emissions under paragraph (j) of this section: (1) All fuel economy and carbon-related exhaust emissions data submitted in accordance with §600.006(e) or §600.512(c) shall be used. (2) The combined city/highway fu el economy and carbon-related exhaust emission values will be calculated for each model type in accordance with §600.208–12 of this section except that: (i) Separate fuel economy va lues will be calculated for model types and base levels associated with car lines for each category of passenger automobiles and light trucks as determined by the Secretary of Tr ansportation pursuant to paragraph (a)(1) of this section. (ii) Total model year production data, as required by this subpart, will be used instead of sales projections; (iii) [Reserved] (iv) The fuel economy value will be rounded to the nearest 0.1 mpg; (v) The carbon-related exhaust emission value will be rounded to the nearest gram per mile; and1432 (vi) At the manufacturer's option, those vehicle configurations that are selfcompensating to altitude changes may be se parated by sales into high-altitude sales categories and low-altitude sales categories. These separate sa les categories may then be treated (only for the purpose of this sectio n) as separate configurations in accordance with the procedure of §600.208–12(a)(4)(ii). (3) The fuel economy and carbon-related e xhaust emission values for each vehicle configuration are the comb ined fuel economy and carbon-related exhaust emissions calculated according to §600.206–08(a)(3) except that: (i) Separate fuel economy va lues will be calculated for vehicle configurations associated with car lines for each category of passenger automobiles and light trucks as determined by the Secretary of Transportati on pursuant to paragraph (a)(1) of this section. (ii) Total model year production data, as required by this subpart will be used instead of sales projections; and (iii) The fuel economy value of diesel- powered model types will be multiplied by the factor 1.0 to convert gallons of diesel fuel to equivalent gallons of gasoline. (c) Except as permitted in paragraph (d) of this section, the average fuel economy will be calculated individually for each cat egory identified in paragraph (a)(1) of this section as follows: (1) Divide the total prod uction volume of that cat egory of automobiles; by (2) A sum of terms, each of which corre sponds to a model type within that category of automobiles and is a fraction determined by dividing the number of automobiles of that model type produced by the manufacturer in the model year; by1433 (i) For gasoline-fueled and diesel-fueled model types, the fuel economy calculated for that model type in accordance with paragraph (b)(2) of this section; or (ii) For alcohol-fueled mode l types, the fuel economy value calculated for that model type in accordance with paragraph (b )(2) of this section divided by 0.15 and rounded to the nearest 0.1 mpg; or (iii) For natural gas-fueled model type s, the fuel economy value calculated for that model type in accordance with paragraph (b)(2) of this section divided by 0.15 and rounded to the nearest 0.1 mpg; or (iv) For alcohol dual fuel model type s, for model years 1993 through 2019, the harmonic average of the following two terms; th e result rounded to the nearest 0.1 mpg: (A) The combined model type fuel ec onomy value for operation on gasoline or diesel fuel as determined in §600.208-12(b)(5)(i); and (B) The combined model type fuel economy value for operation on alcohol fuel as determined in §600.208-12(b)(5)(ii) divide d by 0.15 provided the requirements of §600.510(g) are met; or (v) For natural gas dual fuel model type s, for model years 1993 through 2019, the harmonic average of the following two terms; th e result rounded to the nearest 0.1 mpg: (A) The combined model type fuel ec onomy value for operation on gasoline or diesel as determined in §600.208-12(b)(5)(i); and (B) The combined model type fuel economy value for operation on natural gas as determined in §600.208-12(b)(5)(ii) divide d by 0.15 provided the requirements of paragraph (g) of this section are met.1434 (d) The Administrator may approve altern ative calculation methods if they are part of an approved credit plan unde r the provisions of 15 U.S.C. 2003. (e) For passenger automobile categories identified in paragraph (a)(1) of this section, the average fuel economy calculated in accordance with pa ragraph (c) of this section shall be adjusted us ing the following equation:
AFE adj = AFE[((0.55 × a × c) + (0.45 × c) + (0 .5556 × a) + 0.4487) / ((0.55 × a) + 0.45)] + IW Where:
AFE adj = Adjusted average combined fuel economy, rounded to the nearest 0.1
mpg; AFE = Average combined fuel economy as calculated in paragraph (c) of this section, rounded to th e nearest 0.0001 mpg; a = Sales-weight average (rounded to the nearest 0.0001 mpg) of all model type highway fuel economy values (rounded to th e nearest 0.1 mpg) divided by the salesweighted average (rounded to the nearest 0.0001 mpg) of all model type city fuel economy values (rounded to the nearest 0.1 mpg). The quotient shall be rounded to 4 decimal places. These average fuel economies shall be determined using the methodology of paragraph (c) of this section. c = 0.0014; IW = (9.2917 × 10 − 3 × SF 3IWC × FE 3IWC )

− (3.5123 × 10 − 3 × SF 4ETW × FE 4IWC ). Note: Any calculated value of IW less than zero shall be set equal to zero.
SF 3IWC = The 3000 lb. inertia weight class sales divided by total sales. The quotient shall be rounded to 4 decimal places.1435 SF 4ETW = The 4000 lb. equivalent test weight category sales divided by total sales. The quotient shall be rounded to 4 decimal places.
FE 4IWC = The sales-weighted average combined fuel economy of all 3000 lb. inertia weight class base le vels in the compliance categ ory. Round the result to the nearest 0.0001 mpg.
FE 4IWC = The sales-weighted average combined fuel economy of all 4000 lb. inertia weight class base le vels in the compliance categ ory. Round the result to the nearest 0.0001 mpg. (f) The Administrator shall calculate and apply additional average fuel economy adjustments if, after notice a nd opportunity for comment, the Administrator determines that, as a result of test procedure changes not previously considered , such correction is necessary to yield fuel economy test results th at are comparable to those obtained under the 1975 test procedures. In making such dete rminations, the Admini strator must find that: (1) A directional change in measured fu el economy of an average vehicle can be predicted from a revision to the test procedures; (2) The magnitude of the change in m easured fuel economy for any vehicle or fleet of vehicles caused by a revision to the test pro cedures is quantifiable from theoretical calculations or best available test data; (3) The impact of a change on average fuel economy is not due to eliminating the ability of manufacturers to take advantage of flexibility within the existing test procedures to gain measured improvements in fuel economy which ar e not the result of actual improvements in the fuel economy of production vehicles;1436 (4) The impact of a change on average fuel economy is not solely due to a greater ability of manufacturers to reflect in average fuel economy those design changes expected to have comparable effects on in-use fuel economy; (5) The test procedure change is required by EPA or is a change initiated by EPA in its laboratory and is not a change impl emented solely by a manufacturer in its own laboratory. (g)(1) Alcohol dual fuel automobiles and natural gas dual fuel automobiles must provide equal or greater ener gy efficiency while operating on alcohol or natural gas as while operating on gasoline or diesel fuel to obtain the CAFE credit determined in paragraphs (c)(2)(iv) and (v) of this sec tion or to obtain the carbon-related exhaust emissions credit determined in paragraphs (j )(2)(ii) and (iii). The following equation must hold true:
E alt /E pet > or = 1 Where:
E alt = [FE alt /(NHV alt × D alt )] × 10 6 = energy efficiency while operating on alternative fuel rounded to the nearest 0.01 miles/million BTU.
E pet = [FE pet /(NHV pet × D pet )] × 10 6 = energy efficiency while operating on gasoline or diesel (petroleum) fuel rounded to the nearest 0.01 miles/million BTU.
FE alt is the fuel economy [miles/gallon for li quid fuels or miles/100 standard cubic feet for gaseous fuels] while operated on th e alternative fuel as determined in §600.113– 08(a) and (b);
FE pet is the fuel economy [miles/gallon] while operated on petroleum fuel (gasoline or diesel) as dete rmined in §600.113(a) and (b);1437 NHV alt is the net (lower) heating value [BTU/lb] of the alternative fuel;
NHV pet is the net (lower) heating value [BTU/lb] of the petroleum fuel;
D alt is the density [lb/gallon for liquid fu els or lb/100 standa rd cubic feet for gaseous fuels] of the alternative fuel;
D pet is the density [lb/gallon] of the petroleum fuel. (i) The equation must hold true for bot h the FTP city and HFET highway fuel economy values for each test of each test vehicle. (ii)(A) The net heating valu e for alcohol fuels shall be premeasured using a test method which has been approved in advance by the Administrator. (B) The density for alcohol fuels sha ll be premeasured using ASTM D 1298–85 (Reapproved 1990) “Standard Practice for Densit y, Relative Density (Specific Gravity), or API Gravity of Crude Petroleum and Liquid Petroleum Products by Hydrometer Method” (incorporated by reference at §600.011-93). (iii) The net heating value and density of gasoline are to be determined by the manufacturer in accordance with §600.113(f). (2) [Reserved] (3) Alcohol dual fuel passe nger automobiles a nd natural gas dual fuel passenger automobiles manufactured during model years 1993 through 2019 must meet the minimum driving range requirements establis hed by the Secretary of Transportation (49 CFR part 538) to obtain the CAFE credit determ ined in paragraphs (c)(2)(iv) and (v) of this section. (h) For model years 1993 and later, and for each category of automobile identified in paragraph (a)(1) of this section, the maximum increase in average fuel economy1438 determined in paragraph (c) of this section attributable to alcohol dual fuel automobiles and natural gas dual fuel automobiles shall be as follows:

Model Year Maximum Increase

(mpg) 1993-2014 1.2 2015 1.0 2016 0.8 2017 0.6 2018 0.4 2019 0.2 2020 and later 0.0

(1) The Administrator shall calculate th e increase in average fuel economy to determine if the maximum increase provided in paragraph (h) of this section has been reached. The Administrator shall calculate the average fuel economy for each category of automobiles specified in paragraph (a)(1) of this section by subtracting the average fuel economy values calculated in accordance with this section by assuming all alcohol dual fuel and natural gas dual fuel automobiles are operated exclusively on gasoline (or diesel) fuel from the average fuel economy values dete rmined in paragraph (c) of this section. The difference is limited to the maximum incr ease specified in paragraph (h) of this section. (2) [Reserved] (i) For model years 2012 through 2015, a nd for each category of automobile identified in paragraph (a)(1) of this sec tion, the maximum decrease in average carbonrelated exhaust emissions determined in para graph (j) of this sect ion attributable to1439 alcohol dual fuel automobiles and natural ga s dual fuel automobile s shall be calculated using the following formula, and rounded to the nearest tenth of a gram per mile:

Maximum Decrease = 

### FltAvg MPG FltAvg MAX 

### − ⎥ ⎦ ⎤ ⎢ ⎣ ⎡

− 8887 8887

Where: FltAvg = The fleet average CREE value for passenger automobiles or light trucks determined for the applicable model year ac cording to paragraph (j) of this section, except by assuming all alcohol dual fuel and natural gas dual fu el automobiles are operated exclusively on gaso line (or diesel) fuel.
MPG MAX = The maximum increase in mile s per gallon determined for the appropriate model year in paragraph (h) of this section. :(1) The Administrator shall calculate the decrease in average carbon-rela ted exhaust emissions to determine if the maximum decrease provided in this paragr aph (i) has been reach ed. The Administrator shall calculate the average carbon-related exhaust emissions for each category of automobiles specified in paragraph (a) of th is section by subtracting the average carbonrelated exhaust emission values determined in paragraph (j) of this section from the average carbon-related exhaust emission values calculated in accordan ce with this section by assuming all alcohol dual fuel and natu ral gas dual fuel automobiles are operated exclusively on gasoline (or diesel) fuel. Th e difference is limited to the maximum decrease specified in paragr aph (i) of this section. (2) [Reserved]1440 (j) The average carbon-related exhaust emi ssions will be calculated individually for each category identified in paragraph (a)(1) of this section as follows: (1) Divide the total produc tion volume of that category of automobiles into: (2) A sum of terms, each of which corre sponds to a model type within that category of automobiles and is a product determined by multiplying the number of automobiles of that model type produced by the manufacturer in the model year by: (i) For gasoline-fueled and diesel-fueled model types, the carbon-related exhaust emissions value calculated for th at model type in accordance with paragraph (b)(2) of this section; or (ii)(A) For alcohol-fueled model types, for model years 2012 through 2015, the carbon-related exhaust emissions value calculate d for that model type in accordance with paragraph (b)(2) of this sec tion multiplied by 0.15 and rounded to the nearest gram per mile, except that manufacturers complyi ng with the fleet averaging option for N 2 O and
CH 4 as allowed under §86.1818-12(f)(2) of this chapter must perfor m this calculation such that N 2 O and CH 4 values are not multiplied by 0.15; or (B) For alcohol-fueled mode l types, for model years 2016 and later, the carbonrelated exhaust emissions value calculated for that model type in accordance with paragraph (b)(2) of this section; or (iii)(A) For natural gas-fueled model types, for model years 2012 through 2015, the carbon-related exhaust emissions value calc ulated for that model type in accordance with paragraph (b)(2) of this section multipli ed by 0.15 and rounded to the nearest gram per mile, except that manufacturers complyi ng with the fleet averaging option for N 2 O1441 and CH 4 as allowed under §86.1818-12(f)(2) of this chapter must perform this calculation such that N 2 O and CH 4 values are not multiplied by 0.15; or (B) For natural gas-fueled model types, for model years 2016 and later, the carbon-related exhaust emissions value calculate d for that model type in accordance with paragraph (b)(2) of this section; or (iv) For alcohol dual fuel model type s, for model years 2012 through 2015, the arithmetic average of the following two terms, the result rounded to the nearest gram per mile: (A) The combined model type carbon -related exhaust emissions value for operation on gasoline or di esel fuel as determined in §600.208-12(b)(5)(i); and (B) The combined model type carbon -related exhaust emissions value for operation on alcohol fuel as determined in §600.208-12(b)(5)(ii) multiplied by 0.15 provided the requirements of paragraph (g) of this section are met, except that manufacturers complying with th e fleet averaging option for N 2 O and CH 4 as allowed under §86.1818-12(f)(2) of this chapter must perform this calculation such that N 2 O and
CH 4 values are not multiplied by 0.15; or (v) For natural gas dual fuel model type s, for model years 2012 through 2015, the arithmetic average of the following two terms; the result rounded to the nearest gram per mile: (A) The combined model type carbon -related exhaust emissions value for operation on gasoline or diesel as determined in §600.208-12(b)(5)(i); and (B) The combined model type carbon -related exhaust emissions value for operation on natural gas as determined in §600.208-12(b)(5)(ii) multiplied by 0.151442 provided the requirements of paragraph (g) of this section are met, except that manufacturers complying with th e fleet averaging option for N 2 O and CH 4 as allowed under §86.1818-12(f)(2) of this chapter must perform this calculation such that N 2 O and
CH 4 values are not multiplied by 0.15. (vi) For alcohol dual fuel model type s, for model years 2016 and later, the combined model type carbon -related exhaust emissions va lue determined according to the following formula and rounded to the nearest gram per mile: CREE = (F × CREE alt ) + ( (1-F) × CREE gas ) Where: F = 0.00 unless otherwise approved by the Administrator according to the provisions of paragraph (k) of this section;
CREE alt = The combined model type carbon-related exhaust emissions value for operation on alcohol fuel as dete rmined in §600.208-12(b)(5)(ii); and
CREE gas = The combined model type carbon-re lated exhaust emissions value for operation on gasoline or diesel fuel as determined in §600.208-12(b)(5)(i). (vii) For natural gas dual fuel model t ypes, for model years 2016 and later, the combined model type carbon -related exhaust emissions va lue determined according to the following formula and rounded to the nearest gram per mile: CREE = (F × CREE alt ) + ( (1-F) × CREE gas ) Where: F = 0.00 unless otherwise approved by the Administrator according to the provisions of paragraph (k) of this section;1443 CREE alt = The combined model type carbon-related exhaust emissions value for operation on natural gas as determ ined in §600.208-12(b)(5)(ii); and
CREE gas = The combined model type carbon-re lated exhaust emissions value for operation on gasoline or diesel fuel as determined in §600.208-12(b)(5)(i). (k) Alternative in-use weighting fa ctors for dual fuel model types . Using one of the methods in either paragra ph (k)(1) or (2) of this sec tion, manufacturers may request the use of alternative values for the weighti ng factor F in the equa tions in paragraphs (j)(2)(vi) and (vii) of this section. Unless otherwise approved by th e Administrator, the manufacturer must use the value of F that is in effect in pa ragraphs (j)(2)(vi) and (vii) of this section. (1) Upon written request fr om a manufacturer, the Ad ministrator will determine and publish by written guidance an appropriate value of F fo r each requested alternative fuel based on the Administrator’s assessment of real-world use of the alternative fuel. Such published values would be available for any manufacturer to us e. The Administrator will periodically update these values upon wr itten request from a manufacturer. (2) The manufacturer may optionally s ubmit to the Administrator its own demonstration regarding the real-w orld use of the alternative fu el in their vehicles and its own estimate of the appropriate value of F in the equations in paragraphs (j)(2)(vi) and (vii) of this section. Depending on the nature of the analytical approach, the manufacturer could provide estimates of F th at are model type specific or that are generally applicable to the manufacturer’s dual fuel fleet. The ma nufacturer’s analysis could include use of data gathered from on-board sensors and computer s, from dual fuel vehi cles in fleets that are centrally fueled, or fro m other sources. The analysis must be based on sound1444 statistical methodology and must account for an alytical uncertainty. Any approval by the Administrator will pertain to the use of values of F for the model types specified by the manufacturer.

55. A new §600.512-12 is added to subpart F to read as follows:

§600.512-12 Model year report. (a) For each model year, the manufacturer shall subm it to the Administrator a report, known as the model year report, cont aining all information necessary for the calculation of the manufacturer's average fuel economy and all information necessary for the calculation of the manuf acturer’s average carbon-related exhaust emissions. (1) The results of the manufacturer calc ulations and summary information of model type fuel economy values which ar e contained in the average fuel economy calculation shall also be submitted to the Secretary of the Department of Transportation, National Highway and Traffi c Safety Administration. (2) The results of the manufacturer calc ulations and summary information of model type carbon-related exha ust emission values which ar e contained in the average calculation shall be submitted to the Administrator. (b)(1) The model year report shall be in writing, signed by the authorized representative of the manufacturer and shall be submitted no later than 90 days after the end of the model year. (2) The Administrator may waive the requi rement that the model year report be submitted no later than 90 days after the end of the model year. Based upon a request by1445 the manufacturer, if the Administrator determin es that 90 days is insufficient time for the manufacturer to provide all additional data required as determined in §600.507, the Administrator shall establish an alternative date by which th e model year report must be submitted. (3) Separate reports shall be submitted for passenger automobiles and light trucks (as identified in §600.510). (c) The model year report must include the following information: (1)(i) All fuel economy data used in the FTP/HFET-base d model type calculations under §600.208–12, and subsequently required by the Administrator in accordance with §600.507; (ii) All carbon-related exhaust emission data used in the FTP/HFET-based model type calculations under §600.208–12, and subseq uently required by the Administrator in accordance with §600.507; (2) (i) All fuel economy data for certifica tion vehicles and for vehicles tested for running changes approved under §86.1842–01 of this chapter; (ii) All carbon-related exhaust emission data for certification vehicles and for vehicles tested for running changes a pproved under §86.1842–01 of this chapter; (3) Any additional fuel economy and carbon-related exhaust emission data submitted by the manufacturer under §600.509; (4)(i) A fuel economy value for each mode l type of the manufacturer's product line calculated according to §600.510(b)(2); (ii) A carbon-related exhaust emissi on value for each model type of the manufacturer's product line calcu lated according to §600.510(b)(2);1446 (5)(i) The manufacturer's average fuel economy value calculated according to §600.510(c); (ii) The manufacturer's average carbon-re lated exhaust emission value calculated according to §600.510(j); (6) A listing of both domestically and nondo mestically produced car lines as determined in §600.511 and the cost information upon which the determination was made; and (7) The authenticity and accuracy of producti on data must be attested to by the corporation, and shall bear the signature of an officer (a corp orate executive of at least the rank of vice-president) designate d by the corporation. Such a ttestation shall constitute a representation by the manufacturer that the manufacturer has established reasonable, prudent procedures to ascerta in and provide production da ta that are accurate and authentic in all material respects and that these procedures have been followed by employees of the manufacturer involved in the reporting process. The signature of the designated officer shall constitute a representation by the required attestation. (8) For 2008–2010 light truck model year reports, the average fuel economy standard or the “required fuel economy level” pursuant to 49 CFR Part 533, as applicable. Model year reports for light truc ks meeting required fuel econo my levels pursuant to 49 CFR 533.5(g) and (h) shall include information in sufficient detail to verify the accuracy of the calculated required fuel economy level. Such information is expected to include but is not limited to, production information for each unique footprin t within each model type contained in the model year report and the formula used to calculate the required fuel economy level. Model year reports for re quired fuel economy levels shall include a1447 statement that the method of measuring vehicl e track width, measuring vehicle wheelbase and calculating vehicle footprint is accurate and complies with applicable Department of Transportation requirements. (9) For 2011 and later model year repor ts, the “required fuel economy level” pursuant to 49 CFR Parts 531 or 533, as appl icable. Model year re ports shall include information in sufficient detail to verify th e accuracy of the calculated required fuel economy level, including but is not limite d to, production information for each unique footprint within each model type contained in the model year report and the formula used to calculate the required fuel economy level. Model year reports shal l include a statement that the method of measuring vehicle trac k width, measuring vehicle wheelbase and calculating vehicle footprint is accurate a nd complies with applicable Department of Transportation requirements. (10) For 2012 and later model year repor ts, the “required fuel economy level” pursuant to 49 CFR Parts 531 or 533 as appli cable, and the applicab le fleet average CO2 emission standards. Model year reports shall include information in sufficient detail to verify the accuracy of the calculated require d fuel economy level and fleet average CO2 emission standards, including but is not limited to, production information for each unique footprint within each model type c ontained in the model year report and the formula used to calculate the required fuel economy level and fleet average CO2 emission standards. Model year reports shal l include a statement that the method of measuring vehicle track width, measuring vehicle wheelbase and calculating vehicle footprint is accurate and complies with appl icable Department of Transportation and EPA requirements.1448 (11) For 2012 and later model year reports , a detailed (but easy to understand) list of vehicle models and the a pplicable in-use CREE emission standard. The list of models shall include the applicable carline/subconf iguration parameters (including carline, equivalent test weight, road-l oad horsepower, axle ratio, e ngine code, transmission class, transmission configuration and basic engine); the test para meters (ETW and a, b, c, dynamometer coefficients) and the asso ciated CREE emission standard. The manufacturer shall provide the method of iden tifying EPA engine code for applicable inuse vehicles.

56. A new §600.514-12 is added to subpart F to read as follows:

§600.514-12 Reports to the Environmental Protection Agency. This section establishes requirements for automobile manufacturers to submit reports to the Environmental Protection Ag ency regarding their efforts to reduce automotive greenhouse gas emissions. (a) General Requirements . (1) For each model year, each manufacturer shall submit a pre-model year report. (2) The pre-model year report required by th is section for each model year must be submitted before the model year begins and before the certification of any test group, no later than December 31 of the calendar ye ar two years before the model year. For example the pre-model year report for the 2012 model year must be submitted no later than December 31, 2010). (3) Each report required by this section must:1449 (i) Identify the report as a pre-model year report; (ii) Identify the manufacturer submitting the report; (iii) State the full name, title, and address of the official responsible for preparing the report; (iv) Be submitted to: Director, Complianc e and Innovative Strategies Division, U.S. Environmental Protection Agency, 2000 Traverwood, Ann Arbor , Michigan 48105; (v) Identify the current model year; (vi) Be written in the English language; and (vii) Be based upon all info rmation and data availabl e to the manufacturer approximately 30 days before the report is submitted to the Administrator. (b) Content of pre model year reports . (1) Each pre-model year report must include the following information for each comp liance category for the applicable future model year and to the extent possibl e, two model years into the future: (i) The manufacturer’s estimate of it’ s footprint-based fleet average CO 2 standards (including temporary lead time allowance al ternative standards, if applicable); (ii) Projected total and model-level production volume s for each applicable standard category; (iii) Projected fleet average CO 2 compliance level for each applicable standard category; and the model-level CO 2 emission values which form the basis of the projection; (iv) Projected fleet average CO 2 credit/debit status for each applicable standard category;1450 (v) A description of the various credit, transfer and trading options that will be used to comply with each applicable standard category, including the amount of credit the manufacturer intends to genera te for air conditioning leakage, air conditioning efficiency, off-cycle technology, and various early credit programs; (vi) A description of the method which will be used to calculate the carbonrelated exhaust emissions for any electric ve hicles, fuel cell vehicl es and plug-in hybrid vehicles; (vii) A summary by model year (begi nning with the 2009 m odel year) of the number of electric vehicles, fuel cell vehi cles and plug-in hybri d vehicles using (or projected to use) the advanced te chnology vehicle incentives program; (viii) The methodology which will be used to comply with N 2 O and CH 4 emission standards; and (ix) Other information reque sted by the Administrator. (2) Manufacturers must submit, in the pre-model year report for each model year in which a credit deficit is generated (or pr ojected to be generate d), a compliance plan demonstrating how the manufacturer will comply with the fleet average CO 2 standard by the end of the third year after the deficit occurred.1451 Department of Transportation

49 CFR Chapter V

In consideration of the foregoing, under the authority of 49 U.S.C. 32901, 32902, 32903, and 32907, and delegation of authority at 49 CFR 1.50, NHTSA amends 49 CFR Chapter V as follows:

PART 531—PASSENGER AUTOMOBILE AVERAGE FUEL ECONOMY STANDARDS

1. The authority citation for part 531 continues to read as follows:

Authority: 49 U.S.C. 32902; delegation of authority at 49 CFR 1.50.

2. Amend § 531.5 as follows: a. By revising paragra ph (a) introductory text. b. By revising paragraph (c). c. By redesignating paragra ph (d) as paragraph (e). d. By adding a new paragraph (d).1452 § 531.5 Fuel economy standards.

(a) Except as provided in paragraph (e) of this section, e ach manufacturer of passenger automobiles shall comply with the av erage fuel economy standards in Table I, expressed in miles per gallon, in the model year specified as applicable:
* * * * * (c) For model years 2012-2016, a manuf acturer’s passenger automobile fleet shall comply with the fuel economy level cal culated for that model year according to Figure 2 and the appropriate values in Table III.

Where:
CAFE required is the required level for a given fleet (domestic passenger automobiles or import passenger automobiles),

Subscript i is a designation of multiple groups of automobiles, where each group’s designation, i.e,, i = 1, 2, 3, etc., represents automobiles that share a unique model type and footprint within the applicable fleet, either domestic passenger automobiles or import passenger automobiles.1453 Production i is the number of passenger auto mobiles produced for sale in the United States within each ith designation, i.e., which shares the same model type and footprint.

TARGET i is the fuel economy target in mile s per gallon (mpg) applicable to the footprint of passenger automobiles within each ith designation, i.e., which shares the same model type and footprint, ca lculated according to Figure 3 and rounded to the nearest hundredth of a mpg, i.e., 35.455 = 35.46 mpg, and the summations in the numerator and denominator are both performed over all models in the fleet in question.

Figure 3: 

### 1 1 1

, , TARGET MIN MAX c FOOTPRINT d a b = ⎡ ⎤ ⎛ ⎞ × + ⎜ ⎟ ⎢ ⎥ ⎝ ⎠ ⎣ ⎦
Where:
TARGET is the fuel economy target (in mpg) applicable to vehicles of a given footprint ( FOOTPRINT , in square feet),

Parameters a , b , c , and d are defined in Table III, and

The MIN and MAX functions take the minimum and maximum, respectively of the included values.
T ABLE III—P ARAMETERS FOR THE P ASSENGER A UTOMOBILE F UEL E CONOMY T ARGETS1454 Parameters Model year a b c d 2012................................. 36.23 28.12 0.0005308 0.005842 2013................................. 37.15 28.67 0.0005308 0.005153 2014................................. 38.08 29.22 0.0005308 0.004498 2015................................. 39.55 30.08 0.0005308 0.003520 2016................................. 41.38 31.12 0.0005308 0.002406
(d) In addition to the requirement of pa ragraphs (b) and (c) of this section, each manufacturer shall also meet the minimu m standard for domestically manufactured passenger automobiles expressed in Table IV:

T ABLE IV Model year Minimum standard 2011.......................................... 27.8 2012.......................................... 30.7 2013.......................................... 31.4 2014.......................................... 32.1 2015.......................................... 33.3 2016.......................................... 34.7

* * * * *

3. Add Appendix A to Part 531 to read as follows:

A PPENDIX A TO P ART 531

– E XAMPLE OF C ALCULATING C OMPLIANCE U NDER §531.5(c)

Assume a hypothetical manuf acturer (Manufacturer X) produces a fleet of domestic passenger automob iles in MY 2012 as follows:1455 Appendix A, Table 1 Model Type Group Carline Name Basic Engine

(L) Transmission Class Description Actual Measured Fuel Economy (mpg) Volume 1 PC A FWD 1.8 A5 2-door sedan 34.0 1,500 2 PC A FWD 1.8 M6 2-door sedan 34.6 2,000 3 PC A FWD 2.5 A6 4-door wagon 33.8 2,000 4 PC A AWD 1.8 A6 4-door wagon 34.4 1,000 5 PC A AWD 2.5 M6 2-door hatchback 32.9 3,000 6 PC B RWD 2.5 A6 4-door wagon 32.2 8,000 7 PC B RWD 2.5 A7 4-door sedan 33.1 2,000 8 PC C AWD 3.2 A7 4-door sedan 30.6 5,000 9 PC C FWD 3.2 M6 2-door coupe 28.5 3,000 Total 27,500

N OTE TO A PPENDIX A, T ABLE 1. Manufacturer X’s required corporate average fuel economy level standard under §531.5(c) would firs t be calculated by determining the fuel economy targets applicable to each unique model type and footprint combination for model type groups 1-9 as illustra ted in Appendix A, Table 2:

Appendix A, Table 2

Manufacturer X calculates a fuel economy targ et standard for each unique model type and footprint combination.1456 Model Type

Group Carline Name Basic Engine

(L) Transmission Class Description Base Tire Size Wheelbase (inches) Track Width F&R Average (inches) Footprint (ft 2 ) Volume Fuel Economy

Target Standard

(mpg) 1a PC A FWD 1.8 A5 2-door sedan 205/75R14 99.8 61.2 42.4 900 35.27
1b PC A FWD 1.8 A5 2-door sedan 215/70R15 99.8 60.9 42.2 600 35.40
2 PC A FWD 1.8 M6 2-door sedan 215/70R15 99.8 60.9 42.2 2,000 35.40
3 PC A FWD 2.5 A6 4-door wagon 215/70R15 100.0 60.9 42.3 2,000 35.35
4 PC A AWD 1.8 A6 4-door wagon 235/60R15 100.0 61.2 42.5 1,000 35.21
5 PC A AWD 2.5 M6 2-door hatchback 225/65R16 99.6 59.5 41.2 3,000 36.12
6a PC B RWD 2.5 A6 4-door wagon 235/65R16 109.2 67.2 51.0 4,000 30.40
6b PC B RWD 2.5 A6 4-door wagon 265/55R18 109.2 66.8 50.7 4,000 30.55
7 PC B RWD 2.5 A7 4-door sedan 235/65R17 109.2 67.8 51.4 2,000 30.18
8 PC C AWD 3.2 A7 4-door sedan 265/55R18 111.3 67.8 52.4 5,000 29.71
9 PC C FWD 3.2 M6 2-door coupe 225/65R16 111.3 67.2 51.9 3,000 29.93 Total 27,500

N OTE TO A PPENDIX A, T ABLE 2. With the appropriate fuel economy targets determined for each unique model type and footprint combination, Manufacturer X’s required fuel economy target standard would be calculated as illustrated in Appendix A, Figure 1.1457 Appendix A, Figure 1

Calculation of Manufacturer X’s target fuel economy standard

Fleet’s target fuel economy standard = 31.8 mpg

Appendix A, Figure 2

Calculation of Manufacturer X’s actual fuel economy value.

Fleet’s actual fuel economy = 32.0 mpg Manufacturer's Domestic Passenger Automobile Production for Applicable Model Year Group1 Group2 Group3 Group4 Group5 Volume Volume Volume Volume Volum Group1 Group2 Group3 Group4 FuelEcon FuelEcon FuelEcon FuelEcon ++++ Group6 Group7 Group8 Group9 e Volume Volume Volume Volume Group5 Group6 Group7 Group8 Group9 FuelEcon FuelEcon FuelEcon FuelEcon FuelEcon 27,500 1500 2000 2000 1 34.0 34.6 33.8 ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ ++++ ⎢ ⎥ ⎢ ⎥ ⎣ ⎦

+++ 000 3000 8000 2000 5000 3000 34.4 32.9 32.2 33.1 30.6 28.5 ⎡ ⎤ +++++ ⎢ ⎥ ⎣ ⎦ Manufacturer's Domestic Passenger Automobile Production for Applicable Model Year Group1a Group1b Group2 Group3 Group7 Volume Volume Volume Volume Volume Group1a Group1b Group2 Group3 G Target Target Target Target + + + ++ L Group8 Group9 Volume Volume roup7 Group8 Group9 Target Target Target 27,500 900 600 2000 2000 1000 3000 4000 4000 2000 5000 3000 35.27 35.40 35.40 35.35 35.21 36.12 30.40 30.55 30.18 29.71 29.93

⎡ ⎤ ⎢ ⎥ + + ⎣ ⎦ ⎡ ⎤ ++++++ ++++ ⎢ ⎥ ⎣ ⎦1458 N OTE TO A PPENDIX A, F IGURE 2. Since the actual average fuel economy of Manufacturer X’s fleet is 32.0 mpg, as compared to its required fuel economy level of 31.8 mpg, Manufacturer X complied with the CAFE standard for MY 2012 as set forth in section 531.5(c).

PART 533—LIGHT TRUCK FUEL ECONOMY STANDARDS

4. The authority citation for part 533 continues to read as follows:

Authority: 49 U.S.C. 32902; delegation of authority at 49 CFR 1.50.

5. Amend § 533.5 by adding Figures 2 and 3 a nd Table VI at the end of paragraph (a), and adding paragraph (i), to read as follows:

§ 533.5 Requirements. (a) * * *
* * * * *1459 Where:

CAFE required is the required level for a given fleet, Subscript i is a designation of multiple groups of light trucks, where each group’s designation, i.e,, i = 1, 2, 3, etc., represen ts light trucks that share a unique model type and footprint within the applicable fleet.

Production i is the number of units of light tr ucks produced for sale in the United States within each ith designation, i.e ., which share the same model type and footprint.

TARGET i is the fuel economy target in mile s per gallon (mpg) applicable to the footprint of light trucks w ithin each ith designation, i.e., which shares the same model type and footprint, calculated according to Figure 3 and rounded to the nearest hundredth of a mpg, i.e., 35.455 = 35.46 mpg, and the summations in the numerator and denominator are both perfor med over all models in the fleet in question.

Figure 3: 1 1 1

, , TARGET MIN MAX c FOOTPRINT d a b = ⎡ ⎤ ⎛ ⎞ × + ⎜ ⎟ ⎢ ⎥ ⎝ ⎠ ⎣ ⎦1460 Where:

TARGET is the fuel economy target (in mpg) applicable to vehicles of a given footprint ( FOOTPRINT , in square feet),

Parameters a , b , c , and d are defined in Table VI, and

The MIN and MAX functions take the minimum and maximum, respectively of the included values.

T ABLE VI—P ARAMETERS FOR THE L IGHT T RUCK F UEL E CONOMY T ARGETS

Parameters Model year a b c d 2012................................. 29.44 22.06 0.0004546 0.01533 2013................................. 30.32 22.55 0.0004546 0.01434 2014................................. 31.30 23.09 0.0004546 0.01331 2015................................. 32.70 23.84 0.0004546 0.01194 2016................................. 34.38 24.72 0.0004546 0.01045

* * * * * (i) For model years 2012-2016, a manufactur er’s light truck fl eet shall comply with the fuel economy level calculated for th at model year according to Figures 2 and 3 and the appropriate values in Table VI.

6. Revise Appendix A to Part 533 to read as follows:1461 A PPENDIX A TO P ART 533

-- E XAMPLE OF C ALCULATING C OMPLIANCE U NDER §533.5(i)

Assume a hypothetical manufact urer (Manufacturer X) pr oduces a fleet of light trucks in MY 2012 as follows:

Appendix A, Table 1

Model Type Group Carline Name Basic Engine

(L) Transmission Class Description Actual Measured Fuel Economy (mpg) Volume

1 Pickup A 2WD 4 A5 Reg cab, MB 27.1 800
2 Pickup B 2WD 4 M5 Reg cab, MB 27.6 200
3 Pickup C 2WD 4.5 A5 Reg cab, LB 23.9 300
4 Pickup C 2WD 4 M5 Ext cab, MB 23.7 400
5 Pickup C 4WD 4.5 A5 Crew cab, SB 23.5 400
6 Pickup D 2WD 4.5 A6 Crew cab, SB 23.6 400
7 Pickup E 2WD 5 A6 Ext cab, LB 22.7 500
8 Pickup E 2WD 5 A6 Crew cab, MB 22.5 500 9 Pickup F 2WD 4.5 A5 Reg cab, LB 22.5 1,600 10 Pickup F 4WD 4.5 A5 Ext cab, MB 22.3 800 11 Pickup F 4WD 4.5 A5 Crew cab, SB 22.2 800 Total 6,700

N OTE TO A PPENDIX A, T ABLE 1. Manufacturer X’s required corporate average fuel economy level under § 533. 5(i) would first be calcula ted by determining the fuel economy targets applicable to each unique model type and footprint combination for model type groups (1-11) illust rated in Appendix A, Table 2:1462 Appendix A, Table 2

Manufacturer X calculates a fuel economy target standard value for each unique model type and footprint combination.

Model Type

Group Carline Name Basic Engine

(L) Transmission Class Description Base Tire Size Wheelbase (inches) Track Width F&R Average (inches) Footprint (ft 2 ) Volume Fuel Economy

Target Standard

(mpg) 1 Pickup A 2WD 4 A5 Reg cab, MB 235/75R15 100.0 68.8 47.8 800 26.99
2a Pickup B 2WD 4 M5 Reg cab, MB 235/75R15 100.0 68.2 47.4 100 27.13
2b Pickup B 2WD 4 M5 Reg cab, MB 235/70R16 100.0 68.4 47.5 100 27.08
3 Pickup C 2WD 4.5 A5 Reg cab, LB 255/ 70R17 125.0 68.8 59.7 300 23.54
4 Pickup C 2WD 4 M5 Ext cab, MB 255/70R17 125.0 68.8 59.7 400 23.54
5 Pickup C 4WD 4.5 A5 Crew cab, SB 275/70R17 150.0 69.0 71.9 400 22.06
6a Pickup D 2WD 4.5 A6 Crew cab, SB 255/70R17 125.0 68.8 59.7 200 23.54
6b Pickup D 2WD 4.5 A6 Crew cab, SB 285/70R17 125.0 69.2 60.1 200 23.45
7 Pickup E 2WD 5 A6 Ext cab, LB 255/70R17 125.0 68.8 59.7 500 23.54
8 Pickup E 2WD 5 A6 Crew cab, MB 285/70R17 125.0 69.2 60.1 500 23.45
9 Pickup F 2WD 4.5 A5 Reg cab, LB 255/ 70R17 125.0 68.9 59.8 1,600 23.52
10 Pickup F 4WD 4.5 A5 Ext cab, MB 275/70R17 150.0 69.0 71.9 800 22.06
11 Pickup F 4WD 4.5 A5 Crew cab, SB 285/70R17 150.0 69.2 72.1 800 22.06 Total 6,700

N OTE TO A PPENDIX A, T ABLE 2. With the appropriate fuel economy targets determined for each unique model type and footprint combination, Manufacturer X’s required fuel economy target standard would be calculated as illustrated in Appendix A, Figure 1.1463 Appendix A, Figure 1

Calculation of Manufacturer X’s targ et fuel economy standard value.

Fleet’s target fuel economy standard = 23.5 mpg

Appendix A, Figure 2

Calculation of Manufacturer X’s actual fuel economy value.

Fleet’s actual fuel economy value = 23.3 mpg Manufacturer's Light Truck Production for Applicable Model Year Group1 Group2 Group3 Group4 Group5 Gr Volume Volume Volume Volume Volume Group1 Group2 Group3 Group4 Group5 FuelEcon FuelEcon FuelEcon FuelEcon FuelEcon +++++ oup6 Group7 Group8 Group9 Group10 Group11 Volume Volume Volume Volume Volume Volume Group6 Group7 Group8 Group9 Group10 Group11 FuelEcon FuelEcon FuelEcon FuelEcon FuelEcon FuelEcon ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ +++++ ⎢ ⎥ ⎢ ⎥ ⎣ ⎦ 6,700 800 200 300 400 400 400 500 500 1600 800 800 27.1 27.6 23.9 23.7 23.5 23.6 22.7 22.5 22.5 22.3 22.2 ⎡ ⎤ +++ +++++ ++ ⎢ ⎥ ⎣ ⎦ Manufacturer's Light Truck Production for Applicable Model Year Group1 Group2a Group2b Group3 Group9 Volume Volume Volume Volume Volume Group1 Group2a Group2b Group3 Gro Target Target Target Target + + + ++ L Group10 Group11 Volume Volume up9 Group10 Group11 Target Target Target 6,700 800 100 100 300 400 400 200 200 500 500 1600 800 800 26.99 27.13 27.08 23.54 23.54 22.06 23.54 23.45 23.54 23.45 23.52 22.06 22.06 ⎡ ⎤ ⎢ ⎥ ⎢ ⎥ + + ⎢ ⎥ ⎢ ⎥ ⎣ ⎦ ⎡ ++++++++++++ ⎢ ⎣ ⎤ ⎥ ⎦1464 N OTE TO A PPENDIX A, F IGURE 2. Since the actual average fuel economy of Manufacturer X’s fleet is 23.3 mpg, as compar ed to its required fuel economy level of 23.5 mpg, Manufacturer X did not comply with the CAFE standard for MY 2012 as set forth in section 533.5(i).
* * * * *

PART 536—TRANSFER AND TRADING OF FUEL ECONOMY CREDITS

7. The authority citation for part 563 continues to read as follows:

Authority: Sec. 104, Pub. L. 110-140 (49 U.S.C. 32903); delegation of authority at 49
CFR 1.50.

8. Amend § 536.3 by revising the definition of “Transfer” in paragraph (b) to read as follows:

§ 536.3 Definitions * * * * * (b) * * * Transfer means the application by a manufact urer of credits earned by that manufacturer in one compliance category or credits acquired be trade (and originally earned by another manufacturer in that category) to achieve compliance with fuel1465 economy standards with respect to a differe nt compliance category. For example, a manufacturer may purchase light truck credits from another manufacturer, and transfer them to achieve compliance in the manufacturer’s domestically manufactured passenger car fleet. Subject to the cr edit transfer limitations of 49 U.S.C. 32903 (g)(3), credits can also be transferred across compliance categor ies and banked or saved in that category to be carried forward or backwards later to address a credit shortfall.
* * * * *

9. Amend §536.4 by revising the values for th e lifetime vehicle miles traveled used in the terms VMTe and VMTu required to calculate the adjustme nt factor in paragraph (c) to read as follows:

VMTe = Lifetime vehicle miles traveled as provided in the following table for the model year and compliance category in which the credit was earned.

VMTu = Lifetime vehicle miles traveled as provided in the following table for the model year and compliance category in whic h the credit is used for compliance.

Lifetime Vehicle Miles Traveled (VMT) Model Year
2012 2013 2014 2015 2016

Passenger Cars 177,238 177,366 178,652 180,497 182,134

Light Trucks 208,471 208,537 209,974 212,040 213,9541466 * * * * *

PART 537—AUTOMOTIVE FUEL ECONOMY REPORTS

10. The authority citation for part 537 continues to read as follows:

Authority: 49 U.S.C. 32907, delegation of authority at 49 CFR 1.50.

11. Amend § 537.5 by revising paragr aph (c)(4) to read as follows:

§ 537.5 General requirements for reports. * * * * * (c) * * * (4) Be submitted in 5 copies to: Administrator, National Highway Traffic Safety Administration, 1200 New Jersey Avenue, SE, Washington, DC 20590, or submitted electronically to the following secure e- mail address: cafe@dot.gov. Electronic submissions should be pr ovided in a pdf format.
* * * * *

12. Amend § 537.6 by removing paragraph (c )(1) and redesignating paragraph (c)(2) as paragraph (c).1467 § 537.6 [Amended]

13. Amend §537.7 by revising paragraphs (c)(4)(xvi)(A)(4 ) and (c)(4)(xvi)(B)(4 ) to read as follows:

§ 537.7 Pre-model year and mid-model year reports. * * * * * (c) * * * (4) * * * (xvi)(A ) * * * (4 ) Beginning model year 2010, front axle, rear axle and average track width as defined in 49 CFR 523.2,
* * * * * (B ) * * * (4 ) Beginning model year 2010, front axle, rear axle and average track width as defined in 49 CFR 523.2,
* * * * *

14. Amend § 537.8 by revising paragraph (c )(1) and removing and reserving paragraph (c)(2) to read as follows:

§ 537.8 Supplementary reports. * * * * *1468 (c)(1) Each report required by paragraph (a)(1) , (2), or (3) of th is section must be submitted in accordance with 537.5(c) not more than 45 days after the date on which the manufacturer determined, or could have de termined with reasonable diligence, that a report is required under paragraph (a)(1 ), (2), or (3) of this section. (2) [Reserved]
* * * * *

15. Amend § 537.9 by revising paragr aph (c) to read as follows:

§ 537.9 Determination of fuel econom y values and average fuel economy. * * * * * (c) Average Fuel Economy . Average fuel economy must be based upon fuel economy values calculated under paragraph (b) of this section for each model type and must be calculated in accordance with subpart F of 40 CFR part 600, except that fuel economy values for running changes and for new base levels are required only for those changes made or base levels added before the average fuel economy is required to be submitted under this part.
* * * * *

PART 538—MANUFACTURING INCENTIVES FOR ALTERNATIVE FUEL VEHICLES

16. The authority citation for part 538 continues to read as follows:1469 Authority: 49 U.S.C. 32901, 32905, and 32906; dele gation of authority at 49 CFR 1.50.

17. Revise § 538.1 to read as follows:

§ 538.1 Scope. This part establishes minimum driving range criteria to aid in identifying passenger automobiles that are dual-fueled au tomobiles. It also establishes gallon equivalent measurements for gaseou s fuels other than natural gas.

18. Revise § 538.2 to read as follows:

§ 538.2 Purpose. The purpose of this part is to specify one of the criteria in 49 U.S.C. chapter 329 “Automobile Fuel Economy” for identifying dua l-fueled passenger automobiles that are manufactured in model years 1993 through 2019. The fuel economy of a qualifying vehicle is calculated in a special manner so as to encourage its pr oduction as a way of facilitating a manufacturer’s compliance w ith the Corporate Average Fuel Economy standards set forth in part 531 of this chapter. The purpose is also to establish gallon equivalent measurements for gaseou s fuels other than natural gas.

19. Amend § 538.7 by revising paragr aph (b)(1) to read as follows:1470 Final Rulemaking to Establish Light-D uty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards Page 1469/1469

§ 538.7 Petitions for reduction of minimum driving range * * * * * (b) Each petition shall: (1) Be addressed to: Administrato r, National Highway Traffic Safety Administration, 1200 New Jersey Av enue, SE, Washington, DC 20590.
* * * * *

Dated: April 1, 2010

____________________ Ray LaHood, Secretary, Department of Transportation
Dated: April 1, 2010

____________________ Lisa P. Jackson, Administrator, Environm ental Protection Agency