Document ID: EPA-HQ-OAR-2021-0208-0854
Agency: epa
Document Type: Rule
Title: Revised 2023 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions Standards
Posted Date: 2021-12-30T05:00Z

[Federal Register Volume 86, Number 248 (Thursday, December 30, 2021)]
[Rules and Regulations]
[Pages 74434-74526]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27854]

[[Page 74433]]

Vol. 86

Thursday,

No. 248

December 30, 2021

Part II

Environmental Protection Agency

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40 CFR Parts 86 and 600

Revised 2023 and Later Model Year Light-Duty Vehicle Greenhouse Gas 
Emissions Standards; Final Rule

  Federal Register / Vol. 86 , No. 248 / Thursday, December 30, 2021 / 
Rules and Regulations  

[[Page 74434]]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 86 and 600

[EPA-HQ-OAR-2021-0208; FRL 8469-01-OAR]
RIN 2060-AV13

Revised 2023 and Later Model Year Light-Duty Vehicle Greenhouse 
Gas Emissions Standards

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: The Environmental Protection Agency (EPA) is revising the 
greenhouse gas (GHG) emissions standards under the Clean Air Act 
section 202(a) for light-duty vehicles for 2023 and later model years 
to make the standards more stringent. On January 20, 2021, President 
Biden issued Executive Order 13990 ``Protecting Public Health and the 
Environment and Restoring Science To Tackle the Climate Crisis'' 
directing EPA to consider whether to propose suspending, revising, or 
rescinding the standards previously revised under the ``The Safer 
Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-
2026 Passenger Cars and Light Trucks,'' promulgated in April 2020. EPA 
is revising the GHG standards to be more stringent than the SAFE rule 
standards in each model year from 2023 through 2026. EPA is also 
including temporary targeted flexibilities to address the lead time of 
the final standards and to incentivize the production of vehicles with 
zero and near-zero emissions technology. In addition, EPA is making 
technical amendments to clarify and streamline our regulations.

DATES: This final rule is effective on February 28, 2022. The 
incorporation by reference of certain publications listed in this 
regulation is approved by the Director of the Federal Register as of 
February 28, 2022.

ADDRESSES: EPA has established a docket for this action under Docket ID 
No. EPA-HQ-OAR-2021-0208. All documents in the docket are listed on the 
http://www.regulations.gov website. Although listed in the index, some 
information is not publicly available, e.g., CBI or other information 
whose disclosure is restricted by statute. Certain other material, such 
as copyrighted material, is not placed on the internet and will be 
publicly available only in hard copy form. Publicly available docket 
materials are available electronically through http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Elizabeth Miller, Office of 
Transportation and Air Quality, Assessment and Standards Division 
(ASD), Environmental Protection Agency, 2000 Traverwood Drive, Ann 
Arbor, MI 48105; telephone number: (734) 214-4703; email address: 
[email protected].

SUPPLEMENTARY INFORMATION:

Does this action apply to me?

    This action affects companies that manufacture or sell passenger 
automobiles (passenger cars) and non-passenger automobiles (light 
trucks) as defined in 49 CFR part 523. Regulated categories and 
entities include:

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                                                                                        Examples of potentially
               Category                                NAICS codes \A\                     regulated entities
----------------------------------------------------------------------------------------------------------------
Industry..............................                                 336111, 336112  Motor Vehicle
                                                                                        Manufacturers.
Industry..............................                 811111, 811112, 811198, 423110  Commercial Importers of
                                                                                        Vehicles and Vehicle
                                                                                        Components.
Industry..............................                                 335312, 811198  Alternative Fuel Vehicle
                                                                                        Converters.
----------------------------------------------------------------------------------------------------------------
\A\ North American Industry Classification System (NAICS).

    This list is not intended to be exhaustive, but rather provides a 
guide regarding entities likely to be regulated by this action. To 
determine whether particular activities may be regulated by this 
action, you should carefully examine the regulations. You may direct 
questions regarding the applicability of this action to the person 
listed in FOR FURTHER INFORMATION CONTACT.

Table of Contents

I. Executive Summary
    A. Purpose of This Final Rule and Legal Authority
    1. Final Light-Duty GHG Standards for Model Years 2023-2026
    2. Why does EPA believe the final standards are appropriate 
under the CAA?
    B. Summary of Final Light-Duty Vehicle GHG Program
    1. Final Revised GHG Emissions Standards
    2. Final Compliance Flexibilities and Advanced Technology 
Incentives
    C. Analytical Support for the Final Revised Standards
    D. Summary of Costs, Benefits and GHG Emission Reductions of the 
Final Program
    E. How has EPA considered environmental justice in this final 
rule?
    F. Affordability and Equity
II. EPA Standards for MY 2023-2026 Light-Duty Vehicle GHGs
    A. Model Year 2023-2026 GHG Standards for Light-Duty Vehicles, 
Light-Duty Trucks, and Medium-Duty Passenger Vehicles
    1. What fleet-wide emissions levels correspond to the 
CO2 standards?
    2. What are the final CO2 attribute-based standards?
    3. EPA's Statutory Authority Under the CAA
    4. Averaging, Banking, and Trading Provisions for CO2 
Standards
    5. Certification, Compliance, and Enforcement
    6. On-Board Diagnostics Program Updates
    7. Stakeholder Engagement
    8. How do EPA's final standards relate to NHTSA's CAFE proposal 
and to California's GHG program?
    B. Manufacturer Compliance Flexibilities
    1. Multiplier Incentives for Advanced Technology Vehicles
    2. Full-Size Pickup Truck Incentives
    3. Off-Cycle Technology Credits
    4. Air Conditioning System Credits
    5. Natural Gas Vehicles Technical Correction
    C. What alternatives did EPA analyze?
III. Technical Assessment of the Final CO2 Standards
    A. What approach did EPA use in analyzing the standards?
    B. Projected Compliance Costs and Technology Penetrations
    1. GHG Targets and Compliance Levels
    2. Projected Compliance Costs per Vehicle
    3. Technology Penetration Rates
    C. Are the final standards feasible?
    D. How did EPA consider alternatives in selecting the final 
program?
IV. How does this final rule reduce GHG emissions and their 
associated effects?
    A. Impact on GHG Emissions
    B. Climate Change Impacts From GHG Emissions
    C. Global Climate Impacts and Benefits Associated With the Final 
Rule's Estimated GHG Emissions Reductions
V. How would the final rule impact non-GHG emissions and their 
associated effects?
    A. Impact on Non-GHG Emissions
    B. Health and Environmental Effects Associated With Exposure to 
Non-GHG Pollutants Impacted by the Final Standards
    C. Air Quality Impacts of Non-GHG Pollutants
VI. Basis for the Final GHG Standards Under CAA Section 202(a)
    A. Consideration of Technological Feasibility and Lead Time
    B. Consideration of Vehicle Costs of Compliance

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    C. Consideration of Impacts on Consumers
    D. Consideration of Emissions of GHGs and Other Air Pollutants
    E. Consideration of Energy, Safety and Other Factors
    F. Balancing of Factors Under CAA 202(a)
VII. What are the estimated cost, economic, and other impacts of the 
rule?
    A. Conceptual Framework for Evaluating Consumer Impacts
    B. Vehicle Sales Impacts
    C. Changes in Fuel Consumption
    D. Greenhouse Gas Emission Reduction Benefits
    E. Non-Greenhouse Gas Health Impacts
    F. Energy Security Impacts
    G. Impacts of Additional Driving
    H. Safety Considerations in Establishing GHG Standards
    I. Summary of Costs and Benefits
    J. Impacts on Consumers of Vehicle Costs and Fuel Savings
    K. Employment Impacts
    L. Environmental Justice
    1. GHG Impacts
    2. Non-GHG Impacts
    M. Affordability and Equity Impacts
VIII. Statutory and Executive Order Reviews
    A. Executive Order 12866: ``Regulatory Planning and Review and 
Executive Order 13563: Improving Regulation and Regulatory Review''
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132: ``Federalism''
    F. Executive Order 13175: ``Consultation and Coordination With 
Indian Tribal Governments''
    G. Executive Order 13045: ``Protection of Children From 
Environmental Health Risks and Safety Risks''
    H. Executive Order 13211: ``Energy Effects''
    I. National Technology Transfer and Advancement Act and 1 CFR 
Part 51
    J. Executive Order 12898: ``Federal Actions To Address 
Environmental Justice in Minority Populations and Low-Income 
Populations''
    K. Congressional Review Act (CRA)
    L. Judicial Review
IX. Statutory Provisions and Legal Authority

I. Executive Summary

A. Purpose of This Final Rule and Legal Authority

1. Final Light-Duty GHG Standards for Model Years 2023-2026
    In this final action, the Environmental Protection Agency (EPA) is 
establishing revised, more stringent national greenhouse gas (GHG) 
emissions standards for passenger cars and light trucks under section 
202(a) of the Clean Air Act (CAA), 42 U.S.C. 7521(a). Section 202(a) 
requires EPA to establish standards for emissions of air pollutants 
from new motor vehicles which, in the Administrator's judgment, cause 
or contribute to air pollution which may reasonably be anticipated to 
endanger public health or welfare.
    This action finalizes the standards that EPA proposed in August 
2021.\1\
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    \1\ 86 FR 43726.
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    In response to Executive Order 13990 ``Protecting Public Health and 
the Environment and Restoring Science To Tackle the Climate Crisis,'' 
\2\ EPA conducted an extensive review of the existing regulations, 
which resulted in EPA proposing revised, more stringent standards. In 
the proposed rule, EPA sought public comment on a range of alternative 
standards, including alternatives that were less stringent (Alternative 
1) and more stringent (Alternative 2) than the proposed standards as 
well as standards that were even more stringent (in the range of 5-10 
grams CO2 per mile (g/mile)) for model year (MY) 2026. As 
discussed in Section I.A.2 of this preamble, based on public comments 
and EPA's final analyses, EPA is finalizing standards consistent with 
the standards we proposed for MYs 2023 and 2024, and more stringent 
than those we proposed for MYs 2025 and 2026. EPA's final standards for 
MYs 2025 and 2026 are the most stringent standards considered in the 
proposed rule and establish the most stringent GHG standards ever set 
for the light-duty vehicle sector. EPA is revising the light-duty 
vehicle GHG standards for MYs 2023 through 2026, which had been 
previously revised by the SAFE rule, in part by building on earlier EPA 
actions and supporting analyses that established or maintained 
stringent standards. For example, in 2012, EPA issued a final rule 
establishing light-duty vehicle GHG standards for MYs 2017-2025,\3\ 
which were supported by analyses of compliance costs, lead time and 
other relevant factors.\4\ That rule and its analyses also accounted 
for the development and availability of advanced GHG emission-reducing 
vehicle technologies, which demonstrated that the standards were 
appropriate under section 202(a) of the CAA.
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    \2\ 86 FR 7037, January 25, 2021. ``[T]he head of the relevant 
agency, as appropriate and consistent with applicable law, shall 
consider publishing for notice and comment a proposed rule 
suspending, revising, or rescinding the agency action[s set forth 
below] within the time frame specified.'' ``Establishing Ambitious, 
Job-Creating Fuel Economy Standards: . . . `The Safer Affordable 
Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-2026 
Passenger Cars and Light Trucks,' 85 FR 24174 (April 30, 2020), by 
July 2021. In considering whether to propose suspending, revising, 
or rescinding the latter rule, the agency should consider the views 
of representatives from labor unions, States, and industry.''
    \3\ EPA's model year emission standards also apply in subsequent 
model years, unless revised, e.g., MY 2025 standards issued in the 
2012 rule also applied to MY 2026 and beyond.
    \4\ 77 FR 62624, October 15, 2012.
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    This final rule is also supported by updated analyses that consider 
the most recent technical and scientific data and continuing 
developments in the automotive industry, as well as public comments on 
the proposed rule. As noted in the proposed rule, auto manufacturers 
continue to implement a broad array of advanced gasoline vehicle GHG 
emission-reducing technologies at a rapid pace throughout their vehicle 
fleets. Even more notably, vehicle electrification technologies are 
advancing at a historic pace as battery costs continue to decline and 
automakers continue to announce plans for an increasing diversity and 
production volume of zero- and near-zero emission vehicle models. These 
trends continue to support EPA's decision to revise the existing GHG 
standards, particularly in light of factors indicating that more 
stringent near-term standards are feasible at reasonable cost and would 
achieve significantly greater GHG emissions reductions and public 
health and welfare benefits than the existing program.
    In developing this final rule, EPA considered comments received 
during the public comment period, including during the public hearing. 
EPA held a two-day virtual public hearing on August 25 and 26, 2021 and 
heard from approximately 175 speakers. During the public comment period 
that ended on September 27, 2021, EPA received more than 188,000 
written comments. This preamble, together with the accompanying 
Response to Comments (RTC) document, responds to all significant 
comments we received on the proposed rule.
    Comments from automakers that historically have produced primarily 
internal combustion engine (ICE) vehicles, such as comments by the 
Alliance for Automotive Innovation (hereafter referred to as ``the 
Alliance'') as well as comments by several individual automakers, 
generally supported the proposed standards and did not support the more 
stringent alternatives on which we requested comment. A common theme 
from these commenters is that EPA should not overly rely on high 
penetrations of electric vehicles (EVs) during the period through MY 
2026 as a means of compliance for the industry, because of uncertainty 
about the degree of availability of EV charging infrastructure and 
market uptake of EVs in this time frame. The United Auto Workers (UAW) 
commented similarly, generally supporting the proposed standards and 
flexibilities but not

[[Page 74436]]

supporting more stringent standards or reduced flexibilities. In 
contrast, automakers producing (or planning to produce) only EVs 
(Tesla, Rivian, and Lucid) supported standards more stringent than the 
proposed standards, and they generally did not support the proposed 
flexibilities.
     Comments from organizations representing environmental, public 
health, and consumer groups as well as comments from many states and 
local governments generally state that in this rulemaking EPA should 
address public health, climate change, and social equity in a robust 
manner. These commenters expressed nearly universal support for the 
more stringent Alternative 2; many also support an additional 10 g/mile 
more stringent standards in MY 2026, on which we requested comment. In 
addition, during the public hearing, many of these commenters, as well 
as speakers who identified themselves as representing frontline 
communities, urged the strongest possible emissions standards to 
address environmental impacts on overburdened communities. There was 
also broad opposition among these commenters to the proposed 
flexibilities and incentives, based on concerns that the flexibilities 
were unnecessary and would compromise the stringency of the program. In 
addition, tens of thousands of individual public commenters echoed 
these themes, urging EPA to establish the strongest possible GHG 
emissions standards.
    As discussed in Section I.B of this preamble, the final rule 
revises GHG emissions standards for MYs 2023-2026, incorporating 
several changes from the proposed standards and flexibilities, based on 
our consideration of the public comments and updated information and 
analysis. As discussed in Section I.A.2 of this preamble, it is EPA's 
assessment that the final standards are reasonable and appropriate, 
after considering lead time, cost, and other relevant factors under the 
CAA.
    As noted in the proposed rule, EPA set previous light-duty vehicle 
GHG emission standards in joint rulemakings where NHTSA also 
established CAFE standards. EPA concluded that it was not necessary for 
this rulemaking to be jointly issued with the National Highway Traffic 
Safety Administration (NHTSA). EPA has, however, coordinated with 
NHTSA, both on a bilateral level as well as through the interagency 
review process for EPA's proposed rule and this final rule facilitated 
by the Office of Management and Budget (OMB) under E.O. 12866.
2. Why does EPA believe the final standards are appropriate under the 
CAA?
    EPA is revising GHG emissions standards for passenger cars and 
light trucks under the authority provided by section 202(a) of the CAA. 
Section 202(a) requires EPA to establish standards for emissions of 
pollutants from new motor vehicles which, in the Administrator's 
judgment, cause or contribute to air pollution which may reasonably be 
anticipated to endanger public health or welfare. Standards under 
section 202(a) take effect ``after such period as the Administrator 
finds necessary to permit the development and application of the 
requisite technology, giving appropriate consideration to the cost of 
compliance within such period.'' Thus, in establishing or revising 
section 202(a) standards designed to reduce air pollution that 
endangers public health and welfare, EPA also must consider 
technological feasibility, compliance cost, and lead time. EPA also may 
consider other factors and in previous light-duty vehicle GHG standards 
rulemakings has considered the impacts of potential GHG standards on 
the auto industry, cost impacts for consumers, oil conservation, energy 
security and other energy impacts, as well as other relevant 
considerations such as safety.
    When considering these factors for the SAFE rule, EPA identified 
several factors, primarily costs to manufacturers and upfront costs to 
vehicle purchasers, as disfavoring maintaining or increasing the 
stringency of the then-existing standards, and other factors, such as 
reduced emissions that endanger public health and welfare and reduced 
operating costs for consumers, as favoring increased stringency (or a 
lesser degree of reduced stringency from the then-existing standards). 
In balancing these factors in the SAFE rule, EPA placed greater weight 
on the former factors (reducing the costs for the manufacturers and 
reducing upfront costs for vehicle buyers), and thereby decided to make 
EPA's GHG standards significantly less stringent. However, the purpose 
of adopting standards under CAA section 202 is to address air pollution 
that may reasonably be anticipated to endanger public health and 
welfare. Indeed, reducing air pollution has traditionally been the 
focus of such standards.
    EPA has reconsidered how costs, lead time and other factors were 
weighed in the SAFE rule against the potential for achieving emissions 
reductions and is reaching a different conclusion as to the appropriate 
stringency of the standards. In light of the statutory purpose of CAA 
section 202, the Administrator is placing greater weight on the 
emission reductions and resulting public health and welfare benefits 
and, taking into consideration EPA's updated technical analysis, 
accordingly is establishing significantly more stringent standards for 
MYs 2023-2026 compared to the standards established by the SAFE rule.
    We are revising decisions made in the SAFE final rule in accordance 
with our updated technical analyses for the proposed and final rule. 
EPA's approach is consistent with Supreme Court decisions affirming 
that agencies are free to reconsider and revise their prior decisions 
where they provide a reasonable explanation for their revised 
decisions.\5\ In this rule, the agency is changing its 2020 position 
and restoring its previous approach by finding, in light of its updated 
technical analyses and of the statutory purposes of the CAA and in 
particular of section 202(a), that it is more appropriate to place 
greater weight on the magnitude and benefits of reducing emissions that 
endanger public health and welfare, while continuing to consider 
compliance costs, lead time and other relevant factors. In addition to 
the greater emphasis on emissions reductions, the agency's decision to 
adopt more stringent standards for MYs 2023-2026 is significantly 
informed by consideration of new information that was not available 
during the SAFE rule development. Specifically, the agency's decision 
has been informed by the further technological advancements and 
successful implementations of electric vehicles since the SAFE rule, by 
the recent manufacturer announcements signaling an accelerated 
transition to electrified vehicles, and by additional evidence of 
sustained and active credit trading as manufacturers take advantage of 
this additional flexibility for adopting emissions-reducing 
technologies across the new vehicle fleet.
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    \5\ See, e.g., Encino Motorcars, LLC v. Navarro, 136 S. Ct. 
2117, 2125 (2016); FCC v. Fox Television Stations, Inc., 556 U.S. 
502, 515 (2009).
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    When considering these factors for the SAFE rule, EPA identified 
several factors, primarily costs to manufacturers and upfront costs to 
vehicle purchasers, as disfavoring maintaining or increasing the 
stringency of the then-existing standards, and other factors, such as 
reduced emissions that endanger public health and welfare and reduced 
operating costs for consumers, as favoring increased stringency (or a 
lesser degree of reduced stringency from the then-existing standards). 
In balancing these factors in the SAFE rule,

[[Page 74437]]

EPA placed disproportionate weight on the former factors (reducing the 
costs for the manufacturers and reducing upfront costs for vehicle 
buyers), and thereby significantly diminished the relative weight given 
to the latter factors (increased operating costs and increased harmful 
emissions). The SAFE rule relied on this re-weighting to justify making 
EPA's GHG standards significantly less stringent in a way that (under 
the SAFE rule's own analysis) would have resulted in increases in CO2 
emissions of 867 MMT (over the vehicles' lifetimes), increases in 
criteria pollutants, and resulting increases in adverse health effects 
(as well as net costs to public welfare).\6\
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    \6\ See 85 FR 25111, April 30, 2020.
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    The purpose of adopting standards under CAA section 202, however, 
is to address air pollution that may reasonably be anticipated to 
endanger public health and welfare. Indeed, reducing air pollution has 
traditionally been the focus of such standards. EPA has therefore 
updated its technical analysis of potential emissions control 
technologies, costs and lead time and reconsidered how those and other 
factors were weighed in the SAFE rule against the potential for 
achieving emissions reductions. In light of the statutory purpose of 
CAA section 202, the Administrator is restoring the appropriate, 
central consideration given to the emission reductions from motor 
vehicles and resulting public health and welfare benefits, while still 
giving appropriate consideration to compliance costs and other factors 
(including savings in vehicle operating costs). Accordingly, EPA is 
establishing significantly more stringent standards for MYs 2023-2026 
compared to the standards established by the SAFE rule.
    As discussed in Section III.A of this preamble, the standards take 
into consideration both the updated analyses for the proposed and final 
rule and past EPA analyses conducted for previous GHG standards. We are 
revising decisions made in the SAFE final rule in accordance with 
Supreme Court decisions affirming that agencies are free to reconsider 
and revise their prior decisions where they provide a reasonable 
explanation for their revised decisions. In this rulemaking, the agency 
is changing its 2020 position and restoring its previous approach by 
finding, in light of the statutory purposes of the CAA and in 
particular of section 202(a), that it is more appropriate to place 
considerable weight on the magnitude and benefits of reducing emissions 
that endanger public health and welfare, while continuing to consider 
compliance costs, lead time and other relevant factors.
    EPA has carefully considered the technological feasibility and cost 
of the full range of alternatives on which we sought public comment in 
the proposed rule and the available lead time for manufacturers to 
comply with them, including the role of flexibilities designed to 
facilitate compliance. In our technical assessment, discussed in 
further detail in section VI.A of this preamble, we conclude that there 
has been ongoing advancement in emissions reducing technologies since 
the beginning of the EPA's program in 2012, and that there is potential 
for greater penetration of these technologies across all new vehicles. 
In addition to improvements in ICE vehicles, recent advancements in 
electric vehicle technologies have greatly increased the available 
options for manufacturers to meet more stringent standards. Based on 
our updated technical analyses and consideration of the public 
comments, EPA has determined that standards that are more stringent in 
the later model years (i.e., after MY 2024) than the proposed standards 
are more appropriate under Section 202(a).
    In recognition of lead time considerations, for MYs 2023 and 2024, 
EPA is finalizing the proposed standards for those model years. For MYs 
2025 and 2026, EPA has determined that it is appropriate to finalize 
standards more stringent than those proposed, and, as described in more 
detail in section I.B of this preamble, we are finalizing standards 
that are the most stringent of the alternatives considered in the 
proposed rule for those model years.
    This approach best meets EPA's responsibility under the CAA to 
protect human health and the environment, as well as its statutory 
obligation to consider lead time, feasibility, and cost. The final 
standards will result in significantly greater reductions of GHG 
emissions over time compared to the proposed standards. EPA projects 
that the final standards will result in a reduction of 3.1 billion tons 
of GHG emissions by 2050--50 percent greater emission reductions than 
our proposed standards. In addition, the final standards will reduce 
emissions of some criteria pollutants and air toxics, resulting in 
important public health benefits, as described in Section V of this 
preamble. The final standards will result in reduced vehicle operating 
costs for consumers. The fuel consumption reduced by the final 
standards will save consumers $210 to $420 billion in retail fuel costs 
through 2050. Although the up-front technology cost for a MY 2026 
vehicle meeting the final standards is estimated to be $1,000 on 
average, drivers will recover that up-front cost over time through 
savings in fuel costs. For an individual consumer on average, EPA 
estimates that, over the lifetime of a MY 2026 vehicle, the reduction 
in fuel costs will exceed the increase in vehicle costs by $1,080 (see 
Section VII.J of this preamble). Further, the overall benefits of the 
program will far outweigh the costs, as EPA estimates net benefits of 
$120 billion to $190 billion through 2050.\7\ Section I.B of this 
preamble describes the final standards in more detail.
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    \7\ See Section VII.I of this preamble for more detail.
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    In developing this final rulemaking, EPA updated the analyses 
based, in part, on our assessment of the public comments. We agree with 
commenters who stated that it is appropriate to update certain key 
inputs--for example, the vehicle baseline fleet and certain technology 
costs--to reflect newer data. For example, a key update was to the 
estimates of battery costs for electrified vehicles, which have 
decreased significantly in recent years. EPA's approach to updating 
these costs and other inputs to the analyses is described in Section 
III.A of this preamble.
    The more stringent standards for MY 2025 and 2026 also provide a 
more appropriate transition to new standards for MY 2027 and beyond. As 
stated in the proposal, EPA is planning to initiate a rulemaking to 
establish multi-pollutant emission standards for MY 2027 and later (see 
the preamble to the proposed rule at section I.A.3). Consistent with 
the direction of Executive Order 14037, ``Strengthening American 
Leadership in Clean Cars and Trucks,'' \8\ this subsequent rulemaking 
will extend to at least MY 2030 and will apply to light-duty vehicles 
as well as medium-duty vehicles (e.g., commercial pickups and vans, 
also referred to as heavy-duty class 2b and 3 vehicles) and is likely 
to significantly build upon the standards established in this final 
rule. EPA looks forward to engaging with all stakeholders, including 
states and our federal partners, to inform the development of these 
future standards.
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    \8\ 86 FR 43583, August 10, 2021.
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B. Summary of Final Light-Duty Vehicle GHG Program

    EPA is finalizing revised GHG standards that begin in MY 2023 and 
increase in stringency year over year through MY 2026.
    After consideration of public comments, EPA is adopting the

[[Page 74438]]

following approach for setting the final standards:
     For MYs 2023 and 2024, EPA is finalizing the proposed 
standards.
     For MY 2025, EPA is finalizing the Alternative 2 standards 
(the most stringent standards considered in the proposed rule for this 
MY).
     For MY 2026, EPA is finalizing the most stringent 
alternative upon which we sought comment--the Alternative 2 standards 
with an additional 10 g/mile increased stringency.
    EPA is finalizing optional flexibility provisions for manufacturers 
that are more targeted than proposed, primarily to focus most of the 
flexibilities on MYs 2023-2024 in consideration of lead time for 
manufacturers and to help them manage the transition to more stringent 
standards by providing some additional flexibility. We summarize the 
final flexibility program elements, including an analysis of key public 
comments, in Sections II.A.4 and II.B of this preamble.
    This final rule accelerates the rate of stringency increases of the 
MY 2023-2026 SAFE standards from a roughly 1.5 percent year-over-year 
rate of stringency increase to a nearly 10 percent stringency increase 
from MY 2022 to MY 2023, followed by a 5 percent stringency increase in 
MY 2024, as proposed. In MY 2025, the stringency of the final standards 
increases by 6.6 percent, culminating with a 10 percent stringency 
increase in MY 2026, as provided in the Alternative 2 standards with an 
additional 10 g/mile increased stringency in MY 2026, on which we 
sought comment.
    EPA believes the 10 percent increase in stringency in MY 2023 is 
appropriate given the technological investments industry was on track 
to make under the 2012 standards and has continued to make beyond what 
would be required to meet the SAFE rule standards, as well as the 
compliance flexibilities available within the program. This is 
illustrated in part by several manufacturers, representing nearly 30 
percent of the nationwide auto market, having chosen to participate in 
the California Framework Agreements. Our decision to finalize the more 
stringent Alternative 2 standards for MY 2025, and the Alternative 2 
standards with a further increase of stringency of 10 g/mile in MY 2026 
takes into account the additional lead time available for MYs 2025-2026 
compared to MYs 2023-2024. Given this additional lead time, EPA has 
determined that it is appropriate, particularly in light of the 
accelerating transition to electrified vehicles that has already begun, 
to require additional emissions reductions in this time frame. The 
resulting trajectory of increasing stringency from MYs 2023 to 2026 
also takes into account the credit-based emissions averaging, banking 
and trading flexibilities of the current program, including flexibility 
provisions that have been retained, and the targeted additional 
flexibilities that are being extended in this final rule, especially in 
the early years of the program. EPA has also taken into account 
manufacturers' ability to generate credits against the existing 
standards that were relaxed in the SAFE rule for MYs 2021 and 2022, 
which we are not revising. The final standards for MYs 2023-2026 will 
achieve significant GHG and other emission reductions and related 
public health and welfare benefits, while providing consumers with 
lower operating costs resulting from significant fuel savings. Our 
analyses described in this final rule support the conclusion that the 
final standards are appropriate under section 202(a) of the CAA, 
considering costs, technological feasibility, available lead time, and 
other factors.
    In our design and analyses of the final program, and our overall 
updated assessment of feasibility, EPA took into account the decade-
long light-duty vehicle GHG emission reduction program in which the 
auto industry has introduced a wide lineup of ever more fuel-efficient, 
GHG-reducing technologies that are already present in much of the fleet 
and will enable the industry to achieve the standards established in 
this rule. As explained in the preamble to the proposed rule, in light 
of the design cycle timing for manufacturers of light-duty vehicles, 
EPA reasonably expects that the vehicles that automakers will be 
selling during the first years of the MY 2023-2026 program were already 
designed before the less stringent SAFE standards were adopted.
    Most automakers have launched ambitious plans to develop and 
produce increasing numbers of zero- and near-zero-emission vehicles. 
EPA recognizes that during the near-term timeframe of the standards, 
the new vehicle fleet likely will continue to consist predominantly of 
gasoline-fueled vehicles, although the volumes of electrified vehicles 
will continue to increase, particularly in MYs 2025 and 2026. In this 
preamble and the Regulatory Impact Analysis (RIA), we provide analyses 
supporting our assessment that the final standards for MYs 2023 through 
2026 are achievable primarily through the application of advanced 
gasoline vehicle technologies but with a growing percentage of 
electrified vehicles. We project that during the four-year ramp up of 
the stringency of the GHG standards, the standards can be met with 
gradually increasing sales of plug-in electric vehicles in the U.S., 
from about 7 percent market share in MY 2023 (including both fully 
electric vehicles (EVs) and plug-in hybrid vehicles (PHEVs)) up to 
about 17 percent in MY 2026. In MY 2020, EVs and PHEVs represented 
about 2.2 percent of U.S. new vehicle production.\9\ From January 
through September 2021, EVs and PHEVs represented 3.6 percent of total 
U.S. light-duty vehicle sales,\10\ and are projected to be 4.1 percent 
of production by the end of MY 2021.\11\ This rule is expected to 
result in an increase in penetration of EV and PHEV vehicles from 
today's levels, and we believe the projected penetrations are 
reasonable when considering the results of our analysis as well as 
these trends in the growth of EV market share, as well as the 
proliferation of recent automaker announcements on plans to transition 
toward an electrified fleet (which we discuss in Section III.C of this 
preamble). Projections of future EV market share also increasingly show 
rates of EV penetration commensurate with what we project under the 
final standards.\12\ \13\ \14\ Numerous automaker announcements of a 
rapidly increasing focus on EV and PHEV production (see Section III.C 
of this preamble), which were reiterated in their public comments, show 
that automakers are already preparing for rapid growth in EV 
penetration. EPA finds that, given

[[Page 74439]]

the rate and breadth of these announcements across the industry, the 
levels of EV penetration we project to occur are appropriate. As 
described elsewhere in this preamble, based on our analysis of the 
final standards, we believe that the targeted incentives and 
flexibilities that we are finalizing for the early years of the program 
will further address lead time considerations as well as support the 
acceleration of automakers' introduction and sales of advanced 
technologies, including zero and near-zero-emission technologies.
---------------------------------------------------------------------------

    \9\ ``The 2021 EPA Automotive Trends Report, Greenhouse Gas 
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420R-
21023, November 2021.
    \10\ Argonne National Laboratory, ``Light Duty Electric Drive 
Vehicles Monthly Sales Updates,'' September 2021, accessed on 
October 20, 2021 at: https://www.anl.gov/es/light-duty-electric-drive-vehicles-monthly-sales-updates.
    \11\ ``The 2021 EPA Automotive Trends Report, Greenhouse Gas 
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420R-
21023, November 2021.
    \12\ Bloomberg New Energy Finance (BNEF), BNEF EV Outlook 2021, 
Figure 5. Accessed on November 1, 2021 at https://about.bnef.com/electric-vehicle-outlook/ (Figure 5 indicates U.S. BEV+PHEV 
penetrations of approximately 7% in 2023, 9% in 2024,11% in 2025 and 
15% in 2026).
    \13\ IHS Markit, ``US EPA Proposed Greenhouse Gas Emissions 
Standards for Model Years 2023-2026; What to Expect,'' August 9, 
2021. Accessed on October 28, 2021 at https://ihsmarkit.com/research-analysis/us-epa-proposed-greenhouse-gas-emissions-standards-MY2023-26.html (Table indicates 12.2% in 2023, 16% in 
2024, 20.1% in 2025 and 24.3% in 2026).
    \14\ Rhodium Group, ``Pathways to Build Back Better: Investing 
in Transportation Decarbonization,'' May 13, 2021. Accessed on 
November 1, 2021 at https://rhg.com/research/build-back-better-transportation/ (Figure 3 indicates EV penetration of 11% to 19% in 
2026 under a current policy scenario).
---------------------------------------------------------------------------

    We describe additional details of the final standards below and in 
later sections of the preamble as well as in the RIA.
1. Final Revised GHG Emissions Standards
    As with EPA's previous light-duty GHG programs, as proposed, EPA is 
finalizing footprint-based standards curves for both passenger cars and 
light trucks (throughout this action, ``trucks'' or ``light trucks'' 
refers to light-duty trucks). Each manufacturer has a unique standard 
for the passenger cars category and another for the truck category \15\ 
for each MY based on the sales-weighted footprint-based CO2 
targets \16\ of the vehicles produced in that MY.
---------------------------------------------------------------------------

    \15\ Passenger cars include cars and smaller cross-overs and 
SUVs, while the truck category includes larger cross-overs and SUVs, 
minivans, and pickup trucks.
    \16\ Because compliance is based on the full range of vehicles 
in a manufacturer's car and truck fleets, with lower-emitting 
vehicles compensating for higher-emitting vehicles, the emission 
levels of specific vehicles within the fleet are referred to as 
targets, rather than standards.
---------------------------------------------------------------------------

    EPA is finalizing the proposed standards for MYs 2023 and 2024, the 
Alternative 2 standards for MY 2025, and the Alternative 2 standards 
minus 10 g/mile for MY 2026. In the proposed rule, EPA requested 
comment on standards for MY 2026 that would result in fleet average 
target levels that are in the range of 5-10 g/mile lower (i.e., more 
stringent) than the levels proposed in each of the three alternatives, 
and is finalizing a level 10 g/mile lower than the proposed rule's 
Alternative 2 for MY 2026.
    Figure 1 shows EPA's final standards, expressed as average 
projected fleetwide GHG emissions targets (cars and trucks combined), 
through MY 2026. For comparison, the figure also shows the 
corresponding targets for the proposed standards (Proposal), the 
Alternative 2 standards reduced by 10 g/mile in MY 2026 (Alternative 2 
minus 10), as described further in Section II.C of this preamble, the 
SAFE standards, and the 2012 FRM standards.\17\ The projected fleet 
targets for the final standards increase in stringency in MY 2023 by 
almost 10 percent (compared to the SAFE rule standards in MY 2022), 
followed by stringency increases of 5 percent in MY 2024, 6.6 percent 
in MY 2025 and 10 percent in MY 2026. As with all EPA vehicle emissions 
standards, the MY 2026 standards will remain in place for all 
subsequent MYs, unless and until the standards for future MYs are 
revised in a subsequent rulemaking. As noted previously, EPA is 
planning a future rulemaking to establish new emissions standards for 
MY 2027 and beyond.
---------------------------------------------------------------------------

    \17\ The Proposal and Alternative 2 minus 10 standards are the 
less and more stringent alternatives EPA analyzed in addition to the 
final rule. See Sections II.C and III.D of this preamble for more 
information these alternatives.
---------------------------------------------------------------------------

    Table 1 presents the projected overall industry fleetwide 
CO2-equivalent emission compliance target levels, based on 
EPA's final standards presented in Figure 1. The industry fleet-wide 
estimates in Table 1 are projections based on EPA's modeling, taking 
into consideration projected fleet mix and footprints for each 
manufacturer's fleet in each model year. Table 2 presents projected 
industry fleet average year-over-year percent reductions (and 
cumulative reductions from 2022 through 2026) comparing the standards 
under the SAFE rule and the revised final standards. See Section II.A 
of this preamble for a full discussion of the final standards and 
presentations of the footprint standards curves.
BILLING CODE 6560-50-P

[[Page 74440]]

[GRAPHIC] [TIFF OMITTED] TR30DE21.000

BILLING CODE 6560-50-C

                 Table 1--Projected Industry Fleet-Wide CO2 Compliance Targets for MYs 2023-2026
                                                   [g/mile] *
----------------------------------------------------------------------------------------------------------------
                                                                                   Light trucks
                           Model year                              Cars CO2 (g/    CO2 (g/mile)    Fleet CO2 (g/
                                                                       mile)                           mile)
----------------------------------------------------------------------------------------------------------------
2022 (SAFE reference)...........................................             181             261             224
2023............................................................             166             234             202
2024............................................................             158             222             192
2025............................................................             149             207             179
2026 and later..................................................             132             187             161
                                                                 -----------------------------------------------
    Total change 2022-2026......................................             -49             -74             -63
----------------------------------------------------------------------------------------------------------------
* The combined car/truck CO2 targets are a function of projected car/light truck shares, which have been updated
  for this final rule (MY 2020 is 44 percent car and 56 percent light trucks while the projected mix changes to
  47 percent cars and 53 percent light trucks by MY 2026).

                                   Table 2--Projected Industry Fleet Average Target Year-Over-Year Percent Reductions
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     SAFE rule standards *               Proposed standards **                Final standards **
                                             -----------------------------------------------------------------------------------------------------------
                                                            Trucks     Combined                 Trucks     Combined                 Trucks     Combined
                                               Cars  (%)      (%)         (%)      Cars  (%)      (%)         (%)      Cars  (%)      (%)         (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2023........................................         1.7         1.7         2.1         8.4        10.4         9.8         8.4        10.4         9.8
2024........................................         0.6         1.5         1.4         4.7         5.0         5.1         4.8         4.9         5.1
2025........................................         2.3         1.7         2.2         4.8         5.0         5.0         5.7         7.0         6.6
2026........................................         1.8         1.6         1.9         4.8         5.0         5.0        11.4         9.5        10.3
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 74441]]

 
    Cumulative..............................         6.3         6.3         7.4        20.9        23.1        22.8        27.1        28.3        28.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Note the percentages shown for the SAFE rule targets have changed slightly from the proposed rule, due to the updates in our base year fleet from MY
  2017 to MY 2020 manufacturer fleet data.
** These are modeled results based on projected fleet characteristics and represent percent reductions in projected targets, not the standards (which
  are the footprint car/truck curves), associated with that projected fleet (see Section III of this preamble for more detail on our modeling results).

2. Final Compliance Flexibilities and Advanced Technology Incentives
    EPA received many comments on the proposed flexibility provisions. 
After considering the comments along with our updated analyses, we are 
finalizing flexibility provisions that are narrower than proposed in 
several aspects, primarily to focus the additional flexibilities in MYs 
2023-2024 to help manufacturers manage the transition to more stringent 
standards by providing some additional flexibility in the near-term. We 
summarize the final flexibility program elements, including a summary 
and analysis of key comments, in Section II.B of this preamble.
    EPA proposed a set of extended or additional temporary compliance 
flexibilities and incentives that we believed would be appropriate 
given the stringency and lead time of the proposed standards. We 
proposed four types of flexibilities/incentives, in addition to those 
already available under EPA's previously established regulations: (1) A 
limited extension of carry-forward credits generated in MYs 2016 
through 2020 beyond the normal five years otherwise specified in the 
regulations; (2) an extension of the advanced technology vehicle 
multiplier credits for MYs 2022 through 2025 with a cumulative credit 
cap; (3) full-size pickup truck incentives for strong hybrids or 
similar performance-based credit for MYs 2022 through 2025 (provisions 
which were removed in the SAFE rule); and (4) an increase of the off-
cycle credits menu cap from 10 g/mile to 15 g/mile. EPA also proposed 
to remove the multiplier incentives for natural gas fueled vehicles for 
MYs 2023-2026.
    The GHG program includes existing provisions initially established 
in the 2010 rule, which set the MYs 2012-2016 GHG standards, for how 
credits may be used within the program. These averaging, banking, and 
trading (ABT) provisions include credit carry-forward, credit carry-
back (also called deficit carry-forward), credit transfers (within a 
manufacturer), and credit trading (across manufacturers). These ABT 
provisions define how credits may be used and are integral to the 
program, essentially enabling manufacturers to plan compliance over a 
multi-year time period. The current program allows credits to be 
carried forward for 5 years (i.e., a 5-year credit life). EPA proposed 
a two-year extension of MYs 2016 credit life and a one-year extension 
of MYs 2017-2020 credit life.
    EPA is finalizing a more limited approach to credit life extension, 
adopting only a one-year extension for MY 2017-2018 credits, as shown 
in Table 3 below. EPA was persuaded by public comments from non-
governmental organizations (NGOs), some states including California, 
and EV manufacturers that the proposed credit life extension overall 
was unnecessary and could diminish the stringency of the final 
standards. While several auto industry commenters suggested even 
additional credit life extensions, EPA's assessment is that the 
standards are feasible with the more narrowed credit extensions of one-
year for the MYs 2017 and 2018 credits, which make more credits 
available in the early years of the program, MYs 2023 and 2024, to help 
manufacturers manage the transition to more stringent standards by 
providing some additional flexibility. For all other credits generated 
in MY 2016 and later, credit carry-forward remains unchanged at five 
years.

                                        Table 3--Final Extension of Credit Carry-Forward for MY 2016-2020 Credits
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                MYs credits are valid under extension
           MY credits are banked           -------------------------------------------------------------------------------------------------------------
                                              2016      2017      2018      2019      2020      2021      2022      2023      2024      2025      2026
--------------------------------------------------------------------------------------------------------------------------------------------------------
2016......................................  ........        x         x         x         x         x   ........  ........  ........  ........  ........
2017......................................  ........        x   ........        x         x         x         x         +   ........  ........  ........
2018......................................  ........  ........        x         x   ........        x         x         x         +   ........  ........
2019......................................  ........  ........  ........        x         x   ........        x         x         x   ........  ........
2020......................................  ........  ........  ........  ........        x   ........        x         x         x         x   ........
2021......................................  ........  ........  ........  ........  ........  ........        x         x         x         x         x
--------------------------------------------------------------------------------------------------------------------------------------------------------
x = Previous program. + = Additional years included in Final Rule.

    The previous GHG program also includes temporary incentives through 
MY 2021 that encourage the use of advanced technologies such as 
electric, hybrid, and fuel cell vehicles, as well as incentives for 
full-size pickups using strong hybridization or technologies providing 
similar emissions reductions to hybrid technology. The full-size pickup 
incentives originally (in the 2012 rule) were available through MY 
2025, but the SAFE rule removed these incentives for MYs 2022 through 
2025. When EPA established these incentives in the 2012 rule, EPA 
recognized that they would reduce the effective stringency of the 
standards, but believed that it was worthwhile to have a limited near-
term loss of emissions reduction benefits to increase the potential for 
far greater emissions reduction and technology diffusion benefits in 
the longer term.\18\ EPA believed that the temporary regulatory 
incentives would

[[Page 74442]]

help bring low emission technologies to market more quickly than an 
effective market would in the absence of incentives.\19\ \20\ With 
these same goals in mind for this program, EPA proposed multiplier 
incentives from MYs 2022 through MY 2025 with a cap on multiplier 
credits and to reinstate the full-size pickup incentives also for MYs 
2022 through 2025. The proposed incentives were intended as a temporary 
measure supporting the transition to zero-emission vehicles and to 
provide additional flexibility in meeting the MY 2023-2026 proposed 
standards.
---------------------------------------------------------------------------

    \18\ See Tables III-2 and III-3, 77 FR 62772, October 15, 2012.
    \19\ 77 FR 62812, October 15, 2012.
    \20\ Manufacturers use of the incentives is provided in ``The 
2021 EPA Automotive Trends Report, Greenhouse Gas Emissions, Fuel 
Economy, and Technology since 1975,'' EPA-420R-21023, November 2021.
---------------------------------------------------------------------------

    However, EPA is finalizing a narrower timeframe for the temporary 
multiplier and full-size pickup incentives, focusing the incentives 
only in MYs 2023-2024, to help manufacturers manage the transition to 
more stringent standards by providing some additional flexibility. 
After considering comments and further analyzing the potential impact 
of multipliers on costs and emissions reductions, EPA is adopting 
temporary multipliers for MYs 2023-2024 at a level lower than proposed 
while finalizing the proposed credit cap of 10 g/mile cumulatively, as 
further discussed in Section II.B.1 of this preamble. EPA is not 
finalizing multiplier incentives for MY 2022 or MY 2025 and is instead 
sunsetting them at the end of MY 2024. Under this approach, 
manufacturers utilizing this optional incentive program would need to 
produce more advanced technology vehicles (EVs, PHEVs or fuel cells) in 
order to fully utilize multiplier credits before reaching the cap, thus 
incentivizing greater volumes of these zero and near-zero emission 
vehicles. Similarly, EPA is finalizing temporary full-size pickup 
incentives only for MYs 2023-2024 and sunsetting them at the end of MY 
2024. These provisions are further discussed in Section II.B.2 of this 
preamble.
    EPA is finalizing our proposed removal of the extended multiplier 
incentives for natural gas vehicles (NGVs) after MY 2022, which was 
added by the SAFE rule, because NGVs are not a near-zero emissions 
technology and EPA believes multipliers are no longer necessary or 
appropriate for these vehicles. NGV multiplier incentives are discussed 
in Section II.B.1.iii of this preamble.
    For the off-cycle credits program, EPA is finalizing our proposed 
incentive to increase the menu cap from 10 to 15 g/mile, but for a more 
limited time frame. EPA is finalizing this cap increase beginning in MY 
2023 through MY 2026, instead of beginning the cap increase in MY 2020 
as in the proposed rule. Off-cycle credits are intended to reflect 
real-world emissions reductions for technologies not captured on the 
CO2 compliance test cycles. EPA agrees with public comments from many 
NGOs and states that increasing the off-cycle credit menu cap starting 
in MY 2020 would unnecessarily provide additional credit opportunities 
during the years of the weakened SAFE standards in MYs 2021 and 2022. 
EPA also is finalizing revised definitions for three off-cycle 
technologies to begin in MY 2023, to ensure real-world emission 
reductions consistent with the menu credit values. See Section II.B.3 
of this preamble for further information.

C. Analytical Support for the Final Revised Standards

    EPA updated several key inputs to our analysis for this final rule 
based on public comments and newer available data, as detailed in 
Section III.A of this preamble, including updates to the baseline 
vehicle fleet and battery costs, issues on which we received a 
substantial number of public comments.
    We have updated the baseline vehicle fleet to reflect the MY 2020 
fleet rather than the MY 2017 fleet used in the analysis for the 
proposed rule.\21\ As a result, there is slightly more GHG-reducing 
technology contained in the baseline fleet and the fleet mix has 
changed to reflect more light trucks in the fleet (56 percent trucks/44 
percent cars, compared to the 50/50 car/truck split in the analysis for 
the proposed rule).
---------------------------------------------------------------------------

    \21\ EPA's updated MY 2020 baseline fleet is generally 
consistent with that used by NHTSA in their recent CAFE NPRM (86 FR 
49602, September 3, 2021).
---------------------------------------------------------------------------

    In the proposed rule, we noted that the electrified vehicle battery 
costs used in the SAFE FRM, which were carried over to the proposed 
rule analysis, could be lower based on EPA's latest assessment and that 
updating those costs for the proposed rule would not have had a notable 
impact on overall cost estimates. This conclusion was based in part on 
our expectation that electrification would continue to play a 
relatively modest role in our projections of compliance paths for the 
proposed standards, as it had in all previous analyses of standards 
with a similar level of stringency. We also noted in the proposal that 
we could update battery costs for the final rule and requested comment 
on whether our choice of modeling inputs such as these should be 
modified for the final rule analysis. In response to the public 
comments regarding EPA's battery cost estimates used in the proposed 
rule, EPA has updated the battery costs for the final rule analysis 
based on the most recent available data, resulting in lower projected 
battery costs compared to our proposed rule. EPA agrees with commenters 
that battery costs used in the proposed rule were higher than recent 
evidence supports. Consideration of the current costs of batteries for 
electrified vehicles, as widely reported in the trade and academic 
literature and further supported by our battery cost modeling tools, 
led EPA to adjust the battery costs to more accurately account for 
these trends. Based on an updated assessment, described further in 
Section III.A of this preamble and Chapter 2 of the RIA, we determined 
that battery costs should be reduced by about 25 percent. More 
information on the public comments we received and the revised inputs 
leading to this change is available in Section III.A of this preamble 
and Chapter 2 of the RIA.
    Other key changes to our analysis since the proposed rule include:

--Updated projections from EIA (AEO 2021), including Gross Domestic 
Product, number of households, vehicle miles traveled (VMT) growth 
rates and historic fleet data
--Updated energy security cost per gallon factors
--Updated tailpipe and upstream emission factors
--High compression ratio level 2 (HCR2) technology was removed as a 
separate compliance option within the model although HCR0 and HCR1 
remain as options 22 23
---------------------------------------------------------------------------

    \22\ For further details on HCR definitions, see Chapter 2.3.2 
of the RIA. For HCR implementation in CCEMS, see Chapter 4.1.1.3 of 
the RIA.
    \23\ See Section III.A of this preamble.
---------------------------------------------------------------------------

--Increased utilization of BEVs with a 300 mile range and lower 
utilization of BEVs with a 200 mile range
--Updated credit banks reflecting more recent information from EPA's 
manufacturer certification and compliance data
--Updated valuation of off-cycle credits (lower costs) and updated 
assumptions for off-cycle credit usage across manufacturers
--Updated vehicle sales elasticity (changed from -1 percent to -0.4 
percent) based on a recent EPA study \24\
---------------------------------------------------------------------------

    \24\ See Section VII.B of this preamble.

    More information on these and other analysis updates is in Section 
III.A of this preamble.

[[Page 74443]]

    As with our earlier analyses, including SAFE and the August 2021 
EPA proposed rule, for this final rule EPA used a model to simulate the 
decision process of auto manufacturers in choosing among the emission 
reduction technologies available to incorporate in vehicles across 
their fleets. The model takes into account both the projected costs of 
technologies and the relative ability of each of these technologies to 
reduce GHG emissions. This process identifies potential pathways for 
manufacturers to comply with a given set of GHG standards. EPA then 
estimates projected average and total costs for manufacturers to 
produce these vehicles to meet the standards under evaluation during 
the model years covered by the analysis.
    In addition to projecting the technological capabilities of the 
industry and estimating compliance costs for each of the four affected 
model years (MYs 2023-2026), EPA has considered the role of the 
averaging, banking, and trading system that has been available and 
extensively used by the industry since the beginning of the light-duty 
vehicle GHG program in model year 2012. Our analysis of the current and 
anticipated near-future usage of the GHG credit mechanisms reinforces 
the trends we identified in our other analyses showing widespread 
technological advancement in the industry at reasonable per-vehicle 
costs. Together, these analyses support EPA's conclusion under section 
202(a) of the CAA that technologically feasible pathways are available 
at reasonable costs for automakers to comply with EPA's standards 
during each of the four model years. We discuss these analyses and 
their results further in Section III of this preamble.
    We also estimate the GHG and non-GHG emission impacts (tailpipe and 
upstream) of the standards. EPA then builds on the estimated changes in 
emissions and fuel consumption to calculate projected net economic 
impacts from these changes. Key economic inputs include: Measures of 
health impacts from changes in criteria pollutant emissions; a value 
for the vehicle miles traveled ``rebound effect;'' estimates of energy 
security impacts of changes in fuel consumption; the social costs of 
GHGs; and costs associated with crashes, noise, and congestion from 
additional rebound driving.
    Our overall analytical approach generates key results for the 
following metrics: Incremental costs per vehicle (industry-wide 
averages and by manufacturer); total vehicle technology costs for the 
auto industry; GHG emissions reductions and criteria pollutant 
emissions reductions; penetration of key GHG-reducing technologies 
across the fleet; consumer fuel savings; oil reductions; and net 
societal costs and benefits. We discuss these analyses in Sections III, 
IV, V, and VII of this preamble as well as in the RIA.

D. Summary of Costs, Benefits and GHG Emission Reductions of the Final 
Program

    EPA estimates that the total benefits of this final rule far exceed 
the total costs--the net present value of benefits is between $120 
billion to $190 billion (annualized net benefits between $6.2 billion 
to $9.5 billion). Table 4 below summarizes EPA's estimates of total 
discounted costs, fuel savings, and benefits. The results presented 
here project the monetized environmental and economic impacts 
associated with the final program during each calendar year through 
2050.
    The benefits include climate-related economic benefits from 
reducing emissions of GHGs that contribute to climate change, 
reductions in energy security externalities caused by U.S. petroleum 
consumption and imports, the value of certain particulate matter-
related health benefits, the value of additional driving attributed to 
the rebound effect, and the value of reduced refueling time needed to 
fill a more fuel-efficient vehicle. Between $8 and $19 billion of the 
total benefits through 2050 are attributable to reduced emissions of 
non-GHG pollutants, primarily those that contribute to ambient 
concentrations of smaller particulate matter (PM2.5). 
PM2.5 is associated with premature death and serious health 
effects such as hospital admissions due to respiratory and 
cardiovascular illnesses, nonfatal heart attacks, aggravated asthma, 
and decreased lung function. The program will also have other 
significant social benefits including $130 billion in climate benefits 
(with the average SC-GHGs at a 3 percent discount rate) and fuel 
savings of $150 billion to $320 billion exclusive of fuel taxes. For 
American drivers, who purchase fuel inclusive of fuel taxes, the fuel 
savings will total $210 billion to $420 billion through 2050 (see Table 
44). With these fuel savings, consumers will benefit from reduced 
operating costs over the vehicle lifetime. Over the lifetime of a MY 
2026 vehicle, EPA estimates that the reduction in fuel costs will 
exceed the increase in vehicle costs by $1,080 for consumers on 
average.
    The analysis also includes estimates of economic impacts stemming 
from additional vehicle use from increased rebound driving, such as the 
economic damages caused by crashes, congestion, and noise. See Chapter 
3 of the RIA for more information regarding these estimates.

 Table 4--Monetized Discounted Costs, Benefits, and Net Benefits of the Final Program for Calendar Years Through
                                                      2050
                                 [billions of 2018 dollars] \a\ \b\ \c\ \d\ \e\
----------------------------------------------------------------------------------------------------------------
                                                           Present value                 Annualized value
                                                 ---------------------------------------------------------------
                                                    3% discount     7% discount     3% discount     7% discount
                                                       rate            rate            rate            rate
----------------------------------------------------------------------------------------------------------------
Costs...........................................            $300            $180             $15             $14
Fuel Savings....................................             320             150              16              12
Benefits........................................             170             150             8.6             8.1
Net Benefits....................................             190             120             9.5             6.2
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ Values rounded to two significant figures; totals may not sum due to rounding. Present and annualized values
  are based on the stream of annual calendar year costs and benefits included in the analysis (2021-2050) and
  discounted back to year 2021.

[[Page 74444]]

 
\b\ Climate benefits are based on reductions in CO2, CH4 and N2O emissions and are calculated using four
  different estimates of the social cost of each GHG (SC-GHG model average at 2.5%, 3%, and 5% discount rates;
  95th percentile at 3% discount rate), which each increase over time. In this table, we show the benefits
  associated with the average SC-GHGs at a 3% discount rate but the Agency does not have a single central SC-GHG
  point estimate. We emphasize the importance and value of considering the benefits calculated using all four SC-
  GHG estimates and present them later in this preamble. As discussed in Chapter 3.3 of the RIA, a consideration
  of climate benefits calculated using discount rates below 3 percent, including 2 percent and lower, is also
  warranted when discounting intergenerational impacts. For further discussion of how EPA accounted for these
  estimates, please refer to section VI of this preamble and the separate Response to Comments.
\c\ The same discount rate used to discount the value of damages from future GHG emissions (SC-GHGs at 5, 3, and
  2.5 percent) is used to calculate the present and annualized values of climate benefits for internal
  consistency, while all other costs and benefits are discounted at either 3% or 7%.
\d\ Net benefits reflect the fuel savings plus benefits minus costs.
\e\ Non-GHG impacts associated with the standards presented here do not include the full complement of health
  and environmental effects that, if quantified and monetized, would increase the total monetized benefits.
  Instead, the non-GHG benefits are based on benefit-per-ton values that reflect only human health impacts
  associated with reductions in PM2.5 exposure.

    EPA estimates the average per-vehicle cost to meet the standards to 
be $1,000 in MY 2026, as shown in Table 5 below. Note that compared to 
the proposal, the total costs through 2050, shown in Table 4, are 
somewhat higher, while the per-vehicle costs shown in Table 5 are 
slightly lower. We discuss this in more detail in Section III.B.2 of 
this preamble and RIA Chapter 4.1.3.

         Table 5--Car, Light Truck and Fleet Average Cost per Vehicle Relative to the No Action Scenario
                                                 [2018 dollars]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
Car.............................................            $150            $288            $586            $596
Light Truck.....................................             485             732             909           1,356
Fleet Average...................................             330             524             759           1,000
----------------------------------------------------------------------------------------------------------------

    The final standards will achieve significant reductions in GHG 
emissions. As seen in Table 6 below, through 2050 the program will 
achieve more than 3.1 billion tons of GHG emission reductions, which is 
50 percent greater emissions reductions than EPA's proposed standards.

                                      Table 6--GHG Reductions Through 2050
----------------------------------------------------------------------------------------------------------------
             Emission impacts relative to no action                        Percent change from no action
----------------------------------------------------------------------------------------------------------------
                                    CH4 (metric     N2O (metric
    CO2 (million metric tons)          tons)           tons)            CO2             CH4             N2O
----------------------------------------------------------------------------------------------------------------
-3,125..........................      -3,272,234         -96,735             -9%             -8%             -8%
----------------------------------------------------------------------------------------------------------------

E. How has EPA considered environmental justice in this final rule?

    Executive Order 12898 (59 FR 7629, February 16, 1994) establishes 
federal executive policy on environmental justice. It directs federal 
agencies, to the greatest extent practicable and permitted by law, to 
make achieving environmental justice part of their mission by 
identifying and addressing, as appropriate, disproportionately high and 
adverse human health or environmental effects of their programs, 
policies, and activities on minority populations and low-income 
populations in the United States (U.S.). EPA defines environmental 
justice as the fair treatment and meaningful involvement of all people 
regardless of race, color, national origin, or income with respect to 
the development, implementation, and enforcement of environmental laws, 
regulations, and policies.\25\
---------------------------------------------------------------------------

    \25\ Fair treatment means that ``no group of people should bear 
a disproportionate burden of environmental harms and risks, 
including those resulting from the negative environmental 
consequences of industrial, governmental and commercial operations 
or programs and policies.''. Meaningful involvement occurs when 
``(1) potentially affected populations have an appropriate 
opportunity to participate in decisions about a proposed activity 
[e.g., rulemaking] that will affect their environment and/or health; 
(2) the public's contribution can influence [the EPA's rulemaking] 
decision; (3) the concerns of all participants involved will be 
considered in the decision-making process; and (4) [the EPA will] 
seek out and facilitate the involvement of those potentially 
affected'' A potential EJ concern is defined as ``the actual or 
potential lack of fair treatment or meaningful involvement of 
minority populations, low-income populations, tribes, and indigenous 
peoples in the development, implementation and enforcement of 
environmental laws, regulations and policies.'' See ``Guidance on 
Considering Environmental Justice During the Development of an 
Action.'' Environmental Protection Agency, https://www.epa.gov/environmentaljustice/guidance-considering-environmental-justice-during-development-action. See also https://www.epa.gov/environmentaljustice.
---------------------------------------------------------------------------

    Executive Order 14008 (86 FR 7619, February 1, 2021) also calls on 
federal agencies to make achieving environmental justice part of their 
respective missions ``by developing programs, policies, and activities 
to address the disproportionately high and adverse human health, 
environmental, climate-related and other cumulative impacts on 
disadvantaged communities, as well as the accompanying economic 
challenges of such impacts.'' It declares a policy ``to secure 
environmental justice and spur economic opportunity for disadvantaged 
communities that have been historically marginalized and overburdened 
by pollution and under-investment in housing, transportation, water and 
wastewater infrastructure and health care.''
    Under E.O. 13563, federal agencies may consider equity, human 
dignity, fairness, and distributional considerations in their 
regulatory analyses, where appropriate and permitted by law.
    EPA's 2016 ``Technical Guidance for Assessing Environmental Justice 
in Regulatory Analysis'' provides recommendations on conducting the 
highest quality analysis feasible, recognizing that data limitations, 
time

[[Page 74445]]

and resource constraints, and analytic challenges will vary by media 
and regulatory context.\26\
---------------------------------------------------------------------------

    \26\ ``Technical Guidance for Assessing Environmental Justice in 
Regulatory Analysis.'' Epa.gov, Environmental Protection Agency, 
https://www.epa.gov/sites/production/files/2016-06/documents/ejtg_5_6_16_v5.1.pdf. (June 2016).
---------------------------------------------------------------------------

    EPA's mobile source regulatory program has historically reduced 
significant amounts of both GHG and non-GHG pollutants to the benefit 
of all U.S. residents, including populations that live near roads and 
in communities with environmental justice (EJ) concerns. EJ concerns 
may arise in the context of this rulemaking in two key areas.
    First, people of color and low-income populations may be especially 
vulnerable to the impacts of climate change. As discussed in Section 
IV.C of this preamble, this rulemaking will mitigate the impacts of 
climate change by achieving significant GHG emission reductions, which 
will benefit populations that may be especially vulnerable to various 
forms of damages associated with climate change.
    Second, in addition to significant climate-change benefits, the 
standards will also impact non-GHG emissions. As discussed in Section 
VII.L.2 of this preamble, numerous studies have found that 
environmental hazards such as air pollution are more prevalent in areas 
where people of color and low-income populations represent a higher 
fraction of the population compared with the general population. There 
is substantial evidence, for example, that people who live or attend 
school near major roadways are more likely to be of a non-White race, 
Hispanic ethnicity, and/or low socioeconomic status (see Section 
VII.L.2 of this preamble).
    We project that this rule will, over time, result in reductions of 
non-GHG tailpipe emissions and emissions from upstream refinery 
sources. We also project that the rule will result in small increases 
of non-GHG emissions from upstream Electric Generating Unit (EGU) 
sources. Overall, there are substantial PM2.5-related health 
benefits associated with the non-GHG emissions reductions that this 
rule will achieve. The benefits from these emissions reductions, as 
well as the adverse impacts associated with the emissions increases, 
could potentially impact communities with EJ concerns, though not 
necessarily immediately and not equally in all locations. The air 
quality information needed to perform a quantified analysis of the 
distribution of such impacts was not available for this rulemaking. We 
therefore recommend caution when interpreting these broad, qualitative 
observations.
    As noted previously, EPA intends to develop a subsequent rule to 
control emissions of GHGs as well as criteria and air toxic pollutants 
from light- and medium-duty vehicles for MYs 2027 and beyond. We are 
considering how to project air quality impacts from the changes in non-
GHG emissions for that future rulemaking (see Section V.C of this 
preamble).

F. Affordability and Equity

    In addition to considering environmental justice impacts, we have 
examined the effects of the standards on affordability of vehicles and 
transportation services for low-income households in Section VII.L of 
this preamble and Chapter 8.4 of the RIA. As with the effects of the 
standards on vehicle sales discussed in Section VII.B of this preamble, 
the effects of the standards on affordability and equity depend in part 
on two countervailing effects: The increase in the up-front costs of 
new vehicles subject to more stringent standards, and the decrease in 
operating costs from reduced fuel consumption over time. The increase 
in up-front new vehicle costs has the potential to increase the prices 
of used vehicles, to make credit more difficult to obtain, and to make 
the least expensive new vehicles less desirable compared to used 
vehicles. The reduction in operating costs over time has the potential 
to mitigate or reverse all these effects. Lower operating costs on 
their own increase mobility (see RIA Chapter 3.1 for a discussion of 
rebound driving).
    While social equity involves issues beyond income and 
affordability, including race, ethnicity, gender, gender 
identification, and residential location, the potential effects of the 
standards on lower-income households are of great importance for social 
equity and reflect these contrasting forces. The overall effects on 
vehicle ownership, including for lower-income households, depend 
heavily on the role of fuel consumption in vehicle sales decisions, as 
discussed in Section VII.M of this preamble. At the same time, lower-
income households own fewer vehicles per household and are more likely 
to buy used vehicles than new. In addition, for lower-income 
households, fuel expenditures are a larger portion of household income, 
so the fuel savings that will result from this rule may be more 
impactful to these consumers. Thus, the benefits of this rule may be 
stronger for lower-income households even (or especially) if they buy 
used vehicles: As vehicles meeting the standards enter the used vehicle 
market, they will retain the fuel economy/GHG-reduction benefits, and 
associated fuel savings, while facing a smaller portion of the upfront 
vehicle costs; see Section VII.J of this preamble. The reduction in 
operating costs may also increase access to transportation services, 
such as ride-hailing and ride-sharing, where the lower per-mile costs 
may play a larger role than up-front costs in pricing. As a result, 
lower-income consumers may be affected more from the reduction in 
operating costs than the increase in up-front costs.
    The analysis for this final rule projects that EVs and PHEVs will 
gradually increase to about 17 percent market share by MY 2026, 
although the majority of vehicles produced in the time frame of the 
final standards will continue to be gasoline-fueled vehicles (see 
Section III.B.3 of this preamble). EPA has heard from some 
environmental justice groups and Tribes that limited access to electric 
vehicles and charging infrastructure for electric vehicles can be a 
barrier for purchasing EVs. A recent report from the National Renewable 
Energy Laboratory estimates that public and workplace charging is 
keeping up with projected needs, based on Level 2 and fast charging 
ports per plug-in EV.\27\ Comments received on the proposed rule point 
out both the higher up-front costs of EVs as challenges for adoption 
and their lower operating and maintenance costs as incentives for 
adoption. As noted previously, the higher penetration of EVs in the 
current analysis as compared to that of the proposed rule is in part an 
outgrowth of updated estimates of battery costs, which reduce the 
projected costs of EVs as a compliance path and is consistent with 
expectations that cost parity with conventional vehicles is in the 
process of being attained in an increasing number of market segments. A 
number of auto manufacturers commented on the importance of consumer 
education, purchase incentives, and charging infrastructure development 
for promoting adoption of electric vehicles. Some NGOs commented that 
EV purchase incentives should focus on lower-income households, because 
they are more responsive to price incentives than higher-income 
households. EPA will continue to monitor and study affordability issues 
related to electric

[[Page 74446]]

vehicles as their prevalence in the vehicle fleet increases.
---------------------------------------------------------------------------

    \27\ Brown, A., A. Schayowitz, and E. Klotz (2021). ``Electric 
Vehicle Infrastructure Trends from the Alternative Fueling Station 
Locator: First Quarter 2021.'' National Renewable Energy Laboratory 
Technical Report NREL/TP-5400-80684, https://afdc.energy.gov/files/u/publication/electric_vehicle_charging_infrastructure_trends_first_quarter_2021.pdf, accessed 11/3/2021.
---------------------------------------------------------------------------

II. EPA Standards for MY 2023-2026 Light-Duty Vehicle GHGs

A. Model Year 2023-2026 GHG Standards for Light-Duty Vehicles, Light-
Duty Trucks, and Medium-Duty Passenger Vehicles

    As noted, the transportation sector is the largest U.S. source of 
GHG emissions, making up 29 percent of all emissions.\28\ Within the 
transportation sector, light-duty vehicles are the largest contributor, 
58 percent, to transportation GHG emissions in the U.S.\29\ EPA has 
concluded that more stringent standards are appropriate in light of our 
assessment of the need to reduce GHG emissions, technological 
feasibility, costs, lead time, and other factors. The MY 2023 through 
MY 2026 program that EPA is finalizing in this action is based on our 
assessment of the near-term potential of technologies already available 
and present in much of the fleet. This program also will serve as an 
important transition to a longer-term program beyond MY 2026. The 
following section provides details on EPA's revised standards and 
related provisions.
---------------------------------------------------------------------------

    \28\ Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-
2019 (EPA-430-R-21-005, published April 2021).
    \29\ Ibid.
---------------------------------------------------------------------------

    EPA is finalizing revised, more stringent standards to control the 
emissions of GHGs from MY 2023 and later light-duty vehicles.\30\ 
Carbon dioxide (CO2) is the primary GHG resulting from the 
combustion of vehicular fuels.\31\ The standards regulate 
CO2 on a grams per mile (g/mile) basis, which EPA defines by 
separate footprint curves that apply to vehicles in a manufacturer's 
car and truck fleets.\32\ The final standards apply to passenger cars, 
light-duty trucks, and medium-duty passenger vehicles (MDPVs).\33\ As 
an overall group, they are referred to in this preamble as light-duty 
vehicles or simply as vehicles. In this preamble, passenger cars may be 
referred to as ``cars,'' and light-duty trucks and MDPVs as ``light 
trucks'' or ``trucks.'' Based on compliance with the final revised 
standards, the industry-wide average emissions target for new light-
duty vehicles is projected to be 161 g/mile of CO2 in MY 
2026.\34\ Except for a limited extension of credit carry-forward 
provisions for certain model years discussed in Section II.A.4 of this 
preamble, EPA is not changing existing averaging, banking, and trading 
program elements.
---------------------------------------------------------------------------

    \30\ See Sections III and VI of this preamble for discussion of 
our technical assessment and basis of the final standards.
    \31\ EPA's existing vehicle GHG program also includes emissions 
standards for methane (CH4) and nitrous oxide (N2O), and credits for 
hydrofluorocarbons (HFCs) reductions from air conditioning 
refrigerants.
    \32\ Footprint curves are graphical representations of the 
algebraic formulae defining the emission standards in the regulatory 
text.
    \33\ As with previous GHG emissions standards, EPA will continue 
to use the same vehicle category definitions as in the CAFE program. 
MDPVs are grouped with light trucks for fleet average compliance 
determinations.
    \34\ The reference to CO2 here refers to 
CO2 equivalent reductions, as this level includes some 
reductions in emissions of greenhouse gases other than 
CO2, from refrigerant leakage, as one part of the A/C 
related reductions.
---------------------------------------------------------------------------

    EPA has determined that the revised final standards reflect an 
appropriate balance of factors considered under section 202(a) of the 
CAA, as discussed in Section VI of this preamble. In selecting the 
final standards, EPA carefully considered the concerns raised in public 
comments submitted by a wide range of stakeholders. EPA appreciates 
that the auto industry and the UAW generally support the proposed 
standards, and we also recognize the shorter lead time for the 
standards beginning in MY 2023. At the same time, we recognize the 
multitude of stakeholders who voiced the critical need for greater GHG 
emissions reductions from the light-duty vehicle sector through MY 2026 
given the significant need to address air pollution and climate change, 
as well as the many stakeholders who provided comments and analyses 
indicating that more stringent standards are achievable in this time 
frame. EPA has considered all public comments and our updated technical 
analysis in determining appropriate standards under the CAA. EPA is 
finalizing standards that maintain the stringency level of the proposed 
standards in the first two years (MYs 2023 and 2024) in consideration 
of the shorter lead time, and that are more stringent than the proposed 
standards in the latter two years (MYs 2025 and 2026). EPA notes that 
the revised final standards in each model year are significantly more 
stringent than the SAFE standards.
    After considering the public comments received, EPA is finalizing a 
more limited set of optional manufacturer flexibilities than proposed. 
Generally, we are narrowing the availability of these flexibilities to 
MY 2023 and 2024 in consideration of lead time, with the exception of 
the off-cycle menu credit cap which is available for MY 2023 through 
2026 given that these credits achieve real-world emission reductions. 
The set of four flexibilities includes: (1) A one-year extension of 
credit life for MYs 2017 and 2018 credits such that they are available 
for use in MY 2023 and 2024, respectively; (2) an increase in the off-
cycle credit menu cap from 10 g/mile to 15 g/mile from MYs 2023 through 
2026. EPA also is finalizing revised definitions for three technologies 
to ensure real-world emission reductions commensurate with the menu 
credit values; (3) multiplier incentives for EVs, PHEVs, and FCVs, for 
2023 and 2024, with a cumulative credit cap of 10 g/mile, and with 
multiplier levels lower than those proposed to incentivize more 
production of advanced technologies. EPA is eliminating multiplier 
incentives for natural gas vehicles adopted in the SAFE rule after MY 
2022; (4) full size pick-up truck incentives for MYs 2023 and 2024 for 
vehicles that meet efficiency performance criteria or include strong 
hybrid technology at a minimum level of production volumes. The details 
of EPA's final provisions for these flexibilities are discussed in 
Section II.A.4 (credit life extension) and Section II.B (off-cycle, 
advanced technology multipliers, and full-size pickup credits) of this 
preamble.
    The current light-duty vehicle program includes several program 
elements that will remain in place, without change. EPA is not changing 
the fundamental structure of the GHG standards, which are based on the 
footprint attribute with separate footprint curves for cars and trucks. 
EPA is also not changing the existing CH4 and N2O 
emissions standards or the program structure in terms of vehicle 
certification, compliance, and enforcement. EPA is continuing to use 
tailpipe-only values to determine vehicle GHG emissions, without 
accounting for upstream emissions (i.e., EVs and PHEVs will continue to 
apply 0 g/mile through MY 2026). EPA is also not changing existing 
program opportunities to earn compliance credits toward the fleet-wide 
average CO2 standards for improvements to air conditioning 
systems. The current A/C credits program provides credits for 
improvements to address both hydrofluorocarbon (HFC) refrigerant direct 
losses (i.e., system ``leakage'') and indirect CO2 emissions 
related to the increased load on the engine (also referred to as ``A/C 
efficiency'' related emissions). We did not propose to change any of 
these aspects of the existing program, they continue to function as 
intended and we do not presently believe changes are needed in the 
context of standards for MY 2023-2026.

[[Page 74447]]

1. What fleet-wide emissions levels correspond to the CO2 
standards?
    EPA is finalizing revised standards for MYs 2023-2026 that are 
projected to result in an industry-wide average target for the light-
duty fleet of 161 g/mile of CO2 in MY 2026. The final 
standards are consistent with the proposed standards in MYs 2023 and 
2024 and are more stringent than the proposed standards in MYs 2025 and 
2026. In MY 2023, the final standards represent a nearly 10 percent 
increase in stringency from the SAFE rule standards. The final 
standards continue to increase in stringency by 5 percent in MY 2024, 
6.6 percent in MY 2025, and more than 10 percent in 2026. For MYs 2025 
and 2026, the final standards are more stringent than the 2012 rule 
level of stringency, making the MY 2025 and 2026 standards the most 
stringent vehicle GHG standards that EPA has finalized to date. Based 
on auto manufacturers' continued technological advancements and 
progress towards electrification, EPA believes that it is feasible and 
appropriate to make additional progress in reducing GHG emissions from 
light-duty vehicles by surpassing the level of stringency of the 
original MY 2025 and later standards established nine years ago in the 
2012 rule, as further described in Sections III and VI of this 
preamble. EPA is finalizing standards that will take a reasonable 
approach towards achieving the need for ambitious GHG emission 
reductions to address climate change. These final standards will play 
an important role in the transition from the current fleet to even 
greater GHG emissions reductions in the light-duty fleet, which EPA 
will pursue in a subsequent rulemaking for MYs 2027 and later.
    The industry fleet average and car/light truck year-over-year 
percent reductions for the final standards compared to the proposed 
standards and the SAFE rule standards are provided in Table 7 below. 
For passenger cars, the footprint curves are projected to result in 
reducing industry fleet average CO2 emissions targets by 8.4 
percent in MY 2023 followed by year over year reductions of 4.8 to 11.4 
percent in MY 2024 through MY 2026. For light-duty trucks, the 
footprint standards curves are projected to result in reducing industry 
fleet average CO2 emissions targets by 10.4 percent in MY 
2023 followed by year over year reductions of 4.9 to 9.5 percent in MY 
2024 through MY 2026. Cumulative reductions in the projected fleet 
average CO2 targets over the four model year period are 
projected to total 27.1 for cars and 28.3 for light-duty trucks.

                                 Table 7--Projected Industry Fleet Average CO2 Target Year-Over-Year Percent Reductions
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     SAFE rule standards *               Proposed standards **                Final standards **
                                             -----------------------------------------------------------------------------------------------------------
                                                            Trucks     Combined                 Trucks     Combined                 Trucks     Combined
                                               Cars  (%)      (%)         (%)      Cars  (%)      (%)         (%)      Cars  (%)      (%)         (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2023........................................         1.7         1.7         2.1         8.4        10.4         9.8         8.4        10.4         9.8
2024........................................         0.6         1.5         1.4         4.7         5.0         5.1         4.8         4.9         5.1
2025........................................         2.3         1.7         2.2         4.8         5.0         5.0         5.7         7.0         6.6
2026........................................         1.8         1.6         1.9         4.8         5.0         5.0        11.4         9.5        10.3
                                             -----------------------------------------------------------------------------------------------------------
    Cumulative..............................         6.3         6.3         7.4        20.9        23.1        22.8        27.1        28.3        28.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Note the percentages shown for the SAFE rule targets have changed slightly from the proposed rule, due to the updates in our base year fleet from MY
  2017 to MY 2020 manufacturer fleet data.
** These are modeled results based on projected fleet characteristics and represent percent reductions in projected targets, not the standards (which
  are the footprint car/truck curves), associated with that projected fleet (see Section III of this preamble for more detail on our modeling results).

    For light-trucks, EPA is finalizing, as proposed, a change to the 
upper right cutpoints of the CO2-footprint curves (i.e., the 
footprint sizes in sq. ft. at which the CO2 standards level 
off as flat CO2 target values for larger vehicle footprints. 
See Figure 4). The SAFE rule altered these cutpoints and EPA is now 
restoring them to the original upper right cutpoints initially 
established in the 2012 rule, for MYs 2023-2026, essentially requiring 
increasingly more stringent CO2 targets at the higher 
footprint range up to the revised cutpoint levels. The shapes of the 
curves and the cutpoints are discussed in Section II.A.2 of this 
preamble.
    The 161 g/mile estimated industry-wide target for MY 2026 noted 
above is based on EPA's projected fleet mix projections for MY 2026 
(approximately 47 percent cars and 53 percent trucks, with only slight 
variations from MYs 2023-2026). As discussed below, the final fleet 
average standards for each manufacturer ultimately will depend on each 
manufacturer's actual rather than projected production in each MY from 
MY 2023 to MY 2026 under the sales-weighted footprint-based standard 
curves for the car and truck regulatory classes. In the 2012 rule, EPA 
estimated that the fleet average target would be 163 g/mile in MY 2025 
based on the projected fleet mix for MY 2025 (67 percent car and 33 
percent trucks) based on information available at the time of the 2012 
rulemaking. Primarily due to the historical and ongoing shift in fleet 
mix that has included more crossover and small and mid-size SUVs and 
fewer passenger cars, EPA's projection in the Midterm Evaluation (MTE) 
January 2017 Final Determination for the original MY 2025 fleet average 
target level increased to 173 g/mile.\35\ EPA has again updated its 
fleet mix projections for this final rule and projects that the 
original 2012 rule MY 2025 footprint standards curves would result in 
an industry-wide fleet average target level of 180 g/mile. The 
projected fleet average targets under the 2012 rule, using the updated 
fleet mix projections and the projected fleet average targets for the 
final rule are provided in Table 8 below. Figure 2 below, based on the 
values in Table 8, shows the final standards target levels along with 
estimated targets for the proposed standards, SAFE rule, and the 2012 
rule for comparison.\36\
---------------------------------------------------------------------------

    \35\ ``Final Determination on the Appropriateness of the Model 
Year 2022-2025 Light-Duty Vehicle Greenhouse Gas Emissions Standards 
under the Midterm Evaluation,'' EPA-420-R-17-001, January 2017.

[[Page 74448]]

   Table 8--Fleet Average Target Projections for the Final Standards Compared to Updated Fleet Average Target
                          Projections * for the Proposed Standards, SAFE Rule 2012 Rule
                                                  [CO2 g/mile]
----------------------------------------------------------------------------------------------------------------
                                                       Final         Proposed        SAFE rule
                                                     standards       standards       standards       2012 rule
                       MY                            projected       projected       projected       projected
                                                      targets         targets         targets         targets
----------------------------------------------------------------------------------------------------------------
2021............................................          ** 229          ** 229             229             219
2022............................................          ** 224          ** 224             224             208
2023............................................             202             202             220             199
2024............................................             192             192             216             189
2025............................................             179             182             212             180
2026............................................             161             173             208             179
                                                 ---------------------------------------------------------------
    Total change 2022-2026......................             -63             -51             -16             -29
----------------------------------------------------------------------------------------------------------------
* All projections have been updated to reflect the updated base year fleet, which results in slight changes
  compared to the values shown in the proposed rule.
** SAFE Rule targets shown for reference.

BILLING CODE 6560-50-P
[GRAPHIC] [TIFF OMITTED] TR30DE21.001

BILLING CODE 6560-50-C
    EPA's standards are based in part on EPA's projection of average 
industry wide CO2-equivalent emission reductions from A/C 
improvements; specifically the footprint standards curves are made 
numerically more stringent by an amount equivalent to this projection 
of industry-wide A/C

[[Page 74449]]

refrigerant leakage credits.\37\ Including this projection of A/C 
credits for purposes of setting GHG standards levels is consistent with 
the 2012 rule and the SAFE rule.
---------------------------------------------------------------------------

    \37\ The total A/C adjustment is 18.8 g/mile for cars and 24.4 
g/mile for trucks.
---------------------------------------------------------------------------

    Table 9 below shows overall fleet average target levels for both 
cars and light trucks that are projected over the implementation period 
of the final standards. A more detailed manufacturer by manufacturer 
break down of the projected target and achieved levels is provided in 
Section III.B.1 of this preamble. The actual fleet-wide average g/mile 
level that would be achieved in any year for cars and trucks will 
depend on the actual production of vehicles for that year, as well as 
the use of the various credit and averaging, banking, and trading 
provisions. For example, in any year, manufacturers would be able to 
generate credits from cars and use the credits for compliance with the 
truck standard, or vice versa. In Section V of this preamble, EPA 
discusses the year-by-year estimate of emissions reductions that are 
projected to be achieved by the standards.
    In general, the level and implementation schedule of the final 
standards provides for an incremental phase-in to the MY 2026 
stringency level and reflects consideration of the appropriate lead 
time for manufacturers to take actions necessary to meet the final 
standards.\38\ The technical feasibility of the standards is discussed 
in Section III of this preamble and in the RIA. Note that MY 2026 is 
the final MY in which the standards become more stringent. The MY 2026 
CO2 standards will remain in place for later MYs, unless and 
until they are revised by EPA in a future rulemaking. As mentioned in 
Section I.A.2 of this preamble, EPA is planning a subsequent rulemaking 
to set more stringent standards for the light-duty vehicle sector in 
MYs 2027 and beyond.
---------------------------------------------------------------------------

    \38\ As discussed in Section III of this preamble, EPA has used 
the Corporate Average Fuel Economy (CAFE) Compliance and Effects 
Modeling System (CCEMS) to support the technical assessment. Among 
the ways EPA has considered lead time is by using the constraints 
built into the CCEMS model which are designed to represent lead-time 
constraints, including the use of redesign and refresh cycles. See 
CCEMS Model Documentation on web page https://www.nhtsa.gov/corporate-average-fuel-economy/compliance-and-effects-modeling-system and contained in the docket for this rule.
---------------------------------------------------------------------------

    EPA has estimated the overall fleet-wide CO2 emission 
target levels that correspond with the attribute-based footprint 
standards, based on projections of the composition of each 
manufacturer's fleet in each year of the program. As noted above, EPA 
estimates that, on a combined fleet-wide national basis, the 2026 MY 
standards will result in a target level of 161 g/mile CO2. 
The derivation of the 161 g/mile estimate is described in Section III.A 
of this preamble. EPA aggregated the estimates for individual 
manufacturers based on projected production volumes into the fleet-wide 
averages for cars, trucks, and the entire fleet, shown in Table 9.\39\ 
As discussed above, the combined fleet estimates are based on projected 
fleet mix of cars and trucks that varies over the MY 2023-2026 
timeframe. This fleet mix distribution can also be found in Section 
III.A of this preamble.
---------------------------------------------------------------------------

    \39\ Due to rounding during calculations, the estimated fleet-
wide CO2 target levels may vary by plus or minus 1 gram.

              Table 9--Estimated Fleet-Wide CO2 Target Levels Corresponding to the Final Standards
----------------------------------------------------------------------------------------------------------------
                                                                   Cars CO2 (g/   Trucks CO2 (g/   Fleet CO2 (g/
                           Model year                                  mile)           mile)           mile)
----------------------------------------------------------------------------------------------------------------
2023............................................................             166             234             202
2024............................................................             158             222             192
2025............................................................             149             207             179
2026 and later..................................................             132             187             161
----------------------------------------------------------------------------------------------------------------

    As shown in Table 9, fleet-wide CO2 emission target 
levels for cars under the final standards are projected to decrease 
from 166 to 132 g/mile between MY 2023 and MY 2026. Similarly, fleet-
wide CO2 target levels for trucks are projected to decrease 
from 233 to 187 g/mile during the same period. These target levels 
reflect both the final standards and the flexibilities and credits 
available in the program.\40\ The estimated fleetwide achieved values 
can be found in Section III.B.1 of this preamble.
---------------------------------------------------------------------------

    \40\ The target levels do not reflect credit trading across 
manufacturers under the ABT program.
---------------------------------------------------------------------------

    As noted above, EPA is finalizing CO2 standards that are 
increasingly more stringent each year from MY 2023 though MY 2026. 
Applying the CO2 footprint standard curves applicable in 
each MY to the vehicles (and their footprint distributions) projected 
to be sold in each MY produces projections of progressively lower 
fleet-wide CO2 emission target levels. EPA believes 
manufacturers can achieve the final standards and their important 
CO2 emissions reductions through the application of 
available control technology at reasonable cost, as well as the use of 
optional program flexibilities available in certain model years.
    The existing program includes several provisions that we are not 
changing and so would continue during the implementation timeframe of 
this final rule. Consistent with CAA section 202(a)(1) that standards 
be applicable to vehicles ``for their useful life,'' the MY 2023-2026 
vehicle standards will apply for the useful life of the vehicle.\41\ 
Also, in this action EPA is not changing the test procedures over which 
emissions are measured and weighted to determine compliance with the 
GHG standards. These procedures are the Federal Test Procedure (FTP or 
``city'' test) and the Highway Fuel Economy Test (HFET or ``highway'' 
test). While EPA may consider requiring the use of test procedures 
other than the 2-cycle test procedures in a future rulemaking, EPA did 
not propose and is not adopting any test procedure changes in this 
final rule.
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    \41\ The GHG emission standards apply for a useful life of 10 
years or 120,000 miles for light duty vehicles (LDVs) and light-
light-duty trucks (LLDTs) and 11 years or 120,000 miles for heavy-
light-duty trucks (HLDTs) and medium-duty passenger vehicles 
(MDPVs). See 40 CFR 86.1805-17.
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    EPA has analyzed the feasibility of achieving the car and truck 
CO2 footprint based standards through the application of 
available technologies, based on projections of technology penetration 
rates that are in turn based on our estimates of the effectiveness and 
cost of the technology. The results of the analysis are discussed in 
detail in Section III of this preamble and in the RIA. EPA also 
presents the overall estimated costs and benefits of the final car and 
truck CO2 standards in Section VII.I of this preamble.

[[Page 74450]]

2. What are the final CO2 attribute-based standards?
    As with the existing GHG standards, EPA is finalizing separate car 
and truck standards--that is, vehicles defined as cars have one set of 
footprint-based curves, and vehicles defined as trucks would have a 
different set.\42\ In general, for a given footprint, the 
CO2 g/mile target \43\ for trucks is higher than the target 
for a car with the same footprint. The curves are defined 
mathematically in EPA's regulations by a family of piecewise linear 
functions (with respect to vehicle footprint) that gradually and 
continually ramp down from the MY 2022 curves established in the SAFE 
rule. EPA's minimum and maximum footprint targets and the corresponding 
cutpoints are provided below in Table 10 for MYs 2023-2026 along with 
the slope and intercept defining the linear function for footprints 
falling between the minimum and maximum footprint values. For 
footprints falling between the minimum and maximum, the targets are 
calculated as follows: Slope x Footprint + Intercept = Target. Figure 3 
and Figure 4 provide the existing MY 2021-2022 and final MY 2023-2026 
footprint curves graphically for both car and light trucks, 
respectively.
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    \42\ See 49 CFR part 523. Generally, passenger cars include cars 
and smaller cross-overs and SUVs, while the truck category includes 
larger cross-overs and SUVs, minivans, and pickup trucks.
    \43\ Because compliance is based on a sales-weighting of the 
full range of vehicles in a manufacturer's car and truck fleets, the 
footprint based CO2 emission levels of specific vehicles 
within the fleet are referred to as targets, rather than standards.

                                             Table 10--Final Footprint-Based CO2 Standard Curve Coefficients
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Car                                                Truck
                                                 -------------------------------------------------------------------------------------------------------
                                                      2023         2024         2025         2026         2023         2024         2025         2026
--------------------------------------------------------------------------------------------------------------------------------------------------------
MIN CO2 (g/mile)................................        145.6        138.6        130.5        114.3        181.1        172.1        159.3        141.8
MAX CO2 (g/mile)................................        199.1        189.5        179.4        160.9        312.1        296.5        277.4        254.4
Slope (g/mile/ft\2\)............................         3.56         3.39         3.26         3.11         3.97         3.77         3.58         3.41
Intercept (g/mile)..............................         -0.4         -0.4         -3.2        -13.1         18.4         17.4         12.5          1.9
MIN footprint (ft\2\)...........................           41           41           41           41           41           41           41           41
MAX footprint (ft\2\)...........................           56           56           56           56           74           74           74           74
--------------------------------------------------------------------------------------------------------------------------------------------------------

BILLING CODE 6560-50-P
[GRAPHIC] [TIFF OMITTED] TR30DE21.002

[[Page 74451]]

[GRAPHIC] [TIFF OMITTED] TR30DE21.003

BILLING CODE 6560-50-C
    The shapes of the MY 2023-2026 car curves are similar to the MY 
2022 car curve. By contrast, the MY 2023-2026 truck curves return to 
the cutpoint of 74.0 sq ft that was originally established in the 2012 
rule but was changed in the SAFE rule.\44\ The gap between the 2022 
curves and the 2023 curves is indicative of the design of the final 
standards as described earlier, where the gap between the MY 2022 and 
MY 2023 curves is roughly double the gap between the curves for MYs 
2024-2026.
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    \44\ 77 FR 62781.
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3. EPA's Statutory Authority Under the CAA
i. Standards-Setting Authority Under CAA Section 202(a)
    Title II of the CAA provides for comprehensive regulation of mobile 
sources, authorizing EPA to regulate emissions of air pollutants from 
all mobile source categories. Pursuant to these sweeping grants of 
authority, when setting GHG standards for light-duty vehicles, EPA 
considers such issues as technology effectiveness, technology cost (per 
vehicle, per manufacturer, and per consumer), the lead time necessary 
to implement the technology, and--based on these considerations--the 
feasibility and practicability of potential standards; as well as the 
impacts of potential standards on emissions reductions of both GHGs and 
non-GHGs; the impacts of standards on oil conservation and energy 
security; the impacts of standards on fuel savings by consumers; the 
impacts of standards on the auto industry; other energy impacts; and 
other relevant factors such as impacts on safety.
    Title II emission standards have stimulated the development of a 
broad set of advanced automotive technologies, such as on-board 
computers and fuel injection systems, which have been the building 
blocks of automotive designs and have yielded not only lower pollutant 
emissions, but improved vehicle performance, reliability, and 
durability. In response to EPA's adoption of Title II emission 
standards for GHGs from light-duty vehicles in 2010 and later, 
manufacturers have continued to significantly ramp up their development 
and application of a wide range of new and improved technologies, 
including more fuel-efficient engine designs, transmissions, 
aerodynamics, and tires, air conditioning systems that contribute to 
lower GHG emissions, and various levels of electrified vehicle 
technologies.
    This rule implements a specific provision in Title II, section 
202(a) of the CAA. Section 202(a)(1), 42 U.S.C. 7521(a)(1), states that 
``the Administrator shall by regulation prescribe (and from time to 
time revise) . . . standards applicable to the emission of any air 
pollutant from any class or classes of new motor vehicles . . . which 
in his judgment cause, or contribute to, air pollution which may 
reasonably be anticipated to endanger public health or welfare.'' Once 
EPA makes the appropriate endangerment and cause or contribute 
findings,\45\ CAA section 202(a) authorizes EPA to issue standards 
applicable to emissions of those pollutants. Indeed, EPA's obligation 
to do so is mandatory. See Coalition for Responsible Regulation v. EPA, 
684 F.3d 102, 126-27 (D.C. Cir. 2012); Massachusetts v. EPA, 549 U.S. 
497, 533 (2007). Moreover, EPA's mandatory legal duty to promulgate 
these emission standards derives from ``a statutory obligation wholly 
independent of DOT's mandate to promote energy efficiency.'' 
Massachusetts, 549 U.S. at 532. Consequently, EPA has no discretion to 
decline to issue GHG standards under

[[Page 74452]]

section 202(a), or to defer issuing such standards due to NHTSA's 
regulatory authority to establish fuel economy standards. Rather, 
``[j]ust as EPA lacks authority to refuse to regulate on the grounds of 
NHTSA's regulatory authority, EPA cannot defer regulation on that 
basis.'' Coalition for Responsible Regulation, 684 F.3d at 127.
---------------------------------------------------------------------------

    \45\ EPA did so in 2009 for the group of six well-mixed 
greenhouse gases--carbon dioxide, methane, nitrous oxide, 
hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride--which 
taken in combination endanger both the public health and the public 
welfare of current and future generations. EPA further found that 
the combined emissions of these greenhouse gases from new motor 
vehicles and new motor vehicle engines contribute to greenhouse gas 
air pollution that endangers public health and welfare. 74 FR 66496 
(Dec. 15, 2009).
---------------------------------------------------------------------------

    Any standards under CAA section 202(a)(1) ``shall be applicable to 
such vehicles . . . for their useful life.'' Emission standards set by 
EPA under CAA section 202(a)(1) are technology-based, as the levels 
chosen must be premised on a finding of technological feasibility. 
Thus, standards promulgated under CAA section 202(a) are to take effect 
only ``after such period as the Administrator finds necessary to permit 
the development and application of the requisite technology, giving 
appropriate consideration to the cost of compliance within such 
period.'' CAA section 202(a)(2); see also NRDC v. EPA, 655 F. 2d 318, 
322 (D.C. Cir. 1981). EPA must consider costs to those entities which 
are directly subject to the standards. Motor & Equipment Mfrs. Ass'n 
Inc. v. EPA, 627 F. 2d 1095, 1118 (D.C. Cir. 1979). Thus, ``the 
[s]ection 202(a)(2) reference to compliance costs encompasses only the 
cost to the motor-vehicle industry to come into compliance with the new 
emission standards, and does not mandate consideration of costs to 
other entities not directly subject to the proposed standards.'' See 
Coalition for Responsible Regulation, 684 F.3d at 128.
    EPA is afforded considerable discretion under CAA section 202(a) 
when assessing issues of technical feasibility and availability of lead 
time to implement new technology. Such determinations are ``subject to 
the restraints of reasonableness,'' which ``does not open the door to 
`crystal ball' inquiry.'' NRDC, 655 F. 2d at 328, quoting International 
Harvester Co. v. Ruckelshaus, 478 F. 2d 615, 629 (D.C. Cir. 1973). 
However, ``EPA is not obliged to provide detailed solutions to every 
engineering problem posed in the perfection of [a particular device]. 
In the absence of theoretical objections to the technology, the agency 
need only identify the major steps necessary for development of the 
device, and give plausible reasons for its belief that the industry 
will be able to solve those problems in the time remaining. The EPA is 
not required to rebut all speculation that unspecified factors may 
hinder `real world' emission control.'' NRDC, 655 F. 2d at 333-34. In 
developing such technology-based standards, EPA has the discretion to 
consider different standards for appropriate groupings of vehicles 
(``class or classes of new motor vehicles''), or a single standard for 
a larger grouping of motor vehicles. NRDC, 655 F.2d at 338. Finally, 
with respect to regulation of vehicular GHG emissions, EPA is not 
``required to treat NHTSA's . . . regulations as establishing the 
baseline for the [section 202(a) standards].'' Coalition for 
Responsible Regulation, 684 F.3d at 127 (noting that the section 202(a) 
standards provide ``benefits above and beyond those resulting from 
NHTSA's fuel-economy standards.'')
    Although standards under CAA section 202(a)(1) are technology-
based, they are not based exclusively on technological capability. EPA 
has the discretion to consider and weigh various factors along with 
technological feasibility, such as the cost of compliance (section 
202(a)(2)), lead time necessary for compliance (section 202(a)(2)), 
safety (see NRDC, 655 F. 2d at 336 n. 31),\46\ other impacts on 
consumers, and energy impacts associated with use of the technology. 
See George E. Warren Corp. v. EPA, 159 F.3d 616, 623-624 (D.C. Cir. 
1998) (ordinarily permissible for EPA to consider factors not 
specifically enumerated in the Act).
---------------------------------------------------------------------------

    \46\ Since its earliest Title II regulations, EPA has considered 
the safety of pollution control technologies. See 45 FR 14496, 14503 
(1980) (``EPA would not require a particulate control technology 
that was known to involve serious safety problems. If during the 
development of the trap-oxidizer safety problems are discovered, EPA 
would reconsider the control requirements implemented by this 
rulemaking'').
---------------------------------------------------------------------------

    In addition, EPA has clear authority to set standards under CAA 
section 202(a) that are technology-forcing when EPA considers that to 
be appropriate, but EPA is not required to do so (as distinguished from 
standards under provisions such as section 202(a)(3) and section 
213(a)(3)). Section 202(a) of the CAA does not specify the degree of 
weight to apply to each factor, and EPA accordingly has discretion in 
choosing an appropriate balance among factors. See Sierra Club v. EPA, 
325 F.3d 374, 378 (D.C. Cir. 2003) (even where a provision is 
technology-forcing, the provision ``does not resolve how the 
Administrator should weigh all [the statutory] factors in the process 
of finding the `greatest emission reduction achievable' ''); NPRA v. 
EPA, 287 F.3d 1130, 1135 (D.C. Cir. 2002) (EPA decisions, under CAA 
provision authorizing technology-forcing standards, based on complex 
scientific or technical analysis are accorded particularly great 
deference); see also Husqvarna AB v. EPA, 254 F. 3d 195, 200 (D.C. Cir. 
2001) (great discretion to balance statutory factors in considering 
level of technology-based standard, and statutory requirement ``to 
[give appropriate] consideration to the cost of applying . . . 
technology'' does not mandate a specific method of cost analysis); 
Hercules Inc. v. EPA, 598 F. 2d 91, 106 (D.C. Cir. 1978) (``In 
reviewing a numerical standard we must ask whether the agency's numbers 
are within a zone of reasonableness, not whether its numbers are 
precisely right''); Permian Basin Area Rate Cases, 390 U.S. 747, 797 
(1968) (same); Federal Power Commission v. Conway Corp., 426 U.S. 271, 
278 (1976) (same); Exxon Mobil Gas Marketing Co. v. FERC, 297 F. 3d 
1071, 1084 (D.C. Cir. 2002) (same).
ii. Testing Authority
    Under section 203 of the CAA, sales of vehicles are prohibited 
unless the vehicle is covered by a certificate of conformity. EPA 
issues certificates of conformity pursuant to section 206 of the CAA, 
based on (necessarily) pre-sale testing conducted either by EPA or by 
the manufacturer. The Federal Test Procedure (FTP or ``city'' test) and 
the Highway Fuel Economy Test (HFET or ``highway'' test) are used for 
this purpose. Compliance with standards is required not only at 
certification but throughout a vehicle's useful life, so that testing 
requirements may continue post-certification. Useful life standards may 
apply an adjustment factor to account for vehicle emission control 
deterioration or variability in use (section 206(a)).
    EPA establishes the test procedures under which compliance with the 
CAA GHG standards is measured. EPA's testing authority under the CAA is 
broad and flexible. EPA has also developed tests with additional cycles 
(the so-called 5-cycle tests) which are used for purposes of fuel 
economy labeling and are used in EPA's program for extending off-cycle 
credits under the light-duty vehicle GHG program.
iii. Compliance and Enforcement Authority
    EPA oversees testing, collects and processes test data, and 
performs calculations to determine compliance with CAA standards. CAA 
standards apply not only at certification but also throughout the 
vehicle's useful life. The CAA provides for penalties should 
manufacturers fail to comply with their fleet average standards, and 
there is no option for manufacturers to pay fines in lieu of compliance 
with the standards. Under the CAA, penalties for violation of a fleet 
average standard are typically determined on a vehicle-specific basis

[[Page 74453]]

by determining the number of a manufacturer's highest emitting vehicles 
that cause the fleet average standard violation. Penalties for 
reporting requirements under Title II of the CAA apply per day of 
violation, and other violations apply on a per vehicle, or a per part 
or component basis. See CAA sections 203(a) and 205(a) and 40 CFR 19.4.
    Section 207 of the CAA grants EPA broad authority to require 
manufacturers to remedy vehicles if EPA determines there are a 
substantial number of noncomplying vehicles. In addition, section 205 
of the CAA authorizes EPA to assess penalties of up to $48,762 per 
vehicle for violations of various prohibited acts specified in the CAA. 
In determining the appropriate penalty, EPA must consider a variety of 
factors such as the gravity of the violation, the economic impact of 
the violation, the violator's history of compliance, and ``such other 
matters as justice may require.''
4. Averaging, Banking, and Trading Provisions for CO2 
Standards
    EPA is finalizing provisions to extend credit life that are more 
targeted than those proposed. EPA proposed to extend credit carry-
forward for MY 2016-2020 credits, including a two-year extension of MY 
2016 credits and a one-year extension of MY 2017-2020 credits. After 
considering the comments received on this topic and further analyzing 
manufacturers' need for extended credit life, EPA is adopting a 
narrower approach in the final rule of adopting the one-year credit 
life extension only for MY 2017 and 2018 credits so they may be used in 
MYs 2023 and 2024, respectively. This section provides background on 
the ABT program as well as a summary of the proposed rule, public 
comments, and final rule provisions.
i. Background on Averaging, Banking, and Trading Program Under Previous 
Programs
    Averaging, banking, and trading (ABT) is an important compliance 
flexibility that has been built into various highway engine and vehicle 
programs (and nonroad engine and equipment programs) to support 
emissions standards that, through the introduction and application of 
new technologies, result in reductions in air pollution. The light-duty 
ABT program for GHG standards includes existing provisions initially 
established in the 2010 rule for how credits may be generated and used 
within the program.\47\ These provisions include credit carry-forward, 
credit carry-back (also called deficit carry-forward), credit transfers 
(within a manufacturer), and credit trading (across manufacturers).
---------------------------------------------------------------------------

    \47\ 40 CFR 86.1865-12.
---------------------------------------------------------------------------

    Credit carry-forward refers to banking (saving) credits for future 
use, after satisfying any needs to offset prior MY debits within a 
vehicle category (car fleet or truck fleet). Credit carry-back refers 
to using credits to offset any deficit in meeting the fleet average 
standards that had accrued in a prior MY. A manufacturer may have a 
deficit at the end of a MY (after averaging across its fleet using 
credit transfers between cars and trucks)--that is, a manufacturer's 
fleet average level may fail to meet the manufacturer's required fleet 
average standard for the MY, for a limited number of model years, as 
provided in the regulations. The CAA does not specify or limit the 
duration of such credit provisions, and in the MY 2012-2016 and 2017-
2025 light-duty GHG programs, EPA chose to adopt 5-year credit carry-
forward (generally, with an exception noted below) and 3-year credit 
carry-back provisions as a reasonable approach that maintained 
consistency between EPA's GHG and NHTSA CAFE regulatory provisions.\48\ 
While some stakeholders had suggested that light-duty GHG credits 
should have an unlimited credit life, EPA did not adopt that suggestion 
for the light-duty GHG program because it would pose enforcement 
challenges and could lead to some manufacturers accumulating large 
banks of credits that could interfere with the program's goal to 
develop and transition to progressively more advanced emissions control 
technologies in the future.
---------------------------------------------------------------------------

    \48\ The EPCA/EISA statutory framework for the CAFE program 
limits credit carry-forward to 5 years and credit carry-back to 3 
years.
---------------------------------------------------------------------------

    Although the existing credit carry-forward and carry-back 
provisions generally remained in place for MY 2017 and later standards, 
EPA finalized provisions in the 2012 rule allowing all unused (banked) 
credits generated in MYs 2010-2015 (but not MY 2009 early credits) to 
be carried forward through MY 2021. See 40 CFR 86.1865-12(k)(6)(ii); 77 
FR 62788 (October 15, 2012). This credit life extension provided 
additional carry-forward years for credits generated in MYs 2010-2015, 
thereby providing greater flexibility for manufacturers in using these 
credits. This provision was intended to facilitate the transition to 
increasingly stringent standards through MY 2021 by helping 
manufacturers resolve lead time issues they might face in the early MYs 
of the program. This extension of credit carry-forward also provided an 
additional incentive for manufacturers to generate credits earlier, for 
example in MYs 2014 and 2015, thereby encouraging the earlier use of 
additional CO2 reducing technologies. In addition, the 
existing 5-year carry-forward provisions applied to MY 2016 and later 
credits, making MY 2016 credits also eligible to be carried forward 
through MY 2021.
    Transferring credits in the GHG program refers to exchanging 
credits between the two averaging sets-- passenger cars and light 
trucks--within a manufacturer. For example, credits accrued by 
overcompliance with a manufacturer's car fleet average standard can be 
used to offset debits accrued due to that manufacturer not meeting the 
truck fleet average standard in a given model year. In other words, a 
manufacturer's car and truck fleets together are, in essence, a single 
averaging set in the GHG program. Finally, accumulated credits may be 
traded to another manufacturer. Credit trading has occurred on a 
regular basis in EPA's vehicle program.\49\ Manufacturers acquiring 
credits may offset credit shortfalls and bank credits for use toward 
future compliance within the carry-forward constraints of the program.
---------------------------------------------------------------------------

    \49\ EPA provides general information on credit trades annually 
as part of its annual Automotive Trends and GHG Compliance Report. 
The latest report is available at: https://www.epa.gov/automotive-trends and the docket for this rulemaking.
---------------------------------------------------------------------------

    The ABT provisions are an integral part of the vehicle GHG program 
and the agency expects that manufacturers will continue to utilize 
these provisions into the future. EPA's annual Automotive Trends Report 
provides details on the use of these provisions in the GHG program.\50\ 
ABT allows EPA to consider standards more stringent than we would 
otherwise consider by giving manufacturers an important tool to resolve 
lead time and feasibility issues. EPA believes the targeted one-year 
extension of credit carry-forward for MY 2017 and 2018 credits that we 
are finalizing, discussed below, is appropriate considering the 
stringency and implementation timeframe of the revised standards.
---------------------------------------------------------------------------

    \50\ ``The 2021 EPA Automotive Trends Report, Greenhouse Gas 
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420-R-21-
023, November 2021.
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ii. Extended Credit Carry-Forward
    As in the transition to more stringent standards under the 2012 
rule, EPA recognizes that auto manufacturers will again be facing a 
transition to more stringent standards for MYs 2023-2026.

[[Page 74454]]

We also recognize that the stringency increase from MY 2022 to MY 2023 
is a relatively steep step in our program with shorter lead time for 
MYs 2023 and 2024. Therefore, we believe it is again appropriate in the 
context of the revised standards to provide a targeted, limited amount 
of additional flexibility to carry-forward credits into MYs 2023-2024, 
as manufacturers manage the transition to these more stringent 
standards.
    EPA proposed to temporarily increase the number of years that MY 
2016-2020 credits could be carried-forward to provide additional 
flexibility for manufacturers in the transition to more stringent 
standards. EPA proposed to increase credit carry-forward for MY 2016 
credits by two years such that they would not expire until after MY 
2023. For MY 2017-2020 credits, EPA proposed to extend the credit life 
by one year, so that those banked credits can be used through MYs 2023-
2026, depending on the MY in which the credits are banked. For MY 2021 
and later credits, EPA did not propose any modification to existing 
credit carry-forward provisions, which allow credit carry-forward for 5 
model years. EPA noted that the proposed extended credit carry-forward 
would help some manufacturers to have lower overall costs and address 
any potential lead time issues they may face during these MYs, 
especially in the first year of the proposed standards (MY 2023). EPA 
proposed to extend credit life only for credits generated against 
applicable standards established in the 2012 rule for MYs 2016-2020. 
EPA viewed these credits as a reflection of manufacturers' having 
achieved reductions beyond and earlier than those required by the 2012 
rule standards.
    As noted in the proposed rule and discussed above, there is 
precedent for extending credit carry-forward temporarily beyond five 
years to help manufacturers transition to more stringent standards. In 
the 2012 rule, EPA extended carry-forward for MY 2010-2015 credits to 
MY 2021 for similar reasons, to provide more flexibility for a limited 
time during a transition to more stringent standards.\51\ ABT is an 
important compliance flexibility and has been built into various 
highway engine and vehicle programs to support emissions standards 
programs that through the introduction of new technologies result in 
reductions in air pollution. While the existing five-year credit life 
provisions in the light-duty GHG program are generally sufficient to 
provide for manufacturer flexibility while balancing the practical 
challenges of properly tracking credits over an extended period of time 
for compliance and enforcement purposes, there are occasions--such as 
when the industry is transitioning to significantly more stringent 
standards--where more flexibility may be appropriate.
---------------------------------------------------------------------------

    \51\ 77 FR 62788.
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    EPA received a mix of comments regarding EPA's proposed provision 
for limited extended credit carry-forward. The Alliance and several 
individual manufacturers commented in support of the proposed credit 
life extensions. The Alliance commented that ``limited expansion of 
credit carry-forward provisions may provide some additional flexibility 
for a limited number of manufacturers, and in theory could provide some 
additional credit market liquidity during the rapidly tightening 
standards in MYs 2023-2026.'' It also commented that carry-forward 
credits do not reduce the environmental benefits of the standards as 
these credits represent tons of emissions avoided in advance of 
requirements. Honda provided similar comments and commented further 
that the automobile industry is facing severe global supply chain 
issues that continue to disrupt vehicle production volumes, launch 
dates and compliance strategies. Honda stated that slight modifications 
to the proposed credit carry forward provisions (e.g., Honda suggested 
a two-year extension for MY 2016-2020 credits) could provide much 
needed compliance flexibility during an exceedingly challenging 
compliance planning time. Honda also commented that companies that 
signed up to the California Framework agreement can reasonably be 
expected to meet MY 2023 stringencies, but MY 2026 is likely to prove 
difficult for most, if not all, manufacturers. In addition, Honda 
commented in support of extending the credit carry forward provisions 
beyond those specified in the proposed rule. Nissan commented that EPA 
should extend the life of all model year 2015 and later GHG credits 
through at least model year 2026 to provide manufacturers with 
necessary compliance flexibility. Nissan believed that their 
recommended approach would enable manufacturers to invest appropriate 
resources at the appropriate time without eroding overall industry GHG 
benefits.
    EV manufacturers did not support the proposed extended credit 
carry-forward, commenting that it is unnecessary and could lead to loss 
of emissions reductions. Tesla commented that it estimates the 
extension of the MY 2016 and 2017 credit bank will result in a 
reduction in stringency of 4.3 g/mile in MY 2023. Tesla commented that 
the one-year extension of the credit lifetime for model years beyond MY 
2017 will further reduce stringency by another ~5 g/mile. Additionally, 
Tesla commented that ``the credit lifetime extension will also lessen 
the immediate value of earned credits in the trading market as 
underperforming manufacturers now may have greater opportunity on when 
to deploy credits. Operating under a consistent set of credit lifetime 
regulations, manufacturers over complying have been able to enter a 
robust credit marketing, basing credit value and need, in part, on a 
five-year lifetime. Under the proposal, the immediacy of the market 
will diminish, meaning less revenue and opportunity for an 
overperforming manufacturer that seeks to utilize credit revenue sales 
to invest in increased manufacturing of advanced technology vehicles. 
Like the other proposed flexibilities, this proposed change in credit 
lifetime reduces the standard's stringency, diminishes the level of 
investment going back into advanced manufacturing, and only serves to 
reward those manufacturers that delay deploying advanced 
technologies.''
    The California Air Resources Board (CARB) also did not support the 
credit life extensions in the proposed rule, commenting ``when 
manufacturers planned their products to generate the credits, they were 
aware of the constraints on their use and available terms. Because 
these credits were earned before the Final SAFE Rules went into effect, 
they reflect manufacturer planning to meet the more stringent standards 
then in effect with improved technology after those credits had 
expired. Furthermore, extending the credit life is not necessary to 
facilitate compliance. In the time available, manufacturers can 
incentivize sales of vehicles with more of the necessary technologies 
if they are needed to meet the proposed standards, including additional 
zero-emission technologies.'' The California Attorney General commented 
that extending credit life for standards weaker than Alternative 2 
could further delay the emissions reductions that are urgently needed.
    Several environmental and health NGOs opposed the proposed 
extension as unnecessary and were concerned that it could lead to a 
loss of emissions reductions. A coalition of NGOs recommended that EPA 
not extend the lifetime of MY 2016-2020 credits as proposed, 
particularly not beyond MY 2024. They commented that extending credit 
life does not spur the development or application of more advanced 
technologies or vehicle

[[Page 74455]]

electrification and represents a windfall since manufacturers have not 
taken the extension into account in the product plans. Union of 
Concerned Scientists (UCS) commented that the proposed extension is not 
necessary, presenting modeling of the proposed standards and 
Alternative 2 in the proposed rule and found that the proposed 
standards could be met without the extended credit life with the same 
technology penetration rates as estimated by EPA for the proposed rule. 
American Council for an Energy- Efficient Economy (ACEEE) also 
commented that the extension was unnecessary because manufacturers 
could use their MY 2018 and 2019 credits in MYs 2023 and 2024 and those 
credits would likely still be available because it is unlikely 
manufacturers would need to use them prior to those years due to the 
previous credit banks and the less stringent standards adopted in the 
SAFE rule for MYs 2021-2022.
    After analyzing the public comments and further analyzing the need 
for and impacts of extending credit carry-forward, EPA is finalizing a 
one-year credit life extension only for MYs 2017-2018 credits, as shown 
in Table 11. This approach focuses the credit carry-forward extension 
on MYs 2023-2024 where lead-time is limited and manufacturers' ability 
to make adjustments to meet the more stringent standards is most 
constrained. EPA is not including the proposed one-year extension for 
MYs 2019 and 2020 credits out to MYs 2025 and 2026, respectively, 
because EPA believes there is sufficient lead time for manufacturers to 
make adjustments in their product and technology mix to meet the 
standards without the extension (see EPA's technical assessment of the 
standards in section III, of this preamble). MYs 2019 and 2020 credits 
will continue to be allowed to be carried forward through MYs 2024 and 
2025, respectively, under the existing five year credit life 
provisions. EPA is not finalizing the two-year extension of the MY 2016 
credits because we agree with the public comments that this additional 
year of credit life extension is unnecessary and could have the effect 
of weakening the MY 2022 SAFE standards.
    If EPA were to extend MY 2016 credits, given the significant volume 
of currently banked credits that expire in MY2021 (as do the MY2016 
credits), EPA expects that most of the MY 2016 credits would remain 
banked for use in MY 2023. However, if the MY2016 credits were 
extended, it is also possible due to the high number of credits held by 
some manufacturers, that some credits could be used or traded toward 
compliance with the weakened SAFE standards in MY 2022, for which EPA 
believes clearly no additional flexibility is warranted. This was not 
EPA's intent in proposing the extension. After considering the 
feasibility of the standards without the extension for MY 2016 credits, 
EPA determined that the MY 2023 standards could be met without the 
extension. Also, without an extension, MY 2016 credits will expire in 
MY 2021, a MY where several manufacturers will already have relatively 
large banks of MY 2010-2015 credits that also expire in MY 2021 (as 
noted, the 2012 rule provided a ``one-time'' extended credit life for 
these credits, and thus several manufacturers in the industry have 
built up extensive banks of credits all due to expire after MY 2021). 
The result of declining to extend MY 2016 credits, is that there will 
be an unusually high amount of credits that must be used or expire in 
MY 2021. In turn, the availability of these expiring credits will 
likely leave MY 2017-2021 credit balances unused by many manufacturers 
in MY 2021 and therefore available for use in MYs 2022 and beyond, 
depending on each manufacturer's MY 2021 and later compliance 
plans.\52\ By extending MY 2017 credits but not MY 2016 credits, 
manufacturers' need for near-term flexibility are balanced with 
concerns that excess credit banks could delay the introduction or 
further penetration of technology. EPA believes that the extension of 
MY 2017 and 2018 credits by one year provides a reasonable and 
sufficient level of additional flexibility in meeting the final MYs 
2023 and 2024 standards, focusing the additional flexibility on MYs 
with relatively shorter lead time. Several manufacturers have MY 2017-
2018 vintage credits banked for future use, which could be used either 
internally within the manufacturer or traded to another manufacturer, 
so this provision provides additional flexibility for MYs 2023-2024 
compliance.\53\
---------------------------------------------------------------------------

    \52\ ``The 2021 EPA Automotive Trends Report, Greenhouse Gas 
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420-R-21-
023, November 2021.
    \53\ ``The 2021 EPA Automotive Trends Report, Greenhouse Gas 
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420-R-21-
023, November 2021. See Table 5.19. Credits noted as expiring in MYs 
2022-2023 represent MY 2017-2018 vintage credits, respectively. 
These credits will now expire one year later, respectively, in MYs 
2023-2024.

                                                           Table 11--Final Extension of Credit Carry-Forward for MY 2016-2020 Credits
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             MYs credits are valid under extension
                    MY credits are banked                    -----------------------------------------------------------------------------------------------------------------------------------
                                                                 2016        2017        2018        2019        2020        2021        2022        2023        2024        2025        2026
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2016........................................................  ..........          x           x           x           x           x   ..........  ..........  ..........  ..........  ..........
2017........................................................  ..........  ..........          x           x           x           x           x           +   ..........  ..........  ..........
2018........................................................  ..........  ..........  ..........          x           x           x           x           x           +   ..........  ..........
2019........................................................  ..........  ..........  ..........  ..........          x           x           x           x           x   ..........  ..........
2020........................................................  ..........  ..........  ..........  ..........  ..........          x           x           x           x           x   ..........
2021........................................................  ..........  ..........  ..........  ..........  ..........  ..........          x           x           x           x           x
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
x = Existing program. + = Additional years included in Final Rule.

    In response to the comments received, EPA believes the approach it 
is finalizing provides manufacturers with the flexibility asked for 
given the stated concerns about lead time, while also responding to 
other concerns raised that the proposed extension is unnecessary and 
could lead to a delay in application of emissions reducing technology. 
By adopting a one-year extension only for MYs 2017-2018 credits, EPA 
more narrowly focuses the extension on MYs 2023-2024 to help 
manufacturers manage the transition to more stringent standards by 
providing some additional flexibility. There is greater need for 
flexibility in these early years because manufacturers will be somewhat 
limited in making product plan changes in response to the final 
standards. By not adopting the proposed extension for MY

[[Page 74456]]

2019 and MY 2020 credits, EPA's approach also responds to other 
commenters' concerns that the proposed extension may slow the adoption 
of emissions reducing technology. Concerning compliance with MYs 2025-
2026 standards, EPA agrees with comments that manufacturers will be 
able to meet the standards through the application of technology and 
changes to product mix that includes increasing sales of lower 
emitting, credit generating vehicles, as shown in our technical 
analysis for the final rule.
    In response to Tesla's comments that the extension may lessen the 
value of credits in the trading market, EPA believes this could be true 
if EPA were not adopting more stringent standards at the same time. 
However, any loss of credit value is likely more than offset by the 
stringent final standards which could make available credits even more 
sought after by some manufacturers, and thus potentially increasing 
credit value. EPA also notes that the GHG program regulations clearly 
state, ``There are no property rights associated with CO2 
credits generated under this subpart. Credits are a limited 
authorization to emit the designated amount of emissions. Nothing in 
this part or any other provision of law should be construed to limit 
EPA's authority to terminate or limit this authorization through a 
rulemaking.'' \54\ EPA retains the ability to revise credits provisions 
as it believes prudent through rulemaking.
---------------------------------------------------------------------------

    \54\ 30 CFR 86.1865-12(k)(2). EPA adopted this regulatory 
provision when it established the first GHG standards in the 2010 
rule.
---------------------------------------------------------------------------

5. Certification, Compliance, and Enforcement
    EPA established comprehensive vehicle certification, compliance, 
and enforcement provisions for the GHG standards as part of the 
rulemaking establishing the initial GHG standards for MY 2012-2016 
vehicles.\55\ Manufacturers have been using these provisions since MY 
2012 and EPA neither proposed nor is adopting any changes in the areas 
of certification, compliance, or enforcement.
---------------------------------------------------------------------------

    \55\ See 75 FR 25468-25488 and 77 FR 62884-62887 for a 
description of these provisions. See also ``The 2020 EPA Automotive 
Trends Report, Greenhouse Gas Emissions, Fuel Economy, and 
Technology since 1975,'' EPA-420-R-21-003 January 2021 for 
additional information regarding EPA compliance determinations.
---------------------------------------------------------------------------

6. On-Board Diagnostics Program Updates
    EPA regulations state that onboard diagnostics (OBD) systems must 
generally detect malfunctions in the emission control system, store 
trouble codes corresponding to detected malfunctions, and alert 
operators appropriately. EPA adopted (as a requirement for an EPA 
certificate) the 2013 CARB OBD regulation, with certain additional 
provisions, clarifications and exceptions, in the Tier 3 Motor Vehicle 
Emission and Fuel Standards final rulemaking (40 CFR 86.1806-17; 79 FR 
23414, April 28, 2014). Since that time, CARB has made several updates 
to their OBD regulations and continues to consider changes 
periodically.\56\ Manufacturers may find it difficult to meet both the 
2013 OBD regulation adopted in EPA regulations and the currently 
applicable CARB OBD regulation on the same vehicles. This may result in 
different calibrations being required for vehicles sold in states 
subject to Federal OBD (2013 CARB OBD) and vehicles sold in states 
subject to current CARB OBD.
---------------------------------------------------------------------------

    \56\ See https://ww2.arb.ca.gov/our-work/programs/obd-board-diagnostic-program/obd-workshops.
---------------------------------------------------------------------------

    To provide clarity and regulatory certainty to manufacturers, EPA 
is finalizing as proposed a limited regulatory change to streamline OBD 
requirements. Under this change, EPA can find that a manufacturer met 
OBD requirements for purposes of EPA's certification process if the 
manufacturer can show that the vehicles meet newer CARB OBD regulations 
than the 2013 CARB regulation which currently establishes the core OBD 
requirements for EPA certification and that the OBD system meets the 
intent of EPA's regulation, including provisions that are in addition 
to or different from the applicable CARB regulation. The intent of this 
provision is to allow manufacturers to produce vehicles with one OBD 
system (software, calibration, and hardware) for all 50 states. We 
received only supportive comments on this change, from the auto 
industry, as summarized in the Response to Comments (RTC) document for 
this rulemaking.
7. Stakeholder Engagement
    In developing this rule, EPA conducted outreach with a wide range 
of stakeholders, including auto manufacturers, automotive suppliers, 
labor groups, state/local governments, environmental and public 
interest groups, public health professionals, consumer groups, and 
other organizations. We also coordinated with the California Air 
Resources Board. Consistent with Executive Order 13990, in developing 
this rule EPA has considered the views from labor unions, states, and 
industry, as well as other stakeholders.
    EPA has considered all public comments received during the two-day 
public hearing on August 25 and 26, 2021, and written comments 
submitted to the docket during the public comment period, which closed 
September 27, 2021. Responses to comments can be found in this preamble 
and the Response to Comments document. We look forward to continuing to 
engage with interested stakeholders as we embark on a future rulemaking 
to set standards beyond 2026, so diverse views can continue to be 
considered in our development of a longer-term program.
8. How do EPA's final standards relate to NHTSA's CAFE proposal and to 
California's GHG program?
i. EPA and NHTSA Rulemaking Coordination
    In E.O. 13990, President Biden directed NHTSA and EPA to consider 
whether to propose suspending, revising, or rescinding the SAFE rule 
standards for MYs 2021-2026.\57\ Both agencies determined that it was 
appropriate to propose revisions to their respective standards; EPA 
proposed and is finalizing revisions to its GHG standards and, in a 
separate rulemaking action, NHTSA proposed to revise its CAFE 
standards.\58\ Since 2010, EPA and NHTSA have adopted fuel economy and 
GHG standards in joint rulemakings. In the 2010 joint rule, EPA and 
NHTSA explained the purpose of the joint rulemaking effort was to 
develop a coordinated and harmonized approach to implementing the two 
agencies' statutes. The joint rule approach was one appropriate 
mechanism for the agencies to coordinate closely, given the common 
technical issues both agencies needed to consider and the importance of 
avoiding inconsistency between the programs. A few environmental NGOs 
commented that the CAA does not require EPA to engage in joint 
rulemaking for its LD GHG program.
---------------------------------------------------------------------------

    \57\ 86 FR 7037, January 25, 2021.
    \58\ 86 FR 49602, September 3, 2021.
---------------------------------------------------------------------------

    In light of additional experience as the GHG and CAFE standards 
have co-existed since the 2010 rule and the agencies have engaged in 
several joint rulemakings, EPA has concluded that while it remains 
committed to ensuring that GHG emissions standards for light duty 
vehicles are coordinated with fuel economy standards for those 
vehicles, it is unnecessary for EPA to do so specifically through a 
joint rulemaking.
    In reaching this conclusion, EPA notes that the agencies have 
different statutory mandates and their respective programs have always 
reflected those

[[Page 74457]]

differences. As the Supreme Court has noted ``EPA has been charged with 
protecting the public's 'health' and 'welfare,' a statutory obligation 
wholly independent of DOT's mandate to promote energy efficiency.'' 
\59\ The agencies have recognized these different mandates, and the 
fact that they have produced different analytical approaches and 
standards. For example, since EPA's responsibility is to address air 
pollution, it sets standards not only for carbon dioxide (measured as 
grams per mile), but also for methane and nitrous oxide. Even more 
significantly, EPA regulates leakage of fluorocarbons from air 
conditioning units by providing a credit against the tailpipe 
CO2 standard for leakage reduction and adjusting those 
standards numerically downwards to reflect the anticipated availability 
of those credits. NHTSA, given its responsibility for fuel economy 
(measured as miles per gallon), does not have these elements in the 
CAFE program but has limits on transfers between car and truck fleets. 
There have always been other differences between the programs as well, 
which generally can be traced back to differences in statutory 
mandates. As the agencies reconsider the SAFE 2 standards, the 
difference in statutory lead time requirements has similarly led to a 
difference in the model years for which standards are being revised.
---------------------------------------------------------------------------

    \59\ Massachusetts v. EPA, 549 U.S. at 532.
---------------------------------------------------------------------------

    We note that EPA coordinates with NHTSA regardless of whether it is 
in the formal context of a joint rulemaking, and indeed we have done so 
during the development of this rulemaking. Although there is no 
statutory requirement for EPA to consult with NHTSA, EPA has consulted 
significantly with NHTSA in the development of this rule. For example, 
staff of the two agencies met to discuss various technical issues 
including modeling inputs and assumptions, shared technical 
information, and shared views related to the modeling used for each 
rule. Under other areas of the CAA, consultation is the usual approach 
Congress has specified when it recognizes that in addition to EPA, 
another agency shares expertise and equities in an area. The CAA does 
not require joint rulemaking, even for its many provisions that require 
EPA consultation with other agencies on topics such as the impacts of 
ozone-depleting substances on the atmosphere (CAA section 603(f) 
requires consultation with Administrators of NASA and NOAA), renewable 
fuels (CAA section 211(o)(2)(B)(ii) requires coordination with the 
Secretaries of Energy and Agriculture, and section 211(o)(7) requires 
consultation with those Secretaries), the importance of visibility on 
public lands (CAA section 169A(d) requires consultation with Federal 
Land Manager), regulation of aerospace coatings (CAA section 183(b)(3) 
requires consultation with Secretaries of Defense and Transportation 
and NASA Administrator), and federal procurement (CAA section 613 
requires consultation with GSA Administrator and Secretary of Defense). 
For example, for aircraft emissions standards, where CAA section 
231(a)(2)(B)(i) requires EPA to set the standards in consultation with 
the Federal Aviation Administration (FAA), and FAA implements the 
standards, the two agencies may undertake, and have undertaken, 
separate rulemakings. Likewise, when EPA revises test procedures for 
NHTSA's fuel economy standards under EPA's authority in 42 U.S.C. 
32904(c), those rules are not done as joint rulemaking (unless they 
were included as part of a larger joint rulemaking on GHG and fuel 
economy standards). Thus, EPA concludes that joint rulemaking is 
unnecessary, particularly to the extent it was originally intended to 
ensure that the agencies work together and coordinate their rules, 
which the agencies are indeed doing through separate rulemaking 
processes.
    We note that many commenters, including automakers, suppliers, 
dealers and the UAW noted benefits of coordination between EPA and 
NHTSA in establishing their respective programs, and urged EPA to 
maintain a close alignment with NHTSA, to ensure that automakers can 
continue to design and build vehicles to meet both sets of standards. 
As explained above, and at proposal, EPA has coordinated and will 
continue to coordinate with NHTSA in the development of EPA's and 
NHTSA's standards even in the absence of joint rulemaking. While the 
statutory differences between the programs remain, and thus some 
differences in compliance strategies might result, EPA agrees with 
commenters that it is an important goal for coordination that 
automakers be able to produce a fleet of vehicles which achieves 
compliance with both sets of standards simultaneously, and we believe 
these standards are consistent with that longstanding practice and 
goal. For example, EPA believes that the revised MY 2023 GHG standards 
will not interfere with automakers' ability to comply with MY 2023 CAFE 
standards even though NHTSA has not proposed revising CAFE standards 
for that year.
ii. California GHG Program
    California has long been a partner in reducing light-duty vehicle 
emissions, often leading the nation by setting more stringent standards 
before similar standards are adopted by EPA. This historically has been 
the case with GHG emissions standards in past federal rulemakings, 
where California provided technical support to EPA's nationwide 
programs. Prior to EPA's 2010 rule establishing the first nationwide 
GHG standards for MYs 2012-2016 vehicles, California had adopted GHG 
standards for MYs 2009-2016.\60\ California subsequently adopted its 
MYs 2017-2025 GHG standards as part of its Advanced Clean Car (ACC) 
program. After EPA adopted its standards in the 2012 rule for MYs 2017-
2025, California adopted a deemed-to-comply regulation whereby 
manufacturers could demonstrate compliance with California's standards 
by complying with EPA's standards.\61\ California also assisted and 
worked with EPA in the development of the 2016 Draft Technical 
Assessment Report for the Mid-term Evaluation,\62\ issued jointly by 
EPA, CARB and NHTSA, that served as an important technical basis for 
EPA's original January 2017 Final Determination that the standards 
adopted in the 2012 rule for MYs 2022-2025 remained appropriate. 
California also conducted its own Midterm Review that arrived at a 
similar conclusion.\63\
---------------------------------------------------------------------------

    \60\ EPA issued a waiver for CARB's 2009-2016 model year 
vehicles in 2009 (74 FR 32744). EPA subsequently issued a within-
the-scope waiver determination for CARB's subsequent deemed-to-
comply regulation (CARB adopted this regulation after EPA finalized 
its 2012-2016 model year GHG standards in 2010 on June 14, 2011 (76 
FR 34693).
    \61\ The California Air Resources Board (CARB) received a waiver 
of Clean Air Act preemption on January 9, 2013 (78 FR 2211) for its 
Advanced Clean Car (ACC) program. CARB's ACC program includes the 
MYs 2017-2025 greenhouse gas (GHG) standards as well as regulations 
for zero-emission vehicle (ZEV) sales requirements and California's 
low emission vehicle (LEV) III requirements.
    \62\ Draft Technical Assessment Report: Midterm Evaluation of 
Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate 
Average Fuel Economy Standards for Model Years 2022-2025, EPA-420-D-
16-900, July 2016.
    \63\ https://ww2.arb.ca.gov/our-work/programs/advanced-clean-cars-program/advanced-clean-cars-midterm-review.
---------------------------------------------------------------------------

    In August 2018, EPA and NHTSA jointly issued the SAFE rule 
proposal, which included an EPA proposal to withdraw CARB's Advanced 
Clean Car (ACC) waiver as it related to California GHG emission 
standards and ZEV sales requirements (that would preclude California 
from enforcing its own program) as well as a proposal to

[[Page 74458]]

sharply reduce the stringency of the national standards.\64\ In 
September 2019, EPA and NHTSA then jointly issued a final SAFE ``Part 
One'' rule, which included a final EPA action withdrawing CARB's ACC 
waiver as it related to California GHG emission standards and ZEV sales 
requirements.\65\ In response to the SAFE rule proposal, California and 
five auto manufacturers entered into identical agreements commonly 
referred to as the California Framework Agreements. The Framework 
Agreements included national GHG emission reduction targets for MYs 
2021-2026 that, in terms of stringency, are about halfway between the 
original 2012 rule standards and those adopted in the final SAFE rule. 
The Framework Agreements also included additional flexibilities such as 
additional incentive multipliers for advanced technologies, off-cycle 
credits, and full-size pickup strong hybrid incentives.
---------------------------------------------------------------------------

    \64\ EPA's waiver for CARB's Advanced Clean Car regulations is 
at 78 FR 2211 (January 9, 2013). The SAFE NPRM is at 83 FR 42986 
(August 24, 2018).
    \65\ 84 FR 51310 (Sept. 27, 2019).
---------------------------------------------------------------------------

    EPA has considered California standards in past vehicle standards 
rules as we considered the factors of feasibility, costs of compliance 
and lead time. The California Framework Agreement provisions, and the 
fact that five automakers representing nearly 30 percent of national 
U.S. vehicle sales voluntarily committed to them, at a minimum provide 
a clear indication of manufacturers' capabilities to produce cleaner 
vehicles than required by the SAFE rule standards in the implementation 
timeframe of EPA's revised standards.\66\ EPA further discusses how we 
considered the California Framework Agreements in the context of 
feasibility and lead time for our standards in Section III.C of this 
preamble. Some commenters supported continued coordination between EPA 
and California on our respective light-duty GHG programs. EPA expects 
to continue our long-standing practice of working closely with CARB and 
all other interested stakeholders in development of future emissions 
standards.
---------------------------------------------------------------------------

    \66\ The five California Framework Agreements may be found in 
the docket for this rulemaking and at: https://ww2.arb.ca.gov/news/framework-agreements-clean-cars.
---------------------------------------------------------------------------

    In a separate but related action, on April 28, 2021, EPA issued a 
Notice of Reconsideration for the previous withdrawal of the 
California's ACC waiver as it relates to the ZEV sales mandate and GHG 
emission standards (SAFE 1), requesting comments on whether the 
withdrawal should be rescinded, which would reinstate the waiver.\67\ 
EPA conducted a virtual public hearing on June 2, 2021 and the comment 
period closed on July 6, 2021. EPA will announce the results of its 
reconsideration once it is complete.
---------------------------------------------------------------------------

    \67\ 80 FR 22421 (April 28, 2021).
---------------------------------------------------------------------------

B. Manufacturer Compliance Flexibilities

    EPA is finalizing a targeted set of additional temporary compliance 
flexibilities intended to provide additional flexibility for 
manufacturers in meeting the 2023 and 2024 standards. EPA proposed 
temporary changes to certain flexibility provisions to provide limited 
additional flexibility for manufacturers in transition to more 
stringent standards. After considering comments and further analysis, 
EPA is adopting a narrower set of flexibilities than proposed, focusing 
them particularly on MYs 2023-2024 to help manufacturers manage the 
transition to more stringent standards by providing some additional 
flexibility in the near-term. One of the four flexibilities, extended 
credit carry-forward, is discussed above in section II.A.4 of this 
preamble. This section provides a detailed discussion of the remaining 
three flexibilities, listed below, including a summary of the final 
flexibility provisions compared to those proposed and public comment 
highlights.
    (1) Credit carry-forward extension: As discussed previously in 
Section II.A.4 of this preamble, EPA is finalizing provisions for 
credit carry-forward extension that are more targeted than those 
proposed. EPA proposed to extend credit carry-forward for MY 2016-2020 
credits to allow more flexibility for manufacturers in using banked 
credits in MYs 2023-2026. Specifically, EPA proposed a two-year 
extension of MY 2016 credits and a one-year extension of MY 2017-2020 
credits. After considering comments and further analyzing the need for 
extended credit life, EPA is adopting a narrower approach for the final 
rule of only adopting the one-year credit life extension for MY 2017-
2018 credits so they may be used in MYs 2023-2024.
    (2) Advanced technology multiplier incentives: EPA proposed 
increased and extended advanced technology multiplier incentives for 
MYs 2021-2025 but is finalizing the multipliers at their MY 2021 levels 
as established in the 2012 rule (e.g., 1.5 for EVs rather than the 
proposed 2.0) and including them only for MYs 2023-2024. Also, EPA 
proposed to remove the multiplier incentives for natural gas vehicles 
for MYs 2023-2026 established by the SAFE rule and is finalizing this 
program change as proposed.
    (3) Full-size pickup truck incentives: EPA proposed to extend the 
full-size pickup incentives for MYs 2022-2025, reinstating the 
provisions of the 2012 rule after EPA had eliminated them for these 
years as part of the SAFE rule. As with multipliers, EPA is finalizing 
the full-size pickup credits only for MYs 2023-2024.
    (4) Off-cycle credits: EPA proposed additional opportunities for 
menu-based off-cycle credits starting in MY 2020, along with updated 
technology definitions for some of the menu technologies. EPA is 
finalizing those additional credit opportunities only for MYs 2023-2026 
and is not including them as an option for MYs 2020-2022. EPA is 
adopting new definitions for certain menu technologies as proposed with 
minor edits after considering comments.
    The use of the optional credit and incentive provisions has varied, 
and EPA continues to expect it to vary, from manufacturer to 
manufacturer. However, most manufacturers are currently using at least 
some of the flexibilities.\68\ Although a manufacturer's use of the 
credit and incentive provisions is optional.
---------------------------------------------------------------------------

    \68\ See ``The 2020 EPA Automotive Trends Report, Greenhouse Gas 
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420-R-21-
003 January 2021 for additional information regarding manufacturer 
use of program flexibilities.
---------------------------------------------------------------------------

1. Multiplier Incentives for Advanced Technology Vehicles
i. Background on Multipliers Under Previous Programs
    In the 2012 rule, EPA included incentives for advanced technologies 
to promote the commercialization of technologies that have the 
potential to transform the light-duty vehicle sector by achieving zero 
or near-zero GHG emissions in the longer term, but which faced major 
near-term market barriers. EPA recognized that providing temporary 
regulatory incentives for certain advanced technologies would decrease 
the overall GHG emissions reductions associated with the program in the 
near term, by reducing the effective stringency of the standards in 
years in which the incentives were available, to the extent the 
incentives were used. However, in setting the 2017-2025 standards, EPA 
believed it was worthwhile to forego modest additional emissions 
reductions in the near term in order to lay the foundation for much 
larger GHG emissions reductions in the longer term. EPA also

[[Page 74459]]

believed that the temporary regulatory incentives may help bring some 
technologies to market more quickly than in the absence of 
incentives.\69\
---------------------------------------------------------------------------

    \69\ See 77 FR 62811 et seq.
---------------------------------------------------------------------------

    EPA established multiplier incentives for MYs 2017-2021 electric 
vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), fuel cell 
vehicles (FCVs), and natural gas vehicles (NGVs).\70\ The multiplier 
allows a vehicle to ``count'' as more than one vehicle in the 
manufacturer's compliance calculation. Table 12 provides the 
multipliers for the various vehicle technologies included in the 2012 
final rule for MY 2017-2021 vehicles.\71\ Since the GHG performance for 
these vehicle types is significantly better than that of conventional 
vehicles, the multiplier provides a significant benefit to the 
manufacturer. EPA chose the magnitude of the multiplier levels to be 
large enough to provide a meaningful incentive, but not be so large as 
to provide a windfall for vehicles that still would have been produced 
even at lower multiplier levels. The multipliers for EVs and FCVs were 
larger because these technologies faced greater market barriers at the 
time.
---------------------------------------------------------------------------

    \70\ 77 FR 62810, October 15, 2012.
    \71\ 77 FR 62813-62816, October 15, 2012.

Table 12--Incentive Multipliers for EV, FCV, PHEVs, and NGVs Established
                              in 2012 Rule
------------------------------------------------------------------------
               Model years                 EVs and FCVs   PHEVs and NGVs
------------------------------------------------------------------------
2017-2019...............................             2.0             1.6
2020....................................            1.75            1.45
2021....................................             1.5             1.3
------------------------------------------------------------------------

    In the SAFE rule, EPA adopted a multiplier of 2.0 for MYs 2022-2026 
natural gas vehicles (NGVs), noting that no NGVs were being sold by 
auto manufacturers at that time. EPA did not extend multipliers for 
other vehicle types in the SAFE rule, as the SAFE standards did not 
contemplate the extensive use of these technologies in the future so 
there was no need to continue the incentives.
ii. Proposed and Final Multiplier Extension and Cap
    EPA is adopting a narrower set of temporary advanced technology 
multipliers in the final rule, limiting the multipliers to MYs 2023-
2024 and at multiplier values consistent with the MY 2021 multiplier 
levels shown in Table 12, which are lower than the levels in the 
proposed rule. EPA is also finalizing the proposed 10 g/mile multiplier 
credit cap as proposed. This section first discusses the final 
multiplier levels and model year availability followed by a discussion 
of the multiplier cap.
a. Multiplier Levels and Model Year Applicability
    EPA proposed to extend multipliers for EVs, PHEVs, and FCVs for MYs 
2022-2025, but with a cap to limit the magnitude of resulting emissions 
reduction losses and to provide a means to more definitively project 
the impact of the multipliers on the overall stringency of the program. 
EPA noted in the proposed rule that with the revised more stringent 
standards being proposed, the Agency believed limited additional 
multiplier incentives would be appropriate for the purposes of 
encouraging manufacturers to accelerate the introduction of zero and 
near-zero emissions vehicles and maintaining momentum for that market 
transition. EPA requested comment on all aspects of the proposed 
extension of multipliers, including the proposed multiplier levels, 
model years when multipliers are available, and the size and structure 
of the multiplier credit cap.
    Given that the multipliers previously established in the 2012 rule 
and modified in the SAFE rule only run through MY 2021, EPA proposed to 
start the new multipliers in MY 2022 to provide continuity for the 
incentives over MYs 2021-2025. As proposed the multipliers would 
function in the same way as they have in the past, allowing 
manufacturers to count eligible vehicles as more than one vehicle in 
their fleet average calculations. The levels of the proposed 
multipliers, shown in Table 13 below, are the same as those contained 
in the California Framework Agreements for MY 2022-2025. EPA proposed 
to sunset the multipliers after MY 2025, rather than extending them to 
MY 2026, because EPA intended them to be a temporary part of the 
program to incentivize technology in the near-term, consistent with 
previous multipliers. EPA noted in the proposed rule that sunsetting 
the multipliers at the end of MY 2025 would help signal that EPA does 
not intend to include multipliers in its future proposal for standards 
for MY 2027 and later MYs, where these technologies are likely to be 
integral to the feasibility of the standards. The goal of a long-term 
program would be to quickly transition the light-duty fleet to zero-
emission technology, in which case ``incentives'' would no longer be 
appropriate, noting further that as zero-emissions technologies become 
more mainstream, EPA believes it is appropriate to transition away from 
multiplier incentives.

       Table 13--Proposed Multiplier Incentives for MYs 2022-2025
------------------------------------------------------------------------
           Model years               EVs and FCVs            PHEVs
------------------------------------------------------------------------
2022-2024.......................  2.0...............  1.6
2025............................  1.75..............  1.45
2026+...........................  1.0 (no multiplier  1.0 (no multiplier
                                   credits).           credits).
------------------------------------------------------------------------

    EPA also noted in the proposed rule that it believes sunsetting 
multipliers would simplify programmatically a transition to a more 
stringent program for MY 2027. The proposed MY 2025 sunset date 
combined with the cap, discussed below, was intended to begin the 
process of transitioning away from auto manufacturers' ability to make 
use of the incentive multipliers. While EPA proposed to end multipliers 
after MY 2025 for these reasons, EPA requested comments on whether it 
would be more appropriate to allow multiplier credits to be generated 
in MY 2026 without an increase in the cap, potentially providing an 
additional incentive for manufacturers who had not yet produced 
advanced technology vehicles by MY 2026. EPA noted, however, that 
extending the multipliers through MY 2026 could also potentially 
complicate transitioning to MY 2027 standards for some manufacturers.
    EPA received a range of comments on its proposed multipliers for 
MYs 2021-2025, including both support for and opposition to including 
multipliers in the program. The Alliance and several member auto 
companies commented in support of including multipliers in the program. 
The Alliance commented that multipliers have proven effective in 
incentivizing increased production and sales of EVs and that it is 
aligned with EPA in recognizing that multipliers have provided, and can 
continue to provide, a meaningful incentive for manufacturers to help 
drive additional EVs into the marketplace and to help overcome ongoing 
market headwinds. The Alliance commented that ``for the duration of 
this rule, it can be broadly summarized that while improving, there is 
projected to remain a lingering price disparity between EVs and 
conventional models. This disparity continues to support the basis of 
the EV multiplier to deliver ``substantial induced innovation. Separate 
from the issue of cost, there are several points of friction that EVs 
have and may continue to struggle to overcome including availability of 
public charging infrastructure.'' The

[[Page 74460]]

Alliance commented it believes the inclusion of EV multipliers for MY 
2026 and a higher cap would better recognize the current state of EV 
technology and markets and incentivize additional EV production. The 
Alliance also commented that extending the multipliers out to MY 2026 
would also recognize that some manufacturers are still developing EVs 
and would be influenced by later incentives. The Alliance suggested 
that EPA include an EV multiplier in MY 2026, and reconsider the need 
for such incentives beyond MY 2026 based on technology and market 
development in a subsequent rulemaking.
    Honda commented that policy levers such as advanced technology 
multipliers can play an important role in driving continued investment 
in the face of market uncertainty, multipliers have the potential to 
bring the cost-effectiveness of long-term technologies more in line 
with those of shorter-term technologies, and can help facilitate a 
virtuous cycle in which reduced technology costs, passed along to 
consumers, can further assist market uptake. Jaguar Land Rover 
commented in support of lowering the multiplier levels to those in 
place for MY 2021. Toyota commented that the multiplier should be 
increased for PHEVs, to a level closer to that provided to EVs, as they 
claim that PHEVs are often driven as EVs. Lucid, an EV-only 
manufacturer, supported the multipliers.
    CARB commented that EPA's proposed multiplier levels are too high 
because the proposed cap would be reached at around two percent of 
sales, a level already met by some auto manufacturers. CARB commented 
that, as such, the proposed cap would not provide much incentive for 
increased EV sales. CARB commented that EPA should finalize multipliers 
only for MYs 2023-2025 at a multiplier levels lower than the proposed 
levels as they believed that this approach would require manufacturers 
to sell more EVs in order to maximize multiplier incentive credits and 
reach the cap, thus providing a greater incentive for manufacturers to 
increase EV sales in this time frame. Similar comments were received 
from other state government stakeholders including New York, Minnesota, 
New Mexico, as well as NACAA. South Coast Air Quality Management 
District (SCAQMD) supported multipliers and suggested extending them 
out to MY 2026 but at a lower level as part of a phase-out.
    Other commenters supporting multipliers include Motor and Equipment 
Manufacturers Association (MEMA), Manufacturers of Emission Controls 
Association (MECA), ITB Group, and several individual suppliers. MEMA 
and MECA commented that their support was conditioned on the incentives 
sunsetting in 2025 and the program including a stringent cap, discussed 
below. MEMA commented ``while MEMA can support these advanced 
technology multiplier incentives, these multiplier incentives should 
not be extended indefinitely, credits should not be set higher than the 
proposed levels, and the proposed cap should not be increased.'' The 
Electric Drive Transportation Association also supported multipliers, 
commenting that EVs are still an emerging market and industry and that 
multipliers promote investment in innovation and noting that there is 
still significant uncertainty in multi-year EV market predictions. The 
Edison Electric Institute also supported the proposed multipliers as 
reasonable and well supported.
    Rivian and Tesla, both EV-only manufacturers, did not support 
including multipliers. Rivian commented that ``artificially enhancing 
the compliance value of EVs, the multiplier can enable manufacturers to 
sell additional conventional vehicles if those units deliver a greater 
financial return. It is also debatable whether the multiplier is even 
necessary at this stage to help commercialize EV technology. With a 
rapidly proliferating lineup of EVs in all body styles and vehicle 
segments, the auto industry has amply demonstrated its ability to bring 
compelling and competitive advanced technology vehicles to market.'' 
Tesla commented that the renewal of multipliers and increased value are 
unnecessary and, rather than serve as an incentive, will further delay 
manufacturers from deploying large amounts of electric vehicles in the 
U.S. Tesla also commented that the proposed enhanced multiplier 
unnecessarily rewards late-acting manufacturers with excessive credits 
and richer credits after over a decade of notice from the EPA that such 
incentives were temporary and destined to decline in reward.
    Environmental and health NGOs also did not support the proposed 
multipliers, commenting that the incentives were not needed and would 
result in a loss of emissions reductions. A coalition of NGOs commented 
that the proposed multipliers would reduce the stringency of proposed 
rule through MY 2021-MY 2026 by about 6 percent--an amount exceeding 
one full year of emissions reductions and that the multipliers are no 
longer serving their original purpose of incentivizing the production 
of more EVs. NGOs commented that the multiplier credits represent a 
windfall for manufacturers already planning to sell EVs. They commented 
further that EPA, at a minimum, should end the lifetimes of any 
multiplier credit in the final year for which they are granted such 
that the multiplier credits are not banked to be used in MY 2027 and 
later. UCS urged EPA to eliminate multipliers as the current program 
already provides substantial incentives by excluding upstream 
emissions; UCS submitted a modeling analysis which they believe 
indicates that multipliers are ineffective in encouraging greater EV 
sales.
    The Southern Environmental Law Center commented that, at a minimum, 
EPA should revise the proposed rule so the MYs 2022 through 2024 
multiplier incentives values start at 1.5 for EVs and FCVs, and 1.3 for 
PHEVs--the values provided for the last year of advanced technology 
credits (MY 2021) in the 2012 Rule--and then decrease to a value of 1.0 
(no multiplier credits) by MY 2026.
    Securing America's Future Energy (SAFE) commented in support of the 
proposed multipliers. SAFE further commented:

    [I]f EPA remains concerned that the multiplier will result in 
fewer EV sales because the availability of the multiplier relaxes 
the stringency of the standard, EPA could modify the operation of 
the multiplier to mitigate those concerns while still incentivizing 
the sale of electric vehicles. First, EPA could take into account 
the possibility that the multiplier might relax the stringency of 
the standards, and then further tighten the standards to maintain 
its initial level of stringency. In the alternative, EPA could 
modify the multiplier so that it would only apply to the incremental 
percentage of EVs that an automaker sold over the percentage in the 
previous year. By limiting the availability of the multiplier to the 
incremental sales of EVs year over year, EPA could reduce the extent 
to which it decreases the overall stringency of the standard. Yet, 
by maintaining the multiplier for electric vehicles that represent 
growth of the EV segment of an automakers' sales, the multiplier 
would provide an ongoing and robust incentive for automakers to 
continually increase their EV sales.

    The Institute for Policy Integrity commented that EPA should 
consider whether scaling back some of the multiplier credits, or 
limiting their application to MY 2023, would increase net social 
benefits while still preserving more than enough compliance flexibility 
to satisfy the requirement for lead time.
    The Alliance for Vehicle Efficiency (AVE) commented in support of 
EPA's goal of offering advanced multiplier credits up until 2026 and 
recommended EPA offer additional performance-based

[[Page 74461]]

credits to automotive manufacturers (OEMs) for any vehicle that exceeds 
the standards ahead of EPA's compliance timeline, including ICE 
vehicles. AVE commented that ``by steering OEMs towards specific 
technologies that may only affect about 8 percent of the fleet by 2026 
with extensive credits, EPA risks losing immediate and more extensive 
environmental improvements in exchange for estimated environmental 
gains years from now. EPA instead has an opportunity to accelerate the 
adoption of advanced vehicle technologies and reduce emissions from the 
vast majority of vehicles that will be sold between MYs 2023 to 2026 
with performance-based credits.''
    After careful weighing the diverse and thoughtful comments received 
regarding multipliers, EPA is finalizing temporary multipliers at lower 
levels than those proposed and for fewer model years. Table 14 provides 
the final multipliers.

         Table 14--Final Multiplier Incentives for MYs 2023-2024
------------------------------------------------------------------------
           Model years               EVs and FCVs            PHEVs
------------------------------------------------------------------------
2022............................  None..............  None.
2023-2024.......................  1.5...............  1.3.
2025+...........................  None..............  None.
------------------------------------------------------------------------

    EPA believes the approach being finalized strikes an appropriate 
balance between providing additional near-term flexibility (with the 
goal that multipliers can act as an incentive for manufacturers to ramp 
up EV sales more quickly in this time period) and the overall emissions 
reduction goals of the program. To the extent that manufacturers 
utilize the optional multiplier flexibility to the maximum extent, it 
provides additional flexibility of up to 10 g/mile (compared to a 
projected total decrease in the fleet average targets over MYs 2023-
2024 of 32 g/mile, as shown in Table 8 of section II.A.1 of this 
preamble.) for a manufacturer's overall fleet, consistent with the cap 
level of the proposal. EPA's final approach is also directionally 
responsive to many of the concerns raised about multipliers and 
incorporates several of the suggestions made by commenters to narrow 
the model years and reduce the magnitude of the multipliers. By 
reducing the multiplier numeric levels by 50 percent compared to the 
proposed rule (i.e., reducing the EV multiplier from 2.0 to 1.5), 
manufacturers will need to sell twice as many advanced technology 
vehicles if they wish to fully utilize the multiplier incentive and 
reach the cap. In addition, by retaining the proposed cumulative cap of 
10 g/mile, but focusing the multiplier incentives on MYs 2023-2024, the 
result is an effective or average per year cap of 5.0 g/mile as opposed 
to the 2.5 g/mile nominal per year cap proposed, under which the 10 g/
mile cumulative would spread over four rather than 2 years. EPA 
believes this approach is responsive to comments that the proposed 
multipliers would not represent an incentive but simply windfall 
credits manufacturers would generate by selling the same number of EVs 
as had been planned previously. In response to comments that the 
proposed multipliers could have the effect of delaying or reducing EV 
sales, EPA modeled the final program with and without the final 
multipliers and found that the final multipliers are not expected to 
reduce EV sales (see RIA Chapter 4.1.4).
    In response to comments provided by SAFE, EPA believes the concept 
SAFE presented regarding incentivizing only incremental sales beyond 
those sold by manufacturers in the previous model year to focus the 
incentive more directly on increased sale has some merit, but EPA is 
not adopting such an approach. EPA proposed that the multipliers would 
be applied in the same way as those provided previously in the 2012 
rule for MYs 2017-2021, with the exception of the credit cap. EPA would 
want to seek input from all stakeholders on the merits and 
implementation details of this type of approach prior to adopting such 
a fundamental change to the program. Also, the approach offered by SAFE 
would add complexity to the program which EPA does not believe to be 
necessary for the few model years, MYs 2023-2024, for which EPA is 
adopting new multipliers.
    Some auto manufacturers commented in support of extending 
multipliers through MYs 2026 and even beyond, while other commenters 
were concerned that providing multipliers in later model years would 
reward manufacturers that introduce advanced technology vehicles such 
as EVs later than other manufacturers. EPA does not intend for 
multipliers to be an ongoing incentive but only a narrow flexibility to 
help address lead time concerns in early model years. EPA proposed to 
end the multipliers in MY 2025 and is finalizing ending them a year 
earlier in MY 2024, which is consistent with EPA's intention that the 
incentives be short lived and narrowly targeted. As discussed further 
in Section III of this preamble, EPA believes that there is enough lead 
time for manufacturers to prepare to meet the final standards starting 
in MY 2025 without such incentives. Regarding comments that EPA should 
not allow the multiplier credits to be used in MYs 2027 and later 
because the credits could unduly delay the application of technology 
and delay emissions reductions, EPA understands this concern. When 
considering the feasibility of standards for MYs 2027 and later, EPA 
intends to take credit banks and credit availability into 
consideration.
    EPA received many comments on multiplier incentives and responds 
fully to comments in the RTC for the rule.
b. Multiplier Incentive Credit Cap
    To limit the potential effect of the multipliers on reducing the 
effective stringency of the standards, EPA proposed to cap the credits 
generated by a manufacturer's use of the multipliers to the Megagram 
(Mg) equivalent of 2.5 g/mile for their car and light truck fleets per 
MY for MYs 2022-2025 or 10.0 g/mile on a cumulative basis.\72\ Above 
the cap, the multiplier would effectively have a value of 1.0--in other 
words, after a manufacturer reaches the cap, the multiplier would no 
longer be available and would have no further effect on credit 
calculations. A manufacturer would sum the Mg values calculated for 
each of its car and light truck fleets at the end of a MY into a single 
cap value that would serve as the overall multiplier cap for the 
combined car and light truck fleets for that MY. This approach would 
limit the effect on stringency of the standards for manufacturers that 
use the multipliers to no greater than 2.5 g/mile less stringent each 
year on average over MYs 2022-2025. EPA proposed that manufacturers 
would be able to choose how to apply the cap within the four-year span 
of MYs 2022-2025 to best fit their product plans. Under the proposed 
approach, manufacturers could opt to use values other than 2.5 g/mile 
in the cap calculation as long as the sum of those values over MYs 
2022-2025 did not exceed 10.0 g/mile (e.g., 0.0, 2.5, 2.5, 5.0 g/mile 
in MYs 2022-2025).
---------------------------------------------------------------------------

    \72\ Proposed Multiplier Credit Cap [Mg] = (2.5 g/mile 
CO2 x VMT x Actual Annual Production)/1,000,000 
calculated annually for each fleet and summed. The proposed approach 
would allow manufacturers to use values higher than 2.5 g/mile in 
the calculation as long as the sum of the cumulative values over MYs 
2022-2025 did not exceed 10.0 g/mile. The vehicle miles traveled 
(VMT) used in credit calculations in the GHG program, as specified 
in the regulations, are 195,264 miles for cars and 225,865 for 
trucks. See 40 CFR 86.1866-12. See also 40 CFR 86.1866-12(c) for the 
calculation of multiplier credits to be compared to the cap.
---------------------------------------------------------------------------

    EPA received a range of comments regarding the proposed cap. The

[[Page 74462]]

Alliance and some individual auto manufacturers commented that EPA 
should provide a cap more in line with that included in the California 
Framework, equivalent to 23 g/mile (about 5.8 g/mile/year) through MY 
2025 and 32 g/mile (about 6.4 g/mile/year) through MY 2026, in order to 
further incentivize EVs. The Alliance commented that the proposed 10 g/
mile cap provides little incentive to increase EV production unless it 
is taken in a single, or limited, years. The Alliance also commented 
that the increased cap would better recognize the current state of EV 
technology and markets. Auto Innovators believes additional EV 
production can be incentivized by a higher credit cap while still 
balancing with the policy goal of maximizing near-term GHG benefits. 
Several individual manufacturers including Honda, Hyundai, JLR, 
Mercedes, Nissan, Stellantis, and Toyota also commented in support of a 
cap in line with or closer to the California Framework levels.
    Ford commented that a larger multiplier should be provided for 
trucks compared to cars to alleviate proportionally lower benefits 
provided to OEMs with a higher truck mix. Lucid commented that EV-only 
manufacturers should not be subject to a cap because they are not off-
setting higher emitting ICE vehicles in their own fleets. Lucid 
commented that the cap was intended to target manufacturers that 
produce vehicles with internal combustion engines to prevent them from 
counterbalancing high-emitting vehicles with ZEV sales.
    CARB and New York State Department of Environmental Quality (DEQ) 
supported the proposed cap, but with lower multipliers such that more 
EVs are needed to reach the cap, thus providing an incentive for 
greater EV sales. UCS commented it supports EPA's cap and smaller 
window of time for those multipliers if multipliers are to remain in 
the final rule. It commented further that ``should EPA continue to move 
forward with a new phase of EV multipliers, we are strongly supportive 
of the agency's proposed approach with the cap. The current cap is 
appropriately low--with a typical fleet compliance of 200-250 g/mile in 
this timeframe, even using all of the cap in a single year would affect 
no more than a few percent of a manufacturer's fleet in that year. 
Because the total impact is relatively low, allowing manufacturers to 
distribute the total cap utilization according to their own optimal 
usage does not pose a drastic risk--however, generally such flexibility 
is maximized by manufacturers at a cost to the goals of the program, 
and any increase in the total g/mile value of the cap or additional 
years in which the multipliers are made available significantly 
enhances such risk.''
    MEMA supported including a cap, as noted above, commenting that 
``without a cap and sunset, the advanced technology multiplier credits 
could drive technologies down too narrow of a regulatory path, too 
quickly. MEMA commented further that the cap should not be increased 
beyond the level proposed. MECA submitted similar comments.
    The Southern Environmental Law Center commented that EPA should cap 
the amount of credits generated by PHEVs that may be used to satisfy 
the overall multiplier incentive credit cap--similar to the cap 
established by California in the ZEV program for transitional zero 
emissions vehicles.
    On the topic of allowing multiplier credits to be generated in MY 
2026 and the credit cap, SCAQMD commented that it generally supported 
sunsetting the multipliers in MY 2025 but if the rule design could 
recognize narrower eligibility for generating credits in 2026, e.g., 
extending the incentive only to those manufacturers that have used less 
than some fraction of the cap, it could promote this beneficial result 
without further ossifying multipliers. SCAQMD commented ``[m]oreover, 
if MY 2026 had its own year-specific, lesser cap, such that a 
manufacturer would not rely too heavily on any new-gained multiplier 
incentive, that may partly address EPA's stated concern that any MY 
2026 credits could `potentially complicate transitioning to MY 2027 
standards for some manufacturers.' ''
    After considering comments, EPA is finalizing the proposed credit 
cap of 10.0 g/mile on a cumulative basis. The nominal credit cap on a 
per year basis is five g/mile because the cap is spread over two MYs, 
2023-2024, rather than the four MYs of 2022-2025 proposed.
    Commenters were generally supportive of including a multiplier cap 
and while comments differed on the appropriate magnitude of the cap, 
EPA believes its approach for the final cap addresses many of the 
concerns expressed by commenters. Even though EPA reduced the number of 
years over which multiplier incentives would be available from four to 
two years, EPA is retaining the proposed cumulative cap of 10 g/mile. 
This is equivalent to a nominal per year cap of 5.0 g/mile compared to 
the 2.5 g/mile per year nominal cap proposed. This preserves the 
magnitude of the additional flexibility proposed overall but focuses it 
more narrowly on MYs 2023-2024. Based on current use of multipliers and 
manufacturers' announced plans for the introduction of more advanced 
technology vehicles in this time frame, EPA believes this provision 
will provide additional flexibility in meeting the near-term standards 
and help them manage the transition to more stringent standards.\73\
---------------------------------------------------------------------------

    \73\ ``The 2021 EPA Automotive Trends Report, Greenhouse Gas 
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420-R-21-
023, November 2021. Manufacturers generated overall fleet average 
multiplier credits equivalent to just under 3 g/mile (See Figure 
5.5).
---------------------------------------------------------------------------

    EPA considered whether reducing the magnitude of the cap by half 
would be appropriate, retaining the proposed nominal cap of 2.5 g/mile 
per year. EPA decided that rather than reduce the magnitude of the cap, 
it would be more appropriate to retain the 10 g/mile cap so that the 
available total incentive credits, and the flexibility they represent 
in the earliest years of the program, is retained. The approach EPA is 
finalizing is also consistent with the Alliance comments that, as 
proposed, the multipliers would provide little incentive and did not 
recognize the current state of technology or the market. We believe, as 
noted above, that concentrating the multipliers over two years with the 
same cumulative cap, rather than the proposed four years, provides 
additional incentive for increasing sales of advanced technology 
vehicles. EPA recognizes, also, that while the effect on emissions 
reductions would remain the same as under the proposed rule if 
manufacturers are able to maximize the use of the multipliers in MYs 
2023-24, given that the cap remains at 10 g/mi, we expect it to be less 
likely for manufacturers to reach that level given the more limited 
timeline and reduced multiplier levels compared to the proposal. EPA 
believes the final approach better provides the intended incentive to 
manufacturers to more quickly ramp up sales of these vehicles, which 
are key in transitioning the light-duty fleet toward zero-emissions 
vehicles.
    In response to comments that EPA should adopt a more generous 
multiplier cap, in line with that included in the California Framework, 
EPA did not take this approach because EPA believed the California 
Framework cumulative cap to be too generous for the EPA program. 
Conversely, other commenters believe that no multiplier should be 
allowed because, even under the proposed cap, multipliers may act to 
lessen the real world emission reductions from the standards. EPA notes 
that the California Framework Agreements take effect in MY 2021 
compared to EPA's final standards that

[[Page 74463]]

begin in MY 2023 and thus there is a significant difference in the 
program time frames. Although EPA is adopting a nominal per year cap 
that is more similar to that of the California Framework, EPA is not 
increasing the cumulative cap from the proposed 10 g/mile cap. The 
multipliers in EPA's final program are only available for MYs 2023-2024 
compared to the longer duration of multipliers in the California 
Framework, which provides additional multipliers in MYs 2020-2026. EPA 
is providing more limited flexibilities in its final program in order 
to preserve the most emissions reductions feasible while still 
providing near-term flexibility in consideration of lead time.
iii. Natural Gas Vehicle Multipliers
    As noted above, the SAFE rule did not extend multipliers for 
advanced technology vehicles but did extend and increase multiplier 
incentives for dual-fuel and dedicated natural gas vehicles (NGVs). The 
current regulations include a multiplier of 2.0, uncapped, for MYs 
2022-2026 NGVs. In the SAFE rule, EPA said it was extending the 
multipliers for NGVs because ``NGVs could be an important part of the 
overall light-duty vehicle fleet mix, and such offerings would enhance 
the diversity of potentially cleaner alternative fueled vehicles 
available to consumers.'' \74\ After further considering the issue, as 
proposed, EPA is removing the extended multiplier incentives added by 
the SAFE rule from the GHG program after MY 2022. EPA is ending 
multipliers for NGVs in this manner because NGVs are not a near-zero 
emissions technology and EPA no longer believes it is appropriate to 
incentivize these vehicles to encourage manufacturers to introduce them 
in the light-duty vehicle market. EPA does not view NGVs as a pathway 
for significant vehicle GHG emissions reductions in the future. Any NGV 
multiplier credits generated in MY 2022 would be included under the 
proposed multiplier cap. There are no NGVs currently offered by 
manufacturers in the light-duty market and EPA is unaware of any plans 
to introduce NGVs, so EPA does not expect the removal of multipliers 
for NGVs to have an impact on manufacturers' ability to meet 
standards.\75\
---------------------------------------------------------------------------

    \74\ 85 FR 25211.
    \75\ The last vehicle to be offered, a CNG Honda Civic, was 
discontinued after MY 2015. It had approximately 20 percent lower 
CO2 than the gasoline Civic. For more recent advanced 
internal combustion engines, the difference may be less than 20 
percent due to lower emissions of the gasoline-fueled vehicles.
---------------------------------------------------------------------------

    EPA requested comment on its proposed treatment of multipliers for 
NGVs including whether they should be eliminated altogether for MYs 
2023-2026 as proposed or retained partially or at a lower level for MYs 
2023-2025. Comments on this topic are summarized and discussed in the 
RTC document for the rule.
2. Full-Size Pickup Truck Incentives
    EPA is finalizing temporary full-size pickup incentives for a more 
limited time frame than proposed, just for MYs 2023-2024 rather than 
the proposed MYs 2022-2025. This section provides an overview of the 
incentives, comments received, and the provisions EPA is finalizing in 
the final rule.
i. Background on Full Size Pickup Incentives in Past Programs
    In the 2012 rule, EPA included a per-vehicle credit provision for 
manufacturers that hybridize a significant number of their full-size 
pickup trucks or use other technologies that comparably reduce 
CO2 emissions. EPA's goal was to incentivize the penetration 
into the marketplace of low-emissions technologies for these pickups. 
The incentives were intended to provide an opportunity in the program's 
early years to begin penetration of advanced technologies into this 
category of vehicles, which face unique challenges in the costs of 
applying advanced technologies due to the need to maintain vehicle 
utility and meet consumer expectations. In turn, the introduction of 
low-emissions technologies in this market segment creates more 
opportunities for achieving the more stringent later year standards. 
Under the existing program, full-size pickup trucks using mild hybrid 
technology are eligible for a per-truck 10 g/mile CO2 credit 
during MYs 2017-2021.\76\ Full-size pickup trucks using strong hybrid 
technology are eligible for a per-truck 20 g/mile CO2 credit 
during MYs 2017-2021, if certain minimum production thresholds are 
met.\77\ EPA established definitions in the 2012 rule for full-size 
pickup and mild and strong hybrid for the program.\78\
---------------------------------------------------------------------------

    \76\ As with multiplier credits, full-size pickup credits are in 
Megagrams (Mg). Full-size pickup credits are derived by multiplying 
the number of full-size pickups produced with the eligible 
technology by the incentive credit (either 10 or 20 g/mile) and a 
vehicle miles traveled (VMT) value for trucks of 225,865, as 
specified in the regulations. The resulting value is divided by 
1,000,000 to convert it from grams to Mg. EPA is not adopting a cap 
for these credits and they are only available for full-size pickups, 
rather than the entire fleet, so the calculation is simpler than 
that for multiplier credits.
    \77\ 77 FR 62825, October 15, 2012.
    \78\ 77 FR 62825, October 15, 2012. Mild and strong hybrid 
definitions as based on energy flow to the high-voltage battery 
during testing. Both types of vehicles must have start/stop and 
regenerative braking capability. Mild hybrid is a vehicle where the 
recovered energy over the Federal Test Procedure is at least 15 
percent but less than 65 percent of the total braking energy. Strong 
hybrid means a hybrid vehicle where the recovered energy over the 
Federal Test Procedure is at least 65 percent of the total braking 
energy.
---------------------------------------------------------------------------

    Alternatively, manufacturers may generate performance-based credits 
for full-size pickups. This performance-based credit is 10 g/mile 
CO2 or 20 g/mile CO2 for full-size pickups 
achieving 15 percent or 20 percent, respectively, better CO2 
performance than their footprint-based targets in a given MY through MY 
2021.\79\ This second option incentivizes other, non-hybrid, advanced 
technologies that can reduce pickup truck GHG emissions and fuel 
consumption at rates comparable to strong and mild hybrid technology. 
These performance-based credits have no specific technology or design 
requirements; automakers can use any technology or set of technologies 
as long as the vehicle's CO2 performance is at least 15 or 
20 percent below the vehicle's footprint-based target. However, a 
vehicle cannot receive both hybrid and performance-based credits since 
that would be double-counting.
---------------------------------------------------------------------------

    \79\ 77 FR 62826, October 15, 2012. For additional discussion of 
the performance requirements, see Section 5.3.4 of the ``Joint 
Technical Support Document: Final Rulemaking for 2017-2025 Light-
duty Vehicle Greenhouse Gas Emission Standards and Corporate Average 
Fuel Economy Standards'' for the Final Rule,'' EPA-420-R-12-901, 
August 2012.
---------------------------------------------------------------------------

    Access to any of these large pickup credits requires that the 
technology be used on a minimum percentage of a manufacturer's full-
size pickups. These minimum percentages, established in the 2012 final 
rule, are set to encourage significant penetration of these 
technologies, leading to long-term market acceptance. Meeting the 
penetration threshold in one MY does not ensure credits in subsequent 
years; if the production level in a MY drops below the required 
threshold, the credit is not earned for that MY. The required 
penetration levels are shown in Table 15 below.\80\
---------------------------------------------------------------------------

    \80\ 40 CFR 86.1870-12.

[[Page 74464]]

               Table 15--Penetration Rate Requirements by Model Year for Full-Size Pickup Credits
                                                [% of production]
----------------------------------------------------------------------------------------------------------------
                                       2017            2018            2019            2020            2021
----------------------------------------------------------------------------------------------------------------
Strong hybrid...................              10              10              10              10              10
Mild Hybrid.....................              20              30              55              70              80
20% better performance..........              10              10              10              10              10
15% better performance..........              15              20              28              35              40
----------------------------------------------------------------------------------------------------------------

    Under the 2012 rule, the strong hybrid/20 percent better 
performance incentives initially extended out through MY 2025, the same 
as the 10 percent production threshold. However, the SAFE rule removed 
these incentives after MY 2021, given the reduced stringency of the 
SAFE standards. The mild hybrid/15 percent better performance incentive 
was not affected by the SAFE rule, as those provisions end after MY 
2021.\81\
---------------------------------------------------------------------------

    \81\ See 85 FR 25229.
---------------------------------------------------------------------------

ii. Proposed and Final Full Size Pickup Truck Incentives
    EPA proposed to reinstate the full-size pickup credits as they 
existed before the SAFE rule, for MYs 2022 through 2025. As discussed 
in the proposal, while no manufacturer has yet claimed these credits, 
the rationale for establishing them in the 2012 rule remains valid. In 
the context of the proposed rule that included more stringent standards 
for MY 2023-2026, EPA believed these full-size pickup truck credits 
were appropriate to further incentivize advanced technologies 
penetrating this particularly challenging segment of the market. As 
with the original program, EPA proposed to limit this incentive to 
full-size pickups rather than broadening it to other vehicle types. 
Introducing advanced technologies with very low CO2 
emissions in the full-size pickup market segment remains a challenge 
due to the need to preserve the towing and hauling capabilities of the 
vehicles. The full-size pickup credits incentivize advanced 
technologies into the full-size pickup truck segment to help address 
cost, utility, and consumer acceptance challenges.
    EPA requested comments on whether or not to reinstate the 
previously existing full-size pickup strong hybrid/20 percent better 
performance incentives and on the proposed approach for doing so. EPA 
also requested comment on the potential impacts of the full-size pickup 
incentive credit, and whether, and how, EPA should take the projected 
effects into account in the final rulemaking.
    EPA received a range of comments both supporting and opposing the 
proposed full-size pickup incentives. The Alliance supported the 
proposed full-size pickup hybrid and over-performance incentive credits 
and suggested that they should be extended through MY 2026. The 
Alliance commented that although many full-size pickup trucks are quite 
efficient for their size, weight, and utility, they remain among the 
highest emitting non-niche vehicles in the fleet. Incentivizing strong 
hybridization or other technology solutions that yield GHG emission 
rates 20 percent or better than their regulatory targets, the Alliance 
believes, can help encourage manufacturer production and marketing to 
foster greater long-term consumer market adoption in the transition to 
EVs.
    Ford commented that it believes that the full-size pickup 
incentives are essential in enabling continued adoption of advanced 
technology in the full-size pickup segment and supports EPA's proposed 
reinstatement. Ford commented further that one concern with this credit 
mechanism is the requirement that 10 percent volume penetration of the 
relevant technologies must be reached within a given model before any 
credit is granted. Ford commented ``this `all-or-nothing' approach 
poses risks and uncertainty to OEM compliance planning since it is 
difficult to predict future volumes with precision, particularly for 
new or advanced technologies such as hybridization. Ford believes that 
the threshold is also unnecessary since an OEM is already motivated to 
maximize volumes to the greatest extent possible--within market and 
material constraints--in order to recoup the sizeable investments 
needed to implement such technologies. For these reasons, Ford believes 
it is appropriate to lower or remove the volume threshold requirement. 
In the alternative, Ford asks that EPA clarify that an OEM may include 
multiple technologies toward the 10 percent threshold, for example, by 
combining BEV and HEV volumes to satisfy a given model's 10 percent 
threshold requirement for the performance-based credit pathway.'' The 
Alliance also supported this approach.
    CARB supported restoring the full-size pickup credits in 
conjunction with revised standards but disagreed that the credits 
should be restored for MY 2022, commenting that vehicles produced for 
MY 2022 will remain subject to the substantially less stringent SAFE 
standards and no action should be taken to effectively further weaken 
the 2021 or 2022 standards.
    Environmental and health NGOs opposed the pickup incentives. Center 
for Biological Diversity, Earthjustice, and Sierra Club (hereinafter 
``CBD et al.'') jointly commented that the incentives were unnecessary, 
noting automakers are making new electric trucks, and consumers are 
buying them. CBD et al. elaborated ``For example, as of early June 
2021, Ford had reached 100,000 reservations for its 2022 Ford F-150 
electrified full-size truck. Rivian's electric R1T will be released 
this year, and General Motors is planning an electric version of its 
popular Chevrolet Silverado for 2023.'' CBD et al. commented that, as 
these developments are happening on their own, there is no evidence 
that EPA's incentives would further spur production.
    ACEEE commented, ``this is another instance of awarding credits in 
excess of actual emission reductions, which reduces the stringency of 
the standards. This specific incentive is also problematic because it 
could encourage production of full-sized pickup trucks at the expense 
of smaller vehicles. It also provides a loophole to the 2.5 g/mile EV 
multiplier credit limit, by creating an alternative pathway for EV 
pickup trucks to earn unwarranted credits after the fleetwide EV 
multiplier limit has been reached. ACEEE estimates that this provision 
alone could reduce stringency by up to 2 g/mile by MY 2025 and reduce 
emissions savings by up to 1 percent for the entire period of the 
proposed rule.'' UCS provided similar comments, stating that ``even in 
the absence of the full-size pick-up strong hybrid/performance credit, 
manufacturers have moved forward with plans for full-size pick-ups that 
meet the criteria. The simple reason is that these vehicles are sold by 
only a

[[Page 74465]]

small number of manufacturers, and as such represent a critical piece 
of the portfolio of those manufacturers--a company like Ford cannot 
afford for its best-selling vehicle to be a deficit-generator under the 
standards. Since these vehicles are already planned, the agency's 
reinstatement of the credit cannot be considered an incentive--instead, 
it is a windfall credit.''
    SAFE also opposed the pickup incentives, commenting that 
hybridization of pick-up trucks is no longer an innovative technology, 
as it has been replaced by full electric pickup trucks, with towing and 
hauling capacity similar to conventional pickups, that are entering the 
market shortly. SAFE further commented that EPA acknowledged that the 
proposed pickup incentives would allow additional GHG emissions and did 
not to adequately support its proposed rule. SAFE commented that 
``given the current state of pickup truck technology, EPA should focus 
on incentivizing transformative electric pickup trucks and decline to 
extend incentives to hybrids.''
    Tesla commented that EPA should not renew the full-size pick-ups 
incentives, commenting that EPA's analysis underestimates the 
deployment of newly manufactured full EV pick-up trucks. Tesla notes, 
for example, EPA projects no delivery of the Tesla Cybertruck as is 
scheduled in MY 2022, ignores any deployment of pickups by Rivian, and 
appears to underestimate Toyota's deployment despite pronouncement of 
seven models by MY 2025. Tesla commented that their modeling 
anticipates that starting in MY 2023 this annual credit would further 
erode the proposed standard's stringency starting at 0.3 g/mile and 
grow in usage in MYs 2024 and 2025. Tesla also asserted this incentive 
is not needed to incentivize deployment of actual EV pickups and should 
be removed to increase the revised standards' stringency.
    Consumer Reports recommended that EPA simplify the credit by 
eliminating the strong hybrid credit, and only provide the credit to 
vehicles that meet the 20 percent improvement above the standard 
threshold, regardless of technology used. Consumer Reports commented 
that this would avoid potentially giving credits to strong hybrids 
designed to deliver increased performance, but minimal efficiency 
improvements. UCS provided similar comments regarding strong hybrid 
pickups, commenting that strong hybrid pickups are not being designed 
for efficiency, and given that, it makes sense to eliminate the strong 
hybrid credit entirely. UCS further commented that if EPA wishes to 
implement a full-size pick-up credit, it should only be for the 20 
percent performance credit to ensure that at least the credit windfall 
will be limited to efficient vehicles, not just a high-performance trim 
level.
    After considering the wide range of comments, EPA is finalizing a 
more limited time period for full-size pickup incentives--only for MYs 
2023-2024. EPA is not finalizing the proposed incentives for MYs 2022 
or 2025. These incentives will sunset at the end of MY 2024. EPA 
believes this approach balances the need for flexibility in these near-
term model years given lead time considerations, with the overall 
emissions reduction goals of the program. EPA believes that this more 
targeted approach to full-size pickup truck credits is appropriate to 
further incentivize advanced technologies in this segment, which 
continues to be particularly challenging given the need to preserve the 
towing and hauling capabilities while addressing cost and consumer 
acceptance challenges. EPA is also retaining the production thresholds 
to ensure that manufacturers taking advantage of the flexibility must 
sell a significant number of qualifying vehicles to do so. While this 
flexibility is more narrowly focused, since not all manufacturers 
produce full-size pickups, it represents another avenue for credits 
that may help manufacturers meet the near-term standards, in addition 
to the other flexibilities included in the program.
    Regarding comments from Consumer Reports and UCS that EPA should 
not include an incentive for strong hybrid technology, EPA understands 
the concerns raised by the commenters and believes the comments have 
some merit. However, EPA has decided to constrain the overall program 
instead in terms of timeframe by only finalizing the incentive for two 
model years, which directionally responds to the commenters more 
general concerns about the potential impact of the proposal. The 
approach EPA is finalizing is more in line with EPA's proposal and 
request for comments regarding the scope full-size pickup incentives, 
since EPA did not seek comments or otherwise consider not including the 
strong hybrid portion of the full-size pickup incentive.
    EPA also is finalizing the proposed provision to prevent double 
counting of the full-size pickup credits and the advanced technology 
multipliers. In the 2012 rule, EPA included a provision that prevents a 
manufacturer from using both the full-size pickup performance-based 
credit pathway and the multiplier credits for the same vehicles. This 
would prevent, for example, an EV full-size pickup from generating both 
credits. EPA proposed the same restriction for vehicles qualifying for 
the full-size pickup hybrid credit pathway. With the extended 
multiplier credits and the full-size pickup credit, EPA believes 
allowing both credits would be double-counting and inappropriate. EPA 
did not receive adverse comments on this provision. Therefore, EPA is 
modifying the regulations as proposed such that manufacturers may 
choose between the two credits in instances where full-size pickups 
qualify for both but may not use both credits for the same vehicles. A 
manufacturer may choose to use the full-size pickup strong hybrid 
credit, for example, if the manufacturer either has reached the 
multiplier credit cap or intends to do so with other qualifying 
vehicles.
3. Off-Cycle Technology Credits
    EPA is finalizing a temporary increase in the off-cycle menu credit 
cap from 10 to 15 g/mile, but over a more limited time frame than 
proposed, from MY 2023 through 2026. Coinciding with the increased menu 
cap, EPA is also adopting revised definitions for certain off-cycle 
menu technologies as proposed, with minor edits in response to 
comments, starting in MY 2023. EPA proposed to allow manufacturers the 
option to take advantage of the higher cap, using the updated 
definitions, in MYs 2020-2022. After considering comments, EPA is not 
finalizing the provisions applicable to MYs 2020-2022, due to concerns 
that they would provide unnecessary additional flexibility for the MY 
2020-2022 standards established in the SAFE rule. The off-cycle credits 
program and the revisions EPA is finalizing are discussed in the 
section below.
i. Background on Off-Cycle Credits in Prior Programs
    Starting with MY 2008, EPA started employing a ``five-cycle'' test 
methodology to measure fuel economy for purposes of new car window 
stickers (labels) to give consumers better information on the fuel 
economy they could more reasonably expect under real-world driving 
conditions.\82\ However, for GHG compliance, EPA continues to use the 
established ``two-cycle'' (city and highway test cycles, also known as 
the FTP and HFET) test

[[Page 74466]]

methodology.\83\ As learned through development of the ``five-cycle'' 
methodology and prior rulemakings, there are technologies that provide 
real-world GHG emissions improvements, but whose improvements are not 
fully reflected on the ``two-cycle'' test. EPA established the off-
cycle credit program to provide an appropriate level of CO2 
credit for technologies that achieve CO2 reductions, but may 
not otherwise be chosen as a GHG control strategy, as their GHG 
benefits are not measured on the specified 2-cycle test. For example: 
High efficiency lighting is not measured on EPA's 2-cycle tests because 
lighting is not turned on as part of the test procedure but reduces 
CO2 emissions by decreasing the electrical load on the 
alternator and engine. The key difference between the credits discussed 
below and the incentives discussed in the previous two sections is that 
off-cycle credits--as well as A/C credits, discussed in the next 
section--represent real-world emissions reductions if appropriately 
sized and therefore their use should not result in deterioration of 
program benefits, and should not be viewed as cutting into the 
effective stringency of the program.
---------------------------------------------------------------------------

    \82\ https://www.epa.gov/vehicle-and-fuel-emissions-testing/dynamometer-drive-schedules. See also 75 FR 25439 for a discussion 
of 5-cycle testing.
    \83\ The city and highway test cycles, commonly referred to 
together as the ``2-cycle tests'' are laboratory compliance tests 
are effectively required by law for CAFE, and also used for 
determining compliance with the GHG standards. 49 U.S.C. 32904(c).
---------------------------------------------------------------------------

    Under EPA's existing regulations, there are three pathways by which 
a manufacturer may accrue off-cycle technology credits.\84\ The first 
pathway is a predetermined list or ``menu'' of credit values for 
specific off-cycle technologies that was effective starting in MY 
2014.\85\ This pathway allows manufacturers to use credit values 
established by EPA for a wide range of off-cycle technologies, with 
minimal or no data submittal or testing requirements. The menu includes 
a fleetwide cap on credits of 10 g/mile to address the uncertainty of a 
one-size-fits-all credit level for all vehicles and the limitations of 
the data and analysis used as the basis of the menu credits. A second 
pathway allows manufacturers to use 5-cycle testing to demonstrate and 
justify off-cycle CO2 credits.\86\ The additional emissions 
tests allow emission benefits to be demonstrated over some elements of 
real-world driving not captured by the GHG compliance tests, including 
high speeds, rapid accelerations, and cold temperatures. Under this 
pathway, manufacturers submit test data to EPA, and EPA determines 
whether there is sufficient technical basis to approve the off-cycle 
credits. The third pathway allows manufacturers to seek EPA approval, 
through a notice and comment process, to use an alternative methodology 
other than the menu or 5-cycle methodology for determining the off-
cycle technology CO2 credits.\87\ This option is only 
available if the benefit of the technology cannot be adequately 
demonstrated using the 5-cycle methodology.
---------------------------------------------------------------------------

    \84\ See ``The 2020 EPA Automotive Trends Report, Greenhouse Gas 
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420-R-21-
003 January 2021 for information regarding the use of each pathway 
by manufacturers.
    \85\ See 40 CFR 86.1869-12(b).
    \86\ See 40 CFR 86.1869-12(c).
    \87\ See 40 CFR 86.1869-12(d).
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    Prior to this rulemaking, EPA received comments from manufacturers 
on multiple occasions requesting that EPA increase the menu credit cap. 
Previously, EPA has opted not to increase the cap for several 
reasons.\88\ First, the cap is necessary given the uncertainty in the 
menu values for any given vehicle. Menu credits are values EPA 
established to be used across the fleet rather than vehicle-specific 
values. When EPA established the menu credits in the 2012 rule, EPA 
included a cap because of the uncertainty inherent in using limited 
data and modeling as the basis of a single credit value for either cars 
or trucks. While off-cycle technologies should directionally provide an 
off-cycle emissions reduction, quantifying the reductions and setting 
appropriate credit values based on limited data was difficult. 
Manufacturers wanting to generate credits beyond the cap may do so by 
bringing in their own test data as the basis for the credits. Credits 
established under the second and third pathways do not count against 
the menu cap. Also, until recently most manufacturers still had 
significant headroom under the cap allowing them to continue to 
introduce additional menu technologies.\89\ Finally, during the 
implementation of the program, EPA has expended significantly more 
effort than anticipated on scrutinizing menu credits to determine if a 
manufacturer's technology approach was eligible under the technology 
definitions contained in the regulations. This further added to 
concerns about whether the technology could reasonably be expected to 
provide the real-world benefits that credits are meant to represent. 
For these reasons, EPA has been reluctant to consider increasing the 
cap.
---------------------------------------------------------------------------

    \88\ 85 FR 25237.
    \89\ See ``The 2020 EPA Automotive Trends Report, Greenhouse Gas 
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420-R-21-
003 January 2021 for information on the use of menu credits.
---------------------------------------------------------------------------

    EPA may make changes to the test procedures for the GHG program in 
the future that could change the need for an off-cycle credits program, 
but there were no such test procedure changes proposed in this rule. 
EPA recognizes that off-cycle credits, therefore, will likely remain an 
important source of emissions reductions under the program, at least 
through MY 2026. Off-cycle technologies are often more cost effective 
than other available technologies that reduce vehicle GHG emissions 
over the 2-cycle tests and manufacturer use of the program continues to 
grow. Off-cycle credits reduce program costs and provide additional 
flexibility in terms of technology choices to manufacturers which has 
resulted in many manufacturers using the program. Multiple 
manufacturers were at or approaching the 10 g/mile credit cap in MY 
2019.\90\ Also, in the SAFE rule, EPA added menu credits for high 
efficiency alternators but did not increase the credit cap for the 
reasons noted above.\91\ While adding the technology to the menu has 
the potential to reduce the burden associated with the credits for both 
manufacturers and EPA, it further exacerbates the credit cap issue for 
some manufacturers.
---------------------------------------------------------------------------

    \90\ In MY 2019, Ford, FCA, and Jaguar Land Rover reached the 10 
g/mile cap and three other manufacturers were within 3 g/mile of the 
cap. See ``The 2020 EPA Automotive Trends Report, Greenhouse Gas 
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420-R-21-
003 January 2021.
    \91\ 85 FR 25236.
---------------------------------------------------------------------------

ii. Proposed and Final Off-Cycle Credit Menu Cap Increase
    EPA is finalizing its proposed provision to increase the off-cycle 
menu cap, but over a more limited time period (MY 2023 through 2026) 
than proposed. EPA proposed increasing the cap on menu-based credits 
from the current 10 g/mile to 15 g/mile beginning as early as MY 2020. 
As a companion to increasing the credit cap, EPA also proposed 
modifications to some of the off-cycle technology definitions to 
improve program implementation and to better accomplish the goal of the 
off-cycle credits program: To ensure emissions reductions occur in the 
real-world from the use of the off-cycle technologies. EPA proposed 
that manufacturers could optionally access the 15 g/mile menu cap in 
MYs 2020-2022 if the manufacturers met all of the revised definitions. 
EPA is finalizing the increased credit cap of 15 g/mile along with the 
proposed definition changes

[[Page 74467]]

starting in MY 2023. For reasons discussed below, EPA is not finalizing 
the proposed MY 2020-2022 opt-in provisions.
    EPA believes this is a reasonable approach to provide more 
opportunity for menu-based credits in the off-cycle program, while 
still keeping a limit in place. For MY 2020, manufacturers claimed an 
average of 7.8 g/mile of menu credits with three manufacturers claiming 
the maximum 10 g/mile of credits.\92\ Increasing the cap provides an 
additional optional flexibility and also an opportunity for 
manufacturers to earn more menu credits by applying additional menu 
technologies, recognizing that some manufacturers may need to make 
changes to some of their current designs if they choose to continue to 
earn menu credits under the revised definitions.
---------------------------------------------------------------------------

    \92\ ``The 2021 EPA Automotive Trends Report, Greenhouse Gas 
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420-R-21-
023, November 2021.
---------------------------------------------------------------------------

    In the proposal, EPA requested comment on whether the menu credit 
cap should be increased to 15 g/mile, EPA's proposed approach for 
implementing the increased credit cap, including the start date of MY 
2020, as well as the proposed application of revised technology 
definitions. EPA specifically requested comment on whether an increased 
credit cap, if finalized, should begin in MY 2020 as proposed or a 
later MY such as MY 2021, 2022, or 2023. EPA encouraged commenters 
supporting off-cycle provisions that differ from EPA's proposed rule to 
address how such differences could be implemented to improve real-world 
emissions benefits and how such provisions could be effectively 
implemented.
    EPA received both supportive and adverse comments regarding the 
proposed off-cycle menu cap increase. The Alliance supported raising 
the credit cap for the off-cycle technology menu, effective in MY 2020, 
commenting that the 10 g/mile cap was originally promulgated in the 
2012 Rule and has become constraining to technology additions, 
particularly with the addition of new menu technologies added in the 
SAFE rule. The Alliance did not support tying the increased menu cap to 
the revised definitions, commenting that the issues should be 
considered separately. The Alliance commented that ``the cap should be 
raised regardless of the decision whether to modify technology 
definitions or not and, if modified technology definitions are adopted, 
regardless of when a manufacturer applies the modified definitions.''
    The Alliance recommended that EPA not adopt the revised definitions 
in this rulemaking but wait until the subsequent rule for MYs 2027 and 
later. The Alliance commented that ``model year 2023 vehicles can be 
built as soon as January 2022, leaving manufacturers only three to at 
most nine months to design, validate, and certify vehicles with systems 
that meet the new definitions. This lead-time is simply insufficient to 
make the necessary level of changes. In MY 2019, the fleetwide average 
use of active engine warmup, active transmission warmup, and passive 
cabin ventilation technologies resulted in a credit of approximately 
3.6 g/mile. Modifying definitions without sufficient lead-time would 
likely result in an immediate loss of most, if not all of this credit, 
further escalating the challenge of managing the large increase in 
standard stringency proposed for MY 2023. The new definitions will 
require innovative solutions and significant changes to vehicle design 
to meet them.'' The Alliance commented further, ``if EPA adopts new 
definitions for passive cabin ventilation, active engine warm-up, and/
or active transmission warm-up technologies, EPA should also continue 
to recognize existing designs. EPA justifies its proposed provision to 
modify technology definitions on the basis that current system designs 
are not meeting EPA's original expectations. However, current system 
designs are providing off-cycle emissions benefits. Given the benefits 
of such systems, EPA should continue to provide credit for systems that 
meet existing definitions through the menu, in addition to newly 
defined systems.''
    Several individual manufacturers also raised lead time concerns 
regarding the implementation of revised definitions. Stellantis 
commented that if EPA wants to implement new technology definitions, 
EPA should do so starting in MY 2027, allowing manufacturers to plan 
and implement fleetwide changes. Stellantis argued that previous 
systems were approved by EPA and that the benefits they provide are 
threatened by the revised definitions. Toyota requested that the 
revised definitions be effective starting with the 2025 model year at 
the earliest to provide adequate lead time for appropriate 
countermeasures and compliance plan adjustments. Hyundai requested that 
the revised definitions not be implemented until 2027 MY for similar 
reasons, adding that ``use of the higher 15 g/mile cap should be 
permitted without prejudice in order to encourage the inclusion of more 
fuel saving technologies.'' Ford commented that the ``Notice and 
Comment process is the appropriate mechanism for making major policy or 
technology definition clarifications to the off-cycle program. However, 
such clarifications should not be retroactively applied, or be required 
in order to qualify for the 15 g/mile cap for previous model years. It 
should also be noted that Ford has relied on these credits to comply 
with current and past regulatory structures, such as `One National 
Program' and the California Framework Agreement.''
    JLR commented that it understands EPA's proposed provision to 
change the technology definitions but requested that the menu be 
expanded to include technologies that do not meet the new definition, 
but do meet the old definition, with appropriate credit values 
assigned. JLR also commented that there should be an option for 
manufacturers to remain at the 10 g/mile cap with the original 
technology definitions up to and including MY 2025. JLR commented that 
this is required as, for technologies that involve significant changes 
to the vehicle to meet the new definition such as active transmission 
warm up, there must be a longer lead time for manufacturers to adapt to 
this change in the regulation.
    MEMA commented that it strongly supports EPA expanding the off-
cycle technology credit program by increasing the credit cap on credits 
received through the off-cycle menu from 10 g/mile to 15 g/mile. 
Similarly, MECA commented that it supports EPA's continuation and 
improvement of the off-cycle credit program with the higher credit cap. 
BorgWarner commented that the credit cap ``should be removed to allow 
and promote the true potential of these technologies to achieve the new 
standards. We do not see the value of a cap that excludes technologies 
that are shown to provide additional real-world fuel economy benefits. 
Credit programs should be continued and expanded to provide important 
flexibilities and broader pathways for greater innovation and lower 
compliance costs.''
    Environmental Defense Fund (EDF) commented that the proposed off-
cycle program changes would help manufacturers meet the MY 2023-2024 
standards and, in modeling performed to support their comments that the 
standards are feasible, included a portion of the proposed increased 
off-cycle credits. EDF commented that ``it is also eminently reasonable 
to assume automakers could (and would) apply relatively inexpensive, 
widely deployed off-cycle technologies that can be added

[[Page 74468]]

at the tail end of the product-development process.''
    ACEEE supported EPA's proposed provision to revise the definitions, 
commenting that EPA should continue to scrutinize menu credits to 
ensure that definitions only allow for technologies that have been 
researched and tested and not others that may be superficially similar. 
ACEEE, however, opposed beginning the 15 g/mile credit cap increase in 
MY 2020, commenting that those vehicles have already been designed and 
no new menu technologies will be added to the vehicles. Therefore, the 
change would not lead to any additional emissions reductions but 
instead, would effectively reduce the stringency of the proposed rule 
by giving automakers credits for decisions that they have already made 
and implemented. ACEEE estimated that if automakers were to take 
advantage of the entire 5 g/mile retroactive cap increase, emission 
savings from the proposed standards would be reduced by 19 percent.
    ACEEE also commented that the credit cap increase is concerning as 
applied to future model years, as it believes the off-cycle credit 
system already over awards credits and further weakens the rule 
stringency. ACEEE commented that research has shown that some 
technologies are awarded up to 100 percent more credits than 
appropriate, equaling up to 3 g/mile of credits per technology (Gonder 
et al. 2016; Kreutzer et al., 2017). Another concern raised by ACEEE is 
that technologies that qualify for menu credits have not been evaluated 
for redundancies or overlaps in benefits (Lutsey and Isenstadt 2018). 
ACEEE commented that a vehicle that has more than one of the 
technologies addressing the same inefficiencies may not achieve the sum 
of the benefits of the individual technologies due to synergistic 
effects.
    UCS also did not support raising the menu credit cap, commenting 
that there is a lack of evidence demonstrating real-world reductions 
associated with some off-cycle technologies and in some cases, there is 
evidence that some credit levels are too high, supporting a reduction 
rather than expansion of the program. UCS also commented in support of 
implementing the revised definitions and suggest the definitions be 
implemented immediately to avoid further unwarranted credits for these 
inferior technologies. UCS also agrees with EPA that any manufacturers 
seeking credit for technologies that do not meet the revised 
definitions must do so through the off-cycle credit public comment 
process pathway.
    CBD et al. commented that EPA should end, reduce, or significantly 
reform the off-cycle credits program. CBD et al. commented that 
uncertainties arise due to ``the lack of data submission; the lack of 
testing; and the practice of `one-size-fits-all installation' by which 
automakers who install the same technology not just on the specific 
vehicle type and model they tested, but also on many or all of the 
other cars and trucks in their fleets, without submitting any test data 
on the level of emissions reductions, if any, they generate on these 
different and diverse vehicles. CBD et al. commented that if EPA 
proceeds with its current proposed rule, off-cycle credits should, at a 
minimum, be limited and reformed so real-world results are assured and 
verified, as stated in the Joint Comments. If the agency adopts 
Alternative 2 plus, off-cycle credits should still not be expanded, and 
their cap maintained.''
    Tesla also commented that EPA should end the off-cycle credits 
program. Tesla argued that ``extending and expanding these credit 
rewards old technology and, to the extent new technologies are deployed 
to generate off-cycle credits, focuses critical R&D budgets on tweaking 
legacy ICE platforms rather than directing these budgets to 
electrification and greater emissions reductions. As such, EPA's 
proposed rule, rather than confronting this built-in bias toward ICE 
legacy technology, enhances the pre-existing bias by increasing the 
off-cycle cap to 15 g/mile. Again, such perverse incentives should not 
be extended, much less increased.''
    After carefully considering the comments, EPA is finalizing the 15 
g/mile cap and revised definitions, beginning in MYs 2023 through 2026. 
Given the level of concern expressed regarding optionally allowing the 
cap to increase retroactively starting in MY 2020 and comments from 
manufacturers that it would not be particularly useful to the extent 
they may need to make technology changes in order to meet the new 
definitions, EPA is not finalizing the optional provisions for MYs 
2020-2022. EPA views the definition updates as important refinements to 
the ongoing off-cycle program to improve its implementation and help 
ensure that the program produces real-world benefits as intended and 
continues believes that it is reasonable and appropriate to make these 
updates in parallel with the cap increase for MYS 2023-2026.
    EPA acknowledges that off-cycle credits are meant to represent 
real-world reductions and theoretically there would not be a loss of 
emissions reductions associated with allowing manufacturers to use the 
revised definitions and increased cap in MY 2021-2022 as proposed. 
However, many commenters were concerned with EPA making any changes in 
MYs 2021-2022 that could make it easier for manufacturers to meet the 
revised less stringent standards established in the SAFE rule for those 
years. EPA understands this concern, and also is concerned that 
additional off-cycle credits in those years may represent a windfall 
for manufacturers since there is no lead time for manufacturer to 
change their product line in MYs 2021-2022 and therefore manufacturers 
would likely only generate additional credits to the extent they had 
already deployed qualifying technologies. For these reasons, also, EPA 
is finalizing the start of both the revised definitions and increased 
cap prospectively only, rather than retroactively in MYs 2021-2022. The 
new definitions will go into effect in MY 2023 and EPA believes it's 
appropriate that the cap be increased only once the revised definitions 
go into effect to ensure the real-world reductions for these 
technologies.
    EPA disagrees with comments that EPA should continue to allow the 
use of the unrevised definitions and menu credits for several model 
years into the future. When EPA established the menu, EPA intended it 
to be a streamlined process not requiring manufacturers to produce data 
on which to base credits. There are not data requirements associated 
with menu credits. Also, EPA notes that claiming menu credits from the 
off-cycle menu does not require EPA pre-approval. EPA made clear its 
intended approach in the 2012 rule preamble establishing the menu where 
EPA stated that ``both technologies and credit values based on the list 
are established by rule. That is, there is no approval process 
associated with obtaining the credit.'' \93\ As discussed in the 
proposed rule, the original regulatory definitions for a few 
technologies have allowed manufacturers to use technological approaches 
that were not consistent with those envisioned in the 2012 rule that 
established them. These approaches are unlikely to produce emissions 
reductions matching the menu credits. For example, when establishing 
the passive cabin ventilation credit, EPA envisioned air flow 
consistent with windows and/or sunroof being open for a period of time 
to allow hot air to escape the cabin through convective air flow. Under 
the original definitions, manufacturers are generating a sizeable

[[Page 74469]]

credit for simply opening the interior vents when the vehicle is keyed 
off. EPA recognized that this approach would not produce benefits 
consistent with the credits but was not able to disallow the credit.
---------------------------------------------------------------------------

    \93\ 77 FR 62833.
---------------------------------------------------------------------------

    Although EPA may have detailed discussions with manufacturers 
regarding their claims, in the end, under 40 CFR 86.1869-12(b) EPA's 
only recourse in situations where the technology may not provide the 
emissions reductions envisioned is to scrutinize the technologies to 
determine if the approach does in fact meet the definition. EPA may 
also request data, engineering analyses, or other information to 
support a manufacturer's claim that a technology meets the regulatory 
definition. In cases where EPA finds that it does not meet the 
definition, it may disallow the claimed credit. However, if EPA finds 
that the approach does meet the definition, EPA may not disallow the 
credit even if the technology is not likely to provide a benefit in 
line with the menu credit level. In those situations, EPA must revise 
the definitions section of the regulations in order to strengthen the 
program, a step EPA is now taking in this final rule. To help preserve 
the integrity of the off-cycle program, EPA believes that updating the 
program by revising the definitions as needed to correct known 
deficiencies discovered during implementation is essential to 
maintaining program integrity and emissions benefits. Also, EPA's 
requests for information regarding the technologies and follow-up with 
manufacturers has been flagged by manufacturers as causing delays in 
the manufacturer ability to claim credits and that further streamlining 
is needed, so revising the definitions will help with program 
implementation.
    EPA notes that the off-cycle program is optional, and there is no 
requirement for any manufacturer to produce any menu technology. If a 
manufacturer does use the off-cycle menu for any given technology, it 
is important for EPA and the public to have confidence that technology 
used by manufacturers achieves the emission reductions reflected by the 
credit value. Thus, we are not persuaded that the issue of lead time is 
relevant in the context of optional off-cycle credit technologies or 
outweighs the need to maintain off-cycle program integrity by revising 
it when necessary to ensure that the program delivers intended 
emissions reductions. These are optional, additional, potential avenues 
to manufacturers to achieve the standards, but only to the extent that 
the technologies indeed provide the expected real-world emission 
benefits. EPA has had discussions with manufacturers regarding each of 
the technologies where EPA is now revising the definitions, during 
which EPA raised questions and concerns regarding certain technological 
approaches being taken by manufacturers, so these issues have been 
generally known amongst manufacturers claiming credits. Also, the 
manufacturers that use technological approaches consistent with the 
known intent of the regulations, will continue to generate credits 
without interruption due to the definition changes.
    Regarding manufacturer comments that EPA allow some lesser credit 
for technologies that meet the unrevised definitions but not the 
updated definitions (definitions are discussed below), EPA does not 
have sufficient data on which to base an appropriate credit value. 
Manufacturers may use the other program pathways to demonstrate a 
credit value for such approaches by presenting data to support an 
appropriate credit level.
    EPA is only finalizing the 15 g/mile menu credit cap through MY 
2026. EPA received several critical comments regarding the off-cycle 
program, its value moving forward, and its implementation which has 
been challenging both for manufacturers and the agency. EPA intends to 
thoroughly review all aspects of the off-cycle program for the future 
rulemaking covering MYs 2027 and later.
    EPA received numerous additional comments regarding the structure 
and implementation of the off-cycle credits program that were not 
specific to the proposed off-cycle program revisions. See the RTC for a 
full summary and response to off-cycle credits program comments.
iii. EPA Proposed and Final Modifications to Menu Technology 
Definitions
    Some stakeholders have previously raised concerns about whether the 
off-cycle credit program produces the real-world emissions reductions 
as intended, or results in a loss of emissions benefits.\94\ EPA 
believes these are important considerations, as noted above, and 
believes it is important to address to the extent possible the issues 
that the agency has experienced in implementing the menu credits, 
alongside raising the menu cap. EPA believes that raising the menu cap 
is appropriate so long as the agency can improve the program and 
reasonably expect the use of menu technologies to provide real-world 
emissions reductions, consistent with the intent of the program. 
Providing additional opportunities for menu credits may allow for more 
emissions reductions sooner and at a lower cost than would otherwise be 
possible under a program without off-cycle credits. With that in mind, 
EPA is finalizing modifications to the menu definitions discussed below 
to coincide with increasing the menu cap in MY 2023.
---------------------------------------------------------------------------

    \94\ 85 FR 25237.
---------------------------------------------------------------------------

    The existing menu technologies and associated credits are provided 
below in Table 16 and Table 17 for reference.\95\
---------------------------------------------------------------------------

    \95\ See 40 CFR 86.1869-12(b). See also ``Joint Technical 
Support Document: Final Rulemaking for 2017-2025 Light-duty Vehicle 
Greenhouse Gas Emission Standards and Corporate Average Fuel Economy 
Standards for the Final Rule,'' EPA-420-R-12-901, August 2012, for 
further information on the definitions and derivation of the credit 
values.

Table 16--Existing Off-Cycle Technologies and Credits for Cars and Light
                                 Trucks
------------------------------------------------------------------------
                                                            Credit for
               Technology                   Credit for     light trucks
                                           cars (g/mile)     (g/mile)
------------------------------------------------------------------------
High Efficiency Alternator (at 73%;                  1.0             1.0
 scalable)..............................
High Efficiency Exterior Lighting (at                1.0             1.0
 100W)..................................
Waste Heat Recovery (at 100W; scalable).             0.7             0.7
Solar Roof Panels (for 75W, battery                  3.3             3.3
 charging only).........................
Solar Roof Panels (for 75W, active cabin             2.5             2.5
 ventilation plus battery charging).....
Active Aerodynamic Improvements                      0.6             1.0
 (scalable).............................
Engine Idle Start-Stop with heater                   2.5             4.4
 circulation system.....................
Engine Idle Start-Stop without heater                1.5             2.9
 circulation system.....................
Active Transmission Warm-Up.............             1.5             3.2

[[Page 74470]]

 
Active Engine Warm-Up...................             1.5             3.2
Solar/Thermal Control...................       Up to 3.0       Up to 4.3
------------------------------------------------------------------------

 Table 17--Off-Cycle Technologies and Credits for Solar/Thermal Control
                 Technologies for Cars and Light Trucks
------------------------------------------------------------------------
                                          Car credit (g/   Truck credit
       Thermal control technology              mile)         (g/mile)
------------------------------------------------------------------------
Glass or Glazing........................       Up to 2.9       Up to 3.9
Active Seat Ventilation.................             1.0             1.3
Solar Reflective Paint..................             0.4             0.5
Passive Cabin Ventilation...............             1.7             2.3
Active Cabin Ventilation................             2.1             2.8
------------------------------------------------------------------------

a. Passive Cabin Ventilation
    Some manufacturers have claimed the passive cabin ventilation 
credits based on the addition of software logic to their HVAC system 
that sets the interior climate control outside air/recirculation vent 
to the open position when the power to vehicle is turned off at higher 
ambient temperatures. The manufacturers have claimed that the opening 
of the vent allows for the flow of ambient temperature air into the 
cabin. While opening the vent may ensure that the interior of the 
vehicle is open for flow into the cabin, no other action is taken to 
improve the flow of heated air out of the vehicle. This technology 
relies on the pressure in the cabin to reach a sufficient level for the 
heated air in the interior to flow out through body leaks or the body 
exhausters to open and vent heated air out of the cabin.
    The credits for passive cabin ventilation were determined based on 
an NREL study that strategically opened a sunroof to allow for the 
unrestricted flow of heated air to exit the interior of the vehicle 
while combined with additional floor openings to provide a minimally 
restricted entry for cooler ambient air to enter the cabin. The 
modifications that NREL performed on the vehicle reduced the flow 
restrictions for both heated cabin air to exit the vehicle and cooler 
ambient air to enter the vehicle, creating a convective airflow path 
through the vehicle cabin.
    Analytical studies performed by manufacturers to evaluate the 
performance of the open dash vent demonstrate that while the dash vent 
may allow for additional airflow of ambient temperature air entering 
the cabin, it does not reduce the existing restrictions on heated cabin 
air exiting the vehicle, particularly in the target areas of the 
occupant's upper torso. That hotter air generally must escape through 
restrictive (by design to prevent water and exhaust fumes from entering 
the cabin) body leaks and occasional venting of the heated cabin air 
through the body exhausters. While this may provide some minimal 
reduction in cabin temperatures, this open dash vent technology is not 
as effective as the combination of vents used by the NREL researchers 
to allow additional ambient temperature air to enter the cabin and also 
to reduce the restriction of heated air exiting the cabin.
    As noted in the Joint Technical Support Document: Final Rulemaking 
for 2017-2025 Light-Duty Vehicle Greenhouse Gas Emission Standards and 
Corporate Average Fuel Economy Standards, pg. 584, ``For passive 
ventilation technologies, such as opening of windows and/or sunroofs 
and use of floor vents to supply fresh air to the cabin (which enhances 
convective airflow), (1.7 g/mile for light-duty vehicles and 2.3 g/mile 
for light-duty trucks) a cabin air temperature reduction of 5.7 [deg]C 
can be realized.'' The passive cabin ventilation credit values were 
based on achieving the 5.7 [deg]C cabin temperature reduction.
    The Agency is finalizing revisions to the passive cabin ventilation 
definition with clarifying edits to make it consistent with the 
technology used to generate the credit value. The Agency continues to 
allow for innovation as the definition includes demonstrating 
equivalence to the methods described in the Joint TSD. As proposed, EPA 
is revising the definition of passive cabin ventilation to include only 
methods that create and maintain convective airflow through the body's 
cabin by opening windows or a sunroof, or equivalent means of creating 
and maintaining convective airflow, when the vehicle is parked outside 
in direct sunlight. Current systems claiming the passive ventilation 
credit by opening the dash vent would not meet the updated definition. 
Manufacturers seeking to claim credits for the open dash vent system 
will be eligible to petition the Agency for credits for this technology 
using the alternative EPA approved method outlined in 40 CFR86.1869-
12(d). EPA's response to comments and discussion of the clarifying 
edits are provided in section 8 of the RTC.
b. Active Engine and Transmission Warm-Up
    In the NPRM for the 2012 rule (76 FR 74854) EPA proposed capturing 
waste heat from the exhaust and using that heat to actively warm-up 
targeted parts of the engine and the transmission fluid. The exhaust 
waste heat from an internal combustion engine is heat that is not being 
used as it is exhausted to the atmosphere.
    In the 2012 Final Rule (77 FR 62624), the Agency revised the 
definitions for active engine and transmission warm-up by replacing 
exhaust waste heat with the waste heat from the vehicle. As noted in 
the Joint TSD, pages 5-98 and 5-99, the Alliance of Automobile 
Manufacturers and Volkswagen recommended the definition be broadened to 
account for other methods of warm-up besides exhaust heat such as a 
secondary coolant loop.
    EPA concluded that other methods, in addition to waste heat from 
the exhaust, that could provide similar performance--such as coolant 
loops or direct heating elements--may prove to be a more effective 
alternative to direct exhaust heat. Therefore, the Agency expanded the 
definition in the 2012 Final Rule.

[[Page 74471]]

    In the 2012 Final Rule the Agency also required two unique heat 
exchanger loops--one for the engine and one for the transmission--for a 
manufacturer to claim both the Active Engine Warm-up and Active 
Transmission Warm-up credits. EPA stated in the Joint TSD that 
manufacturers utilizing a single heat exchanging loop would need to 
demonstrate that the performance of the single loop would be equivalent 
to two dedicated loops in order for the manufacturer to claim both 
credits, and that this test program would need to be performed using 
the alternative method off-cycle GHG credit application described in 40 
CFR 86.1869-12(d).
    All Agency analysis regarding active engine and transmission warm-
up through the 2012 Final Rule (77 FR 62624) was performed assuming the 
waste heat utilized for these technologies would be obtained directly 
from the exhaust prior to being released into the atmosphere and not 
from any engine-coolant-related loops. At this time, many of the 
systems in use are engine-coolant-loop-based and are taking heat from 
the coolant to warm-up the engine oil and transmission fluid.
    EPA provided additional clarification on the use of waste heat from 
the engine coolant in preamble to SAFE rule (85 FR 24174). EPA focused 
on systems using heat from the exhaust as a primary source of waste 
heat because that heat would be available quickly and also would be 
exhausted by the vehicle and otherwise unused (85 FR 25240). Heat from 
the engine coolant already may be used by design to warm up the 
internal engine oil and components. That heat is traditionally not 
considered ``waste heat'' until the engine reaches normal operating 
temperature and subsequently requires it to be cooled in the radiator 
or other heat exchanger.
    EPA allowed for the possible use of other sources of heat such as 
engine coolant circuits, as the basis for the credits as long as those 
methods would ``provide similar performance'' as extracting the heat 
directly from the exhaust system and would not compromise how the 
engine systems would heat up normally absent the added heat source. 
However, the SAFE rule also allowed EPA to require manufacturers to 
demonstrate that the system is based on ``waste heat'' or heat that is 
not being preferentially used by the engine or other systems to warm up 
other areas like engine oil or the interior cabin. Systems using waste 
heat from the coolant do not qualify for credits if their operation 
depends on, and is delayed by, engine oil temperature or interior cabin 
temperature. As the engine and transmission components are warming up, 
the engine coolant and transmission oil typically do not have any 
``waste'' heat available for warming up anything else on the vehicle 
since they are both absorbing any heat from combustion cylinder walls 
or from friction between moving parts in order to achieve normal 
operating temperatures. During engine and transmission warm-up, the 
only waste heat source in a vehicle with an internal combustion engine 
is the engine exhaust, as the transmission and coolant have not reached 
warmed-up operating temperature and therefore do not have any heat to 
share (85 FR 25240).
    As proposed, EPA is finalizing revisions to the menu definitions of 
active engine and transmission warm-up to no longer allow systems that 
capture heat from the coolant circulating in the engine block to 
qualify for the Active Engine and Active Transmission warm-up menu 
credits. EPA would allow credit for coolant systems that capture heat 
from a liquid-cooled exhaust manifold if the system is segregated from 
the coolant loop in the engine block until the engine has reached fully 
warmed-up operation. The Agency would also allow system design that 
captures and routes waste heat from the exhaust to the engine or 
transmission, as this was the basis for these two credits as originally 
proposed in the proposal for the 2012 rule. The approach EPA is 
finalizing will help ensure that the level of menu credit is consistent 
with the technology design envisioned by EPA when it established the 
credit in the 2012 rule.
    Manufacturers seeking to utilize their existing systems that 
capture coolant heat before the engine is fully warmed-up and transfer 
this heat to the engine oil and transmission fluid would remain 
eligible to seek credits through the alternative method application 
process outlined in 40 CFR 86.1869-12(d). EPA expects that these 
technologies may provide some benefit, though not the level of credits 
included in the menu. But, as noted above, since these system designs 
remove heat that is needed to warm-up the engine the Agency expects 
that these technologies will be less effective than those that capture 
and utilize exhaust waste heat.
    Ford suggested clarifying edits to the proposed revised definitions 
for active engine and transmission definitions. In response, EPA has 
accepted some of their edits where the meaning of the definition is 
clarified but not altered, and has made some additional clarifying 
edits as well after reviewing Ford's comments. A full discussion of 
these comments and the definition revisions finalized by EPA is 
provided in section 8 of the RTC.
iv. Clarification Regarding Use of Menu Credits
    While EPA received extensive comments on implementing the revised 
definitions, EPA did not receive many comments on the proposed revised 
definitions themselves. Comments on the revised definitions are 
summarized and discussed in the RTC.
    Finally, as proposed, EPA is finalizing clarifications that 
manufacturers claiming credits for a menu technology must use the menu 
pathway rather than claim credits through the public process or 5-cycle 
testing pathways. EPA views this as addressing a potential loophole 
around the menu cap. As is currently the case, a new technology that 
represents an advancement compared to the technology represented by the 
menu credit--that is, by providing significantly more emissions 
reductions than the menu credit technology--would be eligible for the 
other two pathways. Comments received on this provision are summarized 
and discussed in the RTC.
4. Air Conditioning System Credits
    There are two mechanisms by which A/C systems contribute to the 
emissions of GHGs: through leakage of hydrofluorocarbon refrigerants 
into the atmosphere (sometimes called ``direct emissions'') and through 
the consumption of fuel to provide mechanical power to the A/C system 
(sometimes called ``indirect emissions'').\96\ The high global warming 
potential of the previously most common automotive refrigerant, HFC-
134a, means that leakage of a small amount of refrigerant will have a 
far greater impact on global warming than emissions of a similar amount 
of CO2. The impacts of refrigerant leakage can be reduced 
significantly by systems that incorporate leak-tight components, or, 
ultimately, by using a refrigerant with a lower global warming 
potential. The A/C system also contributes to increased tailpipe 
CO2 emissions through the additional work required to 
operate the compressor, fans, and blowers. This additional power demand 
is ultimately met by using additional fuel, which is converted into 
CO2 by the engine during combustion and exhausted through 
the tailpipe. These emissions can be reduced by increasing the overall 
efficiency of an A/C system, thus reducing the additional load on the 
engine from A/C operation, which in turn means a reduction in fuel

[[Page 74472]]

consumption and a commensurate reduction in GHG emissions.
---------------------------------------------------------------------------

    \96\ 40 CFR 1867-12 and 40 CFR 86.1868-12.
---------------------------------------------------------------------------

    Manufacturers have been able to generate credits for improved A/C 
systems to help them comply with the CO2 fleet average 
standards since the 2012 and later MYs. Because A/C credits represent a 
low-cost and effective technology pathway, EPA expected manufacturers 
to generate both A/C refrigerant and efficiency credits, and EPA 
accounted for those credits in developing the final CO2 
standards for the 2012 and SAFE rules, by adjusting the standards to 
make them more stringent. EPA believes it is important to encourage 
manufacturers to continue to implement low GWP refrigerants or low leak 
systems. Thus, EPA did not propose and is not finalizing any changes 
for its A/C credit provisions and is taking the same approach in 
adjusting the level of the standards to reflect the use of the A/C 
credits.
    Comments received regarding A/C credits are summarized in the RTC.
5. Natural Gas Vehicles Technical Correction
    EPA is finalizing as proposed a narrow technical amendment to its 
regulations to correct a clerical error related to natural gas 
vehicles. In the SAFE rule, EPA established incentive multipliers for 
MYs 2022-2026 natural gas vehicles.\97\ EPA also received comments 
during the SAFE rulemaking recommending that EPA adopt an additional 
incentive for natural gas vehicles in the form of a 0.15 multiplicative 
factor that would be applied to the CO2 emissions measured 
from the vehicle when tested on natural gas. Commenters recommended the 
0.15 factor as an appropriate way to account for the potential use of 
renewable natural gas (RNG) in the vehicles.\98\
---------------------------------------------------------------------------

    \97\ 85 FR 25211, April 30, 2020.
    \98\ 85 FR 25210-25211.
---------------------------------------------------------------------------

    EPA decided not to adopt the additional 0.15 factor incentive, as 
discussed in the preamble to the SAFE Rule.\99\ EPA provided a detailed 
rationale for its decision not to implement a 0.15 factor recommended 
by commenters in the SAFE Rule.\100\ EPA is not revisiting or reopening 
its decision regarding the 0.15 factor. However, the regulatory text 
adopted in the SAFE rule contains an inadvertent clerical error that 
conflicts with EPA's decision and rationale in the final SAFE rule 
preamble and provides an option for manufacturers to use this 
additional incentive in MYs 2022-2026 by multiplying the measured 
CO2 emissions measured during natural gas operation by the 
0.15 factor.\101\ EPA proposed and is finalizing narrow technical 
amendments to its regulations to correct this clerical error by 
removing the option to use the 0.15 factor in MY 2022 (as discussed in 
Section II.B.1.iii of this preamble EPA is eliminating multipliers for 
NGVs after MY 2022). This will ensure the regulations are consistent 
with the decision and rationale in the SAFE final rule. EPA likely 
would not have granted credits under the erroneous regulatory text if 
such credits were sought by a manufacturer because the intent of the 
agency was clear in the preamble text. In addition, natural gas 
vehicles are not currently offered by any auto manufacturer and EPA is 
not aware of any plans to do so. Therefore, there are no significant 
impacts associated with the correction of this clerical error. The 
comments on this provision as well as EPA's analysis and response are 
provided in the RTC for the final rule.
---------------------------------------------------------------------------

    \99\ 85 FR 25211.
    \100\ Ibid.
    \101\ See 40 CFR 600.510-12(j)(2)(v) and (j)(2)(vii)(A).
---------------------------------------------------------------------------

C. What alternatives did EPA analyze?

    In addition to analyzing the standards we are finalizing, EPA 
analyzed two alternatives, one less stringent and one more stringent 
than the final standards. For the less stringent alternative, EPA 
assessed the proposed standards, i.e., the coefficients of the 
standards proposed in the NPRM, including the advanced technology 
multipliers consistent with those proposed. This alternative, referred 
to as the ``Proposal'' in Table 18 below, is less stringent than the 
final standards in MYs 2025 and 2026.
    For the more stringent alternative, EPA assessed Alternative 2 from 
our proposed rule with an additional 10 g/mile increased stringency in 
MY 2026 per our request for public comments on this option. This 
alternative is more stringent than the final standards, in particular 
for MYs 2023 and 2024. For this alternative, EPA used the coefficients 
from Alternative 2 in the proposed rule for MYs 2023 through 2025, with 
the standards increasing in stringency in MY 2026 by an additional 10 
g/mile compared to the Alternative 2. The Alternative 2 minus 10 
standards are the same as the final standards in MYs 2025 and 2026 and 
differ from the final standards in MYs 2023 and 2024.
    We provide the fleet average target levels for the two alternatives 
compared to the final standards in Table 18 below.

              Table 18--Projected Fleet Average Target Levels for Final Standards and Alternatives
                                                 [CO2 g/mile] *
----------------------------------------------------------------------------------------------------------------
                                                                       Final                       Alternative 2
                                                                     standards       Proposal        minus 10
                           Model year                                projected       projected       projected
                                                                      targets         targets         targets
----------------------------------------------------------------------------------------------------------------
2021 **.........................................................             229             229             229
2022 **.........................................................             224             224             224
2023............................................................             202             202             198
2024............................................................             192             192             189
2025............................................................             179             182             180
2026............................................................             161             173             161
----------------------------------------------------------------------------------------------------------------
* Targets shown are modeled results and, therefore, reflect fleet projections impacted by the underlying
  standards. For that reason, slight differences in targets may occur despite equality of standards in a given
  year.
** SAFE rule targets shown for reference.

BILLING CODE 6560-50-P

[[Page 74473]]

[GRAPHIC] [TIFF OMITTED] TR30DE21.004

BILLING CODE 6560-50-C
    As shown in Figure 5, the range of alternatives that EPA analyzed 
is fairly narrow, with the final standard target levels differing from 
the alternatives in MYs 2023-2025 by 3 to 4 g/mile, and in MY 2026 by 
12 g/mile. EPA believes the analysis of these alternatives is 
reasonable and appropriate considering the shorter lead time for the 
revised standards, our assessment of feasibility, the existing 
automaker commitments to meet the California Framework (representing 
nearly 30 percent of the nationwide auto market), the standards adopted 
in the 2012 rule, public comments on the proposed rule, and the need to 
reduce GHG emissions. See Chapters 4, 6, and 10 of the RIA for the 
analysis of costs and benefits of the alternatives.

III. Technical Assessment of the Final CO2 Standards

    In Section II of this preamble, we describe EPA's final standards 
and related program elements and present industry-wide estimates of 
projected GHG emissions targets. Section III of this preamble provides 
an overview of EPA's technical assessment of the final standards 
including the analytical approach, projected target levels by 
manufacturer, projected per vehicle cost for each manufacturer, 
projections of EV and PHEV technology penetration rates, and a 
discussion of why the final standards are technologically feasible, 
drawing from these analyses. Finally, this section discusses the 
alternative standards EPA analyzed in selecting the final standards. 
The RIA presents further details of the analysis including a full 
assessment of feasibility, technology penetration rates and cost 
projections. In Section VI of this preamble, EPA discusses the basis 
for our final standards under CAA section 202(a) and in Section VII of 
this preamble presents aggregate cost and benefit projections as well 
as other program impacts.

A. What approach did EPA use in analyzing the standards?

    The final standards are based on the extensive light-duty GHG 
technical analytical record developed over the past dozen years, as 
represented by EPA's supporting analyses for the 2010 and 2012 final 
rules, the Mid-Term Evaluation (including the Draft TAR, Proposed 
Determination and Final Determinations), as well as the updated 
analysis for this final rule, informed by public comments and the best 
available data. The updated analysis for the proposal and this final 
rule is not intended to be the sole technical basis of the final 
standards. EPA's extensive record is consistent and supports EPA's 
conclusion that year-over-year stringency increases in the time frame 
of this final rule are feasible at reasonable costs and can result in 
significant GHG emission reductions and public health and welfare 
benefits. The updated analysis shows that, consistent with past 
analyses, when modeling standards of similar stringency to those set 
forth

[[Page 74474]]

in the 2012 rule, the results are similar to the results presented 
previously. Chapter 1 of the RIA further discusses and synthesizes 
EPA's record supporting stringent GHG standards through the MY 2025-
2026 time frame.
    To confirm that these past analyses continue to provide valid 
results for consideration by the Administrator in selecting the most 
appropriate level of stringency and other aspects of the final 
standards, we have conducted an updated analysis since the proposed 
rule issued in August 2021. Prior to the analysis used for the SAFE 
FRM, EPA has used its OMEGA (Optimization Model for reducing Emissions 
of Greenhouse gases from Automobiles) model as the basis for setting 
light-duty GHG emissions standards. EPA's OMEGA model was not used in 
the technical analysis of the GHG standards established in the SAFE 
FRM; instead, NHTSA's Corporate Average Fuel Economy (CAFE) Compliance 
and Effects Modeling System (CCEMS) model was used.
    For this final rule, consistent with the proposed rule, EPA has 
chosen to use the peer reviewed CCEMS model, and to use the same 
version of that model that was used in support of the SAFE FRM (though, 
as discussed below, EPA has updated several inputs to the model since 
the proposed rule based on public comments and newer available data). 
As explained in the proposed rule, given that the SAFE FRM was 
published a little over a year ago, direct comparisons between the 
analysis presented in this rulemaking and the analysis presented in 
support of the SAFE FRM are more direct if the same modeling tool is 
used. For example, CCEMS has categorizations of technologies and model 
output formats that are distinct to the model, so continuing use of 
CCEMS for this rule has facilitated comparisons to the SAFE FRM. Also, 
by using the same modeling tool as used in the SAFE rule, we can more 
clearly illustrate the influence of some of the key updates to the 
inputs used in the SAFE FRM. EPA considers the SAFE FRM version of the 
CCEMS model to be an effective modeling tool for purposes of assessing 
standards through the MY 2026 timeframe, along with changes to some of 
the key inputs as discussed below (see Table 20).
    For use in future vehicle standards analyses, EPA is developing an 
updated version of its OMEGA model. This updated model, OMEGA2, is 
being developed to better account for the significant evolution over 
the past decade in vehicle markets, technologies, and mobility 
services. In particular, the recent advancements in battery electric 
vehicles (BEVs), and their introduction into the full range of market 
segments provides strong evidence that vehicle electrification can play 
a central role in achieving greater levels of emissions reductions in 
the future. In developing OMEGA2, EPA is exploring the interaction 
between consumer and producer decisions when modeling compliance 
pathways and the associated technology penetration into the vehicle 
fleet. OMEGA2 also is being designed to have expanded capability to 
model a wider range of GHG program options than are possible using 
existing tools, which will be especially important for the assessment 
of policies that are designed to address future GHG reduction goals. 
While the OMEGA2 model is not available for use in this rule, peer 
review of the draft model is underway.
    Our updated analysis is based on the same version of the CCEMS 
model that was used for the proposed rule and for the SAFE FRM. The 
CCEMS model was extensively documented by NHTSA for the SAFE FRM and 
the documentation also applies to the updated analysis for this final 
rule.\102\ While the CCEMS model itself remains unchanged from the 
version used in the final SAFE rule, EPA made the following changes 
(shown in Table 19) to the inputs for the analysis supporting the 
proposed rule. Further updates to the inputs based on our assessment of 
the public comments and newer data are summarized in Table 20.
---------------------------------------------------------------------------

    \102\ See CCEMS Model Documentation on web page https://www.nhtsa.gov/corporate-average-fuel-economy/compliance-and-effects-modeling-system.

   Table 19--Changes Made to CCEMS Model Inputs for the Proposed Rule,
                    Relative to the SAFE FRM Analysis
------------------------------------------------------------------------
            Input file                             Changes
------------------------------------------------------------------------
Parameters file...................  Global social cost of carbon $/ton
                                     values in place of domestic values
                                     (see RIA Chapter 3.3). Inclusion of
                                     global social cost of methane (CH4)
                                     and nitrous oxide (N2O) $/ton
                                     values (see Section IV of this
                                     preamble).
                                    Updated PM2.5 cost factors (benefit
                                     per ton values, see Section VII.E
                                     of this preamble). Rebound effect
                                     of -0.10 rather than -0.20 (see RIA
                                     Chapter 3.1). AEO2021 fuel prices
                                     (expressed in 2018 dollars) rather
                                     than AEO2019. Updated energy
                                     security cost per gallon factors
                                     (see Section VII.F of this
                                     preamble). Congestion cost factors
                                     of 6.34/6.34/5.66 (car/van-SUV/
                                     truck) cents/mile rather than 15.4/
                                     15/4/13.75 (see RIA Chapter 5).
                                    Discounting values to calendar year
                                     2021 rather than calendar year
                                     2019. The following fuel import and
                                     refining inputs have been changed
                                     based on AEO2021 (see RIA Chapter
                                     3.2):
                                    Share of fuel savings leading to
                                     lower fuel imports:
                                    Gasoline 7%; E85 19%; Diesel 7%
                                     rather than 50%; 7.5%; 50%
                                    Share of fuel savings leading to
                                     reduced domestic fuel refining:
                                    Gasoline 93%; E85 25.1%; Diesel 93%
                                     rather than 50%; 7.5%; 50%
                                    Share of reduced domestic refining
                                     from domestic crude:
                                    Gasoline 9%; E85 2.4%; Diesel 9%
                                     rather than 10%; 1.5%; 10%
                                    Share of reduced domestic refining
                                     from imported crude:
                                    Gasoline 91%; E85 24.6%; Diesel 91%
                                     rather than 90%; 13.5%; 90%
Technology file...................  High compression ratio level 2
                                     (HCR2) technology allowance set to
                                     TRUE for all engines beginning in
                                     2018 (see RIA Chapter 2).
Market file.......................  On the Engines sheet, we allow high
                                     compression ratio level 1 (HCR1)
                                     and HCR2 technology on all 6-
                                     cyclinder and smaller engines
                                     rather than allowing it on no
                                     engines (see RIA Chapter 2). Change
                                     the off-cycle credit values on the
                                     Credits and Adjustments sheet to 15
                                     g/mile for 2020 through 2026 (for
                                     the CA Framework) or to 15 g/mile
                                     for 2023 through 2026 (for the
                                     proposed option) depending on the
                                     model run.
------------------------------------------------------------------------

[[Page 74475]]

    EPA invited public comment on the input changes noted in Table 19, 
as well as any other input choices that EPA should consider making for 
the final rule. EPA encouraged stakeholders to provide technical 
support for any suggestions on changes to modeling inputs.
    We received comments on our analysis. Specifically, the Alliance 
suggested that we use the updated version of CCEMS used in the recent 
NHTSA NPRM. The Alliance also suggested that we update our analysis 
fleet, model HCR2 technology with a more appropriate level of 
effectiveness relative to the HCR0 and HCR1 technologies, and limit the 
penetration of BEV200 technology. The Alliance took exception to the 
share of BEV200 versus BEV300 technology arguing that BEV300 is more in 
line with where industry is headed due to consumer desire for greater 
range.
    Regarding the first of these comments, that we use an updated 
version of CCEMS, we have chosen not to do so since it is possible that 
between the recent CAFE proposal and upcoming CAFE final rule NHTSA may 
make changes to that version of the model either of their own accord or 
in response to public comment. Therefore, we believe it is premature to 
use the NHTSA CAFE NPRM version of the CCEMS model for EPA's final 
rulemaking. Regarding each of the other Alliance comments on the use of 
the CCEMS model: As discussed further below, we removed HCR2 technology 
as a compliance option; we strictly limited BEV200 technology such that 
it represents a very small portion of the projected BEV technology 
penetration; and we have updated our analysis fleet to reflect the MY 
2020 fleet.
    As a result, the analysis supporting this final rule includes 
several changes to the inputs as shown in Table 20.

    Table 20--Changes Made to CCEMS Model Inputs for the Final Rule,
                    Relative to the Proposed Analysis
------------------------------------------------------------------------
            Input file                            Changes *
------------------------------------------------------------------------
Parameters file...................  Updated Gross Domestic Product,
                                     Number of Households, VMT growth
                                     rates and Historic Fleet data
                                     consistent with updated projections
                                     from EIA (AEO 2021).
                                    Updated energy security cost per
                                     gallon factors (see Section VII.F
                                     of this preamble). Distinct benefit
                                     per ton values for refinery and
                                     electricity generating unit
                                     benefits instead of treating all
                                     upstream emissions as refinery
                                     emission (see Section V of this
                                     preamble). Updated tailpipe and
                                     upstream emission factors from
                                     MOVES3 and GREET2020 and consistent
                                     with NHTSA's 20201 CAFE NPRM (86 FR
                                     49602, September 3, 2021).
Technology file...................  High compression ratio level 2
                                     (HCR2, sometimes referred to as
                                     Atkinson cycle) technology
                                     allowance set to FALSE thereby
                                     making this technology unavailable.
                                     BEV200 phase-in start year set to
                                     the same year as the new market
                                     file fleet (see below) which, given
                                     the low year-over-year phase-in cap
                                     allows for low penetration of
                                     BEV200 technology in favor of
                                     BEV300 technology.
                                    Battery cost was reduced by about 25
                                     percent (see preamble Section III.A
                                     of this preamble and RIA 2.3.4);
                                     battery cost learning is also held
                                     constant (i.e., no further
                                     learning) beyond the 2029 model
                                     year.
Market file.......................  The market file has been completely
                                     updated to reflect the MY 2020
                                     fleet rather than the MY 2017 fleet
                                     used in EPA's proposed rule (and
                                     the SAFE FRM) using the market file
                                     developed by NHTSA in support of
                                     their recent CAFE NPRM.\103\
                                     Because the market files are
                                     slightly different between the
                                     version of CCEMS we are using and
                                     the version used by NHTSA, the
                                     files are not identical. However,
                                     the data are the same with the
                                     following exceptions:
                                    --We conducted all model runs using
                                     EPA Multiplier Mode 2 rather than
                                     Mode 1 as used in our proposed rule
                                     (and the SAFE FRM).
                                    --We have used projected off-cycle
                                     credits as developed by NHTSA in
                                     support of their recent CAFE NRPM
                                     rather than modeling all
                                     manufacturers as making use of the
                                     maximum allowable off-cycle credits
                                     (see RIA Chapter 4.1.1.1).
                                    --We have updated the credit banks
                                     to incorporate more up-to-date
                                     information from manufacturer
                                     certification and compliance data.
Scenarios file....................  The off-cycle credit cap has been
                                     set to 10 g/mile even in scenarios
                                     and years for which 15 g/mile are
                                     available. In addition, the off-
                                     cycle credit cost is set to $0 and
                                     then post-processed back into the
                                     costs calculated within CCEMS
                                     itself. See RIA Chapter 4.1.1.1 for
                                     more detail.
Runtime settings..................  At runtime (in the CCEMS graphical
                                     user interface), the ``Price
                                     Elasticity Multiplier'' is now set
                                     to -0.40 rather than the value of -
                                     1.0 used in the proposed rule
                                     analysis.
*.................................  We are using a MY 2020 baseline
                                     fleet rather than a MY 2017
                                     baseline fleet. However, since some
                                     date-based data used by the model
                                     is hardcoded in the model code, and
                                     because we did not want to change
                                     the model code for analytical
                                     consistency with the proposed rule,
                                     we adjusted any date-related input
                                     data accordingly. Therefore, the
                                     input files we are using have
                                     headings and date-related
                                     identifiers reflecting a MY 2017-
                                     based analysis but the data in the
                                     files have been adjusted by 3 years
                                     to reflect that anything noted as
                                     2017 is actually 2020. For example,
                                     in the Scenarios input file which
                                     specifies the standards in a year-
                                     by-year format, the standards for
                                     MY 2023 through MY 2026 are
                                     actually entered in the columns
                                     noted as 2020 through 2023 due to
                                     this need to ``shift years''.
                                     Importantly, in post-processing of
                                     model results, the ``year-shift''
                                     is corrected back to reflect the
                                     actual years.
------------------------------------------------------------------------

    As noted in Table 20, we have updated the baseline fleet to reflect 
the MY 2020 fleet rather than the MY 2017 fleet used in the proposed 
rule. As a result, there is slightly more technology contained in the 
MY 2020 baseline fleet and the fleet mix has changed to reflect a more 
truck-heavy fleet (56 percent truck vs. 44 percent cars, while the 
proposed rule fleet had a 50/50 split). There are also roughly 3.5 
million fewer sales in the MY 2020 base fleet than were in the MY 2017 
based fleet. As in the proposed rule, the future fleet is based on the 
CCEMS model's sales, scrappage, and fleet mix responses to the 
standards being analyzed, whether from the No Action scenario or one of 
the Action scenarios. The MY 2020 baseline fleet was developed by NHTSA 
for their recent CAFE NPRM.\104\ As in our proposed rule, we split the 
market file into separate California Framework

[[Page 74476]]

OEM (FW-OEM) and non-Framework OEM (NonFW-OEM) fleets for model runs. 
Note that the scrappage model received many negative comments in 
response to the SAFE NPRM, but changes made for the FRM version of the 
CCEMS model were responsive to the identified issues involving sales 
and VMT results of the SAFE NPRM version of the CCEMS model.\105\ That 
said, the Institute for Policy Integrity at New York University (NYU 
IPI) expressed concerns on the EPA proposal about the sales and 
scrappage modeling and commented that, while EPA has already begun to 
revise the modeling, we should continue to make adjustments in the 
future. Michalek and Whitefoot in their comments on the EPA proposal 
provide some preliminary research suggesting that non-rebound total 
fleet VMT might increase due to policy-induced scrappage delay. They do 
not rule out an effect of zero and note that their results are 
preliminary and not yet peer-reviewed. EPA is maintaining the 
assumption of constant non-rebound total fleet VMT for this FRM and 
will continue to review these and other modeling approaches for future 
analyses.
---------------------------------------------------------------------------

    \103\ 86 FR 49602, September 3, 2021.
    \104\ 86 FR 49602.
    \105\ See 85 FR 24647.
---------------------------------------------------------------------------

    As mentioned, for some model runs we have split the fleet in two, 
one fleet consisting of California Framework OEMs and the other 
consisting of the non-Framework OEMs. This was done because the 
Framework OEMs would be meeting more stringent emission reduction 
targets (as set in the scenarios file) and would have access to more 
advanced technology incentive multipliers as contained in the 
California Framework Agreements, while the non-Framework OEMs would be 
meeting less stringent standards and would not have access to any 
advanced technology multipliers. For such model runs, a post-processing 
step was necessary to properly sales-weight the two sets of model 
outputs into a single fleet of results. This post-processing tool is in 
the docket for this rule.\106\
---------------------------------------------------------------------------

    \106\ See EPA_CCEMS_PostProcessingTool, Release 0.3.1 July 21, 
2021.
---------------------------------------------------------------------------

    In the proposed rule, we modeled all manufacturers as making use of 
the maximum number of off-cycle credits available under any given set 
of standards being analyzed. For example, under the California 
Framework and our proposed standards, manufacturers were projected to 
make use of 15 grams CO2 per mile of off-cycle credit and to 
incur a cost for each of those credits at a rate of over $70 per credit 
(this would be the cost of the technology added to achieve the 
credits). Since their off-cycle credit allowance was identical in both 
action and no action scenarios, this resulted in no marginal cost for 
off-cycle credits for the Framework OEMs. However, for the non-
Framework OEMs, modeled as making use of 10 grams per mile of credit 
under the SAFE FRM standards and 15 grams of credit under the proposed 
standards, the result was roughly $350 in marginal per vehicle costs 
(roughly $70 times 5 grams/mile of credits) even though more cost-
effective technology, compared to off-cycle credits, may be available 
to facilitate a manufacturer's efforts toward complying with the 
standards. Commenters expressed concerns with our proposed rule over 
this approach as resulting in unreasonably high costs for use of the 
optional off-cycle credits. In response to the comments, in this final 
rule we have made two important changes to our modeling. First, we have 
projected use of off-cycle credits consistent with projections 
developed by NHTSA for their recent CAFE NPRM except that we have not 
exceeded 10 g/mile in any case. In this way, we avoid having a case 
where more off-cycle credits are used in an action scenario relative to 
a no action scenario. Second, we have set the cost of the off-cycle 
credits to $0 in the scenarios input file and are post-processing their 
costs back into the costs per vehicle results. CCEMS does not provide 
for technology application choices to be made between off-cycle credits 
and other technologies; instead the off-cycle credits are applied 
within the model regardless of their cost-effectiveness. Therefore, 
setting the off-cycle credit cost to $0 in the scenarios input file has 
no effect on technology application decisions within the model. 
Further, it allows off-cycle credit costs to be applied in a post-
process rather than re-running the model. Last, we have updated the 
cost of each off-cycle credit to be less than the costs used in our 
proposed rule. As a result, each off-cycle credit is now roughly $30 
less costly on a gram per mile basis than in our NRPM. We outline our 
methodology for this revised cost in RIA Chapter 4.1.1.1.
    Importantly, our primary model runs consist of a ``No Action'' 
scenario and an ``Action'' scenario. The results, or impact of our 
final standards (or alternatives being analyzed), are measured relative 
to the no action scenario. Our No Action scenario consists of the 
Framework OEMs (roughly 28 percent of fleet sales) meeting the 
Framework emission reduction targets and the Non-Framework OEMs 
(roughly 72 percent of fleet sales) meeting the SAFE FRM standards. Our 
action scenario consists of the whole fleet meeting our final standards 
(or alternatives) for MYs 2023 and later. Throughout this preamble, our 
``No Action scenario'' refers to this Framework-OEM/NonFramework-OEM 
compliance split.
    In our analysis for the proposed rule, as indicated in Table 19, we 
used a VMT rebound effect of 10 percent. The 10 percent value had been 
used in EPA supporting analyses for the 2010 and 2012 final rules as 
well as for the 2017 MTE Final Determination. The SAFE rule used a VMT 
rebound effect of 20 percent. Our assessment for the proposed rule 
indicated that a rebound effect of 10 percent was appropriate and 
supported by the body of research on the rebound effect for light-duty 
vehicle driving. We requested comment on the use of the 10 percent VMT 
rebound value, or an alternative value such as 5 or 15 percent, for our 
analysis of the MY 2023 through 2026 standards.
    Several commenters (Center for Biological Diversity et al., CARB/
Gillingham, New York University-Institute for Policy Integrity) are 
supportive of the approach that EPA has utilized to determine the value 
of the VMT rebound effect for this rule. Several commenters (Center for 
Biological Diversity et al., CARB/Gillingham, Consumer Federation of 
America, Consumer Reports, New York University-Institute for Policy 
Integrity) widely support the use of a 10 percent rebound effect, with 
a few commenters suggesting that a lower rebound estimate than 10 
percent should be used. One commenter (Center for Biological Diversity 
et al.) suggests that while EPA's proposed rule reported a range of VMT 
rebound estimates from the Hymel and Small (2015) study of 4 to 18 
percent, that only the lower value of the range, 4 percent, should be 
used in developing an overall estimate of the VMT rebound effect for 
use in this rule. We agree with this comment and discuss this issue in 
more detail in both the RIA and the RTC. One commenter (Consumer 
Reports) requests that EPA consider doing more research prior to future 
rulemakings on the potential applicability of rebound effects based on 
studies for conventional vehicles being applied to battery electric 
vehicles (BEVs). We address this comment in the RTC. After considering 
the comments received, EPA is continuing to use a 10 percent rebound 
effect for the analysis of the final rule. Our discussion of the basis 
for the 10 percent rebound value is in the RIA Chapter 3.1, and our 
assessment of the public comments is contained in the RTC.

[[Page 74477]]

    For the proposed rule, EPA chose to change a select number of the 
SAFE FRM model inputs, as listed in Table 19, largely because we 
concluded that other potential updates, regardless of their potential 
merit, such as the continued use of the MY 2017 base year fleet, would 
not have a significant impact on the assessment of the proposed 
standards. In addition, while the technology effectiveness estimates 
used in the CCEMS model to support the SAFE FRM could have been updated 
with more recent engine maps, the incremental effectiveness values are 
of primary importance within the CCEMS model and, while the maps were 
somewhat dated, the incremental effectiveness values derived from them 
were in rough agreement with incremental values derived from more up-
to-date engine maps (see RIA Chapter 2).
    As noted in Table 20, for this final rule we have chosen to conduct 
model runs with high compression ratio level 2 (HCR2) set to FALSE 
(i.e., it is not an available technology for the model to choose to 
apply in simulating compliance with the standards). We have done this 
due to our concerns over the effectiveness of the technology relative 
to the HCR0 and HCR1 technologies modeled in the SAFE FRM which were 
subsequently used in the analysis for our proposed rule. The HCR2 
technology in CCEMS would require a level of cylinder deactivation 
technology (dynamic cylinder deactivation) that has not yet been added 
to Atkinson Cycle Engines either with or without cooled EGR. HCR1 
technologies reflect the effectiveness of Atkinson Cycle engines with 
either cooled EGR or cylinder deactivation (however, not both 
technologies in combination) and thus also represent a number of high-
volume ICE applications from Mazda, Toyota and Hyundai. The additional 
step to HCR2 reflected a level of ICE effectiveness that is not yet 
within the light-duty vehicle fleet, and that we do not anticipate 
seeing until the later years of this final rule (e.g., MYs 2025-
2026).\107\
---------------------------------------------------------------------------

    \107\ For further information on HCR definitions, see RIA 
Chapter 2.3.2. For more information on HCR implementation in CCEMS, 
see RIA Chapter 4.1.1.4.
---------------------------------------------------------------------------

    In the proposed rule, we noted that the electrified vehicle battery 
costs used in the SAFE FRM, which were carried over to the proposed 
rule analysis, could have been lower based on EPA's latest assessment 
and that we had ultimately believed at the time of the proposed rule 
that updating those costs for the proposed rule would not have a 
notable impact on overall cost estimates. This conclusion was based in 
part on our expectation that electrification would continue to play a 
relatively modest role in our projections of compliance paths for the 
proposed standards, as it had in all previous analyses of standards 
having a similar level of stringency. We also noted that we could 
update battery costs for the final rule and requested comment on 
whether our choice of modeling inputs such as these should be modified 
for the final rule analysis.
    Commenters on the proposed rule made several observations and 
recommendations about battery costs, with most saying that the costs in 
the proposed rule analysis were too high. Tesla commented on [EPA's] 
``refusal to revisit admittedly over-estimated battery costs in the 
agency's analysis,'' further stating that EPA ``failed to complete a 
review of battery cost for EVs, asserting it was unnecessary given the 
agency does not rely on significant EV penetration for MY 2023-26.'' 
Tesla stated that it ``agree[s] battery costs in the SAFE rule were too 
high,'' further citing various projections for future battery costs: 
``UBS reports that leading manufacturers are estimated to reach battery 
pack costs as low as $67/kWh between 2022 and 2024. Recently, others 
have also projected costs significantly lower than EPA's past 
projections. BNEF's recent estimate is that pack prices go below $100/
kWh on a volume-weighted average basis by 2024, hit $58/kWh in 2030, 
and could achieve a volume-weighted average price of $45/kWh in 2035. 
The National Academies of Sciences found high-volume battery pack 
production would be at costs of $65-80/kWh by 2030 and DNV-GL has 
predicted costs declining to $80/kWh in 2025. In short, had the agency 
rightfully determined that EVs offer the best compliance technology 
near term and revisited battery pack costs, it would have found 
dramatically decreasing battery costs that further support that EV 
deployment will accelerate rapidly near term and represent the best 
possible emissions reduction technology.''
    ACEEE commented: ``Battery cost assumptions in the NRPM are too 
high and do not consider the manufacturing and technological 
advancements of the past few years. EPA uses the same cost figures used 
in the SAFE rule, which are based on 2017 data, effectively inflating 
the costs of vehicle electrification (EPA 2021b, p. 145).''
    Consumer Reports commented that it: ``recommends that EPA update 
their battery costs to be more in line with the current state of the 
electric vehicle market. This has the potential to have a significant 
impact on the cost-benefit analysis of the rule, especially with 
regards to the ability for EPA to push further, and set a stronger 
standard than the preferred alternative that is more in line with the 
administration's climate commitments.''
    ICCT commented that: ``EPA used an updated ANL BatPaC model (BatPaC 
Version 3.1, 9 October 2017) as the basis for BEV, PHEV, HEV and mild 
HEV battery costs in its 2018 MTE, but these updated costs were not 
used in the proposed rule.'' ``Unlike for the other technologies in the 
agencies' analysis, the vast majority of costs related to the RPE 
markup are already included in the base costs that the agencies used 
from ANL lookup tables. In other words, those lookup tables do not 
provide ``direct manufacturing costs,'' they provide total costs, 
including indirect costs. Thus, EPA erroneously inflated battery costs 
by applying the retail price equivalent (RPE) markup to base costs that 
already include indirect costs.'' On this point, ICCT referred to the 
Joint NGO 2020 Reconsideration Petition, pages 88-90, which was filed 
in response to the final SAFE rule.
    NCAT commented: ``As explained in the Proposed Rule, EPA chose to 
continue to use certain model inputs from the modeling conducted 
several years ago for the 2020 Rule, including the continued use of MY 
2017 as the base year fleet and use of the electric vehicle battery 
cost data from the 2020 Rule modeling effort. However, electric vehicle 
penetration has grown significantly since that time, see Section IV.A 
of this preamble, and battery costs have continued to decline 
dramatically [. . .] EPA even acknowledged that the agency may consider 
updating the battery costs for the final rule, noting that EPA's latest 
assessment suggests they could have been lower. There was a 13 percent 
drop in electric vehicle battery cost in just 2020 alone. EPA's 
approach was very conservative in light of these older model inputs 
relating to electric vehicles.''
    World Resources Institute commented: ``Despite the very dynamic 
nature of the ZEV market, EPA chose not to update the battery cost 
assumptions used in its compliance modeling even though EPA considers 
the assumed battery costs to be too high.'' ``This is a fundamental 
error. While EPA is correct in observing that ``significant levels of 
vehicle electrification will not be necessary in order to comply with 
the proposed standard,'' this in no way obviates the need for EPA to 
properly evaluate likely ZEV penetration in order to determine

[[Page 74478]]

whether a more stringent standard is appropriate.'' ``EPA should update 
its projections of ZEV market shares to reflect current trends in 
battery prices, automaker investment plans and EV market development. 
EPA should also consider higher penetration scenarios that would occur 
if Congress enacts additional incentives and infrastructure investments 
and should update the final rule to reflect any enacted legislation.'' 
``EPA's flawed battery price assumptions and resulting underestimate of 
ZEV market penetration rates have a dramatic impact on the emissions 
rates that would be required of ICEVs under the proposal as well as the 
alternatives considered.'' ``In order to have a rational basis for 
setting emissions standards that allow averaging across ICEVs and ZEVs 
EPA needs to update its battery cost assumptions and likely additional 
assumptions related to ZEV adoption rates.'' ``EPA should update its 
projections of ZEV market shares to reflect current trends in battery 
prices, automaker investment plans and EV market development.''
    The Alliance noted the inherent uncertainty in predicting future 
battery costs, stating: ``Given high levels of investment in research 
and development, and production processes, and the considerable 
uncertainty of what approaches will succeed or fail, it is possible 
that NHTSA's estimates of battery pack direct manufacturing costs 
(after learning factor) will be meaningfully low, or high in the MY 
2027 timeframe and beyond.'' ``EPA appears to use previous generation 
assumptions and battery costs from the SAFE Final Rule record, despite 
updated battery pack assumptions, and direct manufacturing cost 
assumptions being available for use in the DOT analysis.'' This is a 
reference to the NHTSA CAFE NPRM, which uses an updated version of the 
SAFE rule analysis, in which NHTSA uses costs from a more recent 
release of BatPaC and implements some changes in their input 
assumptions, which the Alliance states ``better account for high 
voltage isolation costs, and battery cell specifications.''
    The Alliance also encouraged EPA to ``consider costs and 
specifications that are reasonable for the industry as a whole to 
inform policy analysis, and not to assume that intellectual property 
and proprietary production processes that have been the result of 
billions of dollars of research and development paid by one 
manufacturer will be readily available to all manufacturers.'' The 
Alliance went on to state: ``Total industry volumes of battery electric 
vehicles are not an appropriate volume assumption for BatPaC. Auto 
Innovators recommends that EPA update their approach to that used in 
the DOT analysis to estimate battery costs for strong hybrids, plug-in 
hybrids, and battery electric vehicles, considering vehicle type and 
synergies with other fuel saving technologies.''
    Additional comments from the Alliance that were submitted to NHTSA 
as comment on the 2021 NHTSA NPRM were also placed in the EPA docket 
and can be found in Response to Comments Section 12.1. Among other 
topics, the Alliance commented on the potential for mineral costs to 
act as a constraint on the downward trajectory of battery costs in the 
future, citing in part a 2019 MIT report on the subject that suggested 
that battery costs for chemistries of the type relied on today may not 
have the potential to reach as low a cost as suggested by forecasts 
cited by other commenters. In response, EPA agrees that mineral and 
other material costs are a large component of the cost of the currently 
prevailing family of lithium-ion chemistries, that these costs might 
decline more slowly or increase if supply fails to meet demand in a 
timely manner, and that this is a relevant consideration when 
forecasting the potential for future reductions in battery costs. EPA 
also notes that manufacturers are working to reduce the content of some 
critical minerals in the battery chemistries used today, and that 
chemistries that have less critical mineral content may have less 
potential exposure to this effect. We have incorporated the 
uncertainties surrounding the future effect of mineral costs on battery 
cost reductions by limiting projected reductions in future battery 
costs to a level that we can reasonably technically validate at this 
time, as described below. EPA responds further to these comments in 
Section 12.1 of the Response to Comments document.
    Prompted by the totality of comments received on battery costs, EPA 
chose to update the battery costs for the FRM analysis. EPA believes 
that some of the more optimistic scenarios for reductions in battery 
costs that were cited in the public comments are difficult to validate 
at this time, given the importance of material costs to the cost of 
batteries, and the uncertainties surrounding mineral and other material 
costs as demand for batteries increases in the coming years. With 
regard to the ICCT comments that BatPaC output costs already include 
indirect costs that are represented by the RPE markup and hence RPE was 
double counted, EPA disagrees, and we note that the indirect costs 
represented in BatPaC output are those that apply to the battery 
supplier, and do not represent the indirect costs experienced by the 
OEM who purchases the battery and integrates it into the vehicle. EPA 
has always considered RPE markup to be applicable to purchased items, 
with the exception that BatPaC by default includes a warranty cost, 
which we have traditionally subtracted from BatPaC output because it is 
already covered in the RPE.
    However, EPA agrees with the commenters that battery costs used in 
the SAFE rulemaking, and hence the proposed rule, were higher than 
would be supported by information available today. Cited reports that 
are based on empirical data of what manufacturers are currently paying, 
and near-term forecasts that can reasonably be corroborated with our 
battery modeling tools, suggest lower battery costs than were assumed 
in the proposal. Consideration of the current and expected near-term 
costs of batteries for electrified vehicles, as widely reported in the 
trade and academic literature and further supported by our battery cost 
modeling tools, led to an adjustment of battery costs to more 
accurately account for these trends. Based on an assessment of the 
effect of using updated inputs to the BatPaC model in place of those 
used in the SAFE rulemaking, we determined that battery costs should be 
reduced by about 25 percent.
    We also considered the effect of this reduction on the projected 
battery costs for future years beyond MY2026, which due to this 
adjustment were now declining to levels below $80 per kWh (for an 
example 60 kWh battery) in the mid-2030s, and which our current battery 
cost modeling tools cannot technically validate at this time.
    Due to the widely acknowledged uncertainty of quantitatively 
projecting declines in battery costs far into the future, and to 
reflect current uncertainty about future mineral costs as battery 
demand increases (which is consistent with the points raised by the 
Alliance), we chose to place a limit on continued battery cost 
reductions past MY 2029 so as to prevent future costs from declining 
below $90 per kWh for a 60 kWh battery, a level that we can currently 
technically validate. More discussion of the rationale for these 
changes can be found in Chapters 2.3.4 and 4.1.1.2 of the RIA.
    We expect that pending updates to the ANL BatPaC model, as well as 
collection of emerging data on forecasts for future mineral prices and 
production capacity, will make it possible to more confidently 
characterize the declines in battery costs that we continue to believe

[[Page 74479]]

will occur in the 2030s and beyond, and we will incorporate this 
information in the subsequent rulemaking for MYs 2027 and beyond.
    In response to the Alliance comments on appropriate production 
volumes for developing battery costs, EPA understands how BatPaC 
considers production volume in developing pack costs and agrees that 
use of total industry volume to estimate the cost of a specific pack 
design would be inappropriate and would likely underestimate the true 
manufacturing cost. However, EPA also recognizes that using a 
production volume specific to the actual production of a specific pack 
design would tend to overestimate overhead costs by constructing a 
plant that is much smaller than the plants currently in operation and 
being planned today. For example, a 5 Gigawatt-hour (gWh) plant such as 
the LG Chem plant in Holland, Michigan is large enough to manufacture 
more than 80,000 60 kWh packs, while other leading plants in operation 
and under construction are designed for much higher volumes. For 
example, a 30 to 35 gWh plant such as the Tesla factory in Reno, 
Nevada, even when manufacturing an assortment of pack and cell designs 
would be able to amortize its construction, overhead and maintenance 
costs across 500,000 or more packs per year. Also, manufacturers are 
increasingly adopting design approaches that reuse cells and parts 
across multiple pack designs, meaning that the economies of scale that 
are relevant for those cells and parts are likely to be greater than 
the volume of a single pack design alone would represent. For these and 
similar reasons, EPA continues to believe that using a production 
volume specific to a given pack would create overly conservative 
estimates of battery manufacturing cost.
    With regard to the Alliance comments on the applicability of 
technology assumptions to all manufacturers, EPA recognizes that 
different manufacturers may experience different costs resulting from 
differences in their past research and investments and differences in 
their approach to sourcing components. Manufacturers have largely 
approached the sourcing of batteries through joint ventures or 
contractual relationships with established cell manufacturers rather 
than true vertical integration. For example, while Tesla has developed 
intellectual property relating to pack and cell design and production, 
their production occurs via a joint venture with Panasonic, and also 
includes sourcing from other suppliers that are not part of this 
venture. Other manufacturers are increasingly adopting a similar 
approach in which new manufacturing plants are to be constructed as 
part of a joint venture, by which the OEM may secure a supply of 
batteries for its products.108 109 110 111 112 As with other 
technologies, the existence of intellectual property belonging to one 
manufacturer seldom prevents other manufacturers from developing and 
benefiting from similarly effective technologies. The battery costs 
that EPA develops are not taken from the example of any specific 
manufacturer but are developed based on our assessment of the industry 
as a whole.
---------------------------------------------------------------------------

    \108\ Voelcker, J., ``Good News: Ford and GM Are Competing on EV 
Investments,'' Car and Driver, October 18, 2021. Accessed on 
December 9, 2021 at https://www.caranddriver.com/features/a37930458/ford-gm-ev-investments/.
    \109\ Stellantis, ``Stellantis and LG Energy Solution to Form 
Joint Venture for Lithium-Ion Battery Production in North America,'' 
Press Release, October 18, 2021.
    \110\ Toyota Motor Corporation, ``Toyota Charges into 
Electrified Future in the U.S. with 10-year, $3.4 billion 
Investment,'' Press Release, October 18, 2021.
    \111\ Ford Motor Company, ``Ford to Lead America's Shift To 
Electric Vehicles With New Mega Campus in Tennessee and Twin Battery 
Plants in Kentucky; $11.4B Investment to Create 11,000 Jobs and 
Power New Lineup of Advanced EVs,'' Press Release, September 27, 
2021.
    \112\ General Motors Corporation, ``GM and LG Energy Solution 
Investing $2.3 Billion in 2nd Ultium Cells Manufacturing Plant in 
U.S.,'' Press Release, April 16, 2021.
---------------------------------------------------------------------------

    In regard to updating the BEV driving ranges that were considered 
in the analysis, the Alliance stated that the ``analysis could be 
improved by using the BatPaC results for BEV400's and BEV500's, instead 
of scaling up BEV300 costs.'' ``Auto Innovators encourages EPA to 
include BEV400 and BEV500 in their analysis tool, and to adopt DOT 
phase-in caps from the CAFE NPRM in place of the phase-in caps used in 
the EPA proposal, as the EPA proposal likely overestimates the number 
of consumers who would accept BEV200's, especially given today's 
charging infrastructure.''
    In the updated analysis, we set the BEV200 phase-in start year to 
the same year as the new market file fleet, which, given the low year-
over-year phase-in cap, allows for low penetration of BEV200 technology 
in favor of BEV300 technology. Thus, the great majority of BEV 
penetration projected by the model represents BEV300 vehicles. We did 
not choose to extend the analysis to BEV400 and BEV500 vehicles. While 
BEV400 and BEV500 vehicles are entering the market and are anticipated 
to be some part of the future market, the known examples are 
concentrated in the luxury, high-end market, limiting their likely 
penetration into the fleet during the time frame of the rule.

B. Projected Compliance Costs and Technology Penetrations

1. GHG Targets and Compliance Levels
    The final curve coefficients were presented in Table 10. Here we 
present the projected fleet targets for each manufacturer. These 
targets are projected based on each manufacturer's car/truck fleets and 
their sales weighted footprints. As such, each manufacturer has a set 
of targets unique to them. The projected targets are shown by 
manufacturer for MYs 2023 through 2026 in Table 21 for cars, Table 22 
for light trucks, and Table 23 for the combined fleets.\113\
---------------------------------------------------------------------------

    \113\ Note that these targets are projected based on both 
projected future sales in applicable MYs and our final standards for 
each MY (i.e., the footprint curve coefficients); the projected 
targets shown here will change depending on each manufacturer's 
actual sales in any given MY.

                                              Table 21--Car Targets
                                                  [CO2 g/mile]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW.............................................             169             161             152             135
Daimler.........................................             174             166             156             139
FCA.............................................             176             168             158             140
Ford............................................             170             162             153             136
General Motors..................................             163             155             147             130
Honda...........................................             164             156             147             130
Hyundai Kia-H...................................             165             157             148             131
Hyundai Kia-K...................................             163             155             146             129

[[Page 74480]]

 
JLR.............................................             171             163             154             136
Mazda...........................................             163             155             147             130
Mitsubishi......................................             153             145             137             120
Nissan..........................................             166             158             149             132
Subaru..........................................             159             152             143             126
Tesla...........................................             179             171             161             144
Toyota..........................................             164             156             147             130
Volvo...........................................             176             168             158             141
VWA.............................................             164             156             148             131
                                                 ---------------------------------------------------------------
    Total.......................................             166             158             149             132
----------------------------------------------------------------------------------------------------------------

                                          Table 22--Light Truck Targets
                                                  [CO2 g/mile]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW.............................................             227             216             201             182
Daimler.........................................             227             216             201             182
FCA.............................................             241             229             213             193
Ford............................................             249             237             220             200
General Motors..................................             252             240             223             203
Honda...........................................             216             205             191             172
Hyundai Kia-H...................................             231             219             204             184
Hyundai Kia-K...................................             218             207             193             174
JLR.............................................             223             212             197             177
Mazda...........................................             206             196             182             163
Mitsubishi......................................             194             184             171             153
Nissan..........................................             221             210             195             176
Subaru..........................................             202             192             178             160
Tesla...........................................             236             224             209             189
Toyota..........................................             227             215             201             181
Volvo...........................................             222             211             196             176
VWA.............................................             214             203             189             170
                                                 ---------------------------------------------------------------
    Total.......................................             234             222             207             187
----------------------------------------------------------------------------------------------------------------

                                        Table 23--Combined Fleet Targets
                                                  [CO2 g/mile]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW.............................................             190             181             170             152
Daimler.........................................             200             190             177             159
FCA.............................................             231             219             204             185
Ford............................................             228             217             202             183
General Motors..................................             221             210             196             177
Honda...........................................             186             176             165             147
Hyundai Kia-H...................................             171             163             153             136
Hyundai Kia-K...................................             182             172             161             144
JLR.............................................             220             209             195             175
Mazda...........................................             184             175             164             146
Mitsubishi......................................             174             165             155             137
Nissan..........................................             181             172             162             144
Subaru..........................................             191             182             169             151
Tesla...........................................             180             172             162             145
Toyota..........................................             191             181             169             151
Volvo...........................................             210             200             186             167
VWA.............................................             193             183             171             153
                                                 ---------------------------------------------------------------
    Total.......................................             202             192             179             161
----------------------------------------------------------------------------------------------------------------

    The modeled achieved CO2-equivalent (CO2e) 
levels for the final standards are shown in Table 24 for cars, Table 25 
for light trucks, and Table 26 for the combined fleets. These values 
were produced by the modeling analysis and represent the projected 
certification emissions values for possible compliance approaches with 
the final

[[Page 74481]]

standards for each manufacturer. These achieved values, shown as 
averages over the respective car, truck and combined fleets, include 
the 2-cycle tailpipe emissions based on the modeled application of 
emissions-reduction technologies minus the modeled application of off-
cycle credit technologies and the full A/C efficiency credits. The 
values also reflect any application of the final advanced technology 
multipliers, up to the cap. Hybrid pickup truck incentive credits were 
not modeled (the CCEMS version used does not have this capability) and 
are therefore not included in the achieved values.
    Comparing the target and achieved values, it can be seen that some 
manufacturers are projected to have achieved values that are over 
target (higher emissions) on trucks, and under target (lower emissions) 
on cars, and vice versa for other manufacturers. This is a feature of 
the unlimited credit transfer (across a manufacturer's car and truck 
fleets) provision, which results in a compliance determination that is 
based on the combined car and truck fleet credits rather than a 
separate determination of each fleet's compliance. The application of 
technologies is influenced by the relative cost-effectiveness of 
technologies among each manufacturer's vehicles, which explains why 
different manufacturers exhibit different compliance approaches in the 
modeling results. For the combined fleet, the achieved values are 
typically close to, or slightly under the target values, which would 
represent the banking of credits that can be carried over into other 
model years. Note that an achieved value for a manufacturer's combined 
fleet that is above the target in a given model year does not indicate 
a likely failure to comply with the standards, since the model includes 
the GHG program credit banking provisions that allow credits from one 
year to be carried into another year.

                                          Table 24--Car Achieved Levels
                                                  [CO2 g/mile]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW.............................................             192             173             138             121
Daimler.........................................             171             150             158             155
FCA.............................................             160             152             163             149
Ford............................................             158             157             158             146
General Motors..................................             163             158             158             153
Honda...........................................             163             153             147             138
Hyundai Kia-H...................................             160             149             134             132
Hyundai Kia-K...................................             166             155             143             142
JLR.............................................             224             188             189             189
Mazda...........................................             166             146             146             145
Mitsubishi......................................             186             185             127             126
Nissan..........................................             170             157             132             132
Subaru..........................................             201             189             188             168
Tesla...........................................             -10             -10             -10             -10
Toyota..........................................             161             138             134             132
Volvo...........................................             207             204             198             181
VWA.............................................             165             153             156             127
                                                 ---------------------------------------------------------------
    Total.......................................             160             148             140             134
----------------------------------------------------------------------------------------------------------------

                                      Table 25--Light Truck Achieved Levels
                                                  [CO2 g/mile]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW.............................................             197             197             203             203
Daimler.........................................             229             229             193              84
FCA.............................................             215             212             210             189
Ford............................................             250             222             222             192
General Motors..................................             265             238             217             193
Honda...........................................             214             167             163             163
Hyundai Kia-H...................................             268             267             266             127
Hyundai Kia-K...................................             209             188             195             194
JLR.............................................             214             203             179             146
Mazda...........................................             203             202             177             118
Mitsubishi......................................             227             226             130             130
Nissan..........................................             205             200             195             181
Subaru..........................................             186             175             167             167
Tesla...........................................              -9              -9              -9              -9
Toyota..........................................             236             208             216             176
Volvo...........................................             158             156             162             161
VWA.............................................             213             203             171             147
                                                 ---------------------------------------------------------------
    Total.......................................             230             211             203             178
----------------------------------------------------------------------------------------------------------------

[[Page 74482]]

                                    Table 26--Combined Fleet Achieved Levels
                                                  [CO2 g/mile]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW.............................................             194             182             162             151
Daimler.........................................             199             188             175             122
FCA.............................................             206             202             203             183
Ford............................................             225             205             205             180
General Motors..................................             230             210             196             179
Honda...........................................             184             159             153             148
Hyundai Kia-H...................................             171             160             147             131
Hyundai Kia-K...................................             180             166             160             159
JLR.............................................             215             203             179             149
Mazda...........................................             184             173             161             132
Mitsubishi......................................             207             206             128             128
Nissan..........................................             180             169             150             145
Subaru..........................................             190             178             173             168
Tesla...........................................             -10             -10             -10             -10
Toyota..........................................             192             167             168             150
Volvo...........................................             170             169             172             166
VWA.............................................             193             182             164             139
                                                 ---------------------------------------------------------------
    Total.......................................             197             181             173             157
----------------------------------------------------------------------------------------------------------------

2. Projected Compliance Costs per Vehicle
    EPA has performed an updated assessment of the estimated per 
vehicle costs for manufacturers to meet the final MYs 2023-2026 
standards. The total car, truck and combined fleet costs per vehicle 
for MY 2023-2026 are shown in Table 27.

        Table 27--Car, Light Truck and Fleet Average Cost per Vehicle Relative to the No Action Scenario
                                                 [2018 Dollars]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
Car.............................................            $150            $288            $586            $596
Light Truck.....................................             485             732             909           1,356
Fleet Average...................................             330             524             759           1,000
----------------------------------------------------------------------------------------------------------------

    The car costs per vehicle by manufacturer from this analysis are 
shown in Table 28, followed by light truck costs by manufacturer in 
Table 29 and combined fleet costs by manufacturer in Table 30. As shown 
in these tables, the combined cost for car and truck fleets, averaged 
over all manufacturers, increases from MY 2023 to MY 2026 as the final 
standards become more stringent. The costs for trucks tend to be 
somewhat higher than for cars--many technology costs scale with engine 
and vehicle size--but it is important to note that the absolute 
emissions, and therefore emissions reductions, also tend to be higher 
for trucks. Projected costs for individual manufacturers vary based on 
the composition of vehicles produced. The estimated costs for 
California Framework Agreement manufacturers in MY 2026 range from 
approximately $600-$750 dollars per vehicle--because the final 
standards are more stringent than the Framework emission reduction 
targets--and fall within the wider cost range of non-Framework 
manufacturers. The estimated costs for Framework manufacturers are 
somewhat lower than the overall industry average costs of approximately 
$1000 per vehicle in MY 2026.

                       Table 28--Car Costs Per Vehicle Relative to the No Action Scenario
                                                 [2018 Dollars]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW *...........................................              $8            $112            $840            $762
Daimler.........................................             232             542             480             479
FCA.............................................             253             212             158             329
Ford *..........................................              19              18             227             202
General Motors..................................             577             546             651             669
Honda *.........................................              67             310             362             329
Hyundai Kia-H...................................              92             132             756             790
Hyundai Kia-K...................................             170             273             644             619
JLR.............................................              26             619             581             547
Mazda...........................................               5             394             471             425
Mitsubishi......................................               0               0             914             898
Nissan..........................................             228             327           1,289           1,194
Subaru..........................................              18              18              17             209

[[Page 74483]]

 
Tesla...........................................               0               0               0               0
Toyota..........................................              21             429             576             578
Volvo *.........................................               0              -1             119             113
VWA *...........................................               0              60             125             549
                                                 ---------------------------------------------------------------
    Total.......................................             150             288             586             596
----------------------------------------------------------------------------------------------------------------
* Framework Manufacturer.

                    Table 29--Light Truck Cost Per Vehicle Relative to the No Action Scenario
                                                 [2018 Dollars]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW *...........................................              $2              $2              $2              $9
Daimler.........................................              35              34             725           3,556
FCA.............................................           1,732           1,574           1,465           1,894
Ford *..........................................              39             477             428             754
General Motors..................................             385             702           1,377           1,746
Honda *.........................................             118             915             950             878
Hyundai Kia-H...................................              45              44              43           4,048
Hyundai Kia-K...................................           1,194           1,327           1,230           1,144
JLR.............................................             133             314           1,321           1,770
Mazda...........................................              11              11             776           2,500
Mitsubishi......................................               0               0           2,159           2,028
Nissan..........................................             699             783             748           1,082
Subaru..........................................               2              27              57              57
Tesla...........................................               0               0               0               0
Toyota..........................................             265             832             763           1,537
Volvo *.........................................             958             853             771             702
VWA *...........................................               0             125             461             856
                                                 ---------------------------------------------------------------
    Total.......................................             485             732             909           1,356
----------------------------------------------------------------------------------------------------------------
* Framework Manufacturer.

                   Table 30--Fleet Average Cost Per Vehicle Relative to the No Action Scenario
                                                 [2018 Dollars]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW *...........................................              $6             $72            $538            $489
Daimler.........................................             136             298             591           1,925
FCA.............................................           1,502           1,355           1,254           1,639
Ford *..........................................              34             353             373             604
General Motors..................................             452             648           1,123           1,369
Honda *.........................................              88             563             606             557
Hyundai Kia-H...................................              87             123             688           1,093
Hyundai Kia-K...................................             518             624             840             797
JLR.............................................             128             332           1,283           1,708
Mazda...........................................               7             207             612           1,411
Mitsubishi......................................               0               0           1,557           1,482
Nissan..........................................             360             453           1,143           1,166
Subaru..........................................               6              26              50             101
Tesla...........................................               0               0               0               0
Toyota..........................................             125             597             655             978
Volvo *.........................................             714             634             603             551
VWA *...........................................               0              97             318             727
                                                 ---------------------------------------------------------------
    Total.......................................             330             524             759           1,000
----------------------------------------------------------------------------------------------------------------
* Framework Manufacturer.

    Overall, EPA estimates the average costs of the final standards at 
$1,000 per vehicle in MY 2026 relative to meeting the No Action 
scenario in MY 2026. As discussed in Section VII of this preamble, 
there are benefits resulting from these costs including savings to 
consumers in the form of lower fuel costs.
    In RIA 4.1.3, we present the costs per vehicle extending out 
through MY 2050. The data presented there show that projected costs per 
vehicle rise somewhat beyond MY 2026 prior to

[[Page 74484]]

falling again due to the projected learning effects on technology 
costs. This helps to explain the higher present value and annualized 
costs in this final rule analysis (see Section VII.I of this preamble) 
compared to the proposed rule despite the MY 2026 cost per vehicle 
results being slightly lower in this final rule. The similarity of the 
cost per vehicle projections presented in the tables above and those 
projected in the proposal despite the more stringent final standards is 
due in large part to the lower battery costs projected in the final 
rule. Those lower costs result in higher penetrations of BEV and PHEV 
technology because, although more costly than non-plug-in technologies, 
they have such a significant effect on reducing fleet average 
emissions. In the modeling, the effect of higher penetrations of BEVs 
and PHEVs in turn results in other vehicles adding less technology 
toward meeting the fleet average emissions standards, thereby reducing 
per-vehicle costs on those vehicles as well.
3. Technology Penetration Rates
    In this section we discuss the projected new sales technology 
penetration rates from EPA's updated analysis for the final standards. 
Additional detail on this topic can be found in the RIA. EPA's 
assessment, consistent with past EPA assessments, shows that the final 
standards can largely be met with increased sales of advanced gasoline 
vehicle technologies, and projects modest (17 percent) penetration 
rates of electrified vehicle technology.
    Table 31, Table 32, and Table 33 show the projected penetration 
rates of BEVs and PHEVs combined (BEV+PHEV) technology under the final 
standards, with the remaining share being traditional or advanced ICE 
technology. Values shown reflect absolute values of fleet penetration 
and are not increments from the No Action scenario or other standards. 
It is important to note that this is a projection and represents one 
out of many possible compliance pathways for the industry. The 
standards are performance-based and do not mandate any specific 
technology for any manufacturer or any vehicles. As the standards 
become more stringent over MYs 2023 to 2026, the projected penetration 
of plug-in electrified vehicles (BEV and PHEV combined) increases by 
approximately 10 percentage points over this 4-year period, from about 
7 percent in MY 2023 to about 17 percent in MY 2026. This is a greater 
penetration of BEVs and PHEVs than projected in the proposed rule, and 
is driven by several factors, including the increased stringency of our 
final standards, the updated baseline fleet that includes more EVs in 
the baseline, and the updated battery costs (based on which the model 
is selecting more BEV+PHEV technology as the optimal least-cost pathway 
to meet the standards). Conversely, in MY 2026 about 83 percent of new 
light-duty vehicle sales will continue to utilize ICE technology.

                       Table 31--Car BEV+PHEV Penetration Rates Under the Final Standards
----------------------------------------------------------------------------------------------------------------
                                                     2023 (%)        2024 (%)        2025 (%)        2026 (%)
----------------------------------------------------------------------------------------------------------------
BMW.............................................               4               9              22              29
Daimler.........................................              15              18              18              19
FCA.............................................              20              22              22              22
Ford............................................              13              13              16              21
General Motors..................................              11              11              11              13
Honda...........................................               2               5               8              12
Hyundai Kia-H...................................              10              10              18              18
Hyundai Kia-K...................................               3               3               8               8
JLR.............................................               0               3               3               3
Mazda...........................................               7              13              13              13
Mitsubishi......................................               3               3               3               3
Nissan..........................................               3               3              17              17
Subaru..........................................               0               0               0               3
Tesla...........................................             100             100             100             100
Toyota..........................................               2               6               9               9
Volvo...........................................               3               3               4              11
VWA.............................................              16              17              17              25
                                                 ---------------------------------------------------------------
    Total.......................................              10              12              16              17
----------------------------------------------------------------------------------------------------------------

                   Table 32--Light Truck BEV+PHEV Penetration Rates Under the Final Standards
----------------------------------------------------------------------------------------------------------------
                                                     2023 (%)        2024 (%)        2025 (%)        2026 (%)
----------------------------------------------------------------------------------------------------------------
BMW.............................................              10              10              10              10
Daimler.........................................               8               8              21              56
FCA.............................................              13              13              13              18
Ford............................................               1               7               8              17
General Motors..................................               4               8              14              18
Honda...........................................               0              13              17              17
Hyundai Kia-H...................................               0               0               0              23
Hyundai Kia-K...................................              11              11              11              11
JLR.............................................              16              16              28              35
Mazda...........................................               0               0               0              21
Mitsubishi......................................               0               0              16              16
Nissan..........................................               4               5               5               9
Subaru..........................................               1               1               1               1
Tesla...........................................             100             100             100             100
Toyota..........................................               1              12              12              16

[[Page 74485]]

 
Volvo...........................................              22              22              23              23
VWA.............................................              11              12              12              18
                                                 ---------------------------------------------------------------
    Total.......................................               5               9              11              17
----------------------------------------------------------------------------------------------------------------

                      Table 33--Fleet BEV+PHEV Penetration Rates Under the Final Standards
----------------------------------------------------------------------------------------------------------------
                                                     2023 (%)        2024 (%)        2025 (%)        2026 (%)
----------------------------------------------------------------------------------------------------------------
BMW.............................................               6              10              18              22
Daimler.........................................              12              14              20              36
FCA.............................................              14              15              15              18
Ford............................................               5               9              10              18
General Motors..................................               6               9              13              16
Honda...........................................               1               8              12              14
Hyundai Kia-H...................................               9               9              17              19
Hyundai Kia-K...................................               6               6               9               9
JLR.............................................              15              15              26              34
Mazda...........................................               3               7               7              17
Mitsubishi......................................               2               2              10              10
Nissan..........................................               3               4              14              15
Subaru..........................................               0               0               0               1
Tesla...........................................             100             100             100             100
Toyota..........................................               2               9              10              12
Volvo...........................................              17              17              18              20
VWA.............................................              13              14              14              21
                                                 ---------------------------------------------------------------
    Total.......................................               7              10              14              17
----------------------------------------------------------------------------------------------------------------

C. Are the final standards feasible?

    The final standards are based on the extensive light-duty GHG 
technical analytical record developed over the past dozen years, as 
represented by EPA's supporting analyses for the 2010 and 2012 final 
rules, the Mid-Term Evaluation (including the Draft TAR, Proposed 
Determination and Final Determinations), as well as the updated 
analyses for this rule and the supporting analyses for the SAFE 
rule.\114\ Our conclusion that the program is feasible is based in part 
on a projection that the standards primarily will be met using the same 
advances in light-duty vehicle engine technologies, transmission 
technologies, electric drive systems, aerodynamics, tires, and vehicle 
mass reduction that have gradually entered the light-duty vehicle fleet 
over the past decade and that are already in use in today's vehicles. 
Further support that the technologies needed to meet the standards do 
not need to be developed but are already widely available and in use on 
vehicles can be found in the fact that five vehicle manufacturers, 
representing nearly 30 percent of U.S. auto sales, agreed in 2019 with 
the State of California that their nationwide fleets would meet GHG 
emission reduction targets more stringent than the applicable EPA 
standards for MYs 2021 and 2022, and similar to the final EPA standards 
for MYs 2022 and 2023.
---------------------------------------------------------------------------

    \114\ Although the MTE 2018 Revised Final Determination 
``withdrew'' the 2017 Final Determination, the D.C. Circuit Court 
has noted that EPA did ``not erase[ ] the Draft Technical Assessment 
Report, Technical Support Document, or any of the other prior 
evidence [EPA] collected.'' California v. EPA, 940 F.3d 1342, 1351 
(D.C. Cir. 2019).
---------------------------------------------------------------------------

    Our updated analysis projects that the final standards can be met 
with a fleet that achieves a gradually increasing market share of EVs 
and PHEVs, approximately 7 percent in MY 2023 up to about 17 percent in 
MY 2026 (see Section III.B.3 of this preamble and the following 
paragraph). While this represents an increasing penetration of zero-
emission and near-zero emission vehicles into the fleet during the 
2023-2026 model years, we believe that the growth in the projected rate 
of penetration is consistent with current trends and market forces, as 
discussed below.
    The proliferation of GHG-reducing technologies has been steadily 
increasing within the light-duty vehicle fleet. As of MY 2020, more 
than half of light-duty gasoline spark ignition engines use direct 
injection (GDI) engines and more than a third are turbocharged. Nearly 
half of all light-duty vehicles have planetary automatic transmissions 
with 8 or more gear ratios, and one-quarter are using continuously 
variable transmissions (CVT). The sales of vehicles with 12V start/stop 
systems has increased from approximately 7 percent to approximately 42 
percent between MY 2015 and MY 2020. Significant levels of powertrain 
electrification of all types (HEV, PHEV, and EV) have increased more 
than 3-fold from MY 2015 to MY 2020. In MY 2015, hybrid electric 
vehicles accounted for approximately 2.4 percent of vehicle sales, 
which increased to approximately 6.5 percent of vehicle sales in MY 
2020. Production of plug-in hybrid electric vehicles (PHEVs) and 
battery electric vehicles (EVs) together comprised 0.7 percent of 
vehicle production in MY 2015 and increased to about 2.2 percent for MY 
2020 (projected to be 4.1 percent for MY 2021),\115\ and from January 
through September 2021 they represented 3.6 percent of total U.S. 
light-duty vehicle sales.\116\ The pace of introduction of new EV and 
PHEV models is rapidly increasing. For

[[Page 74486]]

example, the number of EV and PHEV models available for sale in the 
U.S. has more than doubled from about 24 in MY 2015 to about 60 in MY 
2021.\117\ Even under the less stringent SAFE standards, manufacturers 
have indicated that the number of EV and PHEV models will increase to 
more than 80 by MY 2023, with many more expected to reach production 
before the end of the decade.\118\
---------------------------------------------------------------------------

    \115\ The 2021 EPA Automotive Trends Report, Greenhouse Gas 
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420R-
21023, November 2021.
    \116\ Argonne National Laboratory, ``Light Duty Electric Drive 
Vehicles Monthly Sales Updates,'' September 2021, accessed on 
October 20, 2021 at: https://www.anl.gov/es/light-duty-electric-drive-vehicles-monthly-sales-updates.
    \117\ Fueleconomy.gov, 2015 Fuel Economy Guide and 2021 Fuel 
Economy Guide.
    \118\ Environmental Defense Fund and M.J. Bradley & Associates, 
``Electric Vehicle Market Status--Update, Manufacturer Commitments 
to Future Electric Mobility in the U.S. and Worldwide,'' April 2021.
---------------------------------------------------------------------------

    Despite the increased penetration of electrified vehicles that we 
are projecting for the final standards, the large majority (more than 
80 percent) of vehicles projected to be produced by manufacturers in 
complying with the final standards would draw from the various advanced 
gasoline vehicle technologies already present in many vehicles within 
today's new vehicle fleet. This projection is consistent with EPA's 
previous conclusions that a wide variety of emission reducing 
technologies are already available at reasonable costs for 
manufacturers to incorporate into their vehicles within the timeframe 
of the final standards.
    Although the projected penetrations of BEVs and PHEVs are higher 
than in the proposal, we find they more accurately reflect the current 
momentum and direction of technological innovation in the automotive 
industry. By all accounts, a shift to zero-emission vehicle 
technologies is well underway, and it presents a strong potential for 
dramatic reductions in GHG and criteria pollutant emissions. Major 
automakers as well as many global jurisdictions and U.S. states have 
announced plans to shift the light-duty fleet toward zero-emissions 
technology.
    As noted in the proposed rule, a proliferation of recent 
announcements from automakers signals a rapidly growing shift in 
investment away from internal-combustion technologies and toward high 
levels of electrification. These automaker announcements are supported 
by continued advances in automotive electrification technologies and 
are further driven by the need to compete in a global market as other 
countries implement aggressive zero-emission transportation policies. 
For example, in January 2021, General Motors announced plans to become 
carbon neutral by 2040, including an effort to shift its light-duty 
vehicles entirely to zero-emissions by 2035.\119\ In March 2021, Volvo 
announced plans to make only electric cars by 2030,\120\ and Volkswagen 
announced that it expects half of its U.S. sales will be all-electric 
by 2030.\121\ In April 2021, Honda announced a full electrification 
plan to take effect by 2040, with 40 percent of North American sales 
expected to be fully electric or fuel cell vehicles by 2030, 80 percent 
by 2035 and 100 percent by 2040.\122\ In May 2021, Ford announced that 
they expect 40 percent of their global sales will be all-electric by 
2030.\123\ In June 2021, Fiat announced a move to all electric vehicles 
by 2030, and in July 2021 its parent corporation Stellantis announced 
an intensified focus on electrification across all of its brands.\124\ 
\125\ Also in July 2021, Mercedes-Benz announced that all of its new 
architectures would be electric-only from 2025, with plans to become 
ready to go all-electric by 2030 where possible.\126\ In September 
2021, Toyota announced large new investments in battery production and 
development to support an increasing focus on electrification,\127\ and 
in December 2021, announced plans to increase this investment as well 
as introduce 30 BEV models by 2030.\128\ On August 5, 2021, in 
conjunction with the announcement of Executive Order 14037, many of 
these automakers, as well as the United Auto Workers and the Alliance 
for Automotive Innovation, expressed continued commitment to these 
announcements and support for the goal of achieving 40 to 50 percent 
sales of zero emissions vehicles by 2030.\129\
---------------------------------------------------------------------------

    \119\ General Motors, ``General Motors, the Largest U.S. 
Automaker, Plans to be Carbon Neutral by 2040,'' Press Release, 
January 28, 2021.
    \120\ Volvo Car Group, ``Volvo Cars to be fully electric by 
2030,'' Press Release, March 2, 2021.
    \121\ Volkswagen Newsroom, ``Strategy update at Volkswagen: The 
transformation to electromobility was only the beginning,'' March 5, 
2021. Accessed June 15, 2021 at https://www.volkswagen-newsroom.com/en/stories/strategy-update-at-volkswagen-the-transformation-to-electromobility-was-only-the-beginning-6875.
    \122\ Honda News Room, ``Summary of Honda Global CEO Inaugural 
Press Conference,'' April 23, 2021. Accessed June 15, 2021 at 
https://global.honda/newsroom/news/2021/c210423eng.html.
    \123\ Ford Motor Company, ``Superior Value From EVs, Commercial 
Business, Connected Services is Strategic Focus of Today's 
`Delivering Ford+' Capital Markets Day,'' Press Release, May 26, 
2021.
    \124\ Stellantis, ``World Environment Day 2021--Comparing 
Visions: Olivier Francois and Stefano Boeri, in Conversation to 
Rewrite the Future of Cities,'' Press Release, June 4, 2021.
    \125\ Stellantis, ``Stellantis Intensifies Electrification While 
Targeting Sustainable Double-Digit Adjusted Operating Income Margins 
in the Mid-Term,'' Press Release, July 8, 2021.
    \126\ Mercedes-Benz, ``Mercedes-Benz prepares to go all-
electric,'' Press Release, July 22, 2021.
    \127\ Toyota Motor Corporation, ``Video: Media briefing & 
Investors briefing on batteries and carbon neutrality'' 
(transcript), September 7, 2021. Accessed on September 16, 2021 at 
https://global.toyota/en/newsroom/corporate/35971839.html#presentation.
    \128\ Toyota Motor Corporation, ``Video: Media Briefing on 
Battery EV Strategies,'' Press Release, December 14, 2021. Accessed 
on December 14, 2021 at https://global.toyota/en/newsroom/corporate/36428993.html.
    \129\ The White House, ``Statements on the Biden 
Administration's Steps to Strengthen American Leadership on Clean 
Cars and Trucks,'' August 5, 2021. Accessed on October 19, 2021 at 
https://www.whitehouse.gov/briefing-room/statements-releases/2021/08/05/statements-on-the-biden-administrations-steps-to-strengthen-american-leadership-on-clean-cars-and-trucks/.
---------------------------------------------------------------------------

    These announcements, and others like them, continue a pattern over 
the past several years in which many manufacturers have taken steps to 
aggressively pursue zero-emission technologies, introduce a wide range 
of zero-emission vehicle models, and reduce their reliance on the 
internal-combustion engine in various markets around the globe.\130\ 
\131\ These goals and investments have been coupled with a continuing 
increase in the market penetration of new zero-emission vehicles (3.6 
percent of new U.S. light-duty vehicle sales so far in calendar year 
2021,\132\ projected to be 4.1 percent of production in MY 2021, up 
from 2.2 percent of production in MY 2020),\133\ as well as a rapidly 
increasing diversity of electrified vehicle models.\134\ For example, 
the number of EV and PHEV models available for sale in the U.S. has 
more than doubled from about 24 in MY 2015 to about 60 in MY 2021, with 
offerings in a growing range of vehicle segments.\135\ Recent model 
announcements indicate that this number will increase to more than 80 
models by MY 2023, with many more expected to reach production before 
the

[[Page 74487]]

end of the decade.\136\ Many of the zero-emission vehicles already on 
the market today cost less to drive than conventional vehicles,\137\ 
\138\ offer improved performance and handling,\139\ and can be charged 
at a growing network of public chargers \140\ as well as at home.
---------------------------------------------------------------------------

    \130\ Environmental Defense Fund and M.J. Bradley & Associates, 
``Electric Vehicle Market Status--Update, Manufacturer Commitments 
to Future Electric Mobility in the U.S. and Worldwide,'' April 2021.
    \131\ International Council on Clean Transportation, ``The end 
of the road? An overview of combustion-engine car phase-out 
announcements across Europe,'' May 10, 2020.
    \132\ Argonne National Laboratory, ``Light Duty Electric Drive 
Vehicles Monthly Sales Updates,'' September 2021, accessed on 
October 20, 2021 at: https://www.anl.gov/es/light-duty-electric-drive-vehicles-monthly-sales-updates.
    \133\ ``The 2021 EPA Automotive Trends Report: Greenhouse Gas 
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420r-
21023, November 2021.
    \134\ Muratori et al., ``The rise of electric vehicles--2020 
status and future expectations,'' Progress in Energy v3n2 (2021), 
March 25, 2021. Accessed July 15, 2021 at https://iopscience.iop.org/article/10.1088/2516-1083/abe0ad.
    \135\ Fueleconomy.gov, 2015 Fuel Economy Guide and 2021 Fuel 
Economy Guide.
    \136\ Environmental Defense Fund and M.J. Bradley & Associates, 
``Electric Vehicle Market Status--Update, Manufacturer Commitments 
to Future Electric Mobility in the U.S. and Worldwide,'' April 2021.
    \137\ Department of Energy Vehicle Technologies Office, 
Transportation Analysis Fact of the Week #1186, ``The National 
Average Cost of Fuel for an Electric Vehicle is about 60% Less than 
for a Gasoline Vehicle,'' May 17, 2021.
    \138\ Department of Energy Vehicle Technologies Office, 
Transportation Analysis Fact of the Week #1190, ``Battery-Electric 
Vehicles Have Lower Scheduled Maintenance Costs than Other Light-
Duty Vehicles,'' June 14, 2021.
    \139\ Consumer Reports, ``Electric Cars 101: The Answers to All 
Your EV Questions,'' November 5, 2020. Accessed June 8, 2021 at 
https://www.consumerreports.org/hybrids-evs/electric-cars-101-the-answers-to-all-your-ev-questions/.
    \140\ Department of Energy Alternative Fuels Data Center, 
Electric Vehicle Charging Station Locations. Accessed on May 19, 
2021 at https://afdc.energy.gov/fuels/electricity_locations.html#/find/nearest?fuel=ELEC.
---------------------------------------------------------------------------

    At the same time, an increasing number of global jurisdictions and 
U.S. states plan to take actions to shift the light-duty fleet toward 
zero-emissions technology. In 2020, California announced an intention 
to require increasing numbers of zero-emission vehicles to meet the 
goal that, by 2035, all new light-duty vehicles sold in the state be 
zero-emission vehicles.\141\ New York \142\ \143\ has adopted similar 
targets and requirements to take effect by 2035, with Massachusetts 
\144\ poised to follow. Several other states may adopt similar 
provisions by 2050 as members of the International Zero-Emission 
Vehicle Alliance.\145\ Globally, at least 12 countries, as well as 
numerous local jurisdictions, have announced similar goals to shift all 
new passenger car sales to zero-emission vehicles in the coming years, 
including Norway (2025); the Netherlands, Denmark, Iceland, Ireland, 
Sweden, and Slovenia (2030); Canada and the United Kingdom (2035); 
France and Spain (2040); and Costa Rica (2050).\146\ \147\ Together, 
these countries represent approximately 13 percent of the global market 
for passenger cars,\148\ in addition to that represented by the 
aforementioned U.S. states and other global jurisdictions. Already, 
all-electric and plug-in vehicles together comprise about 18 percent of 
the new vehicle market in Western Europe,\149\ led by Norway which 
reached 77 percent all-electric and 91 percent plug-in sales in 
September 2021.\150\ \151\
---------------------------------------------------------------------------

    \141\ State of California Office of the Governor, ``Governor 
Newsom Announces California Will Phase Out Gasoline-Powered Cars & 
Drastically Reduce Demand for Fossil Fuel in California's Fight 
Against Climate Change,'' Press Release, September 23, 2020.
    \142\ New York State Senate, Senate Bill S2758, 2021-2022 
Legislative Session. January 25, 2021.
    \143\ Governor of New York Press Office, ``In Advance of Climate 
Week 2021, Governor Hochul Announces New Actions to Make New York's 
Transportation Sector Greener, Reduce Climate-Altering Emissions,'' 
September 8, 2021. Accessed on September 16, 2021 at https://www.governor.ny.gov/news/advance-climate-week-2021-governor-hochul-announces-new-actions-make-new-yorks-transportation.
    \144\ Commonwealth of Massachusetts, ``Request for Comment on 
Clean Energy and Climate Plan for 2030,'' December 30, 2020.
    \145\ ZEV Alliance, ``International ZEV Alliance Announcement,'' 
Dec. 3, 2015. Accessed on July 16, 2021 at http://www.zevalliance.org/international-zev-alliance-announcement/.
    \146\ International Council on Clean Transportation, ``Update on 
the global transition to electric vehicles through 2019,'' July 
2020.
    \147\ Reuters, ``Canada to ban sale of new fuel-powered cars and 
light trucks from 2035,'' June 29, 2021. Accessed July 1, 2021 from 
https://www.reuters.com/world/americas/canada-ban-sale-new-fuel-powered-cars-light-trucks-2035-2021-06-29/.
    \148\ International Council on Clean Transportation, ``Growing 
momentum: Global overview of government targets for phasing out new 
internal combustion engine vehicles,'' posted 11 November 2020, 
accessed April 28, 2021 at https://theicct.org/blog/staff/global-ice-phaseout-nov2020.
    \149\ Ewing, J., ``China's Popular Electric Vehicles Have Put 
Europe's Automakers on Notice,'' New York Times, accessed on 
November 1, 2021 at https://www.nytimes.com/2021/10/31/business/electric-cars-china-europe.html.
    \150\ Klesty, V., ``With help from Tesla, nearly 80% of Norway's 
new car sales are electric,'' Reuters, accessed on November 1, 2021 
at https://www.reuters.com/business/autos-transportation/tesla-pushes-norways-ev-sales-new-record-2021-10-01/.
    \151\ Norwegian Information Council for Road Traffic (OFV), 
``New car boom and electric car record in September,'' October 1, 
2021, accessed on November 1, 2021 at https://ofv.no/aktuelt/2021/nybil-boom-og-elbilrekord-i-september.
---------------------------------------------------------------------------

    In addition to substantially reducing GHG emissions, a subsequent 
rulemaking for MY 2027 and beyond will address criteria pollutant and 
air toxics emissions from the new light-duty vehicle fleet--especially 
important considerations as the fleet transitions toward zero-emission 
vehicles. EPA expects that this subsequent rulemaking will take 
critical steps to continue the trajectory of transportation emission 
reductions needed to protect public health and welfare. Achieving this 
trajectory with increased fleet penetration of zero-emission vehicles 
would bring with it other advantages as well, such as potentially large 
reductions in roadway pollution and noise in overburdened communities, 
and potentially support for the future development of vehicle-to-grid 
services that could become a key enabler for increased utilization of 
renewable energy sources, such as wind and solar, across the grid.\152\
---------------------------------------------------------------------------

    \152\ Department of Energy Electricity Advisory Committee, 
``Enhancing Grid Resilience with Integrated Storage from Electric 
Vehicles: Recommendations for the U.S. Department of Energy,'' June 
25, 2018.
---------------------------------------------------------------------------

D. How did EPA consider alternatives in selecting the final program?

    In Section II.C of this preamble, we described alternatives that we 
considered in addition to the final standards. See Figure 5 and Table 
18 in Section II.C of this preamble. The analyses of the costs, GHG 
emission reductions, and technology penetrations for each alternative 
are presented in the RIA Chapters 4 and 5. The alternatives analyzed 
for the final rule, in addition to the standards we are finalizing, are 
the ``Proposal'', which are the proposed standards, and ``Alternative 2 
minus 10'' which is the Alternative 2 standards reduced by 10 g/mile in 
MY 2026, on which EPA sought public comment.
    In comparing the per-vehicle costs of the final standards and the 
two alternatives, we first note that, in the updated analysis for this 
final rule, the estimated costs of both the proposed standards and 
final standards are lower than the estimated cost of the proposed 
standards as originally presented in the proposed rule, largely due to 
the updated battery costs used in our final rule analysis. For example, 
in the proposed rule the proposed standards were projected to cost 
about $1,044 per vehicle in MY 2026 whereas in the final rule analysis 
the costs for the proposed standards are estimated at $644 per vehicle, 
about $400 lower than in the proposed rule. Further, the cost of our 
final standards ($1,000 per vehicle) remains less than the costs for 
the proposed standards presented in the proposed rule, as well as being 
slightly less than the costs for Alternative 2 minus 10 standards 
($1,070 per vehicle). In addition, while the final standards and 
Alternative 2 minus 10 standards have similar per-vehicle costs in MY 
2026, it is important to consider the per-vehicle costs in MY 2023 and 
2024--when available lead time is shorter. In these model years, the 
final standards are slightly more costly than the proposed standards 
(by about $55 per vehicle in 2023 and $140 per vehicle in 2024) and 
less costly than the Alternative 2 minus 10 standards (by more than 
$200 per vehicle in MYs 2023 and 2024). EPA believes that given lead 
time considerations for the early years of the program (MY 2023 and 
2024), the lower per-vehicle cost to manufacturers of the final 
standards compared to the Alternative 2 minus 10 standards are an

[[Page 74488]]

important consideration. See Section VI of this preamble and RIA 
Chapter 6.
    In comparing the cumulative CO2 emissions reductions of 
the final standards and the two alternatives, the final standards and 
the Alternative 2 minus 10 standards achieve essentially identical 
cumulative CO2 reductions through 2050, about 1.1 billion tons (about 
50 percent) more than the proposed standards. See RIA Chapter 5.1.1.2.
    Finally, when comparing the combined BEV+PHEV technology 
penetrations across the alternatives, the final standards and the 
Alternative 2 minus 10 standards provide the same level of BEV+PHEV 
market penetration (17 percent) in MY 2026 and thus the same strong 
launching point for a more ambitious program for 2027 and later, which 
EPA will establish in a subsequent rulemaking. The proposed standards 
would achieve less penetration of BEV+PHEV (13 percent) in MY 2026. See 
RIA Table 4-26, and Table 4-31. EPA believes that the higher projected 
penetration of BEVs and PHEVs that would be achieved through the final 
standards or the Alternative 2 minus 10 standards represents a 
reasonable level of technology commensurate with industry projections 
for this time period and is feasible in this time frame as further 
discussed in Section III.B.3 and III.C of this preamble.
    EPA's updated analysis shows that the final standards and the 
Alternative 2 minus 10 standards achieve nearly the same cumulative 
CO2 reductions and the same level of electric vehicle 
penetration in 2026--and thus provide the same strong launch point for 
the next phase of standards for MY 2027 and later. The important 
difference between the final standards and the Alternative 2 minus 10 
standards is in the per-vehicle costs during the earlier years (MYs 
2023 and 2024), where we believe the lower costs of the final standards 
are important considering the shorter lead time for manufacturers. EPA 
discusses further in Section VI of this preamble the reasons we believe 
the final standards represent the appropriate standards under the CAA.

IV. How does this final rule reduce GHG emissions and their associated 
effects?

A. Impact on GHG Emissions

    EPA used the CCEMS to estimate GHG emissions inventories including 
tailpipe emissions from light-duty cars and trucks and the upstream 
emissions associated with the fuels used to power those vehicles (both 
at the refinery and the electricity generating unit). The upstream 
emission factors used in this final rule modeling have been updated 
since EPA's proposed rule. The updated upstream emission factors are 
identical to those used in the recent NHTSA CAFE proposal and were 
generated using the DOE/Argonne GREET model.\153\ \154\
---------------------------------------------------------------------------

    \153\ U.S. Department of Transportation National Highway Traffic 
Safety Administration, 2021. Technical Support Document: Proposed 
Rulemaking for Model Years 2024-2026 Light-Duty Vehicle Corporate 
Average Fuel Economy Standards, Section 5.2.
    \154\ U.S. Department of Energy, Argonne National Laboratory, 
Greenhouse gases, Regulated Emissions, and Energy use in 
Transportation (GREET) Model, Last Update: 9 Oct. 2020, https://greet.es.anl.gov/.
---------------------------------------------------------------------------

    The resultant annual GHG inventory estimates are shown in Table 34 
for the calendar years 2023 through 2050. The table shows that the 
final program would result in significant net GHG reductions compared 
to the No Action scenario. The cumulative CO2, CH4 and 
N2O emissions reductions from the final program total 3,100 
MMT, 3.3 MMT and 0.097 MMT, respectively, through 2050.

                                Table 34--Estimated GHG Impacts of the Final Standards Relative to the No Action Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Emission impacts relative to no action               Percent change from no action
                                                         -----------------------------------------------------------------------------------------------
                          Year                             CO2 (million
                                                           metric tons)     CH4 (metric     N2O (metric       CO2 (%)         CH4 (%)         N2O (%)
                                                                               tons)           tons)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2023....................................................              -5          -5,160            -145               0               0               0
2024....................................................             -10         -10,121            -293              -1              -1              -1
2025....................................................             -17         -17,385            -514              -1              -1              -1
2026....................................................             -27         -27,382            -818              -2              -2              -2
2027....................................................             -39         -39,716          -1,174              -3              -2              -2
2028....................................................             -51         -52,913          -1,558              -4              -3              -3
2029....................................................             -63         -65,083          -1,915              -5              -4              -4
2030....................................................             -74         -76,908          -2,263              -6              -5              -5
2031....................................................             -85         -88,128          -2,592              -7              -6              -6
2032....................................................             -95         -99,017          -2,912              -7              -6              -7
2033....................................................            -105        -109,272          -3,214              -8              -7              -8
2034....................................................            -114        -118,720          -3,498              -9              -8              -8
2035....................................................            -122        -127,397          -3,756             -10              -8              -9
2036....................................................            -129        -135,037          -3,989             -11              -9             -10
2037....................................................            -136        -141,600          -4,193             -11             -10             -11
2038....................................................            -141        -147,293          -4,371             -12             -10             -11
2039....................................................            -146        -152,481          -4,529             -12             -10             -12
2040....................................................            -150        -156,884          -4,663             -13             -11             -12
2041....................................................            -154        -160,588          -4,774             -13             -11             -13
2042....................................................            -156        -163,579          -4,863             -13             -11             -13
2043....................................................            -159        -166,077          -4,937             -14             -12             -13
2044....................................................            -161        -168,294          -4,998             -14             -12             -14
2045....................................................            -162        -170,147          -5,049             -14             -12             -14
2046....................................................            -163        -171,666          -5,090             -14             -12             -14
2047....................................................            -164        -172,863          -5,122             -15             -12             -14
2048....................................................            -165        -173,945          -5,150             -15             -13             -14
2049....................................................            -166        -176,188          -5,169             -15             -13             -14
2050....................................................            -166        -178,391          -5,187             -15             -13             -15
                                                         -----------------------------------------------------------------------------------------------

[[Page 74489]]

 
    Sum.................................................          -3,125      -3,272,234         -96,735              -9              -8              -8
--------------------------------------------------------------------------------------------------------------------------------------------------------

B. Climate Change Impacts From GHG Emissions

    Elevated concentrations of GHGs have been warming the planet, 
leading to changes in the Earth's climate including changes in the 
frequency and intensity of heat waves, precipitation, and extreme 
weather events, rising seas, and retreating snow and ice. The changes 
taking place in the atmosphere as a result of the well-documented 
buildup of GHGs due to human activities are changing the climate at a 
pace and in a way that threatens human health, society, and the natural 
environment. While EPA is not making any new scientific or factual 
findings with regard to the well-documented impact of GHG emissions on 
public health and welfare in support of this rule, EPA is providing 
some scientific background on climate change to offer additional 
context for this rulemaking and to increase the public's understanding 
of the environmental impacts of GHGs.
    Extensive additional information on climate change is available in 
the scientific assessments and the EPA documents that are briefly 
described in this section, as well as in the technical and scientific 
information supporting them. One of those documents is EPA's 2009 
Endangerment and Cause or Contribute Findings for Greenhouse Gases 
Under section 202(a) of the CAA (74 FR 66496, December 15, 2009). In 
the 2009 Endangerment Finding, the Administrator found under section 
202(a) of the CAA that elevated atmospheric concentrations of six key 
well-mixed GHGs--CO2, methane (CH4), nitrous 
oxide (N2O), HFCs, perfluorocarbons (PFCs), and sulfur 
hexafluoride (SF6)--``may reasonably be anticipated to 
endanger the public health and welfare of current and future 
generations'' (74 FR 66523). The 2009 Endangerment Finding, together 
with the extensive scientific and technical evidence in the supporting 
record, documented that climate change caused by human emissions of 
GHGs (including HFCs) threatens the public health of the U.S. 
population. It explained that by raising average temperatures, climate 
change increases the likelihood of heat waves, which are associated 
with increased deaths and illnesses (74 FR 66497). While climate change 
also increases the likelihood of reductions in cold-related mortality, 
evidence indicates that the increases in heat mortality will be larger 
than the decreases in cold mortality in the U.S. (74 FR 66525). The 
2009 Endangerment Finding further explained that compared with a future 
without climate change, climate change is expected to increase 
tropospheric ozone pollution over broad areas of the U.S., including in 
the largest metropolitan areas with the worst tropospheric ozone 
problems, and thereby increase the risk of adverse effects on public 
health (74 FR 66525). Climate change is also expected to cause more 
intense hurricanes and more frequent and intense storms of other types 
and heavy precipitation, with impacts on other areas of public health, 
such as the potential for increased deaths, injuries, infectious and 
waterborne diseases, and stress-related disorders (74 FR 66525). 
Children, the elderly, and the poor are among the most vulnerable to 
these climate-related health effects (74 FR 66498).
    The 2009 Endangerment Finding also documented, together with the 
extensive scientific and technical evidence in the supporting record, 
that climate change touches nearly every aspect of public welfare \155\ 
in the U.S. with resulting economic costs, including: Changes in water 
supply and quality due to changes in drought and extreme rainfall 
events; increased risk of storm surge and flooding in coastal areas and 
land loss due to inundation; increases in peak electricity demand and 
risks to electricity infrastructure; and the potential for significant 
agricultural disruptions and crop failures (though offset to some 
extent by carbon fertilization). These impacts are also global and may 
exacerbate problems outside the U.S. that raise humanitarian, trade, 
and national security issues for the U.S. (74 FR 66530).
---------------------------------------------------------------------------

    \155\ The CAA states in section 302(h) that ``[a]ll language 
referring to effects on welfare includes, but is not limited to, 
effects on soils, water, crops, vegetation, manmade materials, 
animals, wildlife, weather, visibility, and climate, damage to and 
deterioration of property, and hazards to transportation, as well as 
effects on economic values and on personal comfort and well-being, 
whether caused by transformation, conversion, or combination with 
other air pollutants.'' 42 U.S.C. 7602(h).
---------------------------------------------------------------------------

    In 2016, the Administrator issued a similar finding for GHG 
emissions from aircraft under section 231(a)(2)(A) of the CAA.\156\ In 
the 2016 Endangerment Finding, the Administrator found that the body of 
scientific evidence amassed in the record for the 2009 Endangerment 
Finding compellingly supported a similar endangerment finding under CAA 
section 231(a)(2)(A), and also found that the science assessments 
released between the 2009 and the 2016 Findings ``strengthen and 
further support the judgment that GHGs in the atmosphere may reasonably 
be anticipated to endanger the public health and welfare of current and 
future generations'' (81 FR 54424).
---------------------------------------------------------------------------

    \156\ ``Finding that Greenhouse Gas Emissions From Aircraft 
Cause or Contribute to Air Pollution That May Reasonably Be 
Anticipated To Endanger Public Health and Welfare.'' 81 FR 54422, 
August 15, 2016. (``2016 Endangerment Finding'').
---------------------------------------------------------------------------

    Since the 2016 Endangerment Finding, the climate has continued to 
change, with new observational records being set for several climate 
indicators such as global average surface temperatures, GHG 
concentrations, and sea level rise. Additionally, major scientific 
assessments continue to be released that further advance our 
understanding of the climate system and the impacts that GHGs have on 
public health and welfare both for current and future generations. 
These updated observations and projections document the rapid rate of 
current and future climate change both globally and in the U.S.\157\ 
\158\ \159\ \160\
---------------------------------------------------------------------------

    \157\ USGCRP, 2018: Impacts, Risks, and Adaptation in the United 
States: Fourth National Climate Assessment, Volume II [Reidmiller, 
D.R., C.W. Avery, D.R. Easterling, K.E. Kunkel, K.L.M. Lewis, T.K. 
Maycock, and B.C. Stewart (eds.)]. U.S. Global Change Research 
Program, Washington, DC, USA, 1515 pp. doi: 10.7930/NCA4.2018. 
https://nca2018.globalchange.gov.
    \158\ Roy, J., P. Tschakert, H. Waisman, S. Abdul Halim, P. 
Antwi-Agyei, P. Dasgupta, B. Hayward, M. Kanninen, D. Liverman, C. 
Okereke, P.F. Pinho, K. Riahi, and A.G. Suarez Rodriguez, 2018: 
Sustainable Development, Poverty Eradication and Reducing 
Inequalities. In: Global Warming of 1.5 [deg]C. An IPCC Special 
Report on the impacts of global warming of 1.5 [deg]C above pre-
industrial levels and related global greenhouse gas emission 
pathways, in the context of strengthening the global response to the 
threat of climate change, sustainable development, and efforts to 
eradicate poverty [Masson-Delmotte, V., P. Zhai, H.-O. P[ouml]rtner, 
D. Roberts, J. Skea, P.R. Shukla, A. Pirani, W. Moufouma-Okia, C. 
P[eacute]an, R. Pidcock, S. Connors, J.B.R. Matthews, Y. Chen, X. 
Zhou, M.I. Gomis, E. Lonnoy, T. Maycock, M. Tignor, and T. 
Waterfield (eds.)]. In Press. https://www.ipcc.ch/sr15/chapter/chapter-5.
    \159\ National Academies of Sciences, Engineering, and Medicine. 
2019. Climate Change and Ecosystems. Washington, DC: The National 
Academies Press. https://doi.org/10.17226/25504.
    \160\ NOAA National Centers for Environmental Information, State 
of the Climate: Global Climate Report for Annual 2020, published 
online January 2021, retrieved on February 10, 2021, from https://www.ncdc.noaa.gov/sotc/global/202013.

---------------------------------------------------------------------------

[[Page 74490]]

C. Global Climate Impacts and Benefits Associated With the Final Rule's 
Estimated GHG Emissions Reductions

    Transportation is the largest source of GHG emissions in the U.S., 
making up 29 percent of all emissions. Within the transportation 
sector, light-duty vehicles are the largest contributor, 58 percent, to 
transportation GHG emissions in the U.S., and 17 percent of all 
emissions.\161\ Reducing GHG emissions, including the four GHGs 
affected by this program, will contribute toward the goal of holding 
the increase in the global average temperature to well below 2 [deg]C 
above pre-industrial levels, and subsequently reducing the probability 
of severe climate change related impacts including heat waves, drought, 
sea level rise, extreme climate and weather events, coastal flooding, 
and wildfires. While EPA did not conduct modeling to specifically 
quantify changes in climate impacts resulting from this rule in terms 
of avoided temperature change or sea-level rise, we did quantify the 
climate benefits by monetizing the emission reductions through the 
application of the social cost of greenhouse gases (SC-GHGs), as 
described in Section VII.D of this preamble.
---------------------------------------------------------------------------

    \161\ Inventory of U.S. Greenhouse Gas Emissions and Sinks: 
1990-2019 (EPA-430-R-21-005, published April 2021).
---------------------------------------------------------------------------

V. How would the final rule impact non-GHG emissions and their 
associated effects?

A. Impact on Non-GHG Emissions

    The model runs that EPA conducted estimated the inventories of non-
GHG air pollutants resulting from tailpipe emissions from light-duty 
cars and trucks, and the upstream emissions associated with the fuels 
used to power those vehicles (both at the refinery and the electricity 
generating unit). The tailpipe emissions of PM2.5, 
NOX, VOCs, CO and SO2 are estimated using 
emission factors from EPA's MOVES model. The tailpipe emission factors 
used have been updated since EPA's proposed rule to be identical to 
those used in NHTSA's recent CAFE NPRM.\162\ The upstream emissions are 
calculated using emission factors applied to the gallons of liquid 
fuels projected to be consumed and the kilowatt hours of electricity 
projected to be consumed. The upstream emission factors used in this 
final rule modeling have also been updated since EPA's proposed rule. 
The updated upstream emission factors are identical to those used in 
the recent NHTSA CAFE proposal and were generated using the DOE/Argonne 
GREET model.\163\ \164\ Table 35 presents the annual refinery and 
electricity generating unit upstream emission impacts for years 2023 
through 2050. See RIA Chapter 5.1 for more information on emission 
impacts. We estimate that the final standards will lead to reductions 
in non-GHG pollutants from the refinery sector and increases in non-GHG 
pollutants from the EGU sector. The projected net upstream 
NOX and PM2.5 reductions are smaller in the final 
rule compared to the proposal, and the projected net increase in 
upstream SO2 emissions is larger in the final rule compared 
to the proposal.
---------------------------------------------------------------------------

    \162\ 86 FR 49602, September 3, 2021.
    \163\ U.S. Department of Transportation National Highway Traffic 
Safety Administration, 2021. Technical Support Document: Proposed 
Rulemaking for Model Years 2024-2026 Light-Duty Vehicle Corporate 
Average Fuel Economy Standards, Section 5.2.
    \164\ U.S. Department of Energy, Argonne National Laboratory, 
Greenhouse gases, Regulated Emissions, and Energy use in 
Transportation (GREET) Model, Last Update: 9 Oct. 2020, https://greet.es.anl.gov/.
---------------------------------------------------------------------------

    On the whole, the final standards reduce non-GHG emissions and 
Section VII.A of this preamble details the substantial 
PM2.5-related health benefits associated with the non-GHG 
emissions reductions that this rule will achieve. Table 36 presents the 
annual tailpipe and total upstream inventory impacts for years 2023 
through 2050 and Table 37 presents the net annual inventory impacts for 
those same years. Specifically, we project net reductions in emissions 
of non-GHG pollutants from upstream sources, except for SO2. 
For tailpipe emissions we project initial increases from most non-GHG 
pollutants, except SO2, followed by decreases in all non-GHG 
pollutants over time. The initial increases in non-GHG tailpipe 
emissions in the years after the rule's implementation are due to 
projections about the gasoline-fueled LD vehicle population in the 
final rule scenario, including decreased scrappage of older vehicles, 
see Section III of this preamble. Increases in total upstream 
SO2 are due to increased EGU emissions associated with fleet 
penetration of electric vehicles.

     Table 35--Estimated Refinery and Electricity Generating Unit Non-GHG Emission Impacts of the Final Standards Relative to the No Action Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                          PM2.5 (U.S. tons)       NOX (U.S. tons)        SO2 (U.S. tons)        VOC (U.S. tons)        CO (U.S. tons)
                 Year                  -----------------------------------------------------------------------------------------------------------------
                                           EGU      Refinery      EGU      Refinery      EGU      Refinery      EGU      Refinery      EGU      Refinery
--------------------------------------------------------------------------------------------------------------------------------------------------------
2023..................................        111       -110       1,320     -1,226       1,154       -558         197     -1,941         699       -688
2024..................................        244       -222       2,898     -2,471       2,512     -1,118         437     -3,899       1,551     -1,392
2025..................................        417       -380       4,957     -4,231       4,260     -1,911         756     -6,713       2,681     -2,391
2026..................................        640       -595       7,601     -6,607       6,473     -2,984       1,174    -10,560       4,158     -3,745
2027..................................        857       -842      10,172     -9,329       8,577     -4,214       1,592    -15,010       5,632     -5,302
2028..................................      1,067     -1,099      12,667    -12,161      10,565     -5,494       2,011    -19,700       7,105     -6,930
2029..................................      1,291     -1,344      15,275    -14,850      12,836     -6,731       2,425    -24,132       8,571     -8,475
2030..................................      1,506     -1,581      17,773    -17,440      15,045     -7,930       2,821    -28,421       9,976     -9,968
2031..................................      1,704     -1,802      20,057    -19,858      17,106     -9,057       3,183    -32,456      11,262    -11,368
2032..................................      1,898     -2,018      22,283    -22,197      19,147    -10,154       3,536    -36,385      12,517    -12,729
2033..................................      2,078     -2,219      24,324    -24,373      21,060    -11,181       3,859    -40,068      13,669    -14,000
2034..................................      2,243     -2,408      26,254    -26,430      22,645    -12,139       4,187    -43,508      14,818    -15,196
2035..................................      2,389     -2,579      27,964    -28,286      24,029    -13,006       4,483    -46,623      15,853    -16,278
2036..................................      2,521     -2,732      29,497    -29,940      25,249    -13,781       4,753    -49,415      16,797    -17,247
2037..................................      2,636     -2,864      30,849    -31,373      26,304    -14,456       4,997    -51,846      17,646    -18,089
2038..................................      2,735     -2,979      31,996    -32,607      27,175    -15,040       5,210    -53,952      18,384    -18,819

[[Page 74491]]

 
2039..................................      2,806     -3,077      32,826    -33,659      27,772    -15,529       5,368    -55,763      18,930    -19,443
2040..................................      2,862     -3,159      33,480    -34,535      28,215    -15,938       5,498    -57,286      19,380    -19,966
2041..................................      2,900     -3,226      33,932    -35,240      28,481    -16,267       5,596    -58,526      19,716    -20,391
2042..................................      2,924     -3,277      34,212    -35,780      28,598    -16,520       5,667    -59,496      19,955    -20,721
2043..................................      2,939     -3,318      34,384    -36,211      28,621    -16,722       5,721    -60,285      20,134    -20,989
2044..................................      2,933     -3,349      34,312    -36,539      28,528    -16,869       5,719    -60,881      20,122    -21,179
2045..................................      2,921     -3,372      34,165    -36,788      28,371    -16,979       5,704    -61,342      20,067    -21,323
2046..................................      2,905     -3,389      33,977    -36,973      28,180    -17,058       5,682    -61,694      19,988    -21,430
2047..................................      2,883     -3,399      33,714    -37,083      27,927    -17,103       5,648    -61,923      19,866    -21,495
2048..................................      2,860     -3,407      33,436    -37,170      27,660    -17,137       5,612    -62,111      19,734    -21,545
2049..................................      2,851     -3,431      33,350    -37,475      27,512    -17,308       5,606    -62,238      19,706    -21,633
2050..................................      2,841     -3,454      33,249    -37,769      27,351    -17,473       5,597    -62,347      19,669    -21,713
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                  Table 36--Estimated Upstream and Tailpipe Non-GHG Emission Impacts of the Final Standards Relative to the No Action Scenario
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Upstream (U.S. tons)                                         Tailpipe emissions (U.S. tons)
                             Year                             ----------------------------------------------------------------------------------------------------------------------------------
                                                                  PM2.5         NOX          SO2          VOC           CO          PM2.5         NOX          SO2          VOC           CO
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2023.........................................................            1           94          596       -1,744           12             7          717          -37        1,003        6,505
2024.........................................................           22          427        1,394       -3,462          159             9        1,173          -77        1,693       10,048
2025.........................................................           37          726        2,349       -5,957          290             8        1,645         -133        2,424       13,248
2026.........................................................           45          994        3,490       -9,386          413             4        2,090         -208        3,149       15,356
2027.........................................................           15          843        4,363      -13,418          331            -4        2,399         -295        3,702       15,150
2028.........................................................          -32          505        5,072      -17,689          174           -21        2,383         -386        3,820        9,475
2029.........................................................          -53          425        6,105      -21,707           96           -46        2,108         -471        3,566         -474
2030.........................................................          -75          333        7,115      -25,601            8           -77        1,588         -554        2,962      -14,786
2031.........................................................          -99          199        8,049      -29,273         -106          -106        1,167         -633        2,469      -27,521
2032.........................................................         -120           85        8,994      -32,849         -212          -137          699         -709        1,896      -41,484
2033.........................................................         -141          -49        9,878      -36,209         -331          -168          228         -780        1,287      -55,715
2034.........................................................         -165         -177       10,506      -39,321         -377          -199         -241         -846          666      -70,103
2035.........................................................         -190         -322       11,023      -42,140         -425          -287       -1,250         -906       -2,905      -92,848
2036.........................................................         -211         -443       11,468      -44,661         -449          -321       -1,693         -959       -3,647     -106,860
2037.........................................................         -228         -524       11,848      -46,849         -444          -353       -2,079       -1,006       -4,323     -119,740
2038.........................................................         -244         -610       12,135      -48,742         -435          -383       -2,419       -1,046       -4,946     -131,691
2039.........................................................         -271         -833       12,243      -50,395         -512          -409       -2,698       -1,081       -5,495     -142,121
2040.........................................................         -297       -1,055       12,277      -51,788         -586          -434       -2,943       -1,110       -5,993     -151,549
2041.........................................................         -325       -1,308       12,214      -52,930         -674          -455       -3,138       -1,134       -6,422     -159,628
2042.........................................................         -353       -1,568       12,078      -53,829         -766          -473       -3,290       -1,153       -6,784     -166,420
2043.........................................................         -379       -1,827       11,899      -54,564         -855          -490       -3,416       -1,168       -7,117     -172,314
2044.........................................................         -415       -2,227       11,659      -55,162       -1,057          -503       -3,508       -1,178       -7,402     -177,017
2045.........................................................         -451       -2,624       11,392      -55,638       -1,256          -514       -3,575       -1,185       -7,660     -180,783
2046.........................................................         -483       -2,995       11,122      -56,012       -1,442          -523       -3,633       -1,191       -7,914     -184,085
2047.........................................................         -516       -3,368       10,823      -56,274       -1,629          -531       -3,675       -1,194       -8,135     -186,783
2048.........................................................         -548       -3,734       10,523      -56,499       -1,811          -538       -3,708       -1,196       -8,332     -189,005
2049.........................................................         -580       -4,124       10,204      -56,633       -1,926          -543       -3,729       -1,197       -8,488     -190,712
2050.........................................................         -613       -4,519        9,878      -56,749       -2,044          -547       -3,745       -1,198       -8,619     -192,095
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                                           Table 37--Estimated Non-GHG Net Emission Impacts of the Final Standards Relative to the No Action Scenario
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Emission impacts relative to no action (U.S. tons)                          Percent change from no action
                             Year                             ----------------------------------------------------------------------------------------------------------------------------------
                                                                  PM2.5         NOX          SO2          VOC           CO          PM2.5         NOX          SO2          VOC           CO
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2023.........................................................            9          811          559         -741        6,517             0            0            0            0            0
2024.........................................................           31        1,601        1,318       -1,769       10,207             0            0            1            0            0
2025.........................................................           45        2,371        2,217       -3,533       13,538             0            0            2            0            0
2026.........................................................           49        3,084        3,282       -6,237       15,769             0            0            2            0            0
2027.........................................................           11        3,242        4,068       -9,716       15,480             0            0            3           -1            0
2028.........................................................          -53        2,889        4,686      -13,869        9,649             0            0            4           -1            0
2029.........................................................          -99        2,534        5,633      -18,141         -378             0            0            4           -2            0
2030.........................................................         -152        1,921        6,560      -22,639      -14,778             0            0            5           -2            0
2031.........................................................         -205        1,366        7,416      -26,804      -27,627            -1            0            6           -3            0
2032.........................................................         -256          785        8,285      -30,953      -41,695            -1            0            7           -4           -1
2033.........................................................         -309          179        9,098      -34,922      -56,045            -1            0            7           -5           -1
2034.........................................................         -364         -417        9,660      -38,656      -70,480            -1            0            8           -6           -1
2035.........................................................         -477       -1,572       10,117      -45,045      -93,272            -2            0            8           -7           -2
2036.........................................................         -532       -2,136       10,508      -48,309     -107,310            -2           -1            8           -8           -3
2037.........................................................         -581       -2,603       10,842      -51,172     -120,183            -2           -1            9           -9           -3
2038.........................................................         -627       -3,030       11,088      -53,688     -132,126            -2           -1            9          -10           -4
2039.........................................................         -680       -3,531       11,162      -55,890     -142,633            -2           -1            9          -11           -5
2040.........................................................         -731       -3,998       11,167      -57,781     -152,135            -3           -1            9          -11           -5
2041.........................................................         -780       -4,445       11,080      -59,352     -160,302            -3           -1            9          -12           -6
2042.........................................................         -826       -4,859       10,925      -60,612     -167,186            -3           -2            9          -13           -7

[[Page 74492]]

 
2043.........................................................         -869       -5,242       10,731      -61,681     -173,168            -3           -2            9          -13           -7
2044.........................................................         -918       -5,735       10,481      -62,564     -178,073            -3           -2            9          -14           -8
2045.........................................................         -964       -6,199       10,207      -63,298     -182,039            -4           -2            9          -14           -8
2046.........................................................       -1,007       -6,629        9,931      -63,926     -185,527            -4           -2            8          -15           -9
2047.........................................................       -1,047       -7,044        9,630      -64,409     -188,412            -4           -3            8          -15           -9
2048.........................................................       -1,085       -7,441        9,326      -64,831     -190,816            -4           -3            8          -16          -10
2049.........................................................       -1,123       -7,854        9,007      -65,121     -192,639            -4           -3            8          -16          -10
2050.........................................................       -1,161       -8,264        8,680      -65,368     -194,139            -5           -3            7          -16          -11
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

B. Health and Environmental Effects Associated With Exposure to Non-GHG 
Pollutants Impacted by the Final Standards

    Along with reducing GHG emissions, these standards will also have 
an impact on non-GHG (criteria and air toxic pollutant) emissions from 
vehicles and non-GHG emissions that occur during the extraction, 
transport, distribution and refining of fuel and from power plants. The 
non-GHG emissions that will be impacted by the standards contribute, 
directly or via secondary formation, to concentrations of pollutants in 
the air which affect human and environmental health. These pollutants 
include particulate matter, ozone, nitrogen oxides, sulfur oxides, 
carbon monoxide and air toxics. Chapter 7 of the RIA includes more 
detailed information about the health and environmental effects 
associated with exposure to these non-GHG pollutants. This includes 
pollutant-specific health effect information, discussion of exposure to 
the mixture of traffic-related pollutants in the near road environment, 
and effects of particulate matter and gases on visibility, effects of 
ozone on ecosystems, and the effect of deposition of pollutants from 
the atmosphere to the surface.

C. Air Quality Impacts of Non-GHG Pollutants

    Photochemical air quality modeling is necessary to accurately 
project levels of most criteria and air toxic pollutants, including 
ozone and PM. Air quality models use mathematical and numerical 
techniques to simulate the physical and chemical processes that affect 
air pollutants as they disperse and react in the atmosphere. Based on 
inputs of meteorological data and source information, these models are 
designed to characterize primary pollutants that are emitted directly 
into the atmosphere and secondary pollutants that are formed through 
complex chemical reactions within the atmosphere. Photochemical air 
quality models have become widely recognized and routinely utilized 
tools in regulatory analysis for assessing the impacts of control 
strategies.
    Section V.A of this preamble presents projections of the changes in 
non-GHG emissions due to the standards. Section VII.E of this preamble 
describes the monetized non-GHG health impacts of this final rule which 
are estimated using a reduced-form benefit-per-ton approach. The 
atmospheric chemistry related to ambient concentrations of 
PM2.5, ozone and air toxics is very complex, and making 
predictions based solely on emissions changes is extremely difficult. 
However, based on the magnitude of the emissions changes predicted to 
result from the standards, we expect that there will be very small 
changes in ambient air quality in most places. The changes in tailpipe 
and upstream non-GHG emissions that were inputs to the air quality 
modeling analysis for the 2012 rule were larger than the changes in 
non-GHG emissions projected for this final rule. The air quality 
modeling for the 2012 rule projected very small impacts across most of 
the country, with the direction of the small impact (increase or 
decrease) dependent on location.\165\ The next phase of LD standards 
will be considered in a separate, future multi-pollutant rulemaking for 
model years 2027 and beyond. We are considering how best to project air 
quality impacts from changes in non-GHG emissions in that future 
rulemaking analysis.
---------------------------------------------------------------------------

    \165\ U.S. EPA, 2012. Regulatory Impact Analysis: Final 
Rulemaking for 2017-2025 Light-Duty Vehicle Greenhouse Gas Emission 
Standards and Corporate Average fuel Economy Standards. EPA-420-R-
12-016.
---------------------------------------------------------------------------

VI. Basis for the Final GHG Standards Under CAA Section 202(a)

    In this section, EPA discusses the basis for our final standards 
under our authority in CAA section 202(a), how we are balancing the 
factors considered in our assessment that the final standards are 
appropriate, how this balancing of factors differs from that used in 
the SAFE rule, and how further technical analysis and consideration of 
the comments we received has informed our decision on the final 
standards. This section draws from information presented elsewhere in 
this preamble, including EPA's statutory authority in Section II.A.3 of 
this preamble, our technical analysis in Section III of this preamble, 
GHG emissions impacts in Section IV of this preamble, non-GHG emissions 
impacts in Section V, and the total costs and benefits of the rule in 
Section VII of this preamble.
    EPA is finalizing standards for MYs 2023 and 2024 as proposed and 
more stringent standards than proposed for MYs 2025 and 2026. Supported 
by analytical updates that respond to public comments on battery costs 
and other model inputs, our analysis shows that ICE vehicles are 
projected to remain the large majority of new vehicles in this 
timeframe, and that together with moderate levels of electrification, 
the continued adoption of advanced gasoline vehicle GHG-reducing 
technologies already existing in the market will be sufficient to meet 
the final standards. Our technical analysis includes projections of 
increased BEV+PHEV penetration that are reasonable and commensurate 
with other industry projections for this same time period. Taking into 
consideration the full technical record, public comments on the 
proposal, and the available compliance flexibilities, we believe the 
final standards represent an appropriate level of stringency, 
considering relevant factors as discussed below.
    EPA has considered the technological feasibility and cost of the 
final standards, available lead time for manufacturers, and other 
relevant factors under section 202(a) of the CAA. Based on our 
analysis, discussed in greater detail in other sections of this 
preamble and Chapter 2 of the RIA, we believe that the final standards 
are reasonable and appropriate. Greater reductions in GHG emissions 
from light duty vehicles over these model years are

[[Page 74493]]

both feasible and warranted as a step to reduce the impacts of climate 
change on public health and welfare. In addition, the rule will achieve 
reductions in emissions of some criteria pollutants and air toxics that 
will achieve benefits for public health and welfare. Our analysis for 
this rule supports the conclusion that standards for MYs 2023-2026 are 
technologically feasible and the costs of compliance for manufacturers 
are reasonable. In addition, we project that there will be net savings 
to consumers over the lifetime of vehicles meeting the standards, which 
we think is a more significant consideration than the anticipated 
increase in the initial cost for new vehicles. We also note the 
benefits of the program are projected to significantly exceed the 
costs.
    In selecting the final standards, we considered a range of more- 
and less-stringent alternatives. Compared to the most stringent 
alternative that EPA considered (see Section III.D of this preamble), 
the final standards achieve nearly the same cumulative GHG, criteria 
pollutant, and air toxics emissions reductions, and a similar level of 
BEV+PHEV penetration in MY 2026. However, the final standards have 
lower costs during MYs 2023 and 2024, which EPA considered when 
determining the appropriate balance between emissions reductions and 
cost, in the limited lead time available in these earlier years. 
Compared to the less stringent proposed standards, the final standards 
achieve greater emissions reductions at similar costs to those we had 
estimated for the proposed standards in the proposed rule, given the 
updates to our cost estimates based on public comments and updated 
data.

A. Consideration of Technological Feasibility and Lead Time

    The technological readiness of the auto industry to meet the final 
standards for MYs 2023-2026 is best understood in the context of the 
decade-long light-duty vehicle GHG emission reduction program in which 
the auto industry has developed and introduced on an ongoing basis ever 
more effective GHG-reducing technologies. The result is that now 
manufacturers have access to a wide range of GHG-reducing technologies, 
many of which were in the early stages of development at the beginning 
of EPA's program in 2012, and which still have potential to reach 
greater penetration across all new vehicles. (See Sections III.B and 
III.C of this preamble and Chapter 2 of the RIA for a discussion of 
technological progression, status of technology penetration, and our 
assessment of continuing technology penetration across the fleet.)
    In addition to the technologies that were anticipated by EPA in the 
2012 rule to make significant contributions toward compliance with 
standards for this timeframe, the recent technological advancements and 
successful implementations of electrification have been particularly 
significant and have greatly increased the available options for 
manufacturers to meet more stringent standards. Because BEVs and PHEVs 
have GHG emissions well below their vehicle footprint targets, even a 
relatively small number of these vehicles can have a large influence on 
a manufacturer's compliance credits in a given year.
    As part of EPA's evaluation of the technological feasibility of the 
final standards, we have modeled manufacturers' decisions in choosing 
among available emission reduction technologies to incorporate in their 
vehicles, taking into account both the projected costs and 
effectiveness of the technologies. This analytic approach is consistent 
with EPA's past analyses. See Section III.C of this preamble and 
Chapter 2 of the RIA. The analysis demonstrates that a wide variety of 
emission reducing technologies are already available for manufacturers 
to incorporate into their vehicles within the time frame of the final 
standards.
    Our updated analysis projects that about 17 percent of vehicles 
meeting the MY 2026 final standards will be BEVs or PHEVs (See Section 
III.B.3 of this preamble). In making this projection, we are 
considering both the influence of the standards in that year and the 
availability and cost of the various available technologies. Among the 
updates for this final rule analysis, our updated battery costs are one 
significant factor. For the final rule assessment, EPA is projecting 
lower battery costs over this timeframe compared to our projections in 
the proposed rule. We believe that together with other analysis updates 
(described further in Section III of this preamble and Chapter 2 of the 
RIA), the cost for manufacturers to implement BEV and PHEV technologies 
is more accurately represented.
    In addition to considering the contribution of BEV and PHEV 
technologies in the overall feasibility of the standards, EPA also 
considered the continued advancements and further fleet penetration of 
internal combustion engine (ICE) powertrain emissions-reducing 
technology. As was the case for each of the prior EPA assessments for 
this timeframe, the large majority of vehicles are projected to remain 
ICE (non-BEV+PHEVs) under the final standards (e.g., ICE levels are 
projected to be 83 percent in MY 2026). As shown in more detail in 
Chapter 4 of the RIA, together with moderate levels of electrification, 
the final standards can be met by continued adoption of advanced ICE 
technologies already existing in the market. We believe the 
penetrations of existing emissions-reducing ICE technologies projected 
by our analysis support our conclusion that the final standards are 
appropriate.
    EPA believes the technological achievements already developed and 
applied to vehicles within the current new vehicle fleet will enable 
the industry to achieve the final standards even without the 
development of new technologies beyond those already widely available. 
Rather, in response to the increased stringency of the final standards, 
automakers would be expected to adopt such technologies at an 
increasing pace across more of their vehicle fleets. As we discuss 
further below, our assessment shows that a large portion of the current 
fleet (MY 2021 vehicles), across a wide range of vehicle segments, 
already meets the MY 2023 footprint-based GHG targets being finalized 
here. Compliance with the final standards will necessitate greater 
implementation and pace of technology penetration through MY 2026 using 
existing GHG reduction technologies, including further deployment of 
BEV and PHEV technologies.
    Another factor in considering the feasibility of the final 
standards is the fact that five automakers voluntarily entered into the 
California Framework Agreements with the California Air Resources 
Board, first announced in July 2019, to meet more stringent GHG 
emission reduction targets nationwide than the relaxed standards in the 
SAFE rule.\166\ These voluntary actions by automakers that collectively 
represent nearly 30 percent of the U.S. vehicle market speak directly 
to the feasibility of meeting standards at least as stringent as the 
emission reduction targets under the California Framework Agreements. 
As discussed in Section II.A.8 of this preamble, the California 
Framework Agreements were a consideration in our assessment of the 
revised EPA standards.
---------------------------------------------------------------------------

    \166\ https://ww2.arb.ca.gov/resources/documents/framework-agreements-clean-cars (last updated on May 22, 2021).
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    In the SAFE rulemaking EPA concluded that the projected level of 
advanced technologies was ``too high from a consumer-choice 
perspective'' and ultimately could lead to automakers

[[Page 74494]]

changing the vehicle types they offer.\167\ EPA currently does not 
believe these conclusions are accurate, even with the higher technology 
penetration rates for BEVs and PHEVs that we project in this rulemaking 
compared to rates that we projected in the SAFE rulemaking. Rather, 
EPA's judgment is that the history of significant developments in 
automotive offerings over the last ten years supports the conclusion 
that automakers are capable of deploying a wide range of advanced 
technologies across the entire vehicle fleet, and that consumers remain 
interested and willing to purchase vehicles with advanced technologies. 
Reinforcing this updated judgment are the recent automaker 
announcements (reviewed in Section III.C of this preamble) signaling an 
accelerating transition to electrified vehicles across a wide range of 
vehicle segments, including not only passenger cars and SUVs but also 
including examples of light-duty pickup trucks and minivans. EPA sees 
no reason why the standards revised by this final rule would 
fundamentally alter such trends in technology deployment.
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    \167\ 85 FR 25116.
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    We believe that the continuation of trends already underway, as 
exemplified in part by the aforementioned public announcements about 
manufacturers' plans to transition to electrified vehicles, as well as 
continuing advancements in EV technology, support the feasibility of 
this level of BEV+PHEV penetration during the time period of the rule. 
EPA also believes that current levels and trends, which include 
significant ongoing and near-term growth, of public and private 
charging infrastructure are consistent with the projected levels of 
BEV+PHEV penetration.\168\ Moreover, EPA is committed to encouraging 
the rapid development and deployment of zero-emission vehicles, and we 
are finalizing compliance flexibilities and incentives to support this 
transition (see Section II.B.1 of this preamble).
---------------------------------------------------------------------------

    \168\ Brown, A., A. Schayowitz, and E. Klotz (2021). ``Electric 
Vehicle Infrastructure Trends from the Alternative Fueling Station 
Locator: First Quarter 2021.'' National Renewable Energy Laboratory 
Technical Report NREL/TP-5400-80684, https://afdc.energy.gov/files/u/publication/electric_vehicle_charging_infrastructure_trends_first_quarter_2021.pdf, accessed 11/3/2021.
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    As noted above, we are projecting that BEVs and PHEVs can play a 
significant role in complying with the final standards. While not all 
manufacturers will introduce these technologies into their lineups at 
the same rate, a robust market exists for credit trading between 
manufacturers, as discussed further below, which has enabled more 
manufacturers to access the credits generated by the implementation of 
BEVs and PHEVs by other manufacturers.
    In our modeling of manufacturer decisions and technology 
applications, the current and previous assessments of potential 
standards for this timeframe have relied primarily on projections that 
do not account for credit trading between manufacturers. When credits 
are available for less than the marginal cost of compliance, EPA 
anticipates that an automaker might choose to adopt a compliance 
strategy relying on credits.\169\ As noted in the proposal, EPA 
recognizes that it previously considered that some manufacturers may be 
unwilling to design a compliance strategy based on purchase of credits 
from another manufacturer. However, based in part on our review of the 
evidence of active credit trading cataloged in the annual EPA 
Automotive Trends Report 170 171 and consideration of public 
comments, we conclude there is increased acceptance of credit trading 
among manufacturers and that it is appropriate to recognize that 
manufacturers consider credit trading as a compliance strategy. For 
both of these reasons, we believe it is appropriate to consider the 
effect of credit trading between firms in our assessment of the 
feasibility of the final standards.
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    \169\ ``FCA historically pursued compliance with fuel economy 
and greenhouse gas regulations in the markets where it operated 
through the most cost effective combination of developing, 
manufacturing and selling vehicles with better fuel economy and 
lower GHG emissions, purchasing compliance credits, and, as allowed 
by the U.S. federal Corporate Average Fuel Economy (``CAFE'') 
program, paying regulatory penalties. The cost of each of these 
components of FCA's strategy has increased and is expected to 
continue to increase in the future. The compliance strategy for the 
combined company is currently being assessed by Stellantis 
management.'' Stellantis N.V. (2020). ``Annual Report and Form 20-F 
for the year ended December 31, 2020.''
    \170\ More than 10 vehicle firms collectively have participated 
in 70 credit trading transactions since the inception of EPA's 
program through MY 2019, including many of the largest automotive 
firms. (See EPA Report 420-R-21-003 page 110 and Figure 5.15, 
January 2021).
    \171\ Credit trading between firms has occurred throughout the 
nearly ten year history of the EPA light-duty vehicle GHG program, 
including during MY 2012, the first year (See EPA Report 420-R-14-
011, April 2014).
---------------------------------------------------------------------------

    The potential contribution of traded credits towards a 
manufacturer's compliance strategy is magnified as more BEVs and PHEVs 
are introduced into the fleet. Because the standards are largely set 
assuming the overall fleet will be largely ICE vehicles, a manufacturer 
who produces more than a moderate number of BEVs and PHEVs may end up 
with GHG credits that could expire if not used internally or sold to 
another manufacturer. EPA believes that credit trading will continue to 
be an important compliance flexibility that manufacturers will take 
advantage of, especially when differences and timing of product 
strategies are likely to persist across manufacturers.
    As an additional way to evaluate the potential effect of credit 
trading on the auto industry's compliance costs, EPA conducted a 
sensitivity analysis to evaluate the potential contribution of credit 
trading between manufacturers towards compliance in MYs 2023 and 2024 
(as well as the later MYs), and the more realistic treatment of banked 
credits which are otherwise modeled as unused in our primary analysis 
which assumes no trading. Under this scenario, credits that are 
generated by one manufacturer can be used by another manufacturer if it 
results in an overall reduction in compliance costs.\172\ The results 
of this sensitivity analysis, presented in RIA 4.1.5.1 under the 
`perfect trading' case, show that by accounting for credit trading 
between manufacturers the projected vehicle costs are reduced 
dramatically from $330 without trading to $147 with trading in MY 2023, 
and from $534 to $360 in MY 2024. Considering lead-time for these 
earlier model years, these results illustrate how credit trading allows 
manufacturers to meet the standards in a more cost-effective manner 
from an overall industry perspective, which can involve some 
manufacturers applying additional technology and selling credits while 
other manufacturers might rely on purchasing credits in lieu of adding 
technology. We would consider any analysis which assumes all 
manufactures participate in a frictionless and transparent market to be 
a bounding representation of how credits might actually be traded 
between manufacturers. It is likely that the actual market behavior 
will lie somewhere between our no-trading (central case) and a 
frictionless market with all manufacturers. We believe our modeling of 
the `perfect trading' sensitivity case, with two groups of 
manufacturers participating in independent markets, will be closer to 
actual credit trading behavior than the no-trading case. Note that the 
results of our central case

[[Page 74495]]

analysis, even without accounting for trading between manufacturers, 
projects feasible compliance pathways for MYs 2023 and 2024.
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    \172\ Note that the fleet was divided between non-Framework and 
Framework manufacturers, and trading was assumed to occur for 
manufacturers within those groups, but not between. This is a 
relatively more restrictive assumption than true ``perfect'' 
trading, that will tend to increase the likelihood of credits going 
unused or applied inefficiently, and thus potentially higher costs 
than in a true perfect trading scenario.
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    EPA also received comments which cited independent analyses of how 
the industry's existing bank of credits can contribute towards meeting 
the proposed standards for MYs 2023 and 2024. UCS provided in their 
comments modeling results generated using a version of the CCEMS model 
which had been modified to include manufacturer credit trading. UCS 
also included the modeling restriction that non-Framework manufacturers 
would continue with technology adoption in MY2023 as projected under 
the less stringent SAFE standards. UCS concluded that with the use of 
existing banked credits and maintaining product plans projected under a 
no-action case, there is ``sufficient credit availability for 
manufacturers to comply with the proposed MY2023 and 2024 standards, 
even without resorting to additional technology deployment or credit 
carryback from improvements made post-MY2024.'' Similarly, EDF cited 
recent modeling results generated using the OMEGA model, concluding 
that ``the analysis demonstrates that automakers will be able to comply 
with the proposed MY 2023 standard largely through the application of 
existing credits.'' The commenter's analysis supported this conclusion 
even under the most conservative assumption where non-Framework 
manufacturers did not have access to credits held through MY2020 by 
Framework manufacturers, had limited use of off-cycle credits, and only 
reduced tailpipe GHG emissions along the trajectory of the SAFE rule's 
MY2021-2023 requirements. In other words, these commenters concluded 
that automakers could comply with the model year 2023 and 2024 
standards without adjusting their existing product plans at all, simply 
by acquiring a portion of the large bank of available credits (and this 
analysis did not even consider the flexibilities available to 
manufacturers of carrying back credits earned in future years). EPA 
agrees with the commenters' central conclusion that the standards can 
be met in MYs 2023 and 2024 only with the technology deployment that 
would have been expected under the SAFE rule standards, the voluntary 
actions taken by some manufacturers beyond the SAFE standards (e.g., 
the California Framework agreements), and the effective utilization of 
existing credits. This further reinforces that the lead time for the 
MYs 2023 and 2024 standards is sufficient.
    In any given model year, some vehicles will be ``credit 
generators,'' over-performing compared to the footprint-based 
CO2 target in that model year, while other vehicles will be 
``debit generators'' and under-performing against their footprint-based 
targets. Together, an automaker's mix of credit-generator and debit-
generator vehicles contribute to its sales-weighted fleet average 
CO2 performance, compared to its standard, for that year. If 
a manufacturer's sales-weighted fleet CO2 performance is 
better than its fleet average standard at the end of the model year, 
those credits can be banked for the automaker's future use in certain 
years (under the credit carry-forward provisions) or sold to other 
manufacturers (under the credit trading provisions). Likewise, if a 
manufacturer's sales-weighted fleet CO2 performance falls 
short of its fleet average standard at the end of a model year, the 
automaker can use banked credits or purchased credits to meet the 
standard. These provisions of the GHG credit program were designed to 
recognize that automakers typically have a multi-year redesign cycle 
and not every vehicle will be redesigned every year to add GHG-reducing 
technology. Moreover, when GHG-reducing technology is added, it will 
generally not achieve emissions reductions corresponding exactly to a 
single year-over-year change in stringency of the standards. 
Furthermore, in recognition of the possibility that a manufacturer 
might comply with a standard for a given model year with credits earned 
in a future model year (under the allowance for ``credit carryback''), 
a manufacturer may also choose to carry a deficit forward up to three 
years before showing compliance with that model year.
    EPA examined manufacturer certification data to assess the extent 
to which MY 2021 vehicles already being produced and sold today would 
be credit generators compared to the model year 2023 targets 
(accounting for projected off-cycle and air conditioning credits). As 
detailed in Chapter 2.4 of the RIA, automakers are selling 
approximately 216 vehicle models (60 percent of which are advanced 
gasoline technology vehicles) that would be credit generators compared 
to the proposed model year 2023 targets, and they appear in nearly all 
light-duty vehicle market segments. This information supports our 
conclusion about the feasibility of vehicles with existing technologies 
meeting the MY 2023 standards. We also considered the ability of MY 
2021 vehicles to generate credits based on the MY 2021 and MY 2022 
standards relaxed in the SAFE rule. Of the 1370 distinct MY 2021 
vehicle models, EPA's analysis (RIA, Chapter 2.4) indicates that 336 of 
these models (25 percent of today's new vehicle fleet offerings) are 
credit generators for the MY 2022 SAFE standards: It can be assumed 
that those models are also generating credits for the MY 2021 
standards.
    This represents an opportunity for manufacturers to build their 
credit banks for both MY 2021 and MY 2022 and carry those credits 
forward to help meet the MY 2023-2026 standards. These data demonstrate 
that the technology to meet these standards is available today, as well 
as opportunities for manufacturers to sell more of the credit-generator 
vehicles as another available strategy to generate credits that will 
help them comply with the model year 2023 and later standards. Our 
analysis clearly shows this could be done within vehicle segments to 
maintain consumer choice (we would not expect that overall car/truck 
fleet mix would shift), as credit-generating vehicles exist across 
vehicle segments, representing 95 percent of vehicle sales. Under the 
fleet-average based standards, manufacturers have multiple feasible 
paths to compliance, including varying sales volumes of credit 
generating vehicles, adopting GHG-reducing technologies, and 
implementing other credit strategies and incentive provisions including 
those finalized in this rule. Pricing strategy is a well-documented 
approach \173\ to shifting a manufacturer's sales mix to achieve 
compliance. As UCS mentioned in their comments, General Motors 
published

[[Page 74496]]

literature \174\ on its own pricing strategy model it uses to make 
decisions on how best to motivate consumers into purchasing alternate 
vehicles that help achieve fleetwide CAFE compliance.
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    \173\ E.g., When fuel economy standards were not footprint-
based, less efficient vehicles were priced higher than more 
efficient vehicles to encourage sales of the latter. Austin, D., and 
T. Dinan (2004). ``Clearing the air: The costs and consequences of 
higher CAFE standards and increased gasoline taxes.'' Journal of 
Environmental Economics and Management 50: 562-582. Greene, D., P. 
Patterson, M. Singh, and J. Li (2005). ``Feebates, rebates, and gas-
guzzler taxes: A study of incentives for increased fuel economy.'' 
Energy Policy 33: 757-775 found that automakers were more likely to 
add technology than use pricing mechanisms to achieve standards. 
Whitefoot, K., M. Fowlie, and S. Skerlos (2017). ``Compliance by 
Design: Influence of Acceleration Trade-offs on CO2 
Emissions and Costs of Fuel Economy and Greenhouse Gas 
Regulations.'' Environmental Science and Technology 51: 10307-10315 
found evidence consistent with automakers using trade-offs with 
acceleration as yet another path to comply with fuel economy 
standards. However, EPA's Trends Report (420-R-21-003 Figure 3.11 
and Figure 3.15) shows that manufacturers have proven capable of 
increasing both fuel economy and acceleration performance 
simultaneously.
    \174\ Biller, S., and Swann, J. (2006). ``Pricing for 
Environmental Compliance in the Auto Industry.'' Interfaces 36(2): 
118-125. https://pubsonline.informs.org/doi/abs/10.1287/inte.1050.0174.
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    The availability of current models across a range of vehicle 
segments meeting the final standards is notable. EPA recognizes that 
auto design and development is a multi-year process, which imposes some 
constraints on the ability of manufacturers to immediately redesign 
vehicles with new technologies. However, EPA also understands that this 
multi-year process means that the industry's product plans developed in 
response to EPA's 2012 GHG standards rulemaking for MYs 2017-2025 have 
largely continued, notwithstanding the SAFE rule that was published on 
April 30, 2020 and that did not relax standards until MY 2021. In their 
past comments on EPA's light-duty GHG programs, some automakers broadly 
stated that they generally require about five years to design, develop, 
and produce a new vehicle model.\175\ Under that schedule, it would 
follow that in most cases the vehicles that automakers will be selling 
during the first years of this MY 2023-26 program were already designed 
under the original, more stringent GHG standards finalized in 2012 for 
those model years. At the time of the proposal of these final 
standards, the relaxed GHG standards under the SAFE rule had been in 
place for little more than one year. During this time, the ability of 
the industry to commit to a change of plans to take advantage of the 
SAFE rule's relaxed standards, especially for MYs 2023 and later, was 
highly uncertain in light of pending litigation,\176\ and concern was 
regularly expressed across the auto industry over the uncertain future 
of the SAFE standards.
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    \175\ For example, in its comments on the 2012 rule, Ford stated 
that manufacturers typically begin to firm up their product plans 
roughly five years in advance of actual production. (Docket OAR-
2009-0472-7082.1, p. 10.)
    \176\ See Competitive Enterprise Institute v. NHTSA, D.C. Cir. 
No. 20-1145 (and consolidated cases brought by several states, 
localities, environmental and public organizations, and others), 
filed on May 1, 2020 and later dates.
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    In its comments, the Alliance emphasized ``the importance and 
significance of design cycles on real world response to changes 
proposed in today's policy. DOT and EPA jointly proposed the SAFE 
Vehicles Rule on August 24, 2018, signaling some probability of changes 
in federal regulations on GHG and CAFE. It is reasonable to expect that 
some manufacturers updated production plans for new vehicles 
accordingly, and consistent with the corporate strategies, for some of 
the affected model years in the SAFE proposal (MYs 2021-2024, for 
instance).'' If it were indeed the case that auto manufacturers updated 
product plans based on the SAFE proposed rule as a signal of policy 
changes, then it also seems reasonable that automakers might have 
similarly initiated production planning to prepare for potentially more 
stringent standards in response to the President's January 21, 2021 
Executive Order 13990 directing EPA to review the SAFE rule standards, 
or if not then when EPA's proposed rule issued later in 2021. In any 
case, EPA's modeling reflects the significance of design cycles, and is 
not dependent on manufacturers having retained their pre-SAFE product 
strategies without change. While EPA anticipates that different 
manufacturers will adopt different compliance strategies for the 
standards established by this rule, EPA believes, based on the 
availability of technologies, the results of its modeling, and the 
flexibilities of the program, that these standards can be achieved by 
manufacturers at a reasonable cost.
    In fact, due in part to this uncertainty, five automakers 
voluntarily agreed to more stringent national emission reduction 
targets under the California Framework Agreements. Therefore, the 
automakers' own past comments regarding product plan development and 
the regulatory and litigation history of the GHG standards since 2012 
support EPA's expectation that automakers remain largely on track in 
terms of technological readiness within their product plans to meet the 
approximate trajectory of increasingly stringent standards initially 
promulgated in 2012. Although we do not believe that automakers have 
significantly changed their product plans in response to the SAFE final 
rule issued in 2020, any that did would have done so relatively 
recently and there is reason to expect that, for any automakers that 
changed their plans after the SAFE rule, the automakers' earlier plans 
could be reinstated or adapted with little change. We also note that 
some automakers may have adopted product plans to over comply with the 
more stringent, pre-SAFE standards, with the intention of selling 
credits to other automakers. For these automakers, the final standards 
of this rule reduce or eliminate the sudden disruption to product plans 
caused by the SAFE rule.
    Despite the relaxed SAFE standards in the U.S., manufacturers have 
continued to advance technology deployment in response to steadily more 
stringent standards in other global markets. In comments referenced by 
CARB, Roush provided further justification that adequate lead time and 
available technology already exist, in part, due to global regulatory 
pressures. Roush indicates that, globally, manufacturers have been 
developing and implementing technology to meet international standards 
more stringent than in the U.S., and regularly incorporate these 
technologies into U.S. products.
    EPA considers this an additional aspect of its analysis that 
mitigates concerns about lead time for manufacturers to meet the final 
standards beginning with the 2023 model year. We see no reason to 
expect that the major GHG-reducing technologies that automakers have 
already developed and introduced, or have already been planning for 
near-term implementation, will not be available for model year 2023-
2026 vehicles. Thus, in contrast to the situation that existed prior to 
EPA's adoption of the initial light-duty GHG standards in the 2012 
rule, automakers now have had the benefit of at least 8 to 9 years of 
planning and development for increasing levels of GHG-reducing 
technologies in preparation for meeting the final standards.
    EPA sought and received comment on generating credits against the 
MY 2021 and MY 2022 SAFE standards in the context of lead time for the 
standards in this rulemaking. The California Attorney General commented 
that for MY 2023, automakers can comply with standards at least as 
stringent as EPA's proposed preferred alternative without the use of 
the credit banks they will likely hold coming into that year. Those 
banks, including the windfall credits available under the SAFE 
standards, support EPA's consideration of its Alternative 2 standards 
for MY 2023 and underscore that EPA should not finalize standards less 
stringent than its preferred alternative for that model year. The 
California Attorney General commented further that if EPA were to adopt 
MY 2023 standards weaker than its preferred alternative (i.e., the 
Alternative 1 standards), they would support some form of discounting 
of the credits generated during MYs 2021-2022. In their comments, CARB 
argued that EPA should protect against what it views as windfall 
credits from manufacturers over-complying with the SAFE standards in 
MYs 2021 and 2022. CARB believes that auto manufacturers

[[Page 74497]]

were on a path to compliance with the original 2012 standards, those 
plans should not have been changed by the 2020 SAFE rule, and thus 
credits generated off the relaxed SAFE standards should be considered 
windfall and not be made available to offset future compliance.
    EPA has considered the comments but is not finalizing any changes 
to the existing credit generating or credit carry-forward provisions 
for the MY 2021 and 2022 standards. While we appreciate the view of 
commenters that manufacturers could have feasibly met more stringent 
standards in MYs 2021 and 2022, we believe the credit system is an 
integral part of the design of the GHG standards, which allow for 
multi-year compliance strategies. We think it would be inappropriate to 
deny any credits for manufacturers who outperformed their applicable 
footprint standards in those years, and choosing a more stringent 
compliance baseline now for credit generation would be difficult in 
light of the significant increase in stringency for MY 2023. In 
addition to CARB's comments, EPA also considered the recent performance 
of the auto industry in meeting the GHG standards; in MY 2020 the 
industry-wide average performance was 6 g/mile above the industry-wide 
average standard and compliance was achieved by many manufacturers 
through applying banked credits.\177\ Rather than denying or 
discounting credits, we have considered the relative stringency of the 
MY 2021 and MY 2022 standards as part of our consideration of the 
appropriate MY 2023-2026 standards. In light of the implementation 
timeframe of the final standards beginning in model year 2023, we are 
continuing to allow manufacturers to generate credits against the SAFE 
standards in model years 2021 and 2022. We are not changing the 
existing 5-year credit carry-forward provision for credits generated in 
model years 2021 and 2022, so those credits can be carried forward 
under the existing regulations to facilitate the transition from the 
SAFE standards to the final standards. We believe our approach in this 
rulemaking on revising credit provisions appropriately balances the 
benefits of credits, especially for compliance in earlier model years, 
with the benefits of achieving greater emissions reductions. EPA will 
consider future program provisions for credits in the context of future 
standards and timing.
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    \177\ Trends Report, Figure ES-8.
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    In summary, manufacturers have access to a wide range of GHG-
reducing technologies and have made significant technological advances 
in recent years, which together provide ample evidence of the 
technological feasibility of the final standards particularly in light 
of the wide range of credit and flexibility strategies, as well as 
fleet mix strategies, that manufacturers can marshal to comply with the 
standards.
    In considering feasibility of the final standards EPA also 
considered the impact of available compliance flexibilities on 
automakers' compliance options, including the additional four 
compliance flexibility options we are finalizing primarily to address 
lead time considerations in MYs 2023 and 2024 (See Section II of this 
preamble). EPA is adopting a one-year credit life extension for credits 
earned in MYs 2017 and 2018 so they can be used in MYs 2023 and 2024, 
respectively. EPA is finalizing the extension of advanced technology 
vehicle multiplier incentives for MYs 2023 and 2024, which offer the 
potential for an additional cumulative 10 g/mi of emission credits. EPA 
is finalizing a 20 g/mi incentive for full-size pickup trucks equipped 
with strong hybrid technology or achieving 20 percent better GHG 
performance compared to their footprint targets for MYs 2023 and 2024. 
And finally, and EPA is providing 5 g/mi of additional credit 
generation opportunity for off-cycle credits from the menu.
    As we discuss above, the advanced technologies that automakers are 
continuing to incorporate in vehicle models today directly contribute 
to each company's compliance plan (i.e., these vehicle models have 
lower GHG emissions). In addition, automakers widely utilize the 
program's established ABT provisions which provide a variety of 
flexible paths to plan compliance (See more detail in Section II.A.4 of 
this preamble). EPA's annual Automotive Trends Report illustrates how 
different automakers have chosen to make use of the GHG program's 
various credit features.\178\ It is clear that manufacturers are widely 
utilizing the various credit programs available, and we have every 
expectation that manufacturers will continue to take advantage of the 
compliance flexibilities and crediting programs to their fullest 
extent, thereby providing them with additional powerful tools in 
finding the lowest cost compliance solutions in light of the final 
standards.
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    \178\ ``The 2020 EPA Automotive Trends Report, Greenhouse Gas 
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420-R-21-
003 January 2021.
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B. Consideration of Vehicle Costs of Compliance

    In addition to technological feasibility and lead time, EPA 
considered the cost for the auto industry to comply with the final 
standards. See Section III.B of this preamble and Chapter 2 of the RIA 
for our analysis of compliance costs. As shown in Section III.B.2 of 
this preamble and Chapter 4.1.3 of the RIA, our updated estimate of the 
average per-vehicle cost increase for a MY 2026 vehicle is $1,000 
compared to the No Action scenario. Average per-vehicle costs are 
projected to rise from $330 in MY 2023 to $1,000 in MY 2026. EPA has 
also evaluated costs by manufacturer (see Section III.B.2 of this 
preamble) and finds the range of costs to be similarly reasonable. EPA 
has also projected the cost impacts for MYs beyond 2026 due to the 
revised final standards, and those per-vehicle cost increases are in 
the range of $1,000 to $1,200, which EPA also believes is a reasonable 
cost increase. EPA also considered the cost impacts across a number of 
sensitivity cases using a range of input assumptions (see RIA Chapter 
4.1.5). We conclude that per-vehicle costs are also reasonable for 
these cases, including those with higher cost impacts. For example, in 
the higher battery cost sensitivity case, per-vehicle costs are $1,396 
in MY 2026, and in the MYs beyond, up to as $1,590 in MY 2028.
    As part of these cost estimates, we continue to project significant 
increases in the use of advanced gasoline technologies (including mild 
and strong hybrids), comprising 83 percent of the fleet (see Section 
III.B.3 of this preamble). EPA has considered the feasibility of the 
standards under several different assumptions about future fuel prices, 
technology application or credit trading (see RIA Chapters 4 and 10), 
which shows very small variations in average per-vehicle cost or 
technology penetration mix. Our conclusion that there are multiple ways 
the MY 2023-2026 standards can be met given the wide range of 
technologies at reasonable cost, and predominantly with advanced 
gasoline engine and vehicle technologies, holds true across all these 
alternative assumptions and scenarios.
    EPA concludes that the costs of the standards are reasonable.

C. Consideration of Impacts on Consumers

    Another important consideration for EPA is the impact of the 
standards on consumers. EPA concludes that the standards will be 
beneficial for consumers because the lower operating

[[Page 74498]]

costs from significant fuel savings will offset the vehicle costs. 
Total fuel savings for consumers through 2050 are estimated at $210 
billion to $420 billion (7 percent and 3 percent discount rates, see 
Section VII.I of this preamble, Table 44, ``Retail Fuel Savings''). For 
an individual consumer on average, we project that over the lifetime of 
a MY 2026 vehicle, the reduction in fuel costs will exceed the increase 
in vehicle costs by $1,083. Thus, the standards will result in 
significant savings for consumers, as further described in Section 
VII.J of this preamble.
    The Administrator also carefully considered the affordability 
impacts of these standards, especially considering E.O. 14008 and EPA's 
increasing focus on environmental justice and equity. EPA examined the 
impacts of the standards on the affordability of new and used cars and 
trucks in Section VII.M of this preamble and Chapter 8.4 of the RIA. 
Because lower-income households spend a larger share of their household 
income on gasoline than do higher-income households, the effects of 
reduced operating costs may be especially important for these 
households.
    EPA recognizes that in the SAFE rulemaking we placed greater weight 
on the upfront costs of vehicles, and little weight on total cost of 
ownership. In part, that rulemaking explained that approach on the 
ground that ``[n]ew vehicle purchasers are not likely to place as much 
weight on fuel savings that will be realized by subsequent owners.'' 
\179\ However EPA now believes that in assessing the benefits of these 
standards it is more appropriate to consider the fuel savings of the 
vehicle, over its lifetime, including those fuel savings that may 
accrue to later owners, consistent with the approach EPA took in both 
the 2010 and 2012 light-duty vehicle GHG standard final rules. 
Disregarding those savings for consumers, which often accrue to lower 
income households, who more often purchase used cars, would provide a 
less accurate picture of total benefits to society.
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    \179\ 85 FR 25114.
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    Likewise, EPA has reconsidered the weight placed in the SAFE 
rulemaking on promoting fleet turnover as a standalone factor and is 
now considering the influence of turnover in the context of the full 
range effects of the proposed standards. As discussed in Section VII.B 
of this preamble and RIA Chapter 8.1, EPA estimates a reduction in new 
vehicle sales associated with these standards of one percent or less, 
though we also describe why sales impacts may be even less negative, or 
potentially positive. For comparison, the SAFE standards were estimated 
to increase sales by up to 1.7 percent.\180\ Thus, while recognizing 
that standards can influence purchasing decisions, EPA finds that the 
emissions reductions from these final standards far outweigh any 
temporary effect from delayed purchases.
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    \180\ U.S. Department of Transportation and U.S. Environmental 
Protection Agency (2020). Final Regulatory Impact Analysis: The 
Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Year 
2021-2026 Passenger Cars and Light Trucks. Table VI-189, p. 875. 
https://www.nhtsa.gov/sites/nhtsa.gov/files/documents/final_safe_fria_web_version_200330.pdf, accessed 11/9/21.
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D. Consideration of Emissions of GHGs and Other Air Pollutants

    An essential factor that EPA considered in determining the 
appropriate level of the standards is the reductions in emissions that 
would result from the program. This primarily includes reductions in 
vehicle GHG emissions, given the increased urgency of the climate 
crisis. We also considered the effects of the standards on criteria 
pollutant and air toxics emissions and associated public health and 
welfare impacts.
    The GHG emissions reductions from our standards are projected to be 
3,100 MMT of CO2, 3.3 MMT of CH4 and 97,000 metric tons of 
N2O, as the fleet turns over year-by-year to new vehicles 
that meet the standards, in an analysis through 2050.\181\ See Section 
IV.A of this preamble, Table 34. EPA recognizes there are a number of 
limitations and uncertainties with respect to quantifying the benefits 
of GHG reductions. EPA estimates the monetized benefit of these GHG 
reductions through 2050 at $31 billion to $390 billion across a range 
of discount rates and values for the social cost of greenhouse gases 
(SC-GHG) carbon (see Section VII.I of this preamble, Table 47). Under 
Section 202 of the CAA, EPA is required to establish standards to 
reduce air pollution that endangers public health and welfare, taking 
into consideration the cost of compliance and lead time. EPA is not 
required to conduct formal cost benefit analysis to determine the 
appropriate standard under Section 202. EPA weighed the relevant 
statutory factors to determine the appropriate standard and the 
analysis of monetized GHG benefits was not material to the choice of 
that standard. E.O. 12866 requires EPA to perform a cost-benefit 
analysis, including monetizing costs and benefits where practicable, 
and the EPA has conducted such an analysis. The monetized GHG benefits 
are included in the cost-benefit analysis. That cost-benefit analysis 
provides additional support for the EPA's final standards.
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    \181\ These emission reductions have increased compared to the 
proposed rule due to the increased stringency of the final 
standards.
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    These GHG reductions projected to result from the standards are 
important to continued progress in addressing climate change. In fact, 
EPA believes that we will need to achieve far deeper GHG reductions 
from the light-duty sector in future years beyond the compliance 
timeframe for the standards, which is why we are initiating a 
rulemaking in the near future to consider establishing more stringent 
standards after MY 2026.
    The criteria pollutant emissions reductions expected to result from 
the standards are also a factor considered by the Administrator. The 
standards would result in emissions reductions of some criteria 
pollutants and air toxics and associated benefits for public health and 
welfare. Public health benefits through 2050 from reducing these 
pollutants are estimated to total $8.1 billion to $19 billion (7 
percent and 3 percent discount rates, see Section VII.I of this 
preamble, Table 46).\182\ EPA concludes that this rule is important in 
reducing the public health and welfare impacts of air pollution, 
including GHG, criteria, and air toxics emissions.
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    \182\ Similar to the GHG emission reductions, public health and 
welfare benefits have increased compared to the proposed rule due to 
the increased stringency of the final standards.
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E. Consideration of Energy, Safety and Other Factors

    EPA also evaluated the impacts of the final standards on energy, in 
terms of fuel consumption and energy security. This final rule is 
projected to reduce U.S. gasoline consumption by more than 440 million 
barrels through 2050, a roughly 15 percent reduction in U.S. gasoline 
consumption (see Section VII.C of this preamble). EPA considered the 
impacts of this projected reduction in fuel consumption on energy 
security, specifically the avoided costs of macroeconomic disruption 
(See Section VII.F of this preamble). We estimate the energy security 
benefits of the final rule at $7 billion to $14 billion (7 percent and 
3 percent discount rate, see Section VII.I of this preamble, Table 45). 
EPA considers this final rule to be beneficial from an energy security 
perspective.
    Section 202(a)(4)(A) of the CAA specifically prohibits the use of 
an emission control device, system or element of design that will cause 
or contribute to an unreasonable risk to public health, welfare, or 
safety. We have concluded that no device, system,

[[Page 74499]]

or element of design adopted for the purposes of complying with these 
standards will impact vehicle operation or function in such a way as to 
increase risk. However, we have also more broadly considered effects 
beyond vehicle operation and function. For example, we considered the 
estimated societal costs of fatal and non-fatal injuries due to 
projected changes in overall VMT and changes in the relative usage of 
vehicles due to rebound, and scrappage effects on fleet mix. EPA has a 
long history of considering the safety implications of its emission 
standards,\183\ up to and including the more recent light-duty GHG 
regulations: The 2010 rule which established the MY 2012-2016 light-
duty vehicle GHG standards, the 2012 rule which first established MY 
2017-2025 light-duty vehicle GHG standards, the MTE 2016 Proposed 
Determination and the 2020 SAFE rule. The relationship between GHG 
emissions standards and safety is multi-faceted, and can be influenced 
not only by control technologies, but also by consumer decisions about 
vehicle ownership and use. EPA has estimated safety implications of 
this rule by accounting for changes in new vehicle purchase, changes in 
vehicle scrappage, fleet turnover, and VMT, and changes in vehicle 
weight as an emissions control strategy. EPA finds that under this 
rule, the estimated risk of fatal and non-fatal injuries per distance 
traveled will remain virtually unchanged (see Section VII.H of this 
preamble).
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    \183\ See, e.g., 45 FR 14496, 14503 (1980) (``EPA would not 
require a particulate control technology that was known to involve 
serious safety problems.'').
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    This rule also projects that as the costs of driving declines due 
to the improvement in fuel economy, consumers overall will choose to 
drive more miles (this is the ``VMT rebound'' effect). As a result of 
this personal decision by consumers to drive more due to the reduced 
cost of driving, EPA also projects this will result in an increase in 
accidents, injuries, and fatalities. EPA recognizes that in the SAFE 
rulemaking EPA placed emphasis on the estimated total number of fatal 
and non-fatal injuries. However, EPA currently believes it is more 
appropriate to consider the risk of injuries per mile traveled. The 
risk of injuries per mile traveled is a measure of how safe driving as 
an activity is (and whether this rule is projected to impact that 
safety). Assessing whether the risk of injury per mile traveled has 
changed is a better means of attributing any projected changes in fatal 
and nonfatal injuries between the effects of this rule and other 
contributing factors such as voluntary decisions to drive more. In 
addition, by focusing on whether the technologies applied by 
manufacturers to meet the standards established by this rule will make 
use of a car more dangerous (rather than whether people will use their 
cars more), we believe that considering risk of injury per vehicle mile 
traveled is more consistent with the statutory direction in section 
202(a)(4)(A) prohibiting ``an emission control device, system or 
element of design that will cause or contribute to an unreasonable 
risk.'' Two commenters (CARB, Center for Biological Diversity) 
expressed support for the use of this metric. Even in the SAFE rule EPA 
recognized that ``EPA's intention is not to restrict mobility, or to 
discourage driving, based on the level of the standards.'' \184\ For 
these reasons, EPA finds that the most important safety considerations 
are EPA's conclusions that the rule will not increase risk, as 
calculated on an injury per mile traveled basis.
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    \184\ 85 FR 25119. See also 85 FR 24826 (``For the proposal, the 
agencies assumed that, in deciding to drive more, drivers 
internalize the full cost to themselves and others, including the 
cost of accidents, associated with their additional driving.'').
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F. Balancing of Factors Under CAA 202(a)

    Under CAA section 202(a) EPA has statutory authority providing 
considerable discretion in setting or revising vehicle emission 
standards with adequate lead time for the development and application 
of technology to meet the standards. EPA's final standards properly 
implement this statutory provision, as discussed above. As discussed 
throughout this preamble, and consistent with the proposed rule, the 
emission reduction technologies needed to meet the standards are 
already available at reasonable cost, and a significant fraction of new 
vehicles today already meets these standards. Moreover, the 
flexibilities already available under EPA's existing regulations, 
including fleet average standards and the ABT program--in effect 
enabling manufacturers to spread the compliance requirement for any 
particular model year across multiple model years--and the additional 
flexibilities finalized in this rule further support EPA's conclusion 
that the standards provide sufficient time for the development and 
application of technology, giving appropriate consideration to cost.
    The Administrator in this rule is balancing the factors differently 
than in the SAFE rule in reaching the conclusion about what standards 
to finalize. In the SAFE rulemaking, EPA promulgated relaxed GHG 
standards that were projected to result in increases in GHG and 
criteria pollutant emissions and adverse public health impacts (e.g., 
increases in premature mortality and illnesses due to increased air 
pollution). The SAFE rulemaking was the most significant weakening of 
mobile source emissions standards in EPA's history. It is particularly 
notable that the rationale for the revision was not that the standards 
prior to the SAFE rulemaking had turned out to be technologically 
infeasible or that they would impose unexpectedly high costs on 
society. As we have noted, the estimated per-vehicle costs in the SAFE 
rulemaking for more stringent standards were not significantly 
different from the costs estimated in the 2012 rule or for this 
rulemaking. Rather, in considering the factors for the SAFE rulemaking, 
EPA placed greatest weight on reducing the per-vehicle cost of 
compliance on the regulated industry and the upfront (but not total) 
cost to consumers and placed little weight on reductions in GHGs and 
other pollutants, contrary to EPA's traditional approach to adopting 
standards under CAA section 202(a).
    Although EPA continues to believe that the Administrator has 
significant discretion to weigh various factors under CAA section 
202(a), the Administrator notes, consistent with the proposal, that the 
purpose of adopting standards under that provision is to address air 
pollution that may reasonably be anticipated to endanger public health 
and welfare and that reducing air pollution has traditionally been the 
focus of such standards. In this action, the Administrator is setting 
more stringent standards based on a weighing of factors under 
consideration different from that in the SAFE rulemaking, which the 
Administrator believes is more consistent with the purpose of the 
CAA.\185\ The Administrator finds it is appropriate to place greater 
weight on the importance of reducing GHG emissions and the primary 
purpose of CAA section 202, to reduce the threat posed to human health 
and the environment by air pollution, and to adopt standards that, when 
implemented, would result in

[[Page 74500]]

significant reductions of light duty vehicle emissions both in the near 
term and over the longer term, while giving appropriate consideration 
to costs of compliance and lead time.
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    \185\ See, e.g., CAA sections 101(a)(2) (finding that ``the 
increasing use of motor vehicles[ ] has resulted in mounting dangers 
to the public health and welfare''); 101(b)(1) (declaring one 
purpose of the CAA is ``to protect and enhance the quality of the 
Nation's air resources, so as to promote the public health and 
welfare''); 101(c) (``a primary goal of this chapter is to encourage 
or otherwise promote reasonable Federal . . . actions . . . for 
pollution prevention'').
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    In addition to the greater consideration of emissions reductions, 
several technological developments since the SAFE rule was promulgated 
have informed the Administrator's decision on what level of standards 
are appropriate. These developments include technological advancements 
(including reductions in battery costs) and successful introductions of 
electric vehicles, recent manufacturer announcements signaling an 
accelerated transition to electrified vehicles, and further evidence of 
credit trading which has now been demonstrated as an important 
compliance strategy. The Administrator's consideration of these 
technological developments support his conclusion that greater 
emissions reductions can be achieved in the near term at reasonable 
costs and within the lead time provided by each model year of the 
revised standards.
    EPA estimates net benefits of this rule at $120 billion to $190 
billion (7 percent and 3 percent discount rates, with 3 percent SC-GHG) 
(see Section VII.I of this preamble, Table 48).\186\ Our projection 
that the estimated benefits exceed the estimated costs of the program 
reinforces our view that the final standards represent an appropriate 
weighing of the statutory factors and other relevant considerations. 
EPA is presenting a range of net benefits which reflect our best 
estimates for SC-GHG and health benefits. EPA acknowledges that the 
best available estimates do not eliminate uncertainties. We consider 
potential variation in costs in part through sensitivity analyses, as 
we recognize that the cost estimates also contain uncertainties. For 
example, as noted above, we did a sensitivity analysis considering 
costs of the program if battery costs are higher than we project.\187\ 
EPA notes that even with these uncertainties in quantified estimates of 
costs and benefits taken into account, the Administrator finds that the 
final standards are appropriate when considering the full range of 
potential costs and other impacts assessed in this rulemaking.
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    \186\ Net benefits of this final rule are higher than those 
estimated for the proposed rule, as well as those estimated for the 
SAFE rule.
    \187\ See section VI.B of this preamble and RIA Chapter 4.1.5 
for further discussion of the sensitivity analyses.
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    In summary, the Administrator has selected standards which achieve 
appropriate emissions reductions in light of the need to reduce 
emissions and taking into account the potential for, and cost of, the 
application of emissions reducing technologies for the model years at 
issue and other relevant factors. In the Administrator's judgment, the 
final standards are appropriate under EPA's CAA section 202(a) 
authority.

VII. What are the estimated cost, economic, and other impacts of the 
rule?

    This section discusses EPA's assessment of a variety of impacts 
related to the standards, including impacts on vehicle sales, fuel 
consumption, energy security, additional driving, and safety. It 
presents an overview of EPA's estimates of GHG reduction benefits and 
non-GHG health impacts and a summary of aggregate costs through 2050, 
drawing from the per-vehicle cost estimates presented in Section III of 
this preamble, and estimated program benefits. Finally, it discusses 
EPA's assessment of the potential impacts on consumers and employment. 
The RIA presents further details of the analyses presented in this 
section.

A. Conceptual Framework for Evaluating Consumer Impacts

    A significant question in analyzing consumer impacts from vehicle 
GHG standards has been why there have appeared to be existing 
technologies that, if adopted, would reduce fuel consumption enough to 
pay for themselves in short periods, but which were not widely adopted. 
If the benefits to vehicle buyers outweigh the costs to those buyers of 
the new technologies, conventional economic principles suggest that 
automakers would provide them, and people would buy them. Yet 
engineering analyses have identified a number of technologies whose 
costs are quickly covered by their fuel savings, such as downsized-
turbocharged engines, gasoline direct injection, and improved 
aerodynamics, that were not widely adopted before the issuance of 
standards, but which were adopted rapidly afterwards.\188\ Why did 
markets fail, on their own, to adopt these technologies? This question, 
termed the ``energy paradox'' or ``energy efficiency gap,'' \189\ has 
been discussed in detail in previous rulemakings.\190\ As discussed in 
what follows, and in more detail in RIA Chapter 8.1.1, EPA has 
evaluated whether the efficiency gap exists, as well as potential 
explanations for why the gap might exist.
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    \188\ U.S. Environmental Protection Agency (2021). 2020 EPA 
Automotive Trends Report: Greenhouse Gas Emissions, Fuel Economy, 
and Technology since 1975, Chapter 4. EPA-420-R-21-003, https://www.epa.gov/automotive-trends/download-automotive-trends-report#Full%20Report, accessed 4/15/2021.
    \189\ Jaffe, A.B., and Stavins, R.N. (1994). ``The Energy 
Paradox and the Diffusion of Conservation Technology.'' Resource and 
Energy Economics 16(2): 91-122.
    \190\ 75 FR 25510-25513; 77 FR 62913-62917; U.S. Environmental 
Protection Agency (2016), Proposed Determination on the 
Appropriateness of the Model Year 2022-2025 Light-Duty Vehicle 
Greenhouse Gas Emissions Standards under the Midterm Evaluation, 
EPA-420-R-16-020, Appendix B.1.2; 85 FR 24603-24613.
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    Whether the efficiency gap exists depends on the assessment of fuel 
savings relative to technology costs and ``hidden costs,'' i.e., any 
adverse effects on other vehicle attributes. In the Midterm 
Evaluation,\191\ EPA evaluated both the costs and the effectiveness for 
reducing fuel consumption (and GHG emissions) of technologies used to 
meet the emissions standards to date; the agency found that the 
estimates used in the original rulemakings were generally correct.
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    \191\ https://www.epa.gov/regulations-emissions-vehicles-and-engines/midterm-evaluation-light-duty-vehicle-greenhouse-gas.
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    EPA also examined the relationship between the presence of fuel-
saving technologies and negative evaluations of vehicle operating 
characteristics, such as performance and noise, in auto reviews and 
found that the presence of the technologies was more often correlated 
with positive evaluations than negative ones.\192\ Preliminary work 
with data from recent purchasers of new vehicles found similar 
results.\193\ While these studies cannot prove that the technologies 
pose no problems to other vehicle attributes, they suggest that it is 
possible to implement the technologies without imposing hidden costs.
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    \192\ Helfand, G., et al. (2016). ``Searching for Hidden Costs: 
A Technology-Based Approach to the Energy Efficiency Gap in Light-
Duty Vehicles.'' Energy Policy 98: 590-606; Huang, H., et al. 
(2018). ``Re-Searching for Hidden Costs: Evidence from the Adoption 
of Fuel-Saving Technologies in Light-Duty Vehicles.'' Transportation 
Research Part D 65: 194-212.
    \193\ Huang, H., G. Helfand, and K. Bolon (2018a). ``Consumer 
Satisfaction with New Vehicles Subject to Greenhouse Gas and Fuel 
Economy Standards.'' Presentation at the Society for Benefit-Cost 
Analysis annual conference, March. https://benefitcostanalysis.org/docs/G.4_Huang_Slides.pdf, accessed 4/7/2021.
---------------------------------------------------------------------------

    A few public comments addressed perspectives on the issue of 
potential tradeoffs among vehicle attributes. The National Automobile 
Dealers Association (NADA) raises concerns that vehicle buyers must 
give up vehicle attributes, especially performance, to get improved 
fuel economy. NYU IPI, on the other hand, finds no evidence of 
tradeoffs and notes that some fuel-saving technologies improve other 
vehicle attributes, including

[[Page 74501]]

performance. In response to these comments, EPA notes that we have 
evaluated the relationship between performance and fuel economy, in 
light of research arguing that fuel consumption must come at the 
expense of other vehicle attributes.\194\ Research in progress from 
Watten et al. (2021) \195\ distinguishes between technologies that 
improve, or do not adversely affect, both performance and fuel economy 
and technologies that reduce engine displacement, which does trade off 
improved fuel economy for performance. Thus, EPA does not agree with 
NADA that vehicle buyers must give up performance to get better fuel 
economy; it is possible to get more of both. Following Moskalik et al. 
(2018),\196\ Watten et al. observe that the ``marginal rate of 
attribute substitution'' between power and fuel economy has changed 
substantially over time. In particular, it has become relatively more 
costly to improve efficiency by reducing power, and relatively less 
costly to add technologies that improve efficiency. These technology 
improvements do not reduce power and in some cases may enhance it. This 
research supports the concept that automakers take consumer preferences 
into account in identifying where to add technology.
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    \194\ Knittel, C.R. (2011). ``Automobiles on Steroids: Product 
Attribute Trade-Offs and Technological Progress in the Automobile 
Sector.'' American Economic Review 101(7): pp. 3368-3399; Klier, T. 
and Linn, J. (2016). ``The Effect of Vehicle Fuel Economy Standards 
on Technology Adoption.'' Journal of Public Economics 133: 41-63; 
McKenzie, D. and Heywood, J.B. (2015). ``Quantifying efficiency 
technology improvements in U.S. cars from 1975-2009.'' Applied 
Energy 157: 918-928.
    \195\ Watten, A., S. Anderson, and G. Helfand (2021). 
``Attribute Production and Technical Change: Rethinking the 
Performance and Fuel Economy Trade-off for Light-duty Vehicles.'' 
Working paper.
    \196\ Moskalik, A., K. Bolon, K. Newman, and J. Cherry (2018). 
``Representing GHG Reduction Technologies in the Future Fleet with 
Full Vehicle Simulation.'' SAE Technical Paper 2018-01-1273. 
doi:10.4271/2018-01-1273.
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    EPA does not reject the observation that the energy efficiency gap 
has existed for light-duty vehicles--that is, it appears that markets 
on their own have not led to incorporation by manufacturers, and 
purchase by new vehicle buyers, of a number of technologies whose fuel 
savings quickly outweigh the costs in the absence of standards. As 
discussed in RIA Chapter 8.1.1.2, EPA has previously identified a 
number of hypotheses to explain this apparent market failure.\197\ Some 
relate to consumer behavior, such as putting little emphasis on future 
fuel savings compared to up-front costs (a form of ``myopic loss 
aversion''), not having a full understanding of potential cost savings, 
or not prioritizing fuel consumption in the complex process of 
selecting a vehicle. Explanations of these kinds tend to draw on the 
conceptual and empirical literature in behavioral economics, which 
emphasizes the importance of limited attention, the relevance of 
salience, ``present bias'' or myopia, and loss aversion. (Some of these 
are described as contributing to ``behavioral market failures.'') Other 
potential explanations relate to automaker behaviors that grow out of 
the large fixed costs of investments involved with switching to new 
technologies, as well as the complex and uncertain processes involved 
in technological innovation and adoption.
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    \197\ 75 FR 25510-25513; 77 FR 62913-62917; U.S. Environmental 
Protection Agency (2016), Proposed Determination on the 
Appropriateness of the Model Year 2022-2025 Light-Duty Vehicle 
Greenhouse Gas Emissions Standards under the Midterm Evaluation, 
EPA-420-R-16-020, Appendix B.1.2; 85 FR 24603-24613.
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    We note that it is challenging to identify which of these 
hypotheses for the efficiency gap explain its apparent existence. On 
the consumer side, EPA has explored the evidence on how consumers 
evaluate fuel economy in their vehicle purchase decisions.\198\ As 
noted, there does not appear to be consensus in that literature on that 
behavior; the variation in estimates is very large. Even less research 
has been conducted on producer-side behavior. The reason there 
continues to be limited adoption of cost-effective fuel-saving 
technologies before the implementation of more stringent standards 
remains an open question. Yet, more stringent standards have been 
adopted without apparent disruption to the vehicle market after they 
become effective.\199\ NYU IPI commented that EPA should include 
additional potential market failures in its assessment, as well as 
additional evidence related to the market failures already mentioned. 
The American Enterprise Institute, in contrast, asserts based on 
economic theory, but without evidence, that failures in the market for 
fuel savings do not exist. EPA agrees with NYU IPI that evidence on 
technology costs, fuel savings, and the absence of hidden costs suggest 
that there are market failures in the provision of fuel-saving 
technologies, though we cannot demonstrate at this time which specific 
failures operate in this market. Adding additional possible market 
failures to the list of hypotheses is useful for suggesting future 
research activities, but does not change the finding that market 
failures appear to exist in the provision of fuel economy.
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    \198\ U.S. Environmental Protection Agency (2010). ``How 
Consumers Value Fuel Economy: A Literature Review.'' EPA-420-R-10-
008, https://cfpub.epa.gov/si/si_public_file_download.cfm?p_download_id=499454&Lab=OTAQ (accessed 
4/15/2021); U.S. Environmental Protection Agency (2018). ``Consumer 
Willingness to Pay for Vehicle Attributes: What is the Current State 
of Knowledge?'' EPA-420-R-18-016, https://cfpub.epa.gov/si/si_public_file_download.cfm?p_download_id=536423&Lab=OTAQ (accessed 
4/15/2021); Greene, D., A. Hossain, J. Hofmann, G. Helfand, and R. 
Beach (2018). ``Consumer Willingness to Pay for Vehicle Attributes: 
What Do We Know?'' Transportation Research Part A 118: 258-279.
    \199\ ``The 2020 EPA Automotive Trends Report, Greenhouse Gas 
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420-R-21-
003 January 2021. See Table 2-1 for total vehicle production by 
model year.
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B. Vehicle Sales Impacts

    As discussed in Section III.A of this preamble, EPA utilized the 
CCEMS model for this analysis. For this final rule as with the proposed 
rule, we have continued to estimate vehicle sales impacts through this 
model.\200\ First, the model projects future new vehicle sales in the 
reference case based on projections of macroeconomic variables. Second, 
it applies a demand elasticity (that is, the percent change in quantity 
associated with a one percent increase in price) to the change in net 
price, where net price is the difference in technology costs less an 
estimate of the change in fuel costs over 2.5 years. This approach 
assumes that both automakers and vehicle buyers take into consideration 
the fuel savings that buyers might expect to accrue over the first 2.5 
years of vehicle ownership.
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    \200\ U.S. Department of Transportation and U.S. Environmental 
Protection Agency (2020). Final Regulatory Impact Analysis: The 
Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Year 
2021-2026 Passenger Cars and Light Trucks.'' https://www.nhtsa.gov/sites/nhtsa.gov/files/documents/final_safe_fria_web_version_200701.pdf, accessed 11/1/2021, p. 871.
---------------------------------------------------------------------------

    As discussed in Section VII.A of this preamble, and in more detail 
in RIA Chapter 8.1.2, there does not yet appear to be consensus around 
the role of fuel consumption in vehicle purchase decisions, and the 
assumption that 2.5 years of fuel consumption is the right number for 
both automakers and vehicle buyers deserves further evaluation. As 
noted there, Greene et al. (2018) provides a reference value of $1,150 
for the value of reducing fuel costs by $0.01/mile over the lifetime of 
an average vehicle; for comparison, 2.5 years of fuel savings is only 
about 30 percent of that value, or about $334.\201\

[[Page 74502]]

This $334 is within the large standard deviation in Greene et al. 
(2018) for the willingness to pay to reduce fuel costs, but it is far 
lower than both the mean of $1,880 (160 percent of that value) and the 
median of $990 (85 percent of that value) per one cent per mile in the 
paper. On the other hand, the 2021 NAS report, citing the 2015 NAS 
report, observed that automakers ``perceive that typical consumers 
would pay upfront for only one to four years of fuel savings'' (pp. 9-
10),\202\ a range of values within that identified in Greene et al. 
(2018) for consumer response, but well below the median or mean. Thus, 
it appears possible that automakers operate under a different 
perception of consumer willingness to pay for additional fuel economy 
than how consumers actually behave. Both NYU IPI and Consumer Reports 
comment that new vehicle buyers care more about fuel consumption than 
the use of 2.5 years suggests. Consumer Reports comments that EPA 
should model automaker adoption of fuel-saving technologies based on 
historical actions. While EPA considers these concerns as deserving 
additional consideration for future actions, the CCEMS model used for 
this rulemaking uses 2.5 years for both automaker perception and 
consumer perception of the value of additional fuel economy in its 
sales modeling. The decision to use the CCEMS model is further 
discussed in Section III.A of this preamble.
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    \201\ See Greene et al. (2018), Footnote 198. Greene et al. 
(2018) cite a ballpark value of reducing driving costs by $0.01/mile 
as $1150, but does not provide enough detail to replicate their 
analysis perfectly. The 30% estimate is calculated by assuming, 
following assumptions in Greene et al. (2018), that a vehicle is 
driven 15,000 miles per year for 13.5 years, 10% discount rate. 
Those figures produce a ``present value of miles'' of 108,600; thus, 
a $0.01/mile change in the cost of driving would be worth $1086. In 
contrast, saving $0.01/mile for 2.5 years using these assumptions is 
worth about $318, or 29% of the value over 13.5 years. Multiplying 
Greene et al.'s 29 percent to $1150 = $334.
    \202\ National Research Council (2015). Cost, Effectiveness, and 
Deployment of Fuel Economy Technologies for Light-Duty Vehicles. 
Washington, DC: The National Academies Press. https://doi.org/10.17226/21744, p. 9-10.
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    In addition, setting the elasticity of demand at -1 in the SAFE 
FRIA was based on literature more than 25 years old. In the proposed 
rule, EPA mentioned that it was sponsoring a review of more recent 
estimates of the elasticity of demand for new vehicles and requested 
comment on using an elasticity value of -1. As discussed further in RIA 
Chapter 8.1.2, EPA recently completed the report reviewing this 
literature.\203\ The report also describes a method based in economic 
principles to examine the effects of changes in new vehicle prices, 
taking into account changes in the used vehicle market and scrappage of 
used vehicles. Several commenters (CARB, NYU IPI, and a coalition of 
environmental NGOs) provide assessments of the literature. These 
commenters all observe that the value of -1 is based on older studies 
that focus on short-term changes in the new vehicle market and suggest 
using an elasticity no larger (in absolute value) than -0.4. EPA agrees 
that more recent evidence incorporating longer-term effects, such as 
interactions with the used vehicle market, suggests that -0.4 may be an 
upper limit (in absolute value) for this elasticity, and values as low 
as -0.15 are plausible. A smaller elasticity does not change the 
direction of sales effects, but it does reduce the magnitude of the 
effects.
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    \203\ U.S. Environmental Protection Agency (2021). ``The Effects 
of New-Vehicle Price Changes on New- and Used-Vehicle Markets and 
Scrappage.'' EPA-420-R-21-019, https://cfpub.epa.gov/si/si_public_record_Report.cfm?dirEntryId=352754&Lab=OTAQ (accessed 10/
06/2021).
---------------------------------------------------------------------------

    The CCEMS model also makes use of a dynamic fleet share model (SAFE 
FRIA p. 877) that estimates, separately, the shares of passenger cars 
and light trucks based on vehicle characteristics, and then adjusts 
them so that the market shares sum to one. The model also includes the 
effects of the standards on vehicle scrappage based on a statistical 
analysis (FRIA starting p. 926). The model looks for associations 
between vehicle age, change in new vehicle prices, fuel prices, cost 
per mile of driving, and macroeconomic measures and the scrappage rate, 
with different equations for cars, SUVs/vans, and pickups. EPA's report 
to review new vehicle demand elasticities also includes a review of the 
literature on the relationship between new and used vehicle markets and 
scrappage.
    For this final rule, EPA is maintaining the previous assumptions 
for its modeling, with the exception of updating the new-vehicle demand 
elasticity to -0.4 based on more recent evidence. As EPA's recently 
issued literature review and public commenters have noted, -0.4 appears 
to be the largest estimate (in absolute value) for a long-run new 
vehicle demand elasticity in recent studies. Further, EPA's report 
examining the relationship between new and used vehicle markets shows 
that, for plausible values reflecting that interaction, the new vehicle 
demand elasticity varies from -0.15 to -0.4. The proposed rule 
presented results with -0.4, and for the final rule we are using this 
value in our central case, with sensitivities of -0.15 (a lower value 
from the report) and -1 (for continuity with the proposed rule). See 
Section III.A of this preamble and the Response to Comments document 
for further discussion of our updated approach.
    With the modeling assumptions that both automakers and vehicle 
buyers consider 2.5 years of future fuel consumption in the purchase 
decision and that the demand elasticity is -0.4, vehicle sales are 
projected to decrease by roughly one-half to one percent compared to 
sales under the SAFE standards, as discussed in more detail in RIA 
Chapter 8.1.3. In contrast, when modeled using a demand elasticity of -
0.15, sales decrease by no more than 0.3 percent; and, using a demand 
elasticity of -1, sales decrease by about 2 percent. These results show 
how the value of the elasticity affects sales impacts. If, however, 
automakers underestimate consumers' valuation of fuel economy, then 
sales may increase relative to the baseline under the standards. NADA 
commented that EPA underestimated adverse sales impacts but does not 
provide analytical support for that statement. For reasons noted above, 
including the limited consideration of fuel consumption in consumer 
vehicle purchase decisions, EPA disagrees that adverse sales impacts 
are underestimated.
    How easily new vehicle buyers will be willing to substitute EVs for 
internal combustion engine (ICE) vehicles is a matter of some 
uncertainty. With up-front costs dropping, the total cost of ownership 
for EVs is also dropping and becoming more competitive with ICE 
vehicles. Some commenters, including the California Attorney General 
Office, Consumer Reports, the National Coalition for Advanced 
Technology, Southern Environmental Law Center, Tesla, and some EV 
owners, expect EVs to be attractive to many new vehicle buyers as their 
costs drop, ranges improve, and more charging infrastructure is 
developed. Other commenters, including many automakers, Alliance for 
Automotive Innovation, Center for Climate and Energy Solutions, 
Environmental Protection Network, and Motor & Equipment Manufacturers 
Association, raise the role of complementary policies outside of this 
rule, such as purchase subsidies and more development of charging 
infrastructure, to facilitate consumer acceptance of EVs. As discussed 
in Section III.B.3 of this preamble, our analysis suggests that EV 
penetration under these standards is projected to increase from about 7 
percent in MY 2023 to about 17 percent in MY 2026. Consistent with the 
objectives of E.O. 14037, EPA believes that the transition to zero 
emission vehicles is an important pathway in addressing the climate 
crisis; in addition, as discussed in Section VII.K

[[Page 74503]]

of this preamble, increasing domestic production of EVs will be 
important for future leadership and competitiveness of the U.S. auto 
industry as other markets also make this transition.

C. Changes in Fuel Consumption

    The final standards will reduce not only GHG emissions but also 
fuel consumption. Reducing fuel consumption is a significant means of 
reducing GHG emissions from the transportation fleet. EPA received 
comments on fuel consumption and savings in the sales and net benefits 
analysis as summarized in Sections 13, 17, and 17.1 of the RTC document 
for this rulemaking. Table 38 shows the estimated fuel consumption 
changes under the final standards relative to the No Action scenario 
and include rebound effects, credit usage and advanced technology 
multiplier use.
    The largest changes in fuel consumption come from gasoline, which 
follows from our projection that improvements to gasoline vehicles will 
be the primary way that manufacturers meet the final standards. Through 
2050, our rule will reduce gasoline consumption by more than 360,000 
million gallons--reaching a 15 percent reduction in annual U.S. 
gasoline consumption in 2050. Roughly 17 percent of the fleet is 
projected to be either EV or PHEV by MY 2026 to meet the final 
standards for which we project smaller percentage changes in the U.S. 
electricity consumption to fuel these vehicles.

                         Table 38--Change in Fuel Consumption From the Light-Duty Fleet
----------------------------------------------------------------------------------------------------------------
                                                     Gasoline
                                                    equivalents     Percent of      Electricity     Percent of
                                                     (million        2020 U.S.       (gigawatt       2020 U.S.
                                                     gallons)       consumption       hours)        consumption
----------------------------------------------------------------------------------------------------------------
2023............................................             582               0           3,631               0
2026............................................           3,245              -3          23,196               1
2030............................................           8,680              -7          59,241               2
2035............................................          14,203             -11          95,798               3
2040............................................          17,424             -14         118,225               3
2050............................................          18,860             -15         128,625               3
Sum.............................................        -361,438  ..............       2,457,336  ..............
----------------------------------------------------------------------------------------------------------------
Notes: The CCEMS reports all liquid fuels as gasoline equivalents; according to the Energy Information
  Administration (EIA), U.S. gasoline consumption in 2020 was 123.73 billion gallons, roughly 16 percent less
  (due to the coronavirus pandemic) than the highest consumption on record (2018). According to the Department
  of Energy, there are 33.7 kWh of electricity per gallon gasoline equivalent, the metric reported by CCEMS for
  electricity consumption and used here to convert to kWh. According to EIA, the U.S. consumed 3,800,000
  gigawatt hours of electricity in 2020.

    With changes in fuel consumption come associated changes in the 
amount of time spent refueling vehicles. Consistent with the 
assumptions used in the proposed rule (and presented in Table 39 and 
Table 40), the costs of time spent refueling are calculated as the 
total amount of time the driver of a typical vehicle would spend 
refueling multiplied by the value of their time. If less time is spent 
refueling vehicles under the final standards, then a refueling time 
savings would be incurred.

                       Table 39--CCEMS Inputs Used To Estimate Liquid Refueling Time Costs
----------------------------------------------------------------------------------------------------------------
                                                                       Cars          Vans/SUVs        Pickups
----------------------------------------------------------------------------------------------------------------
                       Fixed Component of Average Refueling Time in Minutes (by Fuel Type)
----------------------------------------------------------------------------------------------------------------
Gasoline........................................................             3.5             3.5             3.5
Ethanol-85......................................................             3.5             3.5             3.5
Diesel..........................................................             3.5             3.5             3.5
Electricity.....................................................             3.5             3.5             3.5
Hydrogen........................................................               0               0               0
Compressed Natural Gas..........................................               0               0               0
Average Tank Volume Refueled....................................             65%             65%             65%
Value of Travel Time per Vehicle (2018 $/hour)..................           20.46           20.79           20.79
----------------------------------------------------------------------------------------------------------------

                      Table 40--CCEMS Inputs Used To Estimate Electric Refueling Time Costs
----------------------------------------------------------------------------------------------------------------
                                                                       Cars          Vans/SUVs        Pickups
----------------------------------------------------------------------------------------------------------------
                                  Electric Vehicle Recharge Thresholds (BEV200)
----------------------------------------------------------------------------------------------------------------
Miles until mid-trip charging event.............................           2,000           1,500           1,600
Share of miles charged mid-trip.................................           6.00%           9.00%           8.00%
Charge rate (miles/hour)........................................              67              67              67
----------------------------------------------------------------------------------------------------------------
                                  Electric Vehicle Recharge Thresholds (BEV300)
----------------------------------------------------------------------------------------------------------------
Miles until mid-trip charging event.............................           5,200           3,500           3,800
Share of miles charged mid-trip.................................           3.00%           4.00%           4.00%

[[Page 74504]]

 
Charge rate (miles/hour)........................................             100             100             100
----------------------------------------------------------------------------------------------------------------
Note that the values presented in this table were also used in the August 2021 EPA proposed rule, but this table
  was inadvertently not presented then.

D. Greenhouse Gas Emission Reduction Benefits

    EPA estimated the climate benefits for the final standards using 
measures of the social cost of three GHGs: Carbon, methane, and nitrous 
oxide. While the program also accounts for reduction in HFCs through 
the AC credits program, EPA has not quantified the associated emission 
reductions. The social cost of each gas (i.e., the social cost of 
carbon (SC-CO2), methane (SC-CH4), and nitrous 
oxide (SC-N2O)) is the monetary value of the net harm to 
society associated with a marginal increase in emissions in a given 
year, or the benefit of avoiding that increase. Collectively, these 
values are referenced as the ``social cost of greenhouse gases'' (SC-
GHG). In principle, SC-GHG includes the value of all climate change 
impacts, including (but not limited to) changes in net agricultural 
productivity, human health effects, property damage from increased 
flood risk and natural disasters, disruption of energy systems, risk of 
conflict, environmental migration, and the value of ecosystem services. 
The SC-GHG therefore, reflects the societal value of reducing emissions 
of the gas in question by one metric ton.
    We estimate the global social benefits of CO2, 
CH4, and N2O emission reductions expected from 
the final rule using the SC-GHG estimates presented in the February 
2021 Technical Support Document (TSD): Social Cost of Carbon, Methane, 
and Nitrous Oxide Interim Estimates under E.O. 13990 (IWG 2021). These 
SC-GHG estimates are interim values developed under E.O. 13990 for use 
in benefit-cost analyses until an improved estimate of the impacts of 
climate change can be developed based on the best available climate 
science and economics. We have evaluated the SC-GHG estimates in the 
TSD and have determined that these estimates are appropriate for use in 
estimating the global social benefits of CO2, CH4, and N2O emission 
reductions expected from this final rule. After considering the TSD, 
and the issues and studies discussed therein, EPA finds that these 
estimates, while likely an underestimate, are the best currently 
available SC-GHG estimates. As discussed in Chapter 3.3 of the RIA, 
these interim SC-GHG estimates have a number of limitations, including 
that the models used to produce them do not include all of the 
important physical, ecological, and economic impacts of climate change 
recognized in the climate-change literature and that several modeling 
input assumptions are outdated. As discussed in the February 2021 TSD, 
the Interagency Working Group on the Social Cost of Greenhouse Gases 
(IWG) finds that, taken together, the limitations suggest that these 
SC-GHG estimates likely underestimate the damages from GHG emissions. 
We received comments on the use and application of the interim SC-GHG 
estimates as summarized in the RTC document for this rulemaking. The 
IWG is currently working on a comprehensive update of the SC-GHG 
estimates (to be released by January 2022 under E.O. 13990) taking into 
consideration recommendations from the National Academies of Sciences, 
Engineering and Medicine, recent scientific literature, public comments 
received on the February 2021 TSD and other input from experts and 
diverse stakeholder groups. See Section VII.I of this preamble for a 
summary of the monetized GHG benefits and Chapter 3.3 of the RIA for 
more on the application of SC-GHG estimates.

E. Non-Greenhouse Gas Health Impacts

    It is important to quantify the non-GHG health and environmental 
impacts associated with the final program because a failure to 
adequately consider ancillary impacts could lead to an incorrect 
assessment of a program's costs and benefits. Moreover, the health and 
other impacts of exposure to criteria air pollutants and airborne 
toxics tend to occur in the near term, while most effects from reduced 
climate change are likely to occur over a time frame of several decades 
or longer. Ideally, human health benefits would be estimated based on 
changes in ambient PM2.5 and ozone as determined by full-
scale air quality modeling. However, the projected non-GHG emissions 
impacts associated with the final program are expected to contribute to 
very small changes in ambient air quality (see Preamble Section V.C of 
this preamble for more detail). EPA intends to develop a future rule to 
control emissions of GHGs, criteria pollutants, and air toxic 
pollutants from light-duty vehicles for model years beyond 2026. We are 
considering how to project air quality impacts, and associated health 
benefits, from the changes in non-GHG emissions for that future 
rulemaking.
    In lieu of air quality modeling, we use a reduced-form benefit-per-
ton (BPT) approach to inform our assessment of PM2.5-related 
health impacts, which is conceptually consistent with EPA's use of BPT 
estimates in several previous RIAs.204 205 In this approach, 
the PM2.5-related BPT values are the total monetized human 
health benefits (the sum of the economic value of the reduced risk of 
premature death and illness) that are expected from reducing one ton of 
directly-emitted PM2.5 or PM2.5 precursor such as 
NOX or SO2. We note, however, that the complex, 
non-linear photochemical processes that govern ozone formation prevent 
us from developing reduced-form ozone BPT values for mobile sources. 
This is an important limitation to recognize when using the BPT 
approach.
---------------------------------------------------------------------------

    \204\ U.S. Environmental Protection Agency (U.S. EPA). 2015. 
Regulatory Impact Analysis for the Final Revisions to the National 
Ambient Air Quality Standards for Ground-Level Ozone. EPA452/R-15-
007. Office of Air Quality Planning and Standards, Health and 
Environmental Impacts Division, Research Triangle Park, NC. 
December. Available at: http://www.epa.gov/ttnecas1/regdata/RIAs/finalria.pdf.
    \205\ U.S. Environmental Protection Agency (U.S. EPA). (2012). 
Regulatory Impact Analysis: Final Rulemaking for 2017-2025 Light-
Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average 
Fuel Economy Standards, Assessment and Standards Division, Office of 
Transportation and Air Quality, EPA-420-R-12-016, August 2012. 
Available on the internet at: http://www3.epa.gov/otaq/climate/documents/420r12016.pdf.
---------------------------------------------------------------------------

    EPA received comment about the use of BPT values to estimate the 
PM-related health benefits of the program. EPA agrees with commenters 
that the use of BPT values to estimate the PM-related health benefits 
of the program ``is a well-established approach'' that nonetheless 
omits a number of other health and environmental benefits, such as 
ozone-related benefits. Commenters expressed concern that because the 
BPT approach leaves these benefits unquantified, the analysis 
undercounts air quality benefits. EPA believes that using the reduced-
form BPT approach to benefits estimation was reasonable for the 
analysis conducted for this

[[Page 74505]]

rulemaking though less robust than an analysis based on photochemical 
air quality modeling. EPA continues to refine our reduced form methods. 
We note that criteria pollutant-related health benefits are typically 
driven by reductions in PM-related mortality risk, which are reflected 
in the BPT-based analysis of benefits associated with the final rule. 
We would expect that monetizing the full suite of health and 
environmental benefits associated with the final rule would increase 
total benefits, and benefits would increase in proportion to the 
criteria pollutant emissions reductions achieved, for both the final 
program and the alternatives that were considered. However, as 
explained earlier in this section, we are limited to the use of 
PM2.5-related BPT values for this analysis. We do not expect 
that the omission of unquantified benefits would meaningfully change 
how the impacts of the final program compare to the alternatives, 
though the rule would be even more beneficial on net (compared to 
costs) if all benefits were quantified and monetized.
    For tailpipe emissions, we apply national PM2.5-related 
BPT values that were recently derived for the ``Onroad Light Duty 
Vehicle'' sector.\206\ The onroad light-duty vehicle BPT values were 
derived using detailed mobile sector source-apportionment air quality 
modeling, and apply EPA's existing method for using reduced-form tools 
to estimate PM2.5-related benefits.207 208
---------------------------------------------------------------------------

    \206\ Wolfe, P.; Davidson, K.; Fulcher, C.; Fann, N.; Zawacki, 
M.; Baker, K.R. 2019. Monetized Health Benefits Attributable to 
Mobile Source Emission Reductions across the United States in 2025. 
Sci. Total Environ. 650, 2490-2498. https://doi.org/10.1016/J.SCITOTENV.2018.09.273. Also see https://www.epa.gov/benmap/mobile-sector-source-apportionment-air-quality-and-benefits-ton.
    \207\ Zawacki, M.; Baker, K.R.; Phillips, S.; Davidson, K.; 
Wolfe, P. 2018. Mobile Source Contributions to Ambient Ozone and 
Particulate Matter in 2025. Atmos. Environ. 188, 129-141.
    \208\ Fann, N.; Fulcher, C.M.; Baker, K. 2013. The Recent and 
Future Health Burden of Air Pollution Apportioned across U.S. 
Sectors. Environ. Sci. Technol. 47 (8), 3580-3589. https://doi.org/10.1021/es304831q.
---------------------------------------------------------------------------

    To monetize the PM2.5-related impacts of upstream 
emissions, we apply BPT values that were developed for the refinery and 
electric generating unit (EGU) sectors.\209\ While upstream emissions 
also include petroleum extraction, storage and transport sources, as 
well as sources upstream from the refinery, the modeling tool used to 
support this analysis only provides estimates of upstream emissions 
impacts aggregated across refinery and EGU sources. We believe that for 
purposes of this rule the separate accounting of refinery and EGU 
impacts adequately monetizes upstream PM-related health impacts.
---------------------------------------------------------------------------

    \209\ U.S. Environmental Protection Agency (U.S. EPA). 2018. 
Technical Support Document: Estimating the Benefit per Ton of 
Reducing PM2.5 Precursors from 17 Sectors. 2018. Office 
of Air Quality Planning and Standards. Research Triangle Park, NC.
---------------------------------------------------------------------------

    EPA received comment about the use of refinery-related BPT values 
as a surrogate for the monetization of all upstream emissions impacts. 
EPA agrees with the commenters that sector-specific BPT values are 
preferable to monetize sector-specific emissions. For the final rule, 
upstream emissions have been apportioned to the refinery and EGU 
sectors and we apply corresponding BPT values to monetize those 
emissions impacts. More information on non-GHG emissions impacts of the 
final rule can be found in Preamble Section V.
    EPA bases its benefits analyses on peer-reviewed studies of air 
quality and health effects and peer-reviewed studies of the monetary 
values of public health and welfare improvements. Recently, EPA updated 
its approach to estimating the benefits of changes in PM2.5 
and ozone.210 211 These updates were based on information 
drawn from the recent 2019 PM2.5 and 2020 Ozone Integrated 
Science Assessments (ISAs), which were reviewed by the Clean Air 
Science Advisory Committee (CASAC) and the public.212 213 As 
part of the update, EPA identified PM2.5-related long-term 
premature mortality risk estimates from two studies deemed most 
appropriate to inform a benefits analysis: A retrospective analysis of 
Medicare beneficiaries (Medicare) and the American Cancer Society 
Cancer Prevention II study (ACS CPS-II).214 215 216
---------------------------------------------------------------------------

    \210\ U.S. Environmental Protection Agency (U.S. EPA). 2021. 
Regulatory Impact Analysis for the Final Revised Cross-State Air 
Pollution Rule (CSAPR) Update for the 2008 Ozone NAAQS. EPA-452/R-
21-002.
    \211\ U.S. Environmental Protection Agency (U.S. EPA). 2021. 
Estimating PM2.5- and Ozone-Attributable Health Benefits. 
Technical Support Document (TSD) for the Final Revised Cross-State 
Air Pollution Rule Update for the 2008 Ozone Season NAAQS. EPA-HQ-
OAR-2020-0272.
    \212\ U.S. Environmental Protection Agency (U.S. EPA). 2019. 
Integrated Science Assessment (ISA) for Particulate Matter (Final 
Report, 2019). U.S. Environmental Protection Agency, Washington, DC, 
EPA/600/R-19/188, 2019.
    \213\ U.S. Environmental Protection Agency (U.S. EPA). 2020. 
Integrated Science Assessment (ISA) for Ozone and Related 
Photochemical Oxidants (Final Report). U.S. Environmental Protection 
Agency, Washington, DC, EPA/600/R-20/012, 2020.
    \214\ Di, Q, Wang, Y, Zanobetti, A, Wang, Y, Koutrakis, P, 
Choirat, C, Dominici, F and Schwartz, JD (2017). Air pollution and 
mortality in the Medicare population. New Engl J Med 376(26): 2513-
2522.
    \215\ Turner, MC, Jerrett, M, Pope, A, III, Krewski, D, Gapstur, 
SM, Diver, WR, Beckerman, BS, Marshall, JD, Su, J, Crouse, DL and 
Burnett, RT (2016). Long-term ozone exposure and mortality in a 
large prospective study. Am J Respir Crit Care Med 193(10): 1134-
1142.
    \216\ The Harvard Six Cities Study (Lepeule et al., 2012), which 
had been identified for use in estimating mortality impacts in 
previous PM benefits analyses, was not identified as most 
appropriate for the benefits update due to geographic limitations.
---------------------------------------------------------------------------

    EPA has not had an opportunity to update its mobile source BPT 
estimates to reflect these updates in time for this analysis. Instead, 
we use PM2.5 BPT estimates that are based on the review of 
the 2009 PM ISA \217\ and 2012 PM ISA Provisional Assessment \218\ and 
include a mortality risk estimate derived from the Krewski et al. 
(2009) \219\ analysis of the ACS CPS-II cohort and nonfatal illnesses 
consistent with benefits analyses performed for the analysis of the 
final Tier 3 Vehicle Rule,\220\ the final 2012 PM NAAQS Revision,\221\ 
and the final 2017-2025 Light-duty Vehicle GHG Rule.\222\ We expect 
this lag in updating our BPT estimates to have only a small impact on 
total PM benefits, since the underlying mortality risk estimate based 
on the Krewski study is identical to the updated PM2.5 
mortality risk estimate derived from an expanded analysis of

[[Page 74506]]

the same ACS CPS-II cohort.\223\ The Agency is currently working to 
update its mobile source BPT estimates to reflect these recent updates 
for use in future rulemaking analyses. More information on the BPT 
approach to valuing PM-related benefits can be found in RIA Chapter 
7.2.
---------------------------------------------------------------------------

    \217\ U.S. Environmental Protection Agency (U.S. EPA). 2009. 
Integrated Science Assessment for Particulate Matter (Final Report). 
EPA-600-R-08-139F. National Center for Environmental Assessment--RTP 
Division, Research Triangle Park, NC. December. Available at: 
https://cfpub.epa.gov/ncea/risk/recordisplay.cfm?deid=216546.
    \218\ U.S. Environmental Protection Agency (U.S. EPA). 2012. 
Provisional Assessment of Recent Studies on Health Effect of 
Particulate Matter Exposure. EPA/600/R-12/056F. National Center for 
Environmental Assessment--RTP Division, Research Triangle Park, NC. 
December. Available at: https://cfpub.epa.gov/ncea/isa/recordisplay.cfm?deid=247132.
    \219\ Krewski D., M. Jerrett, R.T. Burnett, R. Ma, E. Hughes, Y. 
Shi, et al. 2009. Extended Follow-Up and Spatial Analysis of the 
American Cancer Society Study Linking Particulate Air Pollution and 
Mortality. HEI Research Report, 140, Health Effects Institute, 
Boston, MA.
    \220\ U.S. Environmental Protection Agency. (2014). Control of 
Air Pollution from Motor Vehicles: Tier 3 Motor Vehicle Emission and 
Fuel Standards Final Rule: Regulatory Impact Analysis, Assessment 
and Standards Division, Office of Transportation and Air Quality, 
EPA-420-R-14-005, March 2014. Available on the internet: http://www3.epa.gov/otaq/documents/tier3/420r14005.pdf.
    \221\ U.S. Environmental Protection Agency. (2012). Regulatory 
Impact Analysis for the Final Revisions to the National Ambient Air 
Quality Standards for Particulate Matter, Health and Environmental 
Impacts Division, Office of Air Quality Planning and Standards, EPA-
452-R-12-005, December 2012. Available on the internet: http://www3.epa.gov/ttnecas1/regdata/RIAs/finalria.pdf.
    \222\ U.S. Environmental Protection Agency (U.S. EPA). (2012). 
Regulatory Impact Analysis: Final Rulemaking for 2017-2025 Light-
Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average 
Fuel Economy Standards, Assessment and Standards Division, Office of 
Transportation and Air Quality, EPA-420-R-12-016, August 2012. 
Available on the internet at: http://www3.epa.gov/otaq/climate/documents/420r12016.pdf.
    \223\ Turner, MC, Jerrett, M, Pope, A, III, Krewski, D, Gapstur, 
SM, Diver, WR, Beckerman, BS, Marshall, JD, Su, J, Crouse, DL and 
Burnett, RT (2016). Long-term ozone exposure and mortality in a 
large prospective study. Am J Respir Crit Care Med 193(10): 1134-
1142.
---------------------------------------------------------------------------

    EPA received comments asserting that quantifying and monetizing the 
health benefits of reduced emissions of particulate matter is not 
consistent with the available scientific evidence and that EPA did not 
consider the advice made by some members of CASAC that reviewed the 
2019 PM ISA. We disagree that our estimates are not consistent with the 
available scientific evidence and the advice of the Clean Air Science 
Advisory Committee. In determining which health outcomes to quantify 
and monetize, EPA relies on the weight-of-evidence evaluation of 
relationships between PM2.5 exposure and health effects 
conducted within the ISAs, which are the scientific basis of the NAAQS 
review process. ISAs represent thorough evaluations and syntheses of 
the most policy-relevant science. EPA uses a structured and transparent 
process for evaluating scientific information and determining the 
causal nature of relationships between air pollution exposures and 
health effects. The ISA development process is detailed in the Preamble 
of the Integrated Science Assessments,\224\ which describes approaches 
for literature searches, criteria for selecting and evaluating relevant 
studies, and a framework for evaluating the weight of evidence and 
forming causality determinations. EPA quantifies and monetizes health 
effects that the ISA determines are ``causal'' or ``likely to be 
causal.'' The focus on categories identified as having a ``causal'' or 
``likely to be causal'' relationship with the pollutant of interest 
allows for the estimation of pollutant-attributable human health 
benefits in which the Agency is most confident.
---------------------------------------------------------------------------

    \224\ See https://cfpub.epa.gov/ncea/isa/recordisplay.cfm?deid=310244.
---------------------------------------------------------------------------

    As part of the process of developing an ISA, the Clean Air 
Scientific Advisory Committee (CASAC) is statutorily required to review 
the science underlying decisions about the NAAQS. CASAC provides 
independent review of draft ISA documents for scientific quality and 
sound implementation of the causal framework that informs the ISA 
before it is finalized. The 2020 PM NAAQS review was completed without 
the benefit of a PM-specific panel supporting the CASAC, as had been 
done in prior reviews. However, CASAC did have access to a pool of 
consultants who were available to respond in writing to questions from 
CASAC members. With limited access to relevant expertise, CASAC did not 
reach consensus on the determination that there is a causal 
relationship for PM2.5 exposure (i.e., both short- and long-
term) and mortality presented within the draft PM ISA. After the 
disbandment of the 20-member CASAC PM panel, CASAC noted that 
``Additional expertise is needed for [CASAC] to provide a thorough 
review of the [PM NAAQS] documents'' and recommended the Administrator 
reappoint ``the previous CASAC PM panel or panel with similar 
expertise.'' \225\ In his final decision to retain the PM standards, 
after considering CASAC's advice, the EPA Administrator, ``placing the 
greatest weight on evidence of effects for which the ISA determined 
there is a causal or likely causal relationship with long- and short-
term PM2.5 exposures,'' \226\ concluded that the current PM 
NAAQS are necessary to protect public health. Thus, the Administrator 
fully considered CASAC's recommendations with respect to assessing the 
health risks of PM in the review of the PM NAAQS and EPA is being 
consistent with the conclusions of the PM NAAQS review in this action.
---------------------------------------------------------------------------

    \225\ In the time since the previously chartered CASAC, EPA has 
recognized the significant accumulation of new scientific studies 
since the cutoff date of the 2019 PM ISA (January 2018) and 
published a draft supplement to the 2019 PM ISA. The Supplement 
found that recent studies further support, and in some instances 
extend, the evidence that formed the basis of the causality 
determinations presented within the 2019 PM ISA that characterizes 
relationships between PM exposure and health, including mortality.
    \226\ 85 FR 82715. The effects for which the 2019 ISA determined 
there is a causal or likely causal relationship with long- and 
short-term PM2.5 exposures include respiratory effects, 
cardiovascular effects, and mortality.
---------------------------------------------------------------------------

    Commenters also asserted that health benefits from reductions in 
human exposure to ambient concentrations of PM2.5 only occur 
above the level of the primary health-based NAAQS, and that accounting 
for the health benefits of PM2.5 at all represents double 
counting given other regulatory measures promulgated under the Clean 
Air Act to reduce ambient concentrations of PM2.5. The EPA 
disagrees with this assertion. First, it is important to recognize that 
the NAAQS ``shall be ambient air quality standards . . . which in the 
judgment of the Administrator'' are ``requisite'' to protect public 
health with an ``adequate margin of safety'' (CAA Section 109). 
``Requisite'' means sufficient but not more than necessary while an 
``adequate margin of safety'' is intended to address uncertainties 
associated with inconclusive evidence and to provide a reasonable 
degree of protection against hazards that research has not yet 
identified. The CAA does not require eliminating all risk, and 
therefore, the NAAQS does not represent a zero-risk standard. 
Additionally, EPA is reconsidering the 2020 decision to retain the PM 
standards because available scientific evidence and technical 
information suggests that the current standards may not be adequate to 
protect public health and welfare, as required by the Clean Air Act.
    As detailed in the 2019 PM ISA and previous assessments in support 
of the PM NAAQS, EPA's review of the science has consistently found no 
evidence of a threshold below which exposure to PM2.5 yields 
no health response. Specifically, the 2019 p.m. ISA found that 
``extensive analyses across health effects continues to support a 
linear, no-threshold concentration-response (C-R) relationship.'' This 
conclusion in the 2019 PM ISA is supported by the more recent 
evaluation of the health effects evidence detailed in the recently 
released Draft Supplement to the PM ISA which found ``continued 
evidence of a linear, no-threshold concentration-response (C-R) 
relationship.''
    Regarding double-counting, the emissions attributed to this final 
rulemaking are incremental to all other currently promulgated air 
pollution regulations and can therefore be monetized without double-
counting previously achieved benefits from mobile source emissions 
reductions.
    The PM-related BPT estimates used in this analysis are provided in 
Table 41. We multiply these BPT values by projected national changes in 
NOX, SO2 and directly-emitted PM2.5, 
in tons, to estimate the total PM2.5-related monetized human 
health benefits associated with the final program. As the table 
indicates, these values differ among pollutants and depend on their 
original source, because emissions from different sources can result in 
different degrees of population exposure and resulting health impacts. 
The BPT values for emissions of non-GHG pollutants from both onroad 
light-duty vehicle use and upstream sources such as fuel refineries 
will increase over time. These projected increases reflect rising 
income levels, which increase affected individuals' willingness to pay 
for

[[Page 74507]]

reduced exposure to health threats from air pollution. The BPT values 
also reflect future population growth and increased life expectancy, 
which expands the size of the population exposed to air pollution in 
both urban and rural areas, especially among older age groups with the 
highest mortality risk.\227\
---------------------------------------------------------------------------

    \227\ For more information about income growth adjustment 
factors and EPA's population projections, please refer to the 
following: https://www.epa.gov/sites/production/files/2015-04/documents/benmap-ce_user_manual_march_2015.pdf.

                                                     Table 41--PM2.5-Related Benefit-Per-Ton Values
                                                                       [2018$] \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                      Onroad light duty vehicles \b\           Upstream sources--refineries \c\          Upstream sources--EGUs \c\
                              --------------------------------------------------------------------------------------------------------------------------
             Year               Direct PM2.5                                   Direct                                 Direct
                                                     SO2           NOX         PM2.5         SO2          NOX         PM2.5         SO2          NOX
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Estimated Using a 3 Percent Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
2020.........................        $600,000        $150,000       $6,400     $380,000      $81,000       $8,100     $160,000      $44,000       $6,600
2025.........................         660,000         170,000        6,900      420,000       90,000        8,800      180,000       49,000        7,100
2030.........................         740,000         190,000        7,600      450,000       98,000        9,600      190,000       52,000        7,600
2035.........................         830,000         210,000        8,400  ...........  ...........  ...........  ...........  ...........  ...........
2040.........................         920,000         230,000        9,000  ...........  ...........  ...........  ...........  ...........  ...........
2045.........................       1,000,000         250,000        9,600  ...........  ...........  ...........  ...........  ...........  ...........
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Estimated Using a 7 Percent Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
2020.........................         540,000         140,000        5,800      350,000       74,000        7,300      150,000       40,000        5,900
2025.........................         600,000         150,000        6,200      380,000       80,000        7,900      160,000       43,000        6,400
2030.........................         660,000         170,000        6,800      410,000       88,000        8,600      170,000       48,000        6,900
2035.........................         750,000         190,000        7,500  ...........  ...........  ...........  ...........  ...........  ...........
2040.........................         830,000         210,000        8,200  ...........  ...........  ...........  ...........  ...........  ...........
2045.........................         900,000         230,000        8,600  ...........  ...........  ...........  ...........  ...........  ...........
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
\a\ The benefit-per-ton estimates presented in this table are based on estimates derived from the American Cancer Society cohort study (Krewski et al.,
  2009). They also assume either a 3 percent or 7 percent discount rate in the valuation of premature mortality to account for a twenty-year segmented
  premature mortality cessation lag.
\b\ Benefit-per-ton values for onroad light duty vehicles were estimated for the years 2020, 2025, 2030, 2035, 2040, and 2045. We hold values constant
  for intervening years (e.g., the 2020 values are assumed to apply to years 2021-2024; 2025 values for years 2026-2029; and 2045 values for years 2046
  and beyond).
\c\ Benefit-per-ton values for upstream sources were estimated only for the years 2020, 2025 and 2030. We hold values constant for intervening years and
  2030 values are applied to years 2031 and beyond.

    The monetized PM2.5 health impacts of the final 
standards are presented in Table 46. Using PM2.5-related BPT 
values to monetize the non-GHG impacts of the final standards omits 
ozone-related impacts, unquantified PM-related health impacts, as well 
as other impacts associated with reductions in exposure to air toxics, 
ecosystem benefits, and visibility improvement. Section V of this 
preamble provides a qualitative description of both the health and 
environmental effects of the non-GHG pollutants impacted by the final 
program.

F. Energy Security Impacts

    This final rule will require reductions in the GHG emissions from 
light-duty vehicles and, thereby, reduce fuel consumption. In turn, 
this final rule will help to reduce U.S. petroleum imports. A reduction 
of U.S. petroleum imports reduces both financial and strategic risks 
caused by potential sudden disruptions in the supply of imported 
petroleum to the U.S., thus increasing U.S. energy security. In other 
words, reduced U.S. oil imports act as a ``shock absorber'' when there 
is a supply disruption in world oil markets.
    Given that the U.S. is projected to be a net exporter of crude oil 
and product over the time frame of the analysis of this final rule 
(2023-2050), one could surmise that the U.S. no longer has a 
significant energy security problem. However, U.S. refineries still 
rely on significant imports of heavy crude oil from potentially 
unstable regions of the world. Also, oil exporters with a large share 
of global production have the ability to raise or lower the price of 
oil by exerting market power through the Organization of Petroleum 
Exporting Countries (OPEC) to alter oil supply relative to demand. 
These factors contribute to the vulnerability of the U.S. economy to 
episodic oil supply shocks and price spikes, even when the U.S. is 
projected to be an overall net exporter of crude oil and product.
    In order to understand the energy security implications of reducing 
U.S. oil imports, EPA has worked with Oak Ridge National Laboratory 
(ORNL), which has developed approaches for evaluating the social costs 
and energy security implications of oil use. When conducting this 
analysis, ORNL considers the full cost of importing petroleum into the 
U.S. The full economic cost (i.e., oil security premiums, as labeled 
below) is defined to include two components in addition to the purchase 
price of petroleum itself. These are: (1) The higher costs/benefits for 
oil imports resulting from the effect of changes in U.S. demand on the 
world oil price (i.e., the ``demand'' or ``monopsony'' costs/benefits); 
and (2) the risk of reductions in U.S. economic output and disruption 
to the U.S. economy caused by sudden disruptions in the supply of 
imported oil to the U.S. (i.e., the avoided macroeconomic disruption/
adjustment costs). One commenter (American Enterprise Institute) 
suggests that there are no energy security benefits associated with 
this rule, since there is only one price in the international petroleum 
market, confronted equally by economies importing all or none of their 
oil. We disagree and believe that there are energy security benefits to 
the U.S. from decreased exposure to volatile world oil prices. We 
respond to this comment in more detail in the RTC.
    For this final rule, EPA is using oil security premiums estimated 
using ORNL's methodology, which incorporates oil price projections and 
energy market and economic trends from the EIA's Annual Energy Outlook 
(AEO). Specifically, we are using oil security premiums based on AEO 
2021, updating the oil security premiums from the AEO 2018 used in the 
proposed rule. In addition, for this final rule, EPA and ORNL have 
worked together to revise the oil security premiums based

[[Page 74508]]

upon recent energy security literature (see Chapter 3.2.5 of the RIA 
accompanying this rule for how the macroeconomic oil security premiums 
have been updated based upon a review of recent energy security 
literature on this topic). These revisions have lowered the estimated 
oil security premiums since the proposal of this rule. However, this 
modest decrease in oil security premiums is offset by an increase in 
fuel savings since the proposal, resulting in an overall increase in 
energy security benefits for this final rule compared to the proposal.
    In our analysis, we only consider the avoided macroeconomic 
disruption/adjustment costs in the oil security premiums (i.e., labeled 
macroeconomic oil security premiums below), since the monopsony impacts 
are considered transfer payments. Two commenters (Center for Biological 
Diversity et al., CARB) suggest that EPA is underestimating the energy 
security benefits of the final rule by not accounting for the monopsony 
oil security impacts. EPA continues to believe that the monopsony 
impacts of this rule are transfer payments. Therefore, EPA disagrees 
that the energy security benefits of this final rule are underestimated 
for this reason. See more discussion of the monopsony oil security 
premiums in the RIA and RTC.
    Three commenters (Center for Biological Diversity et al., CARB, 
SAFE) suggest that EPA understates the energy security benefits of the 
final rule by not considering military cost impacts. One commenter 
(American Enterprise Institute) suggests that reductions in military 
costs from the rule would be imperceptible. While EPA believes that 
military costs are important considerations, we continue to believe 
that there are methodological limitations in our ability to quantify 
these impacts (e.g., how a reduction of U.S. oil imports would 
incrementally reduce oil supply protection forces). As a result, we do 
not quantify military cost impacts for this final rule. (See Chapter 
3.2.3 of the RIA for a review of the literature on the military costs 
impacts of U.S. oil import reductions). In addition, some commenters 
(Attorney General of Missouri, et al., SAFE, Alliance for Automotive 
Innovation, an energy company, private citizens) express concern that 
these standards would reduce U.S. security by increasing the U.S.'s 
reliance on foreign countries (i.e., China) for electric vehicle 
components such as electric batteries. We respond to both sets of 
comments, military cost impacts and U.S. security implications of this 
final rule, in more detail in the RTC.
    To calculate the energy security benefits of this final rule, EPA 
is using the ORNL oil security premium methodology with: (1) Estimated 
oil savings calculated by EPA and (2) an oil import reduction factor of 
91 percent, which represents how much U.S. oil imports are reduced 
resulting from changes in U.S. oil consumption. One commenter (Center 
for Biological Diversity et al.) requests more explanation of how EPA 
estimates the oil import reduction factor. The Alliance for Automotive 
Innovation believes that U.S. refiners and oil producers may see a 
greater reduction in fuel demand than EPA is estimating as a result of 
this final rule. We continue to believe that EPA's use of the most 
recent AEO 2021 provides a reasonable estimate of the oil import 
reduction factor being used in this rule and also the impacts of this 
rule on U.S. oil producers and refineries. We respond to both of these 
comments in more detail in the RTC. Each of the assumptions used to 
calculate the energy security benefits of this final rule, oil savings 
and the oil import reduction factor, are discussed in more detail in 
Chapter 3.2 of the RIA. EPA presents the macroeconomic oil security 
premiums used for the final standards for selected years from 2023-2050 
in Table 42.

  Table 42--Macroeconomic Oil Security Premiums for Selected Years From
                                2023-2050
                            [2018$/Barrel] *
------------------------------------------------------------------------
                                             Macroeconomic oil security
               Year (range)                       premiums (range)
------------------------------------------------------------------------
2023......................................  $3.15 ($0.92-$5.71).
2026......................................  $3.23 ($0.74-$6.00).
2030......................................  $3.41 ($0.62-$6.41).
2035......................................  $3.76 ($0.70-$7.05).
2040......................................  $4.21 ($1.04-$7.77).
2050......................................  $4.94 ($1.46-$8.91).
------------------------------------------------------------------------
* Top values in each cell are the midpoints, the values in parentheses
  are the 90 percent confidence intervals.

G. Impacts of Additional Driving

    As discussed in Chapter 3.1 of the RIA, the assumed rebound effect 
might occur when an increase in vehicle fuel efficiency encourages 
people to drive more as a result of the lower cost per mile of driving. 
Along with the safety considerations associated with increased vehicle 
miles traveled (described in Section VII.H of this preamble), 
additional driving can lead to other costs and benefits that can be 
monetized. For a discussion of these impacts--Drive Value, Congestion, 
Noise--all of which are calculated in the same way as done in the 
proposed rule, see RIA Chapter 3.4. EPA did not receive any comments on 
these elements of our proposal.

H. Safety Considerations in Establishing GHG Standards

    Consistent with previous light-duty GHG analyses, EPA has assessed 
the potential of the final MY 2023-2026 standards to affect vehicle 
safety. EPA applied the same historical relationships between mass, 
size, and fatality risk that were established and documented in the 
SAFE rulemaking. These relationships are based on the statistical 
analysis of historical crash data, which included an analysis performed 
by using the most recently available crash studies based on data for 
model years 2007 to 2011. EPA used the findings of this analysis to 
estimate safety impacts of the modeled mass reductions over the 
lifetimes of new vehicles in response to MY 2023-2026 standards. As in 
the initial promulgation of the GHG standards and the MTE Proposed 
Determination, EPA's assessment in this rulemaking is that 
manufacturers can achieve the MY 2023-2026 standards while using modest 
levels of mass reduction as one technology option among many. On the 
whole, EPA considers safety impacts in the context of all projected 
health impacts from the rule including public health benefits from the 
projected reductions in air pollution. Based on the findings of our 
safety analysis, we concluded there are no changes to the vehicles 
themselves, nor the combined effects of fleet composition and vehicle 
design, that will have a statistically significant impact on safety. 
All fatalities that are statistically significant are due to changes in 
use (VMT) rather than changes to the vehicles themselves.
    The projected change in risk of fatal and non-fatal injuries is 
influenced by changes in fleet mix (car/truck share), vehicle scrappage 
rates, distribution of VMT among vehicles in the fleet and vehicle 
mass. Because the empirical analysis described previously did not 
produce any mass-safety coefficients with a statistically significant 
difference from zero, we analyzed safety results over the range of 
coefficient values. We project that the effect of the final standards 
on annual fatalities per billion miles driven ranges from a decrease of 
0.25 percent to an increase of 0.36 percent, with a central estimate of 
a 0.06 percent increase.\228\
---------------------------------------------------------------------------

    \228\ These fatality risk values are the average of changes in 
annual risk through 2050. The range of values is based on the 5% to 
95% confidence interval of mass-safety coefficients presented in the 
SAFE FRM.

---------------------------------------------------------------------------

[[Page 74509]]

    In addition to changes in risk, EPA also considered the projected 
impact of the standards on the absolute number of fatal and non-fatal 
injuries. The majority of the fatalities projected would result from 
the projected increased driving--i.e., people choosing to drive more 
due to the lower operating costs of more efficient vehicles. Our cost-
benefit analysis accounts for both the value of this additional driving 
and its associated risk, which we assume are considerations in the 
decision to drive. The risk valuation associated with this increase in 
driving partially offsets the associated increase in societal costs due 
to increased fatalities and non-fatal injuries.
    This analysis projects that there will be an increase in VMT under 
the standards of 304 billion miles compared to the No Action scenario 
through 2050 (an increase of about 0.3 percent). EPA estimates that 
vehicle safety, in terms of risk measured as the total fatalities per 
the total distance traveled over this period, will remain almost 
unchanged at 5.012 fatalities per billion miles under the final rule, 
compared to 5.010 fatalities per billion miles for the no-action 
scenario. EPA has also estimated, over the same 30 year period, that 
total fatalities will increase by 1,780, with 1,348 deaths attributed 
to increased driving and 432 deaths attributed to the increase in 
fatality risk. In other words, approximately 75 percent of the change 
in fatalities under these standards is due to projected increases in 
VMT and mobility (i.e., people driving more). Our analysis also 
considered the increase in non-fatal injuries. Consistent with the SAFE 
FRM, EPA assumed that non-fatal injuries scale with fatal injuries.
    EPA also estimated the societal costs of these safety impacts using 
assumptions consistent with the SAFE FRM (see Table 43.) Specifically, 
we are continuing to use the cost associated with each fatality of 
$10.4 million (2018 dollars). We have also continued to use a scalar of 
approximately 1.6 applied to fatality costs to estimate non-fatal 
injury costs. In addition, we have accounted for the driver's inherent 
valuation of risk when making the decision to drive more due to 
rebound. This risk valuation partially offsets the fatal and non-fatal 
injury costs described previously, and, consistent with the SAFE FRM, 
is calculated as 90 percent of the fatal and non-fatal injury costs due 
to rebound to reflect the fact that consumers do not fully evaluate the 
risks associated with this additional driving.

I. Summary of Costs and Benefits

    This section presents a summary of costs, benefits, and net 
benefits of the program. Table 43 shows the estimated annual monetized 
costs of the program for the indicated calendar years. The table also 
shows the present-values (PV) of those costs and the annualized costs 
for the calendar years 2021-2050 using both 3 percent and 7 percent 
discount rates.\229\ The table includes an estimate of foregone 
consumer sales surplus, which measures the loss in benefits attributed 
to consumers who would have purchased a new vehicle in the absence of 
the final standards.
---------------------------------------------------------------------------

    \229\ For the estimation of the stream of costs and benefits, we 
assume that after implementation of the MY 2023-2026 standards, the 
2026 standards apply to each year thereafter.

                                                    Table 43--Costs Associated With the Final Program
                                                               [Billions of 2018 dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             Foregone
              Calendar year               consumer sales    Technology      Congestion         Noise      Fatality costs     Non-fatal      Total costs
                                            surplus \a\        costs                                                        crash costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
2023....................................          $0.029            $5.6           $0.03        $0.00045           $0.13           $0.23            $6.1
2026....................................            0.11              16            0.12           0.002            0.42             0.7              17
2030....................................           0.093              17             0.4          0.0067            0.44            0.73              19
2035....................................           0.078              17            0.68           0.011            0.27            0.44              19
2040....................................           0.063              16            0.84           0.014            0.15            0.25              17
2050....................................           0.052              15             0.9           0.015            0.16            0.25              16
PV, 3%..................................             1.3             280             9.6            0.16             4.9             8.1             300
PV, 7%..................................            0.84             160             4.8            0.08             3.2             5.3             180
Annualized, 3%..........................           0.069              14            0.49          0.0082            0.25            0.42              15
Annualized, 7%..........................           0.068              13            0.39          0.0065            0.26            0.43              14
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ ``Foregone Consumer Sales Surplus'' refers to the difference between a vehicle's price and the buyer's willingness to pay for the new vehicle; the
  impact reflects the reduction in new vehicle sales described in Section VII.B of this preamble. See Section 8 of CAFE_Model_Documentation_FR_2020.pdf
  in the docket for more information.

    Table 44 shows the undiscounted annual monetized fuel savings of 
the program. The table also shows the present- and annualized-values of 
those fuel savings for the same calendar years using both 3 percent and 
7 percent discount rates. The net benefits calculations use the 
aggregate value of fuel savings (calculated using pre-tax fuel prices) 
since savings in fuel taxes do not represent a reduction in the value 
of economic resources utilized in producing and consuming fuel. Note 
that the fuel savings shown in Table 44 result from reductions in 
fleet-wide fuel use (including rebound effects, credit usage and 
advanced technology multiplier use). Thus, fuel savings grow over time 
as an increasing fraction of the fleet is projected to meet the 
standards.

                            Table 44--Fuel Savings Associated With the Final Program
                                           [Billions of 2018 dollars]
----------------------------------------------------------------------------------------------------------------
                                                                    Retail fuel      Fuel tax      Pre-tax fuel
                          Calendar year                               savings         savings         savings
----------------------------------------------------------------------------------------------------------------
2023............................................................           $0.94           $0.31           $0.62
2026............................................................             5.1             1.7             3.3
2030............................................................              16             4.5              12

[[Page 74510]]

 
2035............................................................              28             7.1              21
2040............................................................              37             8.5              29
2050............................................................              42             8.6              33
PV, 3%..........................................................             420             100             320
PV, 7%..........................................................             210              51             150
Annualized, 3%..................................................              21             5.1              16
Annualized, 7%..................................................              17             4.1              12
----------------------------------------------------------------------------------------------------------------
Note: Electricity expenditure increases are included.

    Table 45 presents estimated annual monetized benefits from non-
emission sources for the indicated calendar years. The table also shows 
the present- and annualized-value of those benefits for the calendar 
years 2021-2050 using both 3 percent and 7 percent discount rates.

                                  Table 45--Benefits From Non-Emission Sources
                                           [Billions of 2018 dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                      Energy        Total non-
                  Calendar year                     Drive value   Refueling time     security        emission
                                                                      savings        benefits        benefits
----------------------------------------------------------------------------------------------------------------
2023............................................          $0.035        -$0.0052          $0.031          $0.061
2026............................................            0.14           -0.12            0.18             0.2
2030............................................            0.55           -0.27            0.51            0.79
2035............................................               1           -0.47            0.92             1.5
2040............................................             1.3           -0.67             1.3             1.9
2050............................................             1.5           -0.83             1.6             2.3
PV, 3%..........................................              15            -7.4              14              21
PV, 7%..........................................             7.2            -3.6               7              11
Annualized, 3%..................................            0.75           -0.38            0.73             1.1
Annualized, 7%..................................            0.58           -0.29            0.56            0.85
----------------------------------------------------------------------------------------------------------------
* See Section VII.G, Section VII.C and Section VII.F of this preamble for more on drive value, refueling time
  and energy security, respectively.

    Table 46 presents estimated annual monetized benefits from non-GHG 
emission sources for the indicated calendar years. The table also shows 
the present- and annualized-values of those benefits for the calendar 
years 2021-2050 using both 3 percent and 7 percent discount rates.

                                                   Table 46--PM2.5-Related Emission Reduction Benefits
                                                           [Billions of 2018 dollars] \a\ \b\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Tailpipe benefits               Upstream benefits         Total PM2.5-related benefits
                                                         ----------------------------------------------------------------
                      Calendar year                                                                                      -------------------------------
                                                               3% DR           7% DR           3% DR           7% DR           3% DR           7% DR
--------------------------------------------------------------------------------------------------------------------------------------------------------
2023....................................................        -$0.0034        -$0.0031           $0.02          $0.018          $0.016          $0.015
2026....................................................           0.018           0.016           0.097           0.088            0.11             0.1
2030....................................................            0.15            0.13            0.45            0.41             0.6            0.54
2035....................................................            0.44             0.4            0.79            0.72             1.2             1.1
2040....................................................            0.68            0.62               1            0.95             1.7             1.6
2050....................................................            0.89             0.8             1.4             1.3             2.3             2.1
PV......................................................             6.7             2.8              12             5.3              19             8.1
Annualized..............................................            0.34            0.22            0.61            0.43            0.96            0.65
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
\a\ Note that the non-GHG impacts associated with the standards presented here do not include the full complement of health and environmental effects
  that, if quantified and monetized, would increase the total monetized benefits. Instead, the non-GHG benefits are based on benefit-per-ton values that
  reflect only human health impacts associated with reductions in PM2.5 exposure.
\b\ Calendar year non-GHG benefits presented in this table assume either a 3 percent or 7 percent discount rate in the valuation of PM-related premature
  mortality to account for a twenty-year segmented cessation lag. Note that annual benefits estimated using a 3 percent discount rate were used to
  calculate the present and annualized values using a 3 percent discount rate and the annual benefits estimated using a 7 percent discount rate were
  used to calculate the present and annualized values using a 7 percent discount rate.

    Table 47 shows the benefits of reduced GHG emissions, and 
consequently the annual quantified benefits (i.e., total GHG benefits), 
for each of the four interim social cost of GHG (SC-GHG) values 
estimated by the interagency working group. As discussed in the RIA 
Chapter 3.3, there are some limitations to the SC-GHG analysis, 
including the incomplete way in which the integrated assessment models 
capture catastrophic and non-

[[Page 74511]]

catastrophic impacts, their incomplete treatment of adaptation and 
technological change, uncertainty in the extrapolation of damages to 
high temperatures, and assumptions regarding risk aversion.

                           Table 47--Climate Benefits From Reductions in GHG Emissions
                                           [Billions of 2018 dollars]
----------------------------------------------------------------------------------------------------------------
                                                                    Discount rate and statistic
                                                 ---------------------------------------------------------------
                  Calendar year                                                                       3% 95th
                                                    5% average      3% average     2.5% average     percentile
----------------------------------------------------------------------------------------------------------------
2023............................................          $0.081           $0.27            $0.4            $0.8
2026............................................            0.48             1.6             2.3             4.7
2030............................................             1.5             4.6             6.7              14
2035............................................             2.8             8.4              12              25
2040............................................             3.9              11              16              34
2050............................................             5.5              14              20              44
PV..............................................              31             130             200             390
Annualized......................................               2             6.6             9.5              20
----------------------------------------------------------------------------------------------------------------
Notes: The present value of reduced GHG emissions is calculated differently than other benefits. The same
  discount rate used to discount the value of damages from future emissions (SC-GHGs at 5, 3, 2.5 percent) is
  used to calculate the present value of SC-GHGs for internal consistency. Annual benefits shown are
  undiscounted values.

    Table 48 presents estimated annual net benefits for the indicated 
calendar years. The table also shows the present and annualized value 
of those net benefits for the calendar years 2021-2050 using both 3 
percent and 7 percent discount rates. The table includes the benefits 
of reduced GHG emissions (and consequently the annual net benefits) for 
each of the four SC-GHG values considered by EPA. We estimate that the 
total benefits of the program far exceed the costs and would result in 
a net present value of benefits that ranges between $27-$450 billion, 
depending on which SC-GHG and discount rate is assumed.

   Table 48--Net Benefits (Emission Benefits + Non-Emission Benefits + Fuel Savings-Costs) Associated With the
                                                  Final Program
                                       [Billions of 2018 dollars] \a\ \b\
----------------------------------------------------------------------------------------------------------------
                                                                                                   Net benefits,
                                                   Net benefits,   Net benefits,   Net benefits,   with climate
                                                   with climate    with climate    with climate   benefits based
                  Calendar year                   benefits based  benefits based  benefits based  on 3% discount
                                                  on 5% discount  on 3% discount      on 2.5%       rate, 95th
                                                       rate            rate        discount rate  percentile SC-
                                                                                                        GHG
----------------------------------------------------------------------------------------------------------------
2023............................................           -$5.3           -$5.1             -$5           -$4.6
2026............................................             -13             -12             -11            -9.1
2030............................................            -4.6            -1.4            0.63             7.9
2035............................................             7.8              13              17              30
2040............................................              19              26              31              49
2050............................................              27              36              41              66
PV, 3%..........................................              88             190             260             450
PV, 7%..........................................              27             120             190             390
Annualized, 3%..................................             4.9             9.5              12              23
Annualized, 7%..................................             1.7             6.2             9.2              20
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ The present value of reduced GHG emissions is calculated differently than other benefits. The same discount
  rate used to discount the value of damages from future emissions (SC-GHG at 5, 3, 2.5 percent) is used to
  calculate present value of SC-GHGs for internal consistency, while all other costs and benefits are discounted
  at either 3% or 7%. Annual costs and benefits shown are undiscounted values.
\b\ Note that the non-GHG impacts associated with the standards presented here do not include the full
  complement of health and environmental effects that, if quantified and monetized, would increase the total
  monetized benefits. Instead, the non-GHG benefits are based on benefit-per-ton values that reflect only human
  health impacts associated with reductions in PM2.5 exposure.

J. Impacts on Consumers of Vehicle Costs and Fuel Savings

    Although the primary purpose of this regulatory action is to reduce 
GHG emissions, the impact of EPA's standards on consumers is an 
important consideration for EPA. This section discusses the impact of 
the standards on consumer net costs for purchasing and fueling 
vehicles. For further discussion of impacts on vehicle sales, see 
Section VII.B of this preamble and for impacts on affordability, see 
Section VII.M of this preamble.
    EPA estimates that the average cost of a new MY 2026 vehicle will 
increase by $1,000 due to the final standards, while we estimate that 
the average per-mile fuel cost in the first year will decrease by 0.73 
cents.\230\ Over time, reductions

[[Page 74512]]

in fuel consumption will offset the increase in upfront costs. For 
instance, EPA estimates that, over the lifetime of a MY 2026 
vehicle,\231\ the reduction in fuel costs will exceed the increase in 
vehicle costs by $1,083, using a 3 percent discount rate.\232\
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    \230\ See U.S. Environmental Protection Agency, ``Fuel Savings 
Offset to Vehicle Costs_20211031.xlsx,'' in the docket for this and 
the other calculations in this section. Fuel prices are based on 
AEO2021 and change over time; for the Reference Case, the average 
retail fuel price for years 2026-2036 ranged from $2.53 to $2.98/
gallon (2020$) for gasoline and $0.118 to $0.119/kWh of electricity 
(2020$). U.S. Energy Information Administration (EIA), U.S. 
Department of Energy (DOE), Annual Energy Outlook, 2021. For the 
analysis involving 5-year ownership periods, we use the fuel costs 
associated with the initial year of purchase for each owner, i.e., 
2026, 2031, 2036. The analysis includes the program flexibilities of 
credit banking, fleet averaging, advanced technology multipliers, 
and air conditioning and off-cycle credits.
    \231\ The CCEMS models vehicles over a 30 year lifetime; 
however, it includes scrappage rates such that fewer and fewer 
vehicles of any vintage remain on the road year after year, and 
those vehicles that remain are driven fewer and fewer miles year 
after year.
    \232\ EPA Guidelines for Preparing Economic Analysis, Chapter 
6.4, suggests that a 3 percent discount rate is appropriate for 
calculations involving consumption, instead of the opportunity cost 
of capital. Here, the discount rate is applied, beginning in 2026 
when the vehicle is purchased new, to the stream of fuel costs over 
the vehicle lifetime. U.S. Environmental Protection Agency (2010). 
``Guidelines for Preparing Economic Analysis,'' Chapter 6. https://www.epa.gov/sites/production/files/2017-09/documents/ee-0568-06.pdf, 
accessed 6/14/2021.
---------------------------------------------------------------------------

    Another way to look at the effects on vehicle buyers is to examine 
how the costs are distributed among new and used vehicle owners. 
Because depreciation occurs over the lifetime of the vehicle, the net 
purchase cost to an owner will depend on the vehicle age when it was 
bought, and, if sold, the length of time that the vehicle was owned. A 
study from Argonne National Laboratory provides estimates for the 
depreciation of light-duty vehicles by age, as summarized in Table 
49.\233\ If the additional cost of fuel-saving technology depreciates 
at the same rates, then a person who buys a new vehicle and sells it 
after 5 years would incur 60 percent of the upfront costs (100 percent 
of the original value, less 40 percent paid back). Analogously, the 
person who buys the vehicle at age 5 would incur 20 percent of those 
costs (40 percent, less 20 percent paid back), and the purchaser of the 
10-year-old vehicle would face a net 10 percent of the cost of the 
technology after it is sold five years later at vehicle age 15. A 
person purchasing a new vehicle, driving the average fleetwide VMT for 
the given age and facing the fuel prices used in this analysis, would 
face an estimated net cost of $60, shown in Table 50, which reflects 
fuel savings that offset 91 percent of the depreciation cost. The buyer 
of that 5-year-old used vehicle would see an estimated reduction in net 
cost--that is, a net saving--of $357, while the buyer of that same 10-
year-old used vehicle would see an estimated reduction of net cost of 
$430. In general, the purchasers of older vehicles will see a greater 
portion of their depreciation costs offset by fuel savings.
---------------------------------------------------------------------------

    \233\ Argonne National Laboratory (2021). ``Comprehensive Total 
Cost of Ownership Quantification for Vehicles with Different Size 
Classes and Powertrains.'' ANL/ESD-21/4, Figure ES-2. https://publications.anl.gov/anlpubs/2021/05/167399.pdf, accessed 6/8/2021.

                                                Table 49--Depreciation Estimates for Light Duty Vehicles
--------------------------------------------------------------------------------------------------------------------------------------------------------
                      Vehicle age                             1             2             3             4             5            10            15
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fraction of original value retained...................         0.70          0.61          0.53         0.475          0.40          0.20          0.10
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated by Argonne National Laboratory using Edmunds data for MYs 2013-2019 vehicles (see figure ES-2).\233\

Table 50--Impact of Standards on Depreciation and Fuel Costs for MY 2026
                    Vehicle Over 5 Years of Ownership
------------------------------------------------------------------------
                                                            Portion of
                                              Vehicle      depreciation
                                           depreciation    costs offset
                                             plus fuel        by fuel
                                               costs        savings (%)
------------------------------------------------------------------------
Vehicle Purchased New...................             $60              91
Vehicle Purchased at Age 5..............          ($357)             257
Vehicle Purchased at Age 10.............          ($430)             478
------------------------------------------------------------------------
Calculated using analysis VMT assumptions for standards, using a 3%
  discount rate from year of purchase.

    Because the use of vehicles varies widely across vehicle owners, 
another way to estimate the effects of the standards is to examine the 
``break even'' number of miles--that is, the number of miles driven 
that would result in fuel savings matching the increase in up-front 
costs. For example, if operating costs of a MY 2026 vehicle decrease by 
0.73 cents per mile due to reduced fuel consumption, the upfront costs 
(when purchased new) would be recovered after 137,000 miles of driving, 
excluding discounting.\234\ As this measure makes clear, the financial 
effect on a new vehicle owner depends on the amount that the vehicle is 
driven. Mobility service providers, such as taxis or ride-sharing 
services, are likely to accumulate miles more quickly than most people 
who use their vehicles for personal use. As discussed in Section VII.M 
of this preamble, the lower per-mile cost for these vehicles may reduce 
the importance of up-front costs in the charge for mobility as a 
service, and thus further enable use of that service.
---------------------------------------------------------------------------

    \234\ This estimate is calculated as the increase in cost, 
$1,000, divided by the reduced per-mile cost, $0.0073, to get miles 
until cost is recovered.
---------------------------------------------------------------------------

    Table 51 shows, for purchasers of different-age MY 2026 vehicles, 
how the degree to which fuel savings offset depreciation costs will 
depend on vehicle use levels.\235\ Cost recovery is again higher for 
older vehicles, and faster for vehicles that accumulate VMT more 
quickly. For example, a consumer who purchases a 5-year old used MY 
2026 vehicle would recover their vehicle costs through fuel savings 
after only 23,000 miles of driving.
---------------------------------------------------------------------------

    \235\ The up-front costs for each purchaser are based on the 
cost to the owner based on the depreciated price for the vehicle's 
age, with recovery of some further depreciated cost after 5 years of 
ownership. Cost recovery per mile is $0.0073, and is multiplied by 
the number of miles in the second column. The remaining columns are 
cost recovery divided by the relevant cost. Discounting is not used 
to abstract from the VMT occurring during a specified timeframe.

[[Page 74513]]

Table 51--Proportion of Depreciation Costs Offset by Fuel Savings, for New and Used Vehicle Purchasers, for a MY
                                                  2026 Vehicle
----------------------------------------------------------------------------------------------------------------
                                                                                   When vehicle    When vehicle
                                                                   When vehicle   purchased at 5   purchased at
                                                                   purchased new     years old     10 years old
----------------------------------------------------------------------------------------------------------------
Portion of vehicle depreciation      At 10,000 miles............             12%             43%             93%
 cost offset by fuel savings (own
 vehicle for 5 years).
                                     At 50,000 miles............             61%            214%            467%
                                     At 100,000 miles...........            122%            428%            933%
Miles where fuel savings fully       Owned vehicle for 5 years..          82,000          23,000          11,000
 offset the vehicle owner's
 depreciation cost.
                                     Owned vehicle for full              137,000          47,000          21,000
                                      remaining lifetime.
----------------------------------------------------------------------------------------------------------------

    Thus, the financial effects on a vehicle buyer depend on how much 
that person drives, as well as whether the vehicle is bought new or 
used. Importantly, all people receive the benefits of reduced GHG 
emissions, the primary focus of this rule.

K. Employment Impacts

    Several commenters, including the Alliance, Blue-Green Alliance, 
International Union, United Automobile, Aerospace & Agricultural 
Implement Workers of America (UAW), SAFE (Securing America's Future 
Energy), and a coalition of 25 Great Lakes and Midwest environmental 
organizations, indicated that domestic employment effects, especially 
in the auto industry, are an important impact of the standards. The 
Blue-Green Alliance, Ceres, Environmental Entrepreneurs, EDF, 
Environmental Law and Policy Center, EOS at Federated Hermes, New 
Mexico Environment Department, New York State Department of 
Environmental Conservation, and the coalition of organizations argue 
that strong standards contribute to job-supporting domestic 
manufacturing. CBD et al. considers EPA's employment estimates to be 
too low, by not considering impacts in the broader economy. National 
Coalition for Advanced Transportation, SAFE and Alliance discuss the 
role of domestic supply chains for electric vehicles in promoting 
domestic employment. The UAW notes their involvement in building these 
``vehicles of the future.'' Volkswagen describes its partnership with 
Chattanooga State Community College to train workers in next-generation 
auto manufacturing skills. EPA acknowledges these comments and 
recognizes employment impacts as an important impact to be assessed, 
and thus we present an assessment of impacts of these standards on 
employment.
    If the U.S. economy is at full employment, even a large-scale 
environmental regulation is unlikely to have a noticeable impact on 
aggregate net employment.\236\ Instead, labor would primarily be 
reallocated from one productive use to another, and net national 
employment effects from environmental regulation would be small and 
transitory (e.g., as workers move from one job to another).\237\ 
Affected sectors may nevertheless experience transitory effects as 
workers change jobs. Some workers may retrain or relocate in 
anticipation of new requirements or require time to search for new 
jobs, while shortages in some sectors or regions could bid up wages to 
attract workers. These adjustment costs can lead to local labor 
disruptions. Even if the net change in the national workforce is small, 
localized reductions in employment may adversely impact individuals and 
communities just as localized increases may have positive impacts.
---------------------------------------------------------------------------

    \236\ Full employment is a conceptual target for the economy 
where everyone who wants to work and is available to do so at 
prevailing wages is actively employed. The unemployment rate at full 
employment is not zero.
    \237\ Arrow et al. (1996). ``Benefit-Cost Analysis in 
Environmental, Health, and Safety Regulation: A Statement of 
Principles.'' American Enterprise Institute, The Annapolis Center, 
and Resources for the Future. See discussion on bottom of p. 6. In 
practice, distributional impacts on individual workers can be 
important, as discussed later in this section.
---------------------------------------------------------------------------

    If the economy is operating at less than full employment, economic 
theory does not clearly indicate the direction or magnitude of the net 
impact of environmental regulation on employment; it could cause either 
a short-run net increase or short-run net decrease.\238\ At the level 
of individual companies, employers affected by environmental regulation 
may increase their demand for some types of labor, decrease demand for 
other types of labor, or for still other types, not change it at all. 
The uncertain direction of labor impacts is due to the different 
channels by which regulations affect labor demand.
---------------------------------------------------------------------------

    \238\ Schmalensee, Richard, and Stavins, Robert N. ``A Guide to 
Economic and Policy Analysis of EPA's Transport Rule.'' White paper 
commissioned by Excelon Corporation, March 2011.
---------------------------------------------------------------------------

    Morgenstern et al. (2002) \239\ decompose the labor consequences in 
a regulated industry facing increased abatement costs into three 
separate components. First, there is a demand effect caused by higher 
production costs raising market prices. Higher prices reduce 
consumption (and production), reducing demand for labor within the 
regulated industry. Second, there is a cost effect where, as production 
costs increase, plants use more of all inputs, including labor, to 
produce the same level of output. Third, there is a factor-shift effect 
where post-regulation production technologies may have different labor 
intensities. Other researchers use different frameworks along a similar 
vein.\240\
---------------------------------------------------------------------------

    \239\ Morgenstern, R.D.; Pizer, W.A.; and Shih, J.-S. (2002). 
``Jobs Versus the Environment: An Industry-Level Perspective.'' 
Journal of Environmental Economics and Management 43: 412-436. 2002.
    \240\ Berman, E. and Bui, L. T. M. (2001). ``Environmental 
Regulation and Labor Demand: Evidence from the South Coast Air 
Basin.'' Journal of Public Economics 79(2): 265-295; 
Desch[ecirc]nes, O. (2018). ``Balancing the Benefits of 
Environmental Regulations for Everyone and the Costs to Workers and 
Firms.'' IZA World of Labor 22v2. https://wol.iza.org/uploads/articles/458/pdfs/environmental-regulations-and-labor-markets.pdf, 
accessed 4/19/2021.
---------------------------------------------------------------------------

    RIA Chapter 8.2 discusses the calculation of employment impacts in 
the model used for this analysis. The estimates include effects on 
three sectors: Automotive dealers, final assembly labor and parts 
production, and fuel economy technology labor. The first two of these 
are examples of Morgenstern et al.'s (2002) demand-effect employment, 
while the third reflects cost-effect employment. For automotive 
dealers, the model estimates the hours involved in each new vehicle 
sale. To estimate the labor involved in final assembly, the model used 
average labor hours per vehicle at a sample of U.S. assembly plants, 
adjusted by the ratio of vehicle assembly manufacturing employment to 
employment for total

[[Page 74514]]

vehicle and equipment manufacturing for new vehicles. Finally, for fuel 
economy technology labor, DOT calculated the average revenue per job-
year for automakers.
    The new-vehicle demand elasticity, among other factors, affects 
employment impacts because it affects the estimated changes in new 
vehicle sales due to the standards. In the proposed rule, EPA's central 
analysis used a new-vehicle demand elasticity of -1, with a sensitivity 
analysis using -0.4 as the demand elasticity. As discussed in Section 
VII.B of this preamble, in this FRM, EPA's central case uses a new-
vehicle demand elasticity of -0.4, with sensitivities of -0.15 and -1, 
due to evidence that the value of -1 used in the proposed rule, from 
older studies, is no longer supported by recent studies. EPA's 
assessment of employment impacts, in RIA Chapter 8.2.3, using the sales 
assumptions of both automakers and consumers using 2.5 years of fuel 
consumption in vehicle decisions and a demand elasticity of -0.4, shows 
an increase in employment of between about 1 and 2.4 percent due to the 
labor involved in producing the technologies needed to meet the 
standards. If, instead, we use the sensitivity analysis with a demand 
elasticity of -0.15, employment is higher for both the no-action 
alternative and the standards, but the percent change is almost the 
same. In contrast, in our sensitivity analysis using the -1 demand 
elasticity, which EPA now believes is outdated, employment increases by 
between 0 and 0.7 percent. If automakers underestimate consumers' 
valuation of fuel economy, as noted in Section VII.B of this preamble, 
then demand-effect employment is likely to be higher, and employment 
impacts are likely to be more positive.
    Note that these are employment impacts in the directly regulated 
sector, plus the impacts for automotive dealers. These do not include 
economy-wide labor impacts. As discussed earlier, economy-wide impacts 
on employment are generally driven by broad macroeconomic effects. It 
also does not reflect employment effects due to reduced spending on 
fuel consumption. Those changes may lead to some reductions in 
employment in gas stations, and some increases in other sectors to 
which people reallocate those expenditures.
    Electrification of the vehicle fleet is likely to affect both the 
number and the nature of employment in the auto and parts sectors and 
related sectors, such as providers of charging infrastructure. The 
kinds of jobs in auto manufacturing are expected to change: For 
instance, there will be no need for engine and exhaust system assembly 
for EVs, while many assembly tasks will involve electrical rather than 
mechanical fitting. Batteries represent a significant portion of the 
manufacturing content of an electrified vehicle, and some automakers 
are likely to purchase the cells, if not pre-assembled modules or 
packs, from suppliers. The effect on total employment for auto 
manufacturing is uncertain: Some suggest that fewer workers will be 
needed because BEVs have fewer moving parts,\241\ while others estimate 
that the labor-hours involved in BEVs are almost identical to that for 
ICE vehicles.\242\ Effects in the supply chain, as Securing America's 
Energy Future (SAFE) and Alliance noted, depend on where goods in the 
supply chain are developed. Blue-Green Alliance, BICEP, Ceres, 
Environmental Entrepreneurs, Elders Climate Action, SAFE, and the UAW 
all argue that developing EVs in the U.S. is critical for domestic 
employment and for the global competitiveness of the U.S. in the future 
auto industry. EPA agrees that these concerns are important and will 
continue to assess changes in employment associated with 
electrification of the auto industry.
---------------------------------------------------------------------------

    \241\ Krisher, T., and Seewer, J. (2021). ``Autoworkers face 
uncertain future in an era of electric cars.'' https://abcnews.go.com/US/wireStory/autoworkers-face-dimmer-future-era-electric-cars-75828610, accessed 10/20/2021.
    \242\ Kupper, D., K. Kuhlmann, K. Tominaga, A. Arora, and J. 
Schlageter (2020). ``Shifting Gears in Auto Manufacturing.'' https://www.bcg.com/publications/2020/transformative-impact-of-electric-vehicles-on-auto-manufacturing, accessed 10/20/2021.
---------------------------------------------------------------------------

L. Environmental Justice

    Executive Order 12898 (59 FR 7629, February 16, 1994) establishes 
federal executive policy on environmental justice. It directs federal 
agencies, to the greatest extent practicable and permitted by law, to 
make achieving environmental justice part of their mission by 
identifying and addressing, as appropriate, disproportionately high and 
adverse human health or environmental effects of their programs, 
policies, and activities on minority populations and low-income 
populations in the U.S. EPA defines environmental justice as the fair 
treatment and meaningful involvement of all people regardless of race, 
color, national origin, or income with respect to the development, 
implementation, and enforcement of environmental laws, regulations, and 
policies.\243\
---------------------------------------------------------------------------

    \243\ Fair treatment means that ``no group of people should bear 
a disproportionate burden of environmental harms and risks, 
including those resulting from the negative environmental 
consequences of industrial, governmental and commercial operations 
or programs and policies.'' Meaningful involvement occurs when ``(1) 
potentially affected populations have an appropriate opportunity to 
participate in decisions about a proposed activity [e.g., 
rulemaking] that will affect their environment and/or health; (2) 
the public's contribution can influence [EPA's rulemaking] decision; 
(3) the concerns of all participants involved will be considered in 
the decision-making process; and (4) [EPA will] seek out and 
facilitate the involvement of those potentially affected'' A 
potential EJ concern is defined as ``the actual or potential lack of 
fair treatment or meaningful involvement of minority populations, 
low-income populations, tribes, and indigenous peoples in the 
development, implementation and enforcement of environmental laws, 
regulations and policies.'' See ``Guidance on Considering 
Environmental Justice During the Development of an Action.'' 
Environmental Protection Agency, www.epa.gov/environmentaljustice/guidanceconsidering-environmental-justice-duringdevelopment-action. 
See also https://www.epa.gov/environmentaljustice.
---------------------------------------------------------------------------

    Executive Order 14008 (86 FR 7619, February 1, 2021) also calls on 
federal agencies to make achieving environmental justice part of their 
respective missions ``by developing programs, policies, and activities 
to address the disproportionately high and adverse human health, 
environmental, climate-related and other cumulative impacts on 
disadvantaged communities, as well as the accompanying economic 
challenges of such impacts.'' It also declares a policy ``to secure 
environmental justice and spur economic opportunity for disadvantaged 
communities that have been historically marginalized and overburdened 
by pollution and under-investment in housing, transportation, water and 
wastewater infrastructure and health care.''
    Under Executive Order 13563 (76 FR 3821, January 21, 2011), federal 
agencies may consider equity, human dignity, fairness, and 
distributional considerations in their regulatory analyses, where 
appropriate and permitted by law.
    EPA's 2016 ``Technical Guidance for Assessing Environmental Justice 
in Regulatory Analysis'' provides recommendations on conducting the 
highest quality analysis feasible, recognizing that data limitations, 
time and resource constraints, and analytic challenges will vary by 
media and regulatory context.\244\
---------------------------------------------------------------------------

    \244\ ``Technical Guidance for Assessing Environmental Justice 
in Regulatory Analysis.'' Epa.gov, Environmental Protection Agency, 
https://www.epa.gov/sites/production/files/2016-06/documents/ejtg_5_6_16_v5.1.pdf.
---------------------------------------------------------------------------

    When assessing the potential for disproportionately high and 
adverse health or environmental impacts of regulatory actions on 
populations of color, low-income populations, tribes, and/or indigenous 
peoples, EPA strives

[[Page 74515]]

to answer three broad questions: (1) Is there evidence of potential EJ 
concerns in the baseline (the state of the world absent the regulatory 
action)? Assessing the baseline will allow EPA to determine whether 
pre-existing disparities are associated with the pollutant(s) under 
consideration (e.g., if the effects of the pollutant(s) are more 
concentrated in some population groups). (2) Is there evidence of 
potential EJ concerns for the regulatory option(s) under consideration? 
Specifically, how are the pollutant(s) and its effects distributed for 
the regulatory options under consideration? (3) Do the regulatory 
option(s) under consideration exacerbate or mitigate EJ concerns 
relative to the baseline? It is not always possible to quantitatively 
assess these questions.
    EPA's 2016 Technical Guidance does not prescribe or recommend a 
specific approach or methodology for conducting an environmental 
justice analysis, though a key consideration is consistency with the 
assumptions underlying other parts of the regulatory analysis when 
evaluating the baseline and regulatory options. Where applicable and 
practicable, the Agency endeavors to conduct such an analysis. Going 
forward, EPA is committed to conducting environmental justice analysis 
for rulemakings based on a framework similar to what is outlined in 
EPA's Technical Guidance, in addition to investigating ways to further 
weave environmental justice into the fabric of the rulemaking process. 
EPA greatly values input from EJ stakeholders and communities and looks 
forward to engagement as we consider the impacts of light-duty vehicle 
emissions.
1. GHG Impacts
    In 2009, under the Endangerment and Cause or Contribute Findings 
for Greenhouse Gases Under Section 202(a) of the Clean Air Act 
(``Endangerment Finding''), the Administrator considered how climate 
change threatens the health and welfare of the U.S. population. As part 
of that consideration, she also considered risks to minority and low-
income individuals and communities, finding that certain parts of the 
U.S. population may be especially vulnerable based on their 
characteristics or circumstances. These groups include economically and 
socially disadvantaged communities; individuals at vulnerable 
lifestages, such as the elderly, the very young, and pregnant or 
nursing women; those already in poor health or with comorbidities; the 
disabled; those experiencing homelessness, mental illness, or substance 
abuse; and/or Indigenous or minority populations dependent on one or 
limited resources for subsistence due to factors including but not 
limited to geography, access, and mobility.
    Scientific assessment reports produced over the past decade by the 
U.S. Global Change Research Program (USGCRP),\245\ \246\ the 
Intergovernmental Panel on Climate Change (IPCC),\247\ \248\ \249\ 
\250\ and the National Academies of Science, Engineering, and Medicine 
\251\ \252\ add more evidence that the impacts of climate change raise 
potential environmental justice concerns. These reports conclude that 
poorer or predominantly non-White communities can be especially 
vulnerable to climate change impacts because they tend to have limited 
adaptive capacities and are more dependent on climate-sensitive 
resources such as local water and food supplies, or have less access to 
social and information resources. Some communities of color, 
specifically populations defined jointly by ethnic/racial 
characteristics and geographic location, may be uniquely vulnerable to 
climate change health impacts in the U.S. In particular, the 2016 
scientific assessment on the Impacts of Climate Change on Human Health 
\253\ found with high confidence that vulnerabilities are place- and 
time-specific, lifestages and ages are linked to immediate and future 
health impacts, and social determinants of health are linked to greater 
extent and severity of climate change-related health impacts.
---------------------------------------------------------------------------

    \245\ USGCRP, 2018: Impacts, Risks, and Adaptation in the United 
States: Fourth National Climate Assessment, Volume II [Reidmiller, 
D.R., C.W. Avery, D.R. Easterling, K.E. Kunkel, K.L.M. Lewis, T.K. 
Maycock, and B.C. Stewart (eds.)]. U.S. Global Change Research 
Program, Washington, DC, USA, 1515 pp. doi: 10.7930/NCA4.2018.
    \246\ USGCRP, 2016: The Impacts of Climate Change on Human 
Health in the United States: A Scientific Assessment. Crimmins, A., 
J. Balbus, J.L. Gamble, C.B. Beard, J.E. Bell, D. Dodgen, R.J. 
Eisen, N. Fann, M.D. Hawkins, S.C. Herring, L. Jantarasami, D.M. 
Mills, S. Saha, M.C. Sarofim, J. Trtanj, and L. Ziska, Eds. U.S. 
Global Change Research Program, Washington, DC, 312 pp. http://dx.doi.org/10.7930/J0R49NQX.
    \247\ Oppenheimer, M., M. Campos, R.Warren, J. Birkmann, G. 
Luber, B. O'Neill, and K. Takahashi, 2014: Emergent risks and key 
vulnerabilities. In: Climate Change 2014: Impacts, Adaptation, and 
Vulnerability. Part A: Global and Sectoral Aspects. Contribution of 
Working Group II to the Fifth Assessment Report of the 
Intergovernmental Panel on Climate Change [Field, C.B., V.R. Barros, 
D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T.E. Bilir, M. Chatterjee, 
K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. 
Levy, S. MacCracken, P.R. Mastrandrea, and L.L.White (eds.)]. 
Cambridge University Press, Cambridge, United Kingdom and New York, 
NY, USA, pp. 1039-1099.
    \248\ Porter, J.R., L. Xie, A.J. Challinor, K. Cochrane, S.M. 
Howden, M.M. Iqbal, D.B. Lobell, and M.I. Travasso, 2014: Food 
security and food production systems. In: Climate Change 2014: 
Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral 
Aspects. Contribution of Working Group II to the Fifth Assessment 
Report of the Intergovernmental Panel on Climate Change [Field, 
C.B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T.E. 
Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, 
E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and 
L.L.White (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA, pp. 485-533.
    \249\ Smith, K.R., A.Woodward, D. Campbell-Lendrum, D.D. Chadee, 
Y. Honda, Q. Liu, J.M. Olwoch, B. Revich, and R. Sauerborn, 2014: 
Human health: Impacts, adaptation, and co-benefits. In: Climate 
Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global 
and Sectoral Aspects. Contribution of Working Group II to the Fifth 
Assessment Report of the Intergovernmental Panel on Climate Change 
[Field, C.B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, 
T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. 
Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and 
L.L. White (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA, pp. 709-754.
    \250\ IPCC, 2018: Global Warming of 1.5 [deg]C. An IPCC Special 
Report on the impacts of global warming of 1.5 [deg]C above pre-
industrial levels and related global greenhouse gas emission 
pathways, in the context of strengthening the global response to the 
threat of climate change, sustainable development, and efforts to 
eradicate poverty [Masson-Delmotte, V., P. Zhai, H.-O. P[ouml]rtner, 
D. Roberts, J. Skea, P.R. Shukla, A. Pirani, W. Moufouma-Okia, C. 
P[eacute]an, R. Pidcock, S. Connors, J.B.R. Matthews, Y. Chen, X. 
Zhou, M.I. Gomis, E. Lonnoy, T. Maycock, M. Tignor, and T. 
Waterfield (eds.)]. In Press.
    \251\ National Research Council. 2011. America's Climate 
Choices. Washington, DC: The National Academies Press. https://doi.org/10.17226/12781.
    \252\ National Academies of Sciences, Engineering, and Medicine. 
2017. Communities in Action: Pathways to Health Equity. Washington, 
DC: The National Academies Press. https://doi.org/10.17226/24624.
    \253\ USGCRP, 2016: The Impacts of Climate Change on Human 
Health in the United States: A Scientific Assessment.
---------------------------------------------------------------------------

i. Effects on Specific Populations of Concern
    Individuals living in socially and economically disadvantaged 
communities, such as those living at or below the poverty line or who 
are experiencing homelessness or social isolation, are at greater risk 
of health effects from climate change. This is also true with respect 
to people at vulnerable lifestages, specifically women who are pre- and 
perinatal, or are nursing; in utero fetuses; children at all stages of 
development; and the elderly. Per the Fourth National Climate 
Assessment, ``Climate change affects human health by altering exposures 
to heat waves, floods, droughts, and other extreme events; vector-, 
food- and waterborne infectious diseases; changes in the quality and 
safety of air, food, and water; and stresses to mental health and well-
being.'' \254\ Many health conditions

[[Page 74516]]

such as cardiopulmonary or respiratory illness and other health impacts 
are associated with and exacerbated by an increase in GHGs and climate 
change outcomes, which is problematic as these diseases occur at higher 
rates within vulnerable communities. Importantly, negative public 
health outcomes include those that are physical in nature, as well as 
mental, emotional, social, and economic.
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    \254\ Ebi, K.L., J.M. Balbus, G. Luber, A. Bole, A. Crimmins, G. 
Glass, S. Saha, M.M. Shimamoto, J. Trtanj, and J.L. White-Newsome, 
2018: Human Health. In Impacts, Risks, and Adaptation in the United 
States: Fourth National Climate Assessment, Volume II [Reidmiller, 
D.R., C.W. Avery, D.R. Easterling, K.E. Kunkel, K.L.M. Lewis, T.K. 
Maycock, and B.C. Stewart (eds.)]. U.S. Global Change Research 
Program, Washington, DC, USA, pp. 539-571. doi: 10.7930/
NCA4.2018.CH14.
---------------------------------------------------------------------------

    To this end, the scientific assessment literature, including the 
aforementioned reports, demonstrates that there are myriad ways in 
which these populations may be affected at the individual and community 
levels. Individuals face differential exposure to criteria pollutants, 
in part due to the proximities of highways, trains, factories, and 
other major sources of pollutant-emitting sources to less-affluent 
residential areas. Outdoor workers, such as construction or utility 
crews and agricultural laborers, who frequently are comprised of 
already at-risk groups, are exposed to poor air quality and extreme 
temperatures without relief. Furthermore, individuals within EJ 
populations of concern face greater housing, clean water, and food 
insecurity and bear disproportionate economic impacts and health 
burdens associated with climate change effects. They have less or 
limited access to healthcare and affordable, adequate health or 
homeowner insurance. Finally, resiliency and adaptation are more 
difficult for economically disadvantaged communities: They have less 
liquidity, individually and collectively, to move or to make the types 
of infrastructure or policy changes to limit or reduce the hazards they 
face. They frequently are less able to self-advocate for resources that 
would otherwise aid in building resilience and hazard reduction and 
mitigation.
    The assessment literature cited in EPA's 2009 and 2016 Endangerment 
Findings, as well as Impacts of Climate Change on Human Health, also 
concluded that certain populations and life stages, including children, 
are most vulnerable to climate-related health effects. The assessment 
literature produced from 2016 to the present strengthens these 
conclusions by providing more detailed findings regarding related 
vulnerabilities and the projected impacts youth may experience. These 
assessments--including the Fourth National Climate Assessment (2018) 
and The Impacts of Climate Change on Human Health in the United States 
(2016)--describe how children's unique physiological and developmental 
factors contribute to making them particularly vulnerable to climate 
change. Impacts to children are expected from heat waves, air 
pollution, infectious and waterborne illnesses, and mental health 
effects resulting from extreme weather events. In addition, children 
are among those especially susceptible to allergens, as well as health 
effects associated with heat waves, storms, and floods. Additional 
health concerns may arise in low-income households, especially those 
with children, if climate change reduces food availability and 
increases prices, leading to food insecurity within households.
    The Impacts of Climate Change on Human Health \253\ also found that 
some communities of color, low-income groups, people with limited 
English proficiency, and certain immigrant groups (especially those who 
are undocumented) live with many of the factors that contribute to 
their vulnerability to the health impacts of climate change. While 
difficult to isolate from related socioeconomic factors, race appears 
to be an important factor in vulnerability to climate-related stress, 
with elevated risks for mortality from high temperatures reported for 
Black or African American individuals compared to White individuals 
after controlling for factors such as air conditioning use. Moreover, 
people of color are disproportionately exposed to air pollution based 
on where they live, and disproportionately vulnerable due to higher 
baseline prevalence of underlying diseases such as asthma, so climate 
exacerbations of air pollution are expected to have disproportionate 
effects on these communities.
    Native American Tribal communities possess unique vulnerabilities 
to climate change, particularly those impacted by degradation of 
natural and cultural resources within established reservation 
boundaries and threats to traditional subsistence lifestyles. Tribal 
communities whose health, economic well-being, and cultural traditions 
depend upon the natural environment will likely be affected by the 
degradation of ecosystem goods and services associated with climate 
change. The IPCC indicates that losses of customs and historical 
knowledge may cause communities to be less resilient or adaptable.\255\ 
The Fourth National Climate Assessment (2018) noted that while 
Indigenous peoples are diverse and will be impacted by the climate 
changes universal to all Americans, there are several ways in which 
climate change uniquely threatens Indigenous peoples' livelihoods and 
economies.\256\ In addition, there can institutional barriers to their 
management of water, land, and other natural resources that could 
impede adaptive measures.
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    \255\ Porter et al., 2014: Food security and food production 
systems.
    \256\ Jantarasami, L.C., R. Novak, R. Delgado, E. Marino, S. 
McNeeley, C. Narducci, J. Raymond-Yakoubian, L. Singletary, and K. 
Powys Whyte, 2018: Tribes and Indigenous Peoples. In Impacts, Risks, 
and Adaptation in the United States: Fourth National Climate 
Assessment, Volume II [Reidmiller, D.R., C.W. Avery, D.R. 
Easterling, K.E. Kunkel, K.L.M. Lewis, T.K. Maycock, and B.C. 
Stewart (eds.)]. U.S. Global Change Research Program, Washington, 
DC, USA, pp. 572-603. doi: 10.7930/NCA4.2018.CH15.
---------------------------------------------------------------------------

    For example, Indigenous agriculture in the Southwest is already 
being adversely affected by changing patterns of flooding, drought, 
dust storms, and rising temperatures leading to increased soil erosion, 
irrigation water demand, and decreased crop quality and herd sizes. The 
Confederated Tribes of the Umatilla Indian Reservation in the Northwest 
have identified climate risks to salmon, elk, deer, roots, and 
huckleberry habitat. Housing and sanitary water supply infrastructure 
are vulnerable to disruption from extreme precipitation events.
    NCA4 noted that Indigenous peoples often have disproportionately 
higher rates of asthma, cardiovascular disease, Alzheimer's, diabetes, 
and obesity, which can all contribute to increased vulnerability to 
climate-driven extreme heat and air pollution events. These factors 
also may be exacerbated by stressful situations, such as extreme 
weather events, wildfires, and other circumstances.
    NCA4 and IPCC AR5 \257\ also highlighted several impacts specific 
to Alaskan Indigenous Peoples. Coastal erosion and permafrost thaw will 
lead to more coastal erosion, exacerbated risks of winter travel, and 
damage to buildings, roads, and other infrastructure--these impacts on 
archaeological sites, structures, and objects that will lead to a loss 
of cultural heritage for Alaska's Indigenous people. In terms of food 
security, the NCA discussed reductions in suitable ice conditions for 
hunting, warmer temperatures impairing the use of traditional ice 
cellars for food storage, and declining shellfish populations due to 
warming and acidification. While the NCA also noted that climate change 
provided more opportunity to hunt from

[[Page 74517]]

boats later in the fall season or earlier in the spring, the assessment 
found that the net impact was an overall decrease in food security.
---------------------------------------------------------------------------

    \257\ Porter et al., 2014: Food security and food production 
systems.
---------------------------------------------------------------------------

    In addition, the U.S. Pacific Islands and the indigenous 
communities that live there are also uniquely vulnerable to the effects 
of climate change due to their remote location and geographic 
isolation. They rely on the land, ocean, and natural resources for 
their livelihoods, but face challenges in obtaining energy and food 
supplies that need to be shipped in at high costs. As a result, they 
face higher energy costs than the rest of the nation and depend on 
imported fossil fuels for electricity generation and diesel. These 
challenges exacerbate the climate impacts that the Pacific Islands are 
experiencing. NCA4 notes that Indigenous peoples of the Pacific are 
threatened by rising sea levels, diminishing freshwater availability, 
and negative effects to ecosystem services that threaten these 
individuals' health and well-being.
2. Non-GHG Impacts
    In addition to significant climate change benefits, the final rule 
will also affect non-GHG emissions. In general, we expect small non-GHG 
emissions reductions from upstream sources related to refining 
petroleum fuels. We also expect small increases in emissions from 
upstream electricity generating units (EGUs). An increase in emissions 
from coal- and NG-fired electricity generation to meet increased EV 
electricity demand could result in adverse EJ impacts. For on-road 
light duty vehicles, the final rule will reduce total non-GHG tailpipe 
emissions, though we expect small increases in some non-GHG emissions 
in the years immediately following implementation of the standards, 
followed by growing decreases in emissions in later years. This is due 
to our projections about the gasoline-fueled LD vehicle population in 
the final rule scenario, including decreased scrappage of older 
vehicles. See Table 35, Table 36, and Table 37 for more detail on the 
estimated non-GHG emissions impacts of the rule.\258\ As discussed in 
Section III.C of this preamble, future EPA regulatory actions that 
would result in increased zero-emission vehicles and cleaner energy 
generation may have greater non-GHG impacts for transportation and 
electricity generation, and those impacts will be analyzed in more 
detail in those future actions.
---------------------------------------------------------------------------

    \258\
---------------------------------------------------------------------------

    There is evidence that communities with EJ concerns are 
disproportionately impacted by the non-GHG emissions associated with 
this rule.\259\ Numerous studies have found that environmental hazards 
such as air pollution are more prevalent in areas where populations of 
color and low-income populations represent a higher fraction of the 
population compared with the general population.\260\ \261\ \262\ 
Consistent with this evidence, a recent study found that most 
anthropogenic sources of PM2.5, including industrial 
sources, and light- and heavy-duty vehicle sources, disproportionately 
affect people of color.\263\
---------------------------------------------------------------------------

    \259\ Mohai, P.; Pellow, D.; Roberts Timmons, J. (2009) 
Environmental justice. Annual Reviews 34: 405-430. https://doi.org/10.1146/annurev-environ-082508-094348.
    \260\ Rowangould, G.M. (2013) A census of the near-roadway 
population: Public health and environmental justice considerations. 
Trans Res D 25: 59-67. http://dx.doi.org/10.1016/j.trd.2013.08.003.
    \261\ Marshall, J.D., Swor, K.R.; Nguyen, N.P (2014) 
Prioritizing environmental justice and equality: Diesel emissions in 
Southern California. Environ Sci Technol 48: 4063-4068. https://doi.org/10.1021/es405167f.
    \262\ Marshall, J.D. (2000) Environmental inequality: Air 
pollution exposures in California's South Coast Air Basin. Atmos 
Environ 21: 5499-5503. https://doi.org/10.1016/j.atmosenv.2008.02.005.
    \263\ C.W. Tessum, D.A. Paolella, S.E. Chambliss, J.S. Apte, 
J.D. Hill, J.D. Marshall, PM2.5 polluters 
disproportionately and systemically affect people of color in the 
United States. Sci. Adv. 7, eabf4491 (2021).
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    Analyses of communities in close proximity to upstream sources, 
such as EGUs, have found that a higher percentage of communities of 
color and low-income communities live near these sources when compared 
to national averages.\264\ Vulnerable populations near upstream 
refineries may experience potential disparities in pollution-related 
health risk from that source.\265\ We expect that small increases in 
non-GHG emissions from EGUs and small reductions in petroleum-sector 
emissions would lead to small changes in exposure to these non-GHG 
pollutants for people living in the communities near these facilities.
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    \264\ See 80 FR 64662, 64915-64916 (October 23, 2015).
    \265\ U.S. EPA (2014). Risk and Technology Review--Analysis of 
Socio-Economic Factors for Populations Living Near Petroleum 
Refineries. Office of Air Quality Planning and Standards, Research 
Triangle Park, North Carolina. January.
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    There is also substantial evidence that people who live or attend 
school near major roadways are more likely to be of a non-White race, 
Hispanic ethnicity, and/or low socioeconomic status.\266\ \267\ We 
would expect that communities near roads will benefit from reductions 
of non-GHG pollutants as fuel efficiency improves and the use of zero-
emission vehicles (such as full battery electric vehicles) increases, 
though projections about the gasoline-fueled LD vehicle population in 
the final rule scenario, including decreased scrappage of older 
vehicles, may offset some of these emission reductions, especially in 
the years immediately after finalization of the standards.
---------------------------------------------------------------------------

    \266\ Tian, N.; Xue, J.; Barzyk. T.M. (2013) Evaluating 
socioeconomic and racial differences in traffic-related metrics in 
the United States using a GIS approach. J Exposure Sci Environ 
Epidemiol 23: 215-222.
    \267\ Boehmer, T.K.; Foster, S.L.; Henry, J.R.; Woghiren-
Akinnifesi, E.L.; Yip, F.Y. (2013) Residential proximity to major 
highways--United States, 2010. Morbidity and Mortality Weekly Report 
62(3): 46-50.
---------------------------------------------------------------------------

    Although proximity to an emissions source is a useful indicator of 
potential exposure, it is important to note that the impacts of 
emissions from both upstream and tailpipe sources are not limited to 
communities in close proximity to these sources. The effects of 
potential increases and decreases in emissions from the sources 
affected by this final rule might also be felt many miles away, 
including in communities with EJ concerns. The spatial extent of these 
impacts from upstream and tailpipe sources depend on a range of 
interacting and complex factors including the amount of pollutant 
emitted, atmospheric chemistry and meteorology.
    In summary, we expect this rule will, over time, result in 
reductions of non-GHG tailpipe emissions and emissions from upstream 
refinery sources. We also project that the rule will result in small 
increases of non-GHG emissions from upstream EGU sources. Overall, 
there are substantial PM2.5-related health benefits 
associated with the non-GHG emissions reductions that this rule will 
achieve. The benefits from these emissions reductions, as well as the 
adverse impacts associated with the emissions increases, could 
potentially impact communities with EJ concerns, though not necessarily 
immediately and not equally in all locations. For this rulemaking, the 
air quality information needed to perform a quantified analysis of the 
distribution of such impacts was not available. We therefore recommend 
caution when interpreting these broad, qualitative observations. We 
note in Section I.A.2 of this preamble that EPA intends to develop a 
future rule to control emissions of GHGs as well as criteria and air 
toxic pollutants from light-duty vehicles for model years beyond 2026. 
We are considering how to project air quality impacts from the changes 
in non-GHG emissions for that future rulemaking (see Section V.C of 
this preamble).

[[Page 74518]]

M. Affordability and Equity Impacts

    The impacts of the standards on social equity depend in part on 
their effects on the affordability of vehicles and transportation 
services, especially for lower-income households. Access to 
transportation improves the ability of people, including those with low 
income, to pursue jobs, education, health care, and necessities of 
daily life such as food and housing. This section discusses how these 
standards might affect affordability of vehicles. We acknowledge that 
vehicles, especially household ownership of vehicles, are only a 
portion of the larger issues concerning access to transportation and 
mobility services, which also take into consideration public 
transportation and land use design. Though these issues are 
inextricably linked, the following discussion focuses on effects 
related to private vehicle ownership and use. We also acknowledge that 
the emissions of vehicles, both local pollutants and GHGs, can have 
disproportionate impacts on lower-income and minority communities; see 
Preamble Sections I.E and VII.L for further discussion of these topics. 
Finally, we note that social equity involves issues beyond income and 
affordability, including race, ethnicity, gender, gender 
identification, and residential location; EPA will continue to examine 
such impacts.
    Affordability is not a well-defined concept in academic literature. 
As discussed in Cassidy et al. (2016),\268\ researchers have generally 
applied the term to necessities such as food, housing, or energy, and 
have identified some themes related to:
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    \268\ Cassidy, A., G. Burmeister, and G. Helfand. ``Impacts of 
the Model Year 2017-2025 Light-Duty Vehicle Greenhouse Gas Emission 
Standards on Vehicle Affordability.'' Working paper.

    Instead of focusing on the traditional economic concept of 
willingness to pay, any consideration of affordability must also 
consider the ability to pay for a socially defined minimum level of 
a good, especially of a necessity.
    Although the ability to pay is often based on the proportion of 
income devoted to expenditures on a particular good, this ratio 
approach is widely criticized for not considering expenditures on 
other possibly necessary goods, quality differences in the good, and 
heterogeneity of consumer preferences for the good.
    Assessing affordability should take into account both the short-
term costs and long-term costs associated with consumption of a 
particular good.

    As noted in Cassidy et al., (2016), there is very little literature 
applying the concept of affordability to transportation, much less to 
vehicle ownership. It is not clear how to identify a socially 
acceptable minimum level of transportation service. However, it seems 
reasonable that some minimum level of transportation services is 
necessary to enable households' access to employment, education, and 
basic services such as buying food. It also seems reasonable to assume 
that transportation requirements vary substantially across populations 
and geographic locations, and it is not clear when consumption of 
transportation moves from being a necessity to optional. Normatively 
defining the minimum adequate level of transportation consumption is 
difficult given the heterogeneity of consumer preferences and living 
situations. As a result, it is challenging to define how much residual 
income should remain with each household after transportation 
expenditures. It is therefore not surprising that academic and policy 
literature have largely avoided attempting to define transportation 
affordability.
    As with the proposed rule, we are following the approach in the 
2016 EPA Proposed Determination for the Midterm Evaluation \269\ of 
considering four questions that relate to the effects of the final 
standards on new vehicle affordability: How the standards affect lower-
income households; how the standards affect the used vehicle market; 
how the standards affect access to credit; and how the standards affect 
the low-priced vehicle segment. See RIA Chapter 8.3 for further detail.
---------------------------------------------------------------------------

    \269\ U.S. Environmental Protection Agency (2016). Proposed 
Determination on the Appropriateness of the Model Year 2022-2025 
Light-Duty Vehicle Greenhouse Gas Emissions Standards under the 
Midterm Evaluation, Chapter 4.3.3. EPA-420-R-16-020. https://nepis.epa.gov/Exe/ZyPDF.cgi?Dockey=P100Q3DO.pdf, accessed 4/26/2021.
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    Americans for Prosperity, Attorneys General of Missouri and Ohio, 
Competitive Enterprise Institute, some individual commenters, NADA, 
Taxpayers Protection Alliance, and Valero Energy Corporation express 
concern that increases in new vehicle prices will hurt low- and middle-
income households by making new vehicles more expensive. EPA notes that 
the effects of the standards on lower-income households depend on the 
responses not just to up-front costs but also to the reduction in fuel 
and operating costs associated with the standards. These responses will 
affect not only the sales of new vehicles, as discussed in Section 
VII.B of this preamble, but also the prices of used vehicles as well as 
the costs associated with ride-hailing and ride-sharing services. 
Consumer Reports, Dream Corps Green for All, and Center for Biological 
Diversity et al. say that, although up-front costs are higher, the 
total cost of ownership is lower. In addition, they say that lower-
income households may disproportionately benefit, as they observe that 
low-income households typically buy used vehicles, whose up-front cost 
increases are more modest compared to the fuel savings; because fuel 
costs are a larger proportion of household income for lower-income 
people, these savings are especially important. Hutchens et al. (2021) 
\270\ find that lower-income households spend more on used vehicles 
than new ones. A recent study notes that lower-income households spend 
more on gasoline as a proportion of their income than higher-income 
households,\271\ suggesting the importance of operating costs for these 
households. If the per-mile costs of services such as ride hailing and 
ride sharing decrease to reflect lower operating costs, those who do 
not own vehicles may benefit. The National Coalition for Advanced 
Technology comments that Uber and Lyft have a target in 2030 of going 
all-electric; if those lower operating and maintenance costs are passed 
along to users, these services may become more affordable.
---------------------------------------------------------------------------

    \270\ Hutchens, A., A. Cassidy, G. Burmeister, and G. Helfand. 
``Impacts of Light-Duty Vehicle Greenhouse Gas Emission Standards on 
Vehicle Affordability.'' Working paper.
    \271\ Vaidyanathan, S., P. Huether, and B. Jennings (2021). 
``Understanding Transportation Energy Burdens.'' Washington, DC: 
American Council for an Energy-Efficient Economy White Paper. 
https://www.aceee.org/white-paper/2021/05/understanding-transportation-energy-burdens, accessed 5/24/2021.
---------------------------------------------------------------------------

    Most people who buy vehicles purchase used vehicles, instead of 
new.\272\ If sales of new vehicles decrease, then prices of used 
vehicles, which are disproportionately purchased by lower-income 
households, would be expected to increase; the reverse would happen if 
new vehicle sales increase. These effects in the used vehicle market 
also affect how long people hold onto their used vehicles. This effect, 
sometimes termed the ``Gruenspecht effect'' after Gruenspecht 
(1982),\273\ would lead to both slower adoption of vehicles subject to 
the new standards, and more use of older vehicles not subject to the 
new standards, with

[[Page 74519]]

associated higher emissions, if new vehicle sales decrease. The 
Gruenspecht effect, therefore, may have the additional consequence of 
increased concentrations of older vehicles in some communities in the 
short term, and may delay benefits associated with advanced vehicle 
technologies for those communities. As discussed in Section VII.B of 
this preamble, new vehicle sales are projected to show a roughly one-
half to one percent decrease from sales under the SAFE rule; that value 
depends on the uncertain assumption that vehicle buyers consider just a 
small share of future fuel consumption in the purchase decision. 
Changes in the new vehicle market are expected not only to have 
immediate effects on the prices of used vehicles, but also to affect 
the market over time, as the supply of used vehicles in the future 
depends on how many new vehicles are sold.\274\ As discussed in Section 
VII.J of this preamble, because the prices of used vehicles depreciate 
more rapidly than fuel savings, buyers of used vehicles will recover 
any increase in up-front costs more rapidly than buyers of new 
vehicles.
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    \272\ U.S. Department of Transportation, Bureau of 
Transportation Statistics. ``New and Used Passenger Car and Light 
Truck Sales and Leases.'' National Transportation Statistics Table 
1-17. https://www.bts.gov/content/new-and-used-passenger-car-sales-and-leases-thousands-vehicles, accessed 11/3/2021.
    \273\ Gruenspecht, H. (1982). ``Differentiated Regulation: The 
Case of Auto Emissions Standards.'' American Economic Review 72: 
328-331.
    \274\ U.S. Environmental Protection Agency (2021). ``The Effects 
of New-Vehicle Price Changes on New- and Used-Vehicle Markets and 
Scrappage.'' EPA-420-R-21-019, https://cfpub.epa.gov/si/si_public_record_Report.cfm?dirEntryId=352754&Lab=OTAQ (accessed 10/
06/2021).
---------------------------------------------------------------------------

    Access to credit is a potential barrier to purchase of vehicles 
whose up-front costs have increased; access may also be affected by 
race, ethnicity, gender, gender identity, residential location, 
religion, or other factors. If lenders are not willing to provide 
financing for buyers who face higher prices, perhaps because the 
potential buyers are hitting a maximum on the debt-to-income ratio 
(DTI) that lenders are willing to accept, then those buyers may not be 
able to purchase new vehicles. NADA in its comments provided results of 
two surveys of financial institutions, which were asked whether they 
would increase credit for a more expensive vehicle with lower cost of 
ownership. With about half of those surveyed responding, over 80 
percent of respondents replied that they would not; the remainder said 
they would. These survey results do not contradict EPA's observation, 
discussed in the proposed rule, that some lenders are willing to give 
discounts on loans to purchase more fuel-efficient vehicles.\275\ 
Subsidies exist from the federal government, and some state 
governments, for plug-in electric vehicles.\276\ In addition, the DTI 
does not appear to be a fixed obstacle for access to finance; from 2007 
to 2019, 40 percent of lower-income households and 8 percent of higher-
income households who both had a DTI of over 36 percent and purchased 
at least one new vehicle financed their vehicle purchases.\277\
---------------------------------------------------------------------------

    \275\ Helfand, Gloria (2021). ``Memorandum: Lending Institutions 
that Provide Discounts for more Fuel Efficient Vehicles.'' U.S. EPA 
Office of Transportation and Air Quality, Memorandum to the Docket.
    \276\ U.S. Department of Energy and U.S. Environmental 
Protection Agency. ``Federal Tax Credits for New All-Electric and 
Plug-in Hybrid Vehicles.'' https://www.fueleconomy.gov/feg/taxevb.shtml, accessed 4/28/2021.
    \277\ Hutchens, A., et al. (2021). ``Impacts of Light-Duty 
Vehicle Greenhouse Gas Emission Standards on Vehicle 
Affordability.'' Working paper.
---------------------------------------------------------------------------

    Low-priced vehicles may be considered an entry point for people 
into buying new vehicles instead of used ones; automakers may seek to 
entice people to buy new vehicles through a low price point. It is 
possible that higher costs associated with standards could affect the 
ability of automakers to maintain vehicles in this value segment. At 
the same time, this segment historically tended to include more fuel-
efficient vehicles that assisted automakers in achieving CAFE 
standards.\278\ The footprint-based standards, by encouraging 
improvements in GHG emissions and fuel economy across the vehicle 
fleet, reduce the need for low-priced vehicles to be a primary means of 
compliance with the standards. This change in incentives for the 
marketing of this segment may contribute to the increases in the prices 
of vehicles previously in this category. Low-priced vehicles still 
exist; the Chevrolet Spark, for example, is listed as starting at 
$13,400.\279\ At the same time, this segment is gaining more content, 
such as improved entertainment systems and electric windows; they may 
be developing an identity as a desirable market segment without regard 
to their previous purpose in enabling the sales of less efficient 
vehicles and compliance with CAFE standards.\280\ Whether this segment 
continues to exist, and in what form, may depend on the marketing plans 
of manufacturers: whether benefits are greater from offering basic new 
vehicles to first-time new-vehicle buyers, or from making small 
vehicles more attractive by adding more desirable features to them.
---------------------------------------------------------------------------

    \278\ Austin, D., and T. Dinan (2005). ``Clearing the Air: The 
Costs and Consequences of Higher CAFE Standards and Increased 
Gasoline.'' Journal of Environmental Economics and Management 50(3): 
562-82; Kleit, A. (2004). ``Impacts of Long-Range Increases in the 
Fuel Economy (CAFE) Standard.'' Economic Inquiry 42(2): 279-294.
    \279\ Motortrend (2021). ``These Are the 10 Cheapest Cars You 
Can Buy in 2021.'' https://www.motortrend.com/features-collections/top-10-cheapest-new-cars/, accessed 4/28/2021; Chevrolet Spark, 
https://www.chevrolet.com/cars/spark, accessed 5/27/2021.
    \280\ See Note 268.
---------------------------------------------------------------------------

    The updated analysis for the final rule projects that, although the 
vast majority of vehicles produced in the time frame of the standards 
will be gasoline-fueled vehicles, EVs and PHEVs increase with each MY 
up to about 17 percent total market share by MY 2026, compared to about 
7 percent MY 2023; see Table 33. New EVs and PHEVs have lower operating 
costs than gasoline vehicles, but currently have higher up-front costs 
and require access to a means of charging. EPA has heard from some 
environmental justice groups and Tribes that limited access to electric 
vehicles and charging infrastructure can be a barrier for purchasing 
EVs. Comments received on the proposed rule cited both the higher up-
front costs of EVs as challenges for adoption, and their lower 
operating and maintenance costs as incentives for adoption. A number of 
auto manufacturers commented on the importance of consumer education, 
purchase incentives, and charging infrastructure development for 
promoting adoption of electric vehicles. Some NGOs commented that EVs 
have lower total cost of ownership than ICE vehicles, and that EV 
purchase incentives should focus on lower-income households, because 
they are more responsive to price incentives than higher-income 
households. Access to charging infrastructure may be especially 
challenging for those who do not have easy access to home charging, 
such as people living in multi-unit dwellings, unless public charging 
infrastructure or charging at workplaces becomes more widespread. On 
the other hand, a recent report from the National Renewable Energy 
Laboratory estimated that public and workplace charging is keeping up 
with projected needs, based on Level 2 and fast charging ports per 
plug-in vehicle.\281\ EPA acknowledges the comments received. As the 
up-front costs of EVs drops, as discussed in Section III.A of this 
preamble, EPA expects consumer acceptance of EVs to increase; as more 
EVs enter the new vehicle market, those EVs will gradually move into 
the used vehicle fleet and become more accessible to lower-income 
households. In addition, as adoption of EVs increases, EPA expects 
greater development of charging

[[Page 74520]]

infrastructure. EPA will continue to monitor and further study 
affordability issues related to electric vehicles as their prevalence 
in the vehicle fleet increases. We respond to these comments in more 
detail in the RTC.
---------------------------------------------------------------------------

    \281\ Brown, A., A. Schayowitz, and E. Klotz (2021). ``Electric 
Vehicle Infrastructure Trends from the Alternative Fueling Station 
Locator: First Quarter 2021.'' National Renewable Energy Laboratory 
Technical Report NREL/TP-5400-80684, https://afdc.energy.gov/files/u/publication/electric_vehicle_charging_infrastructure_trends_first_quarter_2021.pdf, accessed 11/3/2021.
---------------------------------------------------------------------------

    In sum, as with the effects of the standards on vehicle sales 
discussed in Section VII.B of this preamble, the effects of the 
standards on affordability depend on two countervailing effects: the 
increase in the up-front costs of the vehicles, and the decrease in 
operating costs. As discussed here, different commenters emphasize one 
or the other aspect of this tradeoff. The increase in up-front costs 
has the potential to increase the prices of used vehicles, to make 
credit more difficult to obtain, and to make the least expensive new 
vehicles less desirable compared to used vehicles. The reduction in 
operating costs has the potential to mitigate or reverse all these 
effects. Lower operating costs on their own increase mobility (see RIA 
Chapter 3.1 for a discussion of rebound driving). It is possible that 
lower-income households may benefit more from the reduction in 
operating costs than the increase in up-front costs, because they own 
fewer vehicles per household, spend more on fuel than on vehicles on an 
annual basis, and those fuel expenditures represent a higher fraction 
of their household income.
    See RIA Chapter 8.4 for more detailed discussion of these issues.

VIII. Statutory and Executive Order Reviews

A. Executive Order 12866: ``Regulatory Planning and Review and 
Executive Order 13563: Improving Regulation and Regulatory Review''

    This action is an economically significant regulatory action that 
was submitted to OMB for review. Any changes made in response to OMB 
recommendations have been documented in the docket. EPA prepared an 
analysis of the potential costs and benefits associated with this 
action.
    This analysis is in the Regulatory Impact Analysis, which can be 
found in the docket for this rule and is briefly summarized in Section 
VII of this preamble.

B. Paperwork Reduction Act

    This action does not impose any new information collection burden 
under the PRA. OMB has previously approved the information collection 
activities contained in the existing regulations and has assigned OMB 
control number 2127-0019. This final rule changes the level of the 
existing emission standards and revises several existing credit 
provisions, but imposes no new information collection requirements.

C. Regulatory Flexibility Act

    I certify that this action will not have a significant economic 
impact on a substantial number of small entities under the RFA. This 
action will not impose any requirements on small entities. EPA's 
existing regulations exempt from the GHG standards any manufacturer, 
domestic or foreign, meeting Small Business Administration's size 
definitions of small business in 13 CFR 121.201. EPA is not finalizing 
any changes to the provisions for small businesses under this rule, and 
thus they would remain exempt. For additional discussion see Chapter 9 
of the RIA.

D. Unfunded Mandates Reform Act

    This final rule contains no federal mandates under UMRA, 2 U.S.C. 
1531-1538, for State, local, or tribal governments. The final rule 
imposes no enforceable duty on any State, local or tribal government. 
This final rule contains a federal mandate under UMRA that may result 
in expenditures of $100 million or more for the private sector in any 
one year. Accordingly, the costs and benefits associated with the final 
rule are discussed in Section VII of this preamble and in the RIA, 
which are in the docket for this rule.
    This action is not subject to the requirements of section 203 of 
UMRA because it contains no regulatory requirements that might 
significantly or uniquely affect small governments.

E. Executive Order 13132: ``Federalism''

    This action does not have federalism implications. It will not have 
substantial direct effects on the states, on the relationship between 
the national government and the states, or on the distribution of power 
and responsibilities among the various levels of government.

F. Executive Order 13175: ``Consultation and Coordination With Indian 
Tribal Governments''

    This action does not have tribal implications as specified in 
Executive Order 13175. Thus, Executive Order 13175 does not apply to 
this action. However, EPA has engaged with our tribal stakeholders in 
the development of this rulemaking by offering a tribal workshop and 
offering government-to-government consultation upon request.

G. Executive Order 13045: ``Protection of Children From Environmental 
Health Risks and Safety Risks''

    With respect to GHG emissions, EPA has determined that this rule 
will not have disproportionate impacts on children (62 FR 19885, April 
23, 1997). This rule will reduce emissions of potent GHGs, which as 
noted earlier in Section IV of this preamble, will reduce the effects 
of climate change, including the public health and welfare effects on 
children.
    GHGs contribute to climate change and the GHG emissions reductions 
resulting from implementation of this final rule would further improve 
children's health. The assessment literature cited in EPA's 2009 and 
2016 Endangerment Findings concluded that certain populations and life 
stages, including children, the elderly, and the poor, are most 
vulnerable to climate-related health effects. The assessment literature 
since 2016 strengthens these conclusions by providing more detailed 
findings regarding these groups' vulnerabilities and the projected 
impacts they may experience. These assessments describe how children's 
unique physiological and developmental factors contribute to making 
them particularly vulnerable to climate change. Impacts to children are 
expected from heat waves, air pollution, infectious and waterborne 
illnesses, and mental health effects resulting from extreme weather 
events. In addition, children are among those especially susceptible to 
most allergic diseases, as well as health effects associated with heat 
waves, storms, and floods. Additional health concerns may arise in low-
income households, especially those with children, if climate change 
reduces food availability and increases prices, leading to food 
insecurity within households. More detailed information on the impacts 
of climate change to human health and welfare is provided in Section 
IV.B of this preamble.
    We expect this rule would, on net, result in both small reductions 
and small increases in non-GHG emissions that could impact children, 
though not necessarily immediately and not equally in all locations. 
However, with respect to non-GHG emissions, EPA has concluded that it 
is not practicable to determine whether there would be disproportionate 
impacts on children. As mentioned in Section I.A.2 of this preamble, 
EPA intends to initiate another rulemaking to further reduce emissions 
of GHGs from light-duty vehicles for model years beyond 2026. We are 
considering how to project air quality and health impacts from the

[[Page 74521]]

changes in non-GHG emissions for that future rulemaking (see Section 
V.C of this preamble).

H. Executive Order 13211: ``Energy Effects''

    This action is not a ``significant energy action'' because it is 
not likely to have a significant adverse effect on the supply, 
distribution, or use of energy. EPA has outlined the energy effects in 
Table 5-7 of the Regulatory Impact Analysis (RIA), which is available 
in the docket for this action and is briefly summarized here.
    This action reduces CO2 for passenger cars and light 
trucks under revised GHG standards, which will result in significant 
reductions of the consumption of petroleum, will achieve energy 
security benefits, and have no adverse energy effects. Because the GHG 
emission standards result in significant fuel savings, this rule 
encourages more efficient use of fuels. Table 5-10 in the RIA shows 
over 360 billion gallons of retail gasoline reduced through 2050 or 
nearly seven billion barrels of oil reduced through 2050.

I. National Technology Transfer and Advancement Act and 1 CFR Part 51

    This rulemaking involves technical standards. The Agency conducted 
a search to identify potentially applicable voluntary consensus 
standards. For CO2 emissions, we identified no such 
standards and none were identified in comments; EPA is therefore 
collecting data over the same tests that are used for the current 
CO2 standards and for the CAFE program. This will minimize 
the amount of testing done by manufacturers, since manufacturers are 
already required to run these tests. For A/C credits, EPA is using the 
test specified in 40 CFR 1066.845. EPA knows of no voluntary consensus 
standard for the A/C test and none were identified in comments.
    In accordance with the requirements of 1 CFR 51.5, we are 
incorporating by reference the use of a test method from SAE 
International, specifically SAE J1711, ``Recommended Practice for 
Measuring the Exhaust Emissions and Fuel Economy of Hybrid-Electric 
Vehicles, Including Plug-in Hybrid Vehicles'', Revised June 2010. The 
Recommended Practice establishes uniform chassis dynamometer test 
procedures for hybrid electric vehicles to allow for measuring and 
calculating exhaust emissions and fuel economy when vehicles drive over 
specified duty cycles. We adopted regulatory requirements in an earlier 
rulemaking, but did not complete all the steps necessary to formally 
incorporate this test method by reference into the EPA regulation. The 
referenced test method may be obtained through the SAE International 
website (www.sae.org) or by calling SAE at (877) 606-7323 (U.S. and 
Canada) or (724) 776-4970 (outside the U.S. and Canada).

J. Executive Order 12898: ``Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Populations''

    For this final action, EPA is only able to qualitatively evaluate 
the extent to which this action may result in disproportionately high 
and adverse human health or environmental effects on minority 
populations, low income populations, and/or indigenous peoples, as 
specified in Executive Order 12898 (59 FR 7629, February 16, 1994). 
With respect to GHG emissions, EPA has determined that this rule will 
benefit all U.S. populations, including communities of color, low-
income populations and/or indigenous peoples. While this final rule 
will substantially reduce GHG emissions, future impacts of climate 
change are still expected in the baseline and will likely be unevenly 
distributed in ways that uniquely impact these communities. EPA has not 
quantitatively assessed these effects.
    For non-GHG pollutants, EPA has concluded that it is not 
practicable given the timing of this final action to determine the 
extent to which effects on communities of color, low-income populations 
and/or indigenous peoples are differentially distributed. We expect 
this final rule will result in both small reductions and small 
increases of non-GHG emissions that could impact communities with EJ 
concerns in the near term, though not necessarily immediately and not 
equally in all locations. It was not practicable to develop the air 
quality information needed to perform a quantified analysis of the 
distribution of such non-GHG impacts. EPA intends to initiate a future 
rule to further reduce emissions of GHGs and criteria and toxic 
pollutants from light-duty vehicles for model years beyond 2026. We are 
considering how to project air quality impacts from the changes in non-
GHG emissions for that future rulemaking (see Section V.C of this 
preamble). Section VII.L of this preamble describes how we considered 
environmental justice in this action.

K. Congressional Review Act (CRA)

    This action is subject to the CRA, and the EPA will submit a rule 
report to each House of the Congress and to the Comptroller General of 
the United States. This action is a ``major rule'' as defined by 5 
U.S.C. 804(2).

L. Judicial Review

    This final action is ``nationally applicable'' within the meaning 
of CAA section 307(b)(1) because it is expressly listed in the section 
(i.e., ``any standard under section [202] of this title''). Under 
section 307(b)(1) of the CAA, petitions for judicial review of this 
action must be filed in the United States Court of Appeals for the 
District of Columbia Circuit within 60 days from the date this final 
action is published in the Federal Register. Filing a petition for 
reconsideration by the Administrator of this final action does not 
affect the finality of the action for the purposes of judicial review, 
nor does it extend the time within which a petition for judicial review 
must be filed and shall not postpone the effectiveness of such rule or 
action.

IX. Statutory Provisions and Legal Authority

    Statutory authority for this final rule is found in section 202(a) 
(which authorizes standards for emissions of pollutants from new motor 
vehicles which emissions cause or contribute to air pollution which may 
reasonably be anticipated to endanger public health or welfare), 
202(d), 203-209, 216, and 301 of the Clean Air Act, 42 U.S.C. 7521(a), 
7521(d), 7522-7525, 7541-7543, 7550, and 7601.

List of Subjects

40 CFR Part 86

    Environmental protection, Administrative practice and procedure, 
Confidential business information, Incorporation by reference, 
Labeling, Motor vehicle pollution, Reporting and recordkeeping 
requirements.

40 CFR Part 600

    Environmental protection, Administrative practice and procedure, 
Electric power, Fuel economy, Labeling, Reporting and recordkeeping 
requirements.

Michael S. Regan,
Administrator.
    For the reasons set out in the preamble, we are amending title 40, 
chapter I of the Code of Federal Regulations as set forth below.

PART 86--CONTROL OF EMISSIONS FROM NEW AND IN-USE HIGHWAY VEHICLES 
AND ENGINES

0
1. The authority citation for part 86 continues to read as follows:

    Authority: 42 U.S.C. 7401-7671q.

0
2. Amend Sec.  86.1 by redesignating paragraphs (g)(3) through (27) as 
(g)(4)

[[Page 74522]]

through (28) and adding a new paragraph (g)(3) to read as follows:

Sec.  86.1  Incorporation by reference.

* * * * *
    (g) * * *
    (3) SAE J1711, Recommended Practice for Measuring the Exhaust 
Emissions and Fuel Economy of Hybrid-Electric Vehicles, Including Plug-
in Hybrid Vehicles, Revised June 2010, IBR approved for Sec.  86.1866-
12(b).
* * * * *

0
3. Amend Sec.  86.1806-17 by revising paragraph (a) introductory text 
to read as follows:

Sec.  86.1806-17  Onboard diagnostics.

* * * * *
    (a) Vehicles must comply with the 2013 OBD requirements adopted for 
California as described in this paragraph (a). California's 2013 OBD-II 
requirements are part of Title 13, Sec.  1968.2 of the California Code 
of Regulations, approved on July 31, 2013 (incorporated by reference in 
Sec.  86.1). We may approve your request to certify an OBD system 
meeting a later version of California's OBD requirements if you 
demonstrate that it complies with the intent of this section. The 
following clarifications and exceptions apply for vehicles certified 
under this subpart:
* * * * *

0
4. Amend Sec.  86.1818-12 by revising paragraph (c)(2)(i), (c)(3)(i), 
and (e)(3)(ii)(A) to read as follows:

Sec.  86.1818-12   Greenhouse gas emission standards for light-duty 
vehicles, light-duty trucks, and medium-duty passenger vehicles.

* * * * *
    (c) * * *
    (2) * * *
    (i) Calculation of CO2 target values for passenger automobiles. A 
CO2 target value shall be determined for each passenger 
automobile as follows:
    (A) For passenger automobiles with a footprint of less than or 
equal to 41 square feet, the gram/mile CO2 target value 
shall be selected for the appropriate model year from the following 
table:

                Table 1 to Sec.   86.1818-12(c)(2)(i)(A)
------------------------------------------------------------------------
                                                            CO2 target
                       Model year                          value (grams/
                                                               mile)
------------------------------------------------------------------------
2012....................................................           244.0
2013....................................................           237.0
2014....................................................           228.0
2015....................................................           217.0
2016....................................................           206.0
2017....................................................           195.0
2018....................................................           185.0
2019....................................................           175.0
2020....................................................           166.0
2021....................................................           161.8
2022....................................................           159.0
2023....................................................           145.6
2024....................................................           138.6
2025....................................................           130.5
2026 and later..........................................           114.3
------------------------------------------------------------------------

    (B) For passenger automobiles with a footprint of greater than 56 
square feet, the gram/mile CO2 target value shall be 
selected for the appropriate model year from the following table:

                Table 2 to Sec.   86.1818-12(c)(2)(i)(B)
------------------------------------------------------------------------
                                                            CO2 target
                       Model year                          value (grams/
                                                               mile)
------------------------------------------------------------------------
2012....................................................           315.0
2013....................................................           307.0
2014....................................................           299.0
2015....................................................           288.0
2016....................................................           277.0
2017....................................................           263.0
2018....................................................           250.0
2019....................................................           238.0
2020....................................................           226.0
2021....................................................           220.9
2022....................................................           217.3
2023....................................................           199.1
2024....................................................           189.5
2025....................................................           179.4
2026 and later..........................................           160.9
------------------------------------------------------------------------

    (C) For passenger automobiles with a footprint that is greater than 
41 square feet and less than or equal to 56 square feet, the gram/mile 
CO2 target value shall be calculated using the following 
equation and rounded to the nearest 0.1 gram/mile:

Target CO2 = [a x f] + b

Where:

f is the vehicle footprint, as defined in Sec.  86.1803; and a and b 
are selected from the following table for the appropriate model 
year:

                Table 3 to Sec.   86.1818-12(c)(2)(i)(C)
------------------------------------------------------------------------
                      Model year                           A        B
------------------------------------------------------------------------
2012..................................................     4.72     50.5
2013..................................................     4.72     43.3
2014..................................................     4.72     34.8
2015..................................................     4.72     23.4
2016..................................................     4.72     12.7
2017..................................................     4.53      8.9
2018..................................................     4.35      6.5
2019..................................................     4.17      4.2
2020..................................................     4.01      1.9
2021..................................................     3.94      0.2
2022..................................................     3.88     -0.1
2023..................................................     3.56     -0.4
2024..................................................     3.39     -0.4
2025..................................................     3.26     -3.2
2026 and later........................................     3.11    -13.1
------------------------------------------------------------------------

* * * * *
    (3) * * *
    (i) Calculation of CO2 target values for light trucks. A 
CO2 target value shall be determined for each light truck as 
follows:
    (A) For light trucks with a footprint of less than or equal to 41 
square feet, the gram/mile CO2 target value shall be 
selected for the appropriate model year from the following table:

                Table 4 to Sec.   86.1818-12(c)(3)(i)(A)
------------------------------------------------------------------------
                                                            CO2 target
                       Model year                          value (grams/
                                                               mile)
------------------------------------------------------------------------
2012....................................................           294.0
2013....................................................           284.0
2014....................................................           275.0
2015....................................................           261.0
2016....................................................           247.0
2017....................................................           238.0
2018....................................................           227.0
2019....................................................           220.0
2020....................................................           212.0
2021....................................................           206.5
2022....................................................           203.0
2023....................................................           181.1
2024....................................................           172.1
2025....................................................           159.3
2026 and later..........................................           141.8
------------------------------------------------------------------------

    (B) For light trucks with a footprint that is greater than 41 
square feet and less than or equal to the maximum footprint value 
specified in the table below for each model year, the gram/mile 
CO2 target value shall be calculated using the following 
equation and rounded to the nearest 0.1 gram/mile, except as specified 
in paragraph (c)(3)(i)(D) of this section:

Target CO2 = (a x f) + b

Where:

f is the footprint, as defined in Sec.  86.1803; and a and b are 
selected from the following table for the appropriate model year:

[[Page 74523]]

                                    Table 5 to Sec.   86.1818-12(c)(3)(i)(B)
----------------------------------------------------------------------------------------------------------------
                                                                      Maximum
                           Model year                                footprint           A               B
----------------------------------------------------------------------------------------------------------------
2012............................................................            66.0            4.04           128.6
2013............................................................            66.0            4.04           118.7
2014............................................................            66.0            4.04           109.4
2015............................................................            66.0            4.04            95.1
2016............................................................            66.0            4.04            81.1
2017............................................................            50.7            4.87            38.3
2018............................................................            60.2            4.76            31.6
2019............................................................            66.4            4.68            27.7
2020............................................................            68.3            4.57            24.6
2021............................................................            68.3            4.51            21.5
2022............................................................            68.3            4.44            20.6
2023............................................................            74.0            3.97            18.4
2024............................................................            74.0            3.77            17.4
2025............................................................            74.0            3.58            12.5
2026 and later..................................................            74.0            3.41             1.9
----------------------------------------------------------------------------------------------------------------

    (C) For light trucks with a footprint that is greater than the 
minimum footprint value specified in the table below and less than or 
equal to the maximum footprint value specified in the table below for 
each model year, the gram/mile CO2 target value shall be 
calculated using the following equation and rounded to the nearest 0.1 
gram/mile, except as specified in paragraph (c)(3)(i)(D) of this 
section:

Target CO2 = (a x f) + b

Where:

f is the footprint, as defined in Sec.  86.1803; and a and b are 
selected from the following table for the appropriate model year:

                                    Table 6 to Sec.   86.1818-12(c)(3)(i)(C)
----------------------------------------------------------------------------------------------------------------
                                                      Minimum         Maximum
                   Model year                        footprint       footprint           A               b
----------------------------------------------------------------------------------------------------------------
2017............................................            50.7            66.0            4.04            80.5
2018............................................            60.2            66.0            4.04            75.0
----------------------------------------------------------------------------------------------------------------

    (D) For light trucks with a footprint greater than the minimum 
value specified in the table below for each model year, the gram/mile 
CO2 target value shall be selected for the appropriate model 
year from the following table:

                Table 7 to Sec.   86.1818-12(c)(3)(i)(D)
------------------------------------------------------------------------
                                                            CO2 target
               Model year                     Minimum      value (grams/
                                             footprint         mile)
------------------------------------------------------------------------
2012....................................            66.0           395.0
2013....................................            66.0           385.0
2014....................................            66.0           376.0
2015....................................            66.0           362.0
2016....................................            66.0           348.0
2017....................................            66.0           347.0
2018....................................            66.0           342.0
2019....................................            66.4           339.0
2020....................................            68.3           337.0
2021....................................            68.3           329.4
2022....................................            68.3           324.1
2023....................................            74.0           312.1
2024....................................            74.0           296.5
2025....................................            74.0           277.4
2026 and later..........................            74.0           254.4
------------------------------------------------------------------------

* * * * *
    (e) * * *
    (3) * * *
    (ii) * * *
    (A) The alternative compliance schedule is as described in this 
paragraph (e)(3)(ii)(A). In lieu of the standards in paragraph (c) of 
this section that would otherwise be applicable to the model year shown 
in the first column of table 8 to Sec.  86.1818-12(e)(3)(ii)(A), a 
qualifying manufacturer may comply with the standards in paragraph (c) 
of this section determined for the model year shown in the second 
column of the table. In the 2021 and later model years the manufacturer 
must meet the standards designated for each model year in paragraph (c) 
of this section.

[[Page 74524]]

Table 8 to Sec.  86.1818-12(e)(3)(ii)(A) follows:

                Table 8 to Sec.   86.1818-12(e)(3)(ii)(A)
------------------------------------------------------------------------
                                                            Applicable
                       Model year                            standards
------------------------------------------------------------------------
2017....................................................            2016
2018....................................................            2016
2019....................................................            2018
2020....................................................            2019
------------------------------------------------------------------------

* * * * *

0
5. Amend Sec.  86.1865-12 by revising paragraphs (k)(2), (3), and (6) 
to read as follows:

Sec.  86.1865-12  How to comply with the fleet average CO2 standards.

* * * * *
    (k) * * *
    (2) There are no property rights associated with CO2 
credits generated under this subpart. Credits are a limited 
authorization to emit the designated amount of emissions. Nothing in 
this part or any other provision of law shall be construed to limit 
EPA's authority to terminate or limit this authorization through a 
rulemaking.
    (3) Each manufacturer must comply with the reporting and 
recordkeeping requirements of paragraph (l) of this section for 
CO2 credits, including early credits. The averaging, banking 
and trading program is enforceable as provided in paragraphs 
(k)(7)(ii), (k)(9)(iii), and (l)(1)(vi) of this section through the 
certificate of conformity that allows the manufacturer to introduce any 
regulated vehicles into U.S. commerce.
* * * * *
    (6) Unused CO2 credits generally retain their full value 
through five model years after the model year in which they were 
generated; credits remaining at the end of the fifth model year after 
the model year in which they were generated may not be used to 
demonstrate compliance for later model years. However, in the case of 
model year 2017 and 2018 passenger cars and light trucks, unused 
CO2 credits retain their full value through six model years 
after the year in which they were generated.
* * * * *

0
6. Amend Sec.  86.1866-12 by revising the section heading and paragraph 
(b) and adding paragraph (c)(3) to read as follows:

Sec.  86.1866-12  CO2 credits for advanced technology vehicles.

* * * * *
    (b) For electric vehicles, plug-in hybrid electric vehicles, fuel 
cell vehicles, dedicated natural gas vehicles, and dual-fuel natural 
gas vehicles as those terms are defined in Sec.  86.1803-01, that are 
certified and produced for U.S. sale in the specified model years and 
that meet the additional specifications in this section, the 
manufacturer may use the production multipliers in this paragraph (b) 
when determining additional credits for advanced technology vehicles. 
Full size pickup trucks eligible for and using a production multiplier 
are not eligible for the strong hybrid-based credits described in Sec.  
86.1870-12(a)(2) or the performance-based credits described in Sec.  
86.1870-12(b).
    (1) The following production multipliers apply for model year 2017 
through 2025 vehicles:

                                           Table 1 to Paragraph (b)(1)
----------------------------------------------------------------------------------------------------------------
                                                                     Electric                      Dedicated and
                                                                   vehicles and   Plug-in hybrid     dual-fuel
                           Model year                                fuel cell       electric       natural gas
                                                                     vehicles        vehicles        vehicles
----------------------------------------------------------------------------------------------------------------
2017............................................................             2.0             1.6             1.6
2018............................................................             2.0             1.6             1.6
2019............................................................             2.0             1.6             1.6
2020............................................................            1.75            1.45            1.45
2021............................................................             1.5             1.3             1.3
2022............................................................  ..............  ..............             2.0
2023-2024.......................................................             1.5             1.3  ..............
----------------------------------------------------------------------------------------------------------------

    (2) The minimum all-electric driving range that a plug-in hybrid 
electric vehicle must have in order to qualify for use of a production 
multiplier is 10.2 miles on its nominal storage capacity of electricity 
when operated on the highway fuel economy test cycle. Alternatively, a 
plug-in hybrid electric vehicle may qualify for use of a production 
multiplier by having an equivalent all-electric driving range greater 
than or equal to 10.2 miles during its actual charge-depleting range as 
measured on the highway fuel economy test cycle and tested according to 
the requirements of SAE J1711 (incorporated by reference in Sec.  
86.1). The equivalent all-electric range of a PHEV is determined from 
the following formula:

EAER = RCDA x (CO2CS - CO2CD/
CO2CS)

Where:

EAER = the equivalent all-electric range attributed to charge-
depleting operation of a plug-in hybrid electric vehicle on the 
highway fuel economy test cycle.
RCDA = The actual charge-depleting range determined 
according to SAE J1711 (incorporated by reference in Sec.  86.1).
CO2CS = The charge-sustaining CO2 emissions in 
grams per mile on the highway fuel economy test determined according 
to SAE J1711 (incorporated by reference in Sec.  86.1).
CO2CD = The charge-depleting CO2 emissions in 
grams per mile on the highway fuel economy test determined according 
to SAE J1711 (incorporated by reference in Sec.  86.1).
    (3) The actual production of qualifying vehicles may be multiplied 
by the applicable value according to the model year, and the result, 
rounded to the nearest whole number, may be used to represent the 
production of qualifying vehicles when calculating average carbon-
related exhaust emissions under Sec.  600.512 of this chapter.
    (c) * * *
    (3) Multiplier-based credits for model years 2022 through 2025 may 
not exceed credit caps, as follows:
    (i) Calculate a nominal annual credit cap in Mg using the following 
equation, rounded to the nearest whole number:

[GRAPHIC] [TIFF OMITTED] TR30DE21.005

[[Page 74525]]

Where:

Pauto = total number of certified passenger automobiles the 
manufacturer produced in a given model year for sale in any state or 
territory of the United States.
Ptruck = total number of certified light trucks (including MDPV) the 
manufacturer produced in a given model year for sale in any state or 
territory of the United States.

    (ii) Calculate an annual g/mile equivalent value for the 
multiplier-based credits using the following equation, rounded to the 
nearest 0.1 g/mile:

[GRAPHIC] [TIFF OMITTED] TR30DE21.006

Where:

annual credits = a manufacturer's total multiplier-based credits in 
a given model year from all passenger automobiles and light trucks 
as calculated under this paragraph (c).

    (iii) Calculate a cumulative g/mile equivalent value for the 
multiplier-based credits in 2022 through 2025 by adding the annual g/
mile equivalent values calculated under paragraph (c)(3)(ii) of this 
section.
    (iv) The cumulative g/mile equivalent value may not exceed 10.0 in 
any year.
    (v) The annual credit report must include for every model year from 
2022 through 2025, as applicable, the calculated values for the nominal 
annual credit cap in Mg and the cumulative g/mile equivalent value.

0
7. Revise the section heading for Sec.  86.1867-12 to read as follows:

Sec.  86.1867-12  CO2 credits for reducing leakage of air conditioning 
refrigerant.

* * * * *

0
8. Amend Sec.  86.1869-12 by revising paragraphs (b)(2) and (b)(4)(v), 
(vi), and (x) and (d)(2)(ii)(A) to read as follows:

Sec.  86.1869-12   CO2 credits for off-cycle CO2 reducing technologies.

* * * * *
    (b) * * *
    (2) The maximum allowable decrease in the manufacturer's combined 
passenger automobile and light truck fleet average CO2 
emissions attributable to use of the default credit values in paragraph 
(b)(1) of this section is 15 g/mi for model years 2023 through 2026 and 
10 g/mi in all other model years. If the total of the CO2 g/
mi credit values from paragraph (b)(1) of this section does not exceed 
10 or 15 g/mi (as applicable) for any passenger automobile or light 
truck in a manufacturer's fleet, then the total off-cycle credits may 
be calculated according to paragraph (f) of this section. If the total 
of the CO2 g/mi credit values from paragraph (b)(1) of this 
section exceeds 10 or 15 g/mi (as applicable) for any passenger 
automobile or light truck in a manufacturer's fleet, then the gram per 
mile decrease for the combined passenger automobile and light truck 
fleet must be determined according to paragraph (b)(2)(ii) of this 
section to determine whether the applicable limitation has been 
exceeded.
    (i) Determine the gram per mile decrease for the combined passenger 
automobile and light truck fleet using the following formula:

[GRAPHIC] [TIFF OMITTED] TR30DE21.007

Where:

Credits = The total of passenger automobile and light truck credits, 
in Megagrams, determined according to paragraph (f) of this section 
and limited to those credits accrued by using the default gram per 
mile values in paragraph (b)(1) of this section.
ProdC = The number of passenger automobiles produced by 
the manufacturer and delivered for sale in the U.S.
ProdT = The number of light trucks produced by the 
manufacturer and delivered for sale in the U.S.

    (ii) If the value determined in paragraph (b)(2)(i) of this section 
is greater than 10 or 15 grams per mile (as applicable), the total 
credits, in Megagrams, that may be accrued by a manufacturer using the 
default gram per mile values in paragraph (b)(1) of this section shall 
be determined using the following formula:

[GRAPHIC] [TIFF OMITTED] TR30DE21.008

Where:

ProdC = The number of passenger automobiles produced by 
the manufacturer and delivered for sale in the U.S.
ProdT = The number of light trucks produced by the 
manufacturer and delivered for sale in the U.S.

    (iii) If the value determined in paragraph (b)(2)(i) of this 
section is not greater than 10 or 15 grams per mile (as applicable), 
then the credits that may be accrued by a manufacturer using the 
default gram per mile values in paragraph (b)(1) of this section do not 
exceed the allowable limit, and total credits may be determined for 
each category of vehicles according to paragraph (f) of this section.
    (iv) If the value determined in paragraph (b)(2)(i) of this section 
is greater than 10 or 15 grams per mile (as applicable), then the 
combined passenger automobile and light truck credits, in Megagrams, 
that may be accrued using the calculations in paragraph (f) of this 
section must not exceed the value determined in paragraph (b)(2)(ii) of 
this section. This limitation should generally be done by reducing the 
amount of credits attributable to the vehicle category that caused the 
limit to be exceeded such that the total value does not exceed the 
value determined in paragraph (b)(2)(ii) of this section.
* * * * *
    (4) * * *
    (v) Active transmission warm-up means one of the following:
    (A) Through model year 2022, active transmission warm-up means a 
system that uses waste heat from the vehicle to

[[Page 74526]]

quickly warm the transmission fluid to an operating temperature range 
using a heat exchanger, increasing the overall transmission efficiency 
by reducing parasitic losses associated with the transmission fluid, 
such as losses related to friction and fluid viscosity.
    (B) Starting in model year 2023, active transmission warm-up means 
a system that uses waste heat from the vehicle's exhaust to warm the 
transmission fluid to an operating temperature range using a dedicated 
heat exchanger. Active transmission warm-up may also include coolant 
systems that capture heat from a liquid-cooled exhaust manifold if the 
coolant loop to the transmission heat exchanger is not shared with 
other heat-extracting systems and it starts heat transfer to the 
transmission fluid immediately after engine starting, consistent with 
designs that exchange heat directly from exhaust gases to the 
transmission fluid.
    (vi) Active engine warm-up means one of the following:
    (A) Through model year 2022, active engine warm-up means a system 
that uses waste heat from the vehicle to warm up targeted parts of the 
engine so it reduces engine friction losses and enables closed-loop 
fuel control to start sooner.
    (B) Starting in model year 2023, active engine warm-up means a 
system that uses waste heat from the vehicle's exhaust to warm up 
targeted parts of the engine so it reduces engine friction losses and 
enables closed-loop fuel control to start sooner. Active engine warm-up 
may also include coolant systems that capture heat from a liquid-cooled 
exhaust manifold.
* * * * *
    (x) Passive cabin ventilation means one of the following:
    (A) Through model year 2022, passive cabin ventilation means ducts, 
devices, or methods that utilize convective airflow to move heated air 
from the cabin interior to the exterior of the vehicle.
    (B) Starting in model year 2023, passive cabin ventilation means 
methods that create and maintain convective airflow through the body's 
cabin by keeping windows or sunroof open to prevent excessive interior 
temperatures when the vehicle is parked outside in direct sunlight.
* * * * *
    (d) * * *
    (2) * * *
    (ii) * * *
    (A) A citation to the appropriate previously approved methodology, 
including the appropriate Federal Register Notice and any subsequent 
EPA documentation of the Administrator's decision;
* * * * *

0
9. Amend Sec.  86.1870-12 by revising the section heading and 
paragraphs (a)(2) and (b)(2) to read as follows:

Sec.  86.1870-12  CO2 credits for qualifying full-size pickup trucks.

* * * * *
    (a) * * *
    (2) Full-size pickup trucks that are strong hybrid electric 
vehicles and that are produced in 2017 through 2021 model years are 
eligible for a credit of 20 grams/mile. This same credit is available 
again for those vehicles produced in 2023 and 2024 model years. To 
receive this credit in a model year, the manufacturer must produce a 
quantity of strong hybrid electric full-size pickup trucks such that 
the proportion of production of such vehicles, when compared to the 
manufacturer's total production of full-size pickup trucks, is not less 
than 10 percent in that model year. Full-size pickup trucks earning 
credits under this paragraph (a)(2) may not earn credits based on the 
production multipliers described in Sec.  86.1866-12(b).
* * * * *
    (b) * * *
    (2) Full-size pickup trucks that are produced in 2017 through 2021 
model years and that achieve carbon-related exhaust emissions less than 
or equal to the applicable target value determined in Sec.  86.1818-
12(c)(3) multiplied by 0.80 (rounded to the nearest gram/mile) in a 
model year are eligible for a credit of 20 grams/mile. This same credit 
is available again for qualifying vehicles produced in 2023 and 2024 
model years. A pickup truck that qualifies for this credit in a model 
year may claim this credit for a maximum of four subsequent model years 
(a total of five consecutive model years) if the carbon-related exhaust 
emissions of that pickup truck do not increase relative to the 
emissions in the model year in which the pickup truck first qualified 
for the credit. This credit may not be claimed in model year 2022 or in 
any model year after 2024. To qualify for this credit in a model year, 
the manufacturer must produce a quantity of full-size pickup trucks 
that meet the emission requirements of this paragraph (b)(2) such that 
the proportion of production of such vehicles, when compared to the 
manufacturer's total production of full-size pickup trucks, is not less 
than 10 percent in that model year. A pickup truck that qualifies for 
this credit in a model year and is subject to a major redesign in a 
subsequent model year such that it qualifies for the credit in the 
model year of the redesign may be allowed to qualify for an additional 
five years with EPA approval (not to go beyond the 2024 model year). 
Use good engineering judgment to determine whether a pickup truck has 
been subject to a major redesign.
* * * * *

PART 600--FUEL ECONOMY AND GREENHOUSE GAS EXHAUST EMISSIONS OF 
MOTOR VEHICLES

0
10. The authority citation for part 600 continues to read as follows:

    Authority: 49 U.S.C. 32901-23919q, Pub. L. 109-58.

0
11. Amend Sec.  600.510-12 by revising paragraphs (j)(2)(v) 
introductory text and (j)(2)(vii)(A) introductory text to read as 
follows:

Sec.  600.510-12  Calculation of average fuel economy and average 
carbon-related exhaust emissions.

* * * * *
    (j) * * *
    (2) * * *
    (v) For natural gas dual fuel model types, for model years 2012 
through 2015, the arithmetic average of the following two terms; the 
result rounded to the nearest gram per mile:
* * * * *
    (vii)(A) This paragraph (j)(2)(vii) applies to model year 2016 and 
later natural gas dual fuel model types. Model year 2021 and later 
natural gas dual fuel model types may use a utility factor of 0.5 or 
the utility factor prescribed in this paragraph (j)(2)(vii).
* * * * *
[FR Doc. 2021-27854 Filed 12-29-21; 8:45 am]
BILLING CODE 6560-50-P