[Federal Register Volume 70, Number 167 (Tuesday, August 30, 2005)]
[Proposed Rules]
[Pages 51414-51466]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-17006]



[[Page 51413]]

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Part II





Department of Transportation





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National Highway Traffic Safety Administration



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49 CFR Parts 523, 533, and 537

49 CFR Part 533



Light Trucks, Average Fuel Economy; Model Years 2008-2011; Proposed 
Rules

Federal Register / Vol. 70, No. 167 / Tuesday, August 30, 2005 / 
Proposed Rules

[[Page 51414]]


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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Parts 523, 533 and 537

[Docket No. 2005-22223]
RIN 2127-AJ61


Average Fuel Economy Standards for Light Trucks; Model Years 
2008-2011

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: This notice proposes to reform the structure of the corporate 
average fuel economy (CAFE) program for light trucks and proposes to 
establish higher CAFE standards for model year (MY) 2008-2011 light 
trucks. Reforming the CAFE program would enable it to achieve larger 
fuel savings while enhancing safety and preventing adverse economic 
consequences.
    During a transition period of MYs 2008-2010, manufacturers may 
comply with CAFE standards established under the reformed structure 
(Reformed CAFE) or with standards established in the traditional way 
(Unreformed CAFE). This will permit manufacturers to gain experience 
with the Reformed CAFE standards. In MY 2011, all manufacturers would 
be required to comply with a Reformed CAFE standard.
    The reform is based on vehicle size. Under Reformed CAFE, fuel 
economy standards are restructured so that they are based on a measure 
of vehicle size called ``footprint,'' the product of multiplying a 
vehicle's wheelbase by its track width. Vehicles would be divided into 
footprint categories, each representing a different range of footprint. 
A target level of average fuel economy is proposed for each footprint 
category, with smaller footprint light trucks expected to achieve more 
fuel economy and larger ones, less. Each manufacturer would still be 
required to comply with a single overall average fuel economy level for 
each model year of production. A particular manufacturer's compliance 
obligation for a model year is calculated as the harmonic average of 
the fuel economy targets in each size category, weighted by the 
distribution of manufacturer's production volumes across the size 
categories.
    The proposed Unreformed CAFE standards are: 22.5 miles per gallon 
(mpg) for MY 2008, 23.1 mpg for MY 2009, and 23.5 mpg for MY 2010. The 
Reformed CAFE standards for those model years would be set at levels 
intended to ensure that the industry-wide costs of the Reformed 
standards are roughly equivalent to the industry-wide costs of the 
Unreformed CAFE standards in those model years. For MY 2011, the 
Reformed CAFE standard would be set at the level that maximizes net 
benefits, accounting for unquantified benefits and costs. We believe 
that all of the proposed standards would be set at the maximum feasible 
level, while accounting for technological feasibility, economic 
practicability and other relevant factors.
    Since a manufacturer's compliance obligation for a model year under 
Reformed CAFE depends in part on its actual production in that model 
year, the obligation cannot be calculated with absolute precision until 
the final production figures for that model year become known. However, 
a manufacturer could calculate its obligation with a reasonably high 
degree of accuracy in advance of that model year, based on its product 
plans for the year. Prior to and during the model year, the 
manufacturer would be able to track all of the key variables in the 
formula used for calculating the obligation (e.g., distribution of 
production among the categories and vehicle fuel economy). This notice 
publishes estimates of the compliance obligations, by manufacturer, for 
MYs 2008-2011 under Reformed CAFE, using the fuel economy targets 
proposed by NHTSA and the product plans submitted to NHTSA by the 
manufacturers in response to a request for product plans published in 
December 2003.
    This rulemaking is mandated by the Energy Policy and Conservation 
Act (EPCA), which was enacted in the aftermath of the energy crisis 
created by the oil embargo of 1973-74. The concerns about energy 
security and the effects of energy prices and supply on national 
economic well-being that led to the enactment of EPCA remain alive 
today. Sustained growth in the demand for oil worldwide, coupled with 
tight crude oil supplies, is the driving force behind the sharp price 
increases seen over the past several years. Increasingly, the oil 
consumed in the U.S. originates in countries with political and 
economic situations that raise concerns about future oil supply and 
prices.
    We recognize that financial difficulties currently exist in the 
motor vehicle industry and that a substantial number of job losses have 
been announced recently at large full-line manufacturers. Accordingly, 
we have carefully balanced the cost of the rule with the benefits of 
conservation. We believe that, compared to Unreformed CAFE, Reformed 
CAFE would enhance overall fuel savings while providing vehicle makers 
the flexibility they need to respond to changing market conditions. 
Reformed CAFE would also provide a more equitable regulatory framework 
by creating a level-playing field for manufacturers, regardless of 
whether they are full-line or limited-line manufacturers. We are 
particularly encouraged that Reformed CAFE would reduce the adverse 
safety risks generated by the Unreformed CAFE program. The transition 
from the Unreformed to the Reformed system would begin soon, but ample 
lead time is provided before Reformed CAFE takes full effect in MY 
2011.
    We recognize also that our proposals were derived from analyses of 
information from a variety of sources, including the product plans 
submitted by the manufacturers in early 2004. We fully anticipate that 
the manufacturers will respond to this proposal by providing revised 
plans that reflect events since then. We will evaluate the revised 
plans, the public comments, and other information and analysis in 
selecting the most appropriate standards for MYs 2008-2011.

DATES: Comments must be received on or before November 22, 2005. We 
have provided more than the normal 60-day comment period because of the 
complexity of this rulemaking. However, because of that complexity, the 
necessity for ensuring sufficient time for careful analysis of the 
public comments and other available information, and for meeting the 
April 1, 2006 statutory deadline for issuing a final rule on the CAFE 
standard for MY 2008, extensions of the comment due date will not be 
possible. To ensure the agency's consideration of their comments, the 
public should submit them to the agency not later than the comment due 
date.

ADDRESSES: You may submit comments by any of the following methods:
    <bullet> Web site: http://dms.dot.gov. Follow the instructions for 
submitting comments on the DOT electronic docket site.
    <bullet> Fax: 1-202-493-2251.
    <bullet> Mail: Docket Management Facility; U.S. Department of 
Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, 
Washington, DC 20590-001.
    <bullet> Hand Delivery: Room PL-401 on the plaza level of the 
Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 
a.m. and 5 p.m., Monday through Friday, except Federal Holidays.

[[Page 51415]]

    <bullet> Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting 
comments.
    Instructions: All submissions must include the agency name and 
docket number or Regulatory Identification Number (RIN) for this 
rulemaking. For detailed instructions on submitting comments and 
additional information on the rulemaking process, see the Request for 
Comments heading of the Supplementary Information section of this 
document. Note that all comments received will be posted without change 
to http://dms.dot.gov, including any personal information provided. 
Please see the Privacy Act heading under Rulemaking Analyses and 
Notices.
    Docket: For access to the docket to read background documents or 
comments received, go to http://dms.dot.gov at any time or to Room PL-
401 on the plaza level of the Nassif Building, 400 Seventh Street, SW., 
Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, 
except Federal holidays.

FOR FURTHER INFORMATION CONTACT: For technical issues, call Ken Katz, 
Lead Engineer, Fuel Economy Division, Office of International Policy, 
Fuel Economy, and Consumer Programs, at (202) 366-0846, facsimile (202) 
493-2290, electronic mail <a href="/cdn-cgi/l/email-protection#c3a8a8a2b7b983adabb7b0a2eda7acb7eda4acb5"><span class="__cf_email__" data-cfemail="d7bcbcb6a3ad97b9bfa3a4b6f9b3b8a3f9b0b8a1">[email protected]</span></a>. For legal issues, call 
Stephen Wood or Christopher Calamita of the Office of the Chief 
Counsel, at (202) 366-2992, or e-mail them at <a href="/cdn-cgi/l/email-protection#582b2f37373c1836302c2b39763c372c763f372e"><span class="__cf_email__" data-cfemail="3e4d4951515a7e50564a4d5f105a514a10595148">[email protected]</span></a> or 
<a href="/cdn-cgi/l/email-protection#0f6c6c6e636e62667b6e4f61677b7c6e216b607b21686079"><span class="__cf_email__" data-cfemail="6e0d0d0f020f03071a0f2e00061a1d0f400a011a40090118">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Executive summary
    A. Our proposal
    B. Energy demand and supply and the value of conservation
II. Background
    A. 1974 DOT/EPA report to Congress on potential for motor 
vehicle fuel economy improvements
    B. Energy Policy and Conservation Act of 1975
    C. 1979-2002 light truck standards
    D. 2001 National Energy Policy
    E. 2002 NAS study of CAFE reform
    F. 2002 request for comments on NAS study
    G. 2003 final rule establishing MY 2005-2007 light truck 
standards
    H. 2003 comprehensive plans for addressing vehicle rollover and 
compatibility
    I. 2003 ANPRM
    1. Need for reform
    2. Reform options
    J. Recent developments
    1. Factors underscoring need for reform
    2. Reports updating fuel economy potential
III. The Unreformed CAFE proposal for MYs 2008-2010
    A. Baseline for determining manufacturer capabilities in MYs 
2008-2010
    1. General Motors
    2. Ford
    3. DaimlerChrysler
    4. Other manufacturers
    B. Selection of proposed Unreformed CAFE standards--process for 
determining maximum feasible levels
    C. Technologically feasible additions to baseline
    D. Economic practicability and other economic issues
    1. Costs
    2. Benefits
    3. Comparison of estimated costs to estimated benefits
    4. Uncertainty
IV. The Reformed CAFE proposal for MYs 2008-2011
    A. Proposed approach to reform
    1. Establishment of footprint categories
    2. Targets
    a. Overview of target selection process
    b. Industry-wide considerations in selecting the targets
    c. Relative position of the targets
    d. Level of the targets
    3. Standards and required CAFE levels for individual 
manufacturers
    4. Why this approach to reform and not another?
    a. Step-function vs. continuous function
    b. Categories and targets vs. classes and standards
    c. Footprint vs. shadow or weight
    d. Reformed standard vs. Reformed standard plus backstop
    5. Benefits of reform
    a. Increased energy savings
    b. Reduced incentive to respond to the CAFE program in ways 
harmful to safety
    i. Reduces incentive to offer smaller vehicles and to reduce 
vehicle size
    ii. Effectively reduces the difference between car and light 
truck CAFE standards
    c. More equitable regulatory framework
    d. More responsive to market changes
    B. Authority for proposed reform
    C. Comparison of estimated costs to estimated benefits
    1. Costs
    2. Benefits
    3. Uncertainty
    D. Proposed standards
V. Implementation of options
    A. Choosing the Reformed or Unreformed CAFE system
    B. Application of credits between compliance options
VII. Impact of other Federal Motor Vehicle Standards
    A. Federal Motor Vehicle Safety Standards
    1. FMVSS 138, tire pressure monitoring system
    2. FMVSS 202, head restraints
    3. FMVSS 208, occupant crash protection
    4. FMVSS 214, side impact protection
    5. FMVSS 301, fuel system integrity
    6. Cumulative weight impacts of the FMVSSs
    B. Federal Motor Vehicle Emissions Standards
    1. Tier 2 requirements
    2. Onboard vapor recovery
    3. California Air Resources Board LEV II
    C. Impacts on manufacturers' baselines
VIII. Need for nation to conserve energy
IX. Applicability of the CAFE standards
    A. MDPVs
    B. ``Flat-floor'' provision
X. Rulemaking analyses and notices
    A. Executive Order 12866 and DOT Regulatory Policies and 
Procedures
    B. National Environmental Policy Act
    C. Regulatory Flexibility Act
    D. Executive Order 13132 Federalism
    E. Executive Order 12988 (Civil Justice Reform)
    F. Unfunded Mandates Reform Act
    G. Paperwork Reduction Act
    H. Regulation Identifier Number (RIN)
    I. Executive Order 13045
    J. National Technology Transfer and Advancement Act
    K. Executive Order 13211
    L. Department of Energy review
    M. Plain language
    N. Privacy Act
XI. Comments

I. Executive Summary

A. Our Proposal

    This proposal is part of a continuing effort by the Department of 
Transportation to reform the structure of the CAFE regulatory program 
so that it achieves higher fuel savings while enhancing safety and 
preventing adverse economic consequences. We have previously set forth 
our concerns about the way in which the current CAFE program operates 
and sought comment on approaches to reforming the CAFE program. We have 
also previously increased light truck CAFE standards, from the 
``frozen'' level of 20.7 mpg applicable from MY 1996 through MY 2004, 
to a level of 22.2 mpg applicable to MY 2007. In adopting those 
increased standards, we noted that we were limited in our ability to 
make further increases without reforming the program.
    This notice proposes to reform the structure of the CAFE program 
for light trucks based on vehicle size and proposes to establish higher 
CAFE standards for MY 2008-2011 light trucks. Reforming the CAFE 
program would enable it to achieve larger fuel savings while enhancing 
safety and preventing adverse economic consequences.
    During a transition period of MYs 2008-2010, manufacturers may 
comply with CAFE standards established under the reformed structure 
(Reformed CAFE) or with standards established in the traditional way 
(Unreformed CAFE). This will permit manufacturers to gain experience 
with the Reformed CAFE standards. The Reformed CAFE standards for those 
model years would

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be set at levels intended to ensure that the industry-wide cost of 
those standards are roughly equivalent to the industry-wide cost of the 
Unreformed CAFE standards for those model years. The additional 
leadtime provided by the transition period would aid, for example, 
those manufacturers that would, for the first time, face a binding CAFE 
constraint and be required to make fuel economy improvements beyond 
those that they planned on their own to make.
    In MY 2011, all manufacturers would be required to comply with a 
Reformed CAFE standard. The Reformed CAFE standard for that model year 
would be set at the level that maximizes net benefits.
    The Unreformed standards for MYs 2008-2010 are set with particular 
regard to the capabilities of and impacts on the ``least capable'' full 
line manufacturer (i.e., one that produces a wide variety of types and 
sizes of vehicles) with a significant share of the market. A single 
CAFE level, applicable to each manufacturer, is established for each 
model year.
    The Unreformed CAFE standards for MYs 2008-2010 would be:
    MY 2008: 22.5 mpg
    MY 2009: 23.1 mpg
    MY 2010: 23.5 mpg
    We estimate that these standards could save 5.4 billion gallons of 
fuel over the lifetime of the vehicles sold during those model years, 
compared to the savings that would occur if the standards remained at 
the MY 2007 level of 22.2 mpg.
    The Reformed CAFE approach to establishing light truck CAFE 
standards has the potential of providing even greater fuel savings. 
Under Reformed CAFE, each manufacturer's required level of CAFE would 
be based on target levels of average fuel economy set for vehicles of 
various size categories. The categories would be defined by vehicle 
``footprint''--the product of the average track width (the distance 
between the centerline of the tires on the same axle) and wheelbase 
(basically, the distance between the centers of the axles). The target 
values would reflect the technological and economic capabilities of the 
industry within each of the footprint categories. The target for a 
given size category would be the same for all manufacturers, regardless 
of differences in their overall fleet mix. Compliance would be 
determined by comparing a manufacturer's harmonically averaged fleet 
fuel economy in a model year with a required fuel economy level 
calculated using the manufacturer's actual production levels and the 
category targets.
    The range of targets for each model year would be as follows:
    MY 2008: From 26.8 mpg for the smallest vehicles to 20.4 mpg for 
the largest;
    MY 2009: From 27.4 mpg for the smallest vehicles to 21.0 mpg for 
the largest;
    MY 2010: From 27.8 mpg for the smallest vehicles to 20.8 mpg for 
the largest;
    MY 2011: From 28.4 mpg for the smallest vehicles to 21.3 mpg for 
the largest.
    The standards based on these targets would save approximately 10.0 
billion gallons of fuel over the lifetime of the vehicles sold during 
those four model years, compared to the savings that would occur if the 
standards remained at the MY 2007 level of 22.2 mpg. The Reformed 
standards for MYs 2008-2010 would save 650 million more gallons of fuel 
than the Unreformed standards for those years. As noted above, the 
Reformed standard for MY 2011 would be the first Reformed standard set 
at the level that maximizes net benefits. It would save an additional 
4.1 billion gallons of fuel.
    If all manufacturers complied with the Reformed CAFE standards, the 
total costs would be approximately $6.2 billion for MYs 2008-2011, 
compared to the costs they would incur if the standards remained at the 
MY 2007 level of 22.2 mpg. The resulting vehicle price increases to 
buyers of MY 2008 light trucks would be paid back\1\ in additional fuel 
savings in an average of 37 months and to buyers of MY 2011 light 
trucks in an average of 47 months, assuming fuel prices ranging from 
$1.51 to $1.58 per gallon.\2\ We estimate that the total benefits under 
the Unreformed CAFE standards for MYs 2008-2010 plus the Reformed CAFE 
standard for MY 2011 would be approximately $7.0 billion, and under the 
Reformed CAFE standards for MYs 2008-2011 would be approximately $7.5 
billion.
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    \1\ The payback period represents the length of time required 
for a vehicle buyer to recoup the higher cost of purchasing a more 
fuel-efficient vehicle through savings in fuel use. When a more 
stringent CAFE standard requires a manufacturer to improve the fuel 
economy of some of its vehicle models, the manufacturer's added 
costs for doing so are reflected in higher prices for these models. 
While buyers of these models pay higher prices to purchase these 
vehicles, their improved fuel economy lowers their owners' costs for 
purchasing fuel to operate them. Over time, buyers thus recoup the 
higher purchase prices they pay for these vehicles in the form of 
savings in outlays for fuel. The length of time required to repay 
the higher cost of buying a more fuel-efficient vehicle is referred 
to as the buyer's ``payback period.''
    The length of this payback period depends on the initial 
increase in a vehicle's purchase price, the improvement in its fuel 
economy, the number of miles it is driven each year, and the retail 
price of fuel. We calculated payback periods using the fuel economy 
improvement and average price increase for each manufacturer's 
vehicles estimated to result from the proposed standard, the U.S. 
Energy Information Administration's forecast of future retail 
gasoline prices, and estimates of the number of miles light trucks 
are driven each year as they age developed from U.S. Department of 
Transportation data. Energy Information Administration, Annual 
Energy Outlook 2005 (AEO 2005), Table 100, http://www.eia.doe.gov/oiaf/aeo/supplement/index.html; and U.S. Department of 
Transportation, 2001 National Household Travel Survey, http://nhts.ornl.gov/2001/index.shtml. Under these assumptions, payback 
periods ranged from as short as 22 months to as long as 48 months, 
averaging 35 months for the seven largest manufacturers of light 
trucks.
    \2\ The fuel prices used to calculate the length of the payback 
periods are those expected over the life of the MY 2008-2011 light 
trucks, not the current fuel prices. Those future fuel prices were 
obtained from the AEO 2005.
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    We have tentatively determined that the proposed standards under 
both Unreformed CAFE and Reformed CAFE represent the maximum feasible 
fuel economy level for each system. In reaching this conclusion, we 
have balanced the express statutory factors and other relevant 
considerations, such as safety concerns, effects on employment and the 
need for flexibility to transition to a Reformed CAFE program that can 
achieve greater fuel savings in a more economically efficient way.
    The Reformed CAFE approach incorporates several important elements 
of reform suggested by the National Academy of Sciences in its 2002 
report (Effectiveness and Impact of Corporate Average Fuel Economy 
(CAFE) Standards). The agency believes that the Reformed CAFE approach 
has four basic advantages over the Unreformed CAFE approach.
    First, Reformed CAFE will enlarge energy savings. The energy-saving 
potential of Unreformed CAFE is limited because only a few full-line 
manufacturers are required to make improvements. In effect, the 
capabilities of these full-line manufacturers, whose offerings include 
larger and heavier light trucks, constrain the stringency of the 
uniform, industry-wide standard. As a result, the Unreformed CAFE 
standard is generally set below the capabilities of limited-line 
manufacturers, who sell predominantly lighter and smaller light trucks. 
Under Reformed CAFE, which accounts for size differences in product 
mix, virtually all light-truck manufacturers would be required to 
improve the fuel economy of their vehicles. Thus, Reformed CAFE will 
continue to require full-line manufacturers to improve the overall fuel 
economy of their fleets, while also

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requiring limited-line manufacturers to enhance the fuel economy of the 
vehicles they sell.
    Second, Reformed CAFE will offer enhanced safety. The vehicle 
manufacturers constrained by Unreformed CAFE standards are encouraged 
to pursue the following compliance strategies that entail safety risks: 
downsizing of vehicles, design of some vehicles to permit 
classification as ``light trucks'' for CAFE purposes, and offering 
smaller and lighter vehicles to offset sales of larger and heavier 
vehicles. The adverse safety effects of downsizing and downweighting 
have already been documented in the CAFE program for passenger cars. 
When a manufacturer designs a vehicle to permit its classification as a 
light truck, it may increase the vehicle's propensity to roll over.
    Reformed CAFE is designed to lessen each of these safety risks. 
Downsizing of vehicles is discouraged under Reformed CAFE since smaller 
vehicles are expected to achieve greater fuel economy. Moreover, 
Reformed CAFE lessens the incentive to design smaller vehicles to 
achieve a ``light truck'' classification, since small light trucks 
would be regulated at roughly the same degree of stringency as 
passenger cars.
    Third, Reformed CAFE provides a more equitable regulatory framework 
for different vehicle manufacturers. Under Unreformed CAFE, the cost 
burdens and compliance difficulties have been imposed primarily on the 
full-line manufacturers who have large sales volumes at the larger and 
heavier end of the light-truck fleet. Reformed CAFE spreads the 
regulatory cost burden for fuel economy more broadly across vehicle 
manufacturers within the industry.
    Fourth, Reformed CAFE is more market-oriented because it more fully 
respects economic conditions and consumer choice. Reformed CAFE does 
not force vehicle manufacturers to adjust fleet mix toward smaller 
vehicles unless that is what consumers are demanding. As the industry's 
sales volume and mix changes in response to economic conditions (e.g., 
gasoline prices and household income) and consumer preferences (e.g., 
desire for seating capacity or hauling capability), the level of CAFE 
required of manufacturers under Reformed CAFE will, at least partially, 
adjust automatically to these changes. Accordingly, Reformed CAFE may 
reduce the need for the agency to revisit previously established 
standards in light of changed market conditions, a difficult process 
that undermines regulatory certainty for the industry. In the mid-
1980's, for example, the agency relaxed several Unreformed CAFE 
standards because fuel prices fell more than had been expected when 
those standards were established and, as a result, consumer demand for 
small vehicles with high fuel economy did not materialize as expected. 
By moving to a more market-oriented system, the agency may also be able 
to pursue more multi-year rulemakings that span larger time frames than 
the agency has attempted in the past.
    The agency is also issuing, along with this notice, a notice 
requesting updated product plan information and other data to assist in 
developing a final rule. We recognize that the manufacturer product 
plans relied upon in developing this proposal--those plans received in 
early 2004 in response to a 2003 request for information--may already 
be outdated in some respects. We fully expect that manufacturers have 
revised those plans to reflect subsequent developments.
    We solicit comment on all aspects of this proposal. In particular, 
we solicit comment on (1) whether the proposed levels of maximum 
feasible CAFE reflect an appropriate balancing of the explicit 
statutory factors and other relevant factors, (2) whether CAFE reform 
should be designed based on size categories or as a continuous 
function, (3) whether the reform should be based on a single size 
attribute or whether adjustments should also be made for attributes 
such as towing capability and cargo hauling capability, and (4) whether 
the three-year transition period is necessary or whether it can be 
reduced to achieve a more rapid transition to the Reformed CAFE system. 
Other specific areas where we request comments are identified elsewhere 
in this preamble and in the Preliminary Regulatory Impact Analysis 
(PRIA). Based on public comments and other information, including new 
data and analysis, and updated product plans, the standards adopted in 
the final rule could well be different.

B. Energy demand and supply and the value of conservation

    Many of the concerns about energy security and the effects of 
energy prices and supply on national economic well-being that led to 
the enactment of EPCA in 1975 persist today.\3\ The demand for oil is 
steadily growing in the U.S. and around the world. By 2025, U.S. demand 
for oil is expected to increase 40 percent and world oil demand is 
expected to increase by nearly 60 percent. Most of these increases 
would occur in the transportation sector. To meet this projected 
increase in world demand, worldwide productive capacity would have to 
increase by more than 44 million barrels per day over current levels. 
OPEC producers are expected to supply nearly 60 percent of the 
increased production. By 2025, nearly 70 percent of the oil consumed in 
the U.S. would be imported oil. Strong growth in the demand for oil 
worldwide, coupled with tight crude oil supplies, is the driving force 
behind the sharp price increases seen over the past four years. 
Increasingly, the oil consumed in the U.S. originates in countries with 
political and economic situations that raise concerns about future oil 
supply and prices.
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    \3\ The sources of the figures in this section can be found 
below in section VIII, ``Need for Nation to conserve energy.''
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    Energy is an essential input to the U.S. economy and having a 
strong economy is essential to maintaining and strengthening our 
national security. Conserving energy, especially reducing the nation's 
dependence on petroleum, benefits the U.S. in several ways. Reducing 
total petroleum use decreases our economy's vulnerability to oil price 
shocks. Reducing dependence on oil imports from regions with uncertain 
conditions enhances our energy security and can reduce the flow of oil 
profits to certain states now hostile to the U.S. Reducing the growth 
rate of oil use will help relieve pressures on already strained 
domestic refinery capacity, decreasing the likelihood of future product 
price volatility.

II. Background

A. 1974 DOT/EPA report to Congress on potential for motor vehicle fuel 
economy improvements

    In 1974, the Department of Transportation (DOT) and Environmental 
Protection Agency (EPA) submitted to Congress a report entitled 
``Potential for Motor Vehicle Fuel Economy Improvement'' (1974 
Report).\4\ This report was prepared in compliance with Section 10 of 
the Energy Supply and Environmental Coordination Act of 1974, Public 
Law 93-319 (the Act). The Act directed EPA and DOT to report on the 
practicability of a production-weighted fuel economy improvement 
standard of 20 percent for new motor vehicles in the 1980 time frame. 
As required by Section 10 of the Act, the report included an assessment 
of the technological challenges of meeting any such standard, including 
lead times involved, the test procedures required to determine 
compliance, the economic

[[Page 51418]]

costs and benefits, the enforcement means, the effect on energy and 
other resources, and the relationship of safety and emission standards 
to CAFE.
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    \4\ The 1974 report is available in the docket for this 
rulemaking.
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    In the 1974 Report, DOT/EPA said that performance standards 
regulating fuel economy could take either of two modes: A production-
weighted average standard for each manufacturer's entire fleet of 
vehicles or a fuel economy standard tailored to individual classes of 
vehicles. They identified three forms that a production-weighted 
standard could take:
    <bullet> A common standard (e.g., 16.8 mpg for all manufacturers);
    <bullet> A standard stated as a uniform per cent improvement (e.g., 
20% improvement for each manufacturer); or
    <bullet> A variable standard based on the costs or potential to 
improve for each manufacturer.
    (1974 Report, p. 77)
    As to standards for individual classes, they identified two 
different forms:
    <bullet> A standard stated as uniform quantity of improvement 
(e.g., 2.8 mpg for all classes); or
    <bullet> A variable standard based on the potential to improve each 
class.
    (1974 Report, p. 77-78)
    DOT/EPA concluded in the 1974 Report that a production-weighted 
standard establishing one uniform specific fuel economy average for all 
manufacturers would, if sufficiently stringent to have the needed 
effect, impact most heavily on manufacturers who have lower fuel 
economy, while not requiring manufacturers of current vehicles with 
better fuel economy to maintain or improve their performance. (1974 
Report, p. 12) Production-weighted standards specifically tailored to 
each manufacturer would eliminate some inequities, but were considered 
to be difficult to administer fairly. (Ibid.)

B. Energy Policy and Conservation Act of 1975

    Congress enacted the Energy Policy and Conservation Act (EPCA Pub. 
L. 94-163) during the aftermath of the energy crisis created by the oil 
embargo of 1973-74. The Act established an automobile fuel economy 
regulatory program by adding Title V, ``Improving Automotive 
Efficiency,'' to the Motor Vehicle Information and Cost Savings Act. 
Title V has been amended from time to time and codified without 
substantive change as Chapter 329 of title 49, United States Code. 
Chapter 329 provides for the issuance of average fuel economy standards 
for passenger automobiles and separate standards for automobiles that 
are not passenger automobiles (light trucks).
    For the purposes of the CAFE statute, ``automobiles'' include any 
``4-wheeled vehicle that is propelled by fuel (or by alternative fuel) 
manufactured primarily for use on public streets, roads, and highways 
(except a vehicle operated only on a rail line), and rated at not more 
than 6,000 pounds gross vehicle weight.'' They also include any such 
vehicle rated at between 6,000 and 10,000 pounds gross vehicle weight 
(GVWR) if the Secretary decides by regulation that an average fuel 
economy standard for the vehicle is feasible, and that either such a 
standard will result in significant energy conservation or the vehicle 
is substantially used for the same purposes as a vehicle rated at not 
more than 6000 pounds GVWR.
    In 1978, NHTSA published a final rule in which we determined that 
standards for vehicles rated between 6000 and 8500 pounds GVWR are 
feasible, that such standards will result in significant energy 
conservation on a per-vehicle basis and that those vehicles are used 
for substantially the same purposes as vehicles rated at not more than 
6000 pounds GVWR (March 23, 1978; 43 FR 11995, at 11997). Vehicles 
rated at between 6000 and 8500 pounds GVWR first became subject to the 
CAFE standards in MY 1980.
    The CAFE standards set a minimum performance requirement in terms 
of an average number of miles a vehicle travels per gallon of gasoline 
or diesel fuel. Individual vehicles and models are not required to meet 
the mileage standard. Instead, each manufacturer must achieve a 
harmonically averaged level of fuel economy for all specified vehicles 
manufactured by a manufacturer in a given MY. The statute distinguishes 
between ``passenger automobiles'' and ``non-passenger automobiles.'' We 
generally refer to non-passenger automobiles as light trucks.
    In enacting EPCA, Congress made a clear and specific choice about 
the structure of the average fuel economy standard for passenger cars. 
After considering the variety of approaches presented in the 1974 
Report, Congress established a common statutory CAFE standard 
applicable to each manufacturer's fleet of passenger automobiles. The 
Secretary of Transportation has the authority to change the standard if 
it no longer represents the ``maximum feasible'' standard consistent 
with the criteria set forth in the statute. Pursuant to that authority, 
the Secretary amended the passenger car standard with regard to MYs 
1986-1989 to address situations in which, despite manufacturers' good 
faith compliance plans, market conditions rendered the statutory 
standard impracticable and infeasible. Since 1990, the CAFE standard 
for passenger automobiles has been 27.5 mpg and compliance is 
determined in accordance with detailed procedures set forth in Section 
32904(a) and (b).
    Congress was considerably less decided and prescriptive with 
respect to what sort of standards and procedures should be established 
for light trucks. It neither made a clear choice among the approaches 
(or among the forms of those approaches) identified in the 1974 Report 
nor precluded the selection of any of those approaches or forms. 
Further, it did not establish by statute a CAFE standard for light 
trucks. Instead, Congress provided the Secretary with a choice of 
establishing a form of a production-weighted average standard for each 
manufacturer's entire fleet of light trucks, as suggested in the 1974 
Report, or a form of production-weighted standards for classes of light 
trucks. Congress directed the Secretary to establish maximum feasible 
CAFE standards applicable to each manufacturer's light truck fleet, or 
alternatively, to classes of light trucks, and to establish them at 
least 18 months prior to the start of each model year. When determining 
a ``maximum feasible level of fuel economy,'' the Secretary is directed 
to balance factors including the nation's need to conserve energy, 
technological feasibility, economic practicability and the impact of 
other motor vehicle standards on fuel economy.
    Manufacturers are required to provide a series of fuel economy 
reports to both the EPA and NHTSA. NHTSA requires manufacturers to 
provide pre-model year and mid-model year reports. See 49 CFR part 537. 
The reports to NHTSA must include, in part, vehicle model fuel economy 
values as calculated under the EPA regulations, projected sales 
volumes, and actual sales volumes as available. A manufacturer must 
supply similar information to the EPA at the end of a model year, along 
with actual production volumes so that its fleet wide average fuel 
economy can be calculated. The EPA then certifies these reports and 
submits them to NHTSA so that we may determine a manufacturer's 
compliance with the CAFE standards.

C. 1979-2002 light truck standards

    NHTSA established the first light truck CAFE standards for MY 1979 
and applied them to light trucks with a GVWR up to 6,000 pounds (March 
14, 1977; 42 FR 13807). Beginning with MY 1980, NHTSA raised this GVWR 
ceiling to 8,500 pounds. For MYs 1979-1981, the agency established 
separate standards for two-wheel drive (2WD)

[[Page 51419]]

and four-wheel drive (4WD) light trucks without a ``combined'' standard 
reflecting the combined capabilities of 2WD and 4WD light trucks. 
Manufacturers that produced both 2WD vehicles and 4WD vehicles could, 
however, decide to treat them as a single fleet and comply with the 2WD 
standard.
    Beginning with MY 1982, NHTSA established a combined standard 
reflecting the combined capabilities of 2WD and 4WD light trucks, plus 
optional 2WD and 4WD standards. After MY 1991, NHTSA dropped the 
optional 2WD and 4WD standards. During MYs 1980-1995, NHTSA also 
separated the ``captive imports'' \5\ of U.S. light truck manufacturers 
from their other truck models in determining compliance with CAFE 
standards.
---------------------------------------------------------------------------

    \5\ ``Captive import'' means, with respect to a light truck, one 
which is not domestically manufactured but which is imported by a 
manufacturer whose principal place of business is the United States. 
49 CFR 533.4(b)(2).
---------------------------------------------------------------------------

    Since the agency sets standards at the maximum feasible level of 
average fuel economy, as required by EPCA, and since the agency's 
determinations about the maximum feasible level of average fuel economy 
in future model years are highly dependent on projections about the 
state of technology and market conditions in those years, NHTSA twice 
found it necessary to reduce a light truck standard when it received 
new information relating to the agency's past projections. In 1979, the 
agency reduced the MY 1981 2WD standard after Chrysler demonstrated 
that there were smaller than expected fuel economy benefits from 
various technological improvements and larger than expected adverse 
impacts from other federal vehicle standards and test procedures 
(December 31 1979; 44 FR 77199).
    In 1984, the agency reduced the MY 1985 light truck standards to 
the following levels: Combined standard-19.5 mpg, 2WD standard-19.7 mpg 
and 4WD standard-18.9 mpg (October 22, 1984; 49 FR 41250). The agency 
concluded that market demand for light truck performance, as reflected 
in engine mix and axle ratio usage, had not materialized as anticipated 
when the agency initially established the MY 1985 standards. The agency 
said that this resulted from lower than anticipated fuel prices. The 
agency concluded that the only actions then available to manufacturers 
to improve their fuel economy levels for MY 1986 would have involved 
product restrictions likely resulting in significant adverse economic 
impacts. The reduction of the MY 1985 standard was upheld by the U.S. 
Circuit Court of Appeals for the District of Columbia. Center for Auto 
Safety v. NHTSA, 793 F.2d 1322 (D.C. Cir. 1986) (rejecting the 
contention that the agency gave impermissible weight to the effects of 
shifts in consumer demand toward larger, less fuel-efficient trucks on 
the fuel economy levels manufacturers could achieve).\6\
---------------------------------------------------------------------------

    \6\ NHTSA similarly found it necessary on occasion to reduce the 
passenger car CAFE standards in response to new information. The 
agency reduced the MY 1986 passenger car standard because a 
continuing decline in gasoline prices prevented a projected shift in 
consumer demand toward smaller cars and smaller engines and because 
the only actions available to manufacturers to improve their fuel 
economy levels for MY 1986 would have involved product restrictions 
likely resulting in significant adverse economic impacts. (October 
4, 1985; 40 FR 40528) This action was upheld in Public Citizen vs. 
NHTSA, 848 F.2d 256 (D.C. Cir. 1988). NHTSA also reduced the MY 
1987-88 passenger car standards (October 6, 1986; 51 FR 35594) and 
MY 1989 passenger car standard (October 6, 1988; 53 FR 39275) for 
similar reasons.
---------------------------------------------------------------------------

    In 1994, the agency departed from its usual past practice of 
considering light truck standards for one or two model years at a time 
and published an Advance Notice of Proposed Rulemaking (ANPRM) in the 
Federal Register outlining NHTSA's intention to set standards for some, 
or all, of MYs 1998-2006 (59 FR 16324; April 6, 1994).
    On November 15, 1995, the Department of Transportation and Related 
Agencies Appropriations Act for FY 1996 was enacted. Pub. L. 104-50. 
Section 330 of that Act provided:

    None of the funds in this Act shall be available to prepare, 
propose, or promulgate any regulations * * * prescribing corporate 
average fuel economy standards for automobiles * * * in any model 
year that differs from standards promulgated for such automobiles 
prior to enactment of this section.

Pursuant to that Act, we then issued a final rule limited to MY 1998, 
setting the light truck CAFE standard for that year at 20.7 mpg, the 
same level as the standard we had set for MY 1997 (61 FR 14680; April 
3, 1996).
    On September 30, 1996, the Department of Transportation and Related 
Agencies Appropriations Act for FY 1997 was enacted (Pub. L. 104-205). 
Section 323 of that Act included the same limitation on appropriations 
regarding the CAFE standards contained in Section 330 of the FY 1996 
Appropriations Act. The agency followed the same process as the prior 
year and established a MY 1999 light truck CAFE standard of 20.7 mpg, 
the same level as the standard that had been set for MYs 1997 and 1998. 
Because the same limitation on the setting of CAFE standards was 
included in the Appropriations Acts for each of FYs 1998-2001, the 
agency followed that same procedure during those fiscal years.
    While the Department of Transportation and Related Agencies 
Appropriations Act for FY 2001 (Pub. L. 106-346) contained a 
restriction on CAFE rulemaking identical to that contained in prior 
appropriation acts, the conference committee report for that Act 
directed NHTSA to fund a study by the NAS to evaluate the effectiveness 
and impacts of CAFE standards (H. Rep. No. 106-940, at p. 117-118).
    In a letter dated July 10, 2001, following the release of the 
President's National Energy Policy, Secretary of Transportation Mineta 
asked the House and Senate Appropriations Committees to lift the 
restriction on the agency spending funds for the purposes of improving 
CAFE standards. The Department of Transportation and Related Agencies 
Appropriations Act for FY 2002 (Pub. L. 107-87), which was enacted on 
December 18, 2001, did not contain a provision restricting the 
Secretary's authority to prescribe fuel economy standards.

D. 2001 National Energy Policy

    The National Energy Policy,\7\ released in May 2001, stated that 
``(a) fundamental imbalance between supply and demand defines our 
nation's energy crisis'' and that ``(t)his imbalance, if allowed to 
continue, will inevitably undermine our economy, our standard of 
living, and our national security.'' The National Energy Policy was 
designed to promote dependable, affordable and environmentally sound 
energy for the future. The Policy envisions a comprehensive long-term 
strategy that uses leading edge technology to produce an integrated 
energy, environmental and economic policy. It set forth five specific 
national goals: ``modernize conservation, modernize our energy 
infrastructure, increase energy supplies, accelerate the protection and 
improvement of the environment, and increase our nation's energy 
security.''
---------------------------------------------------------------------------

    \7\ http://www.whitehouse.gov/energy/National-Energy-Policy.pdf
---------------------------------------------------------------------------

    The National Energy Policy included recommendations regarding the 
path that the Administration's energy policy should take and included 
specific recommendations regarding vehicle fuel economy and CAFE. It 
recommended that the President direct the Secretary of Transportation 
to--

--Review and provide recommendations on establishing CAFE standards 
with due consideration of the National Academy of Sciences study 
released (in prepublication

[[Page 51420]]

form) in July 2001. Responsibly crafted CAFE standards should 
increase efficiency without negatively impacting the U.S. automotive 
industry. The determination of future fuel economy standards must 
therefore be addressed analytically and based on sound science.
--Consider passenger safety, economic concerns, and disparate impact 
on the U.S. versus foreign fleet of automobiles.
--Look at other market-based approaches to increasing the national 
average fuel economy of new motor vehicles.

E. 2002 NAS Study of CAFE Reform

    In response to direction from Congress, NAS published a lengthy 
report in 2002 entitled ``Effectiveness and Impact of Corporate Average 
Fuel Economy (CAFE) Standards.'' \8\
---------------------------------------------------------------------------

    \8\ The NAS submitted its preliminary report to the Department 
of Transportation in July 2001 and released its final report in 
January 2002.
---------------------------------------------------------------------------

    The report concludes that the CAFE program has clearly contributed 
to increased fuel economy and that it was appropriate to consider 
further increases in CAFE standards. (NAS, p. 3 (Finding 1)) It cited 
not only the value of fuel savings, but also adverse consequences 
(i.e., externalities) associated with high levels of petroleum 
importation and use that are not reflected in the price of petroleum 
(e.g., the adverse impact on energy security). The report further 
concluded that technologies exist that could significantly reduce fuel 
consumption by passenger cars and light truck fuels within 15 years, 
while maintaining vehicle size, weight, utility and performance. (NAS, 
p. 3 (Finding 5)) Light duty trucks were said to offer the greatest 
potential for reducing fuel consumption. (NAS, p. 4 (Finding 5)) The 
report also noted that vehicle development cycles--as well as future 
economic, regulatory, safety and consumer preferences--would influence 
the extent to which these technologies could lead to increased fuel 
economy in the U.S. market. To assess the economic trade-offs 
associated with the introduction of existing and emerging technologies 
to improve fuel economy, the NAS conducted what it called a ``cost-
efficient analysis''--``that is, the committee [that authored the 
report] identified packages of existing and emerging technologies that 
could be introduced over the next 10 to 15 years that would improve 
fuel economy up to the point where further increases in fuel economy 
would not be reimbursed by fuel savings.'' (NAS, p. 4 (Finding 6))
    Recognizing the many trade-offs that must be considered in setting 
fuel economy standards, the report took no position on what CAFE 
standards would be appropriate for future years. It noted, 
``(s)election of fuel economy targets will require uncertain and 
difficult trade-offs among environmental benefits, vehicle safety, 
cost, oil import dependence, and consumer preferences.''
    The report found that, to minimize financial impacts on 
manufacturers, and on their suppliers, employees, and consumers, 
sufficient lead-time (consistent with normal product life cycles) 
should be given when considering increases in CAFE standards. The 
report stated that there are advanced technologies that could be 
employed, without negatively affecting the automobile industry, if 
sufficient lead-time were provided to the manufacturers.
    The report expressed concerns about increasing the standards under 
the CAFE program as currently structured. While raising CAFE standards 
under the existing structure would reduce fuel consumption, doing so 
under alternative structures ``could accomplish the same end at lower 
cost, provide more flexibility to manufacturers, or address inequities 
arising from the present'' structure. (NAS, pp. 4-5 (Finding 10)) \9\ 
Further, almost all of the committee that authored the report, 
including the committee's safety specialists, said, ``to the extent 
that the size and weight of the fleet have been constrained by CAFE 
requirements * * * those requirements have caused more injuries and 
fatalities on the road than would otherwise have occurred.'' (NAS, p. 
29) Specifically, they noted: ``the downweighting and downsizing that 
occurred in the late 1970s and early 1980s, some of which was due to 
CAFE standards, probably resulted in an additional 1300 to 2600 traffic 
fatalities in 1993.'' (NAS, p. 3 (Finding 2))
---------------------------------------------------------------------------

    \9\ The report noted the following about the concept of equity:
    Potential Inequities
    The issue of equity or inequity is subjective. However, one 
concept of equity among manufacturers requires equal treatment of 
equivalent vehicles made by different manufacturers. The current 
CAFE standards fail this test. If one manufacturer was positioned in 
the market selling many large passenger cars and thereby was just 
meeting the CAFE standard, adding a 22-mpg car (below the 27.5-mpg 
standard) would result in a financial penalty or would require 
significant improvements in fuel economy for the remainder of the 
passenger cars. But, if another manufacturer was selling many small 
cars and was significantly exceeding the CAFE standard, adding a 22-
mpg vehicle would have no negative consequences.
    (NAS, p. 102).
---------------------------------------------------------------------------

    To address those structural problems, the report suggested various 
possible reforms.\10\ The report found that the ``CAFE program might be 
improved significantly by converting it to a system in which fuel 
targets depend on vehicle attributes.'' (NAS, p. 5 (Finding 12)) The 
report noted

    \10\ In assessing and comparing possible reforms, the report 
urged consideration of the following factors:
    Fuel use responses encouraged by the policy,
    Effectiveness in reducing fuel use,
    Minimizing costs of fuel use reduction,
    Other potential consequences
    --Distributional impacts
    --Safety
    --Consumer satisfaction
    --Mobility
    --Environment
    --Potential inequities, and
     Administrative feasibility.
     (NAS, p. 94).
---------------------------------------------------------------------------

    One such system would make the fuel economy target dependent on 
vehicle weight, with lower fuel consumption targets set for lighter 
vehicles and higher targets for heavier vehicles, up to some maximum 
weight, above which the target would be weight-independent. Such a 
system would create incentives to reduce the variance in vehicle 
weights between large and small vehicles, thus providing for overall 
vehicle safety. It has the potential to increase fuel economy with 
fewer negative effects on both safety and consumer choice. Above the 
maximum weight, vehicles would need additional advanced fuel economy 
technology to meet the targets. The committee believes that although 
such a change is promising, it requires more investigation than was 
possible in this study.

(NAS, p. 5 (Finding 12))

    The report noted further that under an attribute-based approach, 
the required CAFE levels could vary among the manufacturers based on 
the distribution of their product mix:

Attribute-Based Fuel Economy Targets

    The government could change the way that fuel economy targets 
for individual vehicles are assigned. The current CAFE system sets 
one target for all passenger cars (27.5 mpg) and one target for all 
light-duty trucks (20.7 mpg). Each manufacturer must meet a sales-
weighted average (more precisely, a harmonic mean * * *) of these 
targets. However, targets could vary among passenger cars and among 
trucks, based on some attribute of these vehicles such as weight, 
size, or load-carrying capacity. In that case a particular 
manufacturer's average target for passenger cars or for trucks would 
depend upon the fractions of vehicles it sold with particular levels 
of these attributes. For example, if weight were the criterion, a 
manufacturer that sells mostly light vehicles would have to achieve 
higher average fuel economy than would a manufacturer that sells 
mostly heavy vehicles.

(NAS, p. 87)

    Based on these findings, the report recommended

    Consideration should be given to designing and evaluating an 
approach with fuel economy targets that are dependent on

[[Page 51421]]

vehicle attributes, such as vehicle weight, that inherently 
influence fuel use. Any such system should be designed to have 
minimal adverse safety consequences.

(NAS, p. 6, (Recommendation 3))

    In February 2002, Secretary Mineta asked Congress ``to provide the 
Department of Transportation with the necessary authority to reform the 
CAFE program, guided by the NAS report's suggestions.''

F. 2002 Request for Comments on NAS Study

    On February 7, 2002, we issued a Request for Comments (RFC) (67 FR 
5767; Docket No. 2002-11419) seeking data on which we could base an 
analysis of manufacturer capability for the purpose of determining the 
appropriate CAFE standards to set for light trucks for upcoming model 
years, beginning with MY 2005. We also sought comments on possible 
reforms to the CAFE program, as it applies to both passenger cars and 
light trucks, to protect passenger safety, advance fuel-efficient 
technologies, and obtain the benefits of market-based approaches.
    While we have considered the comments, the original RFC was quite 
general and the comments received tended to focus on concerns with the 
current program or the generic admonishment against CAFE reform--and 
not on specific potential options. A more detailed summary of comments 
can be found in the advanced notice of proposed rulemaking (2003 ANPRM) 
published on December 29, 2003 (68 FR 74908; Docket No. 2003-16128).

G. 2003 Final Rule Establishing MY 2005-2007 Light Truck Standards

    On April 7, 2003, the agency published a final rule establishing 
light truck CAFE standards for MYs 2005-2007: 21.0 mpg for MY 2005, 
21.6 mpg for MY 2006, and 22.2 mpg for MY 2007 (68 FR 16868; Docket No. 
2002-11419; Notice 3). The agency determined that these levels are the 
maximum feasible CAFE levels for light trucks for those model years, 
balancing the express statutory factors and other included or relevant 
considerations such as the impact of the standard on motor vehicle 
safety and employment. NHTSA estimated that the fuel economy increases 
required by the standards for MYs 2005-2007 would generate 
approximately 3.6 billion gallons of gasoline savings over the 25-year 
lifetime of the affected vehicles.
    In establishing the standards, the agency analyzed cost-effective 
technological improvements that could be made to the product offerings 
planned by the manufacturers. The agency's projection of CAFE 
capability was based on the manufacturers' most recently submitted 
product plans and technological improvements we determined to be 
appropriate and feasible within the time frame. In the final rule, we 
stated that we did not believe the final rule will necessitate, nor did 
we believe it will result in, any ``mix shifting,'' e.g., decreasing 
the production volumes of vehicles that are heavier or larger and thus 
have relatively low fuel economy and increasing the production volumes 
of lighter or smaller vehicles, which might result in significant 
employment and/or average weight reductions were it to occur.
    We further expressed our belief that the final rule for MYs 2005-
2007 will neither necessitate nor induce manufacturers to make 
reductions in vehicle weight that will adversely affect the overall 
safety of people traveling on the roads of America. Indeed, as the NAS 
report noted, there are many technological means that are available to 
manufacturers for improving fuel economy and are much more cost-
effective than weight reduction through materials substitution. 
Accordingly, we did not rely on weight reduction.
    We recognized in the final rule that the standard established for 
MY 2007 could be a challenge for General Motors. We recognized further 
that, between the issuance of the final rule and the last (MY 2007) of 
the model years for which standards were being established, there was 
more time than in previous light truck CAFE rulemakings for significant 
changes to occur in external factors capable of affecting the 
achievable levels of CAFE. These external factors include fuel prices 
and the demand for vehicles with advanced fuel saving technologies, 
such as hybrid electric and advanced diesel vehicles. We said that 
changes in these factors could lead to higher or lower levels of CAFE, 
particularly in MY 2007. Recognizing that it may be appropriate to re-
examine the MY 2007 standard in light of any significant changes in 
those factors, the agency reaffirms its plans to monitor the compliance 
efforts of the manufacturers.

H. 2003 comprehensive plans for addressing vehicle rollover and 
compatibility

    In September 2002, NHTSA completed a thorough examination of the 
opportunities for significantly improving vehicle and highway safety 
and announced the establishment of interdisciplinary teams to formulate 
comprehensive plans for addressing the four most promising problem 
areas.\11\ Based on the work of the teams, the agency issued detailed 
reports analyzing each of the problem areas and recommending 
coordinated strategies that, if implemented effectively, will lead to 
significant improvements in safety.
---------------------------------------------------------------------------

    \11\ A fifth problem area was announced in 2004, improving 
traffic safety data.
---------------------------------------------------------------------------

    Two of the problems areas are vehicle rollover and vehicle 
compatibility. The reports on those areas identify a series of vehicle, 
roadway and behavioral strategies for addressing the problems.\12\ 
Among the vehicle strategies, both reports identified reform of the 
CAFE program as one of the steps that needed to be taken to reduce 
those problems:

    \12\ See http://www-nrd.nhtsa.dot.gov/vrtc/ca/capubs/IPTRolloverMitigationReport/; http://www-nrd.nhtsa.dot.gov/departments/nrd-11/aggressivity/IPTVehicleCompatibilityReport/.
---------------------------------------------------------------------------

    The current structure of the CAFE system can provide an 
incentive to manufacturers to downweight vehicles, increase 
production of vehicle classes that are more susceptible to rollover 
crashes, and produce a less homogenous fleet mix. As a result, CAFE 
is critical to the vehicle compatibility and rollover problems.
    (a) Highlights of Current Program
    In its final rule setting new CAFE standards for MY 2005-2007 
light trucks, NHTSA stated that it intends to examine possible 
reforms to the CAFE system, including those recommended in the 
National Academy of Sciences' CAFE report.
    (b) Proposed Initiatives
    Consistent with its statutory authority, the agency plans to 
address issues relating to the structure, operation and effects of 
potential changes to the CAFE system and CAFE standards. In taking 
this broad view, the agency recognizes that the regulation of the 
(sic) fuel economy can have substantial effects on vehicle safety, 
the composition of the light vehicle fleet, the economic well-being 
of the automobile industry and, of course, our nation's energy 
security.
    (c) Expected Program Outcomes
    It is NHTSA's goal to identify and implement reforms to the CAFE 
system that will facilitate improvements in fuel economy without 
compromising motor vehicle safety or American jobs. * * *
    * * * NHTSA intends to examine the safety impacts, both positive 
and negative, that may result from any modifications to CAFE as it 
now exists. Regardless of the root causes, it is clear that the 
downsizing of vehicles that occurred during the first decade of the 
CAFE program had serious safety consequences. Changes to the 
existing system are likely to have equally significant impacts. 
NHTSA is determined to ensure that these impacts are positive.

I. 2003 ANPRM

    On December 29, 2003, the agency published an ANPRM seeking comment 
on various issues relating to reforming the CAFE program (68 FR 74908; 
Docket

[[Page 51422]]

No. 2003-16128).\13\ The agency sought comment on possible enhancements 
to the program that would assist in further fuel conservation, while 
protecting motor vehicle safety and the economic vitality of the 
automobile industry. The agency indicated that it was particularly 
interested in structural reform. This document, while not espousing any 
particular form of reform, sought more specific input than the 2002 RFC 
on various options aimed at adapting the CAFE program to today's 
vehicle fleet and needs.
---------------------------------------------------------------------------

    \13\ On the same date, we also published a request for comments 
seeking manufacturer product plan information for MYs 2008-2012 to 
assist the agency in analyzing possible reforms to the CAFE program 
which are discussed in a companion notice published today. (68 FR 
74931) The agency sought information that would help it assess the 
effect of these possible reforms on fuel economy, manufacturers, 
consumers, the economy, motor vehicle safety and American jobs.
---------------------------------------------------------------------------

1. Need for reform
    The 2003 ANPRM discussed the principal criticisms of the current 
CAFE program that led the agency to explore light truck CAFE reform (68 
FR 74908, at 74910-13. First, the energy-saving potential of the CAFE 
program is hampered by the current regulatory structure. The Unreformed 
approach to CAFE does not distinguish between the various market 
segments of light trucks, and therefore does not recognize that some 
vehicles designed for classification purposes as light trucks may 
achieve fuel economy similar to that of passenger cars. The Unreformed 
CAFE approach instead applies a single standard to the light truck 
fleet as a whole, encouraging manufacturers to offer small light trucks 
that will offset the larger vehicles that get lower fuel economy. A 
CAFE system that more closely links fuel economy standards to the 
various market segments reduces the incentive to design vehicles that 
are functionally similar to passenger cars but classified as light 
trucks.
    Second, because weight strongly affects fuel economy, the current 
light truck CAFE program encourages vehicle manufacturers to reduce 
weight in their light truck offerings to achieve greater fuel 
economy.\14\ As the NAS report and a more recent NHTSA study have 
found, downweighting of the light truck fleet, especially those trucks 
in the low and medium weight ranges, creates more safety risk for 
occupants of light trucks and all motorists combined.\15\
---------------------------------------------------------------------------

    \14\ Manufacturers can reduce weight without changing the 
fundamental structure of the vehicle by using lighter materials or 
eliminating available equipment or options. In contrast, reducing 
vehicle size, and particularly footprint, generally entails an 
alteration of the basic architecture of the vehicle.
    \15\ However, both studies also suggest that if downweighting is 
concentrated on the heaviest light trucks in the fleet there would 
be no net safety impact, and there might even be a small fleet-wide 
safety benefit. There is substantial uncertainty about the curb 
weight cut-off above which this would occur.
---------------------------------------------------------------------------

    Third, the agency noted the adverse economic impacts that might 
result from steady future increases in the stringency of CAFE standards 
under the current regulatory structure. Rapid increases in the light 
truck CAFE standard could have serious adverse economic consequences. 
The vulnerability of full-line firms to tighter CAFE standards does not 
arise primarily from poor fuel economy ratings within weight classes, 
i.e., from less extensive use of fuel economy improving technologies. 
As explained in the 2003 ANPRM, their overall CAFE averages are low 
compared to manufacturers that produce more relatively light vehicles 
because their sales mixes service a market demand for bigger and 
heavier vehicles capable of more demanding utilitarian functions. An 
attribute-based (weight and/or size) system could avoid disparate 
impacts on full-line manufacturers that could result from a sustained 
increase in CAFE standards.
2. Reform options
    In discussing potential changes, the agency focused primarily on 
structural improvements to the current CAFE program authorized under 
the current statutory authority, and secondarily on definitional 
changes to the current vehicle classification system and whether to 
include vehicles between 8,500 to 10,000 lbs. GVWR.
    The ANRPM discussed two structural reforms. The first reform 
divided light trucks into two or more classes based on vehicle 
attributes. The second was an attribute-based ``continuous-function'' 
system, such as that discussed in the NAS report. We chose various 
measures of vehicle weight and/or size to illustrate the possible 
design of an attribute-based system. However, we also sought comment as 
to the merits of using other vehicle attributes as the basis of an 
attribute-based system.
    The 2003 ANPRM also presented two potential options under which 
vehicles with a GVWR of up to 10,000 lbs. could be included under the 
CAFE program, were the agency to make the requisite determinations to 
include them. One option would be to include vehicles defined by EPA as 
medium duty passenger vehicles (65 FR 6698, 6749-50, 6851-6852) for use 
in the CAFE program. This definition would essentially make SUVs and 
passenger vans between 8,500 and 10,000 lbs. GVWR subject to CAFE, 
while continuing to exclude most medium- and heavy-duty pickups and 
most medium- and heavy-duty cargo vans that are primarily used for 
agricultural and commercial purposes. A second option would be to make 
all vehicles between 8,500 and 10,000 lbs GVWR subject to CAFE 
standards.
    Through the 2003 ANPRM, the agency intended to begin a public 
discussion on potential ways, within current statutory authority, to 
improve the CAFE program to better achieve our public policy 
objectives. The agency set forth a number of possible concepts and 
measures, and invited the public to present additional concepts. The 
agency expressed interest in any suggestions toward revamping the CAFE 
program in such a way as to enhance overall fuel economy while 
protecting occupant safety and the economic vitality of the auto 
market.
    The agency also discussed and sought comment on the classification 
of vehicles as passenger cars or light trucks. As suggested in numerous 
of the comments, we are proposing only to clarify the applicability of 
the flat floor provision to vehicles with folding seats. See section 
IX.B below. We are not otherwise changing those classification 
regulations at this time in part because we believe an orderly 
transition to Reformed CAFE could not be accomplished if we 
simultaneously change which vehicles are included in the light truck 
program and because, as applied in MY 2011, Reformed CAFE is likely to 
reduce the incentive to produce vehicles classified as light trucks 
instead of as passenger cars. We may revisit the definitional issues as 
appropriate in the future.

J. Recent developments

1. Factors underscoring need for reform
    Since our ANPRM was published in 2003, there have been two 
important complicating factors that underscore the need for CAFE 
reform. One factor is the fiscal problems reported by General Motors 
and Ford, while the other is the recent surge in gasoline prices, a 
development that may be exacerbating the financial challenges faced by 
both companies.
    The two largest, full-line light-truck manufacturers, General 
Motors and Ford, have reported serious financial difficulties. The 
investment community has downgraded the bonds of both companies. 
Further, both companies have announced significant layoffs and other 
actions to improve their financial

[[Page 51423]]

condition. While these financial problems did not give rise to the 
Administration's CAFE reform initiative, the financial risks now faced 
by these companies, including their workers and suppliers, underscore 
the importance to full-line vehicle manufacturers of establishing an 
equitable CAFE regulatory framework.
    There has also been a sharp and sustained surge in gasoline prices 
since our last light truck final rule in April 2003 and the December 
2003 ANPRM on CAFE reform. According to the Energy Information 
Administration (EIA), the retail price for gasoline in April 2003 was 
$1.59 per gallon and in December 2003 was $1.48 per gallon.\16\ The 
weekly U.S. retail price for the week of August 15, 2005 was $2.55 per 
gallon.\17\
---------------------------------------------------------------------------

    \16\ See http://tonto.eia.doe.gov/oog/info/gdu/gaspump.html.
    \17\ See http://www.eia.doe.gov/oil_gas/petroleum/data_publications/wrgp/mogas_home_page.html and http://tonto.eia.doe.gov/oog/info/gdu/gasdiesel.asp.
---------------------------------------------------------------------------

    Although the surge of gasoline prices highlights the need for both 
more energy supplies and intensified conservation efforts, it is 
important to recognize that CAFE standards for MYs 2008-2011 should not 
be based on current gasoline prices. They should be based on our best 
forecast of what average real gasoline prices will be in the U.S. 
during the years that these vehicles will be used by consumers: the 26-
year period beginning in 2008 and extending almost to 2040.\18\ Since 
miles of travel tend to be concentrated in the early years of a 
vehicle's lifetime, the projected gasoline price in the 2008-2020 
period is particularly relevant for this rulemaking.
---------------------------------------------------------------------------

    \18\ To calculate the fuel savings for the light trucks 
manufactured in a model year, we consider the savings over a 26-year 
period. The number of light trucks manufactured during each model 
year that remains in service during each subsequent calendar year is 
estimated by applying estimates of the proportion of light trucks 
surviving to each age up to 26 years (see Table VIII-2 in the PRIA). 
At the end of 26 years, the proportion of light trucks remaining in 
service falls below 10 percent.
---------------------------------------------------------------------------

    When we issued the April 2003 final rule for MY 2005-2007 light 
truck CAFE, we based the final economic assessment of that rule on 
estimated gasoline prices at the pump that ranged from $1.37 per gallon 
in 2005 to $1.46 per gallon in 2030 (based on year 2000 prices). Those 
prices, which are set forth year by year in our April 2003 Final 
Economic Assessment (Docket No. 11419-18358, page VIII-7), were based 
on the Energy Information Administration's ``Annual Energy Outlook 
2003.''
    The PRIA for this proposed rule has been based on projected 
gasoline prices from the more recent Annual Energy Outlook 2005 
(AEO2005) (published in 2004 before the recent price rises), which 
projected gasoline prices ranging from $1.51 to $1.58 per gallon.\19\ 
These are the most current long-term forecasts for gasoline prices 
available from EIA at this time. EIA has, however, issued revised 
short-term forecasts that project gasoline prices remaining above $2 
through late 2006, significantly higher than what was projected in 
AEO2005. Further, we note that in its August ``International Energy 
Outlook 2005,'' EIA's reference case for future oil prices ``has 
adopted the Annual Energy Outlook 2005 (AEO2005) October futures case, 
which has an assumption of higher prices than the AEO2005 reference 
case and now appears to be a more likely projection for oil prices.'' 
During the rulemaking, we will continue to consult with EIA and other 
experts on projections of likely gasoline prices over the anticipated 
lifetime of light trucks sold in MYs 2008-2011, including the 
development of gasoline price projections for EIA's Annual Energy 
Outlook 2006 (AEO2006). EIA will be issuing AEO2006, with revised long-
term forecasts, in November 2005. We are seeking public comment on the 
appropriate gasoline price forecast to use in the final rule, including 
consideration of the AEO2006 forecast.
---------------------------------------------------------------------------

    \19\ http://www.eia.doe.gov/oiaf/aeo/index.html.
---------------------------------------------------------------------------

2. Reports updating fuel economy potential
    Additionally, the agency has placed in the docket for this notice a 
2005 document, prepared under the auspices of the Department of Energy 
(DOE) for NHTSA, updating the estimates of light-truck fuel economy 
potential and costs in the 2001 NAS report, ``Effectiveness and Import 
of Corporate Average Fuel Economy (CAFE) Standards. The agency seeks 
comments on this document. After having this document peer reviewed, 
the agency will place the peer reviewers' reports in the docket for 
public comment.
    We note that the introduction of the 2005 DOE document states that 
that document does not address the costs and benefits of hybrid and 
diesel technology because these matters have been documented in a 2004 
Energy and Environmental Analysis, Inc. (EEA) study for the DOE. The 
title of that study is ``Future Potential of Hybrid and Diesel 
Powertrains in the U.S. Light-Duty Vehicle Market.''\20\ The agency has 
placed that study in the docket and seeks comments on it as well.
---------------------------------------------------------------------------

    \20\ See http://www-cta.ornl.gov/cta/Publications/pdf/ORNL_TM_2004_181_HybridDiesel.pdf.
---------------------------------------------------------------------------

III. The Unreformed CAFE proposal for MYs 2008-2010

    As part of our Reformed CAFE proposal, we have crafted a transition 
period in which manufacturers have the option of complying with either 
the Reformed or the Unreformed CAFE systems. During the transition 
period, the requirements under the Reformed CAFE systems are linked to 
those of the Unreformed system. The Reformed CAFE standards for MYs 
2008-2010 would be set at levels intended to ensure that the industry-
wide cost of the Reformed standards are roughly equivalent to the 
industry-wide cost of the Unreformed CAFE standards in those model 
years. This approach has several important advantages. If the 
Unreformed standards are judged to be economically practicable and 
since the Reformed standards spread the cost burden across the industry 
to a greater extent, equalizing the costs between the two systems 
ensures that the Reformed standards will be within the realm of 
economic practicability. Further, this approach promotes an orderly and 
effective transition to the Reformed CAFE system since experience will 
be gained prior to MY 2011. In this section, we describe how we 
developed the Unreformed CAFE standards.
    In developing this proposal for Unreformed CAFE standards, we first 
analyzed the data submitted by the manufacturers using the same type of 
analyses we employed in establishing light truck CAFE standards for MYs 
2005-2007. We determined which manufacturers have a significant share 
of the light truck market, analyzed data to determine the CAFE 
``baseline'' for each of those companies, and then conducted a manual 
engineering analysis (the Stage Analysis)--in conjunction with a 
computer-based engineering analysis (the Volpe Analysis)--to determine 
what technologies each company with a significant share of the market 
could use to enhance its overall fleet fuel economy average.\21\
---------------------------------------------------------------------------

    \21\ The ``Stage'' Analysis primarily involved application of 
the agency's engineering judgment and expertise about possible 
adjustments to the detailed product plans submitted by 
manufacturers. The methodology of the Volpe model was described in 
detail in the NPRM and Final Rule establishing light truck CAFE 
standards for MYs 2005-2007. The model has been updated and refined, 
but remains fundamentally the same. The updated model has been peer 
reviewed. The model documentation, including a description of the 
input assumptions and process, as well as peer review reports, will 
be made available in the rulemaking docket for this notice. The 
agency will respond to the reports, and the public comments on those 
reports, at the time of the final rule.

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[[Page 51424]]

    Giving particular regard to the capabilities of the least capable 
manufacturer with a significant share of the market, we have 
tentatively determined the maximum feasible fuel economy levels for MYs 
2008-2010. In doing so, we took into account the four statutory factors 
(the nation's need to conserve energy, technological feasibility, 
economic practicability (including employment consequences) and the 
impact of other regulations on fuel economy) as well as other included 
or relevant considerations such as the need to protect against adverse 
safety consequences.
    As noted above, we have tentatively determined that the following 
fuel economy standards for MYs 2008-2010 are the maximum feasible 
levels under the Unreformed approach to light truck CAFE:
    MY 2008--22.5 mpg
    MY 2009--23.1 mpg
    MY 2010--23.5 mpg

A. Baseline for determining manufacturer capabilities in MYs 2008-2010

    In evaluating the manufacturers' fuel economy capabilities for MYs 
2008-2010, we analyzed manufacturers' projections of their CAFE and 
their underlying product plans and considered what, if any, additional 
actions the manufacturers could take to improve their fuel economy. In 
order to determine the fuel economy capabilities of manufacturers 
during MYs 2008-2010, we first determined the manufacturers' fuel 
economy baselines for those years. That is, we determined the fuel 
economy levels that manufacturers are planning to achieve in those 
years, given the level of the CAFE standards that they were required to 
comply with in MY 2007. We relied upon the information submitted by 
manufacturers in response to the December 29, 2003 request for product 
plans and any additional manufacturer updates, to determine those 
plans.
    For those manufacturers that did not submit information for those 
model years, we relied on data from the latest model year for which 
information from the manufacturers is available. To the extent that 
additional public information was available regarding the MY 2008-2010 
product plans, we incorporated that information into the baselines for 
those manufacturers.
    We note that although manufacturers may receive credit toward their 
CAFE compliance by placing alternative fuel vehicles into the market 
through MY 2008, the statute prohibits us from taking such benefits 
into consideration in determining the maximum feasible fuel economy 
standard (49 U.S.C. 32902(h)). Accordingly, the baselines and 
projections do not reflect those credits.
1. General Motors
    General Motors' share of the light truck market for MY 2004 was 
31.8 percent. In its submission of MY 2008-2010 product plans, General 
Motors projected that, based on those plans, its light truck fleet 
would achieve a CAFE level of 21.2 mpg for MY 2008, 21.3 mpg for MY 
2009, and 21.3 mpg for MY 2010. Its plans were based on sales of GMC, 
Chevrolet, Pontiac, Buick, Cadillac, Hummer, SAAB, and Saturn 
vehicles.\22\
---------------------------------------------------------------------------

    \22\ The agency does not consider the overall fleet fuel economy 
projection for a manufacturer to be entitled to confidential 
treatment, whether derived from our own analysis or provided by the 
manufacturer. The agency has consistently published this information 
in all prior rulemakings establishing CAFE standards. See for 
example, 68 FR 16868; April 7, 2003, 67 FR 77015; December 16, 2002, 
59 FR 16312; April 6, 1994, and 53 FR 11074; April 5, 1988.
---------------------------------------------------------------------------

2. Ford
    Ford Motor Company controlled 25.7 percent of the light truck 
market in the U.S. in MY 2004. Ford projected that its light truck 
fleet would achieve a CAFE level of 21.6 mpg for MY 2008, 22.0 mpg for 
MY 2009 mpg, and 22.3 mpg for MY 2010. Its data were based on sales of 
Ford branded vehicles, as well as Lincoln, Mercury, Mazda, Land Rover 
and Volvo branded vehicles.
3. DaimlerChrysler
    DaimlerChrysler controlled 19.8 percent of the U.S. light truck 
market in MY 2004. DaimlerChrysler submitted product plans for MYs 
2008-2010, and projected that its light truck fleet would achieve a 
CAFE level of 21.9 mpg for MY 2008, 22.3 mpg for MY 2009, and 22.3 mpg 
for MY 2010. Its data were based on sales of Chrysler, Jeep, Dodge, 
Mercedes, Mitsubishi, Smart\23\, and Sprinter brand vehicles.
---------------------------------------------------------------------------

    \23\ The agency notes that some vehicles and vehicle lines that 
were included in a manufacturer's product plan ultimately may not be 
produced. However, the agency relies on the product plans as 
submitted. Further, if any vehicles are dropped, they are expected 
to constitute a small percentage of a manufacturer's fleet and have 
minimal impact on a manufacturer's projected capabilities.
---------------------------------------------------------------------------

4. Other manufacturers
    Of the remaining manufacturers, Nissan and Hyundai (including Kia) 
provided information regarding sales and fuel economy projections for 
their vehicles through MY 2010.
    The balance of the remaining manufacturers did not provide any MY 
2008-2010 information.\24\ For these manufacturers (Toyota, Honda, 
Subaru, Isuzu, Suzuki, BMW, Porsche, and Volkswagen), we relied on 
manufacturer information from the latest model year for which it was 
available, and publicly available information regarding their MY 2008-
2010 product plans. Toyota, Honda, and Subaru provided fuel economy 
projections for MYs 2005-2007. The projected levels of fuel economy 
provided by Toyota and Honda would comply with the CAFE standard for MY 
2007. Accordingly, we used those projected levels for each of MYs 2008-
2010. Subaru's submission was supplemented by publicly available 
information regarding its future vehicle fleet to arrive at its MY 
2008-2010 baselines.
---------------------------------------------------------------------------

    \24\ In the past, these manufacturers have generally not 
provided such information since they have either chosen to pay civil 
penalties instead of complying with the CAFE standards or had fleet 
fuel economy averages far enough above the standards that it was not 
necessary for them to make additional improvements in fuel economy.
---------------------------------------------------------------------------

    Isuzu, Suzuki, BMW, Porsche, and Volkswagen did not submit any 
response. For Isuzu and Suzuki's baselines, we used the latest year for 
which we had product data (MY 2005) and combined those data with 
publicly available information regarding Isuzu and Suzuki's future 
product plans. Further, since all of the light trucks produced by Isuzu 
and Suzuki are sister vehicles to General Motors vehicles, we were able 
to determine the technical details for those vehicles. BMW, Porsche, 
and Volkswagen previously paid fines in lieu of complying with the MY 
2002 and 2003 light truck CAFE standards. The agency assumes that 
because of that past history and their low light truck production 
volumes, BMW, Porsche, and Volkswagen will continue to pay fines 
instead of bringing their fleets into compliance. Therefore, we relied 
on the fuel economy levels from MY 2005 in projecting the baseline for 
these three manufacturers.
    Table 1 provides the baseline values for manufacturers other than 
General Motors, Ford, and DaimlerChrysler:

[[Page 51425]]



 Table 1.--Baseline Values for Manufacturers Other Than General Motors,
                        Ford and DaimlerChrysler
                                [In mpg]
------------------------------------------------------------------------
                                          MY 2008    MY 2009    MY 2010
------------------------------------------------------------------------
Toyota.................................       22.9       22.9       22.9
Honda..................................       24.4       24.4       24.4
Nissan.................................       20.7       20.8       21.2
Hyundai................................       21.8       23.2       22.8
Subaru.................................       25.7       26.2       26.2
BMW....................................       21.3       21.3       21.3
Porsche................................       16.8       16.8       16.8
Isuzu..................................       20.4       20.2       20.1
Suzuki.................................       21.9       21.9       21.9
Volkswagen.............................       18.8       18.8       18.8
------------------------------------------------------------------------

B. Selection of Proposed Unreformed CAFE Standards--Process for 
Determining Maximum Feasible Levels

    We have tentatively concluded that the proposed standards for the 
Unreformed CAFE system are technologically feasible and economically 
practicable for those manufacturers with a substantial share of the 
light truck market (General Motors, Ford, and DaimlerChrysler), are 
capable of being met without substantial product restrictions, and will 
enhance the ability of the nation to conserve fuel and reduce its 
dependence on foreign oil.
    In determining the maximum feasible fuel economy level, we are 
required to consider the four statutory factors and are permitted to 
consider additional societal considerations. The agency has 
historically included the potential for adverse safety consequences 
when deciding upon a maximum feasible level.\25\ The overarching 
principle that emerges from the enumerated factors and the court-
sanctioned practice of considering safety and links them together is 
that CAFE standards should be set at a level that will achieve the 
greatest amount of fuel savings without leading to adverse economic or 
other societal consequences.
---------------------------------------------------------------------------

    \25\ See, e.g., Center for Auto Safety v. NHTSA (CAS), 793 F. 2d 
1322 (D.C. Cir. 1986) (Administrator's consideration of market 
demand as component of economic practicability found to be 
reasonable); Public Citizen 848 F.2d 256 (Congress established broad 
guidelines in the fuel economy statute; agency's decision to set 
lower standard was a reasonable accommodation of conflicting 
policies). As the United States Court of Appeals pointed out in 
upholding NHTSA's exercise of judgment in setting the 1987-1989 
passenger car standards, ``NHTSA has always examined the safety 
consequences of the CAFE standards in its overall consideration of 
relevant factors since its earliest rulemaking under the CAFE 
program.'' Competitive Enterprise Institute v. NHTSA (CEI I), 901 
F.2d 107, 120 at n.11 (D.C. Cir. 1990).
---------------------------------------------------------------------------

    As discussed in many past fuel economy notices, the legislative 
history of EPCA explicitly states that NHTSA is to take industry-wide 
considerations into account in determining the maximum feasible CAFE 
levels, and not necessarily base its determination on any particular 
company's asserted or projected abilities. This means that CAFE 
standards will not necessarily be set at the precise level that is 
associated with the plans of the ``least capable manufacturer'' with a 
substantial share of the market or that is projected by the agency for 
that manufacturer. (For a discussion of the industry-wide 
considerations and the origins of the ``least capable manufacturer'' 
concept, see section IV.A.2.b below.)
    It means further that we must take particular care in considering 
the statutory factors with regard to these manufacturers--weighing 
their asserted capabilities, product plans and economic conditions 
against agency projections of their capabilities, the need for the 
nation to conserve energy and the effect of other regulations 
(including motor vehicle safety and emissions regulations) and other 
public policy objectives.
    This approach is consistent with the Conference Report on the 
legislation enacting the CAFE statute:

    Such determination [of maximum feasible average fuel economy 
level] should take industry-wide considerations into account. For 
example, a determination of maximum feasible average fuel economy 
should not be keyed to the single manufacturer that might have the 
most difficulty achieving a given level of average fuel economy. 
Rather, the Secretary must weigh the benefits to the nation of a 
higher average fuel economy standard against the difficulties of 
individual manufacturers. Such difficulties, however, should be 
given appropriate weight in setting the standard in light of the 
small number of domestic manufacturers that currently exist and the 
possible implications for the national economy and for reduced 
competition association [sic] with a severe strain on any 
manufacturer.

S. Rep. No. 94-516, 94th Congress, 1st Sess. 154-155 (1975).

    The agency has historically assessed whether a potential CAFE 
standard is economically practicable in terms of whether the standard 
is one ``within the financial capability of the industry, but not so 
stringent as to threaten substantial economic hardship for the 
industry.'' \26\ See, e.g., Public Citizen, 848 F.2d at 264. In 
essence, in determining the maximum feasible level of CAFE, the agency 
assesses what is technologically feasible for manufacturers to achieve 
without leading to adverse economic consequences, such as a significant 
loss of jobs or the unreasonable elimination of consumer choice.
---------------------------------------------------------------------------

    \26\ In adopting this interpretation in the final rule 
establishing the MY 1981-1984 fuel economy standards for passenger 
cars (June 30, 1977; 42 FR 33534, at 33536-7), the Department 
rejected several more restrictive interpretations. One was that the 
phrase means that the standards are statutorily required to be cost-
beneficial. The Department pointed out that Congress had rejected a 
manufacturer-sponsored amendment to the Act that would have required 
standards to be set at a level at which benefits were commensurate 
with costs. It also dismissed the idea that economic practicability 
should limit standards to free market levels that would be achieved 
with no regulation.
---------------------------------------------------------------------------

    At the same time, the law does not preclude a CAFE standard that 
poses considerable challenges to any individual manufacturer. The 
Conference Report makes clear, and the case law affirms: ``(A) 
determination of maximum feasible average fuel economy should not be 
keyed to the single manufacturer which might have the most difficulty 
achieving a given level of average fuel economy.'' CAS, 793 F.2d at 
1338-9. Instead, the agency is compelled ``to weigh the benefits to the 
nation of a higher fuel economy standard against the difficulties of 
individual automobile manufacturers.'' Id. The statute permits the 
imposition of reasonable, ``technology forcing'' challenges on any 
individual manufacturer, but does not contemplate standards that will 
result in ``severe'' economic hardship by forcing

[[Page 51426]]

reductions in employment affecting the overall motor vehicle 
industry.\27\
---------------------------------------------------------------------------

    \27\ In the past, the agency has set CAFE standards above its 
estimate of the capabilities of a manufacturer with less than a 
substantial, but more than a de minimus, share of the market. See, 
e.g., CAS, 793 F.2d at 1326 (noting that the agency set the MY 1982 
light truck standard at a level that might be above the capabilities 
of Chrysler, based on the conclusion that the energy benefits 
associated with the higher standard would outweigh the harm to 
Chrysler, and further noting that Chrysler had 10-15 percent market 
share while Ford had 35 percent market share). On other occasions, 
the agency reduced an established CAFE standard to address 
unanticipated market conditions that rendered the standard 
unreasonable and likely to lead to severe economic consequences. 49 
FR 41250, 50 FR 40528, 53 FR 39275; see Public Citizen, 848 F.2d at 
264.
---------------------------------------------------------------------------

    As a first step toward ensuring that the CAFE levels selected as 
the maximum feasible levels under Unreformed CAFE will not lead to 
adverse consequences, we reviewed in detail the confidential product 
plans provided by the manufacturers with a substantial share of the 
light truck market (General Motors, Ford and DaimlerChrysler) and 
assessed their technological capabilities to go beyond those plans. By 
doing so, we are able to determine tentatively the extent to which each 
can enhance their fuel economy performance using technology.

C. Technologically Feasible Additions to Baseline

    The agency has analyzed potential technological improvements to the 
product offerings for each manufacturer with a substantial share of the 
light truck market and for the remaining light truck manufacturers.\28\ 
Under the Unreformed system, we focused on General Motors, Ford, and 
DaimlerChrysler as the manufacturers with substantial shares of the 
light truck market. We also conducted analyses of the potential for the 
other manufacturers to achieve fuel economy levels above their 
baselines.
---------------------------------------------------------------------------

    \28\ A more detailed discussion of these issues is contained in 
the agency's PRIA, which has been placed in the docket for this 
notice. Some of the information included in the PRIA, including the 
details of manufacturers' future product plans, has been determined 
by the Agency to be confidential business information the release of 
which could cause competitive harm. The public version of the PRIA 
omits the confidential information. The PRIA discusses in detail the 
fuel economy enhancing technologies expected to be available during 
the MY 2008-2010 time period.
---------------------------------------------------------------------------

    For the purpose of analyzing the potential technological 
improvements, we applied a three-stage engineering analysis that we 
relied upon in previous light truck fuel economy rulemakings (Stage 
Analysis).
    At each stage of that analysis, we added technologies based on our 
engineering judgment and expertise about possible adjustments to the 
detailed product plans submitted in response to the 2003 request for 
product plans. Our decision whether and when to add a technology 
reflected our consideration of the practicability of applying a 
specific technology and the necessity for lead-time in its application.
    The agency recognized that vehicle manufacturers must have 
sufficient lead time to incorporate changes and new features into their 
vehicles. Further, in making its lead time determinations, the agency 
considered the fact that vehicle manufacturers follow design cycles 
when introducing or significantly modifying a product. In addition to 
considering lead time, the agency added technologies in a cost-
minimizing fashion. That is, it generally first added technologies that 
were most cost-effective.
    In evaluating which technologies to apply, and the sequence in 
which to apply them, we followed closely the NAS report. The NAS report 
estimated the incremental benefits and the incremental costs of 
technologies that may be applicable to actual vehicles of different 
classes and intended uses (see NAS p. 40).\29\ The NAS report also 
identified what it called ``cost-efficient technology packages,'' i.e., 
combinations of technologies that would result in fuel economy 
improvements sufficient to cover the purchase price increases that such 
technologies would require (see NAS p. 64).
---------------------------------------------------------------------------

    \29\ Additionally, as noted above, the agency has placed in the 
docket for this notice a document, prepared under the auspices of 
the U.S. Department of Energy for NHTSA, that updates the estimates 
of light-truck fuel economy potential in the 2001 National Academy 
of Sciences (NAS) report, ``Effectiveness and Impact of Corporate 
Average Fuel Economy (CAFE) Standards.''
---------------------------------------------------------------------------

    The Stage I analysis includes technologies that manufacturers state 
as being available for use by MY 2008 or earlier, but are choosing not 
to use them in their product plans. Many of these technologies are 
currently being used in today's light duty truck fleet. These 
technologies include non-powertrain applications such as low rolling 
resistance tires, low friction lubricants, aerodynamic drag reduction, 
and electric power steering pumps.
    The Stage II analysis includes two major categories of 
technological improvements to the manufacturer's fleets, the timing of 
which is tied as nearly as possible to planned model change and engine 
introduction years. The first of these categories is transmission 
improvements, which consists of the introduction and expanded use of 5-
speed and 6-speed transmissions and continuously variable transmissions 
(CVTs). The application of CVTs was restricted to vehicles that are not 
designed for rugged off-road applications and/or the need to haul heavy 
loads, such as smaller unibody SUVs. The second category was engine 
improvements, and consisted of gradually upgrading all light truck 
engines to include multi-valve overhead camshafts, introducing engines 
with more than 2-valves per cylinder, applying variable valve timing/
variable valve lift and timing to multi-valve overhead camshaft 
engines, and applying cylinder deactivation to 6- and 8-cylinder 
engines.
    The Stage III analysis included projections of the potential CAFE 
increase that could result from the application of diesel engines and 
hybrid powertrains to some products. Both diesel engines and hybrid 
powertrains appear in several manufacturers plans within the MY 2008-
2010 timeframe, and other manufacturers have publicly indicated that 
they are looking seriously into both technologies.
    Some of the technologies considered under the Stage Analysis have 
been used in production for over a decade; e.g., engine friction 
reduction and low friction lubricants. Some have only recently been 
incorporated in light trucks; e.g., 5-speed and 6-speed automatic 
transmissions and variable valve timing. Others have been under 
development for a number of years, but have not yet been produced in 
significant quantity for an extended period of time (e.g., cylinder 
deactivation, variable valve lift and timing, CVT, integrated starter 
generator, and hybrid drive trains).
    Our analysis included the possibility of limited vehicle weight 
reduction for vehicles over 5,000 lbs. curb weight where we determined 
that weight reduction would not reduce overall safety and would be a 
cost effective choice.\30\ We determined that reducing the weight of 
these vehicles would not reduce overall safety. The Kahane study found 
that the net safety effect of removing 100 pounds from a light truck is 
zero for light trucks with a curb weight greater than 3,900 lbs.\31\ 
However, given the significant statistical uncertainty around that 
figure, we

[[Page 51427]]

assumed a confidence bound of approximately 1,000 lbs. and used 5,000 
lbs. as the threshold for considering weight reduction.\32\ We used 
weight reduction primarily in conjunction with a planned vehicle 
redesign or freshening and sometimes in concert with a reduction in 
aerodynamic drag.
---------------------------------------------------------------------------

    \30\ The amount of projected weight reduction was two percent 
for light trucks with a curb weight between 5,000 and 6,000 lbs and 
up to four percent for light trucks with a curb weight over 6,000 
lbs.
    \31\ Kahane, Charles J., PhD, Vehicle Weight, Fatality Risk and 
Crash Compatibility of Model Year 1991-99 Passenger Cars and Light 
Trucks, October 2003. DOT HS 809 662. Page 161. Docket No. NHTSA-
2003-16318 (http://www.nhtsa.dot.gov/cars/rules/regrev/evaluate/pdf/809662.pdf).
    \32\ See the discussion of ``Effect of Weight and Performance 
Reductions on Light Truck Fuel Economy'' in Chapter V of the PRIA.
---------------------------------------------------------------------------

    Further, our Stage Analysis does not apply technologies where it is 
not technically sensible to do so. For instance, we estimate that 
replacing an overhead valve engine with a multi-valve overhead camshaft 
engine of the same displacement and replacing a 4-speed automatic 
transmission with a 5- or 6-speed automatic transmission offer about 
the same potential level of improvement. One of them may be more 
attractive to a particular manufacturer because of its cost, ease of 
manufacturing, or the model lines to which it would apply.
    The technologically feasible fuel economy levels determined under 
the Stage Analysis were then input into the Volpe model. The Volpe 
model uses a technology application algorithm developed by Volpe Center 
staff to apply technologies to manufacturers' baselines in order to 
achieve the fuel economy levels produced under the Stage Analysis. This 
algorithm systematically applies consistent cost and performance 
assumptions to the entire industry, as well as consistent assumptions 
regarding economic decision-making by manufacturers. Technologies were 
selected and applied in order of ``effective cost,'' (total cost - fine 
reduction - fuel savings value) / (number of affected vehicles).\33\ 
This formula is a private cost concept, i.e., it looks at costs to the 
manufacturer. It is used to predict how a manufacturer would sequence 
the addition of technologies to meet a given standard.
---------------------------------------------------------------------------

    \33\ In the current model year, the system begins by carrying 
over any technologies applied in the preceding model year, based on 
commonality of engines and transmissions, as well as any identified 
predecessor/successor relationships among vehicle models. At each 
subsequent step toward compliance by a given manufacturer in the 
current model year, the system considers all engines, transmissions, 
and vehicles produced by the manufacturer and all technologies that 
may be applied to those engines, transmissions, and vehicles, where 
the applicability of technologies is governed by a number of 
constraints related to engineering and product planning. The system 
selects the specific application of a technology (i.e., the 
application of a given technology to a given engine, transmission, 
vehicle model, or group of vehicle models) that yields the lowest 
``effective cost'', which the system calculates by taking (1) the 
cost (retail price equivalent) to apply the technology times the 
number of affected vehicles, and subtracting (2) the reduction of 
civil penalties achieved by applying the technology, and subtracting 
(3) the estimated value to vehicle buyers of the reduction in fuel 
outlays achieved by applying the technology, and dividing the sum of 
these components by the number of affected vehicles.
---------------------------------------------------------------------------

    The level of fuel economy improvement resulting from the Stage 
Analysis provides the basis for the proposed Unreformed CAFE standards. 
The Volpe model was then used to estimate benefits and costs. The Volpe 
model is given, as an input, the level of fuel economy improvement and 
then proceeds to analyze what technologies can be added to meet the 
standard determined by the Stage Analysis. Although similar, the two 
analyses do not apply exactly the same technologies. Both are merely 
ways of achieving the given standard, not predictions of how 
manufacturers will actually meet it. As explained below in the section 
on economic practicability and other economic issues, additional 
analysis was performed to ensure that the proposed Unreformed CAFE 
standards are economically practicable for the industry.
    In its submission, General Motors described a variety of 
technologies that could be used to improve fuel economy. For each such 
technology, General Motors included its estimated fuel economy benefit, 
the basis for that estimate, whether the benefit was direct or 
interactive, a description of how the technology works and how it 
increases fuel economy, when the technology would be available for use, 
its potential applications, where it is currently employed in General 
Motors' light truck fleets, where the technology could potentially be 
used, risks in employing the technology, and potential impacts on 
noise, vibration and harshness (NVH), safety, emissions, cargo and 
towing capacity.
    The agency relied on these descriptions in determining which 
technologies General Motors could employ in its fleet during MYs 2008-
2010.\34\ To assess the fuel economy impacts of these technologies, we 
used either the NAS report's mid-range numbers \35\ or, when General 
Motors submitted higher numbers for a particular technology, we used 
General Motors' numbers.
---------------------------------------------------------------------------

    \34\ The determination of technology application that could be 
employed by a specific manufacturer was based on confidential 
information provided by each manufacturer. The nature of this 
confidential information would become apparent from listing the 
technologies applied by the agency and therefore our discussion in 
the public document is of a general nature.
    \35\ The NAS report (p. 42) assessed the fuel consumption impact 
of technologies applicable to light trucks, including emerging 
technologies. For most of these technologies, the NAS report 
presented a range of potential fuel consumption improvement 
attributable to each technology.
---------------------------------------------------------------------------

    As a result of the Stage Analysis, we have tentatively concluded 
that, for MYs 2008-2010, General Motors is the least capable of the 
manufacturers that have a significant share of the light truck market. 
To ensure that the proposed Unreformed CAFE improvements would not lead 
to economically severe consequences for the industry, we have given 
particular regard to General Motors' projected capabilities when 
balancing the statutory factors to arrive at the proposed standards.
    We note that when we established the light truck CAFE standards for 
MYs 2005-2007, we set the standard for MY 2007 at a level somewhat 
beyond that we had determined technologically achievable by General 
Motors, then also the ``least capable manufacturer.'' We will carefully 
review the updated product plans that we anticipate General Motors will 
submit and will review the projections for General Motors' capability 
when deciding upon final light truck standards for these model years. 
As directed by law, we will balance all the statutory factors, as well 
as our concern for motor vehicle safety, before conclusively 
determining the appropriate level of light truck CAFE standards for MYs 
2008-2010.
    Ford and DaimlerChrysler each submitted information similar to that 
provided by General Motors. The agency engaged in the same type of 
analysis in assessing the potential fuel economy capabilities for those 
manufacturers. The agency also engaged in the same type of analysis in 
assessing the potential fuel economy capabilities for Honda, Hyundai, 
Nissan and Toyota, although the information provided by those companies 
was less detailed than that of DaimlerChrysler, Ford and General 
Motors.
    Upon reviewing the product plans and making adjustments as 
described--and balancing the nation's need to conserve energy with what 
is technologically feasible, economically practicable and unlikely to 
produce adverse consequences--we have tentatively determined that the 
following light truck CAFE standards are the maximum feasible fuel 
economy levels achievable:
    MY 2008-22.5.
    MY 2009-23.1.
    MY 2010-23.5.

D. Economic Practicability and Other Economic Issues

    As explained above, the agency has historically reviewed whether a 
CAFE standard is economically practicable in

[[Page 51428]]

terms of whether the standard is one ``within the financial capability 
of the industry, but not so stringent as to threaten substantial 
economic hardship for the industry.'' See, e.g., Public Citizen, 848 
F.2d at 264. In the Stage Analysis, technologies are applied to project 
fuel economy levels that would be technologically feasible for a 
manufacturer. When considering economic practicability, the agency 
reviews whether technologically feasible levels may lead to adverse 
economic consequences, such as a significant loss of sales or the 
unreasonable elimination of consumer choice. The agency must ``weigh 
the benefits to the nation of a higher fuel economy standard against 
the difficulties of individual automobile manufacturers.'' CAS, 793 
F.2d at 1332.
    The agency has estimated not only the anticipated costs that would 
be borne by General Motors, Ford, DaimlerChrysler, Honda, Hyundai, 
Nissan and Toyota to comply with the standards under the Unreformed 
CAFE system, but also the significance of the societal benefits 
anticipated to be achieved through fuel savings and other economic 
benefits from reduced petroleum use. In regard to economic impacts on 
manufacturers and societal benefits, we have relied on the Volpe model 
to determine a probable range of costs and benefits.
    The Volpe model was used to evaluate the standards initially 
produced under the Stage Analysis in order to estimate their overall 
economic impact as measured in terms of increases in new vehicle prices 
on a manufacturer-wide, industry-wide, and average per-vehicle basis. 
Like the Stage Analysis, the Volpe model relies on the detailed product 
plans submitted by manufacturers, as well as available data relating to 
manufacturers that had not submitted detailed information. The Volpe 
model is used to trace the incremental steps (and their associated 
costs) that a manufacturer would take toward achieving the standards 
initially suggested by the Stage Analysis.
    Based on the Stage and Volpe analyses, we have concluded that these 
standards would not significantly affect employment or competition, and 
that--while challenging--they are achievable within the framework 
described above, and that they would benefit society considerably. For 
this analysis, we have where possible translated the benefits into 
dollar values and compared those values to our estimated costs for this 
proposed rule.
1. Costs
    In order to comply with the proposed Unreformed CAFE standards, we 
estimate the average incremental cost per vehicle to be $56 for MY 
2008, $130 for MY 2009, and $185 for MY 2010. The total incremental 
cost (the cost necessary to bring the corporate average fuel economy 
for light trucks from 22.2 mpg (the standard for MY 2007) to the 
proposed standards) is estimated to be $528 million for MY 2008, $1,244 
million for MY 2009, and $1,798 million for MY 2010.
    Our cost estimates for the proposed standards under the Unreformed 
CAFE system were based on the application of technologies and the 
resulting costs to individual manufacturers. We assumed that 
manufacturers would apply technologies on a cost-effectiveness basis 
(as described above). More specifically, within the range of values 
anticipated for each technology, we selected the most plausible cost 
impacts and fuel consumption impacts during the model years under 
consideration.
    Using the estimated costs and fuel savings for the different 
technologies, the agency then examined the projections provided by 
different manufacturers for their light truck fleet fuel economy for 
MYs 2008-2010. Although the details of the projections by individual 
manufacturers are confidential, present fuel economy performance 
indicates that some manufacturers would, if their planned fleets remain 
unchanged, be able to meet the proposed standards without significant 
expenditures. Other manufacturers would need to expend significantly 
more effort than that called for in their product plans to meet the 
proposed standards.
    Some manufacturers might achieve more fuel savings than others 
using similar technologies on a vehicle-by-vehicle basis due to 
differences in vehicle weight and other technologies present. However, 
this analysis assumes an equal impact from specific technologies for 
all manufacturers and vehicles. The technologies were ranked based on 
the cost per percentage point improvement in fuel consumption and 
applied where available to each manufacturer's fleet in their order of 
rank. The complete list of the technologies and the agency's estimates 
of cost and associated fuel savings can be found in the PRIA.
    The level of additional expenditure necessary beyond already 
planned investment varies for each individual manufacturer. We based 
expenditures on cost estimates we developed for various technologies 
that are both available to and technologically feasible for 
manufacturers within the time frame covered by this NPRM.
    Our cost analysis recognizes the importance of the competitive 
market. We believe that the standards proposed under the Unreformed 
CAFE system will not limit the availability of vehicles that consumers 
need and want. We believe that the standards established in this final 
rule will not result in noticeable changes to power-to-weight ratios, 
towing capacity or cargo and passenger hauling ability. In short, the 
standards will not affect the utility of available vehicles and 
therefore should not conflict with consumer preferences.
2. Benefits
    In the PRIA, the agency analyzes the economic and environmental 
benefits of the proposed Unreformed CAFE standards by estimating fuel 
savings over the lifetime of each model year (approximately 26 years). 
Benefit estimates include both the benefits to consumers in terms of 
reduced fuel use and other savings such as the reduced externalities 
generated by the importing, refining and consuming of petroleum 
products.
    The benefits of the proposed increases in the Unreformed CAFE 
standards are estimated to be $64 per vehicle for MY 2008, $142 per 
vehicle for MY 2009, and $206 per vehicle for MY 2010. The total value 
of these benefits is estimated to be $605 million for MY 2008, $1,366 
million for MY 2009 and $2,007 million for MY 2010, based on fuel 
prices ranging from $1.51 to $1.58 per gallon. (See the discussion of 
current fuel prices vs. the fuel prices during the lifetime of the MY 
2008-2010 light trucks in section II.J. Recent developments, above.)
3. Comparison of estimated costs to estimated benefits
    Table 2 compares the incremental costs and benefits for the 
Unreformed CAFE standards.

[[Page 51429]]



 Table 2.--Comparison of Incremental Costs and Benefits for the Proposed
                        Unreformed CAFE Standards
                              (In millions)
------------------------------------------------------------------------
                                          MY 2008    MY 2009    MY 2010
------------------------------------------------------------------------
Total incremental costs*...............       $528     $1,244     $1,798
Total incremental benefits*............       $605     $1,366    $2,007
------------------------------------------------------------------------
* Relative to the 22.2 mpg standard for MY 2007.

    These estimates are provided as present values determined by 
applying a 7 percent discount rate to the future impacts. In the PRIA, 
we also use a 3 percent discount rate for discounting benefits and 
costs, and request comment on what discount rates are appropriate for 
this rulemaking, including 3, 7, and 10 percent (see Section VIII in 
the PRIA for a more detailed discussion). To the extent possible, we 
translated impacts other than direct fuel savings into dollar values 
and then factored them into our cumulative estimates. We obtained 
forecasts of light truck sales for future years from AEO2005. Based on 
these forecasts, NHTSA estimated that approximately 9,480,200 light 
trucks would be sold in MY 2008. For MYs 2009 and 2010, we estimated 
9,613,100 and 9,754,000 light truck sales, respectively.
    We calculated the reduced fuel consumption of MY 2008-2010 light 
trucks by comparing their consumption under the proposed standards for 
those years to the consumption they would have if the MY 2007 CAFE 
standard of 22.2 mpg remained in effect during those years. First, the 
estimated fuel consumption of MY 2008-2010 light trucks was determined 
by dividing the total number of miles driven during the vehicles' 
remaining lifetime by the fuel economy level they were projected to 
achieve under the 22.2 mpg standard.
    Then, we assumed that if these same light trucks were produced to 
comply with higher CAFE standards for those years, their total fuel 
consumption during each future calendar year would equal the total 
number of miles driven (including the increased number of miles driven 
because of the ``rebound effect,'' the tendency of drivers to respond 
to increases in fuel economy in the same manner as they respond to 
decreases in fuel prices, i.e., by driving more),\36\ divided by the 
higher fuel economy they would achieve as a result of that standard. 
The fuel savings during each future year that would result from the 
higher CAFE standard is the difference between each model year's fuel 
use and the fuel use that would occur if the MY 2007 standard remained 
in effect. This analysis results in estimated lifetime fuel savings of 
0.8 billion, 1.9 billion, and 2.7 billion gallons for MYs 2008, 2009, 
and 2010, respectively.
---------------------------------------------------------------------------

    \36\ As described in detail in the PRIA, we use a 20% rebound 
effect based on a thorough review of the literature. We are 
nonetheless aware that there is ongoing research in this area, and 
will continue to assess this assumption in light of new evidence.
---------------------------------------------------------------------------

    Finally, we assessed the present value of each year's fuel savings 
by multiplying the total number of gallons saved by the forecast fuel 
prices for that year and applying a 7 percent discount rate. (As noted 
above, we also used a 3 percent discount rate in the PRIA.) Fuel price 
forecasts were obtained from EIA's Annual Energy Outlook 2005 and 
adjusted to exclude state and local taxes. This analysis resulted in 
values for estimated lifetime fuel savings of $938 million, $2,114 
million, and $3,092 million under the proposed Unreformed CAFE 
standards for MY 2008, 2009, and 2010, respectively, based on fuel 
prices ranging from $1.51 to $1.58 per gallon.
    In the PRIA, we also analyze other effects of the proposed 
standards, e.g., the impact on vehicle and refinery emissions, gasoline 
tanker truck emissions, and the rebound effect. Our analysis indicates 
that the MY 2008 standard would result in a net reduction of criteria 
pollutants with a present value of $15.5 million. For MY 2009, this net 
reduction would have a present value of $34.8 million and for MY 2010 
the net reduction of criteria pollutants would have a present value of 
$52.1 million. We calculate per mile emission rates using EPA's Mobile 
6.2 motor vehicle emissions factor model, and monetized changes in 
total emission levels for criteria pollutants associated with gasoline 
production, distribution, and combustion.\37\ We also discuss non-
monetized effects.
---------------------------------------------------------------------------

    \37\ The criteria pollutants used for the agency's analysis are 
carbon monoxide, volatile organic compounds, nitrogen oxides, fine 
particulate matter, and sulfur dioxide. Tailpipe emissions from 
light trucks are predicted to increase under this rulemaking due to 
the rebound effect, while emissions from refineries and gasoline 
tanker trucks are predicted to decrease due to a reduction in 
gasoline consumption.
---------------------------------------------------------------------------

    A more detailed explanation of our analysis is provided in the PRIA 
and the draft Environmental Assessment.
4. Uncertainty
    The agency recognizes that science does not permit precise 
estimates of benefits and costs. NHTSA performed a probabilistic 
uncertainty analysis to examine the degree of uncertainty in the costs 
and benefits. Factors examined included technology costs, technology 
effectiveness in improving fuel economy, fuel prices, the value of oil 
import externalities, and the rebound effect. This analysis employed 
Monte Carlo simulation techniques to examine the range of possible 
variation in these factors. The analysis indicates that the agency is 
highly certain that the social benefits of the proposed CAFE levels 
will exceed their costs for all 3 model years of Unreformed standards 
included in the proposal.
    We solicit comment on whether proposed levels of maximum feasible 
CAFE reflect an appropriate balancing of the statutory and other 
relevant factors. Based on those comments and other information, 
including additional data and analysis, the standards adopted in the 
final rule could well be different.

IV. The Reformed CAFE Proposal for MYs 2008-2011

    We are proposing to establish Reformed standards for MYs 2008-2011. 
As noted above, manufacturers would have a choice of complying with 
either Unreformed standards or Reformed standards during the transition 
period spanning MYs 2008-2010. The transition process should assist the 
agency in learning about the industry's experiences with Reformed CAFE 
and determining the best approach in future rulemakings.

A. Proposed Approach to Reform

    The structure of Reformed CAFE for each model year would have three 
basic elements--
    (1)--Six footprint \38\ categories of vehicles.
---------------------------------------------------------------------------

    \38\ Footprint is an aspect of vehicle size--the product of 
multiplying a vehicle's wheelbase by its average track width.
---------------------------------------------------------------------------

    (2)--A target level of average fuel economy for each footprint 
category, as expressed by a step function. (The step or ``staircase'' 
nature of the function can be seen in Figure 2 below.)

[[Page 51430]]

    (3)--a Reformed CAFE standard based on the harmonic production-
weighted average of the fuel economy targets for each category.
    The required level of CAFE for a particular manufacturer for a 
model year would be calculated after inserting the following data into 
the standard for that model year: That manufacturer's actual total 
production and its production in each footprint category for that model 
year.\39\ The calculation of the required level would be made by 
dividing the manufacturer's total production for the model year by the 
sum of the six fractions (one for each category) obtained by dividing 
the manufacturer's production in a category by the category's target.
---------------------------------------------------------------------------

    \39\ Since the calculation of a manufacturer's required level of 
average fuel economy for a particular model year would require 
knowing the final production figures for that model year, the final 
formal calculation of that level would not occur until after those 
figures are submitted by the manufacturer to EPA. That submission 
would not, of course, be made until after the end of that model 
year.
---------------------------------------------------------------------------

1. Distribution into footprint categories
    Initially, the agency has made a preliminary determination to place 
light trucks up to 8,500 lbs. GVWR into six categories based on vehicle 
footprint. As discussed more fully below, the agency chose vehicle 
footprint as the best potential attribute to use as the basis of a 
Reformed CAFE program because it is an attribute which would best 
assure consistency in vehicle design and structure between model years, 
is consistent with our safety concerns, and may encourage the 
development and availability of light-weight materials whose use might 
advance fuel economy and preserve or maybe even enhance safety.
    The six categories were defined after placing planned light truck 
production onto a distribution plot by footprint. We then sought to 
place the category boundaries generally at points indicating low volume 
immediately to the left and high volume immediately to the right. Our 
intent in doing so was to avoid providing an incentive to increase 
vehicle size in order to move a model into a category with a lower 
target. We sought to create a reasonable number of categories that 
would also combine, to the extent practicable, similar vehicle types 
into the same category structures.\40\
---------------------------------------------------------------------------

    \40\ Our effort to do so explains why the boundary between 
categories 4 and 5 is between integers. The agency chose a non-
integer boundary for this boundary because, in doing so, it kept 
vehicles with the same nameplate and utility within the same 
grouping.
---------------------------------------------------------------------------

    Our preliminary assessment of the categories is based on the 
product plan information available to us when devising this proposal. 
These categories may change based upon our review of updated product 
plans received in response to this NPRM.
    Figure 1 provides the distribution of projected MY 2008-2010 
aggregate sales for the industry:
BILLING CODE 4910-59-P

[[Page 51431]]

[GRAPHIC] [TIFF OMITTED] TP30AU05.003

BILLING CODE 4910-59-C
    In determining the number and location of categories, the agency 
used its best judgment applying the considerations set forth above. The 
agency has made the preliminary determination to establish 6 categories 
for purposes of this rulemaking, based on vehicle footprint, as shown 
in Table 2:

[[Page 51432]]



                                     Table 2.--Proposed Footprint Categories
----------------------------------------------------------------------------------------------------------------
       Footprint categories              1            2            3            4            5            6
----------------------------------------------------------------------------------------------------------------
Range of vehicle footprint (sq.         <= 43.0  > 43.0-47.0  > 47.0-52.0  > 52.0-56.5  > 56.5-65.0       > 65.0
 ft.).............................
----------------------------------------------------------------------------------------------------------------

    In future rulemakings, the agency may adjust the footprint 
categories if necessary to better represent the fleets projected for 
the model years covered.
2. Targets
    For each of MYs 2008-2011, the agency established a target average 
fuel economy level for each of the six footprint categories. The CAFE 
standard would be the harmonic production-weighted average of those 
targets. Thus, the average fuel economy of a manufacturer's vehicles in 
any particular footprint category need not meet the target for that 
footprint category. However, to the extent a manufacturer's vehicles 
fall short of the target in any footprint category, that shortfall 
would need to be offset by exceeding the target in one or more other 
footprint categories.
a. Overview of target selection process
    We used a three-phase process for determining targets that 
represent the social optimum for the manufacturers as a group:
    In phase one, we applied technologies to the fleet of each of the 
seven largest manufacturers individually until we reached the point at 
which the marginal cost of adding technology equaled the marginal 
benefit of that technology for that manufacturer. We then placed the 
modified fleets into the categories.\41\
---------------------------------------------------------------------------

    \41\ The seven manufacturers are General Motors, Ford, 
DaimlerChrysler, Toyota, Honda, Hyundai and Nissan. We did not 
include four additional manufacturers that sell light trucks--
Volkswagen, BMW, Porsche and Subaru--because the first three 
historically have paid civil penalties in lieu of selling a 
compliant fleet of light trucks and Subaru's market share is 
considerably smaller than any other company in this market. 
Together, the seven largest manufacturers account for approximately 
95 percent of the market.
    Looking at each manufacturer in this group of manufacturers, 
instead of just the least capable manufacturer as under Unreformed 
CAFE, provides us with a much fuller, more robust, and 
representative, understanding and estimate of industry-wide 
capabilities.
---------------------------------------------------------------------------

    In phase two, for each category, we determined the position of the 
targets relative to each other and a temporary level of the targets by 
calculating the average CAFE of those of the seven largest 
manufacturers that had vehicles in that category.
    In phase three, we determined the proposed level of the targets by 
simultaneously adjusting all of the targets upward or downward by a 
uniform increment of fuel consumption until we reached the level at 
which the marginal cost of adding technology to meet that level equaled 
the marginal benefit of that technology for the seven largest 
manufacturers, as a group.
    This process for determining targets was based on the application 
of technology under the Volpe model. Unlike the Unreformed CAFE system, 
the Stage Analysis was not used.
b. Industry-wide considerations in selecting the targets
    An Unreformed CAFE standard specifies a ``one size fits all'' 
(uniform) level of CAFE that applies to each manufacturer and is set 
with particular regard to the lowest projected level of CAFE among the 
manufacturers that have a significant share of the market. The 
manufacturer with the lowest projected CAFE level has typically been 
referred to as the ``least capable'' manufacturer.
    As noted above, in selecting the Reformed CAFE targets, we looked 
at the seven largest manufacturers, instead of focusing primarily on 
the least capable manufacturer, because under Reformed CAFE, it is 
unnecessary to set standards with particular regard to the capabilities 
of a single manufacturer in order to ensure that the standards are 
technologically feasible and economically practicable for all 
manufacturers with a significant share of the market. This is true both 
fleet wide and within any individual category of vehicles.
    We note that the term ``least capable'' manufacturer is something 
of a misnomer since a manufacturer's projected level of CAFE is 
determined by two factors: the extent to which small or large vehicles 
predominate in the manufacturer's planned production mix, and the type 
and amount of fuel saving technologies that the manufacturer is deemed 
capable of applying. Two manufacturers may apply the same type and 
amount of fuel saving technologies to their fleets, yet have differing 
CAFE levels, if the proportions of small vehicles and large vehicles in 
each manufacturer's fleet are not identical. Thus, a full line 
manufacturer may have a lower overall CAFE than a manufacturer 
concentrating its production in the smaller footprint categories, even 
though the former manufacturer has applied as much (or more) technology 
as the latter manufacturer.
    We have set the Unreformed standards with particular regard to the 
``least capable'' manufacturer in response to the direction in the 
conference report on the CAFE statute language to consider industry-
wide considerations, but not necessarily base the standards on the 
manufacturer with the greatest compliance difficulties. By focusing 
primarily on the least capable manufacturer with a significant share of 
the market, this approach has ensured that the standards are 
technologically feasible and economically practicable for all or most 
of the manufacturers with a significant share of the market. If a 
standard is technologically feasible and economically practicable for 
the ``least capable'' manufacturer, it can be presumed to be so for the 
``more capable'' manufacturers. Together, the manufacturers with a 
significant share of the market represented a very substantial majority 
of the light trucks manufactured and thus were deemed to represent 
``industry-wide considerations.''
    However, this approach limits the amount of fuel saving possible 
under Unreformed CAFE. In the Unreformed system, the agency is 
constrained by the least capable manufacturer to a much larger degree 
than in the Reformed system. Since the Unreformed system is a uniform, 
one-size-fits-all standard, the least capable manufacturer is the one 
that specializes primarily in larger light trucks. Even though these 
vehicles may be efficient, they have low fuel economy. The Unreformed 
standard is set relative to the baseline fuel economy of the least 
capable manufacturer. This means that other manufacturers making 
smaller vehicles are not required to make improvements in order to 
comply because their vehicles get higher fuel economy yet may not be 
very efficient. The Reformed system takes manufacturer fleet mix into 
account and requires everyone to improve fuel economy by mandating 
similar levels of efficiency.
    There is only one way under Unreformed CAFE of requiring the ``more 
capable'' manufacturers with a significant share of the market, i.e., 
those with projected levels of CAFE higher than the level projected for 
the ``least capable'' manufacturer, to apply more fuel saving 
technologies than they

[[Page 51433]]

were already planning to apply. That way would be for the agency to set 
a standard above the capabilities of the ``least capable'' 
manufacturer.
    There is no need under Reformed CAFE to set the standards with 
particular regard to the capabilities of the ``least capable'' 
manufacturer. Indeed, it would often be difficult to identify which 
manufacturer should be deemed the ``least capable'' manufacturer under 
Reformed CAFE. The ``least capable'' manufacturer approach was simply a 
way of implementing the guidance in the conference report in the 
specific context of Unreformed CAFE.
    This proposal would change the context. The very structure of 
Reformed CAFE standards makes it unnecessary to continue to use that 
particular approach in order to be responsive to guidance in the 
conference report. Instead of specifying a common level of CAFE, a 
Reformed CAFE standard specifies a variable level of CAFE that varies 
based on the production mix of each manufacturer. By basing the level 
required for an individual manufacturer on that manufacturer's own mix, 
a Reformed CAFE standard in effect recognizes and accommodates 
differences in production mix between full- and part-line 
manufacturers, and between manufacturers that concentrate on small 
vehicles and those that concentrate on large ones.
    There is an additional reason for ceasing to use the ``least 
capable'' manufacturer approach. There would be relatively limited 
added fuel savings under Reformed CAFE if we continued to use the 
``least capable'' manufacturer approach even though there ceased to be 
a need to use it. (This reasoning is very similar to the reasoning the 
agency used under Unreformed CAFE when we rejected the suggestion by 
Mercedes Benz that we should set the standards at the level achievable 
by very small manufacturers.\42\ In rejecting that suggestion, we cited 
the language from the conference report about considering industry-wide 
considerations and not basing the standards on the manufacturer with 
the greatest difficulties.)
---------------------------------------------------------------------------

    \42\ 61 FR 145, 154; January 3, 1996.
---------------------------------------------------------------------------

c. Relative position of the targets
    The first phase in determining the footprint category targets was 
to determine separately for each manufacturer the overall level of CAFE 
that would maximize the net benefits for that manufacturer's vehicles.
    In this phase, as noted above, we considered the fleet of each of 
the seven largest manufacturers without respect to specific footprint 
category to which each of their vehicles is assigned. To find the 
socially optimal point for each of these seven manufacturers, i.e., the 
point at which the incremental or marginal change in costs equals the 
incremental or marginal change in benefits for that manufacturer, we 
used the Volpe model to compute the total costs and total benefits of 
exceeding the baseline \43\ CAFE by progressively larger increments. We 
began by exceeding the baseline by 0.1 mpg. We then used the model to 
calculate the total costs and total benefits of exceeding the baseline 
by 0.2 mpg. The marginal costs and benefits were then computed as the 
difference between the total costs and total benefits resulting from 
exceeding the baseline by 0.1 mpg and the total costs and benefits 
resulting from exceeding the baseline by 0.2 mpg. We then used the 
Volpe model to calculate the total costs and total benefits of 
exceeding the baseline by 0.3 mpg and computed the difference between 
the total costs and benefits between 0.2 mpg and 0.3 mpg to determine 
the marginal costs and benefits.
---------------------------------------------------------------------------

    \43\ An important distinction needs to be made between the 
baseline and the manufacturer's product plan mpg. As discussed 
earlier, ``baseline'' is defined as the fuel economy that would 
exist absent of the rulemaking, i.e., the model year 2007 standard 
of 22.2 mpg. The 22.2 mpg baseline differs from the mpg level 
reported in a manufacturer's product plan. Some manufacturers report 
fuel economy levels that are below 22.2 mpg. In that case, the cost 
and benefits of going from the product plan mpg to the baseline 
(22.2) mpg are not counted as costs and benefits of the rulemaking, 
as they were already counted in the MY 2005-2007 final rule. Only 
costs and benefits associated with going from baseline mpg to a 
higher standard are counted. It is important to note that since 
technology is applied on a cost effective basis, the most cost 
effective technologies will be used to get a manufacturer from the 
product plan mpg to the baseline mpg.
---------------------------------------------------------------------------

    We continued making similar iterations until marginal costs equaled 
marginal benefits for that manufacturer. Performing this iterative 
process individually for each manufacturer pushed each of the seven 
largest manufacturers to a point at which net benefits are maximized 
for each manufacturer's vehicles.
    In the second phase, we took the results of phase one, i.e., each 
manufacturer's vehicles as modified by the technologies added to them 
in that phase, and placed the vehicles into the categories based on 
their footprints. Then, for each category, we determined the average 
fuel economy of each of the largest seven manufacturers that had 
vehicles in that footprint category. We then calculated a single 
harmonic mean for each footprint category based on the average fuel 
economy of each of the manufacturers selling vehicles in that footprint 
category.
    The level of the single harmonic average or temporary target for 
each footprint category relative to the levels of the temporary targets 
for the other footprint categories defines the ``shape'' of the 
function on which the standard is based. The shape remains unchanged 
throughout the equal increment adjustments in phase three below since 
the absolute differences (on a gallon per mile basis) between the 
targets are unaffected by those adjustments.
    Figure 2 provides an illustrative example. The figure depicts a 
step or ``staircase'' function that steps down, left to right, from the 
highest target (for the footprint category with the vehicles having the 
smallest footprints, i.e., footprint category 1) to the lowest target 
(for the footprint category with the vehicles having the largest 
footprints, i.e., footprint category 6).\44\ For any value of footprint 
within the range of footprints included in a particular category, the 
fuel economy target is the same.
---------------------------------------------------------------------------

    \44\ Although the height of each step in the hypothetical shown 
in the figure is identical, it is unlikely that any two steps would 
be identical in height.

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[[Page 51434]]

[GRAPHIC] [TIFF OMITTED] TP30AU05.004

d. Level of the targets
    For each model year after the transition period of MYs 2008-2010, 
i.e., beginning with MY 2011, the third phase involves determining the 
level of the CAFE targets (and thus the level of the standard) that 
would require the economically efficient amount of effort by the seven 
largest manufacturers, as a group, to improve fuel economy. The process 
for determining the targets that require that amount of overall effort 
resembles, but is not identical to the process used in phase one for 
determining the optimum levels of each individual manufacturer.
    This third phase of adjustment is necessary because while the 
economically efficient level of CAFE for each individual manufacturer 
was determined in phase one, the calculation in phase two of the 
category averages of those manufacturer-specific levels does not 
necessarily result in values that correspond to the optimized level of 
effort for the entire industry, as represented by the seven largest 
manufacturers, as a group. To ensure that the step function is placed 
at the level that results in a standard that is optimal for the seven 
largest manufacturers, as a group, phase three involves the computation 
of total and marginal costs and benefits across the entire industry 
(using the combination of the largest seven manufacturers as a proxy 
for the entire industry), instead of manufacturer by manufacturer.
    We begin phase three where we began phase one, i.e., with each 
manufacturer's baseline CAFE derived, where available, from its product 
plans. For MY 2011, we used the same baselines as we did for MY 2010, 
except for manufacturers for which we had MY 2011 product plans from 
the manufacturer and thus had a MY 2011 baseline. After converting each 
temporary target (determined in phase two) from miles per gallon to 
gallons per mile so that we could adjust the footprint category targets 
by a uniform increment of fuel savings,\45\ we adjusted all six targets 
by an equal increment and then converted them back to miles per gallon. 
We adjusted each category target by an equal increment so that the 
final category target remained relatively close to each manufacturer's 
individual optimal level in that category (i.e., the manufacturer-
specific levels determined in the first phase).
---------------------------------------------------------------------------

    \45\ The relationship between miles per gallon and fuel savings 
is not linear. An increase from 20 mpg to 21 mpg results in a 
greater fuel savings than an increase from 30 mpg to 31 mpg. 
Conversely, the relationship between gallons per mile and fuel 
savings is linear. A change from 0.10 gallons per mile to 0.09 
gallons per mile provides the same fuel savings as going from 0.20 
gallons per mile to 0.19 gallons per mile.
---------------------------------------------------------------------------

    The direction of these adjustments can be either upward or 
downward, depending on the marginal costs and benefits. An example of 
the process of adjusting the targets, while maintaining the shape of 
the step function, is illustrated in Figure 3:

[[Page 51435]]

[GRAPHIC] [TIFF OMITTED] TP30AU05.005

    Using the Volpe model, we applied to each manufacturer's baseline 
the technologies necessary for that manufacturer to reach the adjusted 
targets. Based on each manufacturer's baseline, we then calculated 
total costs and benefits for each manufacturer. Then we added the costs 
for each of the seven manufacturers together. Likewise, we added the 
benefits together.
    We then adjusted each target a second time by the same increment. 
Again we added the technologies to the baselines and again calculated 
the total costs and benefits for the seven manufacturers. Then we 
compared those totals (for the seven manufacturers) for the second 
adjusted level to the totals for reaching the first adjusted level, 
yielding the marginal costs and benefits of the adjustment. After each 
additional adjustment in the targets, we determined marginal costs and 
benefits. We stopped adjusting the targets when we reached the point 
where marginal costs equaled marginal benefits for the industry as a 
whole. This is the point at which industry-wide net benefits are 
maximized. The required levels of CAFE that are determined for each 
manufacturer based on this final adjustment of targets in phase three 
differ from the levels of CAFE determined for each individual 
manufacturer in phase one. The difference ranges from 1.2 mpg higher 
for one manufacturer to 0.8 mpg lower for another manufacturer.
    We are proposing this approach because we believe it can achieve 
the maximum level of technologically feasible and economically 
practicable fuel savings. We recognize that we are premising our 
preliminary assessment of economic practicability on finding the level 
of optimal economic efficiency. We also recognize that the agency in 
the past has expressed its belief that the statutory consideration of 
economic practicability differs from, but does not preclude 
consideration of, cost/benefit analysis. (See, e.g., June 30, 1977; 42 
FR 33534, at 33536-7)
    We note, however, that the cost/benefit analyses conducted today 
(especially in light of the more recent addition of an uncertainty 
analysis required by OMB Circular A-4) are substantially more robust 
than those conducted in decades past and provide a more substantial 
basis for consideration of economic practicability. We also believe 
that the structure of the proposed Reformed CAFE standard, which 
respects the mix the manufacturer is able to sell, but demands 
reasonable fuel economy increases for all vehicle sizes, reduces the 
need to focus on more company-specific and short-term economic 
considerations because it provides more flexibility for the CAFE 
program to respond to changing economic and market conditions.
    We note further that the regulatory philosophy set forth in 
Executive Order 12866, ``Regulatory Planning and Review,'' is that a 
rulemaking agency should set its regulatory requirements at the level 
that maximizes net benefits unless its statute prohibits doing so. EPCA 
neither requires nor prohibits the setting of standards at the level at 
which net benefits are maximized.
    The agency did identify and consider a variety of benefits and 
costs that could not be monetized. On the benefit side, for example, 
there is a significant reduction in carbon dioxide emissions. On the 
cost side, for example, there is a risk of adverse safety impacts from 
downweighting. Overall, the agency determined that there is no 
compelling evidence that these unmonetized benefits and costs would, 
taken together, alter its assessment of the level of the standard for 
MY 2011 that would maximize net benefits. Thus, the agency determined 
the stringency of that standard on the basis of monetized net benefits.
    EPCA does, however, require that the maximum feasible level be 
determined after considering economic practicability. Thus, it is 
possible that, under certain circumstances, NHTSA might be required to 
set CAFE standards below the level at which net benefits are maximized 
if considerations of economic practicability make it necessary or 
prudent to set standards at a lower level. The agency seeks comment on 
the advisability and potential form of any supplementary methodological 
approach--beyond economic efficiency--to ensuring that Reformed CAFE 
standards are set at the level capable of achieving the maximum 
feasible fuel savings, as determined after consideration of the 
statutory and other relevant factors.
    MYs 2008-2010. In each of the transition years, we did not adjust 
the targets to the optimal level. Instead, we adjusted the footprint 
category targets in equal increments until the total industry costs 
under the Reformed program approximately equaled the total industry 
costs under the Unreformed program. Cost equalization has several 
important advantages. Since the Unreformed standards were judged to be 
economically practicable and since the

[[Page 51436]]

Reformed standards spread the cost burden across the industry to a 
greater extent, equalizing the costs between the two systems ensures 
that the Reformed standards are within the realm of economic 
practicability.\46\ Also, cost equalization promotes an orderly and 
effective transition to the Reformed system by minimizing the cost 
differences between the two choices.
---------------------------------------------------------------------------

    \46\ We equalized aggregate industry costs between Reformed and 
Unreformed CAFE. The costs are not borne by manufacturers in the 
same way and costs for individual manufacturers may differ between 
the two systems.
---------------------------------------------------------------------------

3. Standards and required CAFE levels for individual manufacturers
    The Reformed CAFE standard is an equation for calculating 
production-weighted, harmonically-averaged fuel economy in which the 
footprint category targets are constants, total production and 
footprint category production are variables, and the required level of 
CAFE must be solved. The equation is separately solved for each 
individual manufacturer, using its total production and its production 
in each footprint category. The solution or answer is the 
manufacturer's required level of CAFE.\47\
---------------------------------------------------------------------------

    \47\ In response to the agency's December 1979 proposal of light 
truck standards for model years 1983-85, the Regulatory Analysis 
Review Group (RARG) suggested a similar approach in March 1980: 
``setting fuel economy targets for different categories of trucks, 
and using a pre-determined fleet mix for each manufacturer to turn 
these targets into a composite standard.'' See Report of the 
Regulatory Analysis Review Group, Council on Wage and Price 
Stability, March 31, 1980, submitted as attachment to letter from R. 
Robert Russell, Director of the Council, to Joan Claybrook, 
Administrator, NHTSA (FE-78-01-N01-175). The RARG was established by 
President Carter to review up to 10 of the most important 
regulations each year classified as significant under Executive 
Order 12044. It was chaired by the Council of Economic Advisors 
(CEA) and was composed of representatives of OMB and the economic 
and regulatory agencies. It relied on the staff of Council on Wage 
and Price Stability and the CEA to develop evaluations of agency 
regulations and the associated economic analyses and to place these 
analyses in the public record of the agency proposing to issue the 
regulation.
---------------------------------------------------------------------------

    The required level of CAFE for a manufacturer for a model year 
would be the production-weighted harmonic average fuel economy of that 
manufacturer's entire product line for that model year, as determined 
by inserting the manufacturer's total production and production in each 
footprint category into the formula. Each manufacturer would be subject 
to the same fuel economy targets for the same footprint categories and 
all manufacturers would be required to meet the level of CAFE 
calculated for it under the same formula. Individual manufacturers 
would face different required levels of CAFE only to the extent that 
they produced different mixes of vehicle models. In this respect, the 
proposal would be no different than if the agency established multiple 
classes. Under a multiple class system, manufacturers would implicitly 
have different requirements at the fleet level as a result of 
differences in their fleet mixes.
    The required level would then be compared to the production-
weighted harmonic average fuel economy of a manufacturer's entire 
product line, based on the actual fuel economy levels achieved by each 
model line. If the value based on the actual fuel economy levels were 
at least equal to the required level of average fuel economy, then a 
manufacturer would be in compliance. If it were greater than that 
level, the manufacturer would earn credits usable in any of the three 
preceding or following model years.
    More specifically, the manner in which a manufacturer's required 
overall CAFE for a model year is computed is similar to the way in 
which a manufacturer's actual CAFE for a model year is calculated. The 
required level is computed on the basis of the number of vehicles in 
each footprint category and the footprint category targets as follows:
[GRAPHIC] [TIFF OMITTED] TP30AU05.006

    This formula can be restated more compactly as follows:
    Required CAFE Level =
    [GRAPHIC] [TIFF OMITTED] TP30AU05.007
    
(Required CAFE level sum formula)

    N is the total number (sum) of light trucks produced by a 
manufacturer,
    b<INF>i</INF> is the number (sum) of light trucks produced by that 
manufacturer in the i-th light truck footprint category, and
    Target<INF>i</INF> is fuel economy target of the i-th footprint 
category.
    The required level is then compared to the CAFE that the 
manufacturer actually achieves in the model year in question:
    Actual CAFE =
    [GRAPHIC] [TIFF OMITTED] TP30AU05.008
    
    N is the total number (sum) of light trucks produced by the 
manufacturer,
    n<INF>j</INF> is the number (sum) of the j-th model light trucks 
produced by the manufacturer,
    mpg<INF>j</INF> is the fuel economy of the j-th model light truck, 
and
    m is the total number of light truck models produced.
    A manufacturer is in compliance if the actual CAFE meets or exceeds 
the required CAFE.
    The method of assessing compliance under Reformed CAFE can be 
further explained using an illustrative example of a manufacturer that 
produces four models in two footprint categories with targets assumed 
for the purposes of the example shown in Table 3:

         Table 3.--Illustrative Example of Method of Assessing Compliance Under a Step Function Approach
----------------------------------------------------------------------------------------------------------------
                                                                                                      Footprint
                                                     Fuel      Production   Footprint    Footprint     category
                     Model                         economy      (units)     (sq. ft.)     category      target
                                                    (mpg)                                               (mpg)
----------------------------------------------------------------------------------------------------------------
A..............................................           27      100,000           43            1         27.3
B..............................................           24      100,000           42            1         27.3
C..............................................           22      100,000           52            4         22.9
D..............................................           19      100,000           54            4         22.9
----------------------------------------------------------------------------------------------------------------


[[Page 51437]]

    Under Reformed CAFE, the manufacturer would be required to achieve 
an average fuel economy level of:
[GRAPHIC] [TIFF OMITTED] TP30AU05.009

    This fuel economy figure would be compared with the manufacturer's 
actual CAFE for its entire fleet, i.e., the production-weighted 
harmonic mean fuel economy level for four models in its fleet:
[GRAPHIC] [TIFF OMITTED] TP30AU05.010

    In the illustrative example, the manufacturer's actual CAFE (22.6 
mpg) is less than the required level (24.9 mpg), indicating that the 
manufacturer is not in compliance.
4. Why this approach to reform and not another?
a. Step-function vs. continuous function
    While manufacturers generally recognized the potential advantages 
of an attribute-based system, several commenters (including 
manufacturers) on the 2003 ANPRM stated that a continuous function 
based on one or more vehicle attributes would be preferable to a multi-
class attribute-based system. Commenters stated that a system based on 
a continuous function would remove the ``edge effects'' \48\ associated 
with a multi-class system, that determination of the maximum feasible 
standard for a continuous function would prove simpler than determining 
maximum feasible standards for a series of classes, and that a 
continuous function could be structured to eliminate concern regarding 
the agency's authority to permit credit transfer between classes.\49\
---------------------------------------------------------------------------

    \48\ In the context of products placed in a multi-category or 
multi-class system for regulatory purposes, the term ``edge 
effects'' refers to the incentive for the manufacturers of those 
products to modify them, particularly the ones located near the 
boundary of an adjacent category or class, i.e., an ``edge,'' so as 
to move them into a different category or class where they will 
receive more favorable regulatory treatment.
    \49\ Under a continuous function based on footprint, any 
increase (or decrease) in footprint would result in a decrease (or 
increase) in the fuel economy target. Under a step function based on 
footprint, the fuel economy target does not change continuously in 
response to changes in footprint. The target would increase only at 
discrete points over the range of footprint. Under this proposal, 
the targets increase only at the boundaries between adjacent 
footprint categories.
---------------------------------------------------------------------------

    The continuous function approach uses a statistically estimated 
relationship between vehicle size and fuel economy to determine the 
overall required level for each manufacturer. Compliance is calculated 
in virtually the same manner. In the step-function approach, the 
denominator of the required overall target is the sum of the number of 
vehicles in each category divided by the required fuel economy of the 
category. In the continuous function approach, the denominator of the 
required overall target is the sum of the number of vehicle models 
divided by the required fuel economy for that model derived from the 
function.
    Figure 4 shows an illustrative example of a continuous function.

[[Page 51438]]

[GRAPHIC] [TIFF OMITTED] TP30AU05.011

    The illustrative continuous function shown in Error! Reference 
source not found.4 is defined by the following mathematical function:
[GRAPHIC] [TIFF OMITTED] TP30AU05.012

    In the illustrative function,

    A = 20.0 mpg
    B = 12.9 mpg
    C = 15.3 square feet

    The mechanics of defining the continuous function would be similar 
to the procedure used to develop the proposed MY2011 standard. The 
iterative process described above in ``phase one'' would be used to add 
fuel saving technologies to the baseline technologies for each 
manufacturer's vehicles. Data points representing each vehicle's size 
and fuel economy (as improved through the phase one process) would then 
be plotted on a graph. Using statistical techniques, a function would 
then be fitted through the data to obtain the continuous function. The 
last step would be the same as described above in ``phase three'' for 
the step function, i.e., the function would be adjusted (raised or 
lowered) until industry-wide net benefits are maximized, in the case of 
MY 2011, or until industry-wide costs are equal to those of the 
Unreformed standards, in the case of MYs 2008-2010.
    Determination of the required level of CAFE (and of compliance with 
that level) is accomplished under a continuous function system in 
exactly the same fashion as under the step function system, except that 
there are vehicle model-specific targets, instead of category targets. 
For each vehicle model, the function shown above in Figure 4 is used to 
define a target that depends on footprint. Examples are shown in the 
last column of Table 4.

      Table 4.--Ilustrative Example of Method of Assessing Compliance Under a Continuous Function Approach
----------------------------------------------------------------------------------------------------------------
                                                                                                       Vehicle
                                                                  Fuel                                  Model
                            Model                               Economy     Production   Footprint     Specific
                                                                 (mpg)       (units)     (sq. ft.)      Target
                                                                                                        (mpg)
----------------------------------------------------------------------------------------------------------------
A...........................................................           27      100,000           43         26.8
B...........................................................           24      100,000           42         27.4
C...........................................................           22      100,000           52         23.3
D...........................................................           19      100,000           54         22.8
----------------------------------------------------------------------------------------------------------------

    Under Reformed CAFE using this illustrative continuous function, 
the manufacturer would be required to achieve a CAFE of:

[[Page 51439]]

[GRAPHIC] [TIFF OMITTED] TP30AU05.013

    The manufacturer's required CAFE would be compared with the 
manufacturer's actual CAFE, i.e., the production-weighted harmonic mean 
fuel economy level for four models in its fleet:
[GRAPHIC] [TIFF OMITTED] TP30AU05.014

    In the illustrative example in Figure 4, the manufacturer's actual 
CAFE (22.6 mpg) is less than the required level (24.9 mpg), indicating 
that the manufacturer is not in compliance.
    A continuous function and a step function can have similar 
properties. As the number of steps in a step function increases, the 
difference between the step function and a continuous function 
decreases. If the number of steps becomes large enough, a graph of the 
step function approaches being a smooth straight or curved line. In 
other words, the step function approaches being a continuous function 
as the number of steps becomes large.
    If the step function is composed of only a few categories, then the 
incentive to upsize may be strong because the rewards for doing so will 
be significant. The present car/light truck system is a good example. 
This is a system with basically two steps and the burden of regulatory 
compliance decreases if a vehicle can be designed to be classified as a 
light truck instead of as a passenger car.
    The same is true for mix shifting. When the number of categories is 
large, the rewards for mix shifting are limited. This is because the 
difference in fuel economy targets between two adjacent categories is 
small and would diminish the credit that could be earned and used to 
subsidize vehicles in other categories. In contrast, in the Unreformed 
CAFE system with a single step from cars to light trucks, the rewards--
in terms of CAFE compliance--for mix shifting may be significant. A 
small SUV can be used to subsidize a larger vehicle with lower fuel 
economy. In the Reformed system, the rewards of mix shifting are 
considerably less.
    DaimlerChrysler, Ford, General Motors, Subaru, and Toyota argued 
that the creation of multiple classes might encourage some 
manufacturers to increase weight (or size) or to make other product 
changes not desired by the market solely to optimize compliance with 
the regulatory structure, resulting in edge effects. Environmental 
Defense stated that product offerings would concentrate at points that 
minimize the price of the design constraint imposed by the CAFE 
regulations. Manufacturers argued that, under a continuous function 
scheme, any change to the measured attribute would result in a vehicle 
being subjected to a different standard. They then stated that because 
each vehicle model would be subjected to a different standard, 
manufacturers would be limited in their ability to redesign vehicles in 
order to subject a vehicle to a less stringent standard. Manufacturers 
further stated that a continuous weight based function would allow a 
manufacturer to align its products more with the market.
    Conversely, manufacturers stated that, as the number of classes 
increased under a multi-class system, the ``edge effects'' of the 
system would be amplified because more light trucks would be adjacent 
to a boundary between adjacent classes. Manufacturers argued that the 
likelihood of redesign in order to subject a vehicle to a less 
stringent standard would increase. Environmental Defense stated that 
even using a continuous or piecewise linear function would not 
completely avoid the problem of manufacturers shifting vehicles to a 
point with a less stringent standard to minimize compliance costs.
    We note that most of the comments compared a continuous function to 
a simple multi-class structure approach, as opposed to the multiple-
category approach we are proposing. We believe a step function is 
easier for the public to understand than a continuous function, and 
would facilitate product planning. We also believe our proposed 
approach minimizes the potential disadvantages articulated by the 
commenters. Specifically, both the number and the location of the 
boundaries for the footprint categories are designed to minimize any 
edge effects.
    NHTSA remains interested in the concept of a continuous function 
standard. This concept was explored both by NAS in its study (chapter 5 
and attachment 5A) and by NHTSA in its 2003 ANPRM on CAFE reform. Now 
that the agency has refined its potential approach to reforming light 
truck CAFE, the agency believes that would be useful to seek more 
detailed comments and analyses regarding the relative advantages of 
step function standards and continuous function standards.
b. Categories and targets vs. classes and standards
    We considered an approach under which we would establish each 
footprint category as a separate class with its own standard. Thus, for 
each model year under reform, there would have been six different 
standards, depending upon the footprint size of the vehicle. However, 
there were two primary shortcomings that led us to evaluate other 
approaches for our Reformed CAFE.
    First, transfers of credits earned in a footprint class in a model 
year to a different footprint class in a different model year would 
have required a complicated process of adjustments to ensure that fuel 
savings are maintained.\50\ This is because credits earned under the 
multiple classes and standards approach would have differing energy 
value. Credits earned for exceeding the higher fuel economy standard 
for the smaller footprint vehicles would have less energy value than 
exceeding the lower fuel economy standard for the larger footprint 
vehicles by an equal increment. In fact, if credits were generated in a 
class with relatively high CAFE standards and transferred to another 
class with relatively low CAFE standards, total fuel use by all 
vehicles in the two classes might increase. That

[[Page 51440]]

result would undermine the entire reform effort by producing lessened 
energy security.
---------------------------------------------------------------------------

    \50\ The 2003 ANPRM on reforming CAFE noted that the agency had 
previously concluded that the credits earned in one class could not 
be transferred to another class, but re-examined the legislative 
history of the CAFE statute and called that interpretation into 
question.
---------------------------------------------------------------------------

    One can calculate the appropriate adjustments for such a credit 
transfer system to ensure no loss of fuel savings. This would ensure 
equivalent energy savings. However, instituting a complicated new 
process of credit adjustments would detract from the benefits of 
reforming the CAFE program by making it more difficult to plan for and 
determine compliance. Further, taking this step would not cure another 
problem associated with credits. Credits earned by exceeding a standard 
in a model year may be used in any of the three model years preceding 
that model year and, to the extent not so used, in any of the three 
model years following that model year (49 U.S.C. 32903(a)). They may 
not, however, be used within the model year in which they were earned 
(Ibid.).
    Second, establishing separate standards for each footprint category 
would needlessly restrict manufacturer flexibility in complying with 
the CAFE program. A requirement for manufacturers to comply with six 
separate standards, combined with the inability either to apply credits 
within the same model year or to average performance across the classes 
during a model year, could increase costs without saving fuel. This 
would happen by forcing the use of technologies that might not be cost-
effective. Further, Congressional dialogue when considering the 
enactment of the EPCA and amendments to it has repeatedly expressed the 
view that manufacturers should have flexibility in complying with a 
CAFE program so that they can ensure fuel savings, while still 
responding to other external factors.
    Our proposal avoids these shortcomings. Instead of establishing six 
distinct standards for each footprint category, our proposal 
establishes six targets and applies them through a harmonically 
weighted formula to derive regulatory obligations. Credits are earned 
and applied under our proposal in the same way as they are earned and 
applied under Unreformed CAFE and in a manner fully consistent with the 
statute. Thus, no complicated new provisions for credits are needed. 
Further, the use of targets instead of standards allows us to retain 
the benefits of a harmonically weighted fleet average for compliance. 
This ensures that manufacturers must provide the requisite fuel economy 
in their light truck fleet, while giving the manufacturers the ability 
to average performance across their entire fleet and thus the 
flexibility to provide that level of fuel economy in the most 
appropriate manner.
c. Footprint vs. shadow or weight
    In the 2003 ANPRM, we posited the possibility of establishing 
classes of light trucks defined by various attributes. We focused our 
discussion on vehicle weight and vehicle ``shadow'' (vehicle length x 
width), but invited additional ideas.
    Recognizing the links between weight and vehicle safety, the 
Alliance, Daimler Chrysler, Ford, General Motors, Toyota, and Nissan 
expressed a preference for using weight in an attribute-based system. 
They also asserted that weight appears to have the best correlation to 
fuel economy, and that weight is currently used in fuel economy 
testing. Further, a weight-based system would distribute the burden of 
reducing fuel consumption equally to all manufacturers, preventing the 
systemic downsizing of vehicles and the associated detriment to safety.
    Honda and other commenters identified other benefits of a weight 
based system: weight based systems are less complex, have more readily 
available data, and are conducive to grouping all light trucks together 
in a single system. However, Honda stated that weight based systems 
have potentially severe consequences on light truck safety design, are 
more susceptible to erosion of fuel economy, and offer less potential 
for cost-effective fuel economy gains.
    Other manufacturers noted the weaknesses in a weight-based system. 
DaimlerChrysler commented that a weight-based system would discourage 
investments in weight reduction for material substitution, and result 
in lost opportunities to improve real-world fuel economy. Volkswagen 
believes a weight-based system will reduce the regulatory incentive to 
reduce vehicle weight.
    Honda considered the most constructive alternative to weight to be 
a length x width (shadow) attribute-based system. Honda stated that 
such a system would provide proper safety incentives. Honda and Rocky 
Mountain Institute (RMI) stated that a size-based system would likely 
be subject to less gaming than a weight-based system. As discussed 
above, Honda determined that changes in size are readily apparent to 
prospective buyers and change how they perceive a vehicle 
competitively, while weight can be changed substantially without most 
customers being aware of the change. Honda stated that when purchasing 
vehicles, customers typically consider functional characteristics that 
are more related to size and utility (such as passenger and hauling 
capacity), rather than weight. Other commenters such as Environmental 
Defense and Natural Resource Defense Council stated that if the agency 
were to pursue attribute-based system, a size-based system would be 
preferable to a weight-based system.
    Toyota and Ford questioned the correlation between size and fuel 
economy. Ford stated that there is a very poor correlation, unlike the 
correlation with weight. Ford stated that as the mass of a vehicle 
increases, more energy is required to move it, which results in 
increased fuel consumption. However, Ford continued, the relationship 
between size and fuel economy is not as clear; increases in size do not 
necessarily require increased fuel consumption because a larger sized 
vehicle can have a similar weight to a smaller sized vehicle. Further, 
General Motors asserted that weight is the primary factor affecting 
safety; therefore, NHTSA should not adopt a size-based system.
    The agency recognizes that size and/or weight creep are legitimate 
concerns about an attribute-based class system. There is the potential 
under such a system for manufacturers to design vehicles toward the 
larger or heavier categories that may have lower compliance 
obligations.
    We have decided against premising our proposal on vehicle weight or 
vehicle shadow, and instead decided to premise it on vehicle footprint. 
We share commenters' concern that vehicle weight could be tailored more 
easily than size to move vehicles into heavier weight categories with 
lower CAFE targets. Weight could be added to a vehicle near the edge of 
a category with minimal impact on design or performance at relatively 
low cost. Similarly, vehicle shadow (in a size based system) could be 
tailored for the same purpose by the simple addition of bumpers or 
other vehicle lengthening features. As a result, both of those 
attributes, if used as the foundation of our program, could fail to 
achieve our goals of enhancing fuel economy and safety with a Reformed 
CAFE program.
    We believe that vehicle footprint is a better vehicle attribute and 
an appropriate foundation for reforming the CAFE program to advance 
energy security and safety. Basing categories on footprint permits 
grouping of vehicles in similar market segments, thus avoiding grouping 
light trucks designed to carry large payloads or a large number of 
passengers together with light trucks designed to carry smaller 
payloads or a smaller number of passengers.

[[Page 51441]]

    Vehicle footprint is more integral to a vehicle's design than 
either vehicle weight or shadow and cannot easily be altered between 
model years in order to move a vehicle into a different category with a 
lower fuel economy target. Footprint is dictated by the vehicle 
platform, which is typically used for a multi-year model life cycle. 
Short-term changes to a vehicle's platform would be expensive and 
difficult to accomplish without disrupting multi-year product planning. 
In some cases, several models share a common platform, thus adding to 
the cost and difficulty and therefore unlikelihood of short-term 
changes.
    Moreover, as Honda commented, the ability to change footprint would 
be subject to the limits imposed by consumer acceptance and preference. 
Changes in footprint result in perceptible changes in performance and 
design (e.g., a longer and/or wider vehicle). The responsiveness of 
consumers to those changes is pronounced, as is evidenced by the fact 
that manufacturers market size variant models, e.g., pick-up trucks in 
long and short beds, and light truck models in longer wheelbase 
versions. Changes in footprint solely for the purpose of moving a 
vehicle to a footprint category with a less stringent fuel economy 
target could adversely impact consumer demand for that product and/or 
increase cost to the manufacturer. These considerations regarding 
footprint allow us to establish footprint category target levels and to 
design our Reformed CAFE program with more certainty that we can 
achieve our objectives.
    We also believe that use of the vehicle footprint attribute helps 
us achieve greater fuel economy without having a potential negative 
impact on safety. While past analytic work \51\ focused on the 
relationship between vehicle weight and safety, weight was understood 
to encompass a constellation of size-related factors, not just weight. 
More recent studies \52\ have begun to consider whether the 
relationship between vehicle size and safety differs. To the extent 
that mass reduction has historically been associated with reductions in 
many other size attributes and given the construct of the current 
fleet, we believe that the relationship between size or weight (on the 
one hand) and safety (on the other) has been similar, except for 
rollover risks.
---------------------------------------------------------------------------

    \51\ See, Kahane (2003) and Van Auken, R.M. and J.W. Zellner, An 
Assessment of the Effects of Vehicle Weight on Fatality Risk in 
Model Year 1985-98 Passenger Cars and 1985-97 Light Trucks, Dynamic 
Research, Inc. February 2002. Docket No. NHTSA 2003-16318-2.
    \52\ See, Van Auken, R.M. and J.W. Zellner, Supplemental Results 
on the Independent Effects of Curb Weight, Wheelbase, and Track on 
Fatality Risk in 1985-1997 Model Year LTVs, Dynamic Research, Inc. 
May 2005. Docket No. NHTSA 2003-16318-17.
---------------------------------------------------------------------------

    Developing CAFE standards based on vehicle footprint could 
encourage compliance strategies that would decrease rollover risk. 
Manufacturers would be encouraged to maintain track width because 
reducing it could subject the vehicle to a more stringent fuel economy 
target. Maintaining track width would potentially allow some degree of 
weight reduction without a decrease in overall safety. Moreover, by 
setting fuel economy targets for small footprint light trucks that 
approach (or exceeds) 27.5 mpg, the agency would provide little 
incentive, or even a disincentive, to design vehicles to be classified 
as light trucks in order to comply or offset the fuel economy of larger 
light trucks.
    The influence of Reformed CAFE on track width would be reinforced 
by our NCAP rollover ratings. Track width is one of the elements of our 
Static Stability Factor, which constitutes a significant part of our 
NCAP rollover ratings and which correlates closely with real world 
rollover risk. The rollover NCAP program (as well as real world 
rollover risk) would reinforce Reformed CAFE by a separate disincentive 
to decrease track width.
    Overall, use of vehicle footprint would be ``weight neutral'' and 
thus would not exacerbate the vehicle compatibility problem. A 
footprint-based system would not encourage manufacturers to add weight 
to move vehicles to a higher footprint category. Nor would the system 
penalize manufacturers for making limited weight reductions. By using 
vehicle footprint in lieu of a weight based metric, we intend to 
facilitate the use of promising lightweight materials that, although 
perhaps not cost-effective in mass production today, may ultimately 
achieve wider use in the fleet, become less expensive, and enhance both 
vehicle safety and fuel economy.\53\ In Reformed CAFE, lightweight 
materials can be incorporated into vehicle design without moving a 
vehicle into a footprint category with a more stringent average fuel 
economy target.
---------------------------------------------------------------------------

    \53\ The Aluminum Association commented that using aluminum to 
decrease a vehicle's weight by 10 percent could improve its fuel 
economy by 5-8 percent. The commenter noted that the Honda Insight, 
an all aluminum vehicle, is 40 percent lighter than a comparable 
steel vehicle. It also provided data to demonstrate that all 
aluminum vehicles have comparable performance in frontal barrier 
crash tests as comparable steel vehicles. See comments provided by 
the Aluminum Association, Inc. (Docket No. 2003-16128-1120, pp. 5 
and 12).
---------------------------------------------------------------------------

    The agency is aware that basing the Reformed CAFE proposal solely 
on footprint can be criticized on the grounds that it does not fully 
account for other vehicle attributes that are valuable to consumers and 
influence fuel economy. For example, vehicles A and B may have equal 
footprint, but vehicle A may be designed to have superior towing and/or 
cargo-hauling capabilities than vehicle B.\54\ Vehicle A may therefore 
have lower fuel economy than vehicle B because it is designed to 
provide greater utility for consumers. For vehicle manufacturers that 
have a product mix weighted toward vehicles with superior towing and/or 
cargo-hauling capabilities, even Reformed CAFE, based on a single size 
attribute, may not provide a fully equitable competitive environment. 
The agency is seeking comment on whether Reformed CAFE should be based 
on vehicle size (footprint) alone, or whether other attributes, such as 
towing capability and/or cargo hauling capability, should be 
considered. If any commenters advocate one or more additional 
attributes, the agency requests those commenters to supply a specific, 
objective measure for each attribute that is accepted within the 
industry and that can be applied to the full range of light-truck 
products.
---------------------------------------------------------------------------

    \54\ We noted the importance of these capabilities in the ANPRM:
    The market suggests that while some light trucks may be used 
primarily to transport passengers, their ``peak use or value'' 
capability (towing boats, hauling heavy loads, etc.) may be a 
critical factor in the purchase decision. In other words, a consumer 
may require substantial towing capability only periodically, but 
nevertheless may base his purchasing decision on a vehicle's ability 
to meet that peak need rather than his daily needs. The motor 
vehicle market has thus developed a demand for vehicles capable of 
cross-servicing traditional needs--that is, for vehicles capable of 
transporting people and cargo, for vehicles capable of servicing 
personal transportation needs as well as recreational and commercial 
ones, and for vehicles capable of substantial performance, even if 
such performance is only needed periodically.
    68 FR 74908, at 74913.
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d. Reformed standard vs. Reformed standard plus backstop
    Several commenters argued that a backstop would be needed under 
attribute-based Reformed CAFE. In the context of Reformed CAFE, NHTSA 
understands the term ``backstop'' to mean an absolute minimum CAFE 
requirement that would apply to a manufacturer's overall fleet if the 
level of average fuel economy otherwise required of a manufacturer 
under a Reformed CAFE standard fell below the level of that absolute 
minimum requirement. Such a requirement would essentially be the same 
as an Unreformed CAFE standard. Stated another way, the Reformed 
standard with a backstop would require

[[Page 51442]]

compliance with the greater of the following fleet wide requirements: 
average fuel economy level calculated under Reformed standard or an 
equal cost Unreformed CAFE standard.
    These commenters suggested that unless a backstop in the form of an 
absolute fleet wide CAFE standard were established to supplement 
attribute-based Reformed CAFE standards based on size or weight, there 
might be an overall loss in fleet economy resulting from mix shifts or 
from upward weight or size ``creep.'' For example, manufacturers might 
redesign some of their vehicles to make them larger or heavier or they 
might shift their production mix so as to increase their production of 
vehicles subject to less stringent standards).
    Environmental groups such as the NRDC and Environmental Defense 
urged the agency to adopt a backstop as a part of any proposed reform. 
These commenters suggested that a backstop would provide a guarantee 
against any loss of fuel economy due to increase in vehicle weight or 
size.
    While some vehicle manufacturers noted some commenters were likely 
to suggest that a backstop might be needed to prevent erosion of 
overall fuel economy, the manufacturers opposed the concept. 
DaimlerChrysler and General Motors stated that these commenters might 
argue that a backstop would be necessary to ensure no loss in overall 
economy. These manufacturers noted that a backstop would have disparate 
impacts on manufacturers because of differences in their fleet mixes, 
and that a backstop would lead to downweighting under a weight based 
system. Ford opposed a backstop, stating that the ``assumption of 
wholesale ``upsizing'' or ``upweighting'' ``is erroneous.'' General 
Motors also said that the risk of such upsizing or upweighting was 
overstated. Manufacturers expressed concern that a backstop would 
unduly increase the complexity of the CAFE program by applying 
essentially two different types of standards. General Motors argued 
that establishing separate class standards as well as a fleet wide 
standard would be contrary to legislative scheme established under the 
Energy Policy and Conservation Act in which a vehicle is placed in a 
single compliance fleet.
    NHTSA is not proposing a backstop for the following reasons. First, 
manufacturers cannot increase the size or weight of their vehicles or 
introduce new, larger vehicles without regard to consumer demand. They 
can make those changes only to the extent that there is market 
acceptance of them. Absent a reliable indication of likely market 
acceptance, manufacturers would be unlikely to assume the risks 
involved in taking these actions. As Toyota noted, ``Manufacturers must 
still be cognizant of other aspects of vehicle design, such as 
acceleration, handling, cornering, and other factors. Adding weight 
would be counterproductive to many of the attributes, and thus careful 
consideration would be given by manufacturers before simply adding 
weight for no otherwise apparent reason.''
    Further, NHTSA believes that given the cost and difficulty of 
increasing vehicle size, the agency's choice of footprint, instead of 
weight or shadow, as the attribute used in Reformed CAFE would 
significantly limit the possibility that manufacturers would increase 
vehicle size beyond the extent sought by consumers. Increasing vehicle 
footprint, like increasing vehicle weight, would require addressing the 
other aspects of vehicle design mentioned in Toyota's comment.
    Second, establishing a backstop would not preclude future mix 
shifts and design changes. The comments urging the establishment of a 
backstop appear to be premised on a misconception of how CAFE standards 
have been set and adjusted over the life of the CAFE program. The 
Unreformed CAFE program has not sought, and does not seek, to ignore 
consumer demand and freeze the mix or design of vehicles. The agency 
has set Unreformed CAFE standards with particular regard to the least 
capable manufacturer's own projections about its mix and vehicle 
designs in the years to which the standards will apply `` adjusted 
according to the agency's determinations of available cost-effective, 
fuel-efficient technologies that could be added to that company's 
fleet. Thus, the standards are market based, set in a fashion that 
accommodates that manufacturer's judgment, adjusted by the agency for 
fuel economy improvements, as to how consumer demand will change 
between the time of a light truck CAFE rulemaking and those future 
model years.
    Establishing a backstop would also not preclude the growth in 
vehicle weight as a result of the manufacturers' continued introduction 
of new mandatory and voluntary safety features and non-safety features 
that would enhance vehicle utility and consumer choice. In fact, the 
agency has consciously set Unreformed CAFE standards in the past so as 
to accommodate any anticipated installation of mandatory and voluntary 
safety features, as required by statute. Plans for the installation of 
these features and items of equipment are reflected in the 
manufacturers' baselines for the purpose of determining their future 
capability to improve fuel economy. To the extent that new safety 
requirements are implemented, and to the extent there is consumer 
demand for voluntarily installed equipment, average weight may increase 
further. The implementation of Reformed CAFE would not and should not 
change the practice of accommodating those manufacturer actions.
    In addition, the proponents of the backstop concept erroneously 
assume that unreformed CAFE does not change when good faith compliance 
efforts fall short. When manufacturer plans for complying with 
established CAFE standards have proven insufficient because of factors 
outside the control of the industry, the agency has revisited both 
light truck and passenger car CAFE standards and adjusted them to 
reflect more up-to-date, corrected projections of mix. NHTSA's actions 
in this regard were twice reviewed and upheld by the U.S. Circuit Court 
of Appeals for the District of Columbia, once with respect to light 
trucks, and the other time with respect to passenger cars. See, CAS, 
793 F.2d 1322; Public Citizen, 848 F.2d 256.
    Third, the agency plans to periodically adjust the location of the 
boundaries between footprint categories. Since the agency is likely to 
adjust the boundaries each time a new round of CAFE standards is 
established, there would be limited advantage to a manufacturer's 
upsizing some of its vehicles. Further, it would be difficult for a 
manufacturer to predict how category boundaries might change over the 
four to eight year life of a vehicle design.
    Fourth, the agency believes that supplementing the Reformed CAFE 
standards with a backstop would negate the value of establishing the 
attribute-based standards for some manufacturers and perpetuate the 
shortcomings of Unreformed CAFE. The level of the backstop would 
presumably be set at (or close to) the level of the manufacturer that 
would be determined to be the least capable manufacturer under 
Unreformed CAFE. Any manufacturer that, under Reformed CAFE, would have 
a required level of average fuel economy less than the level of the 
least capable manufacturer would have to comply with the backstop 
instead.
    Fifth, and finally, making vehicles larger for CAFE compliance 
purposes is not cost-free. All else being equal, larger vehicles are 
more costly to build and operate. Market forces or fuel price increases 
will restrain consumer demand for large light trucks with low

[[Page 51443]]

fuel economy, unless the need for utility justifies the expense to the 
manufacturers of producing and to the consumers of operating large 
trucks.
5. Benefits of reform
a. Increased energy savings
    The Reformed CAFE system would increase the energy savings of the 
CAFE program over the longer term because fuel economy technologies 
would be required to be applied to light trucks throughout the entire 
industry, not just by a limited number of manufacturers. The energy-
saving potential of Unreformed CAFE is limited because only a few full-
line manufacturers are required to make improvements. In effect, the 
capabilities of these full-line manufacturers, whose offerings include 
larger and heavier light trucks, constrain the stringency of the 
uniform, industry-wide standard. The Unreformed CAFE standard is 
generally set below the capabilities of limited-line manufacturers, who 
sell predominantly lighter and smaller light trucks. Under Reformed 
CAFE, which accounts for size differences in product mix, virtually all 
light-truck manufacturers will be required to improve the fuel economy 
of their vehicles. Thus, Reformed CAFE will continue to require full-
line manufacturers to improve the overall fuel economy of their fleets, 
while also requiring limited-line manufacturers to enhance the fuel 
economy of the vehicles they sell.
    Our estimates indicate that the Reformed CAFE system would result 
in greater fuel savings than the Unreformed CAFE system during the 
transition period, though the industry-wide compliance costs were 
equalized for those model years:

   Table 4.--Estimated Fuel Savings From Reformed and Unreformed CAFE
                        Systems for MYs 2008-2010
                        [In billions of gallons]
------------------------------------------------------------------------
                                               MY 2008  MY 2009  MY 2010
------------------------------------------------------------------------
Reformed CAFE system.........................      0.9      2.2      2.9
Unreformed CAFE system.......................      0.8      1.9      2.7
------------------------------------------------------------------------

    The improvement in fuel savings would be even greater beginning MY 
2011 when targets are set at the level that maximizes net benefits. By 
promoting improvements across the entire industry, without as much 
influence imposed by the manufacturer that would be regarded as the 
least capable manufacturer under the Unreformed CAFE system, the 
Reformed CAFE system would allow for greater fuel savings at levels 
that remain economically practicable. We believe that the Reformed CAFE 
system would continue to increase overall fuel conservation 
substantially over time.
b. Reduced incentive to respond to the CAFE program in ways harmful to 
safety
    To appreciate the potential safety impacts of reforming CAFE, it is 
necessary first to understand the key trends in the light vehicle 
population and in the crashes that produce serious and fatal injuries. 
Today's light vehicle fleet is very different from the fleet of 30 
years ago when EPCA was enacted and even from the fleet of 20 years 
ago. A more complex and diverse fleet, including large numbers of 
vehicles such as minivans and SUVs that scarcely existed before, has 
replaced the fleet that was once dominated by passenger cars. There are 
now over 102 million light trucks on the road, including pickups, 
minivans, and SUVs, representing about 41 percent of registered light 
vehicles in the United States. Since light trucks now account for more 
than 50 percent of new light vehicle sales, their share of the total 
fleet is growing steadily. SUVs account for about 35 percent of light 
truck sales. While the overall light vehicle fleet is safer as a result 
of the addition of many safety features, the new fleet composition 
presents new safety issues.
    Two issues stand out. Rollovers and crash compatibility. Both are 
related to reforming CAFE.
    Pickups and SUVs have a higher center of gravity than passenger 
cars and thus are more susceptible to rolling over, if all other 
variables are identical. Their rate of involvement in fatal rollovers 
is higher than that for passenger cars--the rate of fatal rollovers for 
pickups, like the rate for SUVs, is twice that for passenger cars. 
Rollovers are a particularly dangerous type of crash. Overall, rollover 
affects about three percent of light vehicles involved in crashes, but 
accounts for 33 percent of light vehicle occupant fatalities. Single 
vehicle rollover crashes account for nearly 8,500 fatalities annually. 
Rollover crashes involving more than one vehicle account for another 
1,900 fatalities, bringing the total annual rollover fatality count to 
more than 10,000.
    Crash compatibility is the other prominent issue. Light trucks are 
involved in about half of all fatal two-vehicle crashes involving 
passenger cars. In the crashes between light trucks and passenger cars, 
over 80 percent of the fatally injured people are occupants of the 
passenger cars.
    The agency believes that the manner in which fuel economy is 
regulated can have substantial effects on vehicle design and the 
composition of the light vehicle fleet. Reforming CAFE is important for 
vehicle safety because the current structure of the CAFE system 
provides an incentive to manufacturers to reduce the weight and size of 
vehicles, and to increase the production of vehicle types (particularly 
pickup trucks and SUVs) that are more susceptible to rollover crashes 
and are less compatible with other light vehicles. For these reasons, 
reforming CAFE is a critical part of the agency's effort to address the 
vehicle rollover and compatibility problems.
i. Reduces the incentive to offer smaller vehicles and to reduce 
vehicle size
    Fuel price increases and competitive pressures in the 1970's and 
early 1980's induced vehicle manufacturers to shift their production 
mix toward their smaller and lighter vehicles to offset the lower fuel 
economy of larger and heavier vehicles and to redesign their vehicles 
by reducing their size and/or weight.\55\ The need for manufacturers to 
make rapid and substantial increases in passenger car and light truck 
CAFE in response to the CAFE standards in late 1970's and early 1980's 
provided an added incentive for them to take those actions. Those 
actions contributed to many additional deaths and injuries.\56\ While 
the adoption of additional safety performance requirements for those 
vehicles has saved lives, even more lives would have been saved if the 
shifting of production mix toward smaller vehicles and the reduction in 
size and/or weight had not occurred.
---------------------------------------------------------------------------

    \55\ Shifting production mix down toward smaller vehicles 
involves decreasing the production volumes of vehicles that are 
heavier or larger and thus have relatively low fuel economy and 
increasing the production volumes of lighter or smaller vehicles.
    \56\ NAS, p. 3.
---------------------------------------------------------------------------

    Without CAFE reform, history is likely to repeat itself. 
Significant increases in Unreformed light truck CAFE standards, 
especially if accompanied by high fuel prices, would likely induce a 
similar wave of shifting production mix toward smaller light trucks and 
reducing the size and/or weight of light trucks.
    By choosing to base Reformed CAFE on a measure of vehicle size 
(footprint) instead of weight, the agency is aware that the CAFE 
program will continue to permit and to some extent reward weight 
reduction as a compliance strategy. The safety ramifications of

[[Page 51444]]

downweighting--especially downweighting that is not achieved through 
downsizing--will need to be examined on a case-by-case basis in future 
rulemakings. Historically, the size and weight of light-duty vehicles 
have been so highly correlated that it has not been technically 
feasible to fully disentangle their independent effects on safety.\57\ 
The agency remains concerned about compliance strategies that might 
have adverse safety consequences. Fortunately, it is possible that some 
of the lightweight materials used in a downweighting strategy may have 
the strength and flexibility to retain or even improve the 
crashworthiness of vehicles and the safety of occupants. Moreover, if 
downweighting were concentrated among the heaviest of the light trucks, 
any extra risk to the occupants of those vehicles might be more than 
offset be lessened risk in multi-vehicle crashes to occupants of 
smaller light trucks and cars. As manufacturers respond to the 
requirements of Reformed CAFE, the agency intends to monitor whether 
downweighting is chosen as a compliance strategy and, if so, how 
downweighting is accomplished, which vehicles are downweighted, and 
what the possible effects on safety (beneficial and adverse) may be.
---------------------------------------------------------------------------

    \57\ Kahane, C.J., Response to Docket Comments on NHTSA 
Technical Report, Vehicle Weight, Fatality Risk and Crash 
Compatibility of Model Year 1991-99 Passenger Cars and Light Trucks, 
Docket No. NHTSA-2003-16318-16, 2004 discusses the historic 
correlation and difficulty of disaggregating weight and ``size.'' 
Except for a strong correlation of track width with rollover risk, 
it shows weak and inconsistent relationships between fatality risk 
and two specific ``size'' measures, track width and wheelbase, when 
these are included with weight in the analyses. See also Kahane, 
C.J., Vehicle Weight, Fatality Risk and Crash Compatibility of Model 
Year 1991-99 Passenger Cars and Light Trucks, NHTSA Technical Report 
No. DOT HS 809 662, Washington, 2003, pp. 2-6. Evans, L. and Frick, 
M.C., Car Size or Car Mass--Which Has Greater Influence on Fatality 
Risk? American Journal of Public Health 82:1009-1112, 1992, 
discusses the intense historical correlation of mass and wheelbase 
and finds that relative mass, not relative wheelbase is the 
principal determinant of relative fatality risk in two-car 
collisions. See also, Evans, L. ``Causal Influence of Car Mass and 
Size on Driver Fatality Risk, `` American Journal of Public Health, 
91:1076-81, 2001.
---------------------------------------------------------------------------

    Reforming CAFE by basing it on footprint categories would 
discourage reductions in vehicle size and reduce the likelihood of any 
new wave of mix shifting toward smaller vehicles. Reformed CAFE reduces 
the incentive to take those actions because both mix shifting and 
reducing vehicle size would increase the manufacturers' required level 
of CAFE for that model year.
    The way in which Reformed CAFE dilutes the effect of both of those 
actions as compliance strategies can be seen by looking at a Reformed 
CAFE standard. The target average fuel economy values for the footprint 
categories are constants. Regardless of what compliance strategy is 
chosen by a manufacturer, nothing that the manufacturer does will 
change those values.
    The distribution of vehicle models among the categories and the 
production volume of each models, however, are variables under the 
control of the manufacturers. Further, they are variables not only in 
the formula for calculating a manufacturer's actual level of CAFE for a 
model year, but also in the formula for calculating a manufacturer's 
required level of CAFE for that model year.
    Thus, by changing the distribution of its production among the 
footprint categories, a manufacturer would change not only its actual 
level of CAFE, but also its required level of CAFE. For example, all 
other things being equal, if a manufacturer were to increase the 
production of one of its higher fuel economy models and decrease the 
production of one of its lower fuel economy models, both its actual 
level of CAFE and its required level of CAFE would increase. Likewise, 
again all other things being equal, if a manufacturer were to redesign 
a model so as to decrease its footprint (thereby presumably also 
decreasing its weight) sufficiently to move it into a smaller footprint 
category, the model would become subject to a higher target. Again, as 
a result, both the manufacturer's actual CAFE and required CAFE would 
increase.
    The reduced effectiveness of those actions as compliance strategies 
under Reformed CAFE would make it more likely that the manufacturers 
would choose two other actions as the primary means of closing the gap 
between those two levels: reducing vehicle weight while keeping 
footprint constant, and adding fuel-saving technologies. Both of those 
actions would increase a manufacturer's actual CAFE without changing 
its required CAFE. Nevertheless, since a move into other footprint 
categories would result in a change in both actual and required CAFE, 
manufacturers would have more flexibility to respond to consumer demand 
for vehicles in other size categories without harming their ability to 
comply with CAFE standards or adversely affecting safety.
    Unreformed CAFE creates an incentive to reduce weight regardless of 
whether footprint also is reduced. Reformed CAFE reduces that incentive 
by linking the level of the average fuel economy targets to the size of 
footprint so that there is an incentive to reduce weight only to the 
extent one can do so while also preserving size. Reformed CAFE 
discourages footprint reduction because as a vehicle model's footprint 
is reduced, the vehicle moves into categories with smaller footprints 
and higher targets.
    We have designed the categories to increase the extent to which 
Reformed CAFE standards will not affect vehicle size. First, we are 
dividing the overall fleet of light trucks into a large enough number 
of footprint categories that each category includes only a relatively 
narrow range of footprint. This would ensure that only a fairly modest 
decrease in a model's footprint would cause the model to move down into 
the next footprint category and become subject to a higher target. 
Second, as noted above, we set the boundaries between the footprint 
categories so that a substantial portion of the vehicles in each 
category is located near the lower end of that category. In that 
location, any reduction in a vehicle's footprint would be sufficient to 
move the vehicle into a lower footprint category and thus subject it to 
a higher average fuel economy target.
ii. Effectively reduces the difference between car and light truck CAFE 
standards
    The average fuel economy targets for the smaller footprint 
categories of light trucks would, by MY 2011, be at or near (and for 
the smallest light trucks above) the level of the current 27.5 mpg CAFE 
standard for cars. The reduction of the disparity between car and light 
truck CAFE standards--the so-called ``SUV loophole''--would promote 
increased safety because the disparity has created an incentive (beyond 
that provided by the market by itself) to design vehicles to be 
classified as light trucks instead of cars.\58\
---------------------------------------------------------------------------

    \58\ NAS (p. 88) noted that that gap created an incentive to 
design vehicles as light trucks instead of cars.
---------------------------------------------------------------------------

    One way to design vehicles so that they are classified as light 
trucks instead of passenger cars is to design them so that they have 
higher ground clearance and higher approach angles.\59\ Designing 
vehicles with higher ground clearance results in their having a higher 
center of gravity. Generally speaking, light trucks have a higher 
center of gravity than cars, and thus are more likely to rollover.

[[Page 51445]]

Moreover, in order to create a higher approach angle, it is necessary 
to raise or minimize the front structure below the front bumper, which 
increases the likelihood that a light truck will override a car in a 
front or rear end crash with a car. It also increases the likelihood 
that when a light truck crashes into the side of a car, its front end 
will pass over the car's door sill and intrude farther into the car's 
occupant compartment. In addition to not being structurally aligned 
with cars, light trucks are generally heavier than cars, which adds to 
their compatibility problems with cars.
---------------------------------------------------------------------------

    \59\ The term ``approach angle'' is defined by NHTSA in 49 CFR 
523.2 as meaning ``the smallest angle, in a plane side view of an 
automobile, formed by the level surface on which the automobile is 
standing and a line tangent to the front tire static loaded radius 
arc and touching the underside of the automobile forward of the 
front tire.''
---------------------------------------------------------------------------

c. More equitable regulatory framework
    The Unreformed CAFE system does not provide an equitable regulatory 
framework for different vehicle manufacturers. Regardless of their 
product mix, all vehicle manufacturers are required to comply with the 
same fleet-wide average CAFE requirement. For full-line manufacturers, 
this creates an especially burdensome task. We note that these 
manufacturers often offer vehicles that have high fuel economy 
performance relative to others in the same size class, yet because they 
sell many vehicles in the larger end of the light truck market, their 
overall CAFE is low relative to those manufacturers that concentrate in 
offering smaller light trucks. As a result, Unreformed CAFE is binding 
for such full-line manufacturers, but not for limited-line 
manufacturers that predominantly sell smaller light trucks. The full-
line vehicle manufacturers have expressed a legitimate competitive 
concern that the part-line vehicle manufacturers are entering the 
larger end of the light-truck market with an accumulation of CAFE 
credits. While this concern has merit, it is also the case that some 
part-line manufacturers (e.g., Toyota and Honda) have been industry 
innovators in certain technological aspects of fuel-economy 
improvement.
    The reformed CAFE system will provide a more equitable regulatory 
framework for full-line vehicle manufacturers without denying a level 
playing field to the part-line vehicle makers. In order to test this 
proposition empirically, the agency has presented simulations of 
Reformed CAFE in chapter III of the PRIA for MYs 2002, 2003 and 2004. 
The two largest full-line makers (General Motors and Ford) would have 
achieved a significantly improved compliance outcome under Reformed 
CAFE, while some part-line vehicle manufacturers would have faced a 
more challenging compliance obligation.
d. More responsive to market changes
    Reformed CAFE is more market-oriented because it respects economic 
conditions and consumer choice. Reformed CAFE does not force vehicle 
manufacturers to adjust fleet mix toward smaller vehicles unless that 
is what consumers are demanding. As the industry's sales volume and mix 
changes in response to economic conditions (e.g., gasoline prices and 
household income) and consumer preferences (e.g., desire for seating 
capacity or hauling capability), the expectations of manufacturers 
under Reformed CAFE will, at least partially, adjust automatically to 
these changes. Accordingly, Reformed CAFE may reduce the need for the 
Agency to revisit previously established standards in light of changed 
market conditions, a difficult process that undermines regulatory 
certainty for the industry. In the mid-1980's, for example, the Agency 
relaxed several unreformed CAFE standards because fuel prices fell more 
than expected when those standards were established and, as a result, 
consumer demand for small vehicles with high fuel economy did not 
materialize as expected. By moving to a market-oriented system, the 
agency may also be able to pursue more multi-year rulemakings that span 
larger time frames than the agency has attempted in the past.

B. Authority for Reformed CAFE proposal

    We believe the proposed CAFE program is both consistent with the 
statute and better achieves the Congressional policy objectives 
embedded within it. The proposed program conforms to the mandates to 
establish maximum feasible fuel economy standards applicable on a fleet 
average basis and to the Congressional intent to establish those 
standards only after balancing the nation's need to conserve energy, 
the effect of other standards on fuel economy, technological 
feasibility, economic practicability and other public policy 
considerations.
    The statute provides considerable flexibility with regard to the 
establishment and implementation of light truck standards. Congress 
recognized that the universe of light trucks is comprised of varying 
types of vehicles meeting different consumer needs. The CAFE statute 
mandates that we issue one or more average fuel economy standards for 
light trucks for each model year. Congress chose harmonic averaging 
over standards applicable to individual vehicles so that the CAFE 
statute's overriding goal of conserving energy would be pursued in a 
manner that preserves manufacturer flexibility and consumer choice. H. 
Rpt. 94-340, p. 87; S. Rpt. 94-179, p. 6.
    An ``average fuel economy standard'' is defined as ``a performance 
standard specifying a minimum level of average fuel economy applicable 
to a manufacturer in a model year.'' 49 U.S.C. 32901(a)(6). The statute 
directs NHTSA to prescribe through regulation average fuel economy 
standards for automobiles (except passenger automobiles) manufactured 
by a manufacturer in a model year. 49 U.S.C. 32902(a). The standard is 
linked to ``automobiles manufactured by a manufacturer,'' which is 
defined as including ``every automobile manufactured by a person that 
controls, is controlled by, or is under common control with the 
manufacturer, but does not include an automobile manufactured by the 
person that is exported not later than 30 days after the end of the 
model year in which the automobile is manufactured.'' 49 U.S.C. 
32901(a)(4).
    While NHTSA historically has established a light truck standard 
with a single level common to all manufacturers, the statute does not 
require us to do so. Indeed, the statute expressly defines ``an average 
fuel economy standard'' as a performance standard applicable to ``a 
manufacturer,'' and directly links the establishment of standards to 
the manufacturer-specific definition of ``automobiles manufactured by a 
manufacturer.'' It appears clear that Congress left to the agency's 
discretion the determination of whether to establish a single standard 
applicable collectively to all manufacturers or to set a series of 
standards applicable to individual manufacturers to ensure that each 
manufacturer achieves the maximum feasible level it can achieve, given 
its product mix.
    We note that the statutory text phrasing with regard to setting 
``maximum feasible'' standards for light truck manufacturers is 
susceptible to more than one interpretation. We are directed to 
establish standards for each model year and instructed: ``each standard 
shall be the maximum feasible average fuel economy level that the 
Secretary decides the manufacturers can achieve in that model year.'' 
49 U.S.C. 32902(a). The use of the plural ``manufacturers,'' instead of 
the singular, could be read to indicate that Congress intended that the 
standard for any given model year collectively be the maximum feasible 
level applicable to all manufacturers. When read in

[[Page 51446]]

conjunction with the other sentences in that provision, however, the 
statutory phrasing could also indicate that, by using the plural, 
Congress anticipated that the standards would reflect the different 
product offerings of manufacturers, but that each standard would be the 
maximum feasible for the manufacturer to which it applied.
    Reference beyond the phrasing of that particular sentence does not 
provide much additional clarity. The language used in the remainder of 
Section 32902(a) suggests that Congress anticipated the possibility of 
standards set at different levels for different manufacturers, yet a 
discussion of industry-wide considerations in the legislative history 
(conference report) suggests an expectation of a single CAFE level 
applicable to all manufacturers.
    We believe that Congress left to NHTSA the discretion to establish 
light truck standards in the most effective way possible to achieve the 
maximum level of fuel conservation that is feasible for each 
manufacturer. NHTSA must, consistent with the statute, take industry-
wide considerations into account to ensure that the methodology used to 
establish these levels ensures, on an industry-wide basis, 
technological feasibility and economic practicability and accounts for 
the impact of other regulatory activity.
    Our proposal for an approach requiring improvement by most 
manufacturers and resulting in higher overall fuel savings implements 
better and more fully the statutory mandate to set maximum feasible 
standards and adheres more faithfully to the guidance in the 
legislative history to base the standards on industry-wide 
considerations than an approach requiring improvement by only a few 
manufacturers in the industry. On both an industry-wide basis and an 
individual manufacturer basis, the former approach provides no less 
assurance than the latter approach that the resulting standards are 
technologically feasible or economically practicable. In fact, since 
the former approach is based on a manufacturer's own product mix, it 
ensures that the level of average fuel economy required of each 
manufacturer is tailored to the circumstances and thus the capabilities 
of that manufacturer.
    The methodology proposed today is similar to an approach suggested 
to, but not adopted by, NHTSA in a study submitted to the agency in 
1980. See Report of the Regulatory Analysis Review Group, Council on 
Wage and Price Stability, March 31, 1980, submitted as attachment to 
letter from R. Robert Russell, Director of the Council, to Joan 
Claybrook, Administrator, NHTSA. FE-78-01-No1-175 (Document 175 under 
Notice 1 in Docket FE-78-01.) After considering a class-based CAFE 
system, the RARG suggested a composite standard developed by setting 
fuel economy targets for various categories of light trucks and then 
using a predetermined fleet mix for each manufacturer to turn these 
targets into a composite standard.
    In assessing the permissibility of its suggested approach, the RARG 
was considering the CAFE statute in the wake of its enactment and with 
an eye toward developing a system that would best achieve the 
Congressional objectives arising from the oil crisis of the 1970s. The 
RARG noted its generally contemporaneous understanding of the statutory 
parameters:

    Nothing in the statute forbids this approach. The statute 
requires that passenger car standards be the same for all 
manufacturers. There is no similar requirement for the truck 
standards. Indeed, the statute explicitly authorizes separate 
standards for different classes of trucks, which would inevitably 
result in varying effects on the different manufacturers. Since this 
is explicitly permitted, it seems unlikely that composite standards, 
which would result in similarly varying effects, are forbidden. 
NHTSA's treatment of this issue in the preamble to its final truck 
standards for model years 1980-81 suggests that it agrees. 43 FR 
11997-8. There, NHTSA discussed a proposed fleet-average standard at 
some length `` eventually rejecting it on policy grounds `` without 
suggesting that it might be illegal.

RARG Report at 29.\60\

    \60\ In considering a composite standard approach suggested by 
Ford, the agency seemed to confuse that approach with a class based 
approach. The agency noted its belief that a single all-inclusive 
standard would provide more flexibility than class based standards. 
45 FR 11997-98. In the final rule, the agency raised a question 
about its authority to implement a composite standard, but did so 
without reaching any conclusions and without offering any analysis 
of its own or even adopting that of any participant in the 
rulemaking. 45 FR 81593 at 81594. We have now conducted our own 
legal analysis, which agrees with the RARG's analysis.
---------------------------------------------------------------------------

    We agree. In deciding which approach to propose in this rulemaking 
for establishing standards for a model year, the agency narrowed its 
choices to two approaches: establishing conventional average fuel 
economy standards, one for each of several classes, with or without 
credit transfer between classes in accordance with 49 U.S.C. 32903(a), 
or establishing average fuel economy targets, one for each of several 
attribute-based categories, and an overall average fuel economy 
standard in the form of a production-weighted, harmonically averaged 
step-function based on a combination of those targets and each 
manufacturer's total production and product mix for that year. NHTSA 
believes that either approach is permissible under the CAFE statute. 
The agency also believes that a continuous function approach would 
satisfy the statute.
    The statute explicitly authorizes the former approach, separate 
standards for different classes of light trucks. That class approach 
would inevitably result in varying effects on the different 
manufacturers, at least partially due to differences in product mix. If 
each manufacturer exactly complied with the standard for each class, a 
manufacturer's overall CAFE would differ from those of other 
manufacturers solely as a function of each manufacturer's product mix. 
Since the CAFE statute explicitly permits this, NHTSA believes that the 
step-function approach, which would result in similarly varying 
effects, is permissible. Nothing in the statute explicitly forbids the 
step-function approach. While the statute requires that passenger car 
standards be the same for all manufacturers, there is no similar 
requirement for the light truck standards.
    The step-function approach is thoroughly grounded in the CAFE 
statute. Under that approach, the foundation of the standard for each 
model year would be the targets for the categories. The target for each 
footprint category would be the same for, and applicable to, all 
manufacturers that produce vehicles in that footprint category. The 
selection of the target for a footprint category would be based on 
industry-wide considerations, as contemplated in the conference report.

    Such determination [of maximum feasible average fuel economy 
level] should take industry-wide considerations into account. For 
example, a determination of maximum feasible average fuel economy 
should not be keyed to the single manufacturer that might have the 
most difficulty achieving a given level of average fuel economy. 
Rather, the Secretary must weigh the benefits to the nation of a 
higher average fuel economy standard against the difficulties of 
individual manufacturers. Such difficulties, however, should be 
given appropriate weight in setting the standard in light of the 
small number of domestic manufacturers that currently exist and the 
possible implications for the national economy and for reduced 
competition association [sic] with a severe strain on any 
manufacturer. * * *

S. Rep. No. 94-516, 94th Congress, 1st Sess. 154-155 (1975).

    Specifically, the agency would select a target based on an average 
of the levels of fuel economy improvement that are technologically 
feasible and economically efficient for a much more substantial part of 
the industry than is

[[Page 51447]]

focused upon in setting standards through the traditional method. Each 
standard would rest in large part on a composite of determinations 
regarding the average fuel economy achievable by the manufacturers in 
each of the footprint categories. While CAFE traditionally gave 
particular regard to the least capable of the largest three 
manufacturers in determining fuel economy standards, this proposal 
would use an average based on the largest seven manufacturers in 
setting the targets. Reliance on a more substantial portion of the 
industry for this purpose would build in a measure of assurance that 
the targets are technologically feasible and economically practicable.
    The step-function ultimately picked as the standard would also be 
the result of further consideration of industry-wide considerations as 
well as the careful balancing, as mandated by Congress, of the 
statutory factors, including the economic practicability for the 
industry. Since the product mix used to help determine a manufacturer's 
required level of fuel economy for a particular model year would be the 
manufacturer's actual mix in that model year, instead of in a prior 
reference year, a manufacturer would have the flexibility necessary to 
vary its mix in response to changes in consumer preferences. This 
aspect of the step-function approach automatically builds in a further 
measure of assurance that the standards will not necessitate product 
restrictions and thus will be economically practicable.
    Each step-function standard would apply equally to all 
manufacturers. To the extent that different manufacturers have 
different product mixes, they would be subject to different required 
levels of average fuel economy. However, if two manufacturers had the 
same product mix and thus were similarly situated, they would be 
subject to the same required level of average fuel economy.
    Each manufacturer's compliance obligation is determined through 
application of the target numbers to the step function calculation. The 
obligation remains premised on average fuel economy level for each 
manufacturer's fleet and permits manufacturers to earn credits or 
requires them to pay civil penalties for exceeding or failing to reach 
the fuel economy level applicable to them. The footprint category 
targets and standards would be established within the statutory lead 
time of 18 months \61\ and, because the manufacturers know the formula 
for compliance, they have the flexibility to ensure compliance by 
monitoring and adjusting their product offerings. A manufacturer's 
compliance would be determined at the end of each model year by 
comparing the step function standard derived with the target numbers to 
the step function standard derived with the company's actual production 
weighted fuel economy performance.
---------------------------------------------------------------------------

    \61\ Under Reformed CAFE, as under Unreformed CAFE, the agency 
is proposing to establish standards for future model years based, in 
the first instance, on the manufacturers' own plans regarding the 
types and sizes of vehicles they plan to produce in those years and 
their projected production volumes of those vehicles. In determining 
the level of the proposed standards, the agency also increases the 
level of CAFE above that achievable under those plans through 
identifying technologies that it deems feasible, practicable and 
cost-effective.
    If manufacturers follow their plans, enhanced to the extent 
necessary by the incorporation of additional fuel savings 
technologies, their required level of CAFE will not change. However, 
under Reformed CAFE, if they depart from their plans regarding the 
size of their vehicles and/or the distribution of their production 
and thus produce vehicles whose size is, on average, larger or 
smaller than that of the vehicles in their original plans, their 
required level of CAFE will change. If they do depart from their 
plans, they could determine, with a high degree of mathematical 
precision, the magnitude of that change.
---------------------------------------------------------------------------

    We are proposing to permit manufacturers the option of complying 
with either the Unreformed system or the Reformed system during the 
three-model year transition period. We believe that the levels 
established for each system constitute the maximum feasible levels for 
each system. We recognize that, depending on manufacturer's choices, 
the fuel savings (and cost burdens) associated with these three model 
years may be lower than the fuel savings that would result if either 
the Unreformed or Reformed program were used alone. NHTSA believes that 
this is an acceptable outcome that is justified by ensuring an orderly 
transition to a fully phased-in Reformed program in MY 2011.
    We believe that this proposal presents an approach having the 
potential over time to achieve substantially more overall fuel savings 
than the historical approach to establishing CAFE standards. In order 
to ensure both technological feasibility and economic practicability, 
CAFE standards have traditionally been set with particular regard to 
the capabilities of the least capable manufacturer with a significant 
share of the market. This approach helps to account for the fact that 
full-line manufacturers, with product offerings serving the full range 
of consumer needs and demand, generally will have a fleet average fuel 
economy level less than those manufacturers who choose to serve only 
part of the market--typically offering products in the smaller and 
lighter light truck category. The traditional approach to CAFE provides 
no regulatory incentive for limited line manufacturers to incorporate 
additional technologies because none are needed to meet CAFE standards 
established at an appropriate level for full-line manufacturers.
    Under the program proposed today, CAFE standards will ultimately be 
established in a way that encourages technology use by all companies, 
not just those with lower fleet average fuel economy levels. By 
incorporating available technologies across all manufacturers, we 
believe that the Reformed program will enhance overall fuel savings 
over time. This is especially true after we transition fully to a 
system in which the category targets are established at a level based 
on maximizing net benefits.
    However, we recognize the inequity of potentially implementing 
unanticipated additional requirements and costs without providing 
adequate lead-time. Just as the law permits us to consider motor 
vehicle safety in addition to the express factors when setting CAFE 
standards, we believe the need for transition is a factor that we 
should take into account when moving toward the Reformed CAFE system. 
Our preliminary determination is that providing a three-year transition 
period with a compliance option will provide an opportunity for 
experimentation by the manufacturers and effect a quicker transition to 
a system likely to save more fuel savings over time than would either 
implementing an abrupt change after providing appropriate lead time or 
maintaining the status quo. The agency requests comments on whether a 
transition period shorter than three years would be feasible.
    Today's proposal seeks to ensure that either system remains 
economically practicable and technologically feasible. By equating 
overall industry costs during the transition period with the overall 
costs associated with the traditional approach, we are confident that 
the Reformed proposal will not impose industry costs beyond those 
otherwise incurred. In addition, the same technologies are used in both 
analyses, although applied somewhat differently.
    We believe the Reformed proposal better incorporates the 
Congressional intent that we establish CAFE obligations with an eye 
toward industry-wide considerations. The category targets are 
established not by focusing on one manufacturer, but rather by 
averaging the manufacturer-specific levels derived through the marginal

[[Page 51448]]

cost/benefit analysis, thus including all complying companies in 
determining CAFE responsibilities. The new program also provides better 
flexibility--a significant Congressional concern when enacting and 
later amending the CAFE statute--by better linking CAFE obligations to 
each manufacturer's actual product sales.
    Reformed CAFE continues all the essential elements required by the 
statute. It states CAFE requirements in terms of miles per gallon, 
retains the necessary fleet averaging, allows manufacturers to earn 
credits and requires them to pay fines for shortfalls and applies a 
consistent methodology to all manufacturers with equivalent category 
target levels. Reformed CAFE provides manufacturers with adequate 
notice of their responsibilities, complying with the 18-month lead time 
for establishing a standard, while simultaneously providing the 
flexibility to alter their product plans and offerings in response to 
changes in market conditions (a problem that has required the agency at 
times to lower previously established CAFE standards). Reformed CAFE 
also enhances our ability to achieve maximum feasible fuel economy by 
focusing on the addition of available technology to all product lines 
and encouraging greater fuel savings and lower overall industry costs.

C. Comparison of estimated costs and estimated benefits

1. Costs
    In order to comply with the proposed Reformed CAFE standards, we 
estimate the average incremental cost per vehicle to be $54 for MY 
2008, $142 for MY 2009, and $186 for MY 2010. In MY 2011, the 
incremental cost would be $275. Under the Reformed CAFE system, a 
greater number of manufacturers would be required to improve their 
fleets and make additional expenditures than under the Unreformed CAFE 
system. The total incremental cost (the cost necessary to bring the 
corporate average fuel economy for light trucks from 22.2 mpg to the 
proposed standards) is estimated to be $505 million for MY 2008, $1,332 
million for MY 2009, and $1,802 million for MY 2010. In MY 2011, the 
total incremental cost is estimated to be $2,656 million. The level of 
additional expenditure that would be necessary beyond already planned 
investment varies for each individual manufacturer. These individual 
expenditures are discussed in more detail in the PRIA. However, as 
stated above, because the costs are distributed across a greater share 
of the industry, the costs required of the least capable manufacturer 
with a significant share of the market are lower under the Reformed 
system than under the Unreformed system.
2. Benefits
    The benefits analysis applied to the proposed standards under the 
Unreformed CAFE system was also applied to the standards proposed under 
the Reformed CAFE system. Benefit estimates include both the benefits 
from fuel savings and other economic benefits from reduced petroleum 
use. The agency relied on the same factors and assumptions as discussed 
above for the proposed Unreformed CAFE standards. A more detailed 
discussion of the application of this analysis to the required fuel 
economy levels under the Reformed CAFE system can be located in the 
PRIA.
    Adding benefits from fuel savings to other economic benefits from 
reduced petroleum use as a result of the Reformed CAFE standards 
produced an estimated incremental benefit to society, of $73 per 
vehicle for MY 2008, $170 per vehicle for MY 2009 and $220 per vehicle 
for MY 2010. In MY 2011, the incremental benefits were estimated to be 
$315 per vehicle. The total value of these benefits is estimated to be 
$694 million for MY 2008, $1,633 million for MY 2009, $2,144 million 
for MY 2010, $3,069 million for MY 2011, based on fuel prices ranging 
from $1.51 to $1.58 per gallon. The benefits analysis for Reformed CAFE 
is based on the same assumptions as the benefits analysis for 
Unreformed CAFE, as described above in III.D.2.
    Based on the forecasted light truck sales from AEO 2005 and an 
assumed baseline fuel economy of 22.2 mpg (the MY 2007 standard), we 
estimated the fuel savings from the Reformed CAFE program. These 
estimates are provided as present values determined by applying a 7 
percent discount rate to the future impacts. We translated impacts 
other than fuel savings into dollar values, where possible, and then 
factored them into our total benefit estimates. This analysis resulted 
in estimated lifetime fuel savings of 0.9 billion, 2.2 billion, and 2.9 
billion gallons under the proposed Reformed CAFE standards for MY 2008, 
2009, and 2010 respectively. We estimated the fuel savings for MY 2011 
at 4.1 billion gallons.
    NHTSA estimates that the direct fuel-savings to consumers account 
for the majority of the total benefits, and by themselves exceed the 
estimated costs of adopting more fuel-efficient technologies. In sum, 
the total incremental costs by model year compared to the incremental 
societal benefits by model year are as follows:

 Table 5.--Comparison of Incremental Costs and Incremental Benefits for
                  the Proposed Reformed CAFE Standards
                              [In millions]
------------------------------------------------------------------------
                               MY 2008    MY 2009    MY 2010    MY 2011
------------------------------------------------------------------------
Total Incremental Costs *...       $505     $1,332     $1,802     $2,656
Total Incremental Benefits *        694      1,633      2,144     3,069
------------------------------------------------------------------------
* Relative to the 22.2 mpg standard for MY 2007.

    In light of these figures, we have tentatively concluded that the 
standards proposed under the Reformed CAFE system serve the overall 
interests of the American people and is consistent with the balancing 
that Congress has directed us to do when establishing CAFE standards. 
For all the reasons stated above, we believe the proposed Reformed CAFE 
standards represent fuel economy levels that are economically 
practicable and, independently, that are a cost beneficial advancement 
for American society. A more detailed explanation of our analysis is 
provided in the PRIA.
3. Uncertainty
    The agency performed a probabilistic uncertainty analysis to 
examine the variation in estimates of factors that determine the costs 
and benefits of higher CAFE requirements. The analysis indicates that 
the Agency is highly certain that the benefits of the proposed CAFE 
levels will exceed their costs for all 4 model years of Reformed 
standards included in the proposal.

[[Page 51449]]

D. Proposed standards

    We have tentatively determined that the Reformed CAFE system and 
associated target levels for MYs 2008-2011 would result in required 
fuel economy levels that are both technologically feasible and 
economically practicable for manufacturers. The proposed standard and 
target levels are as follows:
BILLING CODE 4910-59-P

[[Page 51450]]

[GRAPHIC] [TIFF OMITTED] TP30AU05.015

BILLING CODE 4910-59-C

[[Page 51451]]



                                           Table 6.--Proposed Targets
----------------------------------------------------------------------------------------------------------------
             Category                    1            2            3            4            5            6
----------------------------------------------------------------------------------------------------------------
Range of vehicle footprint (sq.          <=43.0   >43.0-47.0   >47.0-52.0   >52.0-56.5   >56.5-65.0        >65.0
 ft.).............................
MY 2008 Targets...................         26.8         25.6         22.3         22.2         20.7         20.4
MY 2009 Targets...................         27.4         26.4         23.5         22.7         21.0         21.0
MY 2010 Targets...................         27.8         26.4         24.0         22.9         21.6    \62\ 20.8
MY 2011 Targets...................         28.4         27.1         24.5         23.3         21.9         21.3
----------------------------------------------------------------------------------------------------------------

    These targets would result in the required fuel economy levels 
increasing each successive year for all manufacturers except Hyundai. 
Based on the product plans provided by manufacturers in response to the 
December 2003 request for information and the incorporation of publicly 
available supplemental data and information, the agency has estimated 
the required fuel economy levels for the individual manufacturers as 
follows:
---------------------------------------------------------------------------

    \62\ The reformed standards are a result of the product plan 
data. If the distribution of vehicles or fuel economies of vehicles 
changes from year to year, those changes will be reflected in the 
category targets. Because of the process of determining the category 
targets, sometimes the targets will not increase over time in a 
specific category. This is the case for 20.8 in category 6 in 
MY2010. The target goes from 21.0 in MY2009 to 20.8 in MY2010--a 
decrease of 0.2 mpg. This is a result of the product plan data 
changing.
    Although this goes against intuition, the essential point is 
that the overall fuel economy goal for each manufacturer increases 
in each year. This type of phenomenon could be avoided through the 
use of a continuous function. See IV.A.4.a. Step-function vs. 
continuous function above.

    Table 7.--Estimates of Required Fuel Economy Levels Based on the
             Proposed Target Levels and Current Information
                                [in mpg]
------------------------------------------------------------------------
        Manufacturer           MY 2008    MY 2009    MY 2010    MY 2011
------------------------------------------------------------------------
BMW.........................       23.8       24.8       25.1       25.7
Suzuki......................       26.0       26.7       26.8       27.5
Volkswagen..................       22.7       23.9       24.3       24.8
General Motors..............       22.2       22.8       23.2       23.7
Ford........................       22.4       22.9       23.1       23.6
DaimlerChrysler.............       22.8       23.5       23.7       24.2
Honda.......................       23.1       24.0       24.2       24.8
Hyundai.....................       24.2       25.9       25.7       26.3
Nissan......................       22.1       22.8       23.2       23.7
Toyota......................       23.2       24.1       24.5       25.0
Fuji (Subaru)...............       24.8       25.6       25.8       26.4
Porsche.....................       22.3       23.5       24.0       24.5
Isuzu.......................       22.3       22.9       23.2       23.7
------------------------------------------------------------------------

    As stated previously, we recognize that the manufacturer product 
plans that we used in developing the manufacturers' required fuel 
economy levels are likely already outdated in some respects. We fully 
expect the manufacturers to revise those plans to reflect subsequent 
developments. Further, we note that a manufacturer's required fuel 
economy level for a model year under the Reformed CAFE system would be 
based on its actual production numbers in that model year. Therefore, 
its official required fuel economy level would not be known until the 
end of that model year. However, because the category targets would be 
established in advance of the model year, a manufacturer should be able 
to estimate its required level accurately and develop a product plan 
that would comply with that level.

V. Implementation of options

A. Choosing the Reformed or Unreformed CAFE system

    As part of the transition to a fully phased-in Reform CAFE system 
in MY 2011, the agency is proposing that for MYs 2008-2010, 
manufacturers have the option of complying under the Reformed CAFE 
system or the Unreformed CAFE system. Manufacturers would be required 
to announce their selection for a model year in the mid-model year 
report required for that model year in 49 CFR 537.7. The mid-model year 
report is the most accurate report that the manufacturers currently 
provide directly to NHTSA and does not differ significantly from their 
final report. A manufacturer's selection would be irrevocable for that 
MY. However, a manufacturer would be permitted to select the alternate 
compliance option in the following MY. Beginning MY 2011, we are 
proposing to permit compliance only under the Reformed CAFE system.
    The proposed CAFE levels for both systems have been presented in 
the above discussion. However, after receiving comments and reviewing 
any additionally provided data, we may decide to set the standards at 
different levels than those proposed. Factual uncertainties that could 
result in lower standards include the possibility that planned 
technological actions may not achieve anticipated fuel economy benefits 
or may prove to be infeasible. Similarly, factual uncertainties that 
could result in higher standards include the possibility that 
manufacturers may be able to improve fuel economy in their fleets by 
further technological advances beyond those currently planned.

B. Application of credits between compliance options

    The EPCA credit provisions would operate under the Reformed CAFE 
system in the same manner as they do under the Unreformed CAFE system.

[[Page 51452]]

The harmonic averages used to determine compliance under the Reformed 
CAFE system permit the amount, if any, of credits earned to be 
calculated as under the Unreformed CAFE system:
    Credits = (Actual CAFE-Standard CAFE) * 10 * Total Production
    Credits earned in a model year could be carried backward or forward 
as currently done in the Unreformed CAFE system.
    Further, credits would be transferable between the two systems. 
Both Unreformed CAFE and Reformed CAFE use harmonic averaging to 
determine fuel economy performance of a manufacturer's fleet. Under the 
Reformed CAFE, fuel savings from under- and over-performance with each 
category are generated and applied almost identically to the way in 
which this occurs under the Unreformed CAFE system. As a result, the 
two systems generate credits with equal fuel savings value. Therefore, 
credits earned in a model year under Unreformed CAFE would be fully 
transferable forward to a model year under the Reformed CAFE system, up 
to the statutory limit of three years. Likewise, credits under Reformed 
CAFE could be carried back to Unreformed CAFE.

VII. Impact of other Federal Motor Vehicle Standards

    The statute specifically directs us to consider the impact of other 
Federal vehicle standards on fuel economy. This statutory factor 
constitutes an express recognition that fuel economy standards should 
not be set without due consideration given to the effects of efforts to 
address other regulatory concerns, such as motor vehicle safety and 
emissions. The primary influence of many of these regulations is the 
addition of weight to the vehicle, with the commensurate reduction in 
fuel economy.

A. Federal Motor Vehicle Safety Standards

    The agency has evaluated the impact of the Federal motor vehicle 
safety standards (FMVSS) using MY 2007 vehicles as a baseline. We have 
issued or proposed to issue a number of FMVSS that become effective 
between the MY 2007 baseline and MY 2010. The fuel economy impact, if 
any, of these new requirements will take the form of increased vehicle 
weight resulting from the design changes needed to meet new FMVSSs.
    The average test weights (curb weight plus 300 pounds) of the light 
truck fleet for General Motors, Ford, and DaimlerChrysler in MY 2008, 
MY 2009, and MY 2010 are 4,904, 4,897, and 4,909, respectively. Thus, 
overall, the three largest manufacturers of light trucks expect weight 
to remain almost unchanged during the time period addressed by this 
rulemaking. The changes in weight include all factors, such as changes 
in the fleet mix of vehicles, required safety improvements, voluntary 
safety improvements, and other changes for marketing purposes. These 
changes in weight over the three model years would have a negligible 
impact on fuel economy.
    NHTSA has issued a number of proposed and final rules on safety 
standards that are proposed to be effective or are effective between 
MYs 2008-2010. These have been analyzed for their potential impact on 
light truck fuel economy weights for MYs 2008-2010:
1. FMVSS 138, tire pressure monitoring system
    As required by the Transportation Recall Enhancement, 
Accountability, and Documentation (TREAD) Act, NHTSA is requiring a 
Tire Pressure Monitoring System (TPMS) be installed in all passenger 
cars, multipurpose passenger vehicles, trucks and buses that have a 
Gross Vehicle Weight Rating of 10,000 pounds or less. The effective 
dates are based on the following phase-in schedule:

    20 percent of light vehicles produced between September 1, 2005 
and August 31, 2006,
    70 percent of light vehicles produced between September 1, 2006 
and August 31, 2007,
    100 percent of light vehicles produced after September 1, 2007 
are required to comply.

    Thus, for MY 2008, an additional 30 percent of the fleet will be 
required to meet the standard as compared to MY 2007. We estimate from 
a cost teardown study that the added weight for an indirect system is 
about 0.156 lbs. and for a direct system is 0.275 to 0.425 lbs. 
Initially, direct systems will be more prevalent, thus, the increased 
weight is estimated to be average 0.35 lbs. (0.16 kilograms). Beginning 
in MY 2008, the weight increase from FMVSS No. 138 is anticipated to be 
0.11 pounds (0.05 kilograms) [0.35 lbs. * 0.3 and 0.16 kg * 0.3].
    As stated in the TPMS final rule,\63\ by promoting proper tire 
inflation, the installation of TPMS will result in better fuel economy 
for vehicle owners that previously had operated their vehicles with 
under-inflated tires. However, this will not impact a manufacturer's 
compliance under the CAFE program. Under the CAFE program, a vehicle's 
fuel economy is calculated with the vehicle's tires at proper 
inflation. Therefore, the fuel economy benefits of TPMS have not been 
considered in this rulemaking.
---------------------------------------------------------------------------

    \63\ 70 FR 18136, 18139; April 8, 2005; Docket No. 2005-28506.
---------------------------------------------------------------------------

2. FMVSS 202, head restraints
    The final rule requires an increase in the height of front seat 
outboard head restraints in pickups, vans, and utility vehicles, 
effective September 1, 2008 (MY 2009). If the vehicle has a rear seat 
head restraint, it is required to be at least a certain height. The 
initial head restraint requirement, established in 1969, resulted in 
the average front seat head restraints being 3 inches taller than pre-
standard head restraints and adding 5.63 pounds \64\ to the weight of a 
passenger car. With the new final rule, we estimate the increase in 
height for the front seats to be 1.3 inches and for the rear seat to be 
0.26 inch, for a combined average of 1.56 inches.\65\ Based on the 
relationship of pounds to inches from current head restraints, we 
estimate the average weight gain across light trucks would be 2.9 
pounds (1.3 kilograms). (5.63/3 * 1.56 = 2.93 lbs.)
---------------------------------------------------------------------------

    \64\ Tarbet, Marcia J., ``Cost and Weight Added by Federal Motor 
Vehicle Safety Standards for Model Years 1968-2001 in Passenger Cars 
and Light Trucks'', NHTSA, December 2004, DOT-HS-809-834. Pg. 51. 
(http://www.nhtsa.dot.gov/cars/rules/regrev/evaluate/80934.html).
    \65\ ``Final Regulatory Impact Analysis, FMVSS No. 202 Head 
Restraints for Passenger Vehicles'', NHTSA, November 2004, Docket 
No. 19807-1, pg. 74.
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3. FMVSS 208, occupant crash protection
    This final rule requires a lap/shoulder belt in the center rear 
seat of light trucks. There are an estimated 5,061,079\66\ seating 
positions in light trucks needing a shoulder belt, where they currently 
have a lap belt. This estimate of seating positions is a combination of 
light trucks, SUVs, minivans and 15 passenger vans that have either no 
rear seat, or one to four rear seats that need shoulder belts. This 
estimate was based on sales of 7,521,302 light trucks in MY 2000. Thus, 
the average light truck needs 0.67 shoulder belts. The average weight 
of a rear seat lap belt is 0.92 lbs. and the average weight of a manual 
lap/shoulder belt with retractor is 3.56 lbs.\67\ Thus, the anticipated 
weight gain is 2.64 pounds per shoulder belt. We estimate the

[[Page 51453]]

average weight gain per light truck for the shoulder belt would be 1.8 
pounds (0.8 kilograms) (2.64 * .67 = 1.77 lbs.).
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    \66\ ``Final Economic Assessment and Regulatory Flexibility 
Analysis, Cost and Benefits of Putting a Shoulder Belt in the Center 
Seats of Passenger Cars and Light Trucks'', NHTSA, June 2004, Docket 
No. 18726-2, pg. 33.
    \67\ Tarbet 2004, p. 84.
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    A second, potentially more important, weight increase depends upon 
how the center seat lap/shoulder belt is anchored. The agency has 
allowed a detachable shoulder belt in this seating position, which 
could be anchored to the ceiling or other position, without a large 
increase in weight (less than 1 lb.). If the center seat lap/shoulder 
belt were anchored to the seat itself, typically the seat would need to 
be strengthened to handle this load (the agency requests comments on 
this weight increase). If the manufacturer decides to change all of the 
seats to integral seats, having all three seating positions anchored 
through the seat, then both the seat and flooring needs to be 
strengthened (again the agency requests comments on this weight 
increase, which could be 10 to 20 lbs.). The agency requests 
manufacturer's plans in this area and predicted weight increases.
    The effective dates are based on the following phase-in schedule:

    50 percent of light vehicles produced between September 1, 2005 
and August 31, 2006,
    80 percent of light vehicles produced between September 1, 2006 
and August 31, 2007,
    100 percent of light vehicles produced after September 1, 2007.

    Thus, for MY 2008, an additional 20 percent of the fleet will be 
required to meet the standard. We estimate the average weight gain per 
light truck for the shoulder belt would be 0.36 lbs (0.16 kg) [1.8 
pounds (0.8 kilograms) * 0.2] compared to MY 2007. For the anchorage, 
the average weight increase would be 0.2 pounds (0.09 kg) or more.
4. FMVSS 214, side impact protection
    On May 17, 2004, NHTSA proposed to upgrade Federal Motor Vehicle 
Safety Standard (FMVSS) No. 214, ``Side impact protection,'' to require 
vehicle manufacturers to provide head protection to occupants involved 
in side impacts with narrow fixed objects, such as telephone poles and 
trees, and in vehicle-to-vehicle collisions. The Standard already 
requires thoracic protection in a dynamic test (69 FR 27990). If this 
proposal is adopted as a final rule, the agency anticipates, based on 
current technology, that vehicle manufacturers would respond by 
installing either a combination head/thorax side air bag or window 
curtains.
    A teardown study of 5 thorax air bags resulted in an average weight 
increase per vehicle of 4.77 pounds (2.17 kg).\68\ A second teardown 
study of 3 combination head/thorax air bags resulted in a similar 
average weight increase per vehicle of 4.38 pounds (1.99 kg).\69\ This 
second study also performed teardowns of 5 window curtain systems. One 
of the window curtain systems was very heavy (23.45 pounds). The other 
four window curtain systems had an average weight increase per vehicle 
of 6.78 pounds (3.08 kg) and that increase is assumed to be the average 
for all vehicles in the future.
---------------------------------------------------------------------------

    \68\ Khadilkar, et al. ``Teardown Cost Estimates of Automotive 
Equipment Manufactured to Comply with Motor Vehicle Standard--FMVSS 
214(D)--Side Impact Protection, Side Air Bag Features'', April 2003, 
DOT HS 809 809.
    \69\ Ludtke & Associates, ``Perform Cost and Weight Analysis, 
Head Protection Air Bag Systems, FMVSS 201'', page 4-3 to 4-5, DOT 
HS 809 842.
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    If manufacturers install thorax bags with a window curtain, the 
average weight increase would be 11.55 pounds (4.77 + 6.78) or 5.25 kg 
(2.07 + 3.08). In MY 2003, about 17 percent of the fleet had thorax air 
bags, 7 percent had combination air bags, and 10 percent had window 
curtains. The combined average weight for these systems in MY 2003 was 
1.8 pounds (0.82 kg). Thus, the future increase in weight for side 
impact air bags and window curtains compared to MY 2003 installations 
is 9.75 pounds (11.55-1.8) or 4.43 kg (5.25-0.82).
    We recognize that many manufacturers are incorporating side impact 
air bags on a voluntary basis. Therefore, we have included the weight 
associated with the proposed FMVSS No. 214 upgrade in the impacts of 
the voluntary improvements discussed below.
5. FMVSS 301, fuel system integrity
    This final rule amends the testing standards for rear end crashes 
and resulting fuel leaks. Many vehicles already pass the more stringent 
standards, and those affected are not likely to be pick-up trucks or 
vans. It is estimated that weight added will be only lightweight items 
such as a flexible filler neck. We estimate the average weight gain 
across this vehicle class would be 0.24 pounds (0.11 kilograms).
    The effective dates are based on the following phase-in schedule:

    40 percent of light vehicles produced between September 1, 2006 
and August 31, 2007,
    70 percent of light vehicles produced between September 1, 2007 
and August 31, 2008,
    100 percent of light vehicles produced after September 1, 2008 
are required to comply.

    Thus, 60 percent of the fleet must meet FMVSS 301 during the MY 
2008-2010 time period. Thus, the average weight gain during this period 
would be 0.14 pounds (0.07 kilograms).
6. Cumulative weight impacts of the FMVSSs
    In summary, NHTSA estimates that weight additions required by FMVSS 
regulations that will be effective in MYs 2008-2010, compared to the MY 
2007 fleet will increase light truck weight by an average of 3.71 
pounds (1.67 kg.). The agency recognizes that there are several safety 
improvements being made voluntarily. Some of these are for marketing 
purposes and others are to do better on government or insurance 
industry tests involving vehicle ratings. Likely voluntary safety 
improvements will add 11.75 pounds or more (5.34 kg or more) compared 
to MY 2003 installations. A more detailed discussion of the impact of 
voluntary safety improvements is provided in the PRIA.

B. Federal Motor Vehicle Emissions Standards

    With input from EPA, NHTSA has evaluated the impact of a number of 
vehicle related emissions standards on fuel economy. In addition, 
NHTSA's draft Environmental Assessment examines how the CAFE standards 
would impact air quality by affecting emissions of criteria pollutants. 
Many of these standards and regulations are currently being implemented 
through a multi-year phase-in. NHTSA believes there will not be any 
fuel economy impact between the MY 2007 baseline and MY 2010 resulting 
from federal or state emissions standards or regulations.
1. Tier 2 requirements
    On February 10, 2000, the EPA published a final rule (65 FR 6698) 
establishing new federal emissions standards for passenger cars and 
light trucks. These new emissions standards, known as Tier 2 standards, 
focus on reducing the emissions most responsible for the ozone and 
particulate matter (PM) impact from these vehicles--nitrogen oxides 
(NO<INF>X</INF>) and non-methane organic gases (NMOG), consisting 
primarily of hydrocarbons (HC) and contributing to ambient volatile 
organic compounds (VOC). Passenger cars, SUVs, pickups, vans, and 
medium duty passenger vehicles (MDPVs) \70\ are subject to the same 
national emission standards. Vehicles and fuels are treated

[[Page 51454]]

as a system, so cleaner vehicles will have low-sulfur gasoline to 
facilitate greater emission reductions. The Tier 2 emission standards 
apply to all passenger vehicles, regardless of whether they run on 
gasoline or diesel fuel.
---------------------------------------------------------------------------

    \70\ For a definition and discussion of these vehicles, see 
section IX, Applicability of the standards.
---------------------------------------------------------------------------

    Tier 2 standards are fully implemented for passenger cars and light 
trucks (LDT1 and LDT2) in 2007, and for MDPVs by 2009 at the latest. 
Thus, all vehicles subject to the 2008 light truck rulemaking are 
affected.
    When issuing the Tier 2 standards, EPA responded to comments 
regarding the Tier 2 standard and its impact on CAFE by indicating that 
it believed that the Tier 2 standards would not have an adverse effect 
on fuel economy. The EPA stated that it saw no real energy impacts with 
respect to the Tier 2 vehicle program and that the technologies needed 
for conventional gasoline engines to meet the Tier 2 standards should 
have no significant effect on fuel economy for those engines, which 
represent over 99 percent of the current light-duty fleets. Similarly, 
EPA states that it does not believe that the stringent Tier 2 emission 
standards will preclude promising fuel efficient technologies.\71\ EPA 
Tier 2 emission standards increase the stringency of the emission 
standards of diesel engines starting in 2008. Several manufacturers 
have stated that they have working diesel engines that will meet the 
Tier 2 standards. In addition, the EPA test facility in Ann Arbor, 
Michigan has a working prototype diesel engine that meets the Tier 2 
standard. The agency did not apply diesel engines frequently as a CAFE 
compliance technology because there were other technologies that were 
more cost effective in meeting the standard.
---------------------------------------------------------------------------

    \71\ See, U.S. EPA, Tire 2 Motor Vehicle Emissions Standards and 
Gasoline Sulfur Control Requirements: Response to Comments, EPA420-
R-99-024, December 20, 1999, pp. 26-11 and 26-12.
---------------------------------------------------------------------------

2. Onboard vapor recovery
    On April 6, 1994, EPA published a final rule (59 FR 16262) 
controlling vehicle-refueling emissions through the use of onboard 
refueling vapor recovery (ORVR) vehicle-based systems. These 
requirements applied to light-duty vehicles beginning in MY 1998, and 
phased-in over three model years. The ORVR requirements also apply to 
light-duty trucks with a GVWR of 6,000 pounds or less beginning in MY 
2001 and phasing-in over three model years. For light-duty trucks with 
a GVWR of 6,001-8,500 lbs, the ORVR requirements first apply in MY 2004 
and phase-in over three model years.
    The ORVR requirements impose a weight penalty on vehicles as they 
necessitate the installation of vapor recovery canisters and associated 
tubing and hardware. However, the operation of the ORVR system results 
in fuel vapors being made available to the engine for combustion while 
the vehicle is being operated. As these vapors provide an additional 
source of energy that would otherwise be lost to the atmosphere through 
evaporation, the ORVR requirements do not have a negative impact on 
fuel economy.
3. California Air Resources Board LEV II
    The State of California Low Emission Vehicle II regulations (LEV 
II) apply to passenger cars and light trucks as of MY 2004.\72\ The LEV 
II amendments restructure the light-duty truck category so that trucks 
with gross vehicle weight rating of 8,500 pounds or lower are subject 
to the same low-emission vehicle standards as passenger cars. LEV II 
requirements also include more stringent emission standards for 
passenger car and light-duty truck LEVs and ultra low emission vehicles 
(ULEVs), and establish a four-year phase-in requirement that begins in 
2004.
---------------------------------------------------------------------------

    \72\ Title 13, California Code of Regulations Sec. Sec.  1900, 
1956.8, 1960.1, 1960.5, 1961, 1962, 1962.1, 1965, 1976, 1978, 2062, 
and 2101.
---------------------------------------------------------------------------

    The agency notes that compliance with increased emission 
requirements is most often achieved through more sophisticated 
combustion management. The improvements and refinement in engine 
controls to achieve this end generally improve fuel economy.
    In summary, the agency believes there will be no impact from 
emissions standards on light truck fuel economy between the baseline MY 
2007 and MY 2010 fleets.

C. Impacts on Manufacturers' Baselines

    Based on NHTSA weight versus fuel economy algorithms, a 3-4 pound 
increase in weight equates to 0.01 mpg fuel economy penalty. Thus, the 
agency's estimate of the safety weight effects are 0.01 mpg or more for 
required additions and 0.03 mpg or more for voluntary safety 
improvements for a total of 0.04 mpg or more.
    However, the agency is not certain whether the additional weight 
associated with the FMVSSs that will (or may) take effect between MY 
2007 and 2008, as well as the weight associated with voluntary safety 
improvements, were incorporated into the manufacturers' product plans 
submitted to the agency. Such increases may have been reflected in the 
available data relied upon by the agency to supplement manufacturer 
submissions. Therefore, the agency seeks clarification on this point.

VIII. Need for Nation to Conserve Energy

    EPCA specifically directs the Department to balance the 
technological and economic challenges with the nation's need to 
conserve energy. While EPCA grew out of the energy crisis of the 1970s, 
the United States still faces considerable energy challenges today. 
Increasingly, U.S. energy consumption has been outstripping U.S. energy 
production. This imbalance, if allowed to continue, will undermine our 
economy, our standard of living, and our national security. (May 2001 
National Energy Policy (NEP) Overview, p. viii)
    As was made clear in the first chapter of the NEP, efficient energy 
use and conservation are important elements of a comprehensive program 
to address the nation's current energy challenges:

    America's current energy challenges can be met with rapidly 
improving technology, dedicated leadership, and a comprehensive 
approach to our energy needs. Our challenge is clear--we must use 
technology to reduce demand for energy, repair and maintain our 
energy infrastructure, and increase energy supply. Today, the United 
States remains the world's undisputed technological leader: but 
recent events have demonstrated that we have yet to integrate 21st-
century technology into an energy plan that is focused on wise 
energy use, production, efficiency, and conservation.

    (Page 1-1)
    The concerns about energy security and the effects of energy prices 
and supply on national economic well-being that led to the enactment of 
EPCA persist today. The demand for petroleum is steadily growing in the 
U.S. and around the world.
    The Energy Information Administration's International Energy 
Outlook 2005 (IEO2005) \73\ and Annual Energy Outlook (2005) (AEO2005) 
indicate growing demand for petroleum in the U.S. and around the world. 
U.S. demand for oil is expected to increase from 20 million barrels per 
day in 2003 to 28 million barrels per day in 2025. In the IEO2005 
reference case, world oil demand increases through 2025 at a rate of 
1.9 percent annually, from 78 million barrels per day in 2002 to 119 
million barrels per day in 2025. Fifty-nine percent of the increase in 
world demand is projected to occur in the North

[[Page 51455]]

America and emerging Asia. Most (61 percent) of the worldwide increases 
would occur in the transportation sector.\74\
---------------------------------------------------------------------------

    \73\ See http://www.eia.doe.gov/oiaf/ieo/pdf/0484(2005).pdf.
    \74\ U.S. oil use has become increasingly concentrated in the 
transportation sector. In 1973, the U.S. transportation sector 
accounted for 51 percent of total U.S. petroleum use (8.4 of 16.5 
million barrels per day (mmbd)). By 2003, transportation's share of 
U.S. oil had increased to 66 percent (13.2 out of 20.0 mmbd). 
(USDOE/EIA, Monthly Energy Review, April 2005, Table 11.2) Energy 
demand for transportation is projected to grow by over 67 percent 
between 2003 and 2025. (USDOE/EIA, Annual Energy Outlook (Report 
<greek-i> DOE/EIA-0383), January 2005) Demand for light-duty vehicle 
fuels is projected to increase at a similar pace. (Id.)
---------------------------------------------------------------------------

    To meet this projected increase in demand, worldwide productive 
capacity would have to increase by more than 42 million barrels per day 
over current levels. OPEC producers are expected to supply 60 percent 
of the increased production. In contrast, U.S. crude oil production is 
projected to increase from 5.7 million barrels per day in 2003 to 6.2 
million in 2009, and then begin declining in 2010, falling to 4.7 
million barrels per day in 2025. By 2025, nearly 70 percent of the oil 
consumed in the U.S. would be imported oil.
    Energy is an essential input to the U.S. economy and having a 
strong economy is essential to maintaining and strengthening our 
national security. Secure, reliable, and affordable energy sources are 
fundamental to economic stability and development. Rising energy demand 
poses a challenge to energy security given increased reliance on global 
energy markets. As noted above, U.S. energy consumption has 
increasingly been outstripping U.S. energy production. Conserving 
energy, especially reducing the nation's dependence on petroleum, 
benefits the U.S. in several ways. Improving energy efficiency has 
benefits for economic growth and the environment as well as other 
benefits such reducing pollution and improving security of energy 
supply. More specifically, reducing total petroleum use decreases our 
economy's vulnerability to oil price shocks. Reducing dependence on oil 
imports from regions with uncertain conditions enhances our energy 
security and can reduce the flow of oil profits to certain states now 
hostile to the U.S. Reducing the growth rate of oil use will help 
relieve pressures on already strained domestic refinery capacity, 
decreasing the likelihood of product price volatility.
    We believe that the continued development of advanced technology, 
such as fuel cell technology, and an infrastructure to support it, may 
help in the long term to achieve reductions in foreign oil dependence 
and stability in the world oil market. The continued infusion of 
advanced diesels and hybrid propulsion vehicles into the U.S. light 
truck fleet may also contribute to reduced dependence on petroleum. In 
the shorter term, our Reformed CAFE proposal would encourage broader 
use of fuel saving technologies, resulting in more fuel-efficient 
vehicles and greater overall fuel economy.
    We have concluded that the proposed increases in the light truck 
CAFE standards would contribute appropriately to energy conservation 
and the comprehensive energy program set forth in the NEP. In assessing 
the impact of the standards, we accounted for the increased vehicle 
mileage that accompanies reduced costs to consumers associated with 
greater fuel economy and have concluded that the final rule will lead 
to considerable fuel savings. While increasing fuel economy without 
increasing the cost of fuel will lead to some additional vehicle 
travel, the overall impact on fuel conservation remains decidedly 
positive.
    We acknowledge that, despite the CAFE program, the United States' 
dependence on foreign oil and petroleum consumption has increased in 
recent years. Nonetheless, data suggest that past fuel economy 
increases have had a major impact on U.S. petroleum use. The NAS 
determined that if the fuel economy of the vehicle fleet had not 
improved since the 1970s, the U.S. gasoline consumption and oil imports 
would be about 2.8 million barrels per day higher than they are today. 
Increasing fuel economy by 10 percent would produce an estimated 8 
percent reduction in fuel consumption. Increases in the fuel economy of 
new vehicles eventually raise the fuel economy of all vehicles as older 
cars and trucks are scrapped.
    Further, we do not believe that the increases in the light truck 
CAFE standards applicable to MYs 2008-2011 would unduly lead to so-
called ``energy waste.'' This theory, presented in public comments 
during the rulemaking on the MY 2005-07 light truck standards, rests on 
the notion that efforts to reduce energy use can result in negative 
economic effects from losses in product values, profits and worker 
incomes. As discussed above, the agency believes that the CAFE 
standards could be achieved without significant adverse economic or 
safety consequences. Within the bounds of technological feasibility and 
economic practicability, the proposed standards would, in fact, enhance 
``energy efficiency'' without significant adverse ancillary effects.
    Our analysis in the Environmental Assessment indicates that 
proposed Reformed standards will result in an estimated 37.4 million 
metric tons of avoided greenhouse gas emissions (expressed in carbon 
equivalents) over the lifetime of the vehicles. They will further 
reduce the greenhouse gas emissions intensity of the transportation 
sector of the national economy, consistent with the President's overall 
climate change policies. In the past, NHTSA has received comments 
regarding the monetary value of the benefit of avoided greenhouse gas 
emissions. However, NHTSA has not monetized greenhouse gas reduction 
benefits in this rule, given the scientific and economic uncertainties 
associated with developing a proper estimation of avoided costs due to 
climate change. We invite comments on this approach.

IX. Applicability of the CAFE Standards

A. MDPVs

    In the 2003 ANPRM, the agency sought comment on whether to extend 
the applicability of the CAFE program to include vehicles with a GVWR 
between 8,500 lb. and 10,000 lb., especially those that are defined by 
the EPA as medium duty passenger vehicles (MDPVs).\75\ Under EPCA, the 
agency can regulate vehicles with a GVWR between 6,000 lb. and 10,000 
lb. under CAFE if we determine that (1) Standards are feasible for 
these vehicles, and (2) either that these vehicles are used for the 
same purpose as vehicles rated at not more than 6,000 GVWR, or that 
their regulation will result in significant energy conservation. The 
MDPV category includes vehicles with a GVWR greater than 8,500 lb but 
less than 10,000 lb. and that were designed primarily to transport 
passengers, i.e., large vans and SUVs.
---------------------------------------------------------------------------

    \75\ EPA defines these vehicles as follows:
    Medium-duty passenger vehicle (MDPV) means any heavy-duty 
vehicle (as defined in this subpart) with a gross vehicle weight 
rating (GVWR) of less than 10,000 pounds that is designed primarily 
for the transportation of persons. The MDPV definition does not 
include any vehicle which:
    (1) Is an ``incomplete truck'' as defined in this subpart; or
    (2) Has a seating capacity of more than 12 persons; or
    (3) is designed for more than 9 persons in seating rearward of 
the driver's seat; or
    (4) Is equipped with an open cargo area (for example, a pick-up 
truck box or bed) of 72.0 inches in interior length or more. A 
covered box not readily accessible from the passenger compartment 
will be considered an open cargo area for purposes of this 
definition.
    (40 CFR Sec.  86.1803-01.)
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    In preparing the NPRM, the agency analyzed the feasibility of 
including MDPVs and the impact of their

[[Page 51456]]

inclusion on the fuel savings of the CAFE standards. The agency 
believes that fuel economy technologies applicable to vehicles with a 
GVWR below 8,500 lb. might be applicable to MDPVs, e.g., low-friction 
lubricants and cylinder deactivation. MDPVs are already required by EPA 
to undergo a portion of the testing necessary to determine fuel economy 
performance under the CAFE program. See, 40 CFR Part 600 Subpart F. If 
MDPVs were included in the CAFE standards, manufacturers would be able 
to rely on this testing to generate a portion of the data necessary to 
determine fuel economy performance. A similar test procedure could be 
used to generate the remaining necessary data. Accordingly, we do not 
believe that, if MDPVs were included in the CAFE program, meeting the 
additional testing requirements would be burdensome.
    The agency's analysis of the impact of including MDPVs on fuel 
savings indicated that their inclusion in MYs 2008-2010 would lead to a 
net loss of industry-wide fuel savings. Under the Unreformed CAFE 
structure, maximum feasible standards are set with particular 
consideration given to the least capable manufacturer, which has been 
determined to be General Motors for this proposed rule. Almost all of 
the MDPVs are produced by General Motors and, due to their weight, have 
very low fuel economy. The inclusion of these vehicles would lead to 
greater fuel savings by General Motors, but less by the other 
manufacturers. This would occur because the addition of the low fuel 
economy MDPVs in MYs 2008-2010 would depress the level of General 
Motors' CAFE and therefore depress the level of the Unreformed CAFE 
standards. We calculate that the Unreformed CAFE standards for MYs 
2008-2010 would be 0.3 mpg lower if MDPVs were included in those years. 
This would affect not only General Motors, but also some other 
manufacturers. Since the MY 2008-2010 Reformed CAFE standards would be 
set so as to roughly equalize industry-wide costs with the MY 2008-2010 
Unreformed CAFE standards, depressing the Unreformed CAFE standards for 
MYs 2008-2010 would also depress the Reformed CAFE standards for those 
years. The net effect of including MDPVs in the MY 2008-2010 Reformed 
CAFE standards would be a reduction in overall fuel savings of almost 
1.1 billion gallons.
    The agency seeks comment on whether MDPVs should be included in 
final rule for MY 2011. If the agency were to include MDPVs, we would 
adopt essentially the EPA definition of ``medium duty passenger 
vehicles.'' Inclusion of MDPVs in the MY 2011 Reformed CAFE standard 
could save an additional 0.5 billion gallons of fuels. The associated 
costs are $200 million with a per vehicle cost ranging from $900 to 
$2800 per vehicle. Based on the product plans received, the compliance 
costs would be borne primarily by one manufacturer. The agency seeks 
comments on the merits of subjecting these vehicles to the MY 2011 
standard.
    If we do not regulate MDPVs, manufacturers could very well decide, 
nevertheless, to install fuel-efficient technologies in their MDPVs as 
they become more widely used in their non-MDPV fleet, and thereby less 
expensive, in order to improve market demand for their vehicles. The 
agency invites comment on whether ways, other than inclusion of 8,500-
10,000 lb GVWR light trucks in the CAFE standards, can be found in EPCA 
to encourage the making of improvements in fuel economy of those 
vehicles. Can the agency create mechanisms by which manufacturers who 
improve the fuel economy of those vehicles can receive credit toward 
compliance with the light truck CAFE standards? The provisions in EPCA 
regarding credits for light trucks are less precise than those relating 
to passenger cars, although EPCA does provide that credits for light 
trucks are to be earned in the same way as credits for cars are earned. 
If the agency can create such mechanisms, what requirements and 
limitations should the agency establish? For example, in the absence of 
an applicable standard, what reference level of CAFE could be used to 
determine the amount of credit earned by a manufacturer?

B. ``Flat-Floor'' Provision

    The agency has tentatively decided to amend the ``flat floor 
provision'' in the light truck definition (49 CFR 523.5) to include 
expressly vehicles with seats that fold and stow in a vehicle's floor 
pan. The agency has tentatively determined that these seats are 
functionally equivalent to removable seats and minimize safety concerns 
that arise from the potential of improperly re-installed seats.
    The current regulation classifies as a light truck any vehicle with 
readily removable seats that, once removed, leave a flat, floor-level 
surface extending from the forward most removable seat mount to the 
rear of the vehicle (the flat floor provision). The flat floor 
provision originally was based on the agency's determination that 
passenger vans with removable seats and a flat load floor were derived 
from cargo vans (42 FR 38367; July 28, 1977) and should be classified 
as trucks. Because these passenger vans were derived from cargo vans, 
the agency distinguished them from station wagons--which also had large 
flat areas with their seats folded--and were based on a car chassis.
    Currently, the vast majority of vehicles equipped with stowable 
seats are minivans, which tend not to be based on car chassis and 
typically perform very well in crash rating tests. The stowing of such 
seats results in a flat, floor-level surface comparable to that if the 
seats were removed. The cargo space created is functionally equivalent 
between the stowable and removable seats.
    Moreover, removable seats are heavy and cumbersome. The agency 
recognizes that consumers could injure themselves while removing and 
reinstalling these seats. Additionally, if the seats are improperly re-
installed, the seats and related occupant crash protection systems may 
not provide the necessary protection in a collision. Stowable seats 
minimize this concern.
    The agency has tentatively determined that by including stowable 
seats in the flat floor provision, we would facilitate the production 
of vehicles that achieve high safety ratings, that have a degree of 
consumer preference, and that minimize safety risks from improper 
reinstallation/redeployment. The primary effect of this amendment would 
be on the design of seating in mini-vans, which have traditionally been 
classified as light trucks. With the adoption of this amendment, mini-
vans would be treated as light trucks regardless of whether they have 
removable or fold down seating.

X. Rulemaking Analyses and Notices

A. Executive Order 12866 and DOT Regulatory Policies and Procedures

    Executive Order 12866, ``Regulatory Planning and Review'' (58 FR 
51735, October 4, 1993), provides for making determinations whether a 
regulatory action is ``significant'' and therefore subject to OMB 
review and to the requirements of the Executive Order. The Order 
defines a ``significant regulatory action'' as one that is likely to 
result in a rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or Tribal governments or communities;

[[Page 51457]]

    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    The rulemaking proposed in this NPRM will be economically 
significant if adopted. Accordingly, OMB reviewed it under Executive 
Order 12866. The rule, if adopted, would also be significant within the 
meaning of the Department of Transportation's Regulatory Policies and 
Procedures.
    We estimate that the total benefits under the Unreformed CAFE 
standards for MYs 2008-2010 and the Reformed CAFE standard for MY 2011 
would be approximately $7.0 billion at a 7 percent discount rate and at 
fuel prices ranging from $1.51 to $1.58 per gallon: $605 million for MY 
2008, $1,366 million for MY 2009, $2,007 million for MY 2010, and 
$3,069 million for MY 2011. We estimate that the total cost under those 
standards, as compared to the MY 2007 standard of 22.2 mpg, would be a 
total of $6.2 billion: $528 million for MY 2008, $1,244 million for MY 
2009, $1,798 million for MY 2010, and $2,656 million for MY 2011.
    Under the Reformed CAFE standards for MYs 2008-2011, as compared to 
the MY 2007 standard of 22.2 mpg, we estimate the total benefits under 
the Reformed CAFE system for MYs 2008-2011 at $7.5 billion, at a 7 
percent discount rate and at fuel prices ranging from $1.51 to $1.58 
per gallon: $694 million for MY 2008, $1,633 million for MY 2009, 
$2,144 million for MY 2010, and $3,069 million for MY 2011. We estimate 
the total cost to be approximately the same as the cost under the 
Unreformed CAFE system, $6.2 billion.
    Because the proposed rule if adopted would be significant under 
both the Department of Transportation's procedures and OMB's 
guidelines, the agency has prepared a Preliminary Regulatory Impact 
Analysis and placed it in the docket and on the agency's Web site.

B. National Environmental Policy Act

    Consistent with the requirements of the National Environmental 
Policy Act and the regulations of the Council on Environmental Quality, 
the agency has prepared a Draft Environmental Assessment of this 
proposed action, and has placed the analysis in the docket. Based on 
the Draft Environmental Assessment, the agency does not, at this time, 
anticipate that the proposed action would have a significant effect on 
the quality of the human environment. The agency seeks comments on the 
Draft Environmental Assessment.

C. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601 et seq., 
as amended by the Small Business Regulatory Enforcement Fairness Act 
(SBREFA) of 1996), whenever an agency is required to publish a notice 
of rulemaking for any proposed or final rule, it must prepare and make 
available for public comment a regulatory flexibility analysis that 
describes the effect of the rule on small entities (i.e., small 
businesses, small organizations, and small governmental jurisdictions). 
The Small Business Administration's regulations at 13 CFR part 121 
define a small business, in part, as a business entity ``which operates 
primarily within the United States.'' (13 CFR 121.105(a)). No 
regulatory flexibility analysis is required if the head of an agency 
certifies the rule will not have a significant economic impact on a 
substantial number of small entities.
    I certify that the proposed amendment would not have a significant 
economic impact on a substantial number of small entities. The 
following is the agency's statement providing the factual basis for the 
certification (5 U.S.C. 605(b)).
    If adopted, the proposal would directly affect thirteen single 
stage light truck manufacturers. According to the Small Business 
Administration's small business size standards (see 5 CFR 121.201), a 
single stage light truck manufacturer (NAICS code 336112, Light Truck 
and Utility Vehicle Manufacturing) must have 1,000 or fewer employees 
to qualify as a small business. None of the affected single stage light 
truck manufacturers are small businesses under this definition. All of 
the manufacturers of light trucks have thousands of employees. Given 
that none of the businesses directly affected are small business for 
purposes of the Regulatory Flexibility Act, a regulatory flexibility 
analysis was not prepared.

D. Executive Order 13132 Federalism

    Executive Order 13132 requires NHTSA to develop an accountable 
process to ensure ``meaningful and timely input by State and local 
officials in the development of regulatory policies that have 
federalism implications.'' Executive Order 13132 defines the term 
``Policies that have federalism implications'' to include regulations 
that have ``substantial direct effects on the States, on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government.'' Under Executive Order 13132, NHTSA may not issue a 
regulation that has federalism implications, that imposes substantial 
direct compliance costs, and that is not required by statute, unless 
the Federal government provides the funds necessary to pay the direct 
compliance costs incurred by State and local governments, or NHTSA 
consults with State and local officials early in the process of 
developing the proposed regulation.
    We reaffirm our view that a state may not impose a legal 
requirement relating to fuel economy, whether by statute, regulation or 
otherwise, that conflicts with this rule. A state law that seeks to 
reduce motor vehicle carbon dioxide emissions is both expressly and 
impliedly preempted.
    Our statute contains a broad preemption provision making clear the 
need for a uniform, federal system: ``When an average fuel economy 
standard prescribed under this chapter is in effect, a State or a 
political subdivision of a State may not adopt or enforce a law or 
regulation related to fuel economy standards or average fuel economy 
standards for automobiles covered by an average fuel economy standard 
under this chapter.'' 49 U.S.C. 32919(a). Since the way to reduce 
carbon dioxide emissions is to improve fuel economy, a state regulation 
seeking to reduce those emissions is a ``regulation related to fuel 
economy standards or average fuel economy standards.''
    Further, such a regulation would be impliedly preempted, as it 
would interfere with our implementation of the CAFE statute. For 
example, it would interfere the careful balancing of various statutory 
factors and other related considerations, as contemplated in the 
conference report on EPCA, we must do in order to establish average 
fuel economy standards at the maximum feasible level. It would also 
interfere with our effort to reform CAFE so to achieve higher fuel 
savings, while reducing the risk of adverse economic and safety 
consequences.

E. Executive Order 12988 (Civil Justice Reform)

    Pursuant to Executive Order 12988, ``Civil Justice Reform'' (61 FR 
4729, February 7, 1996), the agency has considered whether this 
rulemaking would have any retroactive effect. This final rule does not 
have any retroactive effect.

[[Page 51458]]

F. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires Federal agencies to prepare a written assessment of the costs, 
benefits, and other effects of proposed or final rules that include a 
Federal mandate likely to result in the expenditure by State, local, or 
tribal governments, in the aggregate, or by the private sector, of more 
than $100 million in any one year (adjusted for inflation with base 
year of 1995). Before promulgating a rule for which a written statement 
is needed, section 205 of the UMRA generally requires NHTSA to identify 
and consider a reasonable number of regulatory alternatives and adopt 
the least costly, most cost-effective, or least burdensome alternative 
that achieves the objectives of the rule. The provisions of section 205 
do not apply when they are inconsistent with applicable law. Moreover, 
section 205 allows NHTSA to adopt an alternative other than the least 
costly, most cost-effective, or least burdensome alternative if the 
agency publishes with the final rule an explanation why that 
alternative was not adopted.
    This final rule will not result in the expenditure by State, local, 
or tribal governments, in the aggregate, of more than $100 million 
annually, but it will result in the expenditure of that magnitude by 
vehicle manufacturers and/or their suppliers. In promulgating this 
proposal, NHTSA considered whether average fuel economy standards lower 
and higher than those proposed would be appropriate. NHTSA is 
statutorily required to set standards at the maximum feasible level 
achievable by manufacturers and has tentatively concluded that the 
proposed standards are the maximum feasible standards for the light 
truck fleet for MYs 2008-2011 in light of the statutory considerations.

G. Paperwork Reduction Act

    Under the procedures established by the Paperwork Reduction Act of 
1995, a person is not required to respond to a collection of 
information by a Federal agency unless the collection displays a valid 
OMB control number. The proposed rule would amend the reporting 
requirements under the 49 CFR part 537, Automotive Fuel Economy 
Reports. In addition to the vehicle model information collected under 
the approved data collection (OMB control number 2127-0019) in Part 
537, light truck manufacturers would also be required provide data on 
vehicle footprint. During the transition period, manufacturers would 
also be required to specify with which CAFE system they were complying.
    In compliance with the PRA, we announce that NHTSA is seeking 
comment on the proposed revisions to the collection.
    Agency: National Highway Traffic Safety Administration (NHTSA).
    Title: 49 CFR part 537, Automotive Fuel Economy Reports (F.E.) 
Reports.
    Type of Request: Amend existing collection.
    OMB Clearance Number: 2127-0019.
    Form Number: This collection of information will not use any 
standard forms.
    Requested Expiration Date of Approval: Three years from the date of 
approval.

Summary of the Collection of Information

    For MYs 2008-2010, we are proposing to provide manufacturers an 
option to comply with one of two CAFE systems. A manufacturer would be 
required to report under which system it chose to comply during those 
years. Manufacturers complying under the Reformed CAFE system would 
also be required to provide data on vehicle footprint so that the 
agency could determine a manufacturer's required fuel economy level.
    This information collection would be included as part of the 
existing fuel economy reporting requirements.

Description of the Need for the Information and Proposed Use of the 
Information

    NHTSA would require this information to ensure that vehicle 
manufacturers were complying with the light truck fuel economy 
standards. NHTSA would use this information to determine if a 
manufacturer's fuel economy level should be calculated under the 
Unreformed or Reformed CAFE system. NHTSA would use the footprint data 
to determine a manufacturer's required fuel economy level under the 
Reformed CAFE system.

Description of the Likely Respondents (Including Estimated Number, and 
Proposed Frequency of Response to the Collection of Information)

    NHTSA estimates that 13 light truck manufacturers would submit the 
required information. The frequency of reporting would not change from 
that currently authorized under collection number 2127-0019.

Estimate of the Total Annual Reporting and Recordkeeping Burden 
Resulting from the Collection of Information

    NHTSA estimates that each manufacturer will incur an increase of 
two burden hours per year per report. This estimate is based on the 
fact that data collection will involve only computer tabulation and 
that manufacturers will provide the information to NHTSA in an 
electronic (as opposed to paper) format.
    NHTSA estimates that the recordkeeping burden resulting from the 
collection of information will be 0 hours because the information will 
be retained on each manufacturer's existing computer systems for each 
manufacturer's internal administrative purposes.
    NHTSA estimates that the total annual cost burden would be 
increased by 551.58 dollars (2 additional burden hours per light truck 
manufacturer x 13 light truck manufacturers x 21.23 dollars/hour). 
There would be no capital or start-up costs as a result of this 
collection. Manufacturers can collect and tabulate the information by 
using existing equipment. Thus, there would be no additional costs to 
respondents or recordkeepers.
    NHTSA requests comment on its estimates of the total annual hour 
and cost burdens resulting from this collection of information. Please 
submit any comments to the NHTSA Docket Number referenced in the 
heading of this notice or to: Ken Katz, Lead Engineer, Fuel Economy 
Division, Office of International Policy, Fuel Economy, and Consumer 
Programs, at 400 Seventh Street, SW., Washington, DC 20590. He can also 
be contacted by phone, (202) 366-0846; facsimile (202) 493-2290; and 
electronic mail, <a href="/cdn-cgi/l/email-protection#f69d9d97828cb6989e828597d8929982d8919980"><span class="__cf_email__" data-cfemail="81eaeae0f5fbc1efe9f5f2e0afe5eef5afe6eef7">[email protected]</span></a>. Comments are due by October 31, 
2005.

H. Regulation Identifier Number (RIN)

    The Department of Transportation assigns a regulation identifier 
number (RIN) to each regulatory action listed in the Unified Agenda of 
Federal Regulations. The Regulatory Information Service Center 
publishes the Unified Agenda in April and October of each year. You may 
use the RIN contained in the heading at the beginning of this document 
to find this action in the Unified Agenda.

I. Executive Order 13045

    Executive Order 13045 (62 FR 19885, April 23, 1997) applies to any 
rule that: (1) Is determined to be economically significant as defined 
under E.O. 12866, and (2) concerns an environmental, health or safety 
risk that NHTSA has reason to believe may have a disproportionate 
effect on children. If the regulatory action meets both criteria, we 
must evaluate the environmental health or safety effects of the planned

[[Page 51459]]

rule on children, and explain why the planned regulation is preferable 
to other potentially effective and reasonably feasible alternatives 
considered by us.
    This proposed rule does not have a disproportionate effect on 
children. The primary effect of this proposal is to conserve energy 
resources by setting fuel economy standards for light trucks.

J. National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act (NTTAA) requires NHTSA to evaluate and use existing voluntary 
consensus standards in its regulatory activities unless doing so would 
be inconsistent with applicable law (e.g., the statutory provisions 
regarding NHTSA's vehicle safety authority) or otherwise impractical.
    Voluntary consensus standards are technical standards developed or 
adopted by voluntary consensus standards bodies. Technical standards 
are defined by the NTTAA as ``performance-based or design-specific 
technical specification and related management systems practices.'' 
They pertain to ``products and processes, such as size, strength, or 
technical performance of a product, process or material.''
    In meeting the requirement of the NTTAA, we are required to consult 
with voluntary, private sector, consensus standards bodies. Examples of 
organizations generally regarded as voluntary consensus standards 
bodies include the American Society for Testing and Materials (ASTM), 
the Society of Automotive Engineers (SAE), and the American National 
Standards Institute (ANSI). If NHTSA does not use available and 
potentially applicable voluntary consensus standards, we are required 
by the Act to provide Congress, through OMB, an explanation of the 
reasons for not using such standards.
    The notice proposes to categorize light trucks according to vehicle 
footprint (average track width X wheelbase). For the purpose of this 
calculation, the agency proposes to base these measurements on those by 
the automotive industry. Determination of wheelbase would be consistent 
with L101-wheelbase, defined in SAE J1100 MAY95, Motor vehicle 
dimensions. The agency's proposal uses a modified version of the SAE 
definitions for track width (W101-tread-front and W102-tread-rear as 
defined in SAE J1100 MAY95). The proposed definition of track width 
reduces a manufacturer's ability to adjust a vehicle's track width 
through minor alterations.

K. Executive Order 13211

    Executive Order 13211 (66 FR 28355, May 18, 2001) applies to any 
rule that: (1) Is determined to be economically significant as defined 
under E.O. 12866, and is likely to have a significant adverse effect on 
the supply, distribution, or use of energy; or (2) that is designated 
by the Administrator of the Office of Information and Regulatory 
Affairs as a significant energy action. If the regulatory action meets 
either criterion, we must evaluate the adverse energy effects of the 
planned rule and explain why the planned regulation is preferable to 
other potentially effective and reasonably feasible alternatives 
considered by us.
    The proposed rule seeks to establish light truck fuel economy 
standards that will reduce the consumption of petroleum and will not 
have any adverse energy effects. Accordingly, this rulemaking action is 
not designated as a significant energy action.

L. Department of Energy Review

    In accordance with 49 U.S.C. 32902(j), we submitted this proposed 
rule to the Department of Energy for review. That Department did not 
make any comments that we have not addressed.

M. Plain Language

    Executive Order 12866 requires each agency to write all rules in 
plain language. Application of the principles of plain language 
includes consideration of the following questions:
    <bullet> Have we organized the material to suit the public's needs?
    <bullet> Are the requirements in the rule clearly stated?
    <bullet> Does the rule contain technical language or jargon that 
isn't clear?
    <bullet> Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the rule easier to understand?
    <bullet> Would more (but shorter) sections be better?
    <bullet> Could we improve clarity by adding tables, lists, or 
diagrams?
    <bullet> What else could we do to make the rule easier to 
understand?
    If you have any responses to these questions, please include them 
in your comments on this proposal.

N. Privacy Act

    Anyone is able to search the electronic form of all comments 
received into any of our dockets by the name of the individual 
submitting the comment (or signing the comment, if submitted on behalf 
of an association, business, labor union, etc.). You may review DOT's 
complete Privacy Act Statement in the Federal Register published on 
April 11, 2000 (Volume 65, Number 70; Pages 19477-78) or you may visit 
http://dms.dot.gov.

XI. Comments

Submission of Comments

How Can I Influence NHTSA's Thinking on This Notice?
    In developing this notice, we tried to address the concerns of all 
our stakeholders. Your comments will help us determine what standards 
should be set for light truck fuel economy. We invite you to provide 
different views on questions we ask, new approaches and technologies we 
did not ask about, new data, how this notice may affect you, or other 
relevant information. We welcome your views on all aspects of this 
notice, but request comments on specific issues throughout this notice. 
We grouped these specific requests near the end of the sections in 
which we discuss the relevant issues. Your comments will be most 
effective if you follow the suggestions below:
    <bullet> Explain your views and reasoning as clearly as possible.
    <bullet> Provide empirical evidence, wherever possible, to support 
your views.
    <bullet> If you estimate potential costs, explain how you arrived 
at the estimate.
    <bullet> Provide specific examples to illustrate your concerns.
    <bullet> Offer specific alternatives.
    <bullet> Refer your comments to specific sections of the notice, 
such as the units or page numbers of the preamble, or the regulatory 
sections.
    <bullet> Be sure to include the name, date, and docket number of 
the proceeding with your comments.
How Do I Prepare and Submit Comments?
    Your comments must be written and in English. To ensure that your 
comments are correctly filed in the Docket, please include the docket 
number of this document in your comments.
    Your comments must not be more than 15 pages long. (49 CFR 553.21). 
We established this limit to encourage you to write your primary 
comments in a concise fashion. However, you may attach necessary 
additional documents to your comments. There is no limit on the length 
of the attachments.
    Please submit two copies of your comments, including the 
attachments, to Docket Management at the address given above under 
ADDRESSES.
    Comments may also be submitted to the docket electronically by 
logging onto the Dockets Management System Web site at http://dms.dot.gov. Click on

[[Page 51460]]

``Help'' to obtain instructions for filing the document electronically.
How Can I Be Sure That My Comments Were Received?
    If you wish Docket Management to notify you upon its receipt of 
your comments, enclose a self-addressed, stamped postcard in the 
envelope containing your comments. Upon receiving your comments, Docket 
Management will return the postcard by mail. Each electronic filer will 
receive electronic confirmation that his or her submission has been 
received.
How Do I Submit Confidential Business Information?
    If you wish to submit any information under a claim of 
confidentiality, you should submit three copies of your complete 
submission, including the information you claim to be confidential 
business information, to the Chief Counsel, NHTSA, at the address given 
above under FOR FURTHER INFORMATION CONTACT. In addition, you should 
submit two copies, from which you have deleted the claimed confidential 
business information, to Docket Management at the address given above 
under ADDRESSES. When you send a comment containing information claimed 
to be confidential business information, you should include a cover 
letter setting forth the information specified in our confidential 
business information regulation. (49 CFR part 512.)
Will the Agency Consider Late Comments?
    We will consider all timely submitted comments, i.e., those that 
Docket Management receives before the close of business on the comment 
closing date indicated above under DATES. Due to the statutory deadline 
(April 1, 2006), we will be very limited in our ability to consider 
late-filled comments. If Docket Management receives a comment too late 
for us to consider it in developing a final rule, we will consider that 
comment as an informal suggestion for future rulemaking action.
How Can I Read the Comments Submitted By Other People?
    You may read the comments received by Docket Management at the 
address given above under ADDRESSES. The hours of the Docket are 
indicated above in the same location.
    You may also see the comments on the Internet. To read the comments 
on the Internet, take the following steps:
    (1) Go to the Docket Management System (DMS) Web page of the 
Department of Transportation (http://dms.dot.gov/).
    (2) On that page, click on ``search.''
    (3) On the next page (http://dms.dot.gov/search/), type in the 
five-digit docket number shown at the beginning of this document. 
Example: If the docket number were ``NHTSA-2002-12345,'' you would type 
``12345.'' After typing the docket number, click on ``search.''
    (4) On the next page, which contains docket summary information for 
the docket you selected, click on the desired comments. You may 
download the comments. However, since the comments are imaged 
documents, instead of word processing documents, the downloaded 
comments are not word searchable.
    Please note that even after the comment closing date, we will 
continue to file relevant information in the Docket as it becomes 
available. Further, some people may submit late comments. Accordingly, 
we recommend that you periodically check the Docket for new material.

List of Subjects in 49 CFR Parts 523, 533, and 537

    Fuel economy and Reporting and recordkeeping requirements.
    In consideration of the foregoing, 49 CFR Chapter V would be 
amended as follows:

PART 523--VEHICLE CLASSIFICATION

    1. The authority citation for part 523 would continue to read as 
follows:

    Authority: 49 U.S.C. 32902; delegation of authority at 49 CFR 
1.50.
    2. Section 523.2 would be amended by adding a definition of 
``footprint'' to read as follows:


Sec.  523.2  Definitions.

    * * *
    Footprint means the product, in square feet, of multiplying a 
vehicle's average track width by its wheelbase. For purposes of this 
definition, track width is the lateral distance between the centerlines 
of the tires at ground when the tires are mounted on rims with zero 
offset. For purposes of this definition, wheelbase is the longitudinal 
distance between front and rear wheel centerlines. In case of multiple 
rear axles, wheelbase is measured to the midpoint of the centerlines of 
the wheels on the rearmost axle.
* * * * *
    3. Section 523.5(a) would be amended to read as follows:


Sec.  523.5  Light truck.

* * * * *
    (a) * * *
    (5) Permit expanded use of the automobile for cargo-carrying 
purposes or other nonpassenger-carrying purposes through:
    (i) The removal of seats by means installed for that purpose by the 
automobile's manufacturer or with simple tools, such as screwdrivers 
and wrenches, so as to create a flat, floor level, surface extending 
from the forwardmost point of installation of those seats to the rear 
of the automobile's interior; or
    (ii) The stowing of foldable seats in the automobile's floor pan, 
so as to create a flat, floor level, surface extending from the 
forwardmost point of installation of those seats to the rear of the 
automobile's interior.
* * * * *

PART 533--LIGHT TRUCK FUEL ECONOMY STANDARDS

    4. The authority citation for part 533 would continue to read as 
follows:

    Authority: 49 U.S.C. 32902; delegation of authority at 49 CFR 
1.50.

    5. Part 533.5 would be amended by:
    A. In paragraph (a) by revising Table IV and adding Figure I and 
Table V; and
    B. Adding paragraphs (g) and (h).
    The revisions and additions read as follows:


Sec.  533.5  Requirements.

    (a) * * *

                                Table IV
------------------------------------------------------------------------
                         Model year                            Standard
------------------------------------------------------------------------
2001.......................................................         20.7
2002.......................................................         20.7
2003.......................................................         20.7
2004.......................................................         20.7
2005.......................................................         21.0
2006.......................................................         21.6
2007.......................................................         22.2
2008.......................................................         22.5
2009.......................................................         23.1
2010.......................................................         23.5
------------------------------------------------------------------------

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[[Page 51461]]

[GRAPHIC] [TIFF OMITTED] TP30AU05.016

BILLING CODE 4910-59-C

[[Page 51462]]



   Table V.--Categories for MYs 2008-2011 Based on Vehicle Footprint (Foot\2\) and the Associated Target Fuel
                                              Economy Levels (mpg)
----------------------------------------------------------------------------------------------------------------
             Category                    1            2            3            4            5            6
----------------------------------------------------------------------------------------------------------------
Range of vehicle footprint........       <=43.0   >43.0-47.0   >47.0-52.0   >52.0-56.5   >56.5-65.0        >65.0
MY 2008 Targets...................         26.8         25.6         22.3         22.2         20.7         20.4
MY 2009 Targets...................         27.4         25.4         23.5         22.7         21.0         21.0
MY 2010 Targets...................         27.8         26.4         24.0         22.9         21.6         20.8
MY 2011 Targets...................         28.4         27.1         24.5         23.3         21.9         21.3
----------------------------------------------------------------------------------------------------------------

* * * * *
    (g) For model years 2008-2010, at a manufacturer's option, a 
manufacturer's light truck fleet may comply with the fuel economy level 
calculated according to Figure I and the appropriate values in Table V, 
with said option being irrevocably chosen for that model year and 
reported at the time a mid-model year report is submitted under Sec.  
537.7.
    (h) For model year 2011, a manufacturer's light truck fleet shall 
comply with the fuel economy level, calculated according to Figure I 
and the appropriate values in Figures V and VI.
    5a. Part 533 would be amended by adding Appendix A to read as 
follows:

Appendix A--Example of Calculating Compliance Under Sec.  533.5 
Paragraph (g)

    Assume a hypothetical manufacturer (Manufacturer X) produces a 
fleet of light trucks in MY 2008 as follows:

------------------------------------------------------------------------
                                 Fuel               Footprint
            Model              economy     Volume    (ft\2\)    Category
------------------------------------------------------------------------
A...........................       27.0      1,000         42          1
B...........................       25.6      1,500         44          2
C...........................       25.4      1,000         46          2
D...........................       22.1      2,000         50          3
E...........................       22.4      3,000         55          4
F...........................       20.2      1,000         66          6
------------------------------------------------------------------------

    Note to Appendix A Table 1. Manufacturer X's required corporate 
average fuel economy level under Sec.  533.5(g) would be calculated 
as illustrated in Appendix A Figure 1:
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[[Page 51463]]

[GRAPHIC] [TIFF OMITTED] TP30AU05.017

BILLING CODE 4910-59-P
    Note to Appendix A Figure 1. Manufacturer X did not produce any 
light trucks in Category 5 during MY 2005. Therefore calculation of 
Manufacturer X's required

[[Page 51464]]

corporate average fuel economy level for MY 2008 would only 
incorporate the fuel economy target levels for Categories 1, 2, 3, 
4, and 6.
    Manufacturer X's actual CAFE level would be calculated as 
illustrated in Appendix A Figure 2.
BILLING CODE 4910-59-P

[[Page 51465]]

[GRAPHIC] [TIFF OMITTED] TP30AU05.018

BILLING CODE 4910-59-C
    Note to Appendix A Figure 2. Manufacturer X's required fuel 
economy level is 23.2 mpg. Its actual fuel economy level is 23.2 
mpg.

[[Page 51466]]

Therefore, Manufacturer X complies with the CAFE requirement set 
forth in Sec.  533.7(g).

PART 537--AUTOMOTIVE FUEL ECONOMY REPORTS

    6. The authority citation for Part 537 would continue to read as 
follows:

    Authority: 15 U.S.C. 2005; 49 CFR 1.50.

    7. Section 537.7 would be amended by revising paragraphs 
(c)(4)(xvi) through (xxi) to read as follows:


Sec.  537.7  Pre-model year and mid-model year reports.

* * * * *
    (c) Model type and configuration fuel economy and technical 
information.
    * * *
    (4) * * *
    (xvi)(A) In the case of passenger automobiles:
    (1) Interior volume index, determined in accordance with subpart D 
of 40 CFR part 600, and
    (2) Body style;
    (B) In the case of light trucks:
    (1) Passenger-carrying volume,
    (2) Cargo-carrying volume; and
    (3) Footprint as defined in 49 CFR Sec.  523.2.
    (xvii) Performance of the function described in Sec.  523.5(a)(5) 
of this chapter (indicate yes or no);
    (xviii) Existence of temporary living quarters (indicate yes or 
no);
    (xix) Frontal area;
    (xx) Road load power at 50 miles per hour, if determined by the 
manufacturer for purposes other than compliance with this part to 
differ from the road load setting prescribed in 40 CFR 86.177-11(d);
    (xxi) Optional equipment that the manufacturer is required under 40 
CFR parts 86 and 600 to have actually installed on the vehicle 
configuration, or the weight of which must be included in the curb 
weight computation for the vehicle configuration, for fuel economy 
testing purposes.
* * * * *

    Issued: August 23, 2005.
Stephen R. Kratzke,
Associate Administrator for Rulemaking.
[FR Doc. 05-17006 Filed 8-24-05; 8:45 am]
BILLING CODE 4910-59-P


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