[Federal Register Volume 87, Number 63 (Friday, April 1, 2022)]
[Rules and Regulations]
[Pages 18994-19007]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06648]


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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Part 578

[Docket No. NHTSA-2021-0001]
RIN 2127-AM32


Civil Penalties

AGENCY: National Highway Traffic Safety Administration (NHTSA), 
Department of Transportation (DOT).

ACTION: Final rule.

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SUMMARY: On January 14, 2021, NHTSA published an interim final rule in 
response to a petition for rulemaking from the Alliance for Automotive 
Innovation. The interim final rule applied the adjusted civil penalty 
rate applicable to automobile manufacturers that violate relevant 
corporate average fuel economy (CAFE) standards beginning with vehicle 
Model Year (MY) 2022. The interim final rule also requested comment. In 
light of a subsequent Executive order and the agency's review of 
comments, NHTSA reviewed and reconsidered that interim final rule, a 
process that included a supplemental notice of proposed rulemaking 
(SNPRM) to consider the appropriate path forward and to allow 
interested parties sufficient time to provide comments. As a result of 
this review and reconsideration, including a careful consideration of 
the comments received in response to the SNPRM, NHTSA is repealing the 
interim final rule and reverting to the December 2016 final rule that 
would apply the adjustment for the CAFE civil penalty rate beginning 
with Model Year 2019. In this rule, NHTSA is also applying the 
statutorily required annual adjustments through 2022. Going forward, 
NHTSA will continue to make the mandatory adjustments to the CAFE civil 
penalty rate, as required by law for all civil monetary penalties.

DATES: 
    Effective date: This rule is effective as May 31, 2022.
    Petitions for reconsideration: Petitions for reconsideration of 
this final rule must be received not later than May 16, 2022.

ADDRESSES: Any petitions for reconsideration should refer to the docket 
number of this document and be submitted to: Deputy Administrator, 
National Highway Traffic Safety Administration, 1200 New Jersey Avenue 
SE, West Building, Fourth Floor, Washington, DC 20590.
    Docket: All documents in the docket are listed on the 
www.regulations.gov website. Although listed in the index, some 
information is not publicly available, e.g., confidential business 
information or other information whose disclosure is restricted by 
statute. Certain other material, such as copyrighted material, is not 
placed on the internet and will be publicly available only in hard copy 
form. Publicly available docket materials are available either 
electronically through www.regulations.gov or in hard copy at the 
following location: Docket Management Facility, M-30, U.S. Department 
of Transportation, West Building, Ground Floor, Rm. W12-140, 1200 New 
Jersey Avenue SE, Washington, DC 20590. The telephone number for the 
docket management facility is (202) 366-9324. The docket management 
facility is open between 9 a.m. and 5 p.m. Eastern Time, Monday through 
Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT: Michael Kuppersmith, Office of Chief 
Counsel, NHTSA, email <a href="/cdn-cgi/l/email-protection#bbd6d2d8d3daded795d0cecbcbdec9c8d6d2cfd3fbdfd4cf95dcd4cd"><span class="__cf_email__" data-cfemail="aec3c7cdc6cfcbc280c5dbdedecbdcddc3c7dac6eecac1da80c9c1d8">[email protected]</span></a>, telephone (202) 366-
2992, facsimile (202) 366-3820, 1200 New Jersey Ave. SE, Washington, DC 
20590.

SUPPLEMENTARY INFORMATION:

Table of Contents

A. CAFE Statutory and Regulatory Background
B. Civil Penalties Inflation Adjustment Act Improvements Act of 2015
C. NHTSA's Actions to Date Regarding CAFE Civil Penalties
    1. Initial Interim Final Rule
    2. Initial Petition for Reconsideration and Response
    3. NHTSA Reconsideration
    4. Subsequent Petitions and Interim Final Rule
    5. Supplemental Notice of Proposed Rulemaking
D. Overview of the Comments Received
E. Response to the Comments
    1. Agency Reconsideration
    2. Procedural Issues
    3. Statutory Authorization
    4. Retroactivity
    5. Reliance Interests
    6. Economic Impact of the COVID-19 Pandemic and Other Factors
    7. Usage of Credits
    8. Additional Adjustments Required by Law
F. Rulemaking Analyses and Notices
    1. Executive Order 12866, Executive Order 13563, and DOT 
Regulatory Policies and Procedures
    2. Regulatory Flexibility Act
    3. Executive Order 13132 (Federalism)
    4. Unfunded Mandates Reform Act of 1995
    5. National Environmental Policy Act
    6. Executive Order 12778 (Civil Justice Reform)
    7. Paperwork Reduction Act
    8. Privacy Act

A. CAFE Statutory and Regulatory Background

    NHTSA sets \1\ and enforces \2\ corporate average fuel economy 
(CAFE) standards for the United States light-duty automobile fleet, and 
in doing so, assesses civil penalties against manufacturers that 
violate applicable standards and are unable to make up the shortfall 
with credits.\3\ The civil penalty amount for CAFE violations was 
originally set by statute in 1975, and beginning in 1997, included a 
rate of $5.50 per each tenth of a mile per gallon (0.1) that a 
manufacturer's CAFE performance falls short of its compliance 
obligation. This shortfall amount is then multiplied by the number of 
vehicles in that manufacturer's fleet.\4\ The basic equation for 
calculating a manufacturer's civil penalty amount, before accounting 
for credits, is as follows:
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    \1\ 49 U.S.C. 32902. The authorities vested in the Secretary 
under chapter 329 of Title 49, U.S.C., have been delegated to NHTSA. 
49 CFR 1.95(a).
    \2\ 49 U.S.C. 32911, 32912.
    \3\ Within statutory constraints, credits may be either earned 
(for over-compliance by a given manufacturer's fleet, in a given 
model year), transferred (from one fleet to another), or purchased 
(in which case, another manufacturer earned the credits by over-
complying and chose to sell that surplus). 49 U.S.C. 32903.
    \4\ A manufacturer may have up to three fleets of vehicles, for 
CAFE compliance purposes, in any given model year--a domestic 
passenger car fleet, an imported passenger car fleet, and a light 
truck fleet. Each fleet belonging to each manufacturer has its own 
compliance obligation, with the potential for either over-compliance 
or under-compliance. There is no overarching CAFE requirement for a 
manufacturer's total production.

(penalty rate, in $ per 0.1 mpg per vehicle) x (amount of shortfall, 
in tenths of an

[[Page 18995]]

mpg) x (# of vehicles in manufacturer's fleet).\5\
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    \5\ The process of determining civil penalties occurs after the 
end of a model year, following NHTSA's receipt of final reports from 
the Environmental Protection Agency (EPA). See 77 FR 62624, 63126 
(Oct. 15, 2012). NHTSA uses the penalty rate from the calendar year 
that is the same as the model year to assess CAFE violations. For 
example, NHTSA will assess the civil penalties for Model Year 2022 
vehicles using the 2022 calendar year rate--even if NHTSA ultimately 
assesses the penalty in a later calendar year.

    Starting with Model Year 2011, the Energy Independence and Security 
Act of 2007 (EISA) provided for credit transfers among a manufacturer's 
various fleets.\6\ The law also provided for trading between vehicle 
manufacturers, which has allowed vehicle manufacturers the opportunity 
to acquire credits from competitors rather than paying civil penalties 
for violations. Manufacturers can choose to carry back credits to apply 
to any of three model years before they are earned or carry them 
forward to apply to any of the five model years after they are earned.
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    \6\ Public Law 110-140, 104.
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    In complement to NHTSA's regulation of fuel economy, the 
Environmental Protection Agency (EPA) regulates the emissions of light-
duty vehicles. These regulations include standards to regulate 
greenhouse gas emissions from the light-duty fleet. The Clean Air Act 
requires EPA to set greenhouse gas (GHG) emissions standards from 
light-duty vehicles since EPA has made an ``endangerment finding'' that 
greenhouse gases ``cause[s] or contribute[s] to air pollution which may 
reasonably be anticipated to endanger public health or welfare.'' \7\ 
Although NHTSA and EPA have different roles and independent enforcement 
and compliance obligations, and operate under different statutory 
authority, the agencies work together to achieve the goals of their 
respective statutes, and their light-duty vehicle fuel economy 
rulemakings are harmonized to the extent possible to work in tandem. 
However, the CAFE program is subject to various statutory requirements 
not applicable to the EPA GHG program. One such requirement, for 
example, requires automakers to meet a separate average fleet 
requirement for automobiles that are manufactured domestically.\8\ The 
Clean Air Act does not include a similar requirement for EPA's GHG 
standards.
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    \7\ 42 U.S.C. 7521, see also 74 FR 66495 (Dec. 15, 2009) 
(``Endangerment and Cause or Contribute Findings for Greenhouse 
Gases under Section 202(a) of the Clean Air Act'').
    \8\ 49 U.S.C. 32902(b)(4).
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B. Civil Penalties Inflation Adjustment Act Improvements Act of 2015

    On November 2, 2015, the Federal Civil Penalties Inflation 
Adjustment Act Improvements Act (2015 Act), Public Law 114-74, Section 
701, was signed into law. The 2015 Act required Federal agencies to 
promulgate an interim final rule to make an initial ``catch-up'' 
adjustment to the civil monetary penalties they administer, and then to 
make subsequent annual adjustments. The 2015 Act limited the initial 
adjustment to 150 percent of the then-current penalty.
    In a February 24, 2016 memorandum, the Director of the Office of 
Management and Budget (OMB) provided initial guidance to all Federal 
agencies on how to calculate the initial adjustment required by the 
2015 Act.\9\ The initial ``catch-up'' adjustment was based on the 
change between the Consumer Price Index for all Urban Consumers (CPI-U) 
for the month of October in the year the penalty amount was established 
or last adjusted by Congress and the October 2015 CPI-U. The February 
24, 2016 memorandum contained a table with a multiplier for the change 
in CPI-U from the year the penalty was established or last adjusted to 
2015. To arrive at the adjusted penalty, the agency multiplied the 
penalty amount when it was established or last adjusted by Congress, 
excluding adjustments under a prior adjustment statute, by the 
multiplier for the increase in CPI-U from the year the penalty was 
established or adjusted. Ensuing guidance from OMB identifies the 
appropriate multiplier for agencies to use to calculate the subsequent 
annual adjustments.\10\
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    \9\ Memorandum from the Director of OMB to Heads of Executive 
Departments and Agencies, Implementation of the Federal Civil 
Penalties Inflation Adjustment Act Improvements Act of 2015 (Feb. 
24, 2016), available online at https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2016/m-16-06.pdf.
    \10\ Memorandum from the Director of OMB to Heads of Executive 
Departments and Agencies, Implementation of the 2017 Annual 
Adjustment Pursuant to the Federal Civil Penalties Inflation 
Adjustment Act Improvements Act of 2015 (Dec. 16, 2016), available 
online at https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2017/m-17-11_0.pdf; Memorandum from the Director of OMB to 
Heads of Executive Departments and Agencies, Implementation of 
Penalty Inflation Adjustments for 2018, Pursuant to the Federal 
Civil Penalties Inflation Adjustment Act Improvements Act of 2015 
(Dec. 15, 2017), available online at https://www.whitehouse.gov/wp-content/uploads/2017/11/M-18-03.pdf; Memorandum from the Director of 
OMB to Heads of Executive Departments and Agencies, Implementation 
of Penalty Inflation Adjustments for 2019, Pursuant to the Federal 
Civil Penalties Inflation Adjustment Act Improvements Act of 2015 
(Dec. 14, 2018), available online at https://www.whitehouse.gov/wp-content/uploads/2017/11/m_19_04.pdf; Memorandum from the Acting 
Director of OMB to Heads of Executive Departments and Agencies, 
Implementation of Penalty Inflation Adjustments for 2020, Pursuant 
to the Federal Civil Penalties Inflation Adjustment Act Improvements 
Act of 2015 (Dec. 16, 2019), available online at https://www.whitehouse.gov/wp-content/uploads/2019/12/M-20-05.pdf; 
Memorandum from the Director of OMB to Heads of Executive 
Departments and Agencies, Implementation of Penalty Inflation 
Adjustments for 2021, Pursuant to the Federal Civil Penalties 
Inflation Adjustment Act Improvements Act of 2015 (Dec. 23, 2020), 
available online at https://www.whitehouse.gov/wp-content/uploads/2020/12/M-21-10.pdf.
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C. NHTSA's Actions to Date Regarding CAFE Civil Penalties

1. Initial Interim Final Rule

    On July 5, 2016, NHTSA published an interim final rule, adopting 
the adjustments required by the statute for all civil penalties under 
its administration, following the procedure and the formula in the 2015 
Act. One of the adjustments NHTSA made at the time was raising the 
civil penalty rate for CAFE violations from $5.50 to $14.\11\ NHTSA 
also indicated in that interim final rule that the Secretary's 
statutory authority under the Energy Policy and Conservation Act (EPCA) 
to establish an additional increase for such violations would similarly 
need to be adjusted from the statutory cap of $10 to $25, but did not 
codify this change in the regulatory text. In the preamble discussion, 
NHTSA provided detailed discussion of the authority granted in Public 
Law 95-619, 402, 92 Stat. 3255 (Nov. 9, 1978), which allowed the 
Secretary of Transportation to establish a new civil penalty for each 
.1 of a mile a gallon by which the applicable average fuel economy 
standard under EPCA exceeds the average fuel economy for automobiles to 
which the standard applies manufactured by the manufacturer during the 
model year. NHTSA explained that these amendments, codified in 49 
U.S.C. 32912(c), state that the new civil penalty cannot be more than 
$10. NHTSA further explained that applying the multiplier for the 
increase in CPI-U for 1978 in Table A of the February 24, 2016 
memorandum (3.54453) to the $10 maximum penalty the Secretary is 
permitted to establish under 49 U.S.C. 32912(c) results in an adjusted 
civil penalty of $35. NHTSA then explained that because this 
calculation would result in an increase of greater than 150 percent, 
the adjusted maximum civil penalty that the Secretary is permitted to 
establish under 49 U.S.C. 32912(c) is $25 (current maximum penalty $10 
x 2.5). NHTSA concluded that because the new maximum penalty that the 
Secretary is permitted to establish under

[[Page 18996]]

49 U.S.C. 32912(c) is $25, the new adjusted civil penalty in 49 CFR 
578.6(h)(2) of $14 does not exceed the maximum penalty that the 
Secretary is permitted to impose. NHTSA addresses the adjustments that 
occurred to the statutory cap since that time and codifies the adjusted 
cap in this final rule. That initial interim final rule became 
effective on August 4, 2016.
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    \11\ 81 FR 43524 (July 5, 2016).
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2. Initial Petition for Reconsideration and Response

    On August 1, 2016, the then-Alliance of Automobile Manufacturers 
and the Association of Global Automakers (since combined to form the 
Alliance for Automotive Innovation) jointly petitioned NHTSA for 
reconsideration of the CAFE penalty provisions issued in the interim 
final rule.\12\ The Alliance and Global joint petition raised concerns 
with the impact that the increased penalty rate would have on CAFE 
compliance costs, which they estimated to be at least $1 billion 
annually. Specifically, the petition identified several issues, 
including retroactivity. The petitioners were concerned that applying 
the penalty increase associated with model years that had already been 
completed or for which a company's compliance plan had already been 
``set'' was a retroactive application of the adjustment.
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    \12\ Jaguar Land Rover North America, LLC also filed a petition 
for reconsideration in response to the July 5, 2016 interim final 
rule raising the same concerns as those raised in the joint 
petition. Both petitions, along with a supplement to the joint 
petition, can be found in Docket No. NHTSA-2016-0075 at 
www.regulations.gov.
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    In response to the joint petition, NHTSA issued a final rule on 
December 28, 2016.\13\ In that rule, NHTSA agreed that raising the 
penalty rate for model years already fully complete at the time the 
2015 Act was enacted would be inappropriate, given that courts 
generally disfavor the retroactive application of statutes, and that 
applying penalties to model years that were already completed could not 
deter non-compliance, incentivize compliance, or lead to any 
improvements in fuel economy. NHTSA also agreed that raising the rate 
for model years for which product changes were infeasible due to lack 
of lead time from the enactment of the 2015 Act did not seem consistent 
with Congress's intent that the CAFE program be responsive to consumer 
demand. Accordingly, NHTSA stated that it would not apply the adjusted 
penalty rate of $14 (plus any other required adjustments that occurred 
or may occur) until Model Year 2019, as the agency believed that 2019 
would be the first year after the 2015 Act in which product changes 
could reasonably be made in response to the higher penalty rate. This 
final rule had an effective date of January 27, 2017.
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    \13\ 81 FR 95489 (December 28, 2016).
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3. NHTSA Reconsideration

    Beginning in January 2017, NHTSA took a series of actions to delay 
the effective date of the December 2016 final rule, ultimately leading 
to a rule announcing that the effective date would be delayed 
indefinitely.\14\ In April 2018, the United States Court of Appeals for 
the Second Circuit vacated NHTSA's indefinite delay of the rule's 
effective date, stating that the December 2016 rule was in force.\15\
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    \14\ 82 FR 8694 (January 30, 2017); 82 FR 15302 (March 28, 
2017); 82 FR 29009 (June 27, 2017); 82 FR 32139 (July 12, 2017).
    \15\ Order, ECF No. 196, Natural Res. Def. Council v. NHTSA, 
Case No. 17-2780 (2d Cir. Apr. 24, 2018); see also Natural Res. Def. 
Council v. NHTSA (NRDC), 894 F.3d 95, 116 (2d Cir. 2018) (``The 
Civil Penalties Rule, 81 FR 95,489, 95,489-92 (December 28, 2016), 
no longer suspended, is now in force.'').
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    In July 2019, NHTSA finalized a rule determining, in part, that the 
2015 Act did not apply to the CAFE civil penalty rate. On September 9, 
2019, the Institute for Policy Integrity at New York University School 
of Law (IPI) submitted a petition for reconsideration of NHTSA's July 
2019 final rule. IPI argued that the rule was unreasonable and not in 
the public interest because it did not properly account for the 
associated costs and benefits. Additionally, IPI challenged NHTSA's 
statutory interpretations.
    On August 31, 2020, the United States Court of Appeals for the 
Second Circuit vacated the July 2019 rule and ruled again that the 
December 2016 rule was in force.\16\ The Second Circuit denied panel 
rehearing on November 2, 2020. NHTSA did not issue a decision on the 
IPI petition prior to the Second Circuit's decision vacating the rule.
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    \16\ New York v. NHTSA, 974 F.3d 87 (2d Cir. 2020).
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4. Subsequent Petitions and Interim Final Rule

    Following the Second Circuit's decision, on October 2, 2020, NHTSA 
received a petition for rulemaking from the Alliance for Automotive 
Innovation (Auto Innovators) requesting that the adjustment to $14 not 
be applied until Model Year 2022.\17\ According to the Auto Innovators' 
petition, ``Model Years 2019 and 2020 are effectively lapsed now,'' and 
``[m]anufacturers are unable to change MY 2021 plans at this point.'' 
The Auto Innovators argued that, as in the December 2016 rule, applying 
the increased penalty to any violations that cannot practically be 
remedied does not serve the statutory purposes of deterring prohibited 
conduct or incentivizing favored conduct. According to the Auto 
Innovators, doing so would effectively be punishing violators 
retroactively.
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    \17\ The Auto Innovators also submitted a supplement to its 
petition on October 22, 2020. The petition, the supplement, and 
other supporting materials were posted with the interim final rule 
and can be found in Docket No. NHTSA-2021-0001 at 
www.regulations.gov.
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    In addition to relying on the reasoning of the December 2016 rule 
as it applied to the increase based on the timing of the enactment of 
the 2015 Act, the Auto Innovators' petition noted, but did not provide 
detailed evidence of, the significant economic impact suffered by the 
industry due to COVID-19. Accordingly, the Auto Innovators' petition 
also cited the now-revoked Executive Order 13924,\18\ requiring Federal 
agencies to take appropriate action--consistent with applicable law--to 
combat the economic emergency caused by COVID-19. Several individual 
vehicle manufacturers submitted supplemental information to NHTSA 
further articulating the negative economic position they were in due to 
the COVID-19 public health emergency and the potential and significant 
adverse economic consequences of the increased civil penalty rate.
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    \18\ See Executive Order 14018, 86 FR 11855, ``Revocation of 
Certain Presidential Actions'' (Feb. 24, 2021).
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    After considering the issues raised, NHTSA granted the Auto 
Innovators' petition and promulgated an interim final rule providing 
that the increase \19\ will apply beginning with Model Year 2022. The 
interim final rule stated that applying the increased civil penalty 
rate to vehicles in Model Years 2019, 2020, and 2021 would not result 
in additional fuel savings and would impose higher penalties 
retroactively because those model years were already completed, or, for 
Model Year 2021, production plans were set prior to the Second 
Circuit's decision striking down the 2019 rule. The interim final rule 
relied in large part on the reasoning in the December 2016 final rule, 
though it did not discuss the extent to which the four years between 
the two rules should affect that reasoning. Additionally, the interim 
final rule addressed the negative economic impact on the automotive 
sector caused by the global outbreak of COVID-19.\20\ That interim 
final rule

[[Page 18997]]

amended the relevant regulatory text accordingly--effective immediately 
and without having afforded prior notice or the ability to comment in 
advance--and requested comment within ten days. The interim final rule 
also noted that IPI's petition was moot, and, to the extent it was not 
moot, NHTSA denied it.
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    \19\ The rate is increasing to $14, plus any required 
adjustments that occurred or may occur. 49 CFR 578.6(h)(2).
    \20\ The reasoning for the interim final rule is set forth more 
fully in the January 14, 2021 document published at 86 FR 3016.
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    The interim final rule is currently the subject of legal challenges 
that have been consolidated in the Second Circuit.\21\
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    \21\ Natural Res. Def. Council v. NHTSA, No. 21-139 (2d Cir.) 
(consolidated with New York v. NHTSA, No. 21-339 (2d Cir.) and 
Tesla, Inc. v. NHTSA, No. 21-593, transferred from No. 21-70367 (9th 
Cir.)). This litigation is currently being held in abeyance pending 
NHTSA's reconsideration of the interim final rule.
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5. Supplemental Notice of Proposed Rulemaking

    Before NHTSA's interim final rule was published but after the 
agency had announced, through the publication of the Fall 2020 Unified 
Agenda of Regulatory and Deregulatory Actions, that it had initiated a 
rulemaking in response to the Auto Innovators' petition, NHTSA received 
two letters regarding the rulemaking: One jointly from the State of New 
York, the Natural Resources Defense Council, and the Sierra Club, and 
one from Tesla.\22\ These letters raised concerns with NHTSA's 
rulemaking, particularly with the entities' inability to review or 
comment on the Auto Innovators' petition for rulemaking in advance. 
NHTSA did not respond to these letters prior to the publication of the 
interim final rule, but NHTSA included both letters in the docket when 
the interim final rule was published and noted that they would ``be 
treated as comments for appropriate consideration.'' \23\
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    \22\ NHTSA-2021-0001-0001; NHTSA-2021-0001-0009.
    \23\ 86 FR 3016, 3023 n.74 (Jan. 14, 2021).
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    After the interim final rule was published, NHTSA received eight 
more substantive comments.\24\ NHTSA received comments from:
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    \24\ NHTSA received a ninth comment that simply said, ``Help.'' 
NHTSA-2021-0001-0018. Without any additional information, NHTSA 
cannot reasonably address or respond to this commenter's concern. 
After the close of the comment period, NHTSA also received a letter 
from two U.S. Representatives regarding the economic harms of 
applying the adjustment before Model Year 2022. NHTSA-2021-0001-
0046. NHTSA is treating this letter as a comment for this rulemaking 
and addressing the issue it raises in this final rule. See 49 CFR 
553.23.
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    <bullet> The Attorneys General of California, New York, 
Connecticut, Delaware, Illinois, Iowa, Maine, Maryland, Massachusetts, 
Minnesota, New Jersey, Oregon, Pennsylvania, Rhode Island, Washington, 
and Vermont; \25\
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    \25\ NHTSA-2021-0001-0017.
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    <bullet> American Council for an Energy-Efficient Economy, Center 
for Auto Safety, Center for Biological Diversity, Consumer Federation 
of America, Consumer Reports, The Ecology Center (Michigan), 
Environmental Law and Policy Center, Interfaith Power & Light, Sierra 
Club, Union of Concerned Scientists; \26\
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    \26\ NHTSA-2021-0001-0015.
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    <bullet> Natural Resources Defense Council and Sierra Club; \27\
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    \27\ NHTSA-2021-0001-0013.
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    <bullet> The Institute for Policy Integrity at New York University 
School of Law; \28\
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    \28\ NHTSA-2021-0001-0011.
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    <bullet> Tesla; \29\
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    \29\ NHTSA-2021-0001-0012.
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    <bullet> The Alliance for Automotive Innovation; \30\
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    \30\ NHTSA-2021-0001-0014.
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    <bullet> The National Automobile Dealers Association (NADA); \31\ 
and
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    \31\ NHTSA-2021-0001-0016.
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    <bullet> An anonymous individual.\32\
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    \32\ NHTSA-2021-0001-0019.
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    Most of the comments opposed the interim final rule, raising 
serious procedural, legal, and substantive concerns. In general, these 
comments argued that NHTSA did not have the authority to delay the 
application of the adjusted rate beyond Model Year 2019 and that, 
regardless, NHTSA would have to do so through notice-and-comment, not 
by an interim final rule that was effective immediately without prior 
notice and without the opportunity to comment in advance. In supporting 
these arguments, the commenters relied, in part, upon the two earlier 
decisions by the Second Circuit.
    Most of these comments also challenged the interim final rule as 
arbitrary and capricious on multiple grounds. For example, the comments 
discussed that applying the increased rate before Model Year 2022 would 
not be retroactive because the increased rate was originally applied in 
2016 when it was still prospective--both in the initial interim final 
rule in July 2016 and in the rule in response to the initial petition 
for reconsideration in December 2016--and NHTSA's subsequent actions 
that were invalidated by the Second Circuit did not change that fact. 
In these commenters' view, manufacturers have been on notice of the 
increase since well before Model Year 2019, and any reliance to the 
contrary was undue. These comments argued that this was particularly 
true given the rulings from the Second Circuit litigation, in which 
many of these commenters and the Auto Innovators were involved, with 
the predecessor organizations having intervened and participated in 
this litigation. The comments further argued that delaying the 
application of the increased rate would affect future compliance 
because manufacturers may be incentivized to hold credits for model 
years when the higher rate will apply. That is, a credit earned at the 
$5.50 rate is likely to be more valuable--either for the manufacturer's 
own use or to sell to another manufacturer--in a model year when the 
rate increases to at least $14 (although credits must be used within a 
limited number of years before they expire). The comments also argued 
that the interim final rule improperly analyzed the economic effects of 
the COVID-19 pandemic, for example, by not accounting for any positive 
economic data and disregarding that some of the relevant conduct 
occurred before the pandemic.
    These comments also argued that the interim final rule violated the 
National Environmental Policy Act of 1969 (NEPA), by, for example, not 
taking a hard look at the environmental consequences of the action and 
ignoring the environmental harms that may result from delaying the 
penalty increase. Lastly, in response to NHTSA's request for comment 
about whether the adjustment should be delayed further until Model Year 
2023, these comments opposed any additional delay. Some of these 
comments also expressed concern with the short ten-day comment period 
provided by the interim final rule--and only after the rule was already 
effective without any opportunity to comment beforehand.
    Two of the comments supported the interim final rule. The Auto 
Innovators reiterated the reasoning set forth in its petition, which 
NHTSA granted in the interim final rule. According to the Auto 
Innovators, the interim final rule was consistent with NHTSA's December 
2016 rule; appropriately accounted for the industry's production and 
design processes, including the unforeseen challenges of the COVID-19 
public health emergency; and fairly implemented the Second Circuit's 
decision. The Auto Innovators also noted that Model Year 2022 vehicles 
could have begun being produced as early as January 2, 2021--about two 
weeks before the interim final rule was published--but it believes 
NHTSA was reasonable to make the adjustment applicable beginning in 
Model Year 2022, declining to request a further delay in the adjustment 
to Model Year 2023. NADA supported the Auto

[[Page 18998]]

Innovators' comment, adding that increased CAFE civil penalties before 
Model Year 2022 would lead to higher vehicle prices for consumers or 
manufacturer shifts in available offerings, without any associated 
environmental or safety benefits.
    On January 20, 2021--while the post-promulgation comment period for 
the interim final rule was still open--the President issued Executive 
Order 13990, entitled ``Protecting Public Health and the Environment 
and Restoring Science to Tackle the Climate Crisis.'' E.O. 13990 
directs the heads of all agencies to immediately review all existing 
regulations, orders, guidance documents, policies, and any other 
similar agency actions promulgated, issued, or adopted between January 
20, 2017, and January 20, 2021, that are, or may be inconsistent with, 
or present obstacles to, the policy set forth in E.O. 13990: A policy 
``to listen to the science; to improve public health and protect our 
environment; to ensure access to clean air and water; to limit exposure 
to dangerous chemicals and pesticides; to hold polluters accountable, 
including those who disproportionately harm communities of color and 
low-income communities; to reduce greenhouse gas emissions; to bolster 
resilience to the impacts of climate change; to restore and expand our 
national treasures and monuments; and to prioritize both environmental 
justice and the creation of the well-paying union jobs necessary to 
deliver on these goals.'' \33\ The Secretary of Transportation 
expressly identified the January 14, 2021 CAFE civil penalties interim 
final rule as subject to E.O. 13990.\34\
---------------------------------------------------------------------------

    \33\ 86 FR 7037, 7037 (Jan. 25, 2021).
    \34\ Memorandum from the Acting General Counsel of DOT to the 
Chief Counsel and Acting Deputy Administrator of NHTSA and Special 
Advisor, ``Implementation of Executive Order 13990, entitled 
`Protecting Public Health and the Environment and Restoring Science 
to Tackle the Climate Crisis' '' (Feb. 22, 2021). https://www.transportation.gov/sites/dot.gov/files/2021-02/Memo-to-NHTSA.pdf.
---------------------------------------------------------------------------

    In accord with E.O. 13990 and the Secretary's determination, and in 
light of the significant concerns raised by the commenters after the 
interim final rule was issued, NHTSA began reviewing and reconsidering 
the January 14, 2021 interim final rule. Specifically, NHTSA considered 
repealing the interim final rule and reverting to the December 2016 
final rule that would apply the adjusted rate beginning with Model Year 
2019--the rule that the Second Circuit has said twice is ``now in 
force.'' \35\
---------------------------------------------------------------------------

    \35\ Nat. Res. Def. Council v. Nat'l Highway Traffic Safety 
Admin., 894 F.3d 95, 116 (2d Cir. 2018); New York v. Nat'l Highway 
Traffic Safety Admin., 974 F.3d 87, 101 (2d Cir. 2020).
---------------------------------------------------------------------------

    NHTSA believed that an additional period of public comment would 
aid the agency in its reexamination of the issues involved in the 
interim final rule. Considering the importance of this rulemaking and 
the short comment period--ten days--previously provided to interested 
parties, NHTSA published a supplemental notice of proposed rulemaking 
(SNPRM) on August 20, 2021, to provide the public with an appropriate 
amount of time to comment and to enable NHTSA to more fully review and 
consider the issues.\36\ In doing so, NHTSA expressly requested comment 
on whether it should proceed to a final rule that repeals the interim 
final rule and reverts to the December 2016 final rule, restoring the 
application of the increased CAFE civil penalty rate beginning with 
Model Year 2019. NHTSA also accepted comments on whether the adjustment 
should apply beginning with a model year later than Model Year 2019, 
with commenters arguing for such a position asked to explain how it is 
consistent with the 2015 Act and the Second Circuit's decisions. NHTSA 
also noted it would consider comments already submitted in response to 
the interim final rule as part of its review and the anticipated 
promulgation of a final rule following the comment period. The comment 
period for the SNPRM closed on September 20, 2021.
---------------------------------------------------------------------------

    \36\ 86 FR 46811 (Aug. 20, 2021).
---------------------------------------------------------------------------

D. Overview of the Comments Received

    In addition to the comments received in response to the interim 
final rule,\37\ NHTSA received seventeen substantive comments in 
response to the SNPRM.\38\ NHTSA received comments from:
---------------------------------------------------------------------------

    \37\ Shortly prior to publication of the interim final rule, 
NHTSA received two letters regarding the rulemaking. Both letters 
are included in the docket for this matter and were treated as 
comments for appropriate consideration.
    \38\ An eighteenth comment only expressed a desire to have the 
sides of the freeways in the Los Angeles area cleaned. NHTSA-2021-
0001-0030. As NHTSA is required to consider only relevant matter in 
finalizing a rule, this comment is outside the scope of this 
rulemaking.
---------------------------------------------------------------------------

    <bullet> The Attorneys General of California, New York, 
Connecticut, Delaware, Illinois, Iowa, Maryland, Massachusetts, New 
Jersey, Oregon, Pennsylvania, Washington, and Vermont; \39\
---------------------------------------------------------------------------

    \39\ NHTSA 2021-0001-0039. After the close of the comment 
period, the Attorneys General of New York, Connecticut, Delaware, 
Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, New 
Jersey, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington 
jointly submitted an additional letter regarding the need to adjust 
the CAFE civil penalty rate for 2022. NHTSA-2021-0001-0047. NHTSA is 
treating this letter as a comment for this rulemaking and addressing 
the issue it raises in this final rule. See 49 CFR 553.23.
---------------------------------------------------------------------------

    <bullet> Natural Resources Defense Council and Sierra Club; \40\
---------------------------------------------------------------------------

    \40\ NHTSA 2021-0001-0037.
---------------------------------------------------------------------------

    <bullet> Tesla; \41\
---------------------------------------------------------------------------

    \41\ NHTSA-2021-0001-0036.
---------------------------------------------------------------------------

    <bullet> The Institute for Policy Integrity at New York University 
School of Law; \42\
---------------------------------------------------------------------------

    \42\ NHTSA 2021-0001-0038.
---------------------------------------------------------------------------

    <bullet> The Alliance for Automotive Innovation; \43\
---------------------------------------------------------------------------

    \43\ NHTSA 2021-0001-0043.
---------------------------------------------------------------------------

    <bullet> Stellantis (FCA US LLC); \44\
---------------------------------------------------------------------------

    \44\ NHTSA 2021-0001-0042. Stellantis requested confidential 
treatment for the business information included in its comment, 
pursuant to 49 CFR part 512. As with the companies that requested 
confidential treatment for some of the business information included 
in each of their individual submissions supplementing the Auto 
Innovators' petition that resulted in the interim final rule, the 
public version of Stellantis' submission can be found in the docket 
for this action at www.regulations.gov.
---------------------------------------------------------------------------

    <bullet> Jaguar Land Rover North America LLC; \45\
---------------------------------------------------------------------------

    \45\ NHTSA 2021-0001-0040.
---------------------------------------------------------------------------

    <bullet> Ferrari; \46\
---------------------------------------------------------------------------

    \46\ NHTSA-2021-0001-0044. NHTSA received this comment after the 
comment period closed, but still considered it in promulgating this 
final rule. Under NHTSA's regulations, ``[l]ate filed comments will 
be considered to the extent practicable.'' 49 CFR 553.23.
---------------------------------------------------------------------------

    <bullet> The National Automobile Dealers Association (NADA); \47\ 
and
---------------------------------------------------------------------------

    \47\ NHTSA 2021-0001-0041.
---------------------------------------------------------------------------

    <bullet> Private citizens and anonymous individuals.\48\
---------------------------------------------------------------------------

    \48\ NHTSA-2021-0001-0028; NHTSA 2021-0001-0029; NHTSA 2021-
0001-0032; NHTSA 2021-0001-0033; NHTSA 2021-0001-0034; NHTSA 2021-
0001-0035; NHTSA 2021-0001-0045.
---------------------------------------------------------------------------

    The majority of comments submitted in response to the interim final 
rule and to the supplemental notice of proposed rulemaking support 
returning to the December 2016 final rule. These comments primarily 
argue that NHTSA lacked the statutory authority to issue the January 
2021 interim final rule. These comments also generally argue that 
retroactivity was not an issue: Automakers were already aware as of 
December 2016 that the adjustment would apply in Model Year 2019 and 
beyond. It was not until Model Year 2019 was already nearly complete 
that NHTSA issued a final rule changing that, which the Second Circuit 
subsequently determined was legally invalid. The predecessor 
organizations of Auto Innovators participated in that litigation as 
intervenors and were well aware of the possibility that the Second 
Circuit would restore the applicability of the adjusted rate beginning 
with Model Year 2019. In fact, the Second Circuit decision expressly 
stated that the court understood the effect of its decisions to be that 
the increased penalty amount was in effect. Accordingly, these 
commenters argue

[[Page 18999]]

that it would be appropriate for NHTSA to revisit the interim final 
rule's characterization of the application of the adjustment beginning 
with Model Year 2019 as ``retroactive.'' Moreover, these commenters 
raised concerns regarding the procedures that the agency used in 
issuing the interim final rule, which did not proceed through a more 
typical notice-and-comment process and which made the rule effective 
immediately upon publication. In addition, these commenters urged NHTSA 
to further review and consider the Second Circuit's prior decisions 
and, in light of the ongoing litigation, assess the legal risk of 
leaving the interim final rule in place, as the interim final rule was 
based on an assertion of discretion that is in conflict with the 2015 
Act and the Second Circuit's decisions.
    The comments in favor of retaining the interim final rule largely 
re-raised the reasoning of the December 2016 final rule, noting that 
the affected model years have already lapsed or largely lapsed, and 
design and production cycles for the affected model years were already 
locked in based on the unadjusted CAFE civil penalty rate. These 
comments also described the economic harm that applying the adjusted 
rate would have on the industry, which is already facing difficult 
economic conditions due to the effects of COVID-19, microchip 
shortages, and other supply chain issues.

E. Response to the Comments

1. Agency Reconsideration

    As a threshold matter and as NHTSA has explained before, NHTSA, 
like all agencies, must continually consider a range of possible 
statutory interpretations and reassess their validity, including in 
response to changed circumstances or when questions arise regarding the 
legality of the prior action--particularly when a Federal court already 
has ruled twice on related issues. Not only is it an agency's 
responsibility to reevaluate its interpretations to ensure they are 
legally sound, an agency is allowed to change its interpretations, 
within reason, based on evolving notions about the appropriate balance 
of varying policy considerations. NHTSA is permitted to change its 
views based upon its experience and expertise, provided that the 
requirements of the Administrative Procedure Act (APA) and other 
governing statutes are met. To do so, an agency must show that it is 
aware it is changing its position and must provide a reasoned 
explanation for the change.\49\
---------------------------------------------------------------------------

    \49\ Encino Motorcars, LLC v. Navarro, 579 U.S. 211, 221 (2016); 
FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515-16 (2009).
---------------------------------------------------------------------------

    In the SNPRM, NHTSA expressly acknowledged that it was 
reconsidering the January 2021 interim final rule as a result of E.O. 
13990, the Secretary's related determination, the significant concerns 
raised by commenters in the earlier rulemakings on this issue, further 
review and consideration of the Second Circuit's prior decisions, and 
in light of the pending litigation. NHTSA provided a reasoned 
explanation for its tentative decision in the SNPRM that it does not 
have discretion over when the required adjustment should begin to take 
effect, and after careful consideration of the relevant information, 
finalizes and elaborates on that decision here. In particular, NHTSA 
concludes that the interim final rule was procedurally flawed and did 
not appropriately carry out the clear command from the Second Circuit's 
decision that struck down the 2019 final rule.
    As explained further below, NHTSA does not believe that ``its prior 
policy has engendered serious reliance interests that must be taken 
into account,'' which may require the agency to ``provide a more 
detailed justification than what would suffice for a new policy created 
on a blank slate.'' \50\ Nonetheless, NHTSA has provided ``a more 
detailed justification'' in the following discussion. Moreover, the 
administrative and public process leading to this rule has been more 
thorough than the process leading to the interim final rule. NHTSA 
undertook extensive agency review, issued an SNPRM, gave the public an 
opportunity to comment in advance, and responded to those comments in 
detail here. By contrast, NHTSA promulgated the interim final rule 
without notice, with only a brief window for public comments, and 
without the opportunity to comment in advance.
---------------------------------------------------------------------------

    \50\ FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 
(2009).
---------------------------------------------------------------------------

2. Procedural Issues

    NHTSA promulgated the January 2021 interim final rule without 
providing notice and without providing the opportunity to comment in 
advance. NHTSA also made the interim final rule effective immediately 
and only provided ten days after publication for comments. The interim 
final rule did not explain why the post-promulgation comment period was 
so short, even though NHTSA could have provided more time for comments 
given that the rule was already in effect.
    Upon review, NHTSA agrees with the commenters that argue that these 
procedural issues alone merit repeal of the interim final rule. The 
Second Circuit previously held that changing the effective date of the 
rule that was in force at the time would generally require notice-and-
comment.\51\ For the January 2021 interim final rule, NHTSA concluded 
that good cause existed for immediate implementation of the rule 
without prior notice and comment on the grounds that it was 
impracticable to delay publication of the interim final rule for notice 
and comment, public comment was unnecessary, and the agency's action 
was in the public interest. However, as many of the affected 
manufacturers and their trade association have noted for other 
purposes, the affected model years were either completed or already 
underway at the time of the interim final rule. There was no pressing 
emergency that would have made it impracticable to provide notice and 
request comment in advance.
---------------------------------------------------------------------------

    \51\ Natural Res. Def. Council v. NHTSA, 894 F.3d 95, 113 (2d 
Cir. 2018).
---------------------------------------------------------------------------

    Public comment was also necessary. While the 2015 Act provides that 
the first adjustment shall be made through an interim final rulemaking 
without public comment, NHTSA's first adjustment was made in an interim 
final rule in July 2016 with a subsequent final rule issued in December 
2016. The January 2021 interim final rule was issued years later--after 
multiple rounds of requests for comments in other notices on this same 
issue.
    Moreover, NHTSA should have sought comment given the public 
interest. NHTSA was aware of the public interest in this issue, having 
received multiple rounds of comments from a variety of entities and 
having proceeded through two rounds of litigation. While the automotive 
industry argued in its petition that it has faced unprecedented 
economic challenges arising from the COVID-19 national emergency, NHTSA 
did not consider any countervailing evidence, discussed further below. 
Additionally, any economic harm--which would only be caused by 
manufacturers' failures to comply with the applicable CAFE standards--
does not outweigh the public interest in commenting on the change in 
advance. Indeed, affording the public the opportunity to comment on the 
petition in advance would have given NHTSA additional insight into the 
impact of the COVID-19 national emergency on the industry.
    Because NHTSA lacked good cause, the interim final rule also should 
not have gone into effect immediately upon

[[Page 19000]]

publication in the Federal Register under 5 U.S.C. 553(d)(3) and 5 
U.S.C. 808(2).\52\
---------------------------------------------------------------------------

    \52\ The interim final rule also stated that a delayed effective 
date was not required because, under 5 U.S.C 553(d)(2), it 
``relieve[d] a restriction'' by allowing additional time before the 
higher penalty rate would have begun to apply. Regardless of whether 
NHTSA continues to believe that delaying the application of a higher 
penalty rate counts as relieving a restriction, the lack of good 
issue and other procedural issues would still merit repeal of the 
interim final rule.
---------------------------------------------------------------------------

3. Statutory Authorization

    In the interim final rule, NHTSA described its authority to issue 
the rule as based on its specific statutory authority to administer the 
CAFE program and its general statutory authority to do so efficiently 
and in the public interest.\53\ NHTSA also explained that the procedure 
established in the Energy Policy and Conservation Act (EPCA) \54\ to 
increase the CAFE civil penalty rate implies that NHTSA has the broader 
authority to oversee the administration and enforcement of the rate 
more generally.\55\ NHTSA also noted that for the CAFE civil penalty to 
be covered by the 2015 Act, NHTSA must have the authority to assess or 
enforce it, and thus oversee and administer it as appropriate.\56\
---------------------------------------------------------------------------

    \53\ 86 FR 3016, 3019-20 (Jan. 14, 2021).
    \54\ Public Law 94-163, 89 Stat. 871 (1975). EPCA created a 
comprehensive approach to federal energy policy, including 
establishing the CAFE program.
    \55\ 86 FR 3016, 3020 (Jan. 14, 2021).
    \56\ 86 FR 3016, 3020 (Jan. 14, 2021).
---------------------------------------------------------------------------

    For the reasons explained by the Second Circuit and the comments, 
NHTSA did not have statutory authority to promulgate the interim final 
rule.\57\ As the Second Circuit noted, ``an agency may only act within 
the authority granted to it by statute.'' \58\ Neither the 2015 Act, 
which applied to all Federal agencies, nor EPCA authorized NHTSA to 
issue an interim final rule delaying the application of the previously-
issued adjustment.\59\ To the contrary, the Second Circuit has 
concluded that the 2015 Act contains a ``highly circumscribed schedule 
for penalty increases'' that confers ``no discretion to the agencies 
regarding the timing of the adjustments.'' \60\
---------------------------------------------------------------------------

    \57\ To the extent that the interpretation of NHTSA's statutory 
authority in the interim final rule was reasonable, NHTSA 
nonetheless concludes that a different interpretation is appropriate 
now, for the reasons described throughout this rule.
    \58\ NRDC, 894 F.3d at 108. Agencies do possess some inherent 
powers, but issuing an interim final rule to delay the application 
of a previously-issued rule is not one of them.
    \59\ See id. at 112 (noting that EPCA provides no authority ``to 
delay the penalty as part of'' NHTSA's ``responsibility for 
administering the fuel economy portions of that statute'').
    \60\ New York v. NHTSA, 974 F.3d 87, 100 (2d Cir. 2020); Natural 
Res. Def. Council v. NHTSA, 894 F.3d 95, 109, 113 n.12 (2d Cir. 
2018).
---------------------------------------------------------------------------

    Further, as the Second Circuit made clear, the procedure in EPCA 
that allows NHTSA to increase the CAFE civil penalty rate does not 
conflict with the agency's duty to comply with the 2015 Act,\61\ which 
includes the timing of when the adjustment will apply. To the contrary, 
the limited nature of the specific statutory procedure in EPCA for 
increasing the CAFE penalty rate (apart from the 2015 Act) suggests 
that Congress was restricting the scope of NHTSA's power, authorizing 
it to increase the CAFE civil penalty rate only under certain 
circumstances. Note that, as NHTSA has previously explained, EPCA acts 
as a ``one-way ratchet'' with no means for lowering the CAFE civil 
penalty rate \62\ or conferring NHTSA any discretion over when 
penalties ought to be assessed. The 2015 Act and its procedures for 
adjustments are consistent with EPCA.
---------------------------------------------------------------------------

    \61\ See New York, 974 F.3d at 99-100.
    \62\ 84 FR 36007, 36021 (July 26, 2019).
---------------------------------------------------------------------------

    To the extent that the 2015 Act affords NHTSA any discretion to 
act, NHTSA concludes that its discretion would be limited. For example, 
the 2015 Act provides express procedures and deadlines for agencies to 
apply the adjustments. It also provides narrow exceptions for the 
amount of the adjustment and only for the initial ``catch-up'' 
adjustment. The purposes of the 2015 Act, as Congress stated in the Act 
itself, include ``allow[ing] for regular adjustment for inflation of 
civil monetary penalties'' and ``maintain[ing] the deterrent effect of 
civil monetary penalties and promote compliance with the law.'' \63\ 
NHTSA notes that the CAFE civil penalty rate was established as $5 in 
1975 and held constant at $5.50 since 1997 and that making the required 
adjustment aligns with the legislative purpose of catching up the rate 
for the lack of adjustments. Accordingly, NHTSA would decline to delay 
the adjustment further, even if it had the discretion to do so.
---------------------------------------------------------------------------

    \63\ 28 U.S.C. 2461 note, sec. 2(b)(1)-(2).
---------------------------------------------------------------------------

4. Retroactivity

    In the January 2021 interim final rule being repealed by this 
action, NHTSA accepted the industry petition's argument that applying 
the increased civil penalty rate to completed or largely completed 
model years would raise serious retroactivity concerns.\64\ NHTSA 
acknowledged that retroactivity generally is not favored in the law and 
concluded that imposing a higher civil penalty rate for model years 
already completed or nearly so would not have incentivized improvements 
to fuel economy, given the industry timelines for the design, 
development, and production of new vehicles.\65\
---------------------------------------------------------------------------

    \64\ 86 FR 3016, 3020-21 (Jan. 14, 2021).
    \65\ 86 FR 3016, 3020-21 (Jan. 14, 2021).
---------------------------------------------------------------------------

    While retroactivity generally is not favored in the law, there is 
no rule that Congress cannot legislate retroactively. The 2015 Act 
expressly recognizes that it may have a partially retroactive effect; 
that is part of the statute's design and Congress's intent. The statute 
provides that ``[a]ny increase under this Act in a civil monetary 
penalty shall apply only to civil monetary penalties, including those 
whose associated violation predated such increase, which are assessed 
after the date the increase takes effect.'' \66\
---------------------------------------------------------------------------

    \66\ 28 U.S.C. 2461 note, sec. 6 (emphasis added).
---------------------------------------------------------------------------

    Nonetheless, NHTSA now concludes that the effect of the adjustment 
here applying beginning in Model Year 2019 is not retroactive. As NHTSA 
mentioned in the SNPRM, automakers were aware, as of December 2016, 
that the adjustment would apply beginning with Model Year 2019. The 
Second Circuit confirmed that an immediate adjustment was compelled by 
the 2015 Act, which long preceded Model Year 2019.\67\ Indeed, the Auto 
Innovators acknowledge that ``manufacturers knew there was a 
possibility that the $14 civil penalty rate might be applied to MYs 
2019 to 2021 vehicles.'' \68\ It was not until Model Year 2019 was 
already nearly complete that the agency issued a final rule changing 
that--a rule that the Second Circuit subsequently determined was 
legally invalid. Auto Innovators (through its predecessor entities) 
participated in that litigation as an intervenor and was well aware of 
the possibility that the Second Circuit would--and indeed, did--restore 
the applicability of the adjustment beginning with Model Year 2019. 
Accordingly, NHTSA has reconsidered and rejected its previous 
characterization of the application of the adjustment beginning with 
Model Year 2019 as ``retroactive.''
---------------------------------------------------------------------------

    \67\ Natural Res. Def. Council v. NHTSA, 894 F.3d 95, 109 (2d 
Cir. 2018).
    \68\ Auto Innovators Comment, at 6.
---------------------------------------------------------------------------

    Any violation of the CAFE standards for Model Years 2019 through 
2021 occurred or will occur well after NHTSA confirmed in December 2016 
that it would apply penalties beginning with Model Year 2019--in 
response to a petition from industry to delay the effective application 
of the penalty increase precisely to Model Year 2019. Indeed, industry 
had reason to believe from the enactment of the 2015 Act and NHTSA's 
July 2016 adjustments that the adjustments could have applied

[[Page 19001]]

immediately, or in any event, well before Model Year 2019. To the 
extent that manufacturers did not have notice by the 2015 Act itself, 
they unquestionably had notice by NHTSA's 2016 rules. The industry 
previously argued that vehicle designs are often fixed years in 
advance. Thus, by the time NHTSA promulgated its July 2019 final rule 
(that was promptly challenged in litigation and was subsequently 
vacated by the Second Circuit), automakers' designs for Model Years 
2019 through 2021 were likely largely set already. At that time, 
NHTSA's regulations stated that the CAFE civil penalty adjustment to 
$14 (plus any other adjustments that needed to be made) would go into 
effect beginning with Model Year 2019. There was no guarantee at that 
time that NHTSA would have issued a rule reversing course and blocking 
the adjustment, and any attempt to do so would have been legally 
vulnerable. Any automakers that made their plans for Model Years 2019 
through 2021 thinking that penalties would not increase did so at their 
own risk and in defiance of the Second Circuit's decisions.
    The Second Circuit ruled that NHTSA's previous actions to delay or 
avoid the adjustment were unlawful, ultimately determining--twice--that 
the adjustment was ``now in force.'' \69\ And the Auto Innovators 
concede that the Court's determinations that the adjustment is ``now in 
force'' is currently ``having effects on manufacturers' decisions with 
regard to future model-year fuel economy decisions,'' even though the 
interim final rule remained on the books until the effective date of 
this final rule.\70\ That some manufacturers may have chosen to base 
their compliance decisions and production plans on the chance that 
NHTSA may take additional action to attempt to delay or avoid the 
adjustment despite legal vulnerability is a risk they took on their 
own, aware of the circumstances. The Auto Innovators' argument is 
expressly based on assumptions manufacturers made about how the 
Administration was ``likely'' to act.\71\ These manufacturers--
particularly those, as noted by the Auto Innovators, that participated 
in the court proceedings through their trade associations--were aware 
(or at least should have been aware) of the possibility that their 
predictions regarding NHTSA's actions would ultimately prove 
incorrect.\72\ That possibility is not enough to create retroactivity 
concerns.
---------------------------------------------------------------------------

    \69\ New York, 974 F.3d at 101; NRDC, 894 F.3d at 116.
    \70\ Auto Innovators Comment, at 7.
    \71\ Auto Innovators Comment, at 7 (``[Manufacturers] had every 
reason to assume that, if the rule under review in the New York case 
were vacated, NHTSA would have the authority to undertake the same 
non-retroactivity analysis that the Obama Administration Department 
of Transportation undertook in the December 2016 Final Rule. They 
also had every reason to assume that NHTSA was likely to opt for a 
first model year later than MY 2019 for the application of the $14 
civil penalty rate and was not precluded by either Second Circuit 
decision from doing so.'' (emphasis added)).
    \72\ At least one manufacturer had been budgeting for the 
possibility of paying civil penalties with the adjustment in effect 
before the July 2019 final rule was enacted. See IPI Comment, at 7.
---------------------------------------------------------------------------

    The Auto Innovators did argue that the statutory purposes of an 
adjustment are ``primarily deterrent,'' as stated in the 2015 Act and 
acknowledged by the Second Circuit.\73\ However, the first purpose 
listed in the statute--and also recognized by the Second Circuit as ``a 
primary purpose'' of the statute \74\--is to ``allow for regular 
adjustment for inflation of civil monetary penalties.'' \75\ Making the 
initial ``catch-up'' adjustment will allow NHTSA to conduct the 
required subsequent annual adjustments in line with the agency's other 
civil penalties that have already been adjusted on a regular basis. 
Furthermore, establishing the increased rate may have a deterrent 
effect in future model years as the rate continues to increase. And, 
indeed, the fact that automakers knew that an adjustment under the 
statute was likely at the time of the statute's passage, as well as 
upon the adoption of the 2016 rule--as the Auto Innovators 
acknowledged--very likely served as a deterrent for those manufacturers 
who opted to meet fuel economy standards rather than pay penalties.
---------------------------------------------------------------------------

    \73\ See 28 U.S.C. 2461 note, sec. 2(b)(2); see also id., sec. 
2(a)(2); NRDC, 894 F.3d at 109.
    \74\ NRDC, 894 F.3d at 109.
    \75\ 28 U.S.C. 2461 note, sec. 2(b)(1).
---------------------------------------------------------------------------

    Moreover, the Auto Innovators note elsewhere that imposing an 
appropriately adjusted rate to vehicles in Model Years 2019 to 2021 
could still have future environmental impacts.\76\ In any event, these 
purpose-based policy concerns, even if correct, are insufficient to 
override the language and structure of the governing statute, as the 
Second Circuit has plainly interpreted it.
---------------------------------------------------------------------------

    \76\ Auto Innovators Comment, at 10. The Auto Innovators argue 
that ``the imposition of the $14 civil penalty rate to MYs 2019 to 
2021 vehicles actually could have deleterious environmental impacts: 
Penalties that lead to increases in the prices of newer vehicles 
could discourage consumers from purchasing more efficient, cleaner 
vehicles.'' Id. While NHTSA agrees that applying the adjusted rate 
to Model Year 2019 to Model Year 2021 vehicles could have 
environmental effects, NHTSA believes it is likely that 
manufacturers have already priced in the potential of having to pay 
increased penalties--if not during the earlier rounds of litigation 
and rulemaking, then very likely when the SNPRM was made public.
---------------------------------------------------------------------------

    The Auto Innovators also noted that ``in the December 2016 Final 
Rule, NHTSA recognized the need for lead time (and in fact used the 18-
month CAFE statutory lead time as a proxy) when initially delaying 
applicability of the $14 civil penalty rate to MY 2019.'' \77\ NHTSA 
does acknowledge the importance of lead time for manufacturers, but 
concludes here that manufacturers did receive appropriate lead time for 
Model Years 2019 through 2021 when the timing of the adjustment was 
established in December 2016--established at that time in response to a 
request from industry for delay. Under the interim final rule, the 
mandatory adjustment would not be applied until Model Year 2022, i.e., 
to vehicles sold more than five years after the statutory deadline for 
agencies to make their initial adjustments.
---------------------------------------------------------------------------

    \77\ Auto Innovators Comment, at 7.
---------------------------------------------------------------------------

    NHTSA also notes that it does not need to give 18 months' lead time 
before this adjustment becomes effective. The statutory lead time 
provision in EPCA for increasing the CAFE civil penalty rate expressly 
refers to the specific process described in that paragraph for 
increasing the penalty rate, not to adjustments required to be made 
pursuant to a separate statute.\78\ The 2015 Act established the timing 
NHTSA and all other federal agencies were required to follow for the 
initial catch-up adjustment and the process for doing so through an 
interim final rulemaking without notice-and-comment.
---------------------------------------------------------------------------

    \78\ ``A higher amount prescribed under subparagraph (A) of this 
paragraph is effective for the model year beginning at least 18 
months after the regulation stating the higher amount becomes 
final.'' 49 U.S.C. 32912(c)(1)(D).
---------------------------------------------------------------------------

    NHTSA will make the mandatory adjustments to the CAFE civil penalty 
rate going forward, as required by law for all civil monetary 
penalties.

5. Reliance Interests

    For similar reasons, to the extent that industry relied on the CAFE 
civil penalty rate not being adjusted as required by the statute, any 
such reliance was unreasonable and was at those manufacturers' own 
risk--prior to the promulgation of the January 2021 interim final rule 
or after.
    In the January 2021 interim final rule, NHTSA concluded that the 
industry's reliance on the $5.50 rate was reasonable, as NHTSA 
reconsidered application of the 2015 Act by proposing in 2018 that the 
2015 Act did not apply and finalizing the proposal in

[[Page 19002]]

2019.\79\ However, manufacturers knew (or should have known) that the 
CAFE civil penalty rate was going to be adjusted when the 2015 Act was 
enacted, when NHTSA issued its initial catch-up adjustments in July 
2016, and when NHTSA issued its response to industry's petition in 
December 2016 establishing the timing of the adjustment (and 
accommodating the industry's request for additional lead time in doing 
so). Indeed, the industry petition in 2016 acknowledged and did not 
challenge that the 2015 Act applied to the CAFE civil penalty rate.\80\ 
While there was subsequent rulemaking on the issue, industry 
participants were also aware that there was litigation over the 
subsequent rules--indeed, they participated actively in the 
litigation--and they relied on those subsequent rules at their own 
risk. Once the Second Circuit vacated each of the rules, the industry 
had no basis for relying on either of those agency actions.\81\ By 
industry's own argument, to the extent that manufacturers relied on the 
July 2019 final rule, much less the January 2021 interim final rule, 
the planning for Model Years 2019 to 2021 was already or largely 
complete. This was not a longstanding policy in effect for years 
before. Moreover, the interim final rule, by definition, was an interim 
rule that remained subject to change following public comment. It was 
also quickly subject to legal challenge and agency reconsideration. In 
particular, the President issued Executive Order 13990, directing 
review of the interim final rule and other regulations, just one week 
after the interim final rule was published in the Federal Register and 
while the post-promulgation comment period was still open. Given this 
short window, there was minimal time for manufacturers to reasonably 
rely on the interim final rule remaining in effect.
---------------------------------------------------------------------------

    \79\ 86 FR 3016, 3021 (Jan. 14, 2021).
    \80\ NRDC, 894 F.3d at 102 (``[I]ndustry petitioners conceded 
that `NHTSA was obligated to take some action in response to the 
Improvements Act' and `NHTSA [was] not empowered to exempt the CAFE 
program from this directive.' '').
    \81\ See States Attorneys General Comment, at 5 (citing Envtl. 
Def. v. Leavitt, 329 F. Supp. 2d 55, 64 (D.C. Cir. 2004) (``[T]he 
vacatur restores the status quo before the invalid rule took effect 
and the agency must initiate another rulemaking proceeding if it 
would seek to confront the problem anew.'' (internal citations and 
quotations omitted))); Nat'l Fuel Gas Supply Corp. v. Fed. Energy 
Regulatory Comm'n, 59 F.3d 1281, 1288 (D.C. Cir. 1995); see also 
United States v. Sec. Indus. Bank, 459 U.S. 70, 79 (1982) (``The 
principle that statutes operate only prospectively, while judicial 
decisions operate retrospectively, is familiar to every law 
student.'')).
---------------------------------------------------------------------------

    Furthermore, there are countervailing reliance interests to 
consider here. It is very likely that some manufacturers relied on the 
2015 statute, the July 2015 initial catch-up adjustment, and the 
December 2016 final rule in planning for an adjustment to be in effect 
for Model Year 2019 and continued to do so given the uncertainty of the 
legal challenges to NHTSA's subsequent actions regarding the CAFE civil 
penalty rate.\82\ And manufacturers had a strong financial incentive to 
do so, given that the value of credits for over-complying with the 
standards would be expected to increase dramatically with the initial 
adjustment to the CAFE civil penalty rate.\83\ Delaying the application 
of the adjustment would almost certainly diminish the value of those 
credits.
---------------------------------------------------------------------------

    \82\ See, e.g., Tesla Comment on IFR, NHTSA-2021-0001-0012, at 
9.
    \83\ See, e.g., Tesla Comment at 9-10.
---------------------------------------------------------------------------

    As noted in the comments,\84\ industry could have asked the Second 
Circuit to invoke its equitable discretion and to remand to NHTSA 
without vacatur, but they did not do so in either case that has already 
been decided (nor in the pending case challenging the January 2021 
interim final rule). The Court also did not do so on its own, instead 
confirming twice its conclusion that the December 2016 rule was ``now 
in force.'' \85\
---------------------------------------------------------------------------

    \84\ State Attorneys General Comment, at 5 (citing NRDC v. EPA, 
808 F.3d 556, 584 (2d Cir. 2015) (when equity demands, remand 
without vacatur allows agencies to correct legal deficiencies while 
leaving challenged, unlawful regulations in place); see also Sugar 
Cane Growers Coop. of Fla. v. Veneman, 289 F.3d 89, 97-98 (D.C. Cir. 
2002) (invoking equitable discretion to remand without vacatur 
because there was ``no apparent way to restore the status quo 
ante''); Allied-Signal, Inc. v. U.S. Nuclear Regulatory Comm'n, 988 
F.2d 146, 150-51 (D.C. Cir. 1993)).
    \85\ See NRDC, 894 F.3d at 116; New York, 974 F.3d at 101.
---------------------------------------------------------------------------

6. Economic Impact of the COVID-19 Pandemic and Other Factors

    In the January 2021 interim final rule, NHTSA concluded that, based 
on the available information, applying the adjustment to the CAFE civil 
penalty rate beginning in Model Year 2019 might inhibit economic 
recovery from the effects of the pandemic, while applying the 
adjustment beginning in Model Year 2022 was an appropriate action to 
take for the purpose of promoting job creation and economic growth, 
citing Executive Order 13924, ``Regulatory Relief To Support Economic 
Recovery.'' \86\
---------------------------------------------------------------------------

    \86\ 86 FR 3016, 3022 (Jan. 14, 2021).
---------------------------------------------------------------------------

    Executive Order 13924 has since been revoked.\87\ Moreover, because 
NHTSA now concludes that it did not have the authority to issue the 
interim final rule and lacks discretion regarding when to apply the 
adjustment, there is no opportunity for NHTSA to consider the economic 
impact of the COVID-19 pandemic or other economic impacts such as those 
caused by supply chain shortages and microchip shortages in determining 
when to apply the adjustment.\88\ It is true that the 2015 Act did 
allow an agency to make the first adjustment of the amount of a civil 
monetary penalty by less than the otherwise required amount if 
increasing the civil monetary penalty by the otherwise required amount 
would have a negative economic impact, or if the social costs of 
increasing the civil monetary penalty by the otherwise required amount 
outweighed the benefits.\89\ However, NHTSA's attempt to apply this 
exception through the ``negative economic impact'' prong was vacated by 
the Second Circuit as too late, and the statute provides that the 
exception could only be applied to the initial ``catch-up'' adjustment. 
Accordingly, there is no need for NHTSA to evaluate the economic 
evidence now to determine when it should apply the required adjustment; 
as the Second Circuit held, NHTSA has no such discretion.
---------------------------------------------------------------------------

    \87\ 86 FR 11855, 11855 (Mar. 1, 2021).
    \88\ EPCA does, of course, allow the agency to consider general 
economic impacts in determining whether to further increase the CAFE 
civil penalty rate under U.S.C. 32912(c)(1), as well as the specific 
economic conditions of a particular manufacturer in determining 
whether to compromise or remit a penalty under 49 U.S.C. 32913. 
However, neither provision is relevant here.
    \89\ 28 U.S.C. 2461 note, 4(c). Note also that this exception 
only related to the amount of the adjustment, not the timing of it.
---------------------------------------------------------------------------

    Regardless, the economic record on this question is mixed. For 
example, despite the industry having lower sales in the middle of 2020, 
sales bounced back in 2021. Indeed, NADA reported ``incredibly high 
sales in April 2021, . . . the fourth highest monthly total since the 
year 2000,'' \90\ Demand also remained ``strong,'' despite ``new-
vehicle average transaction prices reach[ing] record highs at the end 
of second quarter.'' \91\ Additional information reported by the 
manufacturers themselves also shows evidence of economic success, 
despite the challenges presented by the COVID-19 pandemic, microchip 
shortages, and other supply chain issues.\92\
---------------------------------------------------------------------------

    \90\ NADA Blog, NADA Issues 2021 Second Quarter Auto Sales 
Analysis (July 8, 2021), https://blog.nada.org/2021/07/08/nada-issues-2021-second-quarter-auto-sales-analysis/.
    \91\ Id.
    \92\ See, e.g., Tesla Comment, at 7-9.
---------------------------------------------------------------------------

    NHTSA also notes that the CAFE civil penalty formula incorporates 
the number of vehicles manufactured, so if production is reduced 
because of lower sales, supply chain issues, or microchip shortages, 
then the CAFE civil penalty

[[Page 19003]]

liability will also be reduced (before accounting for credits).
    Two additional points bear noting. On the ``front end,'' much of 
the relevant conduct (i.e., designing and manufacturing) occurred 
before the COVID-19 pandemic commenced. The earliest cases that were 
later classified as COVID-19 were first identified in December 
2019.\93\ By that time, Model Year 2019 was complete for almost the 
entire industry, and under the industry's own view, the planning for 
Model Year 2020 had long since been completed by then with planning for 
Model Year 2021 well underway in the very least. Further, it was not 
until mid-March 2020 when the World Health Organization (WHO) declared 
COVID-19 a pandemic and the President declared a national emergency in 
the United States--approximately halfway through Model Year 2020 and 
only six months before the beginning of Model Year 2021 for most 
manufacturers.
---------------------------------------------------------------------------

    \93\ ``CDC Museum COVID-19 Timeline,'' https://www.cdc.gov/museum/timeline/covid19.html.
---------------------------------------------------------------------------

    On the ``back end,'' NHTSA has not yet assessed CAFE civil 
penalties for Model Year 2019 and beyond. It is possible that the 
economic state of the industry will be stronger, perhaps even above 
average, when those penalties are assessed. And the industry may have 
accrued or planned to accrue more credits by then to offset any 
additional penalty liability.

7. Usage of Credits

    As noted in the SNPRM, some commenters on this issue have argued 
that delaying the application of the increased rate would negatively 
affect future compliance because manufacturers may be incentivized to 
hold credits for model years when the higher rate will apply. Similar 
to the economic evidence discussed above, NHTSA lacks discretion to 
consider manufacturers' planned uses of credits in determining when to 
apply the required adjustment. The government-wide 2015 Act applies 
regardless of how manufacturers plan to apply credits to any 
shortfalls.
    Even if NHTSA could consider the use of credits in determining the 
appropriate timing of the adjustment, the Auto Innovators acknowledge 
that while manufacturers would likely use their earliest earned credits 
to offset their shortfalls before those credits expire, there could 
still be some credits that manufacturers would need to decide whether 
to use immediately or carry forward to future model years.\94\ While 
the magnitude of the effects of these decisions may be small in the 
immediately affected model years, the magnitude of the effects could be 
compounded in future model years in a cascade as additional credits 
continue to be time-shifted.
---------------------------------------------------------------------------

    \94\ Auto Innovators Comment, at 12 (``[O]lder credits will be 
used to mostly, if not completely, cancel any shortfalls. For this 
reason, delaying the application of a $14 civil penalty rate to MY 
2022 is highly unlikely to affect manufacturers' compliance 
strategies by allowing them to delay the use of 2017 or later 
credits to MY 2022.'').
---------------------------------------------------------------------------

8. Additional Adjustments Required by Law

    Under the SNPRM, which NHTSA is now finalizing, the civil penalty 
rate for violations of CAFE standards for model years beginning with MY 
2019 was $14, plus any adjustments that occurred or may occur.\95\ $14 
was the initial ``catch-up'' adjustment made by NHTSA on July 5, 2016, 
following the procedure and the formula in the 2015 Act. NHTSA is now 
addressing the adjustments that occurred since that time. Applying the 
annual adjustment procedures in the 2015 Act (including the requirement 
to round to the nearest $1) does not result in an increase in the $14 
rate for the annual adjustments in 2017 through 2021,\96\ but does 
result in an increase to $15 for 2022. Therefore, NHTSA is codifying 
the civil penalty rate of $15, along with clarifying regulatory text 
explaining that the civil penalty rate is $14 for MY 2019 through MY 
2021 (and $5.50 for MYs before 2019).
---------------------------------------------------------------------------

    \95\ The January 2021 interim final rule also used this 
language, requiring that the civil penalty rate be $14, plus any 
adjustments that occurred or may occur. 86 FR 3016, 3026 (Jan. 14, 
2021).
    \96\ The adjusted amount would have rounded down to remain $14 
for each required annual adjustment for 2017 through 2021.
---------------------------------------------------------------------------

    EPCA provides a separate statutory authority for NHTSA to increase 
the CAFE civil penalty rate based on the impacts on energy conservation 
and the economy.\97\ Any increase pursuant to that authority was 
initially capped by the statute at $10, based on the original $5 civil 
penalty rate. In the 2016 interim final rule, NHTSA noted that the 2015 
Act, which required an initial adjustment of the CAFE civil penalty 
rate to $14, also required a corresponding adjustment on the cap under 
NHTSA's EPCA authority to $25 (from $10). NHTSA explained this in the 
preamble of the 2016 interim final rule, but this adjustment was 
inadvertently never codified in NHTSA's regulations.\98\ NHTSA is now 
codifying that adjustment and the necessary adjustments for the 
intervening years. Applying the multipliers for the subsequent years, 
the adjusted amount would have remained $25 for 2017, increased to $26 
for 2018, increased to $27 for 2019, remained $27 for 2020 and 2021, 
before being increased to $29 for 2022. Therefore, NHTSA is codifying 
the cap at $29, and NHTSA will make subsequent annual adjustments as 
required.
---------------------------------------------------------------------------

    \97\ 49 U.S.C. 32912(c).
    \98\ 81 FR 43524, 43526 (July 5, 2016).
---------------------------------------------------------------------------

    Pursuant to the 2015 Act, NHTSA did not undertake notice or comment 
to enact these adjustments. The 2015 Act provides clear direction for 
how to adjust the civil penalties, and states at Section 4(b)(2) that 
these adjustments shall be made ``notwithstanding section 553 of title 
5, United States Code.'' NHTSA will continue to make the mandatory 
adjustments to the CAFE civil penalty rate and the statutory cap going 
forward, as required by law for all civil monetary penalties.

F. Rulemaking Analyses and Notices

1. Executive Order 12866, Executive Order 13563, and DOT Regulatory 
Policies and Procedures

    NHTSA has considered the impact of this rulemaking action under 
Executive Order 12866, Executive Order 13563, and the Department of 
Transportation's regulatory policies and procedures. OMB has designated 
this rule as a ``significant regulatory action'' under section 3(f) of 
Executive Order 12866. The Office of Information and Regulatory Affairs 
(OIRA) has determined that this rulemaking is ``economically 
significant'' and a ``major rule'' as NHTSA believes that the 
difference in the amount of penalties received by the government as a 
result of this rule are likely to exceed $100 million in at least one 
of the years affected by this rulemaking and that there may be 
additional economic effects as discussed below.
    As explained in the SNPRM, the adjusted civil penalty rate will 
likely induce some degree of greater compliance with fuel economy 
standards as a general matter. Manufacturers that are paying civil 
penalties for CAFE violations have likely calculated that it is less 
costly or otherwise preferable to pay the penalties than to meet the 
statutory and regulatory requirements. An increased penalty rate, as 
required by the statute, changes this calculation, as it likely raises 
either the costs of credits a noncompliant manufacturer may choose to 
purchase, the total penalty amount a manufacturer will pay, or both.
    In this final rule, NHTSA is repealing the interim final rule, 
which delayed the adjusted penalty rate by three model years, two of 
which are already

[[Page 19004]]

complete and the last one which is largely complete. This final rule 
also codifies the adjusted penalty rate for 2022. An analysis here 
would be limited to estimating over this short time horizon: (1) Which 
manufacturers did not produce compliant fleets for Model Years 2019 and 
2020 and are likely to not produce compliant fleets for Model Years 
2021 and 2022; (2) what the shortfalls will be for those non-compliant 
manufacturers; and (3) the extent to which those manufacturers will 
choose to use credits (either their own or those purchased from over-
compliant manufacturers) or pay penalties to address these shortfalls. 
Pointedly, such an analysis would not have sufficient information to 
account for whether, and if so, how manufacturers will adjust the 
composition of the fleet for these model years in response to the 
penalty change.
    Any analysis would estimate what the compliance shortfalls will be 
and whether manufacturers will pay penalties or use credits. These 
estimates could be used to estimate the effects on individual 
manufacturers in the form of higher penalty payments, higher payments 
to other manufacturers for credits, or higher receipts for 
overcomplying manufacturers for credits sold to other manufacturers. 
However, NHTSA has only limited ability to estimate what strategies 
manufacturers will take either to use credits or pay penalties to deal 
with any noncompliance. That is a decision that each manufacturer must 
take based on their unique circumstances, and historically, NHTSA is 
not privy to the financial terms of any trades manufacturers make with 
each other. In the past, the vast majority of manufacturers pay no 
penalties, as only five manufacturers have paid civil penalties since 
Model Year 2011.\99\ And only one of those manufacturers faced 
particularly heavy penalties--even before the $14 rate would have gone 
into effect--for failing to comply with the minimum domestic passenger 
car standard, which cannot be made up through the application of 
transferred or traded credits.\100\
---------------------------------------------------------------------------

    \99\ See ``Civil Penalties,'' available online at https://one.nhtsa.gov/cafe_pic/CAFE_PIC_Fines_LIVE.html.
    \100\ 49 U.S.C. 32903(f)(2), (g)(4); 49 CFR 536.9(c).
---------------------------------------------------------------------------

    Despite this uncertainty, NHTSA continues to be confident that, 
based on the experience of recent model years, this rule will lead to 
at least $100 million difference in the amount of penalties in at least 
one model year. As explained in the SNPRM, NHTSA projects that the 
difference in the nationwide fleetwide net shortfall would result in at 
least $100 million more civil penalties being assessed at the $14 rate 
than the $5.50 for Model Year 2019.\101\ Specifically, based on mid-
model year fuel economy performance data and assuming a similar 
magnitude of production from Model Year 2018 for Model Year 2019, the 
projected shortfall of 1.3 miles per gallon across the U.S. fleet in 
Model year 2019 would result in a nationwide fleet-wide net shortfall 
of approximately $115.4 million at the $5.50 rate or an approximately 
$293.9 million shortfall at the $14 rate--an approximately $178.5 
million difference.
---------------------------------------------------------------------------

    \101\ 86 FR 46811, 46816-17 (Aug. 20, 2021).
---------------------------------------------------------------------------

    As previously noted, it is expected that much of this increase 
would likely fall on a single automobile manufacturer and likely is due 
to a failure to comply with the minimum domestic passenger car standard 
(which, by law, cannot be made up for through transferred or traded 
credits).
    In addition, NHTSA reiterates that commenters on this issue have 
raised valid questions about further economic effects, namely that 
longer-term impacts may vary as a result of manufacturer multi-year 
planning, the transfer of credits across model years and between 
manufacturers, and the changing value of credits over time. According 
to these commenters, if such variation were to occur, applying the $14 
penalty rate beginning in Model Year 2019 may result in manufacturers 
applying credit balances to Model Year 2019 through 2021 vehicles and 
being incentivized to make fuel economy improvements in their fleet 
beyond that timeframe. And for manufacturers that do not currently have 
credits or cannot transfer or trade for them to make up a shortfall of 
the minimum domestic passenger car standard, applying the adjusted 
penalty rate beginning in Model Year 2019 places an even greater 
incentive on future compliance and fuel economy improvements to avoid 
additional higher penalties going forward, on top of the added benefits 
of energy conservation and improved environmental and public health 
benefits.
    In any event, based on further consideration of the 2015 Act and 
the Second Circuit's decisions on this issue, NHTSA believes that that 
it does not have discretion over when the adjustment should begin to 
take effect. Further, the 2015 Act provided NHTSA no discretion over 
what the adjusted rate should be, as that is merely a function of the 
formula established by Congress and calculated by OMB, and mandated 
streamlined processes for making both the initial adjustment and any 
subsequent adjustments that do not require accompanying analyses or 
public comment.\102\
---------------------------------------------------------------------------

    \102\ The 2015 Act, of course, did allow NHTSA one opportunity 
at the time of the initial catch-up to use the notice-and-comment 
process to adjust the rate ``less than the otherwise required 
amount'' under two conditions, but the Second Circuit rejected 
NHTSA's belated attempt to use this provision in its decision on the 
July 2019 final rule. See New York, 974 F.3d at 100-01.
---------------------------------------------------------------------------

2. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601 et seq., 
as amended by the Small Business Regulatory Enforcement Fairness Act 
(SBREFA) of 1996), whenever an agency is required to publish a notice 
of proposed rulemaking or final rule, it must prepare and make 
available for public comment a regulatory flexibility analysis that 
describes the effect of the rule on small entities (i.e., small 
businesses, small organizations, and small governmental jurisdictions). 
No regulatory flexibility analysis is required if the head of an agency 
certifies the proposal will not have a significant economic impact on a 
substantial number of small entities. NHTSA has considered the impacts 
of this notice under the Regulatory Flexibility Act and recertifies 
that this rule would not have a significant economic impact on a 
substantial number of small entities under 5 U.S.C. 605(b), based on 
the factual basis provided in the SNPRM. NHTSA requested comment on the 
economic impact of this rule on small entities. None of the comments 
NHTSA received in response to the interim final rule or the SNPRM 
discussed this issue. The Small Business Administration's (SBA) 
regulations define a small business in part as a ``business entity 
organized for profit, with a place of business located in the United 
States, and which operates primarily within the United States or which 
makes a significant contribution to the U.S. economy through payment of 
taxes or use of American products, materials or labor.'' \103\ SBA's 
size standards were previously organized according to Standard 
Industrial Classification (``SIC'') Codes. SIC Code 336211 ``Motor 
Vehicle Body Manufacturing'' applied a small business size standard of 
1,000 employees or fewer. SBA now uses size standards based on the 
North American Industry Classification System (``NAICS''), Subsector 
336--Transportation Equipment Manufacturing. This action is expected to 
affect manufacturers of motor

[[Page 19005]]

vehicles. Specifically, this action affects manufacturers from NAICS 
codes 336111--Automobile Manufacturing, and 336112--Light Truck and 
Utility Vehicle Manufacturing, which both have a small business size 
standard threshold of 1,500 employees.
---------------------------------------------------------------------------

    \103\ 13 CFR 121.105(a).
---------------------------------------------------------------------------

    Though civil penalties collected under 49 CFR 578.6(h)(1) and (2) 
apply to some small manufacturers, low volume manufacturers can 
petition for an exemption from the Corporate Average Fuel Economy 
standards under 49 CFR part 525. This would lessen the impacts of this 
rulemaking on small business by allowing them to avoid liability for 
penalties under 49 CFR 578.6(h)(2). Small organizations and 
governmental jurisdictions will not be affected significantly as the 
price of motor vehicles and equipment ought not to change as the result 
of this rule.

3. Executive Order 13132 (Federalism)

    Executive Order 13132 requires NHTSA to develop an accountable 
process to ensure ``meaningful and timely input by State and local 
officials in the development of regulatory policies that have 
federalism implications.'' ``Policies that have federalism 
implications'' is defined in the Executive order to include regulations 
that have ``substantial direct effects on the States, on the 
relationship between the [N]ational [G]overnment and the States, or on 
the distribution of power and responsibilities among the various levels 
of government.'' Under Executive Order 13132, the agency may not issue 
a regulation with federalism implications, that imposes substantial 
direct compliance costs, and that is not required by statute, unless 
the Federal Government provides the funds necessary to pay the direct 
compliance costs incurred by State and local governments, the agency 
consults with State and local governments, or the agency consults with 
State and local officials early in the process of developing the 
proposed regulation. As noted previously, this rulemaking will not have 
substantial direct effects on the States, on the relationship between 
the National Government and the States, or on the distribution of power 
and responsibilities among the various levels of government, as 
specified in Executive Order 13132. The reason is that this rulemaking 
is expected to generally apply to motor vehicle manufacturers. Thus, 
the requirements of Section 6 of the Executive order do not apply.

4. Unfunded Mandates Reform Act of 1995

    The Unfunded Mandates Reform Act of 1995, Public Law 104-4, 
requires agencies to prepare a written assessment of the cost, 
benefits, and other effects of proposed or final rules that include a 
Federal mandate likely to result in the expenditure by State, local, or 
tribal governments, in the aggregate, or by the private sector, of more 
than $100 million annually. Because this rulemaking does not include a 
Federal mandate, no unfunded mandate assessment has been prepared.

5. National Environmental Policy Act

    The National Environmental Policy Act of 1969 (NEPA) \104\ directs 
that Federal agencies proposing ``major Federal actions significantly 
affecting the quality of the human environment'' must, ``to the fullest 
extent possible,'' prepare ``a detailed statement'' on the 
environmental impacts of the proposed action (including alternatives to 
the proposed action).\105\ However, there are some instances where NEPA 
does not apply. One consideration is whether the action at issue is a 
non-discretionary action to which NEPA may not apply or for which NEPA 
may require less detailed analysis.\106\
---------------------------------------------------------------------------

    \104\ 42 U.S.C. 4321-4347.
    \105\ 42 U.S.C. 4332.
    \106\ See Dept. of Transp. v. Public Citizen, 541 U.S. 752, 768-
69 (2014) (holding that the agency need not prepare an Environmental 
Impact Statement (EIS) or analyze certain environmental effects in 
its EA, and stating, ``[s]ince [the Federal Motor Carrier Safety 
Administration] FMCSA has no ability categorically to prevent the 
cross-border operations of Mexican motor carriers, the environmental 
impact of the cross-border operations would have no effect on 
FMCSA's decisionmaking--FMCSA simply lacks the power to act on 
whatever information might be contained in the EIS.'').
---------------------------------------------------------------------------

    NHTSA addressed NEPA in promulgating the interim final rule, 
concluding that even though a NEPA analysis ``is not required, this 
section [of the preamble to the interim final rule] may serve as the 
Agency's Environmental Assessment (EA) and Finding of No Significant 
Impact (FONSI) for this interim final rule.'' \107\ In the SNPRM, NHTSA 
again concluded that no further analysis pursuant to NEPA is required 
in adjusting the penalty rate this time, which is in line with legal 
precedent concerning non-discretionary agency action.\108\ NHTSA 
reiterates that conclusion here.
---------------------------------------------------------------------------

    \107\ 86 FR 3025.
    \108\ 86 FR 46818.
---------------------------------------------------------------------------

    Although NHTSA tentatively concluded in the SNPRM (and affirms 
here) that it does not have discretion on whether to adjust the CAFE 
civil penalty rate as required by the statute and thus that a NEPA 
analysis was not required, NHTSA prepared an environmental assessment 
to evaluate the effects of the timing of such an increase on the 
environment. When a Federal agency prepares an environmental 
assessment, the Council on Environmental Quality (CEQ) NEPA 
implementing regulations require the agency to (1) ``[b]riefly provide 
sufficient evidence and analysis for determining whether to prepare an 
environmental impact statement or a finding of no significant impact,'' 
and (2) ``[b]riefly discuss the purpose and need for the proposed 
action, alternatives . . . , and the environmental impacts of the 
proposed action and alternatives, and include a listing of [a]gencies 
and persons consulted.'' \109\ Generally, based on the environmental 
assessment, the agency must make a determination to prepare an 
environmental impact statement or ``prepare a finding of no significant 
impact if the [a]gency determines, based on the environmental 
assessment, not to prepare an environmental impact statement because 
the proposed action will not have significant effects.'' \110\
---------------------------------------------------------------------------

    \109\ 40 CFR 1501.5(c).
    \110\ 40 CFR 1501.6(a).
---------------------------------------------------------------------------

    NHTSA solicited public comments on the applicability of NEPA to 
this action and the contents and tentative conclusions of the Draft EA. 
The comments were silent on NEPA issues or agreed that no additional 
analysis was necessary.\111\ Having reviewed the comments, this section 
may serve as the Agency's EA and FONSI for this final rule. NHTSA 
considered the findings of this EA prior to deciding that the adjusted 
rate will go into effect beginning in Model Year 2019 and making the 
subsequent required adjustments through 2022.
---------------------------------------------------------------------------

    \111\ See NHTSA-2021-0001-0036, at 5-6 (arguing that the interim 
final rule was ``procedurally invalid'' for failing to abide by the 
NEPA requirement to take a hard look at the environmental 
consequences of the rule, but raising no objections to the NEPA 
analysis in the SNPRM); NHTSA 2021-0001-0037, at 8 (``[T]he agency 
need not conduct a NEPA analysis before repealing the Exemption 
Rule.''); NHTSA 2021-0001-0043, at 13 (``NHTSA's NEPA analysis [in 
the interim final rule] was adequate,'' and ``to the extent that 
NHTSA is concerned about the NEPA issue or any of the other 
procedural issues raised by commenters, this SNPRM proceeding 
provides the opportunity to promulgate a rule in accordance with 
applicable procedural standards.'').
---------------------------------------------------------------------------

I. Purpose and Need
    The SNPRM and this final rule set forth the purpose of and need for 
this action. Pursuant to the 2015 Act and the Second Circuit's 
decision, NHTSA is required to make an initial ``catch-up''

[[Page 19006]]

adjustment to the civil monetary penalties it administers for the CAFE 
program. The purpose of the SNPRM and this final rule is to consider 
the timing of the application of the adjustment to the CAFE civil 
penalty rate, consistent with the statutory requirements.
II. Alternatives
    NHTSA considered two alternatives for this action. The first 
alternative was to restore the status quo ante prior to the interim 
final rule, which is adjusting the CAFE civil penalty rate from $5.50 
to $14 beginning in Model Year 2019, before making any subsequent 
required adjustments. This timing was originally established by the 
December 2016 final rule and was twice made effective by decisions of 
the Second Circuit. The second alternative was applying the initial 
adjustment beginning in Model Year 2022, which reflects the action 
taken in the interim final rule (the No Action Alternative). As noted 
in the SNPRM, NHTSA was no longer considering the alternative of 
applying the initial adjustment beginning in Model Year 2023, but NHTSA 
accepted comments on whether it should consider other alternatives of 
the adjustment applying beginning with a model year later than Model 
Year 2019. No commenter suggested any other alternative. This EA 
describes the potential environmental impacts associated with the two 
alternatives in comparison with each other.
III. Environmental Impacts of the Action and Alternatives
    In the interim final rule, NHTSA asserted that it anticipated no 
differences in environmental impacts associated with the alternatives 
of applying the adjustment beginning in Model Year 2019, 2020, 2021, or 
2022. NHTSA based this conclusion on the fact that vehicles for Model 
Years 2019 and 2020 had largely if not entirely been produced already, 
and many manufacturers were already selling Model Year 2021 vehicles.
    As explained in the SNPRM, NHTSA reconsidered whether this 
assessment is complete after reviewing the comments received in 
response to the interim final rule. Commenters had argued that, 
regardless of the impact of this rulemaking action on Model Year 2019 
through 2021 vehicles, longer-term impacts may vary as a result of 
manufacturer multi-year planning, the transfer of credits across model 
years and between manufacturers, and the changing value of credits over 
time. If this is correct, applying the adjustment earlier could result 
in manufacturers applying credit balances to Model Year 2019 through 
2021 vehicles and being incentivized to make fuel economy improvements 
in their fleet beyond that timeframe, rather than paying civil 
penalties at the $5.50 rate for Model Years 2019 through 2021 and 
saving the credits for future model years when they could be valued 
more due to the adjustment. Additionally, for manufacturers without 
credit balances, the potential application of a significantly higher 
civil penalty for Model Years 2019 through 2021 may spur more rapid 
implementation of fuel-saving technology in order to allow the 
manufacturer to accrue credits that may be carried back to cover the 
shortfall in Model Years 2019 through 2021.
    Overall, NHTSA anticipates that applying the adjustment beginning 
with Model Year 2019 may lead to the eventual application of more fuel-
saving technology, resulting in fewer greenhouse gas emissions and 
reductions in many criteria and toxic air pollutants compared to 
applying the adjustment beginning in Model Year 2022.\112\ Although 
Model Years 2019 and 2020 are already completed, and Model Year 2021 is 
essentially complete, the civil penalty assessment process is not yet 
complete for any of them, much less for Model Year 2022.\113\ As a 
result, NHTSA does not yet know the anticipated manufacturer compliance 
shortfall for these model years. Because manufacturers can apply 
credits across a multi-year window, their decisions about how to apply 
credits in earlier model years will affect the availability of credits 
and the application of fuel-saving technology in later model years. 
However, NHTSA does not know whether and to what degree manufacturers 
will choose to pay fines in lieu of applying accrued credits, trade 
credits with other manufacturers, or rely on multi-year planning and 
credit carry-forward and carry-back to address shortfalls. NHTSA 
invited comments, information, and analyses from the public on the 
degree to which this may occur as a result of changes to the civil 
penalty rate in Model Year 2019 versus Model Year 2022. The Auto 
Innovators provided an analysis arguing that ``delaying the application 
of a $14 civil penalty rate to MY 2022 is highly unlikely to affect 
manufacturers' compliance strategies by allowing them to delay the use 
of 2017 or later credits to MY 2022'' because ``older credits will be 
used to mostly, if not completely, cancel any shortfalls.'' \114\
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    \112\ See NHTSA's Final Environmental Impact Statements for the 
CAFE rulemaking for MYs 2017 and beyond (Docket No. NHTSA-2011-0056) 
and for MYs 2021-2026 (Docket No. NHTSA-2017-0069), both of which 
illustrate these trends as fuel economy standard stringency 
increases across alternatives. Both EISs are also available on the 
agency's fuel economy website: https://www.nhtsa.gov/laws-regulations/corporate-average-fuel-economy.
    \113\ Because NHTSA does not have final model year performance 
data verified by EPA for these model years, any quantitative 
projections of the environmental impact across multiple model years 
would be too speculative to rely upon at this time.
    \114\ Auto Innovators Comment, at 12.
---------------------------------------------------------------------------

    At this time, NHTSA continues to anticipate the impacts to be 
small. The difference between the alternatives contemplated in this 
action is only whether or not the initial civil penalty rate increase 
applies to three Model Years: 2019, 2020, and 2021. NHTSA continues to 
believe the impacts on those Model Years alone is expected to be de 
minimis, as all three model years have largely if not entirely been 
produced already. Further, as NHTSA has addressed in its CAFE 
rulemakings, many manufacturers have been unwilling to pay civil 
penalties historically. Those manufacturers may continue to opt to 
apply credits even if a lower civil penalty rate applied, rather than 
hold credits for future model years when the civil penalty rate would 
be higher.
IV. Agencies and Persons Consulted
    NHTSA and DOT have consulted with OMB and the U.S. Department of 
Justice and provided other Federal agencies with the opportunity to 
review and provide feedback on this rulemaking.
V. Conclusion
    NHTSA has reviewed the information presented in this EA and 
concludes that adjusting the CAFE civil penalty rate beginning with 
Model Year 2019, as compared to Model Year 2022, would have, at most, a 
more positive impact on the quality of the human environment to the 
extent that manufacturers may be more likely to expend credit balances 
on Model Year 2019 through 2021 vehicles than if the civil penalty rate 
remained at $5.50 for those model years. Lacking such credits in future 
years, manufacturers would be more likely to make improvements to the 
fuel economy of their fleets to avoid paying the higher civil penalty 
rates that would occur under either alternative. Additionally, higher 
civil penalty rates in Model Years 2019 through 2021 may cause 
manufacturers to more rapidly implement fuel-saving technology so that 
they may accrue credits to be carried back to cover compliance 
shortfalls. But NHTSA does not expect any differences in the impacts 
under either of the alternatives to rise to the

[[Page 19007]]

level of significance that would necessitate the preparation of an 
Environmental Impact Statement.
VI. Finding of No Significant Impact
    NHTSA has reviewed this EA. Based on the EA, NHTSA concludes that 
implementation of either of the action alternatives (including this 
final rule) will not have a significant effect on the human environment 
and that a ``finding of no significant impact'' is appropriate. This 
statement constitutes the Agency's ``finding of no significant 
impact,'' and an environmental impact statement will not be 
prepared.\115\
---------------------------------------------------------------------------

    \115\ 40 CFR 1501.6(a).
---------------------------------------------------------------------------

6. Executive Order 12988 (Civil Justice Reform)

    This rulemaking does not have a preemptive effect. For the reasons 
explained above, this rulemaking does not have a retroactive effect. 
Judicial review of the interim final rule or a subsequent final rule 
may be obtained pursuant to 5 U.S.C. 702.

7. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1980, NHTSA 
states that there are no requirements for information collection 
associated with this rulemaking action.

8. Privacy Act

    Please note that anyone is able to search the electronic form of 
all comments received into any of DOT's dockets by the name of the 
individual submitting the comment (or signing the comment, if submitted 
on behalf of an association, business, labor union, etc.). You may 
review DOT's complete Privacy Act Statement in the Federal Register 
published on April 11, 2000 (65 FR 19477), or you may visit https://www.transportation.gov/privacy.

List of Subjects in 49 CFR Part 578

    Imports, Motor vehicle safety, Motor vehicles, Penalties, Rubber 
and rubber products, Tires.

    In consideration of the foregoing, 49 CFR part 578 is amended as 
set forth below.

PART 578--CIVIL AND CRIMINAL PENALTIES

0
1. The authority citation for 49 CFR part 578 continues to read as 
follows:

    Authority:  Pub. L. 92-513, Pub. L. 94-163, Pub. L. 98-547, Pub. 
L. 101-410, Pub. L. 102-388, Pub. L. 102-519, Pub. L. 104-134, Pub. 
L. 109-59, Pub. L. 110-140, Pub. L. 112-141, Pub. L. 114-74, Pub. L. 
114-94 (49 U.S.C. 30165, 30170, 30505, 32308, 32309, 32507, 32709, 
32710, 32902, 32912, 33114, and 33115); delegation of authority at 
49 CFR 1.81, 1.95.


0
2. Amend Sec.  578.6 by revising paragraph (h)(2) and adding paragraph 
(h)(3) to read as follows:


Sec.  578.6   Civil penalties for violations of specified provisions of 
Title 49 of the United States Code.

* * * * *
    (h) * * *
    (2) Except as provided in 49 U.S.C. 32912(c), a manufacturer that 
violates a standard prescribed for a model year under 49 U.S.C. 32902 
is liable to the United States Government for a civil penalty of $15 
(for model years before model year 2019, the civil penalty is $5.50; 
for model years 2019 through 2021, the civil penalty is $14), 
multiplied by each .1 of a mile a gallon by which the applicable 
average fuel economy standard under that section exceeds the average 
fuel economy--
    (i) Calculated under 49 U.S.C. 32904(a)(1)(A) or (B) for 
automobiles to which the standard applies produced by the manufacturer 
during the model year;
    (ii) Multiplied by the number of those automobiles; and
    (iii) Reduced by the credits available to the manufacturer under 49 
U.S.C. 32903 for the model year.
    (3) If a higher amount for each .1 of a mile a gallon to be used in 
calculating a civil penalty under paragraph (h)(2) of this section is 
prescribed pursuant to the process provided in 49 U.S.C. 32912(c), the 
amount prescribed may not be more than $29 for each .1 of a mile a 
gallon.
* * * * *

    Issued in Washington, DC, under authority delegated in 49 CFR 
1.95 and 501.5.
Steven S. Cliff,
Deputy Administrator.
[FR Doc. 2022-06648 Filed 3-31-22; 8:45 am]
BILLING CODE 4910-59-P


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