Subject: Summary of additional interagency working comments received on draft rule under EO 12866 review 

Sent: 11/04/2011 05:33 PM AST

From: "Achanta, Chandana L." [Chandana_L._Achanta@omb.eop.gov]

 To: William Charmley; "Steve.Wood@dot.gov" <Steve.Wood@dot.gov>; "Neil.Eisner@dot.gov" 

<Neil.Eisner@dot.gov>; "'james.tamm@dot.gov' (james.tamm@dot.gov)" <james.tamm@dot.gov>

 

Please find attached additional interagency working comments received on draft NPRM 

under EO 12866 and EO 13563 review. They are for your consideration and are subject to 

further policy review. 

 

Summary of Interagency Working Comments on draft rule under EO 12866.pdf 

 
Subject: EPA and NHTSA responses to a subset of the Nov. 4, 2011 interagency comments Chandana 

Date: 11/09/2011 11:43 PM 

From: William Charmley/AA/USEPA/US 

To: "Chandana Achanta" <Chandana_L._Achanta@omb.eop.gov> 

Cc: "Ed Nam" <Nam.Ed@epamail.epa.gov>, "Robin Moran" <Moran.robin@epa.gov>, "Rebecca Yoon" 

<rebecca.yoon@dot.gov>, "Jim Tamm" <james.tamm@dot.gov> 

Attached are responses to many, though not all, of the comments from the interagency group 

provided to EPA and NHTSA on Friday evening (November 4). The interagency comments from 

November 4 included 60 questions. In the attached we have responded to the following; 

3, 4, 6, 8, 10, 12, 16, and 21 - 56 

EPA and NHTSA continue to work on the remaining questions and we will provide responses as 

quickly as we can. 

 

Thanks 

Bill 

 

EPA and NHTSA Subset of Responses to Interagency Comments received 11.4.2011.docx 

 
Subject: Responses to interagency comments from Nov. 1 and Nov 4 

Date: 11/10/2011 10:53 PM 

From: William Charmley/AA/USEPA/US 

To: "Chandana Achanta" <Chandana_L._Achanta@omb.eop.gov> 

Cc: "Robin Moran" <Moran.robin@epa.gov>, "Ed Nam" <Nam.Ed@epamail.epa.gov>, "Jim Tamm" 

<james.tamm@dot.gov>, "Rebecca Yoon" <rebecca.yoon@dot.gov> 

Chandana, 

 

Attached are additional responses to a number of the interagency comments. Specifically: 

 

- Question 1 from the November 1, 2011 interagency comments (the one 

outstanding comment we have not yet responded to) 

- Questions 7, 9, 11, 13, 15, 18, 20, 59, and 60 from the November 4, 2011 

interagency comments. The outstanding comments we have not yet provided 

responses to from the November 4, 2011 interagency comments are questions 1, 2, 5, 

14, 19, 57, and 58. 

 

Thanks 

Bill 

Responses to subset of Interagency Comments received 11.4.2011, and Q1 from 11.1.2011.docx 

 
Subject: EPA and NHTSA responses to the remaining interagency comments from November 4, 2011. 

Date: 11/11/2011 01:28 PM 

From: William Charmley/AA/USEPA/US 

To: "Chandana Achanta" <Chandana_L._Achanta@omb.eop.gov> 

Cc: "Jim Tamm" <james.tamm@dot.gov>, "Rebecca Yoon" <rebecca.yoon@dot.gov>, "Robin Moran" 

<Moran.robin@epa.gov>, "Ed Nam" <Nam.Ed@epamail.epa.gov> 

Chandana 

 

 

This document contains responses from EPA and NHTSA to the remaining interagency 

comments provided on 11.4.2011. EPA and NHTSA provided response to the other comments 

from the 11.4.2011 request on November 9, 2011 and November 10, 2011. 

 

Thanks 

Bill 

 

EPA and NHTSA 11.11.2011 Responses to Remaining Interagency Comments received 11.4.2011.docx 

 
Subject: Summary of additional draft interagency working comments received on draft rule under EO 12866 review 

Sent: 11/11/2011 10:53 PM EST

 From: "Achanta, Chandana L." [Chandana_L._Achanta@omb.eop.gov]

 To: William Charmley; "'Steve.Wood@dot.gov'" <Steve.Wood@dot.gov>; "'Neil.Eisner@dot.gov'" 

<Neil.Eisner@dot.gov>; "''james.tamm@dot.gov' (james.tamm@dot.gov)'" <james.tamm@dot.gov>; 

"'rebecca.yoon@dot.gov'" <rebecca.yoon@dot.gov>

 

Please find attached additional draft interagency working comments received on draft NPRM under EO 

12866 and EO 13563 review. They are for your consideration and are subject to further policy review. 

 

Thanks. 

Chandana 

Summary of Draft Interagency Working Comments received on draft rule under EO 12866.pdf 

 
Subject: EPA responses to interagency comments from November 8, 2011 

Sent: 11/11/2011 12:46 PM EST

From: William Charmley 

To: "Chandana Achanta" <Chandana_L._Achanta@omb.eop.gov>

 Cc: Ed Nam; "Robin Moran" <Moran.robin@epa.gov>; "Jim Tamm" <james.tamm@dot.gov>; "Rebecca Yoon" 

<rebecca.yoon@dot.gov>

 

Chandana, 

 

Attached you will find responses from EPA to the interagency comments from November 8, 

2011. 

 

NHTSA is also reviewing these Interagency Comments, as well as the EPA responses below, and 

EPA may supplement our response based on further review within EPA and/or information we 

receive from NHTSA. 

 

EPA response to 11.8.2011 Interagency comments.docx 
Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to

further policy review.

1

Below is a summary of interagency comments received during EO 12866 and EO 13563 review 

of the draft rule “Joint Rulemaking to Establish Light-Duty Vehicle Greenhouse Gas Emission 

Standards and Corporate Average Fuel Economy Standards”. They are for your consideration 

and subject to further policy review. 

 

1. At least two unconventional assumptions appear to be necessary to yield a prediction that 

sales of new vehicles will increase as a result of this rule. One is that all automakers 

consistently and predictably forego profit opportunities amounting to hundreds, if not 

thousands, of dollars per vehicle. Another, though not explicitly stated in the analysis, is 

that the projections made today about future technology costs, fuel prices, consumer 

preferences, etc., in the years 2017-25 are more reliable than they will be at any time 

between now and when that time arrives. Interagency commenters request that agencies 

make both assumptions clearly explicit and provide empirical evidence such as peerreviewed research to support both. 

2. In the analysis of consumer welfare in Section III.H.1, the agencies include uncertainty 

and irreversibility as one explanation of consumers undervaluing fuel economy. 

However, commenters note that the argument is explicitly a “rational consumer” 

argument: it says that consumers rationally apply a higher apparent discount rate to future 

fuel savings in the face of uncertainty about fuel prices. As a result, this argument does 

not appear to provide a justification for DOT/EPA’s use of deterministic projections of 

fuel savings to calculate consumer welfare. Commenters request agency views on this 

point. 

3. Another potential factor in explaining consumer purchase decisions is lack of information 

about, and or/ the salience of, fuel economy in vehicle purchase decisions. The recent 

effort to revise the fuel economy label was intended to address this problem. Interagency 

commenters request agency response on how the new fuel economy labels are likely to 

change the information available to consumers and/or the salience of fuel economy in 

those decisions and how vehicle purchase decisions are likely to change as a result of the 

new labels. Is there empirical evidence on whether and how past fuel economy labels 

have changed purchase decisions? 

EPA RIA specific comments. Please note that interagency comments are included in the 

comment boxes. Text of relevant discussion is pasted below for context and easy reference: 
Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to

further policy review.

2

4. 3-13: EPA TEXT: “While it is not possible to know with certainty the future fleetwide 

GHG emissions performance in the absence of more stringent standards, EPA believes 

that this approach is the most reasonable assumption for developing the reference case 

fleet for MY 2017-2025. One important element supporting the proposed approach is 

that AEO2011 projects relatively stable gasoline prices over the next 15 years, dropping 

 to $3.25 in 2017 (less than the average gasoline price in 2011 to date), and then rising 

slowly to $3.54 per gallon in 2025 (similar to the average gasoline price in 2011).” 

5. 3-14: “The 1975-1985 and 2004-2010 timeframes are not relevant in this regard due to 

either rising gasoline prices, rising CAFE standards, or both. Thus, the 1986-2003 period 

is an excellent analogue in many ways to the period out to MY 2025 during which AEO 

projects stable gasoline prices. EPA staff have analyzed the fuel economy trends data 

from the 1986-2003 timeframe and there are three clear conclusions: 1) there was a 

small, industry-wide, over-compliance on the order of 1-2 mpg or 3-4%, 2) almost all of 

this industry-wide over-compliance was from 3 companies (Toyota, Honda, and Nissan) 

that produced smaller and lighter vehicles relative to the industry average and which 

therefore naturally and essentially necessarily over-complied with the universal CAFE 

standards that did not vary by footprint, and 3) full line car and truck manufacturers, such 

as General Motors, Ford, and Chrysler, which produced larger and heavier vehicles 

relative to the industry average and which were constrained by the universal CAFE 

standards, rarely over-complied during the entire 18-year period .”[1]

6. 4-12: “Consistent with the MYs 2012-2016 rule analysis, EPA did not allow EVs and 

PHEVs (maximum penetration caps of zero) in the reference case. While the penetration 

of EVs and PHEVs in MY 2016 will like be non-zero, as they are being sold in MY 2011, 

EPA chose not to include these technologies in the reference case assessment due to their 

cost-distorting effects on the smallest companies. For further discussion see RIA Chapter 

3.” 

                                                            

[1] See Regulatory Impact Analysis, Chapter 3.

Comment [A1]: Dropping from what? 

Comment [A2]: Please double check this. Fuel 

economy in AEO goes up over time for all types 

listed. 

Comment [A3]: AEO has gas prices rising about 

10% over 2017 - 2025 

Comment [A4]: Assuming the FE is lagged by 

one year following price changes the previous year, 

the last three years (2001-2003) are all over 

compliance years --- they also correspond to years 

(2000 – 2002) with the highest gas prices. A 

regression would likely show consumers and 

producers respond to higher gasoline prices. (e.g., 

see CBO 2008: 

http://www.cbo.gov/ftpdocs/88xx/doc8893/01-14-

GasolinePrices.pdf) The average price 1986 – 1999 

was $1.50; whereas 2000 – 2002 price averaged 

$1.67 (increase in 11%). This seems to suggests that 

when prices rise fuel economy is valued as a vehicle 

attribute. This point questions assumption of market 

failure for fuel economy. Interagency commenters 

request response from agencies on this point. 

Comment [A5]: What is the projection for EVs 

and PHEV’s in 2016 that was included in the final 

RIA for that rulemaking? What was assumed in the 

Fuel Economy Labeling rule? 
Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to

further policy review.

3

7. 8-1: Interagency commenter notes that EPA uses the GDP deflator . Commenter requests 

clarity on why agencies do not use the CPI or the PCE deflators specific to cars and light 

trucks? 

8. 8-2: “The analysis starts with the increase in costs estimated by the OMEGA model. We 

assume that these costs are fully passed along to consumers. This assumption is 

appropriate for cost increases in perfectly competitive markets. “ 

9. 8-3: Interagency commenters note that the discussion of loans at 5.5% rate and personal 

discount rate at 3% and 7% seems odd. Commenters understand that to mean that 

agencies are suggesting that borrowing money is saving money? Commenters request 

agency clarification. The risk-free rate of return is very low at the moment. Commenters 

note that borrowing to buy a car shouldn’t reduce the cost, but should result in some 

increase in costs. Commenters request agencies to provide more discussion of this to 

explain the assumption better. 

10. 8-3: “The fuel cost savings are based on the five years of consumer ownership of the 

vehicle. The analysis is done for each model-year for an average vehicle. Chapter XX of 

this DRIA discusses the source of aggregate fuel savings, in dollars, for cars and trucks 

for each model year by year. “ 

11. 8-4: “The fuel cost savings are subtracted from the increase in costs associated with the 

rule to get the net effect of the rule on consumer expenditure. The higher cost leads 

consumers to purchase fewer new vehicles, but the fuel savings can counteract this 

effect. This calculation uses an elasticity of demand for new vehicles of -1:[i] that is, an 

increase of 1% in the price of a new vehicle will lead to a 1% reduction in new vehicle 

sales. “ 

12. Commenters request clarity on what are the baseline sales assumptions? 

13. Interagency commenters recommend that agencies provide an uncertainty analysis that 

provides a sensitivity of different fuel prices and different consumer responses to higher 

priced vehicles. 

Comment [A6]: Would this suggest that the 

repurchase decision will be delayed? 

Comment [A7]: Where can commenters find 

these in this RIA? 

Comment [A8]: Commenters note that this is the 

same assumption since the 2008 CAFÉ. Is there any 

new literature on this? 
Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to

further policy review.

4

14. . “These complications add considerable uncertainty to our vehicle sales impact 

analysis.” 

15. 8-6: . “The evidence from consumer vehicle choice models indicates a huge range of 

estimates for consumers’ willingness to pay for additional fuel economy. “ 

16. 8 – 6: . “Increases in fuel economy are likely to be attractive to consumers, but increases 

in price, as well as any detrimental changes in other vehicle characteristics, may be 

deterrents to purchase.” 

17. 8 – 11: “Why Consumers May Not Buy, and Producers May Not Provide, Fuel Economy 

that Pays for Itself” 

18. 8-11: Commenters note that relative to other costs of ownership (depreciation, 

insurance, O&M, etc) fuel expenditures are actually quite low (see AAA publication on 

costs of ownership). This might be another reason why consumers might view fuel 

economy as less of a concern. Commenters recommend that agencies provide some 

discussion of the relative role of fuel costs in a large durable good purchase. 

19. 8 – 12: “Both theoretical and empirical research suggests that, in the context of fuel 

economy and elsewhere, many consumers do not make energy-efficient investments even 

when those investments would pay off in the relatively short-term.[ii]” 

20. 8:36: Because outlays on fuel are a part of consumer spending, it is not immediately clear 

to interagency commenters why lower expenditures on fuel would boost overall 

consumption. 

21. 8-39: “There are also increases in private saving through 2038 and higher business profits 

through 2050.” 

22. Commenters request clarity on whether it is common for some new technologies included 

in the rule require premium fuel. If yes, did agencies include costs associated with 

premium fuel? For example, it seems some of the smaller turbo models require premium 

fuel. 

23. Interagency commenters request agencies to conduct an analysis of impacts of this rule 

on State revenues. 

EPA RIA 1.3 

Comment [A9]: Commenters request that 

agencies add uncertainty analysis showing the results 

if consumers do not internalize future fuel savings in 

their purchase. 

Comment [A10]: Suggests a basis for sensitivity 

Comment [A11]: Interagency commenters note 

that this is what can be expected particularly if 

gasoline prices are rising. 

Comment [A12]: Interagency commenters note 

that since this seems to suggest high uncertainty on 

future sales, commenters recommend that agencies 

include sensitivity cases. 

Comment [A13]: Interagency commenters note 

that if this is true then increased sales will not occur, 

Commenters note this provides further justification 

for base case. 

Comment [A14]: Commenters request clarity on 

what the assumption is about fuel economy after 

2025? Why provide analysis out 50 years? 
Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to

further policy review.

5

24. Interagency commenters request clarity on how EPA “averaged” the 19 different vehicle 

types to arrive at the “average vehicle” used in the analysis? 

25. Commenters request clarity on whether EPA conducted sensitivity analysis on the towing 

assumption? 

26. Interagency commenters note that the following assumption is likely to over inflate the 

estimated electric vehicle purchase. Did EPA run sensitivity analysis on this assumption? 

EPA RIA TEXT READS: “We believe that buyers of electric vehicles in the 2017-2025 

timeframe will be purchasing the vehicles with a full understanding of the range 

limitations and will not attempt to use their EVs for long duration towing trips. As such, 

we believe that the buyers will experience no practical loss of utility.” 

27. Commenters request clarity on whether the OMEGA model has been peer reviewed? 

28. Table 1-3.1 Interagency commenters request clarity on why the baseline engine is 

assumed to be 4sp AT? Do the agencies believe it is a reasonable assumption? 

29. Commenters request explanation of the difference between Tables 1.2-8 through 1.2-10 

and Table 1.3-10. 

30. Interagency commenters request clarity on what the baseline projection of sales and the 

sales under the standard are? 

31. Commenters recommend that agencies discuss the robustness of the Ricardo results vs. 

the LP results. 

32. EPA RIA 2.4.1 “Since the EPA’s full vehicle simulation tool is still in the development 

phase, it has not been fully validated against actual vehicle test data yet.” Interagency 

commenters request clarity on whether this tool has been used in this rulemaking or not. 

33. EPA RIA 3.2 OMEGA incorporates “the value which the consumer is likely to place on 

improved fuel economy” (p. 3-3). Commenters request clarity on how the model 

incorporates this value contrary to the literature on energy paradox. 

34. EPA RIA 3.4.1.2 Commenters request agencies to please explain how this rule accounted 

for the baseline of the 2016 MY standard. 

35. EPA RIA 3.4.1.3. Commenters request agencies to please explain how the analytic 

approach allowed “the agency to provide costs for a technology assessment that includes 
Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to

further policy review.

6

no net additional fatalities to the fleet” (p. 3-8), and yet the analysis incorporates 

additional projected fatalities associated with the standard. 

36. EPA RIA 3.5.1.1. Commenters request clarity on why EPA would need to determine the 

costs associated with meeting the MY 2016 standards. Why not use the results of the 

promulgated rulemaking? 

37. 3.7. Given that the average ownership of light duty vehicles is 5 years, how many 

technologies would have payback periods of 5 years or less? Commenters request 

agencies to please identify. 

38. Footnote KK: TARF used in OMEGA used only 3% discount rate. Commenters request 

clarity on what are the implications of this assumption? 

39. 3.11. Commenters note that the discussion on why NAS report was not used seems to be 

incomplete. Please explain further the additional insights offered by new studies 

incorporated in this RIA. 

40. 4.1. 1st para, Commenters request that agencies please state how significant light duty 

vehicles are for GHG emission inventory. Commenters suggest agencies consider 

providing a percentage. 

41. 4.1 2nd para, Commenters request clarity on why there would be significant SO2 

reduction associated with light duty vehicles? Commenters request agencies to provide 

explanation in rule. 

42. 4.3.1. Commenters recommend that agencies include “upstream” emissions associated 

with coal/natural gas extraction associated with electricity generation for completeness. 

Also, how much of the upstream extraction emissions associated with gasoline is 

domestic? 

43. 4.3.2.4. Commenters request clarity on how the agency was able to forecast beyond the 

years forecasted in AEO2011? 

44. Are the vehicle growth rates of 1% and 0.5% increasing linearly or compounding? 

45. 4.3.2.5 Commenters request clarity on whether the VMT equation suffers from 

simultaneity problem since GR1 and GR2 are endogenously determined? 
Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to

further policy review.

7

46. 4.3.2.6 Commenters request clarity on what are the assumptions and modeling features 

used in MOVES 2010a, Argon National Labs Greet 1.8 and IPM consistent with each 

other? 

47. 4.3.3.1. Commenters request clarity on what is “indirect air conditioning?” 

48. 4.3.3.1.1. “As discussed in Section III.B of the preamble, the cap for EVs and PHEVs at 

zero g/mile is related to the standard level proposed. For purposes of this modeling, we 

assume that this cap is never reached.” Commenters request agencies to explain this 

assumption, especially in light of estimating GHG emission associated with increased 

electricity consumption. 

49. Table 4-17: Commenters request agencies to please explain the relative magnitudes of the 

emission reductions. The monetized benefits associated with these reductions are 

approximately $3 billion in 2030 and increases to over $4 billion in 2050 (Table 7.2-4). 

50. 4.4. Commenters request agencies to explain what the basis is for the increase safety 

associated with light trucks. 

51. 5.1. Commenters request agencies to please provide estimates for the learning discount. 

52. 5.4.2. How did EPA project fuel prices beyond 2035 (AEO 2011 forecast limit)? 

53. 6.1.2.1. Commenters suggest deleting the discussion on visibility degradation since the 

bulk of the emission reduction is from reduction associated with fuel 

production/retribution of gasoline, not tailpipe emission from vehicles (See Table 4-17). 

54. 6.4 . Commenters request clarity on whether the predicted values associated with this 

section are statistically different than zero? If not commenters suggest deleting this 

section. 

55. Table 7.2-4 (and other corresponding tables). Commenters suggest distinguishing 

accidents/congestion/noise costs more clearly. Commenters also suggest changing the 

table title to reduce some confusion. Also, commenters request EPA to explain what 

constitutes “increased travel benefits.” 

56. Editorial. Table headings should clearly describe the contents of the table to reduce 

confusion. Each table should be marked with appropriate units to aid understanding. 

57. Proposed additional incentives. The proposed rule includes several additional incentives 

that manufacturers could be eligible for on the basis of production of certain volumes of 
Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to

further policy review.

8

vehicles with particular characteristics. Such incentives include multipliers for EVs, 

PHEVs, and FCVs, and credits for trucks that are HEV or that meet a performance 

threshold. To inform decision-making in the final rulemaking and to elicit useful 

comments on these incentives, interagency commenters recommend that the agencies 

include in the NPRM’s preamble estimates of the economic magnitude of these 

incentives, including how incentives would vary depending on the circumstances of a 

particular manufacturer. 

58. Stemming from comment above, for example, EPA is proposing granting a credit 

equivalent to 10g/mi to truck manufacturers for each full sized pickup truck that achieves 

15 percent better fuel consumption than its footprint-based target, provided that this 

performance standard is met or exceeded by at least 15 percent of their full sized pickup 

truck fleet. Commenters note that this begs a question of the magnitude of the incentive 

created by this credit for a manufacturer, first in general, and also for manufacturers that 

would otherwise produce a sufficient number of trucks achieving a performance level just 

below the required standard (e.g., 14 percent better fuel consumption than the required 

target) or for manufacturers that would otherwise produce trucks that exceeded the 

performance level but these trucks would compose less than 15 percent of their full sized 

fleet. Commenters request clarity on what is the implied cost per ton of emissions 

reductions associated with the incentives created in these various scenarios? 

59. Interagency commenters also recommend that EPA and NHTSA request comment on the 

circumstances in which such additional incentives—for the use of particular technologies 

or achievement of particular performance metrics—are appropriate, given that the 

proposed rule will create broad incentives for increasing fuel economy and reducing 

GHG emissions, and given that the provision of credits for particular technologies may 

distort manufacturers’ decisions about which technologies to employ to achieve these 

goals. 

60. Interagency commenters also recommend that EPA and NHTSA request comment on 

alternative designs for some of the proposed additional incentives that might achieve the 

goals that motivate the additional incentives while avoiding any excessive or perverse 

incentives. This would include requesting comment on: 

a) The proposed production cap on eligibility for the 0 gram per mile incentive for EVs, 

PHEVs, and FCVs. The low production cap in MY 2022-2025 for automakers that did 

not sell sufficient numbers of eligible vehicles in earlier years could unintentionally limit 

the introduction of game-changing technologies from some manufacturers and lock in 

competitive advantages to first movers. To the extent the goal is encourage early 

leadership in commercialization of these technologies, it is not clear that differential 

production caps in later years are the optimal tool to encourage such leadership, rather 

than, for example, increasing incentives for these vehicles in earlier years. 
Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to

further policy review.

9

b) The proposed credit for full size HEV pickup trucks, and in particular whether such 

trucks should face eligibility thresholds. Given that the credit is available to all HEV 

trucks, including those with emissions above their footprint standard, it is not clear that 

there is a public policy rationale for increasing the incentive to produce an HEV pickup 

truck that has higher emissions than a conventional but lower-emitting pickup truck. 

Additionally, as with the production cap discussed above, the restriction on access to this 

credit for only those manufacturers that achieve a minimum penetration of HEV trucks 

within their fleets could limit incentives for deployment among certain manufacturers 

while locking in competitive advantages for others. To the extent the goal is to 

encourage broad penetration into the marketplace, it is not clear that alternative crediting 

designs, such as a broad-based credit that was available to all full size HEV trucks or a 

credit that increased as a linear function of the penetration level of the technology in a 

manufacturer’s full size pickup fleet, would not more effectively achieve this goal. 

c) the proposed performance-based incentive credits for full size pickup trucks and whether 

instead of discrete crediting levels these credits could be awarded on the basis of a linear 

formula to avoid particularly strong (weak) incentives when near to (far from) a “notch” 

in the incentive level. (This credit could be designed, for example, as a 1 g/mi CO2 

credit for each X percent improvement in fuel consumption relative to the footprint target 

up to a maximum credit level.) 

                                                            
1 

Interagency Comments Provided to EPA and NHTSA on November 4, 2011 

regarding the 2017-2025 Light-duty GHG/CAFE NPRM 

This document contains responses to many, though not all, of the interagency comments 

provided to EPA and NHTSA on 11.4.2011. The agencies are still working on the remaining 

interagency comments. 

Interagency Comment 3. Another potential factor in explaining consumer purchase decisions is 

lack of information about, and or/ the salience of, fuel economy in vehicle purchase decisions. 

The recent effort to revise the fuel economy label was intended to address this problem. 

Interagency commenters request agency response on how the new fuel economy labels are likely 

to change the information available to consumers and/or the salience of fuel economy in 

those decisions and how vehicle purchase decisions are likely to change as a result of the 

new labels. Is there empirical evidence on whether and how past fuel economy labels 

have changed purchase decisions? 

EPA and NHTSA Response: 

We are not aware of empirical evidence on how or whether past fuel economy labels have 

changed purchase decisions. A literature review that contributed to the fuel economy labeling 

rule1

 points out that consumers increasingly do a great deal of research on the internet before 

going to an auto dealer. In the pre-focus group survey results found in the final reports for the 

recently revised label puts some quantification to the importance of fuel economy in purchase 

decisions (found at www.nhtsa.gov/fuel-economy). In addition, manufacturers often use 

information of this type (from NCAP or other labels) in their advertising. To the extent that 

advertising and the label improve consumers understanding of the value of fuel economy, 

purchase decisions could change. Until the newly revised labels enter the marketplace with 

MY13 vehicles (or optionally sooner), the agencies may not be able to determine how vehicle 

purchase decisions are likely to change as a result of the new labels. Whether it will play a more 

prominent role in affecting consumer decisions is as yet unknown. 

EPA RIA specific comments. 

Interagency Comment 4 3-13: EPA TEXT: “While it is not possible to know with certainty the 

future fleetwide GHG emissions performance in the absence of more stringent standards, EPA 

believes that this approach is the most reasonable assumption for developing the reference case 

fleet for MY 2017-2025. One important element supporting the proposed approach is 

that AEO2011 projects relatively stable gasoline prices over the next 15 years, dropping 

to $3.25 in 2017 (less than the average gasoline price in 2011 to date), and then rising 

slowly to $3.54 per gallon in 2025 (similar to the average gasoline price in 2011).” 

 

1

 PRR, Inc., “Environmental Protection Agency Fuel Economy Label: Literature Review.” EPA-420-R-10-906, August 

2010, available at http://www.epa.gov/fueleconomy/label/420r10906.pdf . 
2 

Comment [A1]: Dropping from what? 

Comment [A2]: Please double check this. Fuel economy in AEO goes up over time for all types 

listed. 

EPA Response: We have inserted additional text to clarify that the average retail price of 

regular gasoline in the U.S. for the first nine months of 2011 was $3.57 ($3.38 in 2009 dollars). 

However, the AEO 2011 reference case projects a 2011 price of $2.80 per gallon (in 2009 

dollars), well below actual prices. Prices are projected to be $3.25 per gallon in 2017, rising 

slightly to $3.54 per gallon in 2025. From 2017 to 2025, AEO2011 reference case estimates the 

average increase per year is less than 4 cents per gallon. 

Interagency Comment 6. 4-12: “Consistent with the MYs 2012-2016 rule analysis, EPA did 

not allow EVs and PHEVs (maximum penetration caps of zero) in the reference case. While the 

penetration of EVs and PHEVs in MY 2016 will like be non-zero, as they are being sold in MY 

2011, EPA chose not to include these technologies in the reference case assessment due to their 

cost-distorting effects on the smallest companies. For further discussion see RIA Chapter 3.” 

Comment [A5]: What is the projection for EVs and PHEV’s in 2016 that was included in the 

final RIA for that rulemaking? What was assumed in the Fuel Economy Labeling rule? 

EPA Response: As the cited Draft RIA text above makes clear, EPA did not project the 

addition of any EVs or PHEVs in the 2012-2016 final rule. In addition, the Fuel Economy 

Labeling rule did not make future projections of the light-duty vehicle fleet for any technology, 

including EVs or PHEVs. 

Interagency Comment 8. 8-2: “The analysis starts with the increase in costs estimated by the 

OMEGA model. We assume that these costs are fully passed along to consumers. This 

assumption is appropriate for cost increases in perfectly competitive markets.“ 

Comment [A6]: Would this suggest that the repurchase decision will be delayed?

EPA Response: 

If the only effect of the rule would be an increase in up-front costs, then repurchase might well 

be delayed. However, the rule also reduces fuel consumption, which buyers are expected to find 

desirable. Whether delayed purchase occurs depends on how consumers account for fuel savings 

in their purchase decisions. This tradeoff is raised explicitly in the second paragraph of Section 

8.1.1. In addition, Preamble Section III.H.10.a (in the third paragraph before Section III.H.10.b) 

discusses this tradeoff explicitly in the context of scrappage and fleet turnover. 
3 

Interagency Comment 10. 8-3: “The fuel cost savings are based on the five years of consumer 

ownership of the vehicle. The analysis is done for each model-year for an average vehicle. 

Chapter XX of this DRIA discusses the source of aggregate fuel savings, in dollars, for cars and 

trucks for each model year by year.“

Comment [A7]: Where can commenters find these in this RIA?

EPA Response: Chapter 5.3 of the DRIA. We have filled in the reference in DRIA Chapter 8.3. 

Interagency Comment 12. Commenters request clarity on what are the baseline sales 

assumptions? 

EPA Response: Joint Draft TSD Chapter 1 discusses the baseline and the reference sales 

forecast, and provides the values for the baseline year-over-year for each company and for the 

industry, for the passenger car fleet and the truck fleet.

Interagency Comment 16. 8 – 6: “Increases in fuel economy are likely to be attractive to 

consumers, but increases in price, as well as any detrimental changes in other vehicle 

characteristics, may be deterrents to purchase.” 

Comment [A11]: Interagency commenters note that this is what can be expected particularly if 

gasoline prices are rising. 

EPA Response: 

What is the “this” that is expected – the attractiveness of fuel economy or the deterrence to 

purchase from increased price? 

An increase in gasoline price is likely to make improved fuel economy more attractive. 

Interagency Comment 18. 8-11: Commenters note that relative to other costs of ownership 

(depreciation, insurance, O&M, etc) fuel expenditures are actually quite low (see AAA 

publication on costs of ownership). This might be another reason why consumers might view 

fuel economy as less of a concern. Commenters recommend that agencies provide some 

discussion of the relative role of fuel costs in a large durable good purchase. 
4 

EPA Response: The Department of Energy Transportation Energy Data Book2 estimates that 

15.4% of the total cost per mile for a vehicle is gas and oil. Between 1985 and 2010, the 

percentage has varied from a low of 9.4% to a high of 19.9%. 

This issue ties into the salience of fuel expenditures at the time of vehicle purchase, one of the 

hypotheses raised in this section. To keep the discussion of manageable size, we have raised a 

number of hypotheses in the DRIA without going into depth on any of them. In the Preamble, 

we have added, in a short discussion of salience, the following footnote: “U.S. Department of 

Energy, 2011. “Transportation and the Economy,” Chapter 10 in “Transportation Energy Data 

Book,” http://cta.ornl.gov/data/tedb30/Edition30_Chapter10.pdf, Table 10.13 , estimates that gas 

and oil costs were 15.4% of vehicle costs per mile in 2010.” 

Interagency Comment 21. 8-39: “There are also increases in private saving through 2038 and 

higher business profits through 2050.” 

Comment [A14]: Commenters request clarity on what the assumption is about fuel economy 

after 2025? Why provide analysis out 50 years? 

EPA Response: EPA’s proposed standards do not end in 2025; our standards for MY2025 

continue into MY2026 and later – and thus out into the future. As such, EPA assumes that fuel 

economy for new vehicles in the U.S. remains constant after 2025. Overall fuel savings as a 

result of this proposal will continue to increase after 2025 as the fleet turns over. Increasing fuel 

savings, as well as higher vehicle costs and lower world oil prices, from this proposal impact the 

U.S. economy through 2050 and beyond. Consistent with the timeframe we use to present costs 

and benefits, we present economy-wide impacts through 2050 to capture the impacts of our 

proposal far enough into the future so that almost the entire fleet of vehicles on the road is 

compliant with the MY2017-2025 standards. In the MY2012-2016 rule, we analyzed calendar 

years out to 2050 since that was the year that all vehicles on the road were projected to be 

compliant with the standards (because we assume no vehicles from a particular model year will 

be on the road 38 years after introduction). Consistent with the assessment for the MY2012-

2016 rule, we have analyzed out to 2050 for this proposal, although there will likely be a small 

number of vehicles on the road that still do not comply with the MY2017-2025 standards. This 

general approach is consistent with EPA’s normal practice for several decades when performing 

transportation-related analysis for rulemakings. See also EPA’s response to Interagency 

Comment #18 provided to EPA on November 1, 2011 which we responded to on November 4, 

2011. 

Interagency Comment 22. Commenters request clarity on whether it is common for some new 

technologies included in the rule require premium fuel. If yes, did agencies include costs 

associated with premium fuel? For example, it seems some of the smaller turbo models require 

premium fuel. 

 

2

 U.S. Department of Energy, 2011. “Transportation and the Economy,” Chapter 10 in “Transportation Energy Data 

Book,” http://cta.ornl.gov/data/tedb30/Edition30_Chapter10.pdf, Table 10.13. 
5 

EPA Response: Our gasoline engine technology cost and effectiveness estimates are based on 

the use of regular unleaded gasoline fuel. We do not project that premium fuel will be required 

to achieve the proposed standards.

Interagency Comment 23. Interagency commenters request agencies to conduct an analysis of 

impacts of this rule on State revenues. 

EPA Response: EPA notes in preamble section III.H.4.b and in RIA5.4.2 the potential lost tax 

revenues associated with the fuel consumption decrease. We do not attempt to break that out 

into federal versus state revenues or to specific state-level impacts.

EPA RIA 1.3 

Interagency Comment 24. Interagency commenters request clarity on how EPA “averaged” the 

19 different vehicle types to arrive at the “average vehicle” used in the analysis? 

EPA Response: Any such averaging is done on a sales-weighted basis. Note that there is no 

“average vehicle” in our analysis of compliance. Instead, we determine costs/reductions/etc. for 

each vehicle model, then, for ease of presentation, average the results to arrive at a fleet average 

cost/reduction/etc.

Interagency Comment 25. Commenters request clarity on whether EPA conducted sensitivity 

analysis on the towing assumption? 

EPA Response: EPA has not conducted any sensitivity on towing and we do not understand 

what sort of sensitivity the commenter might suggest. The vast majority of all of the technology 

packages which we have added to vehicles maintain towing capability. All full size pickup 

trucks have been modeled to maintain towing (gasoline, diesel, and hybrids). All gasoline and 

diesel vehicles are modeled to maintain towing. For HEV vehicles (other than full size pickup 

trucks, where we have not utilized Atkinson-cycle engines), we have utilized Atkinson-cycle 

engines, but with no downsizing of the engine. Thus, when combined with the electric motor on 

the vehicle, towing capability is maintained, except for those instances where a vehicle is at or 

near the maximum towing load and operation is on a sustained grade (e.g., going uphill for a 

long period of time) – and it is possible OEMs may reduce the rated maximum towing limit for 

such vehicles. Given the relatively small number of HEVs we project (which are not full size 

pickups), this impact is modest. It is not clear what part of our analysis regarding towing would 

be a basis for a towing sensitivity assessment, and what type of sensitivity would be performed. 
6 

Interagency Comment 26. Interagency commenters note that the following assumption is 

likely to over inflate the estimated electric vehicle purchase. Did EPA run sensitivity analysis on 

this assumption? 

EPA RIA TEXT READS: “We believe that buyers of electric vehicles in the 2017-2025 

timeframe will be purchasing the vehicles with a full understanding of the range limitations and 

will not attempt to use their EVs for long duration towing trips. As such, we believe that the 

buyers will experience no practical loss of utility.” 

EPA Response: Over the period of time from MY2017 to MY2025, EPA projects that less than 

1% of all vehicles will be all electric vehicles. It seems plausible that at least 1% of new car 

purchasers would understand the range and towing limitations of an electric vehicle when they 

make such a purchase. In addition, our estimated sales of EVs is very small (<1%) and this does 

not seem to warrant a sensitivity analysis for such a small element of the analysis. 

Interagency Comment 27. Commenters request clarity on whether the OMEGA model has 

been peer reviewed? 

EPA Response: OMEGA was peer reviewed in September 2009. The peer review material in 

on the EPA web site, and is referenced in the EPA Draft RIA Chapter 3, the third paragraph. 

Interagency Comment 28. Table 1-3.1 Interagency commenters request clarity on why the 

baseline engine is assumed to be 4sp AT? Do the agencies believe it is a reasonable assumption? 

EPA Response: The baseline engine is simply a reference point from which to estimate the 

additional cost and effectiveness of additional technologies. As discussed in RIA chapter 3, EPA 

fully accounts for technology on vehicles in its modeling. EPA could pick any engine as the 

baseline engine and the end results would be the same. It is a reasonable assumption when 

considered in conjunction with how we estimate our costs and effectiveness levels when running 

OMEGA. We have not assumed that all vehicles are equipped with the “baseline” engine when 

running OMEGA. We assume that baseline only when building packages and we determine the 

cost and effectiveness of each package relative to that common baseline. We then determine the 

set of technologies on each given vehicle in our baseline fleet and we determine the cost and 

effectiveness of each particular vehicle given that set of baseline technology. We then compare 

the package to the vehicle and determine which is better. If the vehicle is better than a given 

package, the vehicle is left as is. If the package is better in any way (engine, transmission, 

vehicle), then the elements of the package not already on the vehicle are applied to the vehicle 

and the costs and effectiveness levels are determined based on what elements of the package 

have been added. In the end, it does not really matter what our baseline engine is provided we 

appropriately account for the differences between it, the actual vehicle and the resultant, newly 

compliant vehicle.
7 

Interagency Comment 29. Commenters request explanation of the difference between Tables 

1.2-8 through 1.2-10 and Table 1.3-10. 

EPA Response: Assuming these are references to tables in EPA’s draft RIA, Table 1.2-8 

through 1.2-10 show the technology costs for plug-in hybrids (PHEV) having a 20 mile range, 

PHEVs having a 40 mile range and electric vehicles having a 75 mile range. Table 1.3-10 shows 

the package costs for PHEVs/EVs used for a 2025MY OMEGA run. This latter table includes 

the technology costs shown in Tables 1.2-8 through 1.2-12 and also includes costs for other 

technologies such as lower rolling resistance tires, electric power steering, aero treatments, etc. 

So Table 1.3-10 provides the costs of adding a complete package of technologies to a vehicle 

while the tables in RIA 1.2 present only the technology-level costs.

Interagency Comment 30. Interagency commenters request clarity on what the baseline 

projection of sales and the sales under the standard are? 

EPA Response: Joint Draft TSD Chapter 1 provides a detailed description of the baseline. 

gives the baseline sales projections (see response to Interagency Comment 12 above). Sales are 

held constant in our modeling, thus the sales does not change between the reference case (no new 

standards) and the control case (assessment with the proposed standards).

Interagency Comment 31. Commenters recommend that agencies discuss the robustness of the 

Ricardo results vs. the LP results. 

EPA Response: The lumped parameter model effectiveness of individual technologies that 

comprise the various Ricardo simulation packages were calibrated so that the LP model results 

were comparable to the Ricardo nominal run results. This is described in section 3.3.2.2 of the 

Joint TSD which includes figures comparing LP modeled results to the associated Ricardo 

package results. Additionally, Chapter 1.5.8 of EPA's RIA elaborates on packages with notable 

differences between the LP and Ricardo results.

Interagency Comment 32. EPA RIA 2.4.1 “Since the EPA’s full vehicle simulation tool is still 

in the development phase, it has not been fully validated against actual vehicle test data yet.” 

Interagency commenters request clarity on whether this tool has been used in this rulemaking or 

not. 
8 

EPA Response: The EPA’s full vehicle simulation tool has been used in this rule making for 

A/C indirect and some of the off-cycle credit generations. EPA believes that the simulation tool 

was adequate to be used since the purpose of its use was to assess only the differences in CO2 

between A/C on and off cases as well as off-cycle technology on and off cases.

Interagency Comment 33. EPA RIA 3.2 OMEGA incorporates “the value which the consumer 

is likely to place on improved fuel economy” (p. 3-3). Commenters request clarity on how the 

model incorporates this value contrary to the literature on energy paradox. 

EPA Response: In our TARF equation, we assume that consumers value the first five years of 

fuel savings at a 3% discount rate. If consumers fully valued fuel economy, we would value the 

full life of the vehicles fuel savings, but we are only assessing the first 5 years for the purposes of 

the additional of technologies to vehicles. 

Interagency Comment 34. EPA RIA 3.4.1.2 Commenters request agencies to please explain 

how this rule accounted for the baseline of the 2016 MY standard. 

EPA Response: This topic is discussed in detail in RIA Section 3.5.1, and in preamble III.D.

Interagency Comment 35. EPA RIA 3.4.1.3. Commenters request agencies to please explain 

how the analytic approach allowed “the agency to provide costs for a technology assessment that 

includes no net additional fatalities to the fleet” (p. 3-8), and yet the analysis incorporates 

additional projected fatalities associated with the standard. 

EPA and NHTSA Response: RIA table 4-25 shows a net decrease in fatalities of 201. 

Preamble table II-4 shows the same result. Commenters appear to be responding to NHTSA’s 

analysis. The NHTSA has an updated analysis shows a net decrease in fatalities of 13. There are 

costs for material substitution because on average those materials cost more per pound than steel 

and the savings in weight don’t overcome the increased cost per pound. The decrease in 

fatalities comes about by taking more weight out of heavy light trucks than weight out of small 

passenger cars. 

Interagency Comment 36. EPA RIA 3.5.1.1. Commenters request clarity on why EPA would 

need to determine the costs associated with meeting the MY 2016 standards. Why not use the 

results of the promulgated rulemaking? 
9 

EPA Response: Between the two rulemaking, a number of different assumptions have been 

made on sales (AEO 2011 is an obvious change), technology costs (ie, mass reduction and 

hybridization) and technology effectiveness. These updates to the inputs require updating EPA’s 

estimate of costs. 

Interagency Comment 37. 3.7. Given that the average ownership of light duty vehicles is 5 

years, how many technologies would have payback periods of 5 years or less? Commenters 

request agencies to please identify. 

EPA Response: The payback period depends on a number of factors. Technology costs depend 

on the location on the learning curve, which in turn depends on the year applied. Similarly, fuel 

savings depend on VMT which also differs by MY. The relative payback also depends on the 

technology being replaced. A highly downsized engine may payback over five years relative to a 

base engine, but perhaps not relative to a slightly less highly downsized engine. 

Interagency Comment 38. Footnote KK: TARF used in OMEGA used only 3% discount rate. 

Commenters request clarity on what are the implications of this assumption? 

EPA Response: EPA has added clarifying text. For this NPRM analysis, the impacts of using a 

7% discount rate in the TARF are minimal. 

Interagency Comment 39. 3.11. Commenters note that the discussion on why NAS report was 

not used seems to be incomplete. Please explain further the additional insights offered by new 

studies incorporated in this RIA. 

EPA Response: EPA will expand upon this discussion in an updated version of this Draft RIA 

Chapter. 

Interagency Comment 40. 4.1. 1st para, Commenters request that agencies please state how 

significant light duty vehicles are for GHG emission inventory. Commenters suggest agencies 

consider providing a percentage. 

EPA Response: Text response to this question from preamble section III.A has been copied to 

this DRIA section. 

Interagency Comment 41. 4.1 2nd para, Commenters request clarity on why there would be 

significant SO2 reduction associated with light duty vehicles? Commenters request agencies to 

provide explanation in rule. 
10 

EPA Response: While this is explained in TSD 4, clarifying text has been added to this section. 

Sulfur is regulated on a gram/gallon basis rather than a gram/mile basis - Less gallons equals less 

sulfur related emissions. 

Interagency Comment 42. 4.3.1. Commenters recommend that agencies include “upstream” 

emissions associated with coal/natural gas extraction associated with electricity generation for 

completeness. Also, how much of the upstream extraction emissions associated with gasoline is 

domestic? 

EPA Response: As discussed in TSD 4, feedstock gathering is already included in the emission 

factors. EPA only models the domestic criteria pollutant emissions, as discussed in “Calculation 

of Upstream Emissions for the GHG Vehicle Rule (EPA-HQ-OAR-2009-0472-0216)”

Interagency Comment 43. 4.3.2.4. Commenters request clarity on how the agency was able to 

forecast beyond the years forecasted in AEO2011? 

EPA Response: We assume that this comment is related to VMT. This discussion is fully 

presented in TSD 4. If this comment relates to fuel price, please see our response to Interagency 

Comment 52 below. 

Interagency Comment 44. Are the vehicle growth rates of 1% and 0.5% increasing linearly or 

compounding? 

EPA Response: Compounding. 

Interagency Comment 45. 4.3.2.5 Commenters request clarity on whether the VMT equation 

suffers from simultaneity problem since GR1 and GR2 are endogenously determined? 

EPA Response: We are not attempting to infer a causal relationship between GR1, GR2 and 

VMT, but rather to match the growth rates (and approximate total VMT) from AEO 2011 after 

considering driver responses to changes in fuel cost per mile in the relevant years. These 

methods are highly similar to those used in the 2012-2016 rule and in the TAR. In the TSD and 

RIA, We request comment on these methods.
11 

Interagency Comment 46. 4.3.2.6 Commenters request clarity on what are the assumptions and 

modeling features used in MOVES 2010a, Argon National Labs Greet 1.8 and IPM consistent 

with each other? 

EPA Response: When configuring the models, the agencies attempted to make the modeling 

assumptions consistent. All assumptions are made public for review. The modeling assumptions 

for MOVES 2010a are described in Draft Joint TSD 4. The IPM assumptions, as described in 

TSD 4 can be found http://www.epa.gov/airmarkets/progsregs/epa-ipm/BaseCasev410.html, and 

fuel upstream assumptions can be found in Calculation of Upstream Emissions for the GHG 

Vehicle Rule (EPA-HQ-OAR-2009-0472-0216)”

Interagency Comment 47. 4.3.3.1. Commenters request clarity on what is “indirect air 

conditioning?” 

EPA Response: Clarifying text has been added – generally in this rulemaking, the term indirect 

air conditioning emissions refer to the additional load that air conditioning puts on the vehicle 

engine. 

Interagency Comment 48. 4.3.3.1.1. “As discussed in Section III.B of the preamble, the cap for 

EVs and PHEVs at zero g/mile is related to the standard level proposed. For purposes of this 

modeling, we assume that this cap is never reached.” Commenters request agencies to explain 

this assumption, especially in light of estimating GHG emission associated with increased 

electricity consumption. 

EPA Response: The level of the standard is inherently related to the credits available, and 

cannot be fully separated. EPA would not necessarily propose the same volume of electric 

vehicle subject to the zero gram per mile provision if the level of the standard was set differently. 

This simplifying analytic assumption recognizes that concern, and appropriately caveats it in the 

next sentence: “This does not imply that EPA has proposed a cap based on this criteria.” 

With regard to the second point, regardless of EV compliance value, EPA has included in our 

impacts assessment estimates of the incremental emissions due to electricity generation. 

Interagency Comment 49. Table 4-17: Commenters request agencies to please explain the 

relative magnitudes of the emission reductions. The monetized benefits associated with these 

reductions are approximately $3 billion in 2030 and increases to over $4 billion in 2050 (Table 

7.2-4). 
12 

EPA Response: While the total national impact of this rule is small on a percentage basis, this 

is largely because total national inventories (which are the basis of the comparison) are quite 

large. Refer to Section III.H.6 and Joint TSD Chapter 4 for more information regarding the 

values used to monetize reductions in PM2.5-related pollutants. 

Interagency Comment 50. 4.4. Commenters request agencies to explain what the basis is for 

the increase safety associated with light trucks. 

EPA Response: The basis for our projection is described in detail in Preamble section II.G of 

the preamble (referenced in this section), where the 2011 Kahane study is discussed. 

Interagency Comment 51. 5.1. Commenters request agencies to please provide estimates for 

the learning discount. 

EPA Response: For a detailed showing of technology costs by year, see Chapter 1 of EPA’s 

draft RIA. For additional discussion of the learning curve, see Chapter 3 of the draft Joint 

Technical Support Document. Tables 1.2-1 through 1.2-14 present costs for technologies on a 

year-by-year basis. These DRIA tables show the impacts of learning over time on our 

technology costs. 

Interagency Comment 52. 5.4.2. How did EPA project fuel prices beyond 2035 (AEO 2011 

forecast limit)? 

EPA Response: Please see the draft Joint Technical Support Document Chapter 4.2.2, where 

we discuss the extrapolation EPA and NHTSA used for fuel prices beyond 2035 at the rate 

forecast in AEO 2011 for 2017-2035. 

Interagency Comment 53. 6.1.2.1. Commenters suggest deleting the discussion on visibility 

degradation since the bulk of the emission reduction is from reduction associated with fuel 

production/retribution of gasoline, not tailpipe emission from vehicles (See Table 4-17). 

EPA Response: EPA has deleted the first sentence of Section 6.1.2.1.

Interagency Comment 54. 6.4 . Commenters request clarity on whether the predicted values 

associated with this section are statistically different than zero? If not commenters suggest 

deleting this section. 
13 

EPA Response: The model used to produce these results does not include any climate noise. 

Therefore, the predicted values are a consistent result of the input values, and therefore, the 

results qualify as statistically different than zero. 

Interagency Comment 55. Table 7.2-4 (and other corresponding tables). Commenters suggest 

distinguishing accidents/congestion/noise costs more clearly. Commenters also suggest changing 

the table title to reduce some confusion. Also, commenters request EPA to explain what 

constitutes “increased travel benefits.” 

EPA Response: It is not clear what the comment is suggesting regarding the 

accidents/congestion/noise be distinguished more clearly. If the suggestion is to have a separate 

line item for each, then we disagree given the already busy nature of the table. EPA does present 

a table in preamble section III.H.8 that shows each as a separate line item. We describe the 

benefits of increased travel in draft Joint TSD4.2.6 as, “The increase in vehicle use from the 

rebound effect provides additional benefits to their drivers and occupants, since it is likely to take

the form of more frequent trips or travel to more distant but desirable destinations. In either 

case, it provides benefits to drivers and their passengers by improving their access to social and 

economic opportunities away from home. As evidenced by their decisions to make more 

frequent or longer trips when improved fuel economy reduces their costs for driving, the benefits 

from this additional travel exceed the costs drivers and passengers incur in making those more 

frequent or longer trips.” We have attempted to improve the table titles. 

Interagency Comment 56. Editorial. Table headings should clearly describe the contents of the 

table to reduce confusion. Each table should be marked with appropriate units to aid 

understanding. 

EPA Response: We have attempted to improve the table titles in the draft RIA.
1 

Interagency Comments Provided to EPA and NHTSA on November 4, 2011 

regarding the 2017-2025 Light-duty GHG/CAFE NPRM and Interagency 

Comment #1 provided to EPA and NHTSA on November 1, 2011 

This document contains responses to several of the interagency comments provided to EPA and 

NHTSA on 11.4.2011. EPA and NHTSA provided response to a number of the interagency 

comments from the 11.4.2011 request on November 9, 2011. 

The outstanding requests from the November 4 document are interagency comments 1, 2, 5, 14, 

19, 57, and 58. We expect to provide responses to those questions as soon as possible. 

We also provide a response to interagency comment #1 from the November 1, 2011 submission 

to EPA and NHTSA, which we have not previously responded to. 

Interagency Comments #1 from November 1, 2011 Submission to EPA and NHTSA

Interagency Comment 1) Many interagency commenters strongly recommend that agencies 

remove all discussion of GDP impacts, sales increases, and employment increases from 

Preamble, both RIAs, and TSD. The increases do not seem to be based on sound empirical 

evidence, and are highly speculative. Given the high uncertainty with respect to the direction of 

these impacts (positive or negative), interagency commenters recommend that agencies drop all 

discussion of GDP, sales increases and employment increases altogether. 

NHTSA Response: Related to sales and employment effects, we agree there is uncertainty in 

the analysis and recommend discussion of that uncertainty be included with the analysis of sales 

and employment effects. Despite the uncertainty, we believe it is important to show analyses 

that the public can review and comment to. Failure to attempt to quantify uncertain effects can 

present legal risk. 

EPA Response: Based on EPA’s commitment in previous Notice’s of Intent for Rulemaking 

for the 2017-2025 program (each of which went through review by OMB and other agencies 

within the Executive Office of the President) and the strong technical basis for our assessments, 

EPA does not agree to remove the analysis from the proposal regarding the potential impacts of 

the proposed standards on automotive sales, employment impacts, or impacts on gross domestic 

product (GDP) and household consumption. We elaborate on these topics below.
2 

The 2017-2025 Light-duty Vehicle Joint NPRM is just the most recent action by EPA and 

NHTSA regarding potential GHG and CAFE standards for these model years which began with a 

memorandum from the President issued in May of 2010. Since that time the two agencies have 

issued three separate joint Federal Register notices regarding the development of a proposal, 

each of which were reviewed by OMB and other agencies within the Executive Office of the 

President. EPA and NHTSA have consistently informed the public (and EOP agencies) of our 

intention to perform a broad range of analysis to support the proposal, including assessments of 

vehicle sales and impacts of the proposed standards on automotive industry employment. 

The presidential memorandum states: 

“The program should also seek to achieve substantial annual progress in reducing 

transportation sector greenhouse gas emissions and fossil fuel consumption, consistent 

with my Administration's overall energy and climate security goals, through the increased 

domestic production and use of existing, advanced, and emerging technologies, and 

should strengthen the industry and enhance job creation in the United States. As part of 

implementing the national program, I request that the Administrators of the EPA and the 

NHTSA: 

“a) Work with the State of California to develop by September 1, 2010, a technical 

assessment to inform the rulemaking process, reflecting input from an array of 

stakeholders on relevant factors, including viable technologies, costs, benefits, lead time 

to develop and deploy new and emerging technologies, incentives and other flexibilities 

to encourage development and deployment of new and emerging technologies, impacts 

on jobs and the automotive manufacturing base in the United States, and infrastructure 

for advanced vehicle technologies...” (emphasis added) 

In the October 13, 2010 Joint Notice of Intent, EPA and NHTSA stated: 

“The agencies expect that the new standards will have effects on vehicle sales. For the 

forthcoming rulemaking, EPA and NHTSA will further investigate the impacts of the 

proposed standards on the auto industry, including employment.” (75 FR 62444) and 

“NHTSA and EPA also will perform a more thorough assessment of the impacts of 

proposed standards, as was done for the MY 2012–2016 rulemaking, including analysis 

of improved energy security, monetized benefits of CO2 reductions, co-pollutant impacts, 

an assessment of the societal costs and benefits of potential standards, an assessment of 

potential safety impacts, an assessment of impacts on automobile sales and related 

employment, and other relevant impacts.” (75 FR 62747, emphasis added). 

In the December 8, 2010 Joint Supplemental Notice of Intent, EPA and NHTSA stated: 

“NHTSA and EPA also will perform a more thorough assessment of the impacts of 

proposed standards, as was done for the model year 2012–2016 rulemaking, including 

analysis of improved energy security, monetized benefits of CO2 reductions, impacts of 

other pollutants, an assessment of the societal costs and benefits of potential standards, an 

assessment of potential safety impacts, an assessment of impacts on automobile sales, an 

assessment of employment impacts, an assessment of the regulatory program’s key design 
3 

elements and flexibility mechanisms, and related issues.” (75 FR 76344 – 76345, 

emphasis added) 

Executive Order 13563, “Improving Regulation and Regulatory Review” (January 18, 2011), 

states, “Our regulatory system must protect public health, welfare, safety, and our environment 

while promoting economic growth, innovation, competitiveness, and job creation” (emphasis 

added). 

EPA has put forward a robust analysis based on the available data to quantify the impact on 

vehicle sales, employment, GDP, and household consumption. In the case of vehicle sales and 

the employment impacts related to vehicle sales, we have used the analytical approach which 

both EPA and NHTSA used for the 2012-2016 proposal and final rule, which is also the same 

framework which NHTSA has used in at least the previous 3 CAFE rulemakings (if not more) – 

including the MY2005-2006 light truck CAFE standard, the MY2008-2011 light truck CAFE 

standards, and the MY2011 passenger car and light truck CAFE standards. The elasticity used in 

the analysis is based on results from several peer-reviewed academic studies, and the other data 

are taken from reliable sources (such as the Insurance Information Institute for information on 

insurance costs). Some recent literature (e.g., Turrentine and Kurani; Larrick and Soll) suggests 

that vehicle buyers are not good at making calculations over fuel economy. Using five years of 

fuel savings as the amount that consumers consider when buying vehicles accounts for only 

about 40 percent of the fuel-saving benefits in present value. 

The employment analysis draws both from NHTSA’s analysis in the 2012-2016 light-duty GHG 

and CAFE rule, and further refinement based on academic literature (Morgenstern et al., Journal 

of Environmental Economics and Management, 2002, for the conceptual framework), other 

government data sources (the Bureau of Labor Statistics and the Census Bureau), and Ward’s 

Automotive Research. The framework of demand, cost, and factor shift effects comes from 

Morgenstern et al. and has been used in a number of EPA rulemakings, including: MATS 

proposal (March 2011), CSAPR final rule (June 2011), Boiler MACT final rule (February 

2011), CISWI final rule (February 2011), Portland Cement final rule (August 2010), Heavy-duty 

GHG final rule (August 2011) (in a qualitative assessment), and the Boilers and Process Heaters 

proposal (February 2011). 

We note that, in all subsequent comments received in the interagency review on November 4 and 

November 8, the focus is on the vehicle sales analysis and, as a consequence, the “demand 

effect” in the employment analysis. The only substantive comment on the “cost effect” is a 

query about using an average value (we will provide response to that concern in our replies to the 

comments from 11/8). 
4 

With respect to EPA’s assessment of the impacts of the proposal on GDP and household 

consumption, EPA has estimated impacts using the Intertemporal General Equilibrium Model 

(IGEM) developed by Dale Jorgenson and Peter Wilcoxen, which is a well-established model 

that has been used for over 20 years to analyze the economy-wide impacts of environmental 

policies. IGEM has been used in several peer-reviewed publications. EPA used IGEM for the 

1997 Report to Congress on the benefits and costs of the Clean Air Act and to evaluate several 

GHG cap-and-trade legislative proposals, including the recent Waxman-Markey bill (HR 2454). 

In addition, EPA utilized IGEM to assess the impacts of the proposed and final rules for the 

2012-2016 light-duty GHG standards, and the proposed and final rules for the MY2014-2018 

heavy-duty GHG standards. In September of 2009, during interagency review of the 2012-2016 

rulemaking, OMB requested that EPA remove the GDP & household consumption assessment 

from EPA’s preamble and draft RIA and place the information into a memorandum to the 

docket, because OMB and the interagency reviewers had not had sufficient time to review the 

assessment in detail. EPA agreed to this approach for the 2012-2016 rulemaking. However, the 

interagency reviewers have now had more than two years to review and provide specific 

comments on the use of IGEM in the context of evaluating potential light-duty GHG standards. 

EPA believes this assessment is useful and provides important information both for the EPA 

Administrator as well as the public regarding the potential impacts of the proposed standards. 

Interagency Comments from November 4, 2011 Submission to EPA and NHTSA

EPA RIA specific comments. 

Interagency Comment 7. 8-1: Interagency commenter notes that EPA uses the GDP deflator . 

Commenter requests clarity on why agencies do not use the CPI or the PCE deflators specific to 

cars and light trucks? 

EPA Response: We have at times in the past used CPI and PPI for adjusting costs as 

appropriate for a given analysis. In developing the 2012-2016 GHG and CAFE proposal, both 

NHTSA and EPA chose to use of the GDP price deflator largely because it represented the best 

estimate of the value of the dollar from year-to-year. Using the PPI is unwieldy as it requires 

every piece of technology for which costs are being estimated to be categorized into an 

appropriate PPI series. Also, both the PPI and CPI can be limiting as they do not account for 

possible substitution of goods or materials. In the end, our goal is to adjust the cost of an item 

estimated in some prior year’s dollars to a more recent year’s dollars. We are not trying to 

reflect the impact of commodity price changes or consumer purchase decisions on our 

technology costs. The most straight forward metric for meeting our goal is the GDP price 

deflator.
5 

Interagency Comment 9. 8-3: Interagency commenters note that the discussion of loans at 

5.5% rate and personal discount rate at 3% and 7% seems odd. Commenters understand that to 

mean that agencies are suggesting that borrowing money is saving money? Commenters request 

agency clarification. The risk-free rate of return is very low at the moment. Commenters note 

that borrowing to buy a car shouldn’t reduce the cost, but should result in some increase in costs. 

Commenters request agencies to provide more discussion of this to explain the assumption 

better. 

EPA Response: 

The 5.5% loan rate is used in the vehicle sales analysis to calculate the finance costs that a 

vehicle buyer would face. We note that the only uses of this interest rate are in the vehicle sales 

and payback period analyses, not in the rest of the analysis. To vehicle buyers, that interest rate 

measures how much they will pay on a monthly basis to purchase their vehicles. We include it 

in the vehicle sales analysis in recognition of the fact that the cost of buying a more expensive 

vehicle includes an addition to the monthly payment. 

To calculate the present value of the stream of payments that consumers will make, we use the 

standard risk-free discount rates (from the social planner perspective) intended to reflect the 

opportunity costs of consumption and capital, respectively, 3% and 7%, as we do throughout the 

rule. 

We note that the difference in vehicle sales analysis results between the 3% and 7% rates is 

generally quite small, because, for both the loan period and the fuel savings, we consider only 5 

years. 

Interagency Comment 11. 8-4: “The fuel cost savings are subtracted from the increase in costs 

associated with the rule to get the net effect of the rule on consumer expenditure. The higher cost 

leads consumers to purchase fewer new vehicles, but the fuel savings can counteract this effect. 

This calculation uses an elasticity of demand for new vehicles of -1:[i] that is, an increase of 1% 

in the price of a new vehicle will lead to a 1% reduction in new vehicle sales.“

Comment [A8]: Commenters note that this is the same assumption since the 2008 CAFÉ. Is here 

any new literature on this?

EPA Response: 

Most of the literature focuses on short run elasticities. Our assumed own-price elasticity reflects 

this literature. There are more recent estimates available for the short run elasticity. For 

instance, Bento et al.1 report “mean rental elasticities” of -0.88 for all vehicles and -1.97 for new 

vehicles only. They note that their model is quite different from other models, in using crosssectional data rather than historical data as in other studies. Because it is not obvious that this 

 

1

 Bento, Antonio, Lawrence H. Goulder, Mark R. Jacobsen, and Roger H. von Haefen, “Distributional and Efficiency 

Impacts of Increased US Gasoline Taxes,” American Economic Review 99 (2009): 667-699. 
6 

elasticity is directly comparable to the other elasticities, we have not included it in our study. 

Unfortunately, the latest long run elasticity estimate we found is from a 1970 publication by 

Hyman.2

 It comports with the idea that demand for durable goods is less elastic in the long run 

(the preferred estimate of the author’s is -0.46). However, as this estimate is now over 40 years 

old, we do not use it to reflect how automobile demand responds to prices today. 

Interagency Comment 13. Interagency commenters recommend that agencies provide an 

uncertainty analysis that provides a sensitivity of different fuel prices and different consumer 

responses to higher priced vehicles. 

EPA Response: As discussed in the draft proposal, our principle sales impact assessment is 

based on a 5-year payback consideration from the vehicle purchaser. As noted above, using five 

years of fuel savings as the amount that consumers consider when buying vehicles accounts for 

only about 40 percent of the fuel-saving benefits in present value. EPA is willing to consider 

adding sensitivity assessment of plus and minus 1 year from the 5-year primary analysis, or plus 

and minus 20%, which would be a 4-year and a 6-year assessment, in addition to the 5-year 

assessment. 

Interagency Comment 15. 8-6: “The evidence from consumer vehicle choice models ndicates 

a huge range of estimates for consumers’ willingness to pay for additional fuel economy. “

Comment [A10]: Suggests a basis for sensitivity 

EPA Response: 

Greene,3 Table ES-1, shows willingness to pay as a percent of discounted present value of fuel 

economy improvements to range from -420% to +1,410%. As noted in response to Interagency 

Comment 5, we are concerned that many of these estimates suffer from statistical issues that are 

likely to cause them to be poor estimates of actual values. Please also see response to 

Interagency Comment 13 above regarding potential sensitivity assessment. 

Interagency Comment 17. 8 – 11: “Why Consumers May Not Buy, and Producers May Not 

Provide, Fuel Economy that Pays for Itself”

Comment [A12]: Interagency commenters note that since this seems to suggest high uncertainty 

on future sales, commenters recommend that agencies include sensitivity cases. 

EPA Response: See response to Interagency Comment 13 above. 

 

2

 Hyman, Saul. “Consumer Durable Spending: Explanation and Prediction.” Brookings Papers on Economic Activity

(1970): 173-206. 

3

 Greene, David L. “How Consumers Value Fuel Economy: A Literature Review,” EPA Report EPA-420-R-10-008, 

March 2010, available at http://www.epa.gov/otaq/climate/regulations/420r10008.pdf . 
7 

Interagency Comment 18. 8-11: Commenters note that relative to other costs of ownership 

(depreciation, insurance, O&M, etc) fuel expenditures are actually quite low (see AAA 

publication on costs of ownership). This might be another reason why consumers might view 

fuel economy as less of a concern. Commenters recommend that agencies provide some 

discussion of the relative role of fuel costs in a large durable good purchase. 

EPA Response: The Department of Energy Transportation Energy Data Book4 estimates that 

15.4% of the total cost per mile for a vehicle is gas and oil. Between 1985 and 2010, the 

percentage has varied from a low of 9.4% to a high of 19.9%. 

This issue ties into the salience of fuel expenditures at the time of vehicle purchase, one of the 

hypotheses raised in this section. To keep the discussion of manageable size, we have raised a 

number of hypotheses in the DRIA without going into depth on any of them. In the Preamble, 

we have added, in a short discussion of salience, the following footnote: “U.S. Department of 

Energy, 2011. “Transportation and the Economy,” Chapter 10 in “Transportation Energy Data 

Book,” http://cta.ornl.gov/data/tedb30/Edition30_Chapter10.pdf, Table 10.13 , estimates that gas 

and oil costs were 15.4% of vehicle costs per mile in 2010.” 

Interagency Comment 20. 8:36: Because outlays on fuel are a part of consumer spending, it is 

not immediately clear to interagency commenters why lower expenditures on fuel would boost 

overall consumption. 

EPA Response: There are multiple ways that fuel savings from this rule can boost overall 

consumption in the U.S. economy. Computable general equilibrium (CGE) models of the U.S. 

economy attempt to capture the complex combination of economic impacts of policies like this 

proposal (e.g., impacts on productivity, prices, labor and capital formation). As one example, 

discussed in RIA Chapter 8, fuel savings from this proposal lead to lower prices of generally all 

goods and services except for vehicles. As a result, U.S. households can purchase more goods 

and services, which leads to higher levels of real U.S. household consumption. 

Interagency Comment 59. Interagency commenters also recommend that EPA and NHTSA 

request comment on the circumstances in which such additional incentives—for the use of 

particular technologies or achievement of particular performance metrics—are appropriate, given 

that the proposed rule will create broad incentives for increasing fuel economy and reducing 

GHG emissions, and given that the provision of credits for particular technologies may distort 

manufacturers’ decisions about which technologies to employ to achieve these goals. 

EPA Response: In both the discussion of the EV/PHEV/FCV advanced technology incentive 

multipliers and the full size pickup trucks technology incentive credit we request comment 

 

4

 U.S. Department of Energy, 2011. “Transportation and the Economy,” Chapter 10 in “Transportation 

Energy Data Book,” http://cta.ornl.gov/data/tedb30/Edition30_Chapter10.pdf, Table 10.13.
8 

regarding the incentives. Given that EPA believes this incentive is appropriate, we don’t see a 

need to request comment on its appropriateness. If commenters’ believe that these incentives are 

not appropriate, they will comment so, independent of a specific request for comment on their 

appropriateness. 

Interagency Comment 60. Interagency commenters also recommend that EPA and NHTSA 

request comment on alternative designs for some of the proposed additional incentives that might 

achieve the goals that motivate the additional incentives while avoiding any excessive or 

perverse incentives. This would include requesting comment on: 

a) The proposed production cap on eligibility for the 0 gram per mile incentive for EVs, PHEVs, 

and FCVs. The low production cap in MY 2022-2025 for automakers that did not sell sufficient 

numbers of eligible vehicles in earlier years could unintentionally limit the introduction of gamechanging technologies from some manufacturers and lock in competitive advantages to first 

movers. To the extent the goal is encourage early leadership in commercialization of these 

technologies, it is not clear that differential production caps in later years are the optimal tool to

encourage such leadership, rather than, for example, increasing incentives for these vehicles in 

earlier years. 

b) The proposed credit for full size HEV pickup trucks, and in particular whether such trucks 

should face eligibility thresholds. Given that the credit is available to all HEV trucks, including 

those with emissions above their footprint standard, it is not clear that there is a public policy 

rationale for increasing the incentive to produce an HEV pickup truck that has higher emissions 

than a conventional but lower-emitting pickup truck. Additionally, as with the production cap 

discussed above, the restriction on access to this credit for only those manufacturers that achieve 

a minimum penetration of HEV trucks within their fleets could limit incentives for deployment 

among certain manufacturers while locking in competitive advantages for others. To the extent 

the goal is to encourage broad penetration into the marketplace, it is not clear that alternative 

crediting designs, such as a broad-based credit that was available to all full size HEV trucks or a 

credit that increased as a linear function of the penetration level of the technology in a 

manufacturer’s full size pickup fleet, would not more effectively achieve this goal. 

c) the proposed performance-based incentive credits for full size pickup trucks and whether 

instead of discrete crediting levels these credits could be awarded on the basis of a linear formula 

to avoid particularly strong (weak) incentives when near to (far from) a “notch” in the incentive 

level. (This credit could be designed, for example, as a 1 g/mi CO2 credit for each X percent 

improvement in fuel consumption relative to the footprint target up to a maximum credit level.) 

EPA Response: Regarding 60a, the preamble requests comment on all aspects of the eligibility 

requirements and the thresholds, as well as on alternative designs for the EV/PHEV/FCV 

incentive multiplier. With respect to 60b, EPA also requests comment in the discussion of the 

proposed full size pickup truck technology incentive credit on the minimum percentage 

thresholds. With respect to having a sliding scale, for the amount of credit, this would not 

provide the type of incentive for which EPA is proposing this incentive. As discussed in the 
9 

August 2011 Joint SNOI, and in the draft preamble for the Joint NPRM, the intent of the full size 

pickup truck market is to provide an incentive for the pull ahead of advanced technologies into 

this market segment. Providing a 1 g/mi incentive for a pickup truck which is 1 or 2% below its 

applicable target would not provide an incentive for a pull-ahead of technology, and is actually 

incentivize a level of technology which is less then what a company would typically add to a 

vehicle during a vehicle redesign. 
1 

Responses from EPA and NHTSA to the Interagency Comments Provided on 

November 4, 2011 regarding the 2017-2025 Light-duty GHG/CAFE NPRM 

This document contains responses from EPA and NHTSA to the remaining interagency 

comments provided on 11.4.2011. EPA and NHTSA provided response to the other comments 

from the 11.4.2011 request on November 9, 2011 and November 10, 2011. 

Interagency Comment 1. At least two unconventional assumptions appear to be necessary to 

yield a prediction that sales of new vehicles will increase as a result of this rule. One is that all 

automakers consistently and predictably forego profit opportunities amounting to hundreds, if 

not thousands, of dollars per vehicle. Another, though not explicitly stated in the analysis, is 

that the projections made today about future technology costs, fuel prices, consumer 

preferences, etc., in the years 2017-25 are more reliable than they will be at any time 

between now and when that time arrives. Interagency commenters request that agencies 

make both assumptions clearly explicit and provide empirical evidence such as peer reviewed 

research to support both. 

EPA Response: 

EPA acknowledges in the preamble that auto makers would have to consistently forego the 

potential for increased vehicle sales in order for our assessment to show the results that it does. 

We state in Preamble III.H.10.a, 

If consumers do not accurately compare the value of fuel savings with the increased cost 

of fuel economy technology in their vehicle purchase decisions, as discussed in Preamble 

III.H.1, they will continue to behave in this way after this rule. If auto makers have 

accurately gauged how consumers consider fuel economy when purchasing vehicles and 

have provided the amount that consumers want in vehicles, then consumers should not be 

expected to want the more fuel-efficient vehicles. After all, auto makers would already 

have provided as much fuel economy as consumers want. If, on the other hand, auto 

makers underestimated consumer demand for fuel economy, then this rule may lead to 

production of more desirable vehicles, and vehicle sales may increase. This assumption 

implies that auto makers may have, for various reasons, missed some profit-making 

opportunities. 

The reasoning underlying potential market failures leading to this result is provided in Preamble 

Section III.H.1 and RIA Chapter 8.1 (and is referenced just before the above). As we discuss in 

those sections, research has neither proven nor disproven any of the hypotheses that might 

explain what appears to be lack of market adoption of cost-effective fuel-saving technologies. 

We there provide an extensive review of the literature. 

On the second point, we do not understand the interagency statement “Another, though not 

explicitly stated in the analysis, is that the projections made today about future technology costs, 
2 

fuel prices, consumer preferences, etc., in the years 2017-25 are more reliable than they will be 

at any time between now and when that time arrives”

Interagency Comment 2. In the analysis of consumer welfare in Section III.H.1, the agencies 

include uncertainty and irreversibility as one explanation of consumers undervaluing fuel 

economy. However, commenters note that the argument is explicitly a “rational consumer” 

argument: it says that consumers rationally apply a higher apparent discount rate to future 

fuel savings in the face of uncertainty about fuel prices. As a result, this argument does 

not appear to provide a justification for DOT/EPA’s use of deterministic projections of 

fuel savings to calculate consumer welfare. Commenters request agency views on this 

point. 

EPA Response: 

In Preamble Section III.H.1, we have sought to provide the range of reasons that the literature 

has provided that might explain the energy paradox. Some of these are market failures, and 

others not. Some have been studied empirically, and others have not. We, as well as researchers 

in the field, consider this an area where solid conclusions cannot yet be drawn. The effect of this 

rule on vehicle sales will be affected by which reasons affect consumer vehicle buying behavior. 

The fuel savings projections used in the net benefits calculation are based on the effects of the 

standards on fuel use in the reference vehicle fleet. Their market value is based on AEO 

predictions of fuel prices. They are independent of consumer vehicle buying behavior, which is 

where consumer attitudes toward fuel economy comes into play. 

EPA RIA specific comments. 

Interagency Comment 5. 3-14: “The 1975-1985 and 2004-2010 timeframes are not relevant in 

this regard due to either rising gasoline prices, rising CAFE standards, or both. Thus, the 1986-

2003 period is an excellent analogue in many ways to the period out to MY 2025 during which 

AEO projects stable gasoline prices. EPA staff have analyzed the fuel economy trends data 

from the 1986-2003 timeframe and there are three clear conclusions: 1) there was a 

small, industry-wide, over-compliance on the order of 1-2 mpg or 3-4%, 2) almost all of 

this industry-wide over-compliance was from 3 companies (Toyota, Honda, and Nissan) 

that produced smaller and lighter vehicles relative to the industry average and which 

therefore naturally and essentially necessarily over-complied with the universal CAFE 

standards that did not vary by footprint, and 3) full line car and truck manufacturers, such 

as General Motors, Ford, and Chrysler, which produced larger and heavier vehicles 

relative to the industry average and which were constrained by the universal CAFE 

standards, rarely over-complied during the entire 18-year period .” 

Comment [A3]: AEO has gas prices rising about 10% over 2017 - 2025 

Comment [A4]: Assuming the FE is lagged by one year following price changes the previous 

year, the last three years (2001-2003) are all over compliance years --- they also correspond to 

years (2000 – 2002) with the highest gas prices. A regression would likely show consumers and 
3 

producers respond to higher gasoline prices. (e.g., see CBO 2008: 

http://www.cbo.gov/ftpdocs/88xx/doc8893/01-14-GasolinePrices.pdf) The average price 1986 – 

1999 was $1.50; whereas 2000 – 2002 price averaged $1.67 (increase in 11%). This seems to 

suggests that when prices rise fuel economy is valued as a vehicle attribute. This point questions 

assumption of market failure for fuel economy. Interagency commenters request response from 

agencies on this point. 

EPA Response: We agree that vehicle buyers are responsive to gasoline price; what is unclear 

is how responsive consumers are. As discussed in Preamble III.H.1 and RIA Chapter 8.1, the 

willingness to pay to reduce future fuel costs appears not to be well estimated in studies, but we 

agree that the value is not zero, as reflected in our use of the 5-year payback period in the vehicle 

sales analysis. 

Interagency Comment 13. Interagency commenters recommend that agencies provide an 

uncertainty analysis that provides a sensitivity of different fuel prices and different consumer 

responses to higher priced vehicles. 

EPA Response: As discussed in the draft proposal, our principle sales impact assessment is 

based on a 5-year payback consideration from the vehicle purchaser. As noted above, using five 

years of fuel savings as the amount that consumers consider when buying vehicles accounts for 

only about 40 percent of the fuel-saving benefits in present value. EPA is willing to consider 

adding sensitivity assessment of a plus and minus 1 year from the 5-year primary analysis, or 

plus and minus 20%, which would be a 4-year and a 6-year assessment, in addition to the 5-year 

assessment. 

NHTSA Response: In addition to estimating sales and employment impacts under the 

assumption that consumers value fuel savings for five years (or the average life of a vehicle 

loans), NHTSA determined that the breakeven point between the length of time that consumers 

value fuel savings and there is no impact on sales is roughly three years. 

Interagency Comment 14. “These complications add considerable uncertainty to our vehicle 

sales impact analysis.” 

Comment [A9]: Commenters request that agencies add uncertainty analysis showing the results 

if consumers do not internalize future fuel savings in their purchase. 

EPA Response: As noted in response to Interagency Comment 5, above, we consider it 

implausible to include an analysis where future fuel savings are completely ignored in the 

vehicle purchase decision. 

Interagency Comment 19. 8 – 12: “Both theoretical and empirical research suggests that, in 

the context of fuel economy and elsewhere, many consumers do not make energy-efficient 

investments even when those investments would pay off in the relatively short-term.[ii]” 
4 

Comment [A13]: Interagency commenters note that if this is true then increased sales will not 

occur, Commenters note this provides further justification for base case. 

EPA Response: As discussed in response to Comment #1, we currently note that this proposed 

rule is not intended to change how consumers make their decisions on vehicle purchase. Vehicle 

sales could be expected to increase if the standards lead auto makers to provide consumers with 

choices over fuel economy that they find desirable with their current decision-making processes. 

Interagency Comment 57. Proposed additional incentives. The proposed rule includes several 

additional incentives that manufacturers could be eligible for on the basis of production of 

certain volumes of vehicles with particular characteristics. Such incentives include multipliers for 

EVs, PHEVs, and FCVs, and credits for trucks that are HEV or that meet a performance 

threshold. To inform decision-making in the final rulemaking and to elicit useful comments on 

these incentives, interagency commenters recommend that the agencies include in the NPRM’s 

preamble estimates of the economic magnitude of these incentives, including how incentives 

would vary depending on the circumstances of a particular manufacturer. 

EPA and NHTSA Response: See response to Interagency Comment 58 below. 

Interagency Comment 58. Stemming from comment above, for example, EPA is proposing 

granting a credit equivalent to 10g/mi to truck manufacturers for each full sized pickup truck that 

achieves 15 percent better fuel consumption than its footprint-based target, provided that this 

performance standard is met or exceeded by at least 15 percent of their full sized pickup truck 

fleet. Commenters note that this begs a question of the magnitude of the incentive created by this 

credit for a manufacturer, first in general, and also for manufacturers that would otherwise 

produce a sufficient number of trucks achieving a performance level just below the required 

standard (e.g., 14 percent better fuel consumption than the required target) or for manufacturers 

that would otherwise produce trucks that exceeded the performance level but these trucks would 

compose less than 15 percent of their full sized fleet. Commenters request clarity on what is the 

implied cost per ton of emissions reductions associated with the incentives created in these 

various scenarios? 

EPA Response: Comment 57 and 58 request information on the economic value of the 

EV/PHEV/FCV incentive multiplier and the full-size pickup truck incentive credit. EPA will 

include additional information in the proposal with illustrative vehicle examples using a metric 

of $/gram/mile as one way auto firms may look at these incentives – we will provide an example 

using an all electric vehicle and the EV incentive multiplier and a HEV full size pickup truck and 

the HEV incentive credit. 

NHTSA Response: The NHTSA program proposes incentives for full size pick-up trucks, but 

not for PHEV/EV/FCV technologies. NHTSA has included an analysis of the potential effects of 
5 

the full size pick-up truck incentives in the PRIA Chapter XI. Staff estimated an upper bound 

level of penetration of Strong HEV technology and calculated the potential effects on required 

CAFE standards for each manufacturer of full size pick-ups and for the industry. The analysis 

included estimated effects on achieved fuel economy, technology outlays, average vehicle cost 

increase, fuel savings and CO2 reductions. 
Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to

further policy review.

1

Below is a summary of interagency working comments received during EO 12866 and EO 13563 

review of the draft rule “Joint Rulemaking to Establish Light-Duty Vehicle Greenhouse Gas 

Emission Standards and Corporate Average Fuel Economy Standards”. They are for your 

consideration and are subject to further policy review. 

1) Interagency commenters thank agencies for the following responses. Commenters 

recommend that the agencies incorporate a summary of the following responses that the 

agencies provided into the Preamble so that public commenters can benefit from these 

clarifications: 

“EPA Response: The Department of Energy Transportation Energy Data Book1

 estimates that 

15.4% of the total cost per mile for a vehicle is gas and oil. Between 1985 and 2010, the 

percentage has varied from a low of 9.4% to a high of 19.9%. 

This issue ties into the salience of fuel expenditures at the time of vehicle purchase, one of the 

hypotheses raised in this section. To keep the discussion of manageable size, we have raised a 

number of hypotheses in the DRIA without going into depth on any of them. In the Preamble, 

we have added, in a short discussion of salience, the following footnote: “U.S. Department of 

Energy, 2011. “Transportation and the Economy,” Chapter 10 in “Transportation Energy Data 

Book,” http://cta.ornl.gov/data/tedb30/Edition30_Chapter10.pdf, Table 10.13 , estimates that gas 

and oil costs were 15.4% of vehicle costs per mile in 2010.” 

“EPA Response: Our gasoline engine technology cost and effectiveness estimates are based 

on the use of regular unleaded gasoline fuel. We do not project that premium fuel will be 

required to achieve the proposed standards.” 

“EPA Response: EPA has not conducted any sensitivity on towing. The vast majority of all of 

the technology packages which we have added to vehicles maintain towing capability. All full 

size pickup trucks have been modeled to maintain towing (gasoline, diesel, and hybrids). All 

gasoline and diesel vehicles are modeled to maintain towing. For HEV vehicles (other than full 

size pickup trucks, where we have not utilized Atkinson-cycle engines), we have utilized 

Atkinson-cycle engines, but with no downsizing of the engine. Thus, when combined with the 

electric motor on the vehicle, towing capability is maintained, except for those instances where a 

vehicle is at or near the maximum towing load and operation is on a sustained grade (e.g., going 

uphill for a long period of time) – and it is possible OEMs may reduce the rated maximum 

towing limit for such vehicles. Given the relatively small number of HEVs we project (which 

are not full size pickups), this impact is modest. It is not clear what part of our analysis 

                                                            1

 U.S. Department of Energy, 2011. “Transportation and the Economy,” Chapter 10 in “Transportation 

Energy Data Book,” http://cta.ornl.gov/data/tedb30/Edition30_Chapter10.pdf, Table 10.13. 
Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to

further policy review.

2

regarding towing would be a basis for a towing sensitivity assessment, and what type of 

sensitivity would be performed.” 

2) Refueling benefits. Interagency comments recommend that the agencies include language 

seeking public comment from manufacturers on whether all improvements to fuel 

economy will translate directly into driving range or if manufacturers will alternatively 

reduce tank size to some extent to maintain driving range. 

3) Interagency commenters recommend that the agencies include a discussion in the 

Preamble about substitution between new and older vehicles in light of increases in 

vehicle prices. Commenters suggest that the agencies seek comment on the effect of rule 

on scrappage rates. 

1) Interagency commenters recommend that the agencies insert the following language in 

the Preamble on page 61 towards the end of “Section C. Summary of Costs and Benefits 

for the Proposed National Program”: 

“In the RIAs and TSD chapters, the agencies project that some advanced technologies, 

such as 8-speed automatic transmissions, have negative costs. In other words, these 

technologies reduce both fuel consumption and vehicle production costs at the same time. 

 One might expect that auto manufacturers would be able to identify such technologies 

with negative costs and incorporate them into their designs absent regulation. However, 

for reasons x and y [please insert agency explanation], auto manufacturers will not 

incorporate these technologies into their designs absent regulation. For that reason, these 

negative cost technologies do not belong in the baseline. We seek comment on the 

estimates of costs of all the technologies projected to have negative costs.” 

2) Interagency commenters recommend that the agencies insert the following language in 

the Preamble on page 61 towards the end of “Section C. Summary of Costs and Benefits 

for the Proposed National Program”: 

“EPA and NHTSA included discussion of learning cost assumptions in the RIAs and 

TSD Chapter X. Since the agencies had to project how learning will occur with new 

technologies over a long period of time, we request comments on the assumptions of 

learning costs and methodology. In particular, we are interested in input on the 

assumptions for certain advanced technologies not expected to be available until 2017, 
Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to

further policy review.

3

but for which we assume that learning (and the associated cost reductions) begin as early 

as 2012. We seek comment on the appropriateness of these pre-production applications 

of learning.” 

3) Interagency commenters recommend that the agencies insert the following language in 

the Preamble section of energy security benefits: 

“The calculation of energy security benefits does not include energy security costs associated 

with reliance on foreign sources of lithium and rare earth metals for HEVs and EVs. The 

agencies intend to quantify this impact for the final rule stage and seek public input on 

information that would enable agencies to develop this analysis. EPA and DOT also seek public 

input on the projections that energy security benefits will grow rapidly through 2025.” 

4) Interagency commenters recommend that the agencies include the following language in 

the Preamble on page 61 towards the end of “Section C. Summary of Costs and Benefits 

for the Proposed National Program”: 

“Due to time constraints, the analysis accompanying this joint rule did not include 

additional costs that may be associated with adoption of certain technologies included in 

the packages such as: 

‐ EV/HEV/PHEV battery disposal costs 

‐ Infrastructure costs associated with building new charging stations for EVs 

‐ Changes in vehicle maintenance and repair costs 

‐ Premium fuel requirements for certain advanced technologies 

The agencies intend to quantify these additional costs for the final rule stage. DOT and 

EPA seek comment on other costs or cost savings that are unaccounted for in this 

analysis, and agencies seek information on how to quantify impacts of these additional 

cost and savings categories for the final rule stage.” 

5) Interagency commenters recommend that the agencies include the following language in 

the Preamble on page 61 towards the end of “Section C. Summary of Costs and Benefits 
Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to

further policy review.

4

for the Proposed National Program”. Interagency comments recommend that agencies 

title this section “Uncertainty Analysis and Additional Sensitivity Cases” 

“Uncertainty Analysis and Additional Sensitivity Cases” 

“Due to the uncertainty and difficulty in projecting costs and benefits through 

2025, the agencies relied on a combination of methods to project costs and costeffectiveness of technologies. For example, for most advanced technologies, EPA 

and DOT relied on new studies and research conducted by EPA, and contracted 

work with FEV and Ricardo. For other technologies, EPA and DOT relied on cost 

and cost-effectiveness estimates developed in the 2012-2016 rulemaking by 

applying learning to those estimates appropriate for the 2017-2025 time period. 

DOT conducted a full uncertainty analysis, which is included in the RIA section 

x. Results of the uncertainty analysis are summarized below: 

Total Benefits at 7% discount rate ____ 

 Total Benefits at 3% discount rate ____ 

 Total Costs and 7% discount rate ____ 

 Total Costs at 3% discount rate _____ 

DOT also conducted sensitivity cases that are very close to the costs and costeffectiveness estimates used by the National Academy of Sciences in their report 

titled, “PLEASE INCLUDE CORRECT TITLE.” As the agencies indicated in 

both RIAs, the NAS did not project costs and cost-effectiveness for technologies 

beyond 2015. NHTSA applied learning and discounting similar to the learning 

and discounting applied to current agency projections of certain technologies to 

derive alternative sensitivity cases for 2017-2025. NHTSA estimated the 

following impacts on the costs and benefits of the rule when using the NAS-like 

sensitivities: 

Total Benefits at 7% discount rate ____ 

 Total Benefits at 3% discount rate ____ 

 Total Costs and 7% discount rate ____ 
Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to

further policy review.

5

 Total Costs at 3% discount rate _____ 

The agencies seek comment on the methods used to conduct the uncertainty 

analysis and on the results from the additional sensitivity cases. The agencies also 

seek comment on whether the agencies should use any of the sensitivity cases as 

part of the primary case for the final rule.” 

6) Interagency commenters recommend that the agencies remove this statement that first 

appears of pages 9-10 of the Preamble and everywhere else in the Preamble, both RIAs, 

and TSD chapters where this statement is repeated/summarized: 

“The agencies have designed the proposed standards to preserve consumer choice 

-- that is, the proposed standards should not affect consumers’ opportunity to 

purchase the size of vehicle with the performance, utility and safety features that 

meets their needs.” 

7) Interagency commenters note that Table X-10 on page 459 might be confusing because it 

looks like the “market driven baseline” was much higher than it actually is. Interagency 

commenters recommend that the agencies clarify what methodology was used to develop 

the table and estimates. 

8) Interagency commenters thank the agencies for their response on the model’s inability to 

accurately project PHEV penetration. As a follow-up, commenters recommend that 

agencies include a caveat with each table that details the limitations of modeling PHEVs 

versus EVs and the fact that the analysis does not consider the impact of the advanced 

vehicle incentives. Interagency commenters also request clarity from agencies on why 

agencies chose not to combine EV/PHEV projections in a single column as had been 

done for the TAR? 

Other Follow-up Interagency comments on Preamble: 

9) Page 39 – “EPA is proposing that EVs and FCVs start with a multiplier value of 2.0 in 

MY 2017, phasing down to a value of 1.5 in MY 2021. PHEVs would start at a 

multiplier value of 1.6 in MY 2017 and phase down to a value of 1.3 in MY 2021.2

 The 

multiplier would be 1.0 for MYs 2022-2025.” Interagency commenters note that the 

multipliers appear to be related to the hybridization degree of the powertrain (I.e., BEVs 

have a higher multiplier than PHEVs). If so, perhaps the multiplier should be 

                                                           
Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to

further policy review.

6

proportional to the hybridization degree. This would allow differentiating PHEVs with 

different EV ranges. Otherwise, a PHEV with a small battery (i.e., 4kWh) gets the same 

credit as a PHEV with a larger one (i.e., 16kWh). 

10) Page 40 – “EPA is proposing that mild HEV pickup trucks would be eligible for a per 

vehicle credit of 10 g/mi3 during MYs 2017-2021 if the technology is used on a minimum 

percentage of a company’s full size pickups...” Interagency commenters request clarity 

on whether there is a credit for other technologies, such as PHEVs? 

11) Page 61, Table I-21: Interagency comenters note that the 7% discount rate Car Sum of 

Present Values may be incorrect. Commenters suggest that agencies to double this table. 

12) Page 84, Table II-2: Interagency commenter recommends that agencies define the term 

“MAV (Multi-Activity Vehicle)”. 

13) Page 100 – “The agencies excluded diesels and dedicated AFVs because the agencies 

anticipate that advanced gasoline-fueled vehicles are likely to be dominant through 

MY2025.” Interagency commenters request clarity on how agencies arrived at this 

conclusion. 

14) Page 112 – “Shift optimization is a strategy whereby the engine and/or transmission 

controller(s) emulates a CVT by continuously evaluating all possible gear options that 

would provide the necessary tractive power and select the best gear ratio that lets the 

engine run in the most efficient operating zone.” Interagency commenters request agency 

views on whether the trade-off between drive quality and fuel consumption benefits with 

respect to CVT controls could be an issue, and if this has led OEMs to scale back 

development of CVTs. Commenters would like to understand if drive quality suffers 

when fuel consumption benefits are maximized through CVT operation. Commenters 

also request clarity on whether drive-quality has been taken into account with respect to 

the shift optimization strategy that emulates a CVT. 

15) Page 113 – “Mass Reduction can be achieved in many ways, such as material 

substitution, design optimization, part consolidation, improving manufacturing process, 

etc. The agencies applied mass reduction of up to 20 percent relative to MY 2008 levels 

in this NPRM compared to only 10 percent in 2012-2016 final rule.” Interagency 

commenter recommends that agencies include language to clarify what the 20% 

reduction includes (if this is for the entire vehicle or just the glider). 

                                                           
Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to

further policy review.

7

16) Page 182 – Interagency commenters note that the table lists the incentives for 

EV/PHEV/FCV multipliers in the same column. Interagency commenters note that this 

seems to be different than the statement on page 39 that mentions that EVs and FCVs 

start with 2 and PHEVs with 1.6 in 2017. The same values are also in Table III-14 on 

page 263. 

17) Page 271 – Interagency commenters find the CNG vehicle utility factor discussion for 

dual fuel CNG confusing in the second paragraph of this page of the preamble. 

Interagency commenters request clarity in the text on how agencies derived the 95% 

CNG operation. 

18) Page 314 – Table III – Interagency commenters note that it seems unusual that GM and 

Hyundai are shown as having 0% penetration of HEVs (and Ford at only 2%) in 2025 

while they all have already HEVs in the market. Also, commenters note that Toyota, the 

current market leader, has a lower percentage (12%) than BMW and Tata, who have no 

HEVs on the market. Interagency commneters request clarity behind these numbers. 

19) Page 344 – Table III-50. Commenters suggest that agencies include a table comparing 

the current technology costs with the values in 2025 along with a percentage 

improvement per year to reach these values. Commenters suggest a similar table for Page 

673 Table IV.G.4-1A 

20) Page 324 – Table III-31 – Interagency commenters request clarity on why idle-stop 

systems and mild HEVs are not considered in any of the analysis of this section. 

Commenters request clarity on whether these technologies are being considered in large 

production by auto manufacturers now. 

21) Page 570 – “NHTSA notes that, in developing technology cost and effectiveness 

estimates, the agencies have made every effort to hold constant aspects of vehicle 

performance and utility typically valued by consumers, such as horsepower, carrying 

capacity, drivability, durability, noise, vibration and harshness (NVH) and towing and 

hauling capacity.” Interagency commenters request clarity on the criteria used for 

durability, noise, vibration, and harshness. 

22) Page 576 – Commenters suggest that agencies include language to describe the necessity 

to use two separate tools (VOLPE and OMEGA) and provide further explanations about 

how the difference in the tool methodologies and assumptions influence the overall 

results. 
Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to

further policy review.

8

23) Page 620 – “NHTSA notes that the Volpe model not only has been formally peerreviewed and tested and reviewed through three rulemakings, but also has some features 

especially important for the analysis of CAFE standards under EPCA/EISA. Among 

these are the ability to perform year-by-year analysis, and the ability to account for 

engineering differences between specific vehicle models.“ Interagency commenters 

recommend that agencies include language and information elaborating about the impact 

of these features and how it would affect results if they did not have them. 

24) Page 620 – “By combining technologies incrementally and on a model-by-model basis, 

the CAFE model is able to account for important engineering differences between vehicle 

models and avoid unlikely technology combinations.” Interagency commenters suggest 

that agencies to add additional text elaborating on the impact of addressing technologies 

individually vs. packages. 

25) Page 681/682 – Interagency commenters suggest that agencies include an explanation of 

why Table IV.G.4-4 shows that almost no HEVs are required when EPA states that as 

much as 15% would be necessary (Table III-23 page 314)? 

26) Page 5-71: Commenters request clarity on whether it is likely or unlikely that the g/mi 

values shown for automobiles for start-stop technology and solar roofs would be so close 

(2.9 vs. 3.0, respectively). Interagency commenters note that the value of these 

technologies depends to a large part on climate or time of day. Commenters also note that 

in particular, the value of start-stop might be much larger compared to solar since it is not 

dependent on weather (sunny in Dallas vs. rainy in Seattle vs. snowy in Vermont) or time 

of day (daylight vs. night). Commenters note that the same argument could apply to solar 

control. Commenters request clarity on whether agencies considered these potential 

differences. 
1 

Responses from EPA to the Interagency Comments Provided to EPA on 

November 8, 2011 regarding the 2017-2025 Light-duty GHG/CAFE NPRM 

This document contains responses from EPA to the interagency comments provided to EPA on 

11.4.2011. EPA provided response to the other comments from the 11.4.2011 request on 

November 9, 2011 and November 10, 2011. 

NHTSA is also reviewing these Interagency Comments from November 8, as well as the EPA 

responses below, and EPA may supplement our responses based on further review within EPA 

and/or information we receive from NHTSA. 

Interagency Comment 1. Interagency commenters find that there seems to be considerable 

confusion about how the mpg requirements of the rule relate to the “real world” mpg numbers 

now included on vehicle labels. Please provide an estimate of the real world mpg requirements 

for each year. 

EPA Response: In Preamble Section I, the Executive Summary, the third paragraph (which is 

the first discussion of 2025 targets) we have include the following footnote “Real-world CO2 is 

typically 25 percent higher and real-world fuel economy is typically 20 percent lower than the 

CO2 and CAFE compliance values discussed here.” We have this note in several places 

throughout the preamble, but we do not repeat it for the dozens and dozens of tables of the 2-

cycle test procedure CO2 and mpg values. We have added a new table early in Preamble III (the 

discussion of the proposed EPA standards) which will provide an estimate of the real-world fuel 

economy and CO2 emission performance for cars and for trucks for the MYs 2017-2025. 

Interagency Comment 2. Interagency commenters request clarity on whether the reference fleet 

included in this rule is equivalent to the fleet exactly as the analysis of the 2012-2016 rule 

projects to be in 2016? If not, did the agencies under- or over-estimate costs and benefits in that 

rule? Given that the reference fleet is based on projections from commercially available sources, 

is it the agencies’ intention to compare these projections to manufacturers’ plans and make 

adjustments to the projections when they diverge from manufacturers’ plans? 

EPA Response: The reference fleet has been adjusted for some minor technology information 

updates as well as scaled to a new AEO. This is discussed in TSD 1. Given that we are focusing 

on later model years, EPA has not performed a detailed comparison back against the 2016 rule 

analysis, which compared against a different reference scenario (MY 2011 CAFE). A number of 

other inputs (VMT and fuel price) have also been updated as a result of the new AEO, so a direct 

comparison of benefits is not obvious. 

With regard to manufacturer product plans, the issues related to using confidential manufacturer 

product plans extensively in the MY 2012-2016 rule, see 75 FR at 2353. For the MY2017-2025 
2 

proposal, while NHTSA did request product plans from firms and the submissions were shared 

with EPA, many firms did not provide any response to such requests, and the firms which did 

often did not forcase beyond MY2016, and the number of firms who provided information to the 

MY2020 and MY2025 time frame were very few. 

Interagency Comment 3. Interagency commenters request clarity on why consumers’ 

experience with the more fuel efficient cars from the 2012-2016 rule will not be sufficient to 

persuade them of the benefit of fuel efficiency. In other words, commenters request clarity on 

why experience is not sufficient to overcome apparent myopia? More specifically, commenters 

request clarity on why fuel labels are not sufficient to overcome (or least mitigate to some extent) 

consumers’ myopia? Similarly, if there were a market failure that prevented manufacturers from 

foreseeing that producing more fuel efficient cars is a profit maximizing strategy, commenters 

request clarity on why their experience with the 2012-2016 rule might not be sufficient to 

persuade them? 

EPA Response: 

Because vehicles are a durable good, bought infrequently, any individual consumer has a 

relatively limited opportunity to develop experience. Experiments in economics often show that, 

consumer decisions improve with repeated participation in markets; when a consumer enters the 

market, on average, every five years, to a changed selection of vehicles, though, lessons from the 

previous market exposure may not carry over very well. 

Regarding the label, we are not aware of empirical evidence on how or whether past fuel 

economy labels have changed purchase decisions. A literature review that contributed to the fuel 

economy labeling rule1

 points out that consumers increasingly do a great deal of research on the 

internet before going to an auto dealer. Whether the new label will play a more prominent role 

in affecting consumer decisions is as yet unknown. 

For automakers, the evidence from the mid-1980s – early 2000s, when fuel prices were low and 

relatively stable, suggests that fuel economy was not a priority in vehicle design. In recent years 

automakers have advertised fuel economy much more, but the passage of EISA in 2007, 

combined with much higher gasoline prices in 2004-8, ensured that they would have to improve 

fuel economy; whether they would have done so in the absence of the law or the regulations or 

higher gasoline prices is impossible to say. We are only starting to see evidence in the past few 

years of increasing options for improved fuel economy: for instance, it is possible to get the 

Ford F-150 truck with either a V-8 engine or a V-6 with turbocharging, and consumers appear to 

be responding to the choice. We have no evidence either to support or to reject the idea that 

automaker behavior will be different in response to the 2012-16 standards than it has been for 

most of the last 30 years. 

 

1

 PRR, Inc., “Environmental Protection Agency Fuel Economy Label: Literature Review.” EPA-420-R-10-906, 

August 2010, available at http://www.epa.gov/fueleconomy/label/420r10906.pdf . 
3 

Interagency Comment 4. Interagency commenters request clarity on why the Max Net Benefit 

alternative does not maximize net benefits? (From Table 2, the Max Net Benefit option has the 

4th or 6th highest net benefits of those listed.) 

EPA Response: This comment is directed to a specific assessment performed by NHTSA. 

Interagency Comment 5. Interagency commenters request clarity on whether the agencies 

considered the energy security costs of reliance on foreign sources of lithium and rare earth 

metals for hybrids and EVs? 

EPA Response: As stated in the Preamble, EPA is considering exploring the impact on energy 

security of PHEVs and EVs. EPA did not have sufficient information to conduct this analysis 

for the NPRM but will attempt to collect this information for the FRM. 

Interagency Comment 6. Interagency commenters request clarity on whether the increased 

price of vehicles will induce individuals to keep their old cars for a longer time period? If this is 

the case, commenters request clarity on whether there will be a reduction in safety as they delay 

acquiring cars with the latest safety technology? 

EPA Response: Preamble III.H.10 currently states: 

“The effect of this rule on the use and scrappage of older vehicles will be related to its 

effects on new vehicle prices, the fuel efficiency of new vehicle models, the fuel efficiency 

of used vehicles, and the total sales of new vehicles. If the value of fuel savings resulting 

from improved fuel efficiency to the typical potential buyer of a new vehicle outweighs 

the average increase in new models’ prices, sales of new vehicles will rise, while 

scrappage rates of used vehicles will increase slightly. This will cause the “turnover” of 

the vehicle fleet (i.e., the retirement of used vehicles and their replacement by new 

models) to accelerate slightly, thus accentuating the anticipated effect of the rule on fleetwide fuel consumption and CO2 emissions. However, if potential buyers value future fuel 

savings resulting from the increased fuel efficiency of new models at less than the 

increase in their average selling price, sales of new vehicles will decline, as will the rate 

at which used vehicles are retired from service. This effect will slow the replacement of 

used vehicles by new models, and thus partly reduce the anticipated effects of this rule on 

fuel use and emissions. 

Because of the uncertainty regarding how the value of projected fuel savings from this 

rule to potential buyers will compare to their estimates of increases in new vehicle prices, 

we have not attempted to estimate explicitly the effects of the rule on scrappage of older 

vehicles and the turnover of the vehicle fleet.” 
4 

The vehicle sales analysis suggests that new vehicle sales will increase; if so, turnover should 

increase, as noted above. 

Interagency Comment 7. Interagency commenters recommend that agencies include an 

estimate of the average cost per vehicle of for the proposed rule, plus the costs attributable to the 

2012-2016 rule (as well as costs of safety improvements). Commenters request agency response 

to whether it be appropriate to use a price which reflects the costs attributable to the 2012-2016 

rule and required safety improvements as the starting point for elasticity analysis of sales effects? 

EPA Response: We present reference case costs per vehicle in RIA Table 3.6-1. EPA has 

selected as a reference case the future as it would be without the proposed standards (that is, the 

continuation of the MY2016 standards into the future). This is no different then what EPA has 

done in dozens of previous mobile source rules over the past 20+ years, and is consistent with 

OMB Circular A-4 and EO 12866. 

The vehicle sales analysis does use a price that includes the costs attributable to the 2012-16 

standards. EPA Draft RIA Chapter 8.1.1 states: 

“The baseline vehicle prices are drawn from the 2012-16 greenhouse gas/fuel economy 

rule. The starting average car ($26,201) and truck ($29,678) values in 2007$ for model 

year 2011 have added to them the model year 2016 average technology costs for cars 

($890) and trucks ($1,162). These values are converted to 2009$ using the GDP 

deflator, to yield starting prices of $27,984 for cars, and $31,856 for trucks.” 

Interagency Comment 8. Interagency commenters request clarity on how EVs are accounted 

for in the refueling analysis? Interagency commenters request clarity on whether the cost of 

infrastructure for EVs (charging stations, additional generation capacity, distribution 

infrastructure) are included in the analysis? 

EPA Response: EPA conducts the refueling analysis on an average vehicle, and includes EVs 

in the vehicle population. As discussed in the preamble, and EPA RIA, these vehicles feature 

unique refueling attributes, particularly in the small quantities (~1% of the new sales for MYs 

2017-2025) projected in this rule. Some owners, particularly of this early adopter population, 

may derive significant benefit from never refueling at a service station. While there are range 

concerns with electric vehicles, it is unlikely that these concerns are similarly shared by the 

owners of the first percent of the electric vehicle fleet. Given these counterbalancing concerns, 

EPA did not take any special actions to account for EVs in the refueling analysis. The monetized 

value may be underestimated if we haveunderestimated the benefit that this small population 

derive from never refueling at a gas station. The analysis may be overestimated if EV owners 

derive less benefit from never refueling at a gas station. 
5 

Infrastructure costs are included in terms of in-home charging stations, where we have included 

the costs of both the charging system and the home installation; see Chapter 3.4.4 of the draft 

Joint Technical Support Document. We have not include costs for public charging stations or 

electricity grid upgrades since, given the low penetration of PHEV and EVs we project from the 

proposed standards, we do not believe that these would be required. 

Interagency Comment 9. Interagency commenters note that the agencies appear to be making 

two market inefficiency arguments—that consumers undervalue fuel efficiency when making 

purchasing decisions and (somewhat to the contrary) that manufacturers are not producing the 

fuel efficient vehicles that consumers would be willing to buy irrespective of the extent of 

myopia. Commenters request agencies to provide the empirical evidence that agencies relied 

upon to support these hypotheses. 

EPA Response: Preamble III.H.1 and RIA Chapter 8.1 include extensive reviews of the 

literature on the role of fuel savings in consumer vehicle purchase decisions. During the 2012-16 

rulemaking, EPA asked David Greene of Oak Ridge National Laboratory to review the literature 

on this question. He found that estimates were very highly varied, with many papers finding 

undervaluation, and others finding “about right” valuation or even overvaluation. 

We have not been able to find any academic literature on how automakers decide how much fuel 

economy to build into vehicles. David Greene has noted that several manufacturers say they use 

2-4 year simple paybacks as rules of thumb. 

Our primary empirical evidence is the assessment of the technology costs and the effectiveness. 

Our analyses have found many fuel-saving technologies with short payback periods that are not 

in widespread use on vehicles. The cost calculations for these technologies (with very minor 

exceptions, such as EVs) take into account the costs of holding other vehicle attributes constant: 

for instance, instead of simply converting an engine from 8 cylinders to 6 cylinders, the cost 

estimate includes the cost of turbo-charging, to maintain performance. This energy paradox – 

the under-adoption of what appear to be many cost-effective energy-saving technologies – has 

also been observed in a number of different energy markets, such as building insulation, compact 

fluorescent bulbs, and appliances. 

Interagency Comment 10. In evaluating the consumer welfare benefits of the rule, commenters 

note that DOT and EPA include the fuel savings from greater fuel economy over the vehicles’ 

entire lifetimes (Preamble, p. 397). As the agencies explain (Section III.H.1), this approach rests 

on the assumption that for one of a variety of reasons, consumers do not themselves accurately 

value the future fuel savings from more fuel-efficient vehicles. As the agencies point out, this 

assumption is consistent with a considerable body of empirical literature “suggesting that 

consumers do not give full or appropriate weight to fuel economy in purchasing decisions” 

(Preamble, p. 395). (Commenters note that the empirical literature on its own does not establish 

whether consumers actually undervalue fuel economy or whether they consider it but find it to be 

outweighed by countervailing but unobserved costs.) Commenters note that in the analysis of 

sales and GDP impacts, however, the agencies make what appears to be a very different 
6 

assumption. In that analysis (Sections III.H.10 and 11), the agencies assume explicitly that “the 

consumer would take into account both the higher vehicle purchase costs as well as some of the 

fuel savings benefits when deciding whether to purchase a new vehicle” (p. 436). 

a) Commenters request clarity on whether, for purposes of consumer welfare calculations, 

agencies use the fuel savings over the vehicles’ entire lifetimes or instead use fuel savings over 

some smaller period. 

b) Interagency commenters request that DOT/EPA explain how welfare analysis (which rests on 

an assumption that consumers do not value fuel economy in making purchase decisions) is 

consistent with their analysis of sales and output (which assumes that consumers do value fuel 

economy in making purchase decisions). 

c) Interagency commenters request agencies to show the results of the GDP/sales/employment 

analysis under a scenario using a payback period/model of consumer behavior that is fully 

consistent with the assumptions underlying their consumer welfare benefits calculation. 

EPA Response: Regarding comment (a): If by “consumer welfare calculations” the comment 

means the net benefits of the rule, then, yes, the rule analysis includes the present value of the 

stream of benefits from reduced fuel consumption. If, as the rule predicts, fuel consumption is 

reduced over a number of years, then we monetize those benefits using the expected market price 

from AEO and use them in the net benefits calculation. 

Regarding comment (b): The welfare analysis is based on a comparison of the benefits of 

reduced fuel consumption with the costs of reducing fuel consumption over a number of years 

into the future. If fuel consumption is not reduced, then the rule does not reduce greenhouse 

gases as much as predicted. As just noted, the benefits of the reduced fuel consumption include 

the market value of the fuel savings. Assumptions about how consumers think about fuel 

savings when buying new vehicles do not play a role in this calculation. The calculation is based 

on driving patterns (including rebound) while holding the reference fleet constant. 

We do not assert that consumers do not value fuel economy in making purchase decisions. The 

vehicle sales analysis is based on consumers taking into consideration five years’ worth of fuel 

savings, which is more than zero consideration (even though a “rational” buyer would consider 

the full stream of fuel savings over the lifetime of the vehicle). Five years of fuel savings 

accounts for only 30 – 50 percent of the lifetime fuel savings benefits. 

The fuel savings that people consider when buying vehicles may not equal the fuel savings that 

they will actually experience once they buy the vehicles. Once the vehicle is purchased, though, 

consumers will buy less fuel, unless the rule does not reduce greenhouse gases as much as 

estimated. As noted above, we use AEO estimated market prices to calculate the value of that 

reduced consumption. 
7 

Regarding comment (c) The GDP analysis does not incorporate the vehicle sales or employment 

estimates. It is based only on the technology costs and the estimated reduced fuel consumption. 

We could conduct a vehicle sales and employment analysis under the assumption that consumers 

consider the expected lifetime fuel savings, but we do not believe that consumers behave in this 

way. 

Interagency Comment 11. Commenters note that agencies have not used estimated sales 

impacts in their model of compliance costs or benefits (Preamble, p. 436). Commenters request 

clarity on why agencies use sales impacts in the economic analysis but not in their analysis of 

compliance with the rule. Commenters request clarity on what the impact would be of including 

sales impacts in the OMEGA model, in terms of compliance costs? 

Commenters also request clarity on what would be the impact of including sales if the agencies 

made a different assumption about how consumers take fuel economy into account in making 

purchase decisions? 

EPA Response: 

As the reviewers note, the vehicle sales analysis does not circle back to the OMEGA analysis. If 

we did circle back the effects, then the total sales volume in OMEGA would change. Because 

the sales analysis is not specific to class or model (other than the car/truck differentiation), the 

market shares (except for total numbers of cars and trucks) would be unaffected. Total 

compliance costs would increase, because more vehicles would be affected. 

Different assumptions about the role of fuel savings in the vehicle sales analysis will have the 

expected effects: considering fewer years of fuel savings will lead to smaller increases, or even 

decreases, in vehicle sales, while considering more years of fuel savings will lead to larger 

increases. 

Interagency Comment 12. In estimating employment impacts, DOT/EPA note that “in a fullemployment economy, employment impacts of this proposal ... will have small, if any, effect on 

aggregate employment” (p. 449) In light of this point, interagency commenters request clarity on 

why agencies are including a quantitative jobs impact analysis of this rule? 

EPA Response: The employment impacts of the rule depend, in part, on whether the U.S. 

economy is at full employment or not. When the economy is at full employment, an 

environmental regulation is unlikely to have much impact on net overall U.S. employment; 

instead, labor would primarily be shifted from one sector to another. On the other hand, if a 

regulation comes into effect during a period of high unemployment, a change in labor demand 

due to regulation may affect net overall U.S. employment because the labor market is not in 

equilibrium. As Schmalansee and Stavins have pointed out, net positive employment effects are 

possible in the near term when the economy is at less than full employment due to the potential 
8 

hiring of idle labor resources by the regulated sector to meet new requirements (e.g., to install 

new equipment) and new economic activity in sectors related to the regulated sector. 

 EPA provides a partial, bottom-up quantitative estimate of the effects of this proposal on 

the regulated sector, auto manufacturing, where the employment impacts are likely to be the 

most concentrated. Focusing on the regulated sector provides insight into employment effects in 

that sector without having to make assumptions about the state of the economy when this rule 

has its impacts, in the 2017-2025 time frame and beyond. We include a qualitative discussion of 

employment effects on other sectors to provide a broader perspective on the impacts of this rule. 

Interagency Comment 13. In calculating the “demand effect” of the rule on employment, the 

agencies multiply the estimated increase in vehicle sales by 0.096 workers per vehicle. Judging 

from the Preamble, commenters note that this appears to be an estimate of average labor input 

per vehicle, presumably calculated as the total workforce divided by sales. Interagency 

ommenters request clarity on whether this is how the 0.096 estimate is calculated? Does the 

0.096 estimate reflect all employees or only employees involved in manufacturing? Interagency 

commenters request agencies to explain the rationale for assuming that the average labor input is 

equal to the additional labor input that would be required to produce additional vehicles? (In 

other words, interagency commenters request DOT/EPA to provide justification for the implicit 

assumption that labor input is perfectly variable.)

a. Additionally, how does this estimate account for increases in labor productivity over the next 

15 years? 

EPA Response: 

 EPA’s DRIA Chapter 8.2.3.1.1 provides detail on the calculation. The 0.096 workers per 

vehicle is found by dividing workers in the automotive sector by vehicles produced over a 10-

year period. This includes total employment in the Motor Vehicles and Parts Sector; it thus 

averages over all employment associated with vehicle production. 

We are using average rather than marginal labor input estimates. The marginal labor input 

required could be either higher or lower than that used here, depending on such factors as the 

current utilization levels of production facilities and the kinds of labor needed for additional 

production. As EPA notes in its discussion, averages provide useful information on the 

magnitude of the expected effects. 

In EPA’s analysis, we account for productivity increases over the next 15 years using estimates 

we derive from changes in the Bureau of Labor Statistics’ Employment Requirements Matrix 

coefficient for the auto sector from 1993-2008. As discussed in DRIA 8.2.3.1.1 and 8.2.3.1.2, 

we estimate a 4.4 percent per year productivity improvement in the Motor Vehicle 

Manufacturing Sector and apply that value to the workers per vehicle calculation.

Interagency Comment 14. In calculating the “cost effect,” commenters note that DOT/EPA 

assume that the labor share of the cost of new technologies as a result of the rule is the same as 
9 

the labor share of overall cost, i.e., that the additional labor required per $1 million in 

expenditure for technology cost is the same as the average labor required per $1 million in total 

expenditure. Commenters request agencies to provide the basis for this assumption. 

EPA Response: 

EPA discusses this point more thoroughly in our discussion of the factor shift effect, DRIA 

Chapter 8.2.3.1.3. As we note, it is possible that labor demand per $1 million for the advanced 

technologies could be higher or lower than the averages we use here. We are unable to develop 

specific labor demand changes for all the technologies we have studied. However, for a subset 

of technologies where we have conducted highly detailed comparisons of the reference 

technology and the advanced technology (e.g., an existing transmission and a 6-speed or an 8-

speed transmission), we have found increases in labor costs with the new technologies compared 

to the baseline technologies. As we note, we are unwilling to extrapolate from what may well be 

an unrepresentative sample, but it shows that, at least for some of the technologies, labor demand 

may increase with the new technologies. As a result, using the averages may provide a 

conservative estimate. 

Interagency Comment 15. Projected technology mix and PHEVs – In addition to providing 

appropriate caveats to clarify the limitations of modeling fleetwide and company-by-company 

vehicle technology mixes, interagency commenters recommend that agencies explain the 

limitations of the model as they relate to PHEVs in particular (and other advanced technology 

vehicles, which may be difficult to model). Given that the model cannot weight attributes that are 

especially relevant to consumer adoption of PHEVs like vehicle range (which is a large part of 

their potential advantage over full EVs), the model seems to always choose EVs over 

significantly more expensive PHEVs. Commenters also recommend that each set of tables 

clearly explain that the modeling did not account for the EV/PHEV/FCV multiplier provisions. 

EPA Response: While the relevant equations and model capabilities are discussed in DRIA 3, 

additional discussion has been added on this topic. Discussion of the modeling is provided in 

section III.D and DRIA 3 and 4. 

Interagency Comment 16. Interagency commenters request EPA confirmation that the 

company-specific compliance modeling that will be released in the proposal is consistent with 

the agency’s commitment to protect CBI? Commenter requests clarity on how this will work. Is 

CBI data (such as product plans shared with the agencies) fed into the model or is it totally 

excluded? 

EPA Response: While some inputs are informed by CBI, no OMEGA model inputs contain 

CBI, and product plans are totally excluded. 
10 

Interagency Comment 17. EV/PHEV/FCV 0 g/mile cap – Interagency commenters request 

agency to explain in the preamble how the 200,000 and 600,000 vehicle cap (and related 300,000 

vehicle threshold for years 2019-2021) was chosen. 

EPA Response: The preamble does explain, in III.C.2, the balancing of various factors: 

encourage investment in advanced technologies, reward early leadership, encourage additional 

manufacturers to invest over time, and limit the overall decrease in program GHG emissions 

reductions associated with the incentives. EPA seeks and expects to receive comments on the 

proposed cap threshold and caps. 

Interagency Comment 18. Upstream emissions: 

a) Interagency commenters requests clarity on whether EPA is proposing that EVs produced 

beyond the cap for the 0 grams/mile incentive have their compliance values calculated as half of 

the upstream emissions. If this is intended to be a phase-in, commenter requests clarity on when 

full upstream accounting would be implemented? 

b) Interagency commenters request clarity on whether the 2012-2016 EV emissions accounting 

methodology similarly subtracted 39 g/mile for gasoline vehicle upstream emissions to give “net 

upstream accounting”? To provide comparable net upstream accounting if gasoline upstream 

emissions are counted, commenters request clarity on whether EPA is also accounting for the 

upstream emissions from the production and transportation of fuel used in power plants? 

EPA Response: Regarding comment (a), EPA is proposing that EVs produced in MYs 2022-

2025 beyond the cap for the 0 grams/mile incentive would have their compliance values 

calculated as half of the electricity upstream GHG emissions. We have added a statement in 

Preamble Section III.C.2 that EPA will revisit the issue of compliance treatment for MY 2026 

and later EV/PHEV/FCVs in a future rulemaking. 

Regarding comment (b), the methodologies for calculating “net upstream accounting” for both 

the 2012-2016 final rule and 2017-2025 proposal are consistent in that they both subtract off the 

upstream GHG emissions of a comparable-footprint gasoline vehicle. The specific upstream 

GHG emissions values associated with a midsize gasoline vehicle for the two rules differ, 

however, in that the 56 grams/mile value shown in the example for the 2012-2016 rule is based 

on the CO2-footprint curves for MY 2016, while the 39 grams/mile value shown in the example 

for the 2017-2025 proposal is based on the CO2-footprint curves for MY 2025. The more 

efficient MY 2025 vehicle will have a lower upstream GHG emissions factor than the less 

efficient MY 2016 vehicle. As stated in Preamble Section III.C.2, the 0.574 grams GHG/watthour emissions factor does include emissions for “powerplant plus feedstock” and we will add 

text to clarify that this includes inputs for feedstock extraction, transportation, and processing.

Interagency Comment 19. Performance-based credits for “game changing” truck technologies –

Interagency commenters request clarity on how EPA identified 15% and 20% as the right level 
11 

above the footprint based target for the performance-based truck technology credit? Are there 

technologies that EPA expects could meet these targets? 

EPA Response: EPA and NHTSA responded to these comment based on the interagency 

comments # 7 and #8 provided to the agencies on November 1, 2011. We have added additional 

analysis and discussion to the Joint TSD Chapter 5 regarding the selection of the 15% and 20% 

thresholds. 

Interagency Comment 20. Vehicle sales & employment analysis: a) Interagency commenters 

request agencies to provide more evidence of why a 5-year period is a best guess to estimate 

consumer’s willingness to pay for fuel savings. For example, commenters request clarity on 

whether this 5-year payback is consistent with other willingness to pay numbers from studies? 

EPA Response: The empirical literature shows a large range of estimates for willingness to pay 

for fuel economy, ranging from overestimation to negative values, probably because of statistical 

issues in the analyses (multicollinearity, omitted variable bias, etc.). At a recent conference at 

NYU, Hunt Allcott (of NYU and MIT) argued that some recent working papers (Allcott and 

Wozny 2011; Sallee, West, and Fan 2011) seem to show that consumers are willing to pay 

between 60% and 80% of expected future fuel savings: far from zero (and more than 5 years of 

fuel savings), but not 100%. Unlike most previous research, these two papers seek specifically 

to identify the role of fuel economy in vehicle purchase decisions. In doing so, they draw 

heavily on the used vehicle market, which may operate differently than the new vehicle market. 

These are two works in progress, and they are only two papers out of many that provide 

information on this phenomenon. 

As we discuss in the proposal, we use 5 years because it is the average ownership time of a new 

vehicle and it is the average length of time of a new vehicle loan. As noted, this calculation uses 

about 30-50 percent of the present value of fuel savings to vehicle buyers, a smaller estimate 

than that cited by Hunt Allcott. 

Interagency Comment 20. Vehicle sales & employment analysis: b) Interagency commenters 

request clarity on whether EPA conducted sensitivity analysis for the employment estimates that 

consider different willingness to pay numbers, including the possibility that vehicles sales could 

decrease? 

EPA Response: EPA does not analyze the effects of different willingness to pay values. The 

demand effect is the only part of the employment analysis subject to changes in vehicle sales. 

Interagency Comment 20. Vehicle sales & employment analysis: c) Given that this component 

of the analysis is intended to reflect consumer behavior (and not to estimate social costs or 

benefits), interagency commenters request clarity on what the evidence is that consumers use a 

7% discount rate when making these tradeoffs. For example, the NAS modeled consumer 

behavior by discounting for lifetime fuel savings at 12%. 
12 

EPA Response: Using a short payback period, as we do, is an alternative way of modeling high 

discount rates for lifetime fuel savings. They are different ways of incorporating the same 

observation, that consumers do not appear to consider full lifetime fuel savings at their 

opportunity cost of consumption when buying vehicles. 

Interagency Comment 21. Interagency commenter requests clarity on where the analysis can be 

found in the documents that underlies the projections given for the national program (EPA and 

NHTSA standards combined), presented in the “Overview of the Joint EPA/NHTSAS Proposed 

2017-2025 National Program” executive summary? 

EPA Response: The analysis for all estimates found in the Executive Summary can be found in 

Preamble Sections I.B.2, I.C., III.D.5, III.F.1, III.H.4, III.H.9, III.H.10.b, and EPA’s draft RIA 

Chapters 3.8.1, 4.3.6, 5.1, 5.4, and 5.5. 

Interagency Comment 22. Vehicle sales & Employment analysis – In the 2012-2016 

rulemaking, commenters note that NHTSA used a 5-year period to estimate how much fuel 

savings consumers will be willing to pay for, but the current proposal uses both 2-year and 5-

year periods to generate two sets of “sensitivity analyses” of employment impacts. Interagency 

commenters request clarity on whether NHTSA now thinks that the 2-year willingness to pay 

estimate is equally as likely as the 5-year estimate? Are there data from the peer reviewed 

literature on willingness to pay for fuel economy improvements? 

EPA Response: As discussed elsewhere in these responses, and in the draft preamble, there is 

no consensus from the literature on the role of fuel economy in vehicle purchase decisions. 

Interagency Comment 23. Interagency commenters note that the non-flat baseline included in 

NHTSA’s RIA sensitivity analysis shows that this “market driven baseline” would result in a 

fleet that is more efficient than the levels achieved under the “Preferred” policy scenario. From 

the explanation of this sensitivity analysis, it appears that NHTSA assumes manufacturers that 

have achieved the 2016 standards will adopt technologies with a one-year payback period from 

2017-2025, while manufacturers that have not yet achieved the standards will adopt technologies 

with a five-year payback period. Interagency commenters request agencies to provide more 

information on the assumptions that underlie this analysis, since it results in an outcome that is 

non-intuitive? 

EPA Response: EPA defers to NHTSA in responding to this question on the details of the 

NHTSA analysis. 

Interagency Comment 24. Interagency commenters suggest that NHTSA improve clarity of 

exposition of the analysis in the NHTSA RIA. Interagency commenters request clarity on why 

the ‘maximize net benefit’ option does not have the highest net benefits. Commenters also 

recommend that agencies explain the nature of the preferred option, and the nature of the 
13 

alternative options, especially the one that maximizes net benefits. Commenters also recommend 

that agencies expand on the rationale for not adopting the alternative that maximizes net benefits. 

EPA Response: EPA defers to NHTSA in responding to this question on the details of the 

NHTSA analysis. 

Interagency Comment 25. Interagency commenters request clarity from NHTSA and EPA and 

source/empirical evidence for why the energy security and criteria pollutant benefits are 

projected to grow rapidly over the future. Commenters recommend that agencies include this 

discussion in Preamble, and both RIAs and seek comment. 

EPA Response: The following text is present in Joint TSD Chapter 4.2.9.2, but is not present in 

the preamble: 

“As Table 4-13 indicates, EPA projects that the per-ton values for reducing emissions of criteria 

pollutants from both vehicle use and stationary sources such as fuel refineries and storage 

facilities will increase over time.2 These projected increases reflect rising income levels, which 

are assumed to increase affected individuals’ willingness to pay for reduced exposure to health 

threats from air pollution.i

 They also reflect future population growth and increased life 

expectancy, which expands the size of the population exposed to air pollution in both urban and 

rural areas, especially in older age groups with the highest mortality risk.3” 

We will add this text to preamble Section III.H.6 (updating the text to reference the appropriate 

table in the preamble). Note that the PM2.5-related benefit per ton values, and the underlying 

model and assumptions on which they are based (BenMAP), have been peer-reviewed and vetted 

through a number of recent rulemakings (both Preamble Section III.H.6 and Section 4.2.9.2 of 

Joint TSD Chapter 4 include the relevant references). This is consistent with the approach to 

monetizing PM2.5-related benefits used in the 2012-2016 LD GHG FRM. We seek comment 

generally on our approach to monetizing the economic impacts associated with the proposal, so 

we do not think it is necessary to seek comment on this topic specifically (and it is unclear on 

what exactly the commenter would like us to take comment). 

The following text has been added to Chaper 4.2.8.3 of the TSD: “The oil security premium rises 

over the future as a result of changing factors such as the world oil price, global supply/demand 

balances, U.S. oil imports and consumption, and U.S. GDP (i.e., the size of economy at risk to oil 

shocks). The principle factor is steadily rising world oil prices, but other effects interact. From 

2020 to 2030, the macroeconomic disruption and adjustment component rises 17% by 2030 and 

then stabilizes, over a period where projected average real world oil prices rise 15%. U.S. oil 

import quantities fall by 3% but total domestic oil consumption still rises by 3% despite higher 

 

2

 As we discuss in the emissions chapter of EPA’s DRIA (Chapter 4), the rule would yield emission reductions from 

upstream refining and fuel distribution due to decreased petroleum consumption. 

3

 For more information about EPA’s population projections, please refer to the following: 

http://www.epa.gov/air/benmap/models/BenMAPManualAppendicesAugust2010.pdf (See Appendix K) 
14 

prices. Looked at another way, U.S. GDP, the size of the economy potentially at risk to oil 

shocks, grows 30%, while the value share of oil in GDP stays high, declining only 9% by 2030.”

We will add the following text to the preamble Section III.H.7.b.: “The oil security premium 

rises over the future as a result of changing factors such as the world oil price, global 

supply/demand balances, U.S. oil imports and consumption, and U.S. GDP (the size of economy 

at risk to oil shocks). The principle factor is steadily rising oil prices.”

Interagency Comment 26. Interagency commenters note that in Table 3-106 of the Joint TSD 

Chapter 3 (page 223), the PHEV1 is equal to a PHEV30. In all other parts of this document there 

are only two PHEVs: a PHEV20 and a PHEV40. Commenters recommend that agencies fix this 

discrepancy. 

EPA Response: EPA defers to NHTSA in responding to this question as “PHEV1” specifically 

refers to NHTSA modeling of PHEVs 

Interagency Comment 27. Interagency commenters note that the DOT CAFE model and the 

EPA OMEGA model have slightly different baseline vehicle assumptions (pages 224 and 225) 

and results. 

EPA Response: The slightly different baseline vehicle assumptions mentioned in this 

comment—for EPA, a vehicle with a port fuel-injected (PFI) engine and a 4 speed auto trans; for 

NHTSA, the actual 2008 MY vehicle—has no impact on the rule. EPA properly accounts for the 

effectiveness and cost of actual 2008 MY vehicles relative to the PFI/4speed auto trans 

“baseline”. In effect, EPA builds the actual vehicle virtually then measures improvements 

against that virtual vehicle when determining control case costs and effectiveness. 

Interagency Comment 28. Interagency commenters note that the overall benefit and cost 

analysis assumes that there is not a relationship between VMT and fuel economy. In other words, 

commenters note that for example, individuals who chose the hybrid Camry do not drive more 

miles than those who drive the conventional Camry. Interagency commenters request clarity on 

whether there is empirical evidence to support this assumption. 

EPA Response: In TSD 4, the agencies describe the VMT equation, which includes fuel cost 

per mile. Thus, the fleet drives more when fuel economy improves. EPA provides a sensitivity 

on this “rebound effect” EPA DRIA Chapter 4. 

 

Interagency Comment 29. Interagency commenters understand that about 70% of vehicle 

owners drive fewer than the average VMT (i.e the distribution of VMT is skewed to the right). 

Interagency commenters request clarity on whether the agency conducted any analysis of the 

distributions of net private benefits to vehicle owners based on differences in VMT. 

EPA Response: EPA has not conducted such an analysis. 
15 

 

i

 The issue is discussed in more detail in the PM NAAQS RIA from 2006. See U.S. Environmental Protection 

Agency. 2006. Final Regulatory Impact Analysis (RIA) for the Proposed National Ambient Air Quality Standards 

for Particulate Matter. Prepared by: Office of Air and Radiation. October 2006. Available at 

http://www.epa.gov/ttn/ecas/ria.html.