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: Responses 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 regular 
call. 

 

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 – PRIVILEGED AND CONFIDENTIAL 

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

1. We suggest that EPA and DOT revise the Preamble and RIAs to clearly differentiate between 

benefits to society in reduced externalities and the value of private savings in fuel or time. Some 

suggestions are provided for Sections 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 which categories of benefits are considered private 

vs. external (Preamble Section 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 possibility that the NHTSA/EPA analysis may omit 

significant economic costs associated with the proposed rule, and/or the 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 agencies indicate their modeling holds these other 

attributes constant while achieving fuel economy standards, however, 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 would have improved, it seems the possibility should be acknowledged 

as a potential cost. 

Response: 

This issue is discussed in detail in Preamble Section II.B and II.E. In addition, NHTSA’s FRIA 

Chapter VIII, particularly Table VIII-18, includes the 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 estimates do not include vehicle changes that may have 

happened in the absence of this rule. It is especially difficult to identify what would have 

happened in the absence of the rule because auto 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 requirements. In the absence of ways to identify 

other changes that would have happened in the absence of the rule, EPA and NHTSA believe 

that our estimates provide the best available baseline for analyzing the effects of this rule. 

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

manufacturers would continue building vehicles that only meet the 2011 fuel economy standards 

despite the substantial savings NHTSA/EPA believe could be offered to consumers by further 
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

improving fuel economy. This too would be a counterfactual case, and therefore unknowable, but 

it seems to warrant discussion. In particular, how sensitive are the net benefits estimates to this 

assumption? If more detailed discussion is not included, we suggest adding 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 market forces alone (absent the rule), the 

analysis overestimates private and social net benefits.” 

Response: 

On pp. 334-5, we currently state: “It is possible that 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 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.” 

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 private 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 from 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 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 the MY 2011 CAFE standards, 

and under alternative increases in the standards 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 estimates of fuel savings and the resulting economic 

benefits attributable to the rule will be too large....” 

2c. Similarly, the analysis omits economic valuation of potential safety impacts of the proposed 

rule. We hope the forthcoming section on safety impacts (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-related safety effects in Chapter IX of the 

FRIA as transmitted to OMB this afternoon; however, we provide the following in Section 

IV.G.4 of the preamble stating that these dollar values are not included in the main cost-benefit 

analysis: 

2
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

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 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 applying fuel-saving technologies to vehicles, the analysis 

imputes no cost to any actual reductions in vehicle performance, capacity, and utility that may 

result from manufacturers’ 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 adequately accounted for in the cost 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 fatalities 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 below and in the FRIA (ranging from a net negative 

monetary impact to a net positive benefit for society), 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. Please 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 main 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 values 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 the text and tables to include 

values derived using a 7% discount rate. 

3. We recommend you add a discussion of the reference 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: 

3
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

 This point is noted in the rulemaking documents, but the agencies do not believe that any 

bias that may introduce as a result 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 comments 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 already discussed in the draft rule, but the two 

agencies have added additional text to the rulemaking 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 standards. We have carefully 

analyzed the AEO 2010 Early Release and believe that 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 releases. A careful examination 

shows that while the AEO 2010 Early Release indicates they incorporated the Sept 2009 NPRM 

into their analysis, in fact they 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 vehicle 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 small compared to AEO 2009, and actually goes in 

different directions depending on the year (between 2012 and 2016). When we examined the 

AEO car-truck splits from the previous several AEOs, it appears that this impact is driven much 

more by large economic events and predictions than by AEO’s prediction of future regulatory 

standards impacting fuel efficiency. 

 The two agencies do not disagree that if possible, there would be a benefit 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 any 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 further clarify what we have used and the potential 

biases. 

4. We recommend both agencies discuss the potential for emissions leakage due to the rule. 

Reducing oil consumption will affect the world price. The agencies have some estimates of how 

4
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

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 result 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 discussion in Preamble Section III.H.8, and Section 

IV.G.2, and Joint TSD Chapter 4: 

“The energy security analysis conducted for this 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 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 potential magnitude in its Final EIS.1

 This analysis indicates that the 

leakage effect is likely to offset only a modest fraction of the reductions in emissions projected to 

result from the rule.” 

5a. The vehicle sales section uses a five year payback 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 present an alternate analysis showing how the result change 

when this value is used instead. It will likely be close to zero. We recommend 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 social rate but a private one.) evidence points to 

potentially much higher private discount rates. 

Response: 

The one comment we received on the payback period, from the National Automobile Dealers 

Association, supported the use of a 5-year payback period. Note that the Kubik study asks about 

payback without discounting, while the 5-year payback period used here discounts the fuel 

savings. Thus, the difference between the analysis conducted here and the Kubik analysis is 

likely to be small. 

In addition, we already know the answer qualitatively. 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 vehicle sales, possibly making it negative 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 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 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 expected 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..

5
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

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 the 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, such as changing market conditions, changes in 

vehicle characteristics that might accompany improvements in fuel economy, or 

consumers considering a different “payback period” for their fuel economy purchases. If 

consumers use a shorter payback period, the sales impacts will be less positive, possibly 

negative; if consumers use a higher payback period, 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 language 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 excluded. While EPA and NHTSA discuss this issue, 

the agencies continue to include it and say they will examine the issue for future rulemaking. 

NYU School of Law argued the agencies should exclude wealth transfers from the supply 

disruption component. We recommend 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 discussion in Preamble Section III.H.8, and Section 

IV.G.4 and Joint TSD Chapter 4: 

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 increase 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 

payments associated with rapid increases in petroleum prices represent transfers from U.S. oil 

consumers to petroleum suppliers rather than real economic costs. From a global perspective, 

these payments should be excluded when estimating 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 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 

applied in a regulatory context. In addition, there are reasons to treat the U.S. wealth loss due to 

higher import costs during disruptions differently than wealth transfers due to the exercise of 

monopoly or monopsony power. Specifically, price increases during disruptions represent real 

resource shortages, risk premia, costly short-run supply and demand shifts by energy users, and 

6
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

other response costs, rather than losses to the 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 pure transfers. 

Further, if the Agencies agreed to this alternative approach, then the macroeconomic 

disruption component of the energy security analysis should also take into account the estimated 

GDP losses for other oil-importing countries across the globe that are likely to result from 

projected future oil shocks. The Agencies do not currently have sufficient information to 

provide estimates of the GDP impacts on other oil-importing countries of macroeconomic 

disruptions due to an oil-supply 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 sensitivity analysis in the documents. Please conduct 

uncertainty analysis or sensitivity analysis in the RIAs. Did the agencies already do them, but did 

not include the documents? 

Response:

While NHTSA and EPA each modeled their respective regulatory programs under the National 

Program, the analyses were generally consistent and featured similar parameters 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 components 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 was 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, technology effectiveness, 

fuel prices, the values of oil consumption externalities and the rebound effect. Because of the 

similarities between the two analyses, EPA references 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 effects as a function of gas 

price and miles driven by particular individuals). 

Response:

The results of the uncertainty analyses, described in the response above, provide a national-level 

distribution of impacts for gas price and similar variables. NHTSA 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 greatest impact on those individuals who purchase vehicles. The 

agencies have added language to Sections III.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. 

7
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

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 CAFÉ Standards,” the preamble needs to explain clearly and in 

detail why the agencies do not expect any downsizing of vehicles in this footprint category, 

either by vehicle re-design or by increased 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 first involves the incentive to downsize vehicles 

within the flat region of the curve (<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 downsize to make it easier to meet the target, but at the same time, 

there’s a limit to the market for ever-smaller cars. Most people have some minimum expectation 

about interior volume, among other things. The agencies 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 larger 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 projection 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 TSD 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 clearly indicate all of the uncertainty regarding 

the refueling benefit estimate. Otherwise, the preamble 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 acknowledge that there are uncertainties in how they’re calculated, 

we recommend that the economic assumptions table 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 used what limited information was 

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

included in the table itself and discussed in the preamble. 

8
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

Response: 

As noted by the commenter, the Agencies provided an extensive discussion of the uncertainties 

in the refueling benefit in Joint 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 particular 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 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, 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) that the average 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 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.” 

NHTSA’s section IV.C.3.i contains similar language. 

However, the Agencies disagree with the assertion 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, the agencies discussed the inputs used in this 

calculation as well as the request for comment which was in the proposal (page 49505). No 

comments or new data were submitted in the public comment process. The Agencies 

additionally solicited from OMB any 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 best 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 detailed study of refueling events, using a random 

sample of refueling stations across the U.S. It is projected to include ~7,000 observations (time 

9
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

to refuel, # gallons refueled, etc.) and ~5,000 surveys of refueling participants. The agencies 

anticipate that this will provide a robust data set on which to revise many of the key inputs to the 

refueling benefit calculation. NHTSA is pursuing a significant new study to improve the data 

used in this calculation. The plans 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 there is no indication that the agencies’ forecasts 

are anything less than certain. We recommend that both EPA and DOT indicate clearly in this 

section that the agency predictions of future costs or fuel prices could possibly be less than 

accurate predictions of the market outcomes. 

Response: 

The agencies have an extensive discussion of fuel 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 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 several assumptions including (1) forecasts of future fuel prices, (2) the 

discount rate applied to future benefits and costs, (3) the magnitude of the rebound effect, (4) the 

value to the U.S. economy of reducing carbon dioxide emissions, (5) inclusion 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 for downloading as well similar to the VOLPE 

model? 

Response: 

OMEGA v1.0 has been available for 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 latest version of OMEGA and 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 vehicle potential, it is written, “In the future, if 

there were a program to control upstream emissions of GHGs, then the tailpipe level of zero 

gram/mile from these vehicles has the potential to produce very large reductions in GHG 

emissions, and to transform the transportation sector’s contribution to the country’s GHG 

emissions.” Would it be helpful to revise this to read “In the future, vehicle fleet electrification 

10
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

combined 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”? This 

revision might be helpful because under economy-wide cap-and-trade, GHG emissions across 

the electricity and transportation sectors would both be covered, so it’s not clear that a transition 

of the vehicle fleet to electrification 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 benefits of NHTSA’s CAFE standard: The first 

paragraph of this section includes an economic benefits estimate calculated using a 3% discount 

rate. Would it be beneficial to estimate using 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 versus social benefits 

and costs separately, and also present the quantitative estimates separately? 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 private and social benefits and costs separately, and separate the 

quantitative estimates as well? It may make sense 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 the 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 anticipated 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

11
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

16a. Page 329 top: Should the summary of the final program costs include 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 include 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 that 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 consist of the effects of the program on: 

· the vehicle program costs (costs of complying with the vehicle CO2 standards, taking into 

account FFV credits through 2015, the temporary 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 benefits assume both a three and a 7% discount 

rate, consistent with OMB guidelines? 

Response: 

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

18. Is there an inconsistency between claiming 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: 

12
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

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 loss 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 heterogeneity of discount rates in 

the discussion of the energy paradox? 

Response: 

The discussion already mentions consumer myopia (which manifests itself as high discount 

rates) as a possible source 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 consumers actually discount in that way. Loss aversion, 

for instance, is one explanation for why consumers don’t buy all the cost-effective energy 

savings that doesn’t reflect higher 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 there 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 deferred 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 and fuel economy constant.) High discount rates, 

uncertainty about future oil prices, and heterogeneity in vehicle miles traveled refer to sources of 

uncertainty in our benefits analysis, not to factors that affect consumer welfare associated with 

the vehicles they purchase. That is, those factors affect the calculation of fuel savings, not the 

utility a consumer gets from the vehicle separate from the fuel savings. 

Our analysis suggests that vehicle sales might increase as a result of this rule. We consider this 

analysis as illustrative rather than conclusive 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 vehicle sales are likely to decrease. 

21. Page 347: Should the discussion of the benefits of reducing greenhouse gas emissions, 

starting on page 347, included discussion about the offsetting increase in emissions globally from 

a reduction in world oil prices that will result from a significant decline in US oil consumption? 

13
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

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 priced on a global market so supply and demand shocks anywhere 

would have adverse economic impacts 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 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 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 literature 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 reduced imports of petroleum and refined fuel. The 

estimated energy security premium associated with a reduction in U.S. petroleum consumption 

that leads to a reduction in imports would likely be somewhat larger, due to 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 energy security externalities used in this analysis 

depend on a combination of U.S. petroleum 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 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: 

14
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

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 statement in their respective RIAs. 

25. RIA identifies two alternative 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 alternative 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%. Section III.D.7 of the preamble presents EPA’s analysis 

of the two alternative standards we considered, the 4% per year and 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 present 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 and benefits as a factor in our decision making 

process for rejecting the alternatives. 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 future mix of cars in the absence new CAFÉ 

rules? If gas prices rise 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 instead of the multiple tables should include a 

bottom line summary of costs and benefits 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 the 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. 

15
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

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 original CAFE standards. 

Is it possible to discuss the likely effects of the new standards on model design—e.g. 

manufacturers will have an incentive (to the extent 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 discussed, 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 indicated. We don’t think anything needs to be 

changed here. 

E. DOT talks about the rule’s impact on oil imports. Has DOT considered discussing that the 

increase in standards may lead to an increase in auto imports? 

NHTSA response: No, this results only in transfers 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 line 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 indicate this and discuss the 

reasons why this might be the case. As that discussion indicates, higher vehicle prices are not 

the main source of consumer surplus losses, particularly 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 agnostic 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

16
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

27. We are concerned that the calibration to the reference vehicle fleet is based on AEO 2010 

without first subtracting out the influence of the CAFE tailpipe standards on these estimates. It 

therefore incorrectly includes the effect of the regulation in its baseline. In particular, the early 

release of AEO 2010 notes that: [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 proposed fuel economy standards for model year 

2016 then modestly increase through the 2020 model year to meet the requirements of ISA2007. 

CAFE standards beyond 2020 are similar to those used in the updated AEO2009 reference case. 

To attain the mandated fuel economy levels, the AEO2010 reference case includes a rapid 

increase in sales of unconventional vehicle technologies, such as flex-fuel, 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 observed 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 said that the difference in the forecast from 

modeling and the proposed standards instead 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 results in an increased spread of the 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 effect. The description on p. 2 only focuses on the 

way the standard affects downsizing, but upsizing of vehicles would 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 significant spreading of the footprint distribution. We also don’t 

believe that there will be significant upsizing as a result of this rule, so don’t see a need to add 

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

result from other external factors such a shift in consumer demand (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 

17
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

there projections of future fleet mix are reliable (p. 3-4). However, we know that many factors 

that are inherently uncertain affect these projections, including fuel prices. It seems more 

accurate to say that there are many factors unrelated 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 available 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 analysis, while acknowledging that 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 corrected, they have decided not to adjust the curve. P. 19 claims 

that the data support the original 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 costs of five technologies. Most look like relatively 

small changes, except for the last two technologies which experience an 85 and 109 percent 

reduction in costs, respectively. And the last technology has actually become cheaper than the 

comparison technology when it was previously more expensive. I trust these cost updates are 

accurate, but given some of the large changes, further 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 automatic 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 savings 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 analyzed technologies and the manufacturing for 

those technologies were both fully “mature,” in that designs and manufacturing processes have 

been reasonably optimized. The studies also assumed that manufacturing facilities have annual 

production levels of 450,000 units. EPA and NHTSA recognize that in early implementation 

18
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

years, designs and manufacturing processes may not be optimized to that extent, and investment 

cost may exceed those of fully mature technologies. To account for higher cost in the earlier 

implementation years of the rulemaking period, 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 learning 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, dual clutch transmission and 6-speed automatic 

transmission. In the NPRM, the costs for turbocharging, downsizing and SGDI for I4 engines 

were based on an FEV teardown cost study that was completed prior to release of the NPRM. 

For the final rule, these costs were carefully reviewed and updated to better account for early 

year implementation costs. We discuss all of the costs presented in Table 3 1 in greater detail in 

section 3.4.2 of this joint TSD.

32. Please further explain how NHTSA and EPA applied the 20 percent learning curve in 

different ways. While the TSD says this only results in small differences, it would be helpful to 

have a table that shows the implication for costs using the EPA and the NHTSA approach for the 

six technologies to which volume-based learning 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 page 3-20, just prior to the heading of section 

3.4). This should explain the differences and, most importantly, note that the different handling 

of learning has no impact on 2016 costs. 

“The different handling of learning effects across the two analyses (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 handles learning effects outside 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 learning effects once the applicable 

production volume thresholds have been exceeded. 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 agencies (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 technologies (hybrid and electric vehicles only) and four time-based 

learning steps to the appropriate technologies (most other technologies) to arrive 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 

19
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

of consumer welfare issues relevant to fuel savings, including issues such as myopic decision 

making, imperfect information, heterogeneity in driving behavior and other consumer attributes, 

and heterogeneity in discount rates? 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 RIA Section 8.1.3 include the payback period 

analysis. To clarify, however, the payback analysis is not relevant to the agencies’ calculations 

of fuel savings. The agencies’ calculation of fuel 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? What type of bias may be expected? 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 benefits: Section 4.2.9.1 notes that CH4 and N20 

reductions are translated into CO2 equivalents 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 CO2 benefit estimates? Based on the 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 section of the TSD, 4.2.9.2, discusses the economic 

valuation and makes clear that we assigned a dollar value to reductions in CO2. Similarly, the 

tables in the preamble and RIA each refer to the dollar benefits as “social cost of CO2” rather 

than “GHG,” and each table notes that we did not estimate the dollar value 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. 

20
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

36. Global petroleum consumption impacts: Section 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 prices, and if global fuel 

consumption experiences a corresponding 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 increased 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 increases in CAFE standards could lead to reductions in global 

petroleum prices, and thus to lower gasoline prices throughout the 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 airborne 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 consumption within the United 

States. A numerical example using Leiby’s (2008 mean estimate of the sensitivity of global 

petroleum prices to changes in U.S. import demand suggests that increases in fuel consumption 

outside the U.S. could offset about 8 percent of the emissions reductions 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 rate as a co-equal assumption, consistent with OMB guidance? 

To the extent that costs are largely passed onto consumers, making the consumption rate of 

interest the appropriate discount rate, EPA and NHTSA note in the preamble that many 

consumers finance new vehicle purchases using credit. Data from the Bureau of Labor Statistics’ 

Consumer Expenditure Survey (cited in Attanasio, Goldberg, and Kyriazidou 2008, International 

Economic Review) suggest that over 40% of consumers take out a loan to help finance their 

vehicle purchases, with new vehicle loan interest rates 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 facing buyers of new vehicles. 

Response: See response to Comment #2.e. 

38. First, this analysis assumes 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, so that the entire increase in fuel economy 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 value could increase and vehicle 

21
DRAFT – DELIBERATIVE – PRIVILEGED AND CONFIDENTIAL 

22

weight will decrease, improving fuel economy and CO2 emissions (all 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 California Air Resource Board (CARB) report, 

refueling patterns vary. Moreover, the 55 percent estimate implies that drivers, on average, are 

either refueling when nearly a half tank of gas remains in their vehicles, or that they are 

habitually not filling their tanks. Since many drivers 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 tanks are still well above 50 percent full. While based on field 

data, this estimate may thus overestimate the impact of refueling benefits. 

Response: See response to Comment #9 regarding uncertainty. 
Light-duty Vehicle CAFE & GHG 

Estimates of Vehicle Refueling 

Joint Briefing for OMB/CEQ/CE

EPA and NHTSA

January 7, 2009

NHTSA & EPA Material - Deliberative Process
NPRM Review

 NHTSA & EPA estimated the value o

from fewer refueling events consistNHTSAs 2011 CAFE Final Rule

 Updated the % of average volume refue

California study

 Updated average fuel tank size using m

company product plans

 Public Comments

 NHTSA and EPA received no comments 

valuation estimates or the inputs used tbenefits

NHTSA & EPA Material - Deliberative Process
OMB Request for a “LoweEstimate

 OMB recommends the agencies include a “

estimate for refueling benefit valuation. Oseveral changes to the NPRM estimates to “lower bound” estimate.

 First - The joint NPRM estimates that every 

is refueled, on average it is refueled 55%, survey done in California. 

 OMB’s proposed “lower bound” would assume tha

to the gas station are not driven by the need to ris no benefit from reducing the need for refueling economy, and for the remaining 50%, the averag75% (not the 55% used in the NPRM).

 Second - The joint NPRM estimates that on 

are 1.6 people in the vehicle being refueledinto the calculation of the value of people’s saved from fewer refueling events. 

 OMB’s proposed “lower bound” alternative would 

average number of people in the vehicle to be 1.3

NHTSA & EPA Material - Deliberative Process
NHTSA & EPA Response

EPA and NHTSA do not agree with OMBs request: NPRM uses reference-able data sources where t No comments were received on this issue Current estimates used are not an “upper boun

NHTSA have not characterized it as such

 e.g., estimate of average refueling time could easily be 

any allowance is made for station search time

 NPRM clearly stated estimation of reduced refueling valu

we discussed the key areas of uncertainty

 OMB has provided no basis for the three reques

 OMB assumes 1⁄2 of all trips to gas stations are in

tank size - What is the source for this value?

 OMB assumes that for 1⁄2 of remaining trips, the a

level is 75% - What is the source for this value?

 OMB assumes that for the refueling events which 

number of occupants beyond the driver are reduc

source for this value? 

NHTSA & EPA Material - Deliberative Process
NHTSA & EPA Response, 

 NPRM clearly stated estimation of refueling benefit va Joint FRM will discuss new project being undertaken b

include a detailed study of refueling events.

 Random sample of refueling stations across the U.S. Will include ~7,000 observations (time to refuel, # gallo

~5,000 surveys of refueling participant [two separate da

 Will provide a robust data set on which to revise many o

refueling benefit calculation which OMB has raised conce

 Miles driven and time out of way to get to gas station Fuel gage level before and after refueling # gallons purchased # people in vehicle, above and below 16 years old Reasons for travel Reason for stopping at gas station (e.g. fuel level too low, or 

 Observations & surveys have not begun – are targeted f

2010

 Agencies will discuss this new survey and commit to 

in any future rulemaking actions which estimates the refueling events

NHTSA & EPA Material - Deliberative Process
Appendix

NHTSA & EPA Material - Deliberative Process
NHTSA & EPA Material - Deliberative Process 

Key inputs to refueling esti

Parameter NPRM Value 

Refueling event time 5 minutes # people in vehicle 1.6 Value of Travel Time($/person hour)

$15.40/person/hour 

$ per Vehicle Hour $24.64 Fraction tank refilled 55% Tank size 19.3 gallons Tanks resized to off-set additional fuel economy

0% J

Demand-based refueling 100% J