From: <james.tamm@dot.gov> To: <Chandana_L._Achanta@omb.eop.gov> Cc: William Charmley/AA/USEPA/US@EPA, <rebecca.yoon@dot.gov>, Robin Moran/AA/USEPA/US@EPA, <Neil.Eisner@dot.gov>, <Joanne.Petrie@ dot.gov>, <Steve.Wood@dot.gov> Date: 11/30/2010 12:40 PM Subject: RE: Summary of interagency working comments on draft NOI under EO 12866 review



### Chandana,

As follow

- up to this morning’s discussion on interagency comments, attached are proposed revisions to the SNOI from NHTSA and EPA. We are available for discussion at any time.

Jim** E.O. 12866 Review

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Page 1 of 20 EO12866_LD GHG

- CAFE 2017+_RIN2060

- AQ54; R IN2127

- AK79_Supplemental NOI_

– Revision per 12866 Review

– 11

- 29

- 10

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 85, 86, and 600

DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Parts 531 and 533

[ EPA

- HQ

- OAR

- 2010

- 0799; FRL

- 9212

- 4 ; NHTSA

- 2010

- 0131 ]

RIN 2060

- AQ54; RIN 2127

- AK79

2017 and Later Model Year Light

- Duty Vehicle GHG Emissions and CAFE Standards : Supplemental Notice of Intent

AGENCIES: Environmental Prote ction Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA), Department of Transportation (DOT).

ACTION: Supplemental notice of inten t to conduct a joint rulemaking.

SUMMARY: On May 21, 2010, President Obama issued a Presidential Memorandum requesting that the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA), on behalf of the Department of Transportation

, develop, through notice and comment rulemaking, a coordinated N ational P rogram under the C lean A ir A ct (CAA) and the E nergy Policy and Conservation Act (EPCA), as amended by the Energy Independence and Security Act (EISA), to improve fuel econom y and to reduce greenhouse gas emissions of light

- duty vehicles for model years 2017

- 2025. President Obama reque s ted that the agencies issue a Notice of Intent (NOI) to i ssue a p roposed

r ule making that announces plans for setting stringent fuel economy an d greenhouse gas emissions stan dards for light

- duty vehicles for model year 2017 and beyond . On Sep tember 30, 2010, the agencies issued the requested N otice, which described the agencies’ initial assessment of potential levels of stringency for a National Program for model years 2017

- 2025 (See 75 FR 62739 (Oct. 13, 2010 ) . This Supplemental Notice highlights input on many of the key issues the agencies have received in response to the September NOI and the accompanying Interim Joint Technical Assessment (TAR) developed by EPA, NHTSA, and the California Air Resources Board, and also provides an overview of many of the key technical analyses the agencies have planned and are conducting to support the upcom ing proposed rule

. The agencies currently expect to issue a proposed rulemaking for a coordinated National Program for model year 2017

- 2025 light

- duty vehicles by September 30, 2011, and a final rule making by July 31, 2012. Deleted: efficiency** E.O. 12866 Review

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Page 2 of 20 FOR FURTHER INFORMATION CONTAC T: EPA : Tad Wysor, Office of Transportation and Air Quality, Assessment and Standards Division, Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor MI 48105; telephone number: 734

- 214

- 4332 ; fax number: 734

- 214

- 4816; email address: wysor.tad@ epa.gov , or Assessment and Standards Division Hotline; telephone number (734) 214

- 4636; e

- mail address asdinfo@epa.gov. DOT/NHTSA : Rebecca Yoon, Office of Chief Counsel , National Highway Traffic Safety Administration, 1200 New Jersey Avenue, SE, Washingt on, DC 20590. Telephone: (202) 366

- 2992

.

SUPPLEMENTARY INFORMATION:

How Can I Get Copies Of This Document and Other Related Information?

NHTSA and EPA have established dockets for the September 30, 2010 Notice of Intent and upcoming rulemaking under Do cket ID numbers NHTSA

- 2010

- 0131 and EPA

HQ

- OAR

- 2010

- 0799 , respectively . You may read the materials placed in the dockets (e.g., the comments submitted in response to the September 30, 2010 Notice of Intent by other interested persons) at any time by going to http://www.regulations.gov. Follow the online instructions for accessing the dockets. You may also read the materials at the EPA Docket Center or NHTSA Docket Management Facility at the following locations: EPA: EPA Docket Center, EPA/DC, EPA West, Room 3334, 1301 Constitution Ave., NW., Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566

– 1744. NHTSA: 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 Docket Management Facility is open between 9 a.m. and 5 p.m. Eastern Time, Monday through Friday , except Federal holidays.

How Do I Prepare and Submit Comments?

The dockets established by the agencies will remain open for the duration of the rulemaking. While the agencies have not established a set comment period for this Supplemental NOI, you may c ontinue to submit comments to the dockets throughout the course of the rulemaking. An explanation of how to submit comments to the rulemaking dockets is available in the September NOI, 75 Fed. Reg. 62739 (Oct. 13, 2010), or you may contact the agency offi cials listed above for more information.

I. Introduction

A. Purpose of this Supplemental Notice of Intent (NOI)

This Supplemental Notice of Intent represe nts a further step in the process that EPA and NHTSA have initiated to develop a proposed rule making to es tablish greenhouse gas (GHG) and fuel economy standards for model year s 2017

- 2025 light

- duty vehicles. This document is meant to aid the public’s understanding of some of the key issues facing the** E.O. 12866 Review

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Page 3 of 20 agencies in developing the upcoming rulemaking. This Supp lemental NOI highlight s many of the key comments that the agencies have received in response to the initial Notice of Intent issued on S eptember 30, 2010, and to the I nterim Joint T echnical A ssessment R eport that accompanied that Notice

. 1 This Supplemental NOI, however, does not present a comprehensive summary of comments received to date. This Supplemental NOI a lso discusses the agencies’ plans for some of the key technical work and analyses that will be undertaken in developing the upcom ing proposed rulemaking.
The purpose of this Supplemental NOI has changed from the agencies’ original intent for this document. The September NOI stated that a princip al goal of the Supplemental NOI would be “to narrow the range of potential stringenc ies for the future proposed standards, as well as to reflect new technical data and information and, as appropriate, further analysis supplementing the Interim Joint TAR.” 2 However, given the short amount of time between the issuance of the September NOI/ TAR and this Supplemental NOI, the agencies were unable to complete several additional pieces of technical research in time for inclusion in analysis to support this Supplemental NOI. Additionally, based on the stakeholder input between the end of Septemb er and now and on public comments, the agencies have concluded that narrowing the range of potential stringencies would not be appropriate at this time. As discussed further in this Notice, in order to develop the proposed standards, a more complete analy sis will need to be done. Therefore, at this time we are not updating the assessment presented in the September NOI, and instead we will continue to conduct analyses for purposes of developing the proposal. Many of the public comments supported the agenc ies’ plans, noted in the September NOI, as to types and scope of analyses to be conducted for the proposed rulemaking. Therefore, the agencies are moving forward with this work as further described in Section III. As NHTSA and EPA move forward, we will c ontinue to work with California in our technical assessments of potential standards, and will continue extensive dialogue with stakeholders.

B. Background on the September NOI and Interim Joint Technical Assessment Report

As discussed above, t he September N OI was issued in response to a May 21, 2010 Presidential Memorandum , which requested that NHTSA and EPA develop, through notice and comment rulemaking, a coordinated N ational P rogram under the C lean A ir A ct (CAA) and the E nergy Policy and Conservation Act (EPCA), as amended by the Energy Independence and Security Act (EISA), to improve fuel e conomy and reduce greenhouse gas emissions of light

- duty vehicles for model years 2017

- 2025. The Presidential Memorandum stated “ The progra m should also seek to achieve substantial annual progress in reducing transportation sector greenhouse gas emissions and fossil fuel consumption, consistent with my Administration's overall energy and climate security goals, through the increased

1 In addition to publishing the September NOI in the Federal Register ( see supra Note 1 above), the agencies also posted both the September NOI and the Interim Joint TAR on our websites. Readers may access them at http://www.epa.gov/otaq/climate/regulations.htm and http://www.nhtsa.gov/fuel

- economy 2 75 Fed. Reg. at 62741.** E.O. 12866 Review

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Page 4 of 20 domestic production and use of existing, advanced, and emerging technologies, and should strengthen the industry and enhance job creation in the United States .” This upcoming rulemaking will build on the first phase of the National Program for fuel economy and GHG emission s standards , for model year 2012

- 2016 vehicles, which was issued on April 1, 2010. 3
The P residential Memorandum also requested that the agencies work with the State of California to develop a technical assessment to inform the rulemaking proce ss. EPA and NHTSA worked with CARB to develop a n initial technical assessment consistent with the President’s request. The agencies released the document, the Interim Joint Technical Assessment Report (TAR), in conjunction with the September NOI. 4

In t he Interim Joint TAR, the agencies and CARB conducted an initial fleet

- wide analysis of improvements in overall average GHG emissions and fuel economy levels. The agencies stated in the September NOI that for purposes of an initial assessment, this range represent s a reasonably broad range of stringency increases for potential future GHG emissions standards and is also consistent with the increases suggested by CARB in its letter of commitment in response to the President’s memorandum

. We analyzed a range of potential stringenc y scenarios for model year 2025, representing a 3, 4, 5, and 6 percent per
year estimated decrease in GHG levels from the model year 2016 fleet

- wide average of 250 gram/mile (g/mi). Thus, the model year 2025 scenarios analyzed in th e TAR range from 190 g/mi ( calculated to be equivalent to 4 7 miles per gallon, mpg) under the 3 percent per year reduction scenario to 143 g/mi ( calculated to be equivalent to 62 mpg) under the 6 percent per year scenario. 5 These levels correspond to on

- r oad values of 37 to 50 mpg, respectively. For each of these scenarios , NHTSA, EPA, and CARB also analyzed four “ technolog ical pathways” by which these levels could be attained . T hese pathways we re meant to represent ways that a hypothetical manufacturer could increase fuel economy and reduce greenhouse gas emissions , and do not represent ways that they would be required to or necessarily would respond to future standards. Each technology pathway emphasizes a different mix of advanced technologies, by assuming various degrees of penetration of advanced gasoline

3 See 75 F R 25324 (May 7, 2010).
4 “Interim Joint Technical Assessment Report: Light

- Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards for Model Years 2017

- 2025,” issued jointly by EPA, NHTSA and CARB, September 2010. Avai lable at www.nhtsa.gov/fuel

- economy and www.epa.gov/OTAQ/climate/regulations.htm

. 5 The modeled scenarios, like the EPA’s MY 2012

- 2016 standards, include the potential use of air conditioning emission reductions, which EPA estimated at 15 grams (compared to a 2008 baseline) in 2025 for all four technology paths. The estimates for further air conditioning reductions are largely due to an anticipated increase in the use of alternative refrigerants. As a result of including A/C

- related emission reductions in the modeling, however, the “mpg

- equivalent” values presented in the September NOI and Interim Joint TAR do not reflect analysis of potential CAFE improvements, and should be taken as merely illustrative mpg levels if manufacturers achieved all modeled GHG emission improvements through reductions in tailpipe emissions. The agencies note additionally that real

- world CO 2 is typically 25 percent highe r and real

- world fuel economy is typically 20 percent lower. Thus the 3% to 6% range evaluated in the September assessment would span a range of real

- world fuel economy values (again, if all improvements were achieved through reductions of tailpipe emissi ons) of approximately 37 to 50 mpg

- equivalent, which correspond to the regulatory test procedure values of 47 to 62, respectively. Comment [jt1]: In response to follow

- up interagency discussion related to comment #3.** E.O. 12866 Review

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Page 5 of 20 technologies, mass reduction, hybrid electric vehicles (HEVs), plug

- in hybrids (PHEVs), and electric vehicles (EVs ). 6

The TAR also discusses the significant additional technical information and analysis that will be needed to support the rulemaking development process. For the initial assessment in the TAR, we analyzed the vehicle fleet as one single industry

- wide f leet

, which did not account for differences among individual manufacturers and did not separately analyze car and truck fleet standards

, as required by EPCA/EISA

. By focusing t he analysis on the technolog y itself , independent of the indiv idual manufacture r, the agencies produced results that indicate d how th at single hypot h etical fleet could achieve greater GHG reductions and improved fuel economy in the most efficient manner. Treating the entire fleet as a single fleet assumes, for example, that averagin g GHG performance across all vehicle platforms is possible irrespective of who the individual manufacturer is for a particular vehicle platform. This can be thought of as analyzing the fleet as if there was a single large manufacturer, instead of multiple individual manufacturers. In addition, this analysis assumed there are no statutory or other limits on manufacturers’ ability to transfer credits between passenger car and light truck fleets, no limits on the ability to trade credits between manufacture rs, and that all manufacturers fully utilize such flexibilities with no transfer costs in doing so.

T he approach used for the TAR analyses provides an initial and approximate evaluation of the potential costs and benefits of the fleet

- wide scenarios modeled

. T he agencies , however, cautioned in the Interim Joint TAR that several of the simplifications employed in the September NOI/TAR evaluation would not be used for purposes of a full Federal rulemaking analysis because such analysis must reflect a ll statutory requirements and limitations faced by the agencies in setting GHG and CAFE standards. The agencies noted that EPCA/EISA, in particular, are fairly pr e scriptive as compared to the CAA. In order to ensure that NHTSA’s statutory framework is ac counted for, and as permitted under the CAA,
t he agencies’ analysis for the NPRM will examine attribute

- based standards under which each manufacturer is subject to its own individual passenger car and light truck CAFE and GHG requirements for each model ye ar, where the standard for each manufacturer is based on the production

- weighted average of its passenger car and light truck targets, with the targets established in the attribute

- based curves

.

6 Pathway A represent ed an approach where the industry would focus on HEVs, with less reliance on advanced gasoline vehicles and mass reduction, relative to Pathways B and C; Pathway B focuse d on advanced gasoline vehicles and mass reduction at a more moderate level (higher than in Pathway A but less than in Pathway C); Pathway C focuse d on advanced gasoline vehicles and mass reduction, and to a lesser extent on HEVs; and Pathway D focuse d on the use of PHEV, EV, and HEV technology, and relie d less on advanced gasoline vehicles and mass reduction

. Further information on the four technolog y pathways is provided in Section II.A.3 of the September NOI and in Section 6.3 of the Interim Report

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Page 6 of 20 Additionally, the NPRM ’s CAFE analysis will account for E PCA/EISA restrictions on credit use and transfer/trading, the ability of manufacturers to pay fines in lieu of compliance, the differential impact of potential standards on individual manufacturers (historically relevant to NHTSA’s determinations of whethe r standards are economically practicable), and a more extensive analysis of relevant social benefits. 7 The NOI also noted NHTSA’s practice of considering safety effects in determining appropriate levels of standards stringency, as recognized approvingly i n case law over several decades. In addition, EPA has also considered safety impacts in previous mobile source rules, including for the 2012

- 2016 National Program. Generally, the agencies stressed that much work remained to be done, and that the upcoming rulemaking to develop the standards for MYs 2017 and beyond will be based on a full analysis that is consistent with both statutes and similar to the analysis for the MYs 2012

- 2016 rulemaking. Moreover

, as noted in the September NOI, the agencies analyze d scenarios in the 3

- 6 % range, but we have made no decisions on the appropriate standards for the NPRM. For the full proposed rulemaking, t he agencies are not precluded from considering standards outside of this range. For purposes of the Draft Environmental Impact Statement and NPRM discussed below, NHTSA intends to analyze standards both within and outside this range , as well as an alternative which is estimated to maximize net benefits

.

II. Highlights of Stakeholder Inp ut to Date on the September NOI and TAR

EPA and NHTSA requested comment on the initial assessments contained in the September NOI and the TAR. The agencies received comments from more than 30 organizations and more than 100,000 individuals . In addition t o the public comments, NHTSA, EPA, and CARB met individually with the ten largest automobile original equipment manufacturers (OEMs)

, 8 as well as environmental non

- governmental organizations (NGOs), 9 and representatives of state and local governments. 10 W e summarize below some key themes that we heard from stakeholders, both in the public comments and in the outreach meetings. This summary is meant to provide an overview of many key issues we heard from stakeholders, and is in no way meant to reflect a fu ll summary of the public comments received. We encourage readers interested in more details to review the actual public comments received in the agencies’ dockets. The agencies will continue to consider all of these comments as we develop the proposed ru lemaking.

7 Relevant social benefits would include, for example, the social cost of carbon, criteria pollution reduction and energy security improvements. A mu ch more detailed discussion of caveats with respect to the September NOI/TAR analysis can be found in Section 6.2 of the Interim Joint TAR, pp. 6

- 1 through 6

- 6.
8 NHTSA, EPA, and CARB met with the representatives of the following OEMs: Chrysler, Ford, Gen eral Motors, Honda, Toyota, Hyundai, Nissan, BMW, Daimler, and Volkswagen.
9 NHTSA, EPA, and CARB met with representatives from several environmental NGOs, including the Natural Resources Defense Council, Union of Concerned Scientists, Sierra Club, Nationa l Wildlife Federation, ACEEE, Environment America, Safe Climate Campaign, and Environmental Defense Fund.
10 NHTSA, EPA and CARB met with representatives of the National Association of Clean Air Agencies (NACAA) and the Northeast States for Coordinated Air Use Management (NESCAUM), and several representatives of individual state and local governments.** E.O. 12866 Review

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Page 7 of 20 A. Continuing the National Program for Model Years 2017

- 2025

There was widespread stakeholder support for continuing the National Program for improved fuel economy and greenhouse gas standards for model years 2017

- 2025.

In both the written comments in response to the NOI and in our recent meetings with automotive companies (both the meetings held during July

- August 2010 prior to the NOI, and in our meetings with automotive companies in October

- November 2010, after the publication of the NOI), all man ufacturers indicated their support for the continuation of the National Program approach, established in the 2012

- 2016 Joint NHTSA

- EPA f inal r ule, for model years 2017 and later. The manufacturers emphasized the significant benefit s in the development of coordinated fuel economy and greenhouse gas standards that can be met with a single fleet of vehicles that can be sold nationwide. OEMs were also supportive of the on

going coordination between NHTSA and EPA with CARB in the development of 2017

- 2025
prog ram, including coordination on the time frame for the State and Federal rulemaking, in order to help ensure alignment of the s tate and f ederal standards.

Many automotive companies that provided comments and two OEM associations expressed concern regarding the potential effects a revised California Z ero Emission Vehicle (Z EV ) program could have on a manufacturer’s ability to achieve a “single national fleet,” because the ZEV program could drive the use of particular vehicle technologies that may not be chos en by manufacturers to meet the federal CAFE and GHG standards.

Support for the concept of the National Program approach was also included in written comments from auto dealers and automotive component manufacturers.

The state s and environmental NGOs also expressed strong support for the continuation of the National Program in model years 2017

- 2025, and stated that the agencies should continue to fully include California in this process. Environmental NGOs stated that stringent GHG and fuel economy st andards are needed to make America more energy independent, reduce global warming pollution to curb the impacts of climate change, and save consumers money at the pump keeping it in the American economy. Several NGOs also stated that future standards can help ensure the U.S. auto industry remains competitive globally, and emphasized that other countries and regions are moving forward with strengthened standards and plans for vehicle electrification programs.

Although the environmental NGOs support a N ational Program, some suggested that the goal of a “single national fleet” does not mean that the EPA and NHTSA standards need to be identical. These commenters suggested that, as with the MYs 2012

- 2016 final rule making , the two agencies’ standards contin ue to include some important differences based on differences in statutes, such as the treatment of air conditioning

, electric vehicles , and credit transfers

. In addition, we have received comments from more than 100,000 individuals supporting stronger f

ederal fuel economy and greenhouse gas standards for model years 2017

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Page 8 of 20 B. Level of the Standards

Since publication of the September NOI and release of the Interim Joint Technical Report , the agencies have held further meetings with the ten largest auto manufacturers (OEMs), and from those meetings and written comments from OEMs and two OEM associations, we received a range of perspectives from the companies regarding the potential level s of stringency that the agencies should consider evaluating for mod el year s 2017

- 2025 standards in the upcoming full rulemaking . In general, the OEMs indicated that they are investing significantly in the full range of technologies discussed by the agencies in the September NOI and TAR , and the OEMs agree that many of those technologies offer a significant potential for reducing fuel consumption and GHG emissions. However, many OEMs also commented that the potential of certain technologies to reduce fuel consumption and GHG emissions was less than the agencies had proj ected, as discussed further below. Auto manufacturers indicated that they know how to produce a wide range of advanced technologies, and that they intend to introduce a wide range of vehicle models that rely upon these technologies, including advanced gas oline and diesel vehicles, hybrid

- electric vehicles, plug

- in hybrid electric vehicles, and battery

- electric vehicles, during the model years in question. Many OEMs also commented, however, that due to its fundamental approach (as well as specific assumpti ons regarding available technologies), the analysis presented in the TAR understated the challenges and costs that manufacturers would face in attempting to achieve the examined scenarios

.
Manufacturers stated that EPCA does not allow unlimited credit tr ansfers, and stated that an analysis consistent with EPCA would support less stringent CAFE standards than an analysis of the sort presented in the September NOI and TAR.

Both manufacturers and the Consumer Federation of America (CFA) supported the
agenc ies’ plans to assess manufacturers’ individual abilities to meet new standards.

Both in meetings with the agencies and in written comments, many OEMs nonetheless indicated that the level of stringency they could achieve in the future was not necessarily

co nstrained by the availability of technology

– that is, that technology does exist that they could deploy to meet fairly stringent standards. However, the OEMs emphasized that their ability to deploy that technology in a way that would help them to meet st rin gent standards and continue to offer vehicles that consumers would purchase would depend on a number of other important factors

, some of which are outside their direct control. Some of these factors include: the current relative high cost for some ad vance d technologies and uncertainty regarding the degree of cost reduction that will oc cur in the 2017

- 2025 time frame ; the future price of gasoline and diesel fuel ; the existence of future consumer incentives for some advanced technologies; the level of co nsumer acceptance for HEV, PHEV, and EV technologies; and the willingness of consumers to pay higher prices for vehicles with advanced technologies and lower fuel consumption

. M any OEMs also stressed that their ability to comply with future standards will be closely tied to the regulatory details of the model year 2017

- 2025 program, including the specific shape of the CAFE and GHG footprint

- based standard curves for passenger cars and trucks, EPA’s treatment of upstream** E.O. 12866 Review

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Page 9 of 20 CO 2 emissions for electricity

- derive d vehicle power, and other details regarding the structure of the program.

Based on the uncertainties expected during the 2017

- 2025 time frame, as described above, one OEM association stated in written comments that numeric commitments to rates of stringency increase are not possible for the 2017

- 2025 time frame , and several OEMs stated similarly in individual meetings with the agencies

. However
, just over half of the firms provided comments in individual meeti ngs with the agencies on the maximum rate of increase in stringency that they thought t heir firms could achieve for that time frame (as opposed to rates of increase that they believed were feasible for the industry as a whole) . Most were in the 3 percent to 4 percent per year range, although one stated 2.5 percent per year and another stated between 5 percent and 6 percent per year

. I n all cases

, these estimates of potential rates of increase included the assumption that 15 g/mi worth of additional CO 2 cr edits for air conditioning system improvements would be available for the MY 2017

- 2025 period , and the majority also included the assumption that upst r eam emissions from electric power generation would not be included in their compliance calculations for E Vs and PHEVs.

Many commenters discussed the merits of the agencies including a framework for a “mid

- term review” of the MYs 2017

- 2025 standards. The majority of OEMs supported a mid

- term review, but varied in their views of how to structure it. OEMs wh o supported a future review stated that it was necessary due to a number of factors

, such as the long time between standards promulgated in 2012 and the implementation of the standards in the model year 2017

- 2025 timeframe, and also a number of key uncertainties regarding future events and conditions as mentioned above, like OEMs’ ability to reduce technology costs, future fuel prices, and the willingness of consumers to purchase the advanced technology vehicles. Many OEMs suggested that if the curr ent rulemaking established standards from model year 2017

- 2025, then a review of the later model year (2020

- 2025, or 2021

- 2025) standards should be undertaken in the 2014 to 2017 time frame, and re

- examine only the appropriateness of those model year stan dards

, in part due to lead time concerns with changing the earlier model year standards

. As an alternative, o ne auto industry association suggested that instead of incorporating a mid

- term review, the agencies should break the MY 2017

- 2025 standard settin g process into three separate rulemaking s, rather than establishing standards for all of these MYs in the current rulemaking process

.
OEM recommendations also varied regarding how such a review should be undertaken, what factors s ho u ld be considered, and what should be the role of the agencies (including potentially CARB) . Many OEMs stressed that a review should not just examine their “progress” in meeting the standards, but should also focus on external conditions (as discussed above, fuel price, techno logy costs, and consumer acceptance) . S everal manufacturers and one OEM association additionally recommended that the review process include using an independent panel of experts to periodically consider whether rulemaking assumptions have turned out to be valid. Depending on the details and facts that come to light during the review, several OEMs stated that the res ults of any future review of the standards could result in an increase in stringency, a decrease in stringency, or no change in stringency. Most OEMs stated that they would give this topic additional consideration as the agencies move forward with the dev elopment of the Joint NPRM

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Page 10 of 20 Many state and local governments, including the Northeast States for Coordinated Air Use Management (NESCAUM) , the National Association of Clean Air Agencies (NACAA), and the governors of nine states, along with environmental NG Os, and more than 100,000 individuals voiced strong support for proposing standards based on a 6 percent annual rate of improvement, or alternatively, a 60 mpg standard by 2025. Many of these commenters stated that the agencies’ analysis in the September NOI and TAR indicates that the 6 percent level is technically feasible and cost

- effective, would provide the greatest estimated lifetime owner fuel savings, and is necessary to keep the U.S. auto industry competitive globally by requiring them to build mor e fuel

- efficient vehicles

. NESCAUM commented that, unde r the initial assessment, the 6 percent rate of increase represented the only scenario that projected widespread introduct ion of PHEVs and E Vs. In addition, Environment America submitted letters from more than 150 state and local elected officials, leaders of a number of businesses

, and organizations supporting standards that would require 60 mpg by 2025.

The Governors of nine states, including New York, Maine, Maryland, Massachusetts, New Mexico, O regon, Pennsylvania, Vermont, and Washington, s tate d their support for a standard of 60 mpg by 2025, and cite a key reason that more efficient vehicles will reduce unnecessary consumer spending at the pump, keeping money in their state and local economies.

Several NGOs stated that the September NOI and Interim TAR provide a strong basis for setting a standard of at least 6 percent annual improvement rate, which they believe is level that provides the greatest GHG reduction and oil saving benefits. Some gr oups stated that much of the basic vehicle design and technology to build a fleet that achieves at least 62 mpg is already in use in vehicles today, in the form of hybrids, PHEVs, and EVs entering the market this fall. They further stated that this fleetw ide level is achievable for manufacturers especially given that the agencies are providing 6 to 15 years of leadtime.

The Union of Concerned Scientists and Natural Resources Defense Council conducted a joint analysis of fleetwide annual emission reducti ons in the MYs 2017

- 2025 timef r ame, and they stated the TAR substantiates their assessment’s conclusion that a 6% annual reduction is both technically feasible and cost effective. Further, these groups stated that their analysis would support a 7% annual reduction by model year 2025 if using the TAR’s 0 g/mi accounting method for EV upstream emissions. Several other groups also recommended that the agencies analyze scenarios more stringent than 6 percent , such as 7 percent, or other approaches such as a rate representing the point at which net benefits are maximized, or a rate representing the point at which total costs are equal to total benefits

. Some NGOs also commented that the 3 and 4 percent scenarios fail to significantly advance clean vehicle tec hnology, noting that the TAR analysis projected no use of EVs or PHEVs by manufactur ers in meeting these scenarios

.
Environmental NGOs and states that offered comments on a mid

- term review expressed concern that it could be used to weaken the standards and that it could cause uncertainty for manufacturers by implying that later year standards would be somehow less binding

. These commenters suggested that this could undermine the development of** E.O. 12866 Review

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Page 11 of 20 advanced technologies , and that any review, if one must occur, should be limit ed in scope, focus only on later model years, occur only once , and consider more stringent standards.

C. Technology Costs, Effectiveness, Feasibility, and Safety

Our stakeholder meetings with the OEMs, as well as the written comments from

sev eral OEMs and two trade associations, raised several concerns with the September NOI and the TAR regarding the agencies’ initial assessment of technology cost, effectiveness, and feasibility. In addition several OEMs discussed the important issues regardi ng vehicle mass reduction and potential impacts on vehicle safety. We summarize here some of the major issues raised by the OEMs.

M ost automotive companies commented that the agencies’ estimates of most technology costs were in general too low, though for some OEMs this was not the case for all technologies. N early every OEM stressed that the agencies’ costs estimates for lithium

- ion batteries for HEVs/PHEVs/EVs and mass reduction in particular were significantly too low compared to their projections for the 2020

- 2025 timeframe. One OEM association provided a list of several reasons why they believe the TAR cost estimates are too low, including the TAR projection that batteries will last the life of the vehicle and the agencies’ estimates for indirect cos ts, which they stated are low compared to a 2009 National Research Council Report. The OEM association also commented that the agencies should consider the potential for stranded capital in the 2017

- 2025 analysis in the event the MYs 2017

- 2025 standards

r esult in a significant change in future vehicle designs compared to the investment manufactures have made and are making now to comply with the MYs 2012

- 2016 standards. This OEM association also noted more generally that while the OEMs supported the MYs 20 12

- 2016 standards, they had not evaluated the agencies’ analysis for that rulemaking carefully, and upon revisiting it found a number of assumptions carried into the TAR with which they do not agree.

OEMs discussed with the agencies their concerns that the effectiveness (the technologies’ ability to reduce CO 2 and fuel consumption) of both individual technologies as well as the packages of technologies identified in the TAR were too optimistic

. In some cases manufacturers stated that they thought the differences were due to a range of potential engineering considerations which the TAR may not properly have account ed for, such as vehicle performance, utility ( e.g. , towing capability), and comfort ( e.g. , noise, vibration, and harshness), the role of competing regulatory or technical requirements ( e.g. , criteria pollutant and/or safety standards), and assumptions regarding future gasoline fuel properties ( e.g. , octane levels) , although OEMs acknowledged that their review of the TAR’s technical effectiv eness assessment was still ongoing

. However, there were a number of OEMs that agreed with our assessment of a number of specific packages or individual technologies. The agencies expect to discuss these issues with the OEMs in much more depth over the ne xt several months in order to assess the basis of these concerns, which could be based in part on the possibility of different assumptions about baseline technologies by the agencies and the OEMs.** E.O. 12866 Review

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Page 12 of 20 With regard to the feasibility of applying the technologies identified in the TAR, in general the OEMs agreed with the agencies that most of the technologies identified in the TAR could be applied to at least some vehicle models in the 2017

- 2025 timeframe (as nearly all of the technologies considered are either av ailable today or are expected to be introduced into the market within the next few years). However, the OEMs highlight ed several specific areas where they did not agree with the assessment in the TAR, or they believed that challenges exist. All OEMs stat ed that mass reduction will be an important element of their future fuel economy/CO 2 reduction strategy

, however; all of the OEMs also stated that mass reduction cannot be done as aggressively as indicated by several of the Technology Pathways analyzed in the TAR. All manufacturers and one OEM association expressly stated that a 30 percent net mass reduction from model year 2008 to model year 2025 was not technically feasible. Reasons cited included, but were not limited to, manufacturing constraints, mas s increases associated with known and potential vehicle safety requirements that may be developed between now and model year 2025, future voluntary standards (such as those established by NHTSA through the New Car Assessment Program ( NCAP ) and the Insuranc e Institute for Highway Safety (IIHS)), and other potential voluntary improvements, noise/vibration/harshness considerations, and the potential safety implications of severe weight reduction. One OEM association noted the agencies’ commitment to on

- going work noted in the September NOI and stated that the agencies must complete these studies to inform the Joint NPRM, indicating that a failure by the agencies (and particularly NHTSA) to evaluate fully the potential safety effects of mass reduction in the 20 17

- 2025 timeframe could leave the final rule legally vulnerable. Many manufacturers commented that reducing mass in the 20

- 25% range would likely not be practical for many vehicle models because of high costs and, in some cases, because they have already incorporated today some of the mass reduction technologies that could be used to reduce mass in the 20

- 25% range. Manufacturers encouraged the agencies to continue to analyze this issue carefully.

Several environmental NGOs and the state organizations a lso expressed support for the continued technical work EPA, NHTSA, and CARB are doing on costs, effectiveness, mass reduction, and vehicle safety.

O ne automotive supplier association (the Aluminum Association) commented that the mass reduction on the ord er of 15

- 30 percent discussed in the TAR was technologically achievable based in part through the use of aluminum

. Several OEMs also commented during our stakeholder meetings on the relatively high level of penetration of full hybrids for a number of the Technology Pathways for the higher levels of stringency evaluated in the TAR. Some auto companies indicated that the HEV levels which approached nearly 70 percent of the new vehicle fleet may not be feasible from a lead

- time perspective (independent of t he OEMs’ concerns regarding the willingness of consumers to purchase those quantities of HEVs).** E.O. 12866 Review

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Page 13 of 20 D. Program Design Elements , Credit Opportunities and Flexibilities

Several commenters provided feedback on how various credit programs and other flexibilities cont ained in the model year 2012

- 2016 program might be assessed or adapted for the MYs 2017

- 2025 program.

1. Program Design Elements

Automotive OEMs , both in their written comments and in recent stakeholder meetings with the agencies, have stated that the agencies should continue many of the program design elements as well as flexibilities provided in the model year 2012

- 2016 National Program. A number of OEMs have stated that the agencies should continue with the use of separate car and truck based standards (as required by EPCA/EISA) and continue to use vehicle footprint as the attribute for determining a manufacturer’s CAFE and CO 2 standards.

2. Credits and Flexibilities

All automotive OEMs supported the agencies providi ng as much flexibility as possible through credit programs. Automotive OEMs generally expressed support for the continuation of both NHTSA’s and EPA’s regulatory provisions regarding the banking and trading of fuel economy/GHG credits, including the provi sions for carry

- forward and carry

- back of credits across model years. A number of OEMs expressed concern, that additional flexibilities could be particularly important for the MYs 2017

- 2025 time frame, given the stringency of the MY 2012

- 2016 standards. Regarding other program flexibilities, OEMs in general support the continuation of the flexibilities included in the model year 2012

- 2016 National Program, including the availability of emission credits for improvement in air conditioning GHG emissions un der the EPA standards, and the availability of off

- cycle GHG emission credits for technologies that produce real

- world emission reductions but that are not captured under the regulatory test procedure , and provisions for unlimited credit trading between ca rs and trucks and between companies

. A number of OEMs also supported the continuation of the 2012

- 2016 programs provisions for credit transfer between the car and truck fleets, as well as trading of credits between automotive firms. Some automotive OEMs and their trade associations suggested that EPA and NHTSA may need to consider additional program flexibility for small and intermediate volume manufacturers for model years 2017

- 2025, similar to the compliance flexibility provided by EPA in the TLAAS pro gram in the model year 2012

- 2016 program.

Some environmental groups similarly expressed support for provisions that give manufacturers greater flexibility, such as averaging, banking, and trading , but emphasized that the provisions must not undermine th e technology

- forcing nature or the emissions benefits of the program. Several groups also stressed the need for transparency to provide clear public accounting of any credits and compliance programs. One environmental group , however, stated that while flex ibilities might have been appropriate for the early years of the National Program, they should not persist indefinitely, and the MYs 2012

- 2016 standards should have provided plenty of time for manufacturers to achieve compliance by adding technology to the ir vehicles. T his commenter therefore argued that the a gencies should dispense with the** E.O. 12866 Review

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Page 14 of 20 credits, incentives and flexibilities discussed in the September NOI , including averaging, banking, and trading (ABT)

.

E nvironmental groups generally commented that EPA should establish air conditioning standards rather than continue credits based on air conditioning system improvements.

Environmental groups commented that g iven the extensive amount of lead time contemplated for the rulemaking , along with the fleet improvements that will have arisen due to model year 2012

- 2016 standards, the agencies should not constrain stringency levels in the 2017

- 2025 rule based on lead time considerations

. These environmental groups indicated, a s stated i n the model year 2012

- 2016 rulemaking and the TAR

, that most vehicle models are redesigned (not merely refreshed) every five years , such that most manufacturers should have ample opportunity to apply new technologies prior to MY 2025

. In addition, some

env ironmental groups commented that there is no evidence or compelling policy rationale to support continuing the Temporary Lead

- time Allowance Alternative Standards (TLAAS) that were provided in the model year 2012

- 20 1 6 program

. In addition , one NGO c omment er urge d that EPA establish standards for small volume manufacturers (i.e., those manufacturers with annual U.S. sales of less than 5,000 vehicles ) , and that NHTSA end the statutory exemption from generally

- applicable CAFE standards allowed for m anufacture r s of less than 10,000 vehicles worldwide annually , as this commenter believes that b y 2017, these manufacturers will have had ample time to bring their fleets into compliance.

3. Treatment of Upstream Emissions

With the exception of one company, a ll OEMs a n d their trade associations supported the use of a zero gram/mile CO 2 tailpipe emissions value under the EPA regulations for all electric vehicles (EVs) as well as the grid

- derived electricity for plug

- in hybrid electric vehicles (PHEVs) . OEMs provided a range of reasons for their position, including their perspectives that: automotive manufacturers do not have any control over the GHG emissions used to produce grid electricity

, thus it would be unfair for EPA to require manufacturers t o accept the burden of emissions for which vehicles are not directly (at the tailpipe) responsible ; the inclusion of upstream emissions w ould be a significant deterrent to OEMs for investing the significant capital resources necessary to bring EVs and PHEV s to the market

, and the resulting compliance value for those vehicles would not be significantly better than for non

EV and non

- PHEV vehicles ; there is too much variation across the national electricity grid in terms of CO 2 - generation intensity for a sing le upstream value to be meaningful ; and such an approach is not consistent with EPA’s historic regulation of light

- duty vehicles , as EPA does not account for the upstream emissions associated with gasoline and diesel production in vehicle compliance values (the Edison Electric Institute commented similarly)

. The Edison Electric Institute (EEI) commented that EPA should be consistent in the treatment of upstream emissions by not including upstream emissions for any vehicles. EEI argues that there is too muc h variation in upstream energy production to produce “national average” values for any energy type.** E.O. 12866 Review

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Page 15 of 20 The treatment of advanced technology vehicles continues to be a key concern for environmental groups. Environmental groups continue to believe that upstr eam CO 2 emissions should be accounted for in determining vehicle emission rates for all vehicles

. NRDC and the Union of Concerned Scientists also support the inclusion of upstream emissions accounting for electric vehicles, and they provided an analysis and comments that they believe support standards increasing at a 6 percent annual rate if upstream emissions are included, and up to 7 percent annual rate if a 0 g/mile CO 2 emissions rate is used for the electric portion of vehicle operation.

The agencies also received comments from Natural Gas Interests strongly supporting the inclusion of full life

- cycle GHG emissions for all petroleum and non

- petroleum

- fueled vehicles in determining vehicle compliance, noting that natural gas vehicles have 30 percent lo wer life

- cycle GHG emissions compared to their gasoline

- fueled counterparts.

Two automotive material supplier trade associations, the American Iron and Steel Institute and the World Steel Association

, recommended that EPA and NHTSA include not only upstrea m emissions from fuel production (e.g., gasoline fuel and electricity) in the regulatory standard, but the entire life

- cycle emissions of the vehicle manufacturing process as well. These commenters suggested that the inclusion of lifecycle GHG emissions a t both the supplier and the OEM levels from the manufacturing process is the most appropriate method to ensure an overall reduction in GHG emissions from light

- duty vehicles.

The State of New York Department of Transportation commented that they recognize the valid concerns about upstream emissions generation in the production of electricity and other energy sources used in fuels, and encourage the agencies to work cooperatively with the Department of Energy to develop incentives to expand clean, low

- carbon power generation in the U.S.

E. Other Comments

The agencies received a dditional comments in several areas including assumptions used in economic and benefit analyses (e.g., discount rates should be higher or lower , rebound effect should be higher or lower

, values used to assess the social cost of carbon , potential consumer welfare effects ), ensuring program benefits beyond fuel savings are properly accounted for, c onsider ation of higher oil price scenarios , and potential employment impacts

. Several commenters also provided recommendations regarding the need for the agencies to consider the role of EV/PHEV vehicle charging locations/infrastructure in the development of the 2017

- 2025 standards.

NACAA commented that they believe state and local governme nts have a key role to play in supporting the development of infrastructure for electric vehicle charging. State commenters also asked the agencies to work with DOE to encourage the installation of charging stations in homes and public locations, such as parking lots.** E.O. 12866 Review

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Page 16 of 20 NACAA also commented that there are potential co

- benefits of improved fuel economy/GHG standards in helping meet clean air goals for criteria pollutants and air toxics, especially if the new standards are stringent enough to encourage meani ngful penetrations of electrified vehicles.

Several environmental NGOs recommended that the agencies should establish backstop standards to ensure that the projected fleet

- wide reductions are still met in the event of shifts in sales mix and average vehic le size.

All of these comments will be considered as we conduct our analyses for the proposed rulemaking.

III. Plans for Developing the Proposed Rulemaking

A. Continued Stakeholder Outreach and Key Areas of Technical Analysis in Developing the Proposed Rule making
This Supplemental NOI is an early step in NHTSA’s and EPA’s plans to propose a coordinated National Program for model year 2017

- 2025 light

- duty vehicles with which (as with the model year 2012

- 2016 program) manufacturers could comply by building a s ingle vehicle fleet. As NHTSA and EPA proceed to develop the proposed rulemaking, we plan to continue our ongoing dialogue with stakeholders, and we specifically welcome additional data and information that can inform our rulemaking efforts.

EPA and NHT SA intend to continue working with the California Air Resources Board in developing the underlying technical assessments that will inform our future proposed standards and we will continue to work with CARB on other issues and seek t heir input as we work toward our common goal of a National Program

. We will continue to coordinate on a number of on

- going studies, including technology cost, effectiveness, mass feasibility, and

mass

- related safety studies

. As we indicated in the Septemb er NOI and Interim Joint TAR , there are numerous areas of technical work that EPA and NHTSA have underway as part of developing our proposed standards. Some of t hese key areas include new technical assessments of advanced gasoline, diesel, and hybrid vehicle technology effectiveness ; several new projects to evaluate the cost, feasibility, and safety impacts o f mass reduction from vehicles; an on

- going project to improve our cost estimates for advanced technologies ; further consideration of battery life

, durability, cost and safety; and further review of the lead time needed to i mplement advanced technologies. The agencies are working very closely with the Department of Energy on a number of projects related to these technical areas.

In addition, f

or the 2017

- 2025 NPRM, NHTSA and EPA will conduct an analysis of the effects of the proposed standards on vehicle safety, including societal effects. CARB is undertaking and coordinating with EPA and NHTSA on a study of how a future vehicle Deleted: and seek input from Comment [jt2]: This edit is in response to i nteragency follow

- up discussion related to comment # 1. NHTSA strongly prefers to use the terminology “other issues” instead of “key program design elements” to avoid potential over commitment at this time.** E.O. 12866 Review

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Page 17 of 20 design that in corporates high levels of mass reduction complies with vehicle safety standards and voluntary safety guidelines

. NHTSA is a lso initiat ing a new study of the feasible amount of mass reduction based on a mid

- size passenger car platform, and the effects of se veral advanced mass reduction design concepts on fleet safety . The NHTSA studies are being coordinated with EPA, DOE, and CARB.

The agencies expect that several, but not all of these studies will be completed in time to inform the NPRM. Others are expec ted to be completed in time to inform the final rule.

As discussed above, the agencies ’ initial assessment in the Interim Joint TAR was limited to a fleet

- wide level analysis of improvements in overall average GHG emissions and fuel economy level

, which in cluded a number of simplifying assumptions. NHTSA and EPA acknowledged in the September NOI that for the upcoming proposed rulemaking, we would conduct a more refined analysis, as required by EPCA/EISA and as allowed by the CAA, including separate analyse s for car and light truck vehicle fleets, year

- by

- year attribute

- based standards, and manufacturer

- specific estimates of potential attribute

- based standard targets and costs, a mong other statutory requirements. NHTSA and EPA also will perform a more thoro ugh assessment of the impacts of proposed standards, as was done for the model year 2012

- 2016 rulemaking, including analysis of improved energy security, monetized benefits of CO 2 reductions, impacts of other pollutants , an assessment of the societal costs and benefits of potential standards, an assessment of potential safety impacts, an assessment of impacts on automobile sales , an assessment of employment impacts, an assessment of the regulatory
program ’ s key design elements and flexibility mechanisms, an d related issues.

Finally, as discussed in the September NOI, EPA is currently in the process of conducting an assessment of the potential need for additional controls on light

- duty vehicles’

non

- greenhouse gas emissions and gasoline fuel quality. EPA exp ects to coordinate the timing of any final action on new non

- greenhouse gas emissions regulations for light

- duty vehicles and gasoline with the final action on greenhouse gas emissions and CAFE regulations discuss ed in this Supplemental NOI.

B. Anticipated Ru lemaking Schedule

The May 21, 2010 Presidential Memorandum called for EPA and NHTSA to include in the September Notice of Intent a “schedule for setting those standards as expeditiously as possible, consistent with providing sufficient leadt ime to vehicle manufacturers.” As we indicated in the September NOI, the agencies expect to issue a joint Notice of Proposed Rulemaking (NPRM) by September 30, 2011, and a f inal r ule by July 31, 2012.

As required by the National Environmental Policy Act (N EPA), and by NHTSA and Council of Environmental Quality (CEQ) regulations, NHTSA will be developing a Draft Environmental Impact Statement (DEIS), to inform the upcoming NPRM. In the coming months, NHTSA will issue a scoping notice to request comment on t he regulatory options that the DEIS should consider. A Final EIS (FEIS) will be issued at least 30 days prior to the release of the final rule.** E.O. 12866 Review

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Page 18 of 20 As with any notice

- and

- comment rulemaking process, the agencies will provide full opportunity for the public to participate in the rulemaking process, consistent with EPCA/EISA, the Clean Air Act, Administrative Procedure Act, other applicable law, and Administration policies on openness and transparency in government. Upon publication of the NPRM, the agencies wi ll open a public comment period for receiving written comments and expect to hold at least one joint public hearing to receive oral comments. We will describe all of these opportunities for public involvement in the NPRM which will be published in the Fed eral Register

, and we will post this information on each agency’s website associated with this rulemaking.** E.O. 12866 Review

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Page 19 of 20 2017 and Later Model Year Light

- Duty Vehicle GHG Emissions and CAFE Standards : Supplemental Notice of Intent

Dated: ______________________

____

____________________________________________ Ray LaHood, Secretary, Department of Transportation.** E.O. 12866 Review

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Page 20 of 20 2017 and Later Model Year Light

- Duty Vehicle GHG Emissions and CAFE Standards : Supplemental Notice of Intent

Dated: __________________________

_____________________________________________________ Lisa P. Jackson, Administrator, Environmental Protection Agency