# Peer Review of the Optimization Model for Reducing Emissions of Greenhouse Gases from Automobiles (OMEGA) and EPA’s Response to CommentsEPA-420-R-09-016 September 2009 Assessment and Standards Division Office of Transportation and Air Quality U.S. Environmental Protection Agency

Prepared for EPA by Southwest Research Institute EPA Contract No. EP-C-05-018

Work Assignment No. 4-01 

# Peer Review of the Optimization Model for Reducing Emissions of Greenhouse Gases from Automobiles (OMEGA) and EPA’s Response to Comments

NOTICE

This technical report does not necessarily represent final EPA decisions or positions. It is intended to present technical analysis of issues using data that are currently available. The purpose in the release of such reports is to facilitate the exchange of technical information and to inform the public of technical developments.In May, 2009, EPA contracted with the Southw est Research Institute (SwRI) to conduct a peer review of a new model which evaluates th e technology and cost asso ciated with reducing greenhouse gas (GHG) emissions fr om light-duty motor vehicles. This model is currently referred to as the Optimization Model for reducing Emissions of Greenhouse gases from Automobiles (OMEGA). When peer review was initiated, the model was referred to as the Vehicle Greenhouse Gas Emissions Cost and Compliance Model (VECTOR).

The three peer reviewers selected by SwRI were John German, Dr. Paul Leiby and Dr. Rubin. EPA would like to extend its appreciation to all three reviewers for their efforts in evaluating this model. The three reviewers brought useful and dist inctive views to all aspects of the model’s use. This included setting up th e input files appropriately, running the model efficiently, and understanding the model’s outputs. There are two major secti ons to this report. The first section contains the final SwRI re port summarizing the peer review of OMEGA, including the detailed comments of each peer reviewer and an overview of the most significant comments compiled by SwRI. The SwRI report also contains the peer review charge letter. The second major section contains our responses to th e peer reviewers’ comment s. In this section, we repeat the detailed comments from each co mmenter and, after each section of comments, provide our response. We have retained the organization reflected in each reviewer’s comments to aid the reader in moving from the SwRI report to our responses.



### Table of Contents

1. Peer Review of the EPA Optimization M odel for reducing Emissions of Greenhouse gases from Automobiles (OMEGA) conducte d by Southwest Research Institute I. Introduction II. Technical Discussion III. Summary IV. Appendicies A. Resumes of Peer Review Panel Members B. Charge Letter to Reviewers Attachment 1 – EPA Vehicle GHG Emission Cost and Compliance Model Description Attachment 2 – Appendicies to GHG Model Description Attachment 3 – Model Reference Guide Attachment 4 – Benefits Ca lculations Instructions C. John German’s Review Document D. Paul Leiby’s Review Document E. Jonathan Rubin’s Review Document

2. EPA’s Response to Peer Review Comments A. Comments by John German B. Comments by Paul Leiby C. Comments by Jonathan Rubin

## SOUTHWEST RESEARCH INSTITUTE ®

6220 CULEBRA ROAD  POST OFFICE DRAWER 28510  SAN ANTONIO, TEXAS, USA 78228-0510  (210) 684-5111  www.swri.org ENGINE, EMISSIONS, AND VEHICLE RESEARCH DIVISION HTTP://ENGINEANDVEHICLE .SWRI.ORG FAX: (210) 522-3950 ISO 9001 Certified ISO 14001 Certified

SAN ANTONIO, TEXAS

HOUSTON, TEXAS  WASHINGTON, DC  ANN ARBOR, MI 

### Peer Review of the EPA Optimization Model for reducing Emissions of Greenhous e gases from Automobiles (OMEGA)

Office of Transportation Air Quality U.S. Environmental Protection Agency

September, 2009

## SOUTHWEST RESEARCH INSTITUTE ®

6220 CULEBRA ROAD  POST OFFICE DRAWER 28510  SAN ANTONIO, TEXAS, USA 78228-0510  (210) 684-5111  www.swri.org ENGINE, EMISSIONS, AND VEHICLE RESEARCH DIVISION HTTP://ENGINEANDVEHICLE .SWRI.ORG FAX: (210) 522-3950 ISO 9001 Certified ISO 14001 Certified

SAN ANTONIO, TEXAS

HOUSTON, TEXAS  WASHINGTON, DC  ANN ARBOR, MI In May, 2009, EPA contracted with the Southw est Research Institute (SwRI) to conduct a peer review of a new model which evaluates th e technology and cost asso ciated with reducing greenhouse gas (GHG) emissions fr om light-duty motor vehicles. This model is currently referred to as the Optimization Model for reducing Emissions of Greenhouse gases from Automobiles (OMEGA). When peer review was initiated, the model was referred to as the Vehicle Greenhouse Gas Emissions Cost and Compliance Model (VECTOR).

The three peer reviewers selected by SwRI were John German, Dr. Paul Leiby and Dr. Rubin. EPA would like to extend its appreciation to all three reviewers for their efforts in evaluating this model. The three reviewers brought useful and dist inctive views to all aspects of the model’s use. This included setting up th e input files appropriately, running the model efficiently, and understanding the model’s outputs. There are two major secti ons to this report. The first section contains the final SwRI re port summarizing the peer review of OMEGA, including the detailed comments of each peer reviewer and an overview of the most significant comments compiled by SwRI. The SwRI report also contains the peer review charge letter. The second major section contains our responses to th e peer reviewers’ comment s. In this section, we repeat the detailed comments from each co mmenter and, after each section of comments, provide our response. We have retained the organization reflected in each reviewer’s comments to aid the reader in moving from the SwRI report to our responses.

## SOUTHWEST RESEARCH INSTITUTE ®

6220 CULEBRA ROAD  POST OFFICE DRAWER 28510  SAN ANTONIO, TEXAS, USA 78228-0510  (210) 684-5111  www.swri.org ENGINE, EMISSIONS, AND VEHICLE RESEARCH DIVISION HTTP://ENGINEANDVEHICLE .SWRI.ORG FAX: (210) 522-3950 ISO 9001 Certified ISO 14001 Certified

SAN ANTONIO, TEXAS

HOUSTON, TEXAS  WASHINGTON, DC  ANN ARBOR, MI June 9, 2009

To: Environmental Protection Agency Contracts Management Division 26 West Martin Luther King Drive Cincinnati, OH 45268

Attention : Ms. Almethyist A. Chambers Contracting Officer

From: Patrick M. Merritt Senior Research Scientist Emissions Research and Development Department Southwest Research Institute P.O. Drawer 28510 San Antonio, Texas 78228-0510

Subject: Final Report for Work Assignment 4-1, “Facilitation of an Independent Peer Review Process for EPA's VGHG Model”

Contract No. EP-C-05- 018, under SwRI Project 03.14658.01 Contract Title: “Testing and Analytical Support for Regulation of Motor Vehicles, Engines, Fuels, and Fuel Additives”

I. INTRODUCTION

On-road vehicles are the predom inant sour ce of greenhouse gas (GHG) em issions in the transportation sector (principally, CO 2 and hydrocarbon emissions from vehicle air conditioners). Of all on-road vehicles, light- duty passenger cars and trucks pr oduce the majority of these GHG emissions. As EPA's Office of Transportation and Air Quality explores the regulation of CO 2 and other GHG emission control measures in on-road a nd non-road vehicles and equipment, there is a need to evaluate the costs and benefits of any such regulations. As such, EPA has developed its Vehicle Greenhouse Gas E missions Cost and Co mp liance Model, or VGHG model, to facilitate its analysis of the costs and benefits of th e control of GHG e missions fro m cars and trucks. Broadly speaking, the primary cost of GHG emission control is the cost of adding technology to the vehicles, while the p rimary benefit is the va lue of reduced fuel cons umption in those sam e vehicles.Ms. Almethyist A. Chambers Environmental Protection Agency June 9, 2009 Page 4 of 8

The EPA VGHG model is used to apply various technologies to a defined set of vehicles in order to meet a specified GHG e mission target, a nd to then calculate the costs and benefits of doing so. The GHG target can be a flat standard app licable to all vehicles within a ve hicle class (e.g., cars, trucks or both cars and trucks) or the ' target' can be in the for m of a c urve which varies the target as a function of a defined vehicle ' fleet.' GHG emission targets are specified in terms of CO 2 -equivalent emissions. They can simply be CO 2 emissions from the tailpipe or can be a combination of tailpipe CO 2 and refrigerant e missions. Fleet wide average GHG e missions can also be used to estim ate a wide array of societal cos ts and benefits associated with the reduction of GHG emissions.

To assure the highest quality science in its p redictive as sessments, EPA has engaged SwRI to facilitate an independent peer review of its model for determining the costs and benefits of changes to vehicle technology for the reduc tion of GHG em issions from passenger cars and trucks. EPA needs assurance that the proposed st ructure (and developmen t process) of its VGHG model will r esult in a model tha t is viable, a ccurate, and we ll-suited for the dive rsity of uses to which it may be applied. This report documents the process followed towards that end.

II. TECHNICAL DISCUSSION

EPA's peer review gu idelines specify that all h ighly significant scientific and technical work products undergo independent peer review per specific agency protocol s. The first task was to select panel members (three) who were qualified, interested, and had time available to devote to an in-depth review.

Selection of candidates was made from a list of persons familiar with the issues involved in GHG emissions from ecologi cal, socio-economic, regulatory, and manufacturing perspectives. The panel m embers who were selected h ave impre ssive standings in their respective fields and comprise a balanced an d diverse point of view. The peer review panel consists of the following individuals:

 John German, The International Council on Clean Transportation

 Paul Leiby, Oakridge National Laboratory

 Jonathan Rubin, University of Maine, School of Economics

Their résum és are presented in Appendix A. Fo llowing selection and determ ination of their availability, consultancy agreements had to be put in place with each individual.

SwRI Project 03.14658.01 FRMs. Almethyist A. Chambers Environmental Protection Agency June 9, 2009 Page 5 of 8

As soon as it was practical, the docum ents a nd software were distributed to the review panel memb ers. The distribution was accomp lished by preparing a charge letter d escribing what was requested in detail, and attaching th e supporting documents. Please see Appendix B.

SwRI then arranged a teleconf erence between the peer review ers and EPA technical staff as a kick-off m eeting. In that c onference, held on May 1, 2009, th e charge to the reviewers was discussed, and the presentation of the supporting docum ents was reviewed. As there were seven attachments, it was i mportant to have assura nce that everyone understood how the docum ents, appendices, and attachments are related.

During the kick-off m eeting, an infor mal question dialog allowe d pa nel me mbers t o interact with EPA' s work assignm ent m anager (WAM) and the technical staff who are m ost familiar with the GHG model. It was agreed that any further questions would be subm itted in writing to S wRI, and the question and EPA’s r es ponse would be distributed to all reviewers. Only one s uch questio n was sub mitted. Fina lly, it was agreed tha t each would attem pt to complete their work prior to the next tel econference, which was scheduled for May 28, 2009.

The review documents of two of the three reviewers had been received and forwarded to EPA before the teleconference held on May 28 th . The third followed shortly thereafter. The May 28 th teleconference was nonetheless productive, w ith discussion am ong EPA technical staff and the panel members. Those documents are presented in Appendices C, D, and E.

Because the third docu ment had not been re ceived before the teleco nference, it was determined that another teleconf erence would be held. The idea wa s that all parties could have additional time to read the comm ents of each of the p anel members and determine if there are other topics or issues that need clarification or discussion. That discussion was also productive, with discussion of whether one equation had an erro r or if it simply needed more explanation, for example. In addition, investm ent costs of technology with regards to tooling and plant conversions, capital budgets, and lead time were also discussed.

III. SUMMARY

A very brief summary of each of the three reviewers’ comments is presented below.

SwRI Project 03.14658.01 FRMs. Almethyist A. Chambers Environmental Protection Agency June 9, 2009 Page 6 of 8

Paul Leiby:

 Stay focused first on clearly and rigorously modeling the fuel-economy technology choice and cost-effectiveness consideratio ns, for various GHG emission levels.

 It is essential to be very explicit about whose behavior and objectives are being modeled.

 Some confusing term s are includ ed in the TA RF, m ost notably the non-standard way in which VMT is discounted for the purposes of this TARF (See equation top of page 11, line 1).

 The inclusion of “IR” (“the annu al increase in the value of CO2”) in the discount f actor is done without explanation or ju stification. (Is it meant to be the growth rate in GHG damages, abatement cost, or a CO2 tax?).

 CostEff TARF would not seem to be a cons ideration f or vehicle manufacturers whose objective is to produce a new-car fleet m eeting consum er needs and a GHG em ission standard at least cost. What objective was intended with th is hybrid aspect of the TARF?

 Model Documentation:

 Restructure the presentation, perhaps follo wing the pattern of a journal article (e.g., begin with stated purpose and b ackground. Place this m odel in the constellation of related models and indica te what is different and why. Describe approach, data sources, sample results.)

 Bringing description of the “Core P rogram ” and what the model does toward the front.

 Clarify and condense the model description

 State model objective (typically stating wh at is m aximized, minimized, or what final solution condition is sought)

 State model constraints

 State and discrim inate between principl e decision variables, exogenous inputs, parameters, and internally calculated results

 State the solution algorithm and termination condition

 Be rigorous in use of notation.

 Use consistent variable names

 Clarify subscripts and carefully apply them

 Carefully state units.

 Appropriateness and completeness of the c ontents of the sample input files:

 In all data input files, specify units

 The “Data Validation” capa bility and error report is a very useful feature

 Fuels input file, Appendix 4

 This list does not yet reflect biofuels or renewable fuels

 Some provision m ay be needed for th e variable energy and GHG content of gasoline

 Provision m ay also be needed for E 85, a nd the uncertain fraction of E85 used by FFVs.

SwRI Project 03.14658.01 FRMs. Almethyist A. Chambers Environmental Protection Agency June 9, 2009 Page 7 of 8

 The net fuel economy and emissions by PHEVs

 Calculation of compliance to attribute-based standards:

 On page 7, equation for the logistic-based footp rint, the re a ppears to b e a s ign error in the denom inator (should be 1+exp((x -C)/D) not 1-exp((x-C )/D)). This is likely a typo in the documentation alone.

 No discussion or provision for m arket-bas ed (perm it trading) standards is yet made. This should at least be acknowledged.

 One strategy for doing m ore flexible st andards would be to sim ply m erge the datasets and technology-sequence stage fo r all manufacturers a nd vehicle types in a trading group. However, this would not provide information about potential permit prices and burdens across manufacturers.

 Clarity, co mpleteness, and accuracy of the model's visualization output, in which the technology application is displayed:

 It would be very helpf ul to have som e graphical summ aries of the input and output results.

 All output files should embed clear documentation on the inputs used.

 The .log file does list name s of the 4 input files, which is essential.

 The “Visualization Output” file does not (yet) report the input files (but the information could be retrieve from the XML file).

John German:

 “Accounting m odel” has advantage of si mplic ity, avoids “overm odeling.” However, i t “requires a great deal more s ophistication and work by anyone using the model to prepare the inputs properly.”

 Modeling by redesign cycles (rathe r than annually) is a good idea.

 Leadtime issues modeled far too simplistically

 One of the most important i ssues in standard setting

 Inappropriate to treat all m anufacturers the sam e, regards potential penetration rates and costs for adding technol ogies (given differing experience)

 No such thing as a hard cap on technology penetration rates

 Recommends handling leadtim e c onstraints and tech penetrati on with an assessm ent of capital costs by each manufacturer, with a capital budget each design cycle

 [Q: How would that budget be set?]

 Short-term: use manufacturer-speci fic caps on max penetration rate per year

 Use m ax pe netration caps (total) to ref lect m arket re strictions (dem and lim its) r ather than leadtime constraints

 Re: rank-ordering technologies for each vehicle type: “Requiring the us er to input technology in rank order of cost-effectiv eness” has some challenges.

 Requires a great d eal of analysis to cr eate m odel inpu ts: “real analyses and modeling are in these input files”

SwRI Project 03.14658.01 FRMs. Almethyist A. Chambers Environmental Protection Agency June 9, 2009 Page 8 of 8

SwRI Project 03.14658.01 FR  “It only works if the lear ning rate is the same for all technologies and if no technology changes effectiveness over time.”

 “model must be able to handle multipl e pathways” of technical progression

 Synergies depend on order of introduction (?) and must be assessed according to different pathways

 Very valuab le, perhap s ultim ately n ecessary for regulatory evaluation, to allow model to “maximize net social value”

Jonathan Rubin:

 Be clear and explicit about “accounting stance”

 “costs to whom?”

 Describe and report cost s and benefits to as many as thre e groups (consumers, manufacturers, society)

 Account for subsidies and taxes

 Show component costs

 Allow distinct discount ra tes and treatment of risk for the three groups

 Improve notation, consistent use of subscripts

 Concerns about certain formulations in model equations

 1/i in FS equation

 Discounting factors used

 Avoid discounting physical quan tities, and mixing physical phenomena with economic costs and benefits

 Need to account for environm ental and fuel econo my implications of al ternative fuels m ore carefully

 Renewable and biofuels

 Electricity

 Future work:

 Significant enhancement: make probabilistic, reflecting uncertainty

 Account for hedonic (vehicle attribute) implications of large changes in GHG emissions

 Consider implications for gas excise tax revenue

 User manual, describing impact and power of key assumptions

 Output in SI unitsMs. Almethyist A. Chambers Environmental Protection Agency June 9, 2009 Page 9 of 8

IV. CLOSING

Southwest Research In stitute has p repar ed this f inal report to W ork Assignment 4-1 to describe the process followed in the peer re view of the EPA’s Vehicle Greenhouse Gas Model. Please contact Patrick Merr itt at 210-522-5422 (e-m ail pmerritt@swri.org ) with any questions. Thank you for this opportunity to be of service.

Prepared by: Reviewed by:

Patrick M. Merritt E. Robert Fanick Senior Research Scientist Manager Emissions Chemistry Emissions Chemistry Emissions Research and Development Emissions Research and Development

Approved:

Jeff J. White, Director Emissions Research and Development Engine, Emissions and Vehicle Research Division

/tyd U:\Davison\wp\PROJECTS\14658 EPA FR WA 4-1 VGHG Model Peer Review PMM.doc

c: Christine Brunner, EPA NVFEL Kent Helmer, EPA NVFEL Richard Rykowski, EPA NVFEL Sherry Twilligear, SwRI Contracts

This report shall not be reproduced, except in full, without the written approval of Southwest Research Institute. Results and discussion given in this report relate only to the t est items described in this report.

SwRI Project 03.14658.01 FRMs. Almethyist A. Chambers Environmental Protection Agency June 9, 2009 Page 10 of 8



## ATTACHMENT

Appendices Number of pages

A RÉSUMÉS OF PEER REVIEW PANEL MEMBERS ..........................................17

B CHARGE LETTER TO REVIEWERS ....................................................................2

ATTACHMENT 1 - EPA VEHI CLE GHG EMISSION COST AND COMPLIANCE MODEL DESCRIPTION.......................................................45 ATTACHMENT 2 - APPENDICES TO GHG MODEL DESCRIPTION ATTACHMENT 3 - MODEL REFERENCE GUIDE ATTACHMENT 4 - BENEFITS CALCULATIONS INSTRUCTIONS

C JOHN GERMAN’S REVIEW DOCUMENT .........................................................11

D PAUL LEIBY’S REVIEW DOCUMENT ...............................................................13

E JONATHAN RUBIN’S REVIEW DOCUMENT .....................................................8

## APPENDIX A

RÉSUMÉS OF PEER REVIEW PANEL MEMBERS

 John German, The International Council on Clean Transportation

 Paul Leiby, Oakridge National Laboratory

 Jonathan Rubin, University of Maine, School of EconomicsJohn M. German 730 Brooks St., Ann Arbor, MI 48103 (734) 213-0537 (H) (734) 222-5962 (W)
PROFESSIONAL EMPLOYMENT January 2009 to present S ENIOR F ELLOW , I NTERNATIONAL C OUNCIL ON C LEAN T RANSPORTATION • Primary responsibility for technology innovation and U.S. policy development. • Managing project to track tec hnology costs and benefits worldwide. February 1998 to January 2009 M ANAGER , E NVIRONMENTAL AND E NERGY A NALYSIS , P RODUCT R EGULATORY O FFICE , A MERICAN H ONDA M OTOR C ORPORATION • Provide policy and techni cal analyses on vehicle-relate d emissions and energy issues. • Liaison between Honda R&D, both in the U.S. and Japan, and external organizations, including government agencies, enviro nmental groups, other manufacturers, academia, and state representatives. • Primary Honda representative on fuel economy and global warming issues, including testifying before Congress, writing testimony, writing responses to CAFE rulemaking, and making presentations. October, 1986 to January, 1998 SENIOR TECHNICAL ADVISOR , U

. S

. EPA OFFICE OF MOBILE SOURCES

. Supervised up to 8 employees, managed development of regul ations and guidance, and served as technical consultant on a wi de variety of issues. • Technical manager for study on Tier II em ission standards for cars and light trucks. • Designed and managed extensive research project evaluating in-use driving behavior and its impact on emissions in support of re visions to the Federal Test Procedure. Created and managed extensive usage of teams across organizational boundaries. • Managed the development of a nonroad emission inventory and the issuance of the Nonroad Engine and Vehicle Emission Study. • Managed rulemaking for Cold Temperature Carbon Monoxide Standards. • Worked with transporatation planners to help create and develop a computer simulation model for vehicle emissions. • EPA senior technical advisor on gree nhouse gas and fuel economy issues, including CAFE alternatives, in-use fuel economy factors, and advanced technology. Active member of EPA global warming team and an inter-agency modeling team. • Developed initial concep ts for On-Board Diagnostics. • Created and managed rulemaking assessi ng LDT CAFE test procedure adjustments. • Developed policy guidance for 48" roll electric dynamometer, driver-selectable devices, mileage accumulation fuel requi rements, coastdown procedures and dynamometer power absorption settings, a nd model year definition and duration. May, 1985 to Sept., 1986 TEAM LEADER , U

. S

. EPA OFFICE OF MOBILE SOURCES

. Supervised 3 employees and managed manufacturer motor vehicle emissions compliance program. • Wrote guidance on numerous certification procedure issues.December, 1981 to May, 1985 ENGINEERING SUPERVISOR , CHRYSLER POWERTRAIN

. Supervised 6 engineers, supported product planning, and developed strategies to optimize vehicle fuel economy and to ensure compliance with all fuel economy requirements. • Planned and coordina ted activities of staff. • Chrysler's principal technical advisor on fuel economy and methods to improve CAFE • Provided technical analyses and wr itten responses to proposed regulations. • Represented Chrysler on fuel economy matters with EPA and NHTSA. • Provided CAFE projections and analy zed impacts of future product changes on CAFE. • Team leader on a project with all areas of engineering to imple ment Shift Indicator Lights. Independently developed computer al gorithms to eliminate cost of a sensor. November, 1976 to December, 1981 ENGINEER , CHRYSLER POWERTRAIN

. Designed and implemented, from scratch, Chrysler's system to comply with extensiv e EPA fuel economy regulations issued in 1975. Also the corporate expert on fuel economy regulations, coordinated fuel economy testing, served as liaison with EP A, helped write responses to proposed regulations, and worked on special projects.

AWARDS and ADVISORY COMMITTEES

2008 National Research Council – C OMMITTEE FOR A S TUDY OF P OTENTIAL E NERGY S AVINGS AND G REENHOUSE G ASS R EDUCTIONS FROM T RANSPORTATION 2006 SAE Engineering Meetings Outsta nding Oral Presentation Award , FOR “I T ’ S A H IGH

MPG V EHICLE I SSUE , N OT A H YBRID I SSUE ” AT SAE G OVERNMENT /I NDUSTRY M TG

. 2004 Barry McNutt Award for Excellence in Automotive Policy Analysis 1 ST RECEIPIENT OF ANNUAL AWARD FROM THE SAE
2002-2003 advisory board , A DVANCED P OWER T ECHNOLOGY A LLIANCE , C ENTER FOR A UTOMOTIVE R ESEARCH , A NN A RBOR , MI
2002-2003 2001-2002 sae industrial lectureship program, TO PROMOTE INTERACTION BETWEEN PRACTICING
ENGINEERS AND FACULTY AND STUDENTS VIA CAMPUS VISITS 1995 SILVER MEDAL , U.S. EPA for strategies to reduce air pollution from nonroad engines
1994 EPA SCIENCE ACHIEVEMENT AWARD in Air Quality. Only person in EPA’s Office of Mobile Sources ever to receive this award.
1993 OUTSTANDING TECHNICAL COMMUNICATION in the 1992-93 Society for Technical Communication of Southeastern Michigan Technical Publications Competition, for "Nonroad Engine and Vehicle Emission Study"
1992 BRONZE MEDAL , U.S. EPA for the "Nonroad Engi ne and Vehicle Emission Study"
1991 BRONZE MEDAL , U.S. EPA for the Cold Temper ature Carbon Monoxide RulemakingLEADERSHIP TRAINING 2000 1997 1996-7 1995 1993 1992 1991 1990 1989 1988 1987 1985 1984 1982 1982 1981 Honda Leader’s Program – Cent er for Creative Leadership Modeling and Computer Simulation of Intern al Combustion Engine--U. of Mich. course Excellence in Government Fellows Progr am--Council for Excellence in Government Diversity Workshops - University of Michigan Total Quality Management Looking Glass Workshop: Leadership in Multil evel Organizations – Creative Leadership Use of Consultative Methods - EPA Institute Work Group Leadership - Conservation Foundation Regulation Development in EPA - EPA Planning Effective Meetings - EPA Zenger-Miller Supervision program on Behavior Modeling - EPA Personnel Management for Managers and Supervisors - OPM Interaction Management - Chrysler Institute Organizational Leadership and Productivity - Mansare Corp. Leadership Effectiveness Training - Chrysler Institute Supervisory Skills Training - Chrysler Institute

PUBLICATIONS John German, " Leadtime, Customers, and Techno logy: Technology Opportuni ties and Limits on the Rate of Deployment". Reducing Climate Impacts in the Transportation Sector . D. Sperling and J. Cannon, Springer Press, 2008. D. Greene, J. German, and M. Delucchi, " Fu el Economy: The Case for Market Failure ". Reducing Climate Impacts in the Transportation Sector . D. Sperling and J. Cannon, Springer Press, 2008. J. German, "Reducing Vehicle Emissi ons Through Cap and Trade Schemes". Driving Climate Change: Cutting Carbon from Transportation . D. Sperling and J. Cannon, Elseview & Academic Press, 2006. Hybrid Gaseoline-Electric Vehicle Development , edited by John German, SAE PT-117, 2005. John German, “Hybrid Electric Vehicles”, Encyclopedia of Energy , Elsevier & Academic Press, 2004 John German, Hybrid Powered Vehicles , SAE Technology Profile T-119, book published by Society of Automotive Engineers, Warrendate, Pa., 2003. John German, “Hybrid Vehicles Go to Market”, TR News #213, March-April 2001. K. Aoki, K. Nakano, J. German, S. Kajiwara, H. Sato, and Y. Yamamot o, “An Integrated Motor Assist Hybrid System – Development of the In sight, a Personal Hybrid Coupe”, SAE 2000-01-2216, 2000. John German, "VMT and Emission Implications of Growth in Light Truck Sales", Air and Waste Management Association Emission Inventory Conference proceedings, Oct. 1997. J. Alson, J. German, K. Gold, R. Larson, and M. Wolcott, "Transportation Energy Demand Models: Why They Underestimate Greenhouse Gas Emis sions", Climate Change Analysis Workshop Proceedings, June 6-7, 1996. John German, "Off-Cycle Emission and Fuel Effici ency Considerations", Asilomar conference onTransportation and Energy, 1995. John German, "Observations Concerning Current Motor Vehicle Emissions", SAE 950812, Feb. 1995. J. Koupal and J. German, "Real-Time Simulation of Vehicle Emissions Using VEMISS", CRC OnRoad Vehicle Emissions Workshop, April 1995. S. Sheppard, J. Fieber, J. Cohen, and J. Germa n, "Cold Start Motor Vehicle Emissions Model", Air and Waste Management A ssociation, Cincinnati, 1994. P. Enns, J. German, and J. Markey, "EPA's Survey of In-Use Driving Patterns: Implications for Mobile Source Emission Inventories", AWMA/CA RB Specialty Conference on Emission Inventory, Pasadena, CA, October, 1993.

EDUCATION
1980-1984 University of Michigan. Completed 34 hour s towards M.B.A. GPA: 7.9 (A=8.0)

1970-1975 University of Michigan, B.S ., Physics (minor in Math). Honors: National Merit Finalist, Honors Program, Dean's List Activities: U. of Michigan Marching Band and Concert BandInsert file

Leiby Paul N. resume_2.0page_2008May02.pdfInsert file

Rubin%20CV.pdf

## APPENDIX B

CHARGE LETTER TO REVIEWERS

## SOUTHWEST RESEARCH INSTITUTE ®

6220 CULEBRA ROAD  POST OFFICE DRAWER 28510  SAN ANTONIO, TEXAS, USA 78228-0510  (210) 684-5111  www.swri.org ENGINE, EMISSIONS, AND VEHICLE RESEARCH DIVISION HTTP://ENGINEANDVEHICLE .SWRI.ORG FAX: (210) 522-3950 ISO 9001 Certified ISO 14001 Certified

SAN ANTONIO, TEXAS

HOUSTON, TEXAS  WASHINGTON, DC  ANN ARBOR, MI Gentlemen:

Thank you for agreeing to review EPA' s propos ed vehicle emission effects model which estimates the technology necessa ry for vehicle manufacturers to meet a specified greenhouse gas (GHG) standard. The m odel is contained in the enclosed com puter program and the documentation, Description and Methodologies of the EPA Vehicle Greenhouse Gas Emissions Cost and Compliance Model and its appen dices. This report illu strates the concepts an d methodologies behind EPA' s proposed GHG model. No independen t data analy sis will be required for this review. Specifically, EPA staf f are seeking your expert opinion on the concepts and methodologies upon which the m odel relies and whether or not the model will execute these algorithms correctly. Toward this end, we as k that you please review and comm ent on the following items:

1) The overall approach to the specifi ed m odeling purpose and the particular methodologies chosen to achieve that purpose; 2) The appropriateness and completeness of the contents of the sam ple input f iles. EPA staff are not seekin g comment on the part icular values of th e contents of the input files, which are samples only. Thes e input files are included as Appendices to the model description: a) The elem ents of the Market input f ile, as shown in Appendix 1 of the m odel description, which charac terize the vehicle fleet; b) The elem ents of the Technology input file, in Appendix 2, that constrain the application of technology; c) The definition of the standard and econom ic conditions in the Scenario input file, as shown in Appendix 3; d) The elements of the Fuels input file, as shown in Appendix 4, which characterize the fuel types, properties, and prices; and e) The reference data contained in Appe ndix 5 which are currently hard-coded into the model but, in the very near future, w ill be contained in a user contro lled input file.

NOTE: The types of infor mation which can be input to the m odel point to both the flexibilities and constr aints of the model.3) The accuracy and app ropriateness of the m odel' s conceptual algorithm s and equations for technology applica tion and calculation of compliance; 4) The congruence between the con ceptual m ethodologies and the program execution;

NOTE: Thi s can be verified by com pari ng spreadsheet calculation s to the outputs provided by EPA or by changing the input va lues and exam ining the results with good engineering judgment.

5) Clarity, co mpleteness and accu racy of th e calcu lations in the Benefits Calculations output file, in which costs and benefits are calculated; 6) Clarity, completeness, and accuracy of the model's visualization output, in which the technology application is displayed; and 7) Recommendations for any functionali ties beyond what we have described as "future work."

In making your comments, you should disti nguish between recommendations for clearly defined improvements that can be readily m ade ba sed on data or literature reasonably available to EPA and im provements that are more explor atory or dependent on in formation not readily available to EPA. Comm ents should be suffici ently clear and detailed to allow a thorough understanding by EPA or other parties familiar with the model. EPA requests that you not release the peer review m aterials or you r comments until the Agency makes its model and supporting documentation public. EPA will notify the reviewers when this occurs.

If you have questions about what is required in order to com plete this review or need additional background m ateri al, please contact Patric k Merritt at 210-522-5422 or pmerritt@swri.org . If you have any questions about the EPA peer review process itself, please contact Ms. Ruth Sche nk in EPA's Quality Off ice, National Vehic le and Fuel Em issions Laboratory by phone (734-214-401 7) or through e-mail ( schenk.ruth@epa.gov ).

With best regards,

Patrick M. Merritt Senior Research Scientist Emissions Research and Development Dept.

Attachments (4)VGHG Model Documents Page 1 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 

## ATTACHMENT 1

EPA Vehicle GHG Emission Cost and Compliance Model Description

Background and Overview

On-road vehicles are the predomin ant source of GHG emissions from the transpor tation sector. Of all on-road vehicles, light-duty ve hicles and light-duty trucks (hereafter referred to as car s and trucks) produce the majo rity of the GHG emissions. There are many methods for reducing GHG emissions from cars and trucks due to the myriad of technology options avai lable to improve the efficiency of vehicles. A detailed analysis of the costs and benefits of various GHG emissions reduction requires a specialized application that optimizes and accounts for all the promising technologies, going beyond what can be accomplished with s imple spreadsheet tools . Therefore, EPA’s Office of Transportation and Air Qu ality (OTAQ) has de veloped the Vehicle Greenhouse Gas Emissions Cost and Compliance Model (hereafter referred to as the “EPA model”) to help facilita te the analysis of the cost s and benefits of reducing GHG emissions from cars and trucks..

Broadly speaking, the EPA model applies technologies with varying degrees of cost and effectiveness to a defined vehicl e fleet in order to meet a specified GHG emission target and calculates the costs and benefits of doing so. The technologies are combined into a series of vehicle “packages” over a series of model years, which defines the fleet input file.

The vehicle fleet can be char acterized very simplistically (one vehicle) or more precisely (over a thousand vehi cle models). Vehicle sale s can vary over time in the model. The vehicle description includes th e baseline level of GHG emissions along with any other attribute used in setting the target GHG emission level, such as footprint, which is discussed further below.

GHG control technology packages can be a pplied “one at a time” or in groups or bundles. The costs and effectiv eness of these technologies ar e assumed to be the same for all vehicle models falling within a vehicle type category, such as midsize cars with V6 engines or minivans. The model considers wh ether a specific vehicle model already has a specific technology package or whether a technology can or cannot be applied to it. The volume of a specific vehicle model’s sa les which can receive a technology package can be limited by indicating a fraction of its baseline that already contains some effectivenes s and cost of each specific t echnology package. The volume of a given vehicle type’s sales which can receive a specific t echnology package can also be limited with a market penetration “cap”, if desired. The effectiveness and application limits of each technology package can vary over time, if desired.VGHG Model Documents Page 2 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 Technology is applied to individual vehi cles using a ranking process. Within a vehicle type, the order of technology packag es is set by the user. Across vehicles, technology is applied to that vehicle with the lowest T echnology Application Ranking Factor (hereafter referred to as th e TARF). The TARF considers the cost of the technology, the value of any reduced fuel consumption consider ed by the vehicle purchaser, and the mass of GHG emissions reduc ed over the life of the vehicle. Fuel costs by calendar year and annual vehicles trav elled per vehicle are provided by the user.

Technology is applied to vehicles until all the technologies have reached their caps or until the sales-weighted GHG emi ssion average of a given manufacturer’s vehicles complies with the specified GHG emis sion target or stringency. The GHG target can be a flat standard applicab le to all vehicles within a ve hicle class (e.g., cars, trucks or both cars and trucks). Or, the GHG target can be in the form of a linear or logistic function, which varies the target as a function of vehicle f ootprint (vehicle track width times wheelbase).

The GHG emission target can vary over ti me, but not on a model or calendar year basis. One of the fundamental features of the EPA model is that, over a specified vehicle redesign cycle, a manufacturer has the capabilit y to redesign any or all of its vehicles. The EPA model does not attempt to determine exactly which vehicle will be redesigned by each manufacturer in any given model ye ar. Instead, it focuses on the GHG emission goal several model years in th e future, reflecting the capability of longer term planning on the part of auto manufacturers. Any n eed to further restrict the application of technology can be affected through the caps on the application of technology to each vehicle type mentioned above. Approximate costs and benefits of complying with gradually decreasing GHG emission targets with in the endpoints of a redesign cycle are produced via linear interpolation, despite that in reality these functions may resemble step functions more closely for any given vehicle.

GHG emission targets are specified in term s of CO2 equivalent emissions. They can simply be CO2 emissions from the ta ilpipe or a combination of tailpipe CO2 emissions and air conditioner refrigerant em issions. In the case of the latter, the descriptions of vehicles and technologies must include baseli ne refrigerant emissions and the effectiveness of each technology in reducing these emissions.

Once technology has been added so that every manufacturer meets the specified targets (or exhausts all of the available technologies), average costs per vehicle by

ma nufacturer and industry fleet are determ ined. Fleet-wide average GHG emissions are also approximated for each calendar year and are used to estimate a wide array of societal costs and benefits associated with the GHG emission control.

The model outputs the costs and the benefits of the control scenario. The primary cost of GHG emission control is the cost of the added technology as compared to the baseline. The primary benefit is the valu e of reduced fuel consumption and can be sensitive to the user assumed price of fuel. However, the value of a number of other costs and benefits are also evaluated, as listed below:VGHG Model Documents Page 3 of 43 1

3 4

6

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 1) The reduction or co-benefits in VOC, CO, NOx, sulfur dioxide (SOx), and PM

2 emissions associated with reduced fuel production are estimate d, as well as their value to society, 2) Societal benefits associated with reduced crude oil use which are not reflected in 5 the price of crude oil, 3) The value of reduced time necessary to refuel vehicles, and 7 4) The value of GHG emission reductions. 8

GHG emission control tends to encourage technologies that improve vehicle fuel efficiency and reduces the cost of driving, whic h in turn can result in more driving. This feedback effect is commonly referred to as the “rebound effect”, the extent of which can be specified by the user. Estimates are made of a number of potenti al costs and benefits associated with driving, as follows:

1) The increase in vehicular VOC, CO, NOx, SOx, and PM emissions, 2) The increased vehicular noise , congestion, and accidents, 3) The value of the increased driving, and 4) The cost of fuel required by the increased driving.

Where the EPA model differs from other si milar models is that it adds technology to vehicles on a redesign cycl e basis. Some models try to predict the model year when each vehicle model (of hundreds) will be redesi gned and then adds technologies to each vehicle on its redesign year. In reality, the timing of ve hicle redesign is difficult to predict, because it is constantly adjusting to changes in the market, corporate needs, or government regulations, which these other models are not able to capture. In addition, since there are hundreds of speci fic vehicle models being sold in any given model year, the technology application process becomes computati onally intensive. This methodology creates a situation where the model attempts to achieve a level of precision greater than its accuracy.

The EPA model avoids these two issues by taking a mid to long term approach to vehicle redesign, assuming a 5+ year planni ng horizon.. In this me thodology, the user designates a redesign cycle length (currently this is hard-cod ed as 5 years, but in the future this will be a user input), and the mode l redesigns the entire fleet in the final model year of the redesign cycle. This philos ophy is based on the assumption that vehicles undergo redesign at a rate consistent thr oughout the fleet. In a ddition, the EPA model looks much further into the future than other models, with the capability of adding technology to vehicles over four redesign cycl es. Because it is next to impossible to determine each vehicle model’s subconfigurat ion (there are over 1000) 20+ years in the future, the methodology of adding technologies incrementally to each vehicle model by model year does not add value to the model results. Moreover, the EPA model avoids “overmodeling” by allowing for the simplification of the fleet by dozens (or fewer) representative vehicles, rather than th e hundreds that are currently forecasted by manufacturers.VGHG Model Documents Page 4 of 43 1 2 3 4 5 6 7 8 9 10 Input Files

The EPA model is desig ned to be flexible in almost every respect. Very little data is hard-coded in the model; sin ce the model relies heavily on it s input files, the user can alter them at will to create new vehicle models, types, and technologies, or to change the model’s operating parameters for sensitivity anal ysis or “what-if” scenarios. For example the following can all be modified by the us er: vehicle descriptions, the technologies which are available to be applied to each vehi cle, as well as their costs and effectiveness.

Vehicle Fleet Characterization 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 The sample input file, “Market-1”, contai ns a list of the vehicle models that describe the vehicle fleet and five different categories of data that describe them: 1) Vehicle efficiency data, such as baseline fuel economy and GHG emissions (columns N and O); 2) Vehicle attribute data that th e model uses in its technology ranking and compliance calculations, such as footprint, we ight, and refrigerant type (columns P, Q, and AB respectively); 3) Vehicle attribute data that the model will eventually use when calculating output statistics, such as engine displacement, horsepower, and drive type, although output statistics are not calculated in the current version (columns R, S, and W); 4) Vehicle sales data, which is presented in the form of annual sales in the baseline and in the final “redesign” year of each redesign cy cle (columns E through M); 5) An indication of whether a technology package exists in the re ference case, and if so, to what degree the technology package effectivenesses and costs ar e reflected. An example of the Market input file is in Appendix 1.

Reference case technology is tracked to avoid double counting technology costs and GHG improvement. Columns AD through AW represent the fraction of the technology package effectiveness for the different vehicles that is pres ent in the reference case; for example, a value of 35% for t echnology package 1 means that 35% of the effectiveness of technology package 1 on that vehicle type is alre ady present in the reference case. Columns AY through BQ re present what fraction of the technology packages’ cost is reflected in the reference case. Likewise, a value of 75% in any of these columns means that 75% of the technolo gy package’s cost on the particular vehicle has been included in the reference case. This is to preven t double counting of technologies that are already in the baselines.

Technology Characterization 38 39 40 41 42 43 44 45 46 EPA designed the model to allow the us er to add GHG reduci ng technologies one at a time or in packages or bundles th at would reasonably and likely be added by manufacturers within a redesign cycle. In addition, the user can combine similar vehicle models into “vehicle type” groups which are likely to receive the same list of technology packages. For each vehicle type, the user mu st rank the technology packages in order of how the EPA model should add them to that sp ecific vehicle type. This approach puts some onus on the user to develop a reasonabl e sequence of technologies. However, theVGHG Model Documents Page 5 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 model also produces information which help s the user determine when a particular technology or bundle of technologies mi ght be “out of order”. The approach also simplifies the model’s calcu lations and enables synerg istic effects among technology packages to be included to the fullest degree possible.

The sample input file entitled “Tech nology-1” defines the technology packages that are available for the model to add to the flee t. The data in this file can be categorized in three ways: 1) Parameters the model us es to calculate CO2 improvement, such as effectiveness and market penetration cap (the latter being the cap of sales for each vehicle model of a vehicle type that can receive a technology package) (columns D through T); 2) Data the model uses to cal culate technology costs, such as the package cost and cost learning coefficients (columns X through AC); 3) Properties of the technology package, such as refrigerant type and fu el type (columns U through W).

Each worksheet in the file contains a user-defined list of technology packages for a different vehicle type. In or der to avoid the complexity of synergistic effects, the user must record this list within each worksheet from top to bottom in the order of how the model should add them to the particular vehicl e. Since the user de fines the technology packages contained in the input file, technologies are dynamic (user defined) and not “hard-coded” within the model. Values in columns L through S represent the Average Incremental Effectiveness (AIE) of the technology package over the previous package (or over the baseline in the case of technology p ackage 1) which the us er can adjust on a redesign cycle basis. For example, a valu e of 7.0% in the AIE column would denote a 7.0% tailpipe CO2 improvement beyond any CO2 improvements already realized. (“Tailpipe CO2” refers to the CO2 emitted ove r a test cycle - that relates it to vehicle efficiency.) This value of 7% would include any synergistic effect s that components of the technology package may have with technologies that have already been added to the vehicle type. Currently, the refrigerant eff ectiveness noted in column T is based on the fraction reduction in direct refrigerant leak age emissions and is separate from tailpipe CO2. An example of the Technology input file is in Appendix 2.

When technology is sufficiently new, or th e leadtime available prior to the end of the redesign cycle is such that it is not reasona ble to project tha t it c ould be applied to all vehicle models that are of the same specific vehicle type, for example, all minivans, the user can limit its application to minivans th rough the use of a market cap of less than 100% in columns D through K. This cap can va ry by redesign cycle. When a technology package is applied to fewer than 100% of th e sales of a vehicle model due to the market cap, the effectiveness of the technology group is simply redu ced proportionately to reflect the total net effectiven ess of applying that technology p ackage to that vehicle’s sales. The EPA model does not create a new vehicle with the technology package and retain the previous vehicle which did not receive the technology package, sp litting sales between the old and new vehicles. If subsequent technology packages can be applied to the vehicle, the user should consider whether in reality the new technology would likely be applied to those vehicles which received th e previous technology or those which did not, or a combination of the two. The effectiv eness of adding the subsequent technology may depend on which vehicles are receiving it.VGHG Model Documents Page 6 of 43 1 2 3 4 5 6 7 8 9 10 Fuel and Energy Prices

The Fuels-1 input file contai ns data relevant to fuel and electricity, including energy, mass, and carbon density (columns B through D in the Fuel tab), and annual price forecasts for up to 20 years (columns E through X). There is a small subset of fuel information not included in this file that has been hard-coded in to the model, which reflects the societal cost of importing fuel, which is discussed briefly below and in the section on benefits calculations. An exam ple of the Fuels-1 file is in Appendix 4.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Regulatory Scenarios

The Scenario input file contains all data specifying the number and types of model runs. The Scenarios tab acts as a dire ctory for different mode l runs, where the user can create an entry for any number of runs that the model can perform in succession. At present, the model is only capable of performi ng one scenario at a time, but in the future, it will be capable of batch processing. In the Scenarios tab, the user must specify the base year, type of compliance target (C O2 or MPG), type of compliance function (universal = 1, linear attribut e = 2, or logistic attribute = 3), the number of redesign cycles, and the names of the other input file s that describe the ve hicle fleet, technology packages, and fuel properties. At present, the model is limited to a CO2 standard, but our future plans include the capability to analy ze an MPG standard as well. These elements are entered in the Scenario i nput file in columns C through K, and the user can create a name for the run in column B.

As stated above, there are three options for compliance targets. The universal target option is simply a numerical designa tion which the manufacturers’ average fleet CO2 cannot exceed. In contrast , the attribute-based linear ta rget function is described by up to four coefficients and has the followi ng piecewise linear mathematical form:

Where A: CO2 minimum B: CO2 ceiling

x min : Intersection of lower asymptote with slope

x max : Intersection of upper asymptote with slope 

##  
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xxB xxxx xx AB xxA

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x: Vehicle footprintVGHG Model Documents Page 7 of 43 Example of Footprint-Based CO 2 Piecewise Linear Target Function

Footprint (ft 2 )CO2(g/mi)

1 2 3 4 5 6 7 The footprint-based logistic cu rve (shown below) is descri bed by four coefficients and has the mathematical form described below.



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9 10 11 12 13 14 15 Where A: CO2 minimum B: CO2 maximum C: Midpoint D: A sort of “inverse slope” x: Vehicle footprintVGHG Model Documents Page 8 of 43 1

Example of Footprint-Based CO 2 Logistic Target Function

Footprint (ft 2 )CO2(g/mi)

2 3 4 5 6 7 8 9 10 11 12 13 14 15 The Scenario input file also contains th e economic parameters that the model uses to calculate the Technology Application Ranking Factors (TARFs), which are the optimization equations that determine the order of technology a pplication (See the Model Logic section below). Such economic data in cludes the discount rate, vehicle payback period, cafe fine cost, the “gap” between on-road CO2 and test cycle CO2, threshold technology cost (the cost at which manufact urers add technology to only enough vehicles to meet the standard as opposed to adding technology to all of a model line), and the increase in price of CO2 over time. The user enters these economic values into columns B through G in the Economics tab of the Scenario file. An example of the Scenario input file is in Appendix 3.

16 17 18 19 20 21 22 Input data “hard-coded” into the model

There is a set of data that has been ha rd-coded into the model in the development phase, which will be moved to a new “References” input file in the very near future. This data is illustrated in Appendix 5 and is co mprised of vehicle age data, scrappage rate, vehicle miles travelled, upstream criteria pollutant emissions from fuel/energy production, storage, and distribution, regres sion coefficients for downstream criteriaVGHG Model Documents Page 9 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 pollutant emissions, emissions damage cost (cost per ton), economi c cost of importing fuel, external costs of driving, and gl obal warming potentials for various GHGs. Model Operation

Because the model depends so heavily on th e input files, the current graphic user interface (GUI) is simple to operate. Afte r installing the program and double clicking on the VGHG icon, click on the file menu and choose “Open,” and a window will appear with a set of input files. Click on the sample “Scenario ” and it loads the data. The Scenario file indicates which of the other input files are to be used in the run, and a portion of the scenario descri ption is shown in the top box of the GUI. The Market and Technology input files iden tified in the Scenario file are shown in the two boxes below. When everything is loaded, the car icon turns green. Mouse click on the car button to run the program. In less than a minute, a te xt file showing the sequence of technology addition by manufacturer and by re design cycle appears. This file is automatically named Results-“date-time”. This file can be saved by the user with a more descriptive name, if desired, by simply using the st andard Windows “File”, “Save As” actions. There is an additional saved output file entitled “Tarf = “date-time”, which includes the results of the TARF calculations for each vehicle type-technology package combination for each redesign cycle. Go back to the file menu in the GUI, and click on “Save,” which is necessary to enable the “visualization” function. In the file menu, now click on “visualization” to examine the results of the technology application process for each vehicle model in the market data file. In the near future, the information in the visualization will be generated directly in an output spreadsheet, but at present it is only available in the visualizati on, and if desired, the user can copy and paste the results manually. Economic costs and benefits can be loaded in a spreadsheet file entitled “Benefits Calculations,” located in th e “Output” folder. Open the “Benefits Calculations” excel file, and in the “Load” tab, press the “Load” button to get the economic impact results.

Model Logic

The model’s programming is organized into three main sections. At first, a preprocessing section reads in the input files a nd performs intermediate calculations to get the input data into the desired form for calculations in the se cond section, the “core” calculations. The core model backs out the existing technology from the baseline, and calculates the Technology Application Ranking Factor (the TA RF) for each vehicle typetechnology package combination and determines the order to which technology packages should be added to vehicles. The core model then adds the effectivenesses and the costs of the technology addition un til each manufacturer has met th e standard or until all technology packages have been exhausted. Finally, a post-processing section computes the societal costs and benefits of the GHG emissions reduction scenario, including the tons of CO2 reduced and the gallons of fuel saved and outputs these results in a Microsoft© Excel© file.VGHG Model Documents Page 10 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Before the model runs the optimization al go rithms, a the user can validate the data in the input files, and the m odel then reads in the data. Each redesign cycle “starts from scratch” in that every vehicl e will include only those techno logies present in the base
year.

The model then executes three time loops in the following order: 1) A calendar year loop that interpolates the annual sales in between redesign cycles; 2) A redesign cycle loop adds technology packages to vehi cles until the fleet is in compliance (the “core” programming); 3) A final loop calculate s the costs and benefits of the CO2 or MPG program and exports the economic impact re sults to a Microsoft Excel file (a post processing step).

EPA provided the contractor with the e quations and conceptual methodologies for the model with a series of spreadsheets, and the contractor develope d the program. These equations and methodologies are outlined afte r the variable and parameter definitions, below.

19 20 21

25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Pre-processing:

1) The user can validate the data in the spreadsheets, if desired. 22 2) Read in the input files 23 3) Perform calculations to convert input data into useful fo rm for later calculations: 24

A) First, the model calculates the annua l per-vehicle VMT from the survival fraction and annual miles driven for cars and trucks provided in the Reference file.

sDriven AnnualMile action SurvivalFr VMT * 
B) The model then calculates the discounted annual VMT and discounted refrigerant leakage (RCO2) for year 1 through the vehicle’s useful life according to the following equations. The subscript, i, represents the specific year of calculation. DR is the discount rate and IR is the annual increase in value of CO2.

i. Discounted VMT for fuel savings calculations



##   i i iFSD DR DR

VMT VMT  

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,, 40

41 42 43 ii. Discounted VMT for GHG calculationsVGHG Model Documents Page 11 of 43 

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2 3 4 iii. Discounted refrigerant leakage



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6 7 8 9 10 11 C) Finally, the model calculates the appr oxi mate per-mile refrigerant leakage emissions in CO2 equivalents from th e discounted leakage rate (calculated above), the Global Warming Potential (G WP) of the refrigerant provided in the Reference file, and the disc ounted VMT (calculated above).

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13 14 15 16 17 18 19 20 21 22 23 D) At this point, the model will linearly interpolate the sales in between redesign cycles in order to estimate intermediate annual sales. The final version will incorporate cost learning based on sales volume. Since the current version of the model does not account for cost l earning, this calculation is currently performed in the start of the “post processing” section of code, which calculates the social costs and benefits of the modeled regulation, rather than in the core code. Therefore, it will be discussed in the section below on post processing.

Core Program : 24 25 26 27 28 29 30 31 32 33 34 The core program is divided into two ma in parts: The first part determines the order in which the model must add technology packages to vehicle types, and the second part is the technology applica tion until all manufacturers ha ve met the standard provided in the Scenarios input file (or the penetra tion caps have been met). The core code contains the baseline technology accoun ting, the technology application ranking optimization, the technology application and cost calculations, and whether the manufacturers have met the standard. Subscrip ts (t-1) and (t) indica te vehicle conditions before and after technology package “t” addition, respectively.VGHG Model Documents Page 12 of 43 2

4 5 6 7 8 9 10 1) Determine the order of technology application

1

A) First, the mo del “backs out” any advan ced technology that might have been 3 present in the baseline. This step ensu res that costs and be nefits aren’t double counted when the model is optimizin g the order of technology package application. This is done fo r both Tailpipe and Refrigeran t CO2. The subscript, i, refers to the current te chnology package and the subs cript, n is the final technology package for the vehicle type.



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12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 

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whereas AIE is the average increm en tal effectiveness of the technology package, RIE is the refrigerant increm ental effectiveness of the techno lo gy package, CAP is the market cap, and TEB is the percent of the technology package’s benefit that has been reflec ted in the baseline. The RIE reflects either a change in refrigerant or a redu ction in refrigerant leaks, as opposed to an improvement in A/C efficiency result ing in a fuel efficiency gain (from a smaller compressor, for example) are reflected in the AIE. The backed-out CO2 is calculated for each technology package on each vehicle.

B) Intermediate calculations for each vehicl e type-technology package combination:

i. Calculate the new tailpipe and re frigerant CO2 after technology is added to the baseline fleet (any a dvanced technology in the baseline has been removed via the “backout” calculations) and thus CO2 t-1 and R CO2 t-1 are equivalent to the BackedoutCO2 i and BackedoutRCO2 i from above. 

##   AIE COCO t t   

 122 1 36 

##  

1 1 122

   

t t
t t GWP GWP RIE RCO RCO 37

38 39 40 41 The model uses this “backed out” CO 2 in the equations above because it helps compare the effectiveness of the various vehicle-technology package combinations on a level playing field. If the model did not backVGHG Model Documents Page 13 of 43 1 2 3 4 5 6 7 8 out the effectiveness of the technolo gy in the baseline, the model wouldnot be able to appropriately compare the effectiveness of the vehicletechnology package combinations, a nd the technology application order would not be as robust.

ii. Calculate the fuel consumption (FC) before and after technology addition:

     

 

 

 gC gCO CD CO FC

t t
t

12 244 2

1 1 1 9

     

 

gC gCO CD CO FC

t t
t

12 244

2 10

11 12 13 14 15 16 17 18 19 20 21 22 Whereas CD t-1 and CD t represent the carbon density of the liquid fuel. The model does not use the equation, since it does not account for a change in fuel type. The electric consumption of the vehicle before and after technology addition is a direct input from the Market and Technology file, respectively.

iii. Calculate the fuel savings (FS). Ve hicles can have up to two separate energy sources, which are distingu ished by subscripts 1 and 2. Currently, the model recognizes the s ubscript “1” as the liquid fuel and “2” as electricity, for plug-in hybrid vehicles.

t PP

i PP

i t PP

i PP

i i FP FC i FP FC i FP FC i FP FCFS      
      
 

#    

 

   1 2 2 1 1 1
1 1 2 2 1 1 1 23

24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Since the fuel price (FP) changes fr om year to year, the fuel savings will be calculated based on the average fuel price from the year of manufacturer to a “Payback Peri od” (PP), specified by the user.

C) The model then calculates the Technology Application Ranking Factors (TARFs), which are used to compare the effectiven ess technology packages on the different vehicle types, and optimize the order in which the model should add technology packages to the fleet. At this point, the model calculates one TARF for every technology package-vehicle type combination.

Currently, there are two TARF equations from which the user can choose: “Effective Cost” and “Cost Effectiveness – Manufacturer.”

i. The “Effective Cost” TARF is defined as the cost of the technology (variable plus amortized fixed) mi nus the discounted fuel savings overVGHG Model Documents Page 14 of 43 1 2 3 a specified payback period of vehicl e use minus the im plicit reduction in CAFE non-compliance fee. Quantitatively, it is defined as follows:


#          



   

  

## 

1

1 ,, 11 )1( 1

t t PP

i iFSD FCFC FEE GAP VMT FS TechCost EffCost 4

5 6 7 8 9 10 11 12 13 14 15 16 17 18 Where the GAP is the difference be tween real-world and test cycle CO2 and the FEE is a fee for non-compliance, both of which are inputs to the model. Appendix 7 contains the full equation form (without intermediate steps).

ii. The Cost Effectiveness-Manufacturer incorporates the effective cost (illustrated above) but also accounts fo r the GHG benefit. It is defined as the cost of the technology minus the discounted fuel savings over a specified payback period minus th e implicit reduction in CAFE noncompliance fee (which is the “effective cost” definition), all divided by the amount of lifetime GHG emission reduction in kg of CO2 equivalent. It is represented quantitatively as the following:


#  

    

##   

#     

#  



   

          



  

 35

,2, 1 1 1 1 1 ,,

1 1 2222 11 )1( 1

i

i iCOD t t t tt PP

i iFSD i

MFR Gap VMT CO CO RCO RCO FCFC FEE GAP VMTFS TechCost CostEff 19

20 21 22 This equation can be rewritten as:



##     

##   

#     

##  

 

    35

,2, 1 1 1 1 1 2222 i

i iCOD t t t MFR Gap VMT CO CO RCO RCO EffCost CostEff 23

24 25 26 27 28 29 30 31 32 33 Appendix 7 contains the full equati on form (without intermediate steps).

Finally, the model determines the or der in which technology packages are added to vehicles. The model firs t compares the TARFs corresponding to technology package 1 on all of the diffe rent vehicle types in the fleet and chooses the combination with the lo west TARF. (The lowest effective cost/most cost effective combination is represented by the smallest TARF, whereas a negative TARF indicates a negative cost.)VGHG Model Documents Page 15 of 43 1

3 4 5 6 7 8 9 10 11 12 13 14 D) Application of technology packag es and compliance calculations

2

At this point, the model has determined the optimal order of technology application and must apply the technologi es’ effectivenesses and costs until each manufacturer has achieved compliance or exhausted all technology package options.

A) Starting with the vehicle type-techno logy package combination having the lowest TARF, the model adds the tec hnology package and calculates the new vehicle CO2 emissions according to the following equations:

i. First, the model calculates the tailpipe CO2 (TCO2); i.e., this is the CO2 the vehicle would emit on a test cycle. 

##  

TEBAIE AIECAP TCO TCO t
t  

 

  1 12 2 1 15

16 17 18 19 20 21 22 23 Where TEB is the “Technology Effec tiveness Basis,” which is the percent of the technology package’ s effectiveness that is reflected in the baseline for the vehicle to which it is being applied.

ii. The model also calculates the re frigerant CO2 (RCO2), which is based on improvements in leakage or a change in refrigerant 

##  

1 1 1 12 2

    

 



t t t
t GWP GWP

TEBRIE RIECAP RCO RCO 24

25 26 27 28 29 30 31 32 33 34 35 iii. The model must then calculate the cost this technology addition. It calculates average incremental cost , the average per-vehicle cost (averaged over a manufacturer’s fl eet), and the cumulative cost up to this point for all manufacturers.

The average incremental cost is performed for each technology addition (but is not reported). It is the cost of the technology added up to its market cap minus the cost of the technology present in the baseline.

) (* CEBCAP TechCost lCost Incrementa

  36
37 38 39 40 41 42 43 Where CEB is the “Cost Effectiveness Basis,” which is the amount of the technology package’s cost that is in the baseline for the particular vehicle.

Next, the average vehicle cost for each manufacturer is calculated and reported.VGHG Model Documents Page 16 of 43 1

MFR MFR Sales TotalFleet ModelSales TechCost Cost AvgVehicle      

 * 2

3 4 5 6 7

8

9 10 11 12 13 14 The model then updates the cumulative costs of the program. In future versions of the model this can also be expressed in terms of cost per redesign cycle.

MFR Compliance

T MFR MFR Sales TotalFleet Cost AvgVehicle Cost Cumulative         

 

## 

 1 whereas T is the number of the technology package.

iv. The next step is to add the tailpi pe and refrigerant CO2 equivalent. The result is the vehicle’s total CO2 and is used in the calculation for compliance.

t t t RCO TCO CO 222   15
16 17 18 19 B) The model must then recalculate the fleet CO2 for each manufacturer that produces the vehicle type that r eceived the technology package. 

##   

#   



MFRModels Models t
Sales COSales
FleetCO 2
2 20

21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 The model must calculate this value for each manufacturer and compare the result with the standard that the user has indicated for that manufacturer in the Scenario file input. If the manufacturer has not me t the standard, the model iterates back and compares the rema ining TARFS for technology package 1 along with the TARF for t echnology 2 on the same ve hicle type to which the previous technology package was just a dded. The model then repeats the process of choosing the next lowest TA RF out of the new group, applying the technology package effectiveness and cost values, calculating the new total CO2, and recalculating the new fleet averages. The model performs this loop until each manufacturer has met the sta ndard or until the technology packages have been exhausted.

Appendix 6 contains a compilation of variab le definitions used in this section.

36 37 38 39 40 Post-Processing - Calculation of Costs and Benefits

The model estimates discounted costs and benefits on both calendar year and model year bases. We describe these calcula tions on a calendar year basis first, followed by that for an entire model year’s vehicle sales. In both cases, the discount rate isVGHG Model Documents Page 17 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 specified by the user, as desc ribed above. Except for tec hnology costs, all costs and benefits are estimated on a fleetwide basi s. Industry fleetw ide technology costs are estimated, b ut they are also estimated on a disaggregated basis by manufacturer.

Costs and Benefits by Calendar Year

A list of the types of costs and benefi ts evaluated by the EPA Model was provided in the Background and Overview section above. The first step in estimating these costs and benefits is to develop estimates of vehicle costs, GHG emissions and fuel consumption by model year. This is done by lin early interpolating vehi cle sales, the cost of GHG emission control per vehicle, GHG emis sions per mile, and fuel consumption per mile between the baseline case and the firs t redesign cycle and s ubsequently between redesign cycles. For example, if the baseli ne year is 2010, redesign year 1 is 2015 and redesign year 2 is 2020, we linearly inte rpolate between the 2010 and 2015 sales to estimate annual sales for years 2011-2016. Like wise, we linearly inte rpolate between the 2015 and 2020 sales to estimate annual sales fo r years 2016-2019. The same is done for the other factors. The following equation depicts the arithmetic involved. 

#  

1 2 1 2
1 ar redesignye ar redesignye Sales Sales Sales s AnnualSale ar redesignye ar redesignye yearX yearX

   

 19

20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 With an estimated cost per vehicle and vehicle sales by model year, the cost of added technology is simply the product of th ese two values. For simplicity, we assume that all the sales of a given model year’s vehi cles occurs in the calendar year of the same value.

Most of the other costs and benefits depend on an estimation of the amount of VMT occurring in each calendar year by vehicl es of a certain model year vintage. As reduced fuel consumption per mile can lead to increased driving, the amount of VMT in the baseline and control cases can differ and incr eases the complexity of the calculations. Thus, the next step, conceptual ly, is to estimate the percentage increase in VMT that might result from reduced driving costs.

The rebound effect is defined as the ratio of the percentage change in VMT to the percentage change in incremental driving cost, which is typically assumed to simply the incremental cost of fuel consumed per mile . As mentioned above, the economic concept is that as driving becomes cheaper, people te nd to drive more. Since VMT increases with a reduction in fuel consumption, the sign of the rebound effect is negative. The rebound effect (REB) is an input on the “Economics” worksheet of the “Scenario.xls” file. The percentage increase in VMT for a given ch ange in fuel consumption per mile is calculated as follows: 

##  

old new old reb FleetFC FleetFC FleetFC REB VMT   * 42

43VGHG Model Documents Page 18 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 Since fuel consumption changes by model year, each model year’s vehicles will reflect a different change in VMT. This change in VMT is assumed to continue throughout the life of the vehicle, since fuel economy is assu med to be constant throughout vehicle life.

Only new vehicles are affected by the additional technology. Thus, in any given calendar year, some of the VMT will be by vehicles whose GHG emissions and fuel consumption has changed and the remainder will be by vehicles which were unaffected by the addition of technology. The model es timates this split by predicting each model year’s vehicles contribution to total VMT in each calendar year.

The model currently contains estimate s of annual VMT per vehicle by vehicle age, as well as the fractions of new vehicles still on the road as a function of age. These estimates are taken from EPA’s MOBILE6 mo del and are contained in cells M1:Q39 of the Shared Inputs worksheet of the Benefits Calculation spreadsheet. The values for these two parameters are currently hard-coded in the model. However, they will soon be made a part of a References spreadsheet and modifiable by the user. For the purposes of benefit calculation, the user can already change these values in the Benefits Calculation spreadsheet and the changes will flow through to the calculation of fuel consumption and VMT-related costs and benefits.

The total VMT by a specific model year’s vehicles in specific calendar year is determined by multiplying 1) new vehicle sales for that model year, 2) the fraction of new vehicles remaining on the road according to the age of those vehicles in that calendar year and 3) the annual VMT for that vehicle clas s at that age. Hist oric vehicle sales are currently hard-coded in the model, like annua l VMT and survival fractions. However, they will soon be made a part of a Referen ces spreadsheet and modifiable by the user. For the purposes of benefit calcu lation, the user can already change these values in the Benefits Calculation spreadsheet and the changes will flow through to the calculation of fuel consumption and VMT-related costs and benefits. Vehicle sales starting with the baseline year are input to th e model through the Market spread sheet, as described above. Historic sales are shown in cel ls V2:W39 of the Shared Inputs worksheet of the Benefits Calculation spreadsheet. Vehicle sales st arting in the baseline year are shown on the Benefits2 (Sales) worksheet of the Benefits Calculation spreadsheet.

These VMT values for each combination of model year and calendar year are then multiplied by fuel consumption per mile and emission factors and summed by calendar year to determine total fuel consumption and emission levels by calendar year both before and after GHG emission control. Fuel consumption per mile and CO2-equivalent emissions before and after control are dire ct outputs of the compliance model. Precontrol levels are specified in the Market spreadsheet, while post-control values are a direct function of the GHG standard specifi ed. The resultant fuel consumption and emission levels are presented on the Emissi ons_Fuel_Consv worksheet of the Benefits Calculation spreadsheet. Intermediate calculations are perfor med on the VMT_Lookup and VMT_Rebound_Effect worksheets of the Benefits Calculation spreadsheet.VGHG Model Documents Page 19 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 The model also estimates the additional emissions of CO, VOC, NOx, PM and SOx which result from the rebound effect. The emission factors for these pollutants are currently hard-coded in the model, like annua l VMT and survival fractions. However, they will soon be made a part of a Referen ces spreadsheet and modifiable by the user. For the purposes of benefit calcu lation, the user can already change these values in the Benefits Calculation spreadsheet and the changes will flow through to the calculation of social costs and benefits. These emissions are currently specified as a function of age using either linear or quadratic equations. The coefficients for these emission factors are taken from EPA’s MOBILE6 emission model and are shown in cells H1:R11 of the Exclusive Inputs worksheet of the Benefits Calculation spreadsheet. The resultant emission levels are presented on the Emissi ons_Fuel_Consv worksheet of the Benefits Calculation spreadsheet.

The value of the change in fuel consumption is determined by simply multiplying the change in fuel consumption by calendar y ear by the price of fuel less taxes. Fuel prices are input to the model via the Fuels spreadsheet, as described above. They are shown in cells D1:E44 of the Shared Input s worksheet of the Benefits Calculation spreadsheet. Fuel taxes are not currently input to the model, but are simply part of the Benefits Calculation spreadsheet. We plan to add these taxes by fuel type to the Fuels spreadsheet. Fuel taxes are assumed to be constant over time and are shown in cells AE2:AF2 of the VMTAdjCosts worksheet of th e Benefits Calculation spreadsheet. The value of fuel savings are shown on column E of the Externaties worksheet of the Benefits Calculation spreadsheet, and also carried forward to the Non-Tech Costs and All Costs worksheets.

The model also estimates the value of exte rnalities related to crude oil use. These externalities include, for example, monopsony effects within the crude oil market, the economic impact of periodic price shocks, a nd military costs related to protecting oil production and supply overseas. These values ar e all in terms of $ per gallon. They are currently hard-coded in the model, like annua l VMT and survival fractions. However, they will soon be made a part of a Referen ces spreadsheet and modifiable by the user. For the purposes of benefit calcu lation, the user can already change these values in the Benefits Calculation spreadsheet and the changes will flow through to the calculation of costs and benefits. The value of crude oil related externalit ies are shown on column F of the Exte rnaties worksheet of the Benefits Calcul ation spreadsheet, and also carried forward to the Non-Tech Costs and All Costs worksheets.

The value of the changes in CO2 and other pollutant emissions are based on estimates of the value of these pollutants per ton of emission. The value of CO2 emission reductions is input to the mode l through the Scenario spread sheet. This value in real terms can vary over time (e.g., increase at 2.4% per year in real dollars). The values for the other pollutants are currently hard-coded in the model, like annual VMT and survival fractions. However, they will soon be made a part of a References spreadsheet and modifiable by the user. They are shown in cells A15:B23 of the Sh ared Inputs worksheet of the Benefits Calculation spreadsheet. For the purposes of benefit calculation, the user can already change these values in the Bene fits Calculation spreadsheet and the changesVGHG Model Documents Page 20 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 will flow through to the calcula tion of costs and benefits. The value of changes in vehicle em issions are shown on the Downstr eamCosts ($) worksheet of the Benefits Calculation spreadsheet, and also carried forward to the Non-Tech Costs and All Costs worksheets.

The model also estimates the amount of emission reduction related to reduced fuel production and distribution. The estimates of the emissions of each pollutant associated with the production and distribution of each fu el are currently hard-coded in the model, like annual VMT and survival fractions. Howe ver, they will soon be made a part of a References spreadsheet and modifiable by the user. They are shown in Columns E and F of the Shared Inputs worksheet of the Benefits Calculation spreadshee t. For the purposes of benefit calculati on, the user can already change these values in the Benefits Calculation spreadsheet and the changes will fl ow through to the calculation of costs and benefits. The value of changes in upstr eam emissions are shown on the UpstreamCosts ($) worksheet of the Benefits Calculation sp readsheet, and also carried forward to the Non-Tech Costs and All Costs worksheets.

The model estimates five additional vehicl e related costs and benefits. Three are related to the additional VMT resulting from reduced fuel consumption: noise, congestion and accidents. The values for these factors ar e expressed in terms of $ per mile. Thus, their total values are simply the product of these per mile values and the additional VMT resulting from the reduced fuel consumption. The values of these three vehicle related impacts are currently hard-code d in the model, like annual VMT and survival fractions. However, they will soon be made a part of a References spreadsheet and modifiable by the user. They are shown in cells A11:B 14 of the Exclusive Inputs worksheet of the Benefits Calculation spreadsheet. For the purposes of benefit calcu lation, the user can already change these values in the Benefits Calculation spreadsheet and the changes will flow through to the calculation of costs and benefits. The value of changes in these vehicle impacts on society are shown on the ExternalVMTCosts ($) worksheet of the Benefits Calculation spreadsheet, and also ca rried forward to the Non-Tech Costs and All Costs worksheets.

The fourth vehicle related impact is related to the time required to refuel vehicles. As fuel consumption per mile decreases, if fuel tank size doesn’t decrease, or at least does not decrease proportional to fuel consump tion, the number of vehicle refuelings will decrease. T he parameters involved in estim ating the reduction in refuelings are not currently input to the m odel, but a re simply pa rt of the Benefits Calculation spreadsheet. We plan to add these parameters to the References spreadsheet. The value of the reduction in the number of refueling is estimated as the product of:

1) The reduction in fleetwide fuel co nsumption for a spec ific calendar year, 2) Average fuel tank size, 3) Average refueling volume, as a percentage of fuel tank capacity, 4) Ratio of the change in fuel tank size to the change in fuel consumtion, 5) Average time required to refuel a vehicle, 6) Value of time to the driver and other occupants,VGHG Model Documents Page 21 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 7) The number of total occupants in the vehicle, including the driver.

The input values and the annual benef its are in columns H and I of the Externa lVMTCosts ($) worksheet of the Benefits Calculation spreadsheet, and also carried forward to the Non-Tech Co sts and All Costs worksheets.

The final vehicle related benefit categor y is the value of the increased driving associated with the rebound effect. People decide to drive more because the value of travelling somewhere exceeds the cost. This value consists of two components. The first is the sum of the direct costs of the additional driving. This is assumed to be cost of fuel consumed plus that of the additional c ongestion caused. The additional noise and accidents are not considered to be direct co sts. Noise is primarily experienced by nondrivers and therefore not consider ed by drivers in their decision to take an additional trip. While accidents tend to be proportional to m ileage, especially for a given driver, we assume that most of the cost of accidents is borne by insurance, where there is only a weak association with mileage driven. C ongestion, on the other hand, is totally experienced by drivers and expe rienced fully each trip.

The second component of the value of the additional driving is the change in the consumer surplus of the demand for VMT versus the cost of driving. We estimate this change in surplus as one half the change in VMT times the change in the cost of driving, which here is the reduction in fuel cost per mile. All of these terms have already been estimated for other purposes within the Benef its Calculation spreadsheet. The value of the additional driving is calcu lated and shown in column I of the ExternalVMTCosts ($) worksheet of the Benefits Calculation spread sheet, and also carried forward to the NonTech Costs and All Costs worksheets.

The first step in loading the Benefits Ca lculation model is to “save” the results of a model run (click on “File”, then “Save” in the menu bar of the model window). This saves the model results in an “.html” file, w hose name is the current date/time stamp. The next step is to open the Benefits Calcula tion spreadsheet (if it is not already opened), go to the Load worksheet, and click on the Load button. From the list of files available to load, choose the last one on the list. This loads the latest m odel results into the spreadsheet and updates all the co st and benefit estimates.VGHG Model Documents Page 22 of 43 1

2
3 

## ATTACHMENT 2

Appendices to GHG Model DescriptionAppendix 1: Examples of Market input file (Vehicle Fleet Characterization)1231Appendix 2: Technology input file (technology package characterization)123456Appendix 3: Scenario input file11Appendix 4: Fuels input file123Appendix 5: Tables of hard-coded input data, which will soon be included in an editable input file.12Downstream Criteria Pollutant EmissionsRegression CoefficientsLDV LDT LDV LDT LDVa4.5689 3.3150.0980 0.1429 0.0008b-0.0052 -0.0054 0.0275c0.0030 0.0033 0.0262b*[x] + aCOVOCNOx1.5073 1.3852y= b*[x] + ay = c*[x2] +3465Upstream Emissions from Fuel/Energy Production, Storage,and DistributionPollutantFuel TypeTotal Upstream Emissions(grams/mmBtu)Conventional Gasoline14.45Low Sulfur Diesel12.67COElectricity Generation58.55Conventional Gasoline27.42Low Sulfur Diesel7.78VOCElectricity Generation19.73Conventional Gasoline48.11Low Sulfur Diesel42.92NOxElectricity Generation239.85Conventional Gasoline4.30Low Sulfur Diesel3.48PM2.5Electricity Generation76.31Conventional Gasoline24.13Low Sulfur Diesel20.94SOxElectricity Generation527.33Conventional Gasoline17067Low Sulfur Diesel15560CO2Electricity Generation219933124356789101112131415AverageCO2emissions(gpm)New Vehicle SalesModel YearCarsTrucksCarsTrucks201036451481000006300000200936551480000006700000200836551779190007020000200736551878850007290000200636651981300006932000200536551979640007886000200436552375380008173000200336652479510007824000200236651983040007815000200136652084080007202000200036049491280007447000199936049583790006839000199835749579720006485000199735649683350006124000199636245878900005254000199535846593960005749000199436245684150005710000199335845784560004754000199236445381080004064000199135544785240004049000199037548388100003805000198937549710018000443500019883725101073600045590001987375538107310004134000198638146311015000435000019854365131079100036690001984443497106750003345000198345679980020002300000198244695678190001914000198145559387330001821000198053810889443000186300019796161197107940003088000197864612451117500032730001977661102711300000282300019766911124972200026120001975698112482370001987000Vehicle Age DataProportion of Original Sales Surviving toAge:Average Annual Miles DrivenVehicleAgeCarTruckCarTruck10.99500.995013,38915,13320.99000.974113,13514,84930.98310.960312,86014,52940.97310.942012,56714,17850.95930.919012,25713,79960.94130.859011,93313,39670.91880.822611,59612,97480.89180.782711,24812,53590.86040.740110,89312,084100.82520.695610,53111,625110.78660.695610,16511,161120.71700.65019,79710,697130.61250.60429,42910,235140.50940.55179,0639,781150.41420.50098,7029,337160.33080.45228,3468,908170.26040.40627,9998,498180.20280.36337,6628,109190.15650.32367,3377,747200.12000.28737,0287,415210.09160.25426,7347,117220.06960.22446,4596,857230.05270.19756,2066,638240.03990.17355,9746,464250.03010.15225,7686,340260.02270.13325,5896,269270.00000.11655,4386,254280.00000.10175,3196,254290.00000.08875,2336,254300.00000.07735,1826,254310.00000.06735,1826,254320.00000.05865,1826,254330.00000.05095,1826,254340.00000.04435,1826,254350.00000.03855,1826,254360.00000.03345,1826,2541234567GWPt-1= global warming potential of the refrigerant before technology addition8GWPt= global warming potential of the refrigerant after technology addition9CDt-1= carbon density of fuelbefore technology addition10CDt= carbon density of fuel after technology addition11FCt-1= fuel applicable to prior technology12FCt= fuel applicable to new technology13Appendix 6: Definitions of variables in Model EquationsRIE = refrigerant incremental effectiveness ofthe technology package on that vehicle typeCO2t-1= tailpipe CO2 emissionsbefore technology additionCO2t= tailpipe CO2 emissionsafter technology additionDR = discount rate123456789101112131415161718IR = annual increase in value of CO2PP = payback periodFEE = fine for non-compliance (CAFE)GAP = difference betweentest-cycle fuel economy andreal-world fuel economyVMTi= annual miles traveled in year iVMTD,FS,i= annual miles traveled in year i, discountedVMTD,CO2,i= annual miles traveled in year i, discountedRCO2i= refrigerant leakage rate in year i (g/mi)RCO2t-1= refrigerant leakage before technology additionRCO2t= refrigerant leakage after technology additionTCO2 = tailpipe CO2 (e.g., the test cycle CO2 emissions)REB = rebound coefficient (% change in VMT for every 1% change in fuel consumption)TEB = technology effectiveness basis, which is the effectiveness of the technology packagereflected in the baselineCEB = cost effectiveness basis,which is the cost of the technology package reflected in thebaselineAppendix 7: TARF Equations (full)1234 1,,12211111221111(1PPiiFSDPPiPPitPPiPPiGAPVMTiFPFCiFPFCiFPFCiFPFCTechCostEffCost5678    910     35,2,1111,,122111112211111222235,2,1111(1112222iiiCODtttMFRGAPGapVMTCOCORCORCOEffCostCostEff1112iiiCODtttPPiiFSDPPiPPitPPiPPiGapVMTCOCORCORCOVMTiFPFCiFPFCiFPFCiFPFCTechCost)VGHG Model Documents Page 34 of 43 

## ATTACHMENT 3

MODEL REFERENCE GUIDEVGHG Model Documents Page 35 of 43 Vehicle Greenhouse Gas (VGHG) Application
Quick Reference Guide
Model Version: .9

Introduction : This document is to serve as a quick reference guide for using the Vehicle Greenhouse Gas application and the associated input spreadsheet files.

Input Spreadsheets: There are four spreadsheets, in the current version of the application, that are required for a given scenario. Each spreadsheet consists of multiple worksheets as follows:

1. Scenario Spreadsheet ( Scenario.xls )

a. Scenarios – contains scenario run paramete rs and references to associated input files, suffixed by the scenario id number, e.g. Market-1.xls b. Economics– provides economic parameters such as discount rate and payback period

c. Targets – contains cycle-specific, user-ent ered target values for cars and trucks 2. Market Spreadsheet ( Market-1.xls )

a. Market Data – provides sales and engineer ing information for each vehicle for each given scenario run b. MFR Sales – provides inputs corresponding to sales percentages by manufacturer used to generate generic model records

c. Vehicle Type – provides lookup informati on associated to inputs and linkage between the market file spread sheets for each vehicle type 3. Technology Spreadsheet ( Technology-1.xls )

a. Vehicle Type (1...X) Worksheet – contains technology cost, effi ciency, and market cap assumptions and other related info rmation specific to a vehicle type 4. Fuels Spreadsheet ( Fuels-1.xls )

a. Fuel – contains the forecasted fuel pri ces by year as well as fuel’s chemical properties

Each spreadsheet also contains an Error Worksheet that provides the
Validate Data button. If errors exist thro ughout the separate worksheets, the error messages will be presented after the data validation. Note that skipping the data validation ca n result in unexpected behavior in the application.

All spreadsheet column headers include special color coding to indicate if and how the associated column values are used. Green background indicates, columns that contain lookup values, e.g. Vehicle Type column in the Market spreadsheet. Yellow background indicates values that are auto-generated by the spreadsheet and/or read-only, e. g. ID column in the ScenarioVGHG Model Documents Page 36 of 43 spreadsheet. Gray background indicates columns wi th values that are read in but not currently used, e.g. Horsepower in the Market spreadsheet. Turquoise background indicates calcul ated values, e.g. Combine FE in the Market spreadsheet.

Instructions:

Updating the Spreadsheets:

1. Navigate to the folder containing the spreadsheets. (C:\Program Files\VGHG\Input) 2. Open input spreadsheet(s), starting with the Scenario spreadsheet and modify input parameters as needed. (Note not to add any data rows in the Scenario.xls) 3. Click on the Error tab. 4. To verify the accuracy of the new data, click on the Validate Data button.

a. If no errors exist, the Error Worksheet will remain blank. b. If errors exist, the Error Worksheet will have a row populat ed per error. The column headers convey the following information: i. Sheet – worksheet the error will be found ii. Row – row number on the proceeding worksheet where error will be located iii. Col – column where error will be located iv. Error – explains why the data isn’t correct

5. If no errors exist, save the spreadsheet. 6. If errors exist, the individual cells will be hi ghlighted in red. Make the appropriate changes and then save the spreadsheet. 7. Follow similar process with the other 3 relate d spreadsheets until all run data has been entered and validated.

Common Error ExamplesVGHG Model Documents Page 37 of 43 Issue Fix
Blank Field – Value () is not a number. Enter a number into the field

String Field – Value (1) is not a string. Enter an alphabetic string into the cell

Number Field – Value (A) is not a number. Enter a numeric value into the cell Percentage Field – Value (1200) must be equal to or less than 1. Enter a numeric value between 0 and 1 into the cell Running the application:

1. On the desktop, click on the VGHG icon to open the VGHG application. You will be presented w ith the VGHG Model user interface.

2. Click on the File drop-down and select the ‘Ope n’ option. You will be presented with the Open Scenario File pop-up box.VGHG Model Documents Page 38 of 43 3. Select the Scenario.xls file and Click Open. The tables will be populated with data from the four spreadsheets. 4. Verify that the correct data has been populated into the VGHG Model.VGHG Model Documents Page 39 of 43 5. Click on the green car button.

6. The system will run the model and present th e step wise results for each cycle and manufacturer in a text file at the end of the execution.VGHG Model Documents Page 40 of 43 At the end of the run you have the option to save the results as an XML f ile to load into the Benefits workbook or use it for other types of post pr ocessing analysis. To sa ve the result data to an XML file, select File|Save from the menu.

You may also run this XML file thru a built in transformation package to “Visualize” the results.

Below is a partial display of the html page produced using th e “Visualize” option:VGHG Model Documents Page 41 of 43VGHG Model Documents Page 42 of 43VGHG Model Documents Page 43 of 43 

## ATTACHMENT 4

BENEFITS CALCULATIONS INSTRUCTIONSVGHG Model Documents Page 44 of 43 

### Benefit Calculation Spreadsheet Vehicle Green House Gas Model

The Benefit Calculation spreadsheet is an analys is tool for determining the total cost savings from CO 2 reductions forecast by the Vehicle GHG mode l. The January 23, 2009 version of the spreadsheet includes a number of modifications to facilitate both expandability and error checking

The original spreadsheet has been reorganized to facilitate a smooth connection to the Vehicle GHG core model. Major changes include:

 The original input worksheet has been divided into four separate sheets:

o Load, which serves as the point of entr y for output from the model. The name of the most recent loaded XML file is displayed on this page as well as some additional information.

o Model Results, which contains the ma nufacturer/model/redesign results from the Vehicle GHG model. This sheet also includes a number of aggregations to the Car/Truck level by redesign cycle.

o Exclusive Inputs, which include inpu ts required only by the Benefits Calculation spreadsheet. These are pr imarily physical constants and emissions damage costs.

o Shared Inputs, which are required by both the Benefits Calculation spreadsheet and the Vehicle GHG model (e.g. the di scount rate, payback period and fuel price forecast.) These values are also read from the Vehicle GHG output to insure that the Benefits Calculations use the same values used by the model.

 VBA code has been added to handle data import from the model.

 The Benefits2 (Sales) tab has been reorient ed so that the sale s forecast goes down rather than across. This is for easier viewing of the data.

 The VMT_Lookup sheet includes a table of VM T by vehicle age with separate columns that reflect different first year starting points – these are calculated from the rebound effect.

 The VMT_Rebound_Effect table includes all of the Model Year / Calendar year data that was originally included in the triangular tables.

 The AnnualTotals table summarizes inform ation from the VMT_Rebound_Effect sheet into Calendar year totals.

 The remaining pages in the Benefit Calculati on spreadsheet have been updated so that all references are to the new pages.

 Note that the cell background color scheme (s ee the legend on the Load sheet), is used on all pages.

 Several pages were no longer required as thei r functionality has been moved to the new sheets. These have been removed from the spreadsheet to eliminate confusion (and to greatly reduce the size of the spreadsheet)VGHG Model Documents Page 45 of 43 Loading Model Results:

The system transfers data from the Vehicle GHG model to the Benefits Calculation spreadsheet via an XML file that is exported by the model af ter all redesign cycles are complete. The XML file contains and organizes all of the spreadsheet input data a nd the model output data. This approach of using a separate XML output file allows for flexible integration into other future post-processing spreadsheets since all of the import ant data is organized into a single file. Results from a Vehicle GHG scenario run may be lo aded automatically into the appropriate cells in the Benefit Calculation spreadsheet via the Load button that appears on the “Load” tab. Data read from the Vehicle GHG scenario includes:

 CO2 emission and cost forecasts for each make and model in each redesign cycle.

 Vehicle sales data for each make and model in each redesign cycle.

 Shared Inputs

The spreadsheet contains the following sheets:

Sheet Name Purpose Comments

Load Specify scenario and read in the XML outputs from Vehicle GHG. Loads data for up to four manufacturers and a maximum of four redesign cycles. Note that the XML file is usually located in the .\output subdi rectory of the VGHG installation directory.

MODEL RESULTS Summarizes model outputs in a flat table. Also includes Redesign cycle totals and averages for Cars and Trucks If data is read in for less than eight cycles, values from the last cycle read in will be copied forward to fill in a full eight cycles.

EXCLUSIVE INPUTS Data values required by the Benefits Calculation spreadsheet, but NOT by the core Vehicle GHG mode

SHARED INPUTS Data values require by both the Vehicle GHG model AND the Benefits Calculation spreadsheet.

BENEFITS2 (SALES) Interpolates annual Car and Truck sales based on the input data for sales in the redesign cycles. Sales forecast now extends through all eight redesign cycles (2050)

VMT_Lookup Tables of VMT by vehicle age with increasing values calculated from the rebound effect.

VMT_Rebound_Effect All Model Year / Calendar year calculations for impacts due to the rebound effect. This includes both costs and benefits.

AnnualTotals Calendar year totals for the model year / calendar year data on the VMT_Rebound_Effect pag. Note that the Baseline and earlier CO 2 values for Cars and Trucks are included as the last two columns on this tab. EXTERNALVMTCOSTS ($) Calculate negative impact of rebound VMT due to Congestion, Accidents and Noise

DOWNSTREAMCOSTS ($) Summarizes downstream costs calculated on the above six worksheets. Applies a discount rate to determine the net present value of the future cost stream.VGHG Model Documents Page 46 of 43 Sheet Name Purpose Comments
FUELCOSTS ($) Calculates cost savings due to reduced fuel consumption. EXTERNALCRUDECOSTS ($) Calculates cost savings due to reduced need for crude oil.

UPSTREAMCOSTS ($) Calculates the upstr eam savings due to reduced emissions of CO 2 , CO, VO X , NO X , PM and SO 2 due to reduced need for gasoline production from crude oil.

ALL NON-TECH COSTS Summary of all Non-Technology costs and benefits for a given Vehicle GHG scenario.

TECH COSTS Summary of Technology costs from the model.

ALL COSTS Summary of Technology and NonTechnology costs.

## APPENDIX C

JOHN GERMAN’S REVIEW DOCUMENTAppendix C-1 John German Review The charge to reviewers was, “E PA staff are seeking your expert opinion on the concepts and methodologies upon which the model relies and wh ether or not the model will execute these algorithms correctly.” The emphasis of my revi ew is on the inputs to the model and the model concepts and methodologies. I did not devote muchattention to the outp uts and whether or not the model executes the algorithms correctly, as th e model will certainly evolve and improve over time. Thus, assessing outputs and proper execution of algorithms will be a living, constantly changing challenge, as the model itself changes. My time and expertise is better spent focusing on inputs and model structure. (Not to mention that I just ran out of time.)

Concepts and Methodologies Upon Which the Model Relies:

(A) Model structure

The model is an accounting model. This is neither good nor bad. The advantag e is that it avoids overmodeling and embedding errors in the model its elf. The disadvantage is that the factors affecting the results are all inputs to the model. This requires a great deal more sophistication and work by anyone using the model to prepare the inputs properly. It will also make it more difficult for anyone outside EPA to use the model, unless EPA is willing to provide the detailed inputs to other users.

With this type of model, it is essential th at EPA release the data in the Technology and Economics input files and discuss them in the Notice of Proposed Rulemaking, as the real analyses and modeling are in these input files. But as long as this is done, the overall model construction is fine.

(B) Redesign cycles

I completely agree with EPA’s logic in creati ng a model based upon vehicl e redesign cycles. As EPA states, adding technologies incrementally to each vehicle model by model year does not add value to the model results. Using redesign cycles also allows for simplification of the fleet. It is impossible to predict the direction of vehicle re designs for each manufacturer. It is just as accurate to assume, for example, that future mid-size cars from each manufacturer will be identical; as it is to assume that current differenc es in mid-size cars from one manufacturer to the next will be continued into the future. As a r ecent example, Honda left their compact crossover, the CR-V, virtually unchanged in size during the latest redesi gn. However, Toyota chose to lengthen their compact crossover, the RAV4, by 14” during its latest redesign. It is pointless to try to predict differences in vehicles from diff erent manufacturers in the future and it is pointless to try to predict the exact year when redesigns will occur. This is a welcome simplification.

Another advantage of using redesign cycles is that GHG standards for interim model years can only be set, reasonably, as a st raight line (or a constant % decr ease) between the baseline year and the end of the redesign cycle. This is appr opriate. Constant year ly % reductions provide a consistent signal to manufacturer s for investment decisions.

However, there is one potential problem with us ing redesign cycles. It masks the investmentAppendix C-2 John German Review needed to bring new technology to the market. The auto industry is extremely capital intensive. Initial investment in a new technology is expens ive, both for tooling and the resources necessary to assess (and fix) system-level effects a nd effects on reliability, durability, safety, and manufacturing. Redesign cycl es tend to assess only the costs for high-volume production and skip over the high initial costs. Care must be taken to prope rly assess costs in the inputs.

(C) Leadtime

The model handles leadtime issues far too simplistically. This was also a problem with the Volpe model. Leadtime is one of the most impor tant issues in setting standards and one of the most difficult issues to assess properly. Thus , it is disappointing to see both NHTSA and EPA provide so little atte ntion to the issue.

The only leadtime constraints in the draft m odel are industry-wide caps on the maximum technology penetration by redesign cy cle and vehicle type. There ar e several problems with this approach:

 The largest problem is that it is inappropr iate to treat all manufacturers the same. A manufacturer that has already invested in a pa rticular technology in the baseline year will be capable of higher penetration rates than a ma nufacturer that has neve r used the technology before – and also of producing the technology at lower cost. An obvious example is hybrid vehicles. Over 10% of Toyota’s vehicles already have hybrid systems on them. After introduction of the CR-Z next ye ar, Honda should also have more than 10% hybrids. Due to their experience and head start with hybrids, both manufacturers will be capable of much higher penetration rates than most other manuf acturers. They are also further along the learning curve, so their costs will be lower. Si milar situations exist with most technologies.

 Another problem is that costs wi ll vary from manufacturer to manufacturer. As noted in my comments on redesign cycles, above, there ar e large upfront costs when a manufacturer introduces a new technology. For example, T oyota has already amortized large R&D and system-level costs for hybrid vehicles. They will be able to produce hybrids cheaper than manufacturers that are just starting to offer hybrids. The point is that the “Initial Incremental Cost” in the Technology Input Fi le should not be applied to all manufacturers at the same time, but rather to each manu facturer at the time they first introduce a new technology.

 The third problem is that there is no such thi ng as a hard cap on technol ogy penetration rates. There is a tradeoff that exists between cost and leadtime. Technology introduction can be accelerated by increasing invest ment – and cost and risk.

Long-Term Recommendation – The best way to handle lead time constraints and technology penetration is to assess capita l investments by manufacturer. Th is would require adding a new section on capital expenditures. In addition to assessing the cost of each technology, the capital expenditure would also be asse ssed. Ideally, there would be two components to the capital expenditure assessment for each technology, one for R&D expenditures for the first implementation of the technology and one for th e capital investment needed to add the technology to additional models. However, the second is more important. Each manufacturer would be assigned a total capital expenditure budget for the re design cycle and technologies could only be added up to the point where the sum of the technology capita l expenditures did not exceed the manufacturer cap. Alternatively, so me increase in technology penetration over theAppendix C-3 John German Review cap could be allowed, but only if coupled w ith increasing technology costs. This would appropriately handle leadtime constrai nts and technology penetration rates.

Short-Term Recommendation – The long-term recommendation w ould require a lot of new work and is clearly not feasible in the timeframe need ed for EPA’s rulemaking. As a short-term fix, instead of using industry-wide caps on maximu m penetration for each technology, EPA should: (a) Set caps on the maximum increase permitted per year. This would be applied to each manufacturers’ individual t echnology penetration; and (b) Establish the model year for initial introduc tion. For technology that has not been introduced to the market yet, this year coul d be the same for all manufacturers. For a technology that is already being used by a manufacturer, the ba seline year would be used for that manufacturer. However, if a manufact urer were not using a technology yet, even if another manufacturer is using it, a year of introduction would need to be set for that manufacturer. (c) Some technologies would still need caps on ma ximum penetration. However, this should reflect market restrictions, not leadtime cons traints. This would incorporate consumer values for particular technologi es that go beyond just efficiency and performance. For example, even though manual transmissions ar e more efficient than automatics, most consumers will not give up the convenience of an automatic. PHEVs do not have much benefit for people driving a lot of highway mile s each day. Diesels are desired for trailer towing and have advantages on highway fuel economy, while hybrids have advantages in stop-and-go driving. These types of market consider ations can be handled by establishing maximum penetration caps, but th ey should be handled separately from how leadtime is handled by manufacturer.

Note that the yearly cap and introduction date violates the de sign cycle principal, but it is important to create the proper cap for each manuf acturer and technology combination. Instead of using a model year for (b), above, the user coul d specify how many years into the design cycle a technology could be introduced.

(D) Technology Assessment

Requiring the user to input technology in rank order of cost-effectiveness is an interesting attempt to handle the synergy issue. Unfortunately, it fails to work in other ways:

 It only works if the learning rate is the same for all t echnologies and if no technology changes effectiveness over time. If one techno logy has a steeper learni ng curve than another, or if a technology increases benefits in the fu ture, then the cost-effec tive order will change over time. For example, high-tech diesels ar e a relatively mature technology, as over 5 million per year have been sold in Europe for several years. Their future cost reduction potential is much less than that of hybrid vehicles, whose sa les are at least an order of magnitude lower and which are still at early stag es of development. Also, the high power Liion batteries just starting to penetrate the ma rket will allow much smaller battery packs for conventional hybrids, with large cost reducti ons. In addition, analyses by MIT (2007) suggest that hybrid benefits will increase in the future as ma nufacturers figure out how to use the hybrid system to minimize operation at le ss efficient engine speed/load points.

 The synergies will differ depending on the specif ic technologies into which an individualAppendix C-4 John German Review manufacturer has already invested. For ex ample, consider one manufacturer that has invested in MPI turbos and a second that has invested in DI naturally aspirated engines. If both manufacturers move to DI turbo engines, th e first manufacturer will gain the benefits of DI adjusted for the DI/turbo synergies, while the 2 nd manufacturer will gain the benefits of turbocharging adjusted for the same DI/turbo synergies. Thus, the synergy impact of DI/turbo must be assessed independently of each technology. Even if the model ignores the leadtime constraints imposed by baseline technology investment and assumes every manufacturer will adopt the exac t same technology packages for a given vehicle type (not a good idea, as discussed, above), a problem still exists in backing out “any advanced technology that might have been present in the ba seline” (page 12, line 3-4) . In order to back out the baseline technology for different vehi cles and manufacturer s, the technology input file must contain independent asse ssments of MPI turbo, DI natura lly aspirated, and DI turbo. The DI turbo line includes the synergies, but the other two lines do not . How does the model add them back in? If the turbo lines and DI lines occur before the DI turbo line, then the technologies will be added together first wit hout consideration of the synergy effect.

 It does not allow for different markets for different technologies. For example, diesel engines have additional value for (a) customer s who tow and (b) customers in rural areas. Towing is valued only by a small part of the ma rket, but it is an important feature for that market. Customers in rural areas do a lot of hi ghway driving and value the high efficiency of the diesel on the highway, while hybrids excel in urban areas. Thus, the markets for diesels and hybrids will be self-selected to some extent by their relative city and highway mpg, not the combined mpg used to select all technology.

In order to work properly, the model must be able to handle multiple pathways. For example, the model cannot allow turbo and DI benefits to be a dded sequentially, but must force each to go to a DI turbo input. A similar situation exists with the various variable valve timing systems and VCM. All offer primarily pumping loss reductions and all options must be present in the input file in order to back out technol ogies in the baseline. All these options cannot be added back by the model one after the other – the model must al so be able to handle these multiple pathways. Another example is transmissions, where the in put file must list 5-, 6-, 7-, and 8-speed automatics, as well as DCTs and CVTs (even ig noring manual transmissions). I could go on. The point is that I do not s ee how the model can avoid handl ing multiple technology pathways and depend only on the input or der to handle synergies.

The model must also be able to handle technologie s with different rates of change in benefits and costs in the future. This also requires that th e model process the lines i ndependently and not rely on the input order.

The market considerations could perhaps be handled with maximum penetration caps. For example, it could be considered that diesel e ngines will not compete well with hybrids in urban areas, so that the maximum penetra tion of diesels would be equal to their sale in rural areas plus trucks designed to tow, with the reverse true for hybrids. Of course, this will differ by manufacturer, which is a problem if universal caps, instead of manufacturer-specific caps, are maintained.Appendix C-5 John German Review (E) Maximizing Net Social Value

The model only outputs total costs and benefits. It presents these with great amounts of detailed information. But it is impossible to tell if the scenario has maximized net social value.

To put it another way, the model is only capab le of counting up the benefits and costs of complying with pre-determined GHG standards. It is not able to do the reverse, which is to input the desired benefit and have the model determine the resulting GHG standard.

This is not a trivial issue. The 2007 EISA sp ecifically mandates “maximum feasible” CAFÉ standards after 2020. NHTSA has long interpreted existing statutory author ity to also require maximum feasible standards and established long ago that “maximum feasible” is determined by the point at which the costs of adding the next technology exceed the bene fits. Even without a mandate, any credible analysis must be able to compare the costs and be nefits of the chosen GHG standard to the maximum net social value.

Given the existing complexity of the model, it is not unreasonable for the model to also determine the GHG standard that maximizes net so cial value. The Volpe model calculates this point even with a much more complex model. EP A’s model will lose considerable credibility if it is not capable of calculating the maximum net social value point.

Appropriateness and Completeness of th e Contents of the Sample Input Files:

(F) Market Input File

The market input file appears to be appropriate an d complete – perhaps too complete in one way. The file contains separate inputs for referen ce case technology bene fits and costs. The percentages in these columns should simply re flect the existing market penetration of each technology package. They should be identical for both costs and benefits. Is there a reason why these would be different? If so, the Model Desc ription should explain this. If not, the duplicate columns can be removed.

Minor Suggestions:

 If the model wants to “back out” existing t echnologies, you will need a lot more than 20 columns to do this. You’ll need 10 columns just to handle transmissions and another 10 just to handle different valve timing systems. Not to mention differing le vels of high strength steel and aluminum use.

 The Model Description should st ate that vehicle types are a user input defined in the “Vehicle Type” tab of the Mark et Input File (I looke d around for a while before I found this.)

 If you maintain separate columns for reference case technology costs and benefits, it would help the user to add a row above the existi ng descriptions and define columns AD-AW as “reference case benefits” and colu mns AX-BQ as “reference case costs”.Appendix C-6 John German Review (G) Technology Input File

As discussed above, the technology input files need to be substa ntially modified in conjunction with changing the model to ha ndle multiple technology paths.

In addition, also as discussed above, the “Cap Cy cle” numbers need to be replaced with generic caps on the maximum increase permitted per year and manufacturer-specific model years for initial introduction. The annual technology pene tration increase cap w ould be applied to each manufacturers’ individual ba seline technology penetration, fro m the Market Input File, or starting with the manufacturer-sp ecific initial model year for t echnology packages that have not been used yet by individual manufacturers.

The Average Incremental Effectiveness fields are fine, although, as noted above, if these change for future redesign cycles, the cost-effective orde r of the technology packages can also change.

I could not find any explanation of how the Initial Incremental Cost,  , Decay, seedV, kD, and Cycle Learning Available fields are used in the model. Even the detailed algorithms on pages 9- 16 of the Model Description contain no referenc e to how technology costs are adjusted for the TARF calculations. Thus, I was not able to assess the appropriateness of these fields. However, in general, the cost reduction curve is not lik ely to be the same for all technologies. Some flexibility may be needed here.

The Technology Input File does not address we ight impacts associated with different technologies. For example, both diesel engine s and hybrids add considerable weight to the vehicle, which negatively impacts both performance and efficiency. It is possible to handle this off-board in the efficiency benefit estimation. However, if so the Model Description should explicitly state that weight impacts are expected to be assessed by the user and included in the technology inputs.

(H) Scenario Input File

The compliance options – universal standard, linear at tribute, or logistic at tribute – are fine.

However, there are columns in the Scenario input file that are not described in the Model Description on page 6:

 TARF Option (column E) – Is this the “two TARF equations from which the user can choose”, described on page 13? If so, should state this on page 6.

o Why is the “Effective Cost” TARF equation limited to fuel savings over the payback period? Why aren’t the discounted lifetime fuel savings considered? Is this done to try to mimic what technologies will be most acceptable to the customer? If so, this should be explained in the Mode l Description. I’m also not sure this is appropriate. Most technologies will be invi sible to the customer. In ad dition, the primary point of CAFÉ and GHG standards is to fill in the ga p between the consumers’ value of fuel savings and the value to society. So, the standards should be targeted towards society’s values, not the customers.

o The equation for “Cost Effectiveness – Manuf acturer” equation does not make sense.Appendix C-7 John German Review Unless a technology includes a fuel change , this equation will produce virtually identical results for all technologies. The CO2 summed in the denominator is directly proportional to fuel consumed summed in the numerator. The ratio should be virtually the same for all technologies, unle ss there is a fuel change. What is this equation trying to do?

o Why is the fuel savings only summed over the payback period, while the CO2 savings are summed over the useful life? Why are they not the same?

 Target Function Type (column F) – I could not find a description of this field anywhere in the Model Description.

 Fleet type (column G) – The description in Rykowski’s emai l response to Rubin should be added to the Model Description.

 Trading limit (column I) – The description in Rykowski’s email response to Rubin should be added to the Model Description.
Economic parameters – The “CAFÉ fine” and “CO2 value increase rate” are fine. However, the other parameters may need modification:

 Discount rate – There is some t hought that the CO2 discount rate should be different from the economic discount rate. I am not sure I agr ee with these arguments, but you may want to include flexibility to have a different discount rate for CO2 in the model.

 Payback period – As discussed, above, I am not sure this is needed. Any use of payback period should be explained and jus tified in the Model Description.

 CO2 fine – While the CAFE fine is used approp riately in the model, there is no consideration of a manufacturer paying CO2 fi nes instead of complying with CO2 standards. Of course, this is dependent on the compliance strategy adopted by EPA for its CO2 standards. But the model should have the flexibility to model CO2 fines; similar to how it handles CAFÉ fines.

 Gap – It is appropriate to adjust the test values for differences in real-world fuel consumption. However, the gap is not linear. As EPA demonstrated in their fuel economy label rulemaking, the gap increases as fuel c onsumption decreases. While the fuel economy label adjustments overstate the actual gap, th e curves for city and highway fuel economy labels from the generic equations are illustrativ e. The model should add the ability for the user to input a nonlinear gap function.

 I do not understand the value of “threshold cost ” or how it is used. Lines 8-10 of page 8 state, “threshold technology cost (the cost at which manufacturers add technology to only enough vehicles to meet the standard as oppos ed to adding technology to all of a model line)”. The detailed calculations later in th e Model Description do not discuss how this is done. From a practical point of view, how does the model know whether or not the technology is needed to meet the standard when the technologies are f eed into the model one at a time? More importantly, manufacturers have limited resources and the standards will drive technology development well beyond what a manufacturer would have done without them. Thus, why would a manufacturer add any technology to more vehicles than are required to meet the standard? Unless these concerns can be addressed in the Model Description, the “threshold cost” should be eliminated.

 Rebound effect – Line 38 on page 17 states th at the rebound effect is an input in the “Economics” worksheet. However, it is not list ed in the worksheet. In any case, the rebound effect is not handled appropriate ly in the model. The rebound effect is a sensitivity factor.Appendix C-8 John German Review But it is determined from a regression. Which means that the change in VMT is NOT a linear function of the change in fleet fuel c onsumption. Thus, the equation on lines 41-43 of page 17 is wrong. The actual relationship is logarithmic or exponential or something like that (I don’t remember exactly what). The correct equation should be built into the model.

o The rebound effect is also impacted by the price of fuel and household income. This should be added to the model (see medium- to long-term recommendations, below).

Minor suggestions:

 It appears that the “Cars A”, “C ars B”, “Cars C”, and “Cars D” columns in the Target tab are intended to describe the footprin t-based logistic curve. Does this mean that “Cars C” and Cars D” are also the Xmax and Xmin under the linear attribute option? If so, both descriptions should be in the column headings. Also, while the Model Description (page 6-7) includes a good explanation of the how the linear target and logistic curve work, it should also specifically state where the A, B, C, D, and X coefficients can be found in the spreadsheet.

 The economic parameters are discussed as part of the Scenario input file on page 8. Lines 12-13 also state that an example of the Scenar io input file is in Appendix 3. However, Appendix 3 only includes the “Scenarios” tab an d the “Target” tab. The “Economics” tab should also be added to Appendix 3.

(I) Fuels Input File

The fuels file works fine for conventional gaso line and diesel. The Model Description does not address biofuels, but if needed the Fuel Input and the Upstream Emissions worksheets should be able to handle them.

Electricity is a special problem . A minor issue is that the Energy Density (column B), Mass Density (column C), and Carbon density (column D) are different than fo r liquid fuels. Liquid fuels are generally expressed in units per gallon. This doesn’t work for electricity. The units for electricity in the Fuels Input sh eet need to be defined. Also, I’m not sure what Mass Density would be for electricity – kg/kWh? And isn’t ca rbon density meaningless, as the carbon is all upstream?

More importantly, the energy density and mass de nsity for electricity are not fixed, but are dependent on battery construction. High-power Li-ion batteries for c onventional hybrids may only have about 15 Wh/kg energy density, while high-energy batteries for PHEVs and EVs may have over 100 Wh/kg. In addition, start/stop sy stems and belt-alternator/starter systems may use lead-acid batteries and some c onventional hybrids may continue to use NiMH batteries through the 2013-2015 timeframe. All will ha ve different energy densities.

Minor suggestions:

 The Model Description, line 6 page 6, says, “There is a small s ubset of fuel information not included in this file”. This is not accurate. Appendix 5 contains upstream emissions, which is an extremely important factor for fuels. This connection should be discussed in the Model Description.

 The appendices should be ordered to match th e order they are discussed in the ModelAppendix C-9 John German Review Description (i.e. the fuels Appendix shoul d be before the Scenario appendix).

(J) Reference Data in Appendix 5

Downstream Criteria Pollutant Emissions: The fields and the regressions as a function of age are appropriate. However, there is not enough flexibility to handle differences in fuel, future em ission standards, and future fuel sulfur control:

 The model should be able to handle future reductions in emission control standards. This means that the model should allow the user to specify effective years for future emission standards and enter new regression coefficients.

 SO2 emissions are almost entirely a function of the sulfur level in the fuel. Thus, the model should also handle changes in fuel sulfur level. The model should allow the user to specify effective years for future sulfur reduction and the fuel sulfur le vel for both current and future fuels. If desired, the user w ould not have to enter regression co efficients for SO2, as there is a fixed relationship between fuel sulfur, fuel consumption, and SO2 emissions (much like CO2 to fuel consumption) that could be hard-c oded in the model if the user specifies fuel sulfur levels.

 The regression coefficients will be different for gasoline, diesel, and electric vehicles. Average coefficients can be used for the current fleet, but these will not be appropriate if there is a substantial change in the future mix of diesels, PHEVs, or EVs. The model needs to allow input of different coefficients for diesel and gasoline – and possibly biofuels. Downstream emissions of electric operation shou ld be zero and do not have to be input.

 It appears that the model does NOT calculate dow nstream pollutant emissions as part of the normal model accounting, only the additional emissions caused by the VMT rebound effect. This is not appropriate. If there is a switc h to diesels or EVs, the downstream pollutant impact needs to be assessed by the model.

Upstream Emissions:

 The upstream emission inputs are fine for ga soline and diesel, although addition rows will likely be needed to handle biofuels and unconventional oils.

 It is not clear if the efficiency of battery recharging is included in electricity upstream emissions. The model likely calculates onl y the mmBtu actually us ed by PHEVs and EVs during use. However, the mmBtu draw from th e utility will be larger due to losses in the battery charger and in the batter y chemical process. To ensure that the user handles this properly, it would be best to a dd an input somewhere for charging efficiency. Otherwise, the Model Description should explic itly state that the upstream grams/mmBtu for electricity must be incremented to include the losses in the charger and battery.

 Upstream emissions, both carbon and pollutant, for electricity will vary by region. While it is the responsibility of the user to input pr oper factors, there is a potential issue with stratification of PHEV and EV sales across the nation. Customers in urban areas are most likely to buy PHEVs and EVs will likely be limited primarily to a few, dense urban cores. It might be useful to have the Model Description briefly discuss the need for the user to input upstream values for electricity that are consiste nt with utility emissi ons in the urban areas most likely to purchase PHEVs and EVs.Appendix C-10 John German Review Vehicle Age Data and histori cal data on average CO2 emissi ons and new vehicle sales: These fields and inputs are fine.

(K) Other Reference Data

Externalities related to crude oil use: The externalities in the External ities worksheet of the Benefits Calculation are only listed for imported oil. This is appropriate for military cost s for protecting oil supplies, but it is not for the economic impact of periodic pri ce shocks (and possibly for monopsony effects as well). Oil is a global commodity. Any reduction in oil use, either domestic or imported, will help reduce the economic impact of periodic price shocks.

Rebound effects: The discussion of the rebound effects on lines 10-19 of page 3 and on pages 20-21 both imply that rebound effects are NOT consid ered in assessing the societal benefits from reduced crude oil use and GHG emission reductions. However, I woul d assume that these be nefits are based upon total fuel consumption, which includes the additional VMT from the rebound effect. If my assumption is not accurate, then the social benefits associated with reduced crude oil use and the value of GHG emission reductions must be revised to include the rebound effect. If the benefits do include the additional VMT from the rebound eff ect, this should be clar ified in the discussion on both page 3 and page 20.

Recommendations for Improved Model F unctionality – beyond “future work”:

(L) Recommendations for Short-Term Functionality

The functionality of the model is good. My only recommendati ons are those already described above, for improved handling of leadtime (secti on C), ability to handle multi-path technology inputs, (section D), and ability to calculate “maximum net social benefits” (section E).

(M) Important Medium-Term and Long-Term Recommendations

1) By far the most important improvement is to use budgets for capital expenditures to assess leadtime. The need for this and suggestions on how to implement it were discussed in section (C), above.

2) The rebound effect is impacted by both th e price of fuel and household income. These should be added to the model. The work has already been done by Small and vanDender. Their equations should be added to the model, along with the necessary user input fields for future household income. An option to skip the fuel an d income effects can be maintained, but it is important that the model be capable of properly calculating rebound effects.

 The time value of congestion and vehicle refueling are also related to household income. While this is of lesser importa nce than the rebound effect, it should be relatively easy to add household income effects to the va lue of congestion and vehicle refueling in conjunction with adding hous ehold income to the VMT rebound effect.Appendix C-11 John German Review (N) Less Important Long-Term Suggestions

3) Inclusion of the city and highway fuel economy/CO2 values may help with assessing market penetration caps, although th is can be done externally. Al so, separate city and highway values could help calculate an appropriate in-use fuel economy/CO2 “gap” for different technologies with different city/highway fuel economy ratios. Separate city and highway numbers might also be useful for other purpos es. EPA should consider adding these to the model.

4) Value of time required to refuel vehicles: The model handles this appropriately for liquid- fuel vehicles. However, PHEVs and EVs will add refueling time, both because of the need to plug in and, in the case of EVs, the shorter range. This should be added to the model. Ideally, it should also be added to the TARF assessment.

## APPENDIX D

PAUL LEIBY’S REVIEW DOCUMENTAppendix D-1 Paul Leiby Review May 29, 2009 Paul N. Leiby pleiby@gmail.com

Review Comments on EPA’s GHG Model and the documentation, “ Description and Methodologies of the EPA Vehicle Greenhouse Gas Emission Cost and Compliance Model ” (Based on Drafts received May 1, 2009)

Thank you for the opportunity to review this model and its documentation. This is an important project, and the EPA team has made great progress in developing a coherent, informative, and very usable system. I understand that this is a work in progress and, regrettably, many comments can only refer to its current (May 1, 2009) state. Also most of the comments are in the form of what might be changed or improved, with the hope that these might be most useful. I would like to say at the outset that everyt hing achieved so far is well wo rthwhile, and some features are quite marvelous. Please also interpret statemen ts below of the form “the model does/does not” as meaning “as far as I could discern so far, it seems like the model does/does not.” Statements like “the model/documentation should” really mean “Perhaps it would be helpful if the model/documentation were adjusted to....” In su m, this work is to be applauded and I look forward to its next iteration. Comments are offered in order of the questions posed, and in structured bullet form.

Questions to address : 1) Comments on: The overall approach to the specified modeling purpose and the particular methodologies chos en to achieve that purpose;

 This model fills an important need for an independent capability to assess how manufacturers might respond to GHG emissi on regulations on light-duty vehicles.

 There is much to recommend this model, wh ich grapples with some key challenges of assessing how progress toward tighter fuel use or GHG emissions standards can be achieved through incremental vehicle tec hnological change, and at what cost.

 The essential approach of this model is consis tent with others in a similar vein, with the most notable predecessor being the NHTSA “V olpe Model.” It describes the set of technological possibilities for improvi ng vehicle fuel economy, or reducing GHG emissions, characterizing for each technology the cost and incremental change in emissions and fuel use. It determines a sequence of introduction for fuel-economy (or fuel switching) technologies necessary to meet a fleet-ave rage CO2 emission constraint for each manufacturer. However it differs fr om some other approaches in significant
ways:

o 1. The sequence of discrete technologies that can be us ed for any single “Vehicle Type” is exogenously specified by the user. Thos e fixed technology successions t , t +1 ... for each vehicle type v ,essentially define a vehi cle-type-specific supply (marginal cost) curve for emissions reduction. The model determines the sequence in vehicle types each separately progress in an orderly fashion down their emissions reduction technology curve.Appendix D-2 Paul Leiby Review o 2. The model makes vehicle technology re design decisions not annually, but for each vehicle “design cycle,” which is t ypically specified as a fixed number of
years.

o 3. The algorithm does not do a simultaneous choice of the set of technologies that minimize vehicle net costs such that the GHG emission standard is met. Rather it iteratively “dispatches” discrete new t echnologies by choosing which vehicle is to progress next by one more step through its sequence of technologies. It repeats this dispatching over vehi cle types until the fleet av erage GHG emission standard is finally met. The choice of which ve hicle type is to receive more advanced technology is based on one of two fi gures of merit, called “TARFs.”

 It is wisely stated that effective model de sign hinges on a careful definition of its purpose or purposes, and an acknowledgement of its bounds and limitations. The documentation could be much strengthened in this regard. Here is my impression of its suitability:

o This model is currently most suited to estimating the incremental net technological cost of any single ma nufacturer achieving various GHG emission levels, specified as an average for that manufacturer’s new-car fleet. It accounts for technology costs and lifetime fuel cost savings in its dispatching of technologies for each manufacturer’s fleet. Other attributes and societal impacts may be monitored ex post (e.g. the extensive and somewhat disparate list on the top half of p. 3, includin g criteria pollutant emissions , noise, congestion, refueling time, etc.) but these are not considerations in the model’s solution, i.e. in the core algorithm that sequences the applic ation of vehicle technologies.

o A compact way to describe the models appr oach is that, like the Volpe Model, its solution has two phases: “manufacturer co mpliance simulation” (with cost-based technology choice) and “effects estima tion” (based on a diverse set of ex post calculations).

o The model does not project vehicle sales, or sale s mix, or aspects of vehicle design and vehicle appeal to consumers, apart from altered lifetime vehicle capital and fuel use costs. This is not menti oned as a flaw, but as an important design choice that should be stated. Large ch anges in fuel economy and GHG emissions could have important indirect impacts on the design and appeal of the vehicle, particularly if tradeoffs are made in the areas of vehicle size, weight, performance, range, and, for alternative fu els, fuel availability and convenience.

o The model treats each manufacturer’s regulatory attainment problem independently, and is not currently designed to model “flexible” emission standards that allow permit trading among manufacturers, permit banking or borrowing, or economy-wide GHG trading systems.

 Suitability of method

o To some extent the discussion of the mani fold ancillary benefits and costs can be a distraction, since a coherent and co mplete framework for their endogenous analysis is currently outside the scope of this model. I suggest that the model developers may wish to stay focused fi rst on clearly and rigorously modeling the fuel-economy technology choice and cost -effectiveness considerations, for various GHG emission levels. Where possi ble, one reasonable design approachAppendix D-3 Paul Leiby Review might be to assume that other vehicle at tributes are essentially held relatively constant, for each vehicle size and type.

o Overall, the model documentation suggests that model developers may be hopeful of doing too much soon, with many (ove r 10) stated intentions for future extensions. Better and sounder results ma y follow from strategically limiting the model scope, carefully testing the model (in full, with real datasets), and then selectively adding features over time.

o One feature of this model approach is its comparative analytical simplicity but heavy reliance on specialized data inputs (d iscussed further in Item 2 below). This should be viewed as a model stre ngth: its contributi on need not rely on analytical sophistication, but also on the coherent application of good quality, widely reviewed data.

 Two major methodological points:

o In any model, particularly any model of markets with social externalities and government intervention, it is esse ntial to be very explicit about whose behavior and objectives are being modeled. Otherw ise there is danger that nobody is really being described, or that we might imput e particular knowledg e and incentives to market actors who actually have neither. Naturally a model can be both normative, saying what should be done optim ally, or descriptive, saying what we think will be done by some actors in certain circumstances even if it is not clearly optimal. And it can apply to what would or should best be done for different agents: vehicle consumers, manufacturers, or the government/society as a whole. I am a little unclear about whose behavior is being modeled in the succession of technology decisions made. It appears the intent is to model market behavior ofcompetitive vehicle manufacturers facing cost-minimizing consumers and a firmwide emission constraint. But the objective of such a firm is not explicitly stated, and the solution rules are not cl early mapped to that objective.

 In this matter it seems that the Volpe Model has set a good example by succinctly and specifically stating up -front whose beha vior is being modeled: “The system first estimat es how manufacturers might respond to a given CAFE scenario, and from that the system estimates what impact that response will have on fuel c onsumption, emissions, and economic externalities.” [P. 1, http://www.nhtsa.gov/staticfiles/ DO T/NHTSA/Traffic%20Injury%20Cont rol/Articles/Associated%20Files/811112.pdf ]

 Would a similar description not al so apply to the EPA GHG model?

o Given this idea of modeling the behavior of particular actors, e.g. manufacturers, in mind, the objectives of the actors shoul d be reflected in the solution method or optimization condition. Bearing this in mind, there are some concerns with each of the two TARFs proposed as techno logy-dispatching figures of merit.

 The “EffectiveCost” TARF is essen tially the cost of each technology net of its discounted lifetime fuel savings (omitting the problematic “FEE” component, which seems mis-specified). Arguably, minimizing this would be a correct objective of new- vehicle consumers who discount fuelAppendix D-4 Paul Leiby Review savings in the same way and give n no change in non-cost vehicle attributes. This could also be the objective of competitive firms acting on behalf of prospective consumers. In a mixed integer program these costs would be minimized subject to meeting the emission standard, and the algorithm would choose the least cost combination of technologies. The possible problem is that the EPA GHG Model algorithm sequentially dispatches new technologies in order of EffectiveCost, but without regard to their effectiveness in reducing GHGs . Some technologies with low netcost could do little for GHG reduction. In the limit a low EffectiveCost technology, say using a high-GHG altern ative fuel could even increase GHGs (FFVs with coal-fired corn-eth anol?). Regardless, there is no assurance that the suite of technologi es finally assembled to reach the GHG standard in this way would be th e low-cost suite. The authors may wish to consider when they recomm end that the first, EffectiveCost TARF, is appropriate.

 The “CostEff” TARF on the other hand leads to an algorithm sensitive to both cost and cost-effectiveness for GHG reductions. Such a cost-benefit ratio can lead to optimal selection rules for packing (knapsack or budget) problems. But some confusing term s are included in the TARF, most notably the non-standard way in which VMT is discounted for the purposes of this TARF (See equation top of page 11, line 1). The inclusion of “IR” (“the annual increa se in the value of CO2”) in the discount factor is done without explan ation or justification. While the term IR is never really defined (is it meant to be the growth rate in GHG damages, abatement cost, or a CO2 tax?). It inclusion seems to conflate considerations of social benefit (value of GHG avoidance over time with cost (of technologies). The ve hicle manufacturer’s cost of GHG avoidance is already embodi ed in the TARF numerator. The denominator should perhaps only reflect the quantity of GHGs avoided. As currently written, this CostEff TARF would not seem to be a consideration for vehicle manufacturers w hose objective is to produce a new-car fleet meeting consumer needs and a GHG emissi on standard at least cost. What objective was intended with this hybrid aspect of the TARF?

o There are other important methodological poin ts to raise, that are discussed below in Section 3 on con ceptual algorithms.

o At this point, please allow an extended comment on the model documentation. Clearly it is in draft form only, and th ere would be much benefit from improving and clarifying it. This is not simply a ma tter of fastidiousness, but is an essential aspect of making the intellectual case for this model. As it stands, understanding the model was much more work than need be. Some specific suggestions are:

 Restructure the presentation, perhap s following the pattern of a journal article. (E.g., begin with stated purpose and background. Place this model in the constellation of related m odels and indicate what is different and why. Describe approach, da ta sources. Sample results.)Appendix D-5 Paul Leiby Review  Bringing description of the “Core Program” and what the model does toward the front.

 Clarify and condense the model descri ption. Classically, this would involve:

 State model objective (typically stating what is maximized, minimized, or what final solution condition is sought)

 State model constraints

 State and discriminate between principle decision variables, exogenous inputs, parameters, and in ternally calculated results. (This is not done in the variable list of Appe ndix 6, which also is incomplete. It omits AIE, PF, CAP, TCO2, IncrementalCost, TechCost, TARF, VMT, SurvivalFraction, AnnualMilesDriven, Leakrate, RefLeakage).

 State the solution algorithm and termination condition

 Rigorous use of notation. Current ly, for example, the subscript i usually refers to “year” (eqns on page 10 and 11) but sometimes indexes technology (eqns at line 10 on p.12).

 Use consistent variable names. For example, on pp. 16 and 17, it appears that the same variable is called “ModelSales”, “Sales,”, and “Annual Sales.”

 Clarify subscripts and carefully apply them. The principle subscripts that seem to apply are:

 t: technology number in seque nce for each vehicle type

 i: actually vehicle age, which is to be distinguished from year

 y: year (which indexes, eg. fuel prices)

 v: vehicle type

 m: ma nufacturer

 For example, equation at bottom of p. 12 is missing subscripts on AIE and RIE (presumably t), while GWP in that equation is indexed by technology t yet elsewhere (e.g. middle of page 11) it is
not.

 Carefully state units. Physical equations cannot be fully understood without a statement of the dimensions . For example, the equation in the middle of page 11 can be more read ily understood if “Leakrate” is known to be in [g-GHG/yr], not [g-GHG/mi].

o Overall, the authors might wish to lo ok at the documentation of the NHTSA Volpe model as a helpful template.

 That documentation is actually reasonably compact (35 pp plus an extended guide to operation).Appendix D-6 Paul Leiby Review  It gives an excellent, succinct prose summary of what the model does in the first 3 pages (1-3), an d much of the wording might be applicable to the EPA model.

 It clearly states what is being modeled:

 There is a flow chart and a t echnology sequencing flow chart

 Equations are then presented in orde rly manner with consistent notation and subscripting.

2) Comments on: The appropriateness and comple teness of the contents of the sample input files. (EPA staff are not seeking comment on the particular values of the contents of the input files, which are samples only.)

 First, an overall point on data. While the inst ructions urge reviewer s to not consider the particular values of sample data, it must be born in mind that m odels are essentially datasets, the equations which link the data, and the algorithms for achieving the solution of those equations. In this case the m odel equations (in the documentation) are reasonably straightforward, al though the algorithm for their solution is somewhat opaque (not explicitly stated and embedded within a compiled module). Assuming a reliable solution algorithm (something hard to test in this review and with limited data), model quality will then depend strongly on the quality of model data. This is particularly worth mentioning because many of the data needed fo r this model are not readily available from established sources. The model calls for de tailed, specialized, know ledge about vehicle technologies, their costs, incremental contri butions and interactions, their availability over time and across vehicle types, and the data-providers must determine the sequence of technology application within each vehicle ty pe. Ultimately, this dataset is likely to be the most valuable and significant component of this model. Particularly if it becomes publicly available, and serves as a standa rd. Thus the data issues should not be minimized.

 In all data input files, it woul d help minimize errors if units were specified. Kilograms or grams, etc. The “Fuel” datasheet does not indicate the unit for price ($/gge, in nominal $?. What are the units for electricity?)

 The “Data Validation” capability and error repor t is a very useful feature. Ultimately the modelers may wish to error check almost a ll inputs for acceptable range, if that is not already done.

2a) The elements of the Market input file , Appendix 1, which characterize the vehicle fleet;

 This file describes vehicle sales by manufact urer and vehicle type, and provides the attributes of those vehicle types.

 No specific comments at this time.

2b) The elements of the Technology input file, in Appendix 2, that constrain the application of technology;Appendix D-7 Paul Leiby Review  As discussed above, this could be said to be the heart of the model. It requires both detailed technological knowledge and considerable judgment about the sequence, timing and impact of each technology.

o It may be worth a special task just cons idering what range of technology attributes can reasonably be specified, even by a technology or industry expert.

o The possible strong-sensitivity to data specification may also call for formal method of risk or sensitivity analysis, give n limits on the ability to refine the data.

 How are technology interdependencies acros s vehicle types repr esented? Given outsourcing and the cost reducti ons from component sharing, would the application of a technology for one vehicle type make it more likel y to be applied to another vehicle type? I could not discern how such considerations ar e represented in the data, and reflected in the solution algorithm, if they are.

 The data challenge is even greater if the stat ed goal of representing technological learning is pursued. While ultimate ly technological progress (t hrough autonomous gains from R&D, scale economies and learning-by-doing) should probably be acknowledged in a later model version, benchmarking that progre ss is never easy. Mo reover, technological learning and progress will be a function not of choices for each Vehicle Type (as the spreadsheet organizations sugge sts), but of industry-wide developments across vehicle types and manufacturers.

o In our models on new vehicle technology in troduction, we have found it useful to distinguish between 3 types of technological progress: autonomous progress over time due to R&D; progress or cost re duction due to produc tion scale (units produced per plant); and progress from L earning By Doing (LBD). All three of these play a role, but the proper benchm arking of each is quite challenging. I agree learning should be approached, but cautiously because its specification and parameterization can have such a pronounced effect on model results.

 Spot-checking these entries, I did not see a ny items associated with changing vehicle size and weight. This may be a design choice rath er than happenstance for the sample data: technologies that substantially change the vehicle design and hedoni c attributes for the consumer would call for a more rigorous assess ment of net-value to the consumer, and a potential re-statement of obj ective (TARF sequencing rule). 2c) Scenario input file, definition of th e standard and economic conditions (Appendix 3) 2d) The elements of the Fuels input file, Appendix 4

 This list does not yet reflect biofuels or renewable fu els, which are a growing consideration, in no small part due to recent law and EPA RFSs.

 Some provision may be needed for the variable energy and GHG content of gasoline, as the ethanol content varies over time.

 Provision may also be needed for E85, and the uncertain fraction of E85 use by FFVs.

 The net fuel economy and emissions by PHEV s remains an area of continued study. EPA is well aware that fuel use by fuel t ype and resulting emissions depend on PHEV design (AER), consumer use patterns, time of recharging, and the fuel used for regional grid generation. Nonetheless, some simplified representation of theAppendix D-8 Paul Leiby Review alternative PHEV designs will be needed soon. I was unable to ascertain what progress EPA has made in this area.

2e) The reference data contained in Appendi x 5. (Implied flexibilities and constraints of the model)

 No specific comments

3) The accuracy and appropriateness of th e model's conceptual algorithms and equations for technology application and calculation of compliance;

 Equations for techno logy application:

o The sequence of technology application, and timing and extent of application, for each vehicle type, is exogenous.

o Modelers acknowledge that “This approach puts some onus on the user to develop a reasonable sequence of technologies.” As noted, the onus may in fact be quite substantial. Therefore, it is helpful th at the model “produces information which helps the user determine when a particul ar technology or bundle of technologies might be ‘out of order.’” [p. 7] Any such capability to assist the user with stage-1 exogenous technology sequencing for individua l vehicle types is worthy of further development and greater prominence in the documentation and model.

o The Volpe model seems to currently o ffer more facility for specifying the structured sequences introduction of technol ogies or groups of technologies. The EPA GHG Modelers may also wish to deve lop some tools that make it easier for users to group and sequence technologies, pe rhaps even with logi cal diagrams that map to or from the Technology.xls dataset. This would help experts represent their best judgement about technolo gies can or would be applied.

o While this model allows for substantial technological detail, there will always arise further, potentially important, comp lexities. In this review I could not determined the degree to which the model can account for cross-vehicle-type, or cross-manufacturer, interactions in the se lection and sequencing of technologies. For example, various forms of hybridizati on are mentioned as technology options. We already see that one manufacturer, Toyota, develops a hybridization technology for one vehicle it quickly sp read to other vehicles from that manufacturer, and that same technology is also sourced to other manufacturers (Nissan). Can this be represented in some way?

o P. 17 says: “Finally, the model determines the order in which technology packages are added to vehicles. The model first compares the TARFs corresponding to technology p ackage 1 on all of the differe nt vehicle types in the fleet and chooses the combination with the lowest TARF.”

 What does “combination” mean here? I understand it to mean the model chooses a combination (pair) of particular vehicle v and technology step t (advancing from t- 1 to t ).

o Technical points on the TARF-based ru les for technology application (Equations p. 14):

 As mentioned, net cost (“EffCost”) al one would not seem to be adequate for sequencing GHG-reduction technologiesAppendix D-9 Paul Leiby Review  The inclusion of a FEE for non-compliance has some issues (admittedly, the Volpe Model does something like this as well, but the justification is not compelling):

 It embeds the cost of non-compliance in an algorithm that ends only with compliance. Hence the fe e should ultimately be zero. Is the intent here to employ some sort of penalty-function based algorithm for constrained optimization?

 “Non-compliance” is a manufactur er-wide condition, and cannot be associated with a specific individual vehicle or technology (Note: I believe the TARF measur es should be subscripted with m,v, and t, to highlight that th ey are specific at that level).

 As written, the FEE is applied to the change in fuel economy (mi/gge, MPG) for that particular technology step. This is not a measure of non-compliance, and its e ssential effect is to exaggerate the relative importance of fuel savi ngs. Note that the fuel-savings term is proportional to (FC t-1 - FC t ) while the Fee term is proportional to (1/FC t – 1/FC t-1 ), essentially a monotonic nonlinear transformation of fuel-savi ngs. So even though there will be compliance an no fee, the effect will be to boost the weighting of fuel savings in a non-linear way.

 A maintained assumption is that fuel economy technology will not alter sales volume or share. But does or could vehicle sales volume influence the choice of technology introductio n? I only noted “Sales” being referenced in the post-processing calculat ions, and it is used in the tests for compliance. But sales is not a cons ideration in the TARF for a vehicletechnology pair, nor in the terms le ading up to it, so the technology sequencing is based entirely on per-vehicl e cost analysis. This approach is taken in other models and is not unrea sonable. But if technology learning or scale economies matter, for exampl e, the choice of which vehicle to apply the next technology to could be related to the sales volume of particular vehicle-types.

 As mentioned, the non-standard adju stment of VMT discounting in the denominator of the CostEff TARF shoul d either be eliminated or more explicitly and rigorously motivated. As it stands it seems to either mix social benefits of GHG reduction w ith the manufacturer’s objective of meeting the emission standard.

o On p. 13, the equation for Fuel Savings (FS) seems to be in error. Fuel price (FP) is divided by i, which denotes the age of the vehicl e (year after its production). Is this simply a typographical error and a discount factor was intended (e.g. (1+DR) i ?)

 In all cases where the lifetime value of fuel savings in considered, the challenge is to be clear about whose valuation of fuel savings is being calculated. It is widely observe d that consumers, when making new vehicle purchase, may “undervalue” fu el savings either with a higher discount rate or a short pl anning period than actual vehicle operating life. I understand that these is sues are probably behind the formulation usedAppendix D-10 Paul Leiby Review here, but it would help to be more e xplicit. If manufacturer decisions are being modeled, the relevant questi on seems to be “How many years of discounted fuel savings would the manuf acturer assume it will be able to recover from the consumer th rough the vehicle sale price?”

 Calculation of compliance to Attribute-based standards:

o An overarching feature of the method ology is that progress in reducing GHGs/fuel-use occurs by advancing driv etrain technology and other attributes largely transparent to the consumer. Technologies are sequenced based pervehicle figures of merit, assuming no imp act on vehicle designs (apart from fuel use technology) and constant vehicle sales shares. One issue to consider is whether these assumptions of unchange d vehicle and unchanged sales mix become less defensible for attribute standards like the footprint standard.

o On page 7, equation for the logistic-based footprint, there appears to be a sign error in the denominator (should be 1+exp((x -C)/D) not 1-exp((x-C)/D)). This is likely a typo in the documentation alone.

 Calculation of compliance to pos sible market-based standards

o No discussion or provision for market-bas ed (permit trading) standards is yet made. This should at least be acknowledged.

o One strategy for doing more flexible st andards would be to simply merge the datasets and technology-sequence stage fo r all manufacturers and vehicle types in a trading group. However, this would not provide informa tion about potential permit prices and burdens across manufacturers.

4) The congruence between the conceptu al methodologies and the program execution (examining the results with good engineering judgment)

 This is difficult to assess and a careful valida tion of this model’s execution would require further examination. The results appear generally reasonable, but that is a weak test.

 I was only able to experiment with cases fo r one design cycle. The longer-term cases involving multiple design cycles are more ch allenging. It has been noted the model solves for design cycles independently of one a nother. So it would be worthwhile to test what this implies for the sequence of technol ogies used from one cycle to the next.

 One observation is that the inclusion of the non-compliance FEE does affect the model solution and choice of technologi es. As mentioned above, the theoretical justification for this is not well formed, given that all manufacturers are typically assumed to end in compliance. However, I did not that the im pact of including the FEE is modest, only changing per-vehicle costs by a few dollars. Ho wever, for at least one manufacturer (#9) the cost and technology sequence ch anges significantly. I am not sure this is a desirable
outcome.

 Also, simple tests with the sample dataset show a relative insensitivity to the choice of TARF. This was surprising, and needs more investigation.

5) Clarity, completeness and accuracy of the cal culations in the Benef its Calculations output file, in which costs and benefits are calculated;

 This system produces a large number of useful side calculations.

 Again, further investigation is neces sary to investigat e their accuracy.Appendix D-11 Paul Leiby Review  Overall, a careful independent validation of the two phases of this model’s execution (manufacturer compliance simulation and effect s calculation) would be well worthwhile. The code for compliance simulation is comp iled and not visible. Working through the logic in the post-processing cal culations of the BenefitsCalculation spreadsheet would take a bit of time. But it would be worthwhi le. Overall a useful validation effort could probably be complete in about a week of focused attention.

6) Clarity, completeness, and accuracy of th e model's visualization output, in which the technology application is displayed; and

 The XML format for data transfer and di splay is a very good design choice, allowing flexibility, modern data-exchange capability, ready output to internet, and easy extension of the report.

 This display in the visualization output is useful overall, but it seems more oriented toward “expert users” who are willing to wade through details to find understanding and the information they need.

o TechPack are reference by number only, but perhaps could easily be labeled with the full name or 4-character abbreviation, or cross-reference by hyperlink to a description of the technology.

o Additionally, hyperlinks could be added that would allow the user to easily jump to the table for a particular manufacturer or vehicle type.

 It would be very helpful to have some graphical summaries of the input and output results.

 All output files should embed clear doc umentation on the inputs used. E.g.

o The .log file does list name s of the 4 input files, which is essential.

o The “Visualization Output” file does not (yet) report the input files (but the information could be retrieve from the XML file).

7) Recommendations for any functionalities beyond what we have described as "future work."

 Clearly defined improvements that can be readil y made based on data or literature reasonably available to EPA

o First I note that there were multiple references to “future work.” It may be helpful for EPA to construct a list of these prospectiv e improvements, and establish priorities and a staged, progressive approach for revision. Specific releases of the model with carefully specified functionality will allow prospective users at EPA and elsewhere be clear about what the model is a nd can do at any point in time.

o While the model has a number of valuable aids to execution and reporting (input validation, automated generation of run l ogs, XML data, and “Visualization” tables for web/browser display), more could be done here to improve us ability and provide greater insight about each cas e run. Comparatively simple revisions and extensions to the operational procedures and output could be well worthwhile.

 Provision for side-by-side case comparis ons, reporting or graphing difference.

 Case management and logging facilities.Appendix D-12 Paul Leiby Review  Currently the system labels every file with generic name concatenated to a time-date stamp. Very quickly a directory can be cluttered with cryptically named log, xml, htm files.

 A case archiving facility, that comp resses all input and output files to document the case, might be useful

 The ability to specify a CaseName in the Scenario file, that then becomes part of each output file, would also be helpful.

 When the VGHG.exe file reads a scenar io file, it does not record, or at least display, the name of the file read. It is easy to forget which case was read if you step away, or are doing many cases.

 Relatedly, the purpose of the VGHG.exe’s separate menu options is not yet clear to me.

o It seems that once a scenario a nd the associated datafiles are read, execution would be the logi cal next step. The scrollable tables from data input are rea lly too constrained a view to allow useful review or verification of the data.

o Once the case is run, it seems “Save” to XML might be automatic, otherwise one is limited to the text-based log files, that omit summary information. “Saving” seems needed for Visualization and Benefits Calculation in the spreadsheet.

o So perhaps VGHG.exe might load-run-save in one step, although I may be missing something important.

 Graphical capabilities [m ore thought required here a bout exactly what graphs would be most useful. But there are ma ny data in the tables, and they are not simple to process mentally.]

 Improvements that are more exploratory.

o Extension to accommodate flexible/mar ket-based emission or fuel-economy regulations.

 Permit trading extensions, constructed by pooling selected vehicle types/classes, and/or manufacturers, during the compliance phase of the analysis.

 Ex post calculation of implied permit prices based on marginal costs of compliance (measured by the cost/GHG reduction of the final technology pack applied).

 Ex post calculation of economic implicat ions for individual manufacturers, by comparing results with and without trading/pooling, and accounting for the implied costs and revenues from perm it exchanges between manufacturers.

o Extensions to consider endogenous (standards- induced) changes in vehicle attributes. These are a higher challenge, but would be very valuable for an improved understanding of the market responses to regulations.

 Endogenous changes in sales volume/mix

 Endogenous changes in vehicle size/footprintAppendix D-13 Paul Leiby Review

## APPENDIX E

JONATHAN RUBIN’S REVIEW DOCUMENTReview:
Vehicle Greenhouse Gas Emission (VGHG) Emissions Cost and Compliance Model

Jonathan Rubin 23 September 2009

Dear Sir/Madam:

I would like to congratulate the EPA for undertaking to build this tool which will be very useful for possible regulatory compliance and anticipat ed and unanticipated policy analyses. The construction of such a tool requires extensiv e expertise, professiona l judgment, necessary compromises and assumptions. The validity of th e output will of course depend on these factors as well as the data availabl e to populate the model.

My comments are based on my review of the ma terials provided to me by Southwest Research Institute: the EPA vehicle GHG Emission Co st and Compliance Model Description and associated attachments and appendices and the VGHG model and the asso ciated spreadsheets. These comments reflect my understanding of EPA’ s possible use for this model for regulatory compliance as well as use by external researcher s and policy analysts who may use the model for analyses of state and regional policies.

My comments below respond to the particular questions posed in the transmittal letter from Southwest Research Institute.

Overall Approach to the specified modeling purpose and the particular methodologies chosen to achieve that purpose

The authors have clearly put in a great deal of work on this ch allenging project and should be commended for an excellent start. That said, more effort and thought needs to go into what I call the accounting stance. On page 2, line 42-43 (p. 2, l. 42-3) the documenta tion states that “The primary cost of the GHG emission control is the cost of the added technology compared to the baseline.” My question is: “cost to whom?” Cost s to consumers will differ from costs to society or costs to manufacturers. At times, the documentation reads as though these are costs to manufacturers – since CAFE fines are considered ; other times the costs seem to be towards consumers or society. These accounting stances will differ for several reasons: 1) private and social discount rates differ, 2) social and private risk differs (on average technology performs as well as expected, but not for each vehicle), 3) su bsidies to purchase plug-in vehicles or other advanced technology vehicles drive a wedge between private and social costs, 4) subsidies to biofuels and electricity at the state level (exemp tion for some or all road-use tax) mean that consumer costs are not equal to full resource co sts. Clarifying the acc ounting stance is a high priority, because many further calculati ons rely on its clear definition.

Since the potentially regulated agents are ve hicle manufacturers, my recommendation is to define costs as the costs to ma nufacturers of incremental technol ogy and vehicle re-design costs. The net costs to manufacturers are equivalent to the incremental costs of fuel economytechnology less any increase in retail prices that manufact urers can charge for more fuel efficient vehicles. This should be equal to some portion of the expected fuel savings plus any changes in the hedonic value of vehicles due to changes in vehicle perform a nce, noise, size, and refueling time (more on this later). By separating out manufacturing costs more clearly from consumer valuation of vehicles, the presentation will be more transparent. This also will make clearer the distinctions between consumers’ rates of discount from manufact urers’ costs of capital from society’s rate of time preference.

Additionally, I recommend that the net costs clearly incorporate and identify all subsidies (for electric or plug-in hybrid vehicles and alternative fuels) but displa y costs and benefits separately to private agents (manufacturers, consumers) and society. These will generally not be the same. For example, the benefit calculation spreadsheet “Externalities” adds together consumer money saved on fuel with savings from lower oil imports . I would be very surpri sed to learn that the assumptions of the discount rate or risk premium or both in the cal culation of benefits of reduced crude oil imports are the same as consumers’ disc ount rates for expected future gasoline savings.

2) The appropriateness and completeness of th e contents of the sample input files.

a) The elements of the Market i nput file, as shown in Appendix 1 of the model description, which characterize the vehicle fleet

If the data are available, it w ould be useful to have the cross- price elasticities for makes and models or model segments such that mix-shift impacts could be taken into account as vehicle prices rise in response to additional technology packages.

S ome of the market data are interesting, but do not seem necessary. For example, what is the use of knowing a vehicle’s struct ure (e.g., unibody) or the ma ximum seating capacity?

Does the market spreadsheet contain data for mid-size trucks, gross ve hicle weight 8,500 - 10,000? If not, I would think it should, given that they are now covered under the revised light truck CAFE rules.

b) The elements of the Technology input file, in Appendix 2, that constrain the application of technology

Are the incremental costs shown in column X retail or wholesal e? What do they assume about the volume of production? If I r ead the file correctly the incr emental price for plug-in hybrid technology often has a low first cycle cap of 5%. Is the incremental cost of this technology consistent with its use on 5% of a market segm ent of a given manufactur er? It is important to clearly define the relationship between scale of use and incremental technology cost. The columns “a”, “Decay”, “seedV”, “kD”, and “cycle lear ning available” need further clarification.

P. 2, l. 14 notes that the GHG ta rget can be set as a function of vehicle footprint. The technology input file does not show an i ndication of how down-weighting and changes in footprints may beused to meet a set of given standards. This may not be able to be accomplished immediately given available data, but it should be considered as m ore experien ce with the footprint standards is gain ed from CAFE compliance.

c) The definition of the standard and economic conditions in the Scenario input file, as shown in Appendix 3

As per my earlier comments, I think there ought to be a place for 3 different discount rates: consumers, manufacturers and society. Similarly, their ought to be a places for payback periods for consumers and society.

d) The elements of the Fuels i nput file, as shown in Appendix 4, which characterize the fuel types, properties, and prices

It would be useful to reference the data sources for many/most of the data items. For example, energy density – please see EIA report XYZ. Th e value shown for gasoline, for example, at 115,000 is different than that published by the USDOE, Transportation Energy Data Book v 27 (Davis, Diegel, Boundy, 2008, Table B4), whic h shows a (lower heating) value of 115,400 Btu/gallon.

The units should also be displayed for all input s. Again, using the gasoline example, being familiar with the data, it is clear that the unit of analysis is Btu/ gallon (lower heating value). For other data, the units are less obvious. For electricity, the input file or the documentation, or both, should give the assumed conversions from kilowatts to energy density or motive energy such that users can adjust for different end-use efficienci es. Also for electricity, the assumed grid mix should be given with conversion rates such that users can make appropriate adjustments for different policy analyses.

I do not see a statement indicating whether the fuel price data is in nominal or real dollars.

I do not see a row for ethanol giving its energy density, mass, and density. I am assuming that fuel type “EL” is electricity. Also, should you not have at least two types of ethanol – corn and cellulosic – with diffe rent price paths?

As I indicated in my earlier comments, I think it is important to explicitly note the role of subsidies when determining costs. Given this assertion, the fuels da ta file ought to explicitly note federal and state average subsidies (i.e., the fede ral blender’s tax credit an d foregone state excise taxes) for ethanol and other alte rnative fuels. As I note below in 7) Extended Functionality, accounting for foregone taxes is a logical addition to the model, especially when considering plug-in electric hybrid vehicles.

e) The reference data contained in Appendix 5 which are currently hard-coded into the model but, in the very near future, will be contained in a user controlled input file

. The Exclusive Inputs spreadsheet anticipates E10 a nd E85. It would seem fairly straightforward to allow for other blends such as E15. The pr oportion of the ethanol that comes from cellulosicsources in each year should be accounted for such that upstream CO 2 emissions can be properly credited, similarly for pe trodiesel and biodiesel.

3) The accuracy and appropriateness of the model's conceptual algorithms and equations for technology application and calculation of compliance;

On p. 9, l. 40, the documentation states: “The co re model then adds the effectivenesses and the costs of the technology addition until each manuf acturer has met the standard or until all technology packages have been exhausted.” Gi ven that existing law a llows credit averaging across all vehicles sold by a manufacturer, th is requires that compliance would be checked through an iterative routine. Please describe th is routine including mechanisms to prevent cycling so that conve rgence is assured.

p. 10. VMT is given by: . I believe this is this done by vehicle class (from the da ta file). The documentation should index the function with separate subscripts. sDriven AnnualMile action SurvivalFr VMT * 

p. 10. Discounted VMT. I have two issues with this calculation. The first is mechanical. Why



##   i i iFSD DR DR

VMT VMT  

 1 2 1

,, does the numerator have the term 1+DR/2? Is the discount rate not understood to be the simple annual rate? (Als o what do the indices D and FS represent?). Conceptually, however, I do not think this VMT should be discounted. Costs and benefits are appropriately discounted, but I thi nk it is a mistake to discount a phys ical calculation. It blurs the distinction between consumer and society valuati on of VMT and can lead to misleading outputs.

This point is further emphasized by calcul ation of VMT for GHG calculations (p.11)



##   i i iCOD IRDR IRDR

VMT VMT   

 1 2 1

,2, , where VMT is enhanced by the ra te in change in the value of CO 2 , IR. I strongly suggest that this equation be re-done to separate out measurement of physical units (VMT) from cost and value calculations.

p. 11. RCO2

  

###  

  T LifetimeVM GWP akage LifetimeLe

IRDR IRDR

VMT GWP IRDR IRDR

LeakRate

VMT GWP
RCO

years Lifetime

i i i years Lifetime

i i i

years Lifetime

i iCOD years Lifetime

i i mig 



   

 

   

 

  

     

 

   

 

  



 

 

##  

 

 

 

)(

1 )(

1

)

1 ,2, )(

1

1 2 1 1 2 1

RefLeakage )(2 /

I have two comments. First, it seems to me that, as with VMT, the numerator ought to be multiplied by the survival function. Second, as with VMT, the leakage rate ought not to beadjusted by DR and IR. Also, again, I do not understand the form of the adjustment – why multiply the numerator b y 1+ (DR-IR)/2? Should not the GWP be indexed by i?

p. 12. Determine the order of Technology Applic ation. On the previous page the subscript i represented “year” here it repres ents technology package. The use of subscripts should be unique throughout the documents.

P. 12. Intermediate calculations for each vehicle t ype. It appears that the subscripts have changed again. CO2 is indexed by t and AIE, RIE are missing subscripts altogether.

p. 13. Calculate the fuel consumption before and after technology additions.

     

 

 

 gC gCO CD CO FC

t t
t

12 244 2

1 1 1

. Given that CD is in units of carbon, this equation looks unit-less (CO2/CO2). Where do gallons per mile units come in?

P. 13, l. 18. In step iii, calculating fu el savings we see the following equation.

t PP

i PP

i t PP

i PP

i i FP FC i FP FC i FP FC i FP FCFS      
      
 

#    

 

   1 2 2 1 1 1
1 1 2 2 1 1 1 First, why is FP divided by i ? Second, where is the adjustment for vehicle age? How does this equation account for consumers’ choosing to driv e more miles using one fuel v. another? (Consumer’s may want to maximize the time they spend in electric power mode.) Even if the data do not exist to parameterize the model yet, I suggest that the functiona lity be built in to allow for consumers’ choosing to use one fuel type or another.

P. 20, l. 38-46. In calculating th e impact of the reduced time requi red to refuel vehicles, I do not see a mention of the estimated driving that will occur using electricity in PHEVs.

4) The congruence between the conceptual me thodologies and the program execution;

As suggested, I made changes to input values in the spreadsheets and re-ran the model. The changes as displayed in the benefits calcula tion spreadsheet were what I had qualitatively expected.

5) Clarity, completeness and accuracy of the calculations in the Benefits Calculations output file, in which costs and benefits are calculated;

Please see my comments in the beginning of the document. I believe that the benefits calculations should more clearl y reflect benefits and costs to three different agents: manufacturers, consumers and the nation.

Recognizing that the benefits data (Benefits Ca lculation workbook) is subject to change, it would be really useful to list the data sources for all inputs. For example, if the VMT data is comingfrom MOBILE6, the VMT_Lookup spreadsheet should clearly state MOBILE6 as its source and similarly for the other inputs and spreadsheets.

Similar to the form ula used to discount VMT, the spreadsheet “ExternalVMTCosts($)” discounts

extern alities using the formula: 

##   i DR DR

 

1 2 1 . My question is why? Mo st commonly used discount

factors are simple 

##   i DR  1 1 annual rates. In some senses it does not really matter because the

user can set the discount rate, bu t by using a non-standard discount rate this is likely to lead to unnecessary confusion.

In the “Benefits Calculation” workbook, the worksheet, “Emissions_Fuel Conservation” shows upstream savings from NOx, VOC, CO, PM, an d SOx. These emissions savings are all calculated based on upstream conventional gasoline emission savings. I would think that either: 1) these should be based on a weighted average of gasoline, diesel, ethanol, and electricity upstream emissions, or 2) the gallons saved should have been weighted gallons. I cannot readily determine if the saved gasoline gallons are weig hed by the proportion of gasoline, electricity, ethanol and diesel (and th e weights would be emission-gallon wei ghts.) This needs to be clarified or corrected.

In the “Benefits Calculation” workbook, the worksheet, “ExternalVMTcosts($)” displays the discount factor applied to future costs as the common discount factor used throughout the model. As I earlier suggest, societ y’s rate of discount for accidents costs (human life) are not likely to be the same as consumers’ rate of discounting fu ture gasoline savings. These should be separate inputs.

In the “Benefits Calculation” workbook, the worksheet, “DownstreamCosts($)”, the units on CO2 are shown as “$/ton”. I believe that the label is missing the modifier, “metric”.

In the “Benefits Calculation” workbook, the worksheet, “UpstreamCosts($)” shows benefits determined for CO, VOC, NOx, SO2, PM2.5 all based on emission factors for conventional gasoline. As per my earlier comment, I think these ought to use separate emission factors for each fuel.

In the “Benefits Calculation” workbook, the work sheet, “All Costs” shows costs in aggregate for the nation. It would be useful to also display the average, per vehicle costs.

6) Clarity, completeness, and accuracy of th e model's visualization output, in which the technology application is displayed; and

In displaying the results Average Incremental Co sts, please round to the nearest dollar; showing two digits to the right of the decimal point gi ves a false sense of preci sion and makes the output harder to read.7) Recommendations for any functionalities beyond what we have described as "future work."

The model (VGHG) window box should be made larger – perhaps fill the scr een. It is really too small to perform step 4 in running the model (i.e., Verify that the correct data has been populated into the VGHG model). There is also no side-to- side scroll to see the whole data field.

Given the renewable and advanced biofuel require ment in the Energy Independence and Security Act of 2007, it would seem that the model ought to have data input fiel ds to allow users to specify the quantities (or proportions of total fuel ) of ethanol and biodiesel used in each year. Moreover, the proportion of biofuels which come from cellulosic sources should also be able to be specified. Accordingly, the GHG emission accoun ting framework will need to capture that proportion of the reductions due to changes in vehicles and that proportion due to changes in fuels. In anticipation of future developments in the biofuels market, it may be worthwhile to build in placeholder functionality to account for domestic versus imported biofuels or biofuel feedstocks.

The model would be significantly enhanced if it were made proba bilistic. Given that input data contains underlying uncertainty (What is the actual cost of a given technology? What will be the price of gasoline in 5 years?), the model should be made to run hundreds or thousands of times using Monte Carlo analysis on some of the key input data to generate a di stribution of outcomes. Even if this is not done in the near term, ha ving the output columns show results for “high and low” cost/interest rate scenarios would be conve nient. It would save ha ving to run the model multiple times and pulling the results in to some other summary worksheet.

The documentation notes (p. 2) that the primary co st of the GHG emission control is the cost of the added technology as compared to the baseline. I do not think this is a valid presumption for large changes in GHG emission control. The NRC’ s study on CAFE assumed that vehicles were hedonically equivalent. Given th e likely wide-spread adoption of diesel technology and, quite possibly, plug-in hybrid vehicles (PHEVs), vehicl e driving experiences ar e not likely to be the same. Quite possibly, PHEVs will provide a superi or level of driving satisfaction. If vehicle manufacturers downsize or reduc e performance (acceleration) to meet compliance, vehicle satisfaction could diminish. I do not have a good suggestion on how to adjust for these possible hedonic costs or benefits. Perhaps the model coul d incorporate placeholde r equations that would allow users to specify hedonic gains and losses. Nonetheless, the model documentation should be forthright in acknowledging this limitation.

The model should provide for an estimate of the likely gasoline excise tax implications for different levels of GHG emission reduction. Particularly useful would be to present this information in the context of different compliance strategies. For example, with tax credits for PHEVs, and no change in federal gasoline exci se tax policy, the revenue losses could be significant. This functiona lity could be very useful for policymakers.

As described in the documentation, the model de velopment foresees an increased ability for users to change input assumptions. Changes to these assumptions may have significant impacts on costs and GHG emission reductions. It would be useful for the Model Reference Guideaccompanying this model to describe in qualitati ve terms the im pact of or assum ptions behind choosing to adjust certain parameters. For example, the user manual could indicate that lowering the years of payback for technology would be cons istent with a view that consumers only value the first years of fuel economy gains or place little or no value on GHG emission reduction that occur near the end of a vehicle’s lifetime. If pr acticable, it would also be useful to point out inconsistent choices.

It would be very useful to have the model output be available in units that are used internationally – grams CO 2 /kilometer or grams CO 2 equivalent/KM.

Clearly falling into the work for the future, would be to have a time profile of upstream CO 2 emissions for conventional gasoline and diesel re flecting regional or national low carbon fuel standards.

# EPA Responses to Peer Review Comments

A. Comments by John German

Concepts and Methodologies Upon Which the Model Relies:

(A) Model structure

The model is an accounting model. This is neither good nor bad. The advantag e is that it avoids overmodeling and embedding errors in the model its elf. The disadvantage is that the factors affecting the results are all inputs to the model. This requires a great deal more sophistication and work by anyone using the model to prepare the inputs properly. It will also make it more difficult for anyone outside EPA to use the model, unless EPA is willing to provide the detailed inputs to other users.

With this type of model, it is essential th at EPA release the data in the Technology and Economics input files and discuss them in the Notice of Proposed Rulemaking, as the real analyses and modeling are in these input files. But as long as this is done, the overall model construction is fine.

Response: EPA will publish all th e input files in thei r entirety as part of its proposed GHG emission rule for model year 2012-2016 cars and light trucks (hereafter re ferred to as the “EPA vehicle GHG proposal” or “proposed vehicle GHG standards”).

(C) Redesign cycles

I completely agree with EPA’s logic in creati ng a model based upon vehicl e redesign cycles. As EPA states, adding technologies incrementally to each vehicle model by model year does not add value to the model results. Using redesign cycles also allows for simplification of the fleet. It is impossible to predict the direction of vehicle re designs for each manufacturer. It is just as accurate to assume, for example, that future mid-size cars from each manufacturer will be identical; as it is to assume that current differenc es in mid-size cars from one manufacturer to the next will be continued into the future. As a r ecent example, Honda left their compact crossover, the CR-V, virtually unchanged in size during the latest redesi gn. However, Toyota chose to lengthen their compact crossover, the RAV4, by 14” during its latest redesign. It is pointless to try to predict differences in vehicles from diff erent manufacturers in the future and it is pointless to try to predict the exact year when redesigns will occur. This is a welcome simplification.

Another advantage of using redesign cycles is that GHG standards for interim model years can only be set, reasonably, as a st raight line (or a constant % decr ease) between the baseline year and the end of the redesign cycle. This is appr opriate. Constant year ly % reductions provide a consistent signal to manufacturer s for investment decisions.

However, there is one potential problem with us ing redesign cycles. It masks the investment needed to bring new technology to the market. The auto industry is extremely capitol intensive. Initial investment in a new technology is expens ive, both for tooling and the resources necessaryto assess (and fix) system-level effects a nd effects on reliability, durability, safety, and manufacturing. Redesign cycles tend to a ssess only the costs for high-volume production and skip over th e high in itial costs. Care must be taken to prope rly assess costs in the inputs.

Response: EPA agrees that capi tal investment is an important consideration when assessing the feasibility of GHG standards. EPA intended to in clude explicit accounting for and limitations in capital investment when developi ng OMEGA. However, this prove d to be a difficult task and we decided to leave this until later versions of th e model. The user can track capital investment outside of the model based on the types and levels of technology used. The user can also adjust costs upward during the in terim years of a redesign cycle to represent the higher costs which are typical during technology introduction. EPA did this as part of its cost analysis for its recently proposed rule for the control of GHG em issions from cars and light trucks.

(C) Leadtime

The model handles leadtime issues far too simplistically. This was also a problem with the Volpe model. Leadtime is one of the most impor tant issues in setting standards and one of the most difficult issues to assess properly. Thus , it is disappointing to see both NHTSA and EPA provide so little atte ntion to the issue.

The only leadtime constraints in the draft m odel are industry-wide caps on the maximum technology penetration by redesign cy cle and vehicle type. There ar e several problems with this approach:

 The largest problem is that it is inappropr iate to treat all manufacturers the same. A manufacturer that has already invested in a pa rticular technology in the baseline year will be capable of higher penetration rates than a ma nufacture that has never used the technology before – and also of producing the technology at lower cost. An obvious example is hybrid vehicles. Over 10% of Toyota’s vehicles already have hybrid systems on them. After introduction of the CR-Z next ye ar, Honda should also have more than 10% hybrids. Due to their experience and head start with hybrids, both manufacturers will be capable of much higher penetration rates than most other manuf acturers. They are also further along the learning curve, so their costs will be lower. Si milar situations exist with most technologies.

 Another problem is that costs wi ll vary from manufacturer to manufacturer. As noted in my comments on redesign cycles, above, there ar e large upfront costs when a manufacturer introduces a new technology. For example, T oyota has already amortized large R&D and system-level costs for hybrid vehicles. They will be able to produce hybrids cheaper than manufacturers that are just starti ng to offer hybrids. The point is that the “Initial Incremental Cost” in the Technology Input Fi le should not be applied to all manufacturers at the same time, but rather to each manu facturer at the time they first introduce a new technology.

 The third problem is that there is no such thi ng as a hard cap on technol ogy penetration rates. There is a tradeoff that exists between cost and leadtime. Technology introduction can be accelerated by increasing invest ment – and cost and risk.

Long-Term Recommendation – The best way to handle lead time constraints and technology penetration is to assess capito l investments by manufacturer. Th is would require adding a new section on capitol expenditures. In addition to assessing the cost of each technology, the capitolexpenditure would also be asse ssed. Ideally, there would be two components to the capitol expenditure assessm ent for each tech nology, one for R&D expenditures for the first implementation of the technology and one for the capitol investment needed to add the technology to additional models. However, the second is more important. Each manufacturer would be assigned a total capitol expenditure budget for the re design cycle and technologies could only be added up to the point where the sum of the technology capito l expenditures did not exceed the manufacturer cap. Alternatively, so me increase in technology penetration over the cap could be allowed, but only if coupled w ith increasing technology costs. This would appropriately handle leadtime constrai nts and technology penetration rates.

Short-Term Recommendation – The long-term recommendation w ould require a lot of new work and is clearly not feasible in the timeframe need ed for EPA’s rulemaking. As a short-term fix, instead of using industry-wide caps on maximu m penetration for each technology, EPA should: (d) Set caps on the maximum increase permitted per year. This would be applied to each manufacturers’ individual t echnology penetration; and (e) Establish the model year for initial introduc tion. For technology that has not been introduced to the market yet, this year coul d be the same for all manufacturers. For a technology that is already being used by a manufacturer, the ba seline year would be used for that manufacturer. However, if a manufact urer were not using a technology yet, even if another manufacturer is using it, a year of introduction would need to be set for that manufacturer. (f) Some technologies would still need caps on ma ximum penetration. However, this should reflect market restrictions, not leadtime cons traints. This would incorporate consumer values for particular technologi es that go beyond just efficiency and performance. For example, even though manual transmissions ar e more efficient than automatics, most consumers will not give up the convenience of an automatic. PHEVs do not have much benefit for people driving a lot of highway mile s each day. Diesels are desired for trailer towing and have advantages on highway fuel economy, while hybrids have advantages in stop-and-go driving. These types of market consider ations can be handled by establishing maximum penetration caps, but th ey should be handled separately from how leadtime is handled by manufacturer.

Note that the yearly cap and introduction date violates the de sign cycle principal, but it is important to create the proper cap for each manuf acturer and technology combination. Instead of using a model year for (b), above, the user coul d specify how many years into the design cycle a technology could be introduced.

Response: EPA agrees that the consideration of leadtime constr aint is important. The current model was designed with the implicit assumption th at the first year of the first redesign cycle being modeled was sufficiently in the future so that a manufacturer could completely alter the design of vehicles being redesign ed in that year. For exampl e, in EPA’s vehicle GHG proposal, the first year of the redesign cycle was the 2012 m odel year. The start of this model year is approximately two years from the publication of the proposal and the final rule is not expected to be promulgated until sometime in 2010. Therefor e, leadtime for the 2012 model year is quite short. Therefore, EPA adjusted the technol ogies caps for all technologies which might be restricted to years when a vehicl e was being refreshed or redesigne d to 85% or less, rather thanthe more typical 100%. This figure is based on an estimate of the percentage of vehicles which can be equipped with these technology packages fr om 2012-2016, though not in a linear fashion. Due to leadtime constraints, a lower percentage of vehicles was projected to be convertible in the early years than the later years of the program (i.e ., redesign cycle). This is indicative of how the model inputs can be set in order to approximate leadtime constraints.

We also agree with Mr. German that leadtime is not a hard and fast concept and can be a function of cost (i.e., a manuf acturer can shorten the required leadtime involved in making a technological change if it is will ing to increase costs, though in th e very near term there are realworld lead time constraints such as the time needed for construction of new manufacturering facilities or capital tooling upgr ades). At this same time , coupling cost and technology penetration would be challenging to simulate in a model such as OMEGA in a way which addresses all the possible factors involved. Mr. German does not point out studies which estimate the degree to which costs might increase in return for shortening leadtime. However, if such relationships can be found, it may be possible to include such flexibi lity in the model when EPA adds the effect of learning into the cost es timations. At the present time, the model can be run with a series of scenarios, each of which contains varyin g levels of technology penetration and varying costs. The user can evaluate the re sults of these runs and determine which level of cost and leadtime is most appropriate.

We agree with Mr. German that manufacturers which have already implemented technologies such as hybridization have an advantage over thos e which haven’t. It is probable that such manufacturers could hybridize a gr eater percentage of their fleet than other manufacturers. However, on a practical level, this advantage may not be that important to include in OMEGA at this time. Manufacturers which have already implemented technologies, especially major ones like hybridization, are generally in a better position to meet GHG standards than those which have not implemented such technologies. Thus, there would not be any practical change in the model’s results if we allowed Toyota and Honda to have a greater hybrid penetration than applicable to other manufactur ers, since these manufacturers do not require a greater hybrid penetration in order to meet the GHG standard. While true for hybrids, this relationship may not always hold true. We will consider moving the technology caps to the level of the manufacturer, or even the individual vehicl e as we continue to devel op OMEGA in the future.

If the user believed this factor was important and should be refl ected in the model results, the user could simply group manufacturers by th eir estimated technology caps and perform one model run for each set of technology caps and then combine the results. To use Mr. German’s example, vehicles produced by Toyota and Honda could be modeled in one run with high hybrid penetration caps and those of other manufactur ers modeled separately with a lower technology
cap.

This issue applies primarily to technologies which require sophisticat ing application at the vehicle or manufacturer level. Hybridization is probably the best example of this due to the complex integration of electric motor, battery and engine operation. However, there are many other technologies which may act ually be purchased pre-assembled from a supplier, such as dual-clutch transmissions. Ce rtainly having some experience with such technologies could increase the speed at which a manufacturer might be able to convert most or all of its vehicles tothe technology. However, much of the experien ce is also being gained by the supplier and available to all manufacturers. The cost paid by each manufacturer ma y still be a function of sales volume, but this can be reflecting through learning factors when appropriate. Thus, we believe that this issue does not apply to most of the technologies which, for example, EPA included in its modeling runs in supp ort of the EPA vehicle GHG proposal.

Regarding the variation of costs acr oss manufacturers, this again wi ll be addressed in large part when we incorporate learning into the cost estimation processes of the model. Currently, this can and has been done outside of the model.

EPA initially intended to incorpor ate capital costs into the core model of technology application as it began development of OMEGA. However, this proved difficult for several reasons. One, the number of units over which the capital investment should be amortized is not easy to determine. The model currently applies techno logy to either individua l vehicles which could represent anywhere from individual vehicle models to vehicle platforms or all of a manufacturer’s cars, for instance. Should the OMEGA model assume that only the sales of the vehicle being evaluated b ear the burden of the investment or all the manufacturer’s sales? Should sales over one or more than one redesign cycle be considered? Some technologies, as mentioned above, will be manufactured by suppliers. In this case, the capita l cost will be borne by more than one vehicle manufact urer and so should be amortized over the sales of more than one vehicle manufacturer.

Our initial plan to incorporate capital cost and learning was to base technology ranking (and thus technology application) on the a ssumption that all the sales in a particular redesign cycle received the technology. Then, once the run was completed, the model would recalculate costs based on the actual application of the technology. This approach recognizes that no technology would be introduced if it was only going to be applied to a single vehi cle. Costs for new technologies are always high early on, but manufacturers often do not fully recover their costs until the technology spreads to more vehicles. We will consider this approach, as well as others as we continue to develop OMEGA in the future. At the present time, the required capital cost associated with technology application can be as sessed outside of the mode l. Should the results indicate that the required capital investment is in appropriate in some way, the inputs to the model can be modified to eliminate the issue.

(D) Technology Assessment

Requiring the user to input technology in rank order of cost-effectiveness is an interesting attempt to handle the synergy issue. Unfortunately, it fails to work in other ways:

 It only works if the learning rate is the same for all t echnologies and if no technology changes effectiveness over time. If one techno logy has a steeper learni ng curve than another, or if a technology increases benefits in the fu ture, then the cost-effec tive order will change over time. For example, high-tech diesels ar e a relatively mature technology, as over 5 million per year have been sold in Europe for several years. Their future cost reduction potential is much less than that of hybrid vehicles, whose sa les are at least an order of magnitude lower and which are still at early stag es of development. Also, the high power Liion batteries just starting to penetrate the ma rket will allow much smaller battery packs forconventional hybrids, with large cost reducti ons. In addition, analyses by MIT (2007) suggest that hybrid benef its will increase in the future as ma nufacturers figure out how to use the hybrid system to minimi ze operation at le ss efficient engine speed/load points.

 The synergies will differ depending on the specif ic technologies into which an individual manufacturer has already invested. For ex ample, consider one manufacturer that has invested in MPI turbos and a second that has in vested in DI naturally aspirated engines. If both manufacturers move to DI turbo engines, th e first manufacturer will gain the benefits of DI adjusted for the DI/turbo synergies, while the 2 nd manufacturer will gain the benefits of turbocharging adjusted for the same DI/turbo synergies. Thus, the synergy impact of DI/turbo must be assessed independently of each technology. Even if the model ignores the leadtime constraints imposed by baseline technology investment and assumes every manufacturer will adopt the exac t same technology packages for a given vehicle type (not a good idea, as discussed, above), a problem still exists in backing out “any advanced technology that might have been present in the ba seline” (page 12, line 3-4) . In order to back out the baseline technology for different vehi cles and manufacturer s, the technology input file must contain independent asse ssments of MPI turbo, DI natura lly aspirated, and DI turbo. The DI turbo line includes the synergies, but the other two lines do not . How does the model add them back in? If the turbo lines and DI lines occur before the DI turbo line, then the technologies will be added together first wit hout consideration of the synergy effect.

 It does not allow for different markets for different technologies. For example, diesel engines have additional value for (a) customer s who tow and (b) customers in rural areas. Towing is valued only by a small part of the ma rket, but it is an important feature for that market. Customers in rural areas do a lot of hi ghway driving and value the high efficiency of the diesel on the highway, while hybrids excel in urban areas. Thus, the markets for diesels and hybrids will be self-selected to some extent by their relative city and highway mpg, not the combined mpg used to select all technology.

In order to work properly, the model must be able to handle multiple pathways. For example, the model cannot allow turbo and DI benefits to be a dded sequentially, but must force each to go to a DI turbo input. A similar situation exists with the various variable valve timing systems and VCM. All offer primarily pumping loss reductions and all options must be present in the input file in order to back out technol ogies in the baseline. All these options cannot be added back by the model one after the other – the model must al so be able to handle these multiple pathways. Another example is transmissions, where the in put file must list 5-, 6-, 7-, and 8-speed automatics, as well as DCTs and CVTs (even ig noring manual transmissions). I could go on. The point is that I do not s ee how the model can avoid handl ing multiple technology pathways and depend only on the input or der to handle synergies.

The model must also be able to handle technologie s with different rates of change in benefits and costs in the future. This also requires that th e model process the lines i ndependently and not rely on the input order.

The market considerations could perhaps be handled with maximum penetration caps. For example, it could be considered that diesel e ngines will not compete well with hybrids in urban areas, so that the maximum penetra tion of diesels would be equal to their sale in rural areas plus trucks designed to tow, with the reverse true for hybrids. Of course, this will differ bymanufacturer, which is a problem if universal caps, instead of manufacturer-specific caps, are

m aintained.

Response: Regarding Mr. Germ an ’s concern that the technology ranking will change over time due to differing learning rates a nd changing effectiveness over time, it is not clear whether his concern applies to changes within a redesign cy cle or across numerous redesign cycles. We do not believe that this issue exists within a redesi gn cycle. Certainly, t echnologies can differ in their learning rates and strictly speaking, this means that their costs change each year and this could affect the order of technol ogies. However, manufacturers focus on the mid to long term when redesigning their vehicles. Focusing on costs at the end of the redesign cycle is consistent with this. Technology rankings are more likely to change across redesign cycles. This can be accomplished in the current model by listing a sp ecific technology twice, once in the correct position for one redesign cycle and second, in the correct position for the second or later redesign cycle. The technology cap for the first listing woul d be zero in the second or later cycle. The technology cap for the second listing would be zero in the first rede sign cycle. Of course, this can only be done for a few technologies before the user runs into th e limit on the number of technologies which can be handled in the model. If the desired order of technologies cannot be accommodated in this way, the model could simply be run with two separate scenarios, one for each redesign cycle with its own technology file. The results could then be combined in the same benefits calculation worksheet if calendar y ear impacts were desired. Since the core model of technology application starts over for each redesign cycle, the results of the scenarios evaluating the second or later redesign cycles w ould be exactly the same as a single, multiple redesign cycle run with that technol ogy file. In future versions of the OMEGA model, it may be possible to provide separate effectiveness estima tes for each redesign cycle, as well as separate technology order for each redesign cycle.

We believe that Mr. German’s second comment above about dis-synergies is incorrect. In fact, the set order of technology application is wh at allows OMEGA to accurately estimate dissynergies. This estimation is not in the effectiveness estimate included in the Technology file, but in the Technology Effectivenes s Basis (TEB) for the DI Turbo technology which is input for each vehicle. To use Mr. German’s example, let us assume that the effectiveness of turbocharging alone is 5% and that of direct injection 7%. However, combining the two only reduces CO2 emissions by 10%. The effectiven ess for DI Turbo technology in the Technology file will be the full 10%. Vehicles which already are turbocharged will have a TEB for the DI Turbo technology of 50% (5%/10%). Vehicles which already equi pped with direct injection will have a TEB for the DI Turbo technology of 70% (7 %/10%). The result is that the incremental benefit of moving the first vehi cle to DI Turbo technology is 5%, while that for the second vehicle is 3%.

The advantage of the approach taken in the OMEGA model is that the technology path for each vehicle is fully known. The user can use any level of vehicle simula tion modeling or vehicle testing to assess the overall e ffectiveness of the technology alr eady on a vehicle and that which would exist after the application of each technology made availabl e to it. At each point, the dissynergies can be fully assessed because the fu ll regimen of technologies on the vehicle is completely known. The TEB values in the Market File contain exactly the type of information which Mr. German says must be included. The onl y difference is that this information is in theMarket file and not the Technology file, to which Mr. German allude s. It is likely that this confusion arose due to a lack of clarity in our de s cription of the critical role played by the TEB values in the draft m odel docum entation provided to the peer reviewers.

Mr. German is correct in that OMEGA does not c ontain representations of distinct segments of the vehicle market (e.g., towing, rural drivers, etc.). However, OMEGA can still be designed to reflect such market segments if distinctions in the preferences or needs of these segments can be related to the acceptability of various technologies. For exampl e, the need to tow can affect the acceptability of turbocharged downs ized engines. The user can place vehicles which are used to tow trailers or haul heav y loads in different vehicle types from those vehicles which are not used in these ways. The technologies made available to vehicles with towing or hauling requirements then differ to the appropriate degree. A review of the lists of technolog ies made available to different vehicle types in the modeling whic h it performed in the EPA vehicle GHG proposal reflect such differences.

Another approach would be to limit the application of certain technologies to less than 100% of sales. For example, the user may believe that all electric vehicles w ould be acceptable to only 50% of the users of subcompact cars. Range lim itations could severely limit their desirability to the remaining 50%. The user can simply set the technology penetration cap to 50% for the electrification technol ogy for the vehicle type ap plicable to subcompact cars. The same can be done for factors which would affect the applicab ility or desirability of technology associated with rural driving, etc. Such limits would appl y to all vehicles within a given technology type and thus, in general, to all ma nufacturers. If the user desires to limit the application of technology at the vehicle level, th is can be approximated by setting the TEB and CEB values for that vehicle above the level actu ally present, so that the mode l will apply the technology to less than 100% of the sales of that vehicle.

(E) Maximizing Net Social Value

The model only outputs total costs and benefits. It presents these with great amounts of detailed information. But it is impossible to tell if the scenario has maximized net social value.

To put it another way, the model is only capab le of counting up the benefits and costs of complying with pre-determined GHG standards. It is not able to do the reverse, which is to input the desired benefit and have the model determine the resulting GHG standard.

This is not a trivial issue. The 2007 EISA sp ecifically mandates “maximum feasible” CAFÉ standards after 2020. NHTSA has long interpreted existing statutory author ity to also require maximum feasible standards and established long ago that “maximum feasible” is determined by the point at which the costs of adding the next technology exceed the bene fits. Even without a mandate, any credible analysis must be able to compare the costs and be nefits of the chosen GHG standard to the maximum net social value.

Given the existing complexity of the model, it is not unreasonable for the model to also determine the GHG standard that maximizes net so cial value. The Volpe model calculates this point even with a much more complex model. EP A’s model will lose considerable credibility ifit is not capable of calculating the m a ximum net social value point.

Response: We do not address Mr. German’s comments about the need for either EPA or NHTSA to set GHG or fuel economy standards us ing a model which automatically identifies a standard which maximizes the difference betwee n societal benefits and costs which can be estimated and monetized. These issues are beyond the scope of this peer review.

EPA agrees with Mr. German that it would be us eful for OMEGA to be able to perform such a task. We have developed a spreadsheet whic h combines two of OMEGA’s output files and identifies the level of GHG control which maximizes net societal benefits. The two files are: 1) the results file in text format which shows each ma nufacturer’s emissions and cost after each step of technology application and 2) an abbreviated version of the benefit calculation file. The OMEGA model only needs to be run once with a GHG standard which is sufficiently stringent to require the addition of all availa ble technologies to all vehicles. The spreadsheet adjusts each manufacturer’s standard in a c onsistent manner off a predetermine d universal or footprint-based standard until net benefits reach their maximum. EPA will consider publishing this spreadsheet once a set of instructions for its set up and use are drafted.

EPA will also add the automatic capability to determine the standard at which societal benefits are maximized to OMEGA at some time in the future. While such an approach can provide useful insight during rulemaking development., as Mr. German points out elsewhere, there are many factors, such as feasibility and leadtime, which are difficult to quantify and other factors which differ across manufacturers which are difficult to simulate in a model. One practical issue with model runs which maximize benefits is that they usually show that the standard is infeasible for a number of manufacturers with the technology that is projected to be available. Thus, EPA did not rely on the principle of maximizing net so cietal benefit in setting the standards contained in the EPA vehicle GHG proposal.

Appropriateness and Completeness of th e Contents of the Sample Input Files:

(F) Market Input File

The market input file appears to be appropriate and complete – perh aps too complete in one way. The file contains separate inputs for referen ce case technology bene fits and costs. The percentages in these columns should simply re flect the existing market penetration of each technology package. They should be identical for both costs and benefits. Is there a reason why these would be different? If so, the Model Desc ription should explain this. If not, the duplicate columns can be removed.

Minor Suggestions:

 If the model wants to “back out” existing t echnologies, you will need a lot more than 20 columns to do this. You’ll need 10 columns just to handle transmissions and another 10 just to handle different valve timing systems. Not to mention differing le vels of high strength steel and aluminum use.

 The Model Description should st ate that vehicle types are a user input defined in the “Vehicle Type” tab of the Mark et Input File (I looke d around for a while before I found this.) If you maintain separate columns for reference case technology costs and benefits, it would help the user to add a row above the existi ng descriptions and define columns AD-AW as “reference case benefits” and colu mns AX-BQ as “reference case costs”.

Response: Mr. German’s comments in this section (and our response) intersect with his comments in Section D. above concerning the ability of OMEGA to recognize and represent potential dis-synergies between technologies. First, the TEBs and CEBs in the Market file will usually differ. One reason for this occurs with technology packages which include several distinct technologies. Using Mr. German’s example from Section D. a technology package might include both converting an engine to dir ect injection and adding turbocharging. If a baseline vehicle has a direct injection engine, but is not turbocharged, th en the TEB would be the emission effect of only converting the engine to direct injection co mpared to adding both technologies. The CEB would be the cost of only converting th e engine to direct injection compared to adding both technologies. Due to di s-synergies, as discusse d in Section D. above, the emission effect of direct injection might be 60% of the total benef it of both technologies, while the cost might only be 50% of the total. In general, no two technologies will have exactly the same ratio of incremental cost and incremen tal effectiveness, which would be necessary for the TEB and CEB values for vehicles to be the same. Adding dis-synergies can markedly affect effectiveness, but generally has minor effect on co st. Thus, with dis-syne rgies, the chances of two technologies will have exactly the same ratio of incremental cost and incremental effectiveness in terms of the pe rcentage of package cost and e ffectiveness is very small.

When Mr. German refers to the need for more th an 20 columns in order to back out technologies, he again misunderstands the nature of the TEB and CEB values. (Again, this is likely due to a lack of clarity in the draft model documentation on this subject which EPA provided to the peer reviewers.) The units of the TEB and CEB va lues are the percentage of technology package effectiveness and cost which are already presen t on the vehicle. These percentages are best determined using a vehicle efficiency simulatio n model which can estimate fuel consumption over the certification driving cycl es for various combinations of technologies. EPA’s lumped parameter model is one example of this type of model, as is the Ricardo Easy5 full vehicle simulation model. The presence of individua l technologies is not an input to the OMEGA model. As this is different from NHTSA’s Vo lpe Model, this may be one of the causes of confusion.

We agree that the headings of the inputs file s could be made more clear and descriptive. However, we have found that adding header lines to the input file has been more complicated than anticipated. Thus, we are taking the appr oach of adding more detailed descriptions of each column of each input file to the model documen tation and directing the user to review these descriptions in order to obtain a fuller understa nding of the nature of each of the inputs to the model.

(G) Technology Input File

As discussed above, the technology input files need to be substa ntially modified in conjunction with changing the model to ha ndle multiple technology paths.In addition, also as discussed above, the “Cap Cy cle” numbers need to be replaced with generic caps on the maximum increase perm itted pe r year and manufacturer-specific model years for initial introduction. The annual technology pene tration increase cap w ould be applied to each manufacturers’ individual ba seline technology penetration, fro m the Market Input File, or starting with the manufacturer-sp ecific initial model year for t echnology packages that have not been used yet by individual manufacturers.

The Average Incremental Effectiveness fields are fine, although, as noted above, if these change for future redesign cycles, the cost-effective orde r of the technology packages can also change.

I could not find any explanation of how the Initial Incremental Cost,  , Decay, seedV, kD, and Cycle Learning Available fields are used in the model. Even the detailed algorithms on pages 9- 16 of the Model Description contain no referenc e to how technology costs are adjusted for the TARF calculations. Thus, I was not able to assess the appropriateness of these fields. However, in general, the cost reduction curve is not lik ely to be the same for all technologies. Some flexibility may be needed here.

The Technology Input File does not address we ight impacts associated with different technologies. For example, both diesel engine s and hybrids add considerable weight to the vehicle, which negatively impacts both performance and efficiency. It is possible to handle this off-board in the efficiency benefit estimation. However, if so the Model Description should explicitly state that weight impacts are expected to be assessed by the user and included in the technology inputs.

Response: As Mr. German alludes, several of th e comments in this section have already been mentioned in earlier sections and are addre ssed there. Several of Mr. German’s other suggestions would involve the model applying technology on an annual basis. OMEGA is explicitly designed to ap ply technology over an entire vehicle re design cycle. This has received favorable comment from all three peer reviewer s, including Mr. German. As discussed in Section C above, limits on the annual rate of technology application wh ich the user believes apply can be input to the current model by simply summing up these limits over the redesign cycle.

Mr. German is correct that the draft model docum entation provided to the peer reviewers did not describe how the Initial Incremental Cost,  , Decay, seedV, kD, and Cycle Learning Available fields are used in the model. These inputs are related to the pred iction of cost reductions due to learning, which has not yet been implemented in the OMEGA model. These columns appear in the Technology file as place holders for future versi on of the model. The sa me is true for several vehicle parameters, such as weight, seating capacity , etc., which are included in the Market file. We will consider Mr. German’s comment that th e cost reduction curve is not likely to be the same for all technologies when we add learning to the model.

We agree with Mr. German that the impact of each technology on vehicle weight and performance should be included in estimating th e effectiveness and cost of each technology. This is the approach followed in the EPA vehicle GHG proposal. We have modified the model documentation to clarify this.(H) Scenario Input File

The compliance options – universal standard, linear at tribute, or logistic at tribute – are fine.

However, there are columns in the Scenario input file that are not described in the Model Description on page 6:

 TARF Option (column E) – Is this the “two TARF equations from which the user can choose”, described on page 13? If so, should state this on page 6.

o Why is the “Effective Cost” TARF equation limited to fuel savings over the payback period? Why aren’t the discounted lifetime fuel savings considered? Is this done to try to mimic what technologies will be most acceptable to the customer? If so, this should be explained in the Mode l Description. I’m also not sure this is appropriate. Most technologies will be invisible to the cu stomer. In addition, the primary point of CAFÉ and GHG standards is to fill in the ga p between the consumers’ value of fuel savings and the value to society. So, the standards should be targeted towards society’s values, not the customers.

o The equation for “Cost Effectiveness – Manuf acturer” equation does not make sense. Unless a technology includes a fuel change , this equation will produce virtually identical results for all technologies. The CO2 summed in the denominator is directly proportional to fuel consumed summed in the numerator. The ratio should be virtually the same for all technologies, unle ss there is a fuel change. What is this equation trying to do?

o Why is the fuel savings only summed over the payback period, while the CO2 savings are summed over the useful life? Why are they not the same?

 Target Function Type (column F) – I could not find a description of this field anywhere in the Model Description.

 Fleet type (column G) – The description in Rykowski’s emai l response to Rubin should be added to the Model Description.

 Trading limit (column I) – The description in Rykowski’s email response to Rubin should be added to the Model Description.
Economic parameters – The “CAFÉ fine” and “CO2 value increase rate” are fine. However, the other parameters may need modification:

 Discount rate – There is some t hought that the CO2 discount rate should be different from the economic discount rate. I am not sure I agr ee with these arguments, but you may want to include flexibility to have a different discount rate for CO2 in the model.

 Payback period – As discussed, above, I am not sure this is needed. Any use of payback period should be explained and jus tified in the Model Description.

 CO2 fine – While the CAFE fine is used approp riately in the model, there is no consideration of a manufacturer paying CO2 fi nes instead of complying with CO2 standards. Of course, this is dependent on the compliance strategy adopted by EPA for its CO2 standards. But the model should have the flexibility to model CO2 fines; similar to how it handles CAFÉ fines.

 Gap – It is appropriate to adjust the test values for differences in real-world fuel consumption. However, the gap is not linear. As EPA demonstrated in their fuel economy label rulemaking, the gap increases as fuel c onsumption decreases. While the fuel economy I do not understand the value of “threshold cost ” or how it is used. Lines 8-10 of page 8 state, “threshold technology cost (the cost at which manufacturers add technology to only enough vehicles to meet the standard as oppos ed to adding technology to all of a model line)”. The detailed calculations later in th e Model Description do not discuss how this is done. From a practical point of view, how does the model know whether or not the technology is needed to meet the standard when the technologies are f eed into the model one at a time? More importantly, manufacturers have limited resources and the standards will drive technology development well beyond what a manufacturer would have done without them. Thus, why would a manufacturer add any technology to more vehicles than are required to meet the standard? Unless these concerns can be addressed in the Model Description, the “threshold cost” should be eliminated.

 Rebound effect – Line 38 on page 17 states th at the rebound effect is an input in the “Economics” worksheet. However, it is not list ed in the worksheet. In any case, the rebound effect is not handled appropriate ly in the model. The rebound effect is a sensitivity factor. But it is determined from a regression. Which means that the change in VMT is NOT a linear function of the change in fleet fuel c onsumption. Thus, the equation on lines 41-43 of page 17 is wrong. The actual relationship is logarithmic or exponential or something like that (I don’t remember exactly what). The correct equation should be built into the model.

o The rebound effect is also impacted by the price of fuel and household income. This should be added to the model (see medium- to long-term recommendations, below).

Minor suggestions:

 It appears that the “Cars A”, “C ars B”, “Cars C”, and “Cars D” columns in the Target tab are intended to describe the footprin t-based logistic curve. Does this mean that “Cars C” and Cars D” are also the Xmax and Xmin under the linear attribute option? If so, both descriptions should be in the column headings. Also, while the Model Description (page 6-7) includes a good explanation of the how the linear target and logistic curve work, it should also specifically state where the A, B, C, D, and X coefficients can be found in the spreadsheet.

 The economic parameters are discussed as part of the Scenario input file on page 8. Lines 12-13 also state that an example of the Scenar io input file is in Appendix 3. However, Appendix 3 only includes the “Scenarios” tab an d the “Target” tab. The “Economics” tab should also be added to Appendix 3.

Response: Mr. German is correct in that the TARF column in th e Scenario file refers to the choice of one of the two available TARF equati ons. The model documentation has been clarified in this regard. The payback period is the peri od of time over which manufacturers believe that vehicle purchasers value fuel saving when purchas ing a vehicle. If the user prefers to use lifetime fuel savings in the TARF calculation, the user can specify a payback period sufficiently long to cover the life of the vehicle

The point of including the fuel savings over a pe riod of time in the TARF is to recognize that there is some increase in vehi cle fuel economy which would neut ralize the consumer’s negativeperception of an increase in vehicl e p rice, thus nullifying any negative sales impact. This level of fuel economy increase is often estimated to be the fuel savings accruing over a specified number of years of vehicle opera tion which is usually less than th e life of the vehicle. Thus, when either TARF is negative (i.e., the fuel sa vings exceed the cost of technology), this implies that the manufacturer could add the technology at its full cost and potentially increase vehicle sales (all other factors being held constant). Similarly, when either TARF is positive, this implies that if the manufacturer added the technology at its full cost, sales would decrease. We have modified the model documentation to be tter explain the rationale behind the TARF equations.

The fuel savings are typically summed only ove r a portion of the vehicle life because the timeframe considered by the vehicle purchaser is t ypically less than the lif e of the vehicle. (We have not included an estimate of the residual value of the added technology at th e end of this time period, but will consider adding this in fu ture model versions.) The lifetime CO2 emission reduction are included in the denominator since that represents the form of the GHG standard, particularly when car and truck tr ading is considered. For a single vehicle class, there is no need to include lifetime GHG reductions; the reduction in terms of g/mi would be sufficient. However, the lifetime GHG emission reduction pr ovides the same ranking as the reduction in g/mi and also applies when car-truck trading is allowed. So including lifetime CO2 emissions in both cases allowed the same equation to be used in all cases.

Mr. German suggests that the point of GHG st andards is to fill in the gap between the consumers’ value of fuel savings and the value to society. That can be true, but this is accomplished primarily through the level of the GHG standard. The current TARFs are focused on the order in which manufacturer s are likely to add technology to meet the standard. The TARF does not set the level of th e standard. Manufacturers’ primar y goal is to maximize profits. OMEGA does not address all of the numerous factors which aff ect profit maximization. For a specified level of sales across a fixed model mi x, profits are maximized by maximizing the profit per vehicle, or the difference between cost and price. The numerator of both TARFs attempt to represent this difference. Thus , the more negative the TARF, the greater the potential profit per vehicle and a manufacturer’s desira bility to add the technology.

The level of a GHG standard can be based on many f actors, societal benefits being one of them. The benefit calculation worksheet is designed to facilitate the calcu lation of total societal costs and benefits and to assist in this evaluation.

The Cost Effectiveness – Manufacturer TARF is not constant for every technology. The Cost Effectiveness – Manufacturer TARF (ignor ing the CAFE fee) is basically :

[ Technology Cost less Fuel Savings over Payba ck Period ] / Lifetime GHG Emission Reduction Or

Technology Cost less Fuel Savings over Payback Period Lifetime GHG Emission Reduction Lifetime GHG Emission Reduction

Mr. German is correct that the ratio of fuel savings to GHG emission reduction will tend to beconstant across technologies (at least those not aimed at reducing refrigerant leakage). However, the ratio of technology cost to lifetime GHG em ission reduction will not be constant across technologies. The Cost Effectiveness – Manufact urer TARF can be presented as the difference between these two ratios, so it will differ m a rkedly between technologies. Except for the inclusion of discounting in the calculation of the GHG e mission reduc tion, Paul Lieby’s comment in section xx of his comments presents an excellent description of the rationale behind the Cost Effectiveness – Manufacturer TARF.

We have clarified the descrip tion of all the model inputs in the model documentation.

We have also added a separate discount ra te for the valuation of CO2 emissions.

As discussed above, including the payback period as an input allows the user to evaluate fuel savings over less than the life of the vehicle or over the enti re life of the vehicle.

EPA has not typically allowed the payment of a fee in lieu of non-compliance for car and light truck emission standards. The typical fine for non-compliance is far in excess of the cost of technology and is retroactive in th at it applies to past sales of vehicles which were found to violate the applicable emission st andards. There is no provisi on for actively producing vehicles which do not meet applicable emission standards. Thus, we do not plan to add a separate CO2 fine to the Scenario file. The inclusion of the CA FÉ fee in the TARFs is to allow the user to use the OMEGA model under conditions which are simila r to those possible with the Volpe Model. In model runs evaluating GHG emission standard s, EPA would set this fee to zero.

Mr. German is correct that EPA’s current MP G-based formulae for fuel economy labeling imply that the “gap” increases as fuel economy increas es. The model currently assumes a constant gap with changing fuel economy. EPA will consider in corporating a more flexible definition of the gap into future versions of the model.

We have clarified the role of the threshold valu e in the model documentation. Basically, if the per vehicle cost of the last technology added by the model in order to enable compliance exceeds the threshold value, the model reduces the percentage of ve hicle sales receiving that technology to just the degree needed to enable compliance. If modified the per vehicle cost of the last technology added by the model in order to enable compliance is below the threshold value, the model leaves the percentage of vehicle sa les receiving that technology at the technology penetration cap for that technology. This flexib ility was included in the model to reflect the different ways in which manuf acturers apply various technologi es. For example, when adding basic engine technology such as variable valve timing, the manufacturer would generally convert the entire production volume of a specific engine to this technol ogy. Two different engines, one with the technology and one without, would not be maintained. However, with more extreme technologies, such as dieselization or hybrid ization, the manufacturer often maintains two versions, one with and one without these technol ogies. By setting the th reshold in between the costs of these two examples, the model will reflect these two a pproaches to technology application on the part of a manufacturer.

If the threshold is set to zero, the model simply backs off from any predicted over-compliance.The higher the threshold cost is set, the grea ter the degree of over-compliance which is accepted in a m odel run. Since th e value of the thresh old cost is set by the us er, its inclusion only provides more flexibility.

The rebound effect has been evalua ted in the literature in a number of different ways from a variety of datasets. It is typi cally defined as the percentage ch ange in per vehicle VMT divided by the percentage change in the cost of drivi ng one mile. Thus, it is a function of both fuel economy and fuel price. As the ba se cost per mile of driving in the various studies varies, there is some ambiguity in defining the rebound effect in this manner. S till, this is th e norm used in the literature and we apply it accordingly. The benefit calculation worksheet determines the percentage in VMT per vehicle by multiplying the percentage change in fuel consumption per mile by the rebound effect.

The rebound effect is included in the benefits calculati on file, in cell B3 on the Exclusive Inputs tab. It currently only applies to changes in fu el economy. However, future versions of the benefits calculation file will apply it to changes in fuel price, as well. As Mr. German notes, VMT per vehicle has also been observed to be in creasing over time due to other factors, income probably one of them. An input for a secular increase in VMT per vehicle will also be included.

We have modified out descriptions of the values which are represented on the Target tab of the Scenario file to better describe their role in both the constrained logi stic and segmented linear standard curves. We also have added a descrip tion of the values to be entered on the Economics tab of this file.

(I) Fuels Input File

The fuels file works fine for conventional gaso line and diesel. The Model Description does not address biofuels, but if needed the Fuel Input and the Upstream Emissions worksheets should be able to handle them.

Electricity is a special problem . A minor issue is that the Energy Density (column B), Mass Density (column C), and Carbon density (column D) are different than fo r liquid fuels. Liquid fuels are generally expressed in units per gallon. This doesn’t work for electricity. The units for electricity in the Fuels Input sh eet need to be defined. Also, I’m not sure what Mass Density would be for electricity – kg/kWh? And isn’t ca rbon density meaningless, as the carbon is all upstream?

More importantly, the energy density and mass de nsity for electricity are not fixed, but are dependent on battery construction. High-power Li-ion batteries for c onventional hybrids may only have about 15 Wh/kg energy density, while high-energy batteries for PHEVs and EVs may have over 100 Wh/kg. In addition, start/stop sy stems and belt-alternator/starter systems may use lead-acid batteries and some c onventional hybrids may continue to use NiMH batteries through the 2013-2015 timeframe. All will ha ve different energy densities.

Minor suggestions:

 The Model Description, line 6 page 6, says, “There is a small s ubset of fuel information notincluded in this file”. This is not accurate. Appendix 5 contains upstream em issions, which is an ex tremely important factor for fuels. This connection should be discussed in the Model Description.

 The appendices should be ordered to match th e order they are discussed in the Model Description (i.e. the fuels Appendix shoul d be before the Scenario appendix).

Response: Please see our response to xx comment s on the inclusion of re newable fuels in the model. Mr. German is correct that the benefits calculation spreadsheet co uld be modified by the user to accommodate any different costs or emi ssions from the use of other fuels in vehicles which are certified on gasoline or diesel fuel.

The inputs for electricity in the Fuels file have been clarified in the model documentation. The energy density value for electricit y does not apply to that of the battery type being used on the vehicle, so the variability in th e latter value is not an issue. We have also modified our description of fuel-related input s, incorporating Mr. German’s comments, as well as other changes.

(J) Reference Data in Appendix 5

Downstream Criteria Pollutant Emissions: The fields and the regressions as a function of age are appropriate. However, there is not enough flexibility to handle differences in fuel, future em ission standards, and future fuel sulfur control:

 The model should be able to handle future reductions in emission control standards. This means that the model should allow the user to specify effective years for future emission standards and enter new regression coefficients.

 SO2 emissions are almost entirely a function of the sulfur level in the fuel. Thus, the model should also handle changes in fuel sulfur level. The model should allow the user to specify effective years for future sulfur reduction and the fuel sulfur le vel for both current and future fuels. If desired, the user w ould not have to enter regression co efficients for SO2, as there is a fixed relationship between fuel sulfur, fuel consumption, and SO2 emissions (much like CO2 to fuel consumption) that could be hard-c oded in the model if the user specifies fuel sulfur levels.

 The regression coefficients will be different for gasoline, diesel, and electric vehicles. Average coefficients can be used for the current fleet, but these will not be appropriate if there is a substantial change in the future mix of diesels, PHEVs, or EVs. The model needs to allow input of different coefficients for diesel and gasoline – and possibly biofuels. Downstream emissions of electric operation shou ld be zero and do not have to be input.

 It appears that the model does NOT calculate dow nstream pollutant emissions as part of the normal model accounting, only the additional emissions caused by the VMT rebound effect. This is not appropriate. If there is a switc h to diesels or EVs, the downstream pollutant impact needs to be assessed by the model.

Upstream Emissions:

 The upstream emission inputs are fine for ga soline and diesel, although addition rows will likely be needed to handle biofuels and unconventional oils.

 It is not clear if the efficiency of battery recharging is included in electricity upstreamemissions. The model likely calculates onl y the mmBtu actually us ed by PHEVs and EVs during use. However, the mmBtu draw from th e utility will b e larger due to losses in the battery charger and in the batter y chemical process. To ensure that the user handles this properly, it would be best to a dd an input somewhere for charging efficiency. Otherwise, the Model Description should explic itly state that the upstream grams/mmBtu for electricity must be incremented to include the losses in the charger and battery.

 Upstream emissions, both carbon and pollutant, for electricity will vary by region. While it is the responsibility of the user to input pr oper factors, there is a potential issue with stratification of PHEV and EV sales across the nation. Customers in urban areas are most likely to buy PHEVs and EVs will likely be limited primarily to a few, dense urban cores. It might be useful to have the Model Description briefly discuss the need for the user to input upstream values for electricity that are consiste nt with utility emissi ons in the urban areas most likely to purchase PHEVs and EVs.

Vehicle Age Data and histori cal data on average CO2 emissi ons and new vehicle sales: These fields and inputs are fine.

Response: We agree with Mr. German’s comments about the inability to reflect step changes in the downstream emission equations. Future versions of the benefits calculation file will specify downstream emissions by model year and age. Future versions will also include distinct emission estimates for vehicles operating on differen t fuels, such as gasoline, diesel fuel and electric vehicles. These estim ates will apply to both base levels of VMT and rebound-related VMT.

Regarding upstream emissions, we agree with Mr. German that the inclusion of an efficiency value for battery changing (and electricity distribu tion) should be included so that the user can input upstream emission estimates based on kw-hr of power generation at the power plant. Changing the upstream emission calculations to reflect regional differences would involve substantial changes throughout the benefit calculation worksheet, as regional vehicle sales, VMT per vehicle, etc. would likely also differ. We believe that such regi onalization of the model should be performed by those knowledgeable of the particular region of interest. However, we agree with Mr. German that the emissions input to the spreadsheet should reflect the emissions from the incremental increase or decrease in th e production of that fuel and not the average emissions over the entire production of that fu el. We will modify the model documentation to reflect this point.

(K) Other Reference Data

Externalities related to crude oil use: The externalities in the External ities worksheet of the Benefits Calculation are only listed for imported oil. This is appropriate for military cost s for protecting oil supplies, but it is not for the economic impact of periodic price shocks (and po ssibly for monopsony effects as well). Oil is a global commodity. Any reduction in oil use, either domestic or imported, will help reduce the economic impact of periodic price shocks.

Rebound effects:The discussion of the rebound effects on lines 10-19 of page 3 and on pages 20-21 both imply that rebound effects are NOT consid ered in assessing the societal benefits from reduced crude oil use and GHG emission reductions. However, I woul d assume that these be nefits are based upon total fuel consum ption, which includes the additional VMT from the rebound effect. If my assumption is not accurate, then the social benefits associated with reduced crude oil use and the value of GHG emission reductions must be revised to include the rebound effect. If the benefits do include the additional VMT from the rebound eff ect, this should be clar ified in the discussion on both page 3 and page 20.

Response: We have removed the word Imports fr om the title of the Oil Externality Section of the benefits calculation file. These externalities we re applied to all reductions in crude oil use, not just to reduced imports. To the degree that an externality only applie s to imported oil, the user should decrease the value of the external ity by the ratio of the expected reduction in imported oil to the expected reduction in total oil use.

We have corrected the discussion of rebound effect in the model documentation. The reductions in crude oil use and GHG emissions alwa ys included the rebound effect.

Recommendations for Improved Model F unctionality – beyond “future work”:

(L) Recommendations for Short-Term Functionality

The functionality of the model is good. My only recommendati ons are those already described above, for improved handling of leadtime (secti on C), ability to handle multi-path technology inputs, (section D), and ability to calculate “maximum net social benefits” (section E).

Response: None required.

(L) Important Medium-Term an d Long-Term Recommendations

1) By far the most important improvement is to use budgets for capitol expenditures to assess leadtime. The need for this and suggestions on how to implement it were discussed in section (C), above.

2) The rebound effect is impacted by both th e price of fuel and household income. These should be added to the model. The work has al ready been done by Small and vanDender. Their equations should be added to the model, along with the necessary user input fields for future household income. An option to skip the fuel an d income effects can be maintained, but it is important that the model be capable of properly calculating rebound effects.

 The time value of congestion and vehicle refueling are also related to household income. While this is of lesser importa nce than the rebound effect, it should be relatively easy to add household income effects to the va lue of congestion and vehicle refueling in conjunction with adding hous ehold income to the VMT rebound effect.

Response: We have added a secular growth ra te to the calculation of VMT per vehicle to represent the impact of real income and other factors which have been increasing total VMT overtime beyond growth in the vehicle pool. At the present time, the rebound is still assumed to constant over time. We are aw are of the Small and vanDender study which has found that the rebound effect appears to be decreasing over tim e

. Fortunately, this is not a factor for analyses which just evaluate one or tw o redesign cycles. Longer term analyses face even greater uncertainties with VMT per vehicle and other fact ors. Still, we will consider modifying the benefits calculation file to accommodat e a changing rebound rate with time.

(M) Less Important Long-Term Suggestions

3) Inclusion of the city and highway fuel economy/CO2 values may help with assessing market penetration caps, although th is can be done externally. Al so, separate city and highway values could help calculate an appropriate in-use fuel economy/CO2 “gap” for different technologies with different city/highway fuel economy ratios. Separate city and highway numbers might also be useful for other purpos es. EPA should consider adding these to the model.

Response: It is not clear how tracking or regulating city and hi ghway CO2 emissions separately would address issues which Mr. German has raised related to the technol ogy penetration caps.

Regarding the gap between onroad and certificati on CO2 emissions or fuel economy, this gap can theoretically vary between city and highway driving. However, as EPA described in its supporting analysis to its 5-cy cle fuel economy labeling rule, data on onroad fuel economy during city and highway driving is very scarce. Thus, assessing the distinct impact of technology on certification and onroad CO2 emissions during c ity and highway driving would have to be based on vehicle simulation modeling. Such mo dels are commonly used to simulate vehicle operation over the EPA city and highway certificati on cycles at the test temperature of 75 F. However, few vehicles, and even fewer contro l technologies have b een modeled over other driving cycles, such as the US06 high speed, ag gressive driving test, the SC03 air conditioning test and the standard test cycles at low ambient temperatures. Thus, at the present time, there are insufficient data available to determine how va rious technologies woul d affect the “gap” over city and highway driving. Until such information becomes available, the value of expanding the model to include separate city and highway estimates of the gap would be of limited use. If such information becomes available, it would be a simple task to add such capability to the benefits calculation worksheet. Incorporating this into th e core model would be a more significant task. The primary requirements would be to input onroa d city and highway gaps for each technology. It would probably also require the use of separa te effectiveness estimates for city and highway emissions for each technology. Compliance w ould still be determined based on combined city/highway emissions.

4) Value of time required to refuel vehicles: The model handles this appropriately for liquid- fuel vehicles. However, PHEVs and EVs will add refueling time, both because of the need to plug in and, in the case of EVs, the shorter range. This should be added to the model. Ideally, it should also be added to the TARF assessment.

Response: Mr. German raises im portant points about PHEVs and EVs which need to be factored into the consideration of their expanded use in th e future. At present, the only consumer benefitwhich OMEGA includes in either of the TARFs is th e value of fuel savings. Other effects, such as a change in refueling time, are included in the calculation of societal benefits, but not the TARF. There ar e othe r attributes of PHEV and EV use which will also affect their value to the consumer. For example, the redu ced range of EVs relative to c onventional vehicles is a serious limitation for some consumers, but not for othe rs. Some PHEVs are designed to run most efficiently on battery power and only resort to liquid fuel use when the battery has run out of useful energy. Other PHEVs operate best on a mix of electricity and liquid fuel. However, even these PHEVs eventually run out of stored battery power and convert to operation solely on liquid fuel. Their operational cost vari es depending on daily driving distance, as well as climate. Unfortunately, there are significan t uncertainties surrounding the details of how people drive and how they would drive if they ow ned a PHEV or EV. Thus, limitati ons exist today regarding both the appropriate inputs and modeling capability before these issues can be fully represented in an automatic fashion in a model run. In the near term, users modeling GHG standards which require or reflect signif icant levels of PHEV and EV penetr ation should take care to limit their penetration to portions of the dr iving public whose driving patterns are compatible with the range of these vehicles. Or, if the penetration of PHEV s is such that they would be driven significant distances on all liquid fuel power, that their CO2 efficien cies reflect such use.

B. Comments by. Paul Leiby

Thank you for the opportunity to review this model and its documentation. This is an important project, and the EPA team has made great progress in developing a coherent, informative, and very usable system. I understand that this is a work in progress and, regrettably, many comments can only refer to its current (May 1, 2009) state. Also most of the comments are in the form of what might be changed or improved, with the hope that these might be most useful. I would like to say at the outset that everyt hing achieved so far is well wo rthwhile, and some features are quite marvelous. Please also interpret statemen ts below of the form “the model does/does not” as meaning “as far as I could discern so far, it seems like the model does/does not.” Statements like “the model/documentation should” really mean “Perhaps it would be helpful if the model/documentation were adjusted to....” In su m, this work is to be applauded and I look forward to its next iteration. Comments are offered in order of the questions posed, and in structured bullet form.

Questions to address : 1) Comments on: The overall approach to the specified modeling purpose and the particular methodologies chos en to achieve that purpose;

 This model fills an important need for an independent capability to assess how manufacturers might respond to GHG emissi on regulations on light-duty vehicles.

 There is much to recommend this model, wh ich grapples with some key challenges of assessing how progress toward tighter fuel use or GHG emissions standards can be achieved through incremental vehicle tec hnological change, and at what cost.

 The essential approach of this model is consis tent with others in a similar vein, with the most notable predecessor being the NHTSA “V olpe Model.” It describes the set of technological possibilities for improvi ng vehicle fuel economy, or reducing GHG emissions, characterizing for each technology the cost and incremental change inemissions and fuel use. It determines a sequence of introduction for fuel-economy (or fuel switching) technologies necessary to meet a fleet-ave rage CO2 e m ission constraint for each manufacturer. However it differs fr om some other approaches in significant
ways:

o 1. The sequence of discrete technologies that can be us ed for any single “Vehicle Type” is exogenously specified by the user. Thos e fixed technology successions t , t +1 ... for each vehicle type v ,essentially define a vehi cle-type-specific supply (marginal cost) curve for emissions reduction. The model determines the sequence in vehicle types each separately progress in an orderly fashion down their emissions reduction technology curve.

o 2. The model makes vehicle technology re design decisions not annually, but for each vehicle “design cycle,” which is t ypically specified as a fixed number of
years.

o 3. The algorithm does not do a simultaneous choice of the set of technologies that minimize vehicle net costs such that the GHG emission standard is met. Rather it iteratively “dispatches” discrete new t echnologies by choosing which vehicle is to progress next by one more step through its sequence of technologies. It repeats this dispatching over vehi cle types until the fleet av erage GHG emission standard is finally met. The choice of which ve hicle type is to receive more advanced technology is based on one of two fi gures of merit, called “TARFs.”

 It is wisely stated that effective model de sign hinges on a careful definition of its purpose or purposes, and an acknowledgement of its bounds and limitations. The documentation could be much strengthened in this regard. Here is my impression of its suitability:

o This model is currently most suited to estimating the incremental net technological cost of any single ma nufacturer achieving various GHG emission levels, specified as an average for that manufacturer’s new-car fleet. It accounts for technology costs and lifetime fuel cost savings in its dispatching of technologies for each manufacturer’s fleet. Other attributes and societal impacts may be monitored ex post (e.g. the extensive and somewhat disparate list on the top half of p. 3, includin g criteria pollutant emissions , noise, congestion, refueling time, etc.) but these are not considerations in the model’s solution, i.e. in the core algorithm that sequences the applic ation of vehicle technologies.

o A compact way to describe the models appr oach is that, like the Volpe Model, its solution has two phases: “manufacturer co mpliance simulation” (with cost-based technology choice) and “effects estima tion” (based on a diverse set of ex post calculations).

o The model does not project vehicle sales, or sale s mix, or aspects of vehicle design and vehicle appeal to consumers, apart from altered lifetime vehicle capital and fuel use costs. This is not menti oned as a flaw, but as an important design choice that should be stated. Large ch anges in fuel economy and GHG emissions could have important indirect impacts on the design and appeal of the vehicle, particularly if tradeoffs are made in the areas of vehicle size, weight, performance, range, and, for alternative fu els, fuel availability and convenience.

o The model treats each manufacturer’s regulatory attainment problem independently, and is not currently designed to model “flexible” emissionstandards that allow permit trading among manufacturers, permit banking or borrowing, or economy-wide GHG tr ading system s.

Response: Dr. Leiby states that the current model is not able to reflect credit trading between manufacturers when determining compliance, or banking of credits. We agree that the model does not allow these types of credit programs to be modeled explicitly. However, completely flexible credit trading between manufacturers can be simulated by labeling all vehicles as being produced by a single manufacturer. The model then estimates the costs and benefits of bringing the entire industry’s new vehicle sales into comp liance. Also, the flexibility to bank and borrow credits within a redesign cycle is implicitly assumed by the model. OMEGA assumes that a manufacturer’s entire fleet of vehicles can be redesigned within one redesign cycle. (Actually, less than 100% of vehicle sa les can be assumed to be redesigned through the technology penetration caps included in the Te chnology file.) However, rarely will a manuf acturer redesign exactly 20% of its vehicle sales in each of five straight model years. The base emissions and emission reductions of the vehicles being redesigned will vary. Thus, the banking and borrowing of credits will be needed to enable compliance with standards in the intermediate years of a redesign cycle using the technology projected for the final year of the cycle, assuming that the intermediate standards require gr adual improvement each year.

 Suitability of method

o To some extent the discussion of the mani fold ancillary benefits and costs can be a distraction, since a coherent and co mplete framework for their endogenous analysis is currently outside the scope of this model. I suggest that the model developers may wish to stay focused fi rst on clearly and rigorously modeling the fuel-economy technology choice and cost -effectiveness considerations, for various GHG emission levels. Where possi ble, one reasonable design approach might be to assume that other vehicle at tributes are essentially held relatively constant, for each vehicle size and type.

o Overall, the model documentation suggests that model developers may be hopeful of doing too much soon, with many (ove r 10) stated intentions for future extensions. Better and sounder results ma y follow from strategically limiting the model scope, carefully testing the model (in full, with real datasets), and then selectively adding features over time.

o One feature of this model approach is its comparative analytical simplicity but heavy reliance on specialized data inputs (d iscussed further in Item 2 below). This should be viewed as a model stre ngth: its contributi on need not rely on analytical sophistication, but also on the coherent application of good quality, widely reviewed data.

Response: The current model doe s not allow the vehicle sales mi x to change as a function of technology. When applying the model itself, EPA has developed effectiveness and cost estimates for the various technologies which hold ve hicle attributes such as size and performance constant. Vehicle weight may change, as for example with dieselizat ion or hybridization. However, in these cases, the effectiveness of th e technology should reflect th e change in weight. Two major methodological points:

o In any model, particularly any model of markets with social externalities and government intervention, it is esse ntial to be very explicit about whose behavior and objectives are being modeled. Otherw ise there is danger that nobody is really being described, or that we might imput e particular knowledg e and incentives to market actors who actually have neither. Naturally a model can be both normative, saying what should be done optim ally, or descriptive, saying what we think will be done by some actors in certain circumstances even if it is not clearly optimal. And it can apply to what would or should best be done for different agents: vehicle consumers, manufacturers, or the government/society as a whole. I am a little unclear about whose behavior is being modeled in the succession of technology decisions made. It appears the intent is to model market behavior ofcompetitive vehicle manufacturers facing cost-minimizing consumers and a firmwide emission constraint. But the objective of such a firm is not explicitly stated, and the solution rules are not cl early mapped to that objective.

 In this matter it seems that the Volpe Model has set a good example by succinctly and specifically stating up -front whose beha vior is being modeled: “The system first estimat es how manufacturers might respond to a given CAFE scenario, and from that the system estimates what impact that response will have on fuel c onsumption, emissions, and economic externalities.” [P. 1, http://www.nhtsa.gov/staticfiles/ DO T/NHTSA/Traffic%20Injury%20Cont rol/Articles/Associated%20Files/811112.pdf ]

 Would a similar description not al so apply to the EPA GHG model?

o Given this idea of modeling the behavior of particular actors, e.g. manufacturers, in mind, the objectives of the actors shoul d be reflected in the solution method or optimization condition. Bearing this in mind, there are some concerns with each of the two TARFs proposed as techno logy-dispatching figures of merit.

 The “EffectiveCost” TARF is essen tially the cost of each technology net of its discounted lifetime fuel savings (omitting the problematic “FEE” component, which seems mis-specified). Arguably, minimizing this would be a correct objective of new- vehicle consumers who discount fuel savings in the same way and give n no change in non-cost vehicle attributes. This could also be the objective of competitive firms acting on behalf of prospective consumers. In a mixed integer program these costs would be minimized subject to meeting the emission standard, and the algorithm would choose the least cost combination of technologies. The possible problem is that the EPA GHG Model algorithm sequentially dispatches new technologies in order of EffectiveCost, but without regard to their effectiveness in reducing GHGs . Some technologies with low netcost could do little for GHG reduction. In the limit a low EffectiveCost technology, say using a high-GHG altern ative fuel could even increase GHGs (FFVs with coal-fired corn-eth anol?). Regardless, there is no assurance that the suite of technologies finally assembled to reach theGHG standard in this way would be th e low-cost suite. The authors may wish to consider when they recomm end that the first, Ef f ectiveCost TARF, is appropriate.

 The “CostEff” TARF on the other hand leads to an algorithm sensitive to both cost and cost-effectiveness for GHG reductions. Such a cost-benefit ratio can lead to optimal selection rules for packing (knapsack or budget) problems. But some confusing term s are included in the TARF, most notably the non-standard way in which VMT is discounted for the purposes of this TARF (See equation top of page 11, line 1). The inclusion of “IR” (“the annual increa se in the value of CO2”) in the discount factor is done without explan ation or justification. While the term IR is never really defined (is it meant to be the growth rate in GHG damages, abatement cost, or a CO2 tax?). It inclusion seems to conflate considerations of social benefit (value of GHG avoidance over time with cost (of technologies). The ve hicle manufacturer’s cost of GHG avoidance is already embodi ed in the TARF numerator. The denominator should perhaps only reflect the quantity of GHGs avoided. As currently written, this CostEff TARF would not seem to be a consideration for vehicle manufacturers w hose objective is to produce a new-car fleet meeting consumer needs and a GHG emissi on standard at least cost. What objective was intended with this hybrid aspect of the TARF?

o There are other important methodological poin ts to raise, that are discussed below in Section 3 on con ceptual algorithms.

o At this point, please allow an extended comment on the model documentation. Clearly it is in draft form only, and th ere would be much benefit from improving and clarifying it. This is not simply a ma tter of fastidiousness, but is an essential aspect of making the intellectual case for this model. As it stands, understanding the model was much more work than need be. Some specific suggestions are:

 Restructure the presentation, perhap s following the pattern of a journal article. (E.g., begin with stated purpose and background. Place this model in the constellation of related m odels and indicate what is different and why. Describe approach, da ta sources. Sample results.)

 Bringing description of the “Core Program” and what the model does toward the front.

 Clarify and condense the model descri ption. Classically, this would involve:

 State model objective (typically stating what is maximized, minimized, or what final solution condition is sought)

 State model constraints

 State and discriminate between principle decision variables, exogenous inputs, parameters, and in ternally calculated results. (This is not done in the variable list of Appendix 6, which also is incomplete. It omits AIE, PF, CAP, TCO2, IncrementalCost,TechCost, TARF, VMT, SurvivalFraction, AnnualMilesDriven, Leakrate, RefLeakage).

 State the solution algorithm and termination condition

 Rigorous use of notation. Current ly, for example, the subscript i usually refers to “year” (eqns on page 10 and 11) but sometimes indexes technology (eqns at line 10 on p.12).

 Use consistent variable names. For example, on pp. 16 and 17, it appears that the same variable is called “ModelSales”, “Sales,”, and “Annual Sales.”

 Clarify subscripts and carefully apply them. The principle subscripts that seem to apply are:

 t: technology number in seque nce for each vehicle type

 i: actually vehicle age, which is to be distinguished from year

 y: year (which indexes, eg. fuel prices)

 v: vehicle type

 m: ma nufacturer

 For example, equation at bottom of p. 12 is missing subscripts on AIE and RIE (presumably t), while GWP in that equation is indexed by technology t yet elsewhere (e.g. middle of page 11) it is
not.

 Carefully state units. Physical equations cannot be fully understood without a statement of the dimensions . For example, the equation in the middle of page 11 can be more read ily understood if “Leakrate” is known to be in [g-GHG/yr], not [g-GHG/mi].

o Overall, the authors might wish to lo ok at the documentation of the NHTSA Volpe model as a helpful template.

 That documentation is actually reasonably compact (35 pp plus an extended guide to operation).

 It gives an excellent, succinct prose summary of what the model does in the first 3 pages (1-3), an d much of the wording might be applicable to the EPA model.

 It clearly states what is being modeled:

 There is a flow chart and a t echnology sequencing flow chart

 Equations are then presented in orde rly manner with consistent notation and subscripting.

Response: The TARFs are intended to reflect th e decision making of a manufacturer. Since the manufacturer must satisfy its customers and regulatory mandates, a manufacturer’s decision making processes will reflect these needs, as well. More explicitly, th e technology cost is the full cost of that technology at the consumer level, including re search and development costs, amortization of capital investment, etc. This cost is generally the same cost as EPA estimates in its regulatory support analyses when estimating the cost of new standards. This cost is notnecessarily the increment in pri ce that the manufacturer would char ge for that technology, since price is a function of ma ny factors which can change fairly quickly depending on m arket conditions. The fuel savings are those assumed to be valued by the customer, so they are based on fuel prices including taxes and reflect the tim eframe which a customer might consider when purchasing a vehicle. The residu al value of the added technology is not currently reflected in either TARF, but could be added in the future. The rationale behind the TARFs will be clarified in the model documentation to reflect these points.

The Effective Cost TARF was included in the OM EGA model since it is the equivalent of the technology ranking process used in NHTSA’s Volpe Mode l. It allows a user to match this aspect of the Volpe Model when modeling equivalent sta ndards using both models, if this is desired. We agree with Dr. Leiby that this TARF doe s not factor in the de gree to which adding a technology will move a manufacturer’s fleet toward the regulator y target. The CostEff TARF was designed to incorporate this factor.

We agree with Dr. Leiby that the inclusion of discounted GHG emission reductions in the denominator of the CostEff TARF is not consistent with the manu facturer focus of the numerator of this TARF. Future versions of the model will remove the discounting. The use of lifetime emission reduction in the denominator of this TA RF will then be consistent with the standards contained in the EPA vehicle GHG proposal, wh ere car-truck trading is based on lifetime emissions of each type of vehicle.

The discounting of CO2 emissions is more appr opriate for a TARF whose focus is societal effectiveness. Thus, we plan to add a third TARF which is similar to the CostEff TARF and which retains the discounting of GHG emission re ductions in the denominator. Newer versions of the model allow for an increase in the real value of CO2 emissions per annum. Thus, we believe that the discount rate us ed in this new TARF should reflect the difference between the broad economic discount rate specif ied and the rate of increase in the value of CO2 emissions. When this TARF is used, it will be most approp riate to value fuel savi ngs over the life of the vehicle and this will be suggested in the model documentation.

We have significantly revised the model documenta tion, including the consid eration of all of Dr. Leiby’s comments above.

3) Comments on: The appropriateness and comple teness of the contents of the sample input files. (EPA staff are not seeking comment on the particular values of the contents of the input files, which are samples only.)

 First, an overall point on data. While the inst ructions urge reviewer s to not consider the particular values of sample data, it must be born in mind that m odels are essentially datasets, the equations which link the data, and the algorithms for achieving the solution of those equations. In this case the m odel equations (in the documentation) are reasonably straightforward, al though the algorithm for their solution is somewhat opaque (not explicitly stated and embedded within a compiled module). Assuming a reliable solution algorithm (something hard to test in this review and with limited data), modelquality will then depend strongly on the quality of model data. This is particularly worth mentioning because many of the data needed fo r this m odel are not read ily available from established sources. The model calls for de tailed, specialized, know ledge about vehicle technologies, their costs, incremental contri butions and interactions, their availability over time and across vehicle types, and the data-providers must determine the sequence of technology application within each vehicle ty pe. Ultimately, this dataset is likely to be the most valuable and significant component of this model. Particularly if it becomes publicly available, and serves as a standa rd. Thus the data issues should not be minimized.

 In all data input files, it woul d help minimize errors if units were specified. Kilograms or grams, etc. The “Fuel” datasheet does not indicate the unit for price ($/gge, in nominal $?. What are the units for electricity?)

 The “Data Validation” capability and error repor t is a very useful feature. Ultimately the modelers may wish to error check almost a ll inputs for acceptable range, if that is not already done.

Response: EPA will publish a complete set of input files which it used in its OMEGA model runs in support of its recent proposal to regu late GHG emissions from cars and light trucks. These input files were developed from publically available data e xplicitly to allow their full and complete release to the public for review, comment and use.

We agree that better descriptions of the input data are needed. Incorporating these into the input file headings themselves involves changes to the core model. In the near term, we have included detailed descriptions of each type of input va lue in the model documentation for easy reference by the user.

The validation criteria included in each of the model’s input file s generally prevent the inclusion of clearly inappropriate values (e.g., negative values where only positive values make sense). The current criteria apply such re strictions to nearly all the input fields other than labels. In addition, the criteria can be m odified by the user to incorporat e additional or more restrictive criteria which are deemed helpful. This flexibil ity will be described in more detail in the model documentation.

2a) The elements of the Market input file , Appendix 1, which characterize the vehicle fleet;

 This file describes vehicle sales by manufact urer and vehicle type, and provides the attributes of those vehicle types.

 No specific comments at this time.

2b) The elements of the Technology input file, in Appendix 2, that constrain the application of technology; As discussed above, this could be said to be the heart of the model. It requires both detailed technological knowledge and considerable judgment about the sequence, timing and impact of each technology.

o It may be worth a special task just cons idering what range of technology attributes can reasonably be specified, even by a technology or industry expert.

o The possible strong-sensitivity to data specification may also call for formal method of risk or sensitivity analysis, give n limits on the ability to refine the data.

 How are technology interdependencies acros s vehicle types repr esented? Given outsourcing and the cost reducti ons from component sharing, would the application of a technology for one vehicle type make it more likel y to be applied to another vehicle type? I could not discern how such considerations ar e represented in the data, and reflected in the solution algorithm, if they are.

 The data challenge is even greater if the stat ed goal of representing technological learning is pursued. While ultimate ly technological progress (t hrough autonomous gains from R&D, scale economies and learning-by-doing) should probably be acknowledged in a later model version, benchmarking that progre ss is never easy. Mo reover, technological learning and progress will be a function not of choices for each Vehicle Type (as the spreadsheet organizations suggests), but of industry-wide developments across vehicle types and manufacturers.

o In our models on new vehicle technology in troduction, we have found it useful to distinguish between 3 types of technological progress: autonomous progress over time due to R&D; progress or cost re duction due to produc tion scale (units produced per plant); and progress from L earning By Doing (LBD). All three of these play a role, but the proper benchm arking of each is quite challenging. I agree learning should be approached, but cautiously because its specification and parameterization can have such a pronounced effect on model results.

 Spot-checking these entries, I did not see a ny items associated with changing vehicle size and weight. This may be a design choice rath er than happenstance for the sample data: technologies that substantially change the vehicle design and hedoni c attributes for the consumer would call for a more rigorous assess ment of net-value to the consumer, and a potential re-statement of obj ective (TARF sequencing rule).

Response: Cost reductions due to learning are not yet incorporated into the model. Thus, there are currently no connections between the costs of technologies a pplied to different vehicle types. When learning is added to the model, the user will likely be able to specify whether this learning is based on the number of vehicles which recei ve this technology by ma nufacturer or industrywide. The latter approach will provide a c onnection between technol ogy costs across vehicle types. We will consider the suggestions pr ovided by Dr. Leiby as we develop the learning related algorithms for future versions of the model. Prior to the inclusion of learning, the user can input technology costs which reflect the antici pated use of a technolo gy across vehicle types and manufacturers. These projecti ons can be compared to the results of model runs and adjusted accordingly.As mentioned above, the current model does not allow the vehicle sales mix to change as a function of technology. Holding ve hicle attributes such as size and perform a nce constant when applying technologies simplifies the treatment of hedonics. A user could include a technology which included a change in vehicle size or other attr ibute. In this case, the user should adjust the cost of the technology to reflect the anticipated change in the ve hicle’s value from a consumer perspective. However, the limitation of this appr oach is that it would not adjust the applicable footprint-based GHG standard if the reduction in vehicle size would actually change the vehicle’s footprint. There is currently no mechanism included in the OMEGA model for changing a vehicle’s footprint from its base value. The model would also not reflect any change in sales which might accompany such a change in ve hicle size or other attr ibute. The user could project a change in vehicle size in future rede sign cycles and estimate the technology and cost necessary to bring this adjusted fleet into compliance. The cost of the change in vehicle size could then be added outside of the model. EPA does not have any plans in the near term to incorporate a change in vehicle size and result ant changes in consumer choice into OMEGA in the near future. One researcher, David Greene, recently concluded that, given time for vehicle redesign, on the order of 95% of the fuel econom y improvement induced by feebates is likely to be achieved through the applicati on of improved technology rather th an a shift in vehicle sales patterns. 1 Thus, ignoring changes in the fleet mix may not be a substantial limitation.

2c) Scenario input file, definition of th e standard and economic conditions (Appendix 3) 2d) The elements of the Fuels input file, Appendix 4

 This list does not yet reflect biofuels or renewable fu els, which are a growing consideration, in no small part due to recent law and EPA RFSs.

 Some provision may be needed for the variable energy and GHG content of gasoline, as the ethanol content varies over time.

 Provision may also be needed for E85, and the uncertain fraction of E85 use by FFVs.

 The net fuel economy and emissions by PHEV s remains an area of continued study. EPA is well aware that fuel use by fuel t ype and resulting emissions depend on PHEV design (AER), consumer use patterns, time of recharging, and the fuel used for regional grid generation. Nonetheless, some simplified representation of the alternative PHEV designs will be needed soon. I was unable to ascertain what progress EPA has made in this area.

2e) The reference data contained in Appendi x 5. (Implied flexibilities and constraints of the model)

 No specific comments

Response: The current version of OMEGA focuses on gasoline, diesel fuel and electricity because the vast majority of current vehicle sales are certified on these fuels. Very few dedicated alternative fueled vehicles are sold and flex fuel vehicles are certified on either

1 “Feebates, footprints and highw ay safety,” Transportation Research Part D 14 (2009): pp. 375- 384.gasoline or diesel fuel and nume rical adjustments made to their fuel economy or emissions to ref l ect incentivizing regulatory credits. Future versions of the model will allow the user to include an anticipated level of FFV credits by manufacturer and by redesign cycle which will effectively adjust the required level of fuel economy or GHG emission control.

Current legislation and enabli ng EPA regulations encourage th e use of renewable fuels. However, to date, these requirements are not in tegrated with the regulations governing vehicle fuel economy, nor the standards contained in th e EPA vehicle GHG proposal. Thus, the primary place which they intersect with the OMEGA model is in the calculation of benefits. As this is done in a spreadsheet, the user could easily modify the calculations to re flect an anticipated use of renewable fuels over time. EPA may develop a standard version of the benefits calculation spreadsheet in the future which facilitates this use. However, as suggested by Dr. Leiby above, this is not the first priority at this time.

We agree that gasoline quality changes over time, but these changes are relatively small. We will consider including a varying quality for gasoline and diesel fuel over time in the benefits calculation spreadsheet as improvements are made to it.

At present, the model assumes that PHEVs will be driven like any other vehicle. Given the difference in the economics of their use when driv ing over short and long di stances, it is possible that PHEVs will be driven differently than othe r vehicles. Unless this is reflected in GHG regulations, however, the core m odel should treat PHEVs like any ot her vehicle. They could be treated differently in the benefits calculation sp readsheet. This difference could be reflected by the user using information already included in the spreadsheet (i.e., emission and sales per vehicle after the application of technology). EPA will consider incor porating the potential for such a difference once better estimates of how the operation of PH EVs might differ from conventional vehicles becomes available.

3) The accuracy and appropriateness of th e model's conceptual algorithms and equations for technology application and calculation of compliance;

 Equations for techno logy application:

o The sequence of technology application, and timing and extent of application, for each vehicle type, is exogenous.

o Modelers acknowledge that “This approach puts some onus on the user to develop a reasonable sequence of technologies.” As noted, the onus may in fact be quite substantial. Therefore, it is helpful th at the model “produces information which helps the user determine when a particul ar technology or bundle of technologies might be ‘out of order.’” [p. 7] Any such capability to assist the user with stage-1 exogenous technology sequencing for individua l vehicle types is worthy of further development and greater prominence in the documentation and model.

o The Volpe model seems to currently o ffer more facility for specifying the structured sequences introduction of technol ogies or groups of technologies. The EPA GHG Modelers may also wish to deve lop some tools that make it easier for users to group and sequence technologies, pe rhaps even with logi cal diagrams thatmap to or from the Technology.xls dataset. This would help experts represent their best judgement about technolo gies can or would be applied.

o While this model allows for substantial technological detail, there will always arise further, potentially important, comp lexities. In this review I could not determined the degree to which the model can account for cross-vehicle-type, or cross-manufacturer, interactions in the se lection and sequencing of technologies. For example, various forms of hybridizati on are mentioned as technology options. We already see that one manufacturer, Toyota, develops a hybridization technology for one vehicle it quickly sp read to other vehicles from that manufacturer, and that same technology is also sourced to other manufacturers (Nissan). Can this be represented in some way?

o P. 17 says: “Finally, the model determines the order in which technology packages are added to vehicles. The model first compares the TARFs corresponding to technology p ackage 1 on all of the differe nt vehicle types in the fleet and chooses the combination with the lowest TARF.”

 What does “combination” mean here? I understand it to mean the model chooses a combination (pair) of particular vehicle v and technology step t (advancing from t- 1 to t ).

o Technical points on the TARF-based ru les for technology application (Equations p. 14):

 As mentioned, net cost (“EffCost”) al one would not seem to be adequate for sequencing GHG-reduction technologies

 The inclusion of a FEE for non-compliance has some issues (admittedly, the Volpe Model does something like this as well, but the justification is not compelling):

 It embeds the cost of non-compliance in an algorithm that ends only with compliance. Hence the fe e should ultimately be zero. Is the intent here to employ some sort of penalty-function based algorithm for constrained optimization?

 “Non-compliance” is a manufactur er-wide condition, and cannot be associated with a specific individual vehicle or technology (Note: I believe the TARF measur es should be subscripted with m,v, and t, to highlight that th ey are specific at that level).

 As written, the FEE is applied to the change in fuel economy (mi/gge, MPG) for that particular technology step. This is not a measure of non-compliance, and its e ssential effect is to exaggerate the relative importance of fuel savi ngs. Note that the fuel-savings term is proportional to (FC t-1 - FC t ) while the Fee term is proportional to (1/FC t – 1/FC t-1 ), essentially a monotonic nonlinear transformation of fuel-savi ngs. So even though there will be compliance an no fee, the effect will be to boost the weighting of fuel savings in a non-linear way.

 A maintained assumption is that fuel economy technology will not alter sales volume or share. But does or could vehicle sales volume influence the choice of technology introductio n? I only noted “Sales” being referenced in the post-processing calculat ions, and it is used in the tests forcompliance. But sales is not a cons ideration in the TARF for a vehicletechnology pair, nor in the terms le ading up to it, so the technology sequencing is based entirely on per-vehicl e cost analysis. This approach is taken in other m odels and is not unrea sonable. But if technology learning or scale economies matter, for exampl e, the choice of which vehicle to apply the next technology to could be related to the sales volume of particular vehicle-types.

 As mentioned, the non-standard adju stment of VMT discounting in the denominator of the CostEff TARF shoul d either be eliminated or more explicitly and rigorously motivated. As it stands it seems to either mix social benefits of GHG reduction w ith the manufacturer’s objective of meeting the emission standard.

o On p. 13, the equation for Fuel Savings (FS) seems to be in error. Fuel price (FP) is divided by i, which denotes the age of the vehicl e (year after its production). Is this simply a typographical error and a discount factor was intended (e.g. (1+DR) i ?)

 In all cases where the lifetime value of fuel savings in considered, the challenge is to be clear about whose valuation of fuel savings is being calculated. It is widely observe d that consumers, when making new vehicle purchase, may “undervalue” fu el savings either with a higher discount rate or a short pl anning period than actual vehicle operating life. I understand that these is sues are probably behind the formulation used here, but it would help to be more e xplicit. If manufacturer decisions are being modeled, the relevant questi on seems to be “How many years of discounted fuel savings would the manuf acturer assume it will be able to recover from the consumer th rough the vehicle sale price?”

With respect to the flexibility afforded by the Volpe Model, the Volpe Model separates technologies by the aspect of the vehicle being m odified (e.g., engine, transmission, accessories, vehicle (aerodynamic drag), etc.). A path is sp ecified for the applicati on of technology within each group. These paths are embedded in the mode l code and cannot be modified by the user. In contrast, with OMEGA, the user can modify the order in which te chnology is applied.

We agree with Dr. Leiby that the development of the technology steps is both integral to the model’s operation and a challenging task. EPA w ill consider developing spreadsheet tools and procedures which will assist a us er in developing such inputs. However, since modifying a vehicle is a complex engineering task, developi ng model inputs which refl ect such changes will never be simple. EPA will publish its Technology input file which was used in its OMEGA modeling to support its recent proposal of GHG sta ndards. The regulatory support documents to this proposal also describe how EPA developed these inputs. In general, the cost of the flexibility afforded by the approach taken in this area is greater responsibili ty with regard to the technological inputs to the model.

The OMEGA model applies technology to one vehi cle at a time, but does so by evaluating the costs and benefits of technology ap plicable to a manuf acturer’s entire vehicl e line. This is possible, since essentially every vehicle model is redesigned once during every redesign cycle.This causes OMEGA to apply more consistent le vels of technology to all of a manufacturer’s vehicles. T hus, OMEGA would generally not pred ict the application of hybrid technology to one vehicle, while applying little or no more c onventional technology to another vehicle. The exception would be if the TARF for the hybrid technology was less th an that for the conventional technology, meaning that the former was generally more cost effective than the latter. Models evaluating compliance annually can sometimes appl y very disparate levels of technology from one year to the next based on the number of vehicles which can receive major technological change in each year. Also, in our analyses in support of the EPA vehicle GHG proposal, EPA grouped vehicles by platform and engine size. This avoids applying one level of technology to the sedan configuration and anot her to the coupe configuration of a vehicle built on the same platform.

At the same time, OMEGA would predict that Toyota, to use Dr. Leiby’s example, might hybridize the sales of the Camry up to the cap set for hybridization of this vehicle type and none of the Corolla sales. In reality, Toyota might choose to hybridize a portion of both vehicles. EPA does not believe that any model can predict the precise use of technology on every vehicle for a given fuel economy or GHG standard. Models such as OMEGA produce a reasonable estimate of the total application of various technologies and thei r overall cost. The user must interpret the results at this level and avoi d putting too much confidence in the model’s predictions for any specific vehicle.

Manufacturers can also introduce technologies for va rious reasons. Some technologies, such as the early hybrid models, were introduced for ma rketing purposes and to develop experience. Some technologies were develope d for overseas markets and are sold in small numbers in the U.S. A model which uses economic efficiency as its primary tool for applying technology will not be able to capture these vagaries in technolo gical application except by including them in the baseline fleet (i.e., as being outside of the impact of the GHG controls being evaluated). Incorporating manufacturer-based learning into th e cost estimation will help somewhat, as this will lower the cost of technology for those co mpanies which have already applied certain technologies in the past. However, again usi ng Dr. Leiby’s example, no regulatory model would predict that Toyota would introdu ce hybrids over a number of their vehicle lines, as the use of this technology was not driven by regulation.

On page 17 (of the model documentation), “combin ation” referred to a combination of vehicle and the next technology availa ble to that vehicle. Th is has been clarified.

The CAFE compliance fee is include d so that the user can match this aspect of the DOT Volpe Model if desired. As discussed in Section H of John German’s comments, such a fee or fine is not applicable to an EPA GHG standard and w ould normally be set to zero by the user. We agree that the calculation of the impact of the CAFE fee was performed in correctly in the version of the model which was reviewed. This has been corrected.

Regarding the potential impact of sales volume on the TARF, this will need to be considered when EPA incorporates learning into the model. Some projection of the sales volume over which a technology might be applied will likely ha ve to be made when calculating the TARFs. Then, at the end of the model run, the technology cost can be adjusted to reflect the actual use ofeach technology. If the TARF is based on the leve l of technology use up to that point in the model run, the cost of the same technology c ould decrease (for TARF calculation purposes) during a run when in f act it is the same. Manuf acturers can generally be assumed to be forward looking when deciding to apply technology, consid ering the sales volume which will receive the technology over at least a fu ll redesign cycle of all of their vehicl es. Of course, if the learning is occurring at the supplier level, costs will decrease based on tota l industry sales, which will not bear any semblance to the level of application o ccurring to the first manufacturer’s vehicles. In this case, the model output could even be depe ndent on the order in which the model evaluated the various manufacturers, which is not desirable. Thus, it will likely be best to predict the market share of various technologies, learn costs accordingly, calculate TARFs, apply the technology and adjust costs as necessarily to reflect lesser or greater application of each technology.

The model documentation on page 13 has been corrected.

The fuel savings are those believed to be va lued by the consumer when purchasing a new vehicle. The user sets these savings primar ily through the payback period. The model then discounts the savings using the stan dard economic discount rate used elsewhere in the model. If the user believes that a consumer discounts fuel savi ngs at a greater or lesser rate, she or he can adjust the estimated payback peri od to reflect the fact that the model uses a different discount rate in this calculation.

 Calculation of compliance to Attribute-based standards:

o An overarching feature of the method ology is that progress in reducing GHGs/fuel-use occurs by advancing driv etrain technology and other attributes largely transparent to the consumer. Technologies are sequenced based pervehicle figures of merit, assuming no imp act on vehicle designs (apart from fuel use technology) and constant vehicle sales shares. One issue to consider is whether these assumptions of unchange d vehicle and unchanged sales mix become less defensible for attribute standards like the footprint standard.

o On page 7, equation for the logistic-based footprint, there appears to be a sign error in the denominator (should be 1+exp((x -C)/D) not 1-exp((x-C)/D)). This is likely a typo in the documentation alone.

 Calculation of compliance to pos sible market-based standards

o No discussion or provision for market-bas ed (permit trading) standards is yet made. This should at least be acknowledged.

o One strategy for doing more flexible st andards would be to simply merge the datasets and technology-sequence stage fo r all manufacturers and vehicle types in a trading group. However, this would not provide informa tion about potential permit prices and burdens across manufacturers.

Response: EPA believes that the vehicle sales mix will actually be less affected by attributebased standards compared to universal or flat standards. A universal standard encourages smaller vehicles. An attribute-based standard applies a more stringent standard to smaller vehicles, negating some or all of the natura l reduction in GHG emissions which comes with reducing vehicle size and weight. In either case, the relations hip between consumer purchasepreferences, vehicle cost and fu el economy is very complex and not well assessed. A number of models have been developed to sim u late th ese relationships, but they appear to differ substantially, especially regardi ng consumers’ valuation of fuel economy. EPA may incorporate such effects into future versions of OMEGA. Howe ver, a first step in this direction would be to couple the two types of models and run them iteratively and see if they converge.

The documentation of the constrained logi stic curve formula has been corrected.

The inclusion of permit-based trading beyond the light-duty vehi cle market is currently beyond the scope of the model. We agree with Dr. Leiby that the user could simulate the net impact of flexible credit trading across manufacturers by labe ling all vehicles with the same manufacturer name. In addition, examination and analysis of the compliance cost per vehicle should provide sufficient information to estimate the permit prices implied. However, the user would have to develop these algorithms.

4) The congruence between the conceptu al methodologies and the program execution (examining the results with good engineering judgment)

 This is difficult to assess and a careful valida tion of this model’s execution would require further examination. The results appear generally reasonable, but that is a weak test.

 I was only able to experiment with cases fo r one design cycle. The longer-term cases involving multiple design cycles are more ch allenging. It has been noted the model solves for design cycles independently of one a nother. So it would be worthwhile to test what this implies for the sequence of technol ogies used from one cycle to the next.

 One observation is that the inclusion of the non-compliance FEE does affect the model solution and choice of technologi es. As mentioned above, the theoretical justification for this is not well formed, given that all manufacturers are typically assumed to end in compliance. However, I did not that the im pact of including the FEE is modest, only changing per-vehicle costs by a few dollars. Ho wever, for at least one manufacturer (#9) the cost and technology sequence ch anges significantly. I am not sure this is a desirable
outcome.

 Also, simple tests with the sample dataset show a relative insensitivity to the choice of TARF. This was surprising, and needs more investigation.

Response: The limited role of the FEE was discussed earlier. We assume that Dr. Leiby is referring to an insensitivity of the TARF to a change in the value of the FEE. This is not surprising, since the CAFE fine of $55 per mpg is much smaller than the fuel savings associated with a 1 mpg change in fuel economy. The leve l of the FEE has little effect on the order of technology application since it tends to reduce the value of the TARF for all technologies roughly proportionately to the fuel savings already included in the TARF calculation.

5) Clarity, completeness and accuracy of the cal culations in the Benef its Calculations output file, in which costs and benefits are calculated;

 This system produces a large number of useful side calculations.

 Again, further investigation is neces sary to investigat e their accuracy.

 Overall, a careful independent validation of the two phases of this model’s execution (manufacturer compliance simulation and effect s calculation) would be well worthwhile.The code for compliance simulation is comp iled and not visible. Working through the logic in the post-processing cal culations of the BenefitsCalculation spreadsheet would take a bit of tim e. But it would be worthwhi le. Overall a us eful validation effort could probably be complete in about a week of focused attention.

Response: The inclusion of a va lue in the benefits calculation is not m eant to automatically convey accuracy. This will be clarified in the model documentation. The user is ultimately responsible for all input values us ed in the modeling. Of course, if the user uses an input file published by EPA in some context other than simply providing an example, then the EPA analysis referencing that model run will support the choice of values used. As Dr. Leiby noted above, review of the inputs to the model or bene fits calculation spreadsheet was not part of the peer review charge.

EPA’s publishing of the results of its OMEGA m odeling and estimated benefits of the proposed vehicle GHG standards should accomplish much of the task referred to in Dr. Leiby’s last comment, as such inputs and outputs will be subjec t to a full review by the public during the comment period for that proposal.

6) Clarity, completeness, and accuracy of th e model's visualization output, in which the technology application is displayed; and

 The XML format for data transfer and di splay is a very good design choice, allowing flexibility, modern data-exchange capability, ready output to internet, and easy extension of the report.

 This display in the visualization output is useful overall, but it seems more oriented toward “expert users” who are willing to wade through details to find understanding and the information they need.

o TechPack are reference by number only, but perhaps could easily be labeled with the full name or 4-character abbreviation, or cross-reference by hyperlink to a description of the technology.

o Additionally, hyperlinks could be added that would allow the user to easily jump to the table for a particular manufacturer or vehicle type.

 It would be very helpful to have some graphical summaries of the input and output results.

 All output files should embed clear doc umentation on the inputs used. E.g.

o The .log file does list name s of the 4 input files, which is essential.

o The “Visualization Output” file does not (yet) report the input files (but the information could be retrieve from the XML file).

EPA has improved the formatting of the output files, including bette r labeling of technology packages which have been applied. We will cons ider the use of hyperlinks and graphical outputs in the future. Output files now include date and time stamps plus the names of the input files used.

7) Recommendations for any functionalities beyond what we have described as "future work." Clearly defined improvements that can be readil y made based on data or literature reasonably available to EPA

o First I note that there were multiple references to “future work.” It may be helpful for EPA to construct a list of these prospectiv e improvements, and establish priorities and a staged, progressive approach for revision. Specific releases of the model with carefully specified functionality will allow prospective users at EPA and elsewhere be clear about what the model is a nd can do at any point in time.

o While the model has a number of valuable aids to execution and reporting (input validation, automated generation of run l ogs, XML data, and “Visualization” tables for web/browser display), more could be done here to improve us ability and provide greater insight about each cas e run. Comparatively simple revisions and extensions to the operational procedures and output could be well worthwhile.

 Provision for side-by-side case comparis ons, reporting or graphing difference.

 Case management and logging facilities.

 Currently the system labels every file with generic name concatenated to a time-date stamp. Very quickly a directory can be cluttered with cryptically named log, xml, htm files.

 A case archiving facility, that comp resses all input and output files to document the case, might be useful

 The ability to specify a CaseName in the Scenario file, that then becomes part of each output file, would also be helpful.

 When the VGHG.exe file reads a scenar io file, it does not record, or at least display, the name of the file read. It is easy to forget which case was read if you step away, or are doing many cases.

 Relatedly, the purpose of the VGHG.exe’s separate menu options is not yet clear to me.

o It seems that once a scenario a nd the associated datafiles are read, execution would be the logi cal next step. The scrollable tables from data input are rea lly too constrained a view to allow useful review or verification of the data.

o Once the case is run, it seems “Save” to XML might be automatic, otherwise one is limited to the text-based log files, that omit summary information. “Saving” seems needed for Visualization and Benefits Calculation in the spreadsheet.

o So perhaps VGHG.exe might load-run-save in one step, although I may be missing something important.

 Graphical capabilities [m ore thought required here a bout exactly what graphs would be most useful. But there are ma ny data in the tables, and they are not simple to process mentally.]

 Improvements that are more exploratory.

o Extension to accommodate flexible/mar ket-based emission or fuel-economy regulations. Permit trading extensions, constructed by pooling selected vehicle types/classes, and/or manufacturers, during the compliance phase of the analysis.

 Ex post calculation of implied permit prices based on marginal costs of compliance (measured by the cost/GHG reduction of the final technology pack applied).

 Ex post calculation of economic implicat ions for individual manufacturers, by comparing results with and without trading/pooling, and accounting for the implied costs and revenues from pe rmit exchanges between manufacturers.

o Extensions to consider endogenous (standards- induced) changes in vehicle attributes. These are a higher challenge, but would be very valuable for an improved understanding of the market responses to regulations.

 Endogenous changes in sales volume/mix

 Endogenous changes in vehicle size/footprint

Response: EPA appreciates these suggestions and will consider them for future model development activities

C. Comments by Dr. Jonathan Rubin

I would like to congratulate the EPA for undertaking to build this tool which will be very useful for possible regulatory compliance and anticipat ed and unanticipated policy analyses. The construction of such a tool requires extensiv e expertise, professiona l judgment, necessary compromises and assumptions. The validity of th e output will of course depend on these factors as well as the data availabl e to populate the model.

My comments are based on my review of the ma terials provided to me by Southwest Research Institute: the EPA vehicle GHG Emission Co st and Compliance Model Description and associated attachments and appendices and the VGHG model and the asso ciated spreadsheets. These comments reflect my understanding of EPA’ s possible use for this model for regulatory compliance as well as use by external researcher s and policy analysts who may use the model for analyses of state and regional policies.

My comments below respond to the particular questions posed in the transmittal letter from Southwest Research Institute.

Overall Approach to the specified modeling purpose and the particular methodologies chosen to achieve that purpose

The authors have clearly put in a great deal of work on this ch allenging project and should be commended for an excellent start. That said, more effort and thought needs to go into what I call the accounting stance. On page 2, line 42-43 (p. 2, l. 42-3) the documenta tion states that “The primary cost of the GHG emission control is the cost of the added technology compared to the baseline.” My question is: “cost to whom?” Cost s to consumers will differ from costs to society or costs to manufacturers. At times, the documentation reads as though these are costs tomanufacturers – since CAFE fines are considered ; other times the costs se em to be towards consumers or society. These accounting stances will differ for several reasons: 1) private and social discount rates differ, 2) social and private risk differs (on average technology performs as well as expected, but not for each vehicle), 3) su bsidies to purchase plug-in vehicles or other advanced technology vehicles drive a wedge between private and social costs, 4) subsidies to biofuels and electricity at the state level (exemp tion for some or all road-use tax) mean that consumer costs are not equal to full resource co sts. Clarifying the acc ounting stance is a high priority, because many further calculati ons rely on its clear definition.

Since the potentially regulated agents are ve hicle manufacturers, my recommendation is to define costs as the costs to ma nufacturers of incremental technol ogy and vehicle re-design costs. The net costs to manufacturers are equivalent to the incremental costs of fuel economy technology less any increase in retail prices that manufact urers can charge for more fuel efficient vehicles. This should be equal to some portion of the expected fuel savings plus any changes in the hedonic value of vehicles due to changes in vehicle performance, noise, size, and refueling time (more on this later). By separating out manufacturing costs more clearly from consumer valuation of vehicles, the presentation will be more transparent. This also will make clearer the distinctions between consumers’ rates of discount from manufact urers’ costs of capital from society’s rate of time preference.

Additionally, I recommend that the net costs clearly incorporate and identify all subsidies (for electric or plug-in hybrid vehicles and alternative fuels) but displa y costs and benefits separately to private agents (manufacturers, consumers) and society. These will generally not be the same. For example, the benefit calculation spreadsheet “Externalities” adds together consumer money saved on fuel with savings from lower oil imports . I would be very surpri sed to learn that the assumptions of the discount rate or risk premium or both in the cal culation of benefits of reduced crude oil imports are the same as consumers’ disc ount rates for expected future gasoline savings.

Response: Broadly speaking, the model is desi gned to project the application of technology which is controlled by the manufacturer of the vehi cle, but which is also influenced by consumer preferences and governmental requi rements. Then, once this t echnology has been selected, the model sums up the costs and benefits associated with the application and use of this technology from the view of society in the benefits calculation spreadsheet. This is consistent with EPA’s approach to the estimation of costs and benefits in its mob ile source rulemaking analyses, including the recently proposed vehicle GHG standards. EPA often evaluates costs and benefits using two or more discount rates, reflecting the time value of m oney from different perspectives (e.g., private and public). The user of the OM EGA model can perform this task by modifying the discount rate in the benef its calculation worksheet after the results for any particular OMEGA model run have been loaded. In the analyses supporting th e proposed vehicle GHG rule, EPA developed technology costs which are base d on piece costs, the co st of assembly plus an intermediate markup factor which accounts for indirect corporate leve l costs and a reasonable level of profit. These costs were used in th e OMEGA model to estimate the average cost of added technology per vehicle for the rule. Thus, they were used to represent the cost per vehicle from both manufacturers’ and so ciety’s perspective. As EP A develops the OMEGA model further, particularly if the explicit treatment of capital investment requirements is incorporated in to the technology application process, it may be more important to explicitly treat technologycosts differently depending on entity experiencing the cost (e.g., m anufacturer, consu mer, society).

A special case where such separate treatment of co sts could be very important is the availability of subsidies of the purchase of vehicles equipped with certain t echnologies (e.g., plug in hybrids, electric vehicles, etc.). As discussed further below, if sizeable subsidies apply to vehicles equipped with technologies which are being added by the model, these should be reflected in the manufacturer’s choice of technology. Currently, th e model does not facilitat e the availability of purchase subsidies. Their existence must be ad dressed by using different costs per vehicle when technology is being selected and when so cietal costs are being determined.

In addition to the use of these costs when su mming up the cost of tech nology at the vehicle, manufacturer and industry levels, the model also uses the same technology costs to calculate the TARF, which is in turn used to decide which t echnologies get applied to specific vehicles. The TARF does not necessarily reflect the perception of costs by society. The two TARFs currently included in the model are intended to reflect the decision making of a manufacturer and thus, reflect costs from the point of view of the manu facturer. Since the manuf acturer must satisfy its customers and regulatory mandate s, a manufacturer’s decision making processes will reflect these needs, as well. More expl icitly, the technology cost is the fu ll cost of that technology at the consumer level, including research and develo pment costs, amortization of capital investment, etc. This cost is generally the same cost as EPA estimates in its regulatory support analyses when estimating the cost of new standards. This cost is not necessarily the increment in price that the manufacturer would charge for that tech nology, since price is a function of many factors which can change fairly quickly depending on ma rket conditions. The fuel savings are those valued by the customer, so they are based on fuel prices including taxes and reflect the timeframe which a customer might consider when purchasing a vehicle. The residual value of the added technology is not currently reflected in e ither TARF, but could be added in the future. The rationale behind the TARFs will be clarifie d in the model documentation to reflect these points.

The same technology costs are used in summi ng up the cost of all the technology which is applied to vehicles in benefits calculation worksheet. This is c onsistent with the treatment of technology costs in regulatory analyses s upporting recent EPA rulemakings, including the recently proposed vehicle GHG standards. Thes e analyses often develop the consumer level costs from material costs, labor, capital investme nt and profit at the s upplier and manufacturer level.

The current OMEGA model does not account for the availability of subsidies toward the purchase of certain types of vehicles, such as PH EVs or EVs. Such subsidies clearly affect the consumer’s valuation of these vehicles and the likelihood that manufact urers would implement these technologies. In terms of the model’s proceses, these subsidies change the cost of technology as perceived by the consumer as reflected in the TARF. A user could reflect this by including the subsidy in the cost of these technologies in the Tec hnology file. The OMEGA model would then apply the technology considering the subsidized price. The user would then have to add the value of the subsidy to the co sts as estimated in the benefits calculationspreadsheet (and other output formats) in order to fully estimate societal costs. This lim itation does not affect EPA’s use of the OMEGA m o del in support of its proposed vehicle GHG standards, as none of the technol ogies projected to be required currently receive subsidies. However, this issue could be important for an alyses evaluating vehicle GHG standards further out into the future. EPA will consider ways to in corporate such subsidies into future versions of OMEGA.

2) The appropriateness and completeness of th e contents of the sample input files.

d) The elements of the Market i nput file, as shown in Appendix 1 of the model description, which characterize the vehicle fleet

If the data are available, it w ould be useful to have the cross- price elasticities for makes and models or model segments such that mix-shift impacts could be taken into account as vehicle prices rise in response to additional technology packages.

Some of the market data are interesting, but do not seem necessary. For example, what is the use of knowing a vehicle’s struct ure (e.g., unibody) or the ma ximum seating capacity?

Does the market spreadsheet contain data for mid-size trucks, gross ve hicle weight 8,500 - 10,000? If not, I would think it should, given that they are now covered under the revised light truck CAFE rules.

Response: EPA agrees that it w ould be desirable at some point to incorporate the impact of increased vehicle cost, improved fu el economy and other factors on vehicle sales. However, this is beyond the scope of the OME GA model at this point. The relationship between consumer purchase preferences and vehicle cost and fuel ec onomy is very complex and not well assessed. A number of models have been developed to si mulate these relationships, but they appear to differ substantially, especially regarding cons umers’ valuation of fuel economy. EPA may incorporate such effects into futu re versions of OMEGA. However, a first step in this direction would be to couple the two types of models and run them iteratively and see if they converge.

As mentioned in Section G of Mr. German’s comm ents, the current market file format includes several vehicle parameters, such as weight, seat ing capacity, etc., which are not currently used by the model. These aspects of the vehicle were in cluded in the Market file as place holders for potential attribute based standards which could be based on these factors. We will modify the model documentation to clarify that these data fields are not used by the model.

The example market file provided the peer revi ewers does not necessarily include all vehicle classes potentially addressed by future GHG regul ations. The OMEGA market file which will be published as part of EPA’s proposed vehicl e GHG rule will include medium-duty passenger vehicles which are above 8500 pounds GVWR.

e) The elements of the Technology input file, in Appendix 2, that constrain the application of technologyAre the incremental costs shown in column X retail or wholesal e? What do they assume about the volum e of production? If I r ead the file correctly the incr emental price for plug-in hybrid technology often has a low first cycle cap of 5%. Is the incremental cost of this technology consistent with its use on 5% of a market segm ent of a given manufactur er? It is important to clearly define the relationship between scale of use and incremental technology cost. The columns “a”, “Decay”, “seedV”, “kD”, and “cycle lear ning available” need further clarification.

P. 2, l. 14 notes that the GHG ta rget can be set as a function of vehicle footprint. The technology input file does not show an i ndication of how down-weighting and changes in footprints may be used to meet a set of given standards. This may not be able to be accomplished immediately given available data, but it should be considered as more experien ce with the footprint standards is gained from CAFE compliance.

Response: Please see the res ponse under Section #1 above for a discussion of how technology costs are treated in the model. As described in the peer re view charge, the specific inputs provided to the reviewers were for example purposes only. Therefore, th ey do not represent any particular sales volume. EPA has published th e Technology file which it used in its OMEGA modeling in support of its proposed vehicle GHG standards . This file contains official EPA cost estimates and the Draft Joint Technical Support Document for the proposed rule describes how they were developed.

We agree with Dr. Rubin that the model doc umentation did not describe how the Initial Incremental Cost,  , Decay, seedV, kD, and Cycle Learning Available fields are used in the model. These inputs are related to the prediction of co st reductions due to learning, which has not yet been implemented in the model. These columns appear in the Technology file as place holders for future version of the model.

Weight reduction can be a tec hnology which is input to the model or part of a broader technology package input to the model. The effec tiveness and cost of th is weight reduction is estimated in the same manner as any other tec hnology. EPA included weight reduction in the technology packages which it evaluated in support of its recent proposed vehicle GHG standards. In doing so, EPA held vehicle size, footprin t, utility and performance constant.

It is currently not possible to include a tec hnology in the model which changes a vehicle’s footprint. The TARF for such a technol ogy would be quite complex, since both the manufacturer’s corporate-wide emission standard and the vehi cle’s emissions would change simultaneously. It is possible that the technology could move the manufacturer further from compliance. Such a change would also likely cha nge a vehicle’s utility and its perceived value. Thus, this would be a step towards projecting a change in sales mix as a function of technologycost, which is currently beyond the scope of the model. It is po ssible that such capability could be added in the future.

f) The definition of the standard and economic conditions in the Scenario input file, as shown in Appendix 3

As per my earlier comments, I think there ought to be a place for 3 different discount rates: consumers, manufacturers and society. Similarly, their ought to be a places for payback periods for consumers and society.

Response: As mentioned above, the TARF calcu lation focuses on the point of view of the manufacturer. As discussed in Section 1 a bove, a manufacturer ma y view technology costs differently than society. This difference can be reflected in the development of the per vehicle technology cost (i.e., the amortization of any capita l equipment or other investment required to implement the technology). In the TARF calculation, the technol ogy cost occurs at the time of vehicle purchase, so it is not affected by the discount rate assumed. The treatment of the increased cost of vehicles across model years occurs in the benefits calculation spreadsheet. The costs and benefits addressed there are intended to reflect those of society. Thus, use of societal discount rate is appropri ate at that point.

The primary place where a consumer discount rate co mes into play is in the value of the fuel savings in the TARF calculation. It is likely that the typical ne w vehicle purchaser discounts fuel expenditures differently than society. However, the user also has the flexibility to set the payback period over which these fuel savings are determined. To the degree that the consumer discount rate differs from the soci etal discount rate, the user can adjust the otherwise appropriate payback period to compensate.

d) The elements of the Fuels i nput file, as shown in Appendix 4, which characterize the fuel types, properties, and prices

It would be useful to reference the data sources for many/most of the data items. For example, energy density – please see EIA report XYZ. Th e value shown for gasoline, for example, at 115,000 is different than that published by the USDOE, Transportation Energy Data Book v 27 (Davis, Diegel, Boundy, 2008, Table B4), whic h shows a (lower heating) value of 115,400 Btu/gallon.

The units should also be displayed for all input s. Again, using the gasoline example, being familiar with the data, it is clear that the unit of analysis is Btu/ gallon (lower heating value). For other data, the units are less obvious. For electricity, the input file or the documentation, or both, should give the assumed conversions from kilowatts to energy density or motive energy such that users can adjust for different end-use efficienci es. Also for electricity, the assumed grid mix should be given with conversion rates such that users can make appropriate adjustments for different policy analyses.

I do not see a statement indicating whether the fuel price data is in nominal or real dollars.I do not see a row for ethanol giving its energy density, m ass, and density. I am assuming that fuel type “EL” is electricity. Also, should you not have at least two types of ethanol – corn and cellulosic – with diff e rent price paths?

As I indicated in my earlier comments, I think it is important to explicitly note the role of subsidies when determining costs. Given this assertion, the fuels da ta file ought to explicitly note federal and state average subsidies (i.e., the fede ral blender’s tax credit an d foregone state excise taxes) for ethanol and other alte rnative fuels. As I note below in 7) Extended Functionality, accounting for foregone taxes is a logical addition to the model, especially when considering plug-in electric hybrid vehicles.

Response: We will attempt to document the values contained in the input files distributed with the model. This has been done for the input files published with the proposed GHG vehicle standards. However, some of the inputs are fo r example only. This will be indicated in the model documentation.

Incorporating the units of the vari ous input fields into the input f ile headings themselves involves changes to the core model. In the near term, we have included detailed descriptions of each type of input value in the model documentati on for easy reference by the user.

Fuel prices are intended to be in terms of real dollars. This will be clarified in the model documentation.

The current version of OMEGA focuses on gasoline, diesel fuel and electricity because the vast majority of current vehicle sales are certified on these fuels. Very few dedicated alternative fueled vehicles are sold and flex fuel vehicles ar e certified on either gasoli ne or diesel fuel and numerical adjustments made to their fuel economy or emissions to reflect incentivizing regulatory credits.

Current legislation and enabli ng EPA regulations encourage th e use of renewable fuels. However, to date, these requirements are not in tegrated with the regulations governing vehicle fuel economy, nor the recently proposed vehicle GHG standards. Thus, the primary place which they intersect with the OMEGA model is in the ca lculation of benefits. As this is done in a spreadsheet, the user could easily modify the calculations to reflect an anticipated use of renewable fuels over time. EPA may develop a st andard version of the benefits calculation spreadsheet in the future which f acilitates this use. However, as suggested by Dr. Leiby, this is not a first order priority at this time. It is no t clear, however, that two types of ethanol would be needed. The price of ethanol in each calendar year would simply have to reflect the price expected given the two sources of ethanol. The upstream emissions would al so reflect the mix of the two production paths.

The model currently does not convert electrical energy into liquid fuel ener gy or vice versa. The two types of energy are tracked separately. The benefits calculation spreadsheet currently only tracks gasoline use. The capability to track diesel fuel and electricity use will be added soon.W e plan to reflect fuel excise taxes in the benefits calculation in the ne ar f uture. Changes in these taxes could then be tracked separately from changes in fuel costs from a societal perspective.

e) The reference data contained in Appendix 5 which are currently hard-coded into the model but, in the very near future, will be contained in a user controlled input file

. The Exclusive Inputs spreadsheet anticipates E10 a nd E85. It would seem fairly straightforward to allow for other blends such as E15. The pr oportion of the ethanol that comes from cellulosic sources in each year should be accounted for such that upstream CO 2 emissions can be properly credited, similarly for pe trodiesel and biodiesel.

Response: EPA agrees that when ethanol blen ds and other renewable fuels are added to the benefits calculation spreadsheet , it would be reasonabl e to include the annua l split of ethanol from corn and cellulosic feedstocks.

3) The accuracy and appropriateness of the model's conceptual algorithms and equations for technology application and calculation of compliance;

On p. 9, l. 40, the documentation states: “The co re model then adds the effectivenesses and the costs of the technology addition until each manuf acturer has met the standard or until all technology packages have been exhausted.” Gi ven that existing law a llows credit averaging across all vehicles sold by a manufacturer, th is requires that compliance would be checked through an iterative routine. Please describe th is routine including mechanisms to prevent cycling so that conve rgence is assured.

p. 10. VMT is given by: . I believe this is this done by vehicle class (from the da ta file). The documentation should index the function with separate subscripts. sDriven AnnualMile action SurvivalFr VMT * 

p. 10. Discounted VMT. I have two issues with this calculation. The first is mechanical. Why



##   i i iFSD DR DR

VMT VMT  

 1 2 1

,, does the numerator have the term 1+DR/2? Is the discount rate not understood to be the simple annual rate? (Als o what do the indices D and FS represent?). Conceptually, however, I do not think this VMT should be discounted. Costs and benefits are appropriately discounted, but I thi nk it is a mistake to discount a phys ical calculation. It blurs the distinction between consumer and society valuati on of VMT and can lead to misleading outputs.

This point is further emphasized by calcul ation of VMT for GHG calculations (p.11)



##   i i iCOD IRDR IRDR

VMT VMT   

 1 2 1

,2, , where VMT is enhanced by the ra te in change in the value ofCO 2 , IR. I strongly suggest that this equation be re-done to separate out measurement of physical units (VMT) from cost and value calculations.

p. 11. RCO2

  

###  

  T LifetimeVM GWP akage LifetimeLe

IRDR IRDR

VMT GWP IRDR IRDR

LeakRate

VMT GWP
RCO

years Lifetime

i i i years Lifetime

i i i

years Lifetime

i iCOD years Lifetime

i i mig 



   

 

   

 

  

     

 

   

 

  



 

 

##  

 

 

 

)(

1 )(

1

)

1 ,2, )(

1

1 2 1 1 2 1

RefLeakage )(2 /

I have two comments. First, it seems to me that, as with VMT, the numerator ought to be multiplied by the survival function. Second, as with VMT, the leakage rate ought not to be adjusted by DR and IR. Also, again, I do not understand the form of the adjustment – why multiply the numerator by 1+ (DR-IR)/2? Should not the GWP be indexed by i?

p. 12. Determine the order of Technology Application. On the previous page the subscript i represented “year” here it repres ents technology package. The use of subscripts should be unique throughout the documents.

P. 12. Intermediate calculations for each vehicle t ype. It appears that the subscripts have changed again. CO2 is indexed by t and AIE, RIE are missing subscripts altogether.

p. 13. Calculate the fuel consumption before and after technology additions.

     

 

 

 gC gCO CD CO FC

t t
t

12 244 2

1 1 1

. Given that CD is in units of carbon, this equation looks unit-less (CO2/CO2). Where do gallons per mile units come in?

P. 13, l. 18. In step iii, calculating fu el savings we see the following equation.

t PP

i PP

i t PP

i PP

i i FP FC i FP FC i FP FC i FP FCFS      
      
 

##    

 

   1 2 2 1 1 1
1 1 2 2 1 1 1 First, why is FP divided by i ? Second, where is the adjustment for vehicle age? How does this equation account for consumers’ choosing to driv e more miles using one fuel v. another? (Consumer’s may want to maximize the time they spend in electric power mode.) Even if the data do not exist to parameterize the model yet, I suggest that the functiona lity be built in to allow for consumers’ choosing to use one fuel type or another.

P. 20, l. 38-46. In calculating th e impact of the reduced time requi red to refuel vehicles, I do not see a mention of the estimated driving that will occur using electricity in PHEVs.Response: The model does not currently require any iteration to determine compliance after each step of technology addition. Prior to t echnology addition, the m odel determ ines the corporate average standard for the manufacturer’s fleet of vehicles. Th e model then checks to see if the manufacture complies with its baseline vehicles coupled with vehicle sales in that redesign cycle. If so, the model does not add a ny technology. If not, th e model begins to add technology to individual vehicles using the TARF to make it d ecisions. After each step of technology addition, the model reca lculates the manufacturer’s co rporate average emission level to determine if compliance has been achieved. This continues until compliance is achieved or there is no more technology to apply.

The issue of discounting the CO2 emission reducti on is discussed in Section 1 of Dr. Leiby’s comments. Discounting has been removed from the CostEff TARF which takes the point of view of the manufacturer. However, we are c onsidering leaving the discounting in for a third TARF, which would take the viewpoint of society. In theory, it is the value of CO2 emissions which is being discounted. However, since the ba se value of CO2 emissions would be the same for each TARF, its inclusion in the formula has no effect on the relative TARF ranking. Thus, we will continue to simply discount emissions. This will be explained in the model documentation.

The inclusion of the factor of one plus one half of the discount rate is to discount to the middle of the year, to recognize that emissi ons occur throughout the year and not at the end of the year.

CO2 emissions from the tailpipe occur in pr oportion to VMT. Thus, the measurement or calculation of CO2 emissions per mile is straight forward. Refrigerant emissions do not occur in proportion to VMT. These emissions can be pla ced on a per mile basis, but only by measuring or calculating refrigerant emissions over a peri od of time and dividing by the typical amount of driving occurring over that period of time. Also, due to gradual vehicle scrappage and a gradual reduction in VMT per year as vehicles age, CO 2 emissions are somewhat front-loaded towards the beginning of a vehicle’s life. In contrast, refrigerant leakage is near zero when the vehicle is new and increases as the system ages and begi ns to leak. Therefore, when putting lifetime refrigerant emissions on a per mile basis, it is important not to simply divide by the vehicle’s lifetime miles, but to also consider the timing of these miles through discounting. This places a unit g/mi reduction in both tailpipe CO2 and re frigerant emissions (in terms of their CO2 equivalent) on a comparable basis. The suggest ed changes to model documentation have been made.

The equation for fuel consumption (FC) is correct. CO2 represents CO2 emissions per mile and CD represents grams of carbon per gallon of fuel. Thus, the units of FC are gallons of fuel per mile.

The equation for fuel savings in the model docum entation is incorrect. (The equation in the model itself is correct.) The fuel price should no t be divided by i. Instead, it should be divided by the payback period. Also, the fuel price shou ld be a function of calendar year (i.e., be subscripted with “i”. This will be corrected in the model documentation.The reduction in refueling time does not yet consid er the impact of recharging PHEV batteries. This will be noted in the model docum entation. Future ver sions of the model will reflect an estimate of the time that it takes to connect and di sconnect the vehicle to an outlet, probably each action performed once per day.

4) The congruence between the conceptual me thodologies and the program execution;

As suggested, I made changes to input values in the spreadsheets and re-ran the model. The changes as displayed in the benefits calcula tion spreadsheet were what I had qualitatively expected.

5) Clarity, completeness and accuracy of the calculations in the Benefits Calculations output file, in which costs and benefits are calculated;

Please see my comments in the beginning of the document. I believe that the benefits calculations should more clearl y reflect benefits and costs to three different agents: manufacturers, consumers and the nation.

Recognizing that the benefits data (Benefits Ca lculation workbook) is subject to change, it would be really useful to list the data sources for all inputs. For example, if the VMT data is coming from MOBILE6, the VMT_Lookup spreadsheet should clearly state MOBILE6 as its source and similarly for the other inputs and spreadsheets.

Similar to the formula used to discount VMT, the spreadsheet “ExternalVMTCosts($)” discounts

externalities using the formula: 

##   i DR DR

 

1 2 1 . My question is why? Mo st commonly used discount

factors are simple 

##   i DR  1 1 annual rates. In some senses it does not really matter because the

user can set the discount rate, bu t by using a non-standard discount rate this is likely to lead to unnecessary confusion.

In the “Benefits Calculation” workbook, the worksheet, “Emissions_Fuel Conservation” shows upstream savings from NOx, VOC, CO, PM, an d SOx. These emissions savings are all calculated based on upstream conventional gasoline emission savings. I would think that either: 1) these should be based on a weighted average of gasoline, diesel, ethanol, and electricity upstream emissions, or 2) the gallons saved should have been weighted gallons. I cannot readily determine if the saved gasoline gallons are weig hed by the proportion of gasoline, electricity, ethanol and diesel (and th e weights would be emission-gallon wei ghts.) This needs to be clarified or corrected.

In the “Benefits Calculation” workbook, the worksheet, “ExternalVMTcosts($)” displays the discount factor applied to future costs as the common discount factor used throughout the model. As I earlier suggest, societ y’s rate of discount for accidents costs (human life) are not likely to be the same as consumers’ rate of discounting fu ture gasoline savings. These should be separate inputs.In the “Benefits Calculation” workbook, the work sheet, “DownstreamCosts($)”, the units on CO2 are shown as “$/ton”. I believe that the label is m i ssing the modifier, “metric”.

In the “Benefits Calculation” workbook, the worksheet, “UpstreamCosts($)” shows benefits determined for CO, VOC, NOx, SO2, PM2.5 all based on emission factors for conventional gasoline. As per my earlier comment, I think these ought to use separate emission factors for each fuel.

In the “Benefits Calculation” workbook, the work sheet, “All Costs” shows costs in aggregate for the nation. It would be useful to also display the average, per vehicle costs.

Response: Dr. Rubin’s comment s referring to the calculation of costs and benefits to manufacturers, consumers and society, referenc ing input values, and di scounting procedures are addressed in previous sections . As mentioned above, the primary focus of the benefits calculation spreadsheet is the estimation of societal costs and benefits.

The benefits calculation spreadsheet currently assu mes that all changes in fuel consumption are in terms of gallons of gasoline. The propertie s of and emissions from the production and use of this fuel can and should consider that “gasoline” in the U.S. in cludes a substantial volume of ethanol. This is clearly an approximation, but a reasonably good one for the light-duty motor vehicle fleet in the U.S. The explicit consideration of the cost and emission impacts related to other fuels will be added to a future version of the benefits calculation spreadsheet.

Labeling of units in the benefits calculation spreadsheet has been made more specific. “Metric” has been added, where appropriate. We agree that displaying the average cost per vehicle would be useful. Other model output files show this figure, but the benefits calculation spreadsheet should, as well.

6) Clarity, completeness, and accuracy of th e model's visualization output, in which the technology application is displayed; and

In displaying the results Average Incremental Co sts, please round to the nearest dollar; showing two digits to the right of the decimal point gi ves a false sense of preci sion and makes the output harder to read.

Response: We agree that showing costs in terms of dollars and cents is overly precise. This will be revised.

7) Recommendations for any functionalities beyond what we have described as "future work."

The model (VGHG) window box should be made larger – perhaps fill the scr een. It is really too small to perform step 4 in running the model (i.e., Verify that the correct data has been populated into the VGHG model). There is also no side-to- side scroll to see the whole data field.Given the renewable and advanced biofuel require ment in the Energy Independence and Security Act of 2007, it would seem that the model ought to have data input fiel ds to allow users to specify the quantities (or proportions of total fuel ) of ethanol and biodiesel used in each year. Moreover, the proportion of biofuels which come from cellulosic sources should also be able to be specified. Accordingly, the GHG em ission accoun ting fram ework will need to capture that proportion of the reductions due to changes in vehicles and that proportion due to changes in fuels. In anticipation of future developments in the biofuels market, it may be worthwhile to build in placeholder functionality to account for domestic versus imported biofuels or biofuel feedstocks.

The model would be significantly enhanced if it were made proba bilistic. Given that input data contains underlying uncertainty (What is the actual cost of a given technology? What will be the price of gasoline in 5 years?), the model should be made to run hundreds or thousands of times using Monte Carlo analysis on some of the key input data to generate a di stribution of outcomes. Even if this is not done in the near term, ha ving the output columns show results for “high and low” cost/interest rate scenarios would be conve nient. It would save ha ving to run the model multiple times and pulling the results in to some other summary worksheet.

The documentation notes (p. 2) that the primary co st of the GHG emission control is the cost of the added technology as compared to the baseline. I do not think this is a valid presumption for large changes in GHG emission control. The NRC’ s study on CAFE assumed that vehicles were hedonically equivalent. Given th e likely wide-spread adoption of diesel technology and, quite possibly, plug-in hybrid vehicles (PHEVs), vehicl e driving experiences ar e not likely to be the same. Quite possibly, PHEVs will provide a superi or level of driving satisfaction. If vehicle manufacturers downsize or reduc e performance (acceleration) to meet compliance, vehicle satisfaction could diminish. I do not have a good suggestion on how to adjust for these possible hedonic costs or benefits. Perhaps the model coul d incorporate placeholde r equations that would allow users to specify hedonic gains and losses. Nonetheless, the model documentation should be forthright in acknowledging this limitation.

The model should provide for an estimate of the likely gasoline excise tax implications for different levels of GHG emission reduction. Particularly useful would be to present this information in the context of different compliance strategies. For example, with tax credits for PHEVs, and no change in federal gasoline exci se tax policy, the revenue losses could be significant. This functiona lity could be very useful for policymakers.

As described in the documentation, the model de velopment foresees an increased ability for users to change input assumptions. Changes to these assumptions may have significant impacts on costs and GHG emission reductions. It would be useful for the Model Reference Guide accompanying this model to describe in qualitati ve terms the impact of or assumptions behind choosing to adjust certain parameters. For example, the user manual could indicate that lowering the years of payback for technology would be cons istent with a view that consumers only value the first years of fuel economy gains or place little or no value on GHG emission reduction that occur near the end of a vehicle’s lifetime. If pr acticable, it would also be useful to point out inconsistent choices.It would be very useful to have the model output be available in units that are used internationally – grams CO 2 /kilometer or grams CO 2 equivalent/KM.

Clearly falling into the work for the future, would be to have a time profile of upstream CO 2 emissions for conventional gasoline and diesel re flecting regional or national low carbon fuel standards.

Response: EPA agrees that the dialog box would be more useful if it were larger and included the ability to scroll through the entirety of each input file.

The capability to perform probabilistic modeling runs is planned for the future. Of course, accurately reflecting the uncerta inties involved in the cost and effectiveness of future technologies is a significant challenge aside from enabling the model to reflect such uncertainties. The modeling of discrete options , like several discount rates has already been made easier. The latest model version includes the ability to run multip le scenarios with one model run. Creating several Scenario files with differing emission standa rds, discount rates, payback periods, etc. is fairly simple. Comparing the results from these multiple cases still requires opening a separate output file from each r un. EPA is considering an output file which would compare the output from several cases automatically. However, given the common format of the output, a user may also be able to develop a single spreadsheet which refers to the relevant cells of several output files and provides a quick comparison of the out put of interest for several cases automatically.

The difficulty in simply and accurately reflecting changes in vehicle desirability and utility has already been discussed above. We will note this limitation in the model documentation when we describe the fact that the mode l holds the mix of vehicles cons tant during any particular model

run.

The treatment of excise taxes was alrea dy discussed above under Section 2.d.

We appreciate Dr. Rubin’s desire to have the model documentation aid the user in making good choices regarding input values. We will consid er adding suggestions at various parts of the model documentation. This is certainly needed for the development of the values of TEB and CEB in the market file and the ordering of technology in the Technology file. However, OMEGA is not a model which is designed to be used by someone not experienced in the area of motor vehicle fuel economy and emissions and envi ronmental and economic an alysis. It will not be possible to provide a complete tutorial on all these topics in one model’s documentation. If a user decides to modify a value from that wh ich was published and supported by EPA, the user will have to support the appropria teness of that modification.

We agree that there would be some value to the presentation of emissions in international units. However, given the complexity of the benefits cal culation spreadsheet using just one set of units, it would seem most appropriate to create a separa te file which used a different set of units throughout.