From: <james.tamm@dot.gov> To: <Chandana_L._Achanta@omb.eop.gov>, William Charmley/AA/USEPA/US@EPA, <Neil.Eisner@dot.gov>, <rebecca.yoon@dot.gov>, <Steve.Wo od@dot.gov>,

<Joanne.Petrie@dot.gov>, Maureen Delaney/DC/USEPA/US@EPA, Robin Moran/AA/USEPA/US@EPA Date: 09/29/2010 02:54 PM Subj ect: RE: Summary of interagency working comments received on draft Notice and Technical Assessment under EO 12866 review

Chandana,

Attached are responses to the interagency comments. Note, we are still working on responding to specific text edits and expect to forward those responses shortly.

Jim

From: Achanta, Chandana L. [mailto:Chandana_L._Achanta@omb.eop.gov] Sent: Tuesday, September 28, 2010 5:56 PM To: Charmley.William@epamail.epa.gov; Eisner, Neil (OST); Yoon, Rebecca (NHTSA); Tamm, James (NHTSA); Wood, Steve (NHTSA); Petrie, Joanne (OST); Delaney.Maureen@epamail.epa.gov; Moran.Robin@epamail.epa.gov Subject: Summary of in teragency working comments received on draft Notice and Technical Assessment under EO 12866 review

Please find attached additional interagency working comments we received under EO 12866 review of
the draft notice and technical assessment. They are for your consideration and subject to further policy review.EPA & NHTSA Document

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DRAFT Responses to interagency comments from 28 Sept 2010 on NHTSA/EPA NOI and TAR

Interagency Comments on the NOI

1. The interagency comment s say : The text in the “notice” (p.22) is unclear as to what EPA will do.

The text in the technical assessmen t (p.7

- 3) promises to consider the issue.

Draft response: The agencies will modify the last paragraph of Section II.B.2 of the NOI by adding the highlighted text shown below.

“The agencies understand that the treatment of upstream emissions generated in the production of electricity and other energy sources used to fuel vehicles in GHG compliance calculations is an important issue for the upcoming rulemaking. EPA will fully evaluate this issue for the MY 2017

- 2025 Joint NPRM based on the status of comm ercialization of EVs, PHEVs, and FCVs, the potential of these technologies to provide long

- term GHG emissions savings, the status of and outlook for upstream GHG control programs, and other relevant factors. ”

2. The interagency comments say: Under most sc enarios, this rule pays for itself, in that the fuel savings more than offset the cost of the technologies used. This raises the whole issue of the energy paradox and lost consumer welfare. Please provide a discussion of this in the NOI and TAR.

Draft re sponse: The agencies will insert the following paragraph into the NOI directly below Tables

2 and 3

“ The results in Table 2 shows high positive net lifetime fuel savings are estimated to

accrue to the vehicle owners, for each of the stringency scenario’s examined and for each of the technology paths. Because these benefits will show up as direct savings to consumers who buy these vehicles, the question arises whether private markets will provide these benefits, or whether there may be unidentified additi onal costs associated with these technologies or other economic assumptions not included in the analysis. In

the 2012

- 2016 light

- duty GHG/CAFE rule, both EPA and NHTSA discussed these issues in detail, and the agencies will continue to evaluate this issue as we work towards the development of a joint NPRM. [footnote: See Environmental Protection Agency and Department of Transportation, “Light

- Duty Vehicle Greenhouse Gas Emissions StandardsEPA & NHTSA Document

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and Corporate Average Fuel Economy Standards; Final Rule,” Federa l Register 75(88) (May 7, 2010): Section III.H.1 (pp. 25510

- 25513) and Se ction IV.G.6 (pp. 25651

- 25657).”

3. The interagency comments say: The regulation and the analysis (eventually) will be organized by vehicle “footprint”, so all vehicles within cer tain size groupings have to meet the same fuel economy and GHG standards. Manufacturers with larger vehicle fleets would have lower fuel economy and GHG goals. This raises the question of whether manufacturers can adjust their vehicles’ footprints to game the system. In economics jargon

– “footprint” is endogenous to the regulation.

Draft response

– This issue will be considered in the future Joint NPRM. In the 2012

- 2016 rule, the agencies developed foot

- print attribute curve shapes which were intended to be technology

- neutral with respect to vehicle size. That is, the shape of the curve was predicted to require a similar level of technology independent of the size of the vehicle, thus reducing the potential motivation for the manufacturers to adjust the footprint of the vehicle in response to the regulation, because all vehicle footprint sizes were estimated to require the application of similar technology to meet their

vehicle

- specific target.

4. The interagency comments say: The fuel economy savings calc ulation assumes no baseline growth in the fuel efficiency of vehicles absent the regulation. Is this assumption backed by empirical
evidence?

Draft response : The agencies utilized this same approach for establishing the baseline for the 2012

- 2016 final rule , and the approach is clearly documented in the TAR

.

5. The interagency comments say: Many commenters suggest deleting 7.1.3 of the technical assessment. GDP doesn’t have anything to do with this ruling.

Draft response : The Clean Air Act allows the A dministrator to consider a wide

- range of factors when determining the appropriate level of new motor vehicle standards under Section 202 of the Act. Information regarding the potential impact of a major rulemaking on GDP and personal consumption
can be co nsidered by the Administrator in making her determination , thus EPA believe this type of assessment can be relevant to the rulemaking. Nevertheless, the agencies will delete the following sentence from Chapter 7.1.3 of the TAR.

“An analysis of the macroe conomic effects of the rule performed by EPA using the IGEM model found that both gross domestic product (GDP) and personal consumption increased: GDP by 0.45% by 2020, and consumption by 0.36%.”

Based on these changes the NOI and TAR contain no referenc es to GDP for economy wide modeling or analysis, and no statements that the agencies will conduct economy wide modeling for rulemaking.EPA & NHTSA Document

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6. The interagency comments say : The agencies highlight the specific role of vehicle electrification, hydrogen fuel

- cells , and flex fuel vehicles in the analysis. Would this approach capture how the agencies would treat vehicles fueled exclusively by natural gas or bio

- fuels? Specifying the approach for these vehicles would be a useful addition.

Draft response : N o decisio ns have been made with respect to treating natural gas fueled vehicles or
bio

- fueled vehicles differently in the future rulemaking beyond how they are dealt with in the 2012

- 2016 program. These two fuel categories were not raised as unique issues by many of the stakeholders we met with over the summer, and so did not seem to warrant calling out specifically in
this Joint Notice.

7. T he interagency comments say: Pages 22

- 23/Other Key Issue

— Duration of NHTSA CAFÉ Standards: The document provides: “EPCA/EISA states that ‘The Secretary *of Transportation+ shall . . . issue regulations under this title prescribing average fuel economy standards for at least 1, but not more than 5, model years.’ NHTSA is assessing how rulemaking will be structured to support the MYs 2017

- 2025 National Program.” This discussion might be expanded to more clearly seek comment on the concern that if EPA intends to issue greenhouse gas standards applicable to nine model years and NHTSA’s will be “harmonized” with EPA’s throughout, won ’t that force NHTSA to somewhat prejudge what the standards should be for years following MY 2021? To do so, EPA and the National Highway Traffic Safety Administration may add a final sentence to this
discussion: “In particular, we are examining how to ens ure that CAFÉ standards for MY 2021

– MY 2025, while harmonized with final EPA greenhouse gas emissions standards, would still meet the independent standards development framework of the EPCA/EISA.”

Draft response: The Agencies will add a sentence which states;

“In particular, we are examining how to ensure that CAF E standards for MY 2017

– MY 2025, while harmonized with final EPA greenhouse gas emissions standards, would still meet the independent standards development framework of the EPCA/EISA.”

8. The interagency comments say: Page 7/Background on the MY 2012

- 2016 National Program/First Paragraph/Fourth Line from the Bottom: The text refers to “reductions in the rate of global warming.” A commenter suggested that the term “climate change” is now the p referred Administration term as it more accurately reflects the observed phenomenon.

Draft response: The Agencies will modify the sentence to read

“....reductions in the rate of climate change.”

9. The interagency comments say: Page 6: Recommend adding l anguage from Presidential Memo: “On May 21, 2010, President Obama issued a Presidential Memorandum requesting that the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA), on behalf of the Department of Tran sportation, take “...additional coordinated steps...toEPA & NHTSA Document

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produce a new generation of clean vehicles...” noting that the “...success of our efforts to achieve enhanced energy security and to protect the environment ... depends upon the development of
infrastructure and promotion of fuels, including biofuels, which will enable the development and widespread deployment of advanced technologies.” He specifically requested that the agencies develop “,..a coordinated national program under the CAA [Clean Air Act] and the EIS A[Energy Independence and Security Act of 2007] to improve fuel efficiency and to reduce greenhouse gas emissions of passenger cars..”

Draft Response: This suggested insert take a sentence from Section III of the Presidential Memo and implies it is a sta tement in Section II of the Presidential memo. The existing quote from the Memo in the NOI is specific to the direction for EPA and NHTSA on light

- duty vehicles, while the suggested new insert comes from the Section discussing future criteria pollutants a nd infrastructure. For these reasons EPA and NHTSA do not believe this edit is appropriate

10. The interagency comments say: Page 22: Recommend adding flexibility to conduct lifecycle assessment of biofuel use: “...Some manufacturers encouraged EPA to conti nue to offer flexible fuel vehicle (FFV) credits. EPA finalized provisions in the MYs 2012

- 2016 Final Rule to treat MY 2016 and later FFVs similarly to conventional fueled vehicles, in that FFV emissions would be
based on actual CO2 results from emissions testing on the fuels on which it operates.1 In calculating the emissions performance of an FFV, manufacturers may base FFV emissions in part on vehicle emissions test results on the alternative fuel, if they can demonstrate that the
alternative fuel is act ually being used in the vehicles. EPA will c onsider whether it is appropriate to retain this approach for FFVs or adopt another approach which accounts for upstream emissions and carbon sequestration in the MYs 2017

- 2025 rulemaking. NHTSA will continue to provide incentives for dual fueled vehicles as defined in statute.2 For all dual fueled vehicles, except for electric dual fueled vehicles, the maximum increase in average fuel economy for a manufacturer will be 0.6 mpg in 2017, 0.4 mpg in 2018, 0.2 mpg in 2019, and there is no incentive
in MY 2020 or after...”

Draft Response: The agencies will delete the word “actually”, and modify the other sentence to

state

“ EPA will consider whether it is appropriate to retain this approach in the MYs 2017

-

2025 rule making , or to consider other approaches .”

Interagency Comments on the TAR

Please note that once EPA and NHTSA are in agreement with the interagency process on the changes to be made to the TAR, we will reach out to CARB on these changes , b ecause CAR B is a co

author of the report.

1. The interagency comments says;EPA & NHTSA Document

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Draft Response: EPA and NHTSA will make the following changes to the Executive Summary of the TAR (which will require CARB concurance).



### “ Chapter 6 presents an analysis of future levels of control of GHG emissions conducted for this Technical Assessment Report. 1 

### Four scenarios of future stringency are analyzed for MYs 2020 and 2025, starting with a 250 gram/mile estimated fleet

- wide level in MY 2016 and lowering CO 2 

### scenario targets at the rates of 3% per year, 4% per year, 5% per year, and 6% per year, respectively. For each of those rates of increase in stringency, the agencies considered the effects of the industry following four potential “technology pathways,” “A,” “B,” “C,” and “D.” The agencies developed these different technology pathways in order to capture both the current levels of uncertainty regarding the potential rate of penetration of various advanced technologies and to illustrate more than one approach that the auto indust ry could take in responding to future targets. This approach was also informed by our meetings with the auto companies, whom are pursuing a range of different technology paths for the future, with different companies placing relative emphasis on different technologies. The agencies present the results of this assessment in terms of six broad metrics: per

- vehicle cost increase, net lifetime vehicle owner savings, payback period to the consumer, net reduction in GHG emissions, net reduction in fuel
consumpt ion, and vehicle technology penetration mix, as shown in the tables below. Chapter 6 presents the results of this initial analysis for projected costs, emissions reductions, and lifetime fuel savings, and also provides the technology projections that

were used in the analyses. Chapter 6 also discusses the fact that this preliminary assessment does not include consideration of all statutory requirements and other factors that will be assessed in the upcoming Federal rulemaking. Consideration of these fact ors is expected to affect cost assessments and may affect the proposed standards.”

2. The interagency comments says;

1 These GHG em issions levels can be translated to mpg

- equivalent levels through simple math, but we note that they would not necessarily translate directly into equivalent CAFE standards due to their inclusion of credits for A/C improvements, which is permissible for CA A standards but not for CAFE standards.EPA & NHTSA Document

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Draft Response: UAW didn’t provide any comments in writing, but they mentioned this as a general concern, even though there was not a lot of specificity. We are unable to provide more details at

this time due to a lack of information

.

3. The interagency comments says;

Draft Response: EPA and NHTSA will move the detailed writeup from the appendix to Chapter 3 (which we will run by C ARB).

4. The interagency comments says;

Draft Response: EPA and NHTSA agree with this edit.

5. The interagency comments says;EPA & NHTSA Document

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Draft Response: EPA and NHTSA agree with this edit.

6. The interagency comments says;

Draft Response: EPA and NHTSA wil l add some explanatory text around this illustrative figure (which we will run by CARB).

7. The interagency comments says;

Draft Response: This sentence is discussing next

- generation technology, which FFVs are not.

8. The interagency comments says;

Dr aft Response: There is no inherent assumption regarding the sale of FFVs needed for this assessment, as it is not needed in order to estimate the impact of tailpipe CO2 impacts for a manufacturer’s compliance with more stringent standards.