From: <rebecca.yoon@dot.gov>

To: <Chandana_L._Achanta@omb.eop.gov>, William Charmley/AA/USEPA/US@EPA, <james.tamm@dot.gov>, <wood@ncucmail.commerce.state.nc.us>, Robin Moran/AA/USEPA/US@EPA, Ed Nam/AA/USEPA/US@EPA

Date: 03/24/2010 11:29 PM Subject

: DELIBERATIVE -- RE: Response s to interagency comments

DELIBERATIVE -- PRIVILEGED AND CONFIDENTIAL -- ATTORNEY WORK PRODUCT

Hi Chandana,

Attached please find written responses to the comments we received earlier; we're still working on responses to the ones from today, not sure that we'll have written answers by tomorrow at 11:30 but we'll see

what we can do.

Thanks, please let me know if you have any questions!

-Rebecca

________________________________
From: Achanta, Chandana L. [mailto:Chandana_L._Achanta@omb.eop.gov] Sent: Wed 3/24/2010 6:24 PM To: Charmley.William@epamail.epa.gov; Yoon, Rebecca (NHTSA) Subject: RE: Responses to interagency comments

Lets actually make this 11:30 please instead of 12. We can try to end by

12:30.

Lets use Bill's call in number:

Call: 866 299 3188 Code:734 214 4466#

thanks!

Chandana

From: Achanta, Chandana L. Sent: Wednesday, March 24, 2010 1:15 PM To: 'Charmley.William@epamail.epa.gov'; 'rebecca.yoon@dot.gov' Subject: RE: Responses to interagency comments

Lets discuss these at 3:15 today.

Please also hold 12 PM-1PM tomorrow in addition to the 4PM regularcall.

Thanks.

From: Achanta, Chandana L. Sent: Wednesday, March 24, 2010 12:41 PM To: Charmley.William@epamail.epa.gov; rebecca.yoon@dot.gov Subject: Responses to interagency comments

Bill, Rebecca

What is the status of getting responses to interagency comments?

Can we have a call either today or tomorrow morning?

Also, what is the update on a call with Commerce. I still need to get

back to them. Please let me know availabilities ASAP.

Thanks.

Chandana

[attachment "responses to interagency general comments -- 24 Mar 10 clean.doc" deleted by Tad Wysor/AA/USEPA/US]DRAFT – DELIBERATIVE – PRIV ILEGED AND CONFIDENTIAL

Responses to Inter-Agency Comments, 3/24/10

1. We suggest that EPA and DOT revise the Prea mble and RIAs to clearly differentiate between benefits to society in reduced externalities and th e value of private savings in fuel or time. Some suggestions are provided for S ections I and II below and they need to be followed-through for Sections III, IV and also the RIAs.

Response:

EPA declines to make additional changes to the package regarding this comment. We believe the package is already very clear regarding whic h categories of benefits are considered private vs. external (Preamble S ection III.H and IV.G.4)

NHTSA will make the recommended changes in Preamble Section IV and in NHTSA’s FRIA.

2.a We previously commented on the possibi lity that the NHTSA/EPA analysis may omit significant economic costs associated with the pr oposed rule, and/or th e baseline against which the rule’s impacts are measured is incorrectly characterized. The revised version of the preamble appears to address some of this concern. However, one remaining potential concern is that the NHTSA/EPA do not appear to consider the proposed standards may adversely affect the level of, or potential for, future improvements in any other vehicle attributes (apart from price and fuel economy) that consumers value. Both agenci es indicate their modeling holds these other

attributes constant while achie ving fuel economy standards, howe ver, this is different from allowing the other attributes to improve over time, which could have occurred in the counterfactual case of not tightening fuel economy standards. If that is the case, then the lack of improvement in other attributes would be an economic cost. While we do not know with certainty those attributes woul d have improved, it seems the possibility should be acknowledged as a potential cost.

Response:

This issue is discussed in deta il in Preamble Section II.B and II.E. In addition, NHTSA’s FRIA Chapter VIII, particularly Table VIII-18, includes th e possibility that other attributes might have been improved as a potential cost , although it does not attempt to estimate the magnitude of that cost. The final rule analysis is based on EPA’s and NHTSA’s best estimates of the fleet between 2012 and 2016. It is possible that these estimate s do not include vehicle changes that may have happened in the absence of this rule. It is especially difficu lt to identify what would have happened in the absence of the rule because au to makers have known that fuel economy would need to improve ever since the passage of EISA in 2007, and are likely to have made adjustments in their product plans to accommodate those require ments. In the absence of ways to identify other changes that would have happened in th e absence of the rule, EPA and NHTSA believe that our estimates provide the best available base line for analyzing the effects of this rule.

2b. A related baseline issue is the assump tion that absent the proposed rulemaking,

manufacturers would continue bu ilding vehicles that only meet the 2011 fuel economy standards despite the substantial savings NHTSA/EPA believe could be offered to consumers by furtherDRAFT – DELIBERATIVE – PRIV ILEGED AND CONFIDENTIAL

improving fuel economy. This too would be a count erfactual case, and th erefore unknowable, but it seems to warrant discussion. In particular, how se nsitive are the net benef its estimates to this assumption? If more detailed discussion is not included, we suggest ad ding language along the lines of the following to the final paragraph p. 332. “To the extent that some degree of fuel economy improvements may have occurred due to ma rket forces alone (a bsent the rule), the analysis overestimates private and social net benefits.”

Response:

On pp. 334-5, we currently state: “It is possible th at some of these savings would have occurred in the absence of the rule. If so, then some of the fuel savings, as well as some of the costs of the technology to achieve those savings, may be due to market forces, not to the rule itself. In the absence of robust means to identify the change s in fuel economy that would have occurred without the rule, we estimate the benefits and cost s under the assumption that the rule will lead to

more fuel-efficient vehicles than woul d have occurred without the rule.”

EPA has added the following statement, “To the extent that greater fuel economy improvement

than those assumed to occur under the baseline may have occurred due to market forces alone (absent the rule), the analysis overestimates pr ivate and social net benefits.” (See Preamble Section III.H).

NHTSA’s text in IV.G.4 already has similar language, excerpted below, which we think covers

the issue:

“NHTSA’s estimates of economic benefits fr om establishing higher CAFE standards are also subject to considerable uncertainty. Most important, the agency’s estimates of the fuel savings likely to result from adopting higher CA FE standards depend cr itically on the accuracy of the estimated fuel economy levels that wi ll be achieved under both the baseline scenario,

which assumes that manufacturers will continue to comply with the MY 2011 CAFE standards,

and under alternative increases in the standa rds that apply to MY 2012-16 passenger cars and light trucks.

Specifically, if the agency has underestimated the fuel economy levels that manufacturers will achieve under the baseline scenario, its estimat es of fuel savings and the resulting economic benefits attributable to the rule will be too large....”

2c. Similarly, the analysis omits economic valu ation of potential safety impacts of the proposed rule. We hope the forthcoming section on safety im pacts (sec. IV G 7) adequately addresses this concern, or explains why it is omitted and describes the potential estimation bias it creates.

Response: NHTSA has added a monetization of the fatality-re lated safety effects in Chapter IX of the FRIA as transmitted to OMB this afternoon; ho wever, we provide the following in Section IV.G.4 of the preamble stating that these dollar values are not in cluded in the main cost-benefit analysis:

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NHTSA notes that these estimates of the economic costs for meeting higher CAFE standards omit certain potentially important categories of costs, and may also reflect underestimation (or possibly overestimation) of so me 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 applying fuel -saving technologies to vehicles, the analysis imputes no cost to any actual reductions in vehi cle performance, capacity, and utility that may

result from manufacturer s’ efforts to comply with the final CAFE standards. Although these costs are difficult to estimate accurately, they nonetheless represent a notable category of omitted costs if they have not been ad equately accounted for in the co st estimates. Similarly, the agency’s estimates of net benefits for meeting higher CAFE standards does not estimate the economic value of potential decreases (or increases) in motor vehicle fatal ities and injuries that could result from reductions in the size or weight of vehicles. While NHTSA reports a range of estimates of these potential safety impacts belo w and in the FRIA (ranging from a net negative monetary impact to a net positive benefit for so ciety), no estimate of their economic value is included in the agency’s estimates of the net benefits resulting from the final standards.

2d. The last full paragraph on p. 570 lists several areas of climate change impacts that are said to not be quantified in cost of carbon estimates. Plea se double-check the list. It appears to include some impact areas that are considered by one or more of the models used to estimate the federal social cost of carbon by the USG.

Response:

NHTSA will check the list and make appropriate changes.

2e. Agencies should use both 3% and 7% as the ma in discount rate (not one or the other as a sensitivity analysis). We recommend changes throughout the documents to make this clear including the economic assumptions table.

Response:

The agencies intended to present net present va lues using both 3% and 7% discount rates. Upon further review we found a couple of places where net present values derived using only the 3% discount rate were presented. In those places, we have updated th e text and tables to include values derived using a 7% discount rate.

3. We recommend you add a discussion of the refe rence fleet in the Preamble and RIAs. The agencies calibrate the number of cars and trucks to match AEO 2010, but AEO 2010 models CAFÉ and explicitly says that it causes a shift toward driving fewer trucks. So the agencies are building some of the reaction to CAFÉ into their reference. We recommend both agencies explicitly highlight and clarify this point.

Response:

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This point is noted in the rulemaking documen ts, but the agencies do not believe that any bias that may introduce as a re sult is significant, as discussed below. EPA and NHTSA respond here to the question above, but also to comments # 27 and #34 from the interagency comments,

as well as a number of the commen ts contained in the draft rule itself regarding the use of AEO 2010 Early Release for the final rule.

We note that some of these issues are alre ady discussed in the dr aft rule, but the two agencies have added additional text to the rule making documents in order to provide additional clarity.

In the rulemaking, we utilize AEO forecasts for 3 inputs for our analysis: new vehicle sales, fuel prices, and the total number of cars and the total number of trucks for new vehicle

sales. EPA and NHTSA also noted that AEO 2010 Early Release indicated that it took into consideration the Sept 2009 NPRM for the National Program sta ndards. We have carefully analyzed the AEO 2010 Early Release and believe th at any bias which may exist from its use is small. We have developed a memorandum to be placed in the docket which is referenced in the existing rulemaking package on this issue. The memo includes a comparison of the AEO 2010 Early Release to the final AEO 2009, as well as several previous re leases. A careful examination shows that while the AEO 2010 Early Release indi cates they incorporated the Sept 2009 NPRM into their analysis, in fact th ey do not come anywhere close to the standards contained in the NPRM, and in fact in 2016 they have a lower projected new vehicle fleet mpg value then was contained in AEO 2009, even though the joint NPRM is much more stringent than the values predicted by AEO for the new ve hicle fleet in 2016 in AEO 2009.

We have also looked closely at the car-truck fleet split predicted in the past several AEOs, and this is included in the memorandum to the docket discussed above. The “shift” indicated in AEO 2010 early release is very sm all compared to AEO 2009, and actually goes in different directions depending on the year (b etween 2012 and 2016). When we examined the AEO car-truck splits from the prev ious several AEOs, it appears that this impact is driven much more by large economic events and predictions th an by AEO’s prediction of future regulatory standards impacting fuel efficiency.

The two agencies do not disagree that if possi ble, there would be a be nefit in predicting a

future baseline which existed in the absence of increases in fuel economy or GHG standards, and where we have been able to we have done so (as in the case of our VMT estimates). However, in this case we believe that using AEO for fuel price, total sales, and the car-truck split is the preferred method, both because we don’t believe a ny bias is significant, and because we have

few alternatives.

We have reviewed and added additional text to Section II, III and IV of the preamble and in Chapters 1 and 4 of the joint TSD to furthe r clarify what we have used and the potential

biases.

4. We recommend both agencies discuss the pote ntial for emissions leakage due to the rule. Reducing oil consumption will affect the world pri ce. The agencies have some estimates of how

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it will change based on the energy security analysis. This means that there will be a demand response on the part of the world market as a re sult of US actions. With increased oil use comes addition GHG emissions. The agencies should discuss how big this effect will be.

Response:

The agencies have added the following discussi on in Preamble Section III.H.8, and Section IV.G.2, and Joint TSD Chapter 4:

“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 o il would be an increase in the c onsumption of petroleum products outside the U.S., which would in turn lead to a modest increase in emissions of greenhouse gases, criteria air pollutants, and airborne toxics from their refining and use. While additional information would be needed to analyze this “leakage effect” in detail, NHTSA provides a sample estimate of its potenti al magnitude in its Final EIS. 1 This analysis indicates that the leakage effect is likely to offset only a modest fraction of the reduc tions in emissions projected to

result from the rule.”

5a. The vehicle sales section uses a five year payb ack period, but given that there is evidence that consumers will not buy a vehicle unless it pays back in less than three years (Kubik survey from 2006), we recommend EPA also pres ent an alternate analysis s howing how the result change when this value is used instead. It will likely be close to zero. We reco mmend you also note that the sales analysis hinges on how the agencies treat consumer welfare loss and the assumed consumer discount rate (it isn’t driven by a soci al rate but a private one.) evidence points to potentially much higher pr ivate discount rates.

Response:

The one comment we received on the payback pe riod, from the National Automobile Dealers Association, supported the use of a 5-year payback period. Note th at the Kubik study asks about payback without discounting, wh ile the 5-year payback period used here discounts the fuel savings. Thus, the difference between the analys is conducted here and the Kubik analysis is likely to be small.

In addition, we already know the answer qualita tively. As Section III.H.5 shows, the payback period is under 3 years for MY 2016 vehicles. Switching to a 3-year payback period will reduce the predicted increase in vehi cle sales, possibly making it nega tive in early years, but still positive in 2016. EPA has added further qualitative discussion in this section as follows: The estimates provided in Table III.H.5-1 and Ta ble 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 vehicle sales. As shown below, the overall impact is positive and growing over time for both cars and trucks. Because the fuel savings associated with this rule are e xpected to exceed the technology costs, the

1 NHTSA Final Environmental Impact Statement: Corporate Average Fuel Economy Standards, Passenger Cars and
Light Trucks, Model Years 2012

‐ 2016, February 2010, page 3

‐ 14..

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effective prices of vehicles (the adjusted increase in technology cost less the fuel savings over five years) to consumers will fall, and consumers will buy more new vehicles. As a result, the lower net cost of th e vehicles is projected to lead to an increase in sales for

both cars and trucks. Note this analysis has not accounted for a number of factors that might affect consumer vehicle purchases, su ch as changing market conditions, changes in vehicle characteristics that might accom pany improvements in fuel economy, or consumers considering a different “payback pe riod” for their fuel economy purchases. If consumers use a shorter payback period, the sa les impacts will be less positive, possibly negative; if consumers use a higher payback pe riod, the impacts will be more positive. Also, 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.

NHTSA will add similar la nguage in Section IV.G.5.

5b. The revised energy security benefits include two categories associated with supply disruption – one is a transfer and should probably be excl uded. While EPA and NHTSA discuss this issue, the agencies continue to include it and say th ey will examine the issue for future rulemaking. NYU School of Law argued the agencies should exclude wealth transfers from the supply disruption component. We recomme nd that the agencies evaluate this point and show what the

benefits would look like if this piece is excluded.

Response:

The agencies have added the following discussi on in Preamble Section III.H.8, and Section IV.G.4 and Joint TSD Chapter 4:

In the energy security lite rature, the macroeconomic disr uption component of the energy security premium traditionally has included both (1) increased payments for petroleum imports associated with a rapid increase in world oil pr ices, and (2) the GDP losses and adjustment costs that result from projected future oil price shocks. One commente r suggested that the increased payments associated with rapid increases in petr oleum prices represent transfers from U.S. oil consumers to petroleum suppliers rather than re al economic costs. From a global perspective, these payments should be excluded when estima ting the macroeconomic disruption component, since they could be considered transfers that have a net value of zero over the entire global

economy.

This approach would represent a signifi cant departure from how the macroeconomic disruption costs associated with oil price shoc ks have been quantified in the broader energy security literature, and the Agencies believe it should be analyzed in more detail before being applied in a regulatory context. In addition, there are r easons to treat the U.S. wealth loss due to higher import costs during disruptio ns differently than wealth transfers due to the exercise of monopoly or monopsony power. Specifically, price increases during disrup tions represent real resource shortages, risk premia , costly short-run supply and demand shifts by energy users, and

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other response costs, rather than losses to th e U.S. domestic economy that would be matched by offsetting gains elsewhere in the global economy. Thus, reducing their expected value provides real economic benefits, and they do not represent pur e transfers.

Further, if the Agencies agr eed to this alternative appr oach, then the macroeconomic disruption component of the energy security analys is should also take into account the estimated GDP losses for other oil-importing countries acro ss the globe that are lik ely to result from projected future oil shocks. The Agencies do not currently have sufficient information to provide estimates of the GDP impacts on othe r oil-importing countries of macroeconomic disruptions due to an oil-suppl y shock, but believe that accounting for these effects would more

than offset the exclusion of the wealth transfer effect that is included in the estimate of energy security externalities utilized in this rule.

6. We found no uncertainty analysis or sensi tivity analysis in the documents. Please conduct uncertainty analysis or sensitivit y analysis in the RIAs. Did the agencies already do them, but did

not include the documents?

Response:

While NHTSA and EPA each modeled their respec tive regulatory programs under the National Program, the analyses were generally consistent a nd featured similar parame ters and utilized the same basic inputs. NHTSA’s FRIA, Chapter X includes a sensitivity analysis, and Chapter XII includes a probabilistic uncertainty analysis. EPA did not conduct an overall uncertainty analysis of the impacts associated with its regulatory program, though it did conduct uncertainty and sensitivity analyses of individual compone nts of the analysis (e.g., uncertainty ranges associated with quantified and monetized non-GHG health impacts). As noted however,

NHTSA conducted a Monte Carlo simulation of the uncertainty associated with its regulatory program. The focus of the simulation model wa s variation around the chosen uncertainty parameters and their resulting impact on the key output parameters, fuel savings, and net benefits. Among other parameters, NHTSA varied technology costs, te chnology effectiveness, fuel prices, the values of oil consumption exte rnalities and the rebound e ffect. Because of the similarities between the two analyses, EPA refe rences NHTSA RIA Chapter XII as indicative of the relative magnitude, uncertainty and sensitivities of parameters of the cost/benefit analysis.

7. Please also conduct distributional analysis (e.g ., variability in effect s as a function of gas price and miles driven by particular individuals).

Response:

The results of the uncertainty analyses, describe d in the response above, provide a national-level distribution of impacts for gas pr ice and similar variables. NHTS A also shows the effects of the EIA high and low gas price forecasts on the aggregate benefits in the sensitivity analysis. Generally, this rule has the gr eatest impact on those individual s who purchase vehicles. The agencies have added language to Sections I II.H.4 and IV.G.8 clarifying that consumers who drive more than our mean estimates for VMT will see more fuel savings, and those who drive less than our mean VMT estimates will see less fuel savings.

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8. The standard for vehicles smaller than 41 sq. ft. is flat. Thus there would appear to be some incentive to downsize passenger cars and trucks in this size category. In light of NAS 2002 study “Effectiveness and Impact of CA FÉ Standards,” the preamble ne eds to explain clearly and in detail why the agencies do not expect any downs izing of vehicles in this footprint category, either by vehicle re-design or by in creased sales of vehicles with footprints under 41 sq. ft (such as the smart car, Yaris with 39.1, Fit 39.9, Aveo 38.4, Fiesta 39.3 etc). If there is downsizing, please include an estimate of safety effects of downsizing in this category (for both passenger cars and trucks).

Response:

There are two aspects of this comment. The fi rst involves the incentive to downsize vehicles within the flat region of the cu rve (<41 sq ft), and the second touches on the incentive to shift from larger cars into this same subcompact class. For the former, the comment is correct that

there is some incentive to downsi ze to make it easier to meet the target, but at the same time,

there’s a limit to the market for ever-smaller car s. Most people have some minimum expectation about interior volume, among other things. The ag encies believe that the number of consumers who will want vehicles significantly smaller than 41sq ft is very small. The agencies will add text to Preamble Section II.C discussing this issue.

Regarding the incentive to downsizing from a larg er category into this smallest subcompact category, the agencies have outlined in the rule how this shift is captured in the reference fleet. The CSM combined with AEO projections of the future fleet includes increased sales in this segment and the agencies incorporate this pr ojection into the 2012-2016 "reference fleet" (as shown in Chapter 1, table 1-15 of the TSD). The agencies are not predicting further penetration into this segment as a result of this rule since we do not have a market choice model with which to perform this analysis, though we acknowledge that this could result as a result in addition to drivers from other external factors (eg fuel price). However, the agencies feel any additional shift into this market segment as a result of the rule will be small and thus have minimal effects on safety. The agencies will add text to this section of the TS D to reflect this change.

9a. The TSD discusses uncertainties regarding the refueling benefit, but the preamble makes no mention of it. We recommend both agencies to cl early indicate all of the uncertainty regarding the refueling benefit estimate. Otherwise, the prea mble presents the estimate as a best estimate when in reality the agencies acknowledge that it is not a best estimate. We also recommend that the economic assumptions table not just include the time value. The $24.64 is only one part of the refueling benefit estimate. We recommend adding the average number of fewer refueling stops. And since the agencies ackno wledge that there are uncertainti es in how they’re calculated, we recommend that the economic assumptions ta ble include a footnote clarifying that the refueling estimate (or any other economic assumption that the agencies want to include) is biased

and is not a best estimate. You can clarify that the agencies us ed what limited information was

available and that further studies are underway, but we strongly recommend that the caveat be

included in the table itself a nd discussed in the preamble.

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Response:

As noted by the commenter, the Agencies provided an extensive discussion of the uncertainties in the refueling benefit in Join t TSD Section 4.2.10. In response to this comment, the agencies have added the following statement about uncertainties in Preamble Section II.F, preceding Table II.F-2, the summary table of Economic Values for Benefits Computations: “The agencies recognize that each of these values has some degree of uncertainty, which the agencies further discuss in the Joint TSD.” Altering the economic inputs table to include the average number of refueling stops would be inappropriate, as that par ticular metric is an output of the calculation. However, the agencies have added to the table the average percentage of tank filled per refueling

stop.

The Agencies also discuss the refueling benefit in their respective preamble Sections III.H.9 and IV.C.3.i. In response to the current inter-agency comment, EPA has expanded the Preamble Section III.H.9 discussion of uncertainty.

“Please note that for the estimated value of less frequent refueling events, EPA's estimate is subject to a number of uncertainties whic h we discuss in detail in Chapter 4.1.11 of the Joint TSD, and the actual value could be hi gher 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 cu rrent 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 gallon of fuel wh ich 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.”

NHTSA’s section IV.C.3.i c ontains similar language.

However, the Agencies disagree with the asserti on that the Agencies have not provided a best estimate of the refueling benefit. EPA and NHTSA provided OMB with a detailed briefing on this topic in January 2010. In this briefing, th e agencies discussed the inputs used in this calculation as well as the request for comment which was in th e proposal (page 49505). No

comments or new data were submitted in the public comment process. The Agencies additionally solicited from OMB an y studies which the two agencies can review and reference to improve upon the existing forecast methodology. In the absence of new data which could be cited, the Agencies intend to utilize the approach which is consistent with the past three CAFE rulemakings which have gone through full notice and comment. Given that the Agencies are using the best available data, and are providing a be st estimate, there is no need to additionally footnote usage of the refueling benefit estimate.

As previously discussed with OMB, to reduce the uncertainty in this calculation, a new project is being planned by DOT which will include a deta iled study of refueling events, using a random sample of refueling stations across the U.S. It is projected to include ~7,000 observations (time

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to refuel, # gallons refueled, etc.) and ~5,000 surv eys of refueling participants. The agencies anticipate that this will provide a robust data set on which to revi se many of the key inputs to the refueling benefit calculation. NHT SA is pursuing a significant new study to improve the data used in this calculation. The pl ans for this study are documented in the Joint Technical Support

Document.

10. Consumer Welfare: The preamble contains much discussion of the potential failings of consumers in the market for fuel economy. Yet th ere is no indication that the agencies’ forecasts are anything less than certain. We recommend th at both EPA and DOT indicate clearly in this section that the agency predictions of future co sts or fuel prices coul d possibly be less than accurate predictions of the market outcomes.

Response:

The agencies have an extensive discussion of fu el prices in Joint TSD Chapter 4, and NHTSA’s FRIA Chapter VIII. In addition, the agencies have added the following highlighted sentence to Preamble Section II.F, as noted in Comment #9:

The agencies recognize that each of these va lues 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 several assumptions includi ng (1) forecasts of future fuel prices, (2) the discount rate applied to future benefits and costs, (3) the magn itude of the rebound effect, (4) the value to the U.S. economy of reducing carbon di oxide emissions, (5) in clusion of the monopsony effect, and (6) the reduction in external economic costs resulting from lower U.S. oil imports. This information is provided in NHTSA’s RIA.

11. Is the OMEGA model publically available fo r downloading as well similar to the VOLPE

model?

Response:

OMEGA v1.0 has been available fo r download on EPA’s web site at: http://www.epa.gov/otaq/climate/models.htm since the NPRM was published in the Federal Register. This page will be updated with the la test version of OMEGA an d the inputs used for the final rule when the rule is published in the Federal Register.

Preamble Section I

12. Page 35 Line 18: In the discussion of electric ve hicle potential, it is wr itten, “In the future, if there were a program to control upstream emissi ons of GHGs, then the tailpipe level of zero gram/mile from these vehicles has the potenti al to produce very la rge reductions in GHG emissions, and to transform the transportati on sector’s contributi on to the country’s GHG emissions.” Would it be helpful to revise this to read “In the future, vehi cle fleet electrification

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combined with advances in low- carbon technology in the electricit y sector have the potential to transform the transportation se ctor’s contribution to the c ountry’s GHG emissions”? This revision might be helpful because under economy-wide cap-and-trade, GHG emissions across the electricity and transportation se ctors would both be covered, so it’s not clear that a transition

of the vehicle fleet to el ectrification would lead to higher total GHG reductions.

Response:

EPA has accepted this language and made change in Preamble I.B.4.e.

13a. Page 39 Summary of the costs and bene fits of NHTSA’s CAFE standard: The first paragraph of this section include s an economic benefits estimate calculated using a 3% discount

rate. Would it be beneficial to estimate usi ng the 7% discount rate, consistent with OMB guidance?

Response: See the response to Comment #2.e; NHTSA will make this change to the extent possible given time, with text edits first and table changes later.

13b. Additionally, would it be helpful to frame the discussion of private ve rsus social benefits and costs separately, and also present the quant itative estimates separa tely? In Table I.C.1-3, I.C.1-4, I.C.1-5a, and I.C.1-5b, having separate, not summed up, private and social benefits estimates in separate tables might make the benefits and costs easier to understand.

Response: See the response to Comment #1

14. Page 43 Summary of the costs and benefits of EPA’s GHG standards: Similarly, would it be beneficial to discuss the privat e and social benefits and cost s separately, an d separate the quantitative estimates as well? It may make sens e to drop Table I.C.2-2 or include the benefits disaggregated by category (or at least private vs. social).

Response : See the response to Comment #1

Preamble Section II

15. Page 101 Joint economic assumptions: In th e summary of the economic assumptions, a short discussion of the potential for a small global offsetting increase in GHG emissions resulting from the CAFÉ/GHG standards resulting from the anticipat ed decrease in petroleum prices might be beneficial. This impact could be discussed in the section on petroleum consumption and import

externalities or in its own section.

Response: See the response to Comment # 4

Preamble Section III – EPA Section

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16a. Page 329 top: Should the summary of th e final program costs in clude mention of the

welfare costs to the consumer? The discussion in the paper suggests that welfare costs exist but are likely small, not that they do not exist

Response:

We discuss potential consumer welfare losses on p. 336. EPA has incorporated them into our estimates of the technology costs, because the cost estimates in clude the costs of holding other

vehicle attributes constant. We further assume these costs are passed along to consumers as an increase in price.

16b. In that same paragraph it seems odd to list as part of the program benefits noise, congestion and accidents, since later on the preamble notes th at café is likely to increase vehicle miles

traveled. So is it more accurate to list noise, congestion and accidents as a cost?

Response:

To clarify this paragraph, EPA has revised it to read:

“The net benefits of EPA’s final program c onsist of the effects of the program on: · the vehicle program costs (costs of complying with the vehicle CO 2 standards, taking into account FFV credits 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, · noise, congestion, accidents, · other pollutants, · energy security impacts, · reduced refueling events · increased driving due to the “rebound” effect. “

17. Page 329 ¶ 2: Should the total monetized be nefits assume both a three and a 7% discount rate, consistent with OMB guidelines?

Response:

EPA has added the values using a 7% discoun t rate to the text of that paragraph.

18. Is there an inconsistency between claimi ng consumer welfare gains because consumers currently don't optimize, and also claiming that vehicle sales will increase because consumers will perceive a decrease in lifetime operating costs?

Response:

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Using a 5-year payback period in the vehicle sales analysis is not optimizing behavior on the part of consumers and thus does not present a conflict with the finding of fuel savings from the rule.

19. Page 332 line 14: Does the use of the term lo ss aversion to mean giving more attention to upfront costs than future fuel savings, on page 332, conflate concerns about loss aversion and high personal discount rates)? Some consumers may be more averse than others to high upfront

costs for the latter reason. Is it worth specifically mentioning hete rogeneity of discount rates in the discussion of the energy paradox?

Response:

The discussion already mentions consumer myop ia (which manifests itself as high discount rates) as a possible s ource of the “energy gap.”

High discount rates are a shorthand explanation for the observation that consumers don’t buy all the energy savings that make economic sense. It’s like an internal rate of return calculation: what discount rate does it appear that consumers are using, given the amount of energy savings they buy? It may or may not mean that consum ers actually discount in that way. Loss aversion, for instance, is one explanation for why c onsumers don’t buy all the cost-effective energy savings that doesn’t reflect hi gher discount rates. Lack of salience of energy savings is a different explanation. Either of these might explain the observation separately from myopia.

20. Page 334 line 12: Does the sentence that “Increasing fuel economy would have to lead to other changes in vehicles that consumers find undesirable for th ere to be additional losses not included in the technology costs" ignore other factors aside from vehicle characteristics that may lead to welfare loss, such as high discount rates, uncertainty about future oil prices, heterogeneity in vehicle miles traveled, or de ferred purchase of a new vehicle?

Response:

The discussion on p. 334 is about the concern that this rule might lead to changes in vehicle characteristics that consumers won’t like. (As discussed here, the cost analysis is based on holding vehicle characteristics other than price an d fuel economy constant.) High discount rates, uncertainty about future oil prices , and heterogeneity in vehicle mile s traveled refer to sources of uncertainty in our benefits analysis, not to factor s that affect consumer welfare associated with the vehicles they purchase. That is, those factors aff ect the calculation of fuel savings, not the utility a consumer gets from the vehi cle separate from the fuel savings.

Our analysis suggests that vehicle sales might increas e as a result of this rule. We consider this analysis as illustrative rather than conclusi ve and therefore do not include the benefits of

increased sales as a benefit of the rule. Because we do find this result, though, we do not want to create confusion by suggesting in other places that the vehicl e sales are likely to decrease.

21. Page 347: Should the discussion of the be nefits of reducing greenhouse gas emissions, starting on page 347, included discussion about the o ffsetting increase in emissions globally from a reduction in world oil prices that will result from a significant decline in US oil consumption?

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Response: See response to Comment #4.

22. Should the discussion of energy security impacts focus on oil consumption rather than oil imports, given that oil is pri ced on a global market so suppl y and demand shocks anywhere

would have adverse economic im pacts in the United States?

Response:

EPA has added the following discussion in Preamble Section III.H.8, and Joint TSD Chapter 4:

“ Because the price of oil is determined gl obally, supply and demand shocks anywhere in the world will have an adverse impact on the Un ited 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 estimate 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 with how much of the energy security litera ture reports energy security impacts. Since this rule is expected to have little impact on the U.S. supply of crude petroleum, a reduction in U.S. fuel consumption is expected to be reflected predominantly in re duced imports 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 would lik ely be somewhat larger, due to diminished sensitivity of the U.S. economy to oil supply s hocks that would accompany the reduction in oil consumption.

In addition, while the estimates of energy secu rity externalities used in this analysis depend on a combination of U.S. petroleum consum ption 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 petrol eum and refined products that is projected to

result from the rule in order to determine the be nefits that are likely to result from fuel savings and the consequent reduction in imports. Thus , the estimates of energy security externalities have been used in this analysis in a way that is completely consistent with how they are defined and measured in the ORNL analysis.”

Both RIAs General Comments

23. Please include an executive summary that outlines the key findings of the regulatory analysis, including key assumptions and uncertainties. It should have a table of costs and benefits

at the front.

Response:

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EPA will include an Executive Summary in the RIA (NHTSA’s RIA already included an Executive Summary).

24. The RIAs must have a statement of the need for regulatory action and an explanation of how the regulatory action will meet that need. This may be elsewhere in the document, but it should

be in the RIA.

Response: NHTSA and EPA will include such a st atement in their respective RIAs.

25. RIA identifies two alternat ive stringencies—4%/year and 6% /year and provides some data on costs and GHG reductions, but does not present the net benefits of these alternatives for comparison with the alternativ e chosen. It looks unfinished.

Response: This comment appears to be addressed only to EPA’s RIA, NHTSA’s considered many more alternative stringencies than 4 and 6%. Secti on III.D.7 of the preamble presents EPA’s analysis

of the two alternative standards we considered, the 4% per year a nd the 6% per year scenarios. As discussed in the preamble, EPA rejected the 4% per year approach based on our analysis of the per-vehicle costs of the standard and the level of technology required by the industry in comparison to the final CO2 standards. We pr esent a similar analysis for the 6% per year scenario and we detail our reasons for rejecting that alternative in the preamble as well. In both cases, EPA did not utilize a total program costs a nd benefits as a factor in our decision making process for rejecting the alternat ives. Thus, we did not calculate the detailed costs and benefits of the two alternatives, which is also the approach we used for the NPRM.

26. What does the analysis assume about the fu ture mix of cars in the absence new CAFÉ

rules? If gas prices ri se as the analysis predicts, there will undoubtedly be a shift to more

fuel efficient vehicles.

Response: See response to Comment #3.

NHTSA RIA A. The Executive Summary is pretty good, but in stead of the multiple tables should include a bottom line summary of costs and be nefits of the standard chosen and the alternatives, perhaps along with Table 9.

NHTSA response: We can do this.

B. There’s no discussion in the Summary of th e lost consumer surplus due to higher prices and/or consumer’s preferred vehicle not being available. Please include consumer welfare loss discussion prominently in the Summary.

NHTSA response: We can add a brief summary of the consumer welfare section of Chapter VIII to the Executive Summary.

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C. Manufacturers will eventually redesign their cars to try to loosen the constraint of the standards. This is happened with the advent of SUVs in response to the or iginal CAFE standards. Is it possible to discuss the likely effect s of the new standards on model design—e.g. manufacturers will have an incentive (to the exte nt possible) to expand the footprint of the vehicle relative to its size (move the wheels closer to the corners) in a way that may result in a non-optimally designed vehicle.

NHTSA response: We agree that this should be di scussed, we’ll look for a place for it.

D. The discussion of the effect that the reduction in gas use will have on military spending (pg. 414) seem speculative. What is this based on?

NHTSA response: This is an attempt to present the argument for including a reduction in military spending as an additional energy security benefit, not an argument that it should be included. After considering this argument, we elect not to include it because we find the argument unpersuasive, and this is clearly indi cated. We don’t think anything needs to be changed here.

E. DOT talks about the rule’s impact on oil im ports. Has DOT considered discussing that the increase in standards may lead to an increase in auto imports?

NHTSA response: No, this results only in transfer s and has no effect on the real economic

benefits or costs of the rule. What good would discussing it do?

F. DOT should acknowledge that the refueling time savings is not a best estimate similar to the TSD chapter 4.

NHTSA response: We’ll add the language from TSD Chapter 4 here.

G. We recommend that net benefits tables (e .g. Table 9) include a lin e for Consumer Surplus Loss due to Higher Vehicle Prices with entries that say “not estimated.”

NHTSA response: Tables VIII-17 and 18 in the FRIA clearly indica te this and discuss the reasons why this might be the case. As that di scussion indicates, higher vehicle prices are not the main source of consumer surplus losses, partic ularly since we argue that the value of fuel savings exceeds the estimated price increases. Also, adding this entry to tables that also include the technology costs would give the appearance that we are agnos tic about whether those costs are passed on to buyers, and in several places we assert that they will be. We don’t think it’s really necessary to add this line to every single table that has benefits.

TSD Chapter 1

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27. We are concerned that the calibration to the reference ve hicle fleet is based on AEO 2010 without first subtracting out the influence of the CAFE tailpipe st andards on these estimates. It therefore incorrectly includes the e ffect of the regulation in its ba seline. In particular, the early

release of AEO 2010 notes th at: [OMB footnote below]

AEO2010 assumes the adoption of CAFE standards jointly proposed by the EPA and NHTSA for LDVs in model years 2012 through 2016. The propos ed fuel economy standards for model year 2016 then modestly increase through the 2020 mode l year to meet the requirements of ISA2007. CAFE standards beyond 2020 are similar to thos e used in the updated AEO2009 reference case. To attain the mandated fuel economy levels, the AEO2010 reference ca se includes a rapid increase in sales of unconventional vehicle tech nologies, such as flex-fu el, hybrid, and diesel vehicles, as well as slower growth in sales of new light trucks.

The slower growth of new light trucks would produce the obser ved shift toward cars that is captured in the NHTSA-EPA baseline. The portion of this shift that is due to the proposed

standard/EISA should be subtracted out to attain a more accurate depiction of the fleet absent regulation.

[OMB footnote] This is also true in AEO 2009, though the proposed rule was not modeled precisely– instead it modeled EISA. EIA has sa id that the difference in the forecast from modeling and the proposed standards in stead of just EISA is small.

Response: See response to Comment #3.

TSD Chapter 2

28. The description of how attribute-standards affect safety should be modified to acknowledge

that to the extent a standard resu lts in an increased spread of th e distribution of vehicles by size on the road it would harm safety. To the extent it leaves this unchanged or reduces the spread it would not be expected to have a detrimental e ffect. The description on p. 2 only focuses on the way the standard affects downsiz ing, but upsizing of vehicles w ould also be detrimental to safety.

Response:

The agencies acknowledge that a wider spread of footprint is bad for safety, but we do not believe that there will be a signi ficant spreading of the footpr int distribution. We also don’t believe that there will be significant upsizing as a re sult of this rule, so don’t see a need to add

this statement or conduct additi onal analysis. The agencies do acknowledge that upsizing may

result from other external fact ors such a shift in consumer de mand (such as from fuel price shifts), but the agencies do not analyze these shifts in this rule. Text along these lines will be

added to section II.C.

29. The explanation for why a backstop for light -duty trucks and imported cars has not been adopted is a little odd. It notes that there is no need for a backstop because NHTSA and EPA feel

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there projections of future fleet mix are reliabl e (p. 3-4). However, we know that many factors that are inherently uncertain affect these proj ections, including fuel prices. It seems more accurate to say that there are many factors unre lated to the standard being finalized that significantly affect consumer preferences and are difficult to predict. At this time, NHTSA and EPA have decided against a backstop based on ava ilable information. If circumstances change in future years in unanticipated ways, they may want to revisit this decision.

Response: In our discussion of backstops in Preamble Section II, the agencies believe that we have properly balanced the need for confidence in our analys is, while acknowledging th at our projections are

uncertain. We believe that we have based our decision on the best available information. If the commenter has a specific addition or rationale they would like to add, we would be open to a suggestion.

30. The explanation for why the attribute curve for cars has not been adjusted very unsettling. NHTSA and EPA acknowledge that there are mistakes in the underlying data that were used to generate the proposed curves. However, because they do not like the resulting steepness of the

curve once those mistakes are corr ected, they have decided not to adjust the curve. P. 19 claims that the data support the or iginal slop as much as the refitted curve, but this claim is not clearly demonstrated and makes the curve appear somewhat arbitrary.

Response: The agencies are continuing to look into this comment.

TSD Chapter 3

31.Table 3-1A shows changes to the relative cost s of five technologies. Mo st look like relatively small changes, except for the last two tec hnologies which experien ce an 85 and 109 percent reduction in costs, respectively. And the last t echnology has actually become cheaper than the comparison technology when it was previously more expensive. I trust th ese cost updates are accurate, but given some of the large changes, fu rther explanation for the changes in costs seems

warranted.

Response:

The following changes have been made to TSD Ch3 immediately following Table 3-1.

Most notable in Table 3-1 is the change in costs for the 6-speed dual-clutch transmission relative to the 6-speed au tomatic transmission. We discuss this change in more detail in section 3.4.2.2.5, FEV’s tear down work found that a wet clutch DCT is $147 less costly than a 6 speed

auto transmission. This cost sa vings is not unexpected when one considers that the DCT is less complex than an auto transmission. However, FEV tear down cost analysis studies were conducted based on the assumption that the analy zed technologies and the manufacturing for those technologies were both fully “mature,” in that designs a nd manufacturing processes have been reasonably optimized. The studies also assumed that manufacturing facilities have annual production levels of 450,000 units. EPA and NHTS A recognize that in early implementation

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years, designs and manufacturing processes may not be optimized to that extent, and investment cost may exceed those of fully mature technologi es. To account for higher cost in the earlier implementation years of the rulemaking peri od, NHTSA and EPA estimated MY 2012 costs as the average of the FEV tear down study cost and the NPRM cost for technologies for which there were completed FEV tear down studies. Time-based le arning is used to reflect cost in later years. This approach is applied to downsizing and turbocharging for V6 and V8, stoichiometric gasoline direct-injection for V6 and V8, dua l clutch transmission and 6-speed automatic transmission. In the NPRM, the costs for tur bocharging, downsizing and SGDI for I4 engines

were based on an FEV teardown co st study that was completed prio r to release of the NPRM. For the final rule, these costs were carefully re viewed and updated to better account for early year implementation costs. We discuss all of the costs presente d in Table 3 1 in greater detail in

section 3.4.2 of this joint TSD.

32. Please further explain how NHTSA and EP A applied the 20 percen t learning curve in different ways. While the TSD says this only resu lts in small differences, it would be helpful to have a table that shows the implication for cost s using the EPA and the NHTSA approach for the six technologies to which volume-based learni ng curves were applied. This will make any differences between the way in which it has been applied more transparent.

Response:

The agencies appreciate the suggestion, but we believe that conducting such an analysis is probably unnecessary and that any differences are likely to be small, as discussed below. TSD Ch 3 currently reads as shown below (see TSD pa ge 3-20, just prior to the heading of section 3.4). This should explain the differences and, mo st importantly, note that the different handling of learning has no impact on 2016 costs.

“The different handling of l earning effects across the two an alyses (that done by EPA and that by NHTSA) would have little impact on the overall results of the analyses. NHTSA handles learning effects in the CAFE model. EPA handl es learning effects outsi de of the OMEGA model since OMEGA is run for only one model year - 2016. Because the CAFE model adds technology on a year-by-year basis, it applies volume-based learni ng effects once the applicable production volume thresholds have been exceede d. In contrast, EPA would not apply volumebased learning until year 3 (assumed to be the point at which initial production volumes have doubled). Most technologies in both analyses are subject to time- based learning which is applied on an annual basis in the same way by both ag encies (with the exception that NHTSA applies time-based learning in the CAFE model while EPA applies it outside the OMEGA model). Importantly, by the 2016 model year, both agencies will have applied two volume-based learning steps to the appropriate technol ogies (hybrid and electric vehi cles only) and four time-based learning steps to the appropriate technologies (most ot her technologies) to a rrive at the same technology costs.”

TSD Chapter 4

33. Consumer valuation of fuel economy and payback period: Is this chapter missing a discussion of how consumers value fuel savings? Could this section be the place for a discussion

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of consumer welfare issues relevant to fuel sa vings, including issues such as myopic decision making, imperfect information, heterogeneity in dr iving behavior and othe r consumer attributes, and heterogeneity in discount rate s? In particular, a discussion of the five year payback period assumption for calculating fuel savings benefits might make sense here.

Response:

EPA and NHTSA have separately described their approaches to consumer valuation of fuel economy in Preamble Sections III.H.1 and IV.G.6, rather than providing one discussion in the

TSD. EPA’s Preamble Section III.H.1 and RI A Section 8.1.3 include the payback period analysis. To clarify, however, the payback analysis is not relevant to th e agencies’ calculations of fuel savings. The agencies’ calculation of fu el savings are based on full vehicle lifetimes, not a payback period. The payback analysis is used only in our analysis of vehicle sales impacts, and in the OMEGA/Volpe modeling’s assessment of the ordering of technologies.

34. Baseline fuel price and consumption assumption: The chapter mentions that AEO 2009 (and now 2010 early release) was used in the analysis . The AEO projections from these years already incorporate the impact of the proposed fuel economy increase on prices and consumption. How does this impact the analysis? Wh at type of bias may be expect ed? Could a sentence or footnote acknowledging potential difficulties from relying on AEO data that already incorporate the new standard be a helpful explanation?

Response: See response to Comment #3.

35. Valuation of non-CO2 GHG reduction bene fits: Section 4.2.9.1 notes that CH4 and N20 reductions are translated into CO2 equivalent s using GWP to calculate total GHG reductions.

Were these non-C O2 GHG reductions also monetized using the new interagency social cost of carbon estimates? As the new SCC guidance notes, the interagency group determined that it is not appropriate to apply the SCC estimate to reductions in non-CO2 gases using GWP because these gases have different radiative forcings and atmospheric lifetimes. Thus, could it be appropriate to present quantified CO2e estimates that incorporate these gases but not include the non-CO2 gases in the monetized CO 2 benefit estimates? Based on th e description in Ch. 4, it is

not clear whether this was the approach taken by NHTSA and EPA.

Response:

EPA’s monetized GHG benefits do not include reductions in non-CO2 emissions (e.g., CH2, N20). Section 4.2.9.1 discusses emissions reductions (i.e., tons), not the economic valuation of those reductions (i.e., $/ton). The next se ction of the TSD, 4.2.9.2, discusses the economic

valuation and makes clear that we assigned a dollar value to re ductions in CO2. Similarly, the tables in the preamble and RIA each refer to the do llar benefits as “social cost of CO2” rather than “GHG,” and each table notes that we did no t estimate the dollar va lue of reductions in nonCO2 emissions. For NHTSA’s part, NHTSA neither converted CO2 reductions to CO2- equivalents nor monetized the value of non-CO2 emissions.

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36. Global petroleum consumption impacts: Sec tion 4.2.7 covers petroleum and energy security impacts, including a discussion of the monopsony impact on global petroleum prices from the reduction in U.S. imports attributable to the rule . However, the chapter is missing a discussion of the increase in global fuel consumption resulting from the drop in global fuel prices. The CAFÉ

rule would be expected to have a non-trivial impact on global fuel pric es, and if global fuel consumption experiences a corr esponding increase, some of the benefits of reduced fuel consumption in the U.S. will be partially offset. A qualitative discussion of this issue, and if possible, a quantitative estimate of the CO2 increase due to increa sed global petroleum consumption in both the TSD and the RIA (if not already included in the RIA) may be helpful. Language that NHTSA included in the EIS on this issue might be appropriate here:

o “The reductions in U.S. gasoline consumption and demand for crude petroleum projected to result from alternative increa ses in CAFE standards could le ad to reductions in global petroleum prices, and thus to lo wer gasoline prices throughout th e world. One result would be increases in gasoline consumption outside the U. S., which would lead to increased emissions of greenhouse gases, criteria air pollutants, and air borne toxics from global fuel production and use. These increases have the potential to offset a modest share of the reductions in emissions projected to occur as a consequence of lower fuel production and consump tion within the United States. A numerical example using Leiby’s (200 8 mean estimate of the sensitivity of global petroleum prices to changes in U.S. import dem and suggests that increase s in fuel consumption outside the U.S. could offset about 8 percent of the emissions reduc tions projected to result from

the alternative increases in CAFE standards analyzed in this FEIS.b Given the various uncertainties in our analyses, we consider 8 percent to be at the noise level.”

Response: See response to Comment #4.

37. Discount rate for fuel savings: Section 4.2.11 states that EPA and NHTSA use 3% as the primary discount rate for estimating fuel savings benefits, with 7% as a sensitivity. Should EPA

and NHTSA use the 7% discount ra te as a co-equal assumption, consistent with OMB guidance? To the extent that costs are largely passed ont o consumers, making the consumption rate of interest the appropriate disc ount rate, EPA and NHTSA note in the preamble that many consumers finance new vehicle purchases using cred it. Data from the Bureau of Labor Statistics’ Consumer Expenditure Surv ey (cited in Attanasio, Goldberg, and Kyriazidou 2008, International

Economic Review ) suggest that over 40% of consumers ta ke out a loan to help finance their vehicle purchases, with new vehicl e loan interest rate s averaging 7.6%. Thus, an interest rate closer to 7% than 3% may be justified even if all costs are passed onto consumers due to the prevailing interest rates f acing buyers of new vehicles.

Response: See response to Comment #2.e.

38. First, this analysis assumes that manufact urers will not adjust fu el tank capacities downward (from the current average of 19.3 gallons) when they improve the fuel economy of their vehicle models, so that the entire increase in fuel econo my will be reflected in increased driving range.

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

to zero benefits. On the other hand, vehicle space, utility and va lue could increase and vehicle

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22 weight will decrease, improving fuel economy and CO2 emissions (a ll other things being equal). In the context of the rule, this will decrease the cost of compliance with the standards

.

Second, the agencies’ analysis assumes that fuel purchases average 55 percent of fuel tank capacity. However, as shown in the Ca lifornia Air Resource Bo ard (CARB) report, refueling patterns vary. Moreover, the 55 percent estimate implies that drivers, on average , are either refueling when nearly a half tank of ga s remains in their vehicles, or that they are habitually not filling their tanks. Since many driv ers only refuel when their tanks are very low, and since many drivers habitually refuel, this in turn implies that many drivers in the CARB study are refueling when their ta nks are still well above 50 per cent full. While based on field data, this estimate may thus overestim ate the impact of refueling benefits.

Response: See response to Comment #9 regarding uncertainty.Light-duty Vehicle CAFE & GHG Final RuleEstimates of Vehicle Refueling BenefitsJoint Briefing for OMB/CEQ/CEAEPA and NHTSAJanuary 7, 2009NHTSA & EPA Material - Deliberative Process2NPRM ReviewNHTSA & EPA estimated the value of time savedfrom fewer refueling events consistent withNHTSAs 2011 CAFE Final RuleUpdated the % of average volume refueled based onCalifornia studyUpdated average fuel tank size using most recentcompany product plansPublic CommentsNHTSA and EPA received no comments on the refuelingvaluation estimates or the inputs used to generate thebenefitsNHTSA & EPA Material - Deliberative Process3OMB Request for a “Lower Bound”EstimateOMB recommends the agencies include a “lower bound”estimate for refueling benefit valuation. OMB recommendsseveral changes to the NPRM estimates to develop the“lower bound” estimate.First - The joint NPRM estimates that every time a vehicleis refueled, on average it is refueled 55%, based on asurvey done in California.OMB’s proposed “lower bound” wouldassume that 50% of the visitsto the gas station are not driven bythe need to refuel, and thus thereis no benefit from reducing the need for refueling from improved fueleconomy, and for the remaining 50%, the average level of refueling is75% (not the 55% used in the NPRM).Second - The joint NPRM estimates that on average thereare 1.6 people in the vehicle being refueled. This factorsinto the calculation of the value of people’s time that issaved from fewer refueling events.OMB’s proposed “lower bound” alternative would be to reduce theaverage number of people in the vehicle to be 1.3.NHTSA & EPA Material - Deliberative Process4NHTSA & EPA ResponseEPA and NHTSA do not agree with OMBs request:NPRM uses reference-able datasources where they are availableNo comments were received on this issueCurrent estimates used are not an “upper bound”, and EPA andNHTSA have not characterized it as suche.g., estimate of average refueling timecould easily be > 5minutes, especially ifany allowance is made for station search timeNPRM clearly stated estimation of reduced refueling valuation is uncertain andwe discussed the key areas of uncertaintyOMB has provided no basis for the three requested changesOMB assumes 1⁄2 of all trips to gas stations are independent of fueltank size -What is the sourcefor this value?OMB assumes that for 1⁄2 of remaining trips, the average refuelinglevel is 75% -What is the source for this value?OMB assumes that for the refueling events which are valued thenumber of occupants beyond the driver are reduced by 1⁄2 -What is thesource for this value?NHTSA & EPA Material - Deliberative Process5NHTSA & EPA Response, cont.NPRM clearly stated estimation of refueling benefit valuation is uncertainJoint FRM will discuss new project being undertaken by DOT which willinclude a detailed study of refueling events.Random sample of refueling stations across the U.S.Will include ~7,000 observations (time to refuel, # gallons refueled, etc.) and~5,000 surveys of refueling participant [two separate data sets]Will provide a robust data set on which torevise many of the key inputs to therefueling benefit calculation which OMB has raised concerns with:Miles driven and time out ofway to get to gas stationFuel gage level before and after refueling# gallons purchased# people in vehicle, above and below 16 years oldReasons for travelReason for stopping at gas station(e.g. fuel level too low, or other)Observations & surveys have not begun – are targeted for completion by Dec.2010Agencies will discuss this new surveyand commit to considering the resultsin any future rulemaking actions which estimates the value of reducedrefueling eventsNHTSA & EPA Material - Deliberative ProcessAppendixNHTSA & EPA Material - Deliberative ProcessNHTSA & EPA Material - Deliberative Process7Key inputs to refueling estimateParameterNPRM ValueSourceRefueling event time5 minutesNHTSA Estimate# people in vehicle1.6DOT National PersonalTransportation SurveyValue of Travel Time($/person hour)$15.40/person/hourDOT Guidance$ per Vehicle Hour$24.64CalculatedFraction tank refilled55%CARB ReportTank size19.3 gallonsMY 2011 ManufacturerProduct PlansTanks resized to off-setadditional fuel economy0%Joint NHTSA/EPA EstimateDemand-based refueling100%Joint NHTSA/EPA Estimate